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https://www.courtlistener.com/api/rest/v3/opinions/1534914/ | 231 A.2d 463 (1967)
The EXECUTIVE COUNCIL OF the PROTESTANT EPISCOPAL CHURCH IN the DIOCESE OF DELAWARE, INC., a Delaware corporation, Plaintiff,
v.
Robert A. MOSS et al., Defendants.
Court of Chancery of Delaware, New Castle.
June 30, 1967.
*464 William S. Potter and Richard L. McMahon, of Berl, Potter & Anderson, Wilmington, for plaintiff.
Donald C. Taylor and Robert W. Crowe, of Cooch & Taylor, Wilmington, for defendants (except the Attorney General).
DUFFY, Chancellor.
In this case judicial instructions are sought as to a bequest of $500,000 under the will of Ann B. duPont. Plaintiff is The Executive Council of the Protestant Episcopal Church in the Diocese of Delaware, Inc., a Delaware corporation ("Council"). Defendants are the Standing Committee of the Protestant Episcopal Church of the Diocese of Delaware and individual members of the Committee[1] ("Committee").
A statement of facts was settled upon, and thereafter both the Council and the Committee moved for summary judgment. This is the decision thereon.
I
In 1952 Ann B. duPont, then a Delaware resident and the widow of Alexis Felix duPont, gave her home in Rehoboth Beach to the Council. The deed conveyed the property, now known as "Memorial House," in fee simple without recital of purpose or conditions. As to the purpose of the gift, the then Bishop of the Diocese, Arthur R. McKinstry, states that:
"* * * Mrs. duPont agreed to convey the Rehoboth house to the Diocese, to be used by me and others for a conference center. * * *"
In 1963 Mrs. duPont died testate and a resident of New York. She left a will dated January 20, 1958 which provides in part:
"I give and bequeath to The Executive Council of the Protestant Episcopal Church of the Diocese of Delaware the sum of Five hundred thousand Dollars ($500,000) for the maintenance and care of, and the operations carried on in the property known as `Memorial House', at 56 Oak Avenue, Rehoboth, Delaware, which I have heretofore given to said Executive Council, the expenditures for such maintenance, care and operation to be as the Bishop and Standing Committee of said Diocese shall determine in their discretion."
The will was probated in New York, and on October 11, 1963 the sum of $500,000 was distributed to the Council.
The Memorial House has been and is being used by the Diocese for a conference center. The principal of the legacy, which has not been invaded, produces an average yearly income of $18,000, of which some $13,000 is spent for operations in and the care of Memorial House. The balance of income has been accumulated.
The Council is charged by the Constitution and Canons of the Diocese of Delaware with responsibility for furthering the objectives of the Church and of serving as *465 its principal executive body. Article X of the Constitution provides:
"The Executive Council of the Diocese may be incorporated for the purpose of taking charge of the unification, development and prosecution of the missionary work, church extension, religious education and Christian social service of the Diocese and such other matters as may be committed to it by the Diocese."
Pursuant to this provision, the Council was incorporated in Delaware as a non-profit, non-stock corporation whose governing body consists of the Bishop and eighteen members elected by the Convention of the Diocese. Its powers are restricted by its charter to the above-stated religious purposes.
The Council has delivered the bequest to the Trustees of the Protestant Episcopal Church of the Diocese of Delaware for investment along with other Church funds. The Trustees are charged with the administration of many of the fiscal affairs of the Church. The Trustees pay income from the bequest to the Council for "disbursement according to the terms of the will."
The Committee is empowered to deal only with ecclesiastical matters as distinguished from temporal matters. For this reason the Committee, by appropriate resolution, has delegated its responsibilities under the will to the Bishop and the Council.
Except for the documents to which I have referred, a statement by Bishop McKinstry provides the only record indication of Mrs. duPont's intentions in making the bequest. He says:
"When Mrs. duPont agreed to convey the Rehoboth house to the Diocese, to be used by me and others for a conference center I raised the question of repairs and maintenance with her. I said that I would want the property kept up in accordance with her standards. I asked about the possibility of an endowment; the income going to repairs and maintenance. Mrs. duPont replied that she felt that she could do nothing at that time. However, she promised to include something in her will for this purpose.
"When I retired Bishop Mosley spoke to me about the need of money to use for repairs and maintenance. I told him what Mrs. duPont had said about leaving a gift in her will. The Bishop was hard pressed for funds, then! * * * Again she said to me `I have left a sum of money in my will for the repairs and maintenance of Memorial House'."
In a 1954 will Mrs. duPont left a bequest of $100,000 for these purposes and that sum was increased to $500,000, first by a 1957 codicil and again by the 1958 will.
* * * * * *
As argued in the briefs, the bequest, analytically, falls into one of three possible categories: a gift in trust, an absolute gift, or a gift on condition.
II
Since Mrs. duPont died a resident of New York and the bequest was distributed to a Delaware corporation and is to be administered here, choice of law is a threshold question.
The validity and nature of a bequest are determined by the law of a testator's domicile,[2] but the administration and the enforcement of any conditions attached to that bequest are governed by the law of the state where the bequest is administered, i. e., where the conditions must be enforced.[3] In Equitable Trust Co. v. Ward, 29 Del. Ch. 206, 48 A.2d 519 (1946), the Chancellor commented on both facets of that matter, saying (at 48 A.2d 526):
"The formal validity of a will, disposing of personal property, is always governed by the law of the testator's domicile *466 at the time of his death. * * * Unless a contrary intent appears, the essential validity of a bequest of personal property, whether in trust or otherwise, is governed by the same rule."
And as to the administration question, he said:
"* * * Ordinarily, in such cases the question of state policy is only a matter of legitimate interest in the jurisdiction in which the bequest is to be held and administered."
By this test, then, the nature of the bequest is to be determined by looking to the law of New York, and once that is settled upon, the use of the bequest and how it is to be administered is to be determined by the law of Delaware.
III
It is abundantly clear that the bequest does not create a trust. While formal and technical trust language is not essential for the creation of a trust, the point is that neither words nor phrases of that kind appear in the bequest to the Council. And yet Mr. duPont's will and a codicil run to 23 pages, all of which show careful professional draftsmanship, and these include trusts created by the use of formal language and style. In short, I am satisfied that Mrs. duPont, with the help of her advisers, knew how to create a trust of the bequest to the Council, had she desired to do so.
From a technical point of view, it is established New York law that a trust does not arise from a gift wherein the trustee and the beneficiary are one and the same entity. In re Mauser's Estate, Sur., 151 N.Y.S.2d 993 (1956); In re Heffron's Will, 2 A.D.2d 466, 156 N.Y.S.2d 779 (1956). Here the bequest is to the Council to be applied by it for the maintenance and care of (and the operations carried on in) Memorial House which it owns. Hence, it is the beneficial as well as the legal owner of the fund. Under Mauser that precludes the creation of a trust. Compare Fulweiler v. Spruance, Del.Ch., 222 A.2d 555 (1966).
It is also worth noting that decisions in New York clearly reflect a strong prejudice by the courts of that State against finding that a charitable gift creates a trust.[4] St. Joseph's Hospital v. Bennett, 281 N.Y. 115, 22 N.E.2d 305, 307, 130 A.L. R. 1092 (1939). See also Wetmore v. Parker, 52 N.Y. 450 (1873).
Tested, then, by the law of New York, and measured by the explicit language here involved, it is clear that Mrs. duPont's bequest to the Council was not given upon a trust as the civil law uses that term.
IV
I turn now to the question as to whether Mrs. duPont's bequest was an absolute gift, or a gift on condition. It is argued by the Council that she did not intend to create a defeasible interest or conditional gift (except as limited by its general corporate purposes). The Committee contends that she did. The issue is thus drawn over whether the gift is with or without conditions. And, as indicated above, since this question is directed toward the essential nature of the gift, it must be examined under New York law.
The Council argues that the bequest is $500,000 and that the language which follows is a mere expression of purpose. It points out that Mrs. duPont knew the Council owned the Rehoboth property outright, and that it could dispose of such property at will; and, knowing this, Mrs. duPont did not provide in any way for a gift over and she must therefore have intended to make the gift an absolute one.
*467 The New York opinions I have read make it quite clear that under established law in that State an instrument will rarely be construed as imposing a condition unless there is a provision for reverter of the property. Thus in In re Saulpaugh's Will, 15 Misc. 2d 856, 180 N.Y.S.2d 623 (1958), the Court held that a devise of realty "to be used as a Veteran's Home" was precatory and the recipient took a gift absolute in the absence of a provision for reentry or reverter. The approach of the New York Courts is perhaps best illustrated by the following language from IV Scott on Trusts (2 ed.) § 401.2 which is quoted in a number of the cases:
"The mere fact that it is provided in the instrument that the property shall be applied `forever' to certain charitable purposes or for such purposes `and no other purposes', does not manifest an intention on the part of the testator to create a condition. Even though it is provided in the instrument that the property is given `upon conditions' that it is to be applied to certain purposes, this does not necessarily manifest an intention to create a condition. Unless there is a provision for the reverter of the property the instrument will rarely be construed as imposing a condition."
See, for example, Smith v. Incorporated Village of Patchogue, Sup., 129 N.Y.S.2d 422, aff'd 285 A.D. 1190, 141 N.Y.S.2d 244 (1955).
In Mrs. duPont's bequest to the Council there is not, expressly or indeed by implication of any kind, a provision for reverter or forfeiture of the fund under any condition. And the surrounding circumstances are likewise barren of any indicated intent, however remote, to have the bequest or its residue recaptured for the benefit of any other beneficiary. Hence, it is quite clear that under New York law the bequest to the Council is absolute.
To say this is to hold that the gift is not a defeasible one. It is not to say that the gift is without limitation of any kind and that the Council is free to apply it for its general corporate purposes. On the contrary, both the New York and Delaware decisions enforce the "purpose" provisions in a gift such as this.
In St. Joseph's Hospital v. Bennett, supra, the Court held that a bequest "to be held as an endowment fund and the income used for the ordinary expenses of maintenance" did not create a trust but "The gift and the statement of its purpose cannot be separated, one from the other. * * * Though these words may not avail to create a legal trust, they furnish a direction and restriction upon the use of the gift." The Court concluded that the charitable corporation could not receive a gift made for one purpose and use it for another (unless the Court applying cy pres, so commands). In re Mauser's Estate, supra, is to the same effect. And decisions in this State implicitly recognize that gifts to a charitable corporation can be made upon express limitations and conditions. See, for example, Denckla v. Independence Foundation, 41 Del. Ch. 247, 193 A.2d 538 (1963); and Hanover St. Presbyterian Church v. Buckson, Del.Ch., 210 A.2d 190 (1965), in which Chancellor Seitz said:
"There is no question in Delaware of the right or power of a person to leave money to a charitable corporation outright, as a gift subject to a condition, or in trust * * *."
Compare Delaware Trust Co. v. FitzMaurice, 27 Del. Ch. 101, 31 A.2d 383 (1943). What purposes or conditions, if any, are applicable here?
V
We seek what Page has called the testatrix's "subjective intent". 4 Page on Wills § 30.1.
In the bequest Mrs. duPont gave a fixed amount, $500,000, to the Council. And she followed this by saying, "for the maintenance and care of, and the operations carried on in the property known as `Memorial *468 House'." The purpose for the bequest was thus spelled out: maintenance, care and operations. And the property to which this purpose was directed was specifically identified: the Rehoboth property. And it was further identified by its name (Memorial House), by its address (56 Oak Avenue), and by identifying it as property she had given. And thereafter Mrs. duPont indicated again by repetition the objective she had in making the gift: maintenance, care and operations. In the light of this language, which in my judgment made her purpose crystal clear as far as it went, the Court cannot say that the gift was merely for the Council's general purposes and was unrelated to the Rehoboth property. As in St. Joseph's Hospital, the words furnish a direction and purpose as to the use of the gift. Compare Trustees of Peninsula Ann. Conf. v. New York E. A. Con., Del.Ch., 211 A.2d 588 (1965).
As thus specified in Mrs. duPont's will, the purposes of the bequest are broad indeed. The "sum" may be used for the "maintenance and care of, and the operations carried on in, the property known as `Memorial House'." Within the four corners of this language there are no restrictions of any kind. While Mrs. duPont may have wanted to provide for maintenance and care of the property as long as the Diocese owned it, she did not so specify in this bequest.
I recognize that Mrs. duPont had been asked to maintain "Memorial House" and she had been asked about the possibility of an endowment. She promised to include something in her will for this purpose and later said that she had provided in that way "for the repairs and maintenance of Memorial House." But her will actually includes two significant additions to this language. First, she added "operations carried on in" Memorial House to the purpose of the gift. And, second, she directed that expenditures for all purposes be made at the discretion of the Bishop and the Standing Committee.
I therefore conclude that while the preservation of the bequest to provide for repairs and maintenance of the property while the Council owns it may be highly desirable, Mrs. duPont did not make this either a condition of her gift or a directed application of it. Instead, she left this entire matter to the good judgment of the Bishop and the Standing Committee as they "determine in their discretion."
It follows, then, that the bequest to the Council is absolute but it must be applied by the Council for maintenance and care of, and the operations carried on in, Memorial House; the Bishop and the Standing Committee determine, in their discretion, how and when and in what way such expenditures are made.
VI
As part of the request for instructions, the parties have by stipulation asked seventeen specific questions, the answers to sixteen of which are provided in an unpublished addendum to this opinion. Such answers are, of course, based in large measure upon the formulations and conclusions recited herein.
As to the seventeenth question, it reads as follows:
"If the property known as the `Memorial House' should be sold, what would be the duties and obligations of the parties hereto in regard to the fund received by Plaintiff under the terms of the Will of Ann B. duPont?"
I decline to answer this question at this time because, on the present record, it is an academic inquiry and may remain so. There is nothing here to indicate that the property is to be sold or, indeed, that any consideration is being given to its sale. In addition, it is also probable that cy pres has some application to the answer, and that doctrine has not been briefed by counsel.
NOTES
[1] The Attorney General is a defendant and in his answer contended that Mrs. duPont's bequest created a charitable trust but thereafter advised the Court that he had decided not to take a position on the issues.
[2] 16 Am.Jur.2d, Conflict of Laws § 67 2 Beale, Conflict of Laws, § 306.2.
[3] 2 Beale, Conflict of Laws, § 297.2.
[4] This arose out of judicial law which had invalidated certain charitable trusts on the ground that they violated the rule against perpetuities. Holmes v. Mead, 52 N.Y. 332 (1873). See 130 A.L.R. 1101, 1110. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1534932/ | 231 A.2d 789 (1967)
Richard P. SULLIVAN
v.
James F. HOEY, Jr.
Equity No. 3167.
Supreme Court of Rhode Island.
July 18, 1967.
Dick & Carty, Joseph B. Carty & Paul J. Pisano, for complainant.
Edward W. Day, Jr., for respondent.
OPINION
PAOLINO, Justice.
This is a bill in equity praying for a dissolution of two partnerships owned equally by the complainant and the respondent, and ancillary thereto, for an accounting of the affairs of each, the appointment of a receiver for both, and damages. Following a hearing on bill, answer and proof before a trial justice in the superior court, a decree was entered granting substantially all of the complainant's prayers. The case is before us on the respondent's appeal from such decree.
Under his reasons of appeal, respondent contends (1) that the decree is against the evidence and the weight thereof, and (2) that it is against the law in that it awards complainant the right to elect to receive one half of the profits from May 1, 1961, to the date of the entry of the decree. On the view which we take of this case, we do not reach either of these questions at this time. After examining the entire record we come to the conclusion that the instant appeal is premature. In the circumstances it will serve no useful purpose at this time to indulge in any detailed discussion of the evidence.
It will suffice merely to point out in a very general way that this controversy between two partners involves two separate partnerships organized by them in 1955 under the firm names of the Airadyne Company and Empire State Equipment Company, hereinafter referred to as "Airadyne" and "Empire," respectively. Sometime in 1959 differences of opinion arose between the partners and the situation became progressively worse until, by letter dated April 28, 1961, respondent notified complainant that he was terminating the Airadyne partnership. It appears that complainant received this letter on May 1, 1961. The respondent concededly never gave complainant any notice affecting the dissolution of Empire.
*790 During the period between 1959 and 1961, the partners, personally and with counsel, held conferences and carried on negotiations pertaining to the partnerships for the purpose of arriving at an amicable solution of their problems. These attempts were fruitless. In the meantime, respondent took certain actions pertaining to customers which had carried on business with Airadyne, which actions the trial justice found had constituted a violation of his fiduciary duties owed to the partnerships. These actions included the formation of Airadyne, Inc., a Massachusetts corporation, which thereafter secured business with various manufacturers who had previously carried on business with the Airadyne partnership.
Following the hearing the trial justice rendered a written rescript on November 27, 1962, in which he found, inter alia, that respondent violated his fiduciary duties to the partnerships prior to April 28, 1961, as well as on April 28, 1961; that he succeeded in terminating the Airadyne partnership on May 1, 1961; that he violated his fiduciary duties in forming Airadyne, Inc., without notice to complainant and in proceeding thereafter in picking up contracts with manufacturers who formerly had contracts with the partnerships; and that in view of the close business association between the two partnerships, he also violated his fiduciary duties to Empire.
In the circumstances, he concluded that by his actions respondent rendered himself liable for an accounting not only of the business of the partnerships prior to April 28, 1961, but thereafter until relieved by decree of court, and also to an accounting for half of the business of Airadyne, Inc., or other business conducted by him in any capacity with the manufacturers who had contracts with the Airadyne partnership on April 28, 1961. Accordingly, he ordered the parties to prepare a decree carrying out the objects specified therein, including the appointment of a permanent receiver for both partnerships and the appointment of a master to take an accounting.
Subsequently, in a supplementary rescript filed on January 8, 1963, the trial justice stated that
"In keeping with the philosophy of prior commitment to counsel that issues beyond those of routine accounting be retained by the Court and resolved by it without reference to a master, the Court itself will ascertain the value of the good will, if any, of the partnership."
The trial justice then expressly reaffirmed his prior rescript, as clarified in the January 8, 1963, rescript, and requested counsel to present a decree incorporating certain orders expressly set forth in such rescript.
On March 19, 1963, a decree was entered which incorporated the findings and conclusions of the trial justice and the orders based thereon.[1]
Although a master has been appointed, no accounting has taken place. Paragraph 7 in the decree provides that complainant shall be awarded the value of his interest in the partnerships as of the date of dissolution, and that such value is to be based on an accounting as of that date plus half the good will therein as of that date. And in accordance with the provisions of G.L. 1956, § 7-12-53, as amended, paragraph 8 provides that complainant shall elect whether to receive interest on any such award or profits found after May 1, 1961, as a result of the decreed accounting.
In the circumstances the value of any interest which complainant may have in any of the companies, or the value of any profits, cannot be determined at this time and the choice presented by § 7-12-53 is of no avail to complainant. Moreover, paragraph 12 provides that if an appeal be taken to this court, the superior court, after the accountings referred to in paragraphs 4 and *791 5 have been taken, shall conduct a hearing to determine the value of the good will of the respective partnerships as of May 1, 1961, as provided for in paragraph 6 of the decree.
Since there has been no accounting, and in view of the fact that the decree requires the superior court to pass on the question of the value, if any, of the good will of the partnerships as set forth in paragraph 6 of the decree, we hold that the instant appeal is premature.
For the reasons stated the appeal is denied and dismissed without prejudice, and the cause is remanded to the superior court for further proceedings.
Appendix A
"1. That the partnerships, Empire State Equipment Company and the Airadyne Company be confirmed as dissolved as of May 1, 1961.
"2. That Francis J. O'Brien, Esq. be appointed permanent receiver of both partnerships.
"3. Said Receiver, if the Court deems it necessary, shall proceed to have an ancillary receiver of the Airadyne Company partnership appointed in Massachusetts.
"4. A Master be appointed to take an accounting of the partnerships from a date agreed upon between the parties in this matter as being equitable, to wit: January 1, 1961 down to May 1, 1961, showing the state of the partnerships as of that date, excluding any consideration of good will. This agreement, as to the above equitable date, has been entered into between the parties on the basis of the Complainant. Richard P. Sullivan, forwarding to the Respondent, James F. Hoey, Jr., a letter providing that the sum of $1934.46 shall be considered as an obligation in this matter that shall be charged against the account of Richard P. Sullivan.
"5. That the Master so appointed shall also take an accounting of the partnerships from May 1, 1961 to December 1, 1962, including Airadyne, Inc., if there is no appeal taken to the Supreme Court in this matter. Such accounting to indicate the profits made by the partnerships, and Airadyne, Inc., subsequent to May 1, 1961. In the event that there be an appeal taken in this matter, then said accounting of the partnerships, including Airadyne, Inc. shall further be taken to indicate the profits, if any, made by the partnerships and Airadyne, Inc. up to and including such date as may be determined by the Supreme Court in this matter.
"6. The Court will fix the value, if any of the good will of the partnerships as of May 1, 1961, excluding therefrom any value inherent in contracts executory as of that date.
"7. The Complainant shall be awarded the value of his interest in the partnerships as of the date of dissolution, that value to be the result of accounting as of that date plus half the good will therein as of that date.
"8. Complainant shall elect whether to receive interest on any such award or profits found after May 1, 1961, as a result of the decreed accounting.
"9. Costs of suit, including master's fee, shall be paid three-fourths by Respondent and one-fourth by Complainant. This results from the fact that some accounting would have been necessary even if there had been no dereliction on the part of Respondent but that the extent of the accounting has been made greater by his actions.
"10. That Albert J. Hoban, Esq. is hereby designated as the Master-in-Chancery to take said accounting as herein provided.
"11. That said Master be and is hereby authorized and empowered to proceed *792 as expeditiously as possible with the accounting made and provided for in said Decree, even though there may be an appeal taken from said Decree to the Supreme Court.
"12. If an appeal be taken to the Supreme Court in this matter, this Court, after the accounting referred to in Paragraph 4 and 5 have been taken, shall conduct a hearing to determine the value of the good will of the respective partnerships, to wit: Airadyne Company and Empire State Equipment Company as of May 1, 1961 as made and provided for in Paragraph 6 of this Decree."
NOTES
[1] The orders incorporated in such decree are included herein as Appendix A. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535405/ | 212 B.R. 963 (1997)
In re Donald WEHRI and Norma Wehri, Debtors.
SECURITY BANK OF HEBRON, Plaintiff,
v.
Donald WEHRI and Norma Wehri, Defendants.
Bankruptcy No. 96-31644, Adversary No. 978-7016.
United States Bankruptcy Court, D. North Dakota.
September 9, 1997.
*964 Ross Espeseth, Bismarck, ND, for Plaintiff.
Sheldon Smith, Bismarck, ND, for Defendants.
Wayne Drewes, Fargo, ND, trustee.
MEMORANDUM AND ORDER
WILLIAM A. HILL, Bankruptcy Judge.
This matter is before the court on the Complaint of Security Bank of Hebron (Bank) seeking a determination that the unpaid balance of a 1995 consolidated term loan is nondischargeable under 11 U.S.C. §§ 523(a)(2)(A) and (a)(2)(B). The Bank also alleges that the Debtors converted property pledged as collateral for the loan and seeks a determination of nondischargeability premised upon 11 U.S.C. § 523(a)(6). The Debtors generally deny the allegations. Trial was held before the undersigned on August 14, *965 1997. From the evidence presented the court makes the following findings of fact and conclusions of law:
Findings of Fact
1.
Donald and Norma Wehri, the Debtors herein, own and reside upon 820 acres of farmland in Morton County, North Dakota. Their relationship with the Bank began in 1993 when they made three loans: a real estate loan, a chattel term loan, and an operating line of credit. Due to financial problems, the 1993 operating loan, as well as a 1994 loan, were consolidated and rolled into a term loan. By the spring of 1995, financial conditions had deteriorated to a point where the Bank was considering liquidating the term loan. The Wehris, however, were interested in continuing with farming and to that end were pursuing an FSA refinancing of the term loan. Believing their position would be taken by FSA, the Bank, on March 3, 1995, renewed the term loan in the principal amount of $122,374.50. On this date the Wehris signed two separate security agreements securing all debts. One was a blanket security agreement covering farm products, inventory, equipment, accounts, instruments and general intangibles. The other covered all crops and proceeds of crops grown upon their land. In connection with the 1995 loan, the Wehris gave the Bank a financial statement which the Bank believes omits outstanding debts to Donald Wehri's father-in-law and his uncle, from whom he purchased several items of farm equipment. The evidence surrounding the alleged omitted debts is somewhat confused, but is important, as it bears not only upon the accuracy of the financial statement but also upon the § 523(a)(6) cause of action.
Donald Wehri's father-in-law owned an OMC 15 ft. swather which the Wehris were interested in purchasing. According to Norma Wehri her father agreed to finance their purchase of the swather for $4,500, because they could not line up purchase money in 1994. He was given a security interest in the swather and it was depreciated on their 1995 tax return. Both Donald and Norma agree no payments were ever made to her father. Donald, however, testified it belonged to his father-in-law, while Norma, on the other hand, testified that they owned it. On a farm and home plan balance sheet prepared by the Wehris, and given to FSA in January 1995, there appears an outstanding balance of $4,500 due and owing on the swather and $3,200 due and owing on a tractor. The swather is also listed as an asset on the March financial statement.
The other debt alleged to have been omitted from the financial statement stems from a tractor Donald purchased from his uncle in 1994. On direct examination Donald stated he bought the tractor, but later stated that he only leased it. His uncle was nonetheless given a security interest in the tractor, and on the January farm and home plan there appears an outstanding debt of $3,200 owing on a tractor. Both the swather as well as the tractor were later sold at a 1996 machinery auction. The advertising bill for the auction listed the equipment to be sold, inclusive of the tractor and the swather, and clearly stated Donald and Norma Wehri to be the owners. From the weight of the evidence the court must conclude that both the swather and the tractor belong to the Wehris and that as of the date of the financial statement there was $4,500 due and owing in consequence of the swather purchase and $3,200 outstanding on account of the tractor purchase-debts omitted from the financial statement.
Despite the inaccuracy of the financial statement, according to several Bank officers, the primary and overriding factor in making the 1995 loan was the pendency of the FSA buy out. The Bank's executive vice-president testified that the loan would not have been made had the Debtors not been seeking FSA refinancing. He went on to state that listing the swather deal would have made no difference "because the Bank was going to be taken out by FSA and this was the overriding reason for making the loan."
2.
Although the Wehris were actively engaged in loan refinancing negotiations with FSA in March 1995, by early 1996 they had decided not to refinance because it would have required a larger farming operation and *966 they were concerned about the ability to cash flow. As a consequence, they agreed to liquidate their farm assets and apply the proceeds therefrom to the outstanding bank loan.
Cattle were liquidated, with proceeds going to the Bank. A machinery auction was held in June 1996, with most of the proceeds also going to the Bank. The proceeds of certain property in which the Bank claims a security interest were not turned over to the Bank, however, and it is this property, pledged as collateral, which the Bank claims was converted.
With FSA refinancing no longer under consideration, the bulk of the Wehris' property was eventually liquidated. The machinery, along with the OMC swather, was ultimately sold at an auction conducted in June 1996. The swather sold for $5,900 and, according to Donald, this sum was deducted from the auction proceeds and paid to his father-in-law rather than to the Bank. Donald and Norma both agreed that although this amount was paid to their father-in-law in recognition of his security interest, he was owed only $4,500. Why the $1,400 excess was also paid to him was not explained. There was never any agreement between the Wehris and the Bank that they could retain the $1,400 excess.
In late October 1995 the Bank conducted an on-site inspection of the property pledged as collateral for the March 1995 loan. Donald Wehri was present at the time and assisted the Bank's inspecting officer by giving him the count for hay, grain, cattle and pigs. Although the Bank's officer personally observed the existence of this property, he relied upon Donald to provide the actual physical count. On this report, which Donald signed, are indicated precise quantities of livestock, grain and machinery. Three thousand bushels of wheat at $4.50 per bushel are indicated as existing, as are one thousand tons of hay at $30 per ton. In November 1995, 1,021.98 bushels of wheat were sold with proceeds of $4,615.19 paid over to the Bank. According to their bankruptcy schedules there remains on hand 534 bushels. Missing are 1,444 bushels.[1] According to both Debtors, they never had 3,000 bushels; instead, they claim the count provided the Bank in the October 1995 inspection report was erroneous. According to Donald, only 1,500 bushels actually existed at that time. Norma agreed with this and said she told Donald it was inaccurate. Neither, however, made any effort to correct the report or tell the Bank of the mistake. They could not explain their action.
The Wehris put up 1995 hay and carried it over to 1996. In August 1996, this hay was sold to the Debtors' neighbor, Edwin Richter, for $10,000. None of the proceeds went to the Bank. At the time, Donald was aware the Bank claimed a security interest in the hay but never obtained a release, stating at trial he was relying upon advice of counsel. Precisely what this advice was, was not revealed except that Donald believed that because his 1995 operating loan had been paid off from the sale proceeds of his cattle liquidation the hay no longer served as collateral. He did not tell anyone at the Bank of this sale and no one at the Bank told him he could sell the hay in disregard of the Bank's lien. To the contrary, a Bank officer specifically told the Debtors' attorney they were claiming a security interest in the hay. One of the Bank's officers testified that Donald quite possibly believed it was acceptable to sell the hay.
Despite the 1995 inspection report revealing the existence of hogs and a conversation in March 1996 where the Debtors told the Bank they had $1,000 worth of hogs on hand, no proceeds from the sale of hogs ever passed to the Bank. Norma testified that as the hogs were sold the proceeds were retained because the Bank did not want proceeds from any sale of under $500. No Bank officer verified this assertion.
3.
The Wehris filed for relief under Chapter 12 on December 26, 1996. Their schedules and statement of affairs contain inaccuracies *967 which cast a shadow on the credibility of their trial testimony. At the time of filing, the Wehris had in their possession cattle belonging to a neighbor, yet this fact is not disclosed in answer to statement of affairs question 14. Nor do they reveal any sums paid to their attorney in answer to statement of affairs question 9, except for a $160 filing fee, despite the fact, as testimony demonstrated at trial, that $5,000 from the sale of hay went to their attorney for fees associated with the bankruptcy filing.
At the time of filing, Donald was co-signer on his son's outstanding student loan, yet this fact was not disclosed on the schedules. Also omitted was the item of 80 acres of farmland upon which Donald is the record title holder subject to a life estate in his parents. He also omitted ownership of an automobile. Despite being given a warranty deed for the land, Donald testified he thought it belonged to his parents. Donald holds title in an automobile, but said it was his son's car and that he only co-signed for the loan with his son making the payments, claiming this as the reason it was omitted from the schedules.
Conclusions of Law
1.
Sections 523(a)(2)(A); (a)(2)(B)
The Bank argues that the Wehris obtained their 1995 operating loan and refinancing by means of false representations. More specifically, the Bank charges that they caused the Bank to rely upon a false financial statement.
Sections 523(a)(2)(A) and (a)(2)(B) are the operative provisions of section 523, rendering nondischargeable debts traceable to fraud or to materially false financial statements. As to either, the elements essential to their proof must be established by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 286, 111 S.Ct. 654, 659, 112 L.Ed.2d 755 (1991). Sections 523(a)(2)(A) and (B) provide as follows:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(a) of this title does not discharge an individual debtor from any debt
* * * * * *
(2) for money, property, services, or an extension, renewal, or refinancing of credit to the extent obtained by
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition;
[or]
(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 such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive;
Nondischargeability is established under section 523(a)(2)(A) upon proof of the following five elements:
(1) that the debtor made representations;
(2) that at the time he knew they were false;
(3) that he made them with the intention and purpose of deceiving the creditor;
(4) that the creditor justifiably relied upon such representations;
(5) that the creditor sustained the alleged loss and damage as the proximate result of the representation.
11 U.S.C. §§ 523(a)(2)(A) and (B); see Field v. Mans, 516 U.S. 59, ___, 116 S.Ct. 437, 446, 133 L.Ed.2d 351 (1995) (declaring that the level of reliance required is justifiable reliance); Thul v. Ophaug (In re Ophaug), 827 F.2d 340. 342 n. 1 (8th Cir.1987); In re Larson, 136 B.R. 540. 543 (Bankr.D.N.D. 1992).
Section 523(a)(2)(B) pertains to actual writings respecting a debtor's financial condition. As to this section the following five elements must be established:
(1) the debtor makes;
(2) a statement in writing;
(3) respecting the debtor's or an insider's financial condition;
(4) which statement is materially false;
*968 (5) which is made with the intent to deceive, and
(6) which is reasonably relied upon by the creditor.
11 U.S.C. § 523(a)(2)(B); see In re Frey, 150 B.R. 742, 745 (Bankr.D.N.D.1992).
The Bank's argument is twofold based upon the Debtors' assurances in March 1995 that an FSA loan would be obtained coupled with the financial statement which was inaccurate as to the indebtedness remaining on the several items of machinery. As for the intended refinancing by FSA, there is nothing in evidence suggesting that in March 1995 the process was not being undertaken in good faith or that the Wehris had no intention of consummating the deal. That apparently did not happen until a year later. The evidence falls short of establishing that the Wehris falsely represented their intent to refinance with FSA. The financial statement is false but it too falls short of the proof needed under section 523(a)(2)(B). While false, it is not "materially false." Materiality is any statement that paints a substantially untruthful picture of a financial condition by misrepresentation of the type which would normally affect the decision to grant credit. Norris v. First Nat'l Bank (In re Norris), 70 F.3d 27, 30 (5th Cir.1995); Jordan v. Southeast Nat'l Bank (In re Jordan), 927 F.2d 221, 223 (5th Cir.1991), overruled on other grounds by Coston v. Bank of Malvern (In re Coston), 991 F.2d 257 (5th Cir.1993); In re Frey, 150 B.R. at 745. From the testimony of the several Bank officers it does not appear that the inclusion of the two machinery obligations would have had any impact upon the Bank's decision to grant a loan renewal. Indeed, it does not appear that the Bank relied upon the statement to any great extent in making its decision. Rather, of overriding import was the pending FSA refinancing and resulting buy-out, which served as the inducement. As recounted in the findings of fact, one of the Bank's officers acknowledged that they would have made the loan even if the omitted information had been on the financial statement. The court concludes that the omission was not material and that the Bank did not rely upon it in its decision. Accordingly, the Bank's proof fails under sections 523(a)(2)(A) and (a)(2)(B).
2.
Section 523 (a)(6).
Section 523(a)(6) precludes discharge of a debt:
"for willful and malicious injury by the debtor to another entity or to the property of another entity."
11 U.S.C. § 523(a)(6).
Under the foregoing section, a conversion of property belonging to another may, if committed with the requisite willfulness and maliciousness, result in a nondischargeable debt. 10 COLLIER ON BANKRUPTCY ¶ 523.12, pp. XXX-XX-XX (15th ed. rev. 1997); accord In re Lacina, 162 B.R. 267, 274-76 (Bankr.D.N.D.1993). Deliberately disposing of property pledged as collateral in contravention of a security interest in that collateral will constitute conversion. United States v. Foust (In re Foust), 52 F.3d 766, 769 (8th Cir.1995) (per curiam). A technical conversion, however is not enough to render their claim exempt from discharge. The evidence must establish by a preponderance that the conversion was both willful and malicious. In a series of decisions the Eighth Circuit Court of Appeals defined each of these elements, declaring in Barclays Am./Bus. Credit, Inc. v. Long (In re Long), 774 F.2d 875, 880-81(8th Cir.1985), that they are two separate characteristics. The element of "willfulness" was defined in Johnson v. Miera (In re Miera), 926 F.2d 741, 744 (8th Cir.1991), as an act which is deliberate or intentional rather than merely negligent or reckless. More recently in Geiger v. Kawaauhau (In re Geiger), 113 F.3d 848, 852 (8th Cir.1997), the court took the definition of "willfulness" a step further by giving definition to the meaning of "deliberate or intentional" themselves former defining words. These words, said the court, mean an act with intent to cause injury. "What is required for nondischargeability is a deliberate or intentional injury, not merely a deliberate or intentional act." In re Geiger, 113 F.3d at 852. It is observed that the new definition of "willfulness" is contrary to the generally accepted meaning of the word and seems at *969 first blush to be at odds with previous decisions of the Eighth Circuit itself. Although the Geiger court specifically said it was not revisiting the meaning of "maliciousness," when one reads the Long definition of maliciousness in tandem with Geiger's new definition of willfulness, it appears the former definition of maliciousness has been subsumed by the newly expanded definition of willfulness. Indeed, in Long, the circuit adopted the Restatement (Second) of Torts, § 8(A) definition in arriving at a definition of malice. In Geiger, the court again turned to § 8(A) of the Restatement, this time as an aid to arriving at a definition for "deliberate and intentional" the secondary defining words for willfulness. Long said malicious conduct is that which is "targeted at the creditor . . . at least in the sense that the conduct is certain or almost certain to cause financial harm." See also Waugh v. Eldridge (In re Waugh), 95 F.3d 706 (8th Cir.1996). When transfers and breach of a creditor's security interest are an issue, the notion of malice means conduct which is intended to cause harm. Long, 774 F.2d at 881. This definition of malice seems to be merely another way of defining deliberate or intentional as acting with intent to cause injury. In the pre-Long decision of In re Fercho, 39 B.R. 764 (Bankr. D.N.D.1984), this Court, relying upon the Restatement, stated that an act is malicious if it is "done intentionally, without just cause or excuse, and with the intent to injure." In application, Geiger has not significantly changed in a subjective sense the long recognized two-part analysis required for nondischargeability under § 523(a)(6), but has merely placed the entire consideration under "willfulness." In conversion actions courts are still left with the difficult task of determining whether from a preponderance of the evidence a debtor, without just cause or excuse, intended by his action to injure or do harm to the property interests of another.
In the case at bar, as in all cases of this nature, the Debtors have denied any intent to injure the interests of the Bank and have offered a variety of explanations ranging from, "I thought I could do it," to "My lawyer said it was okay." Whether intent to harm is a measure of willfulness or of malice or of both, it remains an element that must, in conversion cases, be established by proof that a debtor acted with knowledge and intent that the creditor's interest would be harmed as a consequence of the act. United States v. Foust (In re Foust), 52 F.3d 766, 769 (8th Cir.1995); In re Clark, 50 B.R. 122, 125 (Bankr.D.N.D.1985). In Waugh, supra, the circuit said that the inquiry into intent is a question of fact and (citing Long), courts may consider objective information in making the determination. The evidence before the court clearly establishes that Wehris knew the Bank had a security interest in virtually everything they owned including machinery, livestock, harvested crops, and growing crops. They had a persistent relationship with the Bank over several years, they were familiar with lending documents and knew the importance of security agreements, financial statements, and related inspections. Nothing in evidence suggests the Wehris did not understand or were confused by anything on the security agreements anymore than they were later confused by bankruptcy disclosure requirements. What appears abundantly clear from the Debtors' actions throughout the period March 1995 through December 1996, when they filed for Chapter 12 relief is that they pretty much did as they pleased, willfully ignoring the security interest and disclosure requirements.
Except for the hay sale, the excuses offered by each of the Debtors are not supported by anything other than the self-serving statements of each other. The 1995 hay crop was sold with the proceeds in part used to pay their attorney upon whose advice they purportedly relied. Reliance upon advice of counsel may constitute a defense where counsel, fully apprised of the facts, advises as a matter of law, and where the debtor acts on the advice believing it to be correct. In re Erdman, 96 B.R. 978, 985 (Bankr.D.N.D.1988). It is not known here precisely what counsel's advice was. What is known is that the Wehris, acting in reliance on that advice and ignoring the asserted lien claimed by the Bank, sold $10,000 worth of hay. Their counsel knew of the security agreements and had been told by Bank officers that the Bank claimed a lien. Armed with this knowledge and knowing his clients *970 were about to file bankruptcy, counsel acted irresponsibly in advising his clients to dispose of the hay and convert the proceeds. This advice is not reasonable in the court's view but that is not to say the Debtors reliance was not reasonable. The Wehris themselves were aware of the security agreements, knew the Bank had taken an inventory which included hay, and knew the hay had been included as an asset on the 1995 financial statement. Concerning the fact of this knowledge, did the Wehris reasonably rely upon counsel's advice in disposing of the hay? Or, on the other hand, did they act believing counsel's advice to be wrong, and thereby intentionally harming the Bank's interest? As for the hay sale, the court believes the Debtors placed complete reliance upon counsel's advice. One of the Bank's loan officers himself felt that Wehris believed they were within their rights to sell the hay. Even though counsel's advice was ill-considered, it does serve to absolve the Debtors of the requisite intent to harm the Bank's security interest. The court believes their actions as regards the hay were taken in an honest but mistaken reliance on counsel's advice not out of an intent to injure the Bank.
The court does not reach the same conclusion regarding the missing $1,400 of swather proceeds, the $1,000 in hog proceeds or the missing 1,444 bushels of wheat. A debtor's testimony bearing on the issue of intent may be impeached by inconsistencies in that testimony as well as the contradictory testimony of other witnesses and contradictory documents. Waugh, 95 F.3d at 711-712. Wehris explanations of why these items of collateral were sold, were missing, or were not surrendered to the Bank are not credible, particularly in light of the contradictory explanations offered on the machinery ownership issue. They are self-serving explanations cast in the same mold as the explanations offered for financial statement, bankruptcy schedule and statement of affairs omissions. As to the disposition of these items and their proceeds the court believes the Wehris acted willfully with the requisite intent to deprive the Bank of their collateral. The measure of damages for conversion is the fair market value of the converted property as of the date of the conversion. In re Collins, 151 B.R. 967, 970 (Bankr.M.D.Fla.1993); In re Iaquinta, 95 B.R. 576, 582 (Bankr.N.D.Ill.1989). The court is satisfied from the evidence that the Wehris converted $1,400 in proceeds from the swather sale, $1,000 in proceeds from the sale of hogs and $6,584.64 in wheat sale proceeds (1,444 bushels at $4.56 per bushel) in violation of § 523(a)(6).
Conclusion
For the foregoing reasons, the Complaint of the Security Bank of Hebron based upon sections 523(a)(2)(A) and (B) is dismissed. The Security Bank of Hebron is granted judgment on its complaint of nondischargeability based upon section 523(a)(6) with the sum of $8,984.64 declared nondischargeable by reason of conversion.
JUDGMENT MAY BE ENTERED ACCORDINGLY.
SO ORDERED.
NOTES
[1] The Debtors sold 1,021.98 bushels for $4,615.19 which breaks down to $4.56 per bushel. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1534917/ | 969 S.W.2d 598 (1998)
333 Ark. 53
Jerry ADAMS; Orville Beavers and Mary Beavers; Phyllis Dexter; Patricia Foshee and Carl Foshee; Deborah Ann Johnson and John Johnson; Darlene and Eddie Kinder; Ludivinia Gallegos Miller; Kenneth Mitchell and Jan Mitchell; Sheila Orrell and Tommy Orrell; Carl Rae and Priscilla Rae; Randy Stewart and Deondra Stewart; David Trusty and Pam Trusty Appellants,
v.
James ARTHUR, M.D.; Allan Gocio, M.D.; Hot Springs Neurosurgery Clinic, P.A.; American Medical International, Inc., d/b/a National Park Medical Center; St. Joseph's Regional Health Center, P.A., Appellees.
Nos. 96-1350, 96-1470, 96-1415, 96-1407, 96-1355, 96-1354, 96-1414, 96-1406, 96-1409, 96-1408, 96-1405 and 96-1365.
Supreme Court of Arkansas.
April 30, 1998.
*601 George Wise, Jr., Bryant, for Appellant.
Edwin L. Lowther, Jr., Don S. McKinney, J. Phillip Malcom, Tonia P. Jones, Mike Huckabay, Beverly A. Rowlett, Little Rock, for Appellee.
IMBER, Justice.
These twelve cases involve identical core issues. By agreement of the parties, the cases were orally argued and submitted simultaneously. In the interest of efficiency, we dispose of them in a single opinion. All appellants were patients (or their spouses) of the appellee doctors, Drs. James Arthur and Allan Gocio. The appellants underwent anterior cervical fusion surgeries. In performing the surgeries, the doctors used hydroxylapatite, known by the trade name "Orthoblock," as a spacer in the spine.
*602 Following their respective surgeries, appellants filed complaints against the doctors and their clinic, Hot Springs Neurosurgery Clinic, P.A (the "doctors"), alleging that they were damaged as a result of the implantation of Orthoblock. In each case the complaint was filed more than two years after the respective surgery. Appellants sought recovery based on negligence, battery, fraud, outrage, strict liability, and breach of warranty. The hospitals where the surgeries were performed were also named as defendants. In three cases, the hospital was American Medical International, Inc. ("AMI"), while in the remaining nine cases the hospital was St. Joseph's Regional Health Center, Inc. ("St.Joseph's"). The manufacturer of Orthoblock, Calcitek, Inc., was also named as a defendant in all twelve cases.
The doctors and the hospitals moved for summary judgment in part arguing that all claims were barred by the limitations period found in the Arkansas Medical Malpractice Act. The trial court agreed and granted summary judgment to the doctors and hospitals finding that all claims were barred by the two-year limitations period for medical injury found in the Medical Malpractice Act, Ark. Code Ann. § 16-114-203(a) (Supp.1997). The trial court additionally declined to find that the Medical Malpractice Act was unconstitutional. While Calcitek did not join in these motions for summary judgment, orders of dismissal were entered in these cases reflecting a settlement with Calcitek. The present appeals followed. We affirm the grant of summary judgment in favor of the appellee doctors in Adams, No. 96-1350, Johnson, No. 96-1355, Mitchell, No. 96-1406, and reverse and remand as to the appellee doctors in Stewart, No. 96-1405, Foshee, No. 96-1407, Rae, No. 96-1408, Orrell, No. 96-1409, Miller, No. 96-1414, Dexter, No. 96-1415, Trusty, No. 96-1365, Kinder, No. 96-1354, and Beavers, No. 96-1470. As to the appellee hospitals, we affirm the grant of summary judgment in all cases.
I. Fraudulent Concealment.
The appellants argue that the grant of summary judgment to the doctors and hospitals was erroneous because genuine issues of material fact existed as to whether fraud or fraudulent concealment tolled the limitation periods in each case. The law is well settled that summary judgment is to be granted by a trial court only when it is clear that there are no genuine issues of material fact to be litigated, and the party is entitled to judgment as a matter of law. Wallace v. Broyles, 331 Ark. 58, 961 S.W.2d 712 (1998), supp. opinion on denial of reh'g, March 5, 1998. Once the moving party has established a prima facie entitlement to summary judgment, the opposing party must meet proof with proof and demonstrate the existence of a material issue of fact. Id. On appellate review, this court determines if summary judgment was appropriate based on whether the evidentiary items presented by the moving party in support of the motion leave a material fact unanswered. Id. This court views the evidence in a light most favorable to the party against whom the motion was filed, resolving all doubts and inferences against the moving party. Id. Our review focuses not only on the pleadings, but also on the affidavits and other documents filed by the parties. Id. We have further explained that:
We have ceased referring to summary judgment as [a] "drastic" remedy. We now regard it simply as one of the tools in a trial court's efficiency arsenal; however, we only approve the granting of the motion when the state of the evidence as portrayed by the pleadings, affidavits, discovery responses, and admissions on file is such that the nonmoving party is not entitled to a day in court, i.e., when there is not any genuine remaining issue of material fact and the moving party is entitled to judgment as a matter of law.
Id.
When the running of the statute of limitations is raised as a defense, the defendant has the burden of affirmatively pleading this defense. First Pyramid Life Ins. Co. v. Stoltz, 311 Ark. 313, 843 S.W.2d 842 (1992), cert. denied, 510 U.S. 908, 114 S. Ct. 290, 126 L. Ed. 2d 239 (1993). However, once it is clear from the face of the complaint that the action is barred by the applicable limitations period, the burden shifts to the plaintiff to *603 prove by a preponderance of the evidence that the statute of limitations was in fact tolled. Id. Fraud suspends the running of the statute of limitations, and the suspension remains in effect until the party having the cause of action discovers the fraud or should have discovered it by the exercise of reasonable diligence. First Pyramid, supra. Although the question of fraudulent concealment is normally a question of fact that is not suited for summary judgment, when the evidence leaves no room for a reasonable difference of opinion, a trial court may resolve fact issues as a matter of law. Alexander v. Flake, 322 Ark. 239, 910 S.W.2d 190 (1995).
A. Appellee Doctors.
In support of their fraudulent-concealment argument, the appellants primarily rely on Howard v. Northwest Arkansas Surgical Clinic, P.A., 324 Ark. 375, 921 S.W.2d 596 (1996). In Howard, this court explicitly rejected the notion that any time a foreign object was left by a physician in a patient, the only exception to the two-year limitations period was the one year from discovery provision contained in Ark.Code Ann. § 16-114-203(b) (1987). Rather, we had recognized in past foreign-object cases that proof of knowing concealment was not always necessary to establish fraudulent concealment. Howard, supra (citing Faulkner v. Huie, 205 Ark. 332, 168 S.W.2d 839 (1943) and Burton v. Tribble, 189 Ark. 58, 70 S.W.2d 503 (1934)).
The appellant in Howard had come forward with some evidence to support concealment of the fact that her treating physician had allowed the tip of a needle to remain in the patient's body with knowledge that it was there. Thus, the appellant's treating physician was not entitled to summary judgment based on the statute of limitations. "In the case now before us there is an allegation of an act perpetrated in a way that it conceals itself. We have a defendant who had an obvious professional, positive duty to speak if he knew he had negligently left a foreign object in his patient, we have evidence that he was informed that the foreign object remained in the patient, and we have a plaintiff who could not, if the facts were as stated, have detected the fraud." Howard, supra. We emphasized that the General Assembly, in enacting the Medical Malpractice Act, could not have intended to allow physicians to avoid responsibility for negligent acts by knowingly concealing them from patients. By contrast, the radiologist who examined the tissue, and who had noted in her report to the treating physician that she had not seen the barbed tip of the needle in the tissue sample, was entitled to summary judgment as the appellant had not come forward with evidence to counter the radiologist's affidavit that she did nothing to conceal the fact that an object was left in the appellant.
The doctors in turn emphasize Norris v. Bakker, 320 Ark. 629, 899 S.W.2d 70 (1995), another case where a physician's patient claimed that fraudulent concealment had tolled the limitations period on her causes of action. The patient in Norris alleged that her dentist had examined her breast under the pretense of a lymph node examination. While her complaint was filed outside of the limitations period, she argued that the dentist's act was something so furtively planned and secretly executed so as to keep her cause of action concealed from her because she lacked the essential medical knowledge to realize that the touching was not a necessary part of the examination. She also alleged that the dentist had a duty to inform her of the injury inflicted upon her in light of the physician-patient relationship.
We affirmed the grant of summary judgment in favor of the dentist, given that the patient had failed to meet proof with proof to show that there was a genuine issue of material fact. In doing so, we emphasized the so-called "classic language" regarding fraudulent concealment:
No mere ignorance on the part of the plaintiff of his rights, nor the mere silence of one who is under no obligation to speak, will prevent the statute bar. There must be some positive act of fraud, something so furtively planned and secretly executed as to keep the plaintiff's cause of action concealed, or perpetrated in a way that it conceals itself. And if the plaintiff, by reasonable diligence, might have detected the fraud, he is presumed to have had reasonable knowledge of it. Id.
*604 Id. (quoting Wilson v. GECAL, 311 Ark. 84, 841 S.W.2d 619 (1992)). In Norris, the patient simply failed to show how her dentist prevented her from learning that his representation was false.
At the outset, we must reject the appellants' contention that in all informed-consent cases, there will always be genuine issues of material fact as to fraudulent concealment. The appellants assert in their reply briefs that "within the context of informed-consent, fraudulent concealment will always occur when the evidence indicates that facts important to the Plaintiff's decision to undergo a particular treatment were fraudulently withheld, as in this case, from the plaintiff patient." While the appellants cite us to jurisdictions that might appear to go this far, we are unwilling to accept such a formulation of fraudulent concealment that would effectively eviscerate the two-year limitations period in all informed-consent cases. The Medical Malpractice Act establishes a two-year limitations period for medical injury, Ark.Code Ann. § 16-114-203(a), contemplates actions for lack of informed consent, see Ark.Code Ann. § 16-114-206(b)(1), and yet does not carve out an exception to the limitations period in informed-consent cases. Appellants' contention ignores the above-quoted "classic language" regarding fraudulent concealment and in fact obliterates any distinction between nondisclosure and fraudulent concealment in claims involving failure to obtain informed consent. To equate an alleged breach of a physician's duty to obtain a valid informed-consent with a fact question as to fraudulent concealment would effectively destroy the limitations period that begins running from the moment of medical injury.
Here we are not concerned with the merits of the appellants' underlying claims, but instead we address whether their respective complaints were timely filed. In this regard, Trantafello v. Medical Ctr. of Taranza, 182 Cal. App. 3d 315, 227 Cal. Rptr. 84 (Cal.Dist. Ct.App.1986) provides us with useful guidance. In Trantafello the plaintiff brought a medical malpractice action alleging that his surgeon had performed a surgical discectomy and had used a piece of an acrylic substance, methyl methacrylate, as a spacer in the spine where the disc was removed. The theory of the plaintiff's case was that the generally accepted practice in disc surgery was to implant a bone graft, and that the use of methyl methacrylate was an innovative procedure not generally accepted in the United States because of a high probability that it would not fuse or heal properly and which had a high incidence of pseudo arthrosis. The plaintiff alleged that prior to the surgery, the surgeon did not advise him that he intended to use methyl methacrylate instead of a bone graft, nor of the innovative nature and risks of the procedure.
The plaintiff in Trantafello filed outside of the applicable limitations period under California law, but claimed that the limitations period should have been tolled by the defendants' intentional concealment. However, the Trantafello court emphasized that intentional concealment had to be something more than a mere continuation of the prior nondisclosure. While the opinion of the plaintiff's expert raised a factual issue as to whether the defendant's procedure was innovative, and whether the defendant was required to advise the plaintiff prior to obtaining the plaintiff's consent of the innovative nature of the operation and the available options and dangers involved, "[i]ntentional concealment is something more than a lack of informed consent. It would have to have occurred either at or subsequent to the time that the medical procedure was undertaken." Id. Moreover, the plaintiff failed to show any issue as to an affirmative misrepresentation, as "[p]laintiff conceded in his deposition that [defendant] never told him anything false about the surgery."[1]Id.
In the present cases, we certainly agree that evidence of affirmative misrepresentations, either in connection with or subsequent to the appellants' surgeries, may create a fact question of tolling the limitations *605 period for the jury. However, fraudulent concealment must go beyond a mere failure to obtain an adequate informed consent; it must rise to the level of "some positive act of fraud, something so furtively planned and secretly executed as to keep the plaintiff's cause of action concealed, or perpetrated in a way that it conceals itself." See Norris, supra. Here, we note that Howard, supra, was a decision based on a foreign-object claim. The physician there had a duty to speak because he negligently left a foreign object in the patient, and there was evidence that the physician knew the foreign object was left in the patient. Such is not the case here, where these appellants knew that they were undergoing neck surgery requiring the implantation of some materialeither real bone or some synthetic material. Another case that bears mentioning is Roberts v. Francis, 128 F.3d 647 (8th Cir.1997). In Roberts the Eighth Circuit, interpreting Arkansas law, extended Howard beyond the realm of foreign objects to a case where the patient, who had her bladder removed to repair severe urological problems, also had her only remaining ovary removed without explanation. Basing its holding on the "special nature of the doctor-patient relationship," the Roberts court held that the physician was under a duty to inform the patient that he had removed her only remaining ovarycreating a fact question as to fraudulent concealment. However, the fact situation presented in Roberts, where the patient consented to a urological surgery that resulted in the removal of her ovary without explanation, is much more like the Howard scenario than the present cases. The appellants here consented to neck surgery involving an implantation, which surgery they received, and the heart of these cases is whether or not that consent was informed. To simply say that in every informed-consent case the "physician maintained primary control over the relevant information and the plaintiff [was] unaware of the alleged wrong," see Roberts, supra, ergo a fact question exists as to fraudulent concealment, is to do damage to the General Assembly's expression of public policy as embodied in the two-year limitations period.
At the same time, we reject an interpretation of Norris that would foreclose a patient's ability to establish a fact question as to fraudulent concealment in all informed-consent cases involving alleged affirmative misrepresentations by the physician. While there is language in Norris that may be taken to that effect, "[appellant] failed to show how [appellee] prevented her from learning that his representation was false[,]" such an interpretation would lead to absurd results. It is easy to understand this quoted language based on the facts in Norris, where a dentist touched the patient's breast under the pretense of a lymph node examination. See also Howard, supra (patient in Norris "knew the act had occurred"); Roberts, supra (describing the patient in Norris as "simply ignorant of her rights").
Obviously, an affirmative misrepresentation by a physician in connection with or after the surgery may operate to conceal the patient's cause of action. See Jones v. Central Ark. Radiation Therapy Institute, Inc., 270 Ark. 988, 607 S.W.2d 334 (1980) (physician's representation concerning the uncertainty about the cause of plaintiffs' condition following medical injury and subsequent and purposeful dilatory conduct "covered up its fraudulent character and prevented plaintiff from seeing another doctor. But for this fraud, [the plaintiff] could have discovered the alleged malpractice before the statute of limitations ran.") To hold otherwise would necessarily foster an environment of complete distrust between patient and physician. Such a consequence could not have been intended by the General Assembly in enacting the two-year limitations period.
To the extent that there is evidence that the doctors' alleged omissions or misrepresentations resulted in a surgery performed without an adequate informed-consent, this obviously goes to the merits of appellants' claims. However, in examining whether appellants' complaints were timely filed, we reiterate that we do not simply equate evidence of a breach of the duty to obtain informed-consent with a fact question as to fraudulent concealment. There must be something more than a continuation of a prior nondisclosure. Rather, there must be evidence creating a fact question as to "some *606 positive act of fraud, something so furtively planned and secretly executed as to keep the plaintiff's cause of action concealed, or perpetrated in a way that it conceals itself." See Norris, supra. Finally, we must be mindful that an allegation of fraudulent concealment is not typically well-suited for summary judgment, unless the evidence leaves no room for a reasonable difference of opinion. See O'Mara v. Dykema, 328 Ark. 310, 942 S.W.2d 854 (1997); Chalmers v. Toyota Motor Sales, 326 Ark. 895, 935 S.W.2d 258 (1996). Bearing these principles in mind, we now turn to the proof submitted in these cases as abstracted.
1. Jerry Adams, No. 96-1350; Randy and Stewart and Deondra Stewart, No. 96-1405; Orville Beavers and Mary Beavers, No. 96-1470.
The evidence submitted by the various appellants in response to the appellees' motions for summary judgment, including that which is abstracted, is not completely identical. In the three cases where AMI was named as a defendant, Adams, No. 96-1350, Stewart, No. 96-1405, and Beavers, No. 96-1470, the appellants submitted the same exhibits except for portions of the appellants' affidavits. Deposition testimony from Dr. Arthur established that Orthoblock had not been approved by the FDA for use in the human spine. Arthur also acknowledged that the long-term effects of the Orthoblock regarding such uses were not yet known. David Gassier opined in deposition testimony that he lacked sufficient data to give an opinion as a scientist as to whether hydroxylapatite could withstand the forces of the human spine "based solely upon this one article."
Use in the human spine was not an indicated use on the package insert that accompanied Orthoblock. A "contraindication" was that Orthoblocks should not be used where they would likely sustain significant tensile, flexural or shear forces. In answers to interrogatories, AMI contended that Arthur never sought specific approval of any hospital committee with respect to the use of Orthoblocks in cervical fusions, and that Arthur never informed it of such use. Once AMI became aware of the filing of "this lawsuit," it had not used or ordered Orthoblocks. A "Conditions of Admission" is abstracted to show the "Financial Agreement" between the patient and the hospital.
Arthur reported to Calcitek that he had very few fractures with Orthoblock, although Gocio had experienced a fracture rate of about 50%. Arthur attributed the higher rate to the force that Gocio used in tapping the Orthoblock into place. In a letter dated March 29, 1991, a Dr. Lawrence from the University of Marshall of San Diego informed Calcitek that he consecutively had two Orthoblocks fracture, causing him to express concern about the viability of Orthoblock. A Calcitek invoice to AMI, dated July 24, 1992, showed two separate quantities of Orthoblock, seven A-6, and three A-8, billed at $150 a unit.
A St. Joseph's "Product Return Receipt" dated April 5, 1991, explained that a "block broke off during surgery. No pressure [illegible] drills used according to OR. Credit on arrival please." An internal Calcitek complaint evaluation memo dated June 28, 1991, regarding the St. Joseph's complaint, resulted in the discovery that Orthoblock was used in an anterior cervical discectomy procedure. The block was tamped using a metal tool directly against the block. The memo further explains that Orthoblocks are not designed to withstand contact with metal tools. Calcitek sent Arthur and Gocio Custom Device Agreements in order to continue use of Orthoblocks in their practices. Custom seating tools had also been provided to assist them in placement of Orthoblock without using metal tools.
The appellants in all twelve cases submitted affidavits. These affidavits identify the following as a partial list of facts that "were never disclosed to me by Arthur, Gocio, the hospital, or anyone else prior to my surgery. Had these facts been disclosed to me, I would not have allowed the surgery to be performed with the product known by the tradename Orthoblock:"
That he had experienced fractures with the product Orthoblock in other patients.
That the product Orthoblock was not FDA approved for use in human spines.
*607 That the product Orthoblock was not designed by the manufacturer for use in human spines.
That the package insert that came with the product indicated that it was not designed for use in applications where it would undergo significant flexural, tensile, or sheer forces. These forces, of course, describe the types of movements and stresses that are in the spine.
That the use of the product Orthoblock in the human spine was experimental.
That the hospital's institutional review board that is charged with the review of such procedures had not reviewed or approved the use of the product Orthoblock in the spine.
That Dr. Arthur had only reviewed one article and discussed the use of the material known as Orthoblock with a dentist to determine whether it was safe for use in the spine. He did not tell me that the professional review at the end of that one article he had read called for more study before this product was used in the human spine.
That prior tests performed by the manufacturer with this material on mongrel dogs indicated that the material used in the product Orthoblock was not appropriate for use in the spine.
That dense hydroxylapatite, a ceramic material from which the product Orthoblock is composed, is more brittle than bone.
That bone will not grow into or through this product as it will with bone taken from a patient's own body or bone that is donated for this purpose. I was not told, that, at best, this material will only act as a "spacer." I was not told that this procedure using the product Orthoblock was not the normal and customary material used in the anterior cervical fusion procedure.
That there was a risk of fracture of the ceramic material known as Orthoblock.
That if the product Orthoblock fractured, I would have to undergo another surgery.
That neither Dr. Arthur nor Dr. Gocio had ever discussed the use of product Orthoblock with any other doctor who had experience using it in the human spine to determine whether it was safe or how it could be used.
That I was not subsequently advised that Gocio or Arthur had to sign a "custom device agreement," a document acknowledging that the product Orthoblock was not designed for use in the spine and requiring them to make assurance that patients were aware of this fact and obtain from them their informed-consent before the material was used, to be able to purchase and use the product known as Orthoblock.
That he did not tell me that he had subsequently signed an agreement with the manufacturer of the product to keep secret the information he had regarding the development of this product for use in the human spine.
That the manufacturer had not included in its application to the FDA to market the product Orthoblock a request for permission to promote them for use in the spine.
That other patients had the product fail resulting in fractures of the ceramic material.
That other patients, after implementation of the product Orthoblock, continued to experience, among other problems, arm pain, shoulder pain, neck pain, arm and hand numbness, and severe, frequent headaches.
That other patients, after implantation of the product Orthoblock, had experienced a sensation of having difficulty swallowing.
That he did not know or have a basis for knowing the long term [e]ffect of the product's use in the human spine.
Finally, the appellants' affidavits also contain statements that are unique to each case.
a. Jerry Adams, No. 96-1350.
In his affidavit, Adams stated that on March 8, 1990, Dr. Arthur, assisted by Dr. Gocio, performed the surgery on his neck. Adams filed his complaint on March 31, 1993. Prior to his surgery, he had met with Dr. Arthur to discuss the procedure. Adams had assumed that bone from his hip would be *608 used, since bone from his hip was used in his last surgery. Dr. Arthur did not disclose to Adams that he was going to use Orthoblock in his surgery. The day after the surgery, Adams recognized that he had no incision on his hip. At his first office visit with Dr. Arthur, he asked him about this. Dr. Arthur showed him an x-ray, which revealed the Orthoblock. Dr. Arthur explained that this was a manmade material, made in England, and that it had the texture of a tennis shoe. He further stated that he had not had any slip and had not had any other problems with an Orthoblock. He additionally said that the Orthoblock had small holes that allowed it to fuse with bone.
This evidence does raise a factual issue as to whether the procedure was innovative and experimental, and whether Drs. Arthur and Gocio were required to advise Adams prior to obtaining his consent, "of the innovative nature of the operation and the available options and dangers involved." See Trantafello, supra at 87. However, we are unable to say that the doctors' alleged omissions in failing to so inform Adams, or the character of the representations the doctors actually made, rise to the level of "some positive act of fraud, something so furtively planned and secretly executed as to keep the plaintiff's cause of action concealed, or perpetrated in a way that it conceals itself." See Norris, supra. Significantly, Arthur made no representations as to what sort of material would be used in the surgery. Adams later acquired knowledge that Orthoblock was used on the first office visit following surgery. While some of Arthur's statements were arguably misrepresentations about efficacy, i.e., "he told me ... that he had not had any slip and had not had any other problems with an Orthoblock," it "fuse[d] with bone," these statements do not rise to the level of affirmative representations sufficient to create a fact question as to fraudulent concealment. Based on the evidence submitted in the Adams case, we conclude that there exists no fact question as to fraudulent concealment, and affirm the grant of summary judgment to the appellee doctors.
b. Randy Stewart and Deondra Stewart, No. 96-1405.
On May 24, 1990, Arthur, assisted by Gocio, performed a surgical procedure on Randy Stewart's neck. Stewart filed his complaint on March 11, 1993. Prior to surgery, he met with Gocio to discuss the procedure. Gocio told him that rather than use bone from his hip, he would use an artificial bone, which was growing in his laboratory. Stewart was on pain medication at the time, and was not given any other options nor was anything else explained to him about the material.
Here we have a different representation than that made in the Adams case. Gocio allegedly told Stewart that he would use an "artificial bone" growing in his lab. We hold that this affirmative statement, an arguable misrepresentation as to the nature of the material to be used in the surgery, is at least sufficient to create a fact question as to fraudulent concealment. This constitutes proof leaving room for a reasonable difference of opinion as to whether the Stewarts' causes of action were fraudulently concealed. The summary judgment to the appellee doctors is reversed in the Stewart case and the case is remanded for further proceedings consistent with this opinion.
c. Orville Beavers and Mary Beavers, No. 96-1470.
On December 11, 1989, Arthur performed a surgery on Orville Beavers's neck, and his complaint was filed on February 12, 1993. Prior to the surgery, he met with Arthur to discuss the procedure. Arthur told him that he would use bone from the bone bank. His wife had this surgery before and they used a hip bone. No options were offered to him and he was simply told that Arthur would use a bone from the bone bank. Arthur did not advise him of any risk. He did not learn that he had Orthoblock in his neck until after he saw a newspaper article in January of 1993, and he obtained his medical records.
Here, Orville Beavers alleged that Arthur told him that he would use bone from the bone bank in his surgery. This is evidence of an affirmative act that would have prevented *609 Beavers from learning the actual nature of the material used in his surgery. We, therefore, hold that this alleged misrepresentation is sufficient to create a fact question as to fraudulent concealment. Accordingly, we reverse the grant of summary judgment to the appellee doctors in the Beavers case, and remand for further proceedings consistent with this opinion.
2. Deborah Ann Johnson and John Johnson, No. 96-1355; Kenneth Mitchell and Jan Mitchell, No. 96-1406; Patricia Foshee and Carl Foshee, No. 96-1407; Carl and Priscilla Rae, No. 96-1408; Sheila Orrell and Tommy Orrell, No. 96-1409; Ludivinia Gallegos Miller, No. 96-1414; Phyllis Dexter, No. 96-1415.
In addition to the evidence set forth above, appellants in these St. Joseph's cases submitted supplemental items of evidence in response to the appellees' motions for summary judgment. This included deposition testimony from Gayle Sanders, a nurse at St. Joseph's. According to Sanders, Arthur told her that St. Joseph's was going to be using Orthoblock as one of several hospitals around the United States that would be trying Orthoblock. At the time, she knew that Orthoblock had been approved by the FDA for use in dental applications, but that it had not been approved for use in the spine. She did not have any conversations with anyone about this non-approval because "it was something we were already doing. It was just a new technique, and I didn't feel it was necessary." Sanders told her charge nurse to order the Orthoblock, telling her that it was a new product that they would be using. To her knowledge, Orthoblocks were not taken to the hospital's human subjects committee or institutional review board for purposes of use in the spine. She further explained that she was never present when Arthur or Gocio talked to a patient about using Orthoblock because it was done prior to surgery. At one time, the maintenance department revised an instrument to make it blunt for use with the Orthoblock. She also recalled that at one time Calcitek representatives came down to observe an Orthoblock surgery. Since the first lawsuit was filed, she was informed to bring the Orthoblock out of the operating room. Since then, it had not been ordered.
A St. Joseph's memo dated February 8, 1993, set forth the approval process for submission of a research protocol to St. Joseph's Institutional Review Board ("IRB"). All proposals for research involving human subjects at St. Joseph's were required to be submitted to the IRB for review pursuant to Department of Health and Human Services regulations. This included research involving medical devices for non-approved applications. St. Joseph's business minutes, dated May 15, 1990, state that a conference call was conducted by the Institutional Review Committee at St. Joseph's Regional Health Center/AMI National Medical Center. This included approval for a protocol and informed-consent regarding clinical evaluation of a "HAP Porous BiMetric Hip System" to be used in an investigational hip prothesis study. A December 13 1991, St. Joseph's bill to a patient named John Hall included a charge for an Orthoblock at the price of $304.25.
Terri Baker, Calcitek's director of marketing, wrote a letter dated April 17, 1991, to Arthur and Gocio following her observation of a surgery. The letter explains that Calcitek had discussed with its engineers about a tap for use with the block. "We do have some preliminary ideas and should be able to get a prototype to you in the next thirty days. We will include the plastic tip! This should reduce the number of cracked blocks."
Arthur and Gocio also executed confidentiality agreements with Calcitek on April 8, 1991, abstracted as follows:
All information of a technical nature imparted to or learned by me during the course of my association with the company with respect to the business of the Company including but not limited to formulas, patterns, devices, processes, compilations of information, specifications, research and development, and inventions, improvements, and discoveries within the scope of paragraph 1, shall be deemed confidential and shall not be disclosed by me to anyone outside the employ of the Company unless *610 such information has been generally available to the trade.
Because federal law prohibited Calcitek from promoting uses other than those indicated, Calcitek had the doctors execute "custom device agreements" so that pursuant to federal law, Calcitek could provide Orthoblocks to individual doctors using them in anterior cervical discectomy procedures on a custom basis. Arthur and Gocio executed this form, which contained an acknowledgment that the doctors would "adequately inform the patient prior to use of this CUSTOM DEVICE."
The appellants also attached as exhibits some hand-written notes from someone at Calcitek regarding a conversation with Gocio. Among other things, the notes provide that "Using Orthoblocks 1 yr.; 3-5/ week; No mods usedhas had fractures; Spreads vertebrae far enough to drop implant into place; no tapping (fear of fractures)." Other notes regarding a phone interview with Gocio indicate that he "had a lot of shatter prior to learning how to use."
These appellants also submitted affidavits from two experts, Dr. Robert North, and Claudia Jean Beverly, regarding St. Joseph's failure to meet the appropriate standards of care for usage of Orthoblock at the hospital. Beyond the common allegations in the appellants' affidavits already set forth above, these appellants also made individual allegations concerning their respective surgeries.
a. Deborah Ann Johnson and John Johnson, No. 96-1355.
On January 8, 1991, Arthur, assisted by Gocio, performed a surgical procedure on Deborah Johnson's neck. Johnson's complaint was filed on June 8, 1993. Prior to the operation, she met with Arthur at the hospital to discuss the procedure. Arthur told her that he would use a synthetic material from Switzerland as a graft material in her neck. He told her that after he put it in, everything would grow together. Arthur did not give her any choice but to use this material, and she was not advised or aware that she had any other options. Arthur told her that he had not had any problems with the material from Switzerland.
As in the Adams case, we affirm in the Johnson case because of the lack of evidence of positive acts of fraudulent concealment on the part of the doctors. Again, the additional evidence in this St. Joseph's case undoubtedly raises a factual issue as to the experimental nature of Orthoblock. However, as in the Adams case, this goes to the merits of the informed-consent claims, and does not rise to the level of fraudulent concealment. We are unable to say that the representations allegedly made by the doctors establish a fact question as to fraudulent concealment. With regard to the confidentiality agreements signed by the doctors, we note that these agreements were executed several months after all of the surgeries in these cases. In most of these cases it was over a year after the surgery. The record indicates that these agreements were obtained at Calcitek's initiative so that it could gather data for Orthoblock's use in the spine, and so that it could discuss product-development information with the doctors. Moreover, the custom device agreements, also obtained at Calcitek's initiative, required the doctors to adequately inform patients prior to using Orthoblock. While Johnson's surgery was relatively close in time to the execution of the confidentiality agreement, she was advised that a synthetic material would be used in her neck.
b. Jan Mitchell and Kenneth Mitchell, No. 96-1406.
On March 13, 1990, Arthur performed a surgical procedure on Jan Mitchell's neck. Mitchell's complaint was filed on September 23, 1993. Prior to the surgery, she had a telephone conversation with Arthur to discuss the procedure. Arthur simply told her that she had a ruptured disc, and that she needed surgery. He did not tell her anything about the surgery or what he might use as a graft material. Her sister-in-law had previously had surgery performed by Arthur and in that surgery, he had used bone from the bone bank and Mitchell assumed that he would use bone from the bone bank in her surgery. She did not learn until after August 1993, when she became aware that other lawsuits had been filed and she then *611 obtained her medical records, that Orthoblock had been used in her surgery.
We affirm the grant of summary judgment for the reasons stated in the Johnson case. However, it is noteworthy that in Mitchell's affidavit, Mitchell assumed bone from the bone bank would be used in her surgery, but the doctors in fact made no representations as to what material would be used. Thus, beyond the failure to inform, or a mere continuation of this nondisclosure, there must have been something more in order to create a fact question as to fraudulent concealment. See Trantafello, supra.
c. Patricia Foshee and Carl Foshee, No. 96-1407; Carl Rae and Priscilla Rae, No. 96-1408; Sheila Orrell and Tommy Orrell, No. 96-1409; Ludivinia Gallegos Miller, No. 96-1414; Phyllis Dexter, No. 96-1415.
Arthur performed an operation on Patricia Foshee's neck on April 19, 1990. Her complaint was filed on February 12, 1993. Prior to this surgery, she met with Arthur to discuss the procedure. Arthur told her that he would use a synthetic disc in her neck. No options were offered to her, and she was simply told that Arthur would use this new material and that it would fuse with bone.
On November 15, 1989,[2] Arthur performed a surgical procedure on Carl Rae's neck. Rae's complaint was filed on April 5, 1993. Prior to the procedure, he met with Arthur. Arthur told him that he would use a synthetic disc so that he would not have to have two operations. Arthur told him that this was an all-new material and that it worked good, and that he had not had any problems with it. Arthur told him nothing else about this material.
On December 26, 1989, Arthur performed a surgical procedure on Sheila Orrell's neck. She filed her complaint on May 20, 1993. Prior to this surgery, she met with Arthur to discuss the procedure. He told her that he would go in the crease of her neck and would put in a plastic disc, which would give way with her other disc. She thought that this was something like a piece of plastic foam the way that Arthur described it. She had the impression that it was flexible. He did not tell her what the substance was, or whether it was new, and she was not given any options and was not aware of any other options.
On November 28, 1989,[3] Arthur performed a surgical procedure on Miller's neck. Miller filed her complaint on January 28, 1993. Prior to that surgery, she met with Arthur to discuss the procedure. Arthur told her that he would use a synthetic disc in her neck. No options were offered to her, and she was simply told that the new material would fuse with bone.
On February 22, 1990,[4] Arthur performed a surgical procedure on Dexter's neck. Her complaint was filed on June 17, 1993. Prior to the surgery, she met with Arthur to discuss the procedure. Arthur told her that he was going to use a new, synthetic hip bone. He did not explain anything else to her about the material, did not give her any options, and did not advise her of any risk.
In these cases, we reverse the grant of summary judgment to the appellee doctors and remand for further proceedings consistent with this opinion. The crucial allegations in these cases are the doctors' alleged representations concerning "synthetic discs" and an "artificial hip bone." A reasonable inference from these alleged statements concerning the nature of the material to be used is that the material was appropriate for use in the spine. Thus, these representations at a minimum create a fact question as to fraudulent concealment.
3. Darlene Kinder and Eddie Kinder, No. 96-1354; David Trusty and Pam Trusty, No. 96-1365.
The Kinder and Trusty cases are unique in that neither appellants' abstract contains the *612 various exhibits that have been set forth above. In both of these cases the appellants only evidentiary responses to the appellees' motions for summary judgment were their own affidavits.
a. Darlene Kinder and Eddie Kinder, No. 96-1354.
According to Darlene Kinder's affidavit, Gocio operated on her neck on February 21, 1991. She filed her complaint on May 20, 1993. Prior to the surgery, Kinder met with Gocio to discuss the procedure. He stated that he had been having trouble with grafts from the hip holding up and would use a synthetic fiber. She asked if it was experimental, and he assured her that this was not experimental and that they were having good results with arthritic patients. Gocio did not give her any other options, and she trusted him to make the right decision. Gocio stated that this material would fuse better than bone from the bone bank or hip bone.
We reverse the grant of summary judgment to the doctors in the Kinder case. While Kinder had knowledge that a "synthetic fiber" would be used in her neck, Gocio allegedly told her that this material was "not experimental." Unlike the prior representations about efficacy set forth above, we hold that this representation creates a fact question as to fraudulent concealment. The alleged representation that the material was "not experimental" goes beyond a mere opinion as to Orthoblock's efficacy, e.g., they had "good results," and is arguably a false representation concerning the surgery. Accordingly, we reverse and remand for further proceedings consistent with this opinion in the Kinder case.[5]
b. David Trusty and Pam Trusty, No. 96-1365.
On January 23, 1990, Gocio performed a surgery on David Trusty's neck. Trusty filed his complaint on February 12, 1993. Prior to this surgery, Trusty met with Gocio at the hospital and discussed the procedure. Trusty was aware of the possibility of using, as a graft material in his neck, bone from the bone bank as opposed to hip bone. These were the two options which Trusty understood he had. Trusty asked Gocio if he would use bone from the bone bank, as he did not want a separate incision on his hip. Gocio informed him that he would not use bone from the bone bank, but that he would perform a new procedure using a synthetic material. He did not identify the material by name, nor did he describe what it was made of. Gocio told him that he had been quite successful using the new material. Trusty was not given a choice about the use of materials, even though he wanted bone from the bone bank, and he was not told of any risks in using the synthetic material.
Following the surgery, he visited Gocio's office on February 26, 1990. Gocio examined an x-ray and told him that everything looked fine. In fact, the Orthoblock he had inserted had already fractured. At no time, even after he terminated his care with Gocio on September 17, 1990, was he told that the Orthoblock was fractured.
In the Trusty case, we reverse the grant of summary judgment to the appellee doctors, and remand for further proceedings consistent with this opinion. According to Trusty's affidavit, he went to Gocio's office for an x-ray. While Trusty alleged that his Orthoblock had already fractured, Gocio purportedly examined his x-ray and told him that everything "looked fine." Based on this evidence, we conclude that there exist genuine issues of material fact as to whether the doctors fraudulently concealed the Trustys' causes of action. See Jones v. Central Ark. Radiation Therapy, supra.
4. Conclusion SummaryAppellee Doctors.
In conclusion, we emphasize that we do not equate a claim based on lack of informed consent with fraudulent concealment. We are concerned only with the timeliness of these causes of action, not their merits. There must be something more than nondisclosure, *613 or a continuation of that nondisclosure, to toll the limitations period. However, at this stage of the proceedings, we are only asked to determine whether there exist genuine issues of material fact as to fraudulent concealment, keeping in mind that fraudulent concealment is better-suited as a question of fact for the jury, unless the evidence leaves no room for a reasonable difference of opinion.
We reject appellants' contention that the failure of the doctors to inform them of the experimental nature of the Orthoblock constitutes fraudulent concealment. While the bulk of the evidence in these cases obviously raises a factual issue as to whether the doctors should have so informed the appellants, this goes to the merits of the underlying claims, and not fraudulent concealment. Such is the case in Mitchell, where Arthur allegedly made no representations to the appellant there. In looking for something more in the way of affirmative representations, we note that in some cases the doctors allegedly made representations that may be categorized as opinions concerning the efficacy of the material to be used in the surgeries; e.g., "he had not had any slip", "had not had any other problems with an Orthoblock," the Orthoblock "fuse[d] with bone," "everything would grow together," and "he had not had any problems with the material." This evidence viewed in a light most favorable to appellants, does not create a fact question as to fraudulent concealment. However, as an example of an affirmative representation concerning efficacy that crosses the line leaving room for a reasonable difference of opinion is the alleged statement in the Kinder case that the material was "not experimental."
The other broad category of statements allegedly attributable to the doctors concerns the nature of the material to be used. In some instances, these representations do not create a fact question as to fraudulent concealment, e.g., "manmade material" and "synthetic material." However, in other cases, "synthetic disc," "plastic disc," and "synthetic hip bone," the references to "disc" and "bone", arguably give rise to an inference regarding the appropriateness of the material's use in the human spine, and, thus, create questions of fact as to fraudulent concealment.
B. Appellee Hospitals.
With regard to fraudulent concealment, all appellants make the same arguments against the hospitals as they do with the doctors. We reject these arguments as to the appellee hospitals in all cases. First, it is unclear whether the appellants have even sufficiently pleaded fraudulent concealment against the hospitals. At least in the St. Joseph's cases, the plaintiffs' affidavits responding to the hospital's motions for summary judgment stated as follows:
[Hospital] had made no inquiry into the safety of the product orthoblock for use in human spines prior to allowing Arthur and Gocio to perform their first orthoblock surgery, or any time thereafter;
That [hospital] knew before Arthur and Gocio performed their very first orthoblock surgery that the patients would be experimented upon with a non-FDA approved product;
That [hospital] made no inquiry and had no information regarding the long-term effect of orthoblocks in the spines of humans and had they inquired of the manufacturer they would have learned that during the entire time Arthur and Gocio performed orthoblock surgery, the manufacturer had no scientific basis to support the use of orthoblock in the spines of human beings;
that [hospital] had developed no protocol to insure the patients were adequately informed of the risks involved in participating in an experiment with a product not approved by the FDA for spinal surgery;
that [hospital] knew from the very beginning that orthoblocks were not designed for use in application where it would undergo significant flexural, tensile or sheer forces, the very forces that are in the spine.
These allegations, as well as their experts' affidavits, go to the merits of appellants' underlying claims against the hospitals, i.e., the breach of the hospitals' duty of care owed to appellants. Indeed, an implicit facet of the appellants' fraudulent-concealment claims *614 against the hospitals is that the hospitals owed them a duty to obtain their informed consent, a contention which the hospitals deny. We need not decide this issue. As we have already stated, failure to obtain informed consent does not equate to fraudulent concealment. To the extent that the hospitals may have owed the appellants such a duty, we would affirm as to the hospitals for the same reasons we expressed as to the doctors in the Mitchell case above. While there is evidence that the hospitals knew or should have known of the doctors' use of Orthoblock and its experimental nature (perhaps more so in the St. Joseph's cases than in the AMI cases), evidence of affirmative conduct on the part of the hospitals to conceal the appellants' causes of action is lacking. Even in the cases where we reverse as to the doctor appellees, we do so because of conduct on the part of the doctors evincing fact questions as to fraudulent concealment. During oral argument, counsel for appellants conceded that he was not proceeding against the hospitals on a theory of vicarious liability. There being no reason to impute this conduct to the hospitals, we reject the appellants' fraudulent-concealment argument as to the hospitals in the cases where we reverse as to the doctors.
II. Product-Liability Claims.
The appellants next argue that the trial court erred in declining to find that the hospitals could be strictly liable as suppliers of the Orthoblock. The premise of their argument is that our Product Liability Act and our Strict Liability Act expose a larger class of defendants to liability than does Section 402A of the Restatement (Second) of Torts. Before addressing this issue, we deal with a mootness issue raised by the hospitals.
A. Mootness.
Both hospitals contend that any viable strict liability claims against them are moot due to the appellants' settlement with Calcitek. In support of this argument they primarily rely on Sochanski v. Sears, Roebuck & Co., 689 F.2d 45 (3d Cir.1982). In Sochanski the court drew a distinction between primary and secondary liability in product-liability claims. The appellant there executed a release in favor of the manufacturer of a defective tire, the party primarily liable. However, the seller had only acted as a "conduit" between the manufacturer and the purchaser, and was thus only secondarily liable. "Consequently, [the seller's] liability for any misfeasance on [the manufacturer's] part is discharged by the release in favor of [the manufacturer]." Id. The hospitals also highlight the indemnification provision of the Product Liability Act, which gives the supplier of a defective product a claim for indemnification against the product's manufacturer. See Ark.Code Ann. § 16-116-107 (1987).
We decline to hold that the appellants' product-liability claims against the hospitals are moot in these cases. The orders of dismissal with Calcitek in these records show only that "the matter has been compromised and settled, the above-styled cause against Defendant Calcitek, Inc. is hereby dismissed with prejudice." However, we do not have the benefit of any release between the appellants and Calcitek, and we would be left to speculate as to the terms of that release, as well as the potential viability of cross-claims between the parties.
B. Statute of Limitations.
While we do not hold that the appellants' product-liability claims against the hospitals are moot, we nonetheless affirm the grant of summary judgment in favor of the hospitals. In doing so, we do not decide whether a hospital, under these facts, may be strictly liable as a supplier. To the extent that these appellants have viable product-liability claims against the hospitals, they are all barred by the applicable limitations period found in the Medical Malpractice Act.
The Product Liability Act establishes a three-year statute of limitations, "All product liability actions shall be commenced within three (3) years after the date on which the death, injury, or damage complained of occurs." Ark.Code Ann. § 16-116-103. A "product liability action" "includes all actions brought for or on account of personal injury, death, or property damage caused by, or resulting from, the manufacture, construction, design, formula, preparation, assembly, testing, service, warning, instruction, marketing, *615 packaging, or labeling, of any product[.]" Ark.Code Ann. § 16-116-102(5).
By contrast, the Medical Malpractice Act's limitations period provides in part "that all actions for medical injury shall be commenced within two (2) years after the cause of action accrues." An "Action for medical injury" "means any action against a medical care provider, whether based in tort, contract, or otherwise, to recover damages on account of medical injury." Ark.Code Ann. § 16-114-201(1). Furthermore, "medical injury" means "any adverse consequences arising out of or sustained in the course of the professional services being rendered by a medical care provider, whether resulting from negligence, error, or omission in the performance of such services; or from rendition of such services without informed consent or in breach of warranty or in violation of contract; or from failure to diagnose; or from premature abandonment of a patient or of a course of treatment; or from failure to properly maintain equipment or appliances necessary to the rendition of such services; or otherwise arising out of or sustained in the course of such services." Ark.Code Ann. § 16-114-201(3).
In exploring the plain language of both Acts, there is obviously a potential conflict lurking with regard to the limitations period for an action otherwise falling within the scope of the Product Liability Act, yet involving an allegedly defective product that is supplied by a medical-care provider in the course of rendering professional services. This is due to the Medical Malpractice Act's broadly inclusive language used in defining an action for medical injury, which includes any action against a medical care provider to recover damages on account of medical injury "whether based in tort, contract, or otherwise[.]" See Ark.Code Ann. § 16-114-201(1). The definition of "medical injury" is similarly inclusive, encompassing adverse consequences arising out of the rendition of professional services whether in "breach of warranty... or otherwise arising out of or sustained in the course of such services." See Ark.Code Ann. § 16-114-201(3). In the present cases, where the appellants attempt to hold the hospitals liable for adverse consequences arising from an allegedly defective product supplied in the course of rendering a surgical procedure, the appellants' alleged injuries fall within the definition of medical injury, and the appellants' cause of action based on strict or product liability is an action for medical injury as that term is used in the Medical Malpractice Act. Cf. Burris v. Hospital Corp. of America, 773 S.W.2d 932 (Tenn.Ct.App.1989) (product-liability action against hospital governed by statute of limitations for "medical malpractice action" when such action included "an action for death resulting from malpractice by a health care provider ... whether based upon tort or contract law.""Any ground which a plaintiff might state for recovery of civil damages must fall into one of the categories, contract or tort."). Thus, the conflict between the two statutes of limitations is readily apparent in these cases.
This is not the first time that this court has been confronted with conflicting statutes of limitations in interpreting the Medical Malpractice Act. In Hertlein v. St. Paul Fire & Marine Ins. Co., 323 Ark. 283, 914 S.W.2d 303 (1996), this court held that the Medical Malpractice Act's two-year limitations period governed a wrongful-death action, despite the longer limitations period generally applicable to wrongful-death actions. Compare with McQuay v. Guntharp, 331 Ark. 466, 963 S.W.2d 583 (1998) (declining to reach merits of whether Medical Malpractice Act's two-year limitations period applied to outrage claim against a physicianappellant failed to obtain a ruling on this issue at the trial court level). The rationale behind the Hertlein decision was the general repealer clause contained in the Medical Malpractice Act, Act 709 of 1979. We noted that the Act expressly "applies to all causes of action for medical injury accruing after April 2, 1979, and, as to such causes of action, shall supersede any inconsistent provision of law." Hertlein, supra (quoting Ark.Code Ann. § 16-114-202 (1987) (emphasis in original).
Here, the statute of limitations found in the Medical Malpractice Act conflicts with that found in the Product Liability Act, and for that matter, the same limitations period applicable to claims brought pursuant to the *616 Strict Liability Act. See Harris v. Standardized San. Sys., 658 F. Supp. 438 (W.D.Ark. 1987) (acknowledging that Strict Liability Act omits specific limitations period but applied three-year period found in Product Liability Act), rev'd on other grounds, 856 F.2d 64 (8th Cir.1988). In resolving the conflict, we hold that the two-year limitations period found in the Medical Malpractice Act supersedes that found in the Product Liability Act.
We are not unmindful of the fact that the Product Liability Act, Act 511 of 1979, and the Medical Malpractice Act, Act 709 of 1979, were enacted in the same legislative session, and that such an implied repealer is not favored. See generally 1A Sutherland Statutory Construction § 23.17 (5th ed.1993); see also Matthews v. Travelers Indemnity Ins. Co., 245 Ark. 247, 432 S.W.2d 485 (1968) (policy is to use longer limitations period where the issue is "doubtful"). However, the Medical Malpractice Act, as the latter enactment within the session, may be seen as the prevailing expression of legislative intent. See Williams v. State, 215 Ark. 757, 223 S.W.2d 190 (1949) ("As between two acts, it has been held that one passed later and going into effect earlier will prevail over one passed earlier and going into effect later."); but see Citizens to Establish a Reform Party v. Priest, 325 Ark. 257, 926 S.W.2d 432 (1996) ("Where Acts passed at the same session contain conflicting clauses, the whole record of legislation will be examined to ascertain the Legislative intent, and such intent, if ascertained, will be given effect, regardless of priority of enactment."); Horn v. White, 225 Ark. 540, 284 S.W.2d 122 (1955) (declining to mechanically apply "last passed" rule). For these reasons, and in light of the all inclusive language used by the General Assembly in defining an action for medical injury to encompass those actions "whether based in tort, contract, or otherwise," we conclude that the Medical Malpractice Act's two-year statute of limitations governs the appellants' product-liability claims brought against the hospitals. Accordingly, the trial court did not err in granting summary judgment to the appellee hospitals on the appellants' product-liability claims.
In so holding, we are also cognizant of Spickes v. Medtronic, 275 Ark. 421, 631 S.W.2d 5 (1982), where this court applied the Product Liability Act's three-year statute of limitations in the context of a product-liability claim brought against the manufacturer of a pacemaker as well as the "hospital through which the device was sold[.]" Id. However, Spickes presented no issue as to whether the Medical Malpractice Act's two-year statute would otherwise govern. Therefore, Spickes is not dispositive here.
III. Constitutionality of the Medical Malpractice Act's Limitation Period.
The appellants' final point on appeal concerns the constitutionality of the Medical Malpractice Act's statute of limitations, Ark.Code Ann. § 16-114-203. They argue that section 16-114-203 is a statute of repose which is violative of the Arkansas Constitution's guarantees of equal protection of the laws and their rights to a jury trial and redress of wrongs. The appellants also contend that the statute's exception to the general two-year statute of limitations based on foreign-object claims violates the Arkansas Constitution's guarantee of equal protection. The crux of the appellants' equal protection argument is that this court should apply a heightened level of scrutiny in reviewing the statute. While it is true that the statute may be more accurately described as a statute of repose, we decline to apply strict scrutiny in examining the statute's constitutionality. Instead, the applicable standard of review is rational basis. For example, in Carter v. Hartenstein, 248 Ark. 1172, 455 S.W.2d 918 (1970), this court upheld the application of a statute of repose for actions against architects and designers. The statute at issue there required that personal injury and wrongful-death actions against a designer, planner, or constructor of a building or improvement be brought within four years from the date of substantial completion of the project regardless of the date that injury arose as a result of the defect. The appellant in Carter challenged the statute, asserting it violated due process, equal protection, as well as the Article 2, Section 13, redress of wrongs guarantee. The crux of *617 appellant's argument was that the statute unconstitutionally gave protection to those enumerated in the statute while failing to give the same protection to others such as materialmen and owners, whom the appellant claimed belonged in the same class as those exempted. This court framed the issue as "whether it is fair and reasonable and an appropriate action by the General Assembly of the State of Arkansas, or whether it impinges and frustrates basic rights guaranteed constitutionally." Id. In answering that question, this court held that the statute was "valid, reasonable, constitutional and not enacted for arbitrary or capricious reasons." Id; see also Chapman v. Alexander, 307 Ark. 87, 817 S.W.2d 425 (1991) (upholding limitations period in legal malpractice actions). The Carter court noted that a "vital distinction" based on control of the premises existed between owners or suppliers and those engaged in the professions and occupations of design and building. This distinction was not arbitrary or unreasonable and was a legitimate exercise of legislative function.
The constitutional guarantee of equal protection does not prohibit legislation affording different treatment for persons in different classifications so long as there is a rational basis for the different classifications and they have some reasonable relation to the objectives of the legislation. Holland v. Willis, 293 Ark. 518, 739 S.W.2d 529 (1987). Of course, any statute of limitations will eventually operate to bar a remedy, and the time within which a claim should be asserted is a matter of public policy, the determination of which lies almost exclusively in the legislative domain, and the decision of the General Assembly in that regard will not be interfered with by the courts in the absence of palpable error in the exercise of the legislative judgment. Owen v. Wilson, 260 Ark. 21, 537 S.W.2d 543 (1976). Simply put, it is the General Assembly's prerogative to set a time in which a claim must be brought. Such a determination is a matter of public policy. We are unable to say that the limitations period found in section 16-114-203 lacks a rational basis, or deprives a claimant of a constitutional right to redress of wrongs or a jury trial.
Appellants next contend that within section 16-114-203 itself exists an unconstitutional distinction between foreign-object medical malpractice claimants and typical medical malpractice claimants. See Ark. Code Ann. § 16-114-203(b) ("where the action is based upon the discovery of a foreign object in the body of the injured person which is not discovered and could not reasonably have been discovered within such two-year period, the action may be commenced within one (1) year from the date of discovery or the date the foreign object reasonably should have been discovered, whichever is earlier.") Appellants point out that in Treat v. Kreutzer, 290 Ark. 532, 720 S.W.2d 716 (1986), we alluded to the "very respectable authority" from other jurisdictions holding such a distinction to be unconstitutional as a denial of equal protection of the laws. As examples of such authority, the appellants direct us to other courts that have struck down a foreign-object distinction. Typical is Austin v. Litvak, 682 P.2d 41 (Colo.1984), where the Colorado Supreme Court held that the distinction between foreign-object claimants and normal claimants was an arbitrary classification. The Austin court could find no rational basis for distinguishing between the two classes of medical malpractice claimants. While the court recognized a legitimate state interest in foreclosing the prosecution of stale or frivolous claims, the classification which resulted in the denial of the discovery rule to patients whose conditions were negligently misdiagnosed did not further this interest, and therefore lacked a "rational relationship to that goal." Id.
By way of contrast, other courts have upheld a similar foreign-object plaintiff distinction. In Ross v. Kansas City Gen. Hosp. & Med. Ctr., 608 S.W.2d 397 (Mo.1980) (en banc), the court noted that the legislature may have recognized the unfairness in barring a claim where a foreign object had been left in the claimant's body before the object had been discovered. Moreover, the legislature may have deemed the time of discovery in foreign-object cases appropriate rather than the date of injury because "there is less likely to be as great a problem with stale *618 evidence when a foreign object is left in the body than in the other types of malpractice cases." Id. See also Allrid v. Emory University, 249 Ga. 35, 285 S.E.2d 521 (1982) (noting that in foreign-object cases "the danger of belated, false or frivolous claims is eliminated.").
Here we are merely asked to determine whether there exists any rational basis which demonstrates the possibility of a deliberate nexus with state objectives, so that the legislation is not the product of utterly arbitrary and capricious government purpose and void of any hint of deliberate and lawful purpose. See Hamilton v. Hamilton, 317 Ark. 572, 879 S.W.2d 416 (1994). In light of staleness considerations that are not as likely present in foreign-object cases, we conclude that a rational basis exists for the Medical Malpractice's Act exception to its limitations period in such cases. The trial court did not err in declining to find the limitations period unconstitutional as violative of equal protection.
Nos. 96-1350, 96-1355, 96-1406, Affirmed. Nos. 96-1405, 96-1407, 96-1408, 96-1409, 96-1414, 96-1415, 96-1365, 96-1354, 96-1470, Affirmed in part, Reversed and Remanded in part.
BOB LESLIE, JIM PENDER, WARREN DUPWE and LeANNE DANIEL, Special Justices, join in this opinion.
NEWBERN, GLAZE, CORBIN and BROWN, JJ., not participating.
NOTES
[1] In a footnote, the Trantafello court alluded to an alleged misrepresentation made by the defendant given his reference to "bone" rather than methyl methacrylate. However, this alleged statement was irrelevant for tolling purposes given that it had allegedly occurred after the three-year limitations period had expired.
[2] Rae's affidavit in the record states that the procedure was on November 30, 1989.
[3] Miller's affidavit in the record states that the surgery was on April 19, 1990.
[4] Dexter's affidavit in the record states that the surgery was on February 2, 1990.
[5] The Kinder case is also unique in that the Kinders are the only appellants to assert continuous treatment as a ground for reversal. Because we reverse and remand on grounds of fraudulent concealment, we need not address this argument. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1534944/ | 5 B.R. 583 (1980)
In the Matter of Holger P. RATAJCZAK, Debtor.
MAAS BROTHERS, INC., Plaintiff,
v.
Holger P. RATAJCZAK, Defendant.
Bankruptcy No. 80-126 C.
United States Bankruptcy Court, M.D. Florida, Tampa Division.
August 6, 1980.
*584 John R. Shuman, Clearwater, Fla., for plaintiff.
John Thomas Schrotel, Tampa, Fla., for defendant.
FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION DETERMINING DISCHARGEABILITY
ALEXANDER L. PASKAY, Chief Bankruptcy Judge.
THIS IS a contested discharge proceeding and the matter under consideration is the dischargeability, vel non, of a debt admittedly owed to the Plaintiff, Maas Brothers, Inc. by Holger P. Ratajczak, the Defendant involved in the above-captioned adversary proceeding. The complaint seeks a determination that the Defendant is indebted to the Plaintiff in the amount of $1,919.72 and that this indebtedness was created by the Defendant through false pretenses in that he never intended to pay for the merchandise or other things of value obtained by him from the Plaintiff. Accordingly, so contends the Plaintiff, the indebtedness shall be declared to be outside of the protective provisions of the general bankruptcy discharge by virtue of § 523a(2)(A), 11 U.S.C. § 523a(2)(A) of the Bankruptcy Code.
The record as established at the final evidentiary hearing reveals the following:
The Defendant is a college graduate and is currently working on his Masters Degree in education. In the early 1970's, the Defendant established a charge account with the Plaintiff and during the entire period of time, up to the time he filed bankruptcy, maintained his account in good standing *585 and there is no serious dispute that there were no excessive charges on his charge account until sometime in late October of 1979.
The record further reveals that the Defendant, after having been discharged from the Army, had various and sundry employments, none of them of any great consequence, and primarily attended school on a GI Bill and sustained himself and his wife basically on the benefits he received from the Government either in the form of a GI Bill, tuition assistance and a small monthly disability payment plus a federally guaranteed student loan. The Defendant's wife, while working in the earlier years as a clerk, did not work at all during the year 1979 due to pregnancy. In September of 1979, she gave birth to a child and although it appears that she intended to go back to work shortly thereafter, she suffered post-partum depression which required treatment by a psychiatrist and extensive hospitalization subsequent to the Defendant filing his petition under Chapter 7.
The record further indicates that the Defendant maintained two accounts with the Plaintiff, Account No. 738727-7 F and Account No. 739660-0 D. It appears, however, this later account was satisfied and is not involved in the present controversy. Account No. 738727-7 F carried a modest monthly balance up to October 20th. Thus, the September statement indicates an ending balance of $326.16 and the October 20th statement had an ending balance of $571.80. However, the activity on this account markedly increased between October 20th and January 12th, reflecting purchases in excess of a thousand dollars, out of which $900 represents not actual purchases, but purchases of gift certificates on credit, which appear to have been used by the Defendant as a means to obtain not only merchandise but, at least at times, cash representing the difference between the face amount of the certificates and an actual purchase. The record further reveals that these certificates were not in fact purchased to be given to friends or relatives as gifts at all, but were used by the Defendant and his wife.
The record further reveals that on January 30th the Defendant consulted an attorney for the first time for the purpose of inquiring about the possibility of filing bankruptcy and their voluntary petition was, in fact, filed on the following day, February 1, 1980. The Statement of Affairs filed by the Defendant reveals that the total income during the year of 1979 was $2,000 and the year of 1978 was $1,000. It further appears, as noted earlier, that the wife had no earnings during the year of 1979 and the Schedule of Liabilities indicates a total of secured indebtedness in the amount of $1,300, which in addition to a 1979 Chevrolet Camaro, includes hard goods purchased on credit from the Plaintiff, the balance of which is not involved in this controversy, and a small loan which is secured by household goods. However, the schedules also indicate a total unsecured indebtedness of $6,656, among which there is a liability to J.C. Penney in the amount of $4,500 and a balance to Burdines, another department store, in the amount of $1,400. The Defendant obtained his position with the County of Hillsborough as a clerk typist in September of 1979 and had a disposable income from that employment of approximately $502 per month. At that time, the Defendant no longer had the benefit of the government education assistance and the only funds he received from the government were from a small disability pension mentioned earlier. In spite of a large indebtedness, it appears that until January of 1980, the Defendant somehow more or less met his obligations and did not appear to have any pressure from creditors either by way of threat of a lawsuit or actual suits filed.
This is basically the background of this controversy upon which the Plaintiff's contention is based that the balance stated earlier, that is the sum of $1,919, should be declared to be non-dischargeable because it was obtained by fraud in that the Defendant knew that he would not be able to meet his obligations at the time he incurred these liabilities. This charge is based upon § 523(a)(2)(A) of the Code which provides in pertinent part as follows:
*586 (a) "A discharge. . . . 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. . . . "
§ 523(a)(2)(A) is derived, with slight modifications, from § 17a(2) of the Bankruptcy Act of 1898 and the case law as developed under the Act pertaining to the obtaining of property on the basis of false pretenses and false representations is equally applicable to such a charge under the Code.
In order to sustain a claim of non dischargeability under § 523(a)(2)(A), the Plaintiff must establish (1) that the Defendant made a materially false representation; (2) that the representation was made with intent to defraud; and (3) that the Plaintiff relied on the false representation. Purchase of merchandise by use of a credit card is an implied representation to the merchant and to the issuer of the card, that the buyer has the means and the intention to pay for the purchase. Accordingly, when one purchases goods on credit and either knows that he is unable to comply with the payment requirements of the contract or when it appears from the evidence that he had no intention to pay for them, he obtains the goods through false pretenses which constitutes a form of fraud on the creditor who relied upon the representation by virtue of the extension of credit. The liability created by such a credit purchase is, therefore, rendered non-dischargeable. In re Boydston, 520 F.2d 1098 (5th Cir. 1975); In re Black, 373 F. Supp. 105 (E.D.Wis.1974). The case of In re Wood, 571 F.2d 284 (5th Cir. 1978), also focused on the intent of the purchaser in finding a credit card debt dischargeable. The Court noted that Wood had been able to meet his debts as they came due, that he had not contemplated bankruptcy at the time the charges were incurred and that a factor in his later inability to pay his debts was additional medical expenses. On these facts, the Court determined that there was no fraudulent intent on the part of the bankrupt to render the debt non-dischargeable.
Applying these principles to the relevant facts as established by this record, this Court is satisfied that the Defendant made the purchases subsequent to October 19, 1979 with full knowledge that he would not be able to pay for them. At the time the credit transactions in question took place, the Defendant's financial resources were limited. The Defendant was employed, but was only taking home approximately $500 a month. His wife was not working and had just given birth to a child. Though extensive medical expenses were incurred due to his wife's hospitalization, this hospitalization did not occur until after the Defendant filed his petition in bankruptcy and it, therefore, was not this unexpected event which caused him to seek relief in this Court. Within an approximate two month span, the Defendant made approximately $1,000 worth of purchases most of which were gift certificates which were used not as gifts, but by the Defendant and his wife to obtain merchandise for themselves and the cash differential between the purchase and the face amount of the certificate. Although the record reveals that the Defendant had utilized this same method of purchasing in the past, the number of gift certificates purchased greatly increased after October. These transactions demonstrate a gross abuse of the credit facility extended to him for under such strained financial circumstances, the Defendant could not have believed that he would be able to pay for these purchases. The Defendant's argument that the purchases increased drastically during the period in question only due to Christmas does not negate the fact that he was aware of his inability to repay the debt incurred.
Having concluded that the Defendant made the purchases subsequent to October 19, 1979, with full knowledge that he would not be able to pay for them, this Court, therefore, finds that the portion of the obligation to the Plaintiff attributable to these purchases is a liability for obtaining money and property by false pretenses and should be excluded from the protection of the general bankruptcy discharge.
*587 A separate final judgment will be entered in accordance with the foregoing. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1534952/ | 5 B.R. 723 (1980)
In the Matter of Richard O. BLUE, Debtor.
John R. BUTZ, Trustee in Bankruptcy, 806 Arcue Building Springfield, Ohio 45502, Plaintiff,
v.
Richard O. BLUE, 619 North Bird Road, P.O. Box 376, Springfield, Ohio 45501, Defendant.
Bankruptcy No. 3-80-00713, Adv. No. 3-80-0374.
United States Bankruptcy Court, S.D. Ohio, W.D.
September 2, 1980.
John R. Butz, Springfield, Ohio, trustee-plaintiff.
*724 John P. McDonough, Springfield, Ohio, for debtor.
DECISION AND ORDER
CHARLES A. ANDERSON, Bankruptcy Judge.
STATEMENT OF FACTS
Debtor, defendant herein, filed his voluntary petition in bankruptcy on 24 March 1980. No life insurance policy was scheduled as property of the estate (and none was claimed as exempt property).
Upon the examination of debtor by John R. Butz, trustee in bankruptcy and plaintiff herein, at the § 341 meeting of creditors, it was discovered that debtor is owner of a life insurance policy with Nationwide Insurance Company, which has a net cash surrender value of approximately $913.00.
On 11 July 1980 plaintiff filed a complaint for authority to surrender the policy for its cash value, alleging that the policy is not exempt under the Ohio statutes.
The beneficiary at the time of filing the petition in bankruptcy was Catherine Taylor, who is a sister of the debtor and not a dependent. From the records of the insurance company, it has been established that a request for change of beneficiary was received on or about 14 May 1980, handwritten on a notice of premium due. Upon receipt, proper insurance company forms to effect a change of beneficiary were forwarded to debtor. It was the intent of the debtor to change beneficiary to name his minor son.
CONCLUSION OF LAW
The policy in question for change of beneficiary provides, as follows:
Any new designation of an Owner or a Contingent Owner will automatically revoke any prior designation of a Contingent Owner, Beneficiary or Contingent Beneficiary unless otherwise specified. Any designation or change of Owner, Contingent Owner, Beneficiary or Contingent Beneficiary will not be binding upon the Company unless made in writing and filed at the Home Office. Such designation or change will then be effective as of the date it was signed, except that it will not apply with respect to any payment made or action taken by the Company before it was filed. The Company reserves the right to require the policy for endorsement of any such designation or change.
Defendant maintains that he had intended to change the beneficiary of the life insurance policy before filing in bankruptcy, but neglected to do so. No explanation has been offered to explain why the policy was not scheduled as an asset in the bankruptcy estate.
The parties have submitted no citations of case precedents or statutory authorities.
Under Ohio Revised Code § 3911.10, the policy would be exempt if the beneficiary is a dependent child, and this statute expressly provides for a change of beneficiary.
The only issue is whether the attempted change of beneficiary should be effective to defeat the rights of the trustee in bankruptcy to liquidate the policy for creditors.
There is no question raised in the facts of premiums paid by the insured in fraud of creditors; hence, a change of beneficiary prior to filing the petition in bankruptcy would have rendered the policy exempt.
Under the Bankruptcy Act of 1898, prior to the revision of 11 U.S.C. § 110(a) in 1938, the trustee's title vested on the date of the adjudication in bankruptcy. Since that revision, the time of vesting was "as of the date of the filing of the petition in bankruptcy". As amended in 1952 the time is "the date of the filing of the petition initiating a proceeding under the Bankruptcy Act."
In White v. Stump, 266 U.S. 310, 45 S. Ct. 103, 69 L. Ed. 301, the Supreme Court settled this question as to exemptions with a "purpose `to fix the line of cleavage' with special regard to the conditions existing when the petition is filed . . . In our opinion this point of time is the one as of which the general estate passes out of the bankrupt's control, and with respect to *725 which the status and rights of the bankrupt, the creditors, and the trustee in other particulars are fixed."
The 1978 Bankruptcy Code professes to simplify "a complicated melange of references to state law" which "does little to further, the bankruptcy policy of distribution of the debtor's property to his creditor [sic] in satisfaction of his debts." House Report No. 95-595 p. 175, U.S.Code Cong. & Admin.News 1978, pp. 5787, 6136. As to exemptions, "These changes will bring anything of value that the debtors have into the estate. The exemption section will permit an individual debtor to take out of the estate that property that is necessary for a fresh start and for the support of himself and his dependents . . . But on the whole, the trustee will be able to bring all property together for a coherent evaluation of its value and transferability, and then to dispose of it for the benefit of the debtor's creditors." House Report No. 95-595 at page 176, U.S.Code Cong. & Admin.News 1978 at 6136.
The 1978 Bankruptcy Code permits the debtor to convert non-exempt property into exempt property prior to the filing of a bankruptcy petition. House Report No. 95-595 at page 361.
Hence, in removing the "melange", we find language emphasizing both the policy of distribution of the debtor's property to his creditors and the apparent policy of permitting a debtor to remove, at any reasonable time, property from the estate to preserve exemptions (probably any time before distribution by the trustee in bankruptcy, regardless of any conditions or vesting of interests).
A waiver of exemptions is now unenforceable in bankruptcy; and, a waiver of the debtor's right to obtain exempt property is not permitted. See 11 U.S.C. § 522(e).
Under Ohio law of long standing and case precedents the right to exemptions can be waived, other than by executory contract. Ohio Revised Code § 2329.72 (GC 11729). If the debtor fails to exercise the right by making a proper and timely demand and selection the exemption will be deemed to have been waived. Butt v. Green, 29 Ohio St. 667 (1876).
In the decision of this court rendered In Re William James Walkosak, Case No. 68-1652 (at Dayton, 1969), the debtor was permitted to assert his exemption in a life insurance policy not claimed prior to the trustee's report setting off exemptions and after the trustee had taken action to surrender the policy for its cash surrender value. It was decided there, however, that the administrative expenses chargeable to the transaction prior to claiming the exemption must be reimbursed to the trustee, so that the creditors receiving dividends from other assets would not indirectly be bearing the cost of the bankrupt's laches.
As the Supreme Court in White v. Stump has emphasized, nevertheless, there must be a "line of cleavage". If the debtor is to be permitted to claim any time, before or after filing, an exemption existing on the date of filing the bankruptcy petition, so as not by implication to waive such rights (laches notwithstanding), where is the cleavage?
The conclusion now reached would place this cut-off date for converting nonexempt property to exempt property as the now traditional White v. Stump rule. Despite the professed semantical niceties of abolishing the use of "title" concepts under the 1978 Bankruptcy Code, the trustee in bankruptcy and creditors take all of the "property of the estate" as defined under 11 U.S.C. § 541 in its full legal significance. This bundle of property rights vest upon "the commencement of a case". At this point of cleavage neither the debtor nor the creditors can elect to defeat these respective vested interests.
The line of cleavage under 11 U.S.C. § 541(a) is the date of "The commencement of a case under section 301, 302, or 303 of this title. . . ."
In this sense, a sharp and clear distinction should be drawn between the situation of a debtor changing his claims to exemption to add property by law already exempt and a request to change non-exempt property to *726 exempt property. In the first instance, there are no intervening rights attaching; but, in the latter instance the intervening rights of the trustee and creditors have vested and the property is in custodia legis for the protection of all rights. Such is the interpretation herein of the legislative purpose expressed in House Report No.95-595, pages 175-176.
The consequences of this conclusion might at first flush seem harsh because the debtor loses an exemption by such technicalities instanter; and, there may be an inclination of a court to heed as a court of equity the most basic maxim of all, "that equity regards as done that which ought to be done." Even under this maxim, however, a court will not consider as act to have been done if the consequence of doing so will result in some damage to other persons. See 27 Am.Jur.2d, Equity § 126.
Having concluded that non-exempt property cannot be changed to exempt property after the commencement of a case, and that the insurance policy in question is not exempt, as such, another question remains for disposition, even though not raised by the parties. Adverting to this court's decision In Re Smith and In Re Marinelli, Cases 80-99 and 208; 5 B.R. 227, 6 B.C.D. 644 (1980) the question arises whether or not the non-exempt life insurance policy can qualify for an exemption under Ohio Revised Code § 2329.66(A)(17). We conclude that it does, reiterating that the Ohio exemption statutory allowances are not necessarily mutually exclusive. As emphasized in the Smith-Marinelli cases, "any property" literally connotes any other property of any kind, even of a nature to be generically included in another category, to the extent of any monetary limitations,
ORDERED, ADJUDGED AND DECREED, that the cash surrender value of the debtor's life insurance policy purchased from Nationwide Insurance Company is not exempt property under the statutes of the State of Ohio pertaining to life insurance; but,
ORDERED, ADJUDGED AND DECREED, that there is a $400.00 exemption applicable to the total cash value under Ohio Revised Code § 2329.66(A)(17) and it is further, ORDERED that the debtor may keep the life insurance policy in effect by making a policy loan for the non-exempt value within two weeks after the date of this decision. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/8304206/ | Mr. Justtce Holmes
delivered the opinion of the Court.
This is an appeal from an order of .the Criminal Court of Davidson County dismissing without a hearing a petition, which is designated a petition for habeas corpus, which was filed by the plaintiff in error pro se in that Court. The order of the Trial Court states:
“The matters alleged therein are not such as can he determined by writ of habeas corpus and, therefore, said petition appears to be without any merit, either in law or fact, and is, consequently, dismissed.”
Court appointed counsel for the plaintiff in error has duly perfected an appeal to this Court and assigned errors.
The petition filed in the Trial Court alleges that Ciar*496ence L. Jordan /was convicted of burglary in the third degree on April 4, 1962 in the Criminal Court of Smith County and sentenced to serve three years in the State Penitentiary. It states that Jordan had.been seriously injured about his arm and shoulder in an automobile accident in Nashville in January 1962 and was until the time of his incarceration in the State Penitentiary on April 6, 1962 under the care of Dr. Cleo Miller, a Nashville physician. The petition further states that Jordan, following his confinement in the penitentiary, “repeatedly requested to see a doctor as pain grew worse and the arm became more useless day by day.” It further alleges that on May 23, 1962 the petitioner was taken to the Criminal Court of Davidson County, Tennessée, where he was tried on another charge of third degree burglary, was found guilty, and sentenced to serve four years and one day in the penitentiary, his two terms to be served consecutively, that thereafter, on July 26, 1962, he was seen by Dr. Don Eyler, a State employed doctor who “operated on the shoulder of petitioner finding certain tissues damaged along with the bone and inserted a metal screw into the arm and shoulder joint to hold the shoulder in position. ’ ’ He remained in the prison hospital approximately twelve days on this occasion, and a short time after his release was returned to the hospital for two weeks, during which time an aid gave him arm exercises and then he was returned to work.
It' is alleged that about November 14, 1962 petitioner was confined in the maximum security building, that he requested to see a doctor at that time and “was denied this until finally in March 1963 petitioner was examined by Doctor Lipton and Doctor Jones, prison doctors,” who ordered X-rays of petitioner's shoulder. Petitioner states he was advised at that time by the doctors that he had an *497infected and inflamed shoulder and arm tendon, that “Doctor Jones ordered heat treatments to- be given petitioner by the hospital superintendent for two weeks but this was refused to petitioner by the hospital superintendent.” The petition states that thereafter Dr. Jones advised petitioner that possibly the tendon in the shoulder was pinched between the bones in the shoulder area and that another operation might be necessary. Petitioner states Dr. Jones “told petitioner an operation would be performed on him (the petitioner) July 10, 1963. This date came and petitioner seen (sic) Doctor Jones again and was told he (petitioner) was being transferred to Fort Pillow State Farm and would not be operated on after all.” It is alleged that on this occasion Dr. Jones advised the petitioner there were good doctors at Fort Pillow and that he would be cared for.
The petitioner states he .was transferred to Fort Pillow on July 24, 1963, where he. was required -to perform manual labor which caused extreme physical pain in his arm and shoulder, that he constantly requested to see a doctor but was denied that right. He avers that he asked “Mr. J. C. Warpool, Deputy Warden of Fort Pillow State Farm, personally, to allow him (petitioner) to see a, doctor” and was advised theré was nothing the doctors could do for him.
The petition asserts that Jordan first was seen by a doctor in November 1963 after he arrived at Fort Pillow, when Dr. Thomas from Ripley, Tennessee, came to the Fort Pillow Stale Farm. Petitioner states this doctor ordered “hot water treatments consisting of shower three times a day” for petitioner and requested petitioner be brought to his office in Ripley, Tennessee, the .following Monday if petitioner’s condition had not' im*498proved. It is alleged that Jordan did not receive the hot water treatments, nor was he given medicine which was left with the prison officials by the doctor, and was not taken to the doctor’s office in Ripley.
Jordan alleges he was sent back to heavy manual labor and did not see another doctor until several months later when he was “in such great pain and the arm and shoulder was so inflamed and swelled petitioner was unable to use it in any manner, that he was taken to Ripley, Tennessee, to a clinic wherein petitioner was examined and given some medicine to lessen his pain and received only (2) two and (1) one-half pills over a (3) three day period whereas the doctor specifically directed petitioner should have (1) one pill every (6) six hours or when needed.” Jordan further alleges that he heard the doctor on this occasion tell Mr. Crook, the officer who drives the official prison transfer car for Fort Pillow State Farm, that the petitioner should be taken to the main penitentiary at Nashville the very next trip of the transfer car to Nashville so that petitioner could receive proper medical attention, but petitioner remained at Fort Pillow and no effort was made to return him to Nashville.
The petition further alleges that on February 15, 1964 petitioner was returned to the penitentiary at Nashville and placed in the maximum security building there, “and though petitioner has requested to see doctor being in constant pain has not at this date March 16, 1964, seen a doctor. ”
T.C.A. sec. 4-616 requires the appointment of a physician for each of the state prisons. By the terms of T.C.A. sec. 41-313 the physician is required to visit the prison each day and examine the physical condition of. the con*499victs and pass on their ability to work. T.C.A. see. 41-314 provides:
“He (the physician) shall also visit and examine any convict who complains of illness, npon notice from any of the officers of the penitentiary; which notice it is their duty to give immediately on complaint made, and if, in his opinion, the illness is such as to require removal to the hospital, the convict shall be removed accordingly, and allowed to remain there until the physician determines that he may be removed without injury. ’ ’
The brief of the defendant cites a number of the decisions of this Court which hold:
“It is, of course, well settled that one imprisoned under judicial authority may obtain relief by writ of habeas corpus only where the sentence is void, not merely voidable; or the term of imprisonment has expired.” Adams v. Russell, 179 Tenn. 428, 430, 167 S.W.2d 5, 6.
See also State ex rel Grandstaff v. Gore, 182 Tenn. 94, 98, 184S.W.2d 366; State ex rel. Holbrook v. Bomar, 211 Tenn. 243, 246, 364 S.W.2d 887.
In State ex rel. Warren v. Jack, 90 Tenn. 614, 18 S.W. 257, a petition for habeas corpus was filed by a prisoner lawfully subject to imprisonment in the State Penitentiary. There the petitioner complained that he was required to work at hard labor in coal mines for a sub-lessee of the State. The record showed that a branch of ' the penitentiary had been lawfully established at Brice-ville, in which the petitioner in that case was confined. Also the record showed petitioner was under the control of an assistant or deputy warden. The Court held:
*500“So long as lie remains in the custody of a warden, acting under the supervision of the board of inspectors, there is no illegality in his confinement at a branch prison.
“A remedy for the evils complained of in the proof and argument is provided in clear terms by the statute, but the case before us does not present a question making its discussion necessary.”
In a supplemental reply brief of the defendant in error, the Attorney Generál candidly calls our attention to the fact that there are some cases from other jurisdictions which hold that a prisoner, thoug’h lawfully in custody, may seek relief by way of habeas corpus upon the ground of unlawful treatment during such custody. These cases are collected in an annotation appearing in 155 A.L.fi. 145.
Having examined the authorities, we agree with the rule heretofore stated in this State that habeas corpus will not lie to superintend the treatment of prisoners confined in the penitentiary, but that writ is only available where the sentence is void or the. term of imprisonment has expired, We find this to be the rule in most jurisdictions.
In Sarshik v. Sanford, 5 Cir., 143 F.2d 676, a petition for habeas corpus was filed by a prisoner against the warden of the United States Penitentiary at. Atlanta alleging that the prisoner was ill, and so treated as to aggravate his illness. The Court in affirming the judgment of the District Court, 53 F.Supp. 425, discharging the writ stated:
“The courts have no function to superintend the treatment of prisoners in the penitentiary, but only to *501deliver from prison those who are illegally detailed there.” < '• ■
In State ex rel. Baldwin v. Superintendent, etc., 192 Md. 712, 63 A.2d 323, the opinion states that the petition for habeas corpus alleged, “He states that,he.has tuberculosis, but was denied proper treatment in the prison hospital, by the Doctor in charge or the attendants, He also complains of the lack of proper-food. He states, that complaints to the Superintendent have been ignored.” In the light of these averments the Maryland Court held:
“As we have pointed out in several recent cases, such complaints do not afford any basis for release upon writ of habeas corpus. (Citing cases) They should be addressed to the Board of Correction,which is respon- . sible for proper prison management. ’ ’
In dismissing a petition for habeas corpus alleging mistreatment and denial of rights while confined in prison, the Supreme Court of Oregon in Gibbs v. Gladden, Warden, etc,, 227 Or. 102, 359 P.2d 540, 541, stated the purpose of the writ of habeas corpus as follows:
“It is to inquire into the legality of the imprisonment, not to supervise the administration of the institution. ’ ’
As stated in State ex rel. v. Jack, supra, there is a remedy for the alleged evils complained of. If in this case, because of the petitioner’s lack of knowledge of legal writs, we were disposed to treat this petition as a petition for writ of mandamus to require the prison officials to furnish medical attention as provided by T.C.A. sec. 41-314, we could not do so. This is true because the case originated in the Criminal Court. Criminal Judges do not have jurisdiction to issue writs of mandamus, T.C.A. sec. 23-2001. ¥e could not, therefore, remand the cause *502with direction to issue an alternative writ of mandamus for the purpose of determining the truth or falsity of the averments of the petition.
We believe, however, that if court appointed counsel for the petitioner will malte known to the Commissioner of Corrections of the State the substance of the aver-ments of the petition relating to a denial of medical care, the matter will be properly investigated and, if there is any truth in the claim petitioner has been denied such care, the same will be furnished without further legal proceedings.
Court appointed counsel has ably presented this case and rendered valuable legal service without any hope of compensation. The Court appreciates that service. It is in keeping with the highest traditions of the legal profession.
The judgment of the Trial Court dismissing the petition for writ of habeas corpus pursuant to T.C.A. sec. 23-1809 is affirmed at the cost of the plaintiff in error. | 01-03-2023 | 10-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/1534955/ | 5 B.R. 658 (1980)
In re Wyatt Lee MALONE, Case No. 79-03471-KZ, Debtor.
Wyatt Lee MALONE, Plaintiff,
v.
AMERICAN FLETCHER NATIONAL BANK, Defendant.
Bankruptcy No. C80-0106-M.
United States Bankruptcy Court, S.D. California.
August 15, 1980.
*659 Ronald J. Pullen, Chula Vista, Cal., for debtor/plaintiff.
John M. Seitman, San Diego, Cal., for defendant.
MEMORANDUM OPINION REGARDING MOTION TO DISMISS OR TRANSFER FOR LACK OF PROPER VENUE
I
JAMES W. MEYERS, Bankruptcy Judge.
On December 28, 1979, the debtor, Mr. Wyatt Lee Malone, filed his Chapter 7 petition with this Court. On March 31, 1980, the debtor instituted an action in this Court against the American Fletcher National Bank ("Bank"). The complaint sought injunctive relief, damages and a turnover of property by charging that the Bank had converted the debtor's property and had engaged in unfair debt collection practices.
The complaint precipitated the filing of a motion by the Bank to dismiss the action, or transfer it for lack of proper venue. This motion was argued before the Court and based on the evidence and contentions presented by the parties, the Court must deny the Bank's motion. This opinion is filed to explain that decision.
II
FACTS
The debtor is a resident of San Diego, California, having moved here a short time ago from Indiana. The Bank is a national banking corporation with principal offices in Marion County, Indiana, and international offices in the Bahamas and Luxembourg. These are the only places where the Bank conducts business.
On June 23, 1978, the debtor purchased an automobile from Kool Oldsmobile in Indianapolis, Indiana. Thereafter, the Bank acquired Kool's contract with the debtor by way of an assignment. The debtor then came to San Diego, California, with the automobile where he eventually filed for relief under the United States Bankruptcy Code ("Code").[1] In the schedules filed with his petition, the debtor claimed the automobile as exempt property pursuant to Section 522(d)(2) of the Code. See 11 U.S.C. § 522(d)(2). The availability of this exemption has not been questioned as no party in interest has filed an objection.
On March 3, 1980, however, the Bank repossessed the debtor's automobile as he had defaulted on the sales contract. This action prompted the debtor to file his complaint against the Bank, which inter alia sought the return of his automobile so the debtor could continue with his new employment here. The Bank currently has possession of the automobile, and has agreed not to dispose of it until its motion has been decided.
*660 III
DISCUSSION
The Bank contends that venue for this proceeding has been improperly set in the Southern District of California.[2] To justify this contention, reliance is placed on Section 94 of the National Bank Act, which reads:
Actions and proceedings against any association under this chapter may be had in any district or Territorial court of the United States held within the district in which such association may be established, or in any State, county, or municipal court in the county or city in which said association is located having jurisdiction in similar cases.
12 U.S.C. § 94. The Bank urges that this provision is mandatory in nature and provides the exclusive venue for a lawsuit against a national bank. See e.g., Radzanower v. Touche Ross & Co., 426 U.S. 148, 96 S. Ct. 1989, 48 L. Ed. 2d 540 (1976). Based on these contentions, the Bank then argues that the Court should either dismiss the debtor's action entirely or, transfer it to Marion County, Indiana. See 28 U.S.C. § 1475; Fed.R.Civ.P. 12(b)(3); Bankruptcy Rule 712(b).
The debtor, of course, views the question of venue differently, claiming that venue of this action is proper here in that his bankruptcy petition was filed in this district. See 28 U.S.C. § 1473. The debtor also seeks to avoid the impact of Section 94 of the National Bank Act by reference to cases which have carved out an "in rem exception" to its venue requirements. See 1 Moore's Federal Practice ¶ 0.144[2.-1] at 1475-76 (2d ed.).
A. The Proper Venue
The Bank's reliance on Section 94 as establishing the correct venue here is well taken. It is settled that this section is mandatory in character and also provides the exclusive venue for suits against a national bank. See Radzanower v. Touche Ross & Co., supra, 426 U.S. at 152, 96 S.Ct. at 1992; Bechtel v. Liberty Nat. Bank, 534 F.2d 1335, 1339 (9th Cir. 1976). Clearly then, Section 94 of the National Bank Act will prevail over its counterpart in bankruptcy matters, enacted as part of the Bankruptcy Reform Act of 1978. See Pub. L.No. 95-598, 92 Stat. 2549. This is so because the general venue requirements of Section 1473 function similarly to the basic venue provision found in the Securities Exchange Act of 1934, which was considered by the Court in Radzanower. Although the two statutes prescribe different venues, they are both general venue sections. Compare 15 U.S.C. § 78aa with 28 U.S.C. § 1473. With respect to this particular issue then, the result here should be no different than that in Radzanower. See Radzanower v. Touche Ross & Co., supra, 426 U.S. at 152, 96 S.Ct. at 1992.[3]
This does not end the Court's inquiry, however, as the venue question presented here is not answered simply by reference to Section 94. The competing venue provisions governing bankruptcy matters must also be considered, and in this regard, counsel for the Bank has overlooked some key distinctions.
B. Alternatives Where Venue is Improper
Unquestionably, original venue in this district is improper given the impact of Section 94. That does not mean, though, that the action can be dismissed under Rule 12 of the Federal Rules of Civil Procedure, or transferred under 28 U.S.C. § 1475. To begin with, this Court has no power to dismiss a case for improper venue, as that alternative has been removed from the controlling venue provisions. See 28 U.S.C. *661 §§ 1475, 1477. See also 1 Collier, supra, ¶ 3.02[6][d] at 3-216.
Secondly, the Bank's reliance on 28 U.S.C. § 1475 as the sole basis for the treatment of improperly filed proceedings is incorrect. Section 1475 deals with a transfer of venue which is proper or improper in the first instance. See e.g., In re Macon Uplands Venture, 2 B.R. 444, 445, 5 B.C.D. 1279, 1280 (Md.1980). Although Section 1475 deals with proper and improper venue, a transfer of this proceeding to another venue is not the Court's only option. For Section 1477 presents an additional alternative for the Court where venue is originally improper, namely, that of retaining the proceeding despite its venue defect. Section 1477 reads in part:
(a) The bankruptcy court of a district in which is filed a case or proceeding laying venue in the wrong division or district may, in the interest of justice and for the convenience of the parties, retain such case or proceeding, or may transfer, under section 1475 of this title, such case or proceeding to any other district or division.
28 U.S.C. § 1477(a). The features of this provision are apparently unique. Under the former Bankruptcy Act, Section 32b provided for the transfer of cases laid in the wrong venue. See Bankruptcy Act § 32b. This section was superseded by Bankruptcy Rule 116. The question of whether proceedings should be transferred was also addressed in Bankruptcy Rule 782.
Bankruptcy Rule 116(b)(2) allowed the court to dismiss, retain or transfer a case with improper venue where it was necessary to protect the interests of justice and convenience of the parties. See Bankruptcy Rule 116(b)(2). Rule 782, on the other hand, dealt with adversary proceedings, but provided for transfer only. See Bankruptcy Rule 782. In contrast, 28 U.S.C. § 1477 is a hybrid of these prior provisions. It deals with cases and proceedings, provides for the cure of improper venue by retention of the case, but removes the power of dismissal from the court's options.[4]
The House Report gives no indication as to why Section 1477 provides for the retention of a case with improper venue. See H.R.Rep.No. 95-595, 95th Cong., 1st Sess. 447 (1977), U.S.Code Cong. & Admin.News 1978, p. 5787 ("House Report"). Nor does the Advisory Committee Note for Bankruptcy Rule 116(b)(2) provide any guidance, although it too has a retention provision. See Bankruptcy Rule 116(b)(2) (Advisory Committee Note). Clearly though, the retention of a case or proceeding with improper venue, rather than its transfer, has the effect of promoting a dominant theme of the Code. That is, it may well allow the beleaguered debtor his only real chance at achieving a "fresh start" in life, see House Report, supra, at 125, as it alleviates the problems and costs attendant to a transfer of venue to a distant locale. There can be little doubt then, that the retention provision of Section 1477 was designed to be used in cases such as the one present here. That is, where a debtor with very limited financial resources challenges a well funded adversary such as the Bank, and whose only alternative to proceeding in the incorrect venue would be to abandon his efforts entirely.
1. The Convenience of the Parties and the Interest of Justice
What will constitute "convenience of the parties" under Section 1477 is basically a factual question. Where a proceeding is to be transferred or retained the Court should consider: (i) the relative ease of access to sources of proof; (ii) the availability and cost of obtaining witnesses; (iii) the enforceability of any judgment to be obtained; (iv) the probability of a fair trial; *662 (v) whether the action should be tried in a local forum; and (vi) the forum whose law will govern decision of the case. See In re Macon Uplands Venture, supra, 2 B.R. at 446, 5 B.C.D. at 1281.[5]
The contours of the phrase, "interest of justice", on the other hand, should not be rigidly formulated, given the varied fact situations to which Section 1477 may be applied. With this consideration in mind the Court will look, as in many other instances, to the particular facts and equitable considerations present in the case, see e.g., In re Anchortank, Inc., supra, 3 B.R. at 74, as well as the larger goals of the Code. See generally Kokoszka v. Belford, 417 U.S. 642, 650, 94 S. Ct. 2431, 2436, 41 L. Ed. 2d 374 (1973).
With regard to the burden of proof here, the cases and commentators are not in total agreement. Compare In re Macon Uplands Venture, supra, 2 B.R. at 446, 5 B.C.D. at 1281; 1 Collier, supra, ¶ 3.02[4][b] at 3-201 (burden on movant), with, Matter of Louis Marx & Co., Inc., supra, 6 B.C.D. at 301 (when venue shown improper, burden shifts to non-movant). The Court, though, believes that the rule announced in the Louis Marx decision is the preferable one in this context. Accordingly, the debtor has been obliged to show why this proceeding should be transferred or retained once the Bank demonstrated that original venue was improper. In the final analysis, however, the question of whether venue should be transferred or retained turns on the exercise of this Court's discretion. See Matter of Louis Marx Co., Inc., supra, 6 B.C.D. at 301.
2. Application of the Standards
The Court must initially consider the case of access to sources of proof. This factor is of limited importance in this action, as the case does not involve any extensive or complicated evidentiary questions. Few bank records are needed here, and those that are necessary are probably already in the parties' possession. In any event, presumably all evidence regarding the crucial occurrence here, the seizure of the debtor's automobile, would be found in this district. Given these factors, there is no reason to believe that any difficulties regarding potential evidence will arise if the case is tried here.
With respect to the availability of witnesses, there has been no showing that any witness would be unavailable if the case were retained in this district, even though Bank employees may be required to testify. The remaining criteria are of limited impact also. Nothing presented to the Court suggests that a judgment obtained in this Court would not be enforceable against the Bank, or, that the action could not be fairly tried in this district. Additionally, the Court's interest in adjudicating this matter in this district, where the debtor's Chapter 7 case is being administered, is apparent given the debtor's desire to file and reside here, instead of Indiana. And finally, to a large extent this case involves the application of federal bankruptcy law. That being the case, state law principles would at best have only a tangential impact on resolution of the issues presented. All things considered then, it would not seem unduly inconvenient to the parties to have this action tried in the Southern District of California.
The second question here is whether the interests of justice will be served by requiring the debtor to bring his action in Indiana, or in this district. Repeatedly, the Bank has stated that justice will be served by transferring the case in that the Bank is *663 willing to litigate any of the debtor's contentions but only in Indiana. The Bank's position, however, offers little consolation for the debtor. The plain fact of the matter is that forcing an aggrieved debtor to litigate his action in a distant forum effectively denies him a chance to protect himself from besieging creditors. For there is no realistic possibility of the debtor suing the Bank in Indiana as he is simply without the finances to do so.
The Bank, however, has actively pursued the debtor to this district, and is financially quite capable of undertaking the defense of this action. This seems especially clear given the lengths to which the Bank has gone to repossess the debtor's automobile, and bring the instant motion through local counsel. In light of these factors, the Court has concluded that the interests of justice will be served only if the Court retains venue in this case.
IV
CONCLUSION
The Court has concluded that while original venue was improper in the Southern District of California, the Court will retain venue nonetheless, given the interests of justice and the convenience of the parties. Therefore, the Bank's motion is denied in its entirety.
Counsel for the debtor will prepare an appropriate order within ten (10) days of the filing of this opinion.
NOTES
[1] By removing the automobile to California, without permission of the seller, the debtor violated one of the terms of the sales contract.
[2] The Court notes in passing that had the debtor framed his response to the Bank's conduct in terms of an action for contempt for violation of the automatic stay, see 11 U.S.C. § 362, venue would not be at issue here. The power of this Court to punish contemptuous disregard of its own orders is well settled. See 2 Collier on Bankruptcy ¶ 105.03 (15th ed.) ("Collier").
[3] The debtor's reliance on the "in rem exception" to Section 94, moreover, is misplaced as we are not dealing with a purely "local" action involving a real estate transaction, or the like.
[4] Section 1477 also differs from Section 1406 of the Judicial Code, which deals with the transfer or dismissal of a case in the district court having improper venue. See 28 U.S.C. § 1406(a). Section 1406 does not allow for the cure of a venue defect by retention of the case. Additionally, the venue provision considered by the Court in Radzanower (Securities Exchange Act of 1934) did not allow retention of a case with improper venue either. See 15 U.S.C. § 78aa.
[5] The standards developed for transferring a proceeding under Section 1475 and Bankruptcy Rule 782 would also be relevant here. See 1 Collier, supra, ¶ 3.02[6][e]. The case law to date, however, has generally involved the different considerations involved in the transfer of cases. See Matter of Louis Marx & Co., Inc., 6 B.C.D. 300, 301 (S.N.Y.1980); Matter of Commonwealth Oil Refining Co., Inc., 596 F.2d 1239, 1247 (5th Cir. 1979) (Bankruptcy Rule 116(b)); Matter of Maidman, 2 B.R. 569, 582, 5 B.C.D. 1334, 1338 (S.N.Y.1980) (Bankruptcy Rule 116(b)). See also In re Anchortank, Inc., 3 B.R. 72, 73 (S.N.Y.1980) (Bankruptcy Rule 782). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1534958/ | 5 B.R. 391 (1980)
In re Ralph Dale CREWSE f/d/b/a Dale Crewse Auto Sales, Bankrupt.
Jack N. BOHM, Trustee, Plaintiff,
v.
FARMERS SAVINGS BANK, Defendant.
Bankruptcy No. 79-00931-BW-2.
United States Bankruptcy Court, W.D. Missouri, W.D.
July 31, 1980.
*392 Darold W. Jenkins, Independence, Mo., for defendant.
Jack N. Bohm, Kansas City, Mo., Trustee.
MEMORANDUM OPINION AND ORDER
FRANK P. BARKER, Jr., Chief Judge.
This is an action brought by the trustee against the defendant, Farmers Savings Bank, to account to the trustee for all proceeds from the sale of the bankrupt's inventory and to turn over this amount to the trustee for the benefit of general creditors.
The bankrupt, Dale Crewse, formerly doing business as "Dale Crewse Auto Sales", was a used-car dealer in Marshall, Missouri. The defendant, Farmers Savings Bank, loaned the bankrupt money to buy and/or trade automobiles.
When the bankrupt bought or traded an automobile with funds received from the bank, he would deliver the certificate of title to the automobile, endorsed by the seller, but the name of the buyer (or assignee) was left blank. The bank thus held possession of the certificate of title and the bankrupt held possession of the vehicle.
When the bankrupt sold a vehicle, he would take the money and/or other certificate of title he received to the bank; at which point the bank would give him the title to the vehicle, still only endorsed by the previous seller and assigned in blank, and the bankrupt would then fill in the name of the buyer in the assignee space and give the title to the buyer.
For each vehicle held in inventory by the bankrupt, the bank held a properly executed document entitled "Combined Note and Security Agreement with Power of Sale", to which the certificate of title of the vehicle described was attached.
The bank did not file a financing statement for each certificate of title it held, nor did the bank title the vehicles in its own name. The only time the bank was ever shown as a lienor on the certificate of title was when it would finance the buyer of the vehicle from the bankrupt. The bank financed the bankrupt's operation in the foregoing manner from April, 1978 until it filed its voluntary petition in bankruptcy on August 1, 1979. Further, there was no written floor plan type of agreement.
At the time of the bankruptcy, the bank had in its possession certificates of title to four (4) vehicles; a 1978 Dodge Van, a 1978 Ford Truck, a 1977 Ford LTD, and a 1974 Dodge Van. Following the bankruptcy filing, a certificate of title to a 1974 Dodge Dart was delivered to the bank.
The plaintiff and the defendant, to avoid asset depreciation, entered into an agreement whereby the bank disposed of the vehicles and placed the proceeds in escrow until this Court determined who they belonged to. The bank disposed of all five (5) vehicles for a gross sum of $9,176.72, with disposal expenses amounting to $370.99, leaving a balance of $8,805.73 in a special escrow account.
The issue before the Court is, as between the Farmers Savings Bank and the trustee of the bankruptcy estate of Ralph Dale Crewse, who is entitled to the proceeds, currently held in escrow, of the sale of the automobiles in Crewse's possession.
By the express provisions of section 301.210 RSMo. 1969, no title passes to the purchaser of a used automobile in Missouri, unless the seller's certificate of title, properly endorsed and acknowledged before a notary public, is transferred to the purchaser at the time of the delivery of the vehicle. The statute further declares that the sale of a used motor vehicle without assignment of the certificate to be unlawful, fraudulent and void. Section 301.210 RSMo. 1969 stated in pertinent part:
*393 "(1) In the event of a sale or transfer of ownership of a motor vehicle or trailer for which a certificate of ownership has been issued the holder of such certificate shall endorse on the same an assignment thereof, with warranty of title in form printed thereon, and prescribed by the director of revenue, with a statement of all liens or encumbrances on said motor vehicle or trailer, and deliver the same to the buyer at the time of the delivery to him of said motor vehicle or trailer. (2) It shall be unlawful for any person to buy or sell in this state any motor vehicle or trailer registered under the laws of this state, unless at the time of the delivery thereof, there shall pass between the parties such certificate of ownership with an assignment thereof, as herein provided, and the sale of any motor vehicle or trailer registered under the laws of this state, without the assignment of such certificate of ownership, shall be fraudulent and void."
Farmers Savings Bank contends that it was the lawful owner of the five motor vehicles and held the properly assigned certificates of title to said motor vehicles. As to this contention the case law in Missouri does not agree.
Section 301.210 is an express statutory requirement. The position of the Missouri Supreme Court is that there is no such thing as "substantial compliance" with this title law either the provisions are complied with or they are not.
"There is no escape from the conclusion that under the law of Missouri, literal, technical compliance with the requirements of the statute is mandatory and essential . . . "Mackie & Williams Food Stores v. Anchor Casualty Co., 216 F.2d 317, 321 (C.A. 8th 1954). See also Public Finance Corp. v. Shemwell, 345 S.W.2d 494 (Mo.App.1961); Personal Finance Co. of Missouri v. Lewis Inv. Co., 138 S.W.2d 655 (Mo.App.1940); and Universal Credit Co. v. Story, 128 S.W.2d 654 (Mo.App.1939).
". . . statutory provisions as to the assignment of the certificate of title to a motor vehicle upon the sale or transfer of the vehicle are viewed as absolute and mandatory and are rigidly enforced by the courts, and title does not pass without adherence to such provisions." Kelso v. Kelso, 306 S.W.2d 534 (Mo.1957).
"Absolute technical compliance with statute relating to transfer of title is required otherwise the sale is fraudulent and void." Horton v. State Farm Fire & Casualty Co., 550 S.W.2d 806 (Mo.App. 1977). See also, Greer v. Zurich, Inc., 441 S.W.2d 15 (Mo.1969).
The provisions of the Missouri Motor Vehicle Act are essentially a police regulation of the highest type, in the enactment of which the public welfare was primarily concerned. State ex rel. Conn. Fire Ins. Co. of Hartford, Conn. v. Cox, 306 Mo. 537, 268 S.W. 87 (1924). "Our legislature in its wisdom, has placed the sales of used automobiles in a class of its own, with different requirements from those concerning the sales of other chattels. The courts, and the public alike, must recognize and be bound by the action of the legislature, and its effect on the rights of sellers, purchasers, and mortgagers of such automobiles. "Bordman Invest. Co. v. Peoples Bank of Kansas City, 320 S.W.2d 72, 79 (Mo.App. 1958)."
In the case before the Court, the sellers of the automobiles, delivered possession of the vehicles and their respective title certificates, endorsed in blank to the dealer, Crewse. Crewse, in turn, without filling in the assignee blank, and obtaining the seller's acknowledgment of such, executed a "combined Note and Security Agreement with Power of Sale" with the Farmers Savings Bank, who had lent him the money to purchase the vehicles, and he turned the titles assigned in blank over to the bank. When Crewse sold the automobiles he would take the money he received to the bank, and the bank would give him the title to the vehicle(s) still assigned "in blank". Crewse would then fill in the name of the buyer in the assignee space and give such certificate of title to the buyer.
*394 A keystone in Missouri case law on the general subject of titles to used automobiles and of importance to the case at bar is Pearl v. Interstate Sec. Co., 357 Mo. 160, 206 S.W.2d 975 (1947). Pearl, a used car dealer, purchased two automobiles, accepting certificates of title which were signed but unacknowledged and with a blank assignee space. He sold these cars to Security Motor Co., delivering the certificates to Security as he had received them and accepting a check which proved valueless. Security mortgaged the automobiles to Interstate Sec. Co. and almost at once went into receivership.
The court decided that Pearl had lawful possession of the automobiles and the certificates of title because the original owners intended for him to have them. This gave him the right to complete the transaction by filling in his name as assignee and obtaining the seller's acknowledgment. The court reasoned that the statutory provision that a certificate with a complete assignment thereon should pass "at the time" of the delivery of the vehicle should not be strictly construed, since a qualified notary might not always be immediately available. A reasonable time should be allowed for the parties to complete the transaction in compliance with the statute by having a notary take the seller's acknowledgment. The court held, however, that as Pearl did not have the certificates properly filled in and acknowledged so that he could reassign them to Security, Security never received any title to the cars, and thus it could not validly execute a mortgage to Interstate.
The court also held that it would not give Pearl, or anyone else the right to fill in the name of Security as assignee from the holders because he was a buyer. To do so would be a misdemeanor. Citing Personal Finance Co. of Mo. v. Lewis Invest. Co., 138 S.W.2d 655 (Mo.App.1940) (which held that not only is the sale void, but under the statute's terms both the seller and the purchaser are guilty of the commission of a misdemeanor).
Most important for our purposes, was the court deciding that Interstate could not establish itself as a bona fide purchaser of the automobile through its foreclosure on default of payment by Security. The defects in Security's title were apparent on the back of the certificate held by Interstate (i.e., lack of assignee and acknowledgment by the seller), the court saying:
"These defects at least were sufficient to put defendant (Interstate) upon inquiry to ascertain the true facts, and the true facts would have shown that Security had nothing to mortgage." 206 S.W.2d at 979.
The court continued:
"There is no requirement . . . as to transfer of title certificates in connection with mortgages on automobiles. However, a mortgagor must have legal title for his mortgage to be a lien on described property." See also, Pearson v. Allied Finance Co., 366 S.W.2d 6, 8 (Mo.App. 1963), Personal Finance Co. of Missouri v. Lewis Investment Co., 138 S.W.2d 655 (Mo.App.1940). "We held in State ex rel. Connecticut Fire Ins. Co. of Hartford, Conn. v. Cox, 306 Mo. 537, 268 S.W. 87 (1924) that a purchaser, who obtained no assignment of a certificate of title, had no insurable interest in the automobile. It therefore, follows that he would have no mortgagable interest. What was required to vest title in Security, even if it had paid the check for the purchase price, was both a completion of the assignments so as to vest title in the plaintiff and an execution and acknowledgment of the dealers reassignment on the certificates by him to Security. Since this was never done, Security never got any title it could mortgage; and could not give defendant any lien on these cars. Therefore, defendant's mortgagor could get nothing by its foreclosure."
The most recent case on this issue is Merchants-Produce Bank v. Mack Trucks, Inc. 411 F.2d 1174 (C.A.8 1969) an extremely similar case.
This was an action by the bank against the purchaser of four GMC Trucks subject to the lien of a certain recorded chattel mortgage held by the bank.
*395 Kansas certificates of title on three of the trucks were issued to a construction company. The company went bankrupt and pursuant to a turnover order of the bankruptcy court, the bank received possession of these three vehicles and a fourth truck (not titled at the time) by reason of a chattel mortgage against said equipment which was then in default. The company furnished the bank the certificates of title, assigned in blank. The bank procured a certificate of title on the fourth truck, also endorsed in blank.
The bank never filled in its name as assignee, in the blank spaces on these title certificates. A bank officer testified that the reason this was not done was to avoid the necessity of registering them, obtaining Missouri certificates of title, and paying license fees and sales tax on them.
The trucks were thereafter sold to a leasing company, and the title certificates were delivered to the leasing company in blank, only noting a lien in its favor on the reverse side. The leasing company in turn, sold the trucks to Hickman Plaza, also delivering the titles in blank. Hickman filled in its name as buyer, and gave a mortgage to the leasing company, who, in turn, assigned it to the bank. Hickman traded the four trucks on two new trucks which it purchased from the defendant Mack Trucks, and delivered the four certificates of title to the defendant, all of which showed Hickman as the purchaser on the assignment of title. Mack Trucks then presented these titles to New Mexico licensing officials and obtained new certificates of title.
The court held that since the Missouri statute relating to the transfer of title to motor vehicles, V.A.M.S. section 301.210, subd. 4, was not complied with by the plaintiff, or those through whom it claimed title, the sales between those two parties were fraudulent and void ab initio under Missouri law and that the "title" to the trucks was not transferred through the parties so as to vest in Hickman any interest in the trucks which it could mortgage.
The Court of Appeals at p. 1177 stated:
"The provisions of V.A.M.S. § 301.210 are absolute and mandatory and require the individual seller of a motor vehicle to endorse an assignment of the certificate of title, together with a statement of all liens and encumbrances, to the buyer, and unless such assignment passes between the parties, such purported sale is fraudulent and void, the seller transfers no title, and the buyer acquires no interest which can be insured or mortgaged."
Citing Mackie & Williams Food Stores, Inc. v. Anchor Casualty Co. (supra); Commercial Credit Corp. v. Blau, 393 S.W.2d 558 (Mo.1965); Moore v. State Farm Mut. Auto. Ins. Co., 381 S.W.2d 161 (Mo.App.1964); Bordman Invest. Co. v. Peoples Bank of Kansas City (supra); and Craig v. Rueseler Motor Co., 159 S.W.2d 374 (Mo.App.1942). "A chattel mortgagor must have legal title for his mortgage to be a lien on the described property, which Hickman did not have." Citing Pearson v. Allied Finance Co., 366 S.W.2d 6, 8 (Mo.App.1963); and Pearl v. Interstate Securities Co., (supra).
From the above stated facts, Farmers Savings Bank did not have a properly assigned certificate of title. Since Crewse gave the bank the title "assigned in blank", they acquired no legal title for their mortgage to be a lien on the property. Therefore, defendant is not entitled to the proceeds of the sale.
Counsel for Farmers Savings Bank suggests that the case of Albright v. Uhlig, 315 S.W.2d 471 (Mo.App.1958) is authoritative. The Court disagrees.
This was an action for replevin to recover a vehicle and damages. Albright, placed his automobile on a dealer's lot. Albright retained the title certificate and did not authorize the dealer to sell the automobile or receive money for it, without the assignment of the certificate of ownership. Although it was the plaintiff's intention to sell the car to the dealer company, it was understood that the used car dealer could sell the vehicle and pay him $800.00 from the proceeds; or the company itself could pay him $800.00 and then sell the vehicle, *396 whereupon plaintiff would transfer his certificate of ownership, duly assigned to the company.
The dealer made a purported sale to Uhlig, who paid the agreed price of $1,295.00, trading in an older car and $945.00 cash. The dealer forwarded a sight draft to Albright in payment for the car. He deposited the sight draft in his bank, attaching thereto the certificate of ownership, duly assigned to the dealer. The draft was returned protested, and the assigned title certificate was returned as well. The assigned certificate of ownership was never delivered by the plaintiff to the defendant. Upon learning Uhlig's identity, nearly one year later (the dealer would not say who owned the car) the plaintiff brought a replevin action.
The St. Louis Court of Appeals held that the plaintiff had right to possession as against the defendant who received the automobile from the dealer in return for payment, without the assignment of the certificate of ownership.
"Purchaser Uhlig would not have lost his money had he observed the requirements of Section 301.210(4) RsMo. 1969 . ." at 474-75.
This case stands for the principle that where the seller does not properly assign his certificate and deliver it to the purchaser along with the automobile, the purchaser cannot validly sell the automobile to a third party or execute a valid mortgage on the vehicle since he has acquired no title.
The case might well be applicable to the bank's cause had it a properly assigned certificate of title. But the cases of Pearl v. Interstate Sec. Co. (supra) and Merchants-Produce Bank v. Mack Trucks, (supra) show that the bank did not follow proper statutory procedure, and thus, as between the trustee and themselves, are not entitled to the sales proceeds. We are not confronted with the potential rights of other parties. (It is quite possible that the transactions between Crewse and the purchasers at sale, were invalid transfers as well under Section 301.210).
The Missouri courts have recognized that the application of the foregoing rule sometimes works hardships. In the case of Robertson v. Snider, 63 S.W.2d 508, 509 (Mo. App.1933) the court said:
"There are many instances where it has and will continue to work a hardship upon innocent dealers and sellers of such vehicles. But under the law as written there can be no exceptions in favor of those not intentionally guilty of wrongdoing."
It should be noted by the court that although the defendant pled a defense of an oral bailment contract between the dealer Crewse and itself, we do not find a need to address this issue, as the defendant states (Suggestions In Opposition to Trustee's Complaint, p. 5) that it "does not rely upon that point."
The Court finds that even if the certificates of title had been properly assigned (which they were not) that the bank's security interest was unperfected on the date the petition in bankruptcy was filed and thus subordinate to the trustee, who as a lien creditor would have priority over an unperfected security interest.
Counsel for Farmers Savings Bank suggests that where a chattel is a used motor vehicle, possession of a properly assigned certificate of title thereto, for value, obviates the necessity of perfecting a security lien pursuant to the provisions of Missouri's Uniform Commercial Code. But counsel presents no statutory support for this argument.
It is thus necessary to examine both the Code and the underlying certificate of title law to determine the appropriate method of perfecting a security interest in this case.
The facts indicate that Crewse was a used car dealer, therefore, the vehicles he sold would be classified as inventory, V.A.M.S. Section 400.9-109(4).
V.A.M.S. Section 301.600 enumerates the exclusive method of perfecting a lien on motor vehicles purchased by the buyer on credit. It provides that by posting a lien on the certificate of title and delivering such to the director of revenue, perfects the security *397 interest if delivery is completed within thirty (30) days after its creation. However, V.A.M.S. Section 301.650 expressly says that Section 301.600 does not apply to: ". . . (3) A lien or encumbrance on a motor vehicle . . . created by a manufacturer or dealer who hold the vehicle . . . for sale."
Since no applicable Missouri statutory certificate of title law covers the perfection of an automobile dealer's inventory, we must examine the Uniform Commercial Code.
Section 400.9-302 states:
(1) A financing statement must be filed to perfect all security interests except the following: (a)-(f) . . .
(3) "The filing provisions of this article do not apply to a security interest in property subject to a statute
(b) of this state which provides for central filing of security interests in property, or in a motor vehicle which is not inventory held for sale for which a certificate of title is required under the statute of this state if a notation of such security interest can be indicated by a public official on a certificate or a duplicate thereof." (emphasis ours)
It is the Court's conclusion that in Missouri, in order to perfect a security interest in a used car dealer's inventory, a financing statement must be filed. This the defendant did not do.
The Court understands full well that the bank probably paid valuable consideration for the vehicles in question. But unfortunately, the failure of the bank to; (1) see that proper assignment of the title certificates was accomplished, and (2) that steps were taken to properly perfect its security interest pursuant to the Uniform Commercial Code, defeats its rights to the vehicles or proceeds therefrom as against the trustee.
Therefore, the trustee is entitled to the net yield from the sale, in the amount of $8,805.73, plus any accrued interest. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1534991/ | 5 B.R. 740 (1980)
In re Carlton Tyrone CALDWELL, Vernell Larvinia Hudson Caldwell, Debtors.
Bankruptcy No. 7-80-00288.
United States Bankruptcy Court, W.D. Virginia, Roanoke Division.
September 4, 1980.
George W. Harris, Jr., Roanoke, Va., for debtors.
Daniel F. Layman, Jr., Roanoke, Va., for Kroger Co.
MEMORANDUM OPINION AND ORDER
H. CLYDE PEARSON, Bankruptcy Judge.
The Debtor by Counsel filed a petition in this Court seeking a determination of whether or not The Kroger Company (Kroger) is in violation of the stay of 11 U.S.C. § 362 by proceeding with criminal charges against the Debtor, Carlton T. Caldwell, in the General District Court of the City of Salem or should be enjoined from so doing.
Counsel for Kroger and Counsel for the Debtor agree upon the facts as set forth in the petition of the Debtor. The Debtor became indebted to Kroger in the sum of $986.51, which included a $24.68 sum representing a "bad check" dated September 26, 1979. On November 2, 1979 an employee of Kroger proceeded to have issued out of the General District Court for the City of Salem, Virginia, a criminal warrant against the Debtor for the "bad check" in question. However, for reasons not appearing of record, the warrant was never served upon the Debtor until May 24, 1980, following the filing by debtor of a Chapter 13 case in this *741 Court on March 17, 1980. Meanwhile, a civil proceeding was commenced by Kroger on December 7, 1979 in the General District Court of the City of Roanoke, Virginia and on January 2, 1980 a civil judgment was entered by said Court for the above amount including the sum of $24.68 representing the "bad check".
The Debtor's plan proposed payment to all general creditors 100% of their indebtedness. On April 14, 1980 notice went forth to the creditors fixing the date of April 28, 1980 for a Meeting of Creditors pursuant to 11 U.S.C. § 341 with confirmation hearing later the same day. Confirmation was entered without objection, confirming the Debtor's plan on April 30, 1980. The criminal warrant was served twenty-four (24) days later on May 24, 1980. (The record does not disclose the repository of the criminal warrant from the date of issue on November 2, 1979 until its service upon debtor on May 24, 1980.)
The Debtor contends that the thrust of the creditor's actions involving the criminal process is for the purpose of thwarting the provisions of the Federal Bankruptcy Code in that said creditor is utilizing the threat thereof to extract a preferential payment in behalf of Kroger to the prejudice and exclusion of other general creditors dealt with in debtor's Chapter 13 case.
Counsel for Kroger contends that 11 U.S.C. § 362(b)(1)[1] providing for automatic stay of all actions and proceedings against the Debtor, excludes therefrom "the commencement or continuation of a criminal action or proceeding against the Debtor"; that by virtue of the foregoing provision this Court has no jurisdiction to hear or determine the matters surrounding the criminal process in the State Court.
At the outset, this case draws into focus what might appear to be conflicting provisions of the Bankruptcy Reform Act of 1978. As above stated, 11 U.S.C. § 362 provides for automatic stay of actions involving a debtor whose petition has been filed in this Court and specifically excludes criminal proceedings. 28 U.S.C. § 1471 vests jurisdiction in the Bankruptcy Court, which is exercisable over all matters affecting a case filed under 11 U.S.C. § 101, et seq. 28 U.S.C. § 1481 vests in the Bankruptcy Court powers of a court of equity, law and admiralty with the exceptions noted not germane to this decision.
The foregoing is a codification of the pronouncements of the United States Supreme Court in years past. In Pepper v. Litton (1939) 308 U.S. 295, 60 S. Ct. 238, 84 L. Ed. 281; the Court stated that the broad jurisdictional and equitable powers granted this Court are exclusive of all other courts. The Bankruptcy Reform Act of 1978 broadens extensively this jurisdiction which existed prior thereto.
The principles set forth in Pepper requires this Court to prohibit one creditor from receiving preferential treatment ahead of other creditors in the same class. In the case at bar, Kroger, being a general unsecured creditor, must be accorded the same treatment in the allowance and payment upon its claim as other general unsecured creditors receive.
11 U.S.C. § 362(b)(1) excludes from this Court's domain the prosecutional function of enforcing the criminal laws and the protection of society by the duly acting officials in charge thereof. Historically, no civil court of law or equity has sought to interfere with the prosecution of criminal proceedings in courts administering the criminal laws vested in its jurisdiction. On the other hand, the Constitution of the United States vested in the Congress the authority to enact uniform bankruptcy laws. The bankruptcy courts have exercised these powers in passing on a wide range of problems. They have been invoked to the end that fraud will not prevail, that substance will give way to form, that technical considerations will not prevent *742 substantial justice from being done. See Pepper v. Litton, supra. It therefore is incumbent upon this Court to make inquiry and determine from the facts and circumstances presented, if a creditor is seeking to utilize the criminal process as a means of extracting a preference not accorded other creditors similarly situated. On the other hand, if a creditor's actions are nothing more than aiding and assisting the prosecuting authorities in their rightful duties in protecting society by punishment for violation of the criminal laws, then such is obviously what the Congress intended in enacting 11 U.S.C. § 362(b)(1).
In the case of In Re Penney, 414 F. Supp. 1113 (W.D.N.C., 1976) and In Re James, 4 B.R. 115, 2 CBC 2d 322, the courts there were confronted with similar circumstances. In those cases the courts considered the realities of the case in light of the facts, finding that substance overrides form.
When we review the facts in the case at bar against the backdrop of the statutes and case law hereinabove cited, one must conclude that the efforts of the Kroger Company are not directed at the enforcement of criminal penalties for crime in the protection of society, but the thrust of which is to enforce payment of their claim by criminal sanctions to the exclusion of the Federal Bankruptcy Reform Act of 1978.
The criminal warrant was issued on November 2, 1979. This warrant in some manner was held (it does not show by whom) and was not served until May 24, 1980, some six or seven months following the date of its issuance and then only following the date of confirmation of this Chapter 13 plan. Additionally, the creditor proceeded to obtain judgment upon the "bad check" in question on January 2, 1980 upon a civil warrant issued December 7, 1979, following the issuance of the criminal warrant in question. From the foregoing chronology it would appear that the Chapter 13 case is the vehicle which has frustrated the creditor and generated further efforts in the criminal proceeding in what seems to be for the purpose of extracting to the exclusion of other creditors in this proceeding preferential payments of a civil judgment into which judgment the "bad check" was merged to the apparent satisfaction of the creditor, on January 2, 1980.
Therefore, in consideration of the foregoing, it is the conclusion of the Court that the efforts of the creditor to collect by the means herein employed of this debt should be enjoined. At the same time, the Court further concludes that the prosecuting authorities of the City of Salem should be permitted to exercise duties and responsibilities without any interference by this Court in the performance of their rightful duties of prosecuting the criminal laws within its jurisdiction and the extraction of criminal sanctions provided therein.
Accordingly, it is
ADJUDGED AND ORDERED that The Kroger Company be, and is hereby enjoined from proceeding to collect without the jurisdiction of this Court its claim which has been duly filed herein, including additionally the acceptance by said creditor of any ordered restitution as a result of any efforts by the prosecutional authorities of the City of Salem in the enforcement of the criminal laws of the Commonwealth of Virginia.
This order in no wise seeks nor is intended to restrict or be construed as interfering with the Prosecuting Attorney of the City of Salem or the General District Court of the City of Salem in the enforcement of the criminal laws of the Commonwealth of Virginia or otherwise and to fix fines and imprisonment for such crime or crimes as such authorities may deem appropriate including the calling of employees of the creditor as witnesses in behalf of the Commonwealth.
NOTES
[1] (b) "The filing of a petition under section 301, 302, or 303 of this title does not operate as a stay
(1) under subsection (a) of this section, of the commencement or continuation of a criminal action or proceeding against the debtor." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1534998/ | 969 S.W.2d 716 (1998)
Robert A. RING, et al., Appellants,
v.
The METROPOLITAN ST. LOUIS SEWER DISTRICT, Respondent.
No. 80493.
Supreme Court of Missouri, En Banc.
May 26, 1998.
Rehearing Denied June 16, 1998.
*717 Lewis C. Green, Bruce A. Morrison, Kathleen G. Henry, St. Louis, for Appellants.
Alan C. Kohn, Robert F. Murray, James M. Byrne, St. Louis, for Respondent
ROBERTSON, Judge.
In Beatty v. Metropolitan St. Louis Sewer District, 867 S.W.2d 217 (Mo. banc 1993 (Beatty II), we held that the Metropolitan St. Louis Sewer District ("MSD") violated article X, section 22(a) of the Missouri Constitution when it increased wastewater fees for taxpayers connected to the sewer district by $4.00 per month without voter approval. In Beatty v. Metropolitan St. Louis Sewer District, 914 S.W.2d 791 (Mo. banc 1995) (Beatty III), this Court held that only persons who actually sued to recover the increase in wastewater fees held unconstitutional in Beatty II could recover their overpayment. The Court also held that section 12 of MSD ordinance 8657 permitted the party plaintiffs in Beatty III to receive a credit for amounts overpaid against current wastewater fees owed MSD.
Beatty III left open the question whether a class action is the proper procedure by which MSD taxpayers who paid the unconstitutional wastewater fee increase could recover their overpayment. That question was before the trial court in this case but the trial court did not reach it. Instead, the trial court sustained MSD's motion to dismiss the purported class action filed in this case on statutory and sovereign immunity grounds. The Court of Appeals, Eastern District, affirmed, but transferred the case to this Court because of the general interest and importance of the issue in this case. We have jurisdiction. MO. CONST. ART. V. SEC. 10. The judgment of the trial court dismissing the plaintiffs' petition is reversed and the cause is remanded for such further proceedings as are consistent with this opinion.
I.
The factual predicate for this case is found in Beatty II and Beatty III. Upon announcement of the decision in Beatty III, a group of MSD individual and corporate wastewater fee payers filed a class action against MSD "to enforce Article X, sec. 22(a) of the Missouri Constitution" and to obtain a declaration and order "that each member of the class is entitled to prompt restitution of the amount by which his or her payment of any ... charges exceeded the amount lawfully charged ... [and for] attorney's fees and expenses and other appropriate relief." (App. Br. at 9, 11). Plaintiffs claimed to represent approximately 420,000 MSD ratepayers who paid the unconstitutionally-imposed fee. MSD moved to dismiss, arguing that plaintiffs had failed to comply with the provisions of section 139.031, RSMo 1994, and that plaintiffs' claims were barred by sovereign immunity. The trial court sustained the motion to dismiss on those grounds. The essence of the trial court's holding is that even if a class action were permitted, the members *718 of the class would have no cause of action. This appeal followed.
II.
MSD is a political subdivision of the state. The wastewater fee MSD collects is a tax for purposes of article X, section 22(a). Beatty II, 867 S.W.2d at 221; see also Keller v. Marion County Ambulance District, 820 S.W.2d 301, 303 (Mo. banc 1991) ("[w]hat is prohibited are fee increases that are taxes in everything but name"). Though it shocks the equitable conscience, the general rule is well-settled that the sovereign need not refund taxes voluntarily paid, but illegally collected. State ex rel. S.S. Kresge Co. v. Howard, 357 Mo. 302, 208 S.W.2d 247, 249-250 (Mo.1947); Community Federal Savings & Loan Assn. v. Director of Revenue, 752 S.W.2d 794, 797 (Mo. banc), cert. denied, 488 U.S. 893, 109 S. Ct. 231, 102 L. Ed. 2d 221 (1988). Thus, for MSD to face the possibility of any liability to those who paid the unconstitutional fee increase, there must be a waiver of sovereign immunity and the persons claiming a refund or credit for illegally paid taxes must have complied with the terms of the waiver of sovereign immunity or have paid the tax involuntarily. Plaintiffs' petition does not assert that the members of the class paid the increased wastewater fee involuntarily.
MSD's motion to dismiss asserts that section 139.031 is the exclusive waiver of sovereign immunity applicable in this case, and that plaintiffs failed to protest their fee payments and did not commence an action against the collector in a timely manner as required by section 139.031. Having failed to comply with section 139.031, MSD's argument continues, the plaintiffs may not now recover the unconstitutional fees previously paid.
We need not decide in this case whether section 139.031 applies to the increase in wastewater fees adopted by MSD in violation of article X, section 22(a). For purposes of this opinion, we will assume, arguendo, that section 139.031 does apply to wastewater fees paid to MSD.
Article X, section 23, provides:
Notwithstanding other provisions of this constitution or other law, any taxpayer of the ... political subdivision shall have standing to bring suit in a circuit court of proper venue ... to enforce the provisions of sections 16 through 22, inclusive.....
(Emphasis added.) In Fort Zumwalt School Dist. v. State, 896 S.W.2d 918, 923 (Mo. banc 1995), this Court considered whether plaintiffs could recover a money judgment against the state when the state violates article X, section 21, by requiring a political subdivision to fund an increase in the level of a previously-mandated activity beyond its 1980-1981 level without a state appropriation sufficient to finance the increased costs born by the political subdivision in carrying out the state's mandate.
If [article X,] Section 23 is a consent by the state to be sued for general money damages to enforce Section 21, the consent exists by way of inference or implication. This Court will not infer or imply that a waiver of sovereign immunity extends to remedies that are not essential to enforce the right in question.
Fort Zumwalt, 896 S.W.2d at 923. Plaintiffs argue that this is a case in which the right to a money judgment is essential to enforce article X, section 22(a) and that the Court must infer or imply that article X, section 23 acts as a waiver of sovereign immunity when a political subdivision collects a tax increase in violation of article X, section 22(a).
The constitutional right establish in article X, section 22(a), assures taxpayers that they will be free of increases in local taxes unless the voters approve those increase in advance.
Counties and other political subdivisions are hereby prohibited from ... increasing the current levy of an existing tax, ... above that current level authorized by law or charter when this section is adopted without the approval of the required majority of the qualified voters of that county or other political subdivision voting thereon.
MO. CONST. ART. X. SEC. 22(a). The enforcement of the right to be free of increases in taxes that the voters do not approve in advance may be accomplished in two ways: First, taxpayers may seek an injunction to enjoin the collection of a tax until its constitutionality is finally determined. Second, if a political subdivision increases a tax in violation of article X, section 22(a), and collects *719 that tax prior to a final, appellate, judicial opinion approving the collection of the increase without voter approval, the constitutional right established in article X, section 22(a), may be enforced only by a timely action to seek a refund of the amount of the unconstitutionally-imposed increase. This case falls into the second category.
Without deciding the merits of the claim presented by the plaintiffs here, we hold generally that article X, section 23, operates as a waiver of sovereign immunity and permits taxpayers to seek a refund of increased taxes previously collected by a political subdivision in violation of article X, section 22(a).
As the trial court's decision assumed that no cause of action existed because of section 139.031 and the doctrine of sovereign immunity, we remand this case for consideration of the merits of plaintiffs' petition. As we suggested in Beatty III, plaintiffs are not precluded from bringing a Rule 52.08 class action if such a class action is appropriate under the specific facts of the case. We are confident that on remand, the trial court will properly consider the requirements of Rule 52.08 and determine whether a class action is appropriate. We are also confident that if the trial court determines that a class action is appropriate and that the plaintiffs' claims entitle them to prevail on the merits, it will fashion a remedy that will acknowledge both the taxpayers' rights under article X, section 22(a), and the important obligations MSD bears under the environmental laws of the nation and state.
III.
The judgment of the trial court is reversed and the cause is remanded for such further proceedings as are consistent with this opinion.
BENTON, C.J., and PRICE, LIMBAUGH, COVINGTON and HOLSTEIN, JJ., and HANNA, Special Judge, concur.
WHITE, J., not sitting. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1534995/ | 969 S.W.2d 184 (1998)
333 Ark. 320
Marcus VAN CAMP, Appellant,
v.
Diana K. VAN CAMP, Appellee.
No. 97-1052.
Supreme Court of Arkansas.
May 21, 1998.
Murrey L. Grider, Pocahontas, for Appellant.
*185 Harry Truman Moore, Paragould, for Appellee.
CORBIN, Justice.
The Randolph County Chancery Court granted Appellee Diana K. Van Camp's motion to correct its previous order made pursuant to a 1991 divorce decree, which incorporated the property-settlement contract that she and Appellant Marcus Van Camp independently negotiated. This appeal was certified to us from the court of appeals, as it raises questions of interpretation and inconsistency in Arkansas case law; hence, our jurisdiction is pursuant to Ark. Sup.Ct. R. 1-2(d)(2). Appellant raises one issue on appeal. We affirm.
The parties were divorced pursuant to a decree issued on May 10, 1991. The 1991 decree incorporated the parties' independently negotiated property-settlement contract, which provided for post-majority monthly support for their two sons, Shawn and Scott, contingent upon them entering college the fall semester after graduating from high school, continuing college for four consecutive years, and living with Appellee during such time. The contract provided that child support would abate during any months that the sons did not live with Appellee. The contract also provided that Appellant was responsible for additional college-related expenses for both sons.
On October 1, 1993, Appellee petitioned for an increase in Scott's monthly support, alleging a material change in circumstances, and for enforcement of other provisions under the decree related to Shawn's college expenses. After conducting a hearing on the petition on November 24, 1993, the chancellor entered an order, filed September 7, 1994, granting Appellee the expenses due under the contract for Shawn, but denying her requested increase in Scott's monthly support on the basis that there had not been a material change in circumstances. The 1994 order also reflected a change in the contracted support for Scott, indicating that, contrary to the parties' negotiated agreement, support for Scott would continue only until age eighteen, with no provision for his support during college.
It is not disputed that neither party nor the chancellor addressed the issue of Scott's post-majority support in their pleadings, correspondence, or during the hearing. Moreover, Appellant concedes that he did not move to modify or terminate Scott's post-majority monthly support. Appellant did, however, cease making child support payments after June 1, 1996, following Scott's graduation from high school in May, notwithstanding that Scott continued to live with Appellee and began attending the University of Arkansas at Little Rock the fall after he graduated.
Upon petition by Appellee that the 1994 order was not a true and accurate reflection of what was decided during the 1993 hearing regarding Scott's post-majority support, the chancellor attempted to correct the 1994 order pursuant to ARCP Rule 60. As a result, the chancellor entered a new order on July 25, 1997, reflecting that the matter of Scott's post-majority support was not before him during the 1993 hearing, and that the 1991 decree remained effective.
Appellant argues on appeal, as he did below, that the chancellor erred by correcting the 1994 order, as such action was untimely under Rule 60(a) and (b). We disagree and hold that Rule 60 is not applicable to the facts and circumstances of this case.
Upon de novo review of this case, we conclude that the 1994 and 1997 orders may be read in harmony with one another, as well as with the original 1991 divorce decree. The language in the 1994 order discontinuing Scott's monthly support after he reached the age of eighteen had no effect on the parties' original child-support agreement. The issue of the post-majority support of both children was negotiated and agreed upon by both parties pursuant to an independent property-settlement agreement, which was incorporated into the 1991 divorce decree. In other words, the establishment and amount of the children's post-majority support was specifically contracted for by the parties prior to the entry of their divorce. Accordingly, under the particular facts of this case, the chancellor had no authority to modify or alter that support.
*186 Ordinarily, the legal obligation of a parent to support a child ceases upon the child's reaching majority. Towery v. Towery, 285 Ark. 113, 685 S.W.2d 155 (1985); Hogue v. Hogue, 262 Ark. 767, 561 S.W.2d 299 (1978); Worthington v. Worthington, 207 Ark. 185, 179 S.W.2d 648 (1944). In Arkansas, a child reaches majority at age eighteen. Towery, 285 Ark. 113, 685 S.W.2d 155. Where, however, a parent has elected to contractually bind himself or herself to support a child past the age of majority, such a contract is as binding and enforceable as any other contract. Worthington, 207 Ark. 185, 179 S.W.2d 648. In fact, a child may seek enforcement of a contract providing for post-majority support in his own behalf after he or she reaches the age of majority. Scroggins v. Scroggins, 302 Ark. 362, 790 S.W.2d 157 (1990).
Fundamental principles of contract law require that both parties to a contract agree to any modification of the contract. See Leonard v. Downing, 246 Ark. 397, 438 S.W.2d 327 (1969). Both parties must manifest assent to the modification of a contract and to the particular terms of such modification. Id. Here, there was no mutual agreement by the parties to the contract that the same should be modified to discontinue Scott's post-majority support. To the contrary, the issue of modifying Scott's post-majority support was never even raised by the parties. The chancellor thus had no authority to modify the terms of the Van Camps' agreement without evidence of their mutual assent to the purported modification.
In sum, the 1994 order purporting to terminate Appellant's legal obligation to support Scott past the age of majority, while he attended college, did not create any change in the obligations of the parties under their negotiated property-settlement agreement. It was thus not reversible error for the chancellor to "correct" that order by issuing the 1997 order reaffirming the parties' original contractual obligations. We will affirm where the chancellor reached the right result, even if based on the wrong reasons. Marine Servs. Unlimited, Inc. v. Rakes, 323 Ark. 757, 918 S.W.2d 132 (1996).
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535012/ | 5 B.R. 92 (1980)
In re Shirley Ann SMITH et al., Debtor.
Bankruptcy No. 79-00208.
United States Bankruptcy Court, District of Columbia.
June 16, 1980.
*93 Ira C. Wolpert, Washington, D.C., for respondent John P. Devers.
MEMORANDUM OPINION
ROGER M. WHELAN, Bankruptcy Judge.
(Show Cause Order to John Devers, Esq., attorney of record in above-captioned cases, issued pursuant to 11 U.S.C. § 329, Bankruptcy Rule 220)
On January 10, 1980, this court issued a show cause order to John Devers, Esq. (hereinafter, "the respondent"), as attorney of record in each of the above-captioned cases, pursuant to 11 U.S.C. § 329 and Bankruptcy Rule 220[1] as to:
"Why this court should not review and take action regarding the nature and value of the services rendered in the above-captioned cases and determine what is in fact a reasonable fee for the services actually rendered, and order the return of all or part of the fee received by him as attorney for the above-named debtors; and why this Court should not consider, in reviewing the nature and value of services rendered, the extent of the attorney's compliance with the standards of competence and ethical conduct as set forth in the Code of Professional Responsibility; . . ." See order to Show Cause dated January 10, 1980.
Because of the similarity of facts and legal issues involved in each of the abovecaptioned cases, the order to show cause also directed that the cases be consolidated for purposes of trial hearing. The order to show cause was issued as a result of a series of problems which came to this court's attention in the context of several of the above-captioned cases, namely:
(1) Numerous substantive and procedural errors committed by this attorney in the conduct of these cases which worked to the prejudice of several of the individual debtors;
(2) The attorney's active association with a debt consolidation agency known as *94 American Financial Services, Inc.[2] (hereinafter, "AFS"), which agency referred all of the above-captioned debtors to this attorney;
(3) The apparent conflict of interest existing in each of the cases by reason of the fact that the attorney for each of the above individual debtors was also acting, at the same time, as counsel for the debt consolidation agency, AFS. A response was filed to the show cause order by Ira Wolpert, Esq., acting as attorney for the respondent, and certain jurisdictional objections were noted and disposed of at the hearing.[3]
The show cause hearing was conducted in open court on April 25, 1980, at which time the court heard testimony from several of the debtors, as well as the testimony of the attorney, John Devers.[4] Based on the testimony adduced at this show cause hearing, and based on the evidence of record, the court finds the following facts.
FINDINGS OF FACT
The respondent is a member of the District of Columbia bar only and was admitted to practice in this jurisdiction in 1972. From 1972 through September 1979, he was an officer in the United States military and practiced law only on an occasional or part-time basis. Throughout this latter period of time, he maintained no law office in the District of Columbia and handled various legal matters such as domestic cases and general business cases. Prior to the filing of the thirty-three subject bankruptcy cases, as set forth in the above caption, the respondent had not engaged or practiced in the Bankruptcy Court.[5]
This pattern changed in October of 1979[6], when the respondent became legal counsel for a corporation known as American Financial Services, Inc., a Delaware corporation, authorized to transact business in the District of Columbia.[7] In addition, the respondent *95 was also an officer (vice-president) and director of this corporation and active in developing their structure, policy and business contracts. See Transcript, p. 122. As manifested by the testimony of the respondent and the debtors represented by him, the business conducted by AFS was that of a debt pooling or debt consolidation agency. See Transcript, p. 18-20, 49, 119-121, 160. Each of the debtors represented by the respondent testified that they were first attracted to AFS by reason of an advertisement run in local newspapers, including the Washington Post, that stated, inter alia, "Get out of debt." In almost all of the above-pending cases, the individual debtors who responded to this advertisement were low- to middle-income wage earners, with few assets and little education.
Based on the testimony of each of the debtors who appeared in response to this show cause order, the following pattern emerges after the initial reaction to the above advertisement: A visit was made, usually after a telephone appointment, to the offices of AFS at 815 15th Street, N.W., in the District of Columbia, and the debtor conferred initially with a lay individual identified as Michael Moser.[8] Mr. Moser conferred with each of the individual debtors and certain forms were filled in by the debtors relating to their employment, income and outstanding debts. If their debt and financial structure warranted it, prorated payment would be made to the creditors. If a case was chosen for pro-rating, the agency (AFS) would assess a charge of approximately $250.00 to $300.00 for its services[9] in working out a repayment schedule with creditors. As might be expected, each of the individual debtors who testified at the show cause hearing was referred to the respondent because their financial condition apparently warranted additional relief. Each of the debtors met and conferred with the respondent at his offices, which were located in the same physical office suite as AFS at 815 15th Street, N.W. In fact, although the respondent's office was marked "Attorney-at-Law", the phone number for this respondent was the same phone number as that used by AFS. In addition to maintaining his law office within the same suite as AFS, the respondent also testified that his secretary and furniture were supplied on a reimbursable basis by AFS. In addition, as counsel for AFS, the respondent was paid a weekly salary of $300.00 and was entitled to a 10% share of the profits of this corporate enterprise.[10] During the period of October through January 1980, approximately 70% of his time was devoted to the affairs of AFS[11], and the balance of the time was spent primarily in representing debtors in the United States Bankruptcy Court.
Based on this respondent's intimate and working relationship with AFS, it was inevitable *96 that debtors referred to this respondent for legal representation would misinterpret or misunderstand the precise role of this attorney namely, the client was unsure whether he was acting as an attorney in private practice as their attorney, or as counsel for AFS. This is amply demonstrated by reference to the testimony of Carlton M. Young, who, in response to the court's questioning concerning this matter, responded:
"A Mr. Mosure [sic] never actually said he was working in connection or in conjunction with Mr. Devers. In the immediate proximity of the office it would give you the impression that the legal services with the legal services that Mr. Devers gave were in conjunction with American Financial Services.
"In other words, if there was any problem as far as the creditors, then Mr. Devers would be able to handle the legal aspects of it. This was my impression." (See Transcript, p. 78, lines 10-17.)
This confusion or "impression" inevitably resulted from this attorney's maintenance of his practice in close connection with the business affairs of AFS. In fact, a call to the attorney would, of necessity, be answered "American Financial Services" (See Transcript, p. 36).
As might be expected from the above findings, all of the debtors in the above-captioned cases, without exception, were referred to the respondent by AFS, his "corporate client." In each of these cases, the attorney had a standard retainer agreement which set forth the fee to be charged for services in connection with each pending case.[12] Based on the testimony of the debtors who testified at the show cause hearing, and as corroborated to a large extent by the respondent's own admissions (Respondent's Response to Questionnaire issued pursuant to 11 U.S.C. § 329 and Bankruptcy Rule 220, Item 19), the total time dedicated to each case by this attorney was 1½ to 2 hours. Of greater importance as to the quality of services rendered in these cases is the fact that the respondent reviewed the various materials furnished by his clients, but did not make any independent investigation or verification of such matters.[13] Moreover, a thorough review of the cases and the attorney's response to this court's interrogatories indicate that, for the most part, relatively routine type services were rendered (example, telephone calls to creditors, preparation of schedules and assets, etc.) and nowhere in the record (See Response to Questionnaire, Items 11 and 19) is there any indication that the attorney engaged in any legal research concerning the various legal issues in these cases.[14] In at least some of these cases, as illustrated by the testimony of Carlton M. Young and Annie Martin, preparation of the schedules and statement of affairs was, to some extent, prepared by either a secretary or by Mr. Moser. (See Transcript, p. 58-59.)
While certain routine matters can properly be handled by non-legal personnel such as secretaries or paralegals, the preparation of the statement of affairs involves detailed *97 matters crucial to legal issues that may arise in bankruptcy proceedings for example, transfers of property may be challenged by a trustee as fraudulent transfers, certain loan repayments may form the basis for a preference attack by the trustee, etc., and should therefore be completed by legal counsel. Moreover, insofar as Mr. Moser performed services in connection with any bankruptcy case, it must be emphasized that this individual was not an employee of the attorney, but was connected solely with AFS. There is further evidence that indicates that the respondent did not devote sufficient time to reviewing the statement of affairs and schedules filed based on the paucity of detail and numerous omissions which this court observed in several of the cases filed.[15]
Finally, at the time of the show cause hearing, the court reviewed in detail for the benefit of the respondent and his counsel, Mr. Wolpert, the numerous omissions, errors, and deficiencies in the cases filed with this court.[16] (See Transcript, p. 5-10; Footnote 14, infra.) In the main, these errors, omissions, and deficiencies consisted of:
(1) Numerous arithmetical miscalculations;
(2) Failure to properly identify creditor interests example, purchase money security interests, etc.;
(3) Listing secured creditors without a full description of collateral, or, in at least one case, omitting a secured creditor entirely:
(4) Failure to apply in Chapter 13 cases for compensation as debtor's counsel and receiving fees in such cases without prior court approval;
(5) Failure to timely disclose monies paid in on many Chapter 13 cases which were maintained by respondent in this attorney's trust account;
(6) Failure to properly evaluate the time needed to consummate a Chapter 13 plan;
(7) Failure to distinguish between semimonthly and bi-weekly payments in Chapter 13 cases;
(8) Failure to observe proper venue requirements;
(9) Failure to properly deal with secured creditors with respect to confirmation standards set out under Bankruptcy Code, Section 1325(a)(5).
Because the court's ultimate ruling will be predicated primarily on the ethical considerations raised by this attorney's conduct, rather than upon the technical shortcomings in the context of these cases, a more extensive outlining of the deficiencies existing in many of the above cited cases is deemed unnecessary.
CONCLUSIONS OF LAW
By way of written response to this court's show cause order, and orally at the time of the court hearing, the attorney for respondent raised objection to this court's conducting a hearing on those cases that were either transferred or closed. In view of the fact that the court has not considered the merits of those cases which were previously transferred to other districts[17] because of venue considerations, no further discussion is warranted. As to those cases which were closed[18], the court specifically *98 noted prior to dismissing the cases in question that a formal inquiry would be conducted pursuant to Bankruptcy Rule 220 and Section 329 of the Bankruptcy Code and that the order to show cause was in fact pending at the time the case was closed. Furthermore, all of the cases were dismissed for substantive and/or procedural problems and were not closed after the usual administration of an estate by a trustee. Accordingly, the court's action in reviewing the matter of the fees is vital in protecting the interest of the debtor and is not resulting in prejudice to the attorney, as he was on notice of the action to be taken prior to the "closing" of the estate.
The final substantive objection raised by counsel for the respondent has to do with this court's ". . . reviewing the nature and value of services rendered and the extent of respondent's compliance with the standards of ethical conduct as set forth in the Code of Professional Responsibility." Respondent submits "(a) that the standards of ethical conduct with which Respondent must comply as an attorney are solely within the jurisdiction of District of Columbia Bar Counsel and not this Court, and in fact Bar Counsel is presently aware of certain aspects of Respondent's activities; (b) to require him to explain or defend himself before this Court and Bar Counsel is burdensome and unnecessarily expensive to Respondent, judicially inefficient and may result in conflicting determinations, and otherwise would prejudice Respondent in presentation of his position before Bar Counsel; and (c) in determining what is a reasonable attorney's fee this court should consider only those factors which bear upon the purpose, nature, extent and value of services rendered, time spent, difficulty of questions and problems encountered, and other such factors which relate to services actually rendered in each case exclusive of ethical considerations." (See Response to Order to Show Cause, filed March 13, 1980, ¶ 3.)
Essentially, respondent's attorney would have the court consider the reasonableness of fees assessed in each of these cases by exclusive resort to ". . . those factors which bear upon the purpose, nature, extent and value of services rendered, time spent, difficulty of questions and problems encountered, and other such factors which relate to services actually rendered in each case exclusive of ethical considerations." (See Response to Show Cause Order, supra, ¶ 3.) While it is true that the court's consideration and award of attorney's fees is with specific reference to those factors set forth in Bankruptcy Rule 219(c)(1), it is impossible to separate ethical considerations from these same factors. The Code of Professional Responsibility is an attempt to define and promulgate minimum standards which attorneys must meet in rendering services to the public. As aptly set forth in the preliminary statement to the Code of Professional Responsibility:
". . . however, they do define the type of ethical conduct that the public has a right to expect not only of lawyers but also of their non-professional employees and associates in all matters pertaining to professional employment. A lawyer should ultimately be responsible for the conduct of his employees and associates in the course of the professional representation of the client." Code of Professional Responsibility and Opinions of the D.C. Bar Legal Ethics Committee, p. 1M (1976).
Furthermore, this court has the responsibility to be sure that all attorneys who practice before it do so with full awareness of their responsibility to the public and to this court. The role of counsel in all court proceedings is not merely to turn out, in a perfunctory and mechanical fashion, pleadings which simply "pass muster," but to conscientiously and ably represent a client in the highest tradition of the law. To say that this court should simply defer consideration of these ethical questions involved in this proceeding, simply because the matter has been referred to and is pending before the D.C. Bar Counsel, would be to shirk from this court's sworn responsibility to uphold the law. The duty of every court in this area is appropriately set forth in the case of In re Meeker, 76 N.M. 354, 414 P.2d 862, 864 (1966), appeal dismissed, *99 385 U.S. 449, 87 S. Ct. 613, 17 L. Ed. 2d 510 (1967) in this directive:
"The Canons of Professional Ethics must be enforced by the courts and must be respected by members of the bar if we are to maintain public confidence in the integrity and impartiality of the administration of justice."
Relevant to this court's procedure employed in each of these cases is the fact that the area of defined responsibility is to determine the reasonableness of fees and to protect both the debtor and creditor interest in each case. Misconduct which may warrant disciplinary action is within the proper sphere of the Bar Counsel in this case,[19] but in determining the reasonableness of fees in respect to debtor cases, the court must inevitably be guided by ethical considerations. The authority of the Bar Counsel to examine the ethics of an attorney's conduct in order to effect disciplinary action does not subtract from the Bankruptcy Court, authority and responsibility to look at ethics in the examination of fee transactions. In Hightower v. Detroit Edison Company, 262 Mich. 1, 247 N.W. 97 (1933), the court considered the issue of ethics in determining whether an attorney should be permitted to recover a fee. The court held, as part of its definition of the court's role in this area:
"To say that, although such misconduct may justify disbarment or contempt proceedings, the court must award compensation to an attorney for services tainted thereby, would put the court in a position of approving or ignoring gross breach of duty to client and court. Something may be said in favor of denial of fees on the ground that plaintiff could not be forced to pay because appellant was not in fact her attorney. But we lay denial upon the broader ground that the judgment of the court will not be given in aid of or to encourage unprofessional conduct infringing the integrity of judicial proceedings." 247 N.W. at 101.
In these cases, based on all of the evidence of record, including the testimony of the witnesses taken at the show cause hearing, the court concludes, in connection with determining the reasonableness of fees, that the attorney's conduct was unethical and that the following disciplinary rules were violated:[20]
1) Disciplinary Rules under Canon 2:
DR 2-102 Professional Notices, Letterheads, Offices and Law Lists
(A) A lawyer or law firm shall not use or participate in the use of a professional card, professional announcement card, office sign, letterhead, telephone directory listing, law list, legal directory listings, or a similar professional notice or device if it includes a statement or claim that is false, fraudulent, misleading, or deceptive within the meaning of DR 2-101(B) or that violates the regulations in DR 2-101(C).
DR 2-103 Solicitation of Professional Employment
(A) A lawyer shall not seek, by in-person contact, his or her employment (or employment of a partner or associate) by a non-lawyer who has not sought his or her advice regarding employment of a lawyer, if:
(1) The solicitation involves use of a statement or claim that is false, fraudulent, *100 misleading, or deceptive within the meaning of DR 2-101(B); or
(2) The solicitation involves the use of undue influence; or
(3) The potential client is apparently in a physical or mental condition which would make it unlikely that he or she could exercise reasonable, considered judgment as to the selection of a lawyer.
2) DR 3-101 Aiding Unauthorized Practice of Law
(A) A lawyer shall not aid a non-lawyer in the unauthorized practice of law.
3) DR 5-105 Refusing to Accept or Continue Employment if the Interests of Another Client May Impair the Independent Professional Judgment of the Lawyer.
(A) A lawyer shall decline proffered employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by the acceptance of the proffered employment, [or if it would be likely to involve him in representing differing interests] except to the extent permitted under DR 5-105 (C).
4) DR 6-101 Failing to Act Competently.
(A) A lawyer shall not:
(1) Handle a legal matter which he knows or should know that he is not competent to handle, with associating with him a lawyer who is competent to handle it.
(2) Handle a legal matter without preparation adequate in the circumstances.
5) DR 1-102 Misconduct.
(A) A lawyer shall not:
(1) Violate a Disciplinary Rule.
. . . . .
(4) Engage in conduct that is prejudicial to the administration of justice.
The court will discuss each of the above violations seriatim based on the evidence of record.[21]
1) DR 2-102 Professional Notices, Letter-heads, Offices and Law Lists
DR 2-103 Solicitation of Professional Employment
Both of the captioned disciplinary rules, which are mandatory in nature, fall within the general penumbra of Canon 2 which states that "A lawyer should assist the legal profession in fulfilling his duty to make legal counsel available," a general statement or norm which lawyers are expected to follow. The respondent has violated Rule DR 2-102 by reason of maintaining a deceptive appearance in respect to the operation of his law offices in conjunction with a for-profit corporation engaged in debt consolidation. There is no dispute that the attorney's office space was located within the same suite as AFS, that he used the same telephone number and the telephone calls to this lawyer were answered, "American Financial Services." Furthermore, the very nature of his services created in the minds of his clients an image inseparable from that of AFS. The impression that resulted is clear from the testimony of such debtors as Carlton Young who testified in part that:
"A Mr. Moser never actually said he was working in connection or in conjunction with Mr. Devers. In the immediate proximity of the office it would give you the impression that the legal services with the legal services that Mr. Devers gave were in conjunction with American Financial Services.
In other words, if there was any problem as far as the creditors, then Mr. Devers would be able to handle the legal aspects of it. This was my impression." (Transcript, p. 78.)
DR 2-101(B) provides that:
"(B) Without limitation a false, fraudulent, misleading, or deceptive statement *101 or claim includes a statement or claim which:
(1) Contains a material misrepresentation of fact;
(2) Omits to state any material fact necessary to make the statement, in the light of all circumstances, not misleading;
(3) Is intended or is likely to create an unjustified expectation;
. . . . .
(6) Contains a representation or implication that is likely to cause an ordinary prudent person to misunderstand or be deceived or fails to contain reasonable warnings or disclaimers necessary to make a representation or implication not deceptive."
In the context of these cases, based on the evidence of record, it is clear to the court that individual debtors could not reasonably be sure of the specific identity and role of the attorney who was purporting to represent them was the attorney representing them an attorney in private practice, or an attorney for AFS?
Of greater consequence is the attorney's role in respect to the solicitation of his professional employment by these individual debtors. While this case is certainly not typical of "ambulance chasing" in its classical form, there is a clearly discernible pattern of in-person solicitation by this attorney which, in the opinion of this court, constitutes a clear violation of DR 2-103. The solicitation originally commences with the utilization of an advertisement employed in several local newspapers which creates the expectation of debt relief specifically "Get out of debt."[22] Although the ad that first attracted these people was the advertisement of the debt consolidation agency, AFS, the respondent was active in the incorporation and management of this business and was fully aware of the ad and its contents. In fact, he specifically testified that he ". . . was helping them to develop their office structure, reviewing the policy that they proposed embarking upon, any contracts that they had engaged in with creditors, things of that sort . . ." (Transcript, p. 122.) It is further obvious that the sole reason for the creation of AFS was to capitalize on the enactment of a new Bankruptcy Code which was to take effect on October 1, 1979. Although the attorney disclaims any active or "in-person" solicitation of clients, it is clear to the court that AFS was created specifically as a referral mechanism, in addition to the maintenance of a debt consolidation business.[23] In fact, all of the individual *102 debtor cases filed by this attorney during the time period in question were the result of AFS referrals.
Although there is no evidence or indication that these debtors were under any overt coercion or duress in respect to their referral to Mr. Devers, it is clear from the circumstances of these cases that a referral to this attorney would almost inevitably result. (See Transcript, p. 23, 48 and 74.) His separate office marked "Attorney at Law" was located in the same office suite as AFS and the first contact or meeting with this attorney, qua attorney, came shortly after their initial visit to AFS often on the first day. The type of debtor involved, as evidenced not only by testimony given by the debtors summoned in connection with the court's show cause order, but also from a review of the statements of affairs filed in the remaining cases, was the type of individual who, because of his financial plight, was not likely to seek independent counsel. Then, too, from the evidence of record, it is clear that the `creation' of AFS in October 1979, and the respondent's entry into the private practice of law at the same time, was obviously orchestrated to generate debtor cases through the medium of AFS no other plausible conclusion can be drawn from these facts. Accordingly, as proscribed by DR 2-103, in-person solicitation is prohibited if:
"(3) the potential client is apparently in a physical or mental condition which would make it unlikely that he or she could exercise reasonable, considered judgment as to the selection of a lawyer." (Emphasis added.)
In Ohralik v. Ohio State Bar Association, 436 U.S. 447, 98 S. Ct. 1912, 56 L. Ed. 2d 444 (1978), the Supreme Court decried the evils resulting from in-person solicitation in these words:
"Unlike a public advertisement, which simply provides information and leaves the recipient free to act upon it or not, in-person solicitation may exert pressure and often demands an immediate response, without providing an opportunity for comparison or reflection. The aim and effect of in-person solicitation may be to provide a one-sided presentation and to encourage speedy and perhaps uninformed decisionmaking; there is no opportunity for intervention or counter-education by agencies of the Bar, supervisory authorities, or persons close to the solicited individual. The admonition that "fitting remedy for evil counsels is good ones" is of little value when the circumstances provide no opportunity for any remedy at all. In-person solicitation is as likely as not to discourage persons needing counsel from engaging in a critical comparison of the "availability, nature, and prices" of legal services, cf. Bates, 433 U.S., at 364, [97 S. Ct. 2699.] . .; it actually may disserve the individual and societal interest, identified in Bates, in facilitating "informed and reliable decisionmaking." Ibid. 436 U.S. at 457, 458, 98 S.Ct. at 1919.
*103 In this case, the advertisement or solicitation unlike the unadorned ad in Bates v. State Bar of Arizona[24] was bound to be misleading particularly for the kind of debtor who in fact responded to it. While the advertisement was that of AFS and not that of the respondent, as a practicing attorney, the respondent was clearly cognizant of the ad and responsible for it. In fact, he was one of the ultimate beneficiaries as well. This is not the situation where the individual attorney was interested in making available his services through a bar referral or other legal assistance program; rather, a debt consolidation agency, operating contrary to the mandates of existing law,[25] was controlled and directed by the attorney and the inevitable outcome had to be these instant referrals. This is a classic example of an attorney doing indirectly that which he would be prohibited from doing directly. Accordingly, the court concludes that the attorney has acted unethically in permitting and sanctioning an ad to be run which by its nature was under the circumstances treacherously deceptive and by further causing a situation which would deter the individual debtor from making "informed and reliable decisionmaking."[26]See Bates, supra.
2) DR 3 101 Aiding Unauthorized Practice of Law.[27]
It is clear to the court, based on the evidence of record (including the respondent's own testimony) that the business affairs and activities of AFS were those of a "debt adjusting" corporation within the meaning of Title 22, § 3426 of the D.C. Code.[28] However, the business is captioned, "financial planning" or "financial services," its true identity is characterized by its activities and functions. In this case, AFS, for a fee, would contact debtors' creditors and arrange a pro-ration based on the financial circumstances of the individual. Their functions were appropriately characterized in the legislative history underlying the enactment of this legislation in these words:
". . . a debt adjuster lends no money; he only takes it. In the process, he may mislead the harried debtor into believing that his creditors will all be repaid at once." S.Rep. 288, 91st Cong., 1st Sess. (1969), at 2 (report by the Committee on the District of Columbia).
This is vividly demonstrated by the advertisement employed by AFS which optimistically *104 states: "Get out of debt." It is further clear that the activities of a debt-adjusting business constitute the unauthorized practice of law in this and many jurisdictions, including the neighboring jurisdictions of Maryland and Virginia. Cf.: Va. Code (1958), § 54-44.1. The raison d'etre of such legislation is further found in the Senate Report, supra, which explains that:
"The committee believes that debtors finding themselves in situations approaching insolvency often need legal assistance to marshal assets and to advise them on the legality of various claims, legal remedies governing the debtor-creditor relationship or the applicability of the Bankruptcy Act."
The evils which arise from such activities are obvious because it is usually the untutored and ignorant that fall prey to the activities of such businesses. In upholding the constitutionality of such statutes, the Supreme Court in Ferguson v. Skrupa, 372 U.S. 726, 83 S. Ct. 1028, 10 L. Ed. 2d 93 (1963) held:
"The business of debt adjusting gives rise to a relationship of trust in which the debt adjuster will, in a situation of insolvency, be marshalling assets in the manner of a proceeding in bankruptcy. The debt adjuster's client may need advice as to the legality of the various claims against him, remedies existing under state laws governing debtor-creditor relationship, or provisions of the Bankruptcy Act advice which a non-lawyer cannot lawfully give him." Ferguson at 732, 83 S.Ct. at 1032.
See also: American Budget Corporation v. Furman, 67 N.J.Super. 134, 170 A.2d 63, aff'd., 36 N.J. 129, 175 A.2d 622 (1961) (upholding the validity of a New Jersey statute prohibiting activities by debt consolidation agencies).
In this case, the respondent, as attorney for the debtors, did not passively receive referrals from AFS without being aware of their underlying activities. Rather, by his own testimony, he assisted in the development and management of the corporation known as AFS and not only was paid by them on a weekly salary basis, but agreed to a 10% profit-sharing arrangement with the corporation.[29] Moreover, in addition to acting as general counsel for AFS, the respondent also was an officer (vice president) and a director through February 1980, at which time he resigned these latter positions.
Accordingly, the court concludes that the respondent has clearly violated DR 3-101 in respect to his active involvement with AFS, and the latter's engagement in the unauthorized practice of law.
3) DR 5-105 Refusing to Accept or Continue Employment if the Interests of Another Client May Impair the Independent Professional Judgment of the Lawyer
The court is of the opinion that this Canon was violated by the respondent by reason of the close relationship existing between AFS and its attorney, the respondent, and the corresponding relationship existing between the respondent and each individual debtor, his clients. The respondent was admittedly counsel to AFS at the same time that he was representing each individual debtor in the above-captioned cases. AFS assessed a fee for their services, which, as pointed out above in part 2, infra, was contrary to law and public policy. In short, there was no valid consideration for their "debt adjusting" services. Yet, the attorney continued to represent these individuals in connection with the filing of the various Chapter 7 and Chapter 13 cases under the *105 new Bankruptcy Code until the entry of the show cause order at which time, apparently on the sage advice of respondent's counsel, he voluntarily withdrew from further representation. If counsel were properly and ethically to represent the interests of these debtors, it would be difficult to envision how he could advise such debtors of a potential cause of action against AFS the respondent's principal corporate client[30] without violating his corporate client's rights. Then, too, what would counsel do if there were unpaid charges due to AFS for their alleged "services" when an individual debtor decided to filed a voluntary petition in bankruptcy? Admittedly, based on Mr. Devers' testimony and a review of the various Statement of Affairs filed in each of the cases, there was never a debt owing to AFS at the time of filing a petition in bankruptcy. Nonetheless, there is a basis for a potential conflict and the rules specifically state that proferred employment should be declined ". . . if it would be likely to involve [the attorney] in representing differing interests, . . ." [emphasis added]. In this case, the very nature of the relationship between the parties gives rise to a potentially serious conflict of interest.
Accordingly, the court concludes that the respondent has violated DR 5-105. 4) DR 6-101. Failing to Act Competently.
The unmistakable inference to be drawn from the incorporation of AFS in October of 1979 and Mr. Devers' entry into the private practice of law, is that the new Bankruptcy Code would give rise to a readily available market of eligible debtors for their eager, but misguided services. The respondent himself admitted that he had never filed a petition in bankruptcy prior to October 1979, and had not even bothered to attend a seminar or conference on the new Code. Despite his disingenuous testimony as to why he did not attend such seminars[31], he nonetheless did not hesitate to advise and represent clients in this area of the law.
As noted in this court's Findings of Fact (see also Transcript, p. 2-5) the respondent's failure to properly represent his clients resulted in the dismissal of some cases, a transfer of others to adjacent jurisdictions because of improper venue, and, in many Chapter 13 cases, a failure to secure confirmation, or, at least, a delay in confirmation. This court's own personal observations of this attorney clearly confirm that inadequate counseling and a lack of knowledge of the new Code resulted in these numerous deficiencies and failures.[32] Members of the public are entitled to informed and competent counsel, and if attorneys fail to conscientiously respond to these demands, the entire system of justice invariably suffers.
This court, as is true of all courts, does not expect or demand perfection in debtor representation, but it does expect that all attorneys who practice before it will take the time to study and examine all available legal sources so that the representation of debtors will be in conformity with the minimum dictates of the law.
In Levy and Sprague, Accounting and Law: Is Dual Practice in the Public Interest?, 52 A.B.A.J. 1110, 1112 (1966), the authors wisely observed:
"We have undergone enormous changes in the last 50 years within the lives of *106 most of the adults living today who may be seeking advice. Most of these changes have been accompanied by changes in developments in the law. . . . Every practicing lawyer encounters these problems and is often perplexed with his own inability to keep up, not only with changes in the law, but also with changes in the lives of his clients and their legal problems.
"To be sure, no client has a right to expect that his lawyer will have all the answers at the end of his tongue or even in the back of his head at all times. But the client does have the right to expect that the lawyer will have devoted his time and energies to maintaining and improving his competence to know where to look for the answers, to know how to deal with the problems, and to know how to advise to the best of legal talents and abilities."
In this case, the respondent was obviously more concerned with the commercial aspects of a business,[33] than with the demands of the individual debtors, his clients.
For these reasons, the court finds that the attorney has violated the provisions of DR 6-101.
5) DR 1-102. Misconduct.
As the result of the aforegoing conduct, the respondent has engaged in a persistent course of conduct which cannot help but lower public esteem for the bar. The enactment of the Bankruptcy Code on November 6, 1978,[34] was never intended to be a "device" or "gimmick" for attorneys to increase their income at the expense of the general public and the mass production approach to the practice of law in this area will inevitably decrease the quality and value of services to those who need it most.[35]
In fairness of the respondent, the court must note that, although the course of conduct engaged in was obviously inimical to the administration of justice, there is no evidence, nor does the court believe, that this attorney engaged in any intentional fraudulent conduct. Rather, the tragic scenario of events recounted in this opinion, came about as the result of ignorance, inattention, and negligence not a knowing, wilful course of fraud on the part of counsel. Unfortunately, the end result has obviously not been a happy one for either the respondent, his clients, or this court.
Nonetheless, the failure of counsel to conform with the Canon of Ethics cannot be sanctioned, and this court, therefore, has concluded that the overall pattern of conduct engaged in by the respondent constitutes a violation also of DR 1-102.
CONCLUSION
The conduct of this trial hearing and the attendant responsibility of deciding this matter has not been a pleasant one for this court. It is indeed unfortunate that the conduct engaged in by counsel has caused so much of a drain of judicial time and resources, as well as the time and energies of Bar Counsel yet, the responsibility of the court is clear, and, based on the evidence of record, the court concludes that this attorney has violated the disciplinary rules set forth in the Code of Responsibility and the value of his services in each of the above-captioned cases is "zero". Wherefore, this court will enter an appropriate order which will direct the refund of fees in each of the above-captioned cases to the real party in interest, or a cancellation of fees in the event that no fees were paid; will further direct an accounting on the part of respondent as to all fees received (exclusive of filing fees) in all of the above-captioned cases; pursuant to the Local Rules of the United States Bankruptcy Court, and based on a pending investigation *107 by Bar Counsel, the court will direct that such Bar Counsel take appropriate steps to discipline the attorney in question, in accordance with the established provisions of the United States District Court Rules incorporated by reference; will further direct that respondent be responsible for the cost of the transcript in the amount of $334.50, and that such costs be paid within 10 days of the date of this order; and will further request that the corporation counsel for the District of Columbia conduct a thorough investigation as to the affairs of AFS with a view to criminal prosecution, if, in their view, the evidence warrants same,[36] and will further direct the United States Trustee to ascertain what, if any, cause of action may lie against AFS for their activities and conduct in each of these cases.
NOTES
[1] The pertinent statutory and procedural provisions applicable to the subject show cause hearing are as follows:
"§ 329 Debtor's transactions with attorneys.
(b) If such compensation exceeds the reasonable value of any such services, the court may cancel any such agreement, or order the return of any such payment, to the extent excessive, to
(1) the trustee, if the property transferred
(A) would have been property of the estate; or
(B) was to be paid by or on behalf of the debtor under a plan under Chapter 11 or a 13 of this title; or
(2) the entity that made such payment." 11 U.S.C. § 329(b)
"Rule 220. Examination of Bankrupt's Transactions with his attorney.
(a) . . . On motion by any party in interest or on the court's own initiative, the court may examine any payment of money or any transfer of property by the bankrupt, made directly or indirectly and in contemplation of the filing of the petition by or against him, to an attorney for services rendered or to be rendered." Bankruptcy Rule 220(a).
[2] Debt consolidation agencies are expressly prohibited in the District of Columbia by reason of Title 22, § 3426 of the District of Columbia Code (1973 Ed. as amended) which, in relevant part, provides:
§ 3426(b): "Except as provided in subsection (c), no person, partnership, association, or corporation shall engage in the business of debt adjusting in the District of Columbia."
Debt adjusting is specifically defined to include:
§ 3426(a)(1): "`Debt adjusting' means an activity, whether referred to by the term `budget counseling', `budget service', `credit advising', `debt adjusting', `debt counseling', `debt help', `financial adjusting', `financial arranging', `prorating', or some other term of like import, which involves a particular debtor's entering into an express or implied contract whereby the debtor agrees to pay an amount or amounts of money periodically or otherwise to a person who agrees, for a consideration, to distribute such money among specified creditors in accordance with the plan agreed upon between the debtor and the person to whom the debtor makes or agrees to make such payments."
[3] These issues and arguments raised by counsel for the respondent are discussed and disposed of in the Conclusions of Law, infra. The cases transferred, which are not the subject of this court's consideration, are as follows:
In re: Vivian M. and James A. Hauser, Jr.;
In re: Cecelia A. Leach;
In re: Brenda K. Carter;
In re: Beatrice Rozier;
In re: Kevin G. Madden
[4] In view of the number of bankruptcy cases and Chapter 13 cases involved, the court took the testimony of four of the individual debtors designated at random, and that of the respondent, as attorney of record, in each of the above-captioned cases. The court also took judicial notice of the records in each of the above-captioned cases, and particularly the respective schedules and statements of affairs (or Chapter 13 statement in Chapter 13 cases). The court also relies upon the answers filed by the respondent, in response to this court's interrogatories of January 10, 1980.
[5] In fact, other than purportedly reading articles concerning the passage of the new Bankruptcy Code, this respondent never even attended any type of seminar on the new Bankruptcy Code until late March, 1980, some two-and-one-half months after the issuance of the show cause order.
[6] October 1, 1979, just happened to be the effective date of the new Bankruptcy Code. See: Title IV of the Bankruptcy Reform Act of 1978, Pub.L. 95-598, § 402(a).
[7] Other than the testimony of the respondent, there is no official evidence of the corporation's status in this jurisdiction. However, the testimony of the respondent indicates that it was incorporated originally as a for-profit corporation.
[8] The testimony of the respondent as to the nature and size of the corporation's operations (Transcript, p. 121), suggests to the court that AFS is a closed corporation and was incorporated by close or related family members. The testimony of John Devers, the respondent, as well as that of the debtors, further establishes that the employees of this corporation, other than the respondent, are not attorneys-at-law in fact, John Devers was not even aware of the educational or occupational credentials of these individuals. (Transcript, p. 127)
[9] It is interesting to note that despite his active involvement with AFS, as both counsel and as a director and officer, his testimony as to the assessment of fees was far from precise. See Transcript, p. 120 and 128-129.
[10] Testimony of the respondent further establishes that the sole business affairs of AFS was the debt consolidation business described above. (See Transcript, p. 123-124.) In fact, it was apparently the sole reason for their incorporation.
[11] It is ironic that in January 1980, the corporate status of AFS was changed to that of a not-for-profit corporation ". . . Because it was brought to their attention that a provision of the D.C.Code prohibited profit-making corporations from being engaged in the business in which they were engaged. It was unknown to them and to me at the time although diligent searches had been made of the D.C. Code for that purpose." (See Transcript, p. 125.) In February of 1980, this attorney further resigned as an officer and director, but still continued his employment status as their legal counsel. The court notes that charges were and are still being assessed for their "services".
[12] The average fee assessed appears to be approximately $400.00 in each of the 33 pending cases, and the total fees assessed for these cases (October 1, 1979 through January 3, 1980) totalled $13,225.00.
[13] In other words, no verification or check was apparently ever made of judgments that may have been pending or secured in local courts, or a search for such matters as filed financing statements that might indicate a security interest in favor of a particular creditor. (See Transcript, p. 139-40.)
[14] This was clear to the court by reason of the numerous problems arising in many of the Chapter 13 cases filed by counsel. Many of these cases, as reflected by the docket records, could not be confirmed because of a failure to provide for a specific treatment of secured creditors pursuant to 11 U.S.C. § 1325. Moreover, in at least two of the Chapter 13 cases, when questioned by the court as to why no action was taken to assert certain rights of the debtor to void non-possessory, non-purchase money security interests (See: 11 U.S.C. § 522(f)), counsel was not aware or cognizant of the relevant sections of the code involved. Further evidence of the attorney's lack of familiarity with fundamental concepts of bankruptcy law deals with such matters as whether parking fines are exceptions to discharge in a bankruptcy case. (Transcript, p. 55.) See: 11 U.S.C. § 523(a)(7).
[15] The Court's inference is based not only on the court's personal observation at various court hearings, but also on the testimony of the debtors who appeared in response to the show cause order. (See Transcript, p. 63.)
[16] It should be noted that other cases were filed by this attorney in both the adjacent jurisdictions of Maryland and Virginia, and the court is not inquiring into those cases which are the subject of transfer orders based on improper venue.
[17] See Footnote 3, supra.
[18] The following cases were dismissed by court order:
In re Donald Robert Gossage, dismissed effective January 24, 1980, on motion of debtor;
In re Lewis Edward and Annie Mae Stokes, dismissed on December 21, 1979, for failure of the plan to meet the liquidation test and good faith requirement set forth in 11 U.S.C. § 1325;
In re Farrel Glenn Leqer, dismissed on February 6, 1980, for failure to cooperate with trustee after confirmation.
[19] United States Bankruptcy Court, as a separate department of the United States District Court, has previously adopted its own Local Rules in October 1979, which in turn incorporate
"All applicable provisions pertaining to the discipline of attorneys and enforcement thereof as set forth in District Court Local Rule 4-3 through 4-6 shall be fully applicable to this court." (Local Rule 3(a)(5).)
Accordingly, while these findings will be forwarded to the Bar Counsel, it is the court's opinion that the provisions of the United States District Court Local Rules 4-3 through 4-6 should be followed in reference to formal disciplinary action.
[20] The court's ruling on the matter of fees in these cases is based on the evidence adduced at the show cause hearing including, of course, those individual cases noted in the pleadings filed therein and is not intended to limit or discourage further investigation by the D.C. Bar Counsel in determining whether other violations may also have occurred.
[21] Admittedly, there is no Federal statute which makes the Code of Professional Responsibility binding upon attorneys who practice in the Federal court system. Yet it is a traditional and established code of conduct for all attorneys and the court has inherent power to enforce its promulgated mandates. See: Estates Theaters, Inc. v. Columbia Pictures Industries, Inc., 345 F. Supp. 93 (D.C.S.D.N.Y.1972)
[22] The testimony of Carlton Young refers to the caption "Get out of debt" and certain other words as well that ". . . explained certain things that they could help you with" (Transcript, p. 72-73.) Moreover, the testimony of Mr. Rudolph Preston makes it clear as to the impression created in the minds of the individual debtor:
"Q Now, Mr. Preston, how did you first have contact with Mr. Devers, the attorney?
A I was looking in the newspaper and I seen his article, you know.
Q What specific article are you referring to, Sir?
A It is an advertisement in, I guess it is the employment section about the kind of help you can get to get out of debt, and I called the number in the paper." (Transcript, p. 96.)
The advertisement was, therefore, by its nature misleading. It is clear to the court, based on an overall impression of the debtor's testimony received or adduced in these cases, that the individual debtors considered AFS and Mr. Devers to be substantially the same entity.
[23] In fact, the respondent testified that:
"I don't solicit these people, if that is " (Transcript, p. 130)
Although these self-serving statements seemingly indicate no intention of actively soliciting clients on his own, the overwhelming evidence of record indicates that he actively participated in forming a corporation that would foreseeably result in numerous debtor referrals. The respondent testified that, after the initial interview by the AFS representative, if debt pooling was not feasible consultation with a lawyer was suggested, and "The client invariably would say, `Well, I don't know any. Can you recommend one to me?'" (Transcript p. 129, emphasis added.) Moreover, in view of the size and kind of office operations involved, there is every reason to believe that the attorney rendered services to individual debtors in connection with the affairs of AFS itself. Although not possessing the mandatory character of a rule, ethical consideration EC 2-8 would seem to be clearly applicable, namely:
"Selection of a lawyer by a lay person should be made on an informed basis. Advice and recommendation of third parties relatives, friends, acquaintances, business associates, or other lawyers and restrained publicity may be helpful. A lawyer should not seek to influence another to recommend his or her employment. A lawyer should not compensate another person for recommending him or her, for influencing a prospective client to employ him or her, or to encourage future recommendations. Advertisements in public communications, whether in law lists, announcement cards, newspapers, or on radio or television, should be formulated to convey only information that is necessary to make an appropriate selection. Self-laudation should be avoided. Information that may be helpful in some situations would include:
1. Office information, such as name, including name of law firm and names of professional associates, addresses, telephone numbers, credit card acceptability, languages spoken and written, and office hours;
2. Biographical information; free description of the practice including the statement the practice is limited to one or more fields of law; and (4) permitted fee information. (Emphasis added.)
While there is no indication or evidence of record that the attorney paid any compensation to AFS, certainly he failed to heed the ethical considerations in creating an agency that would inevitably result in numerous debtor referrals.
[24] In Bates v. The State Bar of Arizona, the ad merely inquired: "Do you need a lawyer?" See Appendix to Supreme Court's opinion in 433 U.S. at 385, 97 S.Ct. at 2710. While the Supreme Court in Bates permitted advertising by attorneys because of First Amendment and Fourteenth Amendment Rights, it expressly warned that:
"Similar objections might justify restraints on in-person solicitation. We do not foreclose the possibility that some limited supplementation, by way of warning or disclaimer or the like, might be required of even an advertisement of the kind ruled upon today so as to assure that the consumer is not misled . . ." Bates, 433 U.S. 350, 384, 97 S. Ct. 2691, 2709, 53 L. Ed. 2d 810 (1977).
[25] See part 2, infra, of this court's Conclusions of Law relating to the unauthorized practice of law.
[26] The Bankruptcy Code, itself, is not intended as a panacea for all debt-ridden individuals and certainly, the `catchy' caption of "Get out of debt," obviously omits the multi-faceted problems that are unique to each individual case. Clearly, insofar as AFS was acting as a debt-consolidation agency, and contrary to existing law, the attorney was causing debtors to be referred to an agency which, under the circumstances, would be acting contrary to their individual interests.
[27] The original American Bar Association Canon 47, the predecessor of the Code's Rule DR 3-101 and the ABA Canon 47 (adopted in 1937) recites:
"No lawyer shall permit his professional services, or his name to be used in aid of, or to make possible, the unauthorized practice of law by any lay agency, personal or corporate.
[28] Title 22, Section 3426(a)(1) of the D.C.Code specifically defines "Debt-adjusting." See Footnote 2, infra. Title 22, Section 3426(c) provides that the statute shall not apply to "debt adjusting incurred incidentally in the lawful practice of law." However, this exception is not applicable here inasmuch as the corporation was a for-profit corporation comprised primarily of non-lawyers and was not a professional corporation. The involvement of the respondent was that of an employee and as house counsel to the corporation itself.
[29] It is only fair to note the respondent's version of how this occurred. At the show cause hearing he testified:
"A In January they were reincorporated as a non-profit corporation.
Q They went through a why was the reason for that?
A Because it was brought to their attention that a provision of the D.C.Code prohibit profit-making corporations from engaged in the business in which they were engaged. It was unknown to them and to me at the time although diligent searches had been made of the D.C.Code for that purpose." (Transcript, p. 125.)
How this occurred is hard to believe in view of the fact that the District of Columbia Code Index contains the following headnote:
"Debts
Debt Adjusting 22-3426"
[30] There is no evidence that any of the individual debtors who testified at the show cause hearing actually paid any funds to AFS for debt-adjusting services, but there are at least 29 other cases where this might be a distinct and potential cause of action.
[31] Ironically enough, in this regard, the respondent testified that he tried to ". . . read as many articles as much information acquire as much information as possible on the new Act so I would feel capable of assisting them." (Transcript, p. 117.) He further testified that he ". . . was not aware of any seminar . . ." (Transcript, p. 137.) The court finds this testimony to be extremely self-serving under the circumstances, and, in fact, finds it incredible, in view of the fact that every large urban area in the country, including the District of Columbia, conducted numerous seminars on this new legislation during the year preceding its effective date. In fact, this court participated in no less than five such seminars between February of 1979 and as late as September 30, 1979.
[32] See Footnote 14, infra; Findings of Fact, infra, text following Footnote 15.
[33] As noted in the Findings of Fact, the respondent, during the critical period of time between October 1979 and January 1980, devoted approximately 70% of his time to the affairs of AFS. See Findings of Fact, infra, text accompanying Footnote 11.
[34] The effective date for the substantive provisions of the new law was, of course, October 1, 1979. See: Title IV of the Bankruptcy Reform Act of 1978, Pub.L. 95-598, § 402(a).
[35] This is not intended, in any way to deprecate the valuable and needed services of many legal clinics who conscientiously attempt to render legal advice and services to those unable to afford it.
[36] Although the corporate status has apparently been changed to that of a not-for-profit corporation, the testimony of respondent indicates that the conduct of business has not changed in substance. In fact, charges are still being assessed and, although these monies will apparently be utilized for certain non-profit purposes, the entire staff of AFS is still comprised of three individuals whose training in this area is dubious. As evidenced by the testimony of the respondent himself, he was not even aware of the occupational or training background of the individuals involved in this business. The operation of a debt consolidation agency by a corporation of this nature is a far cry from the conduct of such reputable non-profit counselling services as the Consumer Credit Counselling Service of Greater Baltimore, Inc., which is funded by banks, credit unions and similar organizations. See: S.Rep. 288, 91st Cong., 1st Sess. (1969), supra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535091/ | 5 B.R. 1 (1979)
In the Matter of CIRCUS TIME, INC., Debtor.
CIRCUS TIME, INC., Plaintiff,
v.
OXFORD BANK AND TRUST, U.S. Small Business Administration, Grumman Credit Corporation, Kennebunk Leasing Corporation, the Ocean National Bank, Atlantic Federal Savings & Loan Association, Oneida Packaging Products, Inc., Equico Lessors, Inc., Olivetti Leasing Corporation, Internal Revenue Service, City of South Portland, State of Maine, U.S. Trustee, Krisway Truck Leasing, Defendants.
Bankruptcy No. 279-00687, Adv. No. 279-0002.
United States Bankruptcy Court, D. Maine.
December 24, 1979.
Gregory A. Tselikis, and Charles Miller, Portland, Me., for creditors' committee.
Richard E. Poulos, and Robert C. Robinson, Portland, Me., for debtor.
MEMORANDUM OF DECISION
FREDERICK A. JOHNSON, Bankruptcy Judge.
This proceeding was commenced by the complaint of the Debtor-in-Possession, Circus Time, Inc. for authority to sell all of its tangible and intangible assets free and clear of any interest in such property pursuant to 11 U.S.C. § 363(f).
The Debtor's complaint was filed on December 4, 1979 together with a motion to shorten the time in which to answer to December 12, 1979. Said motion was granted.
A summons with notice of trial was issued on December 5, 1979. Trial was scheduled for December 13, 1979 at 10:00 o'clock in the forenoon.
Proof of service on each named Defendant has been filed with the Clerk of this Court.
Notice of the hearing on the complaint to sell was given to all creditors pursuant to local Bankruptcy Rule 2002(b)(2) and in accordance with 11 U.S.C. § 363(b).
A hearing on the Debtor's complaint to sell was conducted on December 13, 1979 as scheduled and was continued to December 20, 1979 at 11:00 o'clock in the forenoon in order to permit the Defendants and creditors more time to consider the proposed sale.
*2 Responsive pleadings have been filed by all Defendants except Oneida Packaging Products, Inc., Internal Revenue Service, State of Maine and the U.S. Trustee. All of the named Defendants except those named in this paragraph were represented by counsel at the December 20th hearings.
Gregory A. Tselikis, Esquire and Charles Miller, Esquire were present representing the Creditors' Committee. Richard E. Poulos, Esquire and Robert C. Robinson, Esquire represented the Debtor.
The facts, as found by the Court, are based upon evidence presented at the hearings conducted on December 13, 1979 and December 20, 1979.
The Debtor is engaged in the manufacture and sale of potato chips and popcorn products. Its products are distributed throughout Maine, New Hampshire, Vermont and part of Massachusetts. It also distributes related products purchased from others. It employs about 70 persons, half of whom work at the plant in South Portland and the other half on the road.
The company has experienced a serious cash-flow problem over the past several years. It owns assets, as reflected on its balance sheet, as of October 27, 1979 to the value of $1,081,939.00.
The Debtor has received an offer from General Mills, Inc. to purchase all of its assets, both tangible and intangible, including all of its distribution routes for the total price of $1,190,000.00.
From the evidence it is clear that $1,190,000.00 is a fair and reasonable price for the Debtor's assets, and in view of the difficulties experienced by the Debtor over the past several years, is the best possible offer obtainable.
It is imperative that the sale to General Mills, Inc. be consummated as quickly as possible as there is a very real danger that unless the sale is consummated within the next few weeks the offer may be withdrawn.
The Debtor's cash-flow problem is so serious that it will be unable to continue the business as a going concern for more than a few more weeks and there is a clear and present danger that a loss of two or three of the Debtor's largest customers to its competitors would be disastrous to the Debtor and its creditors and in addition, would jeopardize the proposed sale to General Mills.
The entities holding major secured claims are the Small Business Administration (SBA) and Oxford Bank and Trust, a Maine Banking Corporation. Each has filed a proof of claim in the following amounts:
SBA $481,254.11
OXFORD 329,164.00
SBA claims an interest in the Debtor's real estate, inventory, equipment, machinery, furniture, fixtures, accounts receivable, notes, drafts, cash, deposits and other property, including eight vehicles.
Oxford claims an interest in the Debtor's real estate, inventory, proceeds, a Certificate of Deposit in the amount of $20,000 and other property.
Due to the urgency of the need to act on the Debtor's complaint to sell free and clear, it is impossible to act on the allowance of the Oxford Bank and SBA's claims before the sale. However, it appears that the price at which the Debtor's property is to be sold is greater than the aggregate value of the interest of Oxford and SBA in the property. Furthermore, there is a bona fide dispute as to the interest of these entities in the property to be sold. Counsel for the Creditors' Committee is urging a valuation different from that urged by Oxford and SBA.
Several of the other Defendants claim to be owners of certain equipment and machinery under lease to the Debtor. The Debtor and the Creditors' Committee have raised a bona fide dispute as to the status of these entities and their interest in the property. See UCC § 1-201(37). It also appears that the prices to be received for property in which these entities have an interest is greater than the aggregate value of their interest. These Defendants are listed below:
*3 Grumman Credit Corporation
Equico Lessors, Inc.
Olivetti Leasing Corporation
Kennebunk Leasing Corporation
(now Mariner Leasing)
Three Defendants, Ocean National Bank, Atlantic Federal Savings & Loan Association and the City of South Portland have consented to the sale.
Defendants, Oneida Packaging Products, Inc., State of Maine, Internal Revenue Service and the U.S. Trustee are deemed to have consented to the sale by their failure to plead or appear.
Six vehicles leased by the Debtor from Kennebunk Leasing Corporation (Mariner Leasing Corp.) are conceded by the Debtor to be subject to true leases and these vehicles will be excluded from the sale:
i. 1979 Fairmont wagon, Lease No. C-54
ii. 1979 Fairmont wagon, Lease No. C-55
iii. 1979 Lincoln two-door, Lease No. C-35A
iv. 1979 Ford E-100, Lease No. T-40
v. 1976 Torino wagon, Lease No. C-39
vi. 1976 F-350 Cab and Chasis, Lease No. T-26
Two other vehicles leased by the Debtor from Krisway Truck Leasing are conceded by the Debtor to be subject to true leases and these vehicles will be excluded from the sale:
i. 1977 Kenworth tractor, Chasis No. 156851J
ii. 1977 Kenworth tractor, Chasis No. 156850J
DISCUSSION
11 U.S.C. § 363(b) provides that:
The trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate.
Section 363(e) provides, as pertinent:
Notwithstanding any other provision of this section, at any time, on request of an entity that has an interest in property . . . 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.
Section 363(f) provides:
The trustee may sell property under subdivision (b) or (c) of this section free and clear of any interest in such property of an entity other than the estate, only if . . .
(2) such entity consents:
(3) such interest is a lien and the price of which such property is to be sold is greater than the aggregate value of such interest;
(4) such interest is in bona fide dispute;. . . .
The power of the Bankruptcy Court to sell property free and clear of liens has long been recognized. VanHuffel v. Harkelrode, 284 U.S. 225, 52 S. Ct. 115, 76 L. Ed. 256 (1931). Section 363(f) now permits a sale under subsection (b) or (c) free and clear of an interest under a number of circumstances, two of which are present in this case. First, it appears that the price at which the property is to be sold is greater than the aggregate value of the Defendants' interest in the property. § 363(f)(3). In addition, bona fide disputes exist as to Defendants' interest in the property. § 363(f)(4). Section 363(f) permits a sale free and clear of any interest if any one of the conditions of § 363(f) have been met. Collier on Bankruptcy, 15th ed. ¶ 363.07.
Before a sale of property free and clear of any interest in such property adequate protection for the interest of an entity in such property must be provided for. § 363(e). Adequate protection in this case is provided by having any valid interest attached to the proceeds of the sale. See Collier, supra, ¶ 363.07 and also, Legislative History, House Report No. 95-595, p. 345 (1977), U.S. Code Cong. & Admin. News 1978, p. 5787.
An order will be entered today authorizing a sale of all of the Debtor's assets, except those excluded above, free and clear of any interest in such property of any entity other than the estate, with any such interest to attach to the proceeds of the sale. Such interests to be determined by this Court at a later date after notice and hearing. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535093/ | 969 S.W.2d 131 (1998)
Dennis W. RICHARDS, Appellant,
v.
Larry W. SCHION, Appellee.
No. 01-96-00457-CV.
Court of Appeals of Texas, Houston (1st Dist.).
April 30, 1998.
Hellmut A. Erwing, Houston, for appellant.
T.W. Proctor, Houston, for appellee.
Before COHEN, O'CONNOR and ANDELL, JJ.
OPINION
OCONNOR, Justice.
This is an appeal from a default judgment rendered against Dennis Richards, the appellant *132 and defendant below, in a suit arising out of nonpayment of a debt. We affirm.
Background
Richards, an attorney, hired Larry Schion, the appellee and plaintiff, to do some work on his house. Schion brought a contract to Richards' house to be signed. Richards was not at home, but his wife and Schion both signed the contract and Mrs. Richards said she would discuss the contract with her husband. Richards never signed the contract. Schion, who believed he had a valid contract with Richards and his wife, began to work on the house with his father-in-law and other employees.
In October 1987, after nearly all the work was completed, Richards fired Schion. After firing him, Richards asked if Schion would come back and finish the job. Schion refused, but asked his father-in-law to finish the work "as a matter of pride in finishing what he started."
The final bill for the work done on Richards' house was $8,440. Richards paid a total of $4,100, and owed $4,340. Richards tried to give Schion a check for $500, on which was written language to the effect that acceptance of the check would constitute full payment of all Richards owed Schion. When Schion refused to accept the check, Richards called the police as Schion tried to collect his tools and leave. Schion filed a mechanic's lien against Richards' house, but released it when he realized the contract was not signed by Richards and so could not be relied upon for a lien against a homestead.
In retaliation, Richards sued Schion, alleging among other things that Schion was a thief and a "peeping tom," and that Schion abused Richards' stepdaughter by using foul language in front of her. At trial, Schion won a directed verdict against Richards.
Schion then filed this lawsuit against Richards for payment on a sworn account, fraud, malicious prosecution, and intentional infliction of emotional harm. On January 3, 1994, after several continuances and ongoing discovery disputes, Schion appeared and announced he was ready for trial on an earlier-filed motion for sanctions. Richards did not appear, and the trial court struck his pleadings and entered an interlocutory default judgment against him. At a final hearing on damages, Richards again did not appear, but his attorney asked for a continuance. The trial court denied the continuance, held the hearing on damages, and signed a final judgment.
The trial court awarded Schion $4,340 plus $4,968.27 interest for the debt owed, $10,000 plus $21,670.80 interest for fraud, $84,401.08 plus $96,384.94 interest for intentional infliction of harm and malicious prosecution, and 40 percent attorney's fees, for a total of $397,189.40. The trial court reduced the judgment to $165,000.
Richards moved for a new trial, claiming there was no or insufficient evidence to support several of the trial court's findings and that the judgment was excessive. Richards did not attack the trial court's sanctions. The trial court denied Richards' motion.
Motion for Continuance
In point of error one, Richards argues the trial court abused its discretion in denying the motion for continuance he made at the damages hearing. We disagree.
We will not disturb a trial court's ruling on a motion for continuance unless the record discloses a clear abuse of discretion. State v. Wood Oil Distrib., Inc., 751 S.W.2d 863, 865 (Tex.1988); Hatteberg v. Hatteberg, 933 S.W.2d 522, 526 (Tex.App.Houston [1st Dist.] 1994, no writ). A trial court is not required to grant a continuance simply because a party is unable to be present at trial. Condry v. Mantooth, 460 S.W.2d 513, 515 (Tex.Civ.App.Houston [1st Dist.] 1970, no writ). To complain on appeal, an absent party must show (1) he had a reasonable excuse for his absence and (2) he was prejudiced by the trial's proceeding without him. Id. The testimony of the absent party must be material. Id.
Richards produced a doctor's affidavit, stating he was hospitalized for injuries from a car accident, and showing a reasonable excuse for being absent from the hearing. His motion for continuance stated he would give vital testimony at the trial. He *133 did not explain the substance of his testimony
Rule 252 of the Texas Rules of Civil Procedure provides:
If the ground [for a continuance] ... be for the absence of a witness, [the movant] shall state ... what he expects to prove by him....
The hearing for which Richards was absent was held solely to produce evidence on the issue of Schion's damages. Richards' pleadings had already been struck and judgment entered against him on all Schion's causes of action. Richards' attorney cross-examined Schion and Schion's attorney.
Richards did not show (1) what testimony he would have presented, (2) that his testimony was material, or (3) that he was prejudiced when the trial court proceeding without him. Id.
We overrule point of error one.
Sufficiency of the Evidence
On appeal, Richards attacks the factual and legal sufficiency of the evidence supporting the trial court's findings of fraud, intentional infliction of emotional distress, and malicious prosecution.[1]
The clerk's record does not contain Richards' request for a reporter's record. The only reporter's record before this Court is for the hearing on damages held November 9, 1995. We do not have a reporter's record from the January 3, 1994 hearing at which Richards' pleadings were struck and interlocutory default judgment was entered.
When attacking the sufficiency of the evidence, the appellant must present a complete record of the evidence received at trial. Christiansen v. Prezelski, 782 S.W.2d 842, 843 (Tex.1990). As an alternative to producing a complete reporter's record, an appellant may limit the appeal by complying with rule 34.6(c) of the Texas Rules of Appellate Procedure.[2]Id. Rule 34.6(c)(1) requires an appellant who intends to appeal with a partial reporter's record to include in its request a statement of the points or issues to be presented on appeal. When an appellant appeals with a partial reporter's record but does not provide the list of points as required by rule 34.6(c)(1), it creates the presumption that the omitted portions support the trial court's findings. Id; cf. TEX.R.APP. P. 34.6(c)(4) (if the appellant includes the statement of points with its request for the record, "[t]he appellate court must presume that the partial reporter's record ... constitutes the entire record for purposes of reviewing the stated points....").[3]
Because Richards appealed with a partial record but did not designate his points for the appeal, we must presume the omitted parts of the record are relevant to the disposition of this appeal. On this record, we cannot say the evidence was insufficient to support the trial court's findings of fraud, intentional infliction of emotional harm, or malicious prosecution.
We overrule points of error two, three, four, five, six, and seven.
We affirm the trial court's judgment.
NOTES
[1] Richards does not attack the trial court's finding that he owed Schion $4,340 plus interest for the unpaid debt or claim the trial court erred in imposing sanctions, striking his pleadings, and entering default judgment.
[2] Formerly TEX.R.APP. P. 53(d), amended effective September 1, 1997.
[3] Similarly, former rule 53(d) stated that if the statement of points was included with the request for the record, "there shall be a presumption on appeal that nothing omitted from the record is relevant to any of the points specified or to the disposition of the appeal." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535150/ | 969 S.W.2d 332 (1998)
The CITY OF LOUISIANA, Plaintiff/Respondent,
v.
Don BRANHAM and Rhonda Branham, Defendants/Appellants.
No. 72584.
Missouri Court of Appeals, Eastern District, Division Five.
June 9, 1998.
*333 John T. Bruere, St. Peters, for appellant.
Joseph A. Brannon, Schaper and Fisher, Bowling Green, for respondent.
RICHARD B. TEITELMAN, Judge.
Defendants Don Branham and Rhonda Branham purchased several adjoining lots within the City of Louisiana, Missouri with the intent to place a mobile home on each lot. Thereafter the City ordered Defendants to stop work on the lots, claiming that the development would constitute a "mobile home park" in violation of applicable City ordinances and zoning regulations. When Defendants later proceeded to place a mobile home on one of their lots, the City filed this action for an injunction and also for declaratory judgment to determine upon which, if any, of their six lots Defendants could lawfully place mobile homes. Defendants appeal the trial court's judgment which held that they were entitled to place a mobile home on only one of their six lots. Defendants contend the judgment was based upon a zoning ordinance amendment which was invalidly enacted and thus unenforceable. We agree. Reversed.
Defendants purchased their property on July 29, 1992. The real estate consisted of Lot 8 of Block 4, and Lots 3 through 8 of Block 3, in the Bank of Louisiana Subdivision, a Subdivision which has been platted since 1917 and accepted and approved by the City of Louisiana. Defendants purchased these seven lots with the intention of placing mobile homes on two of the lots to use as permanent dwelling places for themselves and some of their relatives, and to purchase mobile homes for the remaining lots and rent them out. The lots are located in an area that runs along the railroad tracks and lies within a district that was at the time of purchase and has remained throughout the course of this litigation zoned "R-2, Mobile Home Dwelling District".
Ordinance No. 6266 (LO 6266) is the general zoning ordinance for the City of Louisiana. It sets forth the zoning rules and definitions, establishes the different zoning districts within the City, and provides for the various specific uses which are allowed and not allowed within each of those respective zoning districts. Business and industrial districts are zoned as either B-1, B-2, I-1 or I-2. Residential districts are zoned either R-1, which allows buildings and homes for dwelling purposes, or R-2, which is actually denominated "mobile home dwelling district" and which allows buildings, homes or "mobile homes for dwelling purposes." At the same time, however, LO 6266 also expressly prohibits within R-2 districts "any use as allowed in B-1, B-2, *334 I-1 or I-2 districts." And one of the specific enumerated uses allowed in B-2 districts is "mobile home parks, for dwelling purposes."
By its terms LO 6266 thus prohibits the existence of mobile home parks within an R-2 district, even while at the same time providing that it is permissible to place mobile homes for dwelling purposes on individual lots within such a district. LO 6266 does not provide definition for the term "mobile home park."
On July 11, 1994, Defendants applied for a City permit for the installation of sewer and water lines to serve seven mobile homes to be placed upon their seven lots. This application was initially approved and a permit issued on July 12, 1994. Defendants then commenced installing the sewer and water lines. On July 28, 1994, after Defendants had completed approximately 90% of the installation work, the Mayor of the City of Louisiana issued a stop work order. Later, Defendants were allowed to complete the installation of these systems, at a cost to them of approximately $10,000.
At approximately the same time when installation work first began on the sewer and water lines Defendants also moved a mobile home onto Lot 3, Block 3. Defendants had applied for a permit to do so and expected that the permit would be granted but it was at first denied. On September 9, 1994, Defendants sold Lot 3 of Block 3 to Mr. and Mrs. Wayne Hill, leaving Defendants with six of their original seven lots. Mrs. Hill is Defendant Rhonda Branham's mother. The City eventually issued a permit for a mobile home on Lot 3; and both parties to this action have stipulated that the Hills lawfully reside in a mobile home on that lot.
On November 14, 1994, the City Council enacted Ordinance No. 6478 (LO 6478). That ordinance, which states on its face that it is applicable to "all sections of the Louisiana Code of Ordinances," defines the term "Mobile Home-Trailer Park." It defines that term as: "One or more adjoining lots used or intended to be used, let, leased, rented or sold for the siting of two or more manufactured houses, manufactured homes, mobile homes or trailers for residential use." Prior to LO 6478's enactment no public hearing was held in relation thereto, by either the City Council or the City's Planning and Zoning Commission.
On March 16, 1995, Defendants applied to the City for a building permit to place a mobile home on Lot 8, Block 4. On March 21, 1995, the City denied the requested permit. Defendants subsequently appealed that decision to the City's Board of Adjustment. The Board refused to render any ruling in the appeal. Defendants had also appealed to the Board of Adjustment once previously, regarding the City's initial denial of a permit to place a mobile home on Lot 3 of Block 3, and the Board likewise declined to make a ruling on that occasion as well. The parties have stipulated that Defendants have exhausted all administrative remedies available to them with respect to the matters at issue in this litigation.
On July 1, 1995, Defendants placed a double-wide mobile home on Lots 4 and 5 of Block 3, without seeking a building permit to do so. Defendants maintained that no permit was required because the mobile home was placed there only for storage rather than for dwelling purposes.[1]
The City disagreed. On August 3, 1995, the City filed an action for declaratory judgment and injunctive relief against Defendants. In its petition the City requested a judgment "declaring [Defendants] to either be in violation of or compliance with the zoning ordinances of the City of Louisiana" regarding their placement of a mobile home on Lots 4 and 5 of Block 3, and alleged that such placement violated the provisions of LO 6266 which prohibited "mobile home parks" within any R-2 Mobile Home Dwelling District. The petition sought injunctive relief to prevent Defendants from placing a mobile home on Lots 4 and 5 of Block 3, and further enjoining them from placing mobile homes "on any adjoining lots to which the [Defendants] have an interest which would also *335 violate the zoning ordinances of the City of Louisiana."
Defendants filed an Answer and Counterclaim, in which they sought a judgment that they were legally entitled to place mobile homes for dwelling purposes upon all six of their remaining lots, and injunctive relief mandating that the City allow them to do so. Defendants' counterclaim also sought a ruling that they were lawfully entitled under city ordinances to place there indefinitely "for storage purposes only" the mobile home located on Lots 4 and 5 of Block 3, without a permit, "just as they would have the right to store building materials on a dwelling lot...."
The cause was heard in a non-jury trial held on May 13, 1996. Both parties stated on the record that they were seeking a judicial determination as to which, if any, of Defendants' remaining six lots Defendants could lawfully place a mobile home upon to rent or sell for residential use.
On June 21, 1996, several landowners who owned property nearby Defendants' six lots filed a motion for leave to file an Amicus Curiae brief with the trial court, along with a copy of the proposed brief. Defendants objected to the proposed Amicus brief on the ground that its statement of facts as well as some of its attached "exhibits" contained matters of alleged fact outside the record after evidence in the case had been closed, and that Defendants would not have an opportunity to rebut or cross-examine such alleged new "evidence". On September 20, 1996, the trial court entered an order granting leave for the Amicus Curiae brief to be filed and considered by the court solely for purposes of the legal issues discussed therein, specifically stating in the order that the court "disregards any evidence of fact contained in the Amicus Curiae Brief not presented at the original hearing."
On March 10, 1997, the trial court entered the following order in the case:
Comes now the Court and upon due consideration finds for Plaintiff on its Petition for Declaratory Judgment. The Defendant is hereby ordered enjoined from placing a mobile home on Lot 8 of Block 4 in the Bank of Louisiana Subdivision. Furthermore, the Defendant is ordered enjoined from placing a mobile home on Lots 8, 7, 4 of Block 3 in the Bank of Louisiana Subdivision and may place a mobile home on either Lot 5 or Lot 6 of Block 3 in the Bank of Louisiana Sub-division. On Defendants' Counterclaim for Declaratory Judgment the Court finds for the Plaintiff and further prohibits Defendant from storing a mobile home or portion thereof on lots in question not in conformance with the above orders. Costs are taxed to the Defendants. Counsel to be notified.
On March 20, 1997, Defendants filed their "Motion For A New Trial Or In The Alternative To Amend Order." This motion requested that the court order a new trial to allow Defendants to offer evidence countering the statements and exhibits contained in the Amicus Curiae brief which were not part of the evidentiary record at trial. In the alternative, it requested that the court amend its order of March 10, 1997 by denominating it as a "Judgment," and further amend the order by including within it findings of fact and conclusions of law.
On April 14, 1997, the court denied Defendants' request for new trial and for findings of fact and conclusions of law. On that same date the court entered a final order in the case denominated "Judgment" which repeated the provisions contained in its order of March 10, 1997. Defendants appeal from that judgment.
Defendants raise four points in their appeal. Defendants contend (1) that the trial court erred in not allowing them to place a mobile home on each of their six lots because LO 6478, defining "mobile home trailer park," was not enacted in compliance with the procedure required by the state Zoning Enabling Act and therefore is invalid and unenforceable; (2) that even if LO 6478 is valid, Defendants had established a "non-conforming use" prior to its enactment and therefore should be exempt from its zoning restrictions under the "grandfathering" doctrine; (3) that the trial court erred in not allowing Defendants to place a mobile home on each of their six lots because the application of city ordinances to prevent such use *336 causes an unconstitutionally unreasonable result by arbitrarily restricting Defendants' use of their land; and (4) that the trial court erred in allowing the Amicus Curiae brief to be filed after the close of all evidence when that brief contained alleged new "evidence" and exhibits not presented at trial and Defendants were denied any opportunity to rebut or cross-examine such alleged new evidence.
We regard the first issue as dispositive, and hence decline to address the merits of the other three points raised on appeal.
LO 6478 was enacted by the Louisiana City Council on November 14, 1994 and defines "Mobile Home Trailer Park". Defendants contend that ordinance is invalid because it was not enacted in compliance with the notice and public hearing requirements of Section 89.060 RSMo 1994,[2] the statute authorizing a municipal legislative body to change zoning laws. That statute states, in relevant part:
Such regulations, restrictions, and boundaries may from time to time be amended, supplemented, changed, modified or repealed. * * * * The provisions of Section 89.050 relative to public hearing and official notice shall apply equally to all changes or amendments.
Section 89.050 RSMo, which authorizes a municipal legislative body to enact zoning laws, states in pertinent part:
However, no such regulation, restriction or boundary shall become effective until after a public hearing in relation thereto, at which parties in interest and citizens shall have an opportunity to be heard. At least fifteen days notice of the time and place of such hearing shall be published in an official newspaper or a paper of general circulation in such municipality.
Missouri courts have long held that our state's Zoning Enabling Act, Sections 89.010 through 89.140 RSMo, is the sole source of power and measure of authority for cities, towns and villages in zoning matters. City of Moline Acres v. Heidbreder, 367 S.W.2d 568, 572 (Mo.1963). Zoning ordinances constitute an exercise of the state's police power. Dahman v. City of Ballwin, 483 S.W.2d 605, 608 (Mo.App. St. Louis 1972). As such, a city has no inherent police power to zone, but rather must look to the Enabling Act to determine the extent of such power delegated to it by the state. Allen v. Coffel, 488 S.W.2d 671, 678 (Mo.App.K.C. 1972). Any valid exercise of such delegated powers must conform to the terms of the statutory grant. Id. Enactment of a zoning ordinance or the amendment of an existing ordinance must, therefore, strictly comply with the statutorily prescribed notice and hearing requirements of 89.050 and 89.060 RSMo. Dahman at 608; City of Monett v. Buchanan, 411 S.W.2d 108, 113 (Mo.1967); 101A C.J.S. Zoning & Planning, Section 84, p. 315. Where the procedural requirements of the Enabling Act are not strictly complied with, the ordinance passed is invalid and cannot be enforced. State ex rel. Casey's General Stores, Inc. v. City of Louisiana, 734 S.W.2d 890, 895 (Mo.App. E.D.1987).
It is undisputed in this case that no prior public hearings were held in relation to LO 6478, by either Louisiana's City Council or its Zoning Commission. Thus, if LO 6478 is properly considered an amendment to the City's general zoning ordinance, then it is invalid and unenforceable since its enactment failed to comply with the notice and hearing requirements of Section 89.060 RSMo.
The City contends that LO 6478 is not a zoning ordinance amendment but is instead a "general definitional" ordinance which, on its face, is intended to apply not merely to the City's zoning ordinance but rather to all sections of the Louisiana Code of Ordinances.[3] Therefore, the City argues, since LO 6478 is not a zoning ordinance and thus not subject *337 to 89.060 RSMo's notice and hearing requirements, it is valid and enforceable.
We disagree.
The only substantive content of LO 6478 is its creation of a definition of the term "mobile home trailer park". That definition states:
One or more adjoining lots used or intended to be used, let, leased, rented or sold for the siting of two or more manufactured houses, manufactured homes, mobile homes or trailers for residential use.
Because the City's general zoning ordinance, LO 6266, contains no definition of the term "mobile home park," and because the provisions of LO 6266 that prohibit any "mobile home park" within an R-2 zoned district would be difficult (if not impossible) to enforce absent a working definition of that term, it necessarily follows that LO 6478 would, if held to be valid and applicable, effectively result in a very significant and substantive change to the city's zoning regulations affecting R-2 Mobile Home Dwelling Districts. Yet the City has offered no authority, nor have we found any, to support its contention that LO 6478 should not be considered to be a substantive modification of the City's general zoning ordinance merely for the reason that the definition contained in LO 6478 might also apply to certain other and unspecifiedparts of the City's Code of Ordinances.
There are no Missouri cases directly on point concerning this issue. Some authorities from other states suggest that an ordinance like LO 6478 might be deemed not to be a zoning ordinance. See Town of Clearfield v. Cushman, 150 Wis. 2d 10, 440 N.W.2d 777, 780-81 (1989); Merlino Enterprises, Inc. v. Fenlon, 112 R.I. 653, 314 A.2d 155, 156 (1974). We believe the better-reasoned authority, however, is to the contrary. An ordinance change which effectively disallows a mobile home park where one would have been allowed before must be considered a zoning law change, because labels should not prevail over substance. Whidden v. Faigen, 255 Ga. 347, 338 S.E.2d 264, 265 (1986). LO 6478 "necessarily modified" the City of Louisiana's zoning regulations affecting mobile homes and mobile home parks in a direct and substantive way, and therefore should be considered as a zoning amendment. See Rayco Investment Corp. v. Board of Selectmen of Raynham, 368 Mass. 385, 331 N.E.2d 910, 914-15 (1975). To hold otherwise would mean that the procedural protections and requirements of the state's Zoning Enabling Act could be circumvented by means of enacting a zoning law change but simply calling it something else. See Id. at 915.
For the foregoing reasons, we conclude that LO 6478 must be considered an amendment to the City of Louisiana's general zoning ordinance and therefore subject to the notice and hearing requirements of Section 89.060 RSMo. As such, LO 6478 was invalidly enacted and is unenforceable.
The City alternatively asserts that even if LO 6478 is invalid, the court still had to consider, interpret and apply LO 6266, the City's general zoning ordinance. Whether a proposed use as described in an application or in testimony at a hearing falls within a given category specified in a zoning ordinance is, after all, a question of law and statutory construction. Thus, the City argues, since the general zoning ordinance expressly prohibits "mobile home parks" within districts zoned R-2, and since "mobile home park" must mean something, the trial court could have reached the result that it did "solely" by interpreting that ordinance, without relying at all upon LO 6478.
We disagree.
LO 6266 purports to place a restriction upon "mobile home parks" within districts that are zoned R-2 Mobile Home Dwelling District; yet nowhere in that ordinance is the term "mobile home park" defined.[4] The absence of such a definition does not necessarily indicate, however, that the meaning of the term "mobile home park" is incapable of being statutorily construed. For although "there are few more difficult judicial tasks" than construing the meaning of an undefined term in a legislative zoning enactment, Hasekamp *338 v. Superior Equipment Company, Inc., 490 S.W.2d 385, 388 (Mo.App. St. Louis 1973), it can be done. See St. Louis County v. Pfitzner, 657 S.W.2d 262, 264 (Mo.App. E.D.1983) (construing the term "off-street parking area"); Coots v. J.A. Tobin Construction Co., 634 S.W.2d 249, 251-53 (Mo. App. W.D.1982) (construing the term "manufacturing"); Hasekamp at 388-89 (construing the term "contractor's plant or storage yard").
Here, under all of the circumstances and given the ambiguity of the ordinance's undefined term, we conclude that "mobile home park" within the meaning of LO 6266 cannot be construed to include the relatively small number of lots in question. One of the primary rules of construction in this state is that zoning ordinances, being in derogation of common law property rights, should, whenever ambiguous, be strictly construed in favor of the property owner. Cunningham v. Board of Aldermen of Overland, 691 S.W.2d 464, 469 (Mo.App. E.D. 1985); Coots, supra, at 251-252. Where a term in a zoning ordinance is susceptible of more than one interpretation, the courts are to give weight to the interpretation that, while still within the confines of the term, is least restrictive upon the rights of the property owner to use his land as he wishes. Cunningham at 469; Coots at 252.
Finally, and most significantly, the record in this case leaves little doubt that the City would not have denied Defendants permits to place mobile homes upon their lots prior to the enactment of LO 6478. At trial City Superintendent David Yohn, whose responsibilities include reviewing all building permit applications for city zoning ordinance compliance, testified that for many years prior to LO 6478's enactment permission was routinely granted for landowners to place mobile homes on adjoining lots within the R-2 district. Mr. Yohn unequivocally stated that, prior to the enactment of LO 6478 in November of 1994, the City did not have an ordinance that it would have used to stop a person from putting up mobile homes in an R-2 district on adjoining lots. It is sometimes held that the interpretation placed on a zoning ordinance by the authorities in charge of its enactment and application is entitled to great weight. Coots, supra, at 252. If so then here, where the record reflects that prior to the passage of LO 6478 the City would not have interpreted the provisions of its general zoning ordinance in such a way as to deny Defendants the right to place mobile homes on the six lots in question, the City cannot plausibly argue that the trial court should have adopted such an interpretation.
We hold that Defendants are entitled as a matter of law to place a mobile home for dwelling purposes on each of their six lots.[5] The trial court's judgment in favor of the City on its petition for declaratory and injunctive relief, and against the Defendants on their counterclaimfor declaratory and injunctive relief, is reversed. Judgement is hereby entered in favor of Defendants on their counterclaim, and the City of Louisiana is ordered to issue to Defendants upon proper application the necessary building permits allowing them to place mobile homes on their lots.
CRAHAN, C.J. and ROBERT E. CRIST, Senior Judge, concur.
NOTES
[1] The record indicates that by agreement of the parties this particular mobile home remains "stored" on Lots 4 and 5 of Block 3, unoccupied, pending the outcome of this appeal.
[2] All statutory references are to RSMo 1994 unless otherwise noted.
[3] The City also argues that Defendants are not entitled to assert on appeal their claim that LO 6478 is invalid, because that claim was not raised in Defendants' post-trial motion and thus not preserved for appellate review. This argument is without merit. Defendants presented their claim regarding the invalidity of LO 6478 to the trial court both on their pleadings and during trial. They were not required to reiterate that claim in a post-trial motion in order to preserve it for review. Rule 73.01(b).
[4] For various definitions of "mobile home park", see 2 Anderson, American Law of Zoning, Section 14.04 (3rd ed.1986).
[5] Defendants, however, are not entitled under existing ordinances to place an unoccupied mobile home on any of their six lots for storage purposes only. A mobile home is not akin to building materials. Defendants are entitled to place mobile homes on their lots for purposes of residential use and occupancy, or for a reasonable amount of time in preparation for such use and occupancy, but not simply for storage. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535168/ | 780 A.2d 299 (2001)
2001 ME 137
Peter BRAGDON et al.
v.
TOWN OF VASSALBORO.
Supreme Judicial Court of Maine.
Argued September 10, 2001.
Decided September 27, 2001.
*300 John E. Nale (orally), Nale Law Offices, L.L.C., Waterville, for plaintiffs.
Alton C. Stevens (orally), Marden, Dubord, Bernier & Stevens, Waterville, for defendant.
Panel: WATHEN, C.J., and CLIFFORD, RUDMAN, DANA, SAUFLEY, ALEXANDER, and CALKINS, JJ.
ALEXANDER, J.
[¶ 1] Peter Bragdon and Stephen Ellis appeal from a judgment entered in the Superior Court (Kennebec County, Studstrup, J.) affirming the decision of the Vassalboro Planning Board approving C & C Distributors, Inc.'s application for a site permit to construct an aluminum products manufacturing facility. Bragdon and Ellis contend that the Superior Court erred in: (1) finding that the Town could adopt a site review ordinance without first adopting either a comprehensive plan or a zoning ordinance; (2) finding that the performance standards and general provisions in the Town's site review ordinance were valid; and (3) affirming the Planning Board's decision, absent written findings of fact by the Planning Board, in violation of their due process rights. Finding no error in the Town's application of its site review ordinance, we affirm.
I. CASE HISTORY
[¶ 2] On April 19, 2000, C & C Distributors, Inc. (C & C) submitted a site plan application to the Vassalboro Planning Board for construction of a light manufacturing facility in a hayfield lying adjacent to property owned by Bragdon and Ellis. The facility was to include a one-story 110' × 120' production building and a two-story 30' × 40' office building to support manufacture of trailers and other fabricated aluminum products.
[¶ 3] In April 2000, the Planning Board held a hearing focusing on the performance standards listed in the site review ordinance. Following the hearing, the Board unanimously approved C & C's application, and the Vassalboro Code Enforcement Officer issued a building permit. Bragdon and Ellis appealed the Board's decision to the Superior Court pursuant to M.R. Civ. P. 80B.[1] The Superior Court *301 affirmed the Board's decision, and this appeal followed.
II. DISCUSSION
[¶ 4] When the Superior Court acts as an intermediate appellate court, we directly review "the operative decision of the municipality" which, in this case, is the Planning Board. Springborn v. Town of Falmouth, 2001 ME 57, ¶ 8, 769 A.2d 852, 855 (quoting Forbes v. Town of Southwest Harbor, 2001 ME 9, ¶ 6, 763 A.2d 1183, 1186). The Board's decision "is reviewed `for an abuse of discretion, error of law, or findings unsupported by substantial evidence in the record.'" Id.
[¶ 5] Two of Bragdon and Ellis's contentions on appeal are quickly resolved. First, the Planning Board may not have issued written findings, but its minutes, also publicly available, reflect the Board's decision, and there was no request for supplemental findings after the Board's written decision was issued. There is no due process violation where an adequate basis for public understanding of the Board action exists and the issue was not called to the Board's attention by a request for supplemental findings.
[¶ 6] Second, if some of the site review ordinance standards are too vague, as the Town concedes is possible, Bragdon and Ellis gain nothing. A standard that is too vague is a standard that is void. Kosalka v. Town of Georgetown, 2000 ME 106, ¶ 12, 752 A.2d 183, 186. A void site review standard cannot be applied to bar an application. When a site review standard is void for vagueness, the application must proceed without consideration of the standard. Id. Thus, opposing parties cannot successfully object to an approval of a project on the grounds that one of the standards under which approval was granted is too vague, for if the objectors prevail they gain nothing other than voiding the condition which, they contend, should have been applied more specifically.
[¶ 7] Bragdon and Ellis also contend that the site review ordinance is invalid because (1) it was enacted without the Town first enacting a comprehensive plan; and (2) it constitutes a de facto zoning ordinance that fails to satisfy statutory requirements. The law governing comprehensive plans, 30-A M.R.S.A. § 4324, provides that a municipality "may prepare a local growth management program," but it is not required to do so. 30-A M.R.S.A. § 4324(1) (1996). As the Superior Court correctly noted, the Legislature in 1991 eliminated the mandate requiring towns to adopt comprehensive plans and zoning ordinances comprising a local growth management program. See House Amend. LL to L.D.1985, Statement of Fact (115th Legis.1991) ("This amendment eliminates the existing obligation of municipalities to adopt comprehensive plans and related zoning ordinances. All forms of state review of local planning efforts are eliminated."). However, a municipality that chooses to engage in a growth management program must adopt both a comprehensive plan and an implementation strategy. 30-A M.R.S.A. § 4326 (1996). A municipality that enacts a zoning ordinance is considered to be engaged in the implementation strategy phase of a growth management program for which the creation of a comprehensive plan is a mandatory prerequisite. See id. § 4326(3).
*302 [¶ 8] A land use ordinance is "an ordinance or regulation of general application adopted by the municipal legislative body which controls, directs or delineates allowable uses of land and the standards for those uses." Id. § 4301(8) (1996). A zoning ordinance is a specific type of land use ordinance "that divides a municipality into districts" and "prescribes and reasonably applies different regulations in each district." Id. § 4301(15-A). Zoning involves the "`particularistic division of the city into zones for the purpose of applying different proscriptions and ... regulations in the different zones.'" LaBay v. Town of Paris, 659 A.2d 263, 265-66 (Me.1995) (quoting Benjamin v. Houle, 431 A.2d 48, 49 (Me.1981)). Municipal ordinances that regulate "in a general and uniform city- or town-wide manner," such as a building code, do not qualify as zoning. Id. at 265.
[¶ 9] The site review ordinance at issue resembles a building code rather than a zoning ordinance. It does not regulate growth or determine where within a community a particular facility should be located. Instead it applies specific standards for construction on any site, without regard to the number or location of sites to be developed. No comprehensive plan is required before such a site review ordinance is adopted, and general state planning goals do not mandate to the contrary.
The entry is:
Judgment affirmed.
NOTES
[1] The Town does not have a zoning board of appeals. See Vassalboro, Me., Site Review Ordinance § IX (June 1992) (stating that an "aggrieved party may appeal any decision of the [Planning] Board or the Code Enforcement Officer under this Ordinance to the Superior Court within thirty (30) days from the date of the written notice of such decision"). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535393/ | 212 B.R. 76 (1997)
In re JACK GREENBERG, INC., Debtor.
Larry WASLOW, Trustee for Jack Greenberg, Inc., Plaintiff,
v.
GRANT THORNTON L.L.P., Defendant.
Bankruptcy No. 95-13891DWS.
United States Bankruptcy Court, E.D. Pennsylvania.
August 6, 1997.
*77 *78 Walter Weir, Weir & Partners, Philadelphia, PA, for Trustee.
Arlene Fickler, Hoyle, Morris & Kerr, Philadelphia, PA, for Grant Thornton, L.L.P.
Joseph Minni, Philadelphia, PA, U.S. Trustee.
OPINION
DIANE WEISS SIGMUND, Bankruptcy Judge.
Before the Court is Defendant Grant Thornton's Motion to Dismiss Counts I-V of the Complaint (the "Motion"). Grant Thornton, a public accounting firm, provided accounting and auditing services to the Debtor, Jack Greenberg, Inc. ("Debtor"), from 1986 through 1994. During these years, Fred Greenberg ("Fred"), one of the Debtor's principals, engaged in a course of conduct with regard to the Debtor's business that resulted in an artificial inflation of the Debtor's gross profit. The Complaint contends that Fred's fraudulent conduct went undetected because Grant Thornton failed to properly perform its auditing services. Counts I through V of the Complaint contain various state law claims based on this theory.
Pursuant to Fed.R.Civ.P. 12(b)(6),[1] Grant Thornton seeks the dismissal of Counts I through V contending that: (i) the Chapter 7 Trustee (the "Trustee") cannot bring these claims on the Debtor's behalf because the Debtor would have been barred from asserting them outside of bankruptcy; and (ii) the Trustee lacks standing to bring the claims on behalf of the Debtor's creditors. In addition, *79 Grant Thornton seeks the dismissal of Counts III and V on the ground that the Trustee has failed to comply with the pleading requirements of Fed.R.Civ.P. 9(b).[2] For the reasons stated below, I deny the Motion insofar as it seeks the dismissal of Counts II and IV, but grant it with respect to Counts I, III and V. Because Counts III and V are dismissed for failure to satisfy the pleading requirements of Rule 9(b), I will grant the Trustee the opportunity to file an amended pleading for these counts.
BACKGROUND
The Debtor is a corporation whose business was the wholesale and retail sale of domestic and foreign meat and cheese products. Complaint ¶ 3. The President and Vice President of the Debtor were Emanuel Greenberg ("Emanuel") and Fred, respectively, id. at ¶ 6.
On May 19, 1995, an involuntary petition requesting an Order for Relief under Chapter 7 of the Bankruptcy Code was filed against the Debtor by certain of its creditors. Complaint ¶ 2. On June 21, 1995, an Order for Relief was entered and the case was voluntarily converted by the Debtor to a case under Chapter 11. Id. Approximately one month later, on July 25, 1995, the case was reconverted to a case under Chapter 7. Id. Shortly thereafter, the Trustee was elected; his election was confirmed by Order dated September 1, 1995. Id.
On February 5, 1997, the Trustee commenced this adversary proceeding against Grant Thornton by filing a complaint ("Complaint") containing eight counts. The Motion focuses only on Counts I through V. These counts are: Count I Breach of Contract; Count II Negligence; Count III Fraud; Count IV Negligent Misrepresentation; and Count V Aiding and Abetting. The facts which follow are gleaned from the allegations in the Complaint.[3]
From 1986 through 1994, Fred "singularly implemented and wholly managed the purchase and resale of imported frozen meat (the "Goods") for the Debtor." Id. at ¶ 10. He was responsible for the purchase and shipment of the Goods as well as maintenance of the inventory. Id. He also "maintained the books and financial records" for this part of the business. Id. According to the Trustee, "[n]o other officer, shareholder, or manager of the Debtor was involved in this aspect of the Debtor's business." Id.
The procedure which the Debtor utilized in purchasing the Goods for resale is explained *80 in paragraphs 11 and 12 of the Complaint.[4] What is significant about this procedure is that Debtor prepaid for the Goods. Id. at ¶ 11. This practice enabled Fred to engage "in a course of conduct whereby he intentionally inflated the Debtor's gross profit by failing accurately to record the receipt of pre-paid inventory." Id. at ¶ 13. According to the Trustee, Fred did this "without the knowledge of, or the authorization of the Debtor," and "in his own self-interest and for his own personal gain." Id. By failing to properly account for the receipt of Goods, Fred "was able to systematically inflate the amount of pre-paid inventory, decrease the cost of goods sold and artificially inflate the profitability of the Debtor." Id. at ¶ 14. According to the Complaint, "[i]n so doing, [Fred] was able to tout the success of his business venture and management skills to the Debtor and the Debtor's creditors." Id. at ¶ 15.
In or about 1986 and for each year thereafter through 1995, the Debtor and Grant Thornton entered into a written agreement in which the Debtor engaged Grant Thornton to "prepare its financial statements and perform yearly audits of these financial statements." Id. at ¶ 19. Grant Thornton "warranted and agreed to prepare its audits in `accordance with generally accepted auditing standards' ("GAAS")" which, according to the Trustee, obligated Grant Thornton to examine "on a test basis, evidence supporting the amounts and disclosures in the financial statements," to assess "the accounting principles used and significant estimates made by management," and to evaluate "the overall financial statement presentation." Id. at ¶ 21. However, according to the Trustee, Grant Thornton failed to fulfill these obligations. As a result, Fred "was able to continue his fraudulent conduct undetected, thereby causing the Debtor to overextend itself and be forced into bankruptcy by its creditors." Id. at ¶ 27. With respect to Grant Thornton's conduct, the Trustee specifically alleges that it:
(a) failed to familiarize itself with the Debtor's business such that [Grant Thornton] failed to prepare and perform a proper audit program on behalf of the Debtor;
(b) failed to obtain [a] sufficient understanding of the Debtor's system of internal controls, or lack thereof;
(c) failed to adequately investigate and determine that the pre-paid inventory account was materially overstated and that significant amounts of the Goods listed therein had already been delivered, sold or taken into inventory;
(d) failed to verify or correlate the Debtor's actual inventory with reported inventory;
(e) grossly overstated the Debtor's profits for the years 1990 through 1993 and grossly understated the Debtor's losses for the same years;
(f) failed to obtain sufficient competent evidentiary material with respect to the Goods, including documentation prepared by independent third-parties;
(g) failed to make necessary inquiries in accordance with reasonable professional standards to discover what was readily discoverable, including the matters referred to herein, in order to protect the Debtor;
(h) rendered unqualified opinions despite the absence of internal controls of the Debtor and the lack of competent evidential matter with regard to the Goods;
(i) failed properly and adequately to inquire into the time of transfer to title of the Goods such that the inventory account could be properly and accurately stated and audited;
(j) created adjusting journal entries which concealed the Debtor's default under the terms of [its banks'] lending covenants;
*81 (k) failed to disclose that the Debtor was in default under the terms of [its banks'] lending covenants;
(l) failed to correct prior financial statements even after discovering that the statements did not properly reflect the financial condition of the Debtor at that time;
(m) failed to report and investigate suspicious financial entries which were obvious, or should have been obvious to it, but were not reported in the audit reports or not investigated; and
(n) filed or caused to be filed with the Internal Revenue Service documents which it knew or should have known were not accurate.
26. [Grant Thornton] misrepresented and failed to disclose numerous material facts in the Debtor's financial statements it prepared for the years 1986 through 1994, as set forth above.
Id. at ¶¶ 25-26.
In 1994, Grant Thornton apparently discovered certain irregularities in Debtor's financial statements which, presumably, were due to Fred's failure to accurately record "the receipt of pre-paid inventory." Id. at ¶ 28. Grant Thornton advised Debtor of its discovery and declined to express an opinion on those statements. Id. The Trustee alleges that, as a result of Grant Thornton's wrongdoing as outlined above, Debtor suffered damages in the "nature of lost profits and resulting debt in an amount in excess of $3,000,000." Id. at ¶¶ 32, 36, 43, 48, 52.
In the Motion, Grant Thornton contends that the Trustee cannot assert the claims in Counts I through V on the Debtor's behalf because it could not have brought the claims outside of bankruptcy. Grant Thornton further argues that if I accept its contention that the Trustee cannot legally assert the claims set forth in Counts I through V on the Debtor's behalf, then these Counts must be dismissed because the Trustee has no standing to assert these claims on behalf of the creditors. Lastly, Grant Thornton contends that Counts III and V, for fraud and aiding and abetting fraud, respectively, must be dismissed because they fail to allege fraud with particularity.
DISCUSSION
I. Standard of Review
A motion to dismiss pursuant to Rule 12(b)(6) is the "proper means by which a defendant challenges the legal sufficiency of a complaint." Sterling v. Southeastern Pennsylvania Transportation Authority, 897 F. Supp. 893, 895 (E.D.Pa.1995). In ruling upon such a motion, the Court is required to accept as true all facts alleged by plaintiff in the complaint as well as any reasonable inferences that can be drawn from those facts after construing them in the light most favorable to the non-movant. Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir.1994). A complaint is properly dismissed only if it "is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S. Ct. 2229, 2232, 81 L. Ed. 2d 59 (1984). See also Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir.1988) (dismissal is not appropriate unless it appears that the plaintiff can prove no set of facts in support of his claim which would entitled him to relief). It is the burden of the moving party to show the legal insufficiency of the claims asserted. Aetna Casualty and Surety Company v. Deitrich, 803 F. Supp. 1032, 1034 (M.D.Pa. 1992) (citing Johnsrud v. Carter, 620 F.2d 29, 33 (3d Cir.1980)). In considering Grant Thornton's Motion, I apply this standard of review.
II. The Legal Underpinnings of Grant Thornton's Argument That Counts I through V of the Complaint Fail to State a Claim Upon Which Relief Can Be Granted
It is helpful to view Grant Thornton's argument that Counts I through V must be dismissed for failure to state a claim upon which relief can be granted against the backdrop of the following principles of bankruptcy law. Pursuant to § 541, the trustee succeeds to the property of a debtor's estate which includes all causes of action the debtor could have brought outside of bankruptcy. See 11 U.S.C. § 541. See also Hutzelman v. Farmers Home Administration (In re North East Projects, Inc.), 133 B.R. 59, 60 (Bankr. *82 W.D.Pa.1991) (trustee succeeds to causes of action that "the bankrupt could have instituted had it not petitioned for bankruptcy"); Pereira v. Centel Corporation (In re Argo Communications Corporation), 134 B.R. 776, 783 (Bankr.S.D.N.Y.1991) (it is a hornbook rule of law that "a bankruptcy trustee obtains rights of action belonging to the debtor"). See also Collier on Bankruptcy ¶ 541.10 at 541-46 (Lawrence P. King ed. 15th ed. 1996) ("The estate created pursuant to section 541(a) includes causes of action belonging to the debtor at the time the case is commenced"). Because of this, the trustee has standing to assert causes of action that the debtor could have asserted outside of bankruptcy. Schertz-Cibolo-Universal City Independent School District v. Wright (In re Educators Group Health Trust), 25 F.3d 1281, 1284 (5th Cir.1994). However, when the trustee brings a cause of action as successor to the debtor's interest under § 541, he is subject to the same defenses that could have been asserted by the defendant had the action been instituted by the debtor. Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1154 (3d Cir. 1989). See also Sender v. Simon, 84 F.3d 1299, 1305 (10th Cir.1996).
In contrast, the trustee has no standing generally to sue third parties on behalf of the creditors of the estate. The Supreme Court established this rule in Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416, 92 S. Ct. 1678, 32 L. Ed. 2d 195 (1972). See also Schertz-Cibolo-Universal City Independent School District v. Wright (In re Educators Group Health Trust), supra, 25 F.3d at 1284 (citing Caplin for proposition that "[i]f . . . a cause of action belongs solely to the estate's creditors, then the trustee has no standing to bring the cause of action."); Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 118 (2d Cir.1991) (citing Caplin) ("It is well settled that a bankruptcy trustee has no standing generally to sue third parties on behalf of the estate's creditors, but may only assert claims held by the bankrupt corporation itself.").
Based on these principles, Grant Thornton seeks the dismissal of Counts I through V asserting the following four-prong argument: (1) the Debtor could not have brought the claims set forth in Counts I through V outside of bankruptcy; (2) as such, the Trustee cannot bring the claims on the Debtor's behalf since he is subject to the same limitations and defenses as the Debtor would be outside of bankruptcy;[5] (3) therefore, "in actuality, the Trustee's action is one in the nature of a suit against Grant Thornton on behalf of the Debtor's creditors[.]" Defendant's Brief at 7; and (4) since the Trustee lacks standing to bring such suits, Counts I through V must be dismissed.
III. Grant Thornton's Contention that the Debtor Could Not Proceed With Counts I through V Outside of Bankruptcy
Grant Thornton raises the following arguments to support its contention that the Trustee's action is barred because the Debtor could not bring the claims set forth in Counts I through V outside of bankruptcy:
(A) Counts I through V fail to state a claim upon which relief can be granted *83 because reliance is an element of these claims and under the law of imputation, as set forth in Rochez Bros., Inc., v. Rhoades, 527 F.2d 880 (3d Cir.1975), cert. denied, 425 U.S. 993 [96 S. Ct. 2205, 48 L. Ed. 2d 817] (1976), Fred's knowledge and misconduct must be imputed to the Debtor;[6]
(B) Counts I, II and IV are barred by the rule enunciated in Jewelcor Jewelers and Distributors, Inc. v. Corr, 373 Pa.Super. 536, 550-553, 542 A.2d 72, 79-80 (1988), appeal denied, [524 Pa. 608] 569 A.2d 1367 (1989), that a company that interferes with performance of an audit cannot sue the auditor where the company's conduct is a substantial factor in its loss; and
(C) Count I fails to state a claim because there is no cause of action for breach of contract based upon an auditor's failure to perform its services with professional standards.
Based on the limited record before me, I find that Grant Thornton has not established that there is no set of facts that can be proven to preclude the application of the imputation doctrine or otherwise allow the claims of the Trustee sounding in tort. However, I am persuaded by the last argument and conclude that Count I fails to state a claim for breach of contract.
A. The Law of Imputation
(1)
The parties do not dispute that reliance is a necessary element of the Trustee's tort claim against Grant Thornton. Grant Thornton, however, contends that the Debtor could not have relied upon the audit statements which it prepared because, under the law of imputation, Fred's conduct and knowledge must be imputed to the company.[7] In support of this contention, Grant Thornton cites to Rochez Bros., Inc. v. Rhoades, supra, wherein the Third Circuit stated the following general principles of agency law:
There is no doubt that the fraud of an officer of a corporation is imputed to the corporation when the officer's fraudulent conduct was (1) in the course of his employment, and (2) for the benefit of the corporation. This is true even if the officer's conduct was unauthorized, effected for his own benefit but clothed with apparent authority of the corporation, or contrary to instructions. The underlying reason is that a corporation can speak and act only through its agents and so must be accountable for any acts committed by one of its agents within his actual or apparent scope of authority and while transacting corporate business.
Id. at 884 (citing 10 Fletcher, Cyclopedia Corporations § 4886 at 298 & 299 (rev. ed.1970)). Notably, Rochez was decided before O'Melveny & Myers v, Federal Deposit Insurance Corporation, 512 U.S. 79, 114 S. Ct. 2048, 129 L. Ed. 2d 67 (1994), which held that the issue of imputation is determined by state law. While the Third Circuit did not rely upon Pennsylvania case law for its summary of agency law, the principles which the Third Circuit espoused are consistent with *84 Pennsylvania agency law,[8] succinctly stated by the Pennsylvania Supreme Court long ago in National Bank of Shamokin v. Waynesboro Knitting Co., 314 Pa. 365, 371, 172 A. 131, 134 (1934) (quoting Gunster v. Scranton Illuminating, Heat & Power Co., 181 Pa. 327, 337-338, 37 A. 550, 552 (1897)):
The rule that knowledge or notice on the part of the agent is to be treated as notice to the principal is founded on the duty of the agent to communicate all material information to his principal, and the presumption that he has done so. But the legal presumptions ought to be logical inferences from the natural and usual conduct of men under the circumstances. But no agent who is acting in his own antagonistic interest, or who is about to commit a fraud by which his principal will be affected, does in fact inform the latter, and any conclusion drawn from a presumption that he has done so is contrary to all experience of human nature.
Accordingly, I will apply the test for imputation stated in Rochez.
Neither party in its brief addresses the legal standard for determining whether Fred was acting within the "course of his employment" when he committed his fraudulent acts.[9] I note that under Pennsylvania law, the test for whether an individual's conduct occurred within the "scope of employment" depends upon whether the conduct meets the following three criteria: (1) it must be of the kind the actor was employed to perform; (2) it must have occurred substantially within the authorized time and space limits; and (3) it must have been actuated, at least in part, by a purpose to serve the employer. Shuman Estate v. Weber, 276 Pa.Super. 209, 216, 419 A.2d 169, 173 (1980). Since the third prong of this test requires a finding that the actions were intended to serve the employer, it would appear to overlap the Rochez imputation test, which requires a benefit to the corporation. Because, as discussed below, I find that Grant Thornton has failed to prove on the record of this motion that Fred's fraudulent conduct has benefitted the Debtor, it has not established every element of the course of employment test without regard to whether Fred's acts were authorized or not.
(2)
Grant Thornton argues that because Fred's misconduct enabled the Debtor to "continue to obtain credit from its lenders and trade creditors for several years," Defendant's Brief at 11, the Debtor benefitted from his fraud. The issue is more complex than this. Rather the record before me which consists only of the allegations in the Complaint, when viewed in the light most favorable to the Trustee as they must be on a motion to dismiss, suggests that Fred's conduct was not "for the benefit of the corporation." If so, then the adverse interest exception to the imputation doctrine would apply. See Resolution Trust Corporation v. Farmer, 865 F. Supp. 1143, 1155-1156 (E.D.Pa.1994) (noting that Pennsylvania agency law provides that "knowledge of an agent whose interests are adverse to the principal cannot be imputed to the principal"); Todd v. Skelly, 384 Pa. 423, 429, 120 A.2d 906, 909 (1956) (citing 10 Fletcher, Corporations, § 4877, at 345) ("Where an agent acts in his own interest which is antagonistic to that of his principal, or commits a fraud for his own benefit in a matter which is beyond the scope of his actual or apparent authority or employment, the principal who has received no benefit therefrom will not be liable for the agent's *85 tortious act."); Solomon v. Gibson, 419 Pa.Super. 284, 615 A.2d 367 (1992) ("`a principal is liable to innocent third parties for the frauds . . . of his agent committed in the course of his employment, although his principal did not authorize, justify or participate in, or indeed know of such misconduct'. . . . [except] where the `agent acts in his own interest which is antagonistic to that of his principal, or commits a fraud for his own benefit in a matter which is beyond the scope of his actual or apparent authority or employment'").
According to the Complaint, as a result of Fred's fraudulent conduct (and the combined wrongdoing of Grant Thornton), the Debtor was unaware of its true financial situation and, because of this, borrowed an amount from its lenders in excess of that allowed under it loan agreements, causing it to be in default under those agreements. Complaint ¶ 40. The borrowing of funds, when such act puts the company in default of its loan agreements, cannot be viewed as a benefit to the company, either short or long term.[10] Furthermore, according to the Complaint, Fred committed his fraudulent acts with the subjective intent of benefitting himself.[11]See Complaint ¶ 15 (alleging that Fred engaged in his fraudulent course of conduct so that he could "tout the success of his business venture and management skills to the Debtor and to the Debtor's creditors."). As the adverse interest exception may be established, I cannot on this record sustain Grant Thornton's position that imputation of Fred's knowledge to the Debtor is appropriate. See Phar-Mor, Inc. v. Coopers & Lybrand, 900 F. Supp. 784, 786-787 (W.D.Pa.1995) (court could not conclude, as a matter of law, that the fraudulent acts of Phar-Mor's officers and employees were intended to benefit the company since, although the wrongdoers testified that the motivation behind their fraud was to provide time for management to resolve the company's underlying business problems, "a reasonable trier of fact could conclude that the true motive of the wrongdoers was the preservation of their employment, salaries, emoluments and reputations, as well as their liberty, at the expense of the company's corporate well-being."); Wedtech Corp. v. KMG Main Hurdman (In re Wedtech Corp.), 81 B.R. 240, 242 (S.D.N.Y.1987) (concluding that determination of whether company benefitted from management's fraud could not be determined as a matter of law on motion to dismiss).
(3)
This is, however, not the end of the analysis for there is an exception to the adverse interest exception which both parties *86 acknowledge.[12] Under this exception, which is referred to as the "sole actor" or "sole representative" doctrine, see William M. Fletcher et al., Fletcher Cyclopedia of the Law of Private Corporations § 827, at 156 (perm. ed. rev. vol. 1994), if an agent is the sole actor or representative of the principal in the transaction to which notice is sought to be imputed, then that agent's wrongful conduct is imputable to the principal regardless of whether the agent's conduct was for the benefit of, or adverse to, the corporate interest. The rationale behind this doctrine has been expressed as:
Where a principal cannot embrace a transaction except through the acts of an unsupervised agent, the principal must accept the consequences of the agent's misconduct because it was the principal who allowed the agent to act without accountability.
First National Bank of Cicero v. Lewco Securities Corp., 860 F.2d 1407, 1417-1418 (7th Cir.1988), and as:
[W]here the officer in question is the sole representative of the corporation, there is no one to whom to impart his or her knowledge and no one from whom to conceal it.
William M. Fletcher et al., Fletcher Cyclopedia of the Law of Private Corporations § 827.10, at 160 (perm. ed. rev. vol. 1994).
The sole actor doctrine appears to be recognized in Pennsylvania although it has never been applied in the context of a suit for audit malpractice. See Gordon v. Continental Casualty Co., 319 Pa. 555, 181 A. 574 (1935) (where officer acted on behalf of the company in representing, in a written application for issuance of a bond to indemnify the company against loss due to employee dishonesty, that none of the company's officers were dishonest or unworthy of trust, and, at the time, he was embezzling the company, the officer's knowledge that he was dishonest was imputed to the company to prevent recovery against the defendant on the bond). See also See National Bank of Shamokin v. Waynesboro Knitting Co., 314 Pa. 365, 172 A. 131 (1934) (court recognized the "sole actor" exception, but found it unnecessary to apply it).
In federal cases involving claims against auditors for failure to discover fraud, the "sole actor" doctrine has been applied where the agent who committed the misconduct was the sole shareholder of the corporation, see Federal Deposit Insurance Corp. v. Ernst & Young, 967 F.2d 166 (5th Cir.1992) (where fraudulent acts were committed by corporation's sole owner who dominated and controlled its board of directors, summary judgment was properly entered in favor of auditor on claim for negligence on ground that corporation did not rely upon the audit),[13] and where the wrongdoers were dual owners of the corporation and "in every relevant sense `dominated'" it, see PNC Bank, Kentucky, Inc. v. Housing Mortgage Corporation, 899 F. Supp. 1399, 1403-1406 (W.D.Pa.1994) (granting motion to dismiss professional malpractice claims filed by company against its auditor on ground that company did not rely upon audits conducted by auditor since it was aware, through the knowledge of its dual owners and top officers, of fraudulent conduct affecting the accuracy of the financial statements). The doctrine was held inapplicable where the wrongdoers owned only 70% of the company's stock and their involvement in the company, while considerable, could not be characterized *87 as "dominating." See Comeau v. Rupp, 810 F. Supp. 1127, 1141 n. 5 (D.Kan. 1992).
While the Complaint establishes that Fred was the sole actor with regard to that aspect of the business in which he committed his fraud, i.e., that portion of the business involving the Goods, the allegations in the Complaint do not establish that he is the sole shareholder of the Debtor or that he dominated and controlled it. Indeed, although the allegations in the Complaint identify Fred as the Vice President of the Debtor, they do not reveal whether Fred was involved in any aspect of the business other than the Goods portion. For example, the Complaint does not indicate whether Fred was involved in the Debtor's dealings with Grant Thornton or in Debtor's decisions to borrow finds in reliance on Grant Thornton's audits. Moreover, as there is no allegation that Fred dominated or controlled Debtor, I cannot conclude that he was the "sole actor" with respect to preparation of the financial statements to foreclose reliance by the Debtor on Grant Thornton's audits. Accordingly, I find that I cannot apply the sole actor doctrine based on the allegations of the Complaint.
(4)
Finally in support of its contention that knowledge of Fred's fraudulent activities can be imputed to the Debtor precluding reliance on the audit, Grant Thornton refers to the Seventh Circuit's Cenco decision. See supra at n. 6. In Cenco, the company's top managerial employees, including its chairman, president and other top managers, engaged in massive fraud aimed at inflating the company's inventories far above their actual value. As a result of the fraud, the market price of Cenco's stock greatly increased. In addition, the company was able to "borrow money at lower rates than if its inventories had been honestly stated." 686 F.2d at 451. The company further benefitted from the fraud because it recovered excess amounts from its insurers for lost or destroyed inventory based on the inflated values of the inventory. Id.
After its corrupt management was replaced, Cenco filed claims against its auditor for, inter alia, breach of contract, negligence and fraud, on the theory that it failed to prevent the fraud committed by Cenco's former management. Id. A jury trial was held and judgment was entered in favor of the auditors. Id. at 452.
On appeal, the Seventh Circuit addressed the issue of "in what circumstances, if any, [is] fraud by corporate employees [] a defense to a suit by the corporation against its auditors for failure to prevent the fraud." Id. at 454. Applying Illinois law to resolve this issue, the Seventh Circuit held that when the top management of a company engages in fraud intending to benefit the company, the employees' actions will be attributed to the company and, as such, will be a defense to a suit against the company's auditors for failure to prevent the fraud. Id. at 454-456. In reaching this decision, the Seventh Circuit was guided by the two objectives of tort liability which it identified as: (1) compensating victims of wrongdoing; and (2) deterring future wrongdoing. Id. at 455.
Analyzing the first stated objective, the Seventh Circuit reasoned that a judgment in favor of Cenco would "be perverse from the standpoint of compensating victims of wrongdoing" since the real beneficiaries of such a judgment would be Cenco's shareholders among which were the "corrupt officers themselves." Id. at 455. With regard to the issue of deterrence, the appellate court opined that while liability against Cenco's auditor would make it and firms like it more diligent in the future, allowing the owners of the corrupt company to shift the costs of its wrongdoing to its auditor would reduce their incentives to hire honest managers and monitor their behavior. Id. at 455-456. On this point, the Seventh Circuit reasoned as follows:
[N]ot only were some of Cenco's owners dishonest but the honest owners, and their delegates a board of directors on which dishonesty and carelessness were well represented were slipshod in their oversight and so share responsibility for the fraud that [the auditor] failed to detect. In addition, the scale of the fraud the number and high rank of the managers involved both complicated the task of discovery for *88 Seidman and makes the failure of oversight by Cenco's shareholders and board of directors hard to condone.
Id. at 456. Thus, the Seventh Circuit concluded that the objectives of tort liability would be best served by preventing Cenco from shifting responsibility for its managers' fraud to its auditors.
Central to Seventh Circuit's decision in Cenco and its discussion regarding tort objectives was its assumption that Cenco's managers were acting for the benefit of the company. Id. at 456. The Seventh Circuit noted that:
Furthermore, we must assume that Cenco's corrupt managers were acting for the benefit of the company and not against it. . . . The jury was instructed that it could attribute the fraud of Cenco's managers to Cenco only if it found that the managers had been acting on Cenco's behalf, and the verdict for [the auditor] implies that the jury either so found or found that [the auditor] had not even committed a prima facie breach of duty to Cenco. The former assumption is more favorable to Cenco.
Id. The Seventh Circuit contrasted situations in which fraud is committed on behalf of a company from situations in which fraud is committed against it:
Fraud on behalf of a corporation is not the same thing as fraud against it. Fraud against the corporation usually hurts just the corporation; the stockholders are the principal if not only victims; their equities vis-a-vis a careless or reckless auditor are therefore very strong. But the stockholders of a corporation whose officers commit fraud for the benefit of the corporation are beneficiaries of the fraud. Maybe not net beneficiaries after the fraud is unmasked and the corporation is sued that is a question of damages, and is not before us. But the primary costs of a fraud on the corporation's behalf are borne not by the stockholders but by outsiders to the corporation, and the stockholders should not be allowed to escape all responsibility for such a fraud, as they are trying to do in this case.
Id. at 456.[14] Thus, the holding in Cenco, as the holding in Rochez, is limited to situations in which the fraud is intended to benefit the company rather than the individual employees at the company's expense.
One year after its decision in Cenco, the Seventh Circuit revisited the imputation issue in Schacht v. Brown, 711 F.2d 1343 (7th Cir.), cert. denied, 464 U.S. 1002, 104 S. Ct. 508, 509, 78 L. Ed. 2d 698 (1983). In this case, the plaintiff was the Illinois Director of Insurance (the "Liquidator"), acting as the statutory liquidator for, Reserve Insurance Company ("Reserve"). The Liquidator sued Reserve's auditors for issuing unqualified financial statements when they knew that the company was insolvent. When the statements were issued, the company's officers and directors were engaged in fraud to keep the company in business. As a result of their fraud, the company became saddled with additional liabilities and was driven deeper into insolvency.
On appeal, the auditors argued that since the Liquidator was standing in the shoes of the company, he was estopped from proceeding against them under the ruling in Cenco. Id. at 1346-1349. The Seventh Circuit disagreed. In so holding, the Seventh Circuit reasoned that the Cenco analysis only applies to situations in which the company benefitted from its management's fraud:
In Cenco, this court found that the fraudulent inflation of the corporation's inventories and hence stock prices clearly benefitted the corporation to the detriment of outside creditors, stock purchasers and insurers; this fact, in the court's view, made the case ripe for an analysis of whether the directors' knowledge of the fraud should be imputed to the benefitted corporation. By contrast, the complaint in the instant case alleges a far-reaching scheme in which, as *89 a consequence of the illegal activities of Reserve's directors and the outside defendants, Reserve was, inter alia, fraudulently continued in business past its point of insolvency and systematically looted of its most profitable and least risky business and more than $3,000,000 in income all actions which aggravated Reserve's insolvency. In no way can these results be described as beneficial to Reserve.
Id. at 1347-1348. The court further reasoned that, even if it applied the Cenco analysis, it would not result in the outcome which the auditors desired, namely "estoppel of the [Liquidator] based on the imputation to Reserve of the directors' knowledge of the fraud." Id. at 1348. The Seventh Circuit reached this conclusion by considering whether imputation to bar recovery by the Liquidator would further the tort objectives which it had identified in Cenco. It concluded that imputation was not warranted because recovery by the Liquidator on behalf of Reserve would serve the objectives of tort law. With regard to the objective of compensating the victims of wrongdoing, the Seventh Circuit stated:
[A]ny recovery by the [Liquidator] from the instant suit will inure to Reserve's estate. And under the distribution provisions of the governing liquidation statute, it is the policyholders and creditors who have first claim (after administrative costs and wages owed) to the assets of the estate. Ill. Rev.Stat., ch. 73 § 817 (1981). Thus, the claims of these entirely innocent parties must be satisfied in full before Reserve's shareholders, last in line for recovery, receive anything.
Moreover, there is no indication here that the [Liquidator's] success entails the likelihood of the kind of "perverse" compensation pattern which we declined to permit in Cenco. In Cenco, the court was troubled by the fact that among the shareholders benefitting from a successful recovery were the corrupt managers themselves . . .; here, the defendants do not claim that the wrongdoing officers or directors hold equity positions. . . . We were also troubled in Cenco by the prospect of double recovery by the shareholders via the plaintiff corporation in view of the previous successful recovery of damages by the same shareholders in a direct suit against the defendants. In this case, by contrast, the other actions noted to this court based on these alleged events have yet to result in recovery. Of course, if [the Liquidator] recovers successfully in the instant suit, the defendants in these actions will be able to assert the previous satisfaction of the claims of the shareholders, policyholders, and creditors of Reserve as a bar to subsequent recovery.
Id. at 1348-1349. Insofar as the objective of deterring further wrongdoing, the court explained that in Cenco its refusal to permit the company to recover was motivated by two factors: "(1) that the directors, as shareholders, would recover directly from the suit; and (2) that there existed large corporate shareholders in a position to police Cenco's corrupt officers, an activity which would be discouraged by allowing the shifting of corruption-caused loss to outside defendants." Id. at 1349. The Seventh Circuit reasoned that, in contrast, in the case currently before it, neither of those concerns was present. There was no evidence that the wrongdoing officers of Reserve would benefit directly from the Liquidator's suit or that Reserve had a large corporate shareholder that was capable of conducting an independent audit and "whose lack of investigatory zeal would be rewarded" by an award for the Liquidator. Id. The court further noted that "unlike the situation in Cenco, permitting recovery in this case would not send unqualified signals to shareholders that they need not be alert to managerial fraud since they may later recover full indemnification for that fraud from third party participants." Id. Thus, the Seventh Circuit concluded that even if Cenco was applicable, "application of its compensation and deterrent principles would not inhibit the right of the [Liquidator] to proceed against the defendants." Id.
The rationale of Cenco have been applied by a number of courts. See e.g., In re Stat-Tech Securities Litigation, 905 F. Supp. 1416, (D.Col.1995); Phar-Mor, Inc. v. Coopers & Lybrand (In re Phar-Mor, Inc. Securities Litigation), 900 F. Supp. 784 (W.D.Pa.1995); *90 Seidman & Seidman v. Gee, 625 So. 2d 1 (Fla.Dist.Ct.App.1992).
In framing a construct for the application of the imputation doctrine to assertions of liability against accountants, auditors and other professionals, these cases have adapted the themes sounded in traditional imputation cases to a new setting. The imputation theory grew out of actions, most frequently brought by financial institutions, to recover on obligations that were created through the fraudulent acts of their agents.[15] Notably, in these cases, the plaintiff was seeking to recover from an innocent party. The policy reason for imputing the knowledge of the wrongdoer to the plaintiff employer was explained by the Pennsylvania Supreme Court:
Where one of two innocent persons must suffer by the fraud or negligence of a third, whichever of the two has accredited him, ought to bear the loss.
Gordon v. Continental Casualty, supra, 319 Pa. at 565, 181 A. at 577 (emphasis added). Other courts emphasized this factor as well. In Supreme Petroleum, supra, the Court stated:
Recourse to the qualification of the exception to the imputed knowledge rule [i.e., the sole actor exception], as in the case of the general rule itself, remains subject to a showing of good faith by the third party seeking protection thereof.
199 Kan. at 676, 433 P.2d at 378 (citing 3 Am.Jur.2d Agency § 286 at 648). And as recognized by the Court in Ash v. Georgia-Pacific Corp., 957 F.2d 432, 436 (7th Cir. 1992):
[Cases] hold that as between the employer of a dishonest agent and a stranger (a customer or holder in due course), the employer bears the responsibility for it, at least, could select and monitor the agent. Exposure to liability then induces the employer to take cost-justified precautions.
The framework for an accountant liability case does not fit squarely into the well developed agency law concerning imputation as the plaintiff is not seeking to retain the benefit of the fraudulent transaction. Moreover, the allegations of a well-pleaded Complaint will never establish the accountant to be a stranger or innocent party. However, Cenco and its progeny make clear that accountants (or other professionals) can, in appropriate circumstances, be insulated from their own negligence when the agent of their client has acted fraudulently and his fraud has benefitted the company and such result will further the underlying objectives of tort liability, i.e., to compensate victims and deter wrongdoing. Thus, it appears that what the Cenco line of cases adds to the jurisprudence is an express recognition, implicit in the earlier imputation cases, that the objectives of tort liability are to be the touchstone by which a court should consider the invocation of the doctrine.
*91 As tort policy considerations are integral to a Cenco analysis, it is not surprising then that certain courts have recognized that when the beneficiaries of the recovery are creditors and not the shareholders who would in a solvent corporation benefit from the corporation's recovery,[16] a different result may be required. Thus, in Stat-Tech Securities Litigation, 905 F. Supp. 1416, 1422 (D.Colo.1995), the Court found the policy underpinnings of Cenco not served and stated:
Where, as here, recovery from defendants would benefit the creditors of the estate, not the wrongdoers, the company is not barred from seeking damages against allegedly corrupt former officers and directors.
Likewise in Tew v. Chase Manhattan Bank, 728 F. Supp. 1551, 1560 (S.D.Fla.), amended on reconsideration on other grounds, 741 F. Supp. 220 (S.D.Fla.1990), the Court concluded that the rationales underlying Cenco were inapplicable since all of the wrongdoers had transferred their interest to the trustee and any recovery from the defendant would benefit the creditors of the estate and not the wrongdoers. In Phar-Mor, Inc. v. Coopers & Lybrand (In re Phar-Mor, Inc. Securities) supra, at 787, the Court found that objectives of tort liability would arguably be served if Phar-Mor ultimately prevailed on claims against the auditor since under the proposed plan of reorganization, the company's claims against its auditor would be "assigned to a litigation trust established by the plan, and any recovery by Phar-Mor . . . would inure to the benefit of the secured and unsecured creditors having an interest in the trust" and not to the fraudulent actors or Phar-Mor's equity holders. In Drabkin v. L & L Construction Associates, Inc. (In re Latin Investment Corporation), 168 B.R. 1, 6 (Bankr.D.C.1993), the Court reasoned that the policy concerns of Cenco were not present where shareholders did not benefit from their fraud since it rendered their ownership interest worthless and there was no possibility that shareholders would receive any distribution from the estate.
The Court in Federal Deposit Insurance Corp. v. O'Melveny & Myers, 61 F.3d 17, 18 (1995),[17] came to a similar result for a different reason. While recognizing the general rule that a receiver, like a bankruptcy trustee, occupies no better position than that which was occupied by the party for whom he acts, the Court found that defenses based on the party's unclean hands or inequitable conduct do not generally apply against a party's receiver. See also Gordon v. Basroon (In re Plaza Mortgage and Finance Corp., 187 B.R. 37, 45-46 (Bankr.N.D.Ga. 1995)).[18]
On the limited record before me, I also cannot determine that the objectives of tort liability would be served by preventing the Trustee from seeking recovery against Grant Thornton in light of Fred's culpability.[19]See Resolution Trust Corporation v. KPMG Peat Marwick, 844 F. Supp. 431, 434 n. 2 (N.D.Ill. 1994) (citing to Cenco and concluding that defendant's "theory of imputation of the knowledge of Horizon's management to Horizon cannot be resolved on the face of the complaint"). Relevant questions remain unanswered such as whether the Debtor benefitted from Fred's fraud, see discussion above, and whether Fred or any of the other shareholders would benefit from the damages recovered by the Trustee if he ultimately prevailed on his claims. Consequently, I *92 cannot determine, as a matter of law, that the imputation doctrine would bar the Debtor from recovering against Grant Thornton.
C. The Substantial Factor Rule
Grant Thornton contends that Counts I, II and IV should be dismissed because the allegations in the Complaint establish that Fred's conduct interfered with Grant Thornton's audits. In support of this contention, Grant Thornton cites to Jewelcor Jewelers and Distributors, Inc. v. Corr, supra. In this case, as here, an accounting firm was being sued for negligently performing an audit. The accounting firm contended that the company was contributorily negligent, presenting evidence that the company's internal inventory had been miscalculated by its employees and that the officer who discovered the miscalculations had failed to timely inform the auditors of the errors and arguing that such negligence prevented the accounting firm from properly performing its services. On appeal, the state appellate court approved the trial court's use of the following jury instruction:
Contributory negligence of a Plaintiff is a defense only when it contributed to the Defendant's failure to perform its contract and report the truth. If you find that the Plaintiffs were contributorily negligent, then you must determine whether their conduct was a substantial factor in bringing about their loss. If you answer in the affirmative on both questions, that is, if you find that Plaintiffs were negligent and that their conduct was a substantial factor in causing their losses, your verdict must be for the Defendant on the negligence theory.
373 Pa.Super. at 551, 542 A.2d at 80. This instruction incorporates a two-part test. The first part is whether the plaintiff's conduct interfered with the audit and, the second, whether the interference was a substantial factor in causing the plaintiff's loss.[20] Notably, Jewelcor Jewelers and Distributors, Inc. v. Corr does not discuss the issue of imputation, there being no allegations of employee fraud. However, in applying the first part of the test where, as here, the company's negligence is based on employee fraud, the issue of imputation arises. If the employee's fraudulent conduct is not imputable to the company, then the issue of contributory negligence does not apply. As I discussed at length above, I cannot determine the issue of imputation on the limited record before me.
Furthermore, Grant Thornton ignores the second part of the substantial factor test. This part of the test is also fact-intensive and not susceptible to resolution at this stage of the proceeding. See PNC Bank, Kentucky, Inc. v. Housing Mortgage Corp., supra, at 1409-1410 (issue of audit interference involves numerous issues fact, including whether any contributory negligence was substantial enough to relieve auditor of liability, and may not be determined as a matter of law). Accordingly, I will not dismiss Counts I, II, and IV on this theory either.
D. The Trustee's Breach of Contract Claim
Grant Thornton next contends that Count I of the Complaint should be dismissed because it fails to state a claim for breach of contract. I agree.
Under Pennsylvania law, a plaintiff can bring a professional malpractice claim in contract or tort. Guy v. Liederbach, 501 Pa. 47, 55, 459 A.2d 744, 748 (1983). However, when the claim is based on a professional's *93 failure to exercise due care, "it will sound in contract only if [the professional] fail[ed] to follow the client's specific instructions or, by her negligence, breach[ed] a specific provision of the contract." Edwards v. Thorpe, 876 F. Supp. 693, 694 (E.D.Pa.1995) (specifically referring to attorney malpractice). See also Hoyer v. Frazee, 323 Pa.Super. 421, 425-426, 470 A.2d 990, 992-993 (1984). Allegations that the professional failed to perform her service with the requisite standard of care do not suffice to state a claim for breach of contract even if the professional expressly agreed to act in accordance with that level of care. See Tuman v. Genesis Associates, 894 F. Supp. 183, 186 (E.D.Pa. 1995) (where claim is based on defendant's failure to provide the plaintiff with acceptable professional services, plaintiff must allege that the defendant breached more than the non-contractually created duty of care to state a contract claim); Official Committee of Unsecured Creditors of Corell Steel v. Fishbein and Company, P.C., 1992 WL 196768 at *5-6 (E.D.Pa. Aug. 10, 1992) (agreement to act with the legally required level of care does not constitute a specific contractual promise because it if did "claims in tort and claims in breach of contract, at least within the context of service contracts, would be indistinguishable"). See also Saferstein v. Paul, Mardinly, Durham, James, Flandreau & Rodger, P.C., 1997 WL 102521 at *5 (E.D.Pa. February 28, 1997) (claim that attorney violated the standard of care owed by an attorney did not constitute a claim for breach of contract).
Since Count I alleges only that Grant Thornton agreed to prepare its audits in accordance with generally accepted auditing standards and that it failed to do so,[21] Count I fails to state a breach of contract claim.[22]Official Committee of Unsecured Creditors of Corell Steel v. Fishbein and Company, P.C., supra, at *5-7 (claim that accounting firm failed to comply with its contractual agreement to perform auditing services in accordance with GAAS failed to state claim for breach of contract). Since the Trustee alleges a separate claim for negligence against Grant Thornton, I will dismiss Count I.
IV. Failure to Plead Fraud with Particularity
Grant Thornton also argues that Counts III and V fail to comply with the pleading requirements of Rule 9(b) because "[t]he Complaint does nothing more than recite a laundry list of alleged GAAP and GAAS violations, see Comp. ¶¶ 25(a)-(n), and state in conclusory fashion that Grant Thornton did so `knowingly, wilfully and wantonly.'" Defendant's Brief at 35. Rule 9(b) states, in pertinent part:
In all averments of fraud . . ., the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.
Fed.R.Civ.P. 9(b). The purpose of this rule is "to place the defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior." Seville Industrial Machinery Corp. v, Southmost Machinery Corp., 742 F.2d 786, 791 (3d Cir.1984), cert. denied, 469 U.S. 1211, 105 S. Ct. 1179, 84 L. Ed. 2d 327 (1985). In evaluating the Trustee's claims in the context of Rule 9(b), I am mindful of the Third Circuit's admonition that "focusing exclusively on [the rule's] particularity language *94 is too narrow an approach and fails to take into account the simplicity and flexibility contemplated by the rules." Christidis v. First Pennsylvania Mortgage Trust, 717 F.2d 96, 100 (3d Cir.1983) (quoting 5 C. Wright & A. Miller, Federal Practice and Procedure § 1298, at 407 (1969)).
Based on my review of the Complaint, I conclude that the Trustee has failed to satisfy the particularity requirement of Rule 9(b).[23] While he has adequately recited the accounting principles which were allegedly violated, he refers to "suspicious financial entries" that Grant Thornton allegedly failed to report and investigate, "documents" that Grant Thornton knew or should have known were inaccurate, "numerous material facts in the Debtor's financial statements" that Grant Thornton misrepresented or failed to disclose and "financial statements" which Grant Thornton prepared that were "false and misleading," without providing any specific information regarding the same. See Complaint ¶¶ 25(l), 25(m), 25(n), 26, 45. In order to comply with the particularity language of Rule 9(b), the Trustee must insert some specificity into his pleading instead of these generalized references. See Official Committee of Unsecured Creditors of Corell Steel v. Fishbein and Company, P.C., supra, at *8 (particularity requirement of Rule 9(b) met where plaintiff identified the specific accounting and auditing standards allegedly violated and was "specific as to which financial statements [were allegedly false] and how those statements were fraudulent"); In re U.S. Healthcare, Inc. Securities Litigation, supra, 122 F.R.D. at 470 (plaintiffs satisfied Rule 9(b) where they identified the accounting and auditing standards that were allegedly not followed, "clearly identified the financial statements which they allege[d] were materially false" and "particularly identified the allegedly misleading portions of the documents"); Pell v. Weinstein, 759 F. Supp. 1107, 1118-1119 (M.D.Pa.1991) (plaintiffs failed to satisfy Rule 9(b) where they made no attempt to identify the errors in the financial statements or the amounts of any inaccuracies and failed to identify any specific accounting or auditing standard which was violated), aff'd, 961 F.2d 1568 (3d Cir.1992). Since the Trustee may be able to cure the deficiencies in Counts III and V, I will grant him the opportunity to amend the Complaint with respect to these counts. See 2A Moore's Federal Practice ¶ 12.07[2-5], at 12-72 (2d ed.1991) (when a motion under Rule 12(b)(6) is granted, "ordinarily an opportunity to amend should be fully granted if the deficiencies in the complaint can be corrected by amendment").
V. Summary
Count I is dismissed for failure to state a claim. Counts III and IV are dismissed for failure to comply with the pleading requirement of Rule 9(b); however, the Trustee is granted leave to amend the Complaint within 20 days to cure this deficiency.
NOTES
[1] Rule 12(b)(6) is made applicable hereto by Fed. R.Bankr.P. 7012.
[2] Rule 9(b) is made applicable hereto by Fed. R.Bankr.P. 7009.
[3] Grant Thornton requests the Court, in ruling on its Motion, to take judicial notice of some additional facts not alleged in the Complaint, contending that these facts are "not subject to reasonable dispute." As support for these facts, Grant Thornton has attached to its Motion excerpts of testimony from a hearing on July 18, 1995 and a deposition of Fred Greenberg taken on July 25, 1995, both of which occurred in conjunction with the Debtor's bankruptcy case. Notably, the hearing on July 18 and the deposition on July 25 took place before the Debtor's bankruptcy case had been reconverted to Chapter 7 and the Trustee had been elected. Consequently, the Trustee did not participate in the proceedings. Moreover, I note that some of the additional facts urged upon me by Grant Thornton are not directly supported by the proffered testimony. For example, Grant Thornton states that "Fred Greenberg controlled fifty percent of the shares of stock of the Debtor; Emanuel Greenberg, Fred's brother, controlled the other fifty percent of those shares." Defendant's Brief in Support of Motion to Dismiss Counts I-V of the Complaint ("Defendant's Brief") at 4. However, the proffered testimony establishes only that Fred and his family own fifty percent of the stock and Emanuel and his family own the other fifty percent. See Exhibit B to Defendant's Brief at 84-85. No mention is made of either of the brothers "controlling" the stock or any portion thereof. In addition, while Grant Thornton asserts that "Fred and Emanuel were the two directors of the company," Defendant's Brief at 4, Fred's testimony suggests that his mother may have also been a director, see Exhibit C to Defendant's Brief at 17. Accordingly, I conclude that in ruling on the Motion it would be improper for me to take judicial notice of the additional facts which Grant Thornton suggests. See Fed.R.Evid. 201. Moreover, I decline to treat Grant Thornton's Motion as a motion for summary judgment. See Brennan v. National Telephone Directory Corporation, 850 F. Supp. 331, 335 (E.D.Pa.1994) (where a party attaches materials outside the pleadings to a motion to dismiss, it is within the court's discretion to treat the motion as a motion for summary judgment). I do not believe the material attached to Grant Thornton's Motion is "likely to facilitate the disposition of the action." Wright & Miller, Federal Practice and Procedure: Civil 2d § 1366. Therefore, I will not consider it in deciding the Motion.
[4] These paragraphs of the Complaint state:
11. The Debtor, through the efforts of [Fred], received advance orders from the Debtor' customers, and only thereafter placed orders for the purchase and delivery of the Goods from overseas. It was customary for the Debtor to pre-pay for the Goods under the direction of [Fred].
12. The Goods were shipped C.I.F. from the seller to domestic ports where they were inspected by United States Customs, released to the Debtor and then inspected by an agent for the United States Department of Agriculture (USDA) at the Debtor's facility.
Complaint ¶¶ 11-12.
[5] Grant Thornton also argues that it is obvious from the allegations in the Complaint that the Trustee is, in actuality, bringing the claims asserted in Counts I through V on behalf of the estate's creditors rather than the Debtor because, under the facts pled, the creditors are the only parties who suffered any injury. This argument lacks merit. The Complaint alleges that, as a result of Grant Thornton's wrongdoing, Debtor suffered damages in the nature of "lost profits." The estate's creditors have no standing to bring suit to recover for Debtor's lost profits. Furthermore, the Complaint can also be viewed as alleging that, as a result of Grant Thornton's wrongdoing, Debtor exceeded its borrowing limits under the loan agreements which it had with its lenders, putting it in default of such agreements and thereby, allowing its creditors to force it into bankruptcy. Viewed in this manner, the Complaint alleges a harm to Debtor that is separate and apart from the harm suffered by its creditors. Whether such harm is compensable is a separate issue. I also note that, under Pennsylvania law, the estate's creditors may be barred from bringing a professional negligence action against Grant Thornton based on the lack of privity. See Giant Eagle of Delaware, Inc. v. Coopers & Lybrand (Phar-Mor, Inc. Securities Litigation), 892 F. Supp. 676, 690 (W.D.Pa.1995) (holding that, under Pennsylvania law, "a plaintiff cannot maintain an action for professional negligence in the absence of privity with the defendant").
[6] Presented as a separate argument but in effect a variant of the first is Grant Thornton's contention that Counts I through V of the Complaint are barred by the rule established in Cenco, Inc. v. Seidman & Seidman, 686 F.2d 449 (7th Cir.), cert. denied, 459 U.S. 880, 103 S. Ct. 177, 74 L. Ed. 2d 145 (1982), that "a corporation in which the top management has engaged in a fraudulent scheme directed against outsiders cannot later sue its auditors on grounds that the auditors failed to discover the scheme," Defendant's Brief at 6. As discussed below, Cenco and Rochez are applicable only when the fraudulent conduct benefits the corporation.
[7] The Trustee asserts that the "question of whether the actions and knowledge of [Fred] are imputed to the Debtor is one properly raised as an affirmative defense to the Trustee's claims and as an affirmative defense, imputation should not be considered by the Court in connection with a motion to dismiss." Plaintiff's Memorandum of Law in Opposition to Defendant's Motion to Dismiss ("Plaintiff's Brief") at 16-17. However, this assertion fails to account for the well-established rule that a complaint may be subject to dismissal under Rule 12(b)(6) when an affirmative defense appears on its face and presents an "insuperable barrier to recovery by the plaintiff." See Flight Systems, Inc. v. Electronic Data Systems Corporation, 112 F.3d 124, 127 (3d Cir. 1997) (citing Continental Collieries v. Shober, 130 F.2d 631, 635-636 (3d Cir.1942)). See also ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 (3d Cir. 1994).
[8] I note the parties' apparent agreement that Pennsylvania law is applicable here.
[9] Grant Thornton asserts that since paragraph 10 of the Complaint alleges that Fred was solely responsible for the "purchase and shipment of the Goods, as well as for the maintenance of the inventory" and that he "maintained the books and financial records in connection with the importation and sale of the Goods," when he engaged in his "course of conduct whereby he intentionally inflated the Debtor's gross profit by failing to record the receipt of pre-paid inventory," he was acting within the course of his employment. See Reply Brief in Support of Motion of Defendant Grant Thornton to Dismiss Counts I-V of the Complaint ("Defendant's Reply Brief") at 10-11. Significantly, Grant Thornton failed to cite controlling Pennsylvania authority for determining when acts are within the course of employment. The Trustee, while denying that Fred was acting within the course of his employment, likewise offers no legal support for his view.
[10] There is a dispute in the case law on whether to evaluate the benefit to a company based on the short term or long term effect of its agent's fraud. Compare Seidman & Seidman v. Gee, 625 So. 2d 1, 3 (Fla.Dist.Ct.App.1992) (in determining whether company benefitted from agent's fraudulent misrepresentation that it was backed by a $10 million dollar certificate of deposit, court focused on short-term benefit of misrepresentation which was that the company was able to obtain a license to conduct business rather than long-term result which was that the misrepresentation led to the company's financial demise), review granted 640 So. 2d 1106 (Fla.1994), cause dismissed 653 So. 2d 384 (Fla.1995), with Bloor v. Dansker (In re Investors Funding Corporation), 523 F. Supp. 533, 541 (S.D.N.Y.1980) (rejecting notion that fraud benefitted company by creating an artificial financial picture that enabled it to obtain huge quantities of funds from creditors and investors and thereby to continue in operations past its point of actual insolvency, reasoning that "a corporation is not a biological entity for which it can be presumed that any act which extends its existence is beneficial to it.") and McHale v. Huff (In re Huff), 109 B.R. 506, 512 (Bankr.S.D.Fla.1989) ("A corporation is damaged where its officers and directors fraudulently conceal its insolvency and allow the corporation to continue incurring more and more debt and become more and more insolvent."). In any event, when a company borrows money that puts it in default of its loan agreements, it would seem extremely short-sighted to view its receipt of the borrowed money as a benefit.
I do note that since Fred's misconduct continued from 1986 through 1994, it could be argued that the Debtor benefitted from his misconduct during some of the years. However, it is impossible to make this determination based solely on the allegations in the Complaint.
[11] See CEPA Consulting, LTD v. King Main Hurdman (In re Wedtech Securities Litigation), 138 B.R. 5, 9 (S.D.N.Y.1992) (recognizing that "benefit" to the company may be determined objectively, by evaluating whether the fraud increased the company's value, or subjectively, by ascertaining the motivation of the officers who committed the fraud).
[12] Grant Thornton did not mention the sole actor doctrine in its original brief; however, the Trustee raised the doctrine in its opposing brief, see Plaintiff's Brief at 18 n. 6, and Grant Thornton included an extensive discussion of the doctrine in its reply brief, see Defendant's Reply Brief at 12-16.
[13] Grant Thornton also cites to Mediators, Inc. v. Manney (In re Mediators, Inc.), 105 F.3d 822 (2d Cir.1997), to support application of the sole actor doctrine. In this case, the Second Circuit stated: "[T]he adverse interest exception does not apply to cases in which the principal is a corporation and the agent is its sole shareholder . . . [W]here the principal and agent are one and the same, the adverse interest exception itself is subject to an exception styled the `sole actor' rule. This rule imputes the agent's knowledge to the principal notwithstanding the agent's self-dealing because the party that should have been informed was the agent itself albeit in its capacity as the principal." Id. at 827 (citations omitted). The allegations in the Trustee's Complaint indicate that Fred is not the Debtor's sole shareholder.
[14] In the words of the Seventh Circuit, the result achieved in Cenco was intended to cover those situations in which "fraud permeates the top management of the company" and "managers are not stealing from the company that is, from its current stockholders but instead are turning the company into an engine of theft against outsiders creditors, prospective stockholders, insurers, etc." Id. at 454.
[15] As stated by the Pennsylvania Supreme Court in Gordon v. Continental Casualty, 319 Pa. 555, 560, 181 A. 574, 575 (1935):
It is argued by appellant's counsel, and we think convincingly, that the adverse interest exception to the rule that knowledge of a corporate officer is knowledge of the corporation, applies only where a third person seeks to enforce some demand against the corporation( . . .), but the exception has no application where the corporation seeks to enforce the benefit of a fraud perpetrated by its officer on a third person; that the exception is not a vehicle for the consummation of fraud.
And, for example, in First National Bank of Cicero v. United States of America, 653 F. Supp. 1312, 1316 (N.D.Ill.), reconsideration denied, 664 F. Supp. 1169 (N.D.Ill.1987), aff'd in part, vacated in part, 860 F.2d 1407 (7th Cir.1988), the Court in explaining the "sole actor" exception stated:
If a principal's claim to property rests on the acts of his agent, he cannot both retain the property and avoid the legal effect of the knowledge the agent had when he acquired it. Restatement of Agency, §§ 8C, 274 and comment a. The real question is not how many people contributed some small act towards the transaction, but whether the principal's interest in the property ultimately depends on the acts of the agent.
Likewise, in Supreme Petroleum, Inc. v. Briggs, 199 Kan. 669, 433 P.2d 373 (1967), the Kansas Supreme Court found summary judgment inappropriate where a factual question existed as to whether the officer endorsing a note was the sole actor or alter ego of the corporate holder. In so ruling, it set forth the applicable general agency principals, quoting from 3 Am.Jur.2d Agency § 284:
[I]f the principal asserts or stands on the transaction, either affirmatively or defensively, or seeks to retain the benefit of the transaction, he is charged with the agent's knowledge.
199 Kan. at 676, 433 P.2d at 378.
[16] This is not to state that the trustee is bringing the lawsuit on behalf of creditors. See infra at 9-11 & n. 5. Rather it recognizes that a corporation in liquidation will distribute its assets to creditors.
[17] This decision followed remand from the United States Supreme Court which held that there is no federal common-law rule divesting the states of authority over the entire law of imputation. 512 U.S. at 84-85, 114 S.Ct. at 2053-2054.
[18] The Plaza Mortgage Court did not answer the question it posed, i.e., whether a trustee in bankruptcy collecting assets for the benefit of creditors can be held in pari delecto as to the wrongful acts of the entity in bankruptcy, as the parties had failed to brief the issue under applicable state law. Accordingly a briefing schedule was established. Similarly I have not had the benefit of the parties' views on this issue.
[19] Neither Grant Thornton's original brief nor its reply brief discuss whether the objectives of tort liability would be served by allowing the Trustee to proceed with his claims.
[20] Several years prior to Jewelcor Jewelers and Distributors, Inc. v. Corr, the Superior Court decided Robert Wooler Company v. Fidelity Bank, 330 Pa.Super. 523, 479 A.2d 1027 (1984). In this case, which also involved accounting malpractice, the accounting firm was sued on the theory that its negligent performance permitted the company's loss, caused by employee theft, to go undetected. Rather than using the substantial factor test to determine the issue of contributory negligence and focusing on whether the company's conduct was a substantial factor in causing its losses, the Superior Court utilized the substantial factor test to satisfy the element of proximate cause, holding that the accounting firm, which the trial court found had breached its duty of care, could be held liable in damages only "if its negligence was a substantial factor in bringing about [the company's] loss by employee defalcation." Id. at 535-536, 479 A.2d at 1033. When used in this manner, the substantial factor test ensures a causal connection between the accounting firm's conduct and the company's loss.
[21] The Trustee asserts that Grant Thornton's agreement to "examine on a test basis, evidence supporting the figures set forth in the financial statements" constitutes a specific provision of the contract which Grant Thornton breached. However, as the allegations in the Complaint are pled, the agreement to examine evidence on a test basis was part of Grant Thornton's agreement to act in accordance with GAAS:
[Grant Thornton] further warranted and agreed to prepare its audits in "accordance with generally accepted auditing standards" ("GAAS") which included [Grant Thornton's] examination ". . . on a test basis, [of] evidence supporting the amounts and disclosures in the financial statements . . . [.]"
Complaint ¶ 21 (emphasis added).
[22] The trustee cites to Begier v. Price Waterhouse, 135 B.R. 222 (E.D.Pa.1991), to support his contention that Count I states a claim for breach of contract. However, in this decision, the court did not decide whether the plaintiffs allegations were sufficient to state a claim for breach of contract; that issue was not before it. See id. at 224 (identifying defendant's arguments on motion for summary judgment).
[23] Since the standard for Rule 9(b) is different in the Second Circuit, see In re U.S. Healthcare, Inc. Securities Litigation, 122 F.R.D. 467, 470 (E.D.Pa.1988), Grant Thornton's references to Second Circuit case law are not helpful. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535115/ | 969 S.W.2d 582 (1998)
Earl N. PALMER, Appellant,
v.
SEARS, ROEBUCK & CO., Appellee.
No. 2-97-276-CV.
Court of Appeals of Texas, Fort Worth.
May 14, 1998.
*583 Johnson, Johnson & Rothfelder and Richard Charles Kline, Fort Worth, for appellant.
Vial, Hamilton, Koch & Knox, J. Mark Hansen, Dallas, for appellee.
Before DAUPHINOT, RICHARDS and HOLMAN, JJ.
OPINION
RICHARDS, Justice.
Introduction
This is an appeal from a summary judgment granted in favor of Sears, Roebuck and Co. ("Sears") and against Earl Palmer ("appellant") on the basis that Palmer's cause of action was barred by limitations. In three points, appellant argues the trial court erred in granting summary judgment for Sears because a fact issue exists as to whether appellant's cause of action was barred by limitations and because Sears failed to prove the inapplicability of the discovery rule to toll limitations on appellant's cause of action. Because we conclude the trial court properly granted summary judgment for Sears on the issue of limitations, we affirm.
Summary of Facts and Procedural Background
In April 1993, Sears performed repairs on appellant's air conditioner. During the repairs, a Sears technician added ductboard to the plenum. Approximately one month later, appellant noticed a leak in the unit where the repairs had been made, causing water to accumulate in the return box area. On June 11, 1993, appellant contacted Sears, requesting that the water leak and resulting damage be repaired. Sears returned on June 16, 1993, but the problem was not resolved. Sears performed subsequent work on July 10, 1993 and July 22, 1994. Appellant became ill around the middle of October 1994 and began to suspect that environmental factors were the cause of his illness. On or about November 8, 1994, appellant began treatment for severe allergic reaction and environmental illness.
An environmental audit was conducted in appellant's home on November 21, 1994. A preliminary determination was made that mold and sporing from the air conditioner leak were causing appellant's injuries. On September 27, 1996, appellant filed his Original Petition against Sears seeking recovery for property damage and personal injuries arising from Sears's negligent repair of his air conditioner.
On April 4, 1997, Sears filed its First Supplemental Answer and its Motion for Summary Judgment based on limitations grounds. On May 8, 1997, appellant filed his Second Amended Petition alleging that his personal injuries were not discernable until October 16, 1994 and pleading that under the discovery rule, the statute of limitations was tolled until that time.
Appellant responded to Sears's motion for summary judgment with an affidavit alleging that he could not, through the exercise of reasonable diligence, have known of his personal injuries before October 1994 when these physical injuries first manifested themselves. Sears filed a reply to appellant's response and filed written objections to appellant's affidavit and other exhibits on the basis of hearsay. After a hearing on May 28, 1997, the trial court sustained Sears's objections and granted its Motion for Summary Judgment.[1]
Standard of Review
In a summary judgment case, the issue on appeal is whether the movant met his summary judgment burden by establishing that no genuine issue of material fact exists and that the movant is entitled to judgment as a matter of law. See TEX.R. CIV. P. 166a(c); Cate v. Dover Corp., 790 S.W.2d 559, 562 (Tex.1990); City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex.1979). *584 The burden of proof is on the movant and all doubts about the existence of a genuine issue of a material fact are resolved against the movant. See Acker v. Texas Water Comm'n, 790 S.W.2d 299, 301-02 (Tex.1990); Cate, 790 S.W.2d at 562; Great Am. Reserve Ins. Co. v. San Antonio Plumbing Supply Co., 391 S.W.2d 41, 47 (Tex.1965). Therefore, we must view the evidence and its reasonable inferences in the light most favorable to the nonmovant. See Great Am., 391 S.W.2d at 47.
In deciding whether there is a material fact issue precluding summary judgment, all conflicts in the evidence will be disregarded, and the evidence favorable to the nonmovant will be accepted as true. See Harwell v. State Farm Mut. Auto. Ins. Co., 896 S.W.2d 170, 173 (Tex.1995); Montgomery v. Kennedy, 669 S.W.2d 309, 311 (Tex.1984). Evidence that favors the movant's position will not be considered unless it is uncontroverted. See Great Am., 391 S.W.2d at 47. The summary judgment will be affirmed only if the record establishes that the movant has conclusively proved all essential elements of the movant's cause of action or defense as a matter of law. See City of Houston, 589 S.W.2d at 678.
A defendant is entitled to summary judgment if the summary judgment evidence establishes, as a matter of law, that at least one element of a plaintiff's cause of action cannot be established. See Science Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex.1997). To accomplish this, the defendant-movant must present summary judgment evidence that negates an element of the plaintiff's claim. Once this evidence is presented, the burden shifts to the plaintiff to put on competent controverting evidence that proves the existence of a genuine issue of material fact with regard to the element challenged by the defendant. See Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195, 197 (Tex.1995).
A defendant is entitled to summary judgment on an affirmative defense if the defendant conclusively proves all the elements of the affirmative defense as a matter of law such that there is no genuine issue of material fact. See Randall's Food Mkts., Inc. v. Johnson, 891 S.W.2d 640, 644 (Tex.1995). To accomplish this, the defendant-movant must present summary judgment evidence that establishes each element of the affirmative defense. See Ryland Group, Inc. v. Hood, 924 S.W.2d 120, 121 (Tex.1996).
Statute of Limitations and the Discovery Rule
The trial court granted summary judgment for Sears based on the affirmative defense of limitations. The applicable statute of limitations required appellant to file suit not later than two years after the day his cause of action accrued. See TEX. CIV. PRAC. & REM.CODE ANN. § 16.003(a) (Vernon Supp. 1998). In three points, appellant argues that the trial court erred in granting summary judgment for Sears because a fact issue exists as to whether his cause of action was time-barred and because Sears failed to prove as a matter of law that the discovery rule did not operate to toll the limitations period on appellant's cause of action.
Appellant acknowledges that he knew of his property damage, the first injury for which he could sue, in May of 1993 but insists that he could not know of his physical injuries until, at the earliest, October of 1994 when they first manifested themselves. Appellant asserts that the discovery rule operated to toll the limitations period until October of 1994 on his suit for personal injuries.
Generally, a cause of action accrues when a wrongful act causes an injury, regardless of when the plaintiff learns of the injury. See Murray v. San Jacinto Agency, Inc., 800 S.W.2d 826, 828 (Tex.1990); Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 351 (Tex.1990); Mitchell Energy Corp. v. Bartlett, 958 S.W.2d 430, 436 (Tex.App.Fort Worth 1997, no writ). The discovery rule is a judicially conceived exception to the statute of limitations to be used by courts in determining when a cause of action accrues. See Moreno, 787 S.W.2d at 353; Mitchell Energy, 958 S.W.2d at 436. When applied, the rule operates to toll the limitations period until the plaintiff discovers or, through the exercise of reasonable diligence, should have discovered the "fact of injury." Moreno, 787 *585 S.W.2d at 357 (emphasis in original); Mitchell Energy, 958 S.W.2d at 436.
The Texas Supreme Court has explained the legal injury rule as follows:
If ... the act of which the injury was a natural sequence was a legal injury,by which is meant an injury giving cause of action by reason of its being an invasion of a plaintiff's right,then, be the damage however slight, limitation will run from the time the wrongful act was committed, and will bar an action for any damages resulting from the act, although these may not have been fully developed until within a period less than necessary to complete the bar.
Tennessee Gas Transmission Co. v. Fromme, 153 Tex. 352, 269 S.W.2d 336, 337-38 (1954) (quoting Houston Water Works Co. v. Kennedy, 70 Tex. 233, 8 S.W. 36, 37 (1888)) (emphasis added). Tennessee Gaswas a landowner's action for damage to her land and livestock caused when water from the defendant's gas transmission plant overflowed onto her land. The Court held that the landowner's negligence claim was barred by limitations because the landowner brought her suit more than two years after the water first flowed onto her land, even though the greater part of the damage did not occur until the two years immediately preceding her suit. See id.; see also City of Abilene v. Smithwick, 721 S.W.2d 949, 952 (Tex.App. Eastland 1986, writ ref'd n.r.e.) (holding that negligence claims for property damages and personal injuries caused by a sewer backing up onto the landowner's property accrued when the first damage from the backup occurred).
In another limitations case, the plaintiff discovered in 1972 that her pelvic inflammatory disease had been caused by her IUD. See Coody v. A.H. Robins Co., 696 S.W.2d 154, 155 (Tex.App.San Antonio 1985, writ dism'd by agr.). In 1979, the plaintiff discovered that the IUD in question was a Dalkon Shield and that it was defectively designed. See id. The plaintiff argued that the limitations period did not begin to run until 1979, but the court affirmed the summary judgment granted in the manufacturer's favor, holding that the plaintiff had sufficient knowledge in 1972 to justify bringing suit and that the discovery rule did not operate to toll the running of the limitations period until such time as she discovered all elements of her cause of action. See id. at 156.
Similarly, in Pecorino, the plaintiff, who had previously settled and released an asbestos claim, tried later to sue for an asbestos-induced mesothelioma. See Pecorino v. Raymark Industries, Inc., 763 S.W.2d 561, 562 (Tex.App.Beaumont 1988, writ denied). Citing Tennessee Gas and Coody, the court of appeals affirmed summary judgment for the defendants based on the statute of limitations. See id. at 569. The court stated, "[w]e conclude that Texas law is now well-settled that a plaintiff has but one cause of action for the losses, injuries, and damages arising from a single breach of duty, a single causal connection, being a single cause of action." Id. at 569.
In another asbestos case, the Fifth Circuit held that the plaintiff could not split his cause of action, recover damages for asbestos, later sue for damages caused by another pulmonary disease that might develop, and then still later sue for cancer should it appear. See Gideon v. Johns-Manville Sales Corp., 761 F.2d 1129, 1136-37 (5th Cir.1985). The court concluded:
[O]nce injury results there is but a single tort and not a series of separate torts, one for each resultant harm. The cause of action thus created is for all the damage caused by the single legal wrong, and a plaintiff may not split this cause of action by seeking damages for some of his injuries in one suit and for later-developing injuries in another. The cause of action "inheres in the causative aspects of a breach of a legal duty, the wrongful act itself, and not in the various forms of harm which result therefrom...." [The plaintiff] does not have a discreet cause of action for each harm.
Id.
Appellant asks this court to disregard the well-developed case law cited above and create an exception to the limitations statute for late-discovered, latent injuries or damages. Appellant conceded that he discovered the *586 first of his injuries, the damage to his home, in the spring of 1993, more than three years before he filed suit. A careful reading of appellant's pleadings and the evidence introduced in the case conclusively reveals that his legal rights were invaded the moment water began leaking from the supposedly repaired air conditioner and damaging his property. Water was leaking from the unit and damaging appellant's property as early as May 1993.
Appellant's cause of action accrued at the time Sears negligently performed the repairs to his air conditioner, and not on the date when the extent of the resulting damages were fully ascertainable. Appellant had two years from May of 1993 to bring his cause of action against Sears. Even after appellant realized in November 1994 that his physical injuries may have been caused by Sears's negligent repair of his air conditioner, appellant still had six months remaining in which he could have brought suit against Sears. However, appellant waited until September 1996 to file his cause of action. At that time, appellant's cause was barred by limitations. We conclude that because Sears conclusively proved as a matter of law all elements of the affirmative defense of limitations such that there is no genuine issue of material fact, the trial court correctly granted summary judgment for Sears. See Randall's Food, 891 S.W.2d at 644. Accordingly, appellant's first, second, and third points are overruled.
Conclusion
Having overruled all three of appellant's points on appeal, we affirm the summary judgment that appellant take nothing against Sears.
NOTES
[1] Because both parties conceded during oral argument that we need not address the hearsay issue in resolving this appeal, we will limit our discussion to the topic of limitations. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535151/ | 5 B.R. 353 (1980)
In re Donald DUBROCK, Debtor.
CREDITHRIFT OF AMERICA, INC., Plaintiff,
v.
Donald DUBROCK, Defendant.
Bankruptcy No. 3-79-02387, Adv. No. 3800070.
United States Bankruptcy Court, W.D. Kentucky.
July 28, 1980.
As Amended August 19, 1980.
David T. Stosberg, Louisville, Ky., for plaintiff.
Dan E. Siebert, Louisville, Ky., for defendant.
MEMORANDUM AND ORDER
MERRITT S. DEITZ, Jr., Bankruptcy Judge.
The debtor, a real estate broker and salesman, seeks to avoid a lien on his automobile by claiming it as exempt under 11 U.S.C. § 522(f)(2)(B) as a "tool of the trade" essential for continuation of his occupational pursuits.
It is undisputed that the plaintiff, Credithrift of America, Inc., holds a non-possessory, non-purchase money security interest in the automobile of the debtor, Donald Dubrock. The balance outstanding on the debt secured by the automobile, a 1974 Cadillac, is $4,760.00.
Support for Dubrock's contention that his auto is a tool of the trade may be found in a number of state court decisions.[1] These *354 cases generally focus on state exemption laws which preclude tools or implements of one's trade from execution for judgment. Since these laws are generally the same as those used in a bankruptcy context[2] the legal reasoning attending such decisions has vitality here.
Federal courts employing the Bankruptcy Act of 1898 have also examined the validity of exempting motor vehicles used for a business purpose as "tools of the trade".[3] By virtue of Section 6 of that Act, reference in those cases was necessarily made to provisions of the state exemption statutes.
Whenever confronted with the question of whether an automobile qualifies for the tool-of-trade exemption, both state and federal jurists have rooted their conclusions in the fact of the case before them.[4]
Considering those facts, courts have generally held that an automobile may be a tool of trade if it is necessary for and is used in connection with one's trade.
Upon analysis of the case law, one can discern in which instances treatment of a car as a tool of the trade should be favorably received. Most like this case is Sun Ltd. v. Casey,[5] where a real estate agent's automobile was declared a tool of the trade and thus exempt from an execution for judgment.
Sales managers,[6] an insurance adjuster,[7] and various trade workers[8] have also been deemed sufficiently in need of a vehicle to carry on their professions so as to permit their car to be considered a tool of their trade.
Generally, a car is classified a tool of trade only if the occupation of its owner is uniquely dependent on its use. It is not sufficient if one's dependence on the car is limited to use for travel to and from work.[9] The use of a car merely as a means of transportation to one's place of employment is hardly comparable to using it as an essential instrument of employment. That was the conclusion we reached today in considering a similar claim of exemption in a factually distinguishable case, First Hardin National Bank v. Damron, 5 B.R. 357.
Plaintiff relies upon Credithrift of America, Inc. v. Meyers[10] for support of its contention that Dubrock's car is not a tool of the trade. In that case, however, the debtor needed his truck merely to go to and from work. The court thus declined to give the debtor a tool-of-trade exemption. It did not negate the possibility that a motor vehicle might in some circumstances be a tool of trade. Rather, it was recognized that "restricting a debtor's claim of exemption of a motor vehicle as a tool of trade to cases in which the motor vehicle is necessary to, and used by the debtor to carry on his trade, accomplishes what was intended by Section 522(f)".[11]
In every sense, Dubrock's use of his car is necessary to carry on his business. A salesman of real estate must have constant and *355 immediate access to reliable transportation, for not only himself but his clients.
Credithrift asserts that the enumeration of an automobile elsewhere in the exemption provision[12] precludes its classification as a tool of trade. It is further maintained that because a motor vehicle is not statutorily recognize as a tool of trade, its designation as such is inappropriate.
The well-settled rule that exemption statutes are to be liberally construed[13] rang never more true than here. Congress, unwilling or unable to enumerate the countless items which, depending upon one's trade, might be "tools", left that determination to the judiciary.
The description of an object as a "tool" necessarily implies a classification based upon that object's functional and utilitarian purpose in the hands of its owner or user. While an automobile never ceases to be an automobile, its function may also require its designation as a tool of trade. Such is the case here.
The tool-of-trade exemption has heretofore been applied against the debtor's equity in the property he seeks to exempt. It was not employed as a means for lien avoidance. In this instance, Dubrock has no equity in his car, and attempts to avoid Credithrift's lien.
Section 522(f)(2)(B) of the Bankruptcy Code[14] permits the avoidance of a lien on tools of a debtor's trade to the extent that the lien impairs an otherwise valid exemption. This is an exception to the general rule that valid liens are enforceable as against nonexempt property as well as exempt property.[15]
It should not automatically be presumed, however, that the application of § 522(f) necessarily permits total avoidance of a valid lien that is a non-possessory, non-purchase money security interest. The lien may be avoided only to the extent of the debtor's allowable exemption, with the remainder of the lien being otherwise enforceable.[16]
To determine the extent to which one is entitled to avoid a lien under subsection (f), reference must be made to either the state or Reform Act exemption schedule. This matter arising under the federal exemption schedule, we need only to consider the impact of subsection (f) on the exemptions provided in § 522(d).
Because § 522(f) is applied in conjunction with § 522(d), it must be determined what is, in the words of subsection (f), "an exemption to which the debtor would have been entitled".
Clearly, the avoidance of a lien against a tool of trade necessitates the application of the tool-of-trade exemption provision, Section 522(d)(6).[17] Pursuant to this subsection, *356 Dubrock may avoid Credithrift's lien to the extent of $750.
But neither the exemption provisions, nor Dubrock's lien avoidance capabilities, end there.
Under § 522(d)(5),[18] a debtor may claim as exempt up to $400 in his interest in any property plus any portion of his unused homestead exemption. Where the debtor claims no homestead exemption, he is entitled to exempt up to $7,900 worth or property over and above the otherwise allowable exemptions that are specifically enumerated elsewhere in § 522(d).
In the instant case, personal property exemptions, including the debtor's automobile, total only $1,687.40. The debtor owns no realty.
As is indicated in the Congressional Report,[19] subsection (f) permits a debtor to avoid a non-purchase money security interest "to the extent that the property could have been exempted in the absence of the lien."[20]
In this case, if Dubrock had full equity in his vehicle and its value exceeded a specific exemption, he could easily avail himself of § 522(d)(5) to exempt the car totally.
Likewise, the "spill-over" effect of paragraph (d)(5) permits the total avoidance of Credithrift's lien. In essence, the interplay between subsections (d) and (f) of § 522 has resulted in Dubrock's being furnished with full equity in his automobile. Credithrift is left with an entirely unsecured claim.
We note by way of obiter that the exemption schedule provided in 11 U.S.C. § 522(d) is no longer available to persons filing in this state. The General Assembly of the Commonwealth of Kentucky has made mandatory the application in bankruptcy of Kentucky's exemption provisions.[21]
Like the federal exemption, Kentucky allows an exemption for "the tools of any individual debtor necessary in his trade".[22] Unlike the federal statute, Kentucky's tools-of-trade provision only allows a $300 exemption. Further, although there is a general exemption allowance of $1,000,[23] there is no "spill-over" of the unused portion of the state homestead exemption.
The Kentucky exemption chapter co-exists with, but does not displace, the lien avoidance section of 11 U.S.C. § 522(f).[24] The effect of § 522(f) is not, and cannot be, altered by Kentucky exemption provisions. In cases commenced after April 9, 1980, avoidance of a lien against a tool of trade will only be realized to a maximum of $1,300.
Upon the foregoing reasoning and authorities, it is hereby
ORDERED that the motion to avoid the lien on the debtor's automobile is sustained. It is further ordered that the complaint of Credithrift of America, Inc., to lift the automatic stay is dismissed. This is a final order. Judgment shall be entered accordingly.
NOTES
[1] Sun Ltd. v. Casey, 96 Cal. App. 3d 38, 157 Cal. Rptr. 576 (1979); Gunn v. Credit Service Corp., 46 So. 2d 628 (La.App.1950); Dowd v. Heuson, 122 Kan. 278, 252 P. 260 (1927).
[2] See e.g. Ky.Rev.Stat. § 427.010 et seq., as amended by 80 B.R. 441, S. 31, April 9, 1980, which provides generally for exemptions for real and personal property as well as for bankruptcy exemptions.
[3] In re Trotter, 97 F. Supp. 249 (D.C.La.1951); In re Bailey, 172 F. Supp. 925 (D.C.Neb.1959); In re Spiewalk, [1967-1970 Transfer Binder] Bankr.L.Rep. (CCH) ¶ 62,893 (D.C.Cal.1968); In re Frank, [1970-1973 Transfer Binder] Bankr.L.Rep. (CCH) ¶ 64,777 (D.C.N.Y.1973).
[4] See e.g. Gunn v. Credit Service Corp., supra note 1 at 630, where it was stated that "[T]he facts of each individual case must be considered and only in such facts can be found the answer to the question presented."
[5] Supra, note 1.
[6] In the Matter of Pioch, 235 F.2d 903 (3rd Cir. 1956); In re Trotter, supra note 3.
[7] Gunn v. Credit Service Corp., supra note 1.
[8] Dowd v. Heuson, supra note 1; In re Bailey, and In re Spiewall, supra note 3.
[9] In re Yoss, 5 BCD 220 (D.Or.1979); Credithrift of America v. Meyers, 2 B.R. 603, 5 BCD 1306 (E.D.Mich.1980).
[10] Id.
[11] Id., at 606, 5 BCD at 1307.
[12] 11 U.S.C. § 522(d)(2).
[13] 1A Collier on Bankruptcy, ¶ 6.03[3] (14th Ed. 1978); See also Sun Ltd. v. Casey, supra note 1 where a realtor was allowed the $2,500 tool-of-trade exemption on his car despite the availability of a $500 motor vehicle exemption.
[14] Section 522(f)(2)(B) reads as follows:
(f) Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is
(2) a nonpossessory, nonpurchase-money security interest in any
(B) implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor; or
[15] 11 U.S.C. § 522(c) and accompanying legislative history in H.R.Rep. No. 595, 95th Cong., 1st Sess. 361 (1977) and S.Rep. No. 989, 95th Cong., 2d Sess. 76 (1978), U.S.Code Cong. & Admin.News 1978, p. 5787.
[16] To fully understand this, one must first appreciate the interplay between subsections (f), (b) and (d) of Section 522. Subsection (f) addresses liens which impair a debtor's exemption under "subsection (b)". Subsection (b) in turn provides the debtor with a choice between the federal exemptions prescribed in subsection (d) or those available under state law. See also 3 Collier on Bankruptcy ¶ 522.29 (15th Ed. 1979).
[17] This provision reads as follows:
(d) The following property may be exempted under subsection (b)(1) of this section:
(6) The debtor's aggregate interest, not to exceed $750 in value, in any implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor.
[18] Paragraph 5 of subsection (d) exempts:
(5) The debtor's aggregate interest, not to exceed in value $400 plus any unused amount of the exemption provided under paragraph (1) of this subsection, in any property.
[19] H.R.Rep. No. 595, 95th Cong., 1st Sess. 362 (1977) and S.Rep. No. 989, 95th Cong., 2nd Sess. 76 (1978), U.S.Code Cong. & Admin.News 1978, p. 5787 (under subsection (e)).
[20] Id.
[21] 80 B.R. 441, S. 31, § 10, April 9, 1980.
[22] Ky.Rev.Stat. § 427.030, as amended by 80 B.R. 441, S. 31, § 2, April 9, 1980 (emphasis added).
[23] 80 B.R. 441, S. 31, § 9, April 9, 1980.
[24] 3 Collier on Bankruptcy ¶ 522.29 (15th Ed. 1979); In re Clarence and Lillian Hill, 4 B.R. 310, 6 BCD 307 (N.D.Ohio 1980). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535242/ | 340 A.2d 128 (1975)
STATE
v.
Alphonse MANCINO.
No. 74-131-C. A.
Supreme Court of Rhode Island.
June 27, 1975.
*130 Julius C. Michaelson, Atty. Gen., Judith Romney Wegner, Sp. Asst. Atty. Gen., for plaintiff.
D. A. St. Angelo, Providence, for defendant.
OPINION
ROBERTS, Chief Justice.
These are three criminal complaints charging the defendant, Alphonse Mancino, first, with operating a motor vehicle "to the left half of the roadway of sufficient width" in violation of G.L. 1956 (1968 Reenactment) § 31-15-1 (C.A. No. 72-113); second, with operating a motor vehicle on a public highway " * * * at a clocked speed of 55 MPH in excess of the 35 miles per hour legally established speed limit" in violation of § 31-14-1 (C.A. No. 72-114) ; and, finally, with operating a motor vehicle on a public highway "* * * while under the influence of an intoxicating liquor, to a degree which rendered him incapable of safely operating a vehicle" in violation of § 31-27-2 (C.A. No. 72-116). A trial to a jury in the Superior Court during January 1974 resulted in his conviction on each of the three counts above specified.[1] From these judgments the defendant is prosecuting an appeal to this court.
It appears from the record that defendant, who is an architect, resides in and maintains his professional office in the town of Barrington. At trial he testified that on the morning of January 11, 1972, he was in his office working until about 3 a. m. and that shortly after leaving his office to return to his home he was apprehended and subsequently charged with the violations set out above.
*131 A police officer, Albert K. Antonio, testified that early in the morning of January 11 he observed defendant's car proceeding in a southerly direction along the Wampanoag Trail. The officer followed defendant's car to County Road, a two-lane highway, where he noticed that the car "drifted" over the center line of the road. At that point he clocked defendant at a speed of 55 m. h. in a 35 m. p. h. zone. After his apprehension, defendant at the police station submitted to two breathalyzer tests, the first of which registered .10 percent of alcohol by weight in defendant's blood and the second, taken some 30 minutes later, registered .09 percent.[2]
The record discloses that when trial began, the trial justice inquired: "Does the defendant persist in his plea of not guilty?" When counsel for defendant appeared not to have understood the inquiry, the trial justice again said: "Does the defendant persist in his plea of not guilty in these four charges ?" At the time these inquiries were made, the jury panel from which the jurors were ultimately selected was in the courtroom. The defendant's motion to pass the case on the ground that he had been prejudiced by the inquiries made in the presence of the prospective jurors was denied. In so contending, defendant directs our attention to the language of this court in State v. Papa, 32 Rawle I. 453, 80 A. 12 (1911), and State v. Nunes, 99 R.I. 1, 205 A.2d 24 (1964).
It is true that judicial comment in the presence of the jury should be closely scrutinized to determine its potential for creating prejudice in the minds of the jurors against the defendant. It does not follow, however, that every comment made by the court, ambiguous or even critical in its nature, must invariably be held to have created in the minds of the jurors an irreversible conviction of a defendant's guilt. When a defendant contends that the trial justice was prejudiced against him to such a degree as to impair the fairness of the trial, he has the burden of establishing the existence of such prejudice in the mind of the trial justice. State v. Crescenzo, R.I., 332 A.2d 421 (1975) ; State v. Buckley, 104 R.I. 317, 244 A.2d 254 (1968).
There is no valid reason why that rule should not apply to situations in which the defendant contends that the comment or conduct of the trial justice necessarily had the effect of creating such prejudice in the minds of the jurors. In our opinion, defendant here has not met that burden. The circumstances in which the inquiries were made are not persuasive that they created such prejudice. The thrust of the argument is that the use of the word "persist" so revealed the court's belief in defendant's guilt that it necessarily would have the effect of irreversibly persuading the jury of that guilt. With this argument we do not agree and conclude that the trial court did not err in denying the motion to pass.
Neither can we agree that the presence of an armed police officer at counsel table during the trial deprived defendant of a fair trial. We do not disagree with the thrust of the opinion of the New Hampshire court in State v. Whippie, N.H., 322 A.2d 917 (1974). On the contrary, we recognize that, in some circumstances, the presence of armed police officers in a courtroom or, for that matter, a display of weapons in a courtroom in the *132 presence of the jury could generate such prejudice. However, nothing in the record here discloses any circumstance or condition which would persuade us that the presence of the police officer at counsel table prejudiced defendant's right to a fair trial.
The defendant contends also that the trial justice erred in overruling his objection to the admission of the arresting officer's testimony that from his observation of the speedometer in the police cruiser, defendant was operating at 55 m. p. h. The defendant argues that a prior showing of the operational efficiency of the speedometer in the police vehicle is required before evidence of another vehicle's speed based on a reading of that speedometer can be admitted. The state, however, argues that any attack on the accuracy of speed testing equipment is an affirmative defense that must be pleaded and raised by the defendant. We do not agree.
In State v. Barrows, 90 R.I. 150, 154, 156 A.2d 81, 83 (1959), we held that * * * the testimony as to the speed at which the defendant's automobile was being operated, based on an observation of the speedometer readings in the arresting officer's motor vehicle, is admissible in evidence upon a showing that the operational efficiency of the device has been tested by an appropriate method within a reasonable period of time." We have reconsidered this holding and, after considering intervening decisions from other jurisdictions, see, e. g., State v. Tomanelli, 153 Conn. 365, 216 A.2d 625 (1966), we reaffirm it here.
By our holding, we simply require, as part of the state's prima facie case, that a showing be made that the speedometer used to clock the defendant was tested against another speed-testing standard and that the speedometer was operating properly at the time of the alleged violation. We adhere to this rule as an appropriate middle ground between the extremes of presuming that a police cruiser speedometer is accurate and requiring evidence of the accuracy of the speed-testing device against which the police cruiser speedometer is tested. See Whitehead v. Lynchburg, 213 Va. 742, 195 S.E.2d 858 (1973). Once the state has presented its case as outlined above, the defendant may mount, as an affirmative defense, an attack upon the accuracy of the device used as the standard against which the police cruiser speedometer was tested. See State v. Tomanelli, supra, 153 Conn. at 372, 216 A.2d at 630.
[9] It is clear from the record that in the instant case the state did not introduce any evidence showing the operational efficiency of the speedometer of the arresting officer's vehicle, and we, therefore, conclude that the admission of the challenged testimony was error.
The defendant contends also that the prosecutor in his summation to the jury at the close of trial made statements designed to destroy defendant's credibility that were so inherently prejudicial as to deprive him of a fair trial. The defendant at trial had testified that he had consumed two cans of beer on the night of his arrest. The prosecutor in his summation, referring to this testimony, said: "I'm going to ask you if you've ever known a drinker who had more than a few beers. That defense that I only had two beers has been used in drunken driving cases from time immortal. That defense is so old it has whiskers." The defendant objected immediately to the prosecutor's remarks, and his objection was overruled. It is clear from the record that defendant did not request of the court a cautionary instruction to the jury to disregard the remarks, and no such instruction was given by the court.[3]
*133 The state argues that the remark of the prosecutor was not improper in that it constituted a reasonable inference that could be drawn from the testimony of defendant. The defendant, as we understand him, argues that the language used by the prosecutor was prejudicial because it misled and confused the jury in that he was attributing to himself the status of an expert in criminology. However that may be, it is our opinion that the controlling issue in this case is whether the prosecutor's comment was so inherently prejudicial as to require the giving of an immediate cautionary instruction adequate to eradicate any resulting prejudice from the minds of the jurors.
In State v. Mancini, 108 R.I. 261, 274 A.2d 742 (1971), this court engaged in a comprehensive analysis of a number of our decisions dealing with the prejudicial effect of comments made by prosecutors in the presence of the jury and challenged as being so inherently prejudicial as to deprive the defendant of his right to a fair trial. While conceding that there is no formula for the precise ascertainment of the proper bounds of such comment by a prosecutor, we made clear our recognition that in many instances prejudice inheres where the remarks are totally extraneous to the issues in the case and tend to inflame and arouse the passions of the jury.
In Mancini we noted also that ordinarily a failure to request a cautionary instruction at the time the remarks were objected to will preclude a defendant from raising a question in this court as to the prejudical effect thereof. However, we recognized that there can be exceptions to the requirement that a request for such a cautionary instruction be made. For instance, where the trial justice, upon objection, concluded that the challenged remarks were proper, it obviously would be an idle gesture to require a defendant to request such a cautionary instruction. Likewise, the failure to make such a request will be excused where the comment exceeded proper argument in so flagrant a manner that even a cautionary instruction would not have sufficed to eliminate the prejudice resulting therefrom and thus deprive the defendant of a fair and impartial trial.
Here, of course, defendant did not make an immediate request of the court for the requisite cautionary instruction. It appears that when defendant objected to the comment, the trial justice summarily overruled that objection. In such circumstance had a request been made for the instruction, obviously it would have been denied. This brings the case, in our opinion, within the purview of State v. Plante, 111 R.I. 386, 302 A.2d 804 (1973), and persuades us that, despite the absence of the request, we should review the prejudicial potential of the comment.
In Plante the comment challenged as being inherently prejudicial charged the witness with being a "liar." The obvious innuendo to be attributed to the comment of the prosecutor in the instant case was that defendant, in testifying that he had consumed only two cans of beer, was likewise a liar. Conceding, as we must, that such comment had a high potential for the generation of prejudice, we cannot say that it was per se so inherently prejudicial as to irreversibly impair his right to a fair trial or, for that matter, that the prejudice, if any, that resulted could be cured only by the giving of an immediate and adequate cautionary instruction. We are buttressed in this conclusion by our opinion that in the charge given by the trial justice to the jury upon submitting the case to them, the relevant instructions were sufficient to inform the jury that the credibility of the witnesses and the weight to be given their testimony was a matter entirely within their province.
*134 In the first place, the jury was informed that it was free to consider the evidence " * * * in the light of your experiences as prudent, careful, experienced men and women of the world. You may draw inferences and deductions from the evidence such as reasonable men and women would be expected to draw from such evidence." Further, he made clear to the jury that it was not to consider any comments of the prosecutor as evidence. He said: "It is your recollection of the testimony that counts in this case, not what the lawyers or the Court might have said about that testimony. I want you to bear in mind that any arguments or opening statements or any statements at all made by counsel during this trial are not evidence and should not be considered as such by you."
Again, conceding the impropriety of the prosecutor's comment, we cannot conclude that its prejudicial possibilities were not substantially eroded by the relevant portions of the charge given the jury. Neither, therefore, can we conclude that defendant's constitutional right to a fair trial had been impaired as a result of the comments being made in the presence of the jury.
Finally, there is no merit, in our opinion, in the defendant's contention that the state failed to prove beyond a reasonable doubt that he operated his vehicle to the left of center in violation of § 31-15-1. This argument rests on the fact that the statute sets out exceptions pursuant to which the operation of a vehicle to the left of center may be lawful. It is well settled, however, that in a criminal case the burden of the state extends no further than to prove beyond a reasonable doubt only the essential constituent elements of the offense charged. State v. Deans, 93 R.I. 266, 174 A.2d 666 (1961) ; State v. Stallman, 78 R.I. 90, 79 A.2d 611 (1951). The statutory exceptions obviously do not establish elements of the offense of driving to the left of center, and the burden of proving that one of them comes within such an exception is, as an affirmative defense, on the defendant.
The appeals of the defendant in C.A. No. 72-113 (operating to the left of center) and in C.A. No. 72-116 (operating under the influence) are denied and dismissed and the judgments appealed from are affirmed; the appeal of the defendant in C. A. No. 72-114 (operating at an excessive speed) is sustained and the judgment appealed from is reversed ; and the cases are remanded to the Superior Court.
NOTES
[1] The defendant was also charged with assaulting a police officer at the time of his apprehension on January 11, 1972, a charge of which he was found not guilty by the jury at the trial during January 1974.
[2] The statute provides that the amount of alcohol in a person's blood as shown by chemical analysis shall give rise to the following presumptions : (1) If at the time there was.05 percent or less by weight of alcohol in the person's blood, it shall be presumed that the person was not under the influence of intoxicating liquor ; (2) if there was in excess of .05 percent but less than .10 percent by weight of alcohol in the person's blood, no presumption shall arise that the person was or was not under the influence of intoxicating liquor ; and (3) if there was .10 percent or more by weight of alcohol in a person's blood, it shall be presumed that the person was under the influence of intoxicating liquor. General Laws 1956 (1968 Reenactment) § 31-27-2.1 (c).
[3] The defendant also objected expressly to a comment by the prosecutor that two beers "[c]ertainly wasn't enough alcohol * * * to get that kind of reading on the breath alyzer machine." It is our opinion, however, that this objection is without merit, it being clear that the statement made was a reasonable inference of which the testimony was susceptible. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535252/ | 5 B.R. 332 (1980)
In re Marvin BUSMAN and Laura Busman, Debtors.
Bankruptcy No. 880-0172.
United States Bankruptcy Court, E.D. New York.
July 25, 1980.
*333 Donner, Fagelson, Hariton & Berka, P.C., Bay Shore, New York, for debtors.
Edward R. Korman, United States Atty., Brooklyn, New York.
*334 DECISION
C. ALBERT PARENTE, Bankruptcy Judge.
The issue presented arises from an objection filed by the United States Attorney, on behalf of the Internal Revenue Service (IRS), opposing the confirmation of Marvin and Laura Busman's (hereafter "debtors") amended plan of arrangement under Chapter 13 of the Bankruptcy Code.
The plan provides for payment to priority creditors at one-hundred percent of their scheduled claims, without interest, over a thirty-six month period. IRS is listed in the amended plan as a priority creditor.
At the time of filing the petition, the debtors had outstanding a tax liability, including penalties and interest, in the sum of $4,050.97. IRS contends that its claim is a secured "priority" (sic) claim by virtue of having obtained tax liens on all of the debtors' personal and real property pursuant to Title 26 U.S.C. § 6321. It is further alleged that in accord with said section of the Internal Revenue Code, the tax lien encumbering debtors' real and personal property was perfected by the filing of Notice of Federal Tax Lien with the Suffolk County Clerk's Office prior to the filing of the debtors' Chapter 13 petition.
Premised thereon, IRS asserts that it is a holder of a secured priority claim, and coordinate therewith objects to the confirmation of the debtors' amended plan on the ground that the plan fails to provide for payment of post-petition interest on its secured tax claim. The objection in essence posits upon the following arguments collectively or in the alternative:
(1) That IRS is entitled to post-petition interest on its secured tax claim contending that the value of the collateral securing the tax claim exceeds the value of the claim. § 506(b).
(2) That IRS is entitled to post-petition interest pursuant to § 1325(a)(5)(B)(ii). Said statutory proviso mandates that if a Chapter 13 plan provides for payments to secured creditors over time in installments at face value, the holders of secured claims are entitled to also receive an appropriate "interest" or "discount" figure.
The text of § 506(b) of the Bankruptcy Code, as here pertinent, reads:
To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided under the agreement under which such claim arose.
The text of § 1325(a)(5)(B)(ii), as here pertinent, reads:
(5) with respect to each allowed secured claim provided for by the plan
. . . . .
(B)(ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim.
Debtors' responsive pleading seeks to rebut the IRS position by alleging that IRS is not a holder of a secured claim but rather stands in the posture of a priority creditor by virtue of a late filing of its claim, thereby invoking the prescriptive stricture of Rule 13-302, Rules of Bankruptcy Procedure, and as a causal consequence of the late filing, negating any right to post-petition interest on its tax claim. Debtors' argument is further anchored to the precepts following: (1) the tax liens may be subject to the trustee's avoiding powers contained in Chapter 5 of Title 11; and (2) the IRS may not have perfected its tax liens in the manner prescribed by the Uniform Commercial Code.
The undisputed and relatively simple fact pattern evolves into a rather complex and multi-faceted issue synthesized as follows:
(1) What is the proper classification of a claim under the Bankruptcy Code deriving from a tax lien?
(2) Did IRS in the case at bar duly perfect its tax lien in comport with the recording imperatives of state law?
*335 (3) Is post-petition interest an allowable claim in the context of a Chapter 13 case?
(4) What is the significance and reach of Rule 13-302, Rules of Bankruptcy Procedure, as it pertains to the late filing of a secured tax claim?
(5) What is the proper rate of post-petition interest allowable on a tax claim?
Responding to the above delineated prongs of the issue ad seriatim, the Court in the first instance is directed to Title 26, § 6321 of the United States Code entitled Lien for Taxes:
If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.
The above-cited text articulates the rule that a tax claim unpaid after notice and demand matures into a tax lien. U.S. v. Cleavenger, 325 F. Supp. 871 (N.D.Ind. 1971).
Attached to the IRS Proof of Claim is a notice for federal tax lien stating that a demand for payment has been made and the tax liability after such demand remains unpaid. On such facts and consonant with defendants' failure to rebut or disprove the IRS contention, it is probatively established that the IRS has a valid subsisting tax lien pursuant to the dictate of U.S.C. Title 26 § 6321.
Parenthetically, Section 6334 of Title 26 United States Code, exempts certain items of personal property from a tax levy, viz.:
(1) wearing apparel and school books;
(2) fuel, provisions, furniture and personal effects;
(3) books and tools of a trade, business or profession;
(4) unemployment benefits;
(5) undelivered mail;
(6) annuity or pension payments under the Railroad Retirement Act;
(7) worker's compensation;
(8) judgments for support of minor children; and
(9) minimum exemption for wages, salary and other income.
The foregoing exemptions are enumerated as germane inasmuch as the tax lien encumbers both real and personal property and thus bears upon the scope of the lien, and may affect execution and levy.
Adverting to debtors' contention that the tax lien may be subject to the avoiding powers of the trustee (§§ 545 and 546), lacking any supportive proof debtors' naked allegations are rendered probatively vacuous and clearly a non-factor in the subject dispute. Liens cannot be tacitly avoided nor can allegations be transmuted ipso facto into the essential evidentiary proof demanded by established adversary process.
The second prong of the issue encompasses the question of perfection. U.S.C. Title 26 § 6323(f) prescribes the perfection criteria in the essence following:
To perfect a tax lien, a notice of federal tax lien must be filed: (1) as to real property in the office designated by state law in which the property subject to the lien is situated; and (2) as to personal property, in the office designated by state law in which the property subject to the lien is situated.
The uncontroverted record clearly denotes due compliance by IRS with the statutory requisite of § 6323(f), supra. IRS filed the appropriate notice of federal tax lien with the Suffolk County Clerk's Office as required by state law. Bankers Trust Co. v. Equitable Life Assur. Soc. of U.S., 39 Misc. 2d 1035, 242 N.Y.S.2d 441 (N.Y.County 1963); aff'd. 257 N.Y.S.2d 502, 22 A.D.2d 579 (1st Dept. 1965); rev'd. 19 N.Y.2d 552, 281 N.Y.S.2d 57, 227 N.E.2d 863 (1967).
The above findings dispel any doubt that the IRS is the holder of a perfected secured claim with respect to debtor's tax liability.
*336 The third component of the issue focuses upon whether post-petition interest on a tax claim is allowable.
Section 502(a) governs allowance of a claim or interest. The text thereof follows:
(a) A claim or interest, proof of which is filed under § 501 of this title, is deemed allowed, unless a party in interest, including a creditor of a partner in a partnership that is a debtor in a case under Chapter 7 of this title, objects.
Exceptions to the allowability of claims or interest appear in subdivision (b) of § 502. Paragraph (2) thereof disallows a claim to the extent that the claim is for unmatured interest as of the date of the petition. Moreover, post-petition interest is expressly barred, including any portion of prepaid interest that represents an original discounting of the claim not earned on the date of the filing of the petition.
A literal interpretation of paragraph (2) would seemingly bar all post-petition interest. This, of course, is not the case. The statute merely recites the general rule pertaining to unmatured interest. The provision further tracks the principle that interest stops running from the date of the filing of a petition in bankruptcy. More definitively, it appertains as a rule of liquidation rather than a tenet of substantive law.
Implicitly, the rule is restricted to liquidation cases wherein the law disregards for purposes of liquidation only, interest accruing after the date of the filing of the petition in bankruptcy. By ample majority, case precedent has held that interest ceases after the inception of bankruptcy, nevertheless the obligation to pay interest is deemed revived and is reinstated where the bankrupt estate is solvent, or where the collateral is sufficient to meet the cost of principal and interest. Littleton v. Kincaid, 179 F.2d 848 (4th Cir. 1950); Sexton v. Dreyfus, 219 U.S. 339, 31 S. Ct. 256, 55 L. Ed. 244 (1910).
Thus, the rule is clearly not entrenched as an absolute, nor more pointedly does it draw into its restrictive parameters the rights of secured creditors. It has always been a fundamental principle of bankruptcy law that a lien when valid in bankruptcy shall not be impaired in the administration of a bankrupt estate. Oppenheimer v. Oldham, 178 F.2d 386 (5th Cir. 1949).
Prior to 1949, interest was permitted to accrue on delinquent taxes. This long standing precept was repudiated by the United States Supreme Court in the case of City of New York v. Saper, 336 U.S. 328, 69 S. Ct. 554, 93 L. Ed. 710 (1949). The thrust of the court's rationalization corradiated from the 1938 amendment to the Bankruptcy Act providing that tax claims (it is to be noted and stressed that the decision dealt with unsecured tax claims and did not address tax liens) were to be treated the same as other debts, except for a fourth priority in payment. Section 64(a) Bankruptcy Act.
The doctrine of Saper was extended to arrangements and reorganizations. In comity with the Saper rule, the United States Court of Appeals for the Second Circuit in Sword Line v. Industrial Commissioner of New York, 212 F.2d 865 (1954), cert. denied, 348 U.S. 830, 75 S. Ct. 53, 99 L. Ed. 654 (1954), barred efforts of the secured creditor to collect post-bankruptcy interest in the state courts after discharge or confirmation of an arrangement or plan.
The cited cases, however, were effectively overruled by the United States Supreme Court in Bruning v. U.S., 376 U.S. 358, 84 S. Ct. 906, 11 L. Ed. 2d 772 (1964), wherein the court held that an individual bankrupt remains personally liable for post-petition interest on tax claims notwithstanding the order of discharge and despite the fact that the interest is not collectible from the estate. Essentially, the court decreed that post-petition interest is recoverable from after acquired assets. The Bruning doctrine was recently adhered to in the case of In re Jaylaw Drug, Inc. v. United States Internal Revenue Service and Empire National Bank, 1 B.R. 512, 1979.
The language adopted by the Supreme Court in Bruning, supra at p. 361, 84 S.Ct. at p. 908, is illuminating:
*337 We find no indication in the wording or history of § 6873(a) (of the Internal Revenue Code of 1949) that the section was meant to limit the Government's right to continuing interest on an undischarged and unpaid tax liability. Nor is petitioner aided by the now-familiar principle that one main purpose of the Bankruptcy Act is to let the honest debtor begin his financial life anew. As the Court of Appeals noted, § 17 is not a compassionate section for debtors. Rather, it demonstrates congressional judgment that certain problems, e.g., those of financing government, override the value of giving the debtor a wholly fresh start. Congress clearly intended that personal liability for unpaid tax debts survive bankruptcy. The general humanitarian purpose of the Bankruptcy Act provides no reason to believe that Congress had a different intention with regard to personal liability for the interest on such debts. (Emphasis added).
A studied analysis of the Bruning decision followed by the Second Circuit Court of Appeals in Jaylaw, in tandem with the legislative history of Chapter 13, laying emphasis on the fact that said chapter was devised and promulgated as a vehicle for the voluntary payment of debts, gives reasonable impetus and opprobrium to the concept of extending the Bruning doctrine to Chapter 13 cases under the Code. This Court is persuaded that the evocative theme of Bruning elicits the corollary following: since post-petition interest is collectible in a non-liened tax claim a fortiori, such obligation explicitly obtains on a duly perfected and filed liened tax claim.
Notwithstanding the foregoing, an acute dichotomy of opinion is extant in a line of cases, bifurcating the treatment of consensual liens in contrast to liened tax claims. Some courts have drawn a distinction between consensual liens where a specific asset is voluntarily encumbered in contrast to taxes that have matured into liens. Nonliened tax claims are equated with liened tax claims, thereby devising grounds for disallowance of post-petition interest. See In the Matter of Cameron (S.D.Cal.1958), 166 F. Supp. 400, affd. sub nom., 271 F.2d 129 (9th Cir. 1959), where the court stated, "There is no justification for a distinction between ordinary taxes and taxes which are made subject to a lien".
In diametric polarity, most courts make no such distinction and support the concept that secured creditors are entitled to interest to the date of payment where the security is sufficient to cover both principal and interest. Oppenheimer v. Oldham, supra.
The diverse opinions expressed by the respective courts are apparently reconciled by legislative intent as expressed in the statutory purport of § 506(b), supra, and in the alternative by the impact of § 1325(a)(5)(B)(ii) of the Code. The codification of law embodied in subsection (b) of § 506 provides definitively and unequivocally that a creditor with an over-secured claim is entitled to any reasonable fees, costs or charges provided for under the agreement from which the claim arose. These addendum fees, costs and charges are inclusive of interest and are deemed secured claims to the extent that the value of the collateral exceeds the amount of the underlying claim.
Appositely and pursuant to the proviso of § 1325(a)(5)(B)(ii), unless the secured creditor accepts the plan, he retains the lien securing his allowed claim in addition to receiving value of not less than the amount of the allowed claim.
The above subsection mandates that a secured creditor receive under the plan "value as of the effective date of the plan" equal to the allowed amount of the claim. The import of the language underlined is construed as the present value as of the date of the confirmation inclusive of deferred cash payments payable over time in installments equal to the aggregate amount of the claim. See: 5 Collier on Bankruptcy, 15th Ed. (1979) ¶ 1325.01(2) at p. 1325-26, stating:
In order to implement § 1325(a)(5)(B)(ii) the court must capitalize deferred payments by converting the deferred payments proposed to be distributed under *338 the chapter 13 plan into an equivalent capital sum as of the effective date of the plan. Section 1325(a)(5)(B)(ii) cannot be faithfully implemented simply by comparing the sum total of all deferred payments proposed by the plan with the amount of the allowed secured claim. An appropriate discount factor must be arrived at by the court, so as to fairly discount value proposed to be given in the future on account of the allowed secured claim.
The simplest method of equating the present value of deferred future payments with the amount of the allowed secured claim is to propose interest payments over and above the face amount of the allowed secured claim . . . (Emphasis added)
Liens divide into three categories: judicial liens; security liens; and statutory liens. A lien is defined as a charge against or interest in property to secure payment of a debt or performance of an obligation. Tax liens are included in the definition of statutory liens.
Ratiocination seeking to differentiate between consensual liens and statutory liens by equating ordinary tax claims with liened tax claims is, in this Court's opinion, extreme reasoning. Moreover, altering the nature and scope of a valid lien premised upon vapid and tenuous distinctions contains vestiges of Draconian law palpably contra to the abundant case precedent adapted in the legislative objective contained in §§ 506 and 1325 of the Code. Thus, this Court dispositively finds that a tax lien has status equal to that of consensual or specific liens and where proceeds of the security subject to a tax lien is more than sufficient to pay principal and accrued interest, post-petition interest is deemed an integral part of the claim and is allowable.
At this juncture, the Court will allude to the evaluation facet of § 506(a). Debtors' petition reflects the residence fair market value at a scheduled value of $48,000 subject to a $28,000 mortgage. Of the remaining $20,000 equity, $15,000 is claimed as exempt, leaving $5,000 equity subject to the tax lien securing the IRS claim.
The ad valorem admission appearing in debtors' schedules is prima facie and binding. Constant therewith a formal valuation hearing is obviated.
The fourth segment of the issue at bar questions the validity of Rule 13-302, Rules of Bankruptcy Procedure, as relates to the late filing of a secured tax claim. In ancillary context, the time line by when secured creditors must file their claims is also examined.
Rule 13-302(e)(1) of the Rules of Bankruptcy Procedure provides in pertinent part:
(e) Time for Filing.
(1) Secured Claims. A secured claim, whether or not listed in the Chapter XIII Statement, must be filed before the conclusion of the first meeting of creditors in the Chapter XIII case unless the court, on application before the expiration of that time for and cause shown, shall grant a reasonable, fixed extension of time. Any claim not properly filed by the creditor within such time shall not be treated as a secured claim for purposes of voting and distribution in the Chapter XIII case. Notwithstanding the foregoing, the court may permit the later filing of a secured claim for the purpose of distribution by the debtor, the trustee, or a codebtor. (Emphasis added)
The above rule was amended in 1976 extending a creditor's time to file a proof of claim from the first meeting of creditors to the close of the first meeting of creditors in order to retain their secured position for purposes of voting and distribution.
It is axiomatic that the Rules of Bankruptcy Procedure remain applicable and relevant to cases filed under the Bankruptcy Code except in those instances where the rules are inconsistent or in conflict with the substantive provisions of the Code. 11 U.S.C. Title 4, § 405(d). In re Osborne, 1 C.B.C.2d 924 (S.D.Fla.1980).
In the instant case, IRS filed its proof of claim after the close of the meeting of *339 creditors. The meeting of creditors was closed on February 27, 1980, whereas IRS filed its proof of claim on March 4, 1980. Given these facts, the reach of Rule 13-302(e)(1) evolves as the key factor relative to whether IRS is to be treated as an unsecured creditor pursuant to the proviso of the rule.
Consonant with the reasoning following, this Court is persuaded that the constraint of Rule 13-302(e)(1) restricting secured creditors to file proofs of claim prior to the close of the meeting of creditors is inapt and inconsistent with the provisions of the Bankruptcy Code.
The policy underlying Rule 13-302(e)(1) as stated by the Advisory Committee is as follows:
Subdivision (e). Paragraph (1) of subdivision (e) requires generally that secured claims be filed on or before the first date set for the first creditors' meeting in the Chapter XIII case. Since the plan must be submitted to and accepted by creditors before it can be confirmed, an early determination of secured claims is essential to confirmation and the beginning of distribution to creditors under the plan.
. . .
See: Advisory Committee note, 15 Collier on Bankruptcy (14th Ed.) ¶ 13.302.01 at p. 13-302-6; In re Tatum, 1 BCD 1374 (M.D.Ga.1975).
Pursuant to the provisions of §§ 651 and 652 of the Bankruptcy Act, a Chapter XIII plan could not be confirmed unless all secured creditors dealt with by the plan accepted same. Accordingly, the determination of secured claims early in a Chapter XIII proceeding was essential to the Court's determination of whether a wage earner's plan should be confirmed. See: In re Tatum, supra. Under Chapter 13 of the Bankruptcy Code, acceptance by a secured creditor of the Chapter 13 plan is no longer an imperative or a condition precedent to confirmation of the plan. Therefore, the justification underlying the setting of a short bar date by when proofs of claim must be filed by holders of secured claims is not relevant in cases filed under Chapter 13 of the Bankruptcy Code.
A debtors' plan as it applies to secured creditors is governed by § 1325 providing that the plan shall be confirmed by the Court if any of the conditions following are met:
(1) the holder of the secured claim accepts the plan; or
(2) the debtor is to distribute under the plan the value as of the effective date of the plan to the holder of a secured claim property of a value that is not less than the allowed amount of the secured claim as determined under 11 U.S.C. § 506(a); or
(3) the debtor must surrender the property securing the claim to the secured creditor. H.R. 95-595 at 430, U.S.Code Cong. & Admin.News 1978, p. 5787.
Insofar as the need to file a proof of claim in a case commenced under the Bankruptcy Code is concerned, § 501 provides in relevant part:
(a) A creditor or an indenture trustee may file a proof of claim. An equity security holder may file a proof of interest.
(b) If a creditor does not timely file a proof of such creditor's claim, an entity that is liable to such creditor with the debtor, or that has secured such creditor, may file a proof of such claim.
(c) If a creditor does not timely file a proof of such creditor's claims, the debtor or the trustee may file a proof of such claim.
Although the legislative history indicates that § 501 is permissive only and requires the filing of a proof of claim if some purpose would be served by such filing (H.R. Rep. 95-595 at 351), the implicative context and thrust of § 501 places an onus upon the secured creditor to file a proof of claim in a Chapter 13 case in order to preserve and safeguard the secured status of its claim.
By way of specificity, if a secured creditor seeks to object to a confirmation of a Chapter 13 plan on the basis that the plan does not comply with the provisions of 11 U.S.C. § 1325(a)(5)(B)(ii), he must first file *340 a proof of claim and it then becomes incumbent upon the court to determine the secured status of the objecting creditor pursuant to the provisions of 11 U.S.C. § 506(a). See: H.R.Rep. 95-595 at 356.
Prior to any determination of the value of the secured creditor's collateral under § 506(a), the secured claim must first be allowed. In re Hotel Associates Inc., 3 B.R. 340, 6 BCD 145 (E.D.Pa.1980). The allowance of claims or interest is governed by § 502. Under the dictate of said section, a claim is deemed allowed only when a proof of claim is filed and no party in interest objects to the claim. The filing of a proof of claim is prima facie evidence of the claim's validity and amount. H.R.Rep. 95-595 at 352.
If the secured creditor does not file a proof of claim, the Court has no subject matter basis for determining the secured status of the objecting creditor. Should the secured creditor fail to file a proof of claim prior to the confirmation of the plan, then, and in that event, the provisions of the plan become absolute and binding upon the secured creditor, whether or not such creditor has objected to, has accepted, or has refused the plan. 11 U.S.C. § 1327; H.R.Rep. 95-595 at 430.
Concomitantly, should the debtor list a secured creditor's claim at a "cram down" value, objection to such value by the secured creditor is subject to initial demonstration that he has in fact an allowed secured claim. This can only be accomplished by the filing of a proof of claim. 11 U.S.C. § 502(a). Upon the creditor filing its claim, the burden shifts to the debtor or trustee or any party in interest to object to the value of the claim listed in the proof of claim to offset the prima facie connotation of the claim's validity and amount. In re Hotel Associates Inc., supra.
The Court's finding that Rule 13-302(e)(1) is inconsistent and inapposite to cases filed under Chapter 13 of the Bankruptcy Code engenders a void as to the appropriate time frame when a proof of claim must be filed by a secured creditor. This Court opines that a secured creditor is mandated to file a proof of claim prior to the confirmation hearing, or be bound by the terms of the plan. See: § 1327, supra.
In a Chapter XIII case under the Bankruptcy Act, the Court, at the first meeting of creditors following the debtors' examination, would tally the votes of creditors and then commence a confirmation hearing. In re William Musgrove, 4 B.R. 322 (1980). Thus, pursuant to the procedural course of a Chapter XIII under the Bankruptcy Act, the setting of a bar date in comport with Rule 13-302(e)(1), was rooted in a valid and integral requisite.
Under the Bankruptcy Code, however, the scheme of a Chapter 13 proceeding has been altered from the statutory course appertaining under the Bankruptcy Act; e.g., in place of a "first meeting of creditors" the Code speaks of a "meeting of creditors". 11 U.S.C. § 341(a). The judge is barred from presiding or attending a meeting of creditors. 11 U.S.C. § 341(c). It is only after the meeting of creditors is concluded that the Court holds a confirmation hearing, at which time the treatment of secured creditors under the Chapter 13 plan is measured against requirements of 11 U.S.C. § 506(a) and § 1325(a)(5). In re William Musgrove, supra.
Rule 13-213, Rules of Bankruptcy Procedure, gives supportive validation to the Court's conclusion. In connection therewith, this Court finds that said rule is consistent and compatible with the standards of confirmation prescribed by 11 U.S.C. § 1325, whereas Rule 13-302(e) is not.
In light of the foregoing, rigid adherence to the Rule 13-302(e)(1) bar date as it pertains to the filing of secured claims, patently unrelated to the date of the confirmation hearing, would result in a procedure that is not rationally related to the statutory thrust and purpose behind the need of a secured creditor to file a proof of claim.
Constant with the above, this Court concludes that a secured creditor file a proof of claim prior to the confirmation hearing in lieu of before the close of the meeting of creditors.
*341 Assuming arguendo that Rule 13-302(e)(1) is deemed consistent with Chapter 13 of the Bankruptcy Code, the rule nonetheless does not apply in the case at bar, by virtue of the fact that the tax lien held by the IRS is secured by an interest in real property consisting of the debtors' principal residence.
Under the provisions of the Bankruptcy Act, a claim secured by estates in real property were not claims for purposes of Chapter XIII and thus could not be dealt with by a wage earner's plan. See: §§ 606(1), (4), and 646(2). Since an estate in real property was not affected by a Chapter XIII plan, Rule 13-302(e)(1) did not apply to secured creditors whose claims were secured by real property. See: Advisory Committee Note, 15 Collier on Bankruptcy (14th Ed.) ¶ 13-302.01 at p. 13-302.7.
Section 1322(b)(2) of the Bankruptcy Code derives from § 646(2) of the Bankruptcy Act. It provides in relevant part:
(b) Subject to subsections (a) and (c) of this section, the plan may
. . . . .
(2) modify the rights of holders of secured claims other than a claim secured only by a security interest in real property that is the debtor's principal residence, or of holders of unsecured claims; . . (Emphasis added)
Explicitly, § 1322(b)(2) is not limited to real estate mortgages only, but rather deals with any security interest in the debtors' principal residence. See: 124 Cong.Rec.H. 11,106 (September 28, 1978).
Having resolved the question of value in consonance with the finding that the tax lien is secured by the debtors' principal residence makes Rule 13-302(e)(1) nonapplicable in the instant case even if it were to be assumed that the rule is consistent with the provisions of Chapter 13 of the Code.
The final segment of the issue addresses allowability of interest on secured claims.
11 U.S.C. § 1325(a)(5)(B) provides in relevant part:
(a) The court shall confirm a plan if
. . . . .
(5) with respect to each allowed secured claim provided for by the plan
. . . . .
(B)(i) the plan provides that the holder of such claim retain the lien securing such claim; and
(ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim; or
. . . . .
The courts have held that a plan complies with the requirements of 11 U.S.C. § 1325(a)(5)(B)(ii) if it provides that the secured creditor will receive the present value of his allowed claim which takes into account the discount of money to be received in the future. Where, as here, the secured creditor is to be paid in installments over time, it is entitled to a percentile interest factor, to protect the creditor from loss caused by its being paid over a period of time. See: In re Lum, 1 B.R. 186 (E.D. Tenn.1979); In re Ziegler, ___ B.R. ___, 1 CBC 2d 874 (S.D.Ohio 1980); In re Crockett, 3 B.R. 365, CCH ¶ 67,406 (N.D.Ill.1980).
Having established the tax claim of the IRS is a perfected secured claim to be paid in installments over a period of thirty-six (36) months, it follows the IRS is entitled to post-petition interest for such term on its secured claim.
With reference to determining the appropriate rate of interest on a secured claim, the courts have endorsed two methods of calculating such interest, viz.: (1) the current legal rate of interest allowable by state law, See: In re Crockett, supra; and (2) the rate of interest on tax liabilities fixed by 26 U.S.C. § 6621, See: In re Ziegler, supra.
The Court adopts the statutory implementation embodied in 26 U.S.C. § 6621 as compatible with a fair and reasonable value component of the IRS claim. In re Ziegler, supra.
Conclusion:
Premised upon the foregoing findings and precepts of law, expounded and by virtue *342 of the fact that the debtors' amended Chapter 13 plan does not: (1) provide that the IRS retains its lien securing the tax claim; or (2) provide a rate of interest to be paid on the secured claim during the payout period, the Court dispositively concludes that the amended plan does not comply with the legal requirements of 11 U.S.C. § 1325(a)(5)(B).
Accordingly, the conditional order of confirmation dated March 17, 1980, is hereby vacated without prejudice to the debtor filing a second amended plan in conformity with the dictate of this decision and the requirements of § 1325(a)(5)(B)(ii). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535279/ | 235 Pa. Super. 1 (1975)
Bobali Corporation
v.
Tamapa Company, Appellant.
Superior Court of Pennsylvania.
Argued December 5, 1974.
June 24, 1975.
*2 Before WATKINS, P.J., JACOBS, HOFFMAN, CERCONE, PRICE, and SPAETH, JJ. (VAN DER VOORT, J., absent).
James D. Crawford, with him Kimber E. Vought, Sanford M. Rosenbloom, and Schnader, Harrison, Segal & Lewis, for appellant.
*3 William D. Boswell, with him Arthur Berman, and Berman and Boswell, for appellee.
OPINION BY CERCONE, J., June 24, 1975:
This is an appeal by defendant, Tamapa Corporation, from a judgment entered in the Court of Common Pleas of Dauphin County. The case originated when the parties instituted an amicable action in assumpsit in order to resolve a controversy between them concerning the construction to be given a real estate instrument containing both an option to purchase at a specified price, and a first refusal option to purchase at an unspecified price, if, at some future time, it was offered by a third party. The court below entered judgment in favor of the plaintiff, Bobali Corporation, and against the defendant Tamapa Corporation. For the reasons that follow we affirm the lower court's judgment.
The material facts were stipulated by the parties and are therefore not at issue. On January 20, 1971, Bobali (formerly known as Gibson Boulevard, Inc.) and Tamapa entered into an Agreement of Sale whereby Tamapa agreed to purchase a certain tract of land from Bobali for $278,000. As part of the consideration for Tamapa entering into the Agreement of Sale, Bobali agreed to grant Tamapa an option to purchase an additional tract of land which was contiguous to the first tract. The exact terms and provisions of this option were contained in a separate Option Agreement of Sale (hereinafter Option Agreement) which was made a part of the Agreement of Sale. On April 13, 1971, settlement under the Agreement of Sale was consummated, and the previously referred to Option Agreement was executed. The Option Agreement provided Tamapa with an option to purchase the contiguous tract (hereinafter designated as the "premises") upon compliance with certain terms.[1] By letter *4 dated March 21, 1973, and in compliance with the Option Agreement, Bobali notified Tamapa that Certon Corporation had offered to purchase the premises for $393,487.50 (hereinafter the "third party offer"). In a letter dated April 12, 1973, Tamapa advised Bobali that, in accordance with the Option Agreement, it was exercising its fixed option to purchase the premises at the stated price[2] or if for any reason the fixed option had terminated or was not available to Tamapa, Tamapa was, in the alternative, exercising its right of first refusal, at the price of *5 the third party offer. By letter dated April 27, 1973, Bobali informed Tamapa that it was accepting Tamapa's exercise of its right of first refusal, but was rejecting Tamapa's exercise of the fixed option, contending that the right to exercise the fixed option terminated upon receipt of notice of the third party offer. Although Bobali agrees Tamapa is entitled to purchase the premises, there is a dispute between Bobali and Tamapa as to whether the fixed option price or the right of first refusal price is the operative purchase price.
In hopes of expeditiously resolving this dispute the parties agreed to institute an amicable action in assumpsit; and that Tamapa would deposit in escrow the difference between the fixed option price and the first refusal price (which is determined by the terms of the third party offer).
The question before us is one of interpretation. Tamapa contends that the Option Agreement provides that the fixed option price may be terminated only upon a bona fide sale of the optioned premises and, therefore, the mere bona fide third party offer [by Certon] to purchase the optioned premises did not preclude Tamapa from exercising its fixed option to purchase at the stated price. Bobali, on the other hand, contends that, under the language of the Option Agreement, upon the communication to Tamapa of a bona fide third party offer to purchase the optioned premises the fixed option price of Tamapa was superseded leaving Tamapa with only its right of first refusal. In short, the issue is whether the fixed option price or the price as determined by the third party offer controls the terms of the sale to Tamapa.
In construing the terms of a contract we are guided by well-defined and fundamental canons of construction. Our Supreme Court has adopted the following principles:
". . . `The cardinal rule in the interpretation of contracts is to ascertain the intention of the parties and to give effect to that intention if it can be done consistently *6 with legal principles.' (Citations omitted.) `Contracts must receive a reasonable interpretation, according to the intention of the parties at the time of executing them, if that intention can be ascertained from their language. (Citing cases.)'" Percy A. Brown & Co. v. Raub, 357 Pa. 271, 287 (1947).
Also see Unit Vending Corp. v. Lacas, 410 Pa. 614 (1963). Moreover, in ascertaining intent, effect must be given to all the provisions of the written contract. Robert F. Felte, Inc. v. White, 451 Pa. 137 (1973). "In a written contract the intent of the parties is the writing itself and when the words are clear and unambiguous the intent is to be determined only from the express language of the agreement." R.F. Felte, Inc. v. White, supra at 143. East Crossroads Center, Inc. v. Mellon-Stuart Co., 416 Pa. 229 (1965). A corollary rule is that "[t]he parties [have] the right to make their own contract, and it is not the function of this Court to rewrite it, or to give it a construction in conflict with the accepted and plain meaning of the language used." Hagarty v. Wm. Akers, Jr., Co., Inc., 342 Pa. 236, 239 (1941); R.F. Felte, Inc. v. White, supra.
We are in accord with the court below that the language in the Option Agreement, containing both the fixed price option and the right of first refusal (right of preemption), is plain and unambiguous, albeit imprecisely written.
The Option Agreement provided in paragraph 1 (see Footnote 1) that from April 13, 1971, Tamapa had two and one-half years in which it could at any time exercise its option to purchase the premises for a pre-determined fixed price. This option to purchase at a fixed price for a fixed period of time was, however, modified by the phrase "unless earlier terminated as hereinafter provided." (Paragraph 1 of Option Agreement.) The only reference in the Option Agreement to the words, "unless earlier terminated as hereinafter provided," is found in *7 paragraph 14 (see Footnote 1) which is characterized as the buyer's right of preemption, that is, right of first refusal. Essentially, the right of first refusal provides that Bobali could not sell or otherwise dispose of the premises without first giving notice to Tamapa of the terms of the proposed sale to a third party. Upon receipt of such notice Tamapa would then have 30 days to decide whether it was willing to "purchase the property being offered for sale at the same price and on the same terms and conditions as those on which the seller (Bobali) proposed to make the sale to the other party." (Paragraph 14(a), emphasis supplied.)
In attempting to ascertain the intent of the parties, the court below logically reasoned as follows:
"On the question of intent, what value would there be to the Seller (Bobali) in having this Option Agreement of Sale and particularly the right of first refusal or right of preemption contained in the Agreement in paragraph 14, as paragraph 14 is written, unless it was the definite intent of the parties that the right of preemption would supersede and terminate the fixed price option? Obviously, if the fixed price option was to be an absolute right during the period of time, there would have been no reason to put in paragraph 1 of the Option Agreement of Sale the language `unless earlier terminated as hereinafter provided.' (footnote omitted.)"[3]
We agree with this analysis and find it determinative on the paramount issue of the intent of the parties. Appellant takes exception to this analysis on the grounds that the fixed price option could only be terminated upon the bona fide sale of the premises to a third party, as opposed to the mere offer of the third party. We find this contention to be untenable for it unduly strains the construction of paragraph 14 which speaks not in terms of a completed sale, but rather of a "proposed" sale. Paragraph *8 14 (b) specifically provides, by elimination, the instances when the right of first refusal becomes superior to the fixed price option and terminates the Option Agreement prior to the expiration of the two and one-half year period, by stating the two instances when the Option Agreement will not terminate even though a third party offer has been tendered. The first instance would be where the buyer (Tamapa) fails to exercise its right of first refusal but for some reason the sale to the third party is not consummated. The other instance would be where Tamapa again fails to exercise its right of first refusal, but it is subsequently determined that the third party was not a bona fide purchaser. Paragraph 14(b) then states that, "otherwise [the right of first refusal] shall lapse and this Option Agreement shall terminate." (Emphasis supplied.) The word "otherwise" can only mean that in all other circumstances the Option Agreement terminates and with it, of course, the fixed price option.
We also deem it conclusive, with respect to the intent of the parties, as did the court below, that the right of first refusal provision (Paragraph 14) would be of no purpose or value unless it was the intent of the parties that the right of first refusal would supersede and terminate the fixed price option. Appellant argues, however, that the right of first refusal is simply a means whereby Bobali could dispose of the premises at a price lower than the fixed option price. In other words, appellant contends that if the value of the premises depreciated below the fixed price option then the right of first refusal clause provided a means by which Bobali could sell the premises at the reduced price during the option period. Under this interpretation the right of first refusal is viewed merely as a supplement to the fixed option as opposed to an alternative to it. In support of this proposition appellant cites the case of Texaco, Inc. v. Reichert, 91 Dauph. 391 *9 (1969), and cases cited therein.[3] Those cases are, however, clearly distinguishable from the instant case. In Texaco, Inc. v. Reichert, supra, there was additional language in the contract which specifically provided for continuing rights in the optionee. The other cases cited by appellant must also be rejected for the same reason; that is, they too involved the interpretation of an instrument which provided that the fixed price option was not limited or modified by the right of first refusal option. Furthermore, the cases relied upon by appellant involve situations where the optionee has either occupied or improved the property which is the subject of the option and, therefore, it would be unfair to require the optionee to meet a third party's offer which would naturally reflect the improvements on the premises made by the optionee himself. In the instant case, the premises were not occupied, used or improved by the appellant, but rather merely land contiguous to the property used by the appellant.
We also note that there are numerous cases which support Bobali's position that the fixed option price was modified or limited by the right of first refusal. See, e.g., Shell Oil Co., Inc. v. Blumberg, 154 F.2d 251 (5th Cir. 1946); Northwest Racing Ass'n v. Hunt, 20 Ill. App. 2d 393, 156 N.E.2d 285 (1959); Texaco, Inc. v. Rogow, 150 Conn. 401, 190 A.2d 48 (1963).[4]
In any event, it is obvious that dual option agreements (i.e., agreements containing both a fixed price option and a right of first refusal option) although often generally similar, are phrased differently and, therefore, a decision construing one agreement will not be controlling in a case involving another. See Shell Oil Company v. Prescott, *10 398 F.2d 592 (6th Cir. 1968); Texaco, Inc. v. Rogow, supra. Giving the language used in this Option Agreement its plain and natural meaning, we conclude that the fixed price option contained in paragraph 1 was modified or limited by the right of first refusal provision found in paragraph 14. Therefore, the fixed price option granted to appellant could only be effectively exercised during a two and one-half year period commencing from April 13, 1971; and then, practically speaking, only prior to receiving notice that Bobali was willing to accept a bona fide third party offer. Once Bobali notified appellant, prior to appellant exercising the fixed price option, of its desire to accept Certon's bona fide offer, the fixed price option was superseded and appellant was left only with its right of preemption, that is, the right of first refusal with the opportunity to either accept or refuse to purchase the premises under the terms contained in Certon's offer. Had appellant declined to purchase under the terms of Certon's offer, then both the fixed price option and the right of first refusal would have been effectively extinguished.
In conclusion then, while the Option Agreement is not skillfully drafted, and appellant's interpretation of it seems remotely plausible, we find appellee's construction to be more in harmony with the plain meaning of the language used.
Judgment affirmed.
NOTES
[1] "1. SELLER agrees to hold open the offer contained herein to sell and convey the premises to BUYER for a period of two (2) years and six (6) months from April 13, 1971, unless earlier terminated as hereinafter provided. If BUYER shall fail to accept said offer to buy the premises within the time limited and in the manner prescribed herein, neither party shall thereafter have any rights or obligations under this Agreement.
* * *
"14. BUYER shall at all times during the option term of this Agreement have the following right of preemption:
"(a) SELLER shall not sell nor otherwise dispose of the premises or any part thereof without first notifying BUYER in writing of the proposed sale, and setting forth the name of the purchaser, the terms and conditions of the proposed sale, and giving BUYER thirty (30) days' option from the date of receipt of such notice by BUYER within which to notify SELLER of BUYER's desire to purchase the property being offered for sale at the same price and on the same terms and conditions as those on which SELLER proposed to make said sale to said other party.
"(b) if BUYER fails to exercise this right of first refusal and the sale to the third party does not take place or if the sale is to other than a bona fide purchaser, this right of first refusal shall remain in full force; otherwise it shall lapse and this Option Agreement shall terminate."
[2] The Option Agreement provided that if the fixed option was properly exercised then the purchase price would be as follows:
"2. (a) The purchase price for the premises which SELLER agrees to accept and BUYER agrees to pay is SIXTEEN THOUSAND FIVE HUNDRED THIRTY FIVE DOLLARS ($16,535.00) per acre (or a total of $260,252.63 if BUYER exercises its option for the entire premises) which shall be paid by BUYER to SELLER as follows:"
[3] See, e.g., Butler v. Richardson, 74 R.I. 344, 60 A.2d 718 (1948); Sinclair Refining Co. v. Clay, 102 F. Supp. 732 (N.D. Ohio 1951), aff'd. 194 F.2d 532 (6th Cir. 1952). See generally 8 A.L.R. 2d 604 (1949), and cases discussed therein.
[4] Our attention has not been directed to any Pennsylvania appellate court decision that has discussed the issue before us. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535246/ | 27 Md. App. 95 (1975)
340 A.2d 767
GENERAL MOTORS CORPORATION
v.
ROY J. PISKOR.
No. 397, September Term, 1974.
Court of Special Appeals of Maryland.
Decided June 25, 1975.
Argued on December 2, 1974.
Reargued on April 8, 1975.
The cause was argued and reargued before ORTH, C.J., and MORTON and THOMPSON, JJ.
Argued and reargued by Francis B. Burch, Jr., with whom *98 were Joseph G. Finnerty, Jr., and Edward S. Digges, Jr., on the brief, for appellant.
Argued and reargued by Leo A. Hughes, Jr., with whom were Ronald L. Lapides, Robert W. Fox and Steen, Hughes & Seigel on the brief, for appellee.
ORTH, C.J., delivered the opinion of the Court.
On 30 April 1974 a jury in the Superior Court of Baltimore City decided that General Motors Corporation had violated the personal security of Roy J. Piskor by the commission of three tortious acts. It found that General Motors had slandered Piskor, had assaulted him, and had falsely imprisoned him. It awarded Piskor compensatory damages of $1000 for the slander, $300 for the assault, and $200 for the false imprisonment. It assessed punitive damages of $25,000. From judgment on verdict absolute entered on 8 May, General Motors appealed.[1]
*99 DEFAMATION AND CONSTITUTIONAL PRIVILEGE
When the appeal was originally briefed and argued no reference was made to recent decisions of the Supreme Court of the United States which brought defamation within the scope of the First Amendment guarantee of freedom of speech and press, applicable to the states through the Fourteenth Amendment.[2] Because we were concerned with the impact of those decisions on the prevailing law of defamation in Maryland, we ordered the appeal and the appeal in the case of Sindorf v. Jacron Sales Co., Inc., which had also been briefed and argued with no reference to the Supreme Court defamation cases, reargued in the light of those decisions. The case which was the prime reason for our action was Gertz v. Welch, Inc., 418 U.S. 323, decided 25 June 1974. Gertz was one of the progeny of New York Times Co. v. Sullivan, 376 U.S. 254, decided 9 March 1964. It was New York Times and its numerous offspring decided before Gertz which measured state law, both civil and criminal, with respect to libel, slander and privacy, by constitutional standards, impressing on it the First Amendment guarantees of free speech and press. They did so in such a way as to grant immunity from punishment by way of damages, imprisonment, fine or otherwise to publishers of statements concerning the official conduct of public officials and concerning matters of public interest related to public figures. See A.S. Abell Co. v. Barnes, supra, at 59-60. Gertz dealt with the defamation of a private individual as *100 distinguished from a public official or public figure, and apparently its holdings drastically affected state law in that area. We decided Sindorf, using it to analyze Gertz. Sindorf v. Jacron Sales Co., Inc., 27 Md. App. 53. In our reading of Gertz we saw three paths which could be followed in applying its holdings: (1) they applied to all defamations; (2) they applied only to defamations involving matters of public or general interest, thus excluding purely private defamations; and (3) they applied only to defamations in which the media were the means of the defamatory injury. We avoided the first path because we believed that it was not constitutionally required that we follow it. Its route led to a scuttling of much of the prevailing defamation law of Maryland as to matters which were of no concern to the First Amendment freedoms of speech and press. We chose the second path and rejected the third for reasons fully set out in Sindorf. Following the second path, we were led to these conclusions:
(1) The New York Times standard defining the level of constitutional protection appropriate to the context of a public person was reaffirmed. Public officials and public figures may recover for injury to reputation only on clear and convincing proof that the defamatory falsehood was made with "actual malice", that is, with knowledge of its falsity or with reckless disregard for the truth.
(2) When a defamatory statement, whether published by the media or not, concerns a matter of public or general interest:
a) except for imposing liability without fault, a State may define the appropriate standard of liability for injury to a private individual by a defamatory falsehood, or in other words, short of strict liability, the New York Times standard is not constitutionally required with respect to defamatory falsehood injurious to a private individual;
*101 b) a State may not permit recovery of presumed or punitive damages when liability is not based on proof of knowledge of falsity or reckless disregard for the truth, that is, presumed or punitive damages may be recovered only upon a showing of "actual malice" in the constitutional sense.
(3) A purely private defamation when a private individual is injured by a defamatory falsehood which is not a matter of public or general interest is not within the ambit of the First Amendment and the relevant State law prevails, the Gertz holdings not being impressed thereon.
FACTS
What happened between Piskor and General Motors which led to the action reviewed by us is gleaned from the evidence adduced at the trial. We give a compendium of it.
At the General Motors automobile assembly plant in Baltimore, members of its security detail manned a checkpoint at the change of a shift to assure that only authorized personnel entered the plant and that employees leaving the plant were not stealing their employer's goods. There were stairs leading from the work floor to a landing or "platform" and stairs from the landing to the ingress and egress doors of the plant. The checkpoint was on the landing, which was immediately adjacent to the security detail's office, referred to as the "guard office." The stairs leading from the work floor to the landing were near the Hard Trim assembly line, and also close by the clocks which were "punched" by employees to register the time they arrived for and departed from work. The Console Assembly line was located at a point more distant from the stairs than the Hard Trim line. It was on the Console line that vehicle components generally described as the "dashboard" were stored and assembled. These components included relatively small but *102 valuable parts such as radios, tape players and tachometers. Security was a constant problem on this line, and there had been a number of thefts of such items.
Piskor, 19 years of age and unmarried, had been employed by General Motors for about a year and a half. He worked on the Hard Trim line on the shift which ended at 4:00 p.m. William Bullock worked the same shift on the Console line. He installed radios and had a number of them stacked at his job site. On 30 December 1969, about 3:40 p.m., Piskor went from the Hard Trim line to the Console line and talked for a few minutes with Bullock about a ride home. About 5 minutes before the shift ended Piskor returned to the Console line and again conversed with Bullock for a short time. When the whistle blew for the shift change, Piskor undertook to leave the plant.
Colby West was the foreman of the Console line. West did not know Piskor personally, but had seen him with Bullock several times in the past. West saw Piskor talk to Bullock each time on 30 December. The first time Piskor was dressed in "regular work clothes", but the second time he had on an "Army fatigue jacket", a loose fitting outer garment with a zipper closure from bottom to the collar. It had two large "kangaroo pockets" in front. The jacket was zipped up to the neck. Piskor talked to Bullock for a few minutes and left the area. When he left he had his hands in the front pockets of the jacket and he "seemed to be in a stooped or hunched fashion with his hands pushed forward in the front of his jacket." This aroused West's suspicion.[3] He telephoned the security guard's office and talked to Claude L. Nicely, the sergeant in charge of the detail at the checkpoint. He told *103 Nicely what he had observed and described Piskor. Nicely stationed his detail on the landing as he usually did at the end of a shift.
To leave the plant, Piskor had to go back through the Hard Trim line area and then to the time clock for his card. He punched out and started up the stairs to the landing by the guard office.
Nicely saw a man answering Piskor's description approach the time clock. "His jacket was still buttoned up. He was still carrying himself in a hunched position and had both hands in the pockets. He removed his right hand and got the time card, punched it out, and put it on the outside of the rack and put his hand back in his field jacket. His posture was more or less hunched over like. A field jacket is a rather bulky garment...." On some points, the evidence as to what followed is conflicting.
According to Piskor, as he approached the landing he "heard this guy yelling and pointing." The man he heard was West. He was standing by the guard office. There was a guard at each railing at the top of the first flight of stairs. Piskor continued up the stairs to the landing.[4] He was "grabbed" by a guard. "I just pulled my arm away from him and I shook him off and when I did that the other guard grabbed my other arm and I just, you know, twisted around and started running away. And then I hear them yelling behind me.... You are walking pretty fast because there's people everywhere.... The fastest walk you can think." Neither the guards nor Piskor said anything when the guards grabbed him. Piskor started up the second flight of stairs leading from the landing to the exit. "Then I got a couple steps up and I hear all these people yelling a lot of commotion going on behind me and then there was guards standing at the top of them steps.... Approximately three or four. There was a lot of them.... Then they more or less sealed off that part of the stairway where I could go up, and *104 once you start up you just can't walk bodily across. You have to jump over the railing, then I stopped and turned around and I wanted to see what everybody was yelling at and all, so then this guy [a guard] calls me down and says he wants to talk to me." Piskor went down "I had no other choice" and screamed, "Are you calling me a thief, you mother fucker?"[5] The guard did not explain why he wanted to talk to Piskor. "[H]e just told me he wanted me to go into that room in the guard shack." Piskor "did a lot of things" in response "Yelled, screamed.... Why do you want to talk to me, what are you holding me here for, I'm supposed to be going home like everybody else, and why, you know, what do you want from me, things like of that nature." He was told they wanted his name and badge number. He tried not to go into the room. He asked if he was "going to get paid for all this" but the guard "wasn't saying anything." Piskor said, "[W]ell, I'm leaving." He tried to walk away. "[A]s soon as I turned around there was about, a number three or four guards around, just had the whole area blocked like a football huddle and I was in the middle." He was assisted into the room, "more or less," by a number of guards "and, you know, like nudging me through the door or shoving me, I guess what you call nudging or shoving." In the office he was asked to open his coat. He refused "Because they wanted me to do it. They demanded all these things." He would not give his name or his badge number. He asked for his committeeman who represented employees in labor-management matters. Because of the shift change the first shift committeeman had left. It took about 15 minutes to get the second shift committeeman. He and Piskor conversed. After further discussion, "I opened my coat, I unbuckled my pants and I showed them everything they wanted to see." He had nothing in his possession belonging to General Motors. He left. The entire incident consumed 25 to 30 minutes.
General Motors' version was given primarily through the *105 testimony of Nicely. According to Nicely, when Piskor reached the landing, Nicely said to him, "[S]tep into the office a minute, I want to see you." Nicely explained: "I wanted to see the identification card to see who he was, and primarily find out if he was this individual that was loitering in the console area prior to the quitting whistle. As soon as I asked him, I said I'd like to see you in the office a minute. He said with a great deal of profanity, are you calling me a thief. I said I want you to come in the office a minute, I want to talk to you. And there is nothing unusual about approaching an employee as he is leaving the plant. We do it dozens of times daily on all shifts. A lot of times we have a message for an employee to call his wife or tell John Brown to pick his mother up at his wife's, or pick his wife up at her mother's on his way home. Out of about three or four thousand employees, we don't know every John Brown, so we get a description of who he looks like. I may ask three or four people to step into the office a minute and what is your name. If it is the right one, I give him the message. Sometimes a foreman wants an individual back on the job to work overtime. I get the message and stop people to give them the message, but this man immediately accused me of calling him a thief, which I in no way eluded to him being a thief. I wanted to see the identification card and get his name.... I said no. I still want to see you in the office. I'm not calling you a thief. Give me your name and clock number. Who do you work for? And he said I'm on my own time, I don't have to go in the office. I said just come in and let me find out who you are. At this time I didn't know the gentleman was Piskor, and he said well, I'm on my own time. I better get paid for this. I said you certainly will be paid for every minute you're here. With that assurance, he came into the office."[6] When Piskor was assured he would get paid for his time, he voluntarily went into the office. Neither Nicely nor any other employee accused Piskor of doing anything wrong.
*106 Nicely asserted that none of the guards ever touched Piskor. "We have no reason to put our hands on him. In fact, we are not allowed to place our hands in a restraining manner on any employee. That is just not allowed by General Motors."
Nicely said that Piskor did not take his hands out of his pockets "the whole time" until just before he opened his jacket. Nicely denied that Piskor started up the second flight of stairs and that there were guards at the top of those stairs. "The normal position is where you have them down on the platform. We don't have any guards up there." There were four guards in all to check "packages and things." At a shift change about 2500 people leave and about 2500 come in.
It was stipulated that the guards involved in the incident were employees of General Motors and were acting within the scope of their employment. It was agreed that what authority they enjoyed derived only from their employment. There was no evidence that anyone concerned was motivated by any interest other than the performance of his duties as he understood them.
Bullock testified that while the incident involving Piskor and the guards was going on, the movement of departing employees "started to slow down for the simple reason anytime they usually have a man in the guard house they figure, well, they got him for stealing something or assume that he stolen something."
APPLICATION OF THE GERTZ HOLDINGS
It is obvious that Piskor was not a public official. It is patent that he was not a public figure on the basis that he had achieved such pervasive fame or notoriety that he became a public figure for all purposes and in all contexts. It is clear that he did not assume special prominence in the resolution of a public question and did not become a public figure on the basis that he voluntarily injected himself or was drawn into a particular public controversy. The nature and extent of his participation in the incident giving rise to the defamation here do not serve to fit him into the public *107 figure classification. See Gertz, 418 U.S. at 351-352. He was, in the contemplation of the law of defamation, a private individual. Therefore, the Gertz holdings would apply to the defamation of Piskor only if it involved a matter of public or general interest or concern.[7]
It seems that the term "public or general interest" is from Warren and Brandeis, The Right to Privacy, 4 Harv.L.Rev. 193 (1890), characterized by Mr. Justice White in Cox Broadcasting Corporation v. Cohn, 95 S. Ct. 1029, 1042, as the "root article" on privacy. See Rosenbloom v. Metromedia, Inc., supra, at 32, n. 2. Warren and Brandeis used it, at 214, in spelling out the first limitation on the right to privacy: "The right to privacy does not prohibit any publication of matter which is of public or general interest." They explained the term, at 214-216:
"In determining the scope of this rule, aid would be afforded by the analogy, in the law of libel and slander, of cases which deal with the qualified privilege of comment and criticism on matters of public and general interest. There are of course difficulties in applying such a rule; but they are inherent in the subject matter, and are certainly no greater than those which exist in many other branches of the law, for instance, in that large class of cases in which the reasonableness or unreasonableness of an act is made the test of liability. The design of the law must be to protect those persons with whose affairs the community has no legitimate concern, from being dragged into an undesirable and undesired publicity and to protect all persons, whatsoever; their position or station, from having matters which they may properly prefer to keep private, made public against their will. It is the unwarranted invasion of individual privacy which is reprehended, and to be, *108 so far as possible, prevented. The distinction, however, noted in the above statement is obvious and fundamental. There are persons who may reasonably claim as a right, protection from the notoriety entailed by being made the victims of journalistic enterprise. There are others who, in varying degrees, have renounced the right to live their lives screened from public observation. Matters which men of the first class may justly contend, concern themselves alone, may in those of the second be the subject of legitimate interest to their fellow-citizens. Peculiarities of manner and person, which in the ordinary individual should be free from comment, may acquire a public importance, if found in a candidate for political office. Some further discrimination is necessary, therefore, than to class facts or deeds as public or private according to a standard to be applied to the fact or deed per se. To publish of a modest and retiring individual that he suffers from an impediment in his speech or that he cannot spell correctly, is an unwarranted, if not an unexampled, infringement of his rights, while to state and comment on the same characteristics found in a would-be congressman could not be regarded as beyond the pale of propriety.
The general object in view is to protect the privacy of private life, and to whatever degree and in whatever connection a man's life has ceased to be private, before the publication under consideration has been made, to that extent the protection is to be withdrawn. Since, then, the propriety of publishing the very same facts may depend wholly upon the person concerning whom they are published, no fixed formula can be used to prohibit obnoxious publications. Any rule of liability adopted must have in it an elasticity which shall take account of the varying circumstances of each case, a necessity which unfortunately renders such a *109 doctrine not only more difficult of application, but also to a certain extent uncertain in its operation and easily rendered abortive. Besides, it is only the more flagrant breaches of decency and propriety that could in practice be reached, and it is not perhaps desirable even to attempt to repress everything which the nicest taste and keenest sense of the respect due to private life would condemn.
In general, then, the matters of which the publication should be repressed may be described as those which concern the private life, habits, acts, and relations of an individual, and have no legitimate connection with his fitness for a public office which he seeks or for which he is suggested, or for any public or quasi public position which he seeks or for which he is suggested, and have no legitimate relation to or bearing upon any act done by him in a public or quasi public capacity. The foregoing is not designed as a wholly accurate or exhaustive definition, since that which must ultimately in a vast number of cases become a question of individual judgment and opinion is incapable of such definition; but it is an attempt to indicate broadly the class of matters referred to. Some things all men alike are entitled to keep from popular curiosity, whether in public life or not, while others are only private because the persons concerned have not assumed a position which makes their doings legitimate matters of public investigation." (footnotes omitted)
The Supreme Court has not attempted to give a precise definition to "public or general interest." Even in Rosenbloom when a plurality of the Court thought the time had come "forthrightly to announce that the determinant whether the First Amendment applies to state libel actions is whether the utterance involved concerns an issue of public or general concern", it expressly left "the delineation of the reach of that term to *110 future cases."[8] 403 U.S. at 44-45. It observed, however, at 42, that constitutional protection was not intended to be limited to matters bearing broadly on issues of responsible government and quoted from Curtis Publishing Co. v. Butts, 388 U.S. 130, 147 (opinion of Harlan, J.): "[T]he Founders ... felt that a free press would advance `truth, science, morality, and arts in general' as well as responsible government." It noted that comments in other cases reiterate this judgment that the First Amendment extends to myriad matters of public interest. Id. It gave examples of what was of public or general interest the opening of a new play linked to an actual incident (Time, Inc. v. Hill, 385 U.S. 374, 388); an alleged fix of a college football game (Curtis Publishing Co. v. Butts, supra); federal efforts to enforce a court decree ordering the enrollment of a Negro student in the University of Mississippi (Associated Press v. Walker, 388 U.S. 130). Under Cox Broadcasting Corp. v. Cohn, 95 S. Ct. 1029, information appearing on a public record is a matter of public interest. Rosenbloom declared the public interest both in seeing that the criminal law is adequately enforced and in assuring that the law is not used unconstitutionally to suppress free expression. 403 U.S. at 43. It made plain that public or general interest was not dependent upon the status of the participant. "If a matter is a subject of general or public interest, it cannot suddenly become less so merely because a private individual is involved, or because in some sense the individual did not `voluntarily' choose to become involved. The public's primary interest is in the event; the public focus is on the conduct of the participant and the content, effect and significance of the conduct, not the participant's prior anonymity or notoriety." Id. Although the Rosenbloom plurality refused to delineate the precise reach of public concern, it obviously envisioned a broad scope, albeit not an all encompassing *111 one. "We are not to be understood as implying that no area of a person's activities falls outside the area of public or general interest ... We also intimate no view on the extent of constitutional protection, if any, for purely commercial communications made in the course of business." Id., at 44, n. 12.[9]
Like the Supreme Court we shall not attempt to delineate with specificity the reach of public or general interest, leaving it to be determined on a case by case basis. We are in accord with Warren and Brandeis that no fixed formula can be used to prohibit obnoxious publications; there must be an elasticity which will take account of the varying circumstances of each case. We also share their view that what is of public or general interest must be broadly considered, and we shall liberally construe the term short of simply equating it with newsworthiness. The end result will be that it is purely private defamation, having no legitimate connection with public or general interest, which is not encompassed by the constitutional privilege of the First Amendment. By so broadly considering what is public or general interest or concern,[10] and excepting, in practical application, only what is purely private, self-censorship on the part of the media is substantially alleviated and a vigorous and uninhibited press effectively preserved. Mr. Justice Goldberg, concurring in New York Times, opined that in most cases there would be little difficulty in distinguishing defamatory speech relating to private conduct from that relating to official conduct. 376 U.S. 301, n. 4. Recognizing that there would be a gray area, he explained, id.:
*112 "The difficulties of applying a public-private standard are, however, certainly of a different genre from those attending the differentiation between a malicious and nonmalicious state of mind. If the constitutional standard is to be shaped by a concept of malice, the speaker takes the risk not only that the jury will inaccurately determine his state of mind but also that the jury will fail properly to apply the constitutional standard set by the elusive concept of malice."
See Restatement (Second) of Torts, § 581B (Tent. Draft No. 20, 1974), comment e.
Here, as in Sindorf, the defamation is by an employer imputing that an employee was a thief. We thought it so plain in Sindorf that the defamation was purely private as not to warrant extended discussion. We likewise think that the imputation that Piskor was a thief was not a matter of public or general interest in the constitutional sense. It is true that the Court in Cox Broadcasting Corp. v. Cohn, 95 S. Ct. 1029, 1045, said: "The commission of crime, prosecutions resulting from it, and judicial proceedings arising from the prosecutions, however, are without question events of legitimate concern to the public and consequently fall within the responsibility of the press to report the operations of government." But this was said in the frame of reference of public law enforcement and not with respect to a bald accusation of an isolated criminal act made by one private person against another private person. See Rosenbloom, 403 U.S. at 43. On our independent constitutional appraisal, we find that the defamation of Piskor by General Motors was purely private.[11]
*113 THE MARYLAND LAW OF SLANDER
As the alleged defamation of Piskor by General Motors was purely private, it is not within the ambit of the First Amendment and the Maryland law prevails.
Defamation by Act
Defamation, made up of the twin torts of libel and slander, is an invasion of the right of personal security in reputation and good name. W. Prosser. Law of Torts § 111, at 737, (4th ed., 1971).[12] To create liability for defamation there must be an unprivileged publication of false and defamatory matter of another which is actionable irrespective of special harm, or, if not so actionable, is the legal cause of special harm to the other. Restatement of Torts § 558 (1938). In general, if the matter published is written, the tort is libel, and if it is oral, the tort is slander. The tort alleged by Piskor, however, does not even move along the course, uncertain as it may be, usually followed by defamation. It departs from that tortious path because the defamatory matter is neither written nor oral. It consisted of actions or conduct.
The Court of Appeals of Maryland has recognized that conduct may defame the reputation and good name of a person. In M & S Furniture v. DeBartolo Corp., 249 Md. 540, pointing out that in American Stores Co. v. Byrd, 229 Md. 5, spoken words combined with conduct were held to be actionable, it said, at 544: "It would seem therefor that actions or conduct as well as spoken or printed words could be actionable per se or per quod." In Montgomery Ward & *114 Co. v. Cliser, 267 Md. 406, 418, the Court said: "Publication may be conveyed by way of gestures as well [as the overhearing by others of spoken accusations]." The few foreign cases in point are in accord. See Annot., 71 A.L.R. 2d 808.
Libel or Slander
Left unresolved in this jurisdiction is whether defamation by actions or conduct, unaccompanied by words, constitutes libel or slander. M & S Furniture notes, at 544: "There may be some question as to whether conduct should be classified as libel or slander but as it makes no difference in this case we will assume, as the parties seem to have done, that it constitutes libel if it was defamatory at all." In American Stores, the defamation was accepted as slander. Other states are divided on the point, and some have determined the issue by legislative enactment. Annot., 71 A.L.R. 2d 808. As it took form in the seventeenth century the distinction between libel and slander was one between written and oral words. But methods of communication unknown at the old common law, such as talking pictures, television, and radio, have compounded the problem, leaving the court struggling with the distinction. See W. Prosser, Law of Torts § 112, at 752-754 (4th ed., 1971).
The second amended declaration, under which the cause here went to trial, alleged in the third count that General Motors by its conduct implied that Piskor had committed a crime and that "this slander by implication" had been observed by third persons. The tort, having been so declared by Piskor to be slander, was so accepted by the court and the parties below, who proceeded on that assumption. It was on the basis that the tort was slander that Piskor presented his case, General Motors defended the action, and the court charged the jury.[13] In arguing on appeal, both Piskor and General Motors accept that the questioned conduct, if defamatory at all, was slander.
*115 It was patent that if the tort alleged to have been committed by General Motors was libel and not slander, Piskor could not prevail under the third count declaring it was slander. Therefore, we must determine whether the conduct of General Motors, assuming it was defamatory, constituted libel or slander.
Restatement of Torts § 568 (1938) distinguishes between libel and slander:
"(1) Libel consists of the publication of defamatory matter by written or printed words, by its embodiment in physical form, or by any other form of communication which has the potentially harmful qualities characteristic of written or printed words.
(2) Slander consists of the publication of defamatory matter by spoken words, transitory gestures, or by any form of communication other than those stated in Subsection (1).
(3) The area of dissemination, the deliberate and premeditated character of its publication, and the persistence of the defamatory conduct are factors to be considered in determining whether a publication is a libel rather than a slander."[14]
Comment d to the section at 163 discusses when a publication is libel and when it is slander:
"The publication of defamatory matter by written or printed words constitutes a libel. Common methods of publishing a libel are by newspapers, books, magazines, letters, circulars and petitions. The writing or printing may be made upon paper, parchment, metal, wood, stone or any other substance and may be accomplished by the use of pencil, pen, chalk, or a mechanical device *116 such as the printing press, typewriter, or mimeographing machine. Defamatory pictures, caricatures, statues and effigies are libels because the defamatory publication is embodied in physical form. There are, however, other methods of publishing a libel. The wide area of dissemination, the fact that a record of the publication is made with some substantial degree of permanence, and the deliberation and premeditation of the defamer are important factors for the court to consider in determining whether a particular communication is to be treated as a libel rather than a slander. The publication of defamatory matter may be made by conduct which by reason of its persistence it may be more appropriate to treat as a libel than a slander. On the other hand, the use of a mere transitory gesture commonly understood as a substitute for spoken words such as a nod of the head, a wave of the hand, or a sign of the fingers is a slander rather than a libel."
Illustrations are given. A has libeled B when he procures two men to "shadow" B and they follow him from one public place to another until the "shadowing" becomes notorious in the community. A has slandered C when he makes a gesture with his fingers in the presence of B which indicates that C has the "evil eye", a characterization which is highly disparaging in the community. The conclusion manifest in comment g to the section at 164-165 is that whether the defamatory matter is libel or slander will depend upon the circumstances of each particular case. The factors in subsection (3) do not have to concur in order that a publication of a defamatory communication be regarded as libel rather than slander. On the other hand, the existence of all of such factors does not necessarily mean that the communication is to be deemed a libel.
Considering the relatively narrow area of dissemination of the conduct of General Motors, the circumstances of its publication, its lack of a substantial degree of permanence, *117 and the degree of deliberation and premeditation of the guards in the actions they took, we believe that the conduct, if defamatory, was slander, not libel. That is, the actions here were not an analogue of libel, but were analogous to slander.
The Per Se Per Quod Confusion
A publication, whether it be spoken or written words, or conduct or actions, may be defamatory upon its face or it may carry a defamatory meaning only by reason of extrinsic circumstances.[15] This distinction is not the same as that between defamation which is damaging of itself, that is, actionable per se, and defamation which requires proof of special damage, that is, actionable per quod. There is sound authority that a libel, whether it be libelous on its face or libelous only upon proof of extrinsic circumstances, requires no proof of special damage. Once it is established that the libelous publication is defamatory, damage is "presumed" as a matter of substantive law.[16]
On the other hand, slander, in general, is not actionable unless actual damage is proved. There were three specific exceptions early grafted upon this general rule imputations (1) of crime, (2) of a loathsome disease, and (3) affecting the defamed in his business, trade, profession, office, or calling. A fourth was added by statutes and *118 decisions the imputation of unchastity to a woman. Courts Art. §§ 3-501 and 3-502. For these four kinds of slander, no proof of any actual harm to reputation or any other damage is required for the recovery of either nominal or substantial damages. That is, proof of the defamation itself is considered to establish the existence of some damages, and the jury are permitted, without other evidence, to estimate their amount. Prosser § 112, at 754; Harper and James § 5.9, at 374; Restatement of Torts § 570 (1938); Restatement (Second) of Torts § 570 (Tent. Draft No. 20, 1974).
The origin of the terms per se and per quod is discussed in Murnaghan, From Figment to Fiction to Philosophy the Requirement of Proof of Damages in Libel Actions, 22 Cath. U.L. Rev. 1, 13 (1972):
"In common law pleading, the right to recover general damages meant that the portion of the writ employed for institution of the suit devoted to specification of damage, and introduced by the words `per quod,' became inapplicable whenever damages were presumed. To fill the void, and to signify that something had not been overlooked, the draftsmen in such cases would simply insert `per se' where the allegations of damages, headed by the phrase `per quod' otherwise would be expected.
Since allegations of special damages were still required for those instances of oral defamation which did not fall in one of the four categories, such slander was referred to as slander `per quod'; slander in any of the four categories was expectably then called slander `per se'."
As courts began to distinguish between written defamation which was libelous on its face and that which was libelous only upon proof of extrinsic circumstances, some referred to the former as libel per se and to the latter as libel per quod. Thus, in the context of libel, per quod came to mean defamation requiring proof of extrinsic circumstances. See *119 Prosser § 112 at 762-763. As a result, per quod acquired two meanings in the law of defamation: (1) when used in the frame of reference of slander it meant proof of special damages was required; (2) when used in the frame of reference of libel it meant that proof of extrinsic circumstances was required. With respect to libel the former meaning has been engrafted on the latter with the result that libel per quod requires proof of both extrinsic circumstances and special damages. This is not so with regard to slander. When the terms per se or per quod were used to describe a slanderous publication, "there was no connection whatever with the question of whether the insulting words were clearly defamatory. If words had an innocent or ambiguous meaning, and so required allegations of extrinsic facts to show that a defamatory connotation was intended and understood, once sufficient allegations of that nature were made the slander was `per se' if within one of the four categories, `per quod' if it was not. On the slander side of the fence, this has remained established, and reasonably free from confusion up to the present." Murnaghan, supra, at 14. With regard to proof of special damages, it is immaterial whether the publication is slanderous on its face or requires proof of extrinsic circumstances. The special meaning which has evolved from the use of the term per quod in the context of libel has no validity in the context of slander. Therefore, where the defamatory matter is slanderous, and is within one of the four special categories, it is actionable without proof of special damage even if proof of extrinsic circumstances is required.[17] Dean Prosser commented caustically on the *120 courts giving two meanings of libel or slander per se in an article in 46 Virginia Law Review 839 (1960), entitled Libel Per Quod. He said, at 848-849:
"These words have been used more or less indiscriminately to signify both publications which in themselves convey a defamatory meaning, without resort to any extraneous facts, and those which in themselves are necessarily damaging, or are conclusively presumed to be so, as in the case of the fourth exceptional kinds of slander. When the one meaning becomes entangled with the other, the result is that libel which is not defamatory upon its face is held to be not damaging in itself, and so is treated like slander. Such confusion there undoubtedly has been, and no doubt occasional imcompetence too, since our revered courts of ultimate conjecture have no gift of infallibility, and in this maze anyone may be forgiven for losing his way. But it will not do to say that this is the sole explanation of the avalanche of decisions in so many jurisdictions. It might have been expected that somewhere along the line even the most bewildered and incompetent court would have found able counsel to set it right."
He, however, added to the confusion. It appeared to him that the Restatement of Torts was out of date. He argued that the large majority of states had accepted the doctrine of libel per quod that required proof of special damages when the defamatory meaning of the libel was not apparent on its face. He thought, at 849-850, that if § 569 of the Restatement were revised in accordance with the "present prevailing American law", it might read:
"(1) One who publishes defamatory matter is subject to liability without proof of special harm or loss of reputation if the defamation is
(a) Libel whose defamatory meaning is apparent from the publication itself without reference to extrinsic facts, or
*121 (b) Libel or slander which imputes to another
(i) A criminal offense, as stated in § 571
(ii) A loathsome disease, as stated in § 572
(iii) Matter incompatible with his business, trade, profession or office, as stated in § 573, or
(iv) Unchastity on the part of a woman, as stated in § 574
(2) One who publishes any other libel or slander is subject to liability only upon proof of special harm, as stated in § 575."
Prosser counted Maryland[18] as among those who followed "the present prevailing American Law", accepted, according to him, "by the overwhelming majority of our courts." Id., at 844. Prosser's view was adopted in the Restatement (Second) of Torts § 569 (Tent. Draft No. 11, 1965) and so appeared also in Tent. Draft No. 12 (1966). Laurance H. Eldredge, Adviser and former Revising Reporter on Torts for the American Law Institute, took issue with Prosser in The Spurious Rule of Libel Per Quod, 79 Harv.L.R. 733 (1966).[19] He opined that this time "Homer nodded". He claimed that § 569 of the Restatement of Torts which declared that all libel claims are actionable without proof of special damages, represented the prevailing view of courts in the United States and should not be altered. He made an analysis of the cases in the 24 jurisdictions cited by Prosser and classified them. As for the Maryland cases, he classified Stannard v. Wilcox & Gibbs Sewing Mach. Co., 118 Md. 151 *122 and Heath v. Hughes, 233 Md. 458, as "Cases Not Involving Extrinsic Facts, in Which Plaintiff Pleaded a Nondefamatory (Construed to be Non-defamatory) Malicious Falsehood Without Alleging Special Damages, and Court Dismissed Action With Statement That Where Words Are `Not Libelous Per Se', `Special Damages' Must be Averred." He classified Bowie v. Evening News, 148 Md. 569, Foley v. Hoffman, 188 Md. 273, and Walker v. D'Alesandro, 212 Md. 163, as "Cases Not Involving Extrinsic Facts, in Which Plaintiff Pleaded a Defamatory-on-Its-Face (Construed To Be Such) Malicious Falsehood, Without Specifically Alleging Special Damages, and the Court Held Complaint Sufficient With Dictum That Where the Words Are Not `Libelous Per Se', Special Damages Must Be Averred." Prosser answered in More Libel Per Quod, 79 Harv.L.R. 1629 (1966).
Tent. Draft No. 20 (1974) of the Restatement (Second) of Torts went full circle.[20] Its § 569 returned to the position as it enunciated in § 569 of the Restatement of Torts (1938). Comment c, at 56, of Tent. Draft No. 20 adds:
"Some courts have taken the position that a libellous publication is not actionable per se if its defamatory meaning is not apparent without reference to extrinsic facts. This minority rule, which would require proof of special harm if the libel is not found to be actionable per se, is not approved. One reason offered for its acceptance was that the defendant might not himself have known of the extrinsic facts and would therefore be held liable although innocent. This argument will be eliminated if the Supreme Court holds that liability for innocent defamation is unconstitutional."[21]
*123 The Judgment on the Tort of Slander
Sufficiency of the Evidence
We have discussed the confusion arising with reference to per se and per quod because General Motors falls into the trap. It makes a two-pronged attack on the sufficiency of the evidence, contending (1) that Piskor failed to prove a defamatory meaning and (2) that even if the actions of the guards were defamatory, Piskor failed to prove an "innuendo" and failed to plead or prove special damages.[22]
It is a question of law for the court to determine whether a publication is capable of bearing a defamatory meaning and a question of fact for the jury to determine whether it was in fact defamatory, that is, whether it was so understood. 1 F. Harper and F. James, The Law of Torts § 5.29 at 463 (1954). We do not believe the court was wrong in determining that the actions of the guards were capable of bearing a defamatory meaning. And under the circumstances, where there was a serious theft problem at the plant demanding stringent security, we find that there was no error in submitting to the jury the issue whether those actions were in fact defamatory. There was legally sufficient evidence to support the jury's finding that the actions of General Motors' guards amounted to an accusation of theft.[23]
*124 The failure to prove actual damages, part of the second contention, is based upon a misunderstanding of slander per se and slander per quod. Whatever the rule may be as to libel, it is clear that a slander within one of the four categories does not lose its per se character because proof of extrinsic circumstances is necessary. Here, as the defamation was slander per se, no proof of special damages was required.
That part of the second contention going to the failure to prove an innuendo is apparently bottomed on an assertion that the actions of the guards were not defamatory on their face and required proof of extrinsic circumstances to show a slanderous meaning. We find there was legally sufficient evidence to establish an imputation of criminal activity on the part of Piskor. Piskor was accosted by the guards on the stair landing where employees were checked daily for possible thievery. In American Stores v. Byrd, 229 Md. at 13, the Court of Appeals emphasized the importance of the circumstances surrounding an alleged slander:
"It may well be that the words `did you get [or pick up] the $117 that was on the counter' do not in and of themselves carry an imputation of having stolen the money. But there is no requirement that the defamatory words must embody an outright accusation of the commission of a crime, for `[i]n cases of slander, words take their actionable character from the sense in which they appear to have been used, and that in which they are most likely to be understood by those who hear them.' Garrett v. Dickerson, 19 Md. 418, 447 (1863). And if the slanderous words used are such as in ordinary `lay conversation' will impute, or be understood to impute guilt, that is sufficient to make them actionable per se. Blumhardt v. Rohr, 70 Md. 328, *125 17 A. 266 (1889). Cf. Pollitt v. Brush-Moore, Etc., Inc., 214 Md. 570, 575, 136 A.2d 573 (1957)."
General Motors, citing M & S Furniture v. DeBartolo Corp., supra, suggests that the conduct of its guards could not have been slanderous per se (correctly, actionable on its face) because their actions were susceptible of more than one meaning, and indeed there was evidence that there were several innocent reasons why a guard would stop a departing employee. The question as to the sufficiency of the evidence, however, is before us in the frame of reference of a motion for a directed verdict made by General Motors. See note 1, supra. Its motion made at the close of the evidence offered by Piskor was, of course, withdrawn when it offered evidence. Maryland Rule 522, § b. When the motion was reoffered at the close of all the evidence, the trial judge reserved his decision thereon. This constituted a denial of the motion, there being no judgment n.o.v. rendered for the moving party. Rule 522, § c. Therefore, in reviewing the judge's action on the motion, we must assume the truth of all credible evidence tending to sustain the contentions of Piskor, as well as all credible inferences of fact reasonably and fairly deducible therefrom. Trionfo v. R.J. Hellman, Inc., 250 Md. 12, 15; Buchanan v. Galliher, 11 Md. App. 83, 87-88. Upon the evidence being submitted to the jury, it was their function to resolve all conflicts therein. Thus, we are bound by Piskor's version of the facts, and under his version, in the light of the constant checking for thievery, the actions of the guards in blocking his exit, in grabbing him, in yelling at him, in surrounding him and nudging and shoving him into the guardhouse where he was kept for almost half an hour, manifestly conveyed on their face that Piskor was thought to be a thief. On this evidence innocent motives on the part of the guards were eliminated. M & S Furniture, which concerned the curious doctrine of libel per quod, emphasized the absence of "peculiar circumstances which would give the conduct of the landlord the particular meaning attributed to it by the tenant...." 249 Md. at 545. The Court concluded that "even considering the surrounding *126 circumstances ... the conduct of the landlord ... was susceptible of more than one meaning and for that reason could not be considered actionable per se." That was not the case here.[24]
In any event, even if the actions of the guards were not deemed in and of themselves to convey a defamatory meaning, we believe that the evidence was legally sufficient to show extrinsic circumstances which supplied a slanderous imputation. General Motors argues that Bullock's assumption that Piskor was detained for suspected thievery, as set out supra in our recitation of the facts, was based on his knowledge of extrinsic facts, i.e., Piskor's presence at the Console line before the shift change. Even accepting this as correct, ample evidence of these extrinsic facts was produced at trial, especially on General Motors' cross-examination of Piskor. Publication of the slander by the acts of the guards to a third person, Bullock, and his understanding of the defamatory meaning because of his knowledge of extrinsic facts was sufficient, in and of itself, to sustain the jury's verdict. See Geraghty v. Suburban Trust, 238 Md. 197, 202.
Privilege
General Motors claims that even if the conduct of its employees were slanderous per se, their actions were privileged and that, as a matter of law, the privilege was not abused. They do not refer to the constitutional privilege under the First Amendment but to a qualified or conditional privilege under the common law. A qualified or conditional privilege, as distinguished from an absolute privilege, arises when a person acts to protect his own legitimate self-interest. For example, when his property has been stolen, an individual enjoys a qualified privilege when making "a reasonable effort to recover stolen property or to that end to discover and prosecute the thief...." W. Prosser, Torts § 115 at 786 (4th ed., 1971). This self-interest privilege with regard to stolen property has been recognized *127 in Maryland. Bavington v. Robinson, 124 Md. 85. In this State, however, a qualified privilege does not arise unless the communicating party has an interest in or duty with regard to the subject matter of the communication and the recipient has a corresponding duty or interest. Simon v. Robinson, 221 Md. 200, 206. This requirement of duty or interest in the recipient of the defamation has been expressed by several other authorities in a slightly different manner. According to Harper and James, communications made by an owner to protect or recover his property are privileged if "made to persons reasonably calculated to assist the owner in obtaining the return of the property or to prevent further losses...." 1 F. Harper and F. James, The Law of Torts § 5.26, at 443, 444 (1956). The Restatement of Torts § 594 (1938), entitled "Protection of the Publisher's Interest", defines the privilege as follows:
"An occasion is conditionally privileged when the circumstances induce a correct or reasonable belief that
(a) Facts exist which affect a sufficiently important interest of the publisher, and
(b) the recipient's knowledge of the defamatory matter will be of service in the lawful protection of the interest."
In the instant case, in order to find qualified privilege, we must determine whether the recipients of the slander by act, who were all employees of General Motors, had an interest in or duty with respect to the subject matter of the defamation, that is, possible thievery by Piskor. There is ample and uncontradicted evidence in the record that a serious theft problem existed at the plant and that the employees knew of the problem.[25] As employees of General Motors they had an interest in the property of their employer and a legal duty to report all thefts and to "assist [General Motors] in obtaining the return of the property or *128 to prevent further losses...." Harper and James, supra. Comment h to Restatement § 594 specifically states that "[u]nder the rule stated in this Section, an owner of property may communicate his reasonable belief that it is in danger of theft or harm to his employee or a police officer since such persons have a legal duty to assist him in the protection of his property interests."
It is settled law in Maryland that communications arising out of the employer-employee relationship enjoy a qualified privilege. Hanrahan v. Kelly, 269 Md. 21, 35; Stevenson v. Baltimore Baseball Club, 250 Md. 482, 486. There is some uncertainty, however, as to the basis for this privilege. The Court of Appeals in Hanrahan was unsure whether to classify the privilege as "arising from duty (legal or moral), common interest in the subject matter of the communication, or as a sui generis privilege." Id. The cases indicate that the basis for the privilege depends upon the particular circumstances of the communication. In the instant case, there was a qualified privilege based on the legitimate self interest of the employer-communicator to protect his property and the corresponding duty of the employee-recipient to assist in that protection.[26]
*129 A conditional privilege may be lost if abused. It is abused if the defamation was marked by malice. Malice in this context, is "a reckless disregard of the truth, the use of unnecessarily abusive language, or other circumstances which support a conclusion that the defendant acted in an ill-tempered manner or was motivated by ill will." Stevenson v. Baltimore Baseball Club, supra, at 487. In determining an abuse of privilege, all relevant circumstances are admissible. Orrison v. Vance, 262 Md. 285, 295.
Harper, Privileged Defamation, 22 Va.L.Rev. 642, 646 (1936) defined the functions of judge and jury with respect to conditional privilege:
"The question whether the occasion is privileged is one for the judge and not for the jury and on this issue the burden of proof is upon the defendant. Once the occasion is ruled by the judge to be privileged, the question whether it was abused by the defendant is one for the jury, subject only to the usual censorial power of the judge [where there is no evidence of malice] and the burden on the issue is upon the plaintiff."
Simon v. Robinson, supra, at 205; Jump v. Barnes, 139 Md. 101, 111-112.
The issue of a qualified privilege was twice raised below. General Motors moved for a partial summary judgment in its favor on the slander count. Alleging that there was no genuine dispute as to any material fact, it gave as grounds that the slander was privileged and that the qualified privilege was not abused. It submitted a comprehensive memorandum of law in support of the motion. The motion was denied. The propriety of the denial is not presented on appeal, but we see no error. We said in Vanhook v. Merchants Mutual Insurance Company, 22 Md. App. 22, 25:
"Maryland Rule 610 governs summary judgment *130 procedures. It has been said repeatedly that the procedure is not a substitute for a trial, but a means by which the court may determine, summarily, whether a trial is necessary. The Rule has been discussed and applied in a multitude of cases. We shall refer later to a few of them.
It is clear that in ruling on a motion for summary judgment the court does not decide disputed facts, but decides whether any real dispute as to material facts exists. Shatzer v. Kenilworth Warehouses, 261 Md. 88, 274 A.2d 95 (1971), Brown v. Suburban Cadillac, Inc., 260 Md. 251, 272 A.2d 42 (1971). To grant such a motion the court must determine that `the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine dispute as to any material fact and that the moving party is entitled to a judgment as a matter of law.' Rule 610 d 1. In ruling on a motion for summary judgment, as we said in Knisley v. Keller, 11 Md. App. 269, 273 A.2d 624 (1971) at 272-273:
`The function of the judge is much the same as that he performs at the close of all the evidence in a jury trial when motions for directed verdict or requests for peremptory instructions require him to determine whether an issue requires resolution by a jury, or is to be decided by the court as a matter of law.'"
It is plain that here there existed a real dispute as to material facts, particularly as to what the guards and Piskor did and did not do, and the grant of a summary judgment would have been improper.
The matter of qualified privilege was also given as a ground for the motion for a directed verdict. This motion as submitted by General Motors at the close of all the evidence included as a ground therefor that there was no legally sufficient evidence that if the guards slandered Piskor, the communication was not privileged. The motion was *131 supplemented orally when submitted at the trial at the close of all the evidence: "[E]ven if slander by word or by conduct were found to be present in this case there is, as a matter of law, a qualified privilege attached to the communication or acts of General Motors' employees, and that the evidence is clear, there just is no, even a scintilla of evidence any such privilege was abused to obviate its attaching to this situation." As we have indicated, ruling on the motion was reserved, and this constituted a denial of the motion, there being no judgment n.o.v. granted in favor of the moving party. General Motors urges on appeal that the trial court erred in denying the motion for a directed verdict because it proved the existence of a qualified privilege and Piskor failed to show evidence of abuse or malice.
We have indicated our belief that the evidence was sufficient for the court to find the existence of a qualified privilege. We do not agree, however, that the evidence was not sufficient in law for the jury to determine whether the privilege was abused. We think it was properly for the jury to determine, in the circumstances shown here, whether the guards acted with malice. Therefore, the court below did not err in denying the motion for a directed verdict.
General Motors urges that there was no basis for submission of the slander issue to the jury because there was "no slander per se", no innuendo was proved, and no special damage was proved. We have determined that slander per se was established, that even if it were necessary to prove innuendo, there was legally sufficient evidence to do so, and that it was not necessary to prove special damages. The correct course, therefore, was for the trial judge to submit the slander count to the jury with appropriate instructions which included the matter of qualified privilege and the abuse thereof. The charge made no reference to qualified privilege or to the abuse of it, but this is not ground for reversal because there was no objection below to the omission. Maryland Rule 554, §§ d and e. General Motors submitted requests for written instructions. There was only one instruction expressly dealing with slander. It requested the judge to charge:
*132 "You are instructed that in order to consider any recovery by the plaintiff on the basis of a slander, you must find from a preponderance of the believable evidence that an agent of the defendant made statements publicly about the plaintiff which were false and which subjected the plaintiff to public scorn, hatred, contempt or ridicule. In addition, the plaintiff must prove that an agent of the defendant made such public statements about the plaintiff with malicious intentions toward him."
The disposition of the written requests for instructions is not reflected in the record before us. In the charge as given the judge told the jury that "[c]alling someone a thief constitutes the tort of slander", and explained, as we have set out, that the slander may be by act rather than words. But he did not touch on qualified privilege to slander or on loss of that privilege due to malice. General Motors objected to the court giving any charge as to slander "because of lack of proof." As to the charge rendered, it made an objection with regard to those parts discussing damages, the implication that the evidence was sufficient for the jury to find slander per se, and to "the failure of the Court to require the trier of fact also expressly [to] find that the conduct of the defendant, with regard to defamatory conduct was malicious." It made no challenge to the omission to charge as to privilege. General Motors footnotes in its brief:
"It should be noted that Appellant proffered requests for instructions to the jury setting forth the required findings of fact in cases involving qualified privilege. The lower court declined to grant those instructions. While it is the Appellant's intention that the issues under Count III should have been withdrawn from the jury, it is abundantly clear that, if the Appellee had offered proof tending to show an abuse of the privilege, the *133 jury should have been told of those essential elements of Appellee's case."
We find no proffered requests for instructions or objections which would present the qualified privilege issue sufficiently to preserve the point for appeal as required by Rule 554. In any event, the question of qualified privilege is presented to us on appeal in the context of the denial of the motion for a directed verdict and not with respect to error in the jury charge.
As far as sufficiency of the evidence and abuse of a qualified privilege are concerned, the judgment as to slander must stand.
ASSAULT AND FALSE IMPRISONMENT
Sufficiency of the Evidence
As in the slander judgment, the sufficiency of the evidence is before us in the frame of reference of the denial of the motion for a directed verdict made by General Motors, and we look at the evidence in the light most favorable to Piskor. So viewed it is plain that the evidence was sufficient in law for the jury to find that the employees of General Motors assaulted Piskor and deprived him of his liberty without his assent and without legal justification. See Safeway Stores, Inc. v. Barrack, 210 Md. 168, 173.
Privilege
General Motors suggests that "even if there were legally sufficient evidence from which the jury could find that a technical assault and false imprisonment took place, the conduct of [its] employees was qualifiedly privileged under § 120A of Restatement (Second) Torts, which pronouncement has been adopted in substance in Maryland by the enactment of Article 27, § 551A (c), Maryland Code Annotated."
Restatement § 120A, entitled "Temporary Detention for Investigation", defines the privilege thus:
"One who reasonably believes that another has *134 tortiously taken a chattel upon his premises, or has failed to make due cash payment for a chattel purchased or services rendered there, is privileged, without arresting the other, to detain him on the premises for the time necessary for a reasonable investigation of the facts."
Section 120A is not a restatement of the common law privilege. In Great Atl. & Pac. Tea Co. v. Paul, 256 Md. 643, 654, the Court of Appeals emphasized that "probable cause is not a defense to an action for false imprisonment but legal justification is" and that probable cause could only be considered "in mitigation of punitive damages."[27] At 656, the Court outlined the common law position with regard to a property owner's detention of a suspected thief:
"Any property owner, including a storekeeper, has a common law privilege to detain against his will any person he believes has tortiously taken his property. This privilege can be exercised only to prevent theft or to recapture property, and does not extend to detention for the purpose of punishment. This common law right is exercised at the shopkeeper's peril, however, and if the person detained does not unlawfully have any of the arrester's property in his possession, the arrester is liable for false imprisonment. McCrory Stores v. Satchell, 148 Md. 279, 286, 129 A. 348 (1925); Allen v. London & South Western Ry. Co., L.R. 6 Q.B. 65 [1870]."
Article 27, § 551A (c) (1971 Repl. Vol.) provides:
"Civil liability for detention or arrest. A merchant or an agent or employee of the merchant who detains or causes the arrest of any person shall not be held civilly liable for detention, slander, malicious prosecution, false imprisonment, or false *135 arrest of the person detained or arrested, whether the detention or arrest takes place by the merchant or by his agent or employee, if in detaining or in causing the arrest of the person, the merchant or the agent or employee of the merchant had at the time of the detention or arrest probable cause to believe that the person committed the crime of shoplifting as defined in this section.
General Motors claims that by enacting § 551A the Legislature has changed the common law to create a qualified privilege for all property owners who have "probable cause to believe" that an individual has stolen their property. Piskor disagrees, arguing that § 551A only applies to a "merchant" who has probable cause to believe that an individual has "committed the crime of shoplifting." Piskor emphasizes that the "statute is in derogation of the common law, and therefore must be `strictly construed, and it is not to be presumed that the legislature intended * * * to make any alteration in the common law other than what was specified and plainly pronounced.' Gleaton v. State, 235 Md. 271, 277, 201 A.2d 353 (1964)."
General Motors cites to dicta in several Court of Appeals decisions and to the legislative history of § 551A (c) to support its position. In Paul, supra, A & P was sued for a false imprisonment arising out of a suspected shoplifting incident. A & P asked for a jury instruction embodying § 120A. The lower court's refusal to give such an instruction was upheld on appeal. After noting, at 656, that Art. 27, § 551A (c) "substantially embodied the rule of Restatement (Second) of Torts Sec. 120A (1965)", the Court based its decision on the prior history of § 551A (c). In 1967 Clark's Park v. Hranicka, 246 Md. 178, held that § 551A (c) was void because of a titling defect. The Court refused, at 657, to re-enact judicially the unconstitutional provision:
"The decision in Hranicka left intact the other provisions of 551A but necessarily restored the older rule of law as to civil liability. After this holding the Legislature did not re-enact subsection *136 (c) with proper titling, but after debating the respective rights of merchants and shoppers took no action except to repeal the void subsection altogether by Chapter 197 of the Acts of 1968. In view of this resolution by the Legislature we do not believe we should remake the law in this area, even if we were inclined to do so.
As it now stands in this state arrest or detention without legal authority, with or without probable cause, will render the arresting person liable for such damages `as the jury may consider actual compensation for the unlawful invasion of his [the plaintiff's] rights and the injury to his person and feelings.'"
Within four months of the Paul decision the Legislature re-enacted § 551A (c). Acts 1970, ch. 739. Since that provision was in effect when the suspected shoplifting situation occurred in Montgomery Ward v. Cliser, 267 Md. 406, probable cause was a defense in that case. When discussing the issue of punitive damages, the Court opined, at 421:
"It may well be that Code (1957, 1971 Repl. Vol.) Art. 27, § 551A has added a new dimension to the tort of false imprisonment in requiring that want of probable cause be established. Since malice may be implied from want of probable cause, ..., it would now seem possible to recover punitive damages in a false arrest case without proof of actual malice."
We take none of this as an indication that the Court of Appeals thought that § 551A applied to all false imprisonment cases. We have not the slightest doubt that the statute applies only to shoplifting, and when the false imprisonment or the other specified torts arise from that crime. We so held in Kimbrough v. Giant Food, Inc., 26 Md. App. 640, 339 A.2d 688. We said, at 644: "Article 27, § 551A (c), by its express terms, changed the common law so that the existence of `probable cause' for an arrest or detention with respect to the crime of shoplifting relieved a merchant *137 from civil liability when false arrest or imprisonment was claimed ... In the case of false arrest and imprisonment ... a merchant is relieved from civil liability only if the crime causing the arrest or detention is shoplifting as that crime is defined in the Act." See Washington County Kennel Club, Inc. v. Edge, 216 So. 2d 512 (Fla. App. 1968), cert. den. 225 So. 2d 522 (1969) which construing a comparable statute is in accord with our view.
The crime causing the detention of Piskor was clearly not shoplifting within the contemplation of the statute. Therefore the privilege created by § 551A did not apply to General Motors.[28] General Motors' assertions that the evidence was not sufficient to establish false imprisonment and assault and that, in any event, the false imprisonment and assault were privileged, provide no grounds for reversal of the judgments.
PUNITIVE DAMAGES
General Motors claims that there was no legally sufficient evidence to support an award of punitive damages, and concludes: "The trial court should have granted [General Motors's] motion for a directed verdict with regard to that issue."
General Motors points out that it is the well settled law of Maryland that punitive or exemplary damages may be awarded only upon proof of actual malice or its legal equivalent. It cites B. & O.R.R. Co. v. Boyd, 63 Md. 325 to show that this was the law as early as 1885 and refers to Seigman v. Equitable Trust Company, 267 Md. 309, Drug Fair v. Smith, 263 Md. 341, and Associates Discount Corporation v. Hillary, 262 Md. 570 to show that this is the law today. But as was the case in Newton v. Spence, 20 Md. App. 126, "[t]his argument, however, overlooks the exceptional nature of an action for defamation per se in *138 Maryland where the established rule is that when words are actionable per se and are uttered without privilege or justification, punitive damages are recoverable without proof of actual malice." At 140.[29] We have held that the defamation here was slander per se and that the motion for a directed verdict on the ground of qualified privilege was not improperly denied because even though a qualified privilege arose, whether it was abused and therefore lost was a jury question in the circumstances. No objection was made for failure to instruct the jury as to privilege, and the point of privilege in the context of the jury charge was not preserved for appeal. Thus, as the case was tried, the jury was free to award punitive damages with respect to the slander count.
The jury awarded Piskor only one amount as punitive damages. This was according to the teaching of Montgomery Ward v. Cliser, supra, at 424-425, which held that when damages arise out of an episode which was one continuous occurrence, they may not be duplicated for the same tortious activity. In other words, a person may not be punished more than once for the same wilful, wanton and malicious conduct. That is a jury may not pyramid the claims arising under separate torts into a multiple recovery of punitive damages on the basis of an episode that was one continuous occurrence. Here the jury could properly award punitive damages under its finding that General Motors slandered Piskor, the defamation being slander per se. General Motors does not claim that the award for punitive damages imposed multiple punishments on it.[30] Its contention goes only to the *139 sufficiency of the evidence to show malice. The award of punitive damages must stand.
Judgments affirmed; costs to be paid by appellant.
NOTES
[1] Piskor instituted the action by filing a declaration on 28 December 1970 against General Motors, Kirk L. McGonizal and Guard Nicely. The declaration was amended upon petition and order on 17 December 1971, so that the names of the two natural defendants read William T. McGonigle and Claude L. Nicely. On 15 October 1973 the case came on for trial, and the declaration was again amended in open court by agreement of counsel. Evidence was adduced and the case went to the jury. On 17 October a juror was withdrawn and the jury discharged because they could not agree on a verdict.
On 29 October General Motors moved that the second amended declaration not be received. The motion was denied on 9 April 1974. The declaration as secondly amended alleged assault in the first count, false imprisonment in the second count, and slander in the third count. On 18 April General Motors pleaded the general issue as to each count and also entered a special plea that its actions were qualifiedly privileged as to each of counts two and three. On 23 April Piskor dismissed the case against McGonigle and Nicely without prejudice to his rights.
The case went to trial on 29 April. General Motors' motion for a directed verdict was reserved at the close of evidence offered by Piskor and was also reserved when reoffered at the close of all the evidence. Maryland Rule 552 c. The case was submitted to the jury on 30 April on issues stated. The jury were asked whether they found that Piskor was 1) assaulted, 2) falsely imprisoned, 3) slandered. As to each in which the answer was "yes", they were asked in what amount they found compensatory damages. In the event the answer was "yes" to any one or more, they were asked in what amount they assessed punitive or exemplary damages. As we have set out, the jury found that Piskor had been assaulted, falsely imprisoned, and slandered, and awarded damages as indicated. General Motors' motion for judgment n.o.v., or in the alternative for a new trial, was denied on 8 May, and judgment on verdict absolute was entered the same day. General Motors noted an appeal therefrom on 15 May.
[2] "Congress shall make no law ... abridging the freedom of speech, or of the press...." Amendment I, Constitution of the United States.
It was observed in A.S. Abell Co. v. Barnes, 258 Md. 56, footnote 1 at 59:
"Of course it had long been firmly established that the freedoms secured by the first amendment to the Constitution of the United States against abridgment by the United States are similarly secured to all persons by the fourteenth amendment against abridgment by a state. See Stromberg v. State of California, 283 U.S. 359, 368-369 (1931). But defamation had generally been considered to be outside the scope of the first amendment. See, for example, Beauharnais v. State of Illinois, 343 U.S. 250 (1952). This appeared to be accepted even by advocates of the `absolutist' interpretation of the amendment. See Meiklejohn, The First Amendment is an Absolute, 1961 Sup. Ct. Rev. 245, 258...."
[3] At the trial West was asked to demonstrate to the jury what he was describing. He said: "My pockets aren't that far to the front. Okay. He, as he walked away he may have been stooped something like this with his hands pushed tightly to the bottom to make his coat look like it was sticking out from his stomach, and Roy is kind of a thin fellow. Anyway, anyhow, the coat was a little big, so that's what I observed."
Bullock, called by Piskor, testified with reference to West: "It was a natural thing for him to start watching anybody walking around my operation because at that time a lot of radios and tapes were being missed in the plant, so naturally just assumed that this is my assumption that they figured the man had something on him."
[4] Piskor explained: "[I]t was like New Years and like everybody wanted to go home. It was the last day of the holiday and we weren't exactly walking, it was more or less like a herd of people coming out of there, and pretty fast walk or step."
[5] This, with some reluctance, was admitted by Piskor on cross-examination.
[6] Nicely said that he had authority for assuring Piskor he would be paid. "It's General Motors' policy if an employee all the time he's in on company business he will be paid for it."
[7] The Supreme Court has used the terms "public or general interest" and "public or general concern" synonymously. See Rosenbloom v. Metromedia, Inc., 403 U.S. 29, 44. We so consider them.
[8] The failure to delineate the reach of "public or general interest" was noticed by Marshall, J., with whom Stewart, J. joined, in a dissenting opinion: "My brother BRENNAN does not try to provide guidelines or standards by which courts are to decide the scope of public concern." 403 U.S. at 79.
[9] That Gertz found unacceptable the extension of the New York Times test proposed by Rosenbloom because of a belief that it would abridge a legitimate state interest to enforce a legal remedy for defamatory falsehood injurious to the reputation of a private individual, 418 U.S. at 345-346, does not affect the concept of "public or general interest." In concluding in Sindorf that the Gertz holdings did not apply to a purely private defamation, we determined that a public or general concern was a necessary aspect of Gertz's basic holdings.
[10] The terms "public or general interest" and "public or general concern" have the same meaning. See footnote 7, supra.
[11] "The question as to whether the subject of a communication is a matter of public or general interest is an issue of law, to be determined by the Court. It is also a question of constitutional law, subject to review by the United States Supreme Court." Restatement (Second) of Torts § 581B (Tent. Draft No. 20, 1974) comment f.
[12] Prosser confesses that there is a great deal of the law of defamation which makes no sense. "It contains anomalies and absurdities of which no legal writer ever has had a kind word, and it is a curious compound of a strict liability imposed upon innocent defendants, as rigid and extreme as anything found in the law, with a blind and almost perverse refusal to compensate the plaintiff for real and very serious harm. The explanation is in part one of historical accident and survival, in part one of the conflict of opposing ideas of policy in which our traditional notions of freedom of expression have collided violently with sympathy for the victim traduced and indignation at the maligning tongue."
[13] The court told the jury: "And the third tort or wrong, of which the plaintiff in this case complains is that of slander."
[14] Restatement (Second) of Torts § 568 (Tent. Draft No. 20, 1974) makes no substantive change in § 568. It adds § 568A: "Broadcasting defamatory matter over radio or television is libel, whether or not it is read from a manuscript."
[15] If the publication is capable of communicating a defamatory idea when certain extrinsic facts are known or when the words or conduct are given a meaning not ordinarily attributed to them, the person claiming harm has the burden of pleading and proving such facts by way of an "inducement", and he must establish the defamatory sense of the publication with reference to such facts in an averment called an "innuendo." The function of the innuendo is merely to explain the words in the light of the facts. A publication may be clearly defamatory as to somebody, and yet not on its face refer to a particular person. In such case, the person aggrieved must sustain the burden of pleading and proof, by way of "colloquium", that the defamatory meaning attached to him. See W. Prosser, Law of Torts § 111, at 748-749 (4th ed., 1971); 1 F. Harper and F. James, The Law of Torts § 5.9 (1956).
[16] This is in complete accord with Restatement of Torts § 569 (1938) and Restatement (Second) of Torts § 569 (Tent. Draft No. 20, 1974). The substance of both is that one who publishes a matter defamatory of another in such a manner as to make the publication a libel is subject to liability to the other although no special harm or loss of reputation is proved. See W. Prosser, Law of Torts § 112 at p. 762 (4th ed., 1971).
[17] In every Maryland case involving slander, with the possible exception of American Stores v. Byrd, 229 Md. 5, the Court of Appeals clearly required proof of special damages because the defamation did not fit within the four special categories of slander per se. According to Murnaghan, supra, note 51 at 14, the Court in Byrd "flirted with, but escaped making, a determination that for slander, whether the words are actionable `per se' depends on whether the defamation is evident from the words alone." Murnaghan cites 1 A. Henson, Libel and Related Torts, note 5 at 24 (1969) and Henn, Libel-By-Extrinsic-Fact, 47 Cornell L.Q. note 5 at 31, 48-49, to support his position on the usage of the terms slander per se and slander per quod.
[18] The following cases are cited in note 33 at page 845 in support of his statement: "See Walker v. D'Alesandro, 212 Md. 163, 129 A.2d 148 (1957); Foley v. Hoffman, 188 Md. 273, 52 A.2d 476 (1947); Bowie v. Evening News, 148 Md. 569, 129 A. 797 (1925); Stannard v. Wilcox & Gibbs Sewing Mach. Co., 118 Md. 151, 84 A. 335 (1912)."
[19] Eldredge is listed in Restatement (Second) on Torts, Tent. Draft. No. 20 (1974) as an Adviser. He attributes the origin of the term libel per quod to confusion on the part of the courts who "not only disregarded the fact that proof of special damages was never required in libel cases at common law, but also completely overlooked the fact that there was an area of slander that was actionable without proof of special damages, even though the plaintiff had to allege and prove the extrinsic facts that gave the words their defamatory meaning." 79 Harv.L.Rev. at 737, 738.
[20] Dean Prosser died in 1972.
[21] The United States District Court of Maryland faced this issue in Sauerhoff v. Hearst Corporation, 388 F. Supp. 117, 120 (D. Md. 1974), Kaufman, J. found it likely that
"Maryland's highest court will reject the Restatement view in favor of Dean Prosser's position, often expressed in Maryland dictum, that whenever the libelous character of the words is not evident upon their face and extrinsic facts must be alleged and proven, then the libel is `per quod' and not `per se' and special damages must be proven."
Kaufman, J., continued:
"However, this Court's best guess is that Maryland's highest court would not, as Dean Prosser further suggests, recognize an exception to that general rule for remarks which, although libelous per quod, would have fallen into one of the special slander per se categories." Id.
[22] The reasons given for the motion for a directed verdict made by General Motors at the close of all the evidence were that there was no legally sufficient evidence that the guards slandered Piskor or if he was slandered that the defamation was published. We shall consider that these reasons sufficiently preserved the points raised on appeal.
[23] The court charged the Jury:
"Now, in this case there is no evidence that any employee of the defendant by spoken words called the plaintiff a thief. However, it is not necessary that actual words be spoken. A dramatic pantomime indicating to other people by acts, that the plaintiff was guilty of a crime, or guilty of some wrongdoing can be slander by act, and would amount to the same tort of slander as if the words themselves had been spoken."
[24] We note the similarity between the instant fact situation and that in American Stores Co. v. Byrd, supra, where the Court of Appeals found that the words and conduct were defamatory on their face.
[25] Piskor himself testified that lunch pails, bags, and coats carried by exiting employees were routinely checked by the guards for possible theft.
[26] Other courts have found a qualified privilege to defame in an employer when communications concerning possible thievery are made to employees. Stephenson v. Marshall, 104 F. Supp. 26 (D.C. Alaska 1952); Sokolay v. Edlin, 65 N.J. Super. 112, 167 A.2d 211 (1961); Combes v. Montgomery Ward & Co., 119 Utah 407, 228 P.2d 272 (1951). See, Note, 10 DePaul L.R. 222 (1960). Contra, Washington Annapolis Hotel Co. v. Riddle, 171 F.2d 732 (D.C. Cir.1948). For an excellent discussion of the qualified privilege arising from the protection of property see Ling v. Whittemore, 140 Colo. 247, 343 P.2d 1048 (1959).
We also note that in suspected thievery situations, early decisions (several involving employer-employee relationships) found a qualified privilege even when the accusation of theft was overheard by disinterested third parties. Toogood v. Spring, 4 Tyr. 582 (1834); Padmore v. Lawrence, 11 Ad. & El. 380 (1840); Brow v. Hathaway, 95 Mass. (13 Allen) 239 (1866). See, Note, 56 Law Q. Rev. 262 (1940). The presence of a "casual bystander" did not destroy the privilege if the communication was being made to a party who had an interest in the inquiry, but it was evidence of malicious intent abusing the privilege. Toogood, supra at 596-597. More recent cases have applied this concept of "casual bystander". Annot., 92 A.L.R. 1174. Although the precise point was not discussed in Bavington, supra, there were disinterested third parties present when the defendant slandered the plaintiff. Restatement § 604, comment a, when discussing abuse of privilege by excessive publication, states that "[i]n many cases, the communication, to be effective, must be made at a given time and place even though third persons are likely to hear it." We note that in the instant case the only method available to the agents of General Motors to investigate the possible theft was to stop Piskor as he departed with the other employees.
[27] Legal justification is "equivalent to legal authority." Id., at 655. For an example of an arrest and restraint imposed under legal authority, see Autoville Limited v. Shipp, 23 Md. App. 555, 571-572.
[28] We do not reach the question whether the privilege under § 551A reaches an assault arising from the crime of shoplifting. We observe, however, that assault is not one of the torts designated in the statute for which a merchant shall not be held civilly liable. But see Restatement (Second) of Torts § 120A, comment h.
[29] We observed, id.: "While this is not the majority rule and has been scored by at least one authority on the law of damages, [noting McCormick, Handbook on the Law of Damages (1935)] it was enunciated at an early date in Maryland and has been consistently followed by the Court of Appeals", citing cases to support our assertion. General Motors recognizes that actual malice need not be shown to support an award of punitive damages in slander per se, actual malice being presumed. It declares, however, that the defamation was not slander per se, but we have made clear that we are not in agreement with this view.
[30] The issue to the jury regarding punitive damages was framed in the context of the other three issues given the jury. The jury were asked if they found that Piskor was (1) assaulted, (2) falsely imprisoned, and (3) slandered. The fourth issue read that if they answered "yes" to any of those three, "then in what amount do you assess the punitive or exemplary damages?"
General Motors did not request that the trial court furnish additional guidelines to the jury in its consideration of whether to award punitive damages. Nor did they request that the jury be told that punitive damages may be mitigated by showing that General Motors had probable cause to believe that Piskor was a thief. And it did not challenge the instructions with regard to punitive damages as the court below gave them except to argue that the jury should be precluded from such an award because of the absence of any evidence of malicious conduct. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535299/ | 275 Md. 339 (1975)
340 A.2d 302
MONTGOMERY COUNTY COUNCIL ET AL.
v.
SUPERVISOR OF ASSESSMENTS OF MONTGOMERY COUNTY ET AL.
[No. 210, September Term, 1974.]
Court of Appeals of Maryland.
Decided June 26, 1975.
*340 The cause was argued before MURPHY, C.J., and SINGLEY, SMITH, DIGGES, ELDRIDGE and O'DONNELL, JJ.
H. Christopher Malone, Assistant County Attorney, with whom were Richard S. McKernon, County Attorney, and Robert G. Tobin, Jr., Deputy County Attorney, on the brief, for appellants.
Ward B. Coe, III, Assistant Attorney General, with whom was Francis B. Burch, Attorney General, on the brief, for Supervisor of Assessments of Montgomery County, one of appellees. Ralph R. Roach for D.B. Rein et al., other appellees.
ELDRIDGE, J., delivered the opinion of the Court.
We are presented with the question of the Maryland Tax Court's jurisdiction over appeals by a county from decisions to decrease assessments after the date of finality under Maryland Code (1957, 1975 Repl. Vol.), Art. 81, § 67.
The owners of the nineteen separate parcels of land in Montgomery County which are involved in this case had their land reassessed in 1971 for the 1972 tax year. After the time to protest the assessments had expired, and the assessments had become final under Code (1957, 1975 Repl. Vol.), Art. 81, § 255, a moratorium was imposed in parts of Montgomery County prohibiting further sewer connections.
Alleging that the sewer moratorium decreased the value of their land, the nineteen property owners sought relief under § 67 of Art. 81, which provides in relevant part:
"... The final assessing authority, the supervisor of assessments and the county treasurer (in Montgomery County the director of finance) of each county and in Baltimore City, the city solicitor, and the director of the department of assessments, ... may by an order, decrease or abate an assessment after the date of finality for any year, whether a protest against said assessment was filed before the date of finality or not, in order to correct erroneous and improper assessments and to prevent injustice, *341 provided, that the reasons for such decrease or abatement shall be clearly set forth in such order."
In all nineteen cases, the Appeal Tax Court, the Supervisor of Assessments of Montgomery County and the Director of Finance of Montgomery County, signed orders pursuant to § 67, reducing each of the assessments by 25% because of the sewer moratorium.
In twelve of the nineteen cases, "James P. Gleason, County Executive and Montgomery County Council" filed Petitions of Appeal to the Maryland Tax Court. In seven of the nineteen cases, "Montgomery County Council" alone filed Petitions of Appeal to the Tax Court. In none of the cases were either the County Executive or the County Council parties to the § 67 proceedings before the Appeal Tax Court, the Supervisor of Assessments and the Director of Finance.
Thereafter, the Supervisor of Assessments filed in the Tax Court motions to dismiss and motions to consolidate the cases for purpose of hearing the motions to dismiss. The Supervisor argued that the Tax Court lacked jurisdiction to hear an appeal from an assessment entered in accordance with Art. 81, § 67. Several of the taxpayers also filed motions to dismiss on the ground that neither the County Executive nor the County Council had standing to prosecute the appeals.
The Tax Court, after consolidating the cases and after a hearing, granted the motions to dismiss on the ground that it had no jurisdiction to entertain appeals from actions taken pursuant to Art. 81, § 67. The County Executive and the County Council thereupon took appeals to this Court.
In addition to their argument that the Tax Court correctly held that it had no jurisdiction to review Art. 81, § 67, determinations, the appellees also reiterate the contention made below that the appellants had no standing to appeal to the Tax Court. Two grounds for the asserted lack of standing are put forth:
First, appellees point to our recent decision in County Council for Montgomery County v. Supervisor of Assessments, *342 274 Md. 116, 123, 332 A.2d 897, 901 (1975), holding that "it is the corporate entity of Montgomery County, Maryland, so known in its charter, which is vested with the right of appeal under Art. 81, § 256 (a) in lieu of the prior corporate entity, the County Commissioners of Montgomery County," and that "[s]ince the County Council is not the corporate entity, an appeal may not be maintained in its name." They argue that, just as the County Council alone is not the corporate entity, the combination of the County Executive and the County Council do not constitute "Montgomery County, Maryland." The appellants, while conceding the absence of a proper party in the seven cases where the County Council alone took appeals, argue that the "County Executive constitutes the corporate entity of Montgomery County, and that is sufficient to maintain an appeal."
Second, several of the appellees argue that the appellants lacked standing to appeal to the Tax Court because neither the County Executive nor the County Council were parties to the Art. 81, § 67, administrative proceedings. Reliance is placed upon this Court's decisions in Bryniarski v. Montgomery County, 247 Md. 137, 230 A.2d 289 (1967) and DuBay v. Crane, 240 Md. 180, 213 A.2d 487 (1965). See also our recent decision in Montgomery County, Maryland v. One North Park Associates, 275 Md. 193, 338 A.2d 892 (1975).
We believe that the Tax Court was correct in holding that it had no jurisdiction to hear appeals from the determinations pursuant to Art. 81, § 67. Consequently, we need not, and do not, decide either of the two standing questions raised by the appellees.
The Tax Court considered this Court's decision in LaBelle v. State Tax Comm., 217 Md. 443, 142 A.2d 560, cert. denied, 358 U.S. 889, 79 S. Ct. 135, 3 L. Ed. 2d 117 (1958), to be dispositive of the jurisdictional issue, and we agree. In LaBelle, a Montgomery County property owner did not protest the assessment on her dwelling before the date of finality. About seven months later, she protested the assessment, and the Appeal Tax Court for Montgomery *343 County heard her protest under the provisions of Art. 81, § 67.[1] After the hearing, the Appeal Tax Court proposed a reduction in Mrs. LaBelle's assessment, but the Director of Finance of Montgomery County and the Supervisor of Assessments refused to agree. Consequently, the assessment entered as of the date of finality remained. Mrs. LaBelle took an appeal to the State Tax Commission, the predecessor of the Maryland Tax Court, and the Commission held that it had no jurisdiction. The Circuit Court for Montgomery County affirmed, and the affirmance was upheld by this Court.
In holding that "the State Tax Commission rightly determined that it had no jurisdiction to entertain the appeal and decide the merits" (217 Md. at 453), this Court in LaBelle, in an opinion by Judge Hammond, explained both the nature of § 67 proceedings, as well as the State Tax Commission's jurisdiction, as follows (id. at 451-452):
"The potential relief held out by § 66 to a taxpayer whose assessment has become final is a matter of grace and not a matter of right.... If the taxpayer has in due time taken the steps prescribed by the statutes to call upon the local assessing authorities to hear and consider his case, and then duly appealed to the State Tax Commission, or has appealed in time directly to the State Tax Commission from the assessment, he is entitled to have the body called upon act on his case as a matter of right. If, however, he permits an assessment to become final, he can only hope that the three taxing and fiscal authorities who are named in § 66 [67] of Art. 81 will agree that his cause is just and demands relief. If they do not, the statute gives him no further remedy and the assessment that has been allowed to become final remains on the books for the year in question. The powers of the State Tax Commission are entirely statutory and the *344 statutes confer jurisdiction on it only if an assessment is protested before it has become final." (Emphasis supplied.)
The appellants argue that LaBelle is inapplicable to the subject case because LaBelle involved an attempted appeal by a property owner who had no "right" to § 67 relief but was only entitled to relief as a matter of "grace" if the three fiscal authorities agreed that her cause was just. Appellants contend that they are in an entirely different position, for they are not seeking relief as a matter of grace but, "as elected representatives of the people," are attempting to prevent an "unwarranted reduction of assessments." However, this Court's decision in LaBelle was based upon the "jurisdiction" of the State Tax Commission [now the Maryland Tax Court] over § 67 proceedings and not upon the standing of particular parties depending upon the nature of their interest in the § 67 proceeding. While the Court explained that the purpose of a § 67 proceeding was to grant or deny relief to the taxpayer as a matter of "grace" instead of as a matter of right, nothing in the Court's opinion indicated that the State Tax Commission's power to review § 67 determinations depended upon whether the taxpayer had won or lost in the § 67 proceedings. Instead, the Court held that the statutes confer "jurisdiction on it [the State Tax Commission] only if an assessment is protested before it has become final."
The Court's opinion in LaBelle referred to Art. 81, § 256, as authorizing appeals to the State Tax Commission when the taxpayer had taken some action before the date of finality (id. at 451). Neither § 67 nor § 256 have been significantly amended since the LaBelle case. Sec. 256 (a) provides (emphasis supplied):
*345 "Any taxpayer, any city, or the Attorney General or Department on behalf of the State, or a supervisor of assessments as provided in § 234 of this article, or the county commissioners of any county where an appeal tax court has been fully created claiming to be aggrieved because of any assessment or classification, or because of any increase, reduction, abatement, modification, change or alteration or failure or refusal to increase, reduce, abate, modify or change any assessment, or because of any classification or change in classification, or refusal or failure to make a change, by any final assessing authority under § 255 of this article, may by petition appeal to the Maryland Tax Court therefrom as provided in § 229 in this article, and said Court shall hear and determine all such appeals within sixty days from the entry thereof. Such appeal shall be taken either (a) within thirty days after the date of the action or failure or refusal to act complained of, or (b) if an address shall have been filed with the final assessing authority appealed from by any person or corporation demanding a hearing as in § 255 provided, then by the person giving such address within thirty days from the date of mailing of the notice of the action by the final assessing authority to the person and address so given or (c) if the appellant is a supervisor of assessments, such appeal shall be taken within thirty days from the date the final assessing authority sends notice of its action, in writing, by mail or otherwise, to the supervisor of assessments. No appeal on behalf of a taxpayer shall be allowed under this section from a failure or refusal to abate, reduce, or reclassify an existing assessment unless application in writing for such action shall have been filed by the appellant with the final assessing authority appealed from within the time limited for the filing of a demand for a hearing by § 255 of this article."
*346 While the Legislature in 1959 substituted "Maryland Tax Court" for "State Tax Commission" and made some other minor wording changes in § 256 (a), see Acts of 1959, Ch. 757, the section has in all relevant aspects remained unchanged since 1958. Under § 256, appeals to the Tax Court with regard to property tax assessments, like appeals to the former State Tax Commission, are from actions by the final assessing authority "under § 255" of Art. 81. Sec. 255 sets forth the administrative appeal process where a taxpayer has protested or demanded a hearing in a timely manner. Sec. 256, the statute delineating the basic jurisdiction of the Tax Court, makes no mention of § 67 proceedings on applications by taxpayers after the date of finality for discretionary relief. And § 67 makes no mention of appeals to the Tax Court from the grant or denial of relief under that section.
The appellants also argue that LaBelle does not control this case because of the provisions of Code (1957, 1971 Repl. Vol.), Art. 41, § 318, enacted one year after the LaBelle decision. Sec. 318 of Art. 41 provides:
"The Maryland Tax Court and State Department of Assessments and Taxation, constituted and organized as provided by law, shall be a separate department of the State government, and consist of the following subdivisions, which shall be independent of each other:
(1) Maryland Tax Court. On and after July 1, 1959, the Maryland Tax Court shall have jurisdiction to hear appeals from the decision, determination, or order of any final assessing or taxing authority of the State, or of any agency, department, or political subdivision thereof, with respect to the valuation, assessment, or classification of property, or the levy of a tax, or with respect to the application for an abatement or reduction of any assessment, or tax, or exemption therefrom.
(2) State Department of Assessments and *347 Taxation. From and after July 1, 1959, all the administrative, but not the quasi-judicial, rights, powers, duties, obligations and functions heretofore conferred upon or exercised by the State Tax Commission shall be transferred to and thereafter be exercised and performed by the State Department of Assessments and Taxation, which shall also have, exercise and perform such other rights, powers, duties, obligations and functions as may now or hereafter be conferred by law. Upon request the State Department of Assessments and Taxation shall perform administrative duties for the Maryland Tax Court." (Emphasis supplied.)
Appellants maintain that Art. 41, § 318, gives the Tax Court a broader jurisdiction over appeals in property tax assessment cases than the jurisdiction set forth in Art. 81, § 256, and that under the language of Art. 41, § 318, the Tax Court would be authorized to hear appeals from Art. 81, § 67, determinations.
We do not believe that the Legislature intended, by the provisions of Art. 41, § 318, to expand the jurisdiction of the Tax Court beyond that described in the various provisions of Art. 81, the tax article of the code. Sec. 318 was enacted by Ch. 757 of the Acts of 1959. The principal purpose of Ch. 757 was to separate the "quasi-judicial" functions of the State Tax Commission from its "administrative" functions. The State Tax Commission was abolished; two separate agencies were created in its place, the Tax Court and the Department of Assessments and Taxation; the State Tax Commission's "quasi-judicial" functions were vested in the new Tax Court; and the Commission's "administrative" functions were vested in the Department of Assessments and Taxation. It would seem that the purpose of § 318, which was enacted as a new section in Art. 41 of the Code, the article which primarily deals with the broad organizational structure of the Executive Branch of the State Government, was to describe the new organization and to transfer functions to the new agencies, but not to expand or diminish the specific *348 powers in the field of taxation which had been vested in the State Tax Commission.
The language in § 318 referring to the jurisdiction of the Tax Court was, we believe, descriptive only, setting forth the "quasi-judicial" functions that had previously been exercised by the State Tax Commission. This is confirmed by the provisions of Art. 81, § 224, also enacted into law by the same Ch. 757 of the Acts of 1959, which delineates in more detail the organization and powers of the new Tax Court, and which states in part:
"An administrative body designated as the Maryland Tax Court is hereby created with the powers and duties in this article specified. * * *" (Emphasis supplied.)
Thus, § 224 of Art. 81, enacted as part of the same statute as § 318 of Art. 41, provided that the powers of the Tax Court were those specified in Art. 81, the tax article.
Finally, even if Art. 41, § 318, could be viewed as a grant of appellate jurisdiction to the Tax Court independent of the provisions of Art. 81, the result would not be different. The jurisdiction of the Tax Court referred to in § 318 is over appeals from the determination "of any final assessing or taxing authority...." The determination of the final assessing or taxing authority at the time the subject cases arose was the determination of the Appeal Tax Court for Montgomery County, and not the joint discretionary action of the three entities provided for in Art. 81, § 67.
Since the Tax Court correctly held that it had no jurisdiction over appeals in Art. 81, § 67, proceedings, its order in the present cases must be affirmed.
Order affirmed.
Appellants to pay costs.
NOTES
[1] Sec. 67 was then codified as Art. 81, § 66, of the 1951 Code. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535390/ | 340 A.2d 67 (1975)
STATE of Vermont
v.
Paul LAWRENCE.
No. 91-75.
Supreme Court of Vermont.
April 17, 1975.
*68 Francis X. Murray, Chittenden, County State's Atty., Burlington, for plaintiff.
John J. Welch, Jr., Rutland, for defendant.
Before BARNEY, C. J., and SMITH, DALEY and LARROW, JJ.
PER CURIAM.
This is a petition for release under conditions pending the disposition of an appeal, brought under Rule 9(b), V.R.A.P. The defendant is in execution, in that following his conviction, the trial court terminated bail and refused to stay execution of the sentence. Being in execution, no constitutional right to bail exists. In re Shuttle, 131 Vt. 457, 306 A.2d 667 (1973). Under Rule 9(b), the matter is here for original determination by this Court, and not as an appeal from the trial court. The decision must be made on what is before this tribunal.
Even so, the disposition made by the lower court is before us as part of the record, and is entitled to great weight in the deliberations here. Where the discretionary power to put a sentence into immediate execution is exercised, it is to be presumed that it was only done after reflection and a fair weighing of the interests of the defendant and the State of Vermont. Thus it should not be lightly put aside or overturned by this Court and will be supported in the absence of concerns running sufficiently counter to its justification.
But, under this Rule 9(b), there is a duty to examine the matter anew and reach an independent judgment on the matter in the light of the posture of the litigation, the interests of all parties and the policies enjoined upon us by the Legislature in the provisions of the bail statutes.
In this case, a number of considerations running counter to the disposition below appear, including at least two of great weight and out of the ordinary pattern. They lead us to the conclusion that release upon certain strict conditions is appropriate in this matter.
The defendant has been convicted of perjury, a non-violent crime, but involving the conviction of many other persons for drug offenses on his allegedly false testimony. This circumstance has led to special stringency in his confinement, for his own protection. He is being detained in what amounts to a solitary cell in a detention center nearly one hundred miles from *69 his counsel and from his parents. Although our concern must base itself on the circumstances of this pending appeal, it is a fact that the extensive litigation pending in associated suits, as well as the nature of this present case, involve far more than the ordinary need to consult with his counsel. An offer has been made to transport him to the Woodstock Correctional Center on two days' notice for conference purposes. This is a commendable suggestion and, in many cases, might be adequate.
But in the light of all the aspects of this matter, an alternate resolution seems more appropriate. The defendant has no previous criminal record. It was the judgment of the district court that arraigned him that he was eligible for bail. He complied with all conditions. His parents, with whom he is very close, are upstanding citizens who are willing to pledge the equity in their home as part of any bail arrangement. In short, all of the considerations supporting a decision in favor of bail are present, even in the face of strong public outrage against the activities of which a jury has found him guilty. In such circumstances, and having in mind the special considerations already alluded to, it is the decision of this Court that release pending appeal, on the special circumstances set forth in the entry order, should be permitted.
The defendant has also asked for limited assistance from the funds alotted to the defense of indigent persons. His counsel has engaged to continue to represent him through this appeal without making demand on the State for recompense. He does ask, given the present indigent status of the defendant, that the transcript be furnished at State expense. This will be done.
The transcript in this case is to be furnished at State expense.
The defendant is to be released under the authority of Rule 9(b), V.R.A.P., subject to the following conditions with respect to his appearance in court when ordered to do so, until determination of the appeal in this matter and the filing of an order of disposition in connection therewith:
(1) That a bail bond in favor of the State of Vermont be executed in in the amount of $20,000, pledging the equity of the homestead of Mr. and Mrs. John O. Lawrence of Birch Road, Shelburne, Vermont, parents of the defendant, as surety, in form to be approved by the Clerk of the Supreme Court.
(2) That the defendant is prohibited from traveling outside the borders of the State of Vermont.
(3) That the defendant be placed in the custody of the Department of Probation for supervision, with the duty to report as that Department may require, but at intervals of not less than one week. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535402/ | 275 Md. 434 (1975)
340 A.2d 251
BERMAN
v.
HALL ET AL.
[No. 212, September Term, 1974.]
Court of Appeals of Maryland.
Decided July 7, 1975.
The cause was argued before MURPHY, C.J., and SINGLEY, SMITH, DIGGES, LEVINE, ELDRIDGE and O'DONNELL, JJ.
James L. Baer, with whom were Clark & Cromwell, P.A. and Harry Bonnett on the brief, for appellant.
Michael Esher Yaggy, with whom were Francis B. Burch, Jr., and Piper & Marbury and Stanley G. Robins and Robins, Robins & Johnson on the brief, for appellees.
*435 ELDRIDGE, J., delivered the opinion of the Court.
This is an action by a real estate broker for a commission from the sellers under a contract for the sale of real estate, although the contract was never consummated. The sellers' demurrer to the broker's amended declaration was sustained by the Circuit Court for Wicomico County (Pollitt, J.), and the broker appeals. The pertinent facts, as alleged in the broker's amended declaration, are as follows.
The sellers, Avery W. Hall and Nathaniel R. Wootten owned certain real property in Ocean City, Maryland. On January 26, 1972, they entered into a contract to sell the property for $1,800,000.00 to International-Industrial Developers, Ltd. The clauses of the contract relevant to the present controversy are:
"AGENCY: the Seller recognizes George Berman as the Agent negotiating this Contract and agrees to pay Five percent (5%) of the sale price commission for services rendered, same to be due and payable upon the settlement of this Contract. The entire deposit shall be held by ... [the purchaser's attorney], until settlement hereunder is made and the party making settlement is hereby authorized and directed to deduct the aforesaid commission from the proceeds of the sale and pay same to said Agent. If the sale is not closed because of the Purchasers default the commission shall be one-half (1/2) the amount of the deposit.
"The Agent hereby agrees to the within commission provisions but assumes no responsibility for the condition of the property or for the performance of the Contract by any or all parties hereto." (Emphasis supplied.)
Settlement was scheduled for August 16, 1972.
At the time of settlement, the purchaser's attorney raised certain title objections; the sellers agreed to clear the title objections; and settlement was postponed. However, instead of settlement later taking place, the sellers and the *436 purchaser on November 11, 1972, executed a "mutual release," releasing "each other from any and all obligations arising out of the Contract" of January 26, 1972.
It does not appear from the facts set forth in the broker's declaration and amended declaration whether the sellers had, as of November 11, 1972, cleared the title objections or why they entered into the "mutual release." There were no allegations that the purchaser was at fault, and the purchaser's attorney did not turn over the deposit money to the sellers. During the oral argument before us the broker's attorney conceded that there was no default by the purchaser. The broker was not a party to the "mutual release."
The broker, asserting that his right to a commission from the sellers "irrevocably attached pursuant to the terms of the original Contract of Sale," and that the sellers, by entering into the "mutual release" agreement with the purchaser, violated their duty to the broker under the January 26, 1972, sale contract, brought this action for a $90,000 commission, based on 5% of the contract price.[1] The circuit court first sustained the sellers' demurrer to the declaration with leave to amend, and later sustained a demurrer to the amended declaration without leave to amend. The court held that under the allegations, the broker would only be entitled to a commission if the sale had been consummated or if the purchaser had defaulted, and that neither event occurred in this case. Reliance was placed upon this Court's decisions in Snider Bros., Inc. v. Heft, 271 Md. 409, 317 A.2d 848 (1974); Prince George's Club v. Carr, 235 Md. 591, 202 A.2d 354 (1964); and Chasanow v. Willcox, 220 Md. 171, 151 A.2d 748 (1959). We agree with Judge Pollitt's decision for the circuit court, and therefore we affirm.
The broker, arguing that he became entitled to his full commission upon the execution of the sale contract, relies *437 upon Maryland Code (1974), § 14-105 of the Real Property Article, which provides:
"In the absence of special agreement to the contrary, if a real estate broker employed to sell, buy, lease, or otherwise negotiate an estate, or a mortgage or loan secured by the property, procures in good faith a purchaser, vendor, lessor, lessee, mortgagor, mortgagee, borrower, or lender, as the case may be, and the person procured is accepted by the employer and enters into a valid, binding, and enforceable written contract, in terms acceptable to the employer, of a sale, purchase, lease, mortgage, loan, or other contract, as the case may be, and the contract is accepted by the employer and signed by him, the broker is deemed to have earned the customary or agreed commission. He has earned the commission regardless of whether or not the contract entered into is performed, unless the performance of the contract is prevented, hindered, or delayed by any act of the broker." (Emphasis supplied.)[2]
As this Court has pointed out on many occasions, the above-quoted statute "was passed to settle the question so often raised, as to when, in the absence of a special agreement, the broker was entitled to commissions." Brown v. Hogan, 138 Md. 257, 268-269, 113 A. 756 (1921). And see Eastern Associates v. Sarubin, 274 Md. 378, 395, 336 A.2d 765, 774 (1975); Wyand v. Patterson Agency, 271 Md. 617, 623, 319 A.2d 308 (1974); Snider Bros., Inc. v. Heft, supra, 271 Md. at 416; Ricker v. Abrams, 263 Md. 509, 517, 283 A.2d 583 (1971); Sanders v. Devereux, 231 Md. 224, 231, 189 A.2d 604 (1963); Schapiro v. Chapin, 159 Md. 418, 424-425, 151 A. 44 (1930). However, as the language of the statute makes clear, where the parties enter into an agreement specifying a different time when the right to a brokerage commission accrues, the agreement and not the statute is controlling. *438 "The issue then becomes the parties' intent under that agreement." Snider Bros., Inc. v. Heft, supra, 271 Md. at 416. See also Chas. H. Steffey, Inc. v. Derr, 275 Md. 121, 338 A.2d 262 (1975); Cohen v. Duclos, 272 Md. 41, 45-46, 321 A.2d 145 (1974); Wyand v. Patterson Agency, supra, 271 Md. at 623-624; W.C. Pinkard & Co. v. Castlewood, 271 Md. 598, 601, 319 A.2d 123 (1974); Prince George's Club v. Carr, supra, 235 Md. at 603; Chasanow v. Willcox, supra, 220 Md. at 176; Goss v. Hill, 219 Md. 304, 307-308, 149 A.2d 10, 69 A.L.R. 2d 1239 (1959).
In the subject case, the broker argues that the language of the January 26, 1972, contract concerning the broker's entitlement to a commission did not create a "special agreement to the contrary" within the meaning of § 14-105 of the Real Property Article, and that under § 14-105 the broker was entitled to a commission upon the signing of the sale contract. The language of the January 26 contract specifies that the commission is "to be due and payable upon the settlement of this contract" and that "the party making settlement is hereby authorized and directed to deduct the aforesaid commission from the proceeds of the sale." The contract provision goes on to state that in the event of the purchaser's default, the commission shall be one-half the amount of the deposit. The broker contends that the references to the commission being due and payable at the time of settlement, and to be deducted from the sale proceeds, merely reflected an intention that, "as an accommodation to the sellers ..., [the broker] agreed to postpone the physical payment of that commission until settlement," but that the clear intention of the parties was that the right to a commission had vested at the time the contract of sale was signed.
The broker's argument ignores the plain meaning of the contract language. The words "due and payable at the time of settlement" denote something more than a postponement of the time for payment as an accommodation. If the commission is not due until settlement, and not payable until then, the right to it clearly does not accrue until *439 settlement. The additional language specifying that the commission is to be deducted from the proceeds of the sale confirms this. If there is no settlement, there can be no sale proceeds. The designated fund, which is to be the source of the commission, will not exist.
Moreover, the cases in this Court construing almost identical contract language, require rejection of the broker's argument concerning the applicability of § 14-105. In Chasanow v. Willcox, supra, 220 Md. at 176, the Court stated:
"But the statute [§ 14-105] is applicable only `in the absence of a special agreement to the contrary,' and, in this case, there were two special agreements, one of which was a substitute for the other. There was an agreement that the seller would pay the broker a commission to be deducted from the proceeds of sale. However, in the event the purchaser should default it was understood that the seller would allow the broker one-half of the deposit as compensation for his services to the seller. Since these are substitutional provisions, affecting the time of payment, source and amount of the compensation to which the broker would be entitled, the statute has no bearing on a decision of this case."
Prince George's Club v. Carr, supra, 235 Md. at 603-605, involved language which was almost the same as that here. The agreement in Carr provided that the broker's commission was to be "paid `at the time of settlement of this contract ... from the sale proceeds....'" (Id. at 604-605.) The Court held that the statute was not applicable because the contract language amounted to a special agreement to the contrary, and that the language of the contract "made the consummation of the sale a condition precedent to the earning of the broker's commissions." (Id. at 603-604.) The Court went on:
"In the present case we think a condition precedent was intended. The Club and the broker *440 agreed in terms that the provision as to commissions was to constitute a condition. The condition was not only that the commission was to be paid at the time of settlement but that it was to be paid from the $700,000 part of the purchase price [that was to be paid at settlement], and the necessary inference, we find, is that if there was no such purchase price there was to be no commission." (Id. at 605.)
In a case involving a real estate broker's commission decided just recently, Mike Casey v. Nathan Jones, 275 Md. 203, 205, 339 A.2d 33 (1975), the Court, in an opinion by Judge Digges, construed very similar language as follows:
"The reason why the broker cannot succeed in this case can be found in the sales contract. By the terms of that agreement, the entire $5,000 earnest money deposit was to `be held by [the] broker until settlement [under the contract] is made [, at which time] ... the party making settlement is ... directed to deduct the [6%] commission from the proceeds of the sale and pay same to said Agent.' Since, as the broker recognizes, the purchaser refused to consummate the transaction, the appellant's entitlement to a full commission, under this contract provision, did not accrue."
See also Nily Realty v. Wood, 272 Md. 589, 595, 325 A.2d 730 (1974), and W.C. Pinkard & Co. v. Castlewood, supra, 271 Md. at 601, holding that language specifying that the broker's commission was to be "due and payable upon the" happening of an event (Nily) or "due when" an event occurred (W.C. Pinkard), meant that the right to the commission did not accrue until the specified event took place.
Since, under the factual allegations of the broker's amended declaration in the present case, the broker was not entitled to a commission unless settlement occurred or unless the purchaser defaulted causing a forfeiture of the *441 deposit, and since neither of these contingencies happened, the circuit court correctly sustained the demurrer.
Judgment affirmed.
Appellant to pay costs.
NOTES
[1] At no time has the broker alleged the existence of a listing agreement with the sellers or any kind of employment agreement with them, written or verbal, other than the previously quoted provisions of the contract of sale.
[2] Formerly codified in Maryland Code (1957, 1973 Repl. Vol.), Art. 21, § 14-105, and prior to that in Code (1957), Art. 2, § 17. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535419/ | 275 Md. 392 (1975)
340 A.2d 246
COUNTY EXECUTIVE FOR MONTGOMERY COUNTY, MARYLAND ET AL.
v.
SUPERVISOR OF ASSESSMENTS OF MONTGOMERY COUNTY ET AL.
[No. 220, September Term, 1974.]
Court of Appeals of Maryland.
Decided June 27, 1975.
*393 The cause was argued before MURPHY, C.J., and SINGLEY, SMITH, DIGGES, LEVINE, ELDRIDGE and O'DONNELL, JJ.
H. Christopher Malone, Assistant County Attorney, with whom were Richard S. McKernon, County Attorney, and Robert G. Tobin, Jr., Deputy County Attorney, on the brief, for appellants.
Robert H. Metz, with whom were R. Robert Linowes and Linowes & Blocher on the brief, for Warren K. Montouri, part of appellees. No brief filed on behalf of other appellee.
DIGGES, J., delivered the opinion of the Court.
This case concerns whether the Maryland Tax Court, an appellate administrative agency, may impose through its statutory rule-making power preconditions, in addition to those specifically provided by legislative enactment, to its acquiring jurisdiction over an appeal. The Montgomery County Council and James P. Gleason, the County Executive,[1] appellants both in this Court and before the Maryland Tax Court, appeal from an order of that agency dismissing their "petition of appeal" for lack of jurisdiction because they, within the applicable statutory time period, failed to name the taxpayer as a respondent. As we conclude that this petition of appeal need not have designated anyone as a respondent in order for the agency's jurisdiction over the appeal to have attached, we will reverse and remand the case for further proceedings.
The record shows that Felix and D. Montouri owned an unimproved parcel of real estate in Rockville, Maryland, *394 known as "Dan" and consisting of 10.003 acres, which the Supervisor of Assessments for Montgomery County, an appellee,[2] on June 13, 1972, valued for tax purposes at $506,520 for the 1972 levy year. On July 12, 1972, the owners, pursuant to the statute then in effect, Maryland Code (1957, 1969 Repl. Vol.) Art. 81, § 255 (b), requested a hearing before Montgomery County's Appeal Tax Court, the county's "final assessing authority," which had the power to review the decision made by the Supervisor of Assessments.[3] While this matter was pending before that county agency, although it is not clear from the record exactly when, Warren K. Montouri, the other appellee, acquired ownership of the property.[4] Thereafter, the Appeal Tax Court advised the parties, by notice dated June 19, 1973, that it had lowered the assessed value of the land to $379,890. This action so displeased the appellants that they filed, on July 18, 1973, a petition of appeal with the Maryland Tax Court. The only respondent named in that petition, however, was the Supervisor of Assessments for Montgomery County and he, on August 6, 1973, moved to dismiss the appeal on the ground that the appellants "failed to name parties necessary to this proceeding, namely, the taxpayers and owners of the premises in question, Felix and D. Montouri." (Actually at that time Warren K. Montouri appears to have been the owner.) There matters stood until February 2, 1974, when the appellants filed a petition to add Warren K. Montouri as a respondent, which in turn prompted him to file an opposition petition together with a motion to dismiss the appeal. After a hearing on Montouri's motion, the Maryland Tax Court ordered the appeal dismissed on August 21, 1974, on the ground that it lacked jurisdiction; from this dismissal *395 the appellants took a timely appeal to this Court pursuant to Code (1957, 1975 Repl. Vol.) Art. 81, § 229 (1).
Before discussing the specific issue involved in this appeal, we note that, under Code (1957, 1971 Repl. Vol.) Art. 41, § 318 (1),
"the Maryland Tax Court [has] ... jurisdiction to hear appeals from the decision, determination, or order of any final assessing or taxing authority of the State, or of any agency, department, or political subdivision thereof, with respect to the valuation, assessment, or classification of property, or the levy of a tax, or with respect to the application for an abatement or reduction of any assessment, or tax, or exemption therefrom." See Code (1957, 1975 Repl. Vol.) Art. 81, § 224 (creating the Maryland Tax Court). See and compare Mont. Co. Council et al. v. Supv'r of Assess. for Mont. Co., et al., 275 Md. 339, 340 A.2d 302 (1975).
The question presented here is whether the appellants' petition of appeal, filed pursuant to sections 256 and 229 of Article 81, was sufficient to invoke the jurisdiction of the Maryland Tax Court.[5] In order to resolve this issue it is first necessary that we examine the provisions of these two sections, the pertinent parts of which read as follows:
§ 256 (a) "Any taxpayer ... or the county commissioners of any county [(which has been interpreted by County Council v. Supervisor, 274 Md. 116, 123, 332 A.2d 897, 901 (1975) to include the appropriate corporate entity of a county)] where an appeal tax court has been duly created claiming to *396 be aggrieved because of any assessment or classification, or because of any increase, reduction, abatement, modification, change or alteration or failure or refusal to increase, reduce, abate, modify or change any assessment, or because of any classification or change in classification, or refusal or failure to make a change, by any final assessing authority under § 255 of this article, may by petition appeal to the Maryland Tax Court therefrom as provided in § 229 in this article, and said Court shall hear and determine all such appeals within sixty days from the entry thereof. Such appeal shall be taken ... within thirty days after the date of the action or failure or refusal to act complained of.... No appeal on behalf of a taxpayer shall be allowed under this section from a failure or refusal to abate, reduce, or reclassify an existing assessment unless application in writing for such action shall have been filed by the appellant with the final assessing authority appealed from within the time limited for the filing of a demand for a hearing by § 255 of this article.
"(b) Contents of petition. A petition of appeal provided for by subsection (a) of this section shall set forth that the assessment or classification is illegal, specifying the ground of alleged illegality, or is erroneous by reason of overvaluation or undervaluation, or that the assessment is unequal in that it has been made at a higher proportion of value than other property of the same class, or said petition may assign any other errors which may exist in the particular case for which an appeal is allowed, and on account of which petitioner claims to be injured:" Code (1957, 1975 Repl. Vol.) Art. 81, § 256.
§ 229 (a) "Petition and response. All appeals to the Court, of whatever nature, shall be noted by the filing of a written petition which shall set forth succinctly the nature of the case, the facts involved *397 and the question or questions to be reviewed by the Court. The opposing party shall make such response as the Court may by rule prescribe." Code (1957, 1975 Repl. Vol.) Art. 81, § 229 (a).
Plainly, these sections of the Code do not require that the petition of appeal name a respondent. Indeed, the only provision of the Code which even arguably obliges the appellants, directly or indirectly, to designate the taxpayer as a respondent in their petition of appeal is section 229 (b), which states that the Maryland Tax Court
"shall have power, subject to the provisions of this article, to adopt such reasonable rules of procedure relating to pleadings, notices, hearings and arguments as it may deem proper." Code (1957, 1975 Repl. Vol.) Art. 81, § 229 (b).[6]
The Maryland Tax Court, relying on the authority granted by section 229 (b), promulgated rules of procedure, effective April 1, 1964, Rule 1(a) of which declares that:
"All proceedings shall be initiated by filing with the Court a Petition of Appeal.... In an appeal by an assessing or taxing authority or representative thereof, the taxpayer shall be designated as Respondent."
Based on these statutory provisions and its own rule, the Maryland Tax Court concluded that it was without jurisdiction to entertain the petition of appeal. The agency reasoned that since it is a jurisdictional requirement of section 256 (a) that the petition of appeal be filed within the appropriate 30-day time span (see LaBelle v. State Tax Comm., 217 Md. 443, 451-52, 142 A.2d 560 (1958)) and since, by its own Rule 1(a), the appellants were required in their appeal petition to name the taxpayer as a respondent, when *398 the appellants did not do so within the 30-day period, the Maryland Tax Court had "no jurisdiction" to hear the case.
The Maryland Tax Court's logic, however, is not forged of the purest steel, for in it we find a flaw. The imperfection we detect is that the administrative agency has interpreted section 229 (b) as granting it the power to formulate rules delimiting its jurisdiction. Of course, in divining the meaning of section 229 (b), "the cardinal rule of construction ... is to ascertain and carry out the real legislative intention," Scoville Serv., Inc. v. Comptroller, 269 Md. 390, 393, 306 A.2d 534 (1973), and "if there is no ambiguity or obscurity in the language the legislature elected to utilize to express its mandate, the usual and literal meaning of the terminology employed will prevail." Bright v. Unsat. C. & J. Fund Bd., 275 Md. 165, 338 A.2d 248 (1975). We find the legislative intent expressed in section 229 (b) to be clear the Maryland Tax Court is granted the power "to adopt ... reasonable rules of procedure relating to pleadings, notices, hearings and arguments" to be applied after it has jurisdiction, not the power to adopt procedural rules which affect its obtaining jurisdiction. Even if we thought section 229 (b) to be ambiguous as to the extent of the agency's rule-making power, this uncertainty concerning the legislature's intent would vanish upon a reading of section 229 (f). That section provides that the Maryland Tax Court
"... may permit or require all explanations, amendments and additions to be made to any of the proceedings or pleadings, including the petition of appeal, as in its discretion shall be necessary or desirable so that the case may be properly heard and determined." (Emphasis added.) Code (1957, 1975 Repl. Vol.) Art. 81, § 229 (f).
We think it would be anomalous to conclude that the General Assembly intended to give the Maryland Tax Court the power to regulate its own jurisdiction by promulgating rules governing the prerequisites for a valid petition of appeal, when at the same time the legislature granted the agency discretionary authority to allow curative *399 amendments to nonconforming petitions as then the jurisdiction of the agency over an appeal in which a defective petition was filed would depend on whether the agency in fact exercised its discretion so as to allow an amendment. This is not to say that, under proper circumstances, an appeal petition which does not conform with Maryland Tax Court rules, validly adopted pursuant to section 229 (b), and which is not amended under section 229 (f) so as to comply, cannot be dismissed on that basis, but only that the dismissal may not be on the ground of lack of jurisdiction.
Having concluded that the Maryland Tax Court erred in dismissing for lack of jurisdiction the petition of appeal, it becomes unnecessary to consider the other contentions made by the appellants.
Order of the Maryland Tax Court dismissing the petition of appeal reversed and the case is remanded to that agency for further proceedings.
Costs to be paid by appellee Warren K. Montouri.
NOTES
[1] At oral argument in the Court of Appeals, the appellee-taxpayer abandoned his contention that it is the corporate entity of Montgomery County, Maryland, and not the appellants, which had the right of appeal to the Maryland Tax Court under Maryland Code (1957, 1975 Repl. Vol.) Art. 81, § 256 (a), and accordingly we need not consider that issue. For a case holding that it is Montgomery County, Maryland, and not the County Council, that is entitled to appeal under § 256 (a), see County Council v. Supervisor, 274 Md. 116, 123, 332 A.2d 897, 901 (1975).
[2] This appellee neither filed a brief nor participated in proceedings before the Court of Appeals.
[3] Effective July 1, 1973, § 255 (b) was amended so as to substitute Property Tax Assessment Appeal Boards in place of Appeal Tax Courts and other designated administrative agencies of Baltimore City and of the several counties as the final local assessing authorities. Code (1957, 1975 Repl. Vol.) Art. 81, § 255 (b). See id. at § 248 (a) (creating the Property Tax Assessment Appeal Boards).
[4] The tract was also reduced in size from 10.003 to 9.48 acres, although how, when and under what circumstances is not disclosed by the record.
[5] It is not contended that the appellants failed to exhaust their remedies before the Appeal Tax Court, Montgomery County's final assessing authority, as required by Code (1957, 1975 Repl. Vol.) Art. 81, § 230. Cf. Radin v. Supervisor of Assess., 254 Md. 294, 297, 255 A.2d 413 (1969). Although seemingly of no consequence, we note that the legislature apparently overlooked § 230 when it systematically, by chapter 784 of the 1973 Laws of Maryland, substituted Property Tax Assessment Appeal Boards for Appeal Tax Courts and other final local assessing authorities in Article 81.
[6] The power of the Maryland Tax Court to promulgate procedural rules under § 229 (b) is specifically made "subject to the provisions of this article," which would include the admonition of § 229 (c) that the "[p]roceedings before the [Maryland Tax] Court shall be de novo and shall be conducted in a manner similar to proceedings in courts of equity in this State." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535471/ | 212 B.R. 984 (1995)
In re Thomas Michael OGBURN, Debtor.
Thomas Michael OGBURN, Plaintiff,
v.
SOUTHTRUST BANK, Defendant.
Bankruptcy No. 92-01760-APG, Adversary No. 94-00183-APG.
United States Bankruptcy Court, M.D. Alabama.
November 2, 1995.
*985 Charles G. Reynolds, Sr., Alexander City, AL, for Debtor/Plaintiff.
Mitchell E. Gavin, Alexander City, AL, for Defendant.
OPINION
A. POPE GORDON, Bankruptcy Judge.
The debtor commenced this adversary proceeding to avoid a judgment lien held by SouthTrust Bank.
The debtor filed a motion for summary judgment, and the parties submitted the motion based on the pleadings and briefs and arguments of counsel.
The facts are not in dispute.
SouthTrust Bank obtained a prepetition judgment against the debtor in the amount of $62,302.25. The bank recorded the judgment in August 1991.
The debtor filed a petition under chapter 7 of the Bankruptcy Code in April 1992. The debtor owned no real property on the date of the petition. The debtor owned some personal property, all of which he claimed exempt.[1]
The debtor obtained a discharge under 11 U.S.C. § 727 on August 18, 1992. The trustee did not administer any assets during the pendency of the case.
After the discharge, the debtor acquired an interest in the real property constituting his homestead.[2]
The bank claims a lien on the property based on the recorded judgment.
The debtor filed this complaint to determine the validity of the lien.
Ala.Code § 6-9-211 (1975) provides as follows:
Every judgment, a certificate of which has been filed as provided in Section 6-9-210, shall be a lien in the county where filed on all property of the defendant which is subject to levy and sale under execution, and such lien shall continue for 10 years after the date of such judgment. . . .
The lien attaches to property acquired during the ten-year period.[3] The lien, however, does not attach to homestead property exempt from levy and execution.[4]
*986 In the case sub judice, the evidence does not disclose whether the debtor's interest in the real property falls within the limits of the homestead exemption.[5]
The court will proceed as if the homestead exemption statute is not dispositive of this proceeding.[6]
The debtor relies on In re Duncan, 60 B.R. 345 (Bankr.M.D.Ala.1986) and contends that the discharge of the debt to the bank terminated the lien with respect to property to which the lien had not attached prepetition.[7]
The bank relies on In re Wrenn, 40 F.3d 1162 (11th Cir.1994). The debtor contends that Wrenn is not applicable to the facts of this case. The court agrees.
The Eleventh Circuit held in Wrenn that a judgment lien which attached to property prepetition is not voided by a chapter 7 discharge.[8] However, the Wrenn court did not have the opportunity to consider whether the same judgment lien would extend to property acquired postpetition.
The distinction is meaningful:
The effect of release from the judgment is to extinguish the judgment. . . . Since a judgment lien cannot exist independently of the judgment, such lien is discharged by the satisfaction and extinguishment of the judgment.
In re Duncan, 60 B.R. 345, 348 (Bankr. M.D.Ala.1986) (citations omitted).
A treatise on bankruptcy explains that "the discharge may permanently suppress floating liens for dischargeable debts" as follows:
The discharge enjoins any "action, the employment of process, or an act, to collect, recover or offset" a discharged debt "as a personal liability of the debtor . . ." 11 U.S.C.A. § 524(a)(2). The same reasoning argues for interpreting the language "act, to collect, recover" to cover and enjoin a prepetition lien that would float to the debtor's postpetition property.
It is possible that the spread of a prepetition judgment lien is also stopped by the language of (a)(1) that "voids any judgment." Id. § 524(a)(1). The judgment is a debt which the lien of judgment secures. Without the debt there is nothing to secure and no basis for the lien. The lien is most probably preserved to the extent of property to which it has already attached. To any further extent, however, the judgment lien is seemingly undermined, quite literally, by voiding the judgment debt.
1 David G. Epstein et al., Bankruptcy § 3-11, at 155-56 & n. 27 (1992).
Another treatise on bankruptcy also states that a discharged prepetition judgment "cannot be the basis for a creditor obtaining a lien on property which was not subject to a lien prior to bankruptcy."[9]
*987 In the case sub judice, the lien did not attach to the real property prior to bankruptcy. The discharge released the debtor from personal liability on the debt.[10] "Without the debt there is nothing to secure and no basis for the lien."[11]
A separate judgment will enter voiding the judgment lien of SouthTrust Bank.
NOTES
[1] The debtor owned and claimed exempt a 1977 Ford Pickup, a 1982 Ford Pickup, an air conditioner, and clothing and personal items.
[2] The debtor and his wife desire to sell the property.
[3] Barber v. Beckett, 251 Ala. 569, 39 So. 2d 17 (1949); W.T. Rawleigh Co. v. Patterson, 239 Ala. 309, 195 So. 729 (1940).
[4] The lien created under Ala.Code § 6-9-211 attaches only to property "subject to levy and sale under execution." The homestead is not subject to levy and sale under execution to the extent exempt under Ala.Code § 6-10-2 (1975):
The homestead of every resident of this state, with the improvements and appurtenances, not exceeding in value $5,000 and in area 160 acres, shall be, to the extent of any interest he or she may have therein, . . . exempt from levy and sale under execution or other process for the collection of debts . . .
See Barber v. Beckett, 251 Ala. 569, 572, 39 So. 2d 17 (1949). Under Alabama case law, the homestead is not exempt from tort judgment liens. Harris v. Jenkins, 265 Ala. 315, 90 So. 2d 764 (1956).
[5] See supra, n. 4. To the extent that the debtor's interest falls within the limits of the homestead exemption, the property is not subject to the lien of SouthTrust Bank. See Ala.Code § 6-10-2 (1975).
[6] To the extent that the debtor's interest in the property exceeds the limits of the homestead exemption, the validity of the lien on the property is a viable issue.
[7] The lien did not attach to the real property in question prepetition because the lien could not attach until the debtor acquired the property. See W.T. Rawleigh Co. v. Patterson, 239 Ala. 309, 195 So. 729 (1940). Indeed, one court has concluded that a lien does even exist in the absence of an attachable res. In re Thomas, 102 B.R. 199 (Bankr.E.D.Cal.1989).
[8] The court reasoned that the "discharge does not affect liability in rem, and prepetition liens remain enforceable after discharge." Wrenn, 40 F.3d at 1164. See 11 U.S.C. § 524(a) which states that a discharge voids a judgment only to the extent of the personal liability of the debtor.
[9] 3 Lawrence P. King, Collier on Bankruptcy ¶ 524.02, at 524-18 (15th ed.1995) citing In re Thomas, 102 B.R. 199 (Bankr.E.D.Cal.1989) (prepetition judgment that became void due to discharge did not give rise to lien on real property acquired after discharge). Under California law, like Alabama law, a judgment lien may attach to after-acquired property. In re Thomas, 102 B.R. at 200.
[10] This court is not holding that 11 U.S.C. § 524 voids in rem liability on the judgment debt. The court is merely holding that upon discharge of the in personam liability, there is no basis for the lien to attach to property acquired postpetition.
[11] 1 David G. Epstein et al., Bankruptcy § 3-11, at 156 n. 27 (1992). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535452/ | 212 B.R. 459 (1997)
In re James M. DOWNING and Ella D. Downing, Debtors.
Bankruptcy No. 96-36604.
United States Bankruptcy Court, D. New Jersey.
August 27, 1997.
Fein, Such, Kahn & Shepard, P.C., Vincent DiMaiolo, Jr., Parsippany, NJ, for Ford Consumer Finance Company, Inc.
Law Office of Arthur E. Swidler, Arthur E. Swidler, Trenton, NJ, for Debtors.
OPINION
WILLIAM H. GINDIN, Chief Judge.
PROCEDURAL HISTORY
This matter comes before the court as a motion for reconsideration of an order entered on December 17, 1996, denying the motion of Ford Consumer Finance Company ("Ford") for relief from the automatic stay pursuant to 11 U.S.C. § 362(d). Ford, as the mortgagee on the residence of James M. Downing and Ella D. Downing (cumulatively, the "debtors") seeks relief challenging the debtors' opportunity to cure an arrearage on their home mortgage under 11 U.S.C. § 1322(c)(1) following a foreclosure sale.
This court finds, for the reasons set forth below, that the debtors may cure their default and reinstate their residential mortgage until the actual delivery of a sheriff's deed to the successful purchaser.
This court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and the Standing Order of Reference by the United States District Court for the District of New Jersey, dated July 23, 1984. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(G), (L) and (O).
FACTS
Ford is the holder of a first mortgage on the debtors' residence located at 632 North Olden Avenue, Trenton, New Jersey ("residence") which secures a promissory note in the original principal amount of $40,153.59. In February of 1995, after the debtors defaulted in payment on the note, Ford commenced a foreclosure action. The debtors filed their first chapter 13 petition on May 16, 1995. Ford moved for relief from the automatic stay to proceed with its foreclosure action and such relief was granted on September 19, 1995. A final judgment of foreclosure in the amount of $45,528.86, plus interest and fees was issued in the State Court proceedings on January 12, 1996. *460 This case was dismissed on November 30, 1995.
The debtors filed a second chapter 13 petition on February 21, 1996. That case was dismissed on March 14, 1996 for failure to file the necessary schedules and a chapter 13 plan of reorganization. The Sheriff of Mercer County conducted an auction sale on July 24, 1996, at which Ford was the successful bidder. The debtors commenced the instant chapter 13 case on July 31, 1996, during the ten (10) day period in which the debtors could exercise their right of redemption under N.J. Court Rules, 1969, R. 4:65-5. The deed to the residence was not delivered to Ford due to the intervention of the automatic stay under 11 U.S.C. § 362(a).
On November 18, 1996, Ford filed a motion for relief from the automatic stay asserting that the debtors were in arrears for five (5) payments in the cumulative amount of $2,640.10. During the January 14, 1996 hearing, the debtors represented to the court that they had available funds in the amount of $2,160.00 to apply against their debt. The court denied Ford's motion for relief from the automatic stay and ordered Ford to accept the debtors' payment and ordered the debtors to make a double payment in January of 1997 to cure their post-petition default. The court further ordered the debtors to provide a thirty (30) day default clause in their chapter 13 plan of reorganization along with a provision to pay outstanding attorneys' fees and costs. Ford filed the instant motion for reconsideration on December 27, 1997. A hearing was conducted on January 21, 1997. The court reserved decision after argument. On January 14, 1997, during the pendency of the instant motion for reconsideration, the debtors' chapter 13 plan of reorganization was confirmed.
The debtors interpret 11 U.S.C. § 1322(c)(1) to permit them to cure their delinquencies and to reinstate their mortgage under other applicable provisions of § 1322. They contend that a judicial foreclosure sale in New Jersey is not deemed as final until the date the deed is conveyed by a sheriff.
Ford rejects this reasoning and asserts that the plain language and legislative intent of § 1322(c) provides that the debtors' right to cure terminates on the date the sheriff declares that the property is sold at a foreclosure auction. Ford suggests that under New Jersey law, the debtors can only defeat a sale by exercising their right of redemption of the entire debt owed within ten (10) days after the auction or with a sixty (60) day extension by operation of 11 U.S.C. § 108(b) if a bankruptcy case is filed before the expiration of the original exemption period. Ford states that the right of redemption is distinguished from a right to cure and such a redemption period does not provide a debtor with the ability to reinstate a mortgage under § 1322(b).
DISCUSSION
A. Origin of 11 U.S.C. § 1322(c)(1)
In pertinent part, 11 U.S.C. § 1322(c)(1) provides:
[a] default with respect to, or that gave rise to, a lien on the debtor's principal residence may be cured[1] under paragraph (3) or (5) of subsection (b) until such residence is sold at foreclosure sale that is conducted in accordance with applicable nonbankruptcy law.
11 U.S.C. § 1322(c)(1)(emphasis added). Section 1322(c)(1) was included in the Bankruptcy Reform Act of 1994 to clarify the types of home mortgage defaults that could be cured under a chapter 13 plan. H.R. REP. NO. 103-835, 103rd Cong., 2nd Sess 52 (Oct. 4, 1994), U.S. Code Cong. & Admin. News 1994 at pp. 3340, 3360.; 140 CONG. REC. H10,769 (Oct. 4, 1994) Until the Third Circuit's decision in Matter of Roach, 824 F.2d 1370 (3d Cir.1987), all of the Federal Courts of Appeal had held that such a right to cure continues up until the time of a foreclosure sale. Id. (citing In re Glenn, 760 *461 F.2d 1428 (6th Cir.1985), cert. denied, 474 U.S. 849, 106 S. Ct. 144, 88 L. Ed. 2d 119 (1985); Matter of Clark, 738 F.2d 869 (7th Cir.1984)). Matter of Roach decided that a debtor's right to cure was extinguished at the time of the foreclosure judgment, which occurs in advance of the foreclosure sale. Id. Congress determined that this decision was "in conflict with the fundamental bankruptcy principal of allowing a debtor a fresh start through bankruptcy" and thus enacted this subsection. Id. (citing remarks of Rep. Jack Brooks).
As stated above, § 1322(c)(1) provides that a default on a mortgage against a debtor's residence may be cured until the property is "sold at [a] foreclosure sale" conducted in accordance with state law[2]. 11 U.S.C. § 1322(c)(1). The legislative history suggests that the debtor may cure a residential mortgage default "at least through completion of a foreclosure sale under applicable nonbankruptcy law." 140 CONG. REC. 110,-769 (daily ed. October 4, 1994)(remarks of Rep. Jack Brooks)(emphasis added). Thus, the statutory language and the legislative history defer to state law to answer the question concerning the time at which the foreclosure sale has been completed.
Although the addition of § 1322(c)(1) was intended to establish clear guidelines as to the termination of a debtor's right to cure a default on a home mortgage, the conflicting decisions in the district of New Jersey alone indicate that although this may have been Congress' intent, such was not the result.
B. Survey of Caselaw
The bankruptcy courts in the district of New Jersey are split in their interpretation of this subsection. Four cases have held that a foreclosure proceeding conducted in accordance with New Jersey law terminates a debtor's right to cure a mortgage when the hammer goes down at the time of the auction sale. In re Ziyambe, 200 B.R. 790 (Bankr. D.N.J.1996); In re Little, 201 B.R. 98 (Bankr.D.N.J.1996); In re Simmons, 202 B.R. 198 (Bankr.D.N.J.1996); In re Hric, 208 B.R. 21 (Bankr.D.N.J.1997). By contrast, two other courts have decided that a chapter 13 debtor may cure and reinstate a residential mortgage until the actual delivery of a sheriff's deed to the successful purchaser. Matter of Ross, 191 B.R. 615 (Bankr.D.N.J. 1996); In re Macavia, No. 95-34118 (unpublished) (Bankr.D.N.J.1995). In the instant case Ford urges reasoning under the Ziyambe line of cases and the debtors argue that the Ross progeny is apposite.
In In re Ziyambe, the debtors defaulted on their home mortgage and the property was auctioned at a foreclosure sale. In re Ziyambe, 200 B.R. at 791. On the day immediately following the auction, the debtors filed a Chapter 13 petition and sought to cure the default under their Chapter 13 plan. Id. The court determined that the debtors' right to cure terminated at the completion of the auction sale relying on its interpretation of the legislative history of the subsection and New Jersey foreclosure law.
In its examination of the legislative history of § 1322(c)(1), the court reviewed caselaw and Congressional testimony and decided that the 1994 Reform Act had codified cases which adopted a "bright line" test to cut off the right to cure at the time of the auction sale. Id. at 798. The court relied on the analysis in In re Sims, 185 B.R. 853 (Bankr. N.D.Ala.1995), which held that although a court is compelled to rely on state law to determine when property is sold at a foreclosure sale, it does not need to analyze the state property rights of a debtor in property to determine whether a cure is available. Id. at 798. The Sims court concluded that for chapter 13 purposes, the variations of the "laws of different states to govern the effect of an acceleration and its curability" would defeat Congress' preemptive bankruptcy powers to provide a "uniform national remedy *462 to adjust the debts of individuals" as an alternative to a chapter 7 liquidation. Id. (quoting In re McKinney, 174 B.R. 330, 336 (Bankr.S.D.Ala.1994)).
The Ziyambe court reviewed the floor comments of Senator Grassley to support its finding that Congress intended that property would be deemed as sold at the time of the foreclosure sale, ". . . [§ 1322(c)(1)] will preempt conflicting State laws; and permit homeowners to pre[s]ent a plan to pay off their mortgage debt until the foreclosure sale actually occurs." Id. (citing 140 CONG. REC. § 14462 (daily ed. October 6, 1994))(statement of Sen. Grassley).
The court also examined New Jersey state law and found that it did not believe that Congress intended to introduce "inherent uncertainty into the foreclosure process" by promoting a county to county determination as to whether a property is sold. Id. Since the New Jersey is based on a system where delivery of a sheriff's deed confers the transfer of property, a homeowner's rights are subject to the workload and staffing considerations in any given month. Id. Further, a sheriff serves only a "ministerial function" in delivering the deed and "does not" affect the substantive rights of the parties under state law. Id. (citing Porreca v. LaFerriere, 225 N.J.Super. 590, 591, 543 A.2d 102, 104 (App. Div.1988)(a sheriff performs ministerial function when a deed is transferred for recording and holds no liability for attendant realty transfer fee)). Thus, the court concluded that fixing the cure deadline to the day of the sheriff's sale under § 1322(c)(1) would eliminate the determination of a mortgagor's curative rights upon administrative concerns and establish a more concrete and uniform guideline. Id.
Similar reasoning can be found in the decision of the bankruptcy court in In re Simmons. While in agreement that the meaning of the subsection is not readily discerned from its text, the court found that the modification of the term "foreclosure sale" by the phrase "conducted in accordance with applicable bankruptcy law" refers to the event of the sale. In re Simmons, 202 B.R. at 200. In its analysis, this court relied on the House Report and Senator Grassley's comments as seminal sources in its construction. Id. at 201. It also gave credence to the phrase "foreclosure sale" as a legal term of art to be construed in its customary sense. Id. at 202. The Simmons court further concluded that the establishment of the day of the sale as the termination date "fulfills the dual policies that underlie the [sub]section;" it affords a debtor the opportunity to retain a residence by filing a chapter 13 petition and plan to cure arrears in addition to the creation of a uniform termination date for lenders. Id. at 203. Lastly, the court noted that its interpretation is consistent with New Jersey law which recognizes that equitable title to real property in a foreclosure setting is transferred upon conclusion of the auction sale. Id. at 204. Accordingly, the Simmons court held that a debtor's right to cure through a chapter 13 plan terminates upon the date the mortgaged property is auctioned off to the highest bidder. In re Little followed Simmons opining that the phrase "sold at foreclosure sale" in § 1322(c)(1) refers to the sheriff's auction. In re Little, 201 B.R. at 107.
In In re Hric, the court agreed with the Simmons analysis declaring that the phrase "conducted in accordance with applicable nonbankruptcy law" modifies the term "foreclosure sale" which simply requires that the sale be conducted in a procedurally correct manner. In re Hric, 208 B.R. at 25. Thus, the court's interpretation of "sold at foreclosure sale" was examined relying on the language of N.J. Court R. 4:65-5[3] which repeatedly refers to the event of the auction as the "sale" and distinguishes the "sale" from "delivery of the deed". Id. Accordingly, the court held that the sheriff's sale as the termination date to cure a default.
While this court is mindful of the arguments set forth in Ziyambe, Simmons, Little, and Hric, it respectfully chooses instead to follow the reasoning of in Matter of Ross, 191 B.R. at 615, the first of the published opinions within this district to address the meaning of § 1322(c)(1). In Ross, the court found that a debtor's right to cure a default and *463 reinstate a mortgage terminates upon the actual delivery of the sheriff's deed to the successful purchaser. Id. at 621.
First, the court distinguished the rights of a debtor to cure a default under § 1322(c)(1) from the right of redemption held by a mortgagor under state law. Id. at 617-18. The Ross court noted that a debtor's right to cure a default under § 1322(c)(1) terminates when the property is "sold at foreclosure sale.". Id. (citing Matter of Roach, 824 F.2d at 1372, n. 1)[4]. On the other hand, the debtor's state law right of redemption, to the extent that it exists when a bankruptcy petition is filed, extends for sixty (60) days beyond the state law time frame by operation of 11 U.S.C. § 108(b) upon the filing of a petition[5]. Id. Concurring with the proposition in In re Sims that Congress intended to establish a "bright line" point of termination for a debtor's right to cure, the court reviewed the language of § 1322(c)(1) to determine when that time occurred. Id. Finding an ambiguity with the term "sold at a foreclosure sale", the court then reviewed the legislative history of the subsection, its interpretive case law, and New Jersey law. Id. at 618-21. In its analysis, the court found that the legislative history confirms that the term sale is construed as the time the foreclosure transaction becomes final. Id. at 619. Under New Jersey law, the court found that a foreclosure transaction closes at the time a sheriff's deed is delivered to the successful bidder. Id. at 621.
C. Statutory Construction
This court concurs with Ross' analysis on several levels. First, the best construction of the subsection results in an extension of a debtor's cure rights to the delivery of the sheriff's deed under the legislative history of § 1322(c)(1). As stated above, it is well settled that the modification of the term "foreclosure sale" by "conducted in accordance with applicable nonbankruptcy law" in the text has created an ambiguity with the meaning of the word "sold" in the preceding paragraph of § 1322(c)(1). Id. at 618; In re Simmons, 202 B.R. at 200 (citing U.S. v. Gibbens, 25 F.3d 28, 34 (1st Cir.1994))(a statute is ambiguous if it can reasonably be read in more than one way). As such, the court is required to consider available legislative history, if any, and case law which existed at the time of the statute. United States v. Ron Pair, 489 U.S. 235, 109 S. Ct. 1026, 103 L. Ed. 2d 290 (1989).
The Simmons line of cases rely on the floor statement of Senator Grassley ". . . [t]here may be several months between the court order and the foreclosure sale. [§ 1322(c)(1)] will preempt conflicting State laws; and permit homeowners to present a plan to pay off their mortgage debt until the foreclosure sale actually occurs[6]." In re *464 Simmons, 202 B.R. at 202 (citing 140 CONG. REC. § 14462 (daily ed. October 6, 1994)). The legislative history of the House version of the bill relating to the Senator's statement supports an alternative conclusion. House Report 103-835 states in pertinent part that:
This section of the bill safeguards a debtor's rights in a chapter 13 case by allowing the debtor to cure home mortgage defaults at least through the completion of a foreclosures sale under applicable nonbankruptcy law. However, if the State provides the debtor more extensive "cure" rights (through, for example, some later redemption period), the debtor would continue to enjoy such rights in bankruptcy.
H.R.REP. 103-835, 103rd Cong., 2d Sess. 52 (October 4, 1994); 140 CONG. REC. 10752-01, 10769 (October 4, 1994); U.S.Code Cong. & Admin. News 1994, pp. 3340, 3361 (emphasis added). When this commentary is read with Senator Grassley's statement, it is apparent that Congress intended that a debtor's rights would continue to the time of a sale and that if certain states would provide debtors "more extensive cure rights" a debtor should benefit[7]. This court agrees with Ross that if Congress intended for a debtor's right to cure to terminate at the sheriff's sale, it could have stated as such. Matter of Ross, 191 B.R. at 618. Congress placed the date of termination at the point when the sale is final under "applicable state law", knowing that the applicable date would necessarily vary from state to state. In re Rambo, 199 B.R. 747, 750 (Bankr.W.D.Okla. 1996). Congress' intent was not to reduce the cure rights previously possessed by debtors, but to extend those rights for those debtors in whose jurisdictions they were unduly restrictive. Id. Accordingly, the most consistent interpretation of the legislative history of § 1322(c)(1) is to allow a debtor to cure a mortgage up to the time a sale becomes final.
D. New Jersey Law
This court also concurs with Ross' examination of New Jersey law holding that a judicial foreclosure sale is final on the date the deed on the property is conveyed by the sheriff. Matter of Ross, 191 B.R. at 618. To foreclose under a mortgage under New Jersey law, N.J.S.A. 2A:50-2 requires a mortgagee to file an action to foreclose, obtain a judgment of foreclosure and a writ of execution directing the sale of the mortgaged property pursuant to N.J.S.A. 2A:50-36, and sell the property through a sheriff or other authorized person to the highest bidder, N.J.S.A. 2A:50-37. Id. Under N.J. Court R. 4:65-5[8], the sheriff is further directed to "deliver a good and sufficient conveyance" unless an objection is served upon him within ten (10) days after the sale or at any time before the deed is delivered. Id. The mortgagor is then permitted to redeem within the ten (10) day statutory objection period and until an order confirming the sale if objections are filed. Id. (citing Hardyston Nat'l. Bank v. Tartamella, 56 N.J. 508, 513, 267 *465 A.2d 495, 498 (1970)). The crux of the instant issue lies in the statutory interpretation of the finality of a sale under New Jersey law.
The genesis of N.J. Court R. 4:65-5 lies in R.S. 2:65-12, the statute which controlled confirmation of a foreclosure sale prior to 1948. Hardyston Nat. Bank v. Tartamella, 56 N.J. at 510, 267 A.2d at 496. The statute required a sheriff to report a sale within five (5) days to move the court to approve and confirm the sale as valid, provided the court was satisfied that the highest price obtainable by cash was realized by affidavits or certifications. Crane v. Bielski, 27 N.J.Super. 448, 456, 99 A.2d 526, 530 (App.Div. 1953). If confirmed, the court directed the sheriff to execute and deliver a deed of conveyance. Id. Then, by Chancery Rule 218, the order of confirmation could not be entered until the expiration of ten (10) days. Id. On September 15, 1948, R.S. 2:65-12[9] was amended to eliminate the motion to confirm and the order of confirmation. N.J.S. 2A:50-19, N.J.S.A.; Id. The Chancery Court Rule was also amended to authorize the sheriff to transfer the foreclosure deed to the purchaser within ten (10) days, provided no objections were filed with the court. Id. (citing Rule 3:77-5 (now N.J. Court R. 4:65-5)). Accordingly, the 1948 revision made the judicial sale the final event but gave the debtor or any one with an interest, an objection period to challenge the confirmation of a sale.
Pertinent to the instant case, the 1948 amendment created a question as to whether or not a mortgagor had an absolute right to redeem before a confirmation of a foreclosure sale. In Ghee v. Davenport, the court examined the redemption issue in the pre-amendment context. Ghee v. Davenport, 2 N.J.Super. 532, 533, 64 A.2d 902, 903 (Ch.Div.), aff'd 4 N.J.Super. 518, 68 A.2d 284 (App.Div.1949). The court found that no true sale existed until it was judicially determined that the sale was "valid and effectual". Id. The court reasoned that the mortgagors' equity of redemption was not absolutely foreclosed after a sale but merely suspended, only to be terminated if the purchaser complied with the conditions of sale. Id. at 535, 64 A.2d at 904 (citing Wootton v. Pollock, 119 N.J.Eq. 128, 132, 181 A. 172 (E & A 1935)); Vanderbilt v. Brunton Piano Co., 111 N.J.L. 596, 601, 169 A. 177 (E & A 1933); Federal Title & Mortgage Guaranty Co. v. Lowenstein, 113 N.J.Eq. 200, 166 A. 538 (Ch.Div.1933). Thus, the mortgagors had the right to redeem until the sheriff's sale was confirmed by the court. Id.
The Appellate Division disagreed with Ghee v. Davenport in Crane v. Bielski, a post-amendment case which held that a judicial sale immediately terminated the equity of redemption so that the mortgagor could thereafter redeem only for adequate cause. Crane v. Bielski, 27 N.J.Super. at 458-59, 99 A.2d at 531. In denying the mortgagor's request to redeem the property within ten (10) days of the sale and before conveyance of the deed, the court reasoned that since confirmation of the sale was no longer required by the amended rules of Court, the rights of the parties were fixed at the time of the sale unless the court sets aside the sale following a motion showing sufficient cause within the objection period. Id.
The Supreme Court of New Jersey examined the conflicting dates of redemption in Hardyston Nat'l Bank v. Tartamella[10]. Hardyston Nat'l Bank v. Tartamella, 56 N.J. at 508, 267 A.2d at 495. In Hardyston, the Court specifically rejected the holding in Crane and resolved the conflict in favor of the reasoning in Ghee v. Davenport. Id. at 511, 267 A.2d at 496. The Court found that Crane v. Bielski "misconceived the impact of [the court's] rules . . . [as] the motion to confirm and the order of confirmation were eliminated not to change the rights of the parties as they . . . existed, but only to eliminate the paperwork of a formal motion and *466 order . . . which had become routine and of no practical value." Id. at 510, 267 A.2d at 496. Thus, the force of the statute was to enhance the administration of a foreclosure action, not to limit the rights of the parties.
Hardyston also noted that the recognition of the right of redemption after a sale encourages bidding because a purchaser would know that a bid that does not approximate value will stimulate the debtor to make a "last-ditch" effort to regain the property at the deflated price. Id. at 513-14, 267 A.2d at 497. While recognizing that the situation would be rare in which a foreclosed mortgagor could redeem after a sale, the Hardyston court reasoned that the "historically favored status" of the right of redemption in the mortgagor argued in favor of an extension through the ten (10) day period. Id.
In Carteret Savings & Loan Ass'n., F.A. v. Davis, 105 N.J. 344, 521 A.2d 831 (1987), the Supreme Court reviewed the progeny of Ghee v. Davenport in the context of a purchaser's challenge of a sheriff's acceptance of a redemption of a mortgage to a third party. Although the court held that an assignee of a second mortgage does not acquire a right to redeem property after a foreclosure sale, it reaffirmed the Hardyston decision in dicta that a borrower maintains an opportunity to redeem property through the ten (10) day objection periods[11]. Id. at 353, 521 A.2d 831. Thus, the reflection of the New Jersey Supreme Court appears to be that a judicial sale is final when the sheriff conveys the deed, at the expiration of the ten (10) day objection period. Matter of Ross, 191 B.R. at 620.
This court also agrees with Ross that the language in Porreca v. LaFerriere, 225 N.J.Super. 590, 591, 543 A.2d 102 (App.Div. 1988), is not inconsistent with its holding that the property is deemed sold upon conveyance of the deed. Id., 191 B.R. at 621. The Porreca court analyzed a decision which rejects the argument of a successful purchaser that a sheriff who conducts a foreclosure sale and executes a deed is responsible to pay the realty transfer tax required under N.J.S.A. 46:15-7. Porreca v. LaFerriere, 225 N.J.Super. at 595, 543 A.2d at 104. The court affirmed the lower court's holding that the presiding sheriff was not a "grantor" within the meaning of the statute imposing the fee obligation. Id. at 595, 543 A.2d 102. The sheriff merely acted as a court agent, performing a ministerial function in the conveyance of a deed. Id.
Porreca's finding that the sheriff's duties are merely ministerial in nature only lends further support for the argument that the date of the sheriff's sale is not the determinative event, but instead only a tentative agreement to purchase the property. First, a successful purchaser in New Jersey is required only to deliver a deposit of twenty-percent (20%) of the bid price at the conclusion of a foreclosure sale, with the balance to be paid in cash or certified funds prior to deed delivery. See, N.J.S.A. 2A:50-64. Further, it is well settled that legal title does not vest in the purchaser until the transfer of the deed. Union County Savings Bank v. Johnson, 210 N.J.Super. 589, 594, 510 A.2d 288, 291 (Ch.Div.1986). At the auction, the purchaser only obtains equitable title in the property, subject to defeasance. Union Building & Loan Ass'n v. Childrey, et al., 97 N.J.Eq. 20, 24, 2 N.J.Misc. 567, 571, 127 A. 253 (Ch.1924); Development Building & Loan Assn. of Camden v. Nurock et ux., 10 N.J.Misc. 23, 26, 157 A. 452, 454 (Sup.1931); Cropper v. Brown, 76 N.J.Eq. 406, 414-15, 74 A. 987, 991 (Ch.1909). A purchaser may be relieved of a bid by a court before delivery of the sheriff's deed if there are undisclosed encumbrances and substantial title defects, N.J.S.A. 2A:61-16, or the debtor objects to the sale during the ten (10)day period following the auction and prior to the conveyance of the sheriff's deed. Matter of Ross, 191 B.R. at 621 (citing N.J. Court R. 4:65-5). Thus, the actual foreclosure sale is in the form of a bargain among competent parties, dependent upon the completion of the payment of the full purchase price and delivery of the sheriff's deed. Karel v. Davis, 122 N.J.Eq. 526, 531, 194 A. 545 (E & A 1937); *467 Thompson v. Ramsey, 72 N.J.Eq. 457, 460, 66 A. 588, 589 (Ch.1907). As stated in Thompson, citing the language of Lord Mansfield, "the execution and delivery of the deed of the sheriff is the substantial part [of a sale]. . . . In such cases, . . . an estate does not pass until all the acts requisite . . . are completed. . . ." Id. See also, United States v. Capobianco, 836 F.2d 808, 810-11 (3d Cir.1987); Blatchford and Others v. Conover, 40 N.J.Eq. 205, 13 Stew. 205, 1 A. 16, 17 (E & A 1885).
The courts in Ziyambe and Simmons also hold that fixing the point of termination at the date of the sheriff's sale or auction would create a more uniform rule for deciding when the debtors' right to cure has ceased under § 1322(c)(1). This court does not believe that placing the date of termination at the point when the sale becomes final would be in contravention of this legislative intent. Ziyambe suggests that administrative and staffing considerations of the sheriff of each county make the delivery of a deed capricious in that it cannot be predicted by a debtor, creditor or a successful purchaser. In re Ziyambe, 200 B.R. at 798. This court suggests that those same issues plague the scheduling of a foreclosure sale.
First, N.J.S.A. 2A:17-36 authorizes a sheriff to make two (2) adjournments of any sale "to any time, not exceeding 14 calendar days of each adjournment." This section also allows a court of competent jurisdiction to make further adjournments for cause. Id. Such an adjournment is within a sheriff's discretion, Morris v. Woodward, 25 N.J.Eq. 32, 10 G.E. Green 32 (Ch.1874), and a proclamation of an adjourned date without further advertising is deemed as sufficient notice, Allen v. Cole, 9 N.J.Eq. 286, 59 Am.Dec. 416 (Ch.1853). Thus, the sale date is readily susceptible to change without a published date. This is the precise reason Ziyambe and Simmons are uncomfortable with the language of Rule 4:65-5 as it allows objections to be served within ten (10) days after the sale or at any time thereafter before the delivery of the conveyance. N.J. Court R. 4:65-5. While these courts stress that there is less certainty in the ten (10) day objection period following a sale, this court views the completion of the entire sale process culminated by the actual delivery of the sheriff's deed as the more definitive point of termination because the sale of the property becomes final under state law. Matter of Ross, 191 B.R. at 621.
CONCLUSION
Based on the foregoing, this court concludes that a New Jersey foreclosure sale is complete when the sheriff delivers the deed to the successful purchaser. Therefore, a chapter 13 debtor may cure a default and reinstate a residential mortgage following the entry of a foreclosure judgment and the conduct of a sheriff's sale, until the actual delivery of a sheriff's deed to the successful purchaser. Ford's motion for reconsideration is denied. Counsel for the debtors shall submit an order consistent with this opinion within ten days.
NOTES
[1] A "cure" under § 1322(c)(1) is defined as the satisfaction of a default over time. In re Sims, 185 B.R. 853, 863 (Bankr.N.D.Ala.1995). A redemption, on the other hand, refers to a right to pay an entire debt with interest, after a default and prior to the consummation of a foreclosure. GRANT S. NELSON & DALE A. WHITMAN, REAL ESTATE FINANCE LAW § 7.1 (2d ed.1985).
[2] Federal foreclosure law does not exist. The Rules of Decision Act, 28 U.S.C. § 1652 states in pertinent part that, "[t]he laws of the several states, except where the Constitution or treaties of the United States or Acts of Congress otherwise require or provide, shall be regarded as rules of decision in civil actions in the courts of the United States, in cases where they apply." Therefore, this court must examine state law to determine when residential property is sold at foreclosure sale. See also, West End Assoc. v. Sea Green Equities, 166 B.R. 572, 578 (D.N.J. 1994)(state law provides the authority for a foreclosure sale).
[3] The text of N.J. Court R. 4:65-5 is discussed infra, at pp. 464-65.
[4] Although Matter of Roach was legislatively overruled by the enactment of § 1322(c)(1), See p. 460 supra, this court concurs with Ross in that Roach's analysis which draws a distinction between curing a default under the Bankruptcy Code and evaluating a debtor's property interests at the time of filing, including redemption opportunities, survives. Id. at n. 6.; In re Mocco, 176 B.R. 335, 344 (Bankr.D.N.J.1995).
[5] According to 11 U.S.C. § 108(b):
Except as provided in subsection (a) of this section, if applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period within which the debtor or an individual protected under section 1201 or 1301 of this title may file any pleading, demand, notice, or proof of claim or loss, cure a default, or perform any other similar act, and such period has not expired before the date of the filing of the petition, the trustee may only file, cure, or perform, as the case may be, before the later of
(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case or;
(2) 60 days after the order for relief.
[6] The complete statement as cited in Simmons is as follows:
Mr. President, I am pleased to support H.R. 5116. This bill represents the collective wisdom of the Senate and the House concerning needed bankruptcy reforms. As an original sponsor of the Senate-passed bill, S. 540, I would have its enactment. Nonetheless, compromise is the key to enact just about anything, I can support this compromise bill as a good effort to improve our Nation's bankruptcy laws, Indeed, several of the provisions of the House bill were an improvement on the Senate language. . . . Title III of the bill will assist homeowners. Some homeowners attempt to prevent their homes from being foreclosed upon, even though a bankruptcy court has ordered a foreclosure sale. There may be several months between the court order and the foreclosure sale. Section 301 will preempt conflicting State laws, and permit homeowners to present a plan to payoff their mortgage debt until the foreclosure sale actually occurs."
In re Simmons, 202 B.R. at 202.
[7] Further support for this conclusion can be found in commentary of treatises:
[I]n some states, a sale may not be deemed completed until the court has entered an order confirming the sale, or until a sheriff has conveyed the property, or until a debtor no longer may redeem the property. It may well be significant that Congress did not say that the debtor may cure `until the sale,' or `until the date of the foreclosure sale,' indicating that the completion of the sale might be a later date than the date of the auction."
5 LAWRENCE P. KING, Collier on Bankruptcy, ¶ 1322.14A at p. 1322-50 (15th ed.1995).
[8] N.J. Court R. 4:65-5 states as follows:
A sheriff is authorized or ordered to sell real estate shall deliver a good and sufficient conveyance in pursuance of the sale unless a motion for the hearing of an objection to the sale is served within 10 days after the sale or at any time thereafter before the delivery of the conveyance. Notice of the motion shall be given to all persons in interest, and the motion shall be made returnable not later than 20 days after the sale, unless the court otherwise orders. On the motion, the court may summarily dispose of the objection; and if it approves The sale and is satisfied that the real estate was sold at its highest and best price at the time of the sale, it may confirm the sale as valid and effectual and direct the sheriff to deliver a conveyance as aforesaid. (September 1, 1994).
[9] L.1948, c. 378, as amended, L.1949, c. 112 (R.S. 2:65 12, N.J.S.A.).
[10] At the time of the Hardyston decision, New Jersey did not have a statutorily-created right of redemption. Carteret Sav. and Loan Ass'n., F.A. v. Davis, 105 N.J. 344, 348, 521 A.2d 831 (1987). The equity of redemption merely carried a right to forestall the foreclosure. Once the foreclosure and the sale took place, the mortgagor had no further right or interest in the property. Id.
[11] Under New Jersey law, a chapter 13 filing does not alone operate as an "objection" to a sale under N.J. Court R. 4:65-5. Union County Sav. Bank v. Johnson, 210 N.J.Super. 589, 510 A.2d 288 (Ch.Div.1986). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535811/ | 114 B.R. 253 (1990)
In re Orville J. RATHE and Janet A. Rathe, Husband and Wife, Debtors.
Bankruptcy No. 85-02570-13.
United States Bankruptcy Court, D. Idaho.
May 4, 1990.
*254 Brent T. Robinson, Ling, Nielsen and Robinson, Rupert, Idaho, for debtors.
Stephen A. Bradbury, Eberle, Berlin, Kading, Turnbow & Gillespie, Boise, Idaho, for Union Federal Sav. and Loan Ass'n.
MEMORANDUM OF DECISION
ALFRED C. HAGAN, Chief Judge.
On November 6, 1989, an order was entered in this Chapter 13 case approving the standing trustee's final accounting and discharging the trustee. The debtors now move for injunctive relief against Union Federal Savings and Loan Association, which motion raises issues relating to the effect of a Chapter 13 discharge on a secured creditor holding a security interest in a debtor's principal residence under the provisions of 11 U.S.C. § 1322(b)(2) and the method of the lenders application of the debtors' principal and interest payments during the term of the plan.
FACTS
The debtors filed their Chapter 13 petition on December 11, 1985. The debtors submitted an amended Chapter 13 plan on April 7, 1986, which plan was confirmed on April 28, 1986. The confirmed plan provided Rainier Mortgage Company, predecessor in interest to Union Federal Savings and Loan Association and the holder of the security interest in debtors' principal residence, would be paid regular monthly contract payments of $390.00 during the term of the plan and debtors would continue to make such payments upon completion of the plan. In addition, the amount of default to be cured during the term of the plan was listed as $7,668.41, which amount was to be paid in monthly installments of $213.01.
Rainier Mortgage Company did not object to the treatment of its claim in the Chapter 13 plan. The plan was confirmed on April 28, 1986. On January 30, 1987, Union Federal filed a motion to modify the Section 362 stay, but did not appear at the hearing and consequently the motion was considered denied.
Upon completion of the plan by the debtors Union Federal objected to the Chapter 13 trustee's final accounting claiming it was owed additional monies and that debtors' payments were not current at the time the plan was completed. After hearing on the objection, a memorandum of decision was issued on November 2, 1989 concluding the debtors had paid Union Federal in accordance with the plan provisions. Findings were made to the effect the debtors' plan provided for payment to Union Federal of $14,040.00, representing 13 monthly payments of $390.00 each, the contract monthly payment, and $7,668.41 for arrearages. The trustee's final accounting indicated these amounts had been paid. As the additional claimed fees, costs and late charges were not included in the plan or *255 were determined to be not necessary or reasonable charges, the objection to the final accounting was denied.
Now after completion of the plan and the entry of debtors' discharge, Union Federal is demanding from the debtors these payments and other payments it claims debtors owe pursuant to the contract which occurred during the term of the execution of the plan. Union Federal claims debtors are not current in their principal and income payments, even though the debtors made these payments during the plan and made up the arrearages, since Union Federal partially diverted these payments to reserve or impound accounts, late charges, professional fees and other charges. The debtors claim Union Federal has not made proper application of debtors' payments and question Union Federal's accounting procedures. These issues are thus raised through the debtors' application for a specific injunction against Union Federal prohibiting it from further collection activities.
DISCUSSION
The debtors' plan provisions for treatment of the Union Federal claim complied with 11 U.S.C. § 1322(b)(2) and (5),[1] the plan was completed and the final accounting of the trustee approved. Consequently, the issues must be resolved under the chapter 13 discharge provisions. The applicable discharge provisions are contained in Section 1328(a)(1).[2] Section 1328(a)(1) excepts from discharge the debt owed on a debtor's principal residence, since the debt extends beyond the term limitations allowed for a chapter 13 plan. A debtor is allowed to cure any arrearage during the term of the plan and is required to maintain the contract payments during the term of the plan. The issues in the instant case arise in the nature of contract charges, other than principal and interest, provision for which is included in the debtors' contractual obligation to Federal Union and which are included in almost all residential security documents, and the creditor's application of the debtors' principal and interest payments to those charges.
PRE-PETITION CHARGES
The terms and conditions of the debtors' confirmed plan as to any pre-petition claim of Union Federal are binding on Union Federal by the terms of Section 1327(a).[3] Any objection the creditor had to any of the terms of the Chapter 13 plan should have been made prior to confirmation. Thus any claim for monies due prior to confirmation, and any claim for arrearages not provided for in the plan are included in the discharge under Section 1328(a)(1). All payments were made by debtors pursuant to the terms of the plan and there was no objection by Union Federal to those terms.
POST PETITION CHARGES
Union Federal argues it is entitled to recover its post-petition charges by diverting plan principal and interest payments to these charges under the combined provisions of Sections 506(b)[4] and 1322(b)(2), *256 claiming it is an oversecured creditor and debtors cannot modify the contract for the purchase of their principal residence. The respective categories of contract charges will be each considered according to these contentions.
As to the claim of Union Federal for post petition fees incurred in conjunction with the motion for stay relief, the post confirmation motion of Union Federal for stay relief was essentially nothing more than a collateral attack on the confirmation of the debtors' Chapter 13 plan. The motion was apparently abandoned by Union Federal. At a minimum any expenses incurred in the motion to lift stay were unnecessary and should not be charged to the debtor.
The memorandum of decision of November 2, 1989 also decided the issue of post petition attorneys' fees and costs in the amount of $440.19, foreclosure fees and costs of $513.96 and an appraisal fee of $150.00 along with late charges of $836.04 as non-allowable charges. The basis of such denial is a finding the fees were not reasonably and necessarily incurred by Union Federal in pursuing collection of its claim during the term of the Chapter 13 plan. Previous findings entered in this case to the effect Union Federal is not entitled to charge debtors account for these items are ratified.
However, the issue of the diversion of the debtors' principal and interest payments to late charges, and impound, or reserve accounts, deserves further comment and analysis. Union Federal claims entitlement to late charges since the trustee did not make payments on the date the payments were due pursuant to the loan agreement. Union Federal alleges it is entitled to these late charges as part of its claim. Thus, Union Federal contends the late charges are provided for in the contract and Union Federal is entitled to apply debtors' principal and interest payments to these charges.
Late charges are an allowable item for recovery by an over-secured creditor under Section 506(b).[5] However, court approval for the payment of interest, fees, costs or charges "provided for under the agreement" must be obtained under the provisions of Section 506(b). Union Federal had not sought, from the time of the filing of the debtors' petition until the time of the trustee's final accounting, to recover any § 506(b) fees. The issue cannot be now raised as the plan is completed, the trustee's final accounting approved, and the debtors have been granted their discharge.
Union Federal further contends it is entitled to the late charges (and its other contract charges) under the "non-modification" provisions of 11 U.S.C. § 1322(b)(2).
Assuming the basic contract between the debtor borrowers and the creditor lender provided for late penalties or interest, the same are allowable inclusions in the creditors secured claim, but only if the basic contract so provides. Interest on the arrearages covered by the chapter 13 plan is not allowable under Section 1322(b)(2) and (b)(5) absent the basic contractual provision.[6]
But in the instant case, Union Federal made no such claim during the life of the chapter 13 process for late charges either through the claim process, objecting to confirmation, as an administrative expense, or otherwise.
The "impound" or "reserve" charges arise as a result of the debtors' contract obligation to make regular payments to the lender in order for the lender to maintain reserve accounts sufficient to pay the debtors' real property taxes and insurance premiums. Apparently, the debtors' real property taxes or insurance premiums increased during the term of the debtors' Chapter 13 plan and the reserve account was insufficient *257 to make these payments. The only instance in which the problem should arise in a Chapter 13 case is in the event of an increase in a debtor's tax obligation, or an increase in insurance premiums paid by the lender, during the term of the plan.
Section 1322(b)(2) prevents modification of the basic contract provisions for principal and interest payments, and such contractual provisions as "impound" or "reserve" charges would properly fall into the category of administrative expenses under Section 503. Again, Union Federal made no attempt to collect these charges during the chapter process. A lender cannot arbitrarily direct principal, interest or arrearage payments under a confirmed chapter 13 plan to reserve account deficits accruing prior to plan completion without court authorization for the recoupment of such administrative expenses during the plan process.
THE ACCOUNTING PROCEDURE
Union Federal's accounting procedure applied payments to the earliest payments due and not to the payments due and owing during the pendency of the plan. The purpose of a Chapter 13 plan is to allow a debtor to pay arrearages during the pendency of the plan while continuing to make payments at the contract rate. Payments made during the pendency of the Chapter 13 plan should have been applied by Union Federal to the current payments due and owing with the arrearage amounts to be applied to the back payments. Union Federal cannot utilize its accounting procedures to contravene the terms of a confirmed Chapter 13 plan and the Bankruptcy Code.
CONCLUSION
Union Federal's attempts to collect the sums it contends are due and owing are in contravention of the debtors' Chapter 13 plan and the Bankruptcy Code. The record indicates the debtors' plan was performed according to its terms, terms by which United Federal is bound. Any costs and fees incurred prior to the termination of the debtors' Chapter 13 plan and any non-payment of those costs and fees is a result of either Union Federal's conduct or failure to act, or the payment time schedule of the trustee, and not as a result of any fault on the part of the debtors.
The debtors have requested this Court issue an amended order of discharge to include a provision enjoining Union Federal from attempting to collect these monies. The discharge provisions of 11 U.S.C. § 1328 operate:
"as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any [debt discharged under Section 1328] as a personal liability of the debtor . . . "[7]
Thus, upon successful completion of a chapter 13 plan, the chapter 13 discharge granted in 11 U.S.C. § 1328 operates, pursuant to 11 U.S.C. § 524, as a general injunction.
Based on the foregoing, I find the debtors are current in plan payments to the mortgage holder as of the date of completion of the plan including any principal, interest, fees, and reserve accounts. Accordingly, a specific injunction will issue prohibiting Union Federal from attempting to collect from the debtors any sums other than the amounts due under the terms of its contract with the debtors accruing after November 6, 1989, the date of the order approving the final accounting, discharging the trustee and closing the estate, including any fees resulting from this motion and any other post discharge motion and exceptions the taxes increase.
Counsel for the debtors may prepare the injunctive order.
NOTES
[1] 11 U.S.C. § 1322(b)(2), (5):
. . . the plan may
. . . . .
(2) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence, or of holders of unsecured claims or leave unaffected the rights of holders of any class of claims;
. . . . .
(5) notwithstanding paragraph (2) of this subsection, provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due;
[2] 11 U.S.C. § 1328(a)(1):
. . . the court shall grant the debtor a discharge of all debts . . . except any debt
(1) provided for under Section 1322(b)(5) of this title; . . .
[3] 11 U.S.C. § 1327(a) states:
Effect of confirmation The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan.
[4] 11 U.S.C. § 506(b) states:
To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement under which such claim arose.
[5] In re Neusteter Realty Co., 79 B.R. 30 (D.Colo. 1987); In the Matter of LHD Realty Corp., 726 F.2d 327, 333 (7th Cir.1984).
[6] In re Terry, 780 F.2d 894 (11th Cir.1985); In re Kooker, 106 B.R. 233 (Bankr.D.Nev.1989).
[7] 11 U.S.C. § 524(a)(2); In re Gilliam, 67 B.R. 83 (Bankr.M.D.Tenn.1986). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535818/ | 737 A.2d 900 (1999)
Robert PERRY, M.D.
v.
MEDICAL PRACTICE BOARD.
No. 98-270.
Supreme Court of Vermont.
July 16, 1999.
*901 Ritchie E. Berger and Shapleigh Smith, Jr. of Dinse, Knapp & McAndrew, P.C., Burlington, for Plaintiff-Appellant.
William H. Sorrell, Attorney General, and James S. Arisman, Special Assistant Attorney General, Montpelier, and Geoffrey A. Yudien, Assistant Attorney General, Waterbury, for Defendant-Appellee.
Present DOOLEY, MORSE, JOHNSON and SKOGLUND, JJ, and GIBSON, J. (Ret.), Specially Assigned.
SKOGLUND, J.
Robert Perry appeals from a superior court judgment upholding the authority of *902 the Board of Medical Practice to deny Perry's motion to withdraw his medical-license application. Perry contends that: (1) his appeal of the Board's decision was timely; and (2) the court misconstrued the Board's statutory authority. We affirm.
FACTS
The material facts are undisputed. In August 1993, following his graduation from the University of Vermont Medical School, Perry applied to the Board for a medical license. The application was held in abeyance until Perry completed his first year of postgraduate medical training, as required for license eligibility. In June 1994, Perry notified the Board that he was prepared to have it review his application. In May 1995, Perry sent a letter to the Board requesting to withdraw his application because he had moved out of state and no longer wished to practice in Vermont. The Board denied the request, as well as a follow-up request sent by Perry's attorney. Thereafter, the Board continued the investigation it had begun, focusing on certain apparent misrepresentations in Perry's application. In December 1995, Perry submitted a formal motion to dismiss, arguing that the Board lacked the statutory authority to deny his withdrawal request. The following January, the Board issued a written decision denying the motion, and also preliminarily denying the license application subject to further review at Perry's request. Perry subsequently appealed the preliminary denial of his license application, which remains pending.
In response to the Board's decision, Perry filed appeals of the Board's interlocutory ruling denying his withdrawal request with both this Court and the Washington Superior Court. On April 2, 1996, this Court granted the State's motion to dismiss, ruling that interlocutory appeals from Board decisions were subject to the requirements of 3 V.S.A. § 130a, which establishes a procedure for appeals from Board decisions to an administrative appellate officer, followed by an appeal to the Washington Superior Court. See In re Perry, 165 Vt. 638, 678 A.2d 460 (1996) (mem.). Perry thereupon pursued an administrative appeal, and the State moved to dismiss on the ground that it was untimely. Following a hearing, the appellate officer denied the State's motion to dismiss, and granted Perry's motion to withdraw his application, ruling that the Board lacked either express or implied statutory authority to deny the request. The State appealed. In a written opinion, the superior court affirmed the appellate officer's conclusion that Perry's appeal was timely, but reversed the officer's decision concerning the Board's statutory authority. The court ruled that the Board's authority to deny the request was "simply a logical extension" of its express power to deny an application in the first instance, and therefore within the scope of its statutory mandate. This appeal followed.
DISCUSSION
We address two procedural issues at the threshold. First, although not raised by either of the parties, we note that the judgment remains interlocutory in nature, and that none of the procedures for perfecting an interlocutory appeal was followed in this case. See V.R.A.P. 5, 5.1. Nevertheless, the court's ruling resolves an important issue separate from the merits, a dismissal of the appeal would most likely result in another appeal after final judgment, the merits have been fully briefed, and the Court has reviewed the case. Therefore, we exercise our discretion to suspend the rules and reach the merits. See Huddleston v. University of Vermont, 168 Vt. 249, 252, 719 A.2d 415, 417 (1998); V.R.A.P.2.
The State initially contends that Perry failed to file a timely notice of appeal from the Board's decision. As noted, Perry attempted to appeal from the Board's decision of January 3, 1996, by filing notices of appeal on January 12, 1996 with both the superior court and the Supreme *903 Court. Copies of the notice of appeal were served on the executive director of the Board. Following this Court's dismissal, Perry appealed to the Director of the Office of Professional Regulation, who assigned the case to an appellate officer pursuant to 3 V.S.A. § 130a(a), which provides: "A party aggrieved by a final decision of a board may, within 30 days of the decision, appeal that decision by filing a notice of appeal with the director who shall assign the case to an appellate officer."
Because of his mistaken appeal to this Court, Perry failed to file an appeal with the director until May 28, 1996, well beyond the thirty-day filing requirement of § 130a(a). Accordingly, the State requested that the administrative appeal be dismissed as untimely. The appellate officer denied the request. The superior court affirmed that portion of the appellate officer's ruling. The State renews the argument here.
Perry responds that the State's failure to raise the timeliness issue by cross-appeal divests this Court of jurisdiction to consider the claim. See Union Bank v. Jones, 138 Vt. 115, 125, 411 A.2d 1338, 1344 (1980) (appellee seeking to challenge aspects of trial court decision must file timely cross-appeal). The State counters that the cross-appeal requirement does not apply because it was "content with the final order below, leaving it nothing to appeal." Huddleston, 168 Vt. at 255, 719 A.2d at 419. The State may or may not be "content" with a ruling on the merits, but by raising the timeliness argument it is seeking a dismissal of the appeal on the jurisdictional ground that it was untimely under 3 V.S.A. § 130a(a), and not an affirmance of the decision below. Indeed, the State is vigorously contesting the merits of the superior court's jurisdictional ruling. Accordingly, the State must cross-appeal to seek this relief, and we are without jurisdiction to reach the merits of the State's argument. See Huddleston, 168 Vt. at 255-56, 719 A.2d at 419-20.[*]
We turn to the merits of Perry's claim that the Board lacked the power to deny his withdrawal motion. The rule that we have repeatedly reaffirmed is that the Board, as an administrative body, "has only such powers as are expressly conferred upon it by the Legislature, together with such incidental powers expressly granted or necessarily implied as are necessary to the full exercise of those granted." Trybulski v. Bellows Falls Hydro-Elec. Corp., 112 Vt. 1, 7, 20 A.2d 117, 120 (1941); accord In re Professional Nurses Serv., 164 Vt. 529, 534, 671 A.2d 1289, 1293 (1996); In re Club 107, 152 Vt. 320, 323, 566 A.2d 966, 967 (1989). Thus, while we generally defer to interpretations of enabling legislation by an administrative agency, see Professional Nurses, 164 Vt. at 535, 671 A.2d at 1293, the agency's regulations must still be reasonably related to the legislation to withstand judicial scrutiny. See Club 107, 152 Vt. at 323, 566 A.2d at 967-68.
The Board is broadly empowered to investigate and adjudicate charges of unprofessional conduct by licensees, 26 V.S.A. §§ 1353(a)(2), 1360, impose disciplinary sanctions, id. § 1361, issue licenses, id. § 1391, and suspend, revoke or refuse to issue licenses for "false or fraudulent representations" or "immoral, unprofessional or dishonorable conduct." Id. § 1398; see also Delozier v. State, 160 Vt. 426, 431-32, 631 A.2d 228, 231 (1993) (although not expressly conferred, Board has implicit authority to revoke license for immoral or dishonorable conduct). The Legislature has declared that the regulation of professions and occupations is "for the purpose of protecting the public." 26 V.S.A. § 3101. Indeed, the licensing of the professions, *904 and of physicians in particular, has long been recognized as falling within a state's broad police powers for the protection of the general welfare. In an early due process decision the United States Supreme Court explained the state's interest in this area as follows:
Few professions require more careful preparation by one who seeks to enter it than that of medicine . . . . Every one may have occasion to consult [the physician], but comparatively few can judge of the qualifications of learning and skill which he possesses. Reliance must be placed upon the assurance given by his license, issued by an authority competent to judge in that respect, that he possesses the requisite qualifications. Due consideration, therefore, for the protection of society may well induce the State to exclude from practice those who have not such a license, or who are found upon examination not to be fully qualified.
Dent v. West Virginia, 129 U.S. 114, 122-23, 9 S.Ct. 231, 32 L.Ed. 623 (1889); see also Rosenblatt v. California State Bd. of Pharmacy, 69 Cal.App.2d 69, 158 P.2d 199, 203 (1945) (affirming legislature's authority to enact regulations to protect citizens from consequences of unfitness or incompetence in health profession); Commonwealth v. Zimmerman, 221 Mass. 184, 108 N.E. 893, 895 (1915) (holding that public health was of "such vital importance" that any rational licensing scheme to assure education, training and skill of physicians would be upheld).
Viewed in the light of this compelling state interest, we have no doubt that the statutory authority to issue or deny a medical license necessarily implies the discretionary authority to deny leave to withdraw a license application. It is well settled that a licensee may not evade disciplinary action merely by resigning or allowing a license to expire. See, e.g., In re Lassen, 672 A.2d 988, 1000 (Del.1996); Davidson v. District of Columbia Bd. of Med., 562 A.2d 109, 114 (D.C.1989); Florida Bar v. Segal, 663 So.2d 618, 621 (Fla. 1995); In re Atkins, 253 Ga. 319, 320 S.E.2d 146, 146 (1984); Office of Disciplinary Counsel v. Herrmann, 475 Pa. 560, 381 A.2d 138, 140 (1977). Otherwise, the licensee could apply for admission in another jurisdiction, or subsequently reapply in the same jurisdiction, and maintain that he or she has never been disciplined for professional misconduct. This would patently defeat the underlying purposes of the regulatory scheme to protect the public and maintain the integrity of the profession. See Segal, 663 So.2d at 621; Davidson, 562 A.2d at 114.
The state's interest is no less urgent in the case of an applicant for a license. The Board's authority to investigate an applicant's background and qualifications is every bit as broad as its authority to investigate a licensee. See 26 V.S.A. § 1353(a)(10) (Board may require licensee or applicant to submit to mental or physical examination, and evaluation of medical knowledge and skill). Where that investigation discloses substantial grounds for denial on the basis of false or fraudulent representations or immoral or dishonorable conduct, the safety of the public and the integrity of the profession may in the Board's discretion be better served by issuing a formal ruling, so that a decision of record would be available in this or any other jurisdiction where the applicant might subsequently apply. Allowing an applicant to avoid scrutiny of his or her background, training, experience, and morals by simply withdrawing the application at his or her convenience would ill serve the interest of public safety in this state and the other state licensing jurisdictions.
Although Perry denigrates the interstate component of licensing, the statutes make clear that it is integral to the regulatory scheme. The Board is broadly empowered to suspend or otherwise discipline any practitioner upon notice that he or she has failed to renew, surrendered, or otherwise terminated his or her license in another jurisdiction during or prior to disciplinary *905 proceedings in that jurisdiction. See 26 V.S.A. § 1366(b). The Board is further empowered to refuse to issue a license to applicants "who, by false or fraudulent representations, have obtained or sought to obtain practice in their profession." Id. § 1398. This provision plainly encompasses applicants who are on record as having been denied licenses in other jurisdictions. Thus, the authority to continue an investigation to completion and, where necessary, deny an application for failure to satisfy the licensing requirements of § 1398, represents an integral and necessary component of the Board's reciprocal duties vis a vis the other licensing jurisdictions. Accordingly, we conclude that the Board's discretion to deny a request for withdrawal of an application falls well within the necessary and implied powers of its express statutory mandate. See Professional Nurses, 164 Vt. at 534, 671 A.2d at 1293.
Perry asserts, nevertheless, that this conclusion is undermined by the Legislature's enactment, subsequent to the Board's decision, of an amendment to 3 V.S.A. § 129, providing that a professional conduct board may refuse to accept the return of a license, or the withdrawal of an application for a license, by one who is subject to a disciplinary investigation. See id. § 129(a)(9); 1997, No. 40, § 4. Perry cites the standard canon of statutory construction that "an amendment of [a] statute shows a legislative intent to change the effect of existing law." Montgomery v. Brinver Corp., 142 Vt. 461, 464, 457 A.2d 644, 646 (1983). The fact that the Legislature amended the statute to include the power to deny a request for withdrawal demonstrates, he argues, that such power had been previously lacking.
The fundamental objective of statutory interpretation is to discern and implement the legislative intent, see In re Wal*Mart Stores, Inc., 167 Vt. 75, 84, 702 A.2d 397, 403 (1997), and in seeking that intent we look to the words of the statute itself, the legislative history and circumstances surrounding its enactment, and the legislative policy it was designed to implement. See Merkel v. Nationwide Ins. Co., 166 Vt. 311, 314, 693 A.2d 706, 707-08 (1997). Thus, the canon of construction on which Perry relies routinely yields to the corollary principle that contrary evidence may reveal a legislative intent to clarify rather than change existing law. See 1A N. Singer, Sutherland Statutory Construction § 22.30, at 267-68 (5th ed.1993); In re Smith, 169 Vt. ___, ___, 730 A.2d 605, 611 (1999); Town of Cambridge v. Town of Underhill, 124 Vt. 237, 241, 204 A.2d 155, 158 (1964). To determine whether a statutory amendment was intended as clarifying legislation, we look to the history and circumstances surrounding its enactment. See 1A Sutherland, supra, § 22.30, at 267; Smith, 169 Vt. at ___, 730 A.2d at 611; Town of Cambridge, 124 Vt. at 241, 204 A.2d at 158.
As we explained recently in Smith, 169 Vt. at ___, 730 A.2d at 611-12, the amendment at issue here was part of a larger, omnibus bill revising and standardizing the procedures that govern the regulation of thirty-four separate occupations and professions. See 1997, No. 40. ("An Act Relating to Efficiency in the Regulation of Professions and Occupations"). Prior to the Act, the Board's policy since at least 1991 had been to disallow requests to withdraw medical-license applications. In 1993, the Board amended its policy to allow the withdrawal of an application, upon petition, if certain criteria were satisfied. The policy was revised again, and reaffirmed, in 1995. In denying Perry's motion in this case, the Board noted its longstanding policy of not permitting withdrawals except in certain limited circumstances not here applicable.
The appellate officer's decision to reverse the Board on the ground that it lacked authority to deny Perry's motion represented a departure from this policy, and it was followed within several months by a request from the Office of Professional Regulation for legislation containing the amendment that reinstated the former policy. *906 A contemporaneous memorandum from the Director of the Office of Professional Regulation described the amendment in question as a "provision to clarify that boards do not have to return applications or licenses when a disciplinary investigation is in process." (Emphasis added.) These circumstances strongly support an inference that the amendment was intended to clarify the meaning and scope of the Board's regulatory authority, not to change it. See Town of Cambridge, 124 Vt. at 241, 204 A.2d at 158.
Accordingly, we conclude that the trial court's judgment was sound.
Affirmed.
NOTES
[*] In view of our holding, we need not reach Perry's alternative arguments that 3 V.S.A. § 130a(a) applies only to final decisions of the Board, but see In re Delozier, 158 Vt. 655, 655, 613 A.2d 196, 196 (1992) (mem.) (interlocutory appeals from decisions of Board must follow procedures set forth for final judgments), and that the mistaken appeal to superior court was sufficient to preserve his appeal from the Board's decision. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535578/ | 520 A.2d 255 (1987)
Patricia CURRY, Appellant,
v.
UNITED STATES, Appellee.
Wayne P. WASHINGTON, Appellant,
v.
UNITED STATES, Appellee.
James C. JONES, Appellant,
v.
UNITED STATES, Appellee.
Nos. 84-610, 84-661 and 84-867.
District of Columbia Court of Appeals.
Argued May 6, 1986.
Decided January 14, 1987.
As Revised March 31, 1987.
*258 Lawrence M. Baskir, Washington, D.C., appointed by the court, for appellant Curry.
Matthew C. Leefer, Boonsboro, Md., appointed by the court, for appellant Washington.
Steven M. Salky, with whom Roger E. Zuckerman and Michael R. Smith, Washington, D.C., were on brief, for appellant Jones.
Linda S. Chapman, Asst. U.S. Atty., with whom Joseph E. diGenova, U.S. Atty., Michael W. Farrell, and G. William Currier, Asst. U.S. Attys., Washington, D.C., were on brief, for appellee.
Before MACK and NEWMAN, Associate Judges, and PAIR,[*] Senior Judge.
MACK, Associate Judge:
Three police officers, armed with a search warrant, seized heroin, cocaine and a loaded pistol from an apartment in Northeast Washington. Appellants Patricia Curry, James Jones and Wayne Washington were each charged with possession of heroin with intent to distribute,[1] possession of cocaine with intent to distribute,[2] possession of an unregistered firearm,[3] and unlawful possession of ammunition.[4] The jury found Jones and Washington guilty as charged. They were sentenced to identical terms of imprisonment, totalling from six *259 years and eight months to twenty years, and Jones was fined an additional $75,000 for his drug convictions. The jury acquitted Curry of the drug charges, but returned a guilty verdict on the firearm and ammunition charges. She was sentenced to 180 days imprisonment, all but 30 days to be suspended, with two years of probation to follow her release.
A number of contentions are raised on appeal. We are persuaded by onethat the evidence was insufficient to convict on the firearm and ammunition charges. On those counts, the convictions of all three defendants must be reversed. Curry, having been acquitted by the jury on the drug charges, therefore has no convictions remaining. As for Jones and Washington, the several challenges raised against their drug convictions, while some have merit, do not constitute reversible error.
We reverse all convictions for unlawful possession of the firearm and ammunition; we affirm the convictions of Jones and Washington for possession of heroin and cocaine with intent to distribute.
I
The Government's Evidence
At about 11:45 p.m. on October 16, 1981, three officers of the Metropolitan Police Department executed a search warrant at Apartment Four of a building in Northeast Washington. On their arrival, the officers noticed a red ribbon on the door of the apartment. At trial, a narcotics expert testified that a distinctive item of that nature is commonly used to signal that a largescale drug distribution operation is open for business. The officers knocked, announced initially that they were there to investigate a traffic complaint, and entered when Washington opened the door. The officers did not need to use the battering ram they had brought with them.
Jones and Washington were inside the apartment with two women and another man. Curry was not present. The men were searched and the women patted down. All five were then kept in the living room while the police officers conducted their search of the premises. Large quantities of heroin and cocaine were discovered.
Upon their entry, the officers observed Washington seated on a couch in the living room and ordered him to show his hands. Washington refused. Turning his back to the officers, Washington made furtive hand movements. From the couch on which he sat the officers immediately retrieved 3 packets of heroin and a straw. On the coffee table in the same room was a wallet containing numerous credit cards and a money order in the name of Jones. In that wallet were 2 packets of heroin. Heroin was found in two locations in the bedroom. On top of the dresser was 1 foil packet of the drug. In a drawer of the same dresser, the officers found 40 packets of heroin. These packets were contained in 6 "strips," a form of packaging which the government's narcotics expert testified made the heroin easily separable into many smaller "decks" of 20 or "bundles" of 5 suitable for street distribution by a retailer known as a "runner." In a trash receptacle by the rear door, the officers found an envelope containing 9 packets of heroin and $75 in cash.
Cocaine was also seized in abundance. A bag of rice in the bedroom dresser drawer (where the 40 packets of heroin were found) contained 8 packets of cocaine. In the refrigerator was another bag of rice, this one containing 31 packets of cocaine. Detective Dwight Rawls of the Heroin Task Force, the government's narcotics expert, testified that cocaine can be mixed with rice to keep it dry and that its purity can be preserved by refrigeration.
In all, 10,011 milligrams of heroin and 10,496 milligrams of cocaine were found in the apartment.
Two large bags of quinine and manitol were retrieved from the bedroom closet. *260 Detective Rawls told the court that quinine and manitol are used to dilute heroin and cocaine to their normal street strength. Manitol also relieves the constipation suffered by heroin users. The Drug Enforcement Agency's laboratory analysis of the heroin and cocaine seized from the apartment showed that the drugs had been mixed with quinine or manitol, or both.
A loaded nine-millimeter handgun was found amongst women's clothing in a nightstand in the bedroom. This pistol did not carry the fingerprints of any of the appellants. None of the three was registered to carry a pistol on the date of their arrest.
In addition to the heroin, cocaine, handgun and ammunition, the officers seized several other items. In the wallet on the living room coffee table, together with two packets of heroin and credit cards in the name of Jones, was a money order receipt dated about a month before the raid took place. The money order was written by Jones in payment of $122 rent for the apartment where the search took place. Other personal belongings identifying Jones as their owner were found on the floor. In the dining area was an envelope containing various papers, including several items of identification in the name of Washington. On top of the dresser in the bedroom, the search team found a change of address card for Curry, in her handwriting, directing the postal service to forward her mail to Apartment Four. Also on top of the dresser was a pouch containing several items of identification in Curry's name, an address book with her name on the front page, and an envelope mailed to her at another address.
A radio scanner, in plain view, was receiving police broadcasts when the search team entered the apartment. Also in plain view was a "Seal-a-Meal" device which, according to the government's narcotics expert, could be used to seal the "decks" of narcotics for street sales. This appliance carried the thumbprint of Jones. A total of $1,171 in cash was seized, including $266 from the third man who was present during the search and who unsuccessfully attempted to escape through the back door when the police arrived.
During the raid, Washington identified as his own a set of keys that fit Apartment Four. Another set of apartment keys was found in a jacket in the living room; this jacket fitted Jones and, although he never claimed it as his own, Jones was given it to wear to the police station.
Various papers, notebooks, memo pads and calendar books were recovered from a satchel in the dinette area, and a calendar book was taken from the top of the bedroom dresser where it lay amongst various items belonging to Curry. The government's handwriting expert, James Miller, studied authentic handwriting samples and, on that basis, attributed the handwriting on the seized documents to the three appellants. Miller also concluded that the samples submitted by Washington and Curry showed a "drastic disguise" when compared to their normal handwriting. Miller did not describe Jones' handwriting sample as disguised, but did remark that it was slightly "deteriorated."
The seized documents were also shown to Detective Rawls, the narcotics expert. According to Detective Rawls, the papers appeared to be the records of a large-scale drug distribution operation. He said that the base of this type of operation is commonly known as a "house." The person in charge of the operation will normally obtain the premises, pay the rent and establish a security system, so that the "house" is not robbed or raided by the police. A typical method by which large-scale drug dealers avoid detection is an occasional change in the hours of business and the location of the "house." That a "house" is open for business is usually signalled by *261 some symbol such as a light or a color code.
Heroin sold on the streets is first diluted, or cut, then weighed or measured, and then packaged. The package is heat-sealed or rolled and either sold individually or released in fives, tens, twenties or fifties for redistribution. Detective Rawls testified that the weighing, measuring, cutting and packaging of the drugs do not necessarily take place in the same premises as the selling for resale on the streets. However, the presence of a "Seal-a-Meal" device could indicate that some packaging took place in Apartment Four. Drug dealers often keep records of their transactions so as to keep control over their stock and their assets. Such records also prevent internal cheating and reveal which customers are reliable. Telephone logs, he said, can be used to take orders.
Detective Rawls testified that the documents seized from Apartment Four were consistent with the records of the operation he described. A sheet of paper in appellant Jones' handwriting appeared to be a narcotics price list. It showed prices of $2,000 for an ounce of cocaine, $1,050 for a "half" and $550 for a "quarter." A calendar book, containing entries by Jones and Washington, gave a running tally of the amounts owed by various customers. Other pages carried calculations of amounts and prices. Still others indicated the availability of "bone," a particularly strong grade of heroin normally diluted before use. Two memo books, both in Jones' handwriting, recorded the size and price of various transactions and the names of the customers. One used the notation "H" for "half" and "Q" for "quarter," the standard street measurements for heroin. The price of "bone" was also included. This memo book revealed information about drugs that were sold out of the "house" rather than on the street. It showed that heroin, cocaine and "bone" were available. The amounts owed by various individuals were also included. The second memo book contained similar details, including the availability of a stock of 54 "halves" at a price of $810. It also mentioned the availability of 54 "eggs," bags of heroin cut or "scrambled" for street sale, at a price of $10 per bag. A calendar book in Jones' handwriting gave names of customers, showed the amount of drugs purchased and noted amounts that were still owed. It referred to heroin as "tape," a then current street name, and quinine as "iron."
Two other sheets of paper were described by Detective Rawls as a telephone log. With the exception of one entry, these were in the handwriting of Jones and Washington. The one exception in the telephone log was actually the only entry in Curry's handwriting in any of the distribution records. It said, simply: "8:30 p.m. Tyrone called. Call him at home." The other telephone calls, all received by Jones and Washington, were also dated and showed the times and quantities of transactions and the names of customers. One sale of "bone" was for a price of $60. Detective Rawls testified that the prices listed in the inventories and telephone logs were consistent with the then current rates for heroin and cocaine.
Appellant Curry's Arrival during the Raid
While still in progress, the raid was interrupted by a knock on the door. A man carrying a bag filled with unused syringes was told by one of the officers to come into the apartment. He ran. After a short chase, the visitor was caught outside by several other officers.
During the chase, a Ford Thunderbird pulled up across the street from the apartment. One of its occupants was Curry. Upon request, she gave the officers three addresses, one being that of Apartment Four. Curry was carrying a set of keys that fit the apartment.
The Defense Evidence
Jones called two witnesses on his behalf, including Detective Rawls, neither of whom contradicted the government's evidence in *262 any significant respect. Washington presented no evidence at trial.
Curry, in contrast, denied any connection with the drugs or the loaded pistol. She told the jury that, following an argument, she moved out of her mother's house and into a friend's apartment. Upon hearing from Jones that he had a vacant room, Curry arranged to "crash" there until she could find a place of her own. She first slept in Apartment Four on October 1, 1981, fifteen days prior to the search. During the next couple of weeks, Curry slept in the apartment only six or seven times. On those occasions, Curry testified, she only used the apartment to "crash" in and to change clothes before going to work. She did not pay rent. To Curry's knowledge, nobody else slept there or used the bedroom.
A couple of days before the raid, Curry had arranged to go to the movies on the evening of October 16 with her brother and a friend. She arrived home from work at about 7:00 p.m., changed her clothes, and left immediately.
Upon her return sometime between 12:30 and 12:45 a.m., Curry saw three strangers chasing another stranger. Observing the chase, Curry described the incident to her fellow movie-goers as probably just the usual "Friday night brawl." The plainclothes officers, after catching the individual who had unwittingly interrupted the raid, ran up to the parked car and pulled out its occupants. Having identified herself, Curry gave the officers three addresses her mother's, that of the friend with whom she stayed after leaving her mother's home several weeks previously, and the apartment across the street where the raid was then in progress. When one police officer grabbed her, threatened her, slammed her against the car, and accused her of selling drugs out of the house, Curry insisted she did not know what he was talking about.[5] Curry was then taken into the apartment, thrown across the room onto the sofa, handcuffed and arrested.
At trial, Curry acknowledged making an entry in the phone log"8:30 p.m. Tyrone called. Call him at home."but denied having received instructions to take messages and claimed that there was nobody at home when she received the call. Curry did not recall seeing a police scanner or a "Seal-a-Meal" device in the apartment.
Apart from testifying herself, Curry also called other witnesses on her behalf. Her brother and her friend confirmed Curry's story about going to the movies together that evening and the circumstances surrounding Curry's arrest upon arriving back at the apartment. Curry's mother agreed that she had asked her daughter to move out of her home after an argument in late August and that Curry had then moved into a friend's apartment, from which she moved again shortly afterwards into Apartment Four where the drugs and firearm were found. Three witnesses testified that Curry had an excellent reputation for truthfulness.
II
One contention is common to all three defendantsthat the evidence against them was insufficient to convict for unlawful possession of the firearm and ammunition found in the bedroom. We agree.
On a criminal charge, the government carries the constitutional burden of proving to the jury that the accused committed each element of the charged offense beyond any reasonable doubt. In re Winship, 397 U.S. 358, 364, 90 S. Ct. 1068, 1072, 25 L. Ed. 2d 368 (1970). In keeping with this principle, a criminal defendant may move for judgment of acquittal on the ground that the evidence presented at trial was legally insufficient to permit the jury to conclude guilt to the required degree of certainty. "[I]f there is no evidence upon which a reasonable mind might fairly conclude guilt beyond reasonable doubt, the motion must be granted." Curley v. United States, 81 U.S.App.D.C. 389, 392-93, 160 *263 F.2d 229, 232-33, cert. denied, 331 U.S. 837, 67 S. Ct. 1511, 91 L. Ed. 1850 (1947).
So as not to displace the role of the jury, the court deciding the motion must review the evidence in the light most favorable to the government, giving full play to the right of the jury to determine credibility, weigh the evidence, and draw justifiable inferences of fact, and making no distinction between direct and circumstantial evidence. United States v. Covington, 459 A.2d 1067, 1070-71 (D.C.1983); see also United States v. Hubbard, 429 A.2d 1334, 1337-38 (D.C.), cert. denied, 454 U.S. 857, 102 S. Ct. 308, 70 L. Ed. 2d 153 (1981). The motion for judgment of acquittal must be granted if the evidence, when viewed in the light most favorable to the government, is such that a reasonable juror must have a reasonable doubt as to the existence of any of the essential elements of the crime. Austin v. United States, 127 U.S.App.D.C. 180, 189, 382 F.2d 129, 138 (1967). In other words, the evidence is insufficient if, in order to convict, the jury is required to cross the bounds of permissible inference and enter the forbidden territory of conjecture and speculation. Shelton v. United States, 505 A.2d 767, 770-71 (D.C.1986).
The evidence need not compel a finding of guilt beyond a reasonable doubt. Therefore, a motion for judgment of acquittal should not be granted where the evidence is such that a reasonable mind might or might not have a reasonable doubt as to the guilt of the accused. Crawford v. United States, 126 U.S.App.D.C. 156, 158, 375 F.2d 332, 334 (1967). Upon review, this court employs the same standard as that applied by the trial court in determining whether the evidence was sufficient to convict. United States v. Covington, supra, 459 A.2d at 1071; see also United States v. Hubbard, supra, 429 A.2d at 1338.
In this case, none of the three appellants had actual possession of the loaded pistol which was found in the nightstand in the bedroom. Their convictions can be sustained only if the government presented sufficient evidence to establish that each of the three had "constructive possession." We recently summarized the principles governing charges of constructive possession in Wheeler v. United States, 494 A.2d 170 (D.C.1985). It is those principles which govern here.
In order to satisfy its burden of proving constructive possession, the government is obliged to meet a two-pronged test. First, it must present evidence from which a reasonable mind could conclude, beyond a reasonable doubt, that the accused knew of the presence of the contraband; second, the evidence must allow the factfinder to conclude, to the same degree of certainty, that the accused exercised a right to dominion or control over the object in question. Knowledge of the whereabouts of the illegal item may be inferred from circumstantial evidence. Dominion or control over an object is shown when the accused has some appreciable ability to guide its destiny; the right to exercise dominion or control may be jointly shared. Id.
We have held that the government must show that the illegal item is in such proximity to the accused as to be convenient of access. Waterstaat v. United States, 252 A.2d 507, 508 (D.C.1969). However, mere proximity to an illegal item does not of itself prove knowledge coupled with dominion or control. Johnson v. United States, 503 A.2d 686, 688 (D.C. 1986) (per curiam); United States v. Pardo, 204 U.S.App.D.C. 263, 277, 636 F.2d 535, 549 (1980). While an accused's mere presence at the scene of the crime, proximity to the contraband, or association with one who is in possession do not in themselves support a finding of constructive possession, that presence, proximity or association may establish a prima facie case of constructive possession if it is colored by evidence linking the accused to an ongoing criminal operation of which that possession is a part. United States v. Hubbard, supra, 429 A.2d at 1338; see also United *264 States v. Staten, 189 U.S.App.D.C. 100, 107, 581 F.2d 878, 885 (1978). On the other hand, any legitimate inference which can be drawn from such presence, proximity, or association is considerably weakened where the accused is one of several people gathered in the place where the contraband is found.
Where illegal items are seized from a residence, constructive possession will not usually be found absent some proof that the accused is something other than a visitor. Wheeler v. United States, supra, 494 A.2d at 173. If the premises are occupied by more than one person, the government should present evidence of the regularity with which the accused occupies the residence, together with evidence concerning the accused's relationship with the co-occupant, and that evidence should be sufficient to indicate a possessive interest in its contents. See United States v. Herron, 185 U.S.App.D.C. 403, 406, 567 F.2d 510, 513 (1977). In cases where the accused is a resident of premises to which others have access, courts will not normally impute possession of an illegal item without proof that the accused is actually involved in some criminal enterprise of which the contraband is a part. Wheeler v. United States, supra, 494 A.2d at 173. Circumstances indicating a concert of illegal action obviously tend to dispel the natural fear that the doctrine of constructive possession is casting too wide a net. Id. Thus, attempts to hide or destroy evidence may buttress an inference of constructive possession, as may responses to the police which would signify guilt. Id.
The trial court denied the three defendants' motions for judgment of acquittal. It did so correctly only if the evidence permitted a reasonable mind to fairly conclude, beyond a reasonable doubt, that each of the three appellants knew of the existence of a loaded pistol in the bedroom nightstand; even if the evidence did permit the jury to infer such knowledge, we must assure ourselves that the evidence supported the further conclusion, also beyond a reasonable doubt, that each defendant exercised a right to dominion or control over the loaded pistolthat each had some appreciable ability to guide its destiny.
Appellants Jones and Washington were both present in Apartment Four when the loaded pistol was seized; appellant Curry was not. Because Curry's defense bore little or no resemblence to those of her codefendants, we discuss it separately.
Appellant Curry
The evidence against Curry was insufficient to convict for the offenses of possession of an unregistered firearm or unlawful possession of ammunition. A reasonable mind could not fairly conclude, beyond a reasonable doubt, that Curry had constructive possession of the loaded pistol which was found in the bedroom nightstand.
The government's initial burden was to present evidence sufficient to show beyond a reasonable doubt that Curry knew of the existence of the loaded pistol. The government did not carry that burden, which in this case was a heavy one because Curry did not have exclusive access to the apartment. Even if others had not been present during Curry's absence, a reasonable mind could not fairly conclude, beyond a reasonable doubt, that Curry knew of the existence and location of the weapon. Curry's fingerprints were not found on the gun. Her temporary and intermittent use of Apartment Four was shared with Jones and Washington, both of whom appear to have had keys and one of whom paid the rent. In the absence of evidence linking Curry to a concert of criminal activity of which the loaded pistol was a part, her tenuous and shared connection to the apartment must create a reasonable doubt that Curry was in possession of an illegal item which could have been placed in the bedroom nightstand unbeknownst to her. Both Jones and Washington also had access to the apartment; Curry stayed there only sporadically; there was no evidence that Curry slept there the previous night; *265 and Curry's last visit to Apartment Four some five hours previously was apparently a fleeting one for the purpose of changing her clothes.
The government's argument is even less convincing on the facts of this case, where several people were actually seen in the apartment during Curry's absence prior to the raid. Even if Curry had been the sole, full-time resident of the apartment, her absence at the time the loaded pistol was seized, at which point many others were present, compels a reasonable doubt that Curry knew of the presence of a loaded pistol in her bedroom nightstand. Both Jones and Washington were in Apartment Four, with three other people, when the loaded pistol was found during a raid on a large-scale drug distribution operation. Curry, on the other hand, was not shown to have been in the apartment at any point during the preceding five-hour period. Although the loaded pistol was found in the bedroom nightstand amongst her clothes, a reasonable mind must concede the reasonable possibility that Jones, Washington, or any of the three others found in the midst of a drug distribution operation could have placed the weapon in the bedroom unbeknownst to its occupant.
The government failed to present evidence which could permit a reasonable mind to fairly conclude beyond a reasonable doubt that Curry knew of the loaded pistol in the bedroom nightstand. By the same token, the government failed to meet its additional obligation to present evidence sufficient to establish that Curry had some appreciable ability to guide the destiny of the weapona weapon whose very existence may well have been outside her ken.
Appellants Jones and Washington
Our conclusion is the same with respect to Jones and Washington. These two were similarly situated with respect to the government's theory that they constructively possessed the weapon so, for convenience, we treat their cases together.
Both Jones and Washington had access to Apartment Four, and one even paid the rent, but neither appears to have slept there. Although they were not mere visitors to the apartment, they were not residents either. Neither had exclusive access. Accordingly, they cannot be held accountable for the apartment's illegal contents without some evidence linking them individually to the weapon as well as the drugs.
The loaded pistol was not in plain view; it was found amongst women's clothing in a nightstand in the bedroom. The bedroom was occupied by Curry, who acknowledged intermittently "crashing" there for the two weeks leading up to the raid. Although quantities of drugs, to which Jones and Washington were connected, were seized from various locations in the bedroom, no drugs were found in the nightstand with the loaded pistol and Curry's clothing. Neither Jones nor Washington was observed in the bedroom at any time and the gun did not carry their fingerprints.
Jones and Washington were found to be involved in a concert of illegal activity consisting of drug distribution. But the evidence did not show that the loaded pistol was part of that operation. Expert testimony that drug dealers typically set up "a security system" to protect a "house" does not permit a blanket inference that a gun, which could have belonged to any of several people, including the apartment's only occupant, comprised such a security system. Apart from the bedroom's absent occupant, there were three others present in the apartment when the gun was found. One of these showed signs of guilt by attempting to flee when the police arrived.
This evidence, viewed in its most favorable light, does not permit a reasonable mind to fairly conclude beyond a reasonable doubt that either Jones or Washington, or both, knew of the existence of a loaded pistol in the bedroom nightstand. A reasonable mind must have a reasonable doubt because Curry, amongst whose personal belongings the weapon was apparently found, or any of the three others present *266 during the raid could have placed the loaded pistol in the bedroom nightstand unbeknownst to the two male appellants. Having failed to present sufficient evidence as to knowledge, the government necessarily failed also to present sufficient evidence that Jones and Washington exercised a right to dominion or control over the loaded pistol. On both counts, the evidence was insufficient to sustain Jones' and Washington's convictions for possession of an unregistered firearm and unlawful possession of ammunition.
The evidence presented by the government was capable of a number of equally plausible interpretations, only one leading to a guilty verdict. A reasonable juror could not conclude guilt without crossing the bounds of permissible inference and entering the forbidden territory of conjecture and speculation. To some jurors it might be probable that Curry, Jones or Washington possessed the loaded pistol seized from the nightstand, but probability is not a legally sufficient basis upon which to convict of a criminal offense. The government carries the constitutional burden of persuading the factfinder, beyond a reasonable doubt, that each of the accused committed every element of the offenses with which they were charged. Because the government did not present the factfinder with evidence sufficient to reach that conclusion, the convictions for possession of an unregistered firearm and unlawful possession of ammunition cannot be sustained.
III
Jones and Washington raise several objections to their convictions for possession of heroin with intent to distribute and possession of cocaine with intent to distribute. Both contend that the prosecutor engaged in prejudicial misconduct during closing argument. Jones maintains that certain testimony regarding the "Seal-a-Meal" device was improperly admitted and that the trial court erroneously denied a curative instruction once it recognized the inadmissibility of that testimony; he claims also that the trial court erroneously denied his motion to suppress the evidence seized from the apartment pursuant to the search warrant. Washington argues that certain testimony given by the handwriting and narcotics experts should have been excluded because it was conclusionary and outside their fields of expertise; he says also that the trial court erroneously denied his requested instructions limiting the use of prior uncharged criminal conduct evidence and elucidating his theory of the case. We agree that some of these contentions have merit. However, in view of the strong evidence against Jones and Washington on the drug charges, we conclude that the errors did not affect the verdicts and that reversal is not warranted.[6]
Jones and Washington both complain that the prosecutor should not have referred to their trial counsel by name during closing argument; in the circumstances of the three-defendant trial that took place here, we see no misconduct on that ground. They maintain also that the prosecutor engaged in misconduct by pointing to government evidence which the defense "did not want to get near." In our *267 view, this remark in itself does not constitute misconduct.
There were other aspects of the prosecutor's rebuttal argument, however, which do warrant comment. The first came in response to an argument by Jones' counsel that the police officers, upon finding nothing when they arrived to execute the search warrant, "planted" the drugs in the apartment. The prosecutor was fully justified in pointing out that the defense had produced no evidence whatever in support of this claim and in inviting the jury to reject the allegation as unfounded. Tillman v. United States, 487 A.2d 1152, 1154 (D.C.1985). The prosecutor overstepped the bounds of acceptable advocacy, however, by proceeding to make the sweeping assertion that "[w]hen a lawyer argues plant, there is nothing left." That a certain defense theory is unsupported by the evidence in a particular trial does not give the prosecutor carte blanche to suggest that the theory advocated is commonly recognized as a dubious defense which implies guilt as much as innocence. This remark took place during the prosecutor's rebuttal argument, just before the jury received its instructions and retired to deliberate upon its verdict. Defense counsel, therefore, had no opportunity to counter any prejudice caused.
Neither Jones nor Washington objected at trial to the comments complained of here, so that any prosecutorial misconduct must amount to plain error to warrant reversal. The plain error test is met if the comments "were so clearly prejudicial to substantial rights of [the] appellant[s] as to jeopardize the very fairness and integrity of the trial." Arnold v. United States, 467 A.2d 136, 137-38 (D.C. 1983); McCowan v. United States, 458 A.2d 1191, 1196 (D.C.1983). The evidence against Jones and Washington on the drug charges was not only weighty, but also uncontested on any significant issue; moreover, in discussing the evidence, the trial court instructed the jury that "statements of counsel are not evidence, questions by counsel are not evidence, arguments by counsel are not evidence." In the circumstances of this case, the government's rebuttal did not jeopardize the very fairness and integrity of the trial. There was no plain error.
Another contention deserves mention. The "Seal-a-Meal" device found in Apartment Four during the search was introduced into evidence. This appliance was directly linked to Jones by virtue of his thumbprint. The probative value of the device, which seals the edges of plastic sheets, lay in the narcotics expert's testimony that it could be used to package drugs for street sale.
Jones does not suggest that the "Seal-a-Meal" appliance was itself improperly introduced. His contention, consistent with an objection at trial, is that the police officer who seized the "Seal-a-Meal" device should not have been allowed to testify that eighteen months after the raid took place he noticed "little specks of powder" or "white particles" on the appliance. The officer was also permitted to testify that these particles had been chemically tested, but not allowed to reveal the results of the analysis. Although properly excluding the white particles from evidence on chain-of-custody and integrity groundsthe government sought to introduce them along with their chemical analysisthe trial court refused to strike the police officer's testimony or to give the jury a limiting instruction. Instead, the trial court ruled that the government would not be permitted to argue that the white particles were heroin or cocaine and that the defense would be permitted to argue that they were not.
The trial court erroneously exercised its discretion. See Johnson v. United States, 398 A.2d 354 (D.C.1979). In order for evidence to be admissible, its relevance must outweight its prejudicial impact. Having found inadmissible both the white particles and the results of their laboratory analysis, the trial court should also have excluded all *268 testimony concerning their existence and the fact that they had been tested.
Evidence is both relevant and material if it has some logical tendency to prove or disprove a fact which is at issue in the trial. See generally McCORMICK ON EVIDENCE 185 (3d ed. 1984). The chain-of-custody and integrity problems which rendered the white particles inadmissible necessarily stripped testimony concerning their existence and testing of any probative value. Testimony merely describing excluded evidenceitself inadmissible due to its failure to meet basic evidentiary safe-guards designed to ensure reliabilityhas no logical tendency to prove or disprove a fact in dispute.
Despite its legal irrelevance, information that white particles were found on the "Seal-a-Meal" device eighteen months after it was seized, and that those particles had been chemically tested, was bound to prejudice the jury against Jones and, by association, Washington. In the context of this case, where heroin and cocaine were found throughout Apartment Four, it was a natural, if impermissible, inference that the white particles were controlled substances and that they were on the appliance when it was seized. Because the testimony had prejudicial value, and no probative value, it should have been stricken, further testimony on the issue prohibited, and the requested curative instruction given. Brooks v. United States, 396 A.2d 200, 205-06 (D.C.1978); Macklin v. United States, 133 U.S.App.D.C. 347, 349, 410 F.2d 1046, 1048 (1969); Frank v. United States, 104 U.S.App.D.C. 384, 386, 262 F.2d 695, 687 (1958).
Finally, Washington complains that he was erroneously denied requested jury instructions. He contends that records of drug transactions in which he was involved prior to the raid, some in his own handwriting, demonstrated prior uncharged criminal conduct admissible only for the limited purpose of showing his intent to distribute the drugs seized. Drew v. United States, 118 U.S.App.D.C. 11, 15-16, 331 F.2d 85, 89-90 (1964). Assuming that Washington is correct, an issue we do not decide, he would have been entitled to the instruction that these records could be considered only for that limited purpose and not as evidence of his propensity to commit the crimes charged. Miles v. United States, 374 A.2d 278, 283 (D.C.1977); see also Criminal Jury Instructions for the District of Columbia, No. 2.49 (3rd ed. 1978).
Washington also contends that he was erroneously denied a requested instruction on his theory of the casethat of innocent presence in the vicinity of illegal substances. This latter instruction should have been given, because the circumstantial nature of the government's case put evidence before the jury upon which Washington's theory, however weak, might have succeeded. Jenkins v. United States, 506 A.2d 1120, 1123 (D.C.), cert. denied, ___ U.S. ___, 107 S. Ct. 160, 93 L. Ed. 2d 99 (1986); (Dwayne) Powell v. United States, 414 A.2d 530, 532-33 (D.C.1980); see also Criminal Jury Instructions for the District of Columbia, supra, No. 5.01 (note). In calculating any resulting prejudice, however, we note that the standard instructions on constructive possession delivered by the trial court did set forth his theory, Criminal Jury Instructions for the District of Columbia, supra, Nos. 3.11, 4.32, although without the additional highlighting a separate instruction would have given. We note also that innocent presence was fully argued to the jury by his counsel.
The errors we have indentifiedin-admissible testimony concerning the white particles and the fact that they had been chemically tested, the denial of Washington's requested instruction on his theory of the case, and our reservations concerning the prosecutor's rebuttal argument coupled with the error we have assumed the denial of an instruction limiting use of the recordswere harmless in the circumstances of this case. The errors did not go to the core of the government case and any impact they may have had upon the trial does not outweigh the strong evidence linking Jones and Washington to the drugs.
*269 Jones paid the rent on Apartment Four, both Jones and Washington had keys, and both were present in the apartment when the raid took place; drugs were seized in quantities and packaging suggestive of distribution; that drug distribution was in progress was also suggested by the red ribbon on the door and the arrival of an unsuspecting visitor carrying a bag full of unused syringes; heroin was found in Jones' wallet, and Washington made furtive movements against police instructions while seated on a couch from which heroin was immediately retrieved; Jones' thumbprint was recovered from the "Seal-a-Meal" device, an appliance suggestive of drug packaging which was properly admitted into evidence; the "Seal-a-Meal" device and the radio scanner receiving police broadcasts were both in plain view; Jones and Washington jointly kept extensive records, in their own handwriting, of a large-scale drug distribution operation; and neither Jones nor Washington offered any evidence tending to undermine the government's constructive possession theory in any material respect. The strength of this incriminating evidence permits us to say, with fair assurance, after pondering all that happened without stripping the erroneous actions from the whole, that the verdicts against Jones and Washington were not substantially swayed by the errors. Kotteakos v. United States, 328 U.S. 750, 765, 66 S. Ct. 1239, 1248, 90 L. Ed. 1557 (1946); Jenkins v. United States, supra, 506 A.2d at 1124.
We reverse the convictions of all three defendants for possession of an unregistered firearm and unlawful possession of ammunition. We affirm the convictions of Jones and Washington for possession of heroin with intent to distribute and possession of cocaine with intent to distribute.
No. 84-610 reversed; Nos. 84-661 & 84-867 affirmed in part and reversed in part.
NOTES
[*] Senior Judge Pair concurs in the result.
[1] D.C.Code § 33-541(a) (1981).
[2] Id.
[3] Id. § 6-2311(a).
[4] Id. § 6-2361(3).
[5] On rebuttal, the police officer denied he had made abusive statements or used obscenities.
[6] Two contentions may be disposed of briefly. The trial court did not err, as Washington alleges, in permitting the government's handwriting and narcotics experts to testify within their fields of competence. Payne v. Soft Sheen Products, Inc., 486 A.2d 712, 726-27 (D.C.1985); Dyas v. United States, 376 A.2d 827, 831-32 (D.C.), cert. denied, 434 U.S. 973, 98 S. Ct. 529, 54 L. Ed. 2d 464 (1977). Second, although the motions court erroneously found that Jones did not have standing to attack the validity of the search warrant (on the mistaken ground that he did not have a reasonable expectation of privacy in the apartment), it also considered his challenge upon the merits and properly found the warrant valid. The affidavit upon which the warrant was based showed the existence of probable cause to believe that the contraband to be searched for and seized was located on the property to which entry was sought. U.S. Const. amend. IV; see Zurcher v. Stanford Daily, 436 U.S. 547, 554-56, 98 S. Ct. 1970, 1975-76, 56 L. Ed. 2d 525 (1978). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535592/ | 103 Pa. Commw. 495 (1987)
520 A.2d 1230
Leonard Robinson, Petitioner
v.
Commonwealth of Pennsylvania, Pennsylvania Board of Probation and Parole, Respondent.
Leonard Robinson, Petitioner
v.
Commonwealth of Pennsylvania, Pennsylvania Board of Probation and Parole, Respondent.
Nos. 682 C.D. 1986 and 1942 C.D. 1986.
Commonwealth Court of Pennsylvania.
Submitted on briefs December 4, 1986.
February 5, 1987.
*496 Submitted on briefs December 4, 1986, to Judges MacPHAIL, DOYLE and BARRY, sitting as a panel of three.
Scott F. Breidenbach, Assistant Public Defender, for petitioner.
Arthur R. Thomas, Assistant Chief Counsel, with him, Robert A. Greevy, Chief Counsel, for respondent.
OPINION BY JUDGE MacPHAIL, February 5, 1987:
Leonard Robinson (Petitioner) has filed two petitions for review from actions taken by the Pennsylvania Board of Probation and Parole (Board). The first petition, docketed at No. 682 C.D. 1986, was filed by Petitioner pro se and sought direct review of a March 3, 1986 Board order regarding Petitioner's recommitment as a technical and convicted parole violator. This petition was filed without prior resort to the application for administrative relief required by 37 Pa. Code §71.5(h). *497 Counsel, who was appointed to represent Petitioner in his appeal, subsequently proceeded to seek administrative review by the Board of its March 3 order. Following Board action on the application for administrative relief, a second petition for review, docketed at No. 1942 C.D. 1986, was filed with this Court.[1] The two petitions have been consolidated for our consideration.
We note preliminary that the petition for review docketed at No. 682 C.D. 1986 must be quashed for failure to exhaust available administrative remedies. Board regulations clearly require that administrative review of recommitment orders be sought before an appeal may properly be filed with this Court. 37 Pa. Code §71.5(h).
[I]t has been this Court's past practice where a parolee has filed a pro se petition for review within thirty days of the date of the Board's recommitment order but failed to file for administrative relief under 37 Pa. Code §71.5(h), to dismiss the petition without prejudice to the parolee's right to seek the appropriate administrative relief with the Board.
St. Clair v. Pennsylvania Board of Probation and Parole, 89 Pa. Commw. 561, 571-2, 493 A.2d 146, 153 (1985). Since counsel for Petitioner has already properly sought administrative relief from the Board and has filed a timely appeal therefrom with this Court, we may quash the original improvidently-filed petition without prejudicing the remaining valid appeal.
*498 Turning to the merits of Petitioner's remaining appeal, we observe that the procedural history of this matter has been previously detailed in Robinson v. Pennsylvania Board of Probation and Parole (Robinson I), 94 Pa. Commw. 397, 503 A.2d 1048 (1986) and need not be repeated here. In Robinson I, Petitioner had appealed from a Board order recommitting him to serve twenty-four months backtime for multiple technical violations and to serve his unexpired term as a convicted parole violator. This Court, per Judge DOYLE, vacated the Board's order and remanded for reconsideration of Petitioner's period of recommitment in light of our Supreme Court's decision in Rivenbark v. Pennsylvania Board of Probation and Parole, 509 Pa. 248, 501 A.2d 1110 (1985).[2]
On reconsideration, the Board deleted reference to two of the four technical violations cited in its original order.[3] The Board, however, reaffirmed the twenty-four month backtime previously ordered for the technical violations as well as its order that Petitioner serve the remainder of his term as a convicted parole violator.[4]*499 Apparently in response to Petitioner's subsequent application for administrative relief, the Board rendered a decision on May 23, 1986 modifying its prior orders by eliminating the aggravating factors it had used in support of exceeding the presumptive range provided in Board regulations for Petitioner's technical violations and decreased the backtime regarding those violations to eighteen months. This six month decrease in back-time for the technical violations, however, was not reflected in a commensurate decrease in Petitioner's total backtime to be served due to the extant order that Petitioner must serve the balance of his unexpired term.
The sole issue raised in the instant appeal is whether the Board has the authority to impose concurrent periods of backtime when, as in the instant case, an aggregation of the backtimes ordered would exceed the amount of time remaining on the underlying sentence. As analyzed more fully below, we conclude that the Board's imposition of concurrent periods of backtime was a proper exercise of discretion in the case sub judice and that the Board was not required to accelerate Petitioner's reparole eligibility date when it reduced the period of backtime ordered for his technical violations.
This Court may not disturb a Board order absent an error of law, a lack of substantial evidence to support necessary fact findings or a violation of constitutional rights. Chapman v. Pennsylvania Board of Probation and Parole, 86 Pa. Commw. 49, 484 A.2d 413 (1984). The Board has broad discretion in administering parole laws, Keith v. Pennsylvania Board of Probation and Parole, 76 Pa. Commw. 544, 464 A.2d 659 (1983), and must be granted deference in the interpretation of its own regulations unless its construction is inconsistent with statutory authority or erroneous. Wagner v. Pennsylvania Board of Probation and Parole, 92 Pa. Commw. 132, 498 A.2d 1007 (1985).
*500 The backtime presently ordered by the Board in this case is within the applicable presumptive ranges provided by Board regulations. See 37 Pa. Code §§75.2 and 75.4. Petitioner does not argue otherwise. The Board contends that when a parolee is properly recommitted as a convicted parole violator to serve his unexpired term, any recommitment time ordered for technical violations must run concurrently. We agree but would caution the Board, as we have done in the past, to specify in its orders when separate backtime periods are intended to be served concurrently. Cf. Pitt v. Pennsylvania Board of Probation and Parole, 97 Pa. Commw. 116, 508 A.2d 1314 (1986) (Board order vacated and remanded for confirmation, inter alia, that backtime assessed for technical violation and new criminal conviction are to run concurrently).
We have in the past implicitly recognized that the Board may, within its discretion, impose concurrent periods of backtime. Garris v. Pennsylvania Board of Probation and Parole, 101 Pa. Commw. 420, 516 A.2d 808 (1986), Pitt. In Garris we held that the Board need not recalculate backtime after modifying a recommitment by deleting technical violations where the remaining conviction violations would justify the entire recommitment period in and of themselves. Moreover, our Supreme Court noted the following in Massey v. Pennsylvania Board of Probation and Parole, 509 Pa. 256, 258 n.7, 501 A.2d 1114, 1115-16 n.7 (1985) regarding recommitment periods identical to those imposed in the instant case:
Although not explicitly stated, we assume the period of recommitment as a technical violator was to run concurrent with the period of recommitment for the conviction violation since any other interpretation would lead to the impressible result of the appellant remaining incarcerated *501 for a period of time in excess of the sentence originally imposed by the trial judge.
We observe that the Board has never contended, nor could it properly do so, that it has authority to impose backtime to be served beyond the termination of the original underlying sentence. We believe, however, that Board regulations can reasonably be interpreted to allow imposition of concurrent backtime periods where, as here, the violations committed warrant the separate backtime assessments. Just as the Board may impose aggregate backtimes upon technical and convicted parole violators, Gundy v. Pennsylvania Board of Probation and Parole, 82 Pa. Commw. 618, 478 A.2d 139 (1984), so, too, may the Board order concurrent backtimes when necessary.
We, accordingly, conclude that the Board did not err when it failed to accelerate Petitioner's reparole eligibility date when it reduced the backtime assessed for Petitioner's technical violations. The Board may properly order concurrent periods of backtime where, as here, each separate period assessed is valid under applicable Board regulations.
Order affirmed.
ORDER IN 682 C.D. 1986
The petition for review in the above-captioned matter is hereby quashed.
ORDER IN 1942 C.D. 1986
The order of the Pennsylvania Board of Probation and Parole in the above-captioned matter is hereby affirmed.
NOTES
[1] Although Petitioner alleges in his brief that administrative relief was denied by the Board on May 23, 1986, we have found no verification of such Board action in the record certified to this Court on appeal. In fact, the record reflects a Board decision rendered on May 23, 1986 which modified prior Board orders and decreased the backtime assessed for Petitioner's technical violations from twenty-four to eighteen months. We, accordingly, consider this Board order, as corrected for typographical errors on June 23, 1986, to be the proper subject of review in the instant appeal.
[2] In Rivenbark the Supreme Court held that a parolee may not be recommitted as both a technical and convicted parole violator when the technical parole violation was based on the same act for which the parolee was newly convicted.
[3] The original order referred to violations of general parole conditions 3a (reporting regularly to parole supervision staff); 3b (notifying parole supervision staff within 72 hours of an arrest); 5b (refraining from owning or possessing firearms or other weapons); and 5c (refraining from assaultive behavior). On reconsideration, the Board deleted reference to conditions 5b and 5c but reaffirmed the recommitment for twenty-four months for violation of conditions 3a and 3b.
[4] The Board also reaffirmed the aggravating factors it had previously cited in support of exceeding the applicable presumptive range of six to eighteen months for Petitioner's technical violations. See generally 37 Pa. Code §§75.3 75.4. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535648/ | 103 Pa. Commw. 154 (1987)
520 A.2d 80
Gail D. Moore, Petitioner
v.
Commonwealth of Pennsylvania, Unemployment Compensation Board of Review, Respondent.
No. 1850 C.D. 1984.
Commonwealth Court of Pennsylvania.
Argued December 8, 1986.
January 13, 1987.
Argued December 8, 1986, before Judges DOYLE and PALLADINO, and Senior Judge BARBIERI, sitting as a panel of three.
Stuart Leon, with him, Jonathan M. Levin, Donsky, Levin & Dashevsky, P.C., for petitioner.
*155 Jonathan Zorach, Associate Counsel, with him, Clifford Blaze, Associate Counsel, and Charles G. Hasson, Acting Deputy Chief Counsel, for respondent.
OPINION BY JUDGE DOYLE, January 13, 1987:
This is an appeal by Gail D. Moore (Claimant) from an order of the Unemployment Compensation Board of Review (Board) which upheld a referee's decision denying Claimant benefits on the basis of Section 402(b) of the Unemployment Compensation Law, Act of December 5, 1936, Second Ex. Sess., P.L. (1937) 2897, as amended, 43 P.S. §802(b) (voluntarily quitting work without cause of a necessitous and compelling nature).
The referee found that Claimant had been employed as a United States postal clerk for two years. On July 22, 1983 Claimant's brother and sister-in-law were both killed in an airplane crash, leaving two children, ages two and five. Claimant took a leave of absence from her position in order to attend to matters pertaining to the accident, including obtaining legal guardianship of her two nieces. During the six-month period following the tragedy, her employer repeatedly sought from Claimant evidence justifying her continued need to be out of work, and eventually indicated that if she did not supply such information she could be dismissed from her position. The referee made no finding as to whether Claimant supplied any documentation although Claimant, who was the only witness at her hearing, testified that she did. She further testified and the referee found that she eventually resigned from her position in January of 1984 in order to avoid having a discharge on her employment record. Claimant did not assert below that her quit was anything other than voluntary. At the time she resigned, Claimant was not prepared to return to work on any shift nor was she certain when she would be available to return to work. The referee also found *156 that, although Claimant had a brother and two sisters, it was she who voluntarily chose to seek guardianship of her two nieces. In his discussion of Claimant's decision to seek guardianship of the children, the referee wrote:
While such motivation is laudible (sic), it does not constitute sufficient cause of a necessitous and compelling nature to justify the payment to claimant of unemployment compensation benefits upon her resignation for such purpose. Claimant has made no efforts to work around her problems, and alludes only to the necessity of her presence because of psychological factors affecting the children. Claimant has not presented any medical or psychological evidence that such was necessary. All in all, claimant has not demonstrated a bona fide attempt, or even desire, to maintain employment.
In a voluntary quit case the claimant bears the burden of proof, Deiss v. Unemployment Compensation Board of Review, 475 Pa. 547, 381 A.2d 132 (1977), and on appeal our scope of review is limited to determining whether there has been a constitutional violation or an error of law and whether the findings of fact are supported by substantial evidence. Section 704 of the Administrative Agency Law, 2 Pa. C.S. §704. Claimant argues before us that her seeking guardianship of the children and her setting up a home for them constitute necessitous and compelling reasons for her quit. In support of her argument she relies upon Hospital Service Association of Northeastern Pennsylvania v. Unemployment Compensation Board of Review, 83 Pa. Commw. 165, 476 A.2d 516 (1984). Hospital Service held that employees who quit their jobs to care for small children may have cause of a necessitous and compelling nature for their actions and, hence, be legally entitled to benefits. See also Blakely v. Unemployment *157 Compensation Board of Review, 76 Pa. Commw. 628, 464 A.2d 695 (1983). In Hospital Service, employees' shift hours were changed, creating insurmountable child care problems during shifts other than the shifts worked by the claimants, but the employees continued to remain available for work during their regular shifts. Claimant here, by her own admission, was unavailable for any shift.
Furthermore, Claimant's testimony was lacking in many specifics. She asserted that she was concerned with the emotional well-being of the two children and did not want to leave them. As the referee noted, however, there is no evidence, medical or otherwise, that the children would be psychologically damaged if left in the care of other persons or relatives. We believe that the instant case is similar to Davis v. Unemployment Compensation Board of Review, 69 Pa. Commw. 585, 452 A.2d 93 (1982), wherein a claimant quit work to care for her ill husband. In that case the claimant introduced medical testimony of the husband's illness but there was no Board finding on the specific issue of whether the claimant's husband needed constant attention. Accordingly, this Court remanded for a finding on that point. In the case at bar, however, there has been no medical or other similar testimony that the children, for psychological reasons, needed to remain only with their aunt or were in need of Claimant's constant attention. The record contains only Claimant's general statements that she believed that the children's well-being necessitated her constant presence and, therefore, a remand, as was ordered in Davis, would not prove helpful here.
Our refusal to allow the grant of benefits where specificity is lacking in a claimant's testimony is documented in other domestic quit cases as well. See, e.g., Kieley v. Unemployment Compensation Board of Review, 80 Pa. Commw. 618, 471 A.2d 1345 *158 (1984) (claimant with two ill parents testified only that her home responsibilities were taking care of the house, laundry, cleaning, etc. failed to prove that quit was necessitous and compelling); Renosky v. Unemployment Compensation Board of Review, 61 Pa. Commw. 620, 434 A.2d 887 (1981) (where claimant's testimony of father's ill health and mother's ability to cope with emergencies lacked specificity, his burden under Section 402(b) was not met); compare King v. Unemployment Compensation Board of Review, 51 Pa. Commw. 396, 414 A.2d 452 (1980) (claimant who was separated from her husband and whose work hours were altered by her employer met burden to show that her failure to report for work was not willful misconduct, but was for good cause by testifying that she lived alone with two young children in a dangerous residential neighborhood and that she had exhausted all child care sources within her means including friends, neighbors, relatives and day care centers).
While we agree with the referee that Claimant's motives are praiseworthy, the unfortunate fact is that she has failed to present with any specificity an explanation as to why she alone had to assume responsibility for the children[1] and why her absence from them might be detrimental to them.
Accordingly, the order of the Board is affirmed.
ORDER
NOW, January 13, 1987, the order of the Unemployment Compensation Board of Review in the above-captioned matter is hereby affirmed.
NOTES
[1] Necessitous and compelling cause for leaving employment results from circumstances that produce pressure to terminate that is both real and substantial and that would compel a reasonable person in like circumstance to act in a similar manner. Deiss v. Unemployment Compensation Board of Review, 475 Pa. 547, 381 A.2d 132 (1977). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535660/ | 520 A.2d 973 (1987)
Richard KOWALSKI
v.
Lachlan CAMPBELL
v.
STATE of Rhode Island.
No. 84-344-Appeal.
Supreme Court of Rhode Island.
February 13, 1987.
*974 Philip M. Weinstein, Providence, for plaintiff.
Paul G. MacLean, Narragansett, Arlene Violet, Atty. Gen., Richard B. Woolley, Spec. Asst. Atty. Gen., for defendant.
OPINION
KELLEHER, Justice.
This is a Superior Court civil action in which the defendant State of Rhode Island (state) faults the trial justice for denying the state's motion for a directed verdict.
The facts are not in dispute. On October 1, 1978, Lachlan Campbell (Campbell) was the operator of a Chevrolet van in which Richard Kowalski (Kowalski) was a passenger. While driving in the southbound lane of Kingstown Road, a state highway situated in the town of South Kingstown, Campbell's van struck a railroad trestle. The trestle supported railroad tracks that passed above the roadway at the site of the collision.
Kowalski filed suit against Campbell, who in turn joined the state as a third-party defendant, alleging that the collision occurred because of the state's negligence in maintaining "safety lines" on the highway that would have alerted Campbell of the hazard presented by the trestle. According to Campbell, the painted lines had faded to such a point that they no longer served any purpose. Campbell also filed a cross-claim against the state, seeking indemnification or contribution from the state for any damages adjudged against Campbell in Kowalski's action.
At the close of the trial in Superior Court, the state moved for a directed verdict that was denied by the trial justice. The jury subsequently returned a verdict, finding the state 60 percent negligent and Campbell 40 percent negligent, and awarded Kowalski and Campbell damages.
In Ryan v. State Department of Transportation, 420 A.2d 841 (R.I. 1980), this court established an exception to G.L. 1956 (1969 Reenactment) § 9-31-1, as amended by P.L. 1970, ch. 181, § 2, which abrogates the doctrine of sovereign immunity with respect to the state's tortious conduct. We held that "[i]n suits brought against the state, plaintiffs must show a breach of some duty owed them in their individual capacities and not merely a breach of some obligation owed the general public." 420 A.2d at 843.
Recently, in a case factually similar to the one at bar, this court held that although the state is required to keep its highways in good repair,
"the state's duties in this respect clearly extend to the motoring public in general. In the cases in which we have affirmed the existence of a special duty, either the plaintiffs have had prior contact with state or municipal officials who then knowingly embarked on a course of conduct that endangered the plaintiffs, or they have otherwise specifically come within the knowledge of the officials so that the injury to that particularly identified plaintiff can be or should have been foreseen." Knudsen v. Hall, 490 A.2d 976, 978 (R.I. 1985).
Neither Kowalski nor Campbell has presented any evidence that would indicate either or both could have been foreseen as specific, identifiable victims of the state's negligence.
In the absence of a special duty owed to the plaintiffs by the state there is no basis for state liability.[1] The trial justice therefore *975 erred in failing to grant the state's motion for a directed verdict as a matter of law.
The state's appeal is sustained, and the case is remanded to the Superior Court to enter judgment in favor of the state.
NOTES
[1] At its January 1986 session the General Assembly approved the provisions of House Bill 86 H 8304. This bill was intended to nullify the holding in Ryan v. Department of Transportation, 420 A.2d 841 (R.I. 1980) and Knudsen v. Hall, 490 A.2d 976 (R.I. 1985). However, on July 2, 1986, Governor Edward D. DiPrete vetoed the bill. The General Assembly adjourned without making any effort to override the Governor's veto. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1562754/ | 758 S.W.2d 7 (1988)
25 Ark.App. 287
Herman Frederick FRANKLIN, Appellant,
v.
Phoebe Ann FRANKLIN, Appellee/Cross-Appellant.
No. CA 88-135.
Court of Appeals of Arkansas, Division II.
October 5, 1988.
Gary D. McDonald, Beverly Carpenter, El Dorado, for appellant.
Carol Crafton Anthony, El Dorado, for appellee/cross-appellant.
CORBIN, Chief Judge.
This appeal comes to us from the Union County Chancery Court. Both parties appeal from the decree and order filed of record January 19, 1988. We affirm in all respects.
Herman and Phoebe Franklin were married December 12, 1957. The parties separated on or about October 9, 1984, and Mr. *8 Franklin petitioned the court for absolute divorce. The case was heard on August 24, 1987, and a decree awarding divorce was filed January 19, 1988. The decree also disposed of the parties' property and awarded bi-monthly alimony to Mrs. Franklin.
For reversal, appellant, Herman Franklin, raises the following five points: (1) The chancellor erred and abused his discretion in awarding alimony to Mrs. Franklin; (2) alternatively, the chancellor erred in the amount of alimony awarded; (3) alternatively, the chancellor erred in awarding alimony retroactively; (4) the chancellor erred in failing to adjudicate marital property as of October 9, 1984; and (5) the chancellor erred in awarding Mrs. Franklin an unequal division of marital property. Appellee, Phoebe Franklin, filed a cross-appeal asserting the following two points: (1) The chancellor erred in refusing to allow Mrs. Franklin to name a contingent alternative payee on the retirement benefits; and (2) the chancellor abused his discretion in failing to award Mrs. Franklin an attorney's fee.
Appellant's first three points regarding the alimony will be treated together. The award of alimony in a divorce action is not mandatory but is a question which addresses itself to the sound discretion of the chancellor and the appellate court will not reverse absent a clear abuse of that discretion. Wilson v. Wilson, 294 Ark. 194, 741 S.W.2d 640 (1987). There are many factors which may be considered in determining whether to allow alimony and fixing the amount to be allowed.
Among [the factors] are the financial circumstances of both parties, the financial needs and obligations of both the couple's past standard of living, the value of jointly owned property, the amount and nature of the income, both current and anticipated, of both husband and wife, the extent and nature of the resources and assets of each that is "spendable," the amounts which, after entry of the decree, will be available to each of the parties for the payment of living expenses, the earning ability and capacity of both husband and wife, property awarded or given to one of the parties, either by the court or the other party, the disposition made of the homestead or jointly owned property, the condition of health and medical needs of both husband and wife, the relative fault of the parties and their conduct, both before and after separation, in relation to the marital status, to each other and to the property of one or the other or both,[1] the duration of the marriage and even the amount of child support.
Boyles v. Boyles, 268 Ark. 120, 594 S.W.2d 17 (1980).
The record reflects that the parties were married twenty-seven years prior to their separation. During the period of separation Mrs. Franklin was diagnosed as having multiple sclerosis. Prior to the final hearing Mrs. Franklin resigned from her job due to her inability to properly perform her duties resulting from her health problems. The chancellor found that because of her health and her limited vocational skills, Mrs. Franklin's opportunity to realize gainful employment and to acquire capital assets was poor. We cannot say that such a finding is clearly erroneous. The record also reveals that Mr. Franklin has steady employment from which he nets approximately $33,000 per year and receives various other benefits in connection with his employment. We cannot conclude under these circumstances that the chancellor abused his discretion in awarding alimony to Mrs. Franklin.
The same factors are considered in determining the amount at which to fix the payments. See, id. Using the Arkansas Domestic Relations Manual support chart as a guide, the chancellor awarded Mrs. Franklin bi-monthly alimony of $244. Appellant contends that the chancellor erred in using the chart because it is designed for use only in situations where the court awards child support to a custodial parent of dependent children, and that the chancellor *9 did not consider his "spendable" income as enunciated in Boyles. It is clear that the chancellor considered many of the factors enunciated in establishing the amount of alimony. Furthermore, while Mrs. Franklin presented testimony regarding her expenses such as rent and insurance, it does not appear that Mr. Franklin put on any proof regarding his "spendable" income. Although "spendable" income is one of the factors the chancellor may consider, he is unable to consider something not before him. Finally, the chancellor stated that he was using the support chart as a guide. The suggestions for use of the chart, appended thereto, provide that a dependent custodian should be counted as two dependents as a guide in determining support. Although Mrs. Franklin is not a custodian, we find no error in using the chart as a guide and cannot say that the chancellor abused his discretion in fixing the amount of alimony at $244 bi-monthly.
Mr. Franklin also argues that the chancellor abused his discretion in awarding alimony retroactively, as of the day following his first letter opinion in the matter. Although the alimony award could not be enforced until the entry of the decree, see ARCP Rule 58, the date on which it begins to accrue is a decision within the broad discretion of the chancellor. Appellant has cited no authority which convinces us that the chancellor abused his discretion in this instance.
Next appellant argues that the chancellor erred in failing to adjudicate marital property as of October 9, 1984, the date of separation. In support of his argument, appellant cites Ford v. Ford, 272 Ark. 506, 616 S.W.2d 3 (1981). However, in Ford, the supreme court merely upheld the chancellor's unequal division of property, noting that his findings properly addressed the criteria to be considered under the statute in effect at the time. Contribution of each party in acquisition, preservation or appreciation of marital property is a factor to be considered. Although the chancellor in Ford seemed to rely heavily on the wife's lack of contribution during the five and one-half years of separation, the supreme court's decision did not imply that the property was not marital property subject to division, nor did it imply that the contribution factor was to be controlling. It is clear from decisions of both our court and the supreme court that assets acquired after separation and prior to a grant of divorce are marital property, and are to be divided giving due consideration to the factors enunciated in Arkansas Code Annotated § 9-12-315(a)(1)(A) (Supp.1987) (formerly Ark.Stat.Ann. § 34-1214(A)(1) (Supp. 1985)). See, e.g., Wilson v. Wilson, 294 Ark. 194, 741 S.W.2d 640 (1987); Lee v. Lee, 12 Ark.App. 226, 674 S.W.2d 505 (1984). We find no error in awarding Mrs. Franklin an interest in assets acquired by Mr. Franklin after separation.
Both parties raise issues on appeal regarding the division of property and the arguments will be treated together. The applicable statute provides as follows:
(a) At the time a divorce decree is entered: (1)(A) All marital property shall be distributed one-half (½) to each party unless the court finds such a division to be inequitable. In that event the court shall make some other division that the court deems equitable taking into consideration:
(i) The length of the marriage;
(ii) Age, health, and station in life of the parties;
(iii) Occupation of the parties;
(iv) Amount and sources of income;
(v) Vocational skills;
(vi) Employability;
(vii) Estate, liabilities, and needs of each party and opportunity of each for further acquisition of capital assets and income;
(viii) Contribution of each party in acquisition, preservation, or appreciation of marital property, including services as a homemaker; and
(ix) The federal income tax consequences of the court's division of property.
(B) When property is divided pursuant to the foregoing considerations the court must state its basis and reasons for not dividing the marital property equally between *10 the parties, and the basis and reasons should be recited in the order entered in the matter.
Ark.Code Ann. § 9-12-315(a)(1) (Supp.1987) (formerly Ark.Stat.Ann. § 34-1214(A)(1)).
Mr. Franklin asserts error in the chancellor's unequal division of property in the case at bar. Prior to disposition of the parties' property, the chancellor stated in the decree that he based his decision upon the parties twenty-seven year marriage, Mrs. Franklin's deteriorating health, her poor opportunity to realize gainful employment and to acquire capital assets, and her limited vocational skills. His findings are amply supported by the record. Mr. Franklin attaches special significance to the fact that the chancellor stated that he found an unequal division to be "appropriate" rather than "equitable." However, we find no such significance in his choice of words and cannot say that the chancellor's findings that the circumstances warranted an unequal division of property, were clearly erroneous.
Mrs. Franklin, in her first point on cross-appeal, argues that the chancellor erred in refusing to allow her to name a contingent alternative payee on her share of the retirement benefits. The chancellor awarded Mrs. Franklin a share of various retirement benefits of Mr. Franklin's but stated that if she predeceased Mr. Franklin her share was to revert back to Mr. Franklin. Mrs. Franklin argues that, in effect, she was given only a life estate in the benefits. We agree that is the effect of the chancellor's ruling. However, we see no error in awarding such a life estate as part of an unequal distribution. As discussed above, prior to disposition of any property the chancellor specifically stated that he was awarding an unequal property division and stated his reasons for so doing. Had the chancellor stated that he was awarding an equal division of property, we would have a different issue before us. We cannot say that the chancellor erred in the manner in which he chose to distribute the property.
Finally, Mrs. Franklin argues that the chancellor erred in failing to award attorney's fees. We disagree. The trial court has considerable discretion in the allowance of attorney's fees in a divorce case, and in the absence of clear abuse, the chancellor's fixing of an attorney's fee will not be disturbed on appeal. Wilson v. Wilson, 294 Ark. 194, 741 S.W.2d 640 (1987). Unless the chancellor finds it to be equitable, there is no compelling reason for the husband to automatically pay the wife's attorney's fees. Id. Upon our review of the record, we cannot say that the chancellor clearly abused his discretion in failing to award attorney's fees to Mrs. Franklin.
AFFIRMED.
CRACRAFT and MAYFIELD, JJ., agree.
NOTES
[1] In Russell v. Russell, 275 Ark. 193, 628 S.W.2d 315 (1982), the Arkansas Supreme Court deleted the relative fault of the parties as a factor considered by the court with regard to alimony. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1562792/ | 758 S.W.2d 785 (1988)
Ex parte Carl Rubin WILLIAMS.
No. 70264.
Court of Criminal Appeals of Texas, En Banc.
October 19, 1988.
Curtis C. Mason, Huntsville, for appellant.
Robert Huttash, State's Atty., Austin, for the State.
Before the court en banc.
OPINION
McCORMICK, Judge.
This is an application for writ of habeas corpus which was submitted to this Court pursuant to the provisions of Article 11.07, V.A.C.C.P.
Applicant was indicted for the offense of murder under V.T.C.A., Penal Code, Section 19.02 (a)(1). The indictment included an allegation that applicant committed the aforementioned offense "by shooting ... with a handgun, a deadly weapon." Pursuant to a plea bargain agreement, applicant *786 pled guilty as charged in the indictment and was sentenced by the court to twenty-five years' in the Texas Department of Corrections. Included in the judgment of the trial court was an entry of an affirmative finding regarding the use of a deadly weapon under Article 42.12, Section 3f(a)(2), V.A.C.C.P. (now Section 3g(a)(2)). No direct appeal was perfected.
In his application, applicant contends that the trial court, in entering the affirmative finding that a deadly weapon had been used to commit the above offense, violated the plea bargain agreement. Applicant alleges that where the agreement is silent as to whether there would be an affirmative finding, entry of such a finding violates the agreement. As such, applicant seeks specific performance of the plea bargain agreement and the deletion of the affirmative finding from the judgment.
In its findings, the trial court found: 1) the indictment included the allegation that a deadly weapon had been used in the commission of the offense and therefore applicant was given notice that the entry of an affirmative finding was possible; 2) the plea bargain agreement, to which applicant subscribed, was mute regarding the trial court entering an affirmative finding that a deadly weapon had been used; and 3) the affirmative finding was entered by the trial court into both the judgment and the docket sheet. Review of the record reflects that these entries were recorded contemporaneously with the acceptance of the plea bargain agreement. As a result of these facts, the trial court concluded that the applicant should be denied relief. We agree.
In the present case, applicant pled guilty to an indictment containing sufficient notice of a deadly weapon allegation. This plea was the result of a plea agreement which was silent as to the possible entry into the judgment of the deadly weapon finding. The trial court, upon acceptance of applicant's plea as per the plea bargain agreement, however, entered upon the judgment, separately and specifically, the deadly weapon finding as authorized by Article 42.12, 3f(a)(2), supra.
This Court has held that the terms of plea agreements are contractual in nature and as a result, are left to the parties to determine and agree upon. Ex parte Williams, 637 S.W.2d 943 (Tex.Cr.App. 1982), cert. denied 462 U.S. 1108, 103 S. Ct. 2458, 77 L. Ed. 2d 1336 (1983). When a trial court accepts a plea agreement, its terms then become binding upon the parties. A party to an agreement has no contractual rights to demand specific performance over terms not appearing in the agreement or record.
We find that applicant received exactly what he bargained for, that he would plead guilty, would testify, would receive twenty-five years' in the penitentiary, would not be eligible for probation and would be credited for time served while awaiting trial, all of which are obligations applicant is currently fulfilling. Applicant does not allege or prove that the exclusion of the affirmative finding was a part of the plea agreement or that the State was ever under any obligation regarding the affirmative finding.
Therefore, this Court will not disturb the terms of this agreement by reading into it details not contemplated by the parties as reflected in the agreement or raised by the evidence.
We, therefore, deny relief.
TEAGUE, J., dissents. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1562797/ | 758 S.W.2d 866 (1988)
Michael SAPPINGTON, Appellant,
v.
YOUNGER TRANSPORTATION, INC., Appellee.
No. 13-87-240-CV.
Court of Appeals of Texas, Corpus Christi.
September 8, 1988.
Rehearing Denied October 20, 1988.
Rex L. Easley, Jr., Victoria, for appellant.
Emmett Sterling, Rodney Jack Reynolds, Houston, for appellee.
Before DORSEY, UTTER and BENAVIDES, JJ.
OPINION
DORSEY, Justice.
Appellant, Michael Sappington, brought a third party negligence action against appellee, Younger Transportation, Inc., for personal injuries resulting from an on-the-job accident. Appellee asserted at trial that the sole proximate cause of the accident was the negligence of other employees of appellant's employer, Rig Manufacturing, Inc. (RMI). The trial court included a sole proximate cause instruction in its charge. The jury found appellee negligent but further found that its negligence was not a proximate cause of harm. By two points of error, appellant contends the take-nothing judgment rendered against him should be overturned because the sole proximate cause instruction was erroneously submitted to the jury. We affirm.
On September 28, 1983, an employee of Younger, Leroy Spates, arrived at RMI's yard in a tractor pulling a lowboy trailer and a "jeep" [1] which was owned by Younger and which carried an inoperative drilling rig in need of repair. After an unsuccessful attempt to unhitch the trailer and drop the load, Spates asked John Blaylock, a supervisor for RMI, for help. They agreed that Blaylock would hook the trailer to RMI's crane or "cherrypicker" in order to relieve some of the weight from the hitch or "fifth wheel" [2] of the jeep so that Spates could disengage the hitch. Spates, Blaylock, and his rigger, or helper, all knew that the crane could not handle the combined *867 weight of the trailer and its cargo, over 100,000 lbs, when the crane had a capacity of 40,000 lbs. The chain connecting the crane and trailer snapped and part of a broken link struck appellant, who was standing nearby, in the eye, injuring him severely.
The evidence and theories of plaintiff and defendant diverge on why the chain broke. The plaintiff's evidence, primarily through Blaylock and his helper, Richardson, was that the cherrypicker crane took enough load off the tractor's hitch to allow the defendant's driver, Spates, to disconnect the tractor-jeep from the trailer; but, rather than Spates moving the truck only a couple of inches after disconnecting so the trailer would still be supported by the hitch, Spates drove forward several feet, causing the full weight of the trailer to be borne by the crane, which in turn caused the chain to snap.
The plaintiff also claimed the defendant was negligent in not properly maintaining the fifth wheel hitch, so as to prevent the trailer from being unhitched without assistance.
The defendant, Younger Transportation Co., maintained the chain was improperly connected to the trailer, was weak because of earlier stretching, and snapped upon taking the weight of the trailer before Spates moved the tractor.
The jury found the defendant negligent in the maintenance of the fifth wheel on the jeep, but failed to find that it proximately caused the injury. The jury also failed to find that Spates was negligent in the manner in which he unhooked the jeep from the trailer. Those were the only negligence submissions.
At trial, the court included the following instruction in its charge to the jury:
There may be more than one proximate cause of an event, but there can be only one sole proximate cause. If an act or omission of any person was the sole proximate cause of an occurrence, then no act or omission of any other person could have been a proximate cause.
Appellant's first point of error asserts that the trial court erred in submitting the sole proximate cause instruction because there were no pleadings to support it. However, Paragraph II of appellee's second amended original answer, which was timely filed, reads:
For further answer, if such be necessary, Defendant further alleges that the accident complained of in Plaintiff's First Amended Original Petition, rather than being caused by any negligence on the part of Defendant, was proximately and solely caused by a new, independent, and efficient intervening cause. (emphasis ours)
We overrule point one.
Point two asserts that the sole proximate cause instruction should not have been given under the facts of the case.
An instruction or definition is properly submitted if it finds support in "any evidence of probative value or in the reasonable inferences that may be drawn therefrom, and if it may be of some aid or assistance to the jury in answering the issues submitted." Badger v. Symon, 661 S.W.2d 163, 165 (Tex.App.-Houston [1st Dist.] 1983, writ ref'd n.r.e.); see also Tex. R.Civ.P. 277.
Appellee established at trial that the double-drop chain which was used to lift the rig on the date of the accident had a lifting capacity of 40,000 pounds (or 20,000 pounds per "drop"). Richardson and Blaylock both testified that, on several occasions prior to the appellant's accident, the chain had been used by RMI employees to lift more than 40,000 pounds of equipment, thereby overstressing and possibly weakening the chain.
Richardson also stated that he had personally hooked up the chain to the rig on the date in question such that the connecting links on the two drops were "pretty close." RMI President Clarence Long testified that if the two drops were not hooked up exactly evenly, one drop would bear the entire weight of the load and probably break. He further testified that one of Blaylock's duties was to inspect the chain for defects before each job.
*868 Blaylock testified for the defense and stated that he only remembered seeing one of the drops hooked to Younger's truck-trailer at the time of the accident.
The foregoing evidence supports appellee's defensive theory that the breaking of the chain was proximately and solely caused by RMI's negligence.
Appellant argues that the instruction on sole proximate cause told the jury to consider the negligence of his employer, RMI, through the negligence of his fellow servants, contrary to the prohibition expressed in Varela v. American Petrofina Co., 658 S.W.2d 561 (Tex.1983). The court in Varela stated: "The sole question before us is whether an employer's negligence may be considered in a third-party negligence action brought by an employee arising out of an accidental injury covered by worker's compensation insurance. We hold that under applicable statutes, the employer's negligence may not be considered." Id. at 561-62. Facially, it appears that, in allowing consideration of the employer's negligence through the sole proximate cause instruction, Varela has been violated in the instant case.
However, Varela dealt with the apportionment of negligence between the plaintiff, his covered employer, and the third party defendant under the comparative negligence statute, Tex.Rev.Civ.Stat.Ann. art. 2212a, § 2(b) (Vernon 1971) (repealed). As a result of the trial court's consideration of the percentage of negligence of the employer, the recovery of the plaintiff was diminished as against the third party defendant. The court held that "the employer shall recover the total amount of damages as found by the jury diminished only in proportion of the negligence attributed to the employee.
In Williams v. Union Carbide, 734 S.W.2d 699, 702 (Tex.App.-Houston [1st Dist.] 1987, writ ref'd n.r.e.), the court held that Varela does not prohibit the introduction of evidence as to the employer's negligence in an employee's third party action.
Similarly, causation by the employer's other employees was in issue here. We do not read Varela as prohibiting evidence of an employer's negligence or causation in a third party action when the negligence is not for reduction of damages or contribution under the former art. 2212a, now Tex. Civ.Prac. & Rem.Code Ann. § 33.001, et seq. Thus, the employer's negligence through the appellant's fellow servants could properly be considered in determining causation.
No special issues on sole proximate cause are proper, because sole proximate cause inferrentially rebuts any other proximate cause, and inferrential rebuttal issues are forbidden by Rule 277. Sendejar v. Alice Physicians & Surgeons Hospital, Inc., 555 S.W.2d 879, 887 (Tex.Civ.App.- Tyler 1977, writ ref'd n.r.e.). However, the concepts behind the issues that are no longer submitted to the jury are now given to the jury as instructions. The giving of an instruction is said to be within the discretion of the court. Baker Marine Corp. v. Moseley, 645 S.W.2d 486, 488-89 (Tex.App. -Corpus Christi 1982, writ ref'd n.r.e.). The purpose of an instruction is to assist the jury, although caution is to be exercised in giving superfluous instructions that tend to nudge or direct the jury away from the real issues in the case. Acord v. General Motors, 669 S.W.2d 111, 116 (Tex. 1984); see also First International Bank v. Roper Corp., 686 S.W.2d 602, 605 (Tex. 1985).
Although the instruction on sole proximate cause is an archaic and confusing way of stating the obvious, it is a well-approved instruction in Texas law.
Point of error number two is overruled.
The judgment of the trial court is AFFIRMED.
NOTES
[1] The "jeep" is a device having two axles and eight wheels connected to the back of the tractor. The lowboy trailer is connected to the "jeep." The purpose of the "jeep" is to provide additional load bearing axles for very heavy loads.
[2] A "fifth wheel" is a circular platform on a tractor of "jeep" on which the trailer rests that is connecting the trailer to its means of propulsion. It is designed to unlatch so the trailer may be discharged. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535478/ | 308 Md. 468 (1987)
520 A.2d 379
CARLOTTA M. TAYLOR
v.
DEPARTMENT OF EMPLOYMENT AND TRAINING.
No. 80, September Term, 1986.
Court of Appeals of Maryland.
January 30, 1987.
Edward J. Skeens, Suitland, for appellant.
Evelyn O. Cannon, Asst. Atty. Gen. (Stephen H. Sachs, Atty. Gen. and Alexander Wright, Jr., Asst. Atty. Gen., on the brief), Baltimore, for appellee.
Argued before MURPHY, C.J., and ELDRIDGE, COLE, RODOWSKY, COUCH, McAULIFFE and ADKINS, JJ.
ADKINS, Judge.
This case presents the question of whether an involuntarily unemployed worker, ineligible for retirement, who receives a lump sum retirement payment and rolls it over into an individual retirement account (IRA), is eligible for unemployment compensation benefits. Article 95A, § 6(g) of the Unemployment Insurance Law disqualifies claimants who have received an amount equal to or in excess of the weekly benefit amount in the form of a retirement payment. The appellant, Carlotta M. Taylor, invites us to qualify her for unemployment compensation benefits under § 6(g) by characterizing her receipt of a lump sum retirement payment as a temporary constructive transfer, accomplished merely for the purpose of continuing a retirement plan prematurely terminated. We decline this invitation and hold that the disqualifying provisions of § 6(g) appropriately apply to the facts of this case. We explain.
The facts are simple and undisputed. Taylor was employed as an accounting manager at Joyce Beverages for nearly twenty years when, at the age of 56, her job was abolished and her employment terminated. During the time of her employment she had participated in an employer-sponsored profit sharing trust. The profit sharing program was designed as a retirement plan for employees. Upon separation from employment, Joyce Beverages disbursed to Taylor $38,937.11, which represented the entire vested balance of the profit sharing trust. After deducting the amount of her contribution, Taylor immediately rolled over the remaining $34,755.27 into an IRA at the Maryland National Bank, and applied to the appellee, the Department of Employment and Training, for unemployment compensation benefits.
Her application for benefits was subsequently denied on the basis she had received a retirement payment exceeding her weekly benefit amount under § 6(g). After exhausting administrative remedies, Taylor appealed to the Circuit Court for Prince George's County which affirmed the decision of the Department of Employment and Training. Taylor then made timely appeal to the Court of Special Appeals. Before argument in that court, we granted certiorari on our own motion to consider the important question presented.
The focus of our inquiry is the meaning of the term "received" within the provisions of § 6(g), and it is to these provisions that we now turn. Section 6(g) disqualifies a claimant "for any week ... he is receiving or has received an amount ... equal to or in excess of his weekly benefit amount in the form of a pension, annuity or retirement or retired pay, or any other similar periodic payment...." The provision also envisions lump sum payments for § 6(g)(3)(ii) provides that "A lump sum payment of a pension, annuity, or retirement or retired pay shall be allocated to a number of weeks following the date of separation according to the number of weeks of pay received at the individual last pay rate."
Taylor concedes that under a plain and ordinary interpretation of § 6(g), she has received a lump sum retirement payment in excess of her calculated weekly benefit amount and is ineligible for benefits. She urges, however, that to effectuate the remedial design of the Unemployment Insurance Law, the court must adopt a restrictive interpretation of the term "received" under § 6(g), and limit its application in this case to involuntarily unemployed individuals who are eligible for retirement.[1]
As we have often recognized, Maryland's Unemployment Insurance Law is designed to alleviate the consequences of involuntary unemployment and ease the burden of economic distress. Board of Educ. Mont. Co. v. Paynter, 303 Md. 22, 491 A.2d 1186 (1985); Employ. Sec. Adm. v. Browning-Ferris, 292 Md. 515, 438 A.2d 1356 (1982); Sec., Dept. Human Resources v. Wilson, 286 Md. 639, 409 A.2d 713 (1979); Saunders v. Unemp. Comp. Board, 188 Md. 677, 53 A.2d 579 (1947); Compensation Board v. Albrecht, 183 Md. 87, 36 A.2d 666 (1944). To accomplish this important purpose, weekly income benefits are paid to individuals who have become involuntarily unemployed through no fault of their own, and who are otherwise eligible. In determining the scope of the statute and the eligibility of claimants, we have held that the provisions of the Unemployment Insurance Law should be liberally construed to effectuate its legislative intent, and any disqualifying provisions in the remedial statute should be strictly construed. Saunders v. Unemp. Comp. Board, 188 Md. at 681-683, 53 A.2d at 580-581.
It cannot be denied that a consequence of involuntary unemployment may be the premature termination of a retirement plan. Indeed, Taylor presents the interesting policy argument that where the receipt of a lump sum retirement payment is characterized as present disposable income, a worker is essentially forced to use all or part of the retirement savings for immediate expenses, thus impairing her future economic security. It is true, of course, that § 6(g) clearly envisions and requires that unemployment compensation benefits be offset by Social Security and other pensions. Taylor, nonetheless, argues that such an offset should not apply to an employee who is ineligible for retirement and who desires to continue working. We are not unmindful of the policy considerations inherent in the unemployment compensation scheme, but Taylor mistakes her argument.
That the disqualifying provisions of § 6(g) may, in these circumstances, promote an unwise public policy is not the issue before us. The threshold inquiry in any issue of statutory construction is whether the language is ambiguous or of uncertain meaning. If it is not, then the Court applies its plain and ordinary meaning. Tucker v. Fireman's Fund Ins. Co., 308 Md. 69, 517 A.2d 730 (1986); Board of Educ. Mont. Co. v. Paynter, 303 Md. 22, 491 A.2d 1186 (1985). Only where the language is of uncertain meaning or doubtful import should the Court seek to judicially construe the statute. Bledsoe v. Bledsoe, 294 Md. 183, 448 A.2d 353 (1982). In the present instance, § 6(g) is not couched in uncertain language nor is it of doubtful import. Also absent is any qualifying language that might cloud an interpretation of the provisions. Section 6(g) states plainly that an employee is disqualified for benefits in "any week which he is receiving or has received an amount ... equal to or in excess of his weekly benefit amount ... in the form of ... retirement or retired pay...." The statute also clearly requires that "a lump sum payment of a ... retirement or retired pay shall be allocated...."
We cautioned in Saunders, supra, that while it is important to construe liberally the Unemployment Compensation Law so as to effectuate its legislative design, the Court cannot read into the statute what is plainly not there. The statute prohibits the pyramiding of unemployment compensation atop retirement benefits. It makes no distinction between involuntarily unemployed individuals eligible for retirement and those ineligible. Nor does it distinguish between one who voluntarily retires and one who is involuntarily retired. Despite Taylor's urging, the Court cannot fabricate such a distinction. Taylor received the money; it was retirement pay; once it was in her hands, she was free to do with it what she wished.
Other jurisdictions considering similar statutes have also concluded that lump sum retirement payments that equal or exceed weekly benefits disqualify an individual from unemployment compensation benefits, and likewise make no distinction between involuntarily unemployed individuals who are eligible for retirement and those who are ineligible. Subluskey v. D.C. Dept. of Employment Ser., 467 A.2d 480 (D.C. 1983); Lincoln Nat'l Bank v. Review Bd. of Indiana, 446 N.E.2d 1337 (Ind. App. 2 Dist. 1983); State Div. of Administration v. State, 367 So. 2d 43 (La. App. 1978), writ denied, 368 So. 2d 135 (La. 1979); In Re Claim of Richmond, 96 A.D.2d 1132, 467 N.Y.S.2d 730 (3d Dept. 1983); Mahland v. Un. Comp. Bd. of Rev., 83 Pa.Commw. 301, 476 A.2d 1023 (1984).
Whether the application of § 6(g) should make any distinction between employees eligible for retirement and those ineligible is a question fraught with policy considerations that are best suited for resolution by the legislature. We interpret the language of § 6(g) according to its plain and ordinary meaning and conclude that the receipt of a lump sum retirement payment that equals or exceeds the weekly benefit amount disqualifies Taylor for unemployment compensation benefits.
JUDGMENT OF THE CIRCUIT COURT FOR PRINCE GEORGE'S COUNTY IS AFFIRMED. COSTS TO BE PAID BY APPELLANT.
NOTES
[1] Taylor alternatively relies, by analogy, on § 6(h) and its related COMAR regulation 24.02.02.10A(1), for the view that her retirement proceeds are not disqualifying under § 6(g) because her job was abolished. We reject this argument. Section 6(h) deals with "dismissal pay or wages in lieu of notice" and disqualifies a claimant who has received payments of that sort. It contains an exception, without parallel in § 6(g), avoiding the disqualification "if the claimant's unemployment is due to the abolition of his job either for technological reasons or because the employer has permanently discontinued" operations. This case concerns retirement pay, not dismissal pay. Moreover, even if we could somehow force the § 6(h) exception into § 6(g), it would be of no avail to Taylor. The record does not show either that her job was abolished for technological reasons or that her employer has permanently discontinued operations. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535558/ | 212 B.R. 350 (1997)
In re Gary Glenn WASWICK, Debtor.
Gary Glenn WASWICK, Plaintiff,
v.
STUTSMAN COUNTY BANK and Clifton Rodenburg, Defendants.
Bankruptcy No. 96-30595, Adversary No. 97-7031.
United States Bankruptcy Court, D. North Dakota.
July 31, 1997.
Clifton G. Rodenburg, Fargo, ND, for pro se.
Max D. Rosenberg, Bismarck, ND, for Plaintiff.
Timothy Ottmar, Jamestown, ND, for Stutsman County Bank.
*351 ORDER
WILLIAM A. HILL, Bankruptcy Judge.
By Motion filed June 12, 1997, co-Defendant, Clifton Rodenburg (Rodenburg), seeks summary judgment in his favor dismissing the Plaintiff's Complaint against him. The Motion is resisted by the Plaintiff, Gary Glenn Waswick (Waswick), who on July 16, 1997, in connection with his reply to the Rodenburg motion, filed a cross-motion for summary judgment.
This adversary proceeding was commenced by the Plaintiff/Debtor Waswick's Complaint filed on May 1, 1997, alleging that the Stutsman County State Bank (Bank), a creditor, and its attorney, Clifton Rodenburg, violated the injunction created by this Court's discharge order, filed August 8, 1996, and are therefore in contempt of this Court.
The matter directly before the Court arises by Defendant Rodenburg's Motion and Plaintiff Waswick's Cross Motion for Summary Judgment. Filed on June 12, 1997, Rodenburg's Motion asserts that he did not have knowledge of Waswick's bankruptcy or discharge when he filed the state court collection action and that upon learning of the discharge, he ceased attempting to properly serve the summons or otherwise collect the debt. Therefore, in his view Waswick's Complaint fails as a matter of law to establish a claim under § 524(a)(2) of the Code. Waswick's Cross Motion, filed on July 16, 1997, asserts Rodenburg's actions constitute contempt and that the Bank's knowledge of Waswick's bankruptcy can be imputed to Rodenburg. Waswick further claims that even if the Bank's knowledge cannot be imputed, Rodenburg has a responsibility to check the bankruptcy court's files before taking action to collect on any debt.
Rule 56 of the Federal Rules of Civil Procedure governs the grant of summary judgment motions and is made applicable to bankruptcy proceedings by Fed. R. Bankr.P. 7056. Under Rule 56(c), summary judgment is appropriate if the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Bankr.P. 7056. The initial burden always falls directly on the movant to demonstrate the lack of any genuine issue of material fact, with the party opposing the motion to be given the full benefit of all favorable factual inferences. Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 585, 106 S. Ct. 1348, 1355, 89 L. Ed. 2d 538 (1986); Lower Brule Sioux Tribe v. State of South Dakota, 104 F.3d 1017, 1021 (8th Cir.1997). From the affidavits and documents submitted in connection with the motion and cross-motion the undisputed facts are as follows:
1.
Waswick filed for Chapter 7 protection on May 13, 1996, and was granted a discharge on August 8, 1996. As it held a promissory note in the amount of $789.79, the Bank was a creditor listed on the mailing matrix and Schedule F. On January 23, 1996, prior to the filing of Waswick's bankruptcy petition, the Bank retained Rodenburg to collect on the promissory note upon which Waswick had defaulted. Rodenburg's records indicate his office sent Waswick collection letters on April 24, 1996, May 17, 1996 and June 1, 1996, all of which Waswick admits receiving yet neither he nor his attorney chose to respond to. Since these efforts were ineffective, Rodenburg then prepared a summons and complaint on September 19, 1996. Having mailed it with insufficient postage for restricted delivery, the summons and complaint were sent by regular certified mail. As a result, Joyce Jans, Waswick's girlfriend, signed the domestic return receipt on September 23, 1996.[1] In late September or early October, Rodenburg then received an undated letter from Waswick's attorney, Max Rosenberg, stating he received the summons and complaint served upon Waswick and that such action violated the injunction accorded Waswick as a result of the order of discharge entered August 8, 1996. Upon hearing this news, Rodenburg states by affidavit that he *352 instructed another collection administrator in his office, David Vangsness, to contact and assure Mr. Rosenberg that no further attempts to serve the summons or otherwise collect the debt would occur. Vangsness by affidavit states he left a message on Rosenberg's answering machine on October 2, 1996, to which Rosenberg did not respond. Rodenburg also advised his staff to close the Waswick file and had Vangsness notify the Bank of this. Rodenburg has not served any further pleadings, discovery requests or motions on either Waswick or Rosenberg. The only contact Rodenburg has had with Waswick or Rosenberg since early October 1996 was the service of the Complaint for this adversary proceeding on May 1, 1997. Attorney Rosenberg disputes Rodenburg's version of the early communications saying he had no contact with either Rodenburg or Vangsness until receiving a letter in May of 1997 when Rodenburg proposed dismissal of the present adversary proceeding. Attorney Rosenberg's legal assistant corroborates this stating she had no communication with either men except for a phone conversation with Vangsness and the May dismissal effort. Waswick, in seeking actual and punitive damages arising from the Bank's and Rodenburg's alleged willful and malicious actions in violation of the injunction created by the bankruptcy discharge, is asking the Court to find them in civil contempt of § 524(a)(2)[2].
2.
Section 524(a)(2) was enacted to continue post-discharge the temporary stay imposed by § 362 when a case is commenced. It replaces the automatic stay with a permanent injunction against enforcement of all discharged debts upon entry of the discharge. In re Siragusa, 27 F.3d 406 (9th Cir.1994).
Willful violation of the injunction imposed by § 524(a)(2) will warrant a finding of civil contempt. However, to find one in civil contempt of the § 524(a)(2) injunction, the burden rests with the movant to show by clear and convincing evidence that the offending creditor or entity had knowledge of the discharge and willfully violated it by continuing with the activity complained of In re Andrus, 184 B.R. 311, 314 (Bankr.N.D.Ill. 1995); Louisiana Ed. Ass'n. v. Richland Parish School Bd., 421 F. Supp. 973 (1976). This legal standard for making out a contempt case under § 524(a)(2) is similar from that required in order to find a person in civil contempt of court. See Hubbard v. Fleet Mortgage Co., 810 F.2d 778, 781 (8th Cir. 1987) (analyzing a bankruptcy court's finding of contempt according to civil contempt standards).
The factual issue as thus framed by the law is whether Rodenburg had or may be inferred to have had knowledge of the § 524 injunction and nonetheless chose to disregard it. Rodenburg maintains in his affidavit that he had no such actual knowledge an assertion not disputed by Waswick. Waswick, however, charges that Rodenburg as attorney for the Bank, a scheduled creditor, is imputed with the Bank's knowledge of the bankruptcy filing. For this proposition he relies upon Haile v. New York State Higher Educ. Services Corp., 90 B.R. 51 (W.D.N.Y. 1988) a case brought not for violation of the § 524 permanent injunction but rather for violation of the temporary § 362 injunction. In that case an attorney hired by a collection agency to pursue a claim of a student loan lender, commenced and persisted with various collection efforts despite being advised by both the debtor and her attorney of a Chapter 13 filing. Following accepted law, Haile held that a creditor is in civil contempt of the § 362 stay when, despite knowledge of the automatic stay, it pursues collection efforts. Noting that the attorney was the agent for the creditor and aware of the filing, the Court imputed the creditor as the agent's principal with that knowledge.[3] Although *353 this is a correct statement of agency law, Haile does not stand for the converse proposition that knowledge of the principal is imputed to the agent. The implied knowledge rule of agency does not operate in the converse. An agent cannot be imputed with information which his principal has failed to give him. S.O.G.-San Ore-Gardner v. Missouri Pacific R.R. Co., 658 F.2d 562, 567 (8th Cir.1981) (stating that it is well settled that a principal's undisclosed knowledge is not imputed to an agent); Hunt Trust Estate v. Kiker, 269 N.W.2d 377, 382 (N.D.1978) (stating that a principal's knowledge is not imputed to the agent). Accordingly, Waswick's argument that the Bank's knowledge should be imputed to its agent, Rodenburg, fails as a matter of law.
3.
Waswick's alternative argument appears to be that even if the Bank's knowledge cannot be imputed to Rodenburg, he, and presumably anyone engaged in collecting debts, has a responsibility to check the bankruptcy records before sending collection letters or commencing a collection action. Waswick cites no authority to support this argument nor can the court locate any.
Thorough and prudent collection practices include checking the bankruptcy court's records for those who have filed bankruptcy. Title companies routinely do this in creating and updating abstracts for real property. However, failure to do so does not necessarily constitute a violation of a court order warranting a finding of contempt. In order for a party to be held in civil contempt for violating a court order, the party must have actual knowledge of that order. Hazen v. Reagen, 16 F.3d 921, 924 (8th Cir.1994). Waswick already conceded that Rodenburg had no such knowledge. Accordingly, this argument also fails. Further, the Bank's knowledge cannot be imputed to Rodenburg for the reasons this Court previously stated.
This case is not dissimilar to the In re Taylor case. In that case a creditor's attorney, who had no knowledge of the bankruptcy, commenced an action for damages prepetition which resulted in the entry of a default judgment postpetition. In re Taylor, 190 B.R. 459, 460-61 (Bankr.S.D.Fla.1995). The debtor's attorney then sent the creditor's attorney a letter informing him that this action violated the automatic stay and that the creditor's attorney must request the default judgment be vacated. The creditor's attorney refused to do this. In determining whether this refusal constituted contempt, the court's analysis specified that once notice was given that the petition relief had been filed, the creditor's attorney's failure to undo the technical violation of the stay constituted contempt. Id. at 461 (emphasis added). It is well to note that the court's contempt finding focused upon when notice to the creditor's attorney was given and did not find the attorney in contempt in strict liability style simply because a default judgment was entered postpetition. Likewise in the present case, the undisputed facts state that when Rodenburg was finally apprised of Waswick's bankruptcy, he closed the file and discontinued all collection efforts, including trying to properly serve the insufficiently posted summons and complaint which most likely was dismissed for failure to prosecute.
Accordingly, and for these reasons, IT IS ORDERED that Defendant Clifton Rodenburg's motion for summary judgment is GRANTED and Plaintiff's cross motion for summary judgment is DENIED.
LET JUDGMENT BE ENTERED ACCORDINGLY.
NOTES
[1] Although Rodenburg's affidavit states that Ms. Jans signed the receipt on September 25, 1996, the date of delivery stamped by the post office is September 23, 1996.
[2] Section 524(a) provides, in pertinent part: A discharge in a case under this title . . . (2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived.
[3] The theory, known as the "imputed knowledge rule," upon which imputation of knowledge from an agent to its principal rests is that, when the agent acts within the scope of the agency relationship, there is identity of interests between principal and agent. The presumption upon which imputation rests is that the agent will perform his duty and communicate to his principal the facts that the agent acquires while acting within the scope of the agency relationship. 3 Fletcher Cyc. Corp. § 390 (rev. ed.1994); Federal Deposit Insurance Corporation v. Deloitte & Touche, 834 F. Supp. 1129, 1138 (E.D.Ark.1992). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535534/ | 70 Md. App. 124 (1987)
520 A.2d 382
ROBERT THOMAS CREIGHTON
v.
STATE OF MARYLAND.
No. 436, September Term, 1986.
Court of Special Appeals of Maryland.
February 4, 1987.
Mark Colvin, Asst. Public Defender (Alan H. Murrell, Public Defender on the brief), Baltimore, for appellant.
John S. Bainbridge, Jr., Asst. Atty. Gen. (Stephen H. Sachs, Atty. Gen., Baltimore, Sandra A. O'Connor, State's Atty. for Baltimore County and Joseph J. Steigerwald, Assistant State's Atty. for Baltimore County, Towson, on the brief), for appellee.
Submitted before GILBERT, C.J., and WEANT and ROSALYN B. BELL, JJ.
ROSALYN B. BELL, Judge.
Robert Thomas Creighton was convicted by a jury in the Circuit Court for Baltimore County of daytime housebreaking[1] and theft. He was sentenced to 25 years imprisonment as an habitual offender for the housebreaking offense under Md. Code Ann. Art. 27, § 643B(c) (1957, 1982 Repl.Vol., 1986 Cum.Supp.), and a concurrent 18-month term for the theft conviction. Both Creighton and the State appeal. Creighton asks this Court to consider the following questions:
"1. Is the evidence insufficient to sustain the convictions?
"2. Did the State waive its right to seek a sentence of twenty-five years without the possibility of parole under Art. 27, § 643B(c)?"
The State cross-appeals, contending that the trial court should have sentenced Creighton instead to life imprisonment without the possibility of parole under Md. Code Ann. Art. 27, § 643B(b) (1957, 1982 Repl.Vol., 1986 Cum.Supp.). We will consider the issues raised on the cross-appeal after we resolve the question of the sufficiency of the evidence. Since Creighton's second issue on appeal only becomes significant because of our holding on the State's cross-appeal, we will consider his second challenge after our disposition of the cross-appeal.
I. SUFFICIENCY OF EVIDENCE
Creighton asserts that the evidence adduced at trial was insufficient to sustain his convictions for daytime housebreaking and theft. Specifically, he contends that the proof failed to establish his criminal agency. In reviewing this contention, we are guided by the Supreme Court's mandate in Jackson v. Virginia, 443 U.S. 307, 319, 99 S. Ct. 2781, 2789, 61 L. Ed. 2d 560 (1979), wherein the Court set out the test for the sufficiency of evidence as follows:
"[W]hether, after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." (Emphasis in original.)
See also Bloodsworth v. State, 307 Md. 164, 167, 512 A.2d 1056 (1986).
At trial, Carolyn Fickus testified that on June 10, 1985 she saw her next door neighbor, Curtis Harris, leave his house. She stated that moments later she observed a man near the Harris house whose height, build and clothing reminded her of "somebody else" who "didn't belong in our community ... [b]ecause he had done some B & E's down there, and his prior record stated that he was not able to come back into our community." She further related that she watched the man walk past the Harris residence and disappear from her view. After she heard Harris's dog bark a few moments later, she walked over to Harris's house but saw nothing unusual. Fickus recounted that shortly thereafter Harris began shouting that "somebody was in his house, call the police." Fickus then telephoned the police and relayed Harris's description of the offender. She stated she later gave the police her own description of the man. Fickus described the man as between 5'10"-6'0" in height and very thin. She also stated that he had short dark hair, but she could not see whether he had any facial hair. She described his attire as including dark, straightleg pants, a "conductor's cap," black boots, a black T-shirt displaying a white circle with a red emblem, and a chain hanging out of his left back pants pocket. She could not identify Creighton at trial as the man she saw in her neighborhood.
Harris took the stand and stated that after he arrived home around 12:15 p.m. he walked into his kitchen, and a man "walked out of the bedroom behind me, and he said someone had broken in your house, and I came in to see first I asked him, what are you doing here? He said, Someone broke in your house, and I came in to see what I could do." When Harris went into the bedroom to see if any property was missing, the man ran out of the house. Harris stated he then shouted for Fickus and asked her to call the police. He gave her a description of the intruder to give to the police. Harris described the man as approximately 6'0" tall, weighing 175-180 pounds, with dark brown hair, long sideburns, and a short "scrubby" beard. He stated the intruder was wearing a black shirt with white letters on it, blue jeans, and a bandanna tied around his head. He did not remember whether the man was wearing a cap. The property missing from Harris's house included jewelry and about $40 in quarters. Harris did not identify Creighton at trial.
Alvin Nehus, a taxicab driver, identified Creighton at trial and testified that on June 10, 1985 he picked up Creighton a few blocks from Harris's residence at approximately 12:55 p.m. and dropped him off at another location 10-12 minutes later. He stated Creighton paid his fare, $6.60, with $6.75 worth of quarters. Nehus recounted that after Creighton entered the cab, he asked if he could lie down because "several of his buddies ... was hunting for him to beat up on him...." According to Nehus, Creighton also told him that he wanted to lie down on the rear seat because he had been putting shingles on his grandfather's roof and he was "a little bit overcome from heat.... He was feeling bad." Nehus described Creighton as having a dark beard, whiskers and dark hair which at the time he picked him up appeared shorter than it was at trial. He did not recall how Creighton was dressed the day of the incident.
Officer James May testified that he received a call about a break-in at approximately 12:20 p.m. on June 10 and went to Harris's residence. There he interviewed Harris and Fickus. He stated that both individuals gave the same description of the offender. After following several leads, Creighton was arrested and the officer recounted that he interviewed Creighton at which time Creighton denied being in the area of the Harris house. Later in the interview, Creighton admitted being in the neighborhood and explained that "his girlfriend, Ruby Jacobs, had sent him down there in regards to some kind of a dope deal." May recounted that during the interview Creighton also stated at different times that he had been in the area of the Harris residence to visit a friend or to do some roof work. Creighton denied to May that he took a taxi but after being advised that he had been identified by the cabdriver, he stated he had taken a taxi because his car had broken down. In explanation for how he paid the fare, May recalled Creighton stated that quarters were "what he had on him at the time."
Ruby Jacobs was called as a State's witness and averred that she was having a relationship with Creighton at the time of this incident. She stated that on the morning of June 10, he was wearing "[a] pair of dark jeans and a brown leather hat." She could not recall what shirt he was wearing and in response to inquiry, she also could not recall whether Creighton owned a black T-shirt with white lettering and a red emblem.
It was stipulated at trial that entry into the Harris residence was accomplished "by breaking ... a pane of glass in the rear kitchen door and unlocking this door." It was also agreed on the record that the scene was processed by the crime laboratory, but no physical evidence or latent fingerprints were recovered.
Viewing this evidence in the appropriate posture, we hold the proof was sufficient to sustain Creighton's convictions. Circumstantial evidence can be sufficient to support a conviction. Finke v. State, 56 Md. App. 450, 468, 468 A.2d 353 (1983), cert. denied, 299 Md. 425, 474 A.2d 218, cert. denied, 469 U.S. 1043, 105 S. Ct. 529, 83 L. Ed. 2d 416 (1984). Presence near the scene of a crime "when coupled with other suspicious circumstances may be enough to base a conviction upon circumstantial evidence." Yopps v. State, 234 Md. 216, 221, 198 A.2d 264, cert. denied, 379 U.S. 922, 85 S. Ct. 279, 13 L. Ed. 2d 336 (1964).
In the case sub judice, Creighton was identified at trial by Nehus, a witness who placed him near the crime scene. The descriptions offered by the neighbor, the homeowner, and Creighton's girlfriend with respect to the offender's clothing and appearance were very similar and were also similar to that offered by Nehus. In addition, Creighton lied to police several times about his presence in the area and behaved suspiciously in the taxicab. He also paid for his ride in quarters. These facts combined presented sufficient proof for a rational trier of fact to conclude that Creighton had committed the offenses charged.
Creighton relies on Craig v. State, 14 Md. App. 515, 287 A.2d 330 (1972), and In re Appeal No. 504, Sept. Term, 1974, 24 Md. App. 715, 332 A.2d 698 (1975), to support his conclusion that Fickus's and Harris's failure to identify him at trial mandates reversal. Both these cases were tried by the court rather than by a jury and are otherwise factually distinguishable. In Craig, Craig and another boy were accused of breaking into the home of Mrs. Hines. The only evidence adduced to support Craig's conviction was Hines's observation of someone breaking glass and entering her hall. She came face-to-face with the intruder but could not describe his facial features and Hines could not identify Craig at trial. Craig and his companion were apprehended by a State Trooper approximately one-half mile from the scene of the breaking. Judge Gilbert, now Chief Judge, speaking for this Court, ruled that the evidence was insufficient to sustain Craig's conviction. As Creighton correctly points out, Judge Gilbert found fatal the fact that Hines failed to identify Craig as the intruder despite a face-to-face opportunity to do so. Unlike the case sub judice, however, the description she allegedly gave to the State Trooper was at odds with her own description of the individual she saw in the hall.
Similarly, In re Appeal No. 504 is of no assistance to Creighton. In that case, this Court reversed a finding of juvenile delinquency. We held that while the juvenile was observed with a group of four other youths at the scene of a purse snatching and was apprehended near the scene, he was affirmatively identified by a witness as not being one of the youths who took the purse. We also found of salient import that the trial court erroneously took judicial notice that purse snatchings are usually done in concert.
In Woodard v. State, 16 Md. App. 300, 295 A.2d 789 (1972), also relied on by Creighton, the only evidence adduced at the jury trial was the defendant's presence with five or six others in a store shortly before it was robbed and the fact that he denied to police his involvement but suggested to them that he did not want to take sole responsibility for the crime. We held this was insufficient and reversed the conviction for armed robbery.
In contrast to the facts in Craig, In re Appeal No. 504, and Woodard, in the case sub judice Creighton was identified by two different individuals as being in very close proximity to the crime scene. He acted suspiciously in the taxi. He paid for the cab ride in quarters. He lied to the police about his whereabouts several times. The descriptions of the offender by the homeowner, the neighbor and the cab driver were all similar. All these circumstances, while individually not enough to sustain Creighton's convictions, were sufficient in concert to establish his agency.
II. LIFE SENTENCE
Several weeks before trial, the State served on Creighton a notice advising him of its intention to seek a mandatory sentence as an habitual offender under § 643B(c). The notice stated that because Creighton had been convicted of two crimes of violence and had served one term of confinement, the State would seek a 25-year term with a limited possibility of parole. On the day of sentencing, the State filed and served on Creighton an amended notice which stated its intent to request a mandatory life sentence without the possibility of parole pursuant to § 643B(b) based on the same convictions set out in the first notice.[2]
Creighton moved to dismiss the amended notice because the notice was not timely served under Rule 4-245(c). That motion was denied, but when it became apparent to the court that the parties needed additional time to brief a relevant legal issue, the court granted a 15-day postponement as provided under the Rule.
At sentencing, the State set forth the following proof:
Case No. 59386 On February 24, 1978, Creighton plead guilty to robbery before the Circuit Court for Baltimore County. He was sentenced to the Department of Corrections for eight years, all but three years were suspended. Upon release Creighton was placed on supervised probation for five years. Creighton was released from the Baltimore County Detention Center on July 17, 1979.
Case No. 84-CR-3225 On October 23, 1984, Creighton plead guilty to daytime housebreaking[3] before the Circuit Court for Baltimore County. He was sentenced to the Department of Corrections for two years beginning on July 31, 1984. On January 31, 1985, the balance of the sentence was suspended and Creighton was placed on two years probation on the condition that he enter a drug rehabilitation program. On July 1, 1985, Creighton's probation was revoked because he failed to attend the program and his original sentence of two years was reimposed. (As of the date of sentencing in the instant case, Creighton was still serving this sentence.)
Case No. 84-CR-3033 On October 23, 1984, Creighton plead guilty to daytime housebreaking[4] before the Circuit Court for Baltimore County. He was sentenced to the Department of Corrections for two years. This sentence was to be consecutive to the sentence imposed under 84-CR-3225. On January 31, 1985, the balance of the sentence was suspended and Creighton was placed on two years probation on the condition that he enter a drug rehabilitation program. On July 1, 1985, Creighton's probation was revoked because he failed to attend the program and his original sentence of two years to run consecutive to the sentence imposed in 84-CR-3225 was reimposed.
Case No. 85-CR-3512 On December 3, 1985, Creighton was convicted of the instant offenses.
In its cross-appeal, the State contends that the court erred in failing to sentence Creighton under § 643B(b) to a term of life imprisonment without the possibility of parole. When sentencing him to the lesser penalty of 25 years under § 643B(c), the court stated that because two of Creighton's predicate convictions, Case Nos. 84-CR-3225 and 3033, arose from a single plea bargain, the "separate convictions" requirement under § 643B(b) was not satisfied.
Section 643B of the Code codifies Maryland's habitual offender penalties. Subsection (b) sets out what has become known as the "four-time loser" provision:
"(b) Mandatory life sentence. Any person who has served three separate terms of confinement in a correctional institution as a result of three separate convictions of any crime of violence shall be sentenced, on being convicted a fourth time of a crime of violence, to life imprisonment without the possibility of parole. Regardless of any other law to the contrary, the provisions of this section are mandatory."
Subsection (c) sets out the lesser penalty for a "three-time loser":
"(c) Third conviction of crime of violence. Any person who (1) has been convicted on two separate occasions of a crime of violence where the convictions do not arise from a single incident, and (2) has served at least one term of confinement in a correctional institution as a result of a conviction of a crime of violence, shall be sentenced, on being convicted a third time of a crime of violence, to imprisonment for the term allowed by law, but, in any event, not less than 25 years. Neither the sentence nor any part of it may be suspended, and the person shall not be eligible for parole except in accordance with the provisions of Article 31B, § 11. A separate occasion shall be considered one in which the second or succeeding offense is committed after there has been a charging document filed for the preceding occasion."
Maryland Courts have recognized the inconsistency between these two provisions and the "inartful" draftsmanship of the statute. Calhoun v. State, 46 Md. App. 478, 489-90, 418 A.2d 1241 (1980), aff'd, 290 Md. 1, 425 A.2d 1361 (1981); see Lett v. State, 51 Md. App. 668, 679-80, 445 A.2d 1050, cert. denied, 294 Md. 442 (1982). On one hand, for an habitual offender to receive a 25-year mandatory sentence under § 643B(c), the State must prove, inter alia, that the defendant has been convicted "on two separate occasions" of violent crimes arising from separate incidents. A "separate occasion" is defined as "one in which the second or succeeding offense is committed after there has been a charging document filed for a preceding occasion." To this definition, in Garrett v. State, 59 Md. App. 97, 118, 474 A.2d 931, cert. denied, 300 Md. 483, 479 A.2d 372 (1984), we added the requirement that "the two convictions serving as the predicate for the enhanced sentence must precede in time the commission of the offense upon which the instant conviction is based."
To qualify for the more severe penalty under § 643B(b), on the other hand, the State need only prove that the defendant has three separate convictions and has served three separate terms of confinement. The separate occasion and separate incident language is absent from the mandatory life sentence section.
Although Creighton wishes us to extend the language of § 643B(b) to reconcile the inconsistency between the enhanced sentence provisions, the State urges that the language of the section controls because it is plain and unambiguous. The State counsels us that if when construing the provision the plain language leads to an absurdity or is illogical, it is up to the Legislature to alter the statute. Recently in Blandon v. State, 304 Md. 316, 319, 321-22, 498 A.2d 1195 (1985), and Hall v. State, 69 Md. App. 37, 60-61, 516 A.2d 204 (1986), however, the Court of Appeals and this Court ruled that in interpreting § 643B, the various provisions must be read together and courts will not presume that the Legislature intended results that are illogical. Moreover, courts "should reject a proposed statutory interpretation if its consequences are inconsistent with common sense." Blandon, 304 Md. at 319, 498 A.2d 1195. We are also cognizant that "[i]n construing a penal statute and in resolving a dispute over the severity of the penalty, a presumption arises in favor of the lesser penalty over the greater one." Calhoun, 46 Md. App. at 488, 418 A.2d 1241. With these principles in mind, we turn to the meaning of § 643B(b).
Separate Convictions
The first question presented is what does the word "separate" mean with respect to establishing three separate convictions for crimes of violence. The State argues that since Creighton was convicted of three unrelated offenses, the plain language of the statute controls and the court erred in determining that convictions entered on the same date are not separate convictions under § 643B(b). Creighton responds that the term separate convictions should be defined by the "separate occasion" requirement found under § 643B(c), or in the alternative that a sequentiality element should be read into the statute.[5] Since we agree with the State, we consider each of Creighton's interpretations.
a. Separate Occasions
Creighton posits that since the offense in 84-CR-3033 was committed on July 15, 1984 and the offense in 84-CR-3225 was committed on July 24, 1984, and since the charging documents were filed on August 27, 1984 and September 17, 1984, respectively, the separate occasion requirement under § 643B(c) has not been satisfied. Creighton suggests that if the separate occasion language found in § 643B(c) is inserted into § 643B(b), then the enhanced provisions will be consistent and the proof required for the lesser penalty will not be more stringent than that required for the greater penalty. In support of his argument, Creighton notes that both the trial court and the State conceded at sentencing that the variance of proof between the two sections was most likely a legislative "oversight." We are not convinced that the difference in proof was an oversight.
We find it of controlling significance that in response to invitations in Calhoun, 46 Md. App. at 490, n. 5, 418 A.2d 1241, and Lett, 51 Md. App. at 680, 445 A.2d 1050, to rectify the inconsistency between the proof required under § 643B(b) and (c), the Legislature amended § 643B(c) by adding the separate occasion requirement. The General Assembly, however, left § 643B(b) unchanged. In Garrett, 59 Md. App. at 116-17, 474 A.2d 931, examining the statutory changes that were made in response to the comments in Calhoun and Lett, we again expressed our frustration over the still present inconsistencies between subsections (b) and (c). The Legislature has not as yet chosen to alter subsection (b). Given the various opportunities to amend the life sentence section and the Legislature's reluctance to impose any additional requirements into § 643B(b), we cannot say that the Legislature clearly intended to superimpose a "separate occasion" element into the life sentence section.
The cardinal rule of statutory construction is to ascertain and effectuate the intent of the Legislature. Hawkins v. State, 302 Md. 143, 147, 486 A.2d 179 (1985). The primary source of that intent is the language of the statute. Hawkins, 302 Md. at 147, 486 A.2d 179. Where the Legislature was aware of a defect in the statute and took steps to remedy it, we cannot circumvent the clear expression of their intent by inserting words or phrases into the statute. In re Appeals No. 1022 and No. 1081, Sept. Term, 1975, 278 Md. 174, 178, 359 A.2d 556 (1976). We must confine ourselves to the statute as now written. In re Appeals No. 1022 and No. 1081, 278 Md. at 178, 359 A.2d 556. Since the Legislature was satisfied to keep § 643B(b) intact, we must assume the statute means what it says. See Lett, 51 Md. App. at 681, 455 A.2d 1050. Thus, under the separate convictions requirement, the fact that two of Creighton's convictions did not occur on separate occasions, as that term is defined, is of no import when applying § 643B(b).
b. Sequentiality
Creighton argues, in the alternative, that if a separate occasion element is not implicated under § 643B(b), a sequentiality requirement is mandated. That is, the State must show that each predicate conviction preceded in time the commission of the next offense, i.e., the conviction for offense # 1 must precede the commission of offense # 2, and the conviction for offense # 2 must precede the commission of offense # 3. He argues that this requirement will effectuate the deterrent purpose behind the statute.
In Hawkins, 302 Md. at 148, 486 A.2d 179, the Court of Appeals recognized that
"[t]he purpose of [§ 643B] is to protect the public from assaults upon people and injury to property and to deter repeat offenders from perpetrating other criminal acts of violence under the threat of an extended period of confinement."
Creighton is correct that insertion into § 643B(b) of a requirement for sequential predicate convictions supports the deterrent objective of the habitual offender statute. If an offense must be committed after conviction for a previous offense, then the statute affords a defendant the opportunity to refrain from committing a second crime of violence after being charged and convicted of a first offense and so forth. Garrett, 59 Md. App. at 118, 474 A.2d 931. This interpretation, however, ignores the other expressed purpose behind the recidivist statute protection of the public. While protecting the public might be achieved by deterring repeat offenders from perpetrating further acts of violence, protection was set out as a separate and independent goal. Protecting the public from repetitive offenses is clearly occasioned when a four-time offender is punished for the number of crimes of violence he or she commits regardless of the order in which they were committed. Again, since the Legislature had an opportunity to speak with respect to the proof required under § 643B(b) and remained silent, we will not insert the prerequisite of sequentiality of predicate convictions.
Creighton refers us to numerous cases from foreign jurisdictions where the courts in those States have read into their mandatory sentencing statute a sequentiality requirement, although the statute was silent on this point. There appears to have emerged a split of authority based on the stated purpose behind the particular jurisdiction's enhanced penalty statute. See Garrett, 59 Md. App. at 113-14, n. 2, 474 A.2d 931. As summarized by the Utah Supreme Court in State v. Montague, 671 P.2d 187, 189 (Utah 1983):
"Regardless of the statutory language, the difference in holdings of the courts appears to be based upon each one's determination of what is the underlying purpose of its habitual criminal statute. Where the purpose is determined to be reformation ... the courts impose the sequential requirement. Where the purpose is found to be to make persistent offenders subject to greater sanctions, courts place no importance on the timing of the prior offenses."
In discussing this dichotomy, the Utah Court concluded that reformation of the individual was equatable with deterrence of the individual.
Since Maryland's recidivist statute embraces the purpose of both deterrence of criminal behavior and protection of the public and is absolutely silent about reformation of the offender, we conclude that, absent a clear statement that the Legislature intended a requirement of convictions in sequence, we will not interject such a requirement into our statute.
We hold that while the purpose behind the 25-year repeat offender provision is deterrence, Garrett, 59 Md. App. at 118, 474 A.2d 931, the plain language of § 643B(b) evinces that public protection is the primary goal of this section. The Legislature, in implementing a "four-time loser" provision, and in leaving it intact when reexamining it, specifically recognized the importance of removing certain individuals from society in order to protect the public from the violent conduct of these individuals. Section 643B(b) addresses the situation where the only offense to be deterred is a fourth crime of violence after conviction for three prior crimes of violence and imposition of three terms of confinement therefrom. Once a defendant has received three convictions for crimes of violence and served all or a portion of three terms of confinement, the offender is put on notice that unless he or she refrains from violent criminal conduct as defined under the statute, there is a very real possibility of permanent incarceration. This interpretation best serves to protect the public under § 643B(b).
c. What Does "Separate" Mean?
As we have ruled, the term "separate convictions" does not mean predicate convictions that are entered on separate occasions or ones that occur sequentially. The question still remains as to what the Legislature intended when it referred to three separate convictions under § 643B(b).
In Lett, 51 Md. App. at 679, 455 A.2d 1050, Judge Weant looked to the dictionary for a definition of the word "separate" with respect to what the Legislature intended by requiring convictions on separate occasions under § 643B(c). We follow his lead. Webster's Ninth New Collegiate Dictionary 1073 (9th ed. 1983), defines separate as being "not shared with another," "existing by itself," "dissimilar in nature or identity." Black's Law Dictionary 1224 (5th ed. 1979), defines it as "distinct; particular; disconnected." Taking these two authorities together, we conclude that the term "separate convictions" has a plain meaning and is not fairly susceptible of an interpretation other than that of three unconnected convictions that arose out of distinct events that occurred at different times and could not or did not merge at sentencing. Whether the convictions are sequential or whether they arise after a charging document is filed is of no consequence under § 643B(b).
Creighton's argument that our definition will result in an absurdity is specious. Creighton hypothesizes that in the absence of a separate occasion or sequentiality requirement, a defendant who engages in an uncharacteristic one-day crime spree, serves a one-month sentence for each conviction, and upon release commits a fourth offense would be subject to life imprisonment without the possibility of parole. Creighton's scenario is an oversimplification.
Assuming that the predicate offenses of three crimes of violence occurred on the same day, those crimes would still have to be perpetrated at different times and result from separate events, and the defendant would still have to be convicted of those three crimes of violence. Separate sentences would also have to be imposed prior to the conviction for the fourth crime of violence. See Garrett, 59 Md. App. at 112-18, 474 A.2d 931. Thus, in order to qualify for the life penalty, the defendant would have exhibited some degree of recidivism. Moreover, in Davis v. State, 68 Md. App. 581, 589-95, 514 A.2d 1229 (1986), Judge Adkins writing for this Court extended the constitutional proscription against cruel and unusual punishment to the imposition of an enhanced life sentence.
In conclusion, the language of § 643B(b) is clear. No separate occasion or sequentiality of predicate crimes is required. All that must be shown is that a defendant was convicted of three distinct and unrelated crimes of violence resulting from different events. Since the State in the instant case proved that Creighton's three predicate convictions met the definition we set forth, the first element of § 643B(b) was met.
Separate Terms of Confinement
The State also argues that in addition to proving Creighton had three separate convictions for crimes of violence, it proved he served three terms of confinement as a result of convictions for crimes of violence as required under § 643B(b). Creighton, on the other hand, maintains that even if the State proved three separate convictions, it did not prove he served three separate terms of confinement. He launches a two-fold attack.[6] We find his second challenge persuasive.
Creighton first posits that since the sentences imposed in 84-CR-3225 and 84-CR-3033 were both imposed on the same day and resulted from the same act constituting the violations of probation, namely, the failure to enter a drug rehabilitation program, his terms of two years to be served consecutively are actually one four-year sentence. Thus, he has not served three terms of confinement. We disagree.
Merely because the original sentences were imposed on the same day and the suspensions of those sentences were removed on the same day does not mean they are one sentence. Likewise, just because the reason for lifting the suspension of those sentences stems out of the same probation violations does not mean the two sentences are to be treated as a single term of incarceration. The original sentences were imposed for two distinct and unrelated offenses and two distinct sentences were ordered.
Creighton also argues that since he has not yet completed serving the sentence imposed in 84-CR-3225, he has yet to serve the consecutive sentence ordered in 84-CR-3033. Hence, he asserts, he has not served three terms of confinement.[7] Relying on Leuschner v. State, 45 Md. App. 323, 413 A.2d 227, cert. denied, 288 Md. 738 (1980), the State posits that this Court was presented with and rejected the same argument. The State is misguided.
Briefly, Leuschner was convicted and sentenced to life imprisonment for the murder of nine-year-old Rusty Marine. We affirmed that judgment. Leuschner v. State, 41 Md. App. 423, 397 A.2d 622, cert. denied, 285 Md. 731, cert. denied, 444 U.S. 933, 100 S. Ct. 279, 62 L. Ed. 2d 192 (1979). Subsequently, Leuschner was tried and convicted for the murder of nine-year-old Troy Krause. Upon conviction, he was sentenced to life imprisonment without parole under § 643B(b). In addition to the Marine murder, Leuschner had been convicted and served time for two rape convictions in California. On appeal, Leuschner argued that his § 643B(b) sentence was unfounded becuase he had not yet served three terms of confinement for crimes of violence he was still serving the Marine sentence at the time of disposition for his fourth crime of violence.
Rejecting Leuschner's argument, this Court held that since the § 643B(b) sentence was imposed consecutively to the Marine sentence and since, therefore, Leuschner would not begin serving his § 643B(b) sentence until after he had completed serving the Marine sentence, the statutory requirement had been met. Leuschner, albeit cryptically, addressed the question of whether the predicate sentences had to be completed before the statutory recidivist penalty could be imposed. Five months later, in McLee v. State, 46 Md. App. 472, 477, 418 A.2d 1238 (1980), cert. denied, 289 Md. 738 (1981), this Court definitively held that it is not necessary under the enhanced penalty statute that the defendant have served the complete term of imprisonment imposed for the prior convictions.
In contrast to Leuschner and McLee, in the case sub judice, the issue the State presents us is one step removed. The State asks us to determine whether it is necessary under the enhanced penalty statute that the defendant have served some time for each predicate term of confinement before the habitual offender sentence may be imposed, or whether it is enough that the defendant will have served some time for each predicate term of confinement at the time he or she actually begins serving the life sentence imposed under the recidivist statute. We hold a defendant must have served some time for each predicate offense before an habitual offender sentence may be imposed.
Whether we look at the periods of confinement served as of the date of conviction for the fourth crime of violence or as of the date of disposition on the fourth crime of violence,[8] Creighton has not served any part of his sentence imposed for the third predicate offense. As of either date, he was still serving a period of confinement for the first of the two consecutive sentences imposed for his 1984 convictions. The sentence for the third predicate offense had neither in whole nor in part been "served."
While Leuschner and McLee make clear that the phrase "has served" in the recidivist statute does not mean "has completed the term(s) of confinement imposed," we hold it is necessary that a defendant have served some portion of each of the three predicate sentences before being sentenced to life imprisonment without the possibility of parole under § 643B(b). The language of § 643B(b) is not subject to any other plausible interpretation. The section addresses itself to "[a]ny person who has served three separate terms of confinement in a correctional institution...." It does not refer to "[a]ny person who" will have served "three separate terms of confinement...." As stated, we must confine ourselves to the words of the statute. In re Appeals No. 1022 and No. 1081, 278 Md. at 178, 359 A.2d 556.
The State argues, however, that this ruling produces an absurd result: "if [Creighton] had been given the more lenient treatment of concurrent sentences on his 1984 convictions, he would have been in line for the harsher recidivist penalty." Although the State raises an interesting point, we are constrained to review the case before us. We must take this defendant and his history of incarceration as we find it. We cannot alter a sentence or sentences previously imposed to ensure a defendant does or does not qualify for a recidivist penalty. It is a reality of the sentencing process that, from time to time, inequities may result.
In conclusion, since Creighton's third predicate sentence was imposed consecutively to his second predicate sentence and since he had not served any time for the third offense, Creighton had not served three terms of confinement. Section 643B(b) is thus inapplicable. The court properly refused to impose the recidivist life penalty.
III. WAIVER OF 25-YEAR ENHANCED PENALTY
As his second issue on appeal, Creighton challenges the imposition of the 25-year enhanced penalty. He does not challenge the sufficiency of the proof to support the penalty, but rather he argues that the State waived the right to seek the lesser enhanced penalty. We disagree.
At the disposition hearing, after the court determined that Creighton was not eligible for a life sentence under § 643B(b), Creighton challenged the State's right to proceed under the 25-year provision. The court ruled that, despite the fact the State had amended its notice of intent to seek an enhanced sentence from the 25-year penalty to the life penalty, the State had not waived its right to secure the lesser penalty.
Creighton now posits that because the State asserted at the sentencing hearing that "[t]he Amendment ... notified the defense that we were not going to seek a three-time loser mandatory sentence ..." and because the amended notice did not preserve the right to continue under the original notice, the State waived its right to proceed pursuant to the 25-year provision. Based on the facts of this case, Creighton's arguments are untenable.
In Davis v. State, 56 Md. App. 694, 701, 468 A.2d 698 (1983), cert. denied, 299 Md. 425, 474 A.2d 218 (1984), Davis challenged the imposition of an enhanced life penalty because the notice sent to him only alerted him that the State was seeking a penalty under § 643B. It did not specify whether it was proceeding under § 643B(b) or (c). In rejecting his challenge, this Court, through Judge Moylan, stated:
"The undergirding purpose of the notice requirement is not to erect an obstacle course for the State but to give the defendant a fair chance to prepare a defense against the enhanced punishment danger."
We continued that since Davis had not enlightened us on how his preparation for a defense to the life penalty would have been any different than that for the 25-year sentence, the lack of specificity in the notice was of no import. Similarly, Creighton has not stated how his defense would have been any different under the 25-year penalty as opposed to the life penalty. In fact, he proffered numerous defenses to both the imposition of the life term and the 25-year term. Moreover, until he received the amendment at the sentencing hearing, Creighton ostensibly had prepared a defense to his incarceration under § 643B(c). He cannot now claim that because the court ruled that the State failed to prove he was an habitual offender under § 643B(b), he "unprepared" his defense to the § 643B(c) penalty. In conclusion, we find succor in the following quotation from Davis, 56 Md. App. at 702, 468 A.2d 698:
"In a word, he was well prepared to defend. When the animating purpose of the notice requirement has been well served, as it was here, we are not going to permit ourselves to be distracted or `hung up' by strained formalities."
JUDGMENTS AFFIRMED.
COSTS TO BE PAID TWO-THIRDS BY APPELLANT/CROSS-APPELLEE AND ONE-THIRD BY APPELLEE/CROSS-APPELLANT, BALTIMORE COUNTY.
NOTES
[1] The computer printout of docket entries filed in this record reflects that Creighton was charged with and convicted of burglary; the daytime housebreaking charge was nol prossed. The indictment filed does not even list burglary as a count lodged against Creighton. Since both the State and Creighton do not dispute that the instant conviction was for daytime housebreaking, not burglary, we only point out the discrepancy for clarification. This same computer printout and indictment discrepancy is present with respect to two of the earlier cases against Creighton. See n. 3 and n. 4.
[2] Since the time the original notice was sent, Creighton had twice violated his probation and two terms of incarceration were reimposed which resulted in the State proceeding against Creighton on an amended notice.
[3] Although the transcript of the plea hearing reflects that Creighton plead guilty to daytime housebreaking, the computer printout of docket entries reflects he plead guilty to burglary. He was not even charged with burglary in the indictment filed in that case.
[4] The same discrepancy as in 84-CR-3225 occurred in this case between the charges stated in the indictment and the printout of docket entries.
[5] The issue of sequentiality of convictions under § 643B(b) is presently pending before the Court of Appeals in Montone v. State, No. 74, Sept. Term, 1985 (argued December 10, 1985.)
[6] Creighton does not raise the issue of whether a sentence served for violating probation is a term of confinement "as a result of" conviction for a crime of violence. Since he does not argue this point, we do not decide it. This issue as well is pending before the Court of Appeals in Montone v. State.
[7] Creighton does not dispute he served one term of confinement for his 1978 conviction.
[8] We need not decide whether the date of the fourth conviction or the disposition is the measuring rod under § 643B(b) because that issue is not before us. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535611/ | 103 Pa. Commw. 408 (1987)
520 A.2d 904
The Kimberton Company, Petitioner
v.
Commonwealth of Pennsylvania, Respondent.
The Kimberton Company, Petitioner
v.
Commonwealth of Pennsylvania, Respondent.
Nos. 1457 C.D. 1985 and 1458 C.D. 1985.
Commonwealth Court of Pennsylvania.
Argued November 19, 1986.
February 2, 1987.
*409 Argued November 19, 1986, before President Judge CRUMLISH, JR., and Judges CRAIG, MacPHAIL, DOYLE, BARRY, COLINS and PALLADINO.
Joseph C. Bright, Jr., Drinker, Biddle & Reath, for petitioner.
Bartholomew J. DeLuca, Jr., Deputy Attorney General, with him, LeRoy S. Zimmerman, Attorney General, for respondent.
OPINION BY JUDGE DOYLE, February 2, 1987:
The Kimberton Company (Kimberton) appeals from two orders of the Board of Finance and Revenue (Board) which determined that Kimberton was not entitled to claim the "manufacturing exemption" from the Capital Stock Tax appearing in Section 602(a) of the Tax Reform Code of 1971, Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §7602(a) (Code).[1]
*410 We adopt the parties' stipulations. Kimberton is engaged in the business of producing and selling custom embroidery on sports shirts and similar items of sportswear, primarily topwear. Generally, Kimberton does not sell unembroidered garments except on occasion when a regular pro-shop customer will request unembroidered garments to fill out its order with the same quality garments as the embroidered ones it has purchased. Kimberton does not manufacture unembroidered topwear. Instead, its business involves receiving customer orders for insignia designs which are usually provided by the customers. These designs are then sent to Kimberton's art department which produces an art card. This card, subsequent to customer approval, is sent to an outside producer of Jacquard pattern tapes. These tapes consist of a series of instructions to an automatic sewing machine coded in the form of punched holes on a stiff cardboard tape approximately four inches in width. Each row of these punched holes dictates the exact position of the material beneath each sewing head which is needed to produce a single stitch. The average insignia requires three thousand stitches.
Kimberton currently has twenty-nine embroidery machines which sew on the insignias, each machine consisting of a tape reading and control mechanism, a series of sewing heads, (most of the machines have twelve heads) and a "panagraph" for each head. A panagraph is a rigid metal frame which holds beneath the sewing head a round hoop to which a garment is attached. *411 The panagraph moves in response to the Jacquard pattern tape's instructions. A needle in each sewing machine head, in coordination with a bobbin, supplies thread to embroider the pattern. Mechanical repairs to the machines and threading of the machines are performed by Kimberton employees.
Subsequent to the completion of the embroidering procedure the garments are removed, "jump stitches are cut,"[2] and the garments are inspected, ironed, folded and pinned before being boxed and shipped to customers most of whom consist of golf and tennis club professional shops. Kimberton's insignias are embroidered directly onto the garment itself and once embroidered cannot, as a practical matter, be removed without cutting or marking the garment. Additionally it is physically impossible to sell an embroidered insignia unless it is placed on something. Kimberton's embroidered garments sell for more than the same garments unembroidered because of the high quality of Kimberton's work and because of the special attraction the insignia has for a particular retail customer.
Kimberton argued before the Board and continues to maintain before this Court that the above described activity constitutes manufacturing and hence that it is entitled to the exemption appearing in Section 602(a) of the Code. In Kirk's Milk Products v. Commonwealth, 58 Pa. Commw. 230, 427 A.2d 688, 690 (1981) President Judge CRUMLISH, considering the definition of manufacturing under Section 602(a), reiterated what our state supreme court said in Commonwealth v. Weiland Packing Co., 292 Pa. 447, 450-51, 141 A. 148, 149 (1928):
*412 [T]he process of manufacture brings about the production of some new article by the application of skill and labor to the original substance or material out of which such new product emerges. If however there is merely a superficial change in the original materials or substances and no substantial and well signalized transformation in form, qualities and adaptability in use, quite different from the originals, it cannot properly and with reason be held that a new article or object has emerged a new production been created.
Thus, for purposes of the statutory exemption one comes within the definition of manufacturing if by his skill, science and labor he produces a new product which is different in form, quality and adaptability in use.
Kimberton argues first that the product that it manufactures is custom embroidery which only incidentally is placed on sportswear. It thus asserts that by the application of skill, science and labor it turns threads into the finished insignias creating a new and different product. It analogizes its situation to those where piece goods are, by the application of skill and labor, turned into items of clothing. Such activity has, for purposes of tax exemption under different statutes, been held to constitute manufacturing. See e.g., Philadelphia School District v. Rosenberg, 402 Pa. 365, 167 A.2d 259 (1961) (manufacturing exemption applied under the Act of May 23, 1949 P.L. 1669, as amended, a tax whose purpose was to provide revenue for school districts of the first class); Arrowhead Sportswear Corp. v. Philadelphia School District, 22 Pa. D. & C.2d 134 (1960) (manufacturing exemption applied under the same Act as was at issue in Rosenberg).
Assuming without deciding that the item Kimberton produces is the embroidered insignia in and of itself, *413 that item does not qualify for an exemption under the definition of manufacturing enunciated in Weiland and Kirk's Milk because, as has been stipulated, the insignia cannot exist without the underlying garment and hence Kimberton's activity does not produce a "product" at all.
Kimberton argues in the alternative that it is a manufacturer of embroidered garments. Under this theory it is clear that the finished product, i.e., the embroidered garment, has an independent existence. But, the product still fails to meet the Weiland/Kirk's Milk criteria because the product created (embroidered shirts) is not different than the product with which it began (unembroidered shirts) in form, quality and adaptability in use. It is well settled that a mere superficial or cosmetic change in an existing product is insufficient to constitute manufacturing. Bindex Corp. v. City of Pittsburgh, 504 Pa. 584, 475 A.2d 1320 (1984). In our view the instant case is merely one of many where the purported manufacturer ends up with essentially the same product with which he began. See e.g. Weiland, (ham which was cured and smoked still ham); Commonwealth v. Tetley Tea Co., Inc., 421 Pa. 614, 220 A.2d 832 (1966) (tea which was separated, blended and placed in filtered bags still tea); Commonwealth v. Deitch Co., 449 Pa. 88, 295 A.2d 834 (1972) (scrap metal which was cleaned, grated and classified still scrap metal). In the instant case what begins as a shirt (admittedly without decoration) ends as a shirt (admittedly with decoration). The finished product is altered only superficially in appearance and not at all in use. It is still worn in the same manner and still provides the same protection against the elements. We thus fail to see how the product is new and different.
Kimberton also argues that there is no actual difference between its activities and those of other taxpayers who have been granted the exemption and hence that *414 denying it the exemption violates the constitutional mandates of taxing uniformity, equal protection, and due process. The uncomplicated answer to this is that in other cases cited by Kimberton the exemption was granted because it was determined that the activity in question was manufacturing. Hence, there is a rational basis for denying Kimberton the exemption which had been granted to others and no constitutional violation is present.
It was additionally stipulated by the parties that should the Board's decision be upheld Kimberton's tax liability for the year ending September 30, 1982 would be $31,029.00. The taxpayer has already paid $41,000.00 and, therefore, would be entitled to a refund of $9,971.00 plus interest. For the tax year ending September 30, 1983 it was stipulated that Kimberton's tax liability would be $16,068.00; it has already paid $62,577.00 and is thus entitled to a refund of $43,932.00 plus interest. We shall therefore direct entry of judgment in accordance with these stipulated facts.
ORDER
NOW, February 2, 1987, based upon the stipulated figures cited in the foregoing opinion the Commonwealth is directed to refund to Kimberton the sum of $9,971.00 for the tax year ending September 30, 1982 and the sum of $43,932.00 for the tax year ending September 30, 1983 plus legal interest of six percent per annum. This order shall become final upon the passage of thirty days from the date of the entry of said order unless exceptions are filed. The Chief Clerk is directed to enter judgment as indicated herein.
Judge COLINS dissents.
NOTES
[1] Section 602(a) of the Code which provides for the payment of the capital stock tax, also states in pertinent part:
[E]xcept for the imposition of the seventy-five dollar ($75.00) minimum tax, the provisions of this section shall not apply to the taxation of capital stock of entities organized for manufacturing. . . .
Kimberton also argues that its activities constitute "processing" as that term is defined in Section 601 of the Code, 72 P.S. §7601. Our review of the definition of processing reveals that Kimberton's activities could not possibly fall within any of the various activities described therein nor has Kimberton explained how they could. We thus consider this argument to be totally without merit and will give it "shirt shrift."
[2] Jump strokes are "the strokes the machine must make because the thread is continuous but which are not part of the insignia." Stipulation of Fact 38. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535593/ | 212 B.R. 258 (1997)
In re DOW CORNING CORPORATION, Debtor.
Nos. 96-CV-71456-DT, 96-CV-71481-DT, 96-CV-71500-DT.
United States District Court, E.D. Michigan, Southern Division.
June 25, 1997.
*259 Charles H. Walker, Bricker & Eckler, Columbus, OH, Patrick L. Hughes, Anne M. Ferazzi, Verner, Liipfert, Bernhard, McPherson & Hand, Houston, TX, Thomas D. Lambros, Bricker & Eckler, Cleveland, OH, for Official Committee of Tort Claimants, in No. 96-CV-71456.
Leslie K. Berg, U.S. Dept. of Justice, Office of U.S. Trustee, Detroit, MI, for Donald M. Robiner in No. 96-CV-71481.
Anthony Stefanon, Stefanon & Glace, Harrisburg, PA, Gerald J. Williams, Williams & Cuker, Philadelphia, PA, for Robert L. Herman in No. 96-CV-71500.
MEMORANDUM OPINION AND ORDER
HOOD, District Judge.
I. INTRODUCTION.
This matter is before the Court on the above-captioned appeals from the Bankruptcy Court's order dated March 21, 1996 directing the United States Trustee to appoint a new Tort Claimants' Committee. The Official Committee of Tort Claimants, the United States Trustee, and Robert L. Herman appealed the Bankruptcy Court's order. The above-captioned appeals relate to the same issues.
*260 II. APPEALABLE ORDER.
Pursuant to 28 U.S.C. § 158(a), final orders of the bankruptcy court are subject to mandatory review. Review of interlocutory orders is left to the federal district court's discretion. In re American Freight System, Inc., 153 B.R. 316 (D.Kan.1993). In bankruptcy cases, the finality requirement is considered "in a more pragmatic and less technical way than in other situations." In re Cottrell, 876 F.2d 540, 541-42 (6th Cir. 1989); In re Dow Corning, 86 F.3d 482 (6th Cir.1996), cert. denied, ___ U.S. ___, 117 S. Ct. 718, 136 L. Ed. 2d 636 (1997). Where an order in a bankruptcy case finally disposes of discrete disputes within the larger case, it may be appealed immediately. In re Dow Corning, supra at 488.
Under the collateral order doctrine of Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 69 S. Ct. 1221, 93 L. Ed. 1528 (1949), it is not always necessary that a judgment terminate an action before an appeal may be brought. The collateral order doctrine permits appellate review of decisions which "finally determine claims of right separable from, and collateral to, rights asserted in the action, too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated." Id. at 546, 69 S.Ct. at 1225-26; In re Dow Corning, 86 F.3d at 488. A collateral order may be reviewed when it: 1) conclusively determines the disputed question; 2) resolves an important question completely separate from the merits of the action; and 3) is effectively unreviewable on appeal from final judgment. In re Dow Corning, 86 F.3d at 488; Pacor, Inc. v. Higgins, 743 F.2d 984, 988 (3d Cir.1984).
Accordingly, under 28 U.S.C. § 158(a) and the collateral order doctrine, the instant appeals are reviewable by the district court. The Bankruptcy Court's March 21, 1996 order conclusively determined the disputed questions regarding committee compositions; resolved an important question separate from the merits; and cannot be reviewed on appeal after final judgment.
III. COMPOSITION OF THE OFFICIAL COMMITTEE OF TORT CLAIMANTS.
The following appeals essentially address the same issue regarding the composition of the Official Committee of Tort Claimants: 1) 96-71456, Appellant, Official Committee of Tort Claimants ("TCC"); 2) 96-71481, Appellant, Donald Robiner, U.S. Trustee (the "Trustee"); and 3) 96-71500, Appellant, Robert L. Herman.
A. Whether the Bankruptcy Court has the Authority to Modify the Bankruptcy Committees.
1. Official Committee of Tort Claimants' Arguments.
The present version of 11 U.S.C. § 1102(a)(1) states as follows:
. . . as soon as practicable after the order for relief under chapter 11 of this title, the United States trustee shall appoint a committee of creditors holding unsecured claims and may appoint additional committees of creditors or of equity security holders as the United States trustee deems appropriate. (emphasis added)
Appellant TCC asserts that the Bankruptcy Court's analysis is flawed because it assumed that the words "committee of creditors" means a "committee consisting of creditors." Appellant TCC argues that the broad term "committee of creditors" should apply to a committee that represents creditors, or, comprised of creditor representatives as well as actual creditors. Appellant TCC further argues that under subsection 1102(b)(1), the qualifications of committee members are discussed and the words "consist[ing] of" are used. Subsection 1102(b)(1) states as follows:
A committee of creditors appointed under subsection (a) of this section shall ordinarily consist of the persons, willing to serve, that hold the seven largest claims against the debtor of the kinds represented on such committee, or of the members of a committee organized by creditors before the commencement of the case under this chapter, if such committee was fairly chosen and is representative of the different kinds of claims to be represented.
*261 Appellants TCC asserts that the implication of this section is that a mass tort case is not an "ordinary" case and that the U.S. Trustee may appoint committee members who are not among the estate's largest creditors and members who are not themselves creditors. The legislative history of the Code states that the relevant language under subsection 1102(b)(1) is precatory rather than mandatory. See H.R.Rep. No. 595, 95th Cong., 2d Sess. 401 (1978), U.S.Code Cong. & Admin.News 1978, p. 5787. Appellant TCC argues at the very least that the statute is ambiguous on this issue and should be given a broad interpretation, not a narrow and strict interpretation given by the Bankruptcy Court. The Appellant TCC also asserts that the practice in mass tort bankruptcy cases allows the committees to be made up of attorneys.
The TCC further argues that no one requested or moved to have any of its members removed from the TCC. The Bankruptcy Court's sua sponte removal of the eight attorneys serving on the Committee was in error. The TCC argues that a request must first be made before a committee is changed and that the Bankruptcy Court cannot sua sponte remove committee members.
As to the contention that attorney members of a creditors' committee face inherent conflicts, the TCC argues that this logic is flawed because such an argument would also apply to an individual tort claimant. Whether a committee member is a corporate designee, a union representative or an indenture trustee who serves in a representative capacity, any committee member would owe fiduciary duties to those he or she represented as well as to the entire class of creditors represented by the committee. Every committee member whether an attorney representative or an actual tort claimant has a self-interest in maximizing his or her personal claim. The law, however, requires that a committee member place the collective interest of the class above its personal stake in the bankruptcy case. In re Johns-Manville Corp., 26 B.R. 919, 924 (Bankr.S.D.N.Y. 1983); In re Bohack Corp., 607 F.2d 258, 262 note 4 (2d Cir.1979).
The TCC also argues that the Bankruptcy Court's March 21, 1996 order is untimely, given that more than 10 months have passed since the attorney committee members were appointed to the TCC. The TCC argues that the claimants would now be prejudiced if the TCC is reconstituted.
2. U.S. Trustee's Arguments.
The Appellant Trustee argues that the United States Trustee Program is a component of the Department of Justice that supervises the administration of bankruptcy cases. 28 U.S.C. § 586. The Trustee is appointed by and serves at the pleasure of the Attorney General. 28 U.S.C. § 581(a) and (c). The Appellant Trustee argues that the authority to appoint committee members is vested in the United States Trustee. 11 U.S.C. § 1102(a). The Appellant Trustee argues that the statute makes it abundantly clear that the Trustee selects committee members.
The Appellant Trustee asserts that the Bankruptcy Court erred in overruling the Trustee's decision as to who sits on committees. Section 1102(a) expressly commits appointments to the United States Trustee's discretion, noting that appointments shall be as "the United States Trustee deems appropriate." See also 28 U.S.C. § 586(a)(3)(E) (The U.S. Trustee monitors the committees of creditors). The Bankruptcy Court's holding that the word "appoint" in section 1102(a)(1) does not allow the Trustee to replace committee members conflicts with the Supreme Court's rules of statute construction. The Trustee states the Supreme Court has held that as a matter of statutory interpretation absent a "specific provision to the contrary, the power of removal from office is incident to the power of appointment." Carlucci v. Doe, 488 U.S. 93, 99, 109 S. Ct. 407, 411, 102 L. Ed. 2d 395 (1988). The Trustee argues that an "appointment" encompasses subsequent selections, which necessarily may require removals as well. The Trustee, not the Bankruptcy Court, has the power to remove any member of the committee as well as appointing members under section 1102(a)(1).
Most courts have held that the United States Trustee, not the bankruptcy court, may alter the composition of a creditor committee. *262 In Smith v. Wheeler Technology, Inc., 139 B.R. 235, 239 (9th Cir. BAP 1992), the Ninth Circuit Bankruptcy Appellate Panel held that "[t]he power to appoint and delete members of the Creditors' Committee now resides exclusively with the U.S. Trustee." Smith also held that section 105(a), which gives bankruptcy courts certain equitable powers, could not be used to modify the membership of a committee because such action would be contrary to the legislative history and Congressional intent of Section 1102. Smith, 139 B.R. at 238-39.
Other courts have also held that bankruptcy courts have no authority to change the membership of creditor committees. In re Drexel Burnham Lambert Group, Inc., 118 B.R. 209, 211 (Bankr.S.D.N.Y.1990); In re Hills Stores Co., 137 B.R. 4, 8 (Bankr. S.D.N.Y.1992); In re Texaco, 79 B.R. 560, 565-66 (Bankr.S.D.N.Y.1987). The Appellant Trustee argues that these decisions rely on the express language of section 1102(a)(1) which states that the U.S. Trustee has the authority to select committee members. The Appellant Trustee noted that the pre-1986 version of section 1102(a) provided that the bankruptcy courts had the sole authority to appoint a committee. 11 U.S.C. § 1102(a)(1) (1978) (amended 1986). Section 1102(c) of the pre-1986 amendments, provided that the bankruptcy court could change the membership or the size of a committee appointed under subsection (a). This section was repealed in 1986. Therefore, the Appellant Trustee asserts that it was Congress' intent to take the committee appointment and modification powers away from the bankruptcy courts and to entrust those powers to the United States Trustee. In re Drexel Burnham Lambert, 118 B.R. at 210; In re Hills Stores Co., 137 B.R. at 8; In re McLean Indus. Inc., 70 B.R. 852, 856 note 2 (Bankr. S.D.N.Y.1987).
The Bankruptcy Court's primary reliance on Matter of Celotex, 123 B.R. 917 (Bankr. M.D.Fla.1991) for support is misplaced, according to the Appellant Trustee. In Celotex, the Appellant Trustee argued that even though in dicta it stated that it could direct changes in the committee membership, relying on a pre-1986 case, In re Daig, 17 B.R. 41 (Bankr.D.Minn.1981), the Celotex bankruptcy court did not alter the membership of a tort committee.
The U.S. Trustee agrees with the Bankruptcy Court in that it is empowered to add creditor committees upon finding that there is no adequate representation of creditors by the committees already in existence under section 1102(a)(2) which provides:
On request of a party in interest, the court may order the appointment of additional committees of creditors or of equity security holders if necessary to assure adequate representation of creditors or of equity security holders. The United States trustee shall appoint any such committee. (emphasis added).
The U.S. Trustee notes, however, that upon the bankruptcy court finding that additional committees are needed, section 1102(a)(2) still reserves the power to appoint committee members to the U.S. Trustee. Section 1102(a)(2), therefore, enables the bankruptcy courts to remedy instances where inadequate representation exists but it does not allow the bankruptcy court to dictate the composition of such committees. In re Drexel Burnham Lambert, 118 B.R. at 211.
The U.S. Trustee further argues that in this instance, it determined the job of representing the tort claimants could best be performed by the nine people it appointed to the committee. The TCC is currently made up of one claimant and eight attorneys representing thousands of not only breast implant claimants but other silicone injured claimants. The eight attorneys appointed by the Trustee are familiar with the facts of many of the claims. Attorney representatives are able to aggregate the experiences of claimants from across the nation, enhancing the Tort Committee's contribution to the bankruptcy case.
3. Robert Herman's Arguments.
The Appellant Robert Herman expressly adopted the arguments set forth by the TCC and the U.S. Trustee.
4. The Debtor DCC and the Unsecured Committee's Responses.
The Debtor and the Unsecured Committee assert that Section 1 102(a)(1) must be construed *263 to mean that a committee of "creditors" must strictly mean "an entity that has a claim against the debtor" under 11 U.S.C. § 101(10). In re Altair Airlines, Inc., 727 F.2d 88, 89-90 (3d Cir.1984) states that a person must have a "claim" against the estate in order to serve on an official creditors' committee. The Debtor claims that courts have disapproved the appointment of creditors' attorneys to serve on committees unless such counsel also hold a claim against the estate. In re Celotex Corp., 123 B.R. 917, 922-23 (Bankr.M.D.Fla.1991); In re American Fed'n of Television & Radio Artists, 30 B.R. 772, 775 (Bankr.S.D.N.Y.1983).
The Debtor and the Unsecured Committee further assert that committee members must be disinterested pursuant to 11 U.S.C. § 327(a). They argue that courts cannot use equitable principles or practical considerations to ignore unambiguous statutory language. In re Federated Dept. Stores, Inc., 44 F.3d 1310, 1313 (6th Cir.1995); In re Eagle-Picher Indus., Inc., 999 F.2d 969, 970-72 (6th Cir.1993); In re Middleton Arms, L.P., 934 F.2d 723, 726 (6th Cir.1991). In each of these cases, the Debtor and Unsecured Committee assert that the Sixth Circuit sustained the U.S. Trustee's position that professional persons who are not "disinterested" cannot be employed under 11 U.S.C. § 327(a), regardless of whether there are practical reasons that warrant a departure from the clear statutory language.
The Debtor and the Unsecured Committee further argue that attorneys are disqualified from serving as members of the official committees because of their inherently conflicting fiduciary duties. An attorney appointed to the TCC would have at least two competing fiduciary duties one to his own clients and the second to the constituency represented by the TCC as a whole. See Johns-Manville, 26 B.R. at 926; In re M.H. Corp., 30 B.R. 266, 267 (Bankr.S.D.Ohio 1983).
The Debtor and the Unsecured Committee also assert courts have concluded that after the 1986 amendments, bankruptcy courts may still order the U.S. Trustee to alter committee membership if the court finds that the U.S. Trustee's initial appointment was arbitrary or capricious or an abuse of discretion. In re Columbia Gas System, Inc., 133 B.R. 174, 175-76 (Bankr.D.Del.1991); In re First RepublicBank Corp., 95 B.R. 58, 60 (Bankr.N.D.Tex.1988). They also argue that the Bankruptcy Court, on its own motion, could review the Trustee's appointments of committee members. In re Busy Beaver Bldg. Centers, Inc., 19 F.3d 833, 834 (3d Cir.1994).
The Debtor and the Unsecured Committee argue that the Bankruptcy Court's March 21, 1996 order was not untimely because the present attorney members of the committee would presumably continue to assist the TCC in the reconstituted committee.
5. Replies by TCC and Trustee.
The TCC and Trustee assert that even outside of the mass tort context, most of the courts addressing this issue have held that attorneys or other creditor representatives may properly sit on creditors' committees. The Unsecured Creditors' Committee acknowledges that courts have permitted non-creditor membership by numerous types of representatives, including attorneys, indenture trustees and unions representing their employees. (UCC Brief at 14, note 8). The Bankruptcy Court itself acknowledged this point. March 21 Opinion at 21. The cases cited by the Debtor are in no way to the contrary. In In re Altair Airlines, supra, the Third Circuit held that a union was entitled to serve on the creditors' committee because it was an actual creditor. The court did not choose to address the union's alternative argument that, if it were not a creditor, it would be entitled to serve as a representative of employee claimants. 727 F.2d at 91. In re American Fed'n, supra, is inapposite. The court held that a law firm whose client already served on the creditors' committee was not entitled to serve as an additional member. 33 B.R. at 774-75. In In re Bennett, 17 B.R. 819 (Bankr.D.N.M.1982), the court merely upheld a creditor's service on a committee, without any discussion of whether creditor representatives also could serve. 17 B.R. at 820. The lone case which might support the appellees' position, In re Celotex Corp., supra, was a highly fact-specific decision driven by what the bankruptcy court viewed as severe conflicts of interest on the *264 part of committee members and their counsel.
As to the issue of whether the Bankruptcy Court may sua sponte disband or reconstitute a committee, the TCC argues that the statement from In re First RepublicBank, supra, is mere dictum, unrelated to the facts of that case and unsupported by any discussion. The two other cases cited by DCC involved different circumstances a bankruptcy court's dismissal or conversion of an improperly filed Chapter 11 case. Sua sponte actions were appropriate in those two cases. Not one party has requested the removal of any attorney member of the committee in this case.
B. Analysis.
The language of section 1102(a)(1), unlike its predecessor, does not give the bankruptcy courts a role in the appointment or modification of creditor committees. Section 1102(a)(1) mandates the United States Trustee appoint a committee of creditors and gives the Trustee discretion to appoint additional committees as the Trustee deems appropriate. A party in interest under section 1102(a)(2) may request the bankruptcy court to appoint additional committees if necessary to assure adequate representation. This section, however, does not empower the bankruptcy court to appoint or remove the members of the committee. If the bankruptcy court finds that additional committees are needed in order to assure adequate representation of creditors, then the United States Trustee is mandated to appoint the committee, not the bankruptcy court.
Section 1102(b)(1) appears to give the United States Trustee a "guide" to the type of persons the Trustee may appoint on the committees. Section 1102(b)(1) provides that "ordinarily" the membership of a committee should consist of the seven largest creditors of the creditor class. It could be interpreted that in a matter that is not an "ordinary" case, such as a mass tort case, the United States Trustee may appoint members who are not the largest creditors. Section 1102(b)(2) does not provide a definition of "persons" to be appointed, other than a person who is "willing to serve." Nowhere in Section 1102 does it indicate that a person must be an actual creditor to be appointed by the United States Trustee to a committee of creditors.
The appellants argue that none of the parties in interest, including the Debtor, prior to the bankruptcy court's opinion, requested that specific members or any member of the committees be removed. The appellants further argue that the bankruptcy court's sua sponte removal of certain members of the Tort Claimants' Committee was in error. Section 1102(a)(2) clearly states that "[o]n request of a party in interest," the court may order the appointment of "additional committees of creditors."
A review of the briefs and cases filed on this issue, it appears that the TCC and the U.S. Trustee prevail on this issue. Based on the 1986 amendments to the Bankruptcy Code and the repealed amendments, the Trustee has been given sole authority to appoint members of the various committees. The cases cited by the Trustee and TCC appear to be on point on the issue. In any event, given that no one has moved or requested that the TCC attorney representatives be dismissed from the committee, the Bankruptcy Court's sua sponte removal of the attorneys is outside its authority. The conflict of interest arguments favor the TCC and the Trustee. Even if a committee member is an actual tort claimant as opposed to an attorney representing various claimants, he or she would have a self-interest in the outcome of the bankruptcy.
IV. CONCLUSION.
Based on the above, the Court finds that the Bankruptcy Court erred in directing the United States Trustee to appoint new members to the Tort Claimants' Committee.
Accordingly,
IT IS ORDERED that the Bankruptcy Court's March 21, 1996 Order on the Tort Claimants' Committee reconstitution issue is REVERSED and the appeals (95-CV-71456-DT, 96-CV-71481-DT and 96-CV-71500-DT) are GRANTED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535636/ | 214 N.J. Super. 644 (1987)
520 A.2d 829
RALPH CLYBURN, PLAINTIFF-APPELLANT,
v.
LIBERTY MUTUAL INSURANCE COMPANY, DEFENDANT-RESPONDENT, AND NORTH RIVER INSURANCE COMPANY, DEFENDANT.
Superior Court of New Jersey, Appellate Division.
Argued November 5, 1986.
Decided January 21, 1987.
Before Judges ANTELL, BRODY and LONG.
Steven L. Hess, for appellant (Suzette Pintard, on the brief).
*645 William V. Roveto argued the cause for respondent (Moser, Roveto, McGough & Von Schaumburg, attorneys; Jane H. Minichiello, on the brief).
The opinion of the court was delivered by BRODY, J.A.D.
The trial judge dismissed this action against respondent automobile insurance carrier for Personal Injury Protection (PIP) benefits. Plaintiff was struck and injured by a New Jersey automobile that respondent had insured (the insured automobile). Just before the accident plaintiff had been a passenger in a New York automobile owned by Lena Reid when it was in a minor collision that did not injure him. Plaintiff was standing outside the Reid automobile inspecting the damage caused by the collision when the insured automobile struck him. Plaintiff settled his personal injury action against the owners and the operators of both automobiles. The release he gave those parties provided, "This release is exclusive of Personal Injury Protection benefits."
Plaintiff is not entitled to PIP benefits from the carrier of the Reid automobile because under the law of New York, where the Reid automobile was registered and principally garaged, a carrier need not, and Reid's carrier did not, afford plaintiff PIP coverage. See Quintana v. Brambila, 192 N.J. Super. 361 (App.Div. 1983).
Respondent contends that it is not liable for PIP benefits because at the time he was struck by the insured automobile plaintiff was "occupying" the Reid automobile. Plaintiff denies that contention and argues that he was a "pedestrian" when the insured automobile struck him. The dispute is not factual. The parties agree that at the time of impact plaintiff was standing outside the Reid automobile, inspecting the damage it had just sustained. The dispute is over the meaning of "occupying," a word that is used but not defined in the New Jersey Automobile Reparation Reform Act (the act), N.J.S.A. 39:6A-1 et seq.
*646 N.J.S.A. 39:6A-3 requires "[e]very owner or registered owner of an automobile registered or principally garaged in this State" to carry minimum automobile liability insurance. N.J.S.A. 39:6A-4 requires that every such policy provide PIP benefits regardless of fault
to the named insured and members of his family residing in his household who sustained bodily injury as a result of an accident while occupying, entering into, alighting from or using an automobile, or as a pedestrian, being struck by an automobile or by an object propelled by or from an automobile, to other persons sustaining bodily injury while occupying, entering into, alighting from or using the automobile of the named insured, with the permission of the named insured, and to pedestrians, sustaining bodily injury caused by the named insured's automobile or struck by an object propelled by or from such automobile.
N.J.S.A. 39:6A-2h defines "pedestrian" in relevant part as "any person who is not occupying, entering into, or alighting from a vehicle...."
Plaintiff argues that by not being in the Reid automobile at the time of the accident he was a pedestrian because he was "not occupying ... a vehicle." Respondent argues that we should adopt the broad definition given the word "occupying" in Newcomb Hospital v. Fountain, 141 N.J. Super. 291 (Law Div. 1976), where the court held that the plaintiff remained an occupant of his automobile and was therefore entitled to PIP benefits from its insurer even though he had left the vehicle to watch a service station attendant adding water to its radiator. The plaintiff in that case was injured when gasoline that had inadvertently been mixed with the water caused the radiator to explode.[1] The court found it significant that the plaintiff was only temporarily out of the automobile, was engaged in some activity associated with the automobile, and had intended to return to the automobile to continue his journey. Id. at 295.
*647 Plaintiff counters that the court in Newcomb gave "occupying" a broad definition in order to comply with the statutory mandate that the act "shall be liberally construed so as to effect the purpose thereof." N.J.S.A. 39:6A-16. Commenting on that mandate, our Supreme Court has stated that "PIP coverage should be given the broadest application consistent with the statutory language." Amiano v. Ohio Cas. Ins. Co., 85 N.J. 85, 90 (1981). As demonstrated by this case, however, defining "occupying" broadly to afford PIP coverage by the carrier of one New Jersey automobile can have the effect of removing PIP coverage by the carrier of another New Jersey automobile. One cannot be "occupying" and "not occupying" an automobile at the same time. Thus broadening the definition of "occupying" to afford PIP coverage by the carrier of an automobile an injured party was using at the time of the accident will narrow the definition of "not occupying," thereby depriving the injured party of his status as a pedestrian and consequently his entitlement to PIP coverage by the carrier of an automobile that strikes and injures him. We reject plaintiff's argument that a court must interpret "occupying" either broadly or narrowly, depending upon which interpretation will afford coverage.
The Legislature used the word "occupying" in company with "entering into, or alighting from a vehicle." The latter concepts bracket the concept of occupying and thereby infuse it with the meaning intended by the Legislature. A person is "occupying" a vehicle after "entering into" it and before "alighting from" it. If a person is not in an automobile, he is not occupying it in the statutory sense. Having alighted from the New York automobile before the accident, plaintiff was "not occupying" it when he was struck and was therefore a pedestrian entitled to PIP benefits from the carrier of the automobile that struck him.
We are not bound to use the broad definition of "occupying" found in Mondelli v. State Farm Mut. Auto. Ins. Co., 102 N.J. *648 167 (1986). There the insured automobile was parked at the curb. The injured person was struck by another automobile while he was in the street leaning his arm on the roof of the insured automobile while talking to his girlfriend who was behind the wheel. The driver of the automobile that struck the plaintiff drove off without stopping. The policy afforded uninsured motorist coverage to a person "occupying an insured highway vehicle." The policy defined "occupying" to mean "in or upon or entering into or alighting from." The Court held that the injured person was "upon" the insured vehicle and was therefore occupying it. Mondelli is distinguishable. The policy definition of "occupying" in Mondelli included being "upon" the insured vehicle and the Court was concerned with the meaning of "upon." That word is not present in either the statutory or policy definitions with which we are concerned.
We do not mean to leave the impression that a person injured while using a New Jersey automobile cannot look to the carrier of that automobile for PIP benefits unless at the time of the accident he was occupying, entering into or alighting from the automobile. As noted, N.J.S.A. 39:6A-4 requires a carrier to provide PIP coverage to any person who is "occupying, entering into, alighting from or using the automobile of the named insured." (Emphasis added.) The definition of "pedestrian" excludes a person who is "occupying, entering into, or alighting from a vehicle" but does not exclude a person who is otherwise "using" a vehicle. Thus a person "using" but "not occupying, entering into or alighting from a vehicle" is entitled as a pedestrian to PIP benefits from the carrier of a New Jersey automobile that strikes him or from the carrier of any other New Jersey automobile that he was using at the time. N.J.S.A. 39:6A-4.2 prohibits recovery from both.[2]
The plaintiff in Newcomb who was watching a service station attendant pour gasoline into his radiator was not then occupying his automobile. We therefore disapprove of the reasoning *649 used in that case, but subscribe to its result. Though "not occupying" his automobile, the plaintiff there was "using" it. Similarly the plaintiff here was "using" the Reid automobile when he was struck and injured while examining the damage it had sustained. See Motor Club Fire & Casualty Co. v. N.J. Manu. Ins. Co., 73 N.J. 425, 436-437 (1977), for a discussion of the broad meaning of "use" in the Motor Vehicle Security-Responsibility Law. N.J.S.A. 39:6-46. However, he did not thereby lose his status as a pedestrian and remains entitled to PIP benefits from respondent, the carrier of the automobile that struck him and caused his injuries.
Reversed and remanded for entry of judgment consistent with the parties' stipulation of damages and for a determination of plaintiff's application for attorney's fees. R. 4:42-9(a)(6). Maros v. Transamerica Insurance Co., 76 N.J. 572 (1978).
NOTES
[1] The court held alternatively that if the plaintiff was "not occupying" the insured automobile he was a "pedestrian" entitled to PIP from the same carrier because he was "struck by an object propelled by or from" the insured automobile, a basis of recovery under N.J.S.A. 39:6A-4. Newcomb, 141 N.J. Super. at 295-296.
[2] N.J.S.A. 39:6A-4.2 provides:
The personal injury protection coverage of the named insured shall be the primary coverage for the named insured and any resident relative in the named insured's household who was not a named insured under an automobile insurance policy of his own. No person shall recover personal injury protection benefits under more than one automobile insurance policy for injury sustained in any one accident. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535677/ | 103 Pa. Commw. 529 (1987)
520 A.2d 940
Civil Service Commission of the City of Philadelphia, Appellant
v.
James C. Putz, Appellee.
No. 3485 C.D. 1985.
Commonwealth Court of Pennsylvania.
Argued September 9, 1986.
February 5, 1987.
Argued September 9, 1986, before President Judge CRUMLISH, JR., Judge COLINS, and Senior Judge BARBIERI, sitting as a panel of three.
*530 Kenneth L. Smukler, Assistant City Solicitor, with him, Ralph J. Teti, for appellant.
Frank De Simone, for appellee.
OPINION BY PRESIDENT JUDGE CRUMLISH, JR., February 5, 1987:
James Putz was dismissed from the Philadelphia Police Department and the City Civil Service Commission (Commission) upheld his discharge. The Philadelphia County Common Pleas Court reversed the Commission's decision. The Commission appeals; we vacate the Common Pleas Court order and remand to the Commission.
The Police Department dismissed Putz for violating regulations, as follows:
1.75 Conduct Unbecoming An Officer:
On 8-8-81, at 3:53 A.M., you did violate Departmental Directive No. 10 when you fired your service revolver, grievously injuring Anthony Taylor, Age 22, N/M, 2037 W. Stella Street.
4.20 Neglect of Duty:
On 8-8-81 at 3:53 A.M., you did violate Procedural Directive No. 10, when you resorted to the use of deadly force without attempting/exhausting all reasonable means of apprehension on Anthony Taylor, Age 22, N/M, 2037 W. Stella Street.
*531 On 8-8-81 at 3:53 A.M., you failed to notify Police Radio that you had discharged your weapon resulting in injury to a citizen, Anthony Taylor, Age 22, N/M, 2037 W. Stella Street.
Reproduced Record, p. 291a. Departmental Directive No. 10 provides that police officers shall exhaust all reasonable means of apprehension and control before using deadly force. The critical issue before the Commission, therefore, was whether Putz reasonably resorted to firing his weapon.
At the five hearings held to consider Putz's discharge, the Commission heard the testimony of Putz; the suspect Anthony Taylor; Putz's supervisor, Sergeant Kilrain; and two independent witnesses.[1]
Although conflicting accounts of the incident exist, the following facts are undisputed: While patrolling alone in a high crime area of the City, Putz observed a car which he believed might have been stolen. He drove his patrol car alongside in order to inspect the vehicle more closely. When Putz shined a searchlight into the car, the driver fled the scene at high speed. Putz pursued the driver in a car chase and then followed him on foot into a darkened alley. After firing a shot into the air and ordering the suspect to stop, Putz fired a second shot and wounded the suspect in the upper torso. Putz did not immediately report firing his service revolver and contradicted reports of gunshots in his communication to police radio.
*532 The Commission found that Putz's testimony about the incident did not adequately explain why he pursued and fired at Taylor.[2] The Commission also found the suspect Taylor's testimony incredible because he appeared before it with "deception and mendaciousness" and found his flight from Office Putz, which precipitated the incident, to be "unexplained."[3] Thus, the Commission appears to have relied on the independent witnesses and Sergeant Kilrain's testimony.
Where the common pleas court takes no additional evidence, review by this Court is to determine whether the Commission committed an error of law or abused its discretion. Borough of Jenkintown v. Civil Service Commission of Jenkintown, 84 Pa. Commw. 183, 478 A.2d 941 (1984).
Unless unsupported by substantial evidence, the Commission's findings of fact are conclusive on appeal. Foley v. Civil Service Commission of Philadelphia, 55 Pa. Commw. 594, 423 A.2d 1351 (1980). The legal conclusion of whether the facts support a finding of just cause, however, is a question of law for review by this Court. Township of Fairview v. Saxe, 73 Pa. Commw. 161, 457 A.2d 1014 (1983). Moreover, the burden is on the municipality to support the charges and to establish that there was just cause for dismissal. See Foley.
*533 The Commission contends that the common pleas court erred in reversing its decision since its findings of fact were supported by substantial evidence. Putz counters that, because the suspect Taylor's testimony about the incident was found not to be credible, there exists no evidence to support findings which would in turn support a conclusion that Putz engaged in conduct unbecoming an officer or neglected his duties.
Conduct Unbecoming an Officer
Our review of the Commission's findings indicates that they are at least inconsistent if not contradictory. The Commission found that Putz was acting on the presumption that his suspect was carrying a gun when he fled the scene.[4] Yet it also found that Putz's testimony that he saw the suspect with a gun in hand in the car was not convincing.[5] Thus, it appears that the Commission found the testimony of both Putz and the suspect as to why the chase began not to be credible.
Furthermore, although the Commission found that Putz's bullet struck Taylor in the back and reference is made in the testimony to ballistics and medical examiner's reports,[6] the Commission made no mention of *534 its reliance on such evidence nor does such evidence exist in the record. Apart from the discredited testimony of the two participants, we cannot determine what evidence the Commission relied upon in deciding the critical question of whether Putz reasonably resorted to firing his weapon. We are therefore constrained to remand this matter for a finding of whether Putz's conduct in discharging his weapon, as established by credible evidence, if any, is consistent with departmental directives on the reasonable use of deadly force. Mindful that the Department bears the burden of proof in this case, we direct that the Commission, which is bound by its credibility determinations, shall take no additional evidence and shall limit the proceedings to specific findings on the record evidence relied upon to support its findings.
Neglect of Duty Violations
Putz was also cited for neglect of duty by failing to notify police radio that he had injured a citizen.[7]
*535 The Commission found only that Putz did not "furnish a suitable explanation as to why he did not continue to pursue Taylor after firing the second shot at him." Reproduced Record, p. 249 (emphasis added). This finding alone will not support the conclusion that Putz knew he had injured the suspect but failed to report it. Putz testified that after he fired his gun once into the air and a second time at Taylor, whom he perceived had turned to attack him, the suspect continued to flee down the alley. This testimony is corroborated by Taylor and the independent witnesses. Putz also testified that he was unaware that he had wounded Taylor. We therefore direct that, on remand, the Commission make findings necessary to the resolution of whether Putz knew that in discharging his weapon he had injured a citizen.
We vacate the common pleas court order and remand this matter to the Philadelphia Civil Service Commission for proceedings consistent with this opinion.
ORDER
The Philadelphia County Common Pleas Court, No. 4978 March Term 1985, dated December 11, 1985, is vacated and this case is remanded to the Philadelphia Civil Service Commission for proceedings consistent with this opinion.
Jurisdiction relinquished.
NOTES
[1] One independent witness testified that he observed Putz pursue the suspect Taylor into an alley and that Putz shouted at him to halt and then fired a shot into the air. He stated that he heard a second shot shortly thereafter.
Another witness gave a statement that from inside his residence he heard someone shouting directions to halt and heard gunshots shortly thereafter. This witness then called the police.
[2] Commission finding (6) states: "Appellant did not furnish a suitable explanation as to why he did not continue to pursue Taylor after firing a second shot at him."
Commission finding (10) states: "Appellant explained that when he fired the shot at Taylor, the man had turned around toward him; this does not contain a suitable explanation as to how and why the bullet struck Taylor in the back instead of in the front or side area of his body."
Reproduced Record, p. 294a.
[3] Reproduced Record, p. 294a.
[4] Commission finding (9) states: "Appellant presumed Taylor had a gun when he left the car but never testified that he saw the gun during the foot pursuit which led to the shooting." Reproduced Record, p. 294a (emphasis added).
[5] Commission finding (5) states: "Appellant's testimony was not convincing that he, in fact, saw Mr. Taylor with a pistol in his hand when the chase began, as he testified, although independent evidence established that a starter pistol was found in the car." Reproduced Record, p. 294a. It was stipulated that this starter pistol resembled a .22 automatic pistol.
[6] The transcript of the January 30, 1985 hearing provides the following testimony:
[Commissioner] Boonin: What part of Mr. Taylor's body did the bullet enter? Do you know?
[Appellee Putz's counsel]: I know; the bullet went in here and out here it went in the top here and out the top here ; it didn't go straight through. It went in on an angle. . . .
Boonin: Our understanding was that Mr. Taylor was hit in the back by the bullet and yet he was facing you. I don't quite understand how that occurred. He turned toward you. . . .
Witness: He turned toward me, but, like, the upper torso turned toward me, not necessarily. . . .
Boonin: I see; now I understand; okay.
[Appellee Putz's counsel]: Dr. Bailey, with all due respect, sir, if you would like a medical examiner's report, I will be willing to supply it.
Reproduced Record, pp. 230a-231a. In addition, the transcript of police radio transmittal for August 8, 1981, included a transmission from a responding patrol car that Taylor was shot in the right rear chest. Reproduced Record, p. 284a.
[7] The Commission also found that the Department dismissed Putz because he had fired a warning shot (Commission finding (1), Reproduced Record, p. 294a). Although this action does not conform with Department directives, the Commission should make findings on whether the firing was justified because of the exigent circumstances involved in this matter (e.g., poor visibility at the scene, Putz's mental state). Such findings are critical to a valid determination of the disciplinary action undertaken here. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535679/ | 360 Pa. Super. 319 (1987)
520 A.2d 477
PENNSYLVANIA INSURANCE GUARANTY ASSOCIATION, Liquidator of Amherst Insurance Company, Appellant,
v.
Tammy A. SCHREFFLER, Executor of the Estate of Richard Schreffler, Appellee.
Supreme Court of Pennsylvania.
Argued October 23, 1986.
Filed January 27, 1987.
*320 Edward J. Carney, Jr., Media, for appellant.
W. Russell Carmichael, Media, for appellee.
Before WIEAND, OLSZEWSKI and CERCONE, JJ.
OLSZEWSKI, Judge:
This is an appeal from a declaratory judgment filed by the Court of Common Pleas of Delaware County. Appellant, the Pennsylvania Insurance Guaranty Association ("PIGA"), sought a determination of the total amount of funds available to appellee under a contract of insurance issued by Amherst Insurance Company ("Amherst") to Richard Keenan, t/a Keenan's Tavern ("Keenan's Tavern"). Amherst Insurance Company is now insolvent and the PIGA is handling pending claims pursuant to applicable law. 40 Pa.Stat.Ann.Sec. 1701.101 et seq. Because the Amherst insured, an indispensable party, was not joined, we vacate the judgment and dismiss the action.
Appellee, Tammy Schreffler, executrix of the estate of Richard Schreffler, is a claimant against the Amherst insurance policy by virtue of a September 5, 1981 automobile accident in which appellee's decedent, the driver, was fatally injured. The accident also resulted in injuries to a passenger in the deceased's car, George Burns. Appellee and Burns each filed suit in the Court of Common Pleas of Delaware County against Richard Keenan and Jean Keenan, t/a Keenan's Tavern.[1] These cases involved claims against Keenan's Tavern for serving alcoholic beverages to appellee's decedent and Burns while the two were visibly intoxicated. According to appellant, at the time the two cases were called for trial, all parties agreed to the Honorable Charles Keeler's recommendation that the Burns case *321 be settled for the $25,000 coverage available, and that a declaratory judgment proceeding be brought to determine whether any coverage was still available under the Amherst insurance contract.[2] Complaint for declaratory relief, paragraph 11.
Appellant subsequently filed the instant action on June 20, 1985 seeking a declaration that no coverage was available for appellee Schreffler under the Amherst policy. The policy provided Keenan's Tavern with both premises liability coverage and liquor liability coverage. The premises liability coverage insured against bodily injury in the amount of $50,000 for each occurrence with a $50,000 aggregate limit. The liquor liability insurance provided maximum coverage of $25,000 for each common cause with a $50,000 aggregate limit. Appellant argued in the lower court that none of the premises coverage is available to appellee because exclusion H applies. Exclusion H excludes coverage for ". . . bodily injury or property damage for which the insured or his indemnitee may be liable (1) as a person or organization engaged in the business of manufacturing, distributing, selling or serving alcoholic beverages. . ." Appellant also asserted that no liquor liability coverage is available by virtue of the $25,000 payment to the claimant Burns. Appellant argued below and contends on appeal that any injuries received by Burns and appellee's decedent resulted from the common cause of the serving of the decedent.[3] The liquor liability coverage provides that:
The limit of liability stated in the schedule as applicable to each "common cause" is the total liability of the company for all damages sustained by one or more persons *322 as the result of the selling, serving or giving of any alcoholic beverage to any one person.
Under appellant's interpretation of the policy, the $25,000 settlement with Burns exhausted the maximum amount of liquor liability coverage available and therefore left nothing available to appellee in its suit against Keenan's Tavern.
On May 27, 1986, Judge Keeler entered an amended judgment which declared that (1) appellant has no obligation to appellee under the insurance policy's premises liability coverage and (2) appellee has the right to seek compensation under the policy's liquor liability coverage up to an amount of $25,000. Appellant subsequently filed this appeal challenging the trial court's decision that appellee has a right to seek compensation under the liquor liability coverage.
Whether or not a declaratory judgment is proper and is an available remedy is the first question for determination on appeal. Bracken v. Duquesne Electric & Manufacturing Co., 419 Pa. 493, 495, 215 A.2d 623, 624 (1966). Instantly, appellee challenges the trial court's jurisdiction to issue a declaratory judgment. Specifically, appellee contends that jurisdiction is lacking due to the failure to join an indispensable party the insured under the Amherst insurance policy. We agree.[4]
When declaratory relief is sought, our Declaratory Judgments Act mandates that all persons who have or claim any interest which would be affected by the declaration be made parties to the proceeding. 42 Pa.Cons.Stat.Sec. 7540. This statutory provision constitutes a jurisdictional requirement with respect to joinder of indispensable parties. See Vale Chemical Co. v. Hartford Accident and Indemnity Co., 512 Pa. 290, 516 A.2d 684 (1986). We must therefore *323 determine whether the insured in the case at bar had or claimed any interest which would have been affected by the declaration. We find that Keenan's Tavern had such an interest and therefore should have been joined as a party to this proceeding.
In its request for declaratory relief, appellant asked the trial court to interpret the Amherst insurance policy with respect to the coverage available for appellee's suit against Keenan's Tavern. Clearly, Keenan's Tavern had an interest in seeing that the court construed its insurance policy as providing the maximum amount of coverage possible for any judgment entered against it in the Schreffler action. Keenan's Tavern also had an interest in ensuring that appellant performed its obligations to defend Keenan's Tavern in the Schreffler action.[5] Obviously, these interests have not been represented by appellant, who contended below and contends on appeal that no coverage is available under the policy.
Prior case law supports our conclusion that Keenan's Tavern, the insured, is an indispensable party in this action. Our Supreme Court recently reaffirmed the rule that persons asserting claims against an insured are indispensable parties in a declaratory judgment action on the issue of coverage between the insured and its insurance carrier. Vale Chemical Co. v. Hartford Accident and Indemnity Co., supra. In such cases the failure to join a claimant whose interests would be affected has been held to be fatal error. Id. In Vale Chemical, the court indicated that the *324 tort plaintiff's interest was in seeing that an insurance company paid the judgment against its insured.
In the instant case, the legal relation of Keenan's Tavern to appellant is arguably even stronger than that in the foregoing cases in which the claimants against the insurance carrier's insured were ruled indispensable. Here, Keenan's Tavern has a direct contractual relationship with the carrier whose claims appellant is handling. Ostensibly, Keenan's Tavern entered into the insurance contract in question to limit its obligations with respect to claims such as those involved in appellee's action against it. These are the very obligations which would have been affected by the declaration sought. See Piper Aircraft v. Insurance Company of North America, 53 Pa.Commw. 209, 417 A.2d 283 (1980) (court concluded that the Pennsylvania Department of Transportation, an insured, was an indispensable party to a declaratory judgment action by a co-insured against its insurance carrier regarding the contractual duty to defend). See also Insurance Company of Pennsylvania v. Lumbermens Mutual Casualty Company, 405 Pa. 613, 177 A.2d 94 (1962).
Because we find that Keenan's Tavern is an indispensable party who has not been joined, the jurisdictional requirements of the Declaratory Judgments Act have not been met. Accordingly, we do not address the merits of this appeal.[6]
The amended judgment of the Court of Common Pleas of Delaware County is vacated and the action is dismissed.[7]
NOTES
[1] Appellee's suit was filed under No. 82-5335 while Burns's action was brought under No. 83-7491.
[2] Appellee, however, claims that its counsel was not present when the settlement was achieved between the parties to the Burns case and that it "did not agree that any policy coverages previously determined were in doubt or subject to re-examination due to the Burns settlement, or for any other reason." Defendant's answer to complaint for declaratory relief, paragraph 11.
[3] Appellant, however, reserved the right to contend in any subsequent trial that the decedent and Burns were not served while intoxicated. Complaint for declaratory relief, paragraph 13.
[4] Even if appellee had not raised this issue, Pa.R.C.P. 1032(2) allows a court to raise sua sponte issues of subject matter jurisdiction and failure to join an indispensable party. Vale Chemical Co. v. Hartford Accident and Indemnity Co., 512 Pa. 290, 516 A.2d 684 (1986).
[5] Presumably, if the court determined that no coverage was available, appellant would have refused to defend Keenan's Tavern in appellee's action. See Section 1701.201(b)(1)(ii) of the Pennsylvania Insurance Guaranty Association Act which provides:
(1) The association shall:
.....
(ii) Be deemed the insurer to the extent of its obligation on the covered claims and to such extent shall have all rights, duties, and obligations of the insolvent insurer as if that insurer had not become insolvent.
40 Pa.Stat.Ann.Sec. 1701.201(b)(1)(ii) (emphasis added).
[6] We note that appellant did not file a motion for post-trial relief. Although we do not address the issue in view of our disposition of the matter, we observe that the statutory section providing that a declaration shall have the force of a final judgment or decree, see 42 Pa.C.S.A. Sec. 7532, does not render a declaratory judgment immediately appealable in derogation of the normal rules of procedure. Hertz v. Hertz, 302 Pa.Super. 259, 261, 448 A.2d 626, 627 (1982). See Pa.R.C.P. 1601(a), 227.1.
[7] Assuming personal jurisdiction can be had, joinder of Keenan's Tavern would give the trial court jurisdiction to entertain this action. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535666/ | 114 B.R. 877 (1990)
In re CROWTHERS McCALL PATTERN, INC., d/b/a the McCall Pattern Company, Debtor.
Bankruptcy No. 88B-12659 (HCB).
United States Bankruptcy Court, S.D. New York.
June 5, 1990.
As Corrected June 8, 1990.
Stroock & Stroock & Lavan, Seven Hanover Square, New York City by Robin E. Keller, Eli Levitin, for debtor-in-possession.
Skadden, Arps, Slate, Meagher & Flom, New York City by Michael L. Cook, Margaret A. Brown, Brad J. Axelrod, for creditors' committee.
Paul, Weiss, Rifkind, Wharton & Garrison, New York City by Robert L. Laufer, Jeffrey K. Cymbler, Stephen K. Koo, for McCall Pattern Holdings, Inc.
DECISION
HOWARD C. BUSCHMAN, III, Bankruptcy Judge.
Before the Court is a motion, brought jointly by Crowthers McCall Pattern, Inc. ("McCall"), debtor-in-possession herein, and the Official Creditors' Committee (the "Committee"), for an order authorizing McCall to merge with another entity if a plan of reorganization so providing is confirmed."[1]
The motion is objected to by McCall Pattern Holdings, Inc. ("Pattern"), a creditor of McCall and wholly owed by Reginald Lewis, a shareholder of McCall, principally on the grounds that there is insufficient business justification and that such authorization constitutes an improper piecemeal plan, subverting the protections afforded parties in interest to a Chapter 11 case.
This motion concerns the extent to which a debtor-in-possession and creditors' committee may put in place, prior to confirmation of a plan of reorganization, a transaction which is to form the basis of a plan. It thereby raises the tension between the need for negotiation with prospective funders of consensual plans and certainty of a return to creditors on the one hand, and the need to preserve the protections of Chapter 11 of Title 11, 11 U.S.C. § 101 et seq. (1986) (the "Code"), on the other. Because in this case there is a pressing need to bring a purchaser to the table and the Chapter 11 protections are preserved, the motion is granted.
I
Prior to filing a petition for relief under Chapter 11 in December 1988, McCall was one of the country's three largest companies engaged in the designing, manufacturing, and marketing of home sewing patterns. As debtor-in-possession, McCall continues to operate its business. Although its market share for 1989 increased to 35.8%, the home pattern industry has declined over the past decade and McCall's *878 principal competitors have suffered. Tr. pp. 37, 126-27.[2] McCall's current sales are approximately one-third of its peak sales a decade ago. Tr. pp. 37-38. Management projects profits from operations of $10.181 million in 1990, increasing slightly annually to $12.535 million in 1994. Ex. B. McCall currently has opportunities to expand its business in, among other places, the Soviet Union, and its brand name is widely recognized. Tr. p. 39.
McCall, however, is laden with debt that it cannot service. That debt consists largely of $35 million in principal owed to The Travelers Insurance Company and The Travelers Indemnity Company, and $22 million in principal owed to subordinated bondholders. Hence, McCall sought to market the company with the assistance of Wasserstein, Perella & Co., Inc. between October 1988 and March 1989. Apparently, no offers for McCall's business or assets were then received. Tr. pp. 39, 61. The Committee, in March 1989, took on the job of marketing the debtor. It sought and obtained authority from this Court for its accountant, Ernst & Young ("E & Y"), to render financial advisory and investment banking services in connection with the sale of McCall.
Since April 1989, E & Y has attempted to attract buyers. Tr. p. 40. It distributed a confidential sale memorandum to approximately 75 to 80 parties, of whom 25 to 30 conducted detailed due diligence. Tr. pp. 40-41. Numerous other parties contacted E & Y after learning of the sale effort through word of mouth in the merger and acquisition community. Tr. p. 42.
In late summer 1989, nine parties submitted statements of interest in acquiring McCall's business. Tr. p. 54. The Committee invited five parties, which in its view submitted the most promising statements, to bid at a non-judicial auction at E & Y's office on August 31, 1989. Id. Three parties actually participated. Id. The Committee determined that Tessler & Cloherty, Inc. had offered the highest and best bid and pursued negotiations towards a definitive stock purchase agreement. Tr. pp. 54-55. Those negotiations, however, terminated in late September. Id.
McCall and the Committee then resorted to a judicial auction in attempting to attract a buyer. On their joint motion, the Court entered an order scheduling a final judicial auction of McCall's business pursuant to a plan of reorganization. Opposing papers were filed by Lewis. The auction was ultimately held on October 19, 1989. At its conclusion, the Court found that Lewis' acquisition company, having bid $43 million for McCall's business, submitted the highest and best bid. That bid was subsequently withdrawn.
At the reopened final auction on October 31, 1989, McKane Robbins & Co. ("McKane Robbins"), the sole bidder, bid $40 million. Tr. pp. 56, 127. By order dated November 1, 1989, the Court authorized and directed McCall to enter into and perform the agreement with McKane Robbins, subject to confirmation of a plan of reorganization, and directed McKane Robbins to deposit $250,000 immediately and further deposit $1.75 million within five days. For reasons that are currently the subject of litigation, including the allegation that McCall's management attempted to leverage their position, McKane Robbins did not pay the $1.75 million installment and the parties did not consummate the transaction. Tr. p. 57.
E & Y resumed its marketing efforts in early 1990. The Committee solicited new bids and sent a model acquisition agreement and guidelines and requirements for bids to approximately thirty potential acquirors. Tr. p. 43. Seven bids were made in response to the solicitation, including a bid by Dimeling & Schreiber ("D & S") on behalf of its affiliates McCall Acquisition, Inc. and MP Holdings, Inc. ("MP Holdings"). Tr. p. 44. D & S had not previously submitted a bid. Tr. p. 61.
E & Y analyzed the various bids received according to both financial and non-financial terms, including the cash consideration offered and contingencies in the bids and financing. Tr. p. 45. It advised the Committee *879 that the D & S bid was the most attractive because it offered the highest cash consideration and was not contingent on obtaining financing. The Debtor and the Committee agreed. Tr. p. 45. The Committee and D & S negotiated a written "Agreement and Plan of Merger" (the "Agreement") dated March 30, 1990 that is the subject of the instant motion.
The Agreement provides for the merging of McCall Acquisition, Inc. with and into McCall which will continue as the surviving corporation and as a subsidiary of MP Holdings. Id. ¶ 1.1. The Agreement is essentially pre-nuptial in nature since the merger is dependent on entry of an order of confirmation. Id. ¶ 5.1.
As consideration for the merger, MP Holdings is to pay $45 million, plus or minus the amount that the stockholders' equity in McCall, as shown on a balance sheet as of the closing date, is greater or less than $80,217,000, with any downward adjustment not exceeding $4.5 million. Id. ¶ 1.2(b)-(d) at 9, 13. Of this consideration, $2 million was paid as a deposit upon the execution of the Agreement and the balance of the purchase price with adjustments is payable at closing. Id. MP Holdings is also to assume non-subordinate pre-petition liabilities of McCall in the amount of $3.62 million. Id., Ex. A. The Agreement requires D & S to guarantee all of the obligations of MP Holdings and McCall Acquisition, Inc., id. ¶ 4.6, and to provide evidence of contributing $8 million in equity to MP Holdings by May 14, 1990, id. ¶ 4.7.
The Agreement conditions the obligations of McCall and MP Holdings upon entry and finality of both an order granting the instant motion and authorizing the Debtor to enter into the Agreement, and an order confirming a plan of reorganization in this case. Agreement ¶¶ 5.2(e), 5.3(d). Although it is not a condition that the transaction close immediately, Tr. p. 144, McCall is obligated to use reasonable efforts to procure an order authorizing it to enter into and perform the Agreement. Id. ¶ 4.4. The Agreement is not binding upon McCall until entry and finality of an order granting this motion. Id. ¶ 2.4. Thus, for lack of consideration, it is apparently not binding on MP Holdings or D & S until an order granting this motion is entered.
As soon as practicable after entry of an order granting this motion, McCall is to file a disclosure statement and any documents necessary to confirm a plan of reorganization. Agreement ¶ 4.4. Essentially, the plan shall provide for (i) cancellation of all capital stock of McCall existing prior to the closing, (ii) assignment to creditors the consideration paid by MP Holdings and rights to certain pending litigation, (iii) assumption by the surviving company of certain pre-petition and all post-petition liabilities, id., Ex. A, (iv) discharge of all other liabilities as against the surviving company, and (v) vesting in the surviving company the assets of McCall as of the closing date free and clear of all claims and encumbrances. Id. ¶ 4.3, Recital C.
A condition to MP Holdings' closing is that the plan, disclosure statement, and order of confirmation be "reasonably satisfactory" to it and its counsel. Agreement ¶¶ 5.2, 4.3. Specifically, the confirmation order is to confirm the plan in all material respects, approve the execution, delivery, and performance of the Agreement, approve the assumption of executory contracts and unexpired leases set forth in an exhibit to the Agreement, and, as of the date of confirmation, discharge all indebtedness to the extent permitted by the Code, except as provided in the Agreement. Id.
On April 10, 1990, the Court, upon motion of the Debtor and the Committee, and after a hearing, entered an order approving modified provisions of the Agreement. Those modifications require the retention in trust by McCall of the D & S deposit of $2 million pending a final order confirming a plan, allow D & S a "break-up" fee of $500,000 as an administrative expense, and provide that any party also depositing $2 million with McCall, in the period pending the hearing to approve the Agreement during which competing bids could be made, could not be outbid by a bid providing less than a $500,000 increment. Agreement ¶ 6.3 as modified.
*880 The April 10 order also approved a provision terminating the Agreement if (i) the closing does not occur within forty-five days after entry of the order of confirmation or July 31, 1990 (except if any appeal taken has not been resolved, in which case, September 30, 1990), (ii) the case is dismissed or converted to a Chapter 7 case, or a trustee is appointed in the Chapter 11 case,[3] or (iii) McCall shall consummate a competing transaction. Agreement ¶ 6.1 as modified. Also approved was McCall's covenant not to take any action to cause, promote, authorize or result in the purchase, by any person other than MP Holdings, of the stock or assets of McCall. This covenant expressly prohibits granting access to the company's books or records, and employees or management, except as required pursuant to its fiduciary duties, or by order of the bankruptcy court. Agreement ¶ 6.3 as modified. The order further provided that D & S' $2 million deposit be returned upon termination of the Agreement if D & S is not in breach of any of its terms or if McCall enters into a competing transaction. Agreement ¶ 6.2 as modified. All potential bidders, creditors with claims in excess of $100,000, shareholders, and parties who had requested notice were served with notice of that order. Tr. p. 4.
McCall received one timely competing bid from Recovery Equity Investors, L.P. ("REI") dated April 23, 1990. Tr. pp. 4, 45-46; Ex. A. REI submitted a bid, contingent on obtaining financing, of $45 million in cash and $3 million in the form of a 9% cumulative convertible preferred stock having a liquidation preference of $3 million and redeemable in five or ten years. Tr. p. 46, 92-93, 96, 105. The preferred stock would be convertible at anytime into 8% of the common stock of REI's acquisition vehicle. Id. E & Y discounted the REI bid by $2.6 million. $500,000 was subtracted for the break-up fee which would be due D & S were REI's bid successful. An additional $400,000 was subtracted for one month of additional professional fees. Of that amount, however, only a portion was estimated for negotiating a final agreement with REI. Tr. p. 113. The balance was attributed to fees expected to be incurred to negotiate the terms of a plan relating to the distribution of the preferred stock, for litigation outside the bankruptcy court, and as a result of delaying conclusion of the case. Tr. pp. 74-76, 79-80, 112-13. Thus, it is not at all clear that a discount of the full $400,000 sum for professional fees was appropriate since a portion was attributable to litigation fees that would be incurred in any event.
E & Y further discounted the preferred stock's stated value by $1.7 million. Assuming a ten year redemption and a twenty-five percent discount rate based on trading ranges in the public market and illiquidity of the preferred stock, the present value was calculated to be approximately $1.3 million. Tr. pp. 48-49. The conversion feature was considered to be of little value because REI proposed to place "a great deal of debt . . . upon the company, [but] the equity value would be only the [$6 million] equity that [REI would] put in at the date of the closing. . . ." Tr. pp. 105-06, 109-10.
Most significant to E & Y and to the Committee was that the REI bid, unlike the D & S bid, is contingent on obtaining financing. REI, although purporting to be able to close "within a time frame substantially the same as that anticipated by D & S," and to receive a response from their lender within forty-eight hours of the time of the bid, sought as an additional condition to closing, for an indefinite time, the issuance of financing commitments by REI's lenders. Ex. A; Tr. pp. 84, 115-16. No guarantee of the obligations of the acquisition vehicle, a shell corporation with only $6 million in proposed equity, would be provided. Tr. pp. 84, 114-15.[4]
*881 Although the Agreement is not contingent on an employment arrangement with McCall's senior management, Tr. p. 131, D & S has negotiated an agreement in principle with senior management. Tr. pp. 132, 141. None of McCall's senior management has any prior connection to or relationship with D & S. Tr. p. 139. The employment agreements would provide for compensation and bonuses at approximately current levels. Tr. pp. 133-34. Twelve managers would have the right to earn, over a five year period, approximately ten percent of the company's equity; equity will automatically vest at a rate of one percent per year upon continued employment and an additional one percent per year if certain performance goals are met. Tr. p. 135. No "sign-up" bonuses would be awarded. Tr. pp. 134-35. Continuation of current automobile policies is contemplated. Id.
The Court terminated McCall's exclusive period, provided in section 1121 of the Code, for filing a plan on November 13, 1989. To date, only two plans, each incorporating a merger agreement with McKane Robbins, have been filed. Those plans were withdrawn when that transaction terminated.
II
Among the most significant protections of Chapter 11 in the process leading to confirmation of a plan are: the right of creditors to receive a disclosure statement, § 1125; the power of creditors holding claims in an impaired class to vote, § 1126; the entitlement of dissenting creditors and equity interest holders to a return equal to or greater than that which they would receive in a liquidation pursuant to Chapter 7, § 1129(a)(7); the requirement that a dissenting class of unsecured creditors be paid in full prior to the receipt or retention of property under a plan by a holder of a junior claim or interest, § 1129(b)(2)(B); and the ability of all parties-in-interest to be heard at a confirmation hearing as to matters affecting confirmation, such as good faith, § 1129(a)(3); continuance of management, § 1129(a)(5)(A)(ii); and feasibility, § 1129(a)(11). So significant are these rights and powers that a party-in-interest need have done nothing during the Chapter 11 case in order to avail itself of them at confirmation.
The general goal of debtors and the creditors' committees with whom they principally negotiate is the formulation of a largely consensual plan. Cases involving numerous disputed claims, partially subordinated creditors, disputes concerning estate property, and the like require that consensus be built gradually by putting the plan's building blocks in place through negotiated settlements. See In re Flight Transp. Corp. Securities, 730 F.2d 1128, 12 Bankr.Ct.Dec. 11, Bankr.L.Rep. (CCH) ¶ 69796 (8th Cir. 1983); In re Grant Broadcasting, Inc., 71 B.R. 390 (Bankr.E.D.Pa.1987); In re Lion Capital Group, 49 B.R. 163, 12 C.B.C.2d 1031 (Bankr.S.D.N.Y.1985). Businesses seeking to reorganize may need to trim their sails through selling assets and attracting additional capital in order to finalize negotiations with creditors and equity committees.
These needs create a tension with party-in-interest protections at confirmation. Nowhere does the Code address this tension. The courts balance these concerns on a case by case basis. Most noteworthy of these cases are those attempting to articulate applicable standards for approval of the sale of estate property under section 363(b).[5]See e.g., Institutional Creditors v. Continental Air Lines (In re Continental Air Lines, Inc.), 780 F.2d 1223, 13 Bankr.Ct.Dec. 1371, 13 C.B.C.2d 1433, Bankr.L.Rep. (CCH) ¶ 70945 (5th Cir.1986); In re the Lionel Corp. (The Committee of Equity Security Holders v. The Lionel Corp.), 722 F.2d 1063, 11 Bankr.Ct.Dec. 553, 9 C.B.C.2d 941, Bankr.L.Rep. (CCH) *882 ¶ 69510 (2d Cir.1983); PBGC v. Braniff Airways, Inc. (In re Braniff Airways, Inc.), 700 F.2d 935, 10 Bankr.Ct.Dec. 933, 8 C.B.C.2d 522, reh. denied, 705 F.2d 450 (5th Cir.1983).
In Lionel, the Second Circuit recognized the danger of "swallow[ing] up Chapter 11 safeguards" through a pre-confirmation sale of a principal asset and thereby cashing out much of the going concern value of the debtor. 722 F.2d at 1069. The debtor proposed to sell its most significant asset: 82% of the common stock of a solvent, publicly traded corporation. It filed a plan of reorganization conditioned on the pre-plan sale and distribution of sale proceeds to creditors. The bankruptcy court found cause to sell in the creditors' committee's insistence upon it and the perception that failure to confirm a plan contingent on approval of the sale would delay reorganization for at least a year. Reasoning, inter alia, that if no business justification need be shown, the Chapter 11 safeguards noted above would be denied, the Second Circuit reversed the district court's affirmance. It held that "there must be some articulated business justification . . . for using, selling, or leasing property out of the ordinary course of business before the bankruptcy judge may order such disposition under section 363(b)." 722 F.2d at 1070.[6]
Consequently, in In re Beker Indus. Corp., 64 B.R. 900, 905-07, 14 Bankr.Ct. Dec. 1238 (Bankr.S.D.N.Y.1986), rev'd in part on other grounds, 89 B.R. 336 (S.D.N.Y.1986), this Court found, applying the Lionel factors, lack of business justification for sale of a major set of linked assets where a debtor had yet to identify a path for a plan of reorganization. There, a debtor sought to sell a phosphate fertilizer plant and its interest in a related partnership located in Idaho. The debtor also owned another plant and a subsidiary owned a mine both located on the coast of the Gulf of Mexico. The Gulf Coast operations were forecast to operate at a negative margin in the ensuing months and a post-petition financing commitment would expire soon thereafter. The Court reasoned that
although it cannot be said that the funding necessary for a plan will likely be present in the near term, this is a case where the debtor, its creditors, and its shareholders will be making key decisions necessarily and dramatically affecting the contents of a plan and the ability to reorganize.
64 B.R. at 906. Since it was not clear that, were the Idaho assets sold, the Gulf Coast Operations could be salvaged or that the Idaho assets would not contribute to the reorganization, there remained a possibility that the Idaho assets could serve as a vehicle for attracting investment capital. The consideration for the sale being insufficient to satisfy claims and depriving the estate of any possible future value, the motion was denied as premature and without good business reason.[7]
*883 Irrespective of the existence of business justification for a pre-confirmation transaction, the terms or effect of such a transaction may nevertheless threaten to subvert the protections of Chapter 11. Such a transaction was proposed in Braniff There, a debtor airline sought approval of a settlement among itself, certain unsecured creditors, and certain secured creditors. Essentially, the settlement provided for Braniff's transfer of cash, airplanes and equipment, terminal leases, and landing slots to a purchaser in return for travel scrip, secured notes, and a profit participation in the purchaser's proposed operation. The Fifth Circuit reversed the district court's affirmance of the bankruptcy court's approval under section 363(b) because certain portions of the transaction were clearly outside the scope of that section.
In particular, the Fifth Circuit held that since the purchaser would tender a $7.5 million scrip to Braniff for $2.5 million and the scrip could only be used in a future Braniff reorganization and issued to former employees, shareholders or certain unsecured creditors, the transaction "had the practical effect of dictating some of the terms of any future reorganization plan." 700 F.2d at 940. Had a plan failed to allocate the scrip in accordance with those terms, the estate would have forfeited a valuable asset. In addition, a provision requiring the secured creditors to vote a portion of their deficiency claim in favor of any future plan approved by a majority of the unsecured creditors' committee would "thwart the Code's carefully crafted scheme for creditor enfranchisement where plans of reorganization are concerned." Id. Lastly, a provision requiring release of claims by all parties against the debtor, its secured creditors, officers and directors was not a "use, sale or lease" and could not be authorized under section 363(b). Such attempts to specify the terms of a reorganization plan require "scal[ing] the hurdles" erected in Chapter 11. Id.[8]
The Fifth Circuit subsequently reaffirmed, in Continental, that a "debtor in a Chapter 11 case cannot use section 363(b) to sidestep the protection creditors have when it comes time to confirm a plan of reorganization," for to so allow would render "creditor's rights under, for example, 11 U.S.C. §§ 1125, 1126, 1129(a)(7) and 1129(b)(2), meaningless." 780 F.2d at 1227-28. It also recognized, however, that post-petition, pre-confirmation transactions outside the ordinary course may be required and that each hearing on a section 363(b) transaction cannot be a mini-hearing on plan confirmation. Id. Accordingly, the Fifth Circuit held that when an objector asserts that a transaction is a de facto plan, it must specify exactly the protection being denied. 780 F.2d at 1228. See also In re Terrace Gardens Park Partnership, 96 B.R. 707, 714, 19 Bankr.Ct.Dec. 727, 20 C.B.C.2d 1183 (Bankr.W.D.Tex.1989).[9]
*884 Applying these principles, the court in In re Copy Crafters Quickprint, Inc., 92 B.R. 973, 18 Bankr.Ct.Dec. 779, 20 C.B.C.2d 441, Bankr.L.Rep. (CCH) ¶ 72524 (Bankr.N.D.N. Y.1988), declined to approve a lease, pending approval or rejection of a disclosure statement, of the debtor's premises and personalty to a former employee in anticipation of a sale, pursuant to a plan, of its printing and copying business to the former employee. The court observed that although notice of a pre-confirmation transaction under section 363(b) could constitute a sufficient substitute for Chapter 11 safeguards, the notice in that case was insufficient. It held that since the lease would effectively put the purchaser in charge of the business, the court viewed the lease as "part of a sale which is the centerpiece of the proposed plan," and that the "approval of th[e] lease [would] effectively put the court's imprimatur on the sale and confirm the plan long before the hurdles of Chapter 11 are overcome." 92 B.R. at 983.
The same concerns are raised by pre-confirmation transactions out of the ordinary course of business not within sections 1107 and 1108.[10] The court in In re Public Service Co. of New Hampshire, 90 B.R. 575 (Bankr.D.N.H.1988), recognized as much in considering a restructuring of the debtor to transfer control and management of a nuclear plant from a division of the debtor to a separate corporation to be controlled by a board of directors representing each of the joint owners of the plant. Like this Court in Beker, it rejected the good faith business judgment standard urged by the debtor in favor of consideration of good business reasons in light of the posture of the bankruptcy case as a whole. 90 B.R. at 580-81. In denying the motion, the court stated that the
appropriate standard for approval or disapproval of a transaction [out of the ordinary course of business under sections 1107 and 1108] . . . is whether good cause has been shown to implement the transaction at this stage of the proceeding, i.e., does it have valid business reasons supporting it and does it make good sense in the overall context of the reorganization process? Phrased negatively, . . . [would] the transaction . . . improperly and indirectly lock the estate into any particular plan mode prematurely and without the protection afforded by the procedures surrounding a disclosure statement and confirmation hearing in a plan of reorganization.
90 B.R. at 581.
Pre-confirmation settlements have also been assailed as de facto plans. Flight Transportation, 730 F.2d 1128; Grant, 71 B.R. 390; Lion Capital, 49 B.R. 163. The Grant Court, however, has expressed blanket disapproval of such an argument. It focused on the distinction between new, post-petition transactions such as "use, sale or lease" of estate property under section 363(b) and settlements. It stated that were "the distinction blurred, it would be impossible for a debtor to ever resolve a controversy with a creditor with whom it had significant pre-petition contractual relations prior to the confirmation of a plan." 71 B.R. at 398. The court concluded that a contrary rule would require a debtor in a single asset case to formulate a plan within thirty days of a hearing to modify the automatic stay. See 11 U.S.C. § 362(e). The court approved the settlement, recognizing it as "an important and necessary first step for the debtor in formulating a [p]lan." Id.
Not all courts, including this Court, however, so broadly reject application of the de facto plan argument to settlements. In Flight Transportation, for example, the *885 district court approved a division of pre-petition segregated funds proposed by creditors of the debtor and representatives of purchasers of the debtor's securities having claims subordinated by section 510(b) of the Code. Recoveries from defendants other than the debtor in pending securities laws litigation, which would not have otherwise been included in the bankruptcy estate, were also to be divided between those parties. The property allocated to creditors was to constitute the bankruptcy estate against which the purchasers would release their claims. The Eighth Circuit affirmed, rejecting the claim that the settlement was a de facto plan and holding that the agreement was found to essentially be a compromise of the claim of general creditors and the constructive trust claim of the securities purchasers and not a de facto plan. Unlike the agreement proposed in Braniff, no terms of a plan were dictated, no franchise was forfeited, and there was no release by any party with an interest in the estate.
So too, in Lion Capital, did objecting creditors claim that a settlement between a trust company and a group of creditors was a de facto plan. Applying the principles articulated in Braniff, this Court found untenable the objections that the settlement impermissibly (i) allocated a fund generated by liquidation of government securities, (ii) required parties to the settlement to vote for a plan embodying its terms, and (iii) permitted only the group to share funds claimed by the trust company. Since both the trust company and the Chapter 11 trustee claimed ownership interests in the fund, division of the funds could not be viewed as payment of dividends requiring a plan. Rather, it freed up assets for the estate and permitted formulation of a plan. 49 B.R. at 177. Unlike Braniff, the settlement did not require any party to vote for a plan approved by others and hence forfeit its franchise: it simply prevented any party to the settlement from reneging in future plan considerations. Only the group had subordination claims against the trust company and it was therefore permissible under section 510(c), applicable in Chapter 11 cases, for them and the trust company to settle those claims by dividing the subject funds.
Taken together, these cases show that major pre-confirmation transactions, such as use, sale or lease of estate property under section 363(b), settlement, abandonment of property under section 554, or a transaction out of the ordinary course of business under section 1108, raise the concern that the scheme of Chapter 11 will be distorted. Consideration of such transactions is, therefore, bifurcated. The proponent of the transaction must first satisfy applicable statutory elements and judicial requirements such as a business justification for the transaction, or, in the case of settlements, satisfy the standards under applicable case law.
The applicable statutory and/or judicial standards being met, the proposed transaction will not, however, be approved as a "creeping" or de facto plan if timely objection is made that the transaction, either in fact or in effect, encroaches on a right afforded creditors or equity holders in the Chapter 11 plan process, particularized by the objector.[11] A transaction which would effect a lock-up of the terms of a plan will not be permitted. See Braniff, 700 F.2d 935; Copy Crafters, 92 B.R. at 983; PSNH, 90 B.R. at 581. On the other hand, where a transaction would free assets for distribution, Lion Capital, 49 B.R. at 177, and circumvent no Chapter 11 right, it may be approved as a necessary step toward, or building block of, a plan of reorganization. Continental, 780 F.2d at 1228; Grant, 71 B.R. at 398.
III
In all the cases discussed, it is noteworthy that the threat to Chapter 11 safeguards was found where approval was sought for a discrete and consummated *886 transaction. For example, although the term of the lease sought to be approved in Copy Crafters was only for the period prior to confirmation, it would have put the prospective purchaser in place and thereby locked the estate into a plan based on the sale of the business to the purchaser. Similarly, in PSNH, control of the nuclear power plant would have been transferred outright to a non-debtor entity prior to confirmation. No case cited by the parties or that we have found concerned an agreement that, by its terms, did not transfer control of the debtor or possession of estate property until approval of a disclosure statement and confirmation of a plan incorporating the agreement.
The instant motion seeks only authority for McCall to enter into an agreement providing a basis for a plan and to merge with another entity only if certain conditions, including entry of an order of confirmation reflecting the agreement, are satisfied. Although the Agreement would require McCall not to take certain actions that would materially change the value or character of the company as represented in the Agreement, there is proposed at the present time no consummated use, sale or lease of estate property. Unlike the cases noted above, no finality is proposed and the confirmation process is to proceed.
Because the Chapter 11 protections noted above are so strong and the need to protect them is so great, we examine the transaction, nevertheless, to see if business justification for entering into the Agreement, Lionel, has been established,[12] and whether those protections have been effectively truncated. Braniff
A
Here, it is not disputed that sale of McCall's business is appropriate. Pattern Mem. p. 4. Thus, the principal business justification for the relief sought is the need to come to binding terms with a purchaser or merged partner so that a plan can be proposed and put to the creditors of this estate. In this, it is not disputed that McCall cannot perform an act out of the ordinary course of business without court order. See 11 U.S.C. §§ 1107, 1108; PSNH, 90 B.R. 575.[13] Were McCall not authorized to perform the Agreement, Pattern makes no claim that McCall would be legally bound to perform any act in furtherance of confirming a plan incorporating the terms of the merger. See Agreement ¶ 2.4. Similarly, if McCall is not bound, Pattern makes no claim that D & S and its affiliates would nevertheless be bound and, absent court approval, the Agreement enforceable against them.
Ample business justification in this case for the proposed acts is found in the goal *887 of binding an acquiror to a conditional merger agreement in light of the long, arduous and so far unproductive history of marketing this Debtor. The four prior efforts one that failed to produce any suitors, another that did not result in an agreement, and two instances where suitors walked away underscores the business justification here. As Mr. Dimeling stated, D & S will stay around because it has posted a $2 million deposit, as required by ¶ 1.2(b)(i) of the Agreement. Tr. pp. 144-45.[14]
To Pattern, this is not enough. It argues that there is no business justification since the business is not decreasing in value, that the REI bid should be preferred to the D & S bid, and that two provisions of the Agreement precluding capital expenditures in excess of $100,000 and capping professional fees at $3 million since January 1, 1990 are not justified.
The argument regarding lack of diminishing value draws on the Lionel Court's statement that whether a major asset is losing value is perhaps the most important factor in examining a debtor's business judgment to sell a major asset pursuant to section 363(b) of the Code. 722 F.2d at 1071. It recognizes that debtors should generally be able, absent other considerations as in Beker, to sell diminishing major assets prior to confirmation. The failure to do so could deprive undersecured and unsecured creditors of a maximum dividend. The cashing out of going concern value to the detriment of equity prior to confirmation of a plan is the price equity pays for its junior status. Where, however, the asset is increasing in value, these concerns disappear and equity should be entitled to the protections of the confirmation process, including receipt of its entitlement on liquidation, if any.
Here, however, the prospects of the asset assume less significance because the transaction occurs only if a plan is confirmed. All of the Chapter 11 protections remain in place. All creditors will be able to vote. Since it will receive nothing, equity is deemed to be impaired, 11 U.S.C. § 1124, and its vote cast negatively, 11 U.S.C. § 1126(g), thereby triggering all of the protections that Congress sought to afford it.
In this case, moreover, Pattern concedes that even were the D & S offer rejected, it is highly unlikely that the business would fetch a consideration sufficient to afford a return to equity. Tr. pp. 165-66. While a plan could be envisioned that might, absent a negative vote of unsecured creditors, leave something to equity, no such plan has been proposed although the period in which the debtor had the exclusive ability to propose a plan, see 11 U.S.C. § 1121, has long expired. Moreover, the Agreement provides for an upward adjustment for increase in equity of the consideration to be paid by D & S at closing. Any increase in value of the business between now and September 30, 1990 would be preserved for the estate by an adjustment in the consideration payable by MP Holdings. Thus, the possible benefit of increasing value is preserved.
In these circumstances, the prospects of the asset carry far less weight and do not outweigh the need for a pre-nuptial agreement enabling the parties-in-interest to proceed to confirmation.
Pattern's complaint that the D & S bid should not be preferred to the REI bid also is without merit. Even were the REI bid accepted at full face value, i.e., $45 million cash and $3 million preferred stock, and even were it represented that an REI based plan could be confirmed within the same *888 time frame anticipated for confirmation of a D & S based plan, the conditional nature of the REI bid more than justifies the Committee's and Debtor's acceptance of the D & S bid in a slightly lower amount that is not so conditioned. A bid for higher monetary consideration is not necessarily higher and better if it is conditioned on obtaining a financing commitment. That McCall and the Committee weighed that condition in determining whether the REI bid was "more beneficial to the Company or its creditors than the transactions contemplated by th[e] Agreement," see Agreement ¶ 6.3 as modified by the order of April 10, is a business judgment not to be disturbed here.
Moreover, the record reflects that the current offer of D & S is economically equal to the $40 million bid price offered seven or eight months ago, given the time value of money and the professional fees incurred. Tr. p. 90. Indeed, Lewis' prior winning bid of $43 million and the REI bid, only discounted to give effect to the yield on the preferred stock portion, both lie within 3% of the D & S offer. Tr. pp. 46, 92-93, 96, 105.
Also without merit is the contention that there is no good business reason for undertaking not to make any capital expenditure greater than $100,000, Agreement ¶ 4.1(d), or to pay for professional fees related to substantial contributions to this case exceeding $3 million in the aggregate since January 1, 1990, Agreement ¶ 4.1(g). To Pattern, the approval of the break-up fee and $500,000 overbid requirement, and the closing adjustment for change in equity, provide D & S with sufficient protections. But Pattern did not negotiate the Agreement and the Court is not to second guess the inclusion of some provisions as long as the Agreement as a whole is within reasonable business judgment, and the subject provisions do not distort the balance Congress struck in Chapter 11. Cf. In re Ames Dep't Stores, Inc., Eastern Retailers Service Corp., et al., 115 B.R. 34, 37-38 (Bankr.S.D.N.Y.1990) (courts, in passing upon arrangements for post-petition financing under section 364(b)-(d), consider, inter alia, whether the terms would tilt the conduct of the bankruptcy case in a manner inconsistent with Chapter 11, or merely reflect a debtor's business judgment). In addition, those provisions are justified by the need to attract a prospective investor by ensuring that the condition of the business will not substantially differ at closing from that at the time of execution of the Agreement. They simply require McCall to obtain the consent of MP Holdings prior to incurring expenditures. The sums are not unreasonably low. Agreement to them is hardly a breach of fiduciary duty as Pattern claims.
Thus, although the Committee has taken a major role in structuring the proposed transaction with D & S, the Agreement falls well within reasonable business judgment and is justified by more than the Committee's mere insistence. The pressing need in this case to hold a purchaser so that a plan can be considered amply justifies authorizing the Debtor to enter into the Agreement.
B
Nor can it be said that the Agreement amounts to a de facto plan subverting the protections that Congress crafted in the Chapter 11 confirmation process. Pattern does not identify any protections that would be denied. The Agreement does require cancellation of outstanding stock, but it makes no contention that equity is entitled to any return. Tr. pp. 165-66. Recital C does set forth certain requisite basic elements of a plan. But those elements are elementary and limited to the bare elements of the proposed merger. Dependent as it is on confirmation of a plan, the Agreement does not deprive any party-in-interest of its franchise rights.
Instead, Pattern principally asserts that the Agreement will have the practical effect of precluding a competing transaction and thereby "lock up" a plan. To this it adds the notion that the Agreement's contemplation of the assignment of certain causes of action to creditors constitutes a de facto plan.
*889 Pattern's "lock up" argument is grounded on two provisions of the Agreement: paragraph 6.3 which would bar the debtor from continuing to market the company and willingly assisting a competing offer for four months; and Recital C which sets forth certain requisites that must be provided in a plan. In constricting the debtor from continuing to market the company and assisting a competing offer, paragraph 6.3 is claimed to chill competing bids and alternative plans of reorganization, thereby ensuring the success of the D & S proposal. Paragraph 6.3, however, also enables any bidder seeking access to books and records to obtain an order from this Court enabling access. Since the Debtor's exclusive right to file a plan under section 1121 of the Code has been terminated, a competing plan may be filed at any time up to confirmation. Thus, it can hardly be said that the Agreement bars competing plans.
To be sure, provisions such as these may deter other bidders somewhat in view of the difficulty in securing acceptance of non-consensual plans. But such limited deterrence is often necessary to bring prospective bidders to the table with serious bids. In In re United States Lines, Inc., Case Nos. 86B-11138-41, the case stalled for six months to the detriment of creditors while prospective bidders hovered on the sidelines. Not until this Court entered an order structuring a bidding process, similar to that established by boards of directors in private transactions, providing for a firm date by which bids, subject to confirmation of a plan, were to be submitted, and further providing that none would be accepted thereafter, was the debtor able to negotiate a contract with one bidder and other bids were made. Rather than preclude Chapter 11 creditor rights, the order enabled them to be exercised with respect to a plan the debtor had been unable to formulate without the order.
The same has occurred here in this case of four previous failures to attract and finalize a proposal to fund a plan. The limited detriment of preventing further marketing of the company for four months, and the Agreement's provision for upward adjustment of the purchase price in the event of an increase in the value of the business are reasonable and serve to protect creditors. Rather than deprive parties-in-interest of their rights, the Agreement protects their investment through enabling the formulation of a plan when four prior attempts have been frustrated. The creditor body should not be asked to be disappointed again. D & S' posting of $2 million if the Debtor is bound to the limited extent provided in the Agreement lowers that risk and improves the chances for a plan in this case.
Nor can it be said that Recital C in any way limits or distorts Chapter 11 rights and protections. It merely provides that the plan provide for the merger contemplated, that trade and certain debts of up to $3.62 million are to be assumed and paid in full on closing and that other debt, much of which is contractually subordinate, is to receive the proceeds and recoveries of outstanding litigation. Although this outline is assailed by Pattern as contrary to the Fifth Circuit's holding in Braniff, it bears little if any resemblance to the transaction at issue there. In Braniff, a proposed sale and lease would have committed the debtor to distribute illiquid scrip to certain creditors. The transaction would have dictated the consideration those creditors would receive under plan. Authorizing McCall to perform acts toward confirmation of a plan providing for such assignment does not, however, have the practical effect of binding creditors to such a provision. Here, no transaction is to occur until and unless a plan is confirmed. Assigning creditors the proceeds of litigation in a plan simply distributes the current assets of the company. Although such rights may be of uncertain value, the creditors will have an opportunity to assess their value and to accept or reject the assignment and all other plan provisions with all the protections afforded by Chapter 11.
Also contended is that by requiring MP Holdings to approve all aspects of the plan, the Agreement impermissibly grants D & S the dominant voice in plan negotiations and tips the balance of Chapter 11. As noted above, see n. 14, New York law prohibits MP Holdings from passing upon these documents in bad faith. MP Holdings could *890 not, in good faith, pass upon inter-creditor issues. Moreover, its power to disapprove plan provisions appears to be restricted to those not in conformity with Recital C of the Agreement and related provisions, designed to provide for the merger and discharge of debt that MP Holdings is agreeing to pay for in funding a plan. The goal of encouraging a consensual plan and the protections of Chapter 11 are hardly subverted by granting relief here.
Thus, this motion is completely different from that before the court in Copy Crafters. There, the proposed lease of the business to the prospective buyer had the practical effect of a lock-up of the business without the protections of Chapter 11. Here, although the merger would be the centerpiece of the plan to be proposed, the Debtor remains independent and intact, and MP Holdings is not installed prior to creditors casting their ballots and confirmation standards being met.
Rather this case bears more resemblance to Flight Transportation, and Lion Capital where settlements freeing assets for the estate were approved. Here, a prospective investor is agreeing similarly to provide value if the Debtor reorganizes. Indeed, such a building block is less intrusive than settlements because it is conditioned on confirmation.
In sum, the Agreement is amply supported by good business reasons and is not a de facto plan. It is a step necessary to achieve a plan. The motion is to be granted.[15] The foregoing constitutes this Court's findings of fact and conclusions of law.
Settle order.
NOTES
[1] The motion originally sought, in addition, an order providing that a deposit, to be paid pursuant to the Agreement, be held in trust and approving provisions of the Agreement regarding competing transactions, including "break-up" fees. An order granting partial relief was entered after a hearing on April 10, 1990, as described below.
[2] Unless otherwise indicated herein, "Tr." refers to the transcript of the hearing of May 8, 1990, and "Ex." refers to exhibits offered into evidence at that hearing.
[3] At the May 8, 1990 hearing, however, the parties to the Agreement acknowledged that the transaction was not contingent on retaining current management. Tr. pp. 30-31. Thus the provision calling for termination upon appointment of a Chapter 11 trustee was struck from the Agreement on consent. Tr. pp. 31-32.
[4] The Court received from counsel to Debtor a letter dated June 1, 1990 alluding to a modified bid from REI dated May 25, 1990, the Debtor's response thereto, and a confidentiality agreement executed by REI and E & Y. Since none of these items was made a part of the record on this motion, nor served on Holdings, they are not considered.
[5] Section 363(b)(1) provides that "[t]he trustee, after notice and a hearing, may use, sell or lease, other than in the ordinary course of business, property of the estate." 11 U.S.C. § 363(b)(1).
[6] The Lionel Court prescribed the following factors to consider in determining whether business justification exists:
the proportionate value of the asset to the estate as a whole, the amount of elapsed time since the filing, the likelihood that a plan of reorganization will be proposed and confirmed in the near future, the effect of the proposed disposition on future plans of reorganization, the proceeds to be obtained from the disposition vis-a-vis any appraisals of the property, which of the alternatives of use, sale or lease the proposal envisions, and perhaps most importantly, whether the asset is increasing or decreasing in value.
722 F.2d at 1071. See also Stephens Indus., Inc. v. McClung, 789 F.2d 386, 389-90, 14 C.B.C.2d 1298, Bankr.L.Rep. (CCH) ¶ 71113 (6th Cir. 1986); In re Brethren Care of South Bend, Inc., 98 B.R. 927 (Bankr.N.D.Ind.1989); In re Indus. Valley Refrig. & Air Cond. Supplies, Inc., 77 B.R. 15 (Bankr.E.D.Pa.1987); In re Beker Indus. Corp., 64 B.R. 900, 905-07, 14 Bankr.Ct.Dec. 1238 (Bankr.S.D.N.Y.1986), rev'd in part on other grounds, 89 B.R. 336 (S.D.N.Y.1986) (adopting and/or applying the factors enumerated in Lionel).
[7] It was also noted in Beker, 64 B.R. 900, that pre-confirmation abandonment of estate property under § 554 raises the concern of de facto plans. Section 554(a) provides that "[a]fter notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate." 11 U.S.C. § 554(a). Thus this Court stated in Beker, that while the express requirements of § 554(a) are generally sufficient to justify abandonment in Chapter 7 which seeks expeditious liquidation of assets for distribution, they inadequately address Chapter 11's goals of reorganizing the business and providing jobs for employees, payment to creditors, and return to shareholders. Because abandonment would entitle a secured creditor to foreclose upon the property, the stay no longer being in effect as to that property, 11 U.S.C. § 362(a), abandonment effectively disposes of estate property without the benefit of procedures for plan confirmation. Creditors and shareholders, therefore, are entitled to articulation of a good business reason for pre-confirmation abandonment. Saving maintenance costs was not enough in view of the Court's holding that maintenance could be recovered under § 506(c) of the Code.
[8] See also In re Fremont Battery Co., 73 B.R. 277, 15 Bankr.Ct.Dec. 1222 (Bankr.N.D.Ohio 1987) (proposed sale of substantially all of debtor's personalty with proceeds to satisfy a single secured creditor or, in the alternative, exchange of such assets for stock of company which would assume the debtor's net operating loss carry-over, not approved under § 363(b), there being no business justification: a single secured creditor would benefit, the carryover was not depreciating, and no asset would be left around which to reorganize. Such was an abuse of Chapter 11 and its practical effect was to dictate the terms of a plan and "restructure the debtor-creditor relationship." 73 B.R. at 219.
[9] Some courts have considered relevant in addressing the de facto plan argument whether a debtor intends to file a liquidating plan. See, e.g., Flight Transportation, 730 F.2d at 1135 and In re Naron & Wagner Chartered, 88 B.R. 85, 18 Bankr.Ct.Dec. 18 (Bankr.D.Md.1988) (where debtor intended to propose a liquidating plan, sale of all assets remaining in its non-viable accounting practice approved under § 363(b) in light of depreciating value of assets, threat of employees to leave, consideration in excess of liquidation value, and lack of harm to parties-in-interest except for insider creditors, the sale not restructuring rights of creditors and there being no other objection that Chapter 11 protections were circumvented).
[10] Section 1108 provides that "[u]nless the court, on request of a party in interest and after notice and a hearing, orders otherwise, the trustee may operate the debtor's business." 11 U.S.C. § 1108. Pursuant to § 1107, ". . . a debtor in possession shall have all the rights . . . and powers, and shall perform all the functions and duties . . . of a trustee serving in a case under this chapter." 11 U.S.C. § 1107(a).
[11] Where business justification is shown for a transaction under § 363(b) and yet the transaction threatens a denial of such a right, the bankruptcy court may consider "fashioning appropriate protective measures modelled on those which would attend a reorganization plan." Continental, 780 F.2d at 1228.
[12] Because McKane Robbins has alleged in a separate lawsuit that the Debtor's management attempted to leverage its position through self-dealing in the previously proposed McKane Robbins transaction, Pattern contends that the standard of strict scrutiny requiring proof of not only the good faith of the transaction, but its inherent fairness from the viewpoint of the corporation and interested parties, Pepper v. Litton, 308 U.S. 295, 306, 60 S. Ct. 238, 245, 84 L. Ed. 281 (1939), is to be applied. No proof supporting that allegation is contained in this record. MP Holdings' obligations under the Agreement, moreover, are not dependent on management contracts. The evidence on this record indicates that management has not exacted a price for its participation. The employment contracts with D & S are to be contingent on confirmation and provide for compensation roughly equal to current compensation.
[13] Section 363(b) is not applicable for lack of a consummated transaction. Nevertheless, citing Command Performance Operators, Inc. v. First Int'l Services Corp. (In re First Int'l Services Corp.), 25 B.R. 66, 9 Bankr.Ct.Dec. 889, 7 C.B.C.2d 297 (Bankr.D.Conn.1982), Pattern asserted in its initial objection that the transaction is a sale of stock governed by § 363(b). In its memorandum, Pattern applied the standards under that section. In First Int'l, however, the bankruptcy court denied a motion for approval of certain agreements providing for sale by stockholders of stock issued by the debtor in consideration for consulting assignments with the corporation and indemnification by the corporation from certain claims, because, inter alia, the stock was "so inextricably related to the property of the debtors' estates," § 363(b) required notice and hearing prior to such transfers. 25 B.R. at 70. Here, the stockholders of McCall do not propose to sell their equity interests. Even were they to propose such a sale, the reasoning of First Int'l is questionable since such stock clearly would not appear to be property of the estate, but that of the stockholders.
[14] Although the agreement provides that the disclosure statement, plan, and order of confirmation shall be satisfactory to MP Holdings, the Agreement is not illusory. New York law, made applicable by ¶ 6.7 of the Agreement, provides that provisions such as these do not render a contract illusory because a party such as MP Holdings undertakes to "act reasonably and fairly and found his determination upon grounds which are just and sensible and therefore, a necessary implication arises that the correctness of his decision and adequacy of the grounds therefor are subject to the judgment of judicial triers." 22 N.Y. Jur.2d Contracts § 294 (1982 & Supp.1989). Indeed, these provisions are common, employed to protect a funder of a plan through the funder's insistence that the documents comply with the Bankruptcy Code and also accord with the contract.
[15] In its post-hearing memorandum, Pattern contends that the Committee should be estopped from moving for approval of the Agreement which represents and warrants the fair presentation by certain financial statements provided MP Holdings. It is claimed that The Travelers Insurance Company, which chairs the Committee, charges, in litigation pending in district court, certain defendants with providing documents in the same form which were materially false and misleading and induced Travelers to purchase its $35 million debt position. No evidence supporting this contention was adduced at the hearing. The financial statements referred to were not offered into evidence. Pattern's claim that Travelers and the Committee cannot maintain these inconsistent positions is not sustained on this record. Furthermore, even were the Committee estopped, the Debtor has joined in the request for relief. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535683/ | 105 N.J. 285 (1986)
520 A.2d 1341
JUDY COLEMAN, PETITIONER-RESPONDENT,
v.
CYCLE TRANSFORMER CORP., RESPONDENT-APPELLANT.
The Supreme Court of New Jersey.
Argued May 13, 1986.
Decided November 14, 1986.
*286 George J. Kenny argued the cause for appellant (Connell, Foley & Geiser, attorneys; Frank A. Lattal, on the brief).
David S. Sussman argued the cause for respondent (Ralph B. Sussman, attorney).
The opinion of the Court was delivered by CLIFFORD, J.
In this workers' compensation case the judge of compensation dismissed the claim petition because "the accident did not arise out of the employment * * *." The Appellate Division, in an unreported opinion, reversed and remanded on the strength of Chen v. Federated Dep't Stores, 199 N.J. Super. 336 (App. Div. 1985). We granted certification, 102 N.J. 399 (1986), to review that determination. We reverse.
I
On December 21, 1983, petitioner, Judy Coleman, was employed as an inspector-tester by respondent, Cycle Transformer Corporation (Cycle). As was her custom she had lunch, which she had brought with her from home, in the lunchroom set aside by her employer on its premises for that purpose. The dining area was not an elaborate facility: it contained only tables, chairs, a coffee and soda machine, and a refrigerator. *287 The employer neither served nor provided any food. Petitioner, who was free to dine on or off the premises, was not paid for her half-hour lunch break. It was after she had finished her lunch that petitioner experienced a bizarre mishap, which she described as follows:
I was done eating. I went to light a cigarette. I struck the match and as I went to turn my head to the right to talk to one of my co-workers, you know, the tip of my hair caught the match and my hair went up in flames.
* * * * * * * *
[A] couple of the co-workers there beat out the fire, put the fire out. Once the fire was out I I had this chemical on my hair. I had a new growth of hair underneath, so the hair burned down so much and then burned out, the fire went out with them beating it.
The chemical to which petitioner referred was actually two products one, called S Curl Activator, is "something like a perm" and had been applied by a beauty parlor some five months previously; the other, Stay Soft Flow Activator, had been put on by petitioner that morning, to "keep the curl in [her] hair in place." Although we gather that petitioner has brought suit against the manufacturers of those products, their role, if any, in causing the accident or injury is not evidenced by this record. We therefore attach no significance on this appeal to the presence of those preparations.
Petitioner's workers' compensation claim sought benefits for facial and head burns, scarring, and neuropsychiatric and dermatological disabilities. Judge McNatt concluded that the accidental touching of a lighted match to the petitioner's hair by the petitioner's own hand was not "reasonably incidental" to her employment. He concluded: "Neither the tasks of her employment, nor the place where she was eating her lunch at the time, nor any act on the part of any of her co-employees caused her injury," and therefore "the accident did not arise out of" the employment.
On appeal, the Appellate Division read Chen v. Federated Dep't Stores, supra, 199 N.J. Super. 336, to hold "unequivocally" that "injuries occurring on the employer's premises during *288 a regular lunch hour arise in the course of employment and are solely remediable under the Workers' Compensation Act." Because the court below viewed the facts in this case as "legally indistinguishable" from those in Chen, in which plaintiff was injured while shopping on her employer's premises during a lunch break, it concluded that Chen was "dispositive" and held that "Coleman's injuries in this case arose out of and in the course of employment." The Appellate Division therefore reversed and remanded to the Division of Workers' Compensation for a determination of the nature and extent of disability.
II
Dean Larson reminds us that "[t]he heart of every compensation act, and the source of most litigation in the compensation field, is the coverage formula." 1 A. Larson, Workmen's Compensation Law, § 6.10 (1985) (hereinafter Larson). New Jersey, like most other states, adopted its formula from the British Compensation Act, with its requirement of "accident arising out of and in the course of employment." Larson, supra, at § 6.10. Our Workers' Compensation Act, N.J.S.A. 34:15-1 to -127, provides in pertinent part:
When employer and employee shall by agreement, either express or implied, * * * accept the provisions of this article compensation for personal injuries to * * * such employee by accident arising out of and in the course of employment shall be made by the employer without regard to the negligence of the employer * * *.
[N.J.S.A. 34:15-7 (emphasis supplied).]
According to Dean Larson, "[f]ew groups of statutory words in the history of law have had to bear the weight of such a mountain of interpretation as has been heaped upon this slender foundation." Larson, supra, at § 6.10.
The task of construction is made easier by breaking the phrase "in half, with the `arising out of' portion construed to refer to causal origin, and the `course of employment' portion to the time, place, and circumstances of the accident in relation to the employment." Ibid; see Rafferty v. Dairymen's League *289 Coop. Ass'n, 16 N.J. Misc. 363 (Dep't of Labor, Workmen's Comp. Bureau 1938):
The words "out of" relate to the origin or cause of the accident; the words "in the course of," to time, place and circumstances under which the accident takes place. The former words relate to the character of the accident, while the latter words relate to the circumstances under which the accident takes place. An accident comes within the latter words if it occurs while the employee is doing what a man so employed may reasonably do within a time during which he is employed and at a place where he may reasonably be during the time to do that thing. The accident, in order to arise "out of" the employment, must be of such nature the risk of which might have been contemplated by a reasonable person when entering the employment, as incidental to it. A risk is incidental to the employment when it belongs to or is connected with what a workman has to do in fulfilling his contract of service.
[Id. at 366.]
As Dean Larson cautions, even though each test must be "independently applied and met[,] * * * it should never be forgotten that the basic concept of compensation coverage is unitary, not dual, and is best expressed in the term `work connection.'" Larson, supra, at § 6.10.
III
The burden of construction is eased somewhat in this case, for we do not discern a difficult problem in respect of the "in the course of" component of the formula. We need pause on it only long enough to observe that our law on this point is well settled: "[a]n employee need not actually be working in order to meet the `course of employment' test." Mikkelsen v. N.L. Indus., 72 N.J. 209, 212 (1977). The court in Mikkelsen cited with approval a line of New Jersey cases that have extended the protection of the Workers' Compensation Act to "injuries sustained within the scope of the work-period and the work-place while the employee was engaged in personally motivated, but customary, or reasonably expectable activities." Ibid. Here, petitioner's injuries were sustained on the employer's premises and during a regular lunch hour, circumstances that have long been held to fall within the course of employment. See Chen v. Federated Dep't Stores, supra, 199 N.J. Super. at 338, and authorities cited there. The mishap was *290 occasioned by petitioner's smoking a personally-motivated activity, to be sure, but one that was customary and reasonably to be expected. See Secor v. Penn Serv. Garage, 19 N.J. 315, 321 (1955) (injuries that occur during minor deviations such as smoking are generally sufficiently related to employment as not to be barred by the "in the course of" requirement); Larson, supra, at § 21.40 ("practically all cases hold that smoking does not constitute a departure from the employment * * *."). Hence, petitioner was "in the course of" her employment when the accident occurred.
IV
The more substantial question is whether petitioner's accident "arose out of" her employment. This simply worded phrase has given rise to "a mass of decisions turning upon nice distinctions and supported by refinements so subtle as to leave the mind of the reader in a maze of confusion." Note, "Arising `out of' and `in the Course of' the Employment Under the New Jersey Workmen's Compensation Act," 20 Rutgers L.Rev. 599 (1966) (hereinafter Note) (quoting Herbert v. Samuel Fox & Co., [1916] 1 A.C. 405, 419). We view this appeal, however, as relatively straightforward, not encumbered by such distinctions, refinements, or confusion.
The requirement that a compensable accident arise out of the employment looks to a causal connection between the employment and the injury. It must be established that the work was at least a contributing cause of the injury and that the risk of the occurrence was reasonably incident to the employment. Note, supra, 20 Rutgers L.Rev. at 601. Although a number of tests have been devised for determining the requisite connection, see Larson, supra, at §§ 6.20 to 6.60, the "but for" or positional-risk test is now a fixture in New Jersey law. E.g., Howard v. Harwood's Restaurant Co., 25 N.J. 72, 82 (1957). Essentially, that test asks "whether it is more probably true than not that the injury would have occurred *291 during the time and place of employment rather than elsewhere." Id. at 83. Unless it is more probable that the injury would not have occurred under the normal circumstances of everyday life outside of the employment, the necessary causal connection has not been established. Ibid.
The "but for" or positional-risk doctrine includes as one of its components the nature of the risk that causes injury to the employee. Those risks that are "distinctly associated" with the employment are easy to identify: they include
all the obvious kinds of injury one thinks of at once as "industrial injury." All the things that can go wrong around a modern factory, mill, mine, transportation system or construction project machinery breaking, objects falling, explosives exploding, tractors tipping, fingers getting caught in gears, excavations caving in and so on are clearly in this category and constitute the bulk of what not only the public but perhaps also the original draftsmen of compensation acts had in mind as their proper concern.
[Larson, supra, at § 7.10, quoted in Howard v. Harwood's Restaurant Co., supra, 25 N.J. at 84.]
New Jersey recognizes a second category of risks those described as "neutral." Howard v. Harwood's Restaurant Co., supra, 25 N.J. at 84. Neutral risks have been defined as "uncontrollable circumstances" and "do not originate in the employment environment" but rather "happen to befall the employee during the course of his employment." Ibid.; see also Larson, supra, at § 6.50 (neutral risks are "neither personal to the claimant nor distinctly associated with the employment."). As common examples of neutral risks the Howard opinion offers "acts of God, such as lightning," and the fallen arrow in Gargiulo v. Gargiulo, 13 N.J. 8 (1953).[1] In Gargiulo, *292 an employee, while at work in the back yard of his employer's store, was injured when struck by an arrow that a neighborhood boy had shot in the general direction of a tree on the employer's property. The employee received compensation because "but for" the employment, he would not have been in the line of fire and therefore would not have been hit. Id. at 13.
In addition to the risks "distinctly associated" with the employment and the "neutral" risks there is a third category of risks those personal to the employee. Risks falling within this classification do not bear a sufficient causative relationship to the employment to permit courts to say that they arise out of that employment. Howard v. Harwood's Restaurant, supra, 25 N.J. at 84; Larson, supra, at § 7.20. As this Court said in Howard, "[i]n these situations, the employment connection with the injury is minimal; it is the personal proclivities or contacts of the employee which gives rise to the harm, so that even though the injury takes place during the employment, compensation is denied." 25 N.J. at 85.
For reasons that will appear, we conclude that petitioner's case falls into this last category.
V
The principles in the foregoing section, although easily articulated, have not lent themselves to consistent ease of application. See generally Note, supra, 20 Rutgers L.Rev. at 601-03 (discussing "troublesome" cases under the "arising out of" requirement). The cases involving idiopathic falls those brought on by a purely personal condition unrelated to the employment, such as a heart attack or epileptic seizure illustrate the point. See, e.g., George v. Great Eastern Food Prods., Inc., 44 N.J. 44 (1965); Henderson v. Celanese Corp., 16 N.J. 208 (1954); Reynolds v. Passaic Valley Sewerage *293 Comm'rs., 130 N.J.L. 437 (Sup.Ct. 1943), aff'd o.b., 131 N.J.L. 327 (E. & A. 1944).
In Reynolds the employee, a watchman, suffered an epileptic seizure, which caused him to fall against a small pot stove in a shanty furnished by the employer, as a result of which his face was seared by the hot stove. Both the Compensation Bureau and the Common Pleas Court found as a fact that "the cause of the petitioner's face coming in contact with the stove was not * * * his tripping over the chair in the shanty or other like occurrence but was * * * an epileptic seizure which he suffered and which was unconnected with his employment." 130 N.J.L. at 440. On appeal the Supreme Court applied the "sound rule" that "whenever conditions attached to the place of employment or otherwise incident to the employment are factors in the catastrophic combination, the consequent injury arises out of the employment." Id. at 443. The record disclosed that "[t]he pot stove was furnished by the employer" and "[t]he thing that occurred was connected with the service the employee had to perform in fulfilling his contract * * *." Id. at 441-442. Therefore, "the use of the shanty, with the pot stove, was incidental to his employment." Id. at 442. The Supreme Court concluded that the accident arose out of the employment, ibid, a conclusion adopted by the Court of Errors and Appeals, 131 N.J.L. 327.
In Henderson v. Celanese Corp., supra, 16 N.J. 208, the petitioner-employee again experienced an epileptic seizure, as a result of which he fell. Unlike the employee in Reynolds, however, Henderson struck nothing on his way down. He simply fell unimpeded to the concrete floor. This Court held that the accident did not arise out of the petitioner's employment, and differentiated Reynolds on the basis that the concrete floor was neither one of the conditions attached to the place of employment nor, in the language of Reynolds, a factor in the "catastrophic combination." Id. at 212. The Court concluded that it was just as probable that the same injury would have occurred outside of the employment, id. at 214. A *294 minority of the Court would have awarded compensation because "the accidental injury here was attributable in a substantial part to one of the conditions of employment, the concrete floor * * *." Id. at 215.
The view of the Henderson dissenters ultimately prevailed in George v. Great Eastern Food Prods., Inc., supra, 44 N.J. 44. There the employee's fall, in which he suffered a fractured skull that later caused his death, originated in a cardiovascular condition. Id. at 45. Again, as in Henderson, the employee struck nothing until his head hit the level concrete floor. Ibid. The Court, however, found little rational support for Henderson's distinction between those falls that involved striking a machine or a table on the way down and those in which the fall was directly to a concrete floor. Id. at 47. "Either no consequence of an idiopathic fall should bring compensability or the nature of the result alone should be looked to as the determinant." Ibid. In allowing recovery the Court overruled Henderson and held that an accident arises out of the employment "when it is due to a condition of the employment i.e., a risk of this employment * * *." The petitioner's impact with the concrete floor "clearly [met] that test." Id. at 48.
The same cannot be said of the accident and injury in the case before us. No condition of the lunchroom played any role, in petitioner Coleman's setting her hair on fire or in the nature and extent of her injury. No employment-related instrumentality, such as the stove in Reynolds, supra, 130 N.J.L. 437, or the concrete floor in Henderson, supra, 16 N.J. 208, and George, supra, 44 N.J. 44, influenced the occurrence itself or the nature and extent of the resultant injury. Unlike Gargiulo, supra, 13 N.J. 8, in which the requirements of the employee's task took him into the line of fire of an errant arrow, no circumstances of this petitioner's employment was causally related to the unhappy introduction of match to hair. The fact that the accident happened while she was on her employer's premises was the sheerest happenstance, wholly insufficient to supply the necessary nexus between the employment and the accident.
*295 To hold otherwise would be to equate an "incident of employment" with a coincidence. There is not the slightest suggestion that it is more probable that the accident would not have occurred under the normal circumstances of everyday life outside of the employment, or that if it had occurred at, say, petitioner's home or in a public restaurant's smoking section or in any of the various other places that those who choose to smoke are still permitted to do so, the resultant injury would somehow have been less severe. See Howard v. Harwood's Restaurant Co., supra, 25 N.J. at 83. Quite simply, it was the respondent's personal proclivity for smoking, coupled with an unfortunate bit of inattention, that produced the harm. See Howard, supra, 25 N.J. at 85. That the harm was encountered in the course of petitioner's employment serves to satisfy only the first part of the test; the arising out of requirement cannot be met in the circumstances presented by this record.
The so-called "smoking" cases are consistent with our analysis and with the result on this appeal. In Secor v. Penn Serv. Garage, supra, 19 N.J. 315, the petitoner, a garage attendant, spilled gasoline on his work clothes while performing his employment duties. According to petitioner, when he lit a match preparatory to lighting a cigarette, his clothes burst into flames and he was injured. This Court held that the accident arose out of the petitioner's employment: "The spilling of gasoline on his clothes was a risk incident to his employment and but for its occurrence Secor would not have been injured * * *." Id. at 323. In Steel Sales Corp. v. Industrial Comm'n, 293 Ill. 435, 127 N.E. 698 (1920), the accident arose out of employment when petitioner's clothing, coated with oil from his job, caught fire when matches in his pocket were lit by petitioner's bumping into a locker. In Hill-Luthy v. Industrial Comm'n, 411 Ill. 201, 103 N.E.2d 605 (1952), however, compensation was denied when petitioner, while engaged in his employment of driving a truck, attempted to light a cigarette and the match head flew off into his eye. The Supreme Court of Illinois concluded that "[t]he use of matches or the act of smoking was in no way *296 incidental to the employment. The risk encountered was entirely divorced from it, and was one to which the general public is equally exposed while performing such acts in homes or elsewhere for personal enjoyment and comfort." Id. at 202, 103 N.E.2d at 606. The result in each of the foregoing was determined by the presence or absence of a risk of the employment or a condition thereof but for which the accident would not have happened oily clothes, gasoline, matches striking an employee locker an element that is essential to an award of compensation but one that is entirely absent from this case. But see Puffin v. General Elec. Co., 132 Conn. 279, 43 A.2d 746 (1945) (divided court held dangers of smoking while wearing fluffy angora sweater to be incident of employment).
There remains only the need to address Chen v. Federated Dep't Stores, supra, 199 N.J. Super. 336. Unlike the court below, we do not find Chen dispositive of the instant appeal. Indeed, if Chen is of any pertinence, it is only in the limited sense that the case involves the issue of whether the Workers' Compensation Act was the exclusive remedy for an employee who sustained an accident during her lunch break while shopping on her employer's department store premises, when she tripped over a clothes hanger that lay on the floor. Plaintiff, seeking to bring a civil action against her employer, argued that the employment relationship had been severed by reason of the fact that she was shopping at the time of the accident. In affirming summary judgment for the store-employer, the Appellate Division concluded that nothing in the 1979 amendments to the Workers' Compensation Act, which contain a "new definition of travel to and from work in most circumstances." 199 N.J. Super. at 338, affected the compensability of on-premises lunchtime injuries. Here is the heart of the opinion:
The occasion of plaintiff's shopping at Abraham & Straus was her employment there. It was convenient for her and beneficial to her employer. No doubt, lunchtime shopping was encouraged by the employer, perhaps even by the allowance of price discounts. An injury in these circumstances was ruled compensable in Wilson v. Sears Roebuck & Co., 14 Utah 2d 360, 384 P.2d 400 (1963). In our view, lunchtime shopping is an on-premises activity that benefits the employer and should not militate against compensability.
*297 [Ibid.]
Nowhere does Chen approach the "arising out of employment" issue on which the instant appeal hinges; indeed, that critical phrase is not to be found in the Chen opinion, and nothing in that opinion suggests that the issue that engages our attention here was raised there, even tangentially. We have no reason on this appeal, therefore, to disturb Chen's holding.
VI
The judgment of the Appellate Division is reversed, and the judgment of the Division of Workers' Compensation in favor of respondent-appellant is reinstated.
For reversal Chief Justice WILENTZ, and Justices CLIFFORD, HANDLER, POLLOCK, O'HERN, GARIBALDI and STEIN 7.
Opposed none.
NOTES
[1] Dean Larson observes that
[i]llustrations of [neutral risk] may be drawn from a wide variety of controversial cases. A man hard at work in the middle of a factory yard may be hit by a stray bullet out of nowhere, bit by a mad dog, stabbed by a lunatic running amuck, struck by lightning, thrown down by a hurricane, killed by enemy bomb, injured by a piece of tin blown from someone's roof, shot by a child playing with an air rifle, murdered as a result of mistaken identity, felled by debris from a distant explosion, or blinded by a flying beetle.
[Larson, supra, at § 7.30.] | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535687/ | 114 B.R. 317 (1990)
In re The NEW 5510, INC., t/a Swiss Cafe, Debtor.
Betty JETTMAR, Plaintiff,
v.
The NEW 5510, INC., t/a Swiss Cafe and Madison National Bank, Defendants.
Bankruptcy No. 89-00249, Adv. No. 89-0073.
United States Bankruptcy Court, District of Columbia.
April 2, 1990.
*318 Russell J. Gaspar, Washington, D.C., for plaintiff.
Loren L. Chumley, Washington, D.C., for defendants.
DECISION REGARDING MOTIONS FOR JUDGMENT ON THE PLEADINGS
S. MARTIN TEEL, Jr., Bankruptcy Judge.
Plaintiff Betty Jettmar ("Jettmar") has sued for a determination that her lien on certain assets of The New 5510, Inc., ("the Corporation") takes priority over the later-filed lien of Madison National Bank ("Madison"). The Court determines that Jettmar's lien was unperfected for failure to list the Corporation as debtor on Jettmar's financing statement and must be avoided under 11 U.S.C. § 544(a)(1). Accordingly, Jettmar has no lien which she may assert and her adversary proceeding shall be dismissed.
I
PROCEDURAL BACKGROUND
The Court has under consideration the "Motion of Defendant Madison National *319 Bank for Judgment on the Pleadings,"[1] "Plaintiff's Cross-Motion for Judgment on the Pleadings,"[2] "Defendant The New 5510, Inc.'s Motion for Judgment on the Pleadings," the memoranda in support of the motions, and the oppositions thereto.
The Corporation operated a restaurant on premises at 5510 Connecticut Avenue, N.W., in Washington, D.C., leased from Gertrude H. Parker and Edith P. Frick. In the Corporation's chapter 11 case the Court approved a sale of its assets to Parthenon, Inc., for $120,000.00. Jettmar seeks to establish that she has a lien on the portion of those sale proceeds derived from the sale of the Corporation's leasehold interest and fixtures. Jettmar insists that her lien therein takes priority over Madison's allegedly unperfected lien. Jettmar concedes that her lien in the Corporation's equipment and furniture was not perfected and concedes the priority of Madison's lien on the proceeds of those assets. If Jettmar's positions are correct, the assets sold to Parthenon would have to be valued and the proceeds apportioned between Madison's lien on the furniture and equipment and Jettmar's lien on the leasehold interest and fixtures.
The Corporation seeks entry of an order declaring that Jettmar does not have an enforceable security interest in the proceeds of the collateral at issue. Alternatively, the Corporation seeks a determination that Jettmar's interest, if any, is unperfected and hence is both junior to the security interests of Madison and avoidable by the Corporation as a hypothetical judgment lien creditor under 11 U.S.C. § 544(a).
II
FACTS
Jettmar is the former sole shareholder of the Corporation. In 1986 Jettmar sold her entire interest in the common stock of the Corporation to Charles Reichmuth ("Reichmuth") pursuant to a written agreement.[3] Reichmuth was then apparently president of the Corporation. See Exhibit 1 to plaintiff's opposition (Docket Entry No. 13) to the Corporation's motion. In connection with the sale Reichmuth signed a promissory note secured by a Security Agreement executed by Reichmuth, as debtor. Through the Security Agreement Reichmuth attempted to grant a security interest to Jettmar in certain collateral including the "[l]easehold interest on restaurant premises at 5510 Connecticut Avenue, N.W., Washington, D.C., which includes the following: [list of fixtures and equipment]." The Corporation is not mentioned in the Security Agreement.
Jettmar filed a financing statement covering the assets described in the Security Agreement. On that financing statement under the heading "Name(s) of Debtor(s) or assignor(s)" appears "Charles F. Reichmuth of 4601 North Park Avenue, Chevy Chase, Maryland." Reichmuth signed the statement as "Debtor(s) or assignor(s)." The name of the Corporation does not appear on the face of the financing statement. It does, however, appear at the top of the list of fixtures and equipment attached to the financing statement. That list is referred to on the face of the financing statement in a typed portion under Paragraph 1, describing the types of property covered as follows:
Leasehold interest on restaurant premises at 5510 Connecticut Avenue, N.W., Washington, D.C. 20015, which includes various fixtures and equipment shown on the attached sheet and which is made a part hereof.
The description ends with a handwritten reference underneath the typed paragraph: "Lot 86 Square 1859." Paragraph 3 of the financing statement states that the abovedescribed *320 goods are affixed to: "Restaurant premises at 5510 Connecticut Avenue, N.W., Washington, D.C. 20015. Owners, Gertrude H. Parker & Edith P. Frick. Value of leasehold articles $15,000.00."
Jettmar's financing statement was filed with the Office of the Recorder of Deeds for the District of Columbia in 1986 and was allegedly cross-filed in both the land records by lot and square of the real estate covered and under the name of Charles Reichmuth. Jettmar concedes that the Recorder of Deeds records real estate deeds under a grantor-grantee index but states that they are also cross-referenced by the lot and square number of the real property.
The next year the Corporation granted a security interest covering essentially the same assets to Madison. Madison's financing statement, which Reichmuth signed as president of the Corporation, names "New 5510, Inc." as the debtor. It only lists the street address for the property covered, not the lot and square designations for the property. The box in the upper right-hand corner of the financing statement, which is to be marked if the statement is to be recorded in the land records, is left blank.
III
DISCUSSION
A. Whether Jettmar's lien was unperfected
The Court need not address the threshold question of whether Jettmar has a lien in the Corporation's leasehold interest and fixtures because, even if she does, that lien was not perfected. Thus, a finding in Jettmar's favor on that issue would not affect the ultimate conclusion that Jettmar has no lien which she may assert against Madison.
Jettmar failed to perfect her lien under either the District of Columbia Uniform Commercial Code ("UCC") (subtitle I of title 28, D.C.Code) or its real property law. For instance, in addition to the UCC's filing requirements under § 9-302(1), the UCC requires that the financing statement name and be signed by the "debtor." UCC § 9-402(1). "Debtor" for purposes of Article 9
means the person who owes payment or other performance of the obligation secured, whether or not he owns or has rights in the collateral. . . . Where the debtor and the owner of the collateral are not the same person, the term "debtor" means the owner of the collateral in any provision of the article dealing with the collateral, the obligor in any provision dealing with the obligation, and may include both where the context so requires;
* * * * * *
UCC § 9-105(1)(d). In the context of a financing statement used by an obligor to encumber property owned by another, the term "debtor" refers to both the owner of the collateral and the obligor. See, e.g., Southwest Bank of Omaha v. Moritz, 203 Neb. 45, 277 N.W.2d 430, 435 (1979); General Motors Acceptance Corp. v. Washington Trust Co. of Westerly, 120 R.I. 197, 386 A.2d 1096 (1978). See also In re Terry Pierson, Inc., 84 B.R. 533, 535 (Bankr.S.D. Ill.1988) (financing statement filed in name of debtor's principal as individual and not in name of corporate debtor insufficient to perfect bank's security interest in corporate assets, even though financing statement signed in corporate capacity by one of debtor's principals).
Thus, in order to perfect a security interest in collateral under the UCC the name of the owner of the collateral must appear on the financing statement and the owner must sign it to ensure that subsequent creditors of the owner of the collateral will have notice of the possible prior security interest. Terry Pierson, 84 B.R. at 535. The owner's name does not appear on Jettmar's financing statement. The reference to "The New 5510, Inc." at the beginning of the attachment to the financing statement listing the fixtures and equipment covered did not cure the defect: no indication was made that "The New 5510, Inc." was being listed as the "debtor." Thus, Jettmar's lien is not perfected under the UCC.
Jettmar further argues that, inasmuch as fixtures are in the nature of real property *321 interests, her security interest in the leasehold and fixtures was perfected because her financing statement was properly filed under the land records.[4]
In the case of fixtures, she points specifically to the District's statute which states:
A financing statement . . . filed as a fixture filing (section 28:9-313) where the debtor is not a transmitting utility, must show that it is to be filed in the real estate records, and the financing statement must contain a description of the real estate sufficient if it were contained in a mortgage of the real estate to give constructive notice of the mortgage under the law of the District. If the debtor does not have an interest of record in the real estate, the financing statement must show the name of a record owner.
UCC § 9-402(5). In other words, the law in the District of Columbia requires that a financing statement must indicate on its face that it is to be filed in the land records and must contain a description of the property that would be adequate on a valid mortgage. Jettmar contends her financing statement met both of those requirements. Even if that is true, it does not follow that her security interest is perfected. In focusing her attention on the question of whether her financing statement meets the requirements of UCC § 9-402(5), she fails to recognize that the requirements of UCC § 9-402(1) apply to a fixture filing just like any other financing statement and required her to list the name of the debtor (which included the name of the owner of the collateral for reasons discussed above). That she did not do. She further overlooks the effect of UCC § 9-403(7) which provides:
When a filing [sic] statement . . . is filed as a fixture filing, it shall be filed for record and the filing officer shall index it under the names of the debtor and any owner of record shown on the financing statement in the same fashion as if they were the mortgagors in a mortgage of the real estate described, and, to the extent the law of the District provides for indexing of mortgages under the name of the mortgagee, under the name of the secured party as if he were the mortgagee thereunder, or where indexing is by description in the same fashion as if the financing statement were a mortgage of the real estate described.
Jettmar concedes, as appears implicit in § 9-403(7), that mortgages are indexed in the District of Columbia land records in a grantor-grantee index under the grantor's name. Jettmar alleges that mortgages are also cross-referenced by the lot and square number of the real property. Even assuming that allegation to be accurate, Jettmar does not prevail. Her financing statement was not indexed under the name "The New 5510, Inc.," but under the name of Charles Reichmuth. As in the case of personal property, third parties searching under the Corporation's name would not have discovered *322 the financing statement and they would not have been put on notice that Jettmar claimed a perfected security interest in the fixtures of the Corporation. The fact that a search under the lot and square number records might have disclosed the security interest does not alter the result: creditors ought to be allowed to rely on a search under the grantor-grantee index. It might be safer to check both indexes to guard against a misfiling or an unusual filing practice under the grantor-grantee index. But nothing requires that expense to be incurred. The same reasoning applies as well to the argument that subsequent creditors could have protected themselves by searching under the name of the lessor as record owner of the real estate. See, e.g., Terry Pierson, Inc., 84 B.R. at 535. Jettmar's security interest was not perfected.
While UCC § 9-313(3) provides that the UCC's article 9 "does not prevent creation of an encumbrance upon fixtures pursuant to real estate law," Jettmar's financing statement was filed as a financing statement, not as a mortgage. Even if it could be viewed as a mortgage,[5] Jettmar did not perfect a lien against innocent third parties.
Although it seems too obvious to need stating, a mortgage filing that fails to list the owner of the collateral is no more effective to constitute a valid financing statement than a similarly defective financing statement would be. UCC § 9-402(6) ("mortgage is effective as a financing statement filed as a fixture filing . . . if . . . (c) the mortgage complies with the requirements for a financing statement in this section . . .") and UCC § 9-402(1) (requiring name of debtor, i.e., owner of collateral, to be listed).
Even viewed strictly as a mortgage, Jettmar's lien fares no better. Mortgages in the District of Columbia are filed in a grantor-grantee index and hence the failure to list the Corporation as owner of the collateral would not give notice to innocent third parties searching that index as contemplated by D.C.Code §§ 45-701[6] and 45-801[7]. See Crosby v. Ridout, 27 App. D.C. 481 (1906) (recordation of deed of trust from a stranger to the record of title is not constructive notice that the grantor is the grantee of the last record owner).
Jettmar contends that the Corporation's leasehold interest was real property. In support of that argument, Jettmar cites D.C.Code § 45-204 which provides in relevant part that "estates for years shall be chattels real. . . ." Compare Jacobsen v. Sweeney, 202 F.2d 461 (D.C.Cir.1953) (leasehold was an estate in land and agreement of sale thus required a writing signed by the party to be charged under statute of frauds) and Camalier & Buckley-Madison, Inc. v. Madison Hotel, Inc., 513 F.2d 407, 414 (D.C.Cir.1975) (lease conferred on tenant an interest in the leased realty and thus something more than just contract rights) with Stagecrafters' Club, Inc. v. District of Columbia Div. of Amer. Legion, 211 F.2d 811, 812 (D.C.Cir.1954) (alternative holding), aff'g 110 F. Supp. 481, 483 (D.D.C.1953) ("chattel real" is personal *323 property for purposes of tax collector's levy). Cf. Commercial Credit Co. v. Campbell, 74 F.2d 468 (D.C.Cir.1934) (landlord's assignment of rents was assignment of personal property). Jettmar thus urges that the perfection of her security interest in the leasehold interest was governed by real property law, not the District's UCC. See UCC § 9-104(j).[8]Compare In re Boogaart of Fla., Inc., 17 B.R. 480, 484-5 (Bankr.S.D.Fla.1981) (leasehold interest was a contract right covered by commercial code) with In re Le Sueur's Fiesta Store, Inc., 40 B.R. 160, 162-63 (Bankr.D.Ariz. 1984) (leasehold interest of lessee was interest in real estate and required a real estate recording). Neither defendant has addressed this issue, but the Court need not decide it. The Court will assume for purposes of analysis that creation of a lien upon the Corporation's leasehold interest is not governed by the District's UCC but is governed by the District's real property law. In that event, Jettmar never obtained a perfected lien under real property law against innocent third parties for the same reasons her financing statement failed to be a perfected mortgage in the case of fixtures.
For all of these reasons, Jettmar's lien, if one even existed, is avoidable by the Corporation (exercising the powers of a trustee as debtor-in-possession) pursuant to 11 U.S.C. § 544(a)(1). That avoidance power having been invoked, the lien shall be declared avoided.[9]
B. Madison's security interest
Jettmar challenges Madison's security interest in fixtures and the leasehold interest on the basis (1) that the fixtures filing did not recite that it was to be filed in the land records as required by UCC § 9-402(5) and it was not filed in the land records as required by UCC § 9-403(7), (2) that by virtue of UCC § 9-104(j) the leasehold interest is an interest in real property and the lien on the Corporation's leasehold interest was not perfected because it was not filed in the land records (see In re Le Sueur's Fiesta Store, Inc., 40 B.R. at 162-63, and discussion of related cases above), and (3) that the mere listing of the street address of the leased premises was an inadequate real property description (see UCC § 9-402(5) and D.C.Code § 45-701). But the avoidance of Jettmar's lien leaves her with no standing as a secured creditor to complain about whether Madison properly perfected its lien.
CONCLUSION
The plaintiff's complaint shall be dismissed with prejudice and its lien declared avoided.
NOTES
[1] Madison National Bank has not answered, and its motion really is a motion to dismiss under F.R.Civ.P. 12(b)(6), made applicable here by Bankruptcy Rule 7012.
[2] As against Madison National Bank, the plaintiff's cross-motion technically is only a motion for summary judgment.
[3] Madison denies Jettmar's assertion that Reichmuth was the only shareholder of the Debtor after the sale from her.
[4] UCC § 9-313 provides:
In this section and in the provisions of part 4 of this article referring to fixture filing, unless the context otherwise requires
* * * * * *
(b) a "fixture filing" is the filing in the office where a mortgage on the real estate would be filed or recorded of a financing statement covering goods which are or are to become fixtures and conforming to the requirements of section 28:9-402(5);
* * * * * *
UCC § 9-401 provides:
(1) The proper place to file in order to perfect a security interest is, in all cases, in the office of the Recorder of Deeds of the District. * * * [W]hen the financing statement is filed as a fixture filing (section 28:9-313) and the collateral are goods which are or are to become fixtures, then the proper place to file in order to perfect a security interest is in the office of the Recorder of Deeds of the District where a mortgage on the real estate would be filed or recorded.
(2) A filing which is made in good faith in an improper place or not in all of the places required by this section is nevertheless effective with regard to any collateral as to which the filing complied with the requirements of this Article and is also effective with regard to collateral covered by the financing statement against any person who has knowledge of the contents of such financing statement.
* * * * * *
It is also noted that D.C.Code § 45-701 (1981) provides for mortgages to be filed in the same manner as absolute deeds. The Recorder of Deeds of the District of Columbia is charged with recording all deeds. D.C.Code § 45-901.
[5] In the District of Columbia an instrument is a mortgage only if it is "executed by having the seal of the corporation attached and being signed with the name of the corporation, by its president or other officer" and is "acknowledged as the deed of the corporation by an attorney appointed for that purpose, by a power of attorney. . . ." D.C.Code § 45-502.
[6] D.C.Code § 45-701 provides:
Mortgages and deeds of trust to secure debts, conveying any estate in land, shall be executed and may be acknowledged and recorded in the same manner as absolute deeds; and they shall take effect both as between the parties thereto and as to others, bona fide purchasers and mortgagees and creditors, in the same manner and under the same conditions as absolute deeds.
[7] D.C.Code § 45-801 provides:
Any deed conveying real property in the District, or interest therein, . . . executed and acknowledged and certified as provided in §§ 45-306, 45-502, 45-601 to 45-604 and delivered to the person in whose favor the same is executed, shall be held to take effect from the date of delivery thereof, except that as to creditors and subsequent bona fide purchasers and mortgagees without notice of said deed, and others interested in said property, it shall only take effect from the time of delivery to the Recorder of Deeds for record.
[8] UCC § 9-104(j) provides that article 9 does not apply "except to the extent that provision is made for fixtures in section 28:9-313, to the creation of or transfer of an interest in or lien on real estate, including a lease or rents thereunder."
[9] The Corporation did not counterclaim to avoid Jettmar's lien but prayed for the relief of avoidance in its motion. Jettmar does not contest The New 5510, Inc.'s right to raise avoidance as a defense. In any event, it would be appropriate to allow amendment of the pleadings to conform to the issues tried via summary judgment procedures. See F.R.Civ.P. 15(b); Bankr.R. 7015. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535719/ | 70 Md. App. 298 (1987)
520 A.2d 1142
MICHAEL E. KEANE, ET AL.
v.
CAROLINA FREIGHT CARRIERS CORPORATION, ET AL.
No. 767, September Term, 1986.
Court of Special Appeals of Maryland.
February 10, 1987.
Certiorari Granted June 22, 1987.
Bernard J. Sevel (Marc K. Sloane, on the brief), Baltimore, for appellants.
Robert E. Cahill, Sr. (Robert Cahill, Jr., on the brief), Baltimore, for appellees.
Argued before GARRITY, ROSALYN B. BELL and WENNER, JJ.
WENNER, Judge.
In this appeal we shall hold that the appellants, Michael E. Keane and Catherine Patricia Keane, have standing to recover damages under § 3-904(e)(1) of the Courts and Judicial Proceedings Article,[1] for their mental anguish, emotional pain and suffering, and loss of solatium, resulting from the death of their son, Gregory Keane, who was killed in an automobile accident caused by the negligence of the appellees. Gregory Keane was born on March 11, 1962 and died on November 7, 1983.[2] The jury awarded damages to the Keanes under counts 3 and 5 of the complaint for the mental anguish suffered by each of them because of the loss of their son.[3]
The appellees moved for judgment notwithstanding the verdict, or, in the alternative, a partial new trial with respect to that award. They contend that the Keanes lacked standing to recover damages under § 3-904(e)(1) of the Courts and Judicial Proceedings Article because Gregory was too old at the time of his death to permit them to recover under the statute. The trial court agreed with appellees and granted their motion for judgment notwithstanding the verdict, denied their motion for a new trial, and the Keanes appealed.
I.
Section 3-904(e) of the Courts and Judicial Proceedings Article[4] provides:
Damages if unmarried child, who is not a minor, dies. For the death of an unmarried child, who is not a minor child, the damages awarded under subsection (c) are not limited or restricted by the "pecuniary loss" or "pecuniary benefit" rule but may include damages for mental anguish, emotional pain and suffering, loss of society, companionship, comfort, protection, care, attention, advice, counsel, training, or guidance where applicable if:
(1) The child is 21 years old or younger; or
(2) A parent contributed 50 percent or more of the child's support.
In granting appellees' motion for judgment notwithstanding the verdict the trial court concluded that subsection (1) precluded recovery by the appellants because Gregory Keane was killed after he had passed his twenty first birthday. We do not agree with that interpretation of the statute for reasons which we shall now explain.
We begin by reviewing the relevant principles governing statutory construction stated so succinctly by the Court of Appeals in Schweitzer v. Brewer, 280 Md. 430, 438-39, 374 A.2d 347 (1977):
We have often said that the cardinal rule of construction of a statute is to effectuate the actual intention of the legislature. The criteria for the determination of this intention have been firmly established, and they were recently summarized in Mazor v. State Department of Correction, 279 Md. 355, 360-361, 369 A.2d 82 (1977). The primary source from which we glean the legislative intent is the language of the statute itself. When the intent is expressed in clear and unambiguous language, this Court will carry it out, if no constitutional guarantees are impaired. Words are granted their ordinary signification so as to construe the statute according to the natural import of the language used without resorting to subtle or forced interpretations for the purpose of extending or limiting its operation. If reasonably possible the parts of a statute are to be reconciled and harmonized, the intention as to any one part being found by reading all the parts together, and none of its words, clauses, phrases, or sentences shall be rendered surplusage or meaningless. Results that are unreasonable, illogical or inconsistent with common sense should be avoided whenever possible consistent with the statutory language. (footnote omitted)
Appellees correctly argue that the statutes involved in the case sub judice are in derogation of the common law and are to be strictly construed, Cohen v. Rubin, 55 Md. App. 83, 460 A.2d 1046 (1983), but "that does not mean the plain and obvious language of the legislature is to be overlooked particularly where such a construction would lead to an absurd result," State v. Rice, 24 Md. App. 631, 634-35, 332 A.2d 296, cert. denied, 275 Md. 755 (1975).
With these basic principles in mind, we look to the language of § 3-904(e)(1) to ascertain, if we can, the legislature's intent. Inasmuch as subsection (e)(1) provides for the recovery of damages for the death of an "... unmarried child, who is not a minor ..." (emphasis added), and who is "... 21 years old or younger ...", it is obvious that the legislature intended to permit recovery for the death of certain unmarried adult children. Our inquiry then is what did the legislature mean by the term "21 years old"? We believe the use of the word "or" after the phrase "21 years old" is significant to our inquiry because "or" is "[a] disjunctive conjunction [which] serves to establish a relationship of contrast or opposition," In Re John R., 41 Md. App. 22, 25, 394 A.2d 818 (1978), and does not, therefore, control or affect the meaning of the words "21 years old."[5] Thus we believe the term "21 years old" is unambiguous, and we attribute to it "its ordinary and generally understood meaning." In Re Criminal Investigation No. 1-162, 307 Md. 674, 685, 516 A.2d 976 (1986); accord, Mauzy v. Hornbeck, 285 Md. 84, 400 A.2d 1091 (1979). We recognize, as a matter of common usage and understanding, that Gregory Keane, having passed his twenty first birthday but not having reached his twenty second birthday at the time of his death, was twenty one years old at the time of his death. Covell v. State, 143 Tenn. (16 Thompson) 571, 227 S.W. 41 (1921) ("... in common acceptation one's age is spoken of as 21 until the arrival of the twenty-second birthday the year, and not the day, being the unit of measurement.); People v. Cooper, 207 Misc. 845, 143 N.Y.S.2d 855, 857 (1955) ("A child becomes ten years old upon reaching his tenth birthday and remains a child of the age of ten until he reaches his eleventh birthday.") Smith v. United States,[6] 608 F. Supp. 1270, 1271 (D.C.Mass. 1985) (Decedent having been born on July 31, 1958 and having died on September 22, 1979 was twenty one years of age at the time of his death.) See also Wilson v. Mid-Continental Life Ins. Co. of Oklahoma City, 159 Okl. 191, 14 P.2d 945 (1932); Watson v. Loyal Union Life Ass'n of Muskogee, 143 Okl. 4, 286 P. 888 (1930). Indeed, we note that both the medical examiner's certificate of death and the Maryland Institute for Emergency Medical Services Systems' Discharge Summary list Gregory Keane's age as 21.
Since the clear purpose of the statute is to compensate the parents of certain unmarried non-minor children, and the children themselves are given no legal rights, we are unpersuaded by the appellees' argument that because the legislature has used the attainment of age twenty one to grant rights under other statutes (for example, the alcoholic beverage laws), we are therefore bound to limit recovery under § 3-904(e) to parents of children under twenty one; particularly when in drafting those other statutes, the legislature employed different terminology. See, Art. 27, § 400, 400A.[7] Moreover, inasmuch as the age of majority is eighteen, there is no reason to limit the age for which recovery may be had, as urged by the appellees, for decedents under what was formerly the age of majority in this State.
We hold that the Keanes are entitled to recover damages under § 3-904(e)(1) for their emotional pain and suffering. We shall, therefore, reverse the trial court's entry of judgment notwithstanding the verdict on counts 3 and 5 of the complaint, and order that judgment be entered on the original verdict. Rule 2-532.
II.
In order to protect themselves in the event we reversed the trial court's granting of their motion for judgment notwithstanding the verdict, appellees filed a cross-appeal alleging error in the trial court's denial of their motion for a partial new trial as to counts 3 and 5 of the complaint. See Rule 2-532(f)(1).
It is within the trial court's discretion whether to grant a new trial or partial new trial, and the exercise of that discretion will not ordinarily be disturbed on appeal. Mack v. State, 300 Md. 583, 600, 479 A.2d 1344 (1984).
Appellees contend that Mr. Keane testified falsely concerning his marital status and address. After trial, appellees discovered that the Keanes were experiencing marital difficulties and that around the time of trial Mr. Keane had spent his nights at a place other than the family home, but when asked by the clerk to state his address he responded by giving the address of the family home. Mr. Keane also stated his marital status as married.
We agree with the trial court's conclusion that Mr. Keane's use of the family home address was not a fraud upon the jury as there was ample evidence that he had not abandoned the family home. We also agree with the lower court's determination that the Keanes' marital discord was of doubtful relevance inasmuch as the damage awards were to each of them individually for their own emotional suffering, and no award was made for damage to the "family unit." Indeed it is possible that evidence of marital discord might have been prejudicial to appellees, had the jury thought that Gregory Keane's death precipitated the Keanes' marital problems.
As there is no evidence of any decree of separation or divorce, nor even any pending action, the Keanes were "married" and Mr. Keane's statement to that effect was not false.
Furthermore, we do not view this as "newly discovered evidence" simply because it was discovered after trial. Upon our review of the record, we see no reason why the appellees could not have, prior to trial, discovered the information about which they complain.
We shall therefore affirm the denial of appellees' motion for a new trial.
JUDGMENT NOTWITHSTANDING THE VERDICT REVERSED AND JUDGMENT ENTERED IN FAVOR OF MICHAEL E. KEANE FOR $105,000 AND C. PATRICIA KEANE FOR $115,000. DENIAL OF MOTION FOR NEW TRIAL AFFIRMED.
COSTS TO BE PAID BY APPELLEES.
NOTES
[1] Part of the Wrongful Death Act found in Subtitle 9, §§ 3-901 et. seq. of the Courts and Judicial Proceedings Article.
[2] In his memorandum and order the trial judge stated that "Gregory was 21 years 8 months old" at the time of his demise. To be more precise, he was 21 years, 7 months, 28 days old by the common law method of assessing age.
[3] An award was also made in favor of Gregory Keane's estate to compensate it for the emergency medical and funeral expenses. No issues have been raised with respect to that award on this appeal.
[4] All future citations to specific sections of statutes will be to the Courts and Judicial Proceedings Article, unless otherwise noted.
[5] The trial court construed the entire phrase "21 years old or younger" "to exclude anyone who has passed their twenty first birthday," relying upon the reasoning in Gibson v. People, 44 Colo. 600, 99 P. 333 (1908) and a line of criminal cases which followed Gibson. In light of the availability of relevant civil cases directly on point, we think the trial court erred in relying so heavily on Gibson and its progeny because criminal statutes are always strictly construed in favor of the defendant. Gatewood v. State, 244 Md. 609, 617, 224 A.2d 677 (1966); Knott v. Rawlings, 250 Iowa 892, 96 N.W.2d 900 (1959). In addition, we find the rationale in Gibson to be neither sound nor persuasive. In construing the phrase "sixteen years of age or under", the Gibson court failed to focus on the exact language before it and instead hypothesized as to what the legislature "would have done" had it meant to define an age group different from the one which the court delineated.
[6] Smith v. United States, was a case brought under the same Maryland statute as the case sub judice. Although a different question was addressed in Smith, the district court properly permitted recovery by the parents of the decedent who died during the time period between his twenty first and twenty second birthdays.
[7] We observe that the legislature well knows how to make itself clear. For example, in Cts. & Jud.Proc. § 3-801(c) and (d) an "adult" is defined as "... a person who is 18 years old and older ..." and a "child" is defined as "... a person under the age of 18 years." See, also, Maryland Style Manual for Statutory Law, Revisor of Statutes, General Assembly of Maryland, Department of Legislative Reference, 1985 Edition. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535765/ | 70 Md. App. 272 (1987)
520 A.2d 1129
TOWN & COUNTRY MANAGEMENT CORPORATION
v.
COMCAST CABLEVISION OF MARYLAND.
No. 731, September Term, 1986.
Court of Special Appeals of Maryland.
February 10, 1987.
Certiorari Denied June 18, 1987.
George A. Nilson (Lee Baylin and Piper & Marbury, on the brief), Baltimore, for appellant.
R. Bruce Beckner (Dow, Lohnes & Albertson, Washington, D.C., Michael A. Pace, Judith A. Mather and Dow, Lohnes & Albertson of Annapolis, on the brief), for appellee.
Argued before GILBERT, C.J., and ALPERT and POLLITT, JJ.
GILBERT, Chief Judge.
This appeal is concerned with cable television. Specifically, it asks whether the trial court erred in holding that certain television programing supplied by a particular company was not cable television. The principals in this case are Town & Country Management Corporation (Town), which manages a number of large apartment complexes in the metropolitan Baltimore area, and Comcast Cablevision of Maryland (Comcast), which, operating pursuant to a nonexclusive franchise granted by Baltimore County, provides cable television service to subscribers in the county.[1]
In August 1980, the parties entered into contracts to provide cable television service to six of Town's complexes, one contract for each complex. By 1982, five additional contracts, similar to the first six, had been signed, extending the service to other complexes managed by Town. The contracts authorized Comcast to install and operate, in each of the apartment complexes, a "cable television antenna system" in order to provide "community television antenna service" to the tenants.
When Comcast first began "wiring" the county in 1980, it solicited apartment owners and managers, such as Town, for permission to supply the service to tenants. Town was agreeable to having the service but wanted some monetary consideration from the provider. As a matter of firm business policy, Comcast refused to pay any monies to Town. After some negotiation, the parties resolved the impasse through what may be regarded as a reciprocal "most favored nation" provision, which they inserted in each of the eleven contracts.
The first part of that provision, ¶ 9(a), states in essence that, if Comcast enters into any cable television service arrangement with any other apartment complex on terms more favorable to that apartment complex than are provided in the contract with Town, the Town contracts would be amended automatically to match the more favorable terms in the other contract. In short, if Comcast agreed to pay any other owner or manager of an apartment complex for the privilege of providing service to his tenants, it would have to pay Town on a similar basis.
The second part of the provision, ¶ 9(b), was intended to cover the converse situation of another cable television service's offering better terms to Town. Paragraph 9(b) provides:
"The Company [i.e., Comcast] further agrees that in the event any other cable television service offered in Baltimore County provides benefits, payments or other features to the parties referred to immediately above, the Company, at its option, shall immediately commence payments, benefits or provide other features to Owner on the same or nearly comparable basis as the cable television service offering the greatest payments, benefits, or other features, or shall terminate this Agreement." (Emphasis added.)
Subject to ¶ 9(b), the contracts afford Comcast the exclusive right to provide the cable television service to the complexes covered by them. Paragraph 10 of each contract states:
"The rights of the Company to furnish to Owner's tenants a cable television service as contemplated hereunder shall be an exclusive right, and Owner will not, during the term of this Agreement, grant a competing right to any other person or undertake to provide such a service to any other master television antenna system or cable television antenna service unless the terms of Paragraph 9 set forth hereinabove are not strictly complied with. Notwithstanding anything herein to the contrary, Owner may continue to provide a master television antenna system to its tenants so long as Owner does not connect said master television antenna system to a commercial cable television service." (Emphasis added.)
Shortly after the first contracts between the parties were signed in 1980, Town learned that it would be some time before Comcast would be able to supply service to the Cockeysville area of the county, where Town managed a complex that was not covered by any of its contracts with Comcast. In September 1980, Town entered into a contract with Cable Garden, Inc. for the installation of a "Premium TV" service to the tenants of that complex. The "Premium TV" service was defined in that contract as follows:
"A `Premium TV' service is three TV channels offering a group of programs not available on current commercial TV. This program group will include the following or equivalent: Warner Amex's Movie Channel, featuring new and recently released movies, as well as ESPN's Sports Channel and a third channel, Ted Turners Cable News Network (CNN) to be activated within one year after completing construction of the system."
Unlike Comcast, Cable Garden, Inc. agreed to pay a commission to Town based on the rate of tenant subscription to its service. Paragraph 21 of its contract stated:
"Cable Garden agrees to pay a monthly commission per subscriber to The Town and Country Management Corporation to be paid quarterly, based on the percentage of subscribers to the total number of rented apartments at the Complex serviced by this agreement at the following rate:
0% to 25% $ .25
26% to 35% .50
36% to 55% 1.00
Above 55% 2.00"
Cable Garden, Inc. was apparently slow in installing its system and never attracted a large number of subscribers. It made no payments under its contract until 1983, and even then the payments were not very large. Nonetheless, Town regarded the payments made by Cable Garden, Inc. as triggering ¶ 9(b) in its contracts with Comcast and thus demanded that Comcast begin making payments consistent with the Cable Garden, Inc. formula, which it refused to do. Town became even more insistent in 1985, when it received two additional proposals to replace the current Cable Garden, Inc. service one from Cable Garden, Inc. and one from BBC Satellite.
The new Cable Garden, Inc. proposal was for "SMATV"[2] service in two tiers. The "local tier" would consist of eight Baltimore-Washington commercial channels[3] and one local public television channel.[4] The "premium tier" was to include seven satellite channels, including a news channel (CNN), a sports channel (ESPN), a "music" channel (MTV), a children's channel (Nickelodian), a movie channel (TMC), and two general feature channels (USA and WGN). Under the terms of the proposal, Cable Garden, Inc. was to pay an even higher commission to Town, ranging from $1 per month per subscriber to $2.75 per month when over 55 percent of the tenants subscribed.
The BBC system is also described as a "SMATV" system. It proposed "one premium movie channel, one satellite sports or news network, one satellite superstation and three Baltimore or Washington over-the-air channels." The BBC proposal would have paid a commission to Town of 5 percent of "gross subscriber receipts."
Because of Comcast's continuing intransigence, based on its assertion that the services being rendered by Cable Garden, Inc., as well as those proposed by that company, and by BBC Satellite were not "cable television service" for the purposes of ¶ 9(b), Town filed this action in the Circuit Court for Baltimore County. The suit, seeking both damages and declaratory relief, charged Comcast with breach of contract. Town asked for a declaratory judgment that Cable Garden's and BBC's proposed services did constitute "cable television service" under ¶ 9(b), and that Comcast was required either "to commence payments on the same basis as those offered by Cable Garden (or similar cable television services) or terminate the agreements...." Alternatively, Town asked for a declaratory judgment that the services offered and proposed by Cable Garden, Inc. were not the types of services contemplated under ¶ 10 of the contracts, and that Town was at liberty to install that service in the eleven complexes already covered by the contracts with Comcast.
Throughout the nonjury trial in the circuit court, Comcast maintained that the term "cable television service," as used in ¶ 9(b), meant only a cable television service that was franchised by Baltimore County. The trial judge rejected that interpretation. Comcast has not pursued that matter in this appeal. During the course of the trial, when Town first offered parol evidence as to its intentions with respect to ¶ 9, the court concluded that the term was ambiguous and, therefore, permitted both parties to offer parol evidence on the issue.
The evidence elicited concerned primarily perceptions of how SMATV was regarded in the cable television industry. O.D. Page, testifying for Town, had been working in the cable television industry since 1968. He related to the court:
"In common usage in the industry a cable system is a system that sells a television service to subscribers and generally carries something more than just over the air broadcasting and such satellite channels, and may I go further, almost all satellite channels are classified as cable service by the buyer of those services."
Mr. Page made clear that, while SMATV did not offer the full range of channels carried by franchised cable companies, the two types of companies were, nevertheless, in competition. SMATV operators, he said, attempted to convince prospective subscribers that the extra channels carried by franchised companies were of little benefit.
Archer S. Taylor, a witness on behalf of Comcast, had a different view. He opined:
"Cable television as I see it is a service offered by cable television systems. Cable television systems are managed, operated by cable television operators, but I see the cable television systems as community-wide systems with wires distributed throughout the community subject to a lot of local regulation and federal regulation, to payment of franchise fees, and general regulatory specific regulatory requirements imposed by both the federal government and the local franchising authorities."
A "satellite master antenna or satellite reception service," he said, is "not a cable television service."
The trial judge resolved the dispute in favor of Comcast, concluding that the service offered or proposed by Cable Garden, Inc. did not constitute a "cable television service" within the meaning of ¶ 9(b). The court stressed two factors in reaching that conclusion: (1) appellant's counsel had drafted the final version of the contracts, and that any ambiguity should, therefore, be construed against appellant; and (2) both experts recognized a distinction between "a cable system and a satellite system." As to the latter, the court commented:
"One thing that you can put your finger on and it may not be conclusive, but certainly it is in support of the Court on its conclusion is that the uncontradicted testimony is that you cannot receive the same programs, the same channels on the satellite system as you can on the cable system. So if you can't get the same programs, it seems to me to follow necessarily that there is a difference between the two systems and so I think that common sense comes down on the same side as the common usage as testified to by the experts."
Upon that premise, the court ruled that Comcast was not required to make payments to Town under ¶ 9(b), but Town was entitled, under ¶ 10, to permit SMATV service in complexes covered by its contracts with Comcast. A declaratory judgment embodying those rulings was entered, and both sides appealed.
Town complains about the court's construction of the critical term of ¶ 9(b), "cable television service." Town argues that the term unambiguously includes the kind of service provided or offered by Cable Garden, Inc. or BBC; or, even if the term is ambiguous, the evidence requires that conclusion. Comcast, as cross-appellant, complains about the declaratory judgment as to ¶ 10. It argues that the controversy as to exclusivity was not ripe for adjudication, and the evidence does not support the court's conclusion.
Language can be regarded as ambiguous in two different respects: (1) it may be intrinsically unclear, in the sense that a person reading it without the benefit of some extrinsic knowledge simply cannot determine what it means; or (2) its intrinsic meaning may be fairly clear, but its application to a particular object or circumstance may be uncertain. See Tucker v. Fireman's Fund Insurance Co., 308 Md. 69, 517 A.2d 730 (1986): "That a term may be free from ambiguity when used in one context but of doubtful application in another context is well settled."
The problem before us is of that second variety because there is nothing inherently confusing about the term "cable television service [or system]." It has been defined in regulations of the Federal Communications Commission since 1972;[5] it has been defined in various statutes;[6] it is used at least twice in the Annotated Code of Maryland;[7] and the parties presumably had some understanding of what it meant when they signed the contracts. The question is a more particular one of whether, as used in the contracts at issue, the term was intended to encompass the kind of SMATV service offered or provided by Cable Garden, Inc. or BBC.
There are many rules for construing contracts, the overriding one being to determine and carry out the intention of the parties, if possible. Unfortunately, where the parties are in such disagreement as to necessitate litigation, evidence as to intent is not only often in conflict, but it takes on a distinctly ex post facto patina. Perhaps that is why courts look first at the contract itself. If the language of the contract is sufficiently clear, the parties will be presumed to have meant what they said and said what they meant, irrespective of whether, in fact, they did. In that event, "the true test of what is meant is not what the parties to the contract intended it to mean, but what a reasonable person in the position of the parties would have thought it meant." General Motors Acceptance v. Daniels, 303 Md. 254, 261, 492 A.2d 1306 (1985).
When engaging in that analysis, the court must read all relevant parts of the contract as a whole and construe them, if possible, in harmony. It is only when the parties' intention, either real or presumed, cannot be ascertained from the contract itself that extrinsic evidence may be considered.
On that basis we examine the contracts and consider the status of the parties to see if the trial court correctly determined either their intent or the intent of reasonable persons in their position.
The purported ambiguity arises from the differences between a franchised cable system, such as Comcast offers, and a SMATV system, as offered or proposed by Cable Garden, Inc. and BBC. A good synopsis of the two systems is provided in N.Y. State Com'n on Cable Television v. F.C.C., 749 F.2d 804, 806 (D.C. Cir.1984):
"The rapidly expanding cable industry has spawned a variety of methods by which cable viewing can be distributed to the public. "Traditional' or `franchise' cable systems use large remote antennas to capture television signals. The signals are distributed from the large antennas to viewers through coaxial cable laid under city streets or along telephone lines. Within the past decade, marketing innovations and advances in satellite and microwave technology have eliminated the need for the use of public rights-of-way to distribute `cable' viewing to some subscribers. Large apartment buildings and hotels can install a master antenna television (MATV) system which captures a television broadcast signal off the air and delivers it to tenants through coaxial cables that run through the buildings. In addition to improving normal television reception, MATV enables tenants to take advantage of the cable system involved in this litigation, satellite master antenna television (SMATV). SMATV transmits television signals from satellites directly to satellite receiving stations (`receive-only earth stations') atop multi-unit dwellings. The signal is converted to a usable frequency and distributed to subscribing tenants through the existing MATV system."[8]
That the two systems are different in their technologies is by no means dispositive of the issue, because there are also a number of similarities. Both systems are subject to preemptive regulation by the Federal Communications Commission, the authority of local government being limited to "reasonable regulations regarding use of the streets and rights-of-way." Duplicative and Excessive Over-Regulation of Cable Television, 54 F.C.C.2d 855, 861 (1975).[9] Both systems may involve the use of public streets and rights-of-way and thus fall under some local control.[10] Both systems possess essentially the same objective: making available to home viewers, for a subscription fee, television programs not available on broadcast channels as well as a clearer reception of broadcast television programs. Most importantly, since both systems share that common objective and provide a generally similar, if not identical, service, they are ipso facto competitors, especially with respect to large apartment complexes.[11]
The similarities between the two systems, more than the differences, have received statutory attention. Md. Ann. Code art. 23A, § 2(b)(13), art. 25, § 3C(b) authorizes incorporated municipalities "to grant one or more exclusive or nonexclusive franchises for a community antenna system or other cable television system that utilizes any public right-of-way, highway, street, road, lane, alley, or bridge...." (Emphasis added.) The use of the word "other" in that statute suggests a reasonably clear legislative intent to regard a community antenna system, which is the heart of a SMATV system, as a "cable television system."
An even stronger statement with respect to legislative intent is found in Md. Ann. Code art. 27, § 194B. That section prohibits persons from tampering with the equipment "of a franchised cable television company or private cable television company with the intent to obtain cable television services without payment." SMATV is regarded as a "private cable" system. See 2 Cable Television Law, supra, § 21.01. It is readily apparent that the Legislature has given explicit recognition to the fact that private cable companies do provide "cable television services." See People v. Frankel, 129 Misc. 2d 95, 492 N.Y.S.2d 671 (N.Y.City Crim.Ct. 1985), construing "cable television service," as used in a counterpart anti-theft statute, to embrace both cable and microwave transmission.
Previous counsel for Town, who, as noted, drafted the final version of the contracts at issue, disclaimed much knowledge about the nuances of the cable television industry. Notwithstanding that disclaimer, it is clear from the evidence that the contracting parties had more than a superficial understanding of what MATV and SMATV were and how they differed from the operation run by Comcast. Town already had MATV systems in place for the benefit of its tenants at the time it contracted with Comcast. The installation of Comcast's system, according to ¶ 1 of the contracts, did not involve that existing system; rather, it required running wires from outside utility poles to the exterior of the apartment building and then attaching connections from those wires into the dwelling units of the subscribing tenants. Nevertheless, the potential for using the existing MATV system to provide "cable television service" was expressly recognized. As previously observed, ¶ 10 of the contract permits Town to continue its MATC system "so long as [it] does not connect said master antenna system to a commercial cable television service."
What kind of "commercial cable television service" could be connected to Town's MATV? From both the elementary literature on the subject,[12] and from the testimony, it would certainly include SMATV. Indeed, that was the basis of the Cable Garden, Inc. system contracted for just a month after the first six contracts with Comcast were signed and well before the other five were signed.
From the known state of the industry, and from the contracts themselves, it is evident that the parties must have recognized: (1) SMATV was, or soon would become, available; (2) large apartment complexes were prime targets for SMATV companies; and (3) the services offered by SMATV, though not as complete and extensive as those offered by Comcast, were similar in nature and, to some extent, the same. Reasonable persons in the position of the contracting parties would have recognized those things. In that light, the "most favored nation" provisions in ¶ 9 and the related exclusivity provisions in ¶ 10 must be read with the threat or the benefit of competition from SMATV in mind. Given the unlikelihood of another cable company being franchised in Baltimore County, as testified to by Comcast's then-President, Dr. Berger, the only prospective competition that would arise was likely to emerge from SMATV.
Even if in another context the term "cable television services" might be regarded as ambiguous, on the record before us it is crystalline that the term, as used in ¶¶ 9 and 10 of the contracts at issue, was intended to include, and does embrace, SMATV. We, therefore, vacate the contrary judgments entered by the circuit court and remand the matter for such further proceedings as may be necessary in order to adjudicate Town's claim for damages and for the entering of appropriate judgments in conformance with this opinion.
JUDGMENTS VACATED; CASE REMANDED TO CIRCUIT COURT FOR BALTIMORE COUNTY FOR FURTHER PROCEEDINGS.
COSTS TO BE PAID BY APPELLEE.
NOTES
[1] Comcast Cablevision of Maryland is the successor in interest to Calvert Telecommunications Corporation, which was the contracting party in this case. For convenience, we shall use the name Comcast as including its predecessor.
[2] "SMATV" means Satellite Master Antenna Television.
[3] Channels 2, 4, 5, 7, 9, 11, 13, and 45.
[4] Channel 67.
[5] See Telecommunications, 47 C.F.R. § 76.5(a), which, prior to 1985, defined "cable television system" as
"[a] non-broadcast facility consisting of a set of transmission paths and associated signal generation, reception, and control equipment, under common ownership and control, that distributes or is designed to distribute to subscribers the signals of one or more television broadcast stations, but such term shall not include (1) any such facility that serves fewer than 50 subscribers, or (2) any such facility that serves or will serve only subscribers in one or more multiple unit dwellings under common ownership, control, or management."
In 1985, that section was revised to define a "cable system or cable television system" as
"[a] facility consisting of a set of closed transmission paths and associated signal generation, reception, and control equipment that is designed to provide cable service which includes video programming and which is provided to multiple subscribers within a community, but such term does not include (1) a facility that serves only to retransmit the television signals of one or more television broadcast stations; (2) a facility that serves only subscribers in one or more multiple unit dwellings under common ownership, control or unit dwellings under common ownership, control or management, unless such facility or facilities uses any public right-o[f]-way; (3) a facility of a common carrier which is subject, in whole or in part, to the provisions of Title II of the Communications Act of 1934, as amended, except that such facility shall be considered a cable system to the extent such facility is used in the transmission of video programming directly to subscribers; or (4) any facilities of any electric utility used solely for operating its electric utility systems."
[6] See, for example, N.Y.Penal Law ¶ 155.00(9) (consol.) defining the term as meaning "any and all services provided by or through the facilities of any cable television system or closed circuit coaxial cable communications system, or any microwave or similar transmission service used in connection with any cable television system or other similar closed circuit coaxial cable communications system."
[7] See Md. Code Ann. art. 23A, § 2(13); art. 27, § 194B.
[8] As the court also observed, there are at least two other systems, or variations, that have been developed, but which are not involved in this case MDS (multi-point distribution service) and DBS (direct broadcast satellite). The Court described those systems:
"A similar system, multi-point distribution service (MDS), beams microwave signals terrestrially to special antennas atop the buildings, and, like SMATV, uses the MATV system to distribute the signals to individual tenants. In the near future, satellite signals will be available to those who do not reside in large apartment dwellings. Direct broadcast satellite (DBS), potentially the most significant of the recent technological innovations, will provide direct satellite communication to individual homes, taking advantage of high-powered satellites and small, efficient earth receiving stations."
749 F.2d at 806.
[9] An extensive treatment of FCC regulation of the cable television industry, including SMATV, appears in C. Ferris, F. Lloyd, and T. Casey, Cable Television Law (1986). For a briefer synopsis, see N.Y. State Com'm on Cable Television v. F.C.C., supra, 749 F.2d 804. See also In re Orth-O-Vision, Inc., 69 F.C.C.2d 657 (1978), recon. 82 F.C.C.2d 178 (1980), aff'd sub nom N.Y. State Com'n on Cable T.V. v. F.C.C., 669 F.2d 58 (2d Cir.1982).
[10] As pointed out in 2 Cable Television Law, supra, § 21.06, SMATV may or may not require a local franchise:
"Although SMATV is a relatively inexpensive means of video distribution, many believe that the key to SMATV profit-maximization is the interconnection of multiple unit dwellings served by a single satellite dish. Interconnection allows economies of scale and it also expands the pool of potential subscribers.
Interconnection can be accomplished either by cable or by microwave. SMATV interconnection by cable is unattractive because if the cable traverses public rights of way a local franchise will often be held necessary. This generally entails a lengthy franchising process and payment of a franchise fee to the local authorities. In many areas exclusive cable franchises have already been granted, and cable interconnection would not even be possible. This leaves microwave interconnection as the only feasible alternative."
(Footnotes omitted.)
[11] In 2 Cable Television Law, supra, §§ 21.01 and 21.02, it is said:
"Two developments of recent years have combined to expand SMATV use. The first of these was the advent in the mid-1970's of satellite delivery of cable programming, particularly movie services. The second was the FCC's deregulation of satellite earth station ownership in 1979. This action, together with the rapid decline in the cost of satellite antennas, made SMATV economically feasible for a far wider universe of dwelling complexes.
SMATV is a relatively inexpensive video delivery system. The cost of installing a SMATV system is much lower, per unit, the larger the complex to be served. For systems serving small apartment buildings (fewer than 200 units) SMATV may not be economically feasible unless more than one building can be interconnected. Interconnection also introduces significant economies of scale to larger systems." (§ 21.01; footnotes omitted.)
"SMATV is a widespread and growing video service. Some estimates indicate that there are already as many as 500,000 SMATV subscribers nationwide. The additional potential market is also large." (§ 21.02; footnote omitted.)
[12] In 2 Cable Television Law, supra, § 21.01, it is noted:
"The basis for SMATV operation is a master antenna system (MATV). Most large apartment complexes have been equipped with MATVs for many years. These systems receive and amplify television broadcast signals and distribute them to individual apartments via the building's `private cable' system. When satellite receiving equipment is added to the system it can pick up cable networks, superstations and pay-television services carried by communications satellites, thus greatly expanding the viewing options of apartment dwellers."
(Footnote omitted.) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535783/ | 114 B.R. 414 (1990)
In re Fred GARM and Ernestine Garm, Debtors.
UNITED STATES of America, on Behalf of its agency, INTERNAL REVENUE SERVICE, Plaintiff,
v.
Fred GARM and Ernestine Garm, Defendants.
Bankruptcy No. 5-89-00582.
United States Bankruptcy Court, M.D. Pennsylvania.
May 23, 1990.
*415 Harry J. Giacometti, U.S. Dept. of Justice Washington, D.C., for plaintiff.
Stephen G. Bresset, Honesdale, Pa., for defendants.
OPINION AND ORDER
THOMAS C. GIBBONS, Bankruptcy Judge:
Before the Court is a Motion of the United States of America to Abandon Real Property or in the alternative to Lift the Automatic Stay. For the reasons provided herein, we find that the United States of America, on behalf of its agency, the Internal Revenue Service (hereinafter "IRS") has met its burden of proof to lift the automatic stay and that the debtors have failed to meet their burden to show why the property should not be abandoned from the estate.
The facts are as follows. Between March 28, 1984 and September 10, 1984, the IRS filed notices of assessment against the debtors in possession for their income tax liability for years 1978 and 1979. The total tax liability for these years is estimated by the IRS at approximately $167,341.18 as of September 12, 1989. A notice of federal tax lien was filed for the assessments on May 2, 1985 in Susquehanna County, Pennsylvania. Thereafter, on or *416 about April 12, 1989, the IRS seized real property owned by the debtors as tenants by the entirety consisting of the debtors' personal residence at 320 Lackawanna Street, Forest City, and an unimproved lot also located on Lackawanna Street. On July 21, 1989, the debtors filed a petition for relief under Chapter 11 of the United States Bankruptcy Code. The debtors' schedule of assets and liabilities lists the market value of the 320 Lackawanna Street property at $90,000. The unimproved lot on Lackawanna Street, while not listed in the schedules, was given a fair market value of $12,500. Debtors also own an apartment building at 429-431 Main Street, Forest City, with an approximate value of $40,000. The IRS filed the instant motion requesting either an abandonment of the property under § 554(b) or a lifting of the automatic stay pursuant to § 362(d) to further the efforts of the United States to sell all the seized property in satisfaction of the tax debt. The joint motion is based upon a lack of equity and inconsequential value and benefit of the seized property to the estate.
The debtors respond that they failed to receive notice of the tax assessment and, therefore, they were unable to question and/or appeal the assessment. Their argument continues that the IRS lien is invalid and, therefore, the IRS is not a secured creditor but takes an unsecured position in this bankruptcy.
Before proceeding to the substantive issues a number of procedural issues raised at the time of trial must be addressed. The IRS introduced into evidence a Department of the Treasury, Internal Revenue Service Certificate of Official Record form 4340 (Certificate of Assessments and Payments) which form was a true and complete transcript of the assessments, credits and refunds found in the records maintained by the IRS concerning the debtors' taxes. The IRS also presented Mr. Ronald Foy, a revenue officer with the IRS for a period of approximately 25 years and whose main duty involves the collection of delinquent taxes. Mr. Foy testified that the Certificate of Assessments and Payments indicated that the debtors signed a form 870 Agreement which is a waiver of restriction on assessment and collection of deficiency on February 27, 1984. Further, he testified that the tax was assessed on April 16, 1984 and that interest was assessed for both tax years 1978 and 1979. See Transcript p. 11. To this testimony, and in fact to Mr. Foy's entire testimony, the debtors objected to his reliance on the Certificate of Assessments and Payments as hearsay in violation of the Federal Rules of Evidence. The debtors further objected that if the transcript was to be considered a business record, then Mr. Foy could not testify as the authenticating witness because he was not familiar with the entries made nor did he have knowledge that the entries were made at or near the time of the transaction.
Initially, we note that the document in question is a Certificate of Official Record from the Internal Revenue Service under seal of the Director of the Internal Revenue Service Center, Mid-Atlantic Region, Philadelphia, Pennsylvania. Under Rule 902(1) of the Federal Rules of Evidence this document under seal is self-authenticating and no requirement of extrinsic evidence proving authentication was necessary at time of trial. Further, a Certificate of Assessments and Payments under seal is presumptively correct and the burden is on the taxpayer to overcome this presumption by countervailing proof. See United States v. Posner, 405 F. Supp. 934 (D.Md.1975) citing United States v. Strebler, 313 F.2d 402, 403-404 (8th Cir.1963) and cases cited therein. Mr. Foy did not need to testify as an authenticating witness and, therefore this objection fails.
Even though the exhibit is self-authenticating it, nevertheless, must satisfy other pertinent rules of evidence such as the hearsay rule and relevancy requirements. One of the exceptions to the hearsay rule is found at Rule 803(8), (Public Records and Reports). We find that the document in question fits squarely within this hearsay exception. We further find, however, that this exhibit also falls under Rule 803(6) as a record of a regularly conducted activity. Debtors' object that Mr. *417 Foy was not present at the time the entries were made on the record nor was he personally responsible for making the entries. Contrary to the debtors' position, there is no requirement that the party offering a business record produce the author of the item. See Federal Deposit Insurance Corp. v. Staudinger, 797 F.2d 908 (10th Cir.1986) citing ¶ 803(6)[02] Weinstein's Evidence at XXX-XXXX-XXX (1985). "Furthermore, `[a] foundation for admissability may at times be predicated on judicial notice of the nature of the business and the nature of records as observed by the Court. . . .'" Federal Deposit Insurance Corp. v. Staudinger, supra, at 910. Submitted into evidence was a document of the United States Department of Internal Revenue Service under seal. Testifying from that document was an Internal Revenue Service employee with over 25 years experience. Absolutely no indication was given of a lack of trustworthiness of the contents of the document nor Mr. Foy's testimony. We remind the debtors that this document under seal is presumptively correct and was certainly subject to question. The only objection made to the document itself was to question the authority of the individual who signed the Certificate of Official Record on behalf of the Director. The debtors presented no testimony or evidence that the signator did not have the authority to sign the document on behalf of the Director. Based upon the document being under seal and the long time position of the witness as a Revenue Officer with over 25 years experience, the Court found no evidence of lack of trustworthiness and, therefore, excepted the Certificate of Official Record Form 4340 as an exclusion to the hearsay exception provided by the Federal Rules of Evidence.
In response to the testimony of Mr. Foy and the presentation into evidence of the Certificate of Assessments and Payments, Mr. Garm testified that they never received the Notice of Deficiency for Tax liability. N.T. 20. He further testified he never signed a waiver of his right to contest the deficiency. N.T. 21. This testimony, while contradicting the testimony of Mr. Foy and the information contained in the Certificate of Assessment and Payments, nevertheless falls short of being countervailing proof of the presumption of correctness afforded government documents under Seal, Federal Rules of Evidence, Rule 902(1) and United States v. Posner, supra.
We now address the government's motion for the lifting of the stay pursuant to § 362(d) of the United States Bankruptcy Code. Admitted into evidence was the sworn valuation assigned by the debtors to their personal residence as submitted on their schedule of assets and liabilities. Those schedules filed only six months prior to the time of the hearing on this matter reflect a fair market value of the residence at $90,000. The evidence presented at trial reflects that debtors' liability to the IRS is in excess of $167,000. The only evidence as to valuation placed on the record by the debtors was Mr. Garm's testimony that the valuation placed on his property at the time he signed the schedule of assets and liabilities under oath was grossly underestimated and that as of the date of his hearing he valued the residence at approximately $150,000. We do not find debtors testimony as to the fair market value of his property credible and, consequently, we further find that the IRS has met its burden of showing that there is no equity in the real estate subject to its § 362 motion. The automatic stay imposed by § 362(a) of the United States Bankruptcy Code is hereby lifted to permit the Internal Revenue Service to proceed with whatever rights it has in the debtors' real estate.
As an alternative motion, the IRS requested that the property be abandoned under § 554 of the United States Bankruptcy Code. Once again, the debtors provided no evidence other than the male debtor testifying to the increase in value of the real estate in order to contest the request for abandonment. Based upon the evidence adduced at trial, we find that the property is burdensome and that it has both inconsequential value and benefit to the estate, and is thereby ordered abandoned *418 from the estate pursuant to 11 U.S.C. § 554(b).
IT IS SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535819/ | 114 B.R. 965 (1990)
In re William J. STOECKER, Debtor.
Bankruptcy No. 89 B 02873.
United States Bankruptcy Court, N.D. Illinois, E.D.
May 24, 1990.
*966 *967 Thomas Raleigh, Raleigh & Helms, Chicago, Ill., Trustee.
David Missner, Leroy Inskeep, Rudnick & Wolfe, Chicago, Ill., Representative of Rudnick & Wolfe.
Gerald F. Munitz, Jim Blanco, Winston & Strawn, Chicago, Ill., Amy R. Wolf, Wachtell, Lipton, Rosen & Katz, New York City, for Connecticut Bank and Trust Co.
Ronald W. Hanson, James A. Cherney, Latham & Watkins, Chicago, Ill., Jonathan L. Greenblatt, Kenneth A. Freeling, Shearman & Sterling, New York City, for Citibank, N.A.
M. Scott Michel, Chicago, Ill., U.S. Trustee, Richard C. Friedman, Chicago, Ill., for trustee.
MEMORANDUM OPINION
JOHN H. SQUIRES, Bankruptcy Judge.
This matter comes before the Court on the application of Rudnick & Wolfe (the "Applicant") pursuant to 11 U.S.C. § 330 and Federal Rule of Bankruptcy Procedure 2016 for allowance of final compensation in the amount of $102,283.65[1] and reimbursement of expenses in the amount of $7,485.05 from the period March 9, 1989 through October 31, 1989. Proper notice was given to all creditors and parties in interest pursuant to Federal Rule of Bankruptcy Procedure 2002. For the reasons set forth herein, the Court hereby allows the Applicant compensation in the amount of $130,000.00 and reimbursement of expenses in the amount of $6,597.33.
A hearing was held on the fee application on January 18, 1990. Objections were filed by Citibank, N.A. ("Citibank"), Thomas Raleigh, ("Raleigh") the trustee of the estate of William J. Stoecker (the "Debtor"), the United States Trustee, and The Connecticut Bank and Trust Company ("Connecticut Bank"). The Court allowed the parties to amend or supplement the application and the objections. Subsequently, on March 13, 1990 a second hearing was conducted. At that time, the Court heard testimony from representatives of the Applicant. The Court gave the Applicant leave to submit closing arguments by or before March 23, 1990. Responses thereto were due April 6, 1990 and any reply was due April 13, 1990. Thereafter, the matter was taken under advisement.
I. JURISDICTION AND PROCEDURE
The Court has jurisdiction to entertain this fee application pursuant to 28 U.S.C. § 1334 and General Rule 2.33(a) of the United States District Court for the Northern District of Illinois. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), and (O).
II. FACTS AND BACKGROUND
Many of the facts, background and some of the history of this case is contained in an earlier Opinion of the Court. See In re Stoecker, 103 B.R. 182, 184-185 (Bankr.N. D.Ill.1989). On February 21, 1989, an involuntary *968 Chapter 11 petition was filed against the Debtor. Prior thereto, involuntary petitions were filed against five corporate holding companies; Grabill Corporation, Camdon Companies, Inc., Foxxford Group, Ltd., The Techna Group, Ltd. and Windsor-Hamilton, Ltd. Stoecker is the sole equity holder in those related corporate debtors. The background information concerning those cases is contained in earlier Opinions of the Court. See In re Grabill Corp., 110 B.R. 356, 358 (Bankr.N.D. Ill.1990); In re Grabill Corp., 103 B.R. 996, 997-998 (Bankr.N.D.Ill.1989).
On March 8, 1989, after a full evidentiary hearing, the Court ordered the appointment of a Chapter 11 trustee. Shortly thereafter, on March 14, 1989, the Court entered an order for relief under Chapter 11. Raleigh was thereafter appointed by the U.S. Trustee on March 20, 1989, to serve as trustee of the Chapter 11 estate. The case was subsequently converted to Chapter 7 on February 26, 1990. Raleigh was thereafter appointed by the U.S. Trustee to serve as interim trustee of the Chapter 7 estate pursuant to 11 U.S.C. § 701(a). Raleigh continues to serve as the trustee under 11 U.S.C. § 702(d).
The Applicant was originally retained pre-petition by the Debtor on or about January 17, 1989. On April 11, 1989, the Applicant filed the requisite statement pursuant to 11 U.S.C. § 329 and Bankruptcy Rule 2016(b), disclosing that it had received a $150,000.00 retainer from the Debtor. On April 13, 1989, the Court entered an Order authorizing the employment of the Applicant nunc pro tunc to February 21, 1989. Thereafter, on August 11, 1989, the Applicant filed a supplemental statement disclosing that it received an additional retainer in the amount of $10,000.00 from Thomas A. Durkin, criminal counsel for the Debtor, in connection with "matters stated in the April 11, 1989 Affidavit." On September 18, 1989, pursuant to leave of Court, the Applicant withdrew as counsel for the Debtor upon the Debtor's discharge of the Applicant in open Court. Although the Applicant withdrew on said date, it seeks fees through October 31, 1989.
III. ARGUMENTS BY THE PARTIES
Several parties have filed objections to the fee application based upon various grounds. Raleigh objects to payment of any fees or expense reimbursement subsequent to the Applicant's withdrawal on September 18, 1989. Moreover, Raleigh questions the benefit to the estate of many of the services performed in light of the fact that such services were rendered in connection with the Debtor's criminal defense of various bankruptcy fraud charges. Furthermore, Raleigh suggests that some of the services performed by the Applicant related to his duties as trustee pursuant to 11 U.S.C. §§ 704 and 1106, and the Applicant was not authorized pursuant to 11 U.S.C. § 327(e) to be employed as special counsel to represent the estate on such matters. Raleigh concludes that an allowance of $49,391.64 is appropriate compensation and $6,294.20 in expenses should be reimbursed for the post-petition period. Raleigh makes no objection to the fees charged by the Applicant for the pre-petition services.
Connecticut Bank objects to any fee allowance whatsoever based on a lack of benefit to the estate. Furthermore, Connecticut Bank alleges that the services were for the benefit of the Debtor alone and not the estate. Additionally, Connecticut Bank argues that some of the work was duplicative of work performed by Raleigh.
Citibank objects to many of the services on the basis that the Debtor's estate was not benefitted. In fact, Citibank suggests that many of the services were for the benefit of the five corporate estates. Moreover, Citibank objects to some of the post-petition services as they are allegedly duplicative of the work performed by Raleigh and his counsel. Citibank concludes that $43,441.70 would be an appropriate allowance for compensation, and concurs with Raleigh's recommended expense reimbursement of $6,294.20. Citibank does not object to the fees charged by the Applicant for pre-petition services, although it suggests that only $80,859.89 should be allowed for that period.
*969 The U.S. Trustee objects to the fee application as a whole based upon a lack of benefit to the estate, with the exception of categories nine and thirteen. The U.S. Trustee suggests that the Applicant's services have hindered the administration of the case and have been superfluous. Moreover, the U.S. Trustee suggests that any compensation allowed be reduced five percent. This reduction is recommended due to the Applicant's billing practice of minimum .25 hour increments, rather than in tenth of an hour increments, contrary to the local custom and practice followed by the Court. Furthermore, the U.S. Trustee recommends an additional ten percent reduction of fees because the Applicant failed to properly advise the Debtor of his duties under 11 U.S.C. § 521(4) and Bankruptcy Rule 4002(3). The U.S. Trustee objects to the application of the $10,000.00 additional retainer to any criminal work rendered by the Applicant because the statement disclosing the compensation paid referred only to civil bankruptcy work. The U.S. Trustee objects to the reimbursement of expenses in toto. The U.S. Trustee recommends an allowance of $33,019.75 for post-petition compensation and does not object to the fees charged for the pre-petition work.
The several objectors, especially Raleigh and Citibank, provided very detailed and specific objections. Rarely does the Court receive from the professionals who are intimately involved and familiar with a case, such particular and defined recommendations with actual dollar amounts specified. Under the Bankruptcy Code, the Court is removed from the case with regard to most administrative matters, but ironically, is required to evaluate fee applications. The assistance furnished by the objectors as well as the professionals representing the Applicant has made the Court's review of the fee application less difficult and time consuming.
IV. DISCUSSION
A. STANDARDS APPLICABLE TO FEE APPLICATIONS
Generally, professional persons seeking compensation from the estate must first be authorized to be employed under section 327 and Bankruptcy Rule 2014. Pursuant to section 330, authorized and employed professionals applying for fees must then demonstrate that their services were actual, necessary and reasonable. The legislative history of section 330 expressly notes the Court's correlative duty to closely examine the reasonableness and necessity of the fees incurred. S.Rep. No. 989, 95th Cong., 2d Sess. 40-41 (1978), U.S.Code Cong. & Admin.News 1978, 5787, 5825-5827. Bankruptcy Rule 2016(a), in turn, requires that "[a]n entity seeking interim or final compensation for services, or reimbursement of necessary expenses, from the estate shall file with the court an application setting forth a detailed statement of (1) the services rendered, time expended and expenses incurred, and (2) the amounts requested." Fed.R.Bankr.P. 2016(a).
In addition, section 329 permits the bankruptcy court to review the fees of a debtor's attorney, paid during the year prior to the filing of the petition, for services rendered in contemplation of or in connection with the case. Section 329 empowers the bankruptcy court to order the return of excessive fees paid pre-petition. 11 U.S.C. § 329.
The burden of proof to show entitlement to the fees requested is on the Applicant. In re Pettibone Corp., 74 B.R. 293, 299 (Bankr.N.D.Ill.1987); In re Lindberg Products, Inc., 50 B.R. 220, 221 (Bankr.N.D.Ill.1985). Moreover, the fee application must stand or fall on its own merits. See In re Wildman, 72 B.R. 700 (Bankr.N.D.Ill.1987). Even if no objections are raised to a fee application, the Court is not bound to award the fees sought, and in fact, has a duty to independently examine the reasonableness of the fees. In re Wyslak, 94 B.R. 540, 541 (Bankr.N.D.Ill.1988); In re Chicago Lutheran Hospital Association, 89 B.R. 719, 734-735 (Bankr.N.D.Ill. 1988); Pettibone, 74 B.R. at 299-300; In re NRG Resources, Inc., 64 B.R. 643, 650 (W.D.La.1986). Moreover, fees for a debtor's attorney are properly payable out of *970 estate assets when a commensurate benefit to the estate is provided, but not for services which personally benefit only the debtor. See In re Ryan, 82 B.R. 929, 931-932 (N.D. Ill.1987). Absent a showing of benefit to the estate, a debtor's attorney will not be compensated for services which were duplicative of duties of the trustee or the trustee's counsel. In re Marker, 100 B.R. 569, 571 (Bankr.N.D.Ala.1989). Moreover, if an attorney's services have, in fact, obstructed or impeded the administration of the estate, those services are not compensable. See In re Sandra Cotton, Inc., 91 B.R. 657, 659 (W.D.N.Y.1988).
Several courts have listed other factors to be considered when reviewing fee applications. These factors are set forth in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir.1974). The twelve Johnson factors are: 1) the time and labor required; 2) the novelty and difficulty of the questions; 3) the skill required to perform the legal services properly; 4) the preclusion of employment by the attorney due to acceptance of the case; 5) the customary fee; 6) whether the fee is fixed or contingent; 7) time limitations imposed by the client or the circumstances; 8) the amount involved and the results obtained; 9) the experience, reputation and ability of the attorneys; 10) the undesirability of the case; 11) the nature and length of the professional relationship with the client; and 12) awards in similar cases. Id. at 717-719.
As a general rule, a debtor has no right to use estate assets to fund his criminal defense. In re Duque, 48 B.R. 965 (S.D.Fla.1984); Official Committee of Disputed Litigation Creditors v. McDonald Invest., Inc., 42 B.R. 981 (N.D.Tex.1984); In re Southern Commodity Corp., 85 B.R. 892 (Bankr.S.D.Fla.1988); In re United Church of the Ministers of God, 84 B.R. 50 (Bankr.E.D.Pa.1988); In re Moore, 57 B.R. 270 (Bankr.W.D.Okla.1986); In re Tashof, 33 B.R. 225 (Bankr.D.Md.1983); In re Pajarito American Indian Art, Inc., 11 B.R. 807 (Bankr.D.Ariz.1981). Courts have rejected the argument that it was in the best interest of the estate to employ criminal counsel or to pay the cost of services relating to a debtor's criminal defense.
B. SUMMARY OF THE COMPENSATION REQUESTED
The Applicant classifies the services into thirteen categories and substantially complies with the guidelines and format prescribed by Judge Grady in In re Continental Illinois Securities Litigation, 572 F.Supp. 931 (N.D.Ill.1983). The fee application has been carefully reviewed and consideration given to all the Johnson factors. The Applicant requests that the compensation be paid from the estate to cover the difference between the $184,502.04 sought for pre-petition and post-petition services and the $160,000.00 retainers received or $24,502.04.
The following is a list of the original amounts of compensation by category, the amount presently sought and the Applicant's voluntary reduction:
CATEGORY ORIGINAL AMT. PRESENT AMT. REDUCTION
1. All Services Rendered Pre-petition $82,218.39 $82,218.39 0.00
2. Employment of Professional 1,336.50 1,336.50 0.00
Persons
3. Review Pleadings and 16,924.05 15,133.80 1,790.25
Court hearings
4. Conferences or Telephone 10,037.50 8,340.75 1,696.75
Calls
5. Review and Assemblage of 20,509.50 18,793.50 1,716.00
Documents
6. Lender Liability Suit 28,974.00 28,974.00 0.00
7. Communications with 7,665.90 7,610.90 55.00
Trustee and Counsel
8. Sale of Airplanes 4,606.50 4,606.50 0.00
*971
9. Sale of Douglas Dynamics 163.90 163.90 0.00
10. Fifth Amendment and Related 14,976.75 6,713.00 8,263.75
Matters
11. Contempt of Court Issue 9,183.55 9,183.55 0.00
12. Grand Jury Issues 10,172.75 0.00 10,172.75[2]
13. Preparation of the Fee Application 1,427.25 1,427.25 0.00
Total $208,196.54 $184,502.04 $23,694.50
=========== =========== ==========
C. COMPENSATION ALLOWANCE
1. Category One
Pursuant to this category, the Applicant seeks $82,218.39 for services rendered pre-petition. Citibank objects based upon a lack of benefit to the Debtor's estate. The U.S. Trustee states that the amount sought is subject to review by the Court under section 329 and that no allowance can be made prior to the Court's review thereof.
The Applicant submitted time sheet summaries for the work expended pre-petition. The Debtor's financial problems, which resulted in the involuntary petition, were serious and complex. He needed experienced and able attorneys to counsel him and provide many legal services in a relatively short time. The Court is satisfied that the work performed was not excessive or unreasonable. Thus, the Court will not order disgorgement of the fees previously paid for services rendered in this category.
2. Category Two
The Applicant seeks $1,336.50 in fees for services expended in connection with its employment and withdrawal from representation of the Debtor. The U.S. Trustee raised a general objection based upon a lack of benefit to the estate. Upon review of the time entries which total 6.5 hours, the Court finds that the fees sought are reasonable, necessary and conferred a benefit upon the estate. The time expended for preparing and presenting the required pleadings and affidavits was not excessive. Therefore, the Court hereby allows in full the fees requested in this category.
3. Category Three
Pursuant to category three, the Applicant seeks $15,133.80[3] in compensation for services provided in connection with making court appearances and reviewing, drafting, editing and revising pleadings. Raleigh suggests that the Court allow only $14,481.50 because some of the services relate to the Debtor's criminal defense. The U.S. Trustee makes no specific suggestion in this category. Citibank recommends an award of $14,102.00.[4] It claims that some of the work was duplicative of that provided by Raleigh in his capacity as trustee. Moreover, Citibank objects to some services relating to the Debtor's criminal defense. Additionally, it states that some of the services rendered benefitted the related corporate estates and not the Debtor's estate.
Upon review of the entries from the time sheet summaries, the Court finds that most of the services performed were reasonable and necessary. The Applicant's court appearances, pleadings and other work performed facilitated the administration of the estate. The Court, however, disallows several entries because they relate, in part, to *972 criminal defense work. These entries, which are comprised of phone calls, correspondence, meetings, document preparation and review, and court hearings are lumped together. Thus, it is impossible for the Court to clearly discern the compensable time from the non-compensable time. Accordingly, the following entries are disallowed:
Date Professional Time Expended Hourly Rate Disallowance
05/10/89 JKK 2.75 hrs. $187.00 $ 514.25
05/18/89 JKK 1.00 hrs. 187.00 187.00
05/19/89 JKK 3.00 hrs. 187.00 561.00
_________
Total Disallowance $1,262.25
Hence, the Court hereby awards compensation pursuant to this category in the amount of $13,871.55.
4. Category Four
The Applicant seeks reduced fees in the amount of $8,340.75 for services expended relating to general bankruptcy issues. Raleigh suggests that the Applicant should receive $8,098.75 because some of the time includes non-compensable services relating to criminal matters. Citibank objects on the basis that the Applicant spent time conferring with the trustee for the corporate cases and his counsel. It suggests an award of only $7,326.00.
The Applicant, as counsel to the Debtor, engaged in numerous conferences and telephone calls with not only Raleigh, his counsel, and various creditors' counsel, but also the trustee for the corporate cases and his counsel. Due to the fact that the Debtor was the sole equity holder in the corporate cases and was asserting his Fifth Amendment privilege, substantial amounts of conferencing was both necessary and reasonable given the need for discovery and information sought by all interested parties. The trustee for the corporate cases has filed claims for those estates in the instant case, as have the objectors. Thus, communications between the Applicant and the trustee in the corporate cases and his professionals, at least indirectly related to, and had some impact on the Debtor's estate. Due to the close interrelationship among the estates, it would be unnecessarily harsh to disallow reasonable compensation for the Applicant's time spent with the corporate trustee and his professionals, in light of the Applicant's voluntarily reduction in this category which covers the non-compensable time relating to criminal defense matters. Accordingly, the Court will allow the reduced fees sought in this category in the sum of $8,340.75.
5. Category Five
The Applicant seeks $18,793.50[5] in fees for time expended reviewing and assembling voluminous documents. Raleigh has objected to some of the fees on the basis that the time relates to meetings with the Debtor's criminal counsel as well as assisting him in reviewing and analyzing the Debtor's records. Additionally, Raleigh objects to the award of fees for services rendered after the Applicant's withdrawal on September 18, 1989, other than services provided in connection with the preparation of the fee application. Raleigh recommends an award of $14,265.90. Citibank has objected to the fees under this category on the basis that the Applicant failed to apportion the fees among the several estates as Citibank claims that some of the services benefitted the corporate cases. Similarly, Citibank recommends an award of $14,265.90. The U.S. Trustee objects to the award of any compensation in this category. He argues that these services were for Raleigh to perform, not the Applicant.
*973 The Applicant was not authorized by the Court to perform such work as special counsel under section 327(e). The Applicant's services, however, were of substantial benefit to all the estates, the case trustees and the creditors. The Applicant created a document depository in which thousands of records were organized, reviewed, abstracted, collated and categorized. Thus, substantial compensation in this category is appropriate.
The Applicant's withdrawal on September 18, 1989, however, warrants disallowance of several entries. The Court will not award compensation for services rendered post-withdrawal, other than those services performed in connection with the preparation of the fee application. Accordingly, the following entries are disallowed:
Date Professional Time Expended Hourly Rate Disallowance
09/19/89 LL .50 hrs. $ 66.00 $ 33.00
09/26/89 JH 1.50 hrs. 198.00 297.00
09/28/89 JH 1.00 hrs. 198.00 198.00
10/03/89 JH .25 hrs. 198.00 49.50
_______
Total Disallowance $577.50
Moreover, the Court disallows the entries pertaining to services the Applicant provided to the Debtor's criminal counsel which do not clearly relate to these bankruptcy proceedings, but can logically be inferred to relate to the defense of the criminal proceedings then pending against the Debtor.
Date Professional Time Expended Hourly Rate Disallowance
04/24/89 LL 2.50 hrs. $ 66.00 $ 165.00
04/27/89 LL 5.00 hrs. 66.00 330.00
05/15/89 LL 2.50 hrs. 66.00 165.00
05/18/89 LL 8.25 hrs. 66.00 544.50
05/19/89 LL 2.00 hrs. 66.00 132.00
05/24/89 LL .50 hrs. 66.00 33.00
06/08/89 LL 2.75 hrs. 66.00 181.50
08/17/89 LL 3.75 hrs. 66.00 247.50
08/23/89 LL .50 hrs. 66.00 33.00
08/24/89 LL 2.50 hrs. 66.00 165.00
_________
Total Disallowance $1,996.50
Therefore, the Court hereby awards the Applicant compensation in this category in the sum of $16,219.50.
6. Category Six
The Applicant seeks $28,974.00 pursuant to this category for services expended in connection with potential lender liability claims. The Debtor maintained that he possessed various lender liability claims against the Bank of New England and Connecticut Bank. The Applicant's services were expended investigating and developing those claims. Raleigh has objected to the fees in toto. Raleigh claims that it is his statutory duty as representative of the estate to investigate and analyze all claims by and against the estate. Moreover, Raleigh notes that the Applicant was not appointed special counsel to pursue or investigate these claims pursuant to section 327(e). In addition, Raleigh alleges that it is impossible to determine whether the services were of any benefit to the estate or whether such services were duplicative of work performed by him as trustee. Raleigh *974 further asserts that many of the services were actually rendered in connection with the Debtor's criminal defense. The U.S. Trustee has objected to the allowance of any fees on the basis that such investigation was for Raleigh as trustee to pursue and was not authorized by the Court.
The Court will not award any compensation for the services rendered in this category. The Applicant was not authorized pursuant to section 327(e) to act as special counsel to pursue or investigate such claims. This investigation was among the statutory duties enumerated in sections 704 and 1106 for Raleigh to perform. Moreover, Raleigh and his professionals made such investigations and have settled and released such potential claims by Order dated May 4, 1990. The settlement of the potential lender liability claims occurred without objection, after notice to all creditors and other interested parties and an evidentiary hearing. As the testimony indicated, any such lender liability claims were of questionable value and subject to vigorous defenses including the unclean hands defense arising from the Debtor's prepetition acts, omissions and representations. The Applicant's services performed in this category were unauthorized, duplicative and of no benefit to the estate. Therefore, the services are not properly compensable.
7. Category Seven
Pursuant to this category, the Applicant seeks reduced compensation in the amount of $7,610.90[6] for services rendered relating to communications with Raleigh and his counsel. Raleigh has not objected to the requested fees, although he notes that seven of the seventeen entries do not provide a description of the topics discussed during these communications, and therefore, are technically deficient. Citibank, however, objects to the amount sought based on a lack of benefit to the estate. It recommends an allowance of $4,198.15.
For the same reasons as discussed in category four, the Court finds that the communications between the Applicant and Raleigh and his counsel were necessary, reasonable, and thus compensable. Consequently, the Court hereby awards fees in this category in the sum of $7,610.90.
8. Category Eight
The Applicant seeks compensation in this category in the amount of $4,606.50 for time expended in connection with the sale of certain airplanes. Raleigh supports the request for fees. He notes that the Applicant contacted dozens of potential purchasers which precipitated the sale of the aircraft. Therefore, Raleigh claims that the Applicant's effort in this category produced a demonstrable benefit to the estate.
Citibank has raised an objection based upon a duplication of efforts on the part of the Applicant and Raleigh. Citibank alleges that seventy percent of the work in this category was performed subsequent to the appointment of Raleigh. Citibank argues that services expended after March 19, 1989 are largely duplicative of the work provided by Raleigh. It objects to the award of any fees in this category after March 19, 1989, and recommends an allowance of only $1,980.50. The U.S. Trustee has objected based upon a lack of benefit to the estate.
The Court will allow all the compensation in this category as a demonstrable benefit has been produced; namely the airplanes were sold for sums exceeding $4,000,000.00. Raleigh admits that the Applicant's assistance was instrumental to the successful sales of the aircraft. The Court notes that this category illustrates the significance of the eighth Johnson factor which is often overlooked, but may be the most important the amount of fees involved is relatively small, but the result obtained for the estate was relatively great. Consequently, the Court hereby allows compensation in the amount of $4,606.50.
9. Category Nine
Pursuant to this category, the Applicant seeks fees in the amount of $163.90 for the *975 sale of Douglas Dynamics, a non-debtor subsidiary of significant value to the Debtor's estate. No objections to this category have been raised. To the contrary, Raleigh supports the request and states that it was the Applicant who initially commenced the discussions for the sale of the company. After review, the Court hereby allows the fees as same are reasonable, necessary and have benefitted the estate.
10. Category Ten
The Applicant seeks compensation in the amount of $6,713.00[7] for services in connection with the Debtor's exercise of his privilege under the Fifth Amendment and other related matters. Raleigh and Citibank object to the entire amount sought on the basis that time expended in relation to defending the Debtor in criminal matters is not compensable from the estate. The U.S. Trustee also objects to the award of any fees in this category on the basis that no benefit has been conferred upon the estate.
The Court hereby disallows all of the compensation. Based on the cited authorities discussed in section IV. A, the Court will not award fees, payable from the estate assets, for services performed incidental to the Debtor's criminal defense. Compensation from the estate will be allowed for those services expended in connection with the bankruptcy proceedings which are authorized, reasonable, necessary and benefit the estate. The services in this category failed to produce any benefit to the estate. Rather, the work was for the sole benefit of the Debtor himself. The privilege asserted was personal to the Debtor and exercised for his protection, not for the benefit of the estate. Hence, none of the fees are properly compensable.
11. Category Eleven
Pursuant to this category, the Applicant seeks compensation in the amount of $9,183.55 for time rendered in connection with contempt of court issues. The U.S. Trustee, Raleigh and Citibank object to the entire amount of fees on the basis that the matter involved a civil contempt of court, directed at the Debtor's criminal counsel, and produced no benefit to the estate.
The Court will not award any compensation in this category. The matter involved criminal defense counsel's non-compliance with the required disclosures of section 329 and Bankruptcy Rule 2016(b), after counsel appeared and participated in these proceedings by filing pleadings and making vigorous argument on the Debtor's behalf. The Applicant claims that the services were rendered in an attempt to protect the identity of parties who were willing to finance the Debtor's prosecution of the lender liability suit. However, that potential cause of action was for Raleigh to pursue, not the Debtor. Consequently, the services provided by the Applicant did not produce any benefit to the estate. Rather, the services were for the principal benefit of the Debtor's criminal counsel and may have been of incidental benefit to the Debtor. Thus, the Court will not compensate the Applicant for the time spent pursuant to the civil contempt of court matters.
12. Category Thirteen
The Applicant seeks compensation in the amount of $1,427.25 for the preparation of the fee application. No objections to this category have been raised. The Applicant expended 7.25 hours in this category which the Court finds reasonable. The fee application and the supplement thereto are in substantial conformity with the Continental guidelines. Such compliance facilitated the review of the fee application by the Court, other interested parties, the objecting creditors, Raleigh and the U.S. Trustee. As a result, under Wildman, Pettibone, and other decisions followed by the Court, such services are properly compensable from the estate and are hereby allowed.
13. Recapitulation of the Allowed Fees
The following is a list by category of the requested compensation and the amounts allowed: *976
CATEGORY REDUCED REQUEST AMOUNT ALLOWED
1 $ 82,218.39 $ 82,218.39
2 1,336.50 1,336.50
3 15,133.80 13,871.55
4 8,340.75 8,340.75
5 18,793.50 16,219.50
6 28,974.00 0.00
7 7,610.90 7,610.90
8 4,606.50 4,606.50
9 163.90 163.90
10 6,713.00 0.00
11 9,183.55 0.00
12 0.00 0.00
13 1,427.25 1,427.25
TOTAL: $184,502.04 $135,795.24
=========== ===========
D. BILLING PRACTICE OF THE APPLICANT
Several of the objectors have expressed concern over the Applicant's billing practice, which charges all time expended in minimum .25 hour increments. Bankruptcy Rule 2016 requires actual time expended to be detailed. Thus, this type of billing practice is unacceptable. See Pettibone, 74 B.R. at 302; Wildman, 72 B.R. at 708-709. Billing in this manner potentially inflates the charges to the estate, especially when telephone calls are being recorded. Judge Schmetterer, in citing In re Sapolin Paints, Inc., 38 B.R. 807, 814 (Bankr.E.D.N.Y.1984) noted, "[i]f very short phone calls are routinely recorded as taking 12 or 15 minutes at rates ranging from $110.00 to $150.00 per hour and the attorney makes a number of calls, the distortion in the hours claimed and the cost to the estate are substantial." Id. at 709.
The Court agrees with this logic which is equally applicable to all legal services performed. It is not objectionable to use .10 hour increments as the minimum unit charged for legal services. The Court has previously reduced compensation in other unrelated cases by as much as five percent to adjust for the inflationary effect of billing in .25 hour increments. The Applicant has already made a significant reduction in its request in light of the objections filed. The Court will reduce the allowed amount of compensation, namely $135,795.24, by approximately 4.26 percent ($5,795.24), which results in a final allowance of $130,000.00 for both the pre-petition and post-petition services.
E. APPLICANT'S ROLE IN THE FAILURE OF THE DEBTOR TO TURN OVER CERTAIN ASSETS TO RALEIGH
Both the U.S. Trustee and Raleigh raise the further point that after Raleigh's appointment, the Debtor failed to immediately turnover substantial amounts of cash kept secreted and discovered only after a search by the Federal Bureau of Investigation. The U.S. Trustee suggests an additional ten percent discount from the allowed fees is appropriate for the Applicant's alleged failure to properly counsel the Debtor regarding his duties under section 521(4) and Bankruptcy Rule 4002(3). Raleigh argues that the Court would be justified in disallowing all compensation due to the Debtor's conduct concerning the secreted cash. The cash sums were collected pre-appointment at the Applicant's advice. Raleigh cites case authority for the unquestioned proposition that a client-debtor who follows his attorney's advice not to turnover estate assets can be appropriately denied a discharge under section 727(a)(2)(A).
The evidence adduced at the hearing was that the cash was assembled and secreted on the Applicant's advice, to prevent bank *977 accounts from being garnished by energetic judgment creditors of the Debtor. Furthermore, a member of the Applicant's firm testified that the Applicant immediately advised the Debtor of Raleigh's appointment and the legal effect thereof. The extent of the funds on hand were unknown to the witness. The Debtor was also informed of a meeting to be sought between the Applicant and Raleigh to discuss a budget, to allow the Debtor to retain cash for his personal living expenses while the case was in a Chapter 11 posture. The witness admitted he did not advise the Debtor to wait for a meeting before turning over all assets to Raleigh.
There has been no testimony or other evidence presented to the effect that the Applicant advised the Debtor not to turnover the cash or to continue to secret it and conceal it from Raleigh. Section 521(4) and Bankruptcy Rule 4002(3) prescribe certain non-delegable duties of the Debtor. Denial of discharge is the appropriate remedy for the Debtor's wrongful acts and omissions if clearly and convincingly proven.
Absent a showing that the Applicant actually advised the Debtor to conceal the hoarded cash from Raleigh, there is an insufficient basis upon which to further reduce or entirely disallow the compensation. The attorney-client relationship is sacred to the Court. Communications between such parties, specifically an attorney's legal advice to his client, are privileged, unless the client waives the privilege. The Debtor has not testified that he was advised by the Applicant to conceal the hoarded cash from Raleigh. Thus, the Court is not privy to what other advice was given than that disclosed at the hearing on the fee application. Therefore, such alleged sins of the Debtor cannot be properly visited upon the attorney or in this matter, the attorney's fees. Consequently, the Court will not further reduce or entirely disallow the compensation. The Court has already made a sufficient reduction of the fees based upon ample precedent and authority.
F. APPLICATION OF THE RETAINERS
The Applicant desires to apply against the criminal defense and related services it performed, the $10,000.00 portion of the retainers paid it by the Debtor's criminal counsel. Retainers paid to a debtor's counsel from property of the estate are subject to judicial review. In re Burnside Steel Foundry Co., 90 B.R. 942, 944 (Bankr.N.D.Ill.1988); In re Wyslak, 94 B.R. 540, 542 (Bankr.N.D.Ill.1988); In re Chapel Gate Apts. Ltd., 64 B.R. 569, 574 (N.D.Tex.1986).
The Applicant cites In re Hargis, 887 F.2d 77 (5th Cir.1989), for the proposition that because that payment did not come from the Debtor and was not part of the estate, the Applicant can apply such funds in any manner it chooses. In Hargis, the Fifth Circuit reversed lower court decisions ordering disgorgement of attorneys' fees because the retainer was paid out of life insurance proceeds, not part of the estate under section 541(a)(5)(C). Thus, the disputed fund was not appropriately subject to the trustee's avoidance powers for certain post-petition transfers violative of section 549(a). The Hargis court noted that the power of the bankruptcy court to regulate professional services is geared toward protecting the rights of creditors via protection of the estate. The court concluded that payment of the claimed attorneys' fees out of non-estate assets would free-up estate assets for payment to the other creditors and thus allows each to take a correspondingly larger slice of the bankruptcy pie. Moreover, the court noted that Congress has not established sweeping regulatory power over non-estate property.
The Applicant's supplemental statement disclosed that the additional $10,000.00 was paid in connection with matters set forth in its earlier statement. The initial statement disclosed the original $150,000.00 retainer. The U.S. Trustee argues that the Applicant effectively earmarked the funds for payment of allowed bankruptcy services and should not be permitted to apply the $10,000.00 against the disallowed services relating to criminal defense work. Section *978 329(b)(1)(A) allows the bankruptcy court to order disgorgement to the estate of excessive fees paid to a debtor's attorney if the property transferred to the attorney would have been property of the estate. Section 329(b)(1)(B) reaches the same result if the property transferred was to be paid by or on behalf of the debtor under a Chapter 11, 12, or 13 plan. In the alternative, section 329(b)(2) allows the Court to order disgorgement of excessive fees to the entity that made such payment.
It is undisputed that the supplemental $10,000.00 paid the Applicant came from the Debtor's criminal defense counsel. Thus, it does not appear to be property of the estate under section 541. Hence, section 329(b)(1)(A) is inapplicable, and the Court could not properly order disgorgement of the excess to Raleigh. Moreover, no reorganization plan was ever filed under which the sum in question was to be paid. Therefore, section 329(b)(1)(B) is inapplicable. Pursuant to section 329(b)(2), the Court could order disgorgement of the supplemental retainer to the remitter, the Debtor's criminal counsel. Such exercise, however, would be of no benefit to the estate. The Applicant would likely present its bill for the disallowed services it rendered for the Debtor's criminal defense work to the Debtor's criminal counsel. He in turn might either pay the sum over to the Applicant, or refuse to do so and trigger additional litigation in some other forum. Such result serves no real purpose other than engendering additional delay and expense over undisputed services actually rendered, but not appropriately compensable by the Court in connection with the bankruptcy case. The discretionary authority vested in the Court under section 329(b) regarding this sum is more wisely utilized by its non-exercise under these circumstances. The disgorgement ordered under section 329 is limited to the $150,000.00 paid to the Applicant by the Debtor.
G. REIMBURSEMENT OF EXPENSES
The Applicant seeks reimbursement of expenses in the sum of $7,485.05. The Applicant bears the burden of establishing that it is entitled to certain expenses which must be fully and clearly described. In re Convent Guardian Corp., 103 B.R. 937, 939 (Bankr.N.D.Ill. 1989); In re Affinito & Son, Inc., 63 B.R. 495, 497 (Bankr.W.D.Pa.1986). The Court will not assume any expense is necessary. See In re Lindberg Products, Inc., 50 B.R. 220, 221 (Bankr.N.D.Ill.1985). An expense is necessary if it was incurred because it was required to accomplish the proper representation of the client. In re Wildman, 72 B.R. 700, 731 (Bankr.N.D.Ill.1987).
Both the U.S. Trustee and Raleigh object to the expenses requested. They claim that the fee application fails to identify expenses by category. Moreover, they assert that due to the fact that some of the categories should be denied in full, all expenses must be denied. Furthermore, the U.S. Trustee claims that the expenses are so lacking in detail that they cannot be reimbursed under the standards followed by the Court.
Although many of the expense entries do not fully comply with the standards set forth in Convent Guardian, such as Lexis and Westlaw charges and local delivery charges, the Court will not require the Applicant to further supplement the fee application. These expenses comprise the bulk of the expenses sought. In the future, however, the Applicant must describe, in greater detail, the expense entries so as to eliminate the uncertainty created by the lack of specificity. The Court will allow reimbursement of expenses in the amount of $6,597.33.
Generally, the Court will not authorize reimbursement for meals unless out-of-town travel is involved. In re Continental Illinois Securities Litigation, 572 F.Supp. 931, 934 (N.D.Ill.1983). This case did not necessitate out-of-town travel by the Applicant. The Applicant failed to show the compelling necessity for the meal charges which are normally personal expenditures borne by the consuming professional. Accordingly, the Court will not allow the request for meal reimbursement in *979 the amount of $198.58.[8]
Moreover, secretarial overtime in the sum of $472.00 will not be reimbursed.[9] Expenses which are overhead are not compensable because they are built into the normal hourly rate charged by the billing professional. See Convent Guardian 103 B.R. at 939; Wildman, 72 B.R. at 731. Overhead expenses include "all continuous administrative or general costs or expenses incident to the operation of the firm which cannot be attributed to a particular client or cost". In re Thacker, 48 B.R. 161, 164 (Bankr.N.D.Ill.1985), quoting In re Jensen-Farley Pictures, Inc., 47 B.R. 557, 584 (Bankr.D.Utah 1985). Absent extraordinary circumstances, which have not been shown here, the Court views secretarial overtime as an overhead expense and thus non-compensable.
Furthermore, the Applicant's withdrawal from the case on September 18, 1989, warrants disallowance of post-withdrawal expenses in the amount of $164.10.[10] Additionally, the $53.04 car rental expense on 03/31/89 is disallowed for a lack of specificity as required by Convent Guardian. Consequently, the Court hereby authorizes partial reimbursement of expenses in the amount of $6,597.33.
V. CONCLUSION
For the foregoing reasons, the Court hereby allows Rudnick & Wolfe compensation *980 in the amount of $130,000.00 and authorizes reimbursement of expenses in the amount of $6,597.33 for a total of $136,597.33. The Applicant previously received retainers in the total amount of $160,000.00. Ten Thousand ($10,000.00) Dollars of that total was not property of the estate and the Court declines to order disgorgement of that sum. The Applicant is hereby authorized to apply the original $150,000.00 retainer against the fees awarded. The balance of the retainer totalling $13,402.67 is further ordered to be disgorged and paid to Thomas E. Raleigh as trustee of the estate within ten days hereof.
This Opinion is to serve as findings of fact and conclusion of law pursuant to Federal Rule of Bankruptcy Procedure 7052.
See written Order.
NOTES
[1] The Applicant originally sought compensation in the amount of $122,100.15. On November 29, 1989, the Applicant filed a supplemental fee application whereby it sought additional fees of $3,872.00 and expenses of $6.00, thus increasing the request to $125,972.15 in fees and $7,491.05 in expenses. Thereafter, on February 16, 1990, the Applicant filed a supplement to the application and requested reduced fees of $121,121.07 and expenses of $7,485.05. This request, however, contained an arithmetic error and the memorandum filed by the Applicant noted this error. Hence, the Applicant seeks final compensation in the amount of $102,283.65 and expense reimbursement in the sum of $7,485.05 for the period covered by the Application. In addition, the Applicant rendered various services to the Debtor pre-petition which totalled $82,218.39. Thus, the sum of the total fees requested for services pre-petition ($82,218.39) plus post-petition, as reduced ($102,283.65) is $184,502.04.
[2] Because the Applicant no longer seeks compensation pursuant to category twelve, the Court will not address the objections raised thereto.
[3] The Applicant originally requested $16,924.05, but voluntarily reduced the fees sought in this category by $1,790.25.
[4] The Applicant contends that the amount recommended by Citibank should be $14,332.50 due to a claimed duplication in the suggested disallowance proposed.
[5] The original amount sought was $20,509.50 which was reduced by $1,716.00 to the present request. The reduction consisted of twenty-six hours of time expended on criminal matters.
[6] This figure represents a reduction in the sum of $55.00 for work performed on criminal matters.
[7] The Applicant has voluntarily reduced the original request by $8,263.75. This reduction reflects work expended on criminal defense matters.
[8] The following is a list of the disallowed meal expense entries:
Date Description Disallowance
03/20/89 Lunch for S. Schwab
and five people $ 45.04
03/20/89 Lunch for D. Missner
and four people 18.68
04/11/89 Lunch for D. Missner 28.10
04/24/89 Lunch for L. Inskeep
and four people 22.79
04/24/89 Lunch for L. Inskeep
and seven people 51.84
06/22/89 Lunch for D. Missner
and six people 32.13
_______
Total Disallowance $198.58
[9] The following entries are disallowed:
Date Description Disallowance
03/31/89 Secretarial overtime $ 60.00
05/15/89 Secretarial overtime 48.00
05/15/89 Secretarial overtime 120.00
06/15/89 Secretarial overtime 48.00
06/15/89 Secretarial overtime 60.00
06/15/89 Secretarial overtime 60.00
08/15/89 Secretarial overtime 22.00
08/15/89 Secretarial overtime 30.00
08/15/89 Secretarial overtime 24.00
_______
Total Disallowance $472.00
[10] The following post-withdrawal expenses are disallowed:
Date Description Disallowance
10/01/89 Delivery to various places $153.10
10/04/89 Delivery to Tom Durkin 5.00
10/12/89 Delivery to Louise Lovinson 5.00
10/16/89 Telecopy expense for
9/30/89 through 10/06/89 1.00
_______
Total $164.10 | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535521/ | 103 Pa. Commonwealth Ct. 355 (1987)
520 A.2d 542
Laneco, Inc., Petitioner
v.
Commonwealth of Pennsylvania, Respondent.
No. 1554 C.D. 1983.
Commonwealth Court of Pennsylvania.
Argued September 11, 1986.
January 28, 1987.
Argued September 11, 1986, before Judges DOYLE and BARRY, and Senior Judge KALISH, sitting as a panel of three.
Norman A. Peil, Jr., for petitioner.
Paul S. Roeder, Deputy Attorney General, with him, LeRoy S. Zimmerman, Attorney General, for respondent.
*356 OPINION BY JUDGE BARRY, January 28, 1987:
Laneco, Inc., the petitioner, appeals from an order of the Board of Finance and Revenue which affirmed a decision of the Department of Revenue's Board of Appeals that petitioner owed $202,494.78 plus interest to the Commonwealth for use taxes.
The following relevant facts were stipulated: Petitioner is the owner of a number of supermarkets and combination retail food-discount stores in eastern Pennsylvania. As part of its advertising, petitioner has circulars printed in Ohio. These circulars are then distributed by (1) mailing them directly to petitioner's customers in Pennsylvania, (2) placing them in petitioner's own stores for the customers and (3) shipping them from Ohio to a number of newspapers in eastern Pennsylvania where the circulars are inserted by the newspapers' employees prior to regular delivery of the newspapers.
The Department of Revenue assessed petitioner $202,494.78 for use taxes plus interest for the period from January 1, 1979 through December 31, 1981. The Board of Appeals affirmed the assessment as did the Board of Finance and Revenue. This appeal followed.
Petitioner concedes that it owes $33,952.10 plus interest for the circulars that were placed in its own stores. No assessment was ever made on the circulars placed in the mail and addressed to petitioner's customers. The sole issue remaining is whether the use tax is due on those circulars distributed with the local newspapers in eastern Pennsylvania.
At the time in question, Section 204 of the Tax Reform Code of 1971, Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §7204, read as follows:
The tax imposed by Section 202 shall not be imposed upon
. . . .
*357 (30) The sale at retail or use of periodicals and publications which are published at regular intervals not exceeding three months, and which are circulated among the general public and containing matters of general interest and reports of current events published for the purpose of disseminating information of a public character or devoted to literature, the sciences, art or some special industry.[1]
The precise question posed is whether the advertising circulars are periodicals and publications within the meaning of Section 204(30). Petitioner asserts that this is a question of first impression in the Commonwealth. Our research indicates that this assertion is correct, as we have been unable to find any Pennsylvania cases deciding this exact issue. There are, however, a number of cases decided in other states which have dealt with a similar issue. Those cases have answered the question differently.
Best illustrative of the opposing positions are Caldor, Inc. v. Heffernan, 183 Conn. 566, 440 A.2d 767 (1981), which held the inserts not exempt from taxation and Sears, Roebuck and Co. v. State Tax Commission, 370 Mass. 127, 345 N.E.2d 893 (1976), which held the inserts were exempt. In neither of the cases did the state legislatures involved define the term "newspaper", although in both jurisdictions newspapers were exempted from the sales and use taxes. Both courts recognized *358 that advertising is an essential part of a newspaper, and we have no quarrel with such an assertion, for it is common knowledge that monies from advertising are a prime source of revenue for newspapers.
In Sears, the court decided that the inserts were exempt from use taxes for three reasons. First, the court reasoned that if the advertisements had been printed by the newspapers themselves, no tax would result; merely changing the identity of the printer should not change that result. Second, it relied on a decision of the Third Circuit Court of Appeals in Friedman's Express, Inc. v. Mirror Transportation Co., 169 F.2d 504 (3d Cir. 1948). There, a federal statute exempted from taxation motor vehicles used exclusively for the distribution of newspapers and the precise question was whether automobiles used for the distribution of comic sections to various newspapers for insertion into the Sunday editions of those newspapers fell within the exemption. As the Circuit Court stated:
We shall not attempt a definition [of the term newspaper] other than to say that a typical modern Sunday newspaper embraces not only comic sections but financial sections, news sections, sports sections, magazine sections, and various special supplements. . . . The field of a modern newspaper is as broad and catholic as the field of its readers. . . .
We think that Congress did not intend to make a fine-spun distinction between the distribution of newspapers and parts or sections of newspapers. The word `newspapers' used in the statute in our opinion was intended to embrace all or any of the component parts of a modern newspaper, each equally important to various public groups and to embrace the whole or any section thereof which is ready in form to be brought into the hands of the public. *359 Id. at 506-07 (emphasis added) (footnotes omitted). After holding that Friedman's Express was sufficient authority to conclude that advertising supplements were a part of a newspaper and exempt from use taxation, the Sears court finally reasoned that a tax on newspaper revenues would have a devastating effect on freedoms guaranteed by the First Amendment to the United States Constitution.
The Caldor court took a different view. After first recognizing one common characteristic of all newspapers, i.e., being published at short regular intervals generally not exceeding one week, the court held that since the advertising supplements were not prepared at short regular intervals, they were not newspapers. The court buttressed this conclusion by referring to the rule of statutory construction requiring a strict construction of a statute granting a tax exemption.
The court then went on to give its reasons for failing to follow the decision in Sears. First, the court relied upon the fact that there was no privity of contract between the newspaper and the printer at the time of the taxable event, i.e., at the time ownership passed from the printer to the retailer. Because privity existed between the newspapers and the printers of the comic sections in Friedman's Express, the court concluded that Sears was, in its view, incorrectly decided. Furthermore, the court opined that since the comic sections were printed on a regular basis they commanded their own following unlike the inserts which were printed at an irregular basis. The court ultimately concluded that the inserts did not fit within the commonly accepted definition of "newspaper".
In the present case, Laneco urges that we find Sears to be more persuasive while the Commonwealth, of course, does the same with Caldor. Upon complete consideration of both cases, we believe that Sears is the more appropriate example to follow.
*360 As we have already mentioned, advertisements are commonly accepted to be a portion of any newspaper. We also have no doubt that had Laneco chosen to advertise on the actual printed page of the newspapers in question the transaction would have been exempt from the taxes in question. We are not persuaded, as were not our brethren in Massachusetts, that since Laneco has the inserts printed elsewhere, this alone should change the ultimate result when those inserts were at all times intended for distribution with the newspapers. Furthermore, we believe that the advertisements contained in a newspaper, whether inserts or ads printed by the newspaper itself, are of sufficient interest to a significant portion of the newspaper buying public so that those advertisements must be treated similarly to the comic sections or any other well defined sections of the newspaper.
We also believe the points relied upon in Caldor cannot withstand critical analysis. First, that court relied upon the fact that the advertising inserts were not printed on a regular basis. Neither, however, are the ads which are printed by the newspaper, as advertising is heavier during certain parts of the year and lighter at others, so that regularity, when considering advertisements, means little if anything. Second, the Caldor court found no privity of contract between the newspaper and the printer of the ads at the time the inserts were delivered to the retailer. If the concept of privity is crucial to our case, we simply note that Laneco never took possession of those inserts which were delivered to the various newspapers, as it was the Ohio printer that shipped those inserts directly to the newspapers in question. Finally, regarding the court's statement that advertisements in a newspaper do not command the same following as other portions of the paper, we have already mentioned that we simply believe that assertion is incorrect.
*361 The Commonwealth also argues that exemptions must be strictly construed against the one claiming the exemption. While we recognize the legitimacy of that rule of construction, it must be remembered that rules of construction are needed only when an ambiguity arises. Here, we find no such ambiguity. Newspapers are exempted from sales and use taxes. As we believe that advertisements are part and parcel of any newspaper these inserts, as advertisements, are entitled to the exemption.
ORDER
NOW, January 28, 1987, the order of the Board of Finance and Revenue is reversed except for the $33,952.10 which petitioner concedes that it owes. This order will become final unless exceptions are filed within thirty days. See Pa. R.A.P. 1571(i).
NOTES
[1] The Act of December 9, 1982, P.L. 1047, which became effective July 1, 1983, added the following sentence to the above quoted section: "This exclusion shall also include any printed advertising material circulated with such periodical or publication regardless of where and by whom such printed advertising material was produced." The question raised in the present case has been answered by the Legislature for all advertising material used after July 1, 1983. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535830/ | 114 B.R. 214 (1990)
In re Emilio J. LAGUNA, Jr., and Cynthia Laguna, Debtors.
SHEARSON LEHMAN MORTGAGE CORPORATION, Appellant,
v.
Emilio J. LAGUNA, Jr., and Cynthia Laguna; Lawrence J. Loheit, Trustee, Appellees.
BAP No. EC-88-2107-PRAs, Bankruptcy No. 288-05581-A-13.
United States Bankruptcy Appellate Panel of the Ninth Circuit.
Argued and Submitted July 20, 1989.
Decided May 18, 1990.
*215 Thomas J. Holthus, Costa Mesa, Cal., for appellant, Shearson Lehman Mortg. Co.
Scott DeBier, Sacramento, Cal., for appellees.
Before PERRIS, RUSSELL and ASHLAND, Bankruptcy Judges.
OPINION
PERRIS, Bankruptcy Judge.
An oversecured creditor holding a security interest in debtors' primary residence, appeals from an order confirming the debtors' Chapter 13 Plan which proposed to cure pre-petition arrearages owed to appellant but which did not provide for interest on the arrearages. We AFFIRM.
FACTS
The relevant facts are not in dispute. Emilio and Cynthia Laguna (the "debtors") own a single family dwelling which is their principal residence and which is the sole security for the debtors' obligation to appellant, Shearson Lehman Mortgage Corporation ("Shearson"). Shearson is an oversecured creditor. Debtors were six monthly payments behind on their obligation to Shearson when they filed a Chapter 13 petition on August 25, 1988.
The debtors' Chapter 13 Plan proposed to pay the current payments to Shearson and to cure the pre-petition arrearages owed to Shearson over a period not to exceed 36 months, but did not provide for interest on the arrearages. Shearson objected to confirmation on the grounds that the Plan failed to provide for interest on the arrearages that is due over the term of the Plan under 11 U.S.C. § 1325(a)(5).[1] Neither the note nor the deed of trust provided for interest on arrearages. The bankruptcy court overruled Shearson's objection and entered an order confirming the Plan on January 13, 1989. Shearson filed this timely appeal.
ISSUES
1. Whether an oversecured creditor, whose sole security is the debtors' principal residence, is entitled to post-petition interest on pre-petition arrearages that are cured under the debtor's Chapter 13 plan when neither the note nor the deed of trust provide for such interest.
2. Whether the Fifth Amendment requires the payment of such interest.
STANDARD OF REVIEW
The issues on appeal are questions of law that are reviewed de novo. See In re Patterson, 86 B.R. 226, 227 (9th Cir. BAP 1988).
DISCUSSION
1. Whether an oversecured creditor, whose sole security is the debtors' principal residence, is entitled to post-petition interest on pre-petition arrearages that are cured under the debtor's Chapter 13 Plan when neither the note nor the deed of trust provide for such interest.
Shearson initially contends that it is entitled to post-petition interest on the pre-petition arrears under section 506(b).[2] Section 506(b) determines the interest to be included as part of the allowed secured claim as of the date of confirmation rather than the interest to be paid on deferred payments under the Plan. See In re Corliss, 43 B.R. 176, 178 (Bankr.D.Or.1984). This distinction compels us to reject Shearson's argument that it should be allowed to recover post-confirmation interest on arrearages under section 506(b).
Even if section 506(b) were pertinent to post-confirmation interest, it is doubtful that it would allow interest on arrearages in the absence of a contractual provision providing for such interest. Courts have generally disallowed interest on arrearages *216 under section 506(b) unless there was a contractual basis for such interest. See, e.g., In re Gincastro, 48 B.R. 662 (Bankr. D.R.I.1985). Shearson argues that the recent decision of United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989), implicitly overruled cases disallowing interest on arrearages in the absence of a contractual basis for such interest. In holding that post-petition interest may be allowed on oversecured nonconsensual lien claims under section 506(b), the Court in Ron Pair determined that the right to interest under section 506(b) is not limited to those instances where a secured creditor has a contractual right to such interest. We do not believe that Ron Pair, however, requires the allowance of interest on contract arrearages absent an appropriate contract provision. The allowance of such interest under section 506(b) would involve applying that section twice first to determine that arrearages are part of the unsecured claim[3] and then to determine that interest should be allowed on the arrearages. Such allowance under section 506(b) would result in the compounding of interest[4] which is inconsistent with state law unless there is a contrary agreement. See Cal.Civ.Code § 1916-2. Absent a clear statutory mandate, to allow an oversecured creditor interest on interest when such allowance is contrary to state law would impede the bankruptcy goals of fostering financial rehabilitation and equitable distribution among creditors.
Shearson relies on section 1325(a)(5) as the second prong of its argument. Under section 1325(a)(5), when a secured creditor does not accept a plan and the debtor does not surrender the collateral to the creditor, the present value of property distributed under the plan must be no less than the allowed secured claim provided for by the plan.[5]See 5 Collier on Bankruptcy ¶ 1325.06[4][b][iii] (15th ed.1988) (hereafter "Collier"). When the plan proposes to pay an allowed secured claim by deferred payments, present value may be provided by proposing interest payments on the allowed secured claim over the course of the payment period. See id. The heart of this dispute is whether sections 1322(b)(2) and (5) alter or are inconsistent with the possible allowance of such interest under section 1325(a)(5)(B)(ii).
As relevant to the issue before us, section 1322(b)(2) prohibits the modification by a Chapter 13 plan of the rights of holders of "a claim secured only by a security interest in real property that is the debtor's principal residence."[6]See In re Seidel, 752 F.2d 1382, 1383 (9th Cir.1985). Notwithstanding this prohibition, section *217 1322(b)(5) allows the plan to cure a default and maintain payments during the pendency of the Chapter 13 proceeding on any secured claim on which the last payment is due after the date on which the final payment under the Plan is due.[7] There is a split of authority on the effect of these sections on the possible entitlement to interest under these sections.
Many courts, including the Third and Eleventh Circuits, have determined that sections 1322(b)(2) and (5) prohibit the payment of interest on arrearages to a creditor holding solely a security interest in the debtor's principal residence unless the contract between the parties provides for such interest. See, e.g., In re Appeal of Capps, 836 F.2d 773 (3d Cir.1987); In re Terry, 780 F.2d 894 (11th Cir.1985); Collier ¶ 1322.09[4]. Capps reasoned that curing a default pursuant to section 1322(b)(5) was not a modification of the secured creditors rights in that the terms of the contract, with the exception of the injunction against foreclosure, remained in force. 836 F.2d at 776. Accordingly, the court determined that the present value test of section 1325(a)(5) was not applicable where a default is cured under section 1322(b)(5) because section 1325(a)(5) applies only to compensate secured creditors whose rights have been modified. See also Collier ¶ 1322.09[4]; In re Stamper, 84 B.R. 519 (Bankr.N.D.Ill.1988).
Terry determined that the payment of interest on arrearages under section 1325(a)(5) constitutes a modification that is prohibited by section 1322(b)(2) when the contract between the parties did not provide for such interest. 780 F.2d at 896-97. See In re Brown, 91 B.R. 19, 22 (Bankr.E. D.Va.1988); Stamper, 84 B.R. at 523. Terry further noted, similar to Capps, that section 1325(a)(5)(B) is intended to benefit those creditors whose rights may be modified and has no application in light of section 1322(b). 780 F.2d at 896-97.
Other courts, including the Sixth Circuit, have held that the payment of interest on arrearages is permissible under section 1325(a)(5) and is not barred by sections 1322(b)(2) and (5), notwithstanding the fact that the contract between the parties does not provide for such interest. See, e.g., In re Colegrove, 771 F.2d 119, 122 (6th Cir. 1985). Colegrove determined that interest is allowable under sections 506(b) and 1325(a)(5) and such interest is "merely incident to the `cure'" of section 1322(b)(5) rather than an impermissible modification of the loan agreement. 771 F.2d at 122. In re Catlin, 81 B.R. 522, 524-25 (Bankr.D. Minn.1987), in reaching the same result as Colegrove, determined that although sections 1322(b)(2) and (5) limit the extent to which the rights of certain secured creditors can be impaired under the Plan, they do not limit the rights and benefits conferred elsewhere in the Code (for example, sections 506(b) and 1325(a)(5)). Catlin further noted that sections 1325(a)(5) and 1322(b)(2) serve different but complementary purposes and are not inconsistent or contradictory. Id. In re Trigwell, 67 B.R. 808, 810 (Bankr.C.D.Cal.1986), agreed that sections 1325(a)(5)(B) and 1322(b)(2) and (5) were not inconsistent and indicated that it does not make sense for section 1322(b)(2), which benefits the home mortgage lender, to be used to single out and discriminate against that lender as the only class of secured creditor who is unable to receive interest on arrearages under a secured debt. Id.
We believe that the authorities determining that the payment of interest on arrearages is not required in the absence of a contract providing for such interest are persuasive and consistent with pertinent Ninth Circuit authority. Section 1322(b)(2) prohibits the modification of the rights of creditors holding a security interest solely in the debtor's principal residence. Section 1322(b)(5) creates an exception to this prohibition by allowing the debtor to cure a *218 default within a reasonable time and maintain payments on the secured debt. Requiring post-confirmation interest to be paid on interest under either section 506(b) or 1325(a)(5)(B) absent a contractual provision providing a right to such interest would constitute a prohibited modification as it would alter the rights and expectations of the parties under their contract. This modification is not, as is suggested by Colegrove merely incident to the cure because the steps necessary to cure are defined by the contract and applicable non-bankruptcy law. See Collier ¶ 1322.09[4]. In this case, neither the contract, nor applicable non-bankruptcy law requires interest to effect a cure. See Cal.Civil Code § 2924c(a).
The Court of Appeals for the Ninth Circuit has dealt with the concept of "cure" without modification of the underlying claim in the Chapter 11 setting. In re Entz-White Lumber and Supply, Inc., 850 F.2d 1338, 1340 (9th Cir.1988) (quoting In re Taddeo, 685 F.2d 24, 26-27 (2d Cir. 1982)) explained the concept of "cure" as follows:
A default is an event which triggers certain consequences. Curing a default commonly means taking care of the triggering event and returning to predefault conditions. The consequences are thus nullified. This is the concept of `cure' used throughout the Bankruptcy Code.
Thus, cure means to restore the status quo which existed before the default. Id. Requiring the debtor to perform obligations which were triggered only by a default, such as requiring the payment of a post-default rate of interest, is inconsistent with the concept of "cure" and would completely eliminate the benefits of a cure as it would fail to nullify a significant consequence of default. In re Southeast Co., 868 F.2d 335, 339 (9th Cir.1989); see Entz-White, 850 F.2d at 1343. Similarly, in this case, allowing the payment of interest on interest, which would be inherent in paying interest on arrearages, would go beyond restoring the status quo ante, would eliminate the benefit of cure and would fail to nullify a consequence of the default. The allowance of such interest, therefore, would not be incident to the cure.
We are also persuaded by the reasoning of Capps that 1325(a)(5)(B) is not applicable when there is maintenance and cure under section 1322(b)(5) because there is no modification of the secured creditors' rights. Similar to a determination that a cure under section 1322(b)(5) does not modify creditor's rights, a claim is considered unimpaired under Chapter 11 if the plan, inter alia, cures pre-petition defaults and reinstates the debt. See section 1124(2); see also Southeast Co., supra. A Chapter 11 plan need not be crammed down on creditors who are not impaired by the plan. See sections 1129(a)(8)(B) and 1129(b)(1). By way of analogy to Chapter 11, the cram down provisions of section 1325(a)(5)(B) are not applicable when the debtor utilizes section 1322(b)(5) to cure defaults and maintain payments.
Shearson argues that section 1322(b)(2) merely prohibits the modification of the rights of a holder of a claim secured by the debtor's principal residence and that conferring a benefit on the holder through the allowance of interest is not a modification of its rights. This contention is not well taken. By its terms, section 1322(b)(2) prohibits the modification of a mortgage holders rights, whether the modification is to its benefit or detriment. In re Stratton, 30 B.R. 44, 45 (Bankr.W.D.Mich.1983). An example will illustrate the weakness of Shearson's contention in this regard. Suppose the contract provided for interest on arrearages at the rate of 10% and the proper interest rate for interest under section 1325(a)(5)(B)(ii) is the prevailing market rate. Under Shearson's argument, if the market rate is higher than 10% it would be allowed to recover the higher rate as a permissible modification. If, however, the market rate is less than 10% an adjustment to the market rate would be an impermissible modification. Carrying the analogy to its next logical step, under Shearson's argument there would be no reason why it would not be entitled to a market interest rate on its entire claim since such a rate reflects present value. Congress did not intend that debtors be required to pay the *219 higher of the market interest rate or the contract rate on claims secured solely by their principal residence. See In re Brady, 86 B.R. 166, 170 (Bankr.D.Minn.1988). Such payment would be at odds with section 1322(b)(2)'s bar to modifying the rights of certain secured creditors.
In summary, we believe that the cases denying the right to interest on pre-petition arrearages in the absence of a contract providing for such interest are more persuasive and are consistent with Ninth Circuit authority explaining the concept of "cure." Sections 1322(b)(2) and (5) detail the treatment to be afforded to the holders of claims secured only by the debtors' personal residence. This treatment does not include interest on pre-petition arrearages unless the contract between the parties so provides. The possible allowance of such interest under sections 1325(a)(5) and 506(b) is inconsistent with the treatment afforded by sections 1322(b)(2) and (5) as it would be an impermissible modification of contractual rights.
2. Whether the Fifth Amendment requires the payment of such interest.
Shearson also argues, relying on In re Metz, 67 B.R. 462, 467 (9th Cir.BAP 1986), aff'd, 820 F.2d 1495 (9th Cir.1987), that a failure to pay interest on pre-petition arrearages would violate the Just Compensation clause of the Fifth Amendment to the Constitution. Metz determined that a mortgagee's ability to accelerate a note for nonpayment was not a vested right protected by the Just Compensation clause and therefore the cure and reinstatement of the note at the original interest rate was not an unconstitutional taking where Plan provided for maintenance of payments and repayment of arrearages with interest.
Basically, Metz determined that the primary modification that was allowed by sections 1322(b)(2) and (5) the cure and reinstatement was not unconstitutional. Aside from that modification, if interest is not allowed under sections 506(b) or 1325(a)(5), the parties are left with the rights provided for by their contract. Because the contractual rights remain in place, with the exception of the cure and reinstatement, we do not see how an unconstitutional taking could occur. In addition, although the plan in Metz provided for interest on the arrearages, the Panel did not indicate that such interest was required to avoid a constitutional infirmity.
Even if Shearson's rights as a secured creditor are somehow impaired by the failure to pay interest, courts have uniformly held that the impairment, or even the avoidance, of a secured creditors rights by the Bankruptcy Code does not constitute an unconstitutional taking under the Fifth Amendment when the security interest arose after the enactment of the Code. See, e.g., In re Thompson, 82 B.R. 985, 988-89 (Bankr.W.D.Wisc.1988) (application of the lien avoidance provisions of section 522(f) is not an unconstitutional taking when the security interest arose after the enactment of the Code); compare United States v. Security Industrial Bank, 459 U.S. 70, 78, 103 S.Ct. 407, 412, 74 L.Ed.2d 235 (1982) (there is substantial doubt whether the application of the lien avoidance provisions of section 522(f) to a lien arising before the enactment of the Code comports with the Fifth Amendment). In this case, Shearson's security interest was created after the enactment of the Code and any impairment of Shearson's rights inherent in denying interest on pre-petition arrearages pursuant to the Code is constitutional.
CONCLUSION
We determine that an oversecured secured creditor, who holds a security interest solely in the debtors' principal residence, is not entitled to post-petition interest on pre-petition arrearages that are cured under the debtor's Chapter 13 plan when neither the note nor the deed of trust provide for such interest. We also determine that the Fifth Amendment does not require the payment of such interest. Because we determine that there is no right to interest we do not address the appropriate rate of interest. For these reasons, we AFFIRM.
*220 RUSSELL, Bankruptcy Judge, dissenting:
I dissent. Payment of interest on arrearages is required in a Chapter 13 case when the arrearages are not paid in full as of the effective date of the plan. 11 U.S.C. § 1325(a)(5)(B)(ii). A plan cannot be confirmed if it provides otherwise.
Whether this mortgage provides for the payment of interest on arrearages is irrelevant because the requirement that such payment be made exists independent of any contract provision. The obligation to pay interest on arrearages is a statutory requirement contained in Section 1325(a)(5)(B)(ii), which provides that a mortgagee must receive the present value of its claim,[1] if the claim is not paid in full. The right to interest created by Section 1325(a)(5)(B)(ii), like the right to interest under Section 506(b),[2] is not conditioned on the existence of a right to interest under the contract or under applicable bankruptcy law.
The majority makes unwarranted assumptions that most of the arrearages are interest and apparently that there is something evil about compounding interest. However, we are dealing here only with the interest on the arrearages and not the interest on the principal. The rate to be paid on the note is an entirely different issue that is not now before this Panel.
The majority cites California Civil Code Section 1916-2 which merely provides that for a compounding of interest in California, there must be a provision in the contract. The right to interest which is the subject of this appeal originates from a federal statute and state law on interest is irrelevant to the interest rate under Section 506(b).
In this regard, the majority completely misses the point clearly made by the Supreme Court in Ron Pair that the interest provided for in Section 506(b) is not the same as the interest specified under a contract. The majority would allow the debtor to use Section 1332(b)(2) to abridge rights given the creditor under Section 506(b) and Section 1325(a)(5)(B)(ii). In support of its position, the majority cites several cases that were decided prior to Ron Pair. If the Court in Ron Pair had held that Section 506(b) does not require allowance of interest on contract arrearages absent an appropriate contract provision, the effect of Ron Pair on the facts of this case might very well be different. However, I am bound by the holding of the Supreme Court in Ron Pair which clearly states otherwise:
The relevant phrase in § 506(b) is: "there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement under which such claim arose." "Such claim" refers to an oversecured claim. The natural reading of the phrase entitles the holder of an oversecured claim to postpetition interest. . . . Recovery of postpetition interest is unqualified. . . . Therefore, in the absence of an agreement, postpetition interest is the only added recovery available.
Ron Pair, 489 U.S. at ___, 109 S.Ct. at 1030, 103 L.Ed.2d at 298 (emphasis added).
There is no conflict between such an interpretation of Section 1325(a)(5)(B)(ii) and Section 1322(b)(2). As the majority *221 points out, Section 1322(b)(2) prohibits the modification of the rights of a holder of a secured claim, where the claim is "secured only by a security interest in real property that is the debtor's principal residence."
It has been argued that Section 1322(b)(2) bars modifications even if they benefit the secured creditor. The legislative history of Section 1322(b)(2) was reviewed at length in In re Seidel, 752 F.2d 1382 (9th Cir.1985). In defining the meaning of the word "modification" the Ninth Circuit concluded that Congress intended to protect creditors wholly secured by home mortgages from modifications made by debtors that negatively impact creditors rights. Id. at 1394-97. However, there is no indication from the legislative history of Section 1322(b)(2) that Congress intended to prohibit modifications that benefit a creditor.
Therefore, Section 1322(b)(2) is clearly no bar to the applicable statutory provisions of Title 11, such as Section 1325(a)(5)(B)(ii), which "modifies" a mortgagee's rights by placing limits on a debtor's ability to ignore the time value of money when providing for a secured creditor's claim in a plan.
I would, therefore, reverse.
NOTES
[1] All references are to the Bankruptcy Code, 11 U.S.C. §§ 101 et seq., unless otherwise indicated.
[2] 11 U.S.C. Section 506(b) provides as follows: To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement under which such claim arose.
[3] Shearson's proof of claim listed, in addition to the unpaid principal, arrearages in the amount of $5,516.31. The arrearages apparently consist of unpaid principal and interest, late charges and attorney's fees. The portion of the arrearages consisting of unpaid principal would be part of the allowed secured claim under the terms of the loan documents. The portion of the arrearages consisting of the unpaid interest, late charges and attorney's fees would be part of the allowed secured claim pursuant to section 506(b).
[4] Although there is no proof in the record, the fact that the default occurred in the second year of a 30 year note, suggests that the missed payments and consequently the arrearages consist primarily of interest, which was made part of the allowed secured claim under section 506(b). Requiring the payment of interest on the arrearages would therefore result in the compounding of interest.
[5] 11 U.S.C. Section 1325(a)(5) provides that a court shall confirm a Chapter 13 plan if, inter alia,
with respect to each allowed secured claim provided for by the plan
(A) the holder of such claim has accepted the plan;
(B)(i) the plan provides that the holder of such claim retain the lien securing such claim; and (ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim; or
(C) the debtor surrenders the property securing such claim to the holder.
[6] 11 U.S.C. Section 1322(b)(2) provides that a Chapter 13 plan may
(2) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims.
[7] Section 1322(b)(5) provides as follows:
(5) notwithstanding paragraph (2) of this subsection, provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due.
[1] The payment of interest is implicit in any present value analysis, which typically involves discounting a stream of future payments back to its "present value" through the use of an appropriate discount rate. Under such an analysis, the payment of a specific amount over time must include the payment of interest in addition to the payment of principal (the specific amount at issue), in order to allow the stream of future payments, after discounting, to equal the same value as if payment of the full amount had been made at time zero, i.e., the effective date of the plan.
[2] Section 506(b)'s requirement that interest be allowed in certain situations is a statutory obligation that exists regardless of whether interest is otherwise allowed under the contract or applicable nonbankruptcy law. United States v. Ron Pair Enters., Inc. (In re Ron Pair Enters., Inc.), 489 U.S. ___, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989).
Section 1325(a)(5)(B)(ii) is analogous to Section 506(b) and should be subject to a similar reading because it also creates an obligation that exists in situations regardless of whether a right to interest otherwise exists under any contract or applicable nonbankruptcy law. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535531/ | 520 A.2d 285 (1987)
Michael C. McCLOUGH, Appellant,
v.
UNITED STATES, Appellee.
No. 84-850.
District of Columbia Court of Appeals.
Argued October 30, 1986.
Decided January 21, 1987.
*286 Reginia L. Jackson, Washington, D.C., appointed by this court, for appellant.
David A. Reisner and Gail M. Mooney also entered appearances for appellant.
Michael W. Farrell, Asst. U.S. Atty., with whom Joseph E. diGenova, U.S. Atty., and Keith A. O'Donnell, Asst. U.S. Atty., Washington, D.C., were on brief, for appellee.
John H. Suda, Acting Corp. Counsel, D.C., at the time the brief was filed, and Charles L. Reischel, Deputy Corp. Counsel, D.C., Appellate Div., Washington, D.C., were on brief for amicus curiae District of Columbia.
Before MACK, FERREN, and ROGERS, Associate Judges.
ROGERS, Associate Judge:
In this appeal, appellant Michael McClough, who has been convicted of possessing preludin with intent to distribute, contends that because D.C.Code § 1-205(b) (1981) is unconstitutional under Immigration and Naturalization Service v. Chadha, 462 U.S. 919, 103 S.Ct. 2764, 77 L.Ed.2d 317 (1983), his mandatory minimum sentence of twenty months to five years pursuant to § 33-541(a)(1) (1986 Supp.) is invalid. The mandatory minimum sentencing statute was enacted by voter initiative. Voter initiatives were authorized by an act of the Council of the District of Columbia which amended the charter *287 in the District of Columbia Self-Government and Governmental Reorganization Act. D.C.Code §§ 1-201 to -295 (1981 & 1986 Supp.) ("Home Rule Act"). At that time amendments to the charter would take effect only if both Houses of Congress passed a concurrent resolution. Id. § 1-205(b). Therefore, appellant argues, because the charter amendment authorizing voter initiatives did not provide for presentment to the President for signature as required by U.S. CONST. art. I, § 7, cl. 3, the mandatory minimum sentence statute is invalid and the trial court was without authority to impose the mandatory minimum sentence on appellant. We agree that the congressional oversight provisions of D.C. Code § 1-205(b) are unconstitutional, but hold them to be severable from the charter amendment authority in the Home Rule Act. Gary v. United States, 499 A.2d 815 (1985) (en banc) (Nebeker, and Terry, JJ., concurring; Belson, J., concurring; Mack, J., concurring in part and dissenting in part); D.C.Code § 1-205(a). Accordingly, we affirm.
I
The validity of the mandatory minimum sentencing provisions for drug dealers, D.C.Code § 33-541(a)(1) (1986 Supp.), rests on three successive sources of legal authority. First, the measure was enacted by citizen initiative on September 14, 1982, and became effective on June 7, 1983. See 30 D.C.Reg. 1226-27 (1983). The D.C. Self-Government and Governmental Reorganization Act, D.C.Code § 1-201 et seq. (1981 and 1986 Supp.), however, originally did not contain a provision for citizen initiative, referendum, and recall.[1] This citizen authority was instead granted by the Council of the District of Columbia through a charter amendment that became effective on March 10, 1978.[2] Finally, the authority of the D.C. Council to promulgate such a charter amendment was derived from D.C.Code § 1-205 (1981).[3]
Section 1-205(b) of the charter amendment provisions contains the oversight provisions that are challenged in this appeal.[4] Specifically, it requires that both houses of *288 Congress must approve a ratified amendment by concurrent resolution within 35 days. The initiative amendments were approved in this fashion. The section does not, however, provide for the presentment of the amendment to the President, and no such presentment of the initiative amendments occurred.
Appellant McClough was convicted for possession of illegal narcotics with intent to distribute and was sentenced in accordance with the mandatory minimum sentencing provisions. In reliance on Chadha, supra, he argued to the trial judge, and argues here, that the presentment requirement applies to D.C. charter amendments, that § 1-205 is invalid because it does not provide for presentment, that the D.C. Council and the electorate were powerless to install initiative procedures, and that any measure passed by initiative, including the mandatory minimum sentencing provisions, therefore lacked legal authority. The trial judge held that Chadha's requirement of bicamerality and presentment for legislative matters did not apply to the District of Columbia, and therefore the charter amendment procedures were valid in their entirety.
II
This court has recently and specifically held that Chadha applies to provisions under the D.C. Home Rule Act. In Gary v. United States, supra, 499 A.2d at 819, the court, sitting en banc, wrote that "the powers involved in the Home Rule Act veto provisions are legislative in character, effect and fact." Congress' plenary power over the District of Columbia means no more than that it is akin to a state legislature, and not that the government thereof is not legislative in character. Without a special exception, the presentment required applies whenever a broad power is concerned. Chadha, supra, 462 U.S. at 948-55, 103 S.Ct. at 2782-86. On this appeal, the government and amicus have not challenged the applicability of Chadha. Nor have they disputed the contention that Chadha invalidates the procedure contained in § 1-205(b) for congressional approval of charter amendments without presentment to the President. We agree that our recent decision in Gary forecloses any extended inquiry.
In Gary, supra, 499 A.2d at 817, three defendants challenged their convictions under District of Columbia Code provisions that they claimed had been repealed by the District of Columbia Sexual Reform Act of 1981, D.C. Act No. 4-69, 28 D.C.Reg. 3409 (1981). This Act had been subjected to a (one house) veto by the House of Representatives pursuant to the legislative veto provisions of D.C.Code § 1-233(c)(2) (1981), which applies generally to legislative acts of the D.C. Council.[5] There is no germane difference between the legislative character of charter amendments as opposed to Council acts. Moreover, the bicameral requirement of § 1-205(b), as opposed to the unicameral sufficiency of § 1-233(c)(2) (limitations on authority of the D.C. Council), does not cure the lack of presentment. See Chadha, supra, 462 U.S. at 947-48, 103 S.Ct. at 2782. Consumers Energy Council of America v. FERC, 218 U.S. App.D.C. 34, 673 F.2d 425 (1982), summarily aff'd sub nom. Process Gas Consumers Group v. Consumer Energy Council of America, 463 U.S. 1216, 103 S.Ct. 3556, 77 L.Ed.2d 1402-1403 (1983).
III
The sole issue before the court, then, is the severability of the § 1-205(b) congressional veto provisions from the general charter amendment powers conferred upon *289 the D.C. Council and the electorate by § 1-205(a). If severable, the D.C. Council would have had the power to pass, and the electorate to ratify, the initiative charter amendment without being subject to any oversight provisions. McClough does not address the severability issue in his brief. The government and amicus District of Columbia contend that Congress would nonetheless have passed § 1-205(a) had it known that § 1-205(b) was unconstitutional.
This court also exhaustively addressed the severability issue in the Gary case. Generally, courts sever invalid provisions unless it is "evident" that, but for those provisions, the legislature would not have enacted the remaining provisions. Id. at 821; Chadha, supra, 462 U.S. at 931-32, 103 S.Ct. at 2773-74; Buckley v. Valeo, 424 U.S. 1, 108-09, 96 S.Ct. 612, 677-78, 46 L.Ed.2d 659 (1976). This type of inquiry is elusive because Congress might well have considered many other alternatives, and because the court must determine how many provisions are part of "the law." Nonetheless, there is a presumption of severability whenever the remaining provisions, standing alone, are "fully operative as a law." Champlin Refining Co. v. Corporation Commission, 286 U.S. 210, 234, 52 S.Ct. 559, 565, 76 L.Ed. 1062 (1932). The "cardinal principle of statutory construction is to save and not to destroy." Tilton v. Richardson, 403 U.S. 672, 684, 91 S.Ct. 2091, 2098, 29 L.Ed.2d 790 (1971) (plurality opinion) (quoting NLRB v. Jones & Laughlin Steel, 301 U.S. 1, 30, 57 S.Ct. 615, 620-21, 81 L.Ed. 893 (1937)). This presumption applies even when, as in the instant case, there is no severability clause. Regan v. Time, 468 U.S. 641, 652-54, 104 S.Ct. 3262, 3269-70, 82 L.Ed.2d 487 (1984).
The issue here is whether Congress would have granted the D.C. Council and electorate the power to amend the charter absent the two house concurrent resolution requirement. In Gary, supra, 499 A.2d at 821, the court viewed the issue as whether the § 1-233(c)(2) one house veto was integral to the entire Home Rule Act. The situations are different, however, because the essence of a home rule authorization is to vest local authorities with substantial legislative powers. This type of grant can be made with or without the ability to amend the charter. The court in Gary rejected the argument that the authority to enact criminal laws should be regarded as a separate law on the ground that the Home Rule Act made a general authorization to enact legislation. Id. at 821 n. 13. By contrast, the authority to amend the charter is substantively different, a less prominent feature, procedurally distinct, and found in separate sections.[6] Both the government and amicus District of Columbia view the issue as limited to the continued viability of § 1-205 alone. Thus, we do not saddle McClough with the burden of having the status of the entire Home Rule Act ride on this determination.
The holding in Gary also does not itself entirely dispose of this case because of the differences between charter amendments and routine legislative enactments. Congress could well have intended primarily to vest the D.C. Council with general legislative powers while also desiring to retain basic control over structural matters contained in the charter. Thus, the argument would run, Congress might not have been willing to grant any charter amendment powers at all if it could not retain direct and ready control through the concurrent resolution approval requirement. Indeed, differences in the procedures themselves might suggest that Congress was more concerned about retaining control over the contents of the charter. Prior to Gary, an act of the Council became law unless one house acted to adopt a veto resolution. On the other hand, a Charter amendment, by *290 the terms of the statute, can take effect only if both houses adopt a concurrent approving resolution. Thus, except for the limitations in § 1-233 (unicameral sufficiency), the District of Columbia government enjoyed far more independance for legislative acts than for charter amendments.
The analysis and findings in Gary nonetheless lead us to the conclusion that the two house approval requirement is severable from § 1-205. First, § 1-205 is fully operable as law without the approval provisions. Second, this operation is consistent with the general statutory scheme because the purpose of the Home Rule Act in general was to provide autonomy and local democracy to the District of Columbia. Section 1-201 states that Congress desired to:
grant to the inhabitants of the District of Columbia powers of local self-government; modernize, reorganize, and otherwise improve the governmental structure of the District of Columbia; and, to the greatest extent possible, consistent with the constitutional mandate, relieve Congress of the burden of legislating upon essentially local District matters.
See also McIntosh v. Washington, 395 A.2d 744, 753 (D.C.1978).
Of course, Congress was also concerned with retaining some measure of control through the legislative veto. This concern, however, must be interpreted against the dominant purpose of increased local autonomy,[7] the importance placed on the amendment procedures, see Legislative History, supra note 1, at 121-22, 242-43, 625, and the procedural nature of the veto. This court en banc has adopted the view that oversight provisions are merely procedural appendages that should be severed whenever the frustrated policy is simply that of congressional control. Gary, supra, 499 A.2d at 823 (citing Note, Severability of Legislative Veto Provisions, A Policy Analysis, 97 HARV.L.REV. 1182, 1196 (1984)). Given the primacy of stated substantive goals such as political autonomy, this court is justified in relying on Congress to repeal § 1-205 at a later date if it wishes to retain control in addition to its power over the District of Columbia pursuant to U.S. CONST. art. I, § 8, cl. 17.
Congress also continues to enjoy abundant power over the District of Columbia. In Gary, supra, 499 A.2d at 830, the court found that "the myriad of other controls, such as the plenary authority of Congress under Art. I of the Constitution, control over the budget, other limitations on the authority of the Council and local government, [and] the limitation with respect to modification of Titles 22, 23, and 24 [of the D.C.Code] . . . were viewed by Congress as the central mechanisms insuring appropriate federal oversight." When Congress was concerned with the nature of its control over a particular area, it removed that area from the charter amendment procedures altogether. For example, the District of Columbia government cannot amend the basic structure of the Council (D.C.Code § 1-221(a)), the office of the Mayor (id. § 1-241(a)), or the judiciary (id.) § 1-233(a)(4), and has no power over certain congressional reservations of authority (id. § 1-206), over appropriations (id. § 47-313), and over certain limitations on its own authority (id. § 1-233).
The legislative history also demonstrates that oversight provisions were not a major concern of the legislators. Gary, supra, 499 A.2d at 829. When mentioned, the oversight of charter amendments was simply listed, if at all, as one of many measures that would protect federal interests. See Legislative History, supra note 1, at 1443, 1448, 3031, 3052, 3114, and 3117. Originally, the House had provided for a *291 one house veto over charter amendments, id. at 2466, and the Senate had not provided for charter amendments. Id. at 2630-31. At the Senate-House conference, it became apparent that the Senate's major concern was to prevent a change in the structure of the government. Id. at 2914. The principal component of the conference compromise was to exclude the form of the government from the charter amendment powers. Id. at 2932, 2933, 3009. Our review of the legislative history reveals little discussion of, and no particular emphasis on, the two house approval requirement, and it was certainly not "evident" that the approval requirement of charter amendments was so important to a majority of legislators[8] that the amendment powers would not otherwise have been granted. See Gary, supra, 499 A.2d at 825-27.
This conclusion is buttressed by one additional consideration. In 1984, Congress amended § 1-205 of the Home Rule Act to provide that charter amendments would take effect absent a concurrent disapproval resolution signed by the President, and that all provisions of the Home Rule Act should be considered severable. Pub.L. No. 98-473, § 131(b), § 762, 98 Stat. 1837, 1975 (October 12, 1984). This action furnishes some evidence[9] as to the intent of the Congress that passed the original charter amendment procedures, see Gary, supra, 499 A.2d at 828-29 (one house veto over enactments), and can be taken into account in assessing general congressional attitudes on the prominence of procedural controls to this type of substantive enactment.[10] The 1984 amendments thus directly affirm our conclusion that Congress was primarily concerned with providing effective home rule and that severing the unconstitutional charter amendment oversight provisions from § 1-205 is consistent with congressional intent. The mandatory minimum sentencing provisions therefore have been enacted with the proper authority.
Accordingly, the judgment is affirmed.
MACK, Associate Judge, concurring in the result only:
Although I am bound by M.A.P. v. Ryan, 285 A.2d 310 (D.C.1971), to observe prior decisions rendered by this court, I believe the arguments I advanced in my separate opinion in Gary v. United States, 499 A.2d *292 815, 849 (D.C.1985) (en banc) (Mack, J., dissenting in part and concurring in part), supporting the constitutionality of the one house of Congress veto of legislative enactments of the Council of the District of Columbia, D.C.Code § 1-233(c)(2) (1981) apply with equal force to support the constitutionality of the concurrent resolution mechanism of the charter amendment provision at issue here, D.C.Code § 1-205(b) (1981). I therefore concur in the result only.
NOTES
[1] The Home Rule Act was passed in 1973. See D.C. Self-Government and Governmental Reorganization Act, Act of December 24, 1973, Pub.L. No. 93-198, 87 Stat. 774. For a discussion of the history of the government of the District of Columbia, see Gary, supra, 499 A.2d at 817-18; Home Rule for the District of Columbia 1973-1974, Background and Legislative History of H.R. 9056, H.R. 9682 and Related Bills Culminating in the District of Columbia Self-Government and Governmental Reorganization Act (Comm.Print 1974) (House Committee on the District of Columbia 1974) [hereinafter cited as "Legislative History"]; Newman and Depuy, Bringing Democracy to the Nation's Last Colony: The District of Columbia Self-Government Act, 24 Am.U.L.Rev. 537, 542 (1975).
[2] Section 1-282(a) of the Home Rule Act provides in pertinent part:
An initiative or referendum may be proposed by the presentation of a petition to the District of Columbia Board of Elections and Ethics containing the signatures of registered qualified electors equal in number to 5 percent of the registered electors in the District of Columbia: Provided, that the total signatures submitted include 5 percent of the registered electors in each of 5 or more of the City's wards.
Section 1-285 provides:
If a majority of the registered qualified electors voting in a referendum approve an act or adopt legislation by initiative, then the adopted initiative or the act approved by referendum shall be an Act of the Council upon the certification of the vote on such initiative or act by the District of Columbia Board of Elections and Ethics, and such act shall become law subject to the provisions of § 1-233(c).
[3] Section 1-205(a) provides in pertinent part:
The charter set forth in title IV (including any provision of law amended by such title), except §§ 1-221(a) and 1-241(a), and part C of such title, may be amended by an act passed by the Council and ratified by a majority of the registered qualified electors of the District voting in the referendum held for such ratification.
[4] Section 1-205(b) provides in pertinent part:
An amendment to the charter ratified by the registered qualified electors shall take effect only if within 35 calendar days . . . of the date such amendment was submitted to the Congress both Houses of Congress adopt a concurrent resolution . . . approving such amendment.
[5] Section 1-233(c)(2) provides in pertinent part:
In the case of any such act transmitted by the Chairman with respect to any act codified in Title 22, 23, or 24, such act shall take effect at the end of the 30-day period beginning on the day such act is transmitted by the Chairman to the Speaker of the House of Representatives and the President of the Senate only if during such 30-day period 1 House of Congress does not adopt a resolution disapproving such act. [Emphasis supplied.]
[6] In Chadha, supra, 462 U.S. at 931-35, 103 S.Ct. at 2773-75, the Supreme Court assessed the severability of one unconstitutional subsection from a section, and in Buckley, supra, 424 U.S. at 108-09, 96 S.Ct. at 677, the Court assessed the severability of three invalid subsections from a subtitle.
[7] For example, in discussing the one house veto over Council enactments, Senator Eagleton, Chairman of the Senate Committee on the District of Columbia, stressed that the dominant purposes of the home rule bill were to reduce congressional burdens and to restore self-government to the District. Legislative History, supra note 1, at 2754-757. See also id. at 2758 (remarks of Senator Mathias).
[8] The Chairman of the House Committee on the District of Columbia implied in two post conference Dear Colleague letters, which set forth twelve objectives accomplished by the Conference report, that oversight provisions were essential to his vote, but his remarks did not emphasize Charter amendment approval and were largely confined to the one house veto over Council enactments relating to criminal laws. See Legislative History, supra note 1, at 3041-42, 3050. Moreover, several members of the House Committee questioned the constitutionality of oversight provisions that did not include a presentment requirement. The court in Gary adopted the view that "it is hard to imagine that a majority of either the Senate or the House viewed a `dubiously constitutional provision as the sine qua non of the Act.'" Id. at 830 (citations omitted).
[9] Such evidence should be considered, but "the views of a subsequent Congress form a hazardous basis for inferring the intent of an earlier one." United States v. Price, 361 U.S. 304, 313, 80 S.Ct. 326, 332, 4 L.Ed.2d 334 (1960).
[10] Arguably, the 1984 amendments also provide this court with the supervening law to be applied in the instant case. See Gary, supra, 499 A.2d at 836-37 (Nebeker, J., concurring), and at 859 (Terry, J., concurring). On the other hand, there is, as amicus District of Columbia points out, a real issue as to whether a subsequent act of Congress can retroactively validate the action of a distinct political body that lacked the proper authority at the time of that action. Given our holding that the charter amendment oversight provisions were not integral to the votes of the 93rd Congress, we need not reach the issue whether the 1984 amendments provide the controlling law in this case.
Similarly, § 131(k) of the 1984 amendments provided that the 1984 amendments shall not be applicable with respect to any law passed by the Council prior to the date of enactment of these amendments, and such laws are hereby deemed valid in accordance with the provisions thereof, notwithstanding such amendments. See D.C. Code § 1-205(b) and annotation (1986 Supp.). We need not decide, in view of our previous conclusions in Gary and the instant case, whether this type of savings clause would make an effective retroactive grant of authority, and would be applicable to charter amendments, which require voter approval to be effective. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535532/ | 103 Pa. Commonwealth Ct. 490 (1987)
520 A.2d 917
Commonwealth of Pennsylvania, Department of Transportation, Bureau of Traffic Safety, Appellant
v.
William Doyle, Appellee.
No. 3521 C.D. 1983.
Commonwealth Court of Pennsylvania.
Submitted on briefs December 9, 1986.
February 4, 1987.
*491 Submitted on briefs December 9, 1986, to Judges CRAIG and DOYLE, and Senior Judge BLATT, sitting as a panel of three.
Michael R. Deckman, Deputy Chief Counsel, with him, Spencer A. Manthorpe, Chief Counsel, and Jay C. Waldman, General Counsel, for appellant.
George P. Bannon, for appellee.
OPINION BY JUDGE DOYLE, February 4, 1987:
The Department of Transportation, Bureau of Traffic Safety (Department) appeals from an order of the Court of Common Pleas of Philadelphia County, which reversed the decision of the Department suspending the motor vehicle operating privileges of William D. Doyle[1] (Appellee) for one year pursuant to Section 1547(b) of *492 the Vehicle Code (Code), 75 Pa. C. S. §1547(b), because he refused to submit to a breathalyzer test. We reverse and remand.
On June 19, 1983 Appellee was involved in an automobile accident in Tinicum Township (Township). He was arrested for driving under the influence of alcohol, taken to police headquarters and asked to take a breathalyzer test by a Township police officer. Appellee refused to take a breathalyzer test and his driver's license was therefore suspended.
Appellee appealed this suspension to the Court of Common Pleas of Philadelphia County, alleging that the arresting officer did not have reasonable grounds to request a breathalyzer test and that he was not properly warned of the consequences of his refusal. The court of common pleas overruled the action of the Department on the ground that the arresting officer did not have "probable cause" for the warrantless arrest of Appellee for driving under the influence of alcohol. The court wrote:
The only evidence of intoxication submitted to this court was the testimony of the arresting officer who testified that the [Appellee] had been involved in an accident and that there was a strong odor of alcohol on his breath. There was no testimony of slurred speech, difficulty in walking or any other indication of intoxication.
Since the court reversed the Department's determination on the ground that there was no probable cause for the warrantless arrest, it did not reach the issue of whether Appellee was properly informed that his license would be suspended upon his refusal to submit to the breathalyzer test.
On appeal here, the Department contends that the court of common pleas erred in using the standard of probable cause for a warrentless arrest rather than reasonable *493 grounds to request a breathalyzer test.[2] We agree.
This case is controlled by our decision in Department of Transportation, Bureau of Traffic Safety v. Barrett, 22 Pa. Commonwealth Ct. 559, 349 A.2d 798 (1976) where we held that, in a license suspension proceeding, an officer need not have probable cause to make an arrest before transporting a person to a police station for a breathalyzer test. In Barrett, we held that the legality of the arrest is immaterial in determining whether an operator's license is properly suspended when the licensee refuses to take a breathalyzer test after being arrested for driving under the influence of alcohol. Rather, the propriety of the suspension for such refusal depends upon whether the officer had reasonable grounds to believe that the licensee was operating his vehicle under the influence of alcohol. Department of Transportation, Bureau of Traffic Safety v. Kelley, 39 Pa. Commonwealth Ct. 566, 396 A.2d 864 (1979). See also Section 1547(b) of the Code, 75 Pa. C. S. §1547(b) (the Commonwealth must establish among other things "that the arresting officer had reasonable grounds to believe that the licensee was driving while intoxicated.")
Thus, the sole issue here is whether the arresting officer had reasonable grounds to believe that Appellee was driving while under the influence of alcohol. We have written that this issue is determined by whether, viewing the facts and circumstances as they appeared at the time, a reasonable person in the position of the police officer could have concluded that the motorist *494 was operating the vehicle under the influence of alcohol. Department of Transportation, Bureau of Traffic Safety v. Dreisbach, 26 Pa. Commonwealth Ct. 201, 363 A.2d 870 (1976). In the instant case, the officer testified that he was called to the scene of an accident in which the Appellee was involved, and that while interviewing Appellee he detected a strong odor of alcohol on his breath. We agree with the Department that Appellee's involvement in an accident, combined with the strong odor of alcohol on his breath, are circumstances under which a reasonable person could conclude that Appellee was operating the vehicle under the influence of alcohol.[3]
As stated above, the court of common pleas did not reach the issue of whether Appellee was properly informed that his license would be suspended upon his refusal to submit to the breathalyzer test. Therefore, we reverse the order of the court of common pleas and remand *495 the case for findings and a determination on this issue.
ORDER
NOW, February 4, 1987, the order of the Court of Common Pleas of Philadelphia County in the above-captioned matter, dated November 7, 1983, is hereby reversed and the case remanded for further findings on the issue of whether Appellee was informed that his refusal to take a breathalyzer test would result in the suspension of his license. Jurisdiction relinquished.
NOTES
[1] The Appellee is no relation to the author of this opinion.
[2] Our scope of review of a lower court's reversal of a license suspension is limited to determining whether the court's findings are supported by competent evidence, errors of law were committed, or the decision constituted a manifest abuse of discretion. Department of Transportation, Bureau of Traffic Safety v. Kelley, 39 Pa. Commonwealth Ct. 566, 396 A.2d 864 (1979).
[3] The Department relies on Doyle v. Department of Transportation, Bureau of Traffic Safety, (No. 806 C.D. 1982, filed November 10, 1983) in which we held that where an accident occurred in which the Licensee was a participant, and the arresting officer detected a strong odor of alcohol on the Licensee's breath, reasonable grounds exist for requesting a breathalyzer test. This case, however, is an unreported opinion which, pursuant to Rule 67.55 of the Commonwealth Court's Internal Operating Procedures, 210 Pa. Code §67.55, cannot be relied upon by the Department. This rule reads:
Unreported opinions of the court shall not be cited in any brief, argument or opinion, except that any opinion filed in the same case may be cited as representing the law of the case. A one-judge opinion, even if reported, shall be cited only for its persuasive value, not as a binding precedent. This rule shall be effective retroactively, so as to apply to opinions filed before the effective date of this section, as well as to opinions filed in the future.
The appellant in that case is not the same person as the Appellant here. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535846/ | 114 B.R. 482 (1990)
In re ROGER J. AU & SON, INC., CDECO Maritime Construction, Inc., Firelands Sewer & Water Construction Co., Inc., Confirmed Debtors.
Bankruptcy No. 683-00986.
United States Bankruptcy Court, N.D. Ohio.
May 18, 1990.
*483 John Schwemler, Brouse & McDowell, Akron, Ohio, for debtor.
Richard Gurbst, Squire, Sanders & Dempsey, for NEORSD.
Edward Brown, Arter & Hadden, Cleveland, Ohio, for Aetna Cas. & Sur. Co.
Dan Casamatta, Office of U.S. Trustee, Cleveland, Ohio.
MEMORANDUM OF DECISION
JAMES H. WILLIAMS, Chief Judge.
The court has before it three separate motions for the allowance of interim compensation and expenses filed by the law firm of Brouse & McDowell (Brouse), counsel for the confirmed debtors. The motions seek the aggregate allowance of $149,441.50 in attorney fees and $10,274.96 in reimbursement of expenses.
Objections to the applications were filed by the Aetna Casualty & Surety Company, Inc. (Aetna), the Northeast Ohio Regional Sewer District (NEORSD) and the United States Trustee.
The court has jurisdiction in this matter by virtue of 28 U.S.C. § 1334(b) and General Order No. 84 entered in this district on July 16, 1984. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A). This Memorandum of Decision constitutes the court's findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.
HISTORY OF THE CASES[1]
To gain a greater understanding of the charges asserted by Brouse, a brief review of the history and results of these cases is appropriate.
Roger J. Au & Son, Inc. (Au) and CDECO Maritime Construction, Inc. (CDECO) filed for relief under Chapter 11 of Title 11 of the United States Code on July 26, 1983. Firelands Sewer & Water Construction Co., Inc. (Firelands) filed its separate Chapter 11 petition on January 13, 1984. All three debtors are related corporations with Charles H. Au being the sole shareholder of all. By orders entered on November 10, 1983, Brouse was employed as counsel for Au and CDECO. A separate order of employment of the law firm was entered in Firelands on January 16, 1984.
Prior to its filing, Au was involved in sewer construction and had a creditor/surety relationship with Aetna. As part of this creditor/surety relationship, Au assigned to Aetna various claims it had under pending construction contracts. One such claim arose out of a contract job known as the Cuyahoga Valley Interceptor Section D (CVID), a project coordinated by an entity now known as NEORSD.
By an agreement entered into in December, 1981, Au and Aetna settled upon a procedure under which Aetna would reimburse *484 Au for employee costs, legal fees and expenses in connection with Au's pending contract claims, including those against NEORSD on the CVID project. Previously, on August 31, 1981, Au had filed a complaint in state court against NEORSD and others regarding the CVID project. Aetna, on July 29, 1982, filed its own complaint in state court against Au and NEORSD seeking a declaratory judgment that it had no further obligations under its bond. NEORSD has asserted counterclaims and cross-claims in each case. The two actions have been consolidated.
The relationship between Au and Aetna began to deteriorate and in November, 1985, Aetna withdrew its funding of the CVID litigation and began to intensify its efforts to resolve all of the litigation. Aetna initially sought the appointment of a trustee or conversion of the case to administration under Chapter 7 of the Bankruptcy Code. The court denied the motion. At the same time, the debtor and Charles H. Au filed an action in state court against Aetna asserting breach of fiduciary duty by reason of Aetna's discontinuation of the funding of the CVID litigation (Au vs. Aetna litigation). The case was removed to this court by Aetna. Larry Inscore, Esq., was appointed special counsel to prosecute the Au vs. Aetna litigation on behalf of the debtor and Charles H. Au under a contingency fee arrangement.
Aetna next sought the compromise of the NEORSD litigation. The court dismissed the motion on procedural grounds, finding that Aetna lacked standing. Aetna's final attempt to achieve its desired "global settlement," a creditor plan, however, proved successful. On January 4, 1990, over the strenuous objections of the debtors and Charles H. Au, the court confirmed Aetna's amended plan of reorganization. All creditors who voted in respect of the Aetna plan accepted it.
The confirmed plan of reorganization contemplates the dismissal of the Au v. Aetna litigation and the CVID litigation. Aetna will pay $1,750,000.00 to NEORSD while another party in the state court litigation, Euthenics, Inc., will pay $750,000.00 to NEORSD. In return for these dismissals, the Aetna plan provides, inter alia, that:
(a) Aetna will forego its post-petition claims in exchange for the assignment of certain Au claims against insiders;
(b) Aetna and NEORSD will forego their unsecured pre-petition claims against Au;
(c) Aetna will make a $150,000.00 cash contribution to the Au estate; and,
(d) Aetna will pay to the estate one-half of the net proceeds recovered on the Cuyahoga River claim which is subject to Aetna's security interest.
The disclosure statement ultimately approved by the court estimated that the fees and expenses of Brouse, as yet unpaid and to be charged against the sum available for distribution under the plan, would amount to approximately $140,000.00. This figure was provided to Aetna by Brouse. Using this information, Aetna calculated that, under its plan of reorganization, administrative and priority claims would be paid in full and, depending upon the success of the Cuyahoga River claim, unsecured creditors would receive between 19.7% and 80% of their claims. Charles H. Au, the sole equity security holder, is to receive nothing.
As previously noted, Brouse has filed three separate applications for compensation and expenses. In Firelands, the firm seeks $8,391.50 in fees and $258.97 in expenses. In CDECO, $19,908.00 in attorney fees and $600.68 in expenses is requested. In Au, Brouse seeks the sum of $121,142.00 in compensation and $9,415.31 in expenses. Previously, Brouse was awarded $73,627.83 in compensation and $4,304.19 in expense reimbursement for all three cases of which $30,695.14 in attorney fees and all the expenses have been paid. Payment of the remaining amount of $42,932.69 was deferred pending action on any final application.
DISCUSSION
11 U.S.C. § 330(a) provides:
After notice to any parties in interest and to the United States trustee and a hearing, and subject to sections 326, 328, and 329 of this title, the court may award *485 to a trustee, to an examiner, to a professional person employed under section 327 or 1103 of this title, or to the debtor's attorney
(1) reasonable compensation for actual, necessary services rendered by such trustee, examiner, professional person, or attorney, as the case may be, and by any paraprofessional persons employed by such trustee, professional person, or attorney, as the case may be, 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.
Various approaches have been developed to arrive at allowable compensation in bankruptcy cases. This court has previously reviewed these methods. See, In re Mansfield Tire & Rubber Co., 65 B.R. 446 (N.D.Ohio 1986). After examining such cases as Lindy Brothers Builders, Inc. of Philadelphia v. American Radiator and Standard Sanitary Corporation, 487 F.2d 161 (3d Cir.1973) appeal following remand, 540 F.2d 102 (3d Cir.1976); Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir.1974); In re White Motor Credit Corporation, 50 B.R. 885 (N.D.Ohio 1985); Murphy v. International Union of Operating Engineers, 774 F.2d 114 (6th Cir.1985) cert. denied, 475 U.S. 1017, 106 S.Ct. 1201, 89 L.Ed.2d 315 (1986); and In re Penn-Dixie Industries, Inc., 18 B.R. 834 (S.D.N.Y.1982), we said:
In summary, this court perceives its task to be to develop a lodestar figure for the services rendered by determining the number of hours that will be compensated and then multiplying the number of hours by the hourly rate allowed for the [applicant] in question. It will then consider the impact of such matters as the "quality" and "result" factors as identified in Penn-Dixie Industries, Inc. supra. In pursuit of its task, the court is to bear in mind that the burden of proof to establish the entitlement to and reasonableness of a fee is upon the professionals seeking compensation.
In re Mansfield Tire & Rubber Co., 65 B.R. at 454-55 (citations omitted).
Brouse's applications cover the time period from May 4, 1984 through December 29, 1989. The firm asserts the expenditure of 1,587.6 hours of professional time during the period. At the time of Brouse's employment, the hourly rate of its partner, John A. Schwemler, lead counsel for the debtor, was $100.00 and such amount was set forth in the application for employment. The hourly rate of various other attorneys involved in these cases has increased since the order authorizing employment was entered, some to more than $100.00 per hour, as has Mr. Schwemler's. Brouse, however, to honor the bargain made in 1983, has recalculated its hourly charges to reflect a maximum of $100.00 per hour.
At the outset, the court notes from its review of the application that Brouse has billed 78.7 hours in regard to the Au v. Aetna litigation. As previously mentioned, Mr. Inscore was appointed by the court on a contingency fee basis to represent the estate in that matter. At the time of Mr. Inscore's appointment, the court found that "the debtor has no means with which to fund this litigation as administrative expenses clearly exceed the total cash on hand. Advances for expenses will be made by Charles H. Au individually with no assets of the estate being depleted." In re Roger J. Au & Son, Inc., Memorandum of Decision at p. 5 (June 17, 1986).
Clearly, the debtor's lack of funds was the reason for the appointment of special counsel who would undertake representation on a contingency fee basis. The court finds that to allow compensation to Brouse for work performed on the same matter would contradict the rationale for the order of employment of Mr. Inscore. Accordingly, the 78.7 hours charged by Brouse for work it performed on the Au v. Aetna litigation will be disallowed, resulting in a reduction of $7,397.80.[2]
*486 Brouse also seeks fees for work performed in regard to the CVID litigation. The total time claimed to have been expended in that regard is 44.6 hours. Edward Baran, Esq., was the attorney who initially represented the debtor. However, at or around the time Aetna withdrew its funding for this litigation, Mr. Baran also withdrew as counsel of record for the debtor. As far as this court is aware, Brouse has never entered an appearance on behalf of the debtor in the CVID litigation.
The court recognizes that as counsel for the debtor, Brouse must keep itself advised and informed of any and all matters that have a direct bearing upon the debtor's estate. However, the number of hours billed by Brouse appears to be excessive in light of the fact that the CVID litigation has been inactive on the state court docket for several years. The court will approve 22 hours as being a reasonable amount of time to have been spent in regard to the CVID litigation. Accordingly, 22.6 hours or $2,124.40, will be disallowed.
The results obtained and the benefits to the estate are, as previously noted, among the factors the court must examine in determining the reasonableness of a fee application. See, Penn-Dixie Industries, Inc., supra. The reasonableness of certain of the Brouse charges in the light of the results obtained is certainly open to question. For instance, in 1984 and 1985, 33.6 hours were billed in connection with the submission of a plan. No such plan was ever filed. Again in 1989, after the court approved Aetna's disclosure statement, Brouse billed 9.5 hours in regard to a joint debtor-Aetna plan and debtors' own plan. Again, no plan, other than Aetna's was submitted to the court.
As counsel for the debtor, Brouse is under a duty to investigate and pursue every avenue which may inure to the debtor's benefit. But, the options and avenues chosen must, in some capacity, benefit the estate. The court, upon review of the applications, has calculated that 104.6 hours were billed regarding debtors' unfiled plans of reorganization, debtors' consideration of dismissal of the cases, belated objections to Aetna's and NEORSD's claims and legal research that yielded no direct benefit to the creditors or the estate. The court cannot and does not say that counsel may not explore solutions on pain of non-payment for efforts not ultimately undertaken; it does observe that where the assets of the estate are extremely limited, as here, counsel for the debtor is under a duty to minimize its services and charges responsively to those limited resources. Therefore, the court finds it appropriate to reduce by one-half the number of hours billed by Brouse for work which, the court finds, produced no tangible or direct benefit to the estate. Accordingly, the fee request will be reduced by the sum of $4,916.20.
The court finds particularly disturbing charges for 25.5 hours' of time regarding a solicitation letter. At the time the court approved Aetna's disclosure statement, the debtor filed a motion seeking authority to send, over Aetna's and NEORSD's vigorous objections, a letter, written by Charles H. Au, to creditors requesting that they reject Aetna's plan of reorganization. The court conducted several hearings and telephone conferences before approving the effort. It has come to the court's attention, however, that no such letter was ever sent. It is incumbent upon the applicant to demonstrate the reasonableness of its request. Brouse has offered nothing to support any entitlement to these fees beyond its statement made at the fee application hearing that the work it performed was done with the interest of the estate in mind. However true that may be, the court perceives no benefit to the estate and $2,397.00 will be deducted from the fee request.
As previously mentioned, a part of the Au estate is the CVID litigation. As also noted, the debtor is not represented by Brouse in this state court litigation. On June 6, 1989, two months prior to the confirmation *487 hearing on Aetna's plan of reorganization, the debtor sought to employ the law firm of Michaels and McGowan. The application was objected to by Aetna and NEORSD. The court sustained the objection on July 10, 1989. A supplemental order was entered on July 19, 1989, permitting the employment of Michaels and McGowan for the limited purpose of appearing at the confirmation hearing. Brouse has billed 25.2 hours to the estate for its services in seeking the employment of Michaels and McGowan.
First, the court questions the wisdom of seeking the employment of special counsel two months before the confirmation hearing on a plan which calls for the dismissal of the litigation special counsel would be employed to conduct. Even if the court had approved the employment of Michaels and McGowan, there would have been insufficient time for the firm to move the CVID litigation into a trial posture before the confirmation hearing or even, probably, before this court entered its order of confirmation of the plan of reorganization in January, 1990. A more economical and practical approach would have been to await a ruling by the court on Aetna's proposed plan. Additionally, the court finds the expenditure of 25.2 hours by Brouse, even in the face of objections by Aetna and NEORSD, to be clearly excessive. As previously observed, in an estate with limited cash and assets, counsel for the debtor must utilize its time wisely and efficiently. The court finds that the procurement of the appointment of counsel under the circumstances here present should not have exceeded 15 hours. Therefore, 10.2 hours, or $958.80, will be disallowed.
The court now turns to the bulk of the application, the time billed in objecting to the disclosure statement and plan submitted by Aetna. A total of 430.7 hours was billed by Brouse in its attempts to have the disclosure statement found inadequate and to defeat the Aetna plan. Of this amount, 120.5 hours were devoted to objecting to the disclosure statement. Aetna filed its original disclosure statement and plan on September 2, 1988. Strenuous objections were filed by the debtor and Charles H. Au. Several hearings were conducted as to the adequacy of the disclosure statement with the court ultimately issuing a Memorandum of Decision and Order on the issue.
At the outset of its decision on the adequacy of disclosure, the court noted the unusually small creditor body of the three estates and asked, rhetorically, "[h]ow much detail, then, is necessary to enable this relatively small and generally sophisticated creditor body to make `an informed judgment about the plan' (11 U.S.C. § 1125(a)(1)) Aetna desires them to accept?" Matter of CEDCO Maritime Construction, Inc., 101 B.R. 499, 500-501 (Bankr.N.D.Ohio 1989). The court would repeat the question in the face of a request for payment for 120.5 hours of professional time expended solely in opposing the disclosure statement. The reasonableness of the amount of time billed by Brouse is particularly open to question in the light of the results obtained.
This court previously found the disclosure statement submitted by Aetna in these cases "to be * * *, with some modification and elaboration, * * * generally adequate to meet the requirements of 11 U.S.C. § 1125." Id. 101 B.R. at 502. Despite this finding, after Aetna filed its amended disclosure statement, a second round of objections was filed by the debtor raising substantially the same arguments that the court previously had addressed.
The court finds it appropriate to reduce the fee request of Brouse as it relates to the objection to Aetna's disclosure statement by approximately one-quarter, or $2,800.00.
Brouse has billed 310.2 hours for its work in opposing confirmation of Aetna's plan. Of this block of time, 144.3 hours were expended prior to the voting by the creditors, with the balance, 165.9 hours, being billed thereafter.
With respect to the amount of time billed prior to the voting by the creditor body, the court recognizes that the issues involved in the confirmation of Aetna's plan were *488 unique. The creditor plan that proposed a settlement of a lawsuit in which the plan proponent was a party presented novel questions of law and a complicated fact pattern. However, Brouse should have been guided by its professed desire to serve the best interest of the estate. Aetna's plan proposed to pay the unsecured creditors 19.7 to 80 percent of their claim. The alternative to the plan, as urged by the debtor and Charles H. Au, was to continue to pursue the long-dormant CVID litigation. The alternative to the Aetna plan offered the creditors more delay rather than a tangible benefit.
As to the work performed by Brouse after the creditor body voted, 169.5 hours, this is an expenditure of professional time in the face of acceptance by the entire voting creditor body. 11 U.S.C. § 330(a)(1) speaks of "reasonable compensation for ... necessary services rendered by [an] attorney." The court questions whether, after the entire voting creditor body accepted the plan, the time expended by Brouse in opposition to the plan was necessary. The court especially questions the reasonableness of the fee request in the light of the fact that only Charles H. Au, as the sole shareholder, was to receive nothing under the plan. Mr. Au, it will be remembered, was represented individually by counsel throughout the entire process, including the confirmation hearing. If the ardor of Brouse's attack on the proposed plan was driven by Mr. Au's concerns, it seems misplaced.
In no way does this court mean to suggest that counsel should not be compensated for work performed simply because, in the end, the court did not accept the position advanced. See, In re Besst Bingo, Case No. 687-01563, Memorandum of Decision (Bankr.N.D.Ohio Oct. 28, 1988). However, it continues to be our ruling that the amount of the fees sought must be reasonable in light of what was accomplished.
In examining the compensation requested for opposing the plan of reorganization, the court cannot ignore the fact that all of the voting creditor body accepted the plan and whatever is awarded to Brouse for its fees reduces the funds available to those same creditors. The court finds it appropriate to reduce by one-half the amount of time billed by Brouse for its efforts in opposing the plan of reorganization which will result in the disallowance of $14,579.40 in the fees sought.
Finally, Brouse seeks fees for work performed by it regarding a claim against the United States of America, Corps of Engineers involving the dredging of the Cuyahoga River. Aetna possesses a security interest in this claim. Aetna requested that Brouse limit its initial fees to $8,000.00. According to Aetna's calculations, approximately $8,900.00 has been billed. As part of the confirmed plan, 50% of the recovery on the Cuyahoga River claim will be paid to the estate after the deduction of attorney fees and costs.
Brouse states in its application that these fees are more appropriately characterized as Section 506(c) expenses.[3] Therefore, in the court's opinion, payment should be delayed until recovery on the claim. Accordingly, $8,900.00 of Brouse's fee request will be denied with such amount being recoverable from any realization on the Cuyahoga River claim.[4]
As to the balance of Brouse's fee request, the court finds the amount of time billed to be reasonable and the hourly rate charged not to be excessive. Accordingly, the court will allow as total interim compensation to Brouse the sum of $105,367.90.
With respect to the reimbursement for expenses, Brouse seeks a combined total *489 of $10,274.96. Even though these expenses have been actually incurred by Brouse in its representation of the debtor, the court finds it appropriate to deny in some measure the allowance of expense reimbursement for the reasons set forth in regard to compensation. The court cannot, efficiently, sort out postage, long distance telephone, travel and copy costs related to time expended on efforts it has deemed unworthy of compensation. It has allowed approximately 70.5% of Brouse's request for compensation. It will allow 75% or $7,706.22, of the amount requested as reimbursement for expenses.
An order in accordance herewith shall issue.
NOTES
[1] Until consolidation of the cases was effected as a part of the confirmed plan of reorganization, the three Chapter 11 cases were administered separately. From time to time herein the debtors and their cases may be referred to in the singular.
[2] The average hourly charge for the work performed by Brouse, according to its applications, is approximately $94.00 ($149,441.50 ÷ 1587.6 hours). The court will use this figure in calculating reductions it deems appropriate.
[3] 11 U.S.C. § 506(c) provides:
The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim.
[4] Due to Brouse's re-calculations of its fees at a maximum of $100.00 per hour, the court, based upon the information before it, cannot determine the exact dollar amount attributed to the Cuyahoga River claim. The court advises Brouse to set forth the exact amount attributed thereto in any final application it may file. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535915/ | 737 A.2d 715 (1999)
325 N.J. Super. 61
SPRINT SPECTRUM, L.P., Plaintiff,
v.
TOWNSHIP OF WARREN PLANNING BOARD et al., Defendant.
Superior Court of New Jersey, Law Division, Somerset County.
Decided July 9, 1999.
*716 Anthony F. Malaga, Jr., Gaccione, Pomaco & Beck, Attorney for Plaintiff.
John C. Phillips, Westfield, Buttermore, Mullen, Jeremiah and Phillips, Esqs., Attorney for Defendant Warren Township Planning Board.
Stanley T. Perlowski, Millburn, Attorney for Defendants Warren Township Board of Health and Dr. Ronald Cohen.
HOENS, J.S.C.
Before the Court is the Order to Show Cause filed by plaintiff Sprint Spectrum L.P., seeking judgment in its favor on all counts contained in its verified complaint in lieu of prerogative writ. Defendants Township of Warren Planning Board ("Planning Board"), Township of Warren Board of Health ("Board of Health") and *717 Dr. Ronald Cohen filed briefs and certifications in opposition to the application of plaintiff for relief and request that the Court deny any and all relief and dismiss the complaint. The dispute between these parties raises a novel question not previously decided in New Jersey of the scope of federal preemption of local review relating to cell towers, as a result of which we address the issues raised by these parties at length.
The facts are not in dispute. In 1995, plaintiff was the highest bidder at an auction held by the Federal Communications Commission ("FCC") for a PCS wireless broadcast license in the New York Major Trading Area ("MTA"). This license includes Somerset County, the county in which the subject site is located, and provides that, within five years of the issuance of the license, plaintiff must be able to provide its PCS service to 33% of the population in the New York MTA. In order to meet its obligations under the FCC license, plaintiff must, within the time established under the license, have in place a system of "cell sites" to serve portable wireless communications handsets and mobile telephones. These "cell sites" consist of an antenna mounted on a pole, building or other structure, connected to a small equipment cabinet located near the antenna.
On or about September 25, 1998, plaintiff filed an application with the Planning Board for installation of the antenna which gives rise to this dispute. That application included a checklist of items that needed to be submitted in order to complete the application process. Thereafter, by letter dated November 9, 1998, defendant Ronald Cohen (the Health Officer) advised plaintiff that among the items included on the checklist, was the requirement that the application, as every other application, to be reviewed by the Board of Health before it would be permitted to proceed before the Planning Board. That letter further outlined the areas of inquiry relevant to the Board of Health. Counsel for the applicant responded immediately, contending that under the provisions of the Telecommunications Act of 1996, 47 U.S.C. § 332, its application was excluded from any Board of Health review, but offered to appear and answer questions nonetheless. Counsel for the Board of Health responded, disputing the applicant's interpretation of federal law but accepting, in essence, the applicant's offer to appear. Thereafter, Cohen advised plaintiff of a scheduled Board of Health meeting on December 2, 1998, and suggested that plaintiff's engineer be present on that date to answer questions regarding radio frequency ("RF") emissions at the site. In response, on November 24, 1998, counsel for plaintiff wrote to counsel for the Board of Health continuing to assert that the Board of Health is prohibited by Federal law from review of engineering data concerning plaintiff's compliance with RF emissions and that its facility was excluded from review by the Board of Health.
Notwithstanding plaintiff's assertion regarding limitations on the authority of the Board of Health to act, on December 1, 1998, plaintiff filed with the Board of Health a report from Bell Labs dated November 30, 1998 containing its expert's RF emissions analysis regarding the proposed wireless communications facility. The report asserted that the RF emissions at the proposed facility complied with the applicable regulations promulgated by the FCC. The report stated that it was prepared by the Wireless & Optical Technologies Safety Department at Bell Laboratories for Mike Hughes at Sprint Spectrum. The name of the author was not disclosed, and the document was neither signed nor verified as FCC regulations required.
On December 2, 1998, plaintiff's counsel appeared at the meeting of the Board of Health accompanied by an expert from Bell Laboratories. However, Mr. Cohen on behalf of the Board of Health advised that since plaintiff's RF emissions analysis report was not submitted until the day before, December 1, 1998, the Board of *718 Health had not had an opportunity to adequately review the report and, therefore, was unable to conduct a hearing on December 2, 1998 as planned. As a result, the Board of Health did not conduct any inquiry of the applicant or its expert and took no action on the application at that meeting. On February 2, 1999, plaintiff filed revised plans with the Planning Board. Counsel for plaintiff at that time requested that the Planning Board determine that the application was complete and requested that it be placed on the agenda of the Planning Board, notwithstanding the applicant's failure to secure Board of Health approval, contending that federal law prohibited review of RF emissions.
On March 9, 1999, plaintiff's counsel, once again, filed with the Board of Health the original Bell Laboratories Report, together with an additional report from Bell Laboratories prepared by RF Engineer Paul Testagrossa. In addition, plaintiff's counsel requested a hearing before the Board of Health. Thereafter, plaintiff's application was placed on the Board of Health's agenda for its April 7, 1999 meeting. Plaintiff received a scheduling memorandum, dated March 12, 1999 which advised plaintiff to "plan to attend or make arrangements to have your representative present to answer any questions concerning your application." In a letter to the Planning Board dated March 20, 1999, plaintiff's counsel again advised that plaintiff believed its application was exempt from Board of Health review and advised that plaintiff would not be appearing at the April meeting or presenting any additional testimony to the Board of Health.
By letter dated April 6, 1999, defendant Sigrid Mueller (Administrator of the Warren Township Planning Board) advised counsel for plaintiff that the Planning Board had denied plaintiff's request for a waiver of Board of Health review and advised that the application would be considered to be incomplete until such time as plaintiff satisfied the Board of Health with regard to RF emissions and other health issues. Notwithstanding that, plaintiff did not attend the April 7, 1999 meeting of the Board of Health, and, in light of that absence, that body again took no action on the application.
On the return date of this Order to Show Cause, plaintiff sought an order from this Court: (1) declaring the actions of the defendants to be in violation of the Telecommunications Act of 1996, 47 U.S.C. § 332; (2) ordering that the Planning Board and the Board of Health are precluded from further consideration of the effects of RF emissions; (3) ordering the Planning Board to certify plaintiff's application complete as of February 2, 1999, the date of its request to the Planning Board for action on the application; (4) ordering the Planning Board to conduct a hearing on plaintiff's application within twenty days; (5) declaring defendants to be in violation of plaintiff's civil rights pursuant to 42 U.S.C.A. § 1983 and awarding attorney's fees pursuant to 42 U.S.C.A. § 1988, and (6) ordering that the Court will retain jurisdiction of the matter until the Planning Board enters a decision with regard to plaintiff's application.
Plaintiff contends that Section 704 of the Telecommunications Act of 1996 arose out of the expressed intention of Congress to create greatly expanded competition in telecommunications and that as a result, it severely limited the ability of any state or local authority to apply zoning regulations to wireless telecommunications facilities. Sprint argues that, under the Act, zoning regulations are permissible only to the extent that they do not interfere with the purposes of the Act. It notes that section 704 of the Act provides in pertinent part:
(7) Preservation of local zoning authority
...
(B)(i) The regulation of the placement, construction and modification of personal wireless service facilities by any State or local government or instrumentality thereof *719 (I) Shall not unreasonably discriminate among providers of functionally equivalent services;
(II) Shall not prohibit or have the effect of prohibiting the provision of personal wireless services;
(ii) A State or local government or instrumentality thereof shall act on any request for authorization to place, construct or modify personal wireless service facilities within a reasonable period of time after the request is duly filed with such government or instrumentality, taking into account the nature and scope of such request.
(iii) Any decision by a State or local government or instrumentality thereof to deny a request to place, construct or modify personal wireless service facilities shall be in writing and supported by substantial evidence contained in a written record.
47 U.S.C.A. § 332(c)(7)(B).
In particular as it relates to the issue before this Court, the Act further provides:
(iv) No State or local government or instrumentality thereof may regulate the placement, construction, and modification of personal wireless services facilities on the basis of the environmental effects of radio frequency emissions to the extent that such facilities comply with the Commission's regulations concerning such emissions.
47 U.S.C.A. § 332(c)(7)(B)(iv).
Plaintiff argues that the Act broadly preempts any local or state governmental entity from interfering with the effectuation of the Act's purpose and that it specifically prohibits the Board of Health and the Planning Board from inquiring into the effects of RF emissions as a precondition to approval of the application. Moreover, plaintiff contends that the New Jersey Supreme Court has held that 47 U.S.C.A. § 332(c)(7)(B)(iv) preempts completely local consideration of RF emissions, citing Smart SMR of New York, Inc. v. Fair Lawn Board of Adjustment, 152 N.J. 309, 334, 704 A.2d 1271 (1998), and urges this Court to act so as to effectuate the broad preemptive purpose of the Act.
Here, plaintiff contends that any request by the Board of Health or the Planning Board that plaintiff submit to a hearing before the Board of Health as a precondition to approval of its application is a violation of the Act. Plaintiff argues that it submitted to the Board of Health a report dated November 30, 1998 from Bell Labs addressing RF emissions at the proposed facility. According to plaintiff, the report indicated that RF emissions expected at the site complied with all applicable FCC regulations concerning such emissions. Plaintiffs contend that once proof is submitted that RF emissions meet applicable standards, local authorities are preempted from any further inquiry regarding the issue of RF emissions, citing In re Freeman, 975 F.Supp. 570, 574 (D.Vt.1997). Plaintiff argues that, despite the fact that it submitted an engineering report establishing that the anticipated RF emissions comply with the FCC regulations, the Board of Health and the Planning Board refused to certify plaintiff's application as complete, which action Sprint contends violates federal law.
Alternatively, plaintiff contends that the Planning Board's requirement that Sprint secure Board of Health approval for its application as a prerequisite to a consideration of the application is an impermissible delegation of its decision making powers in violation of the Municipal Land Use Law, N.J.S.A. 40:55D-25. As a result, Sprint urges the Court to relieve it of the burden of any compliance with the Planning Board's deferral to the Board of Health, and requests that the Court deem, as a consequence, the application complete, and direct the Planning Board to proceed.
The defendants submitted separate oppositions, each urging the Court to deny all requested relief but relying on somewhat different grounds. The defendants Board of Health and Dr. Cohen contend *720 that the Act is not broadly nor generally preemptive and cannot be used to interfere with the legitimate and ordinary inquiries of the Board of Health. In this regard the Board of Health contends that Section 322(c)(7) of the Communications Act actually preserved local government authority over zoning and land use matters provided that such actions cannot be based upon the environmental effects of RF emissions which have been shown to comply with the RF guidelines established by the FCC. As a result, the Board of Health argues that plaintiff's obligation to comply with the requirements of the Township Ordinance concerning securing a Board of Health certification, as a condition to completed application status, is not preempted by the FCC. Furthermore, the Board of Health contends that plaintiff's obligation to comply with its reasonable public health requirements with regard to issues other than RF emissions (such as site security, the use of back-up generators, battery storage and leakage) are plainly not preempted by the Act. Finally, the Board of Health argues that the federal telecommunications laws and regulations were not devised to exempt applicants such as plaintiff from the requirements for filing applications and supporting documents reasonably in advance of meetings, in order that the members have the time to read them before acting on them nor from attendance at meetings of the Board of Health to present their applications and answer questions, except where RF compliance has been properly demonstrated. For these reasons the Board of Health asks the Court to dismiss this action.
The defendant Planning Board contends that plaintiff has failed to correctly frame the issue and urges the Court to focus on the actual dispute. The issue, in the Planning Board's view, is whether the request by the Board of Health that plaintiff submit satisfactory proof that its proposed facility does, in fact, comply with the standards set by the relevant federal regulations and provide information regarding potential health concerns at the site other than any RF emission concerns (e.g., use of batteries and other power sources,) is prohibited by the Act. It contends that it and the Board of Health simply want the applicant to demonstrate that the facility complies with the FCC standards, and argues that Sprint's refusal to explain its expert's report and methodology or to answer other health questions is impermissible.
The Planning Board argues that by its focus on the narrow question of RF emissions, plaintiff ignores the fact that the Board of Health (or the Planning Board if it so chose) has the right to verify that the emissions do comply with relevant Federal standards, ignores the fact that the Board of Health has the right to review other health related issues such as batteries and other on site power sources and ignores the fact that the Planning Board simply requested that the applicant satisfy the same check list requirements imposed on every other applicant to the Planning Board.
Moreover, the Planning Board contends that plaintiff's allegations concerning compliance with the MLUL and its allegations as to civil rights violations are wholly without merit. As to the MLUL, it argues that it has not delegated its decision making authority to the Board of Health and has adopted by ordinance its procedures concerning applications as authorized by the statute. As to the civil rights claims, it contends that its failure to act on an incomplete application simply does not state a claim for a civil rights violation. Consequently, the Planning Board asks that the Order to Show Cause be discharged and plaintiff's complaint be dismissed. According to the Board, until plaintiff complies with the ordinances of the Township of Warren and the procedures governing every application for development of any site plan, there is no basis for legal relief.
We turn first to the plaintiff's contention that the requirement imposed on applicants by the Planning Board that they *721 secure a Board of Health approval in advance of any consideration by the Planning Board is an impermissible delegation of duties under the MLUL. First, it is noteworthy that the applicant made no objection to this requirement in the first instance, and only raised its argument that the requirement is an improper delegation of duties after the Board of Health refused to proceed with a hearing on December 2, in effect refusing to waive its requirement that it be given materials to consider fourteen days in advance of the meeting at which the issue is to be considered and which it contends would have forced it to accept without question the conclusions of the unsigned and unverified report of the applicant's consultant at the December 2 meeting. In fact, it is of note that the applicant was aware that the Planning Board had rejected its request for a waiver of the Board of Health review prior to the April 7 meeting scheduled by the Board of Health and at which the issue might well have been resolved had the applicant chosen to attend as it had a right to do.
Apart from the interesting issue of whether such actions by Sprint constitute a waiver of the right to object to the Planning Board's usual procedure of requiring a Board of Health review, there is nothing in the MLUL which prohibits the procedure utilized by the Planning Board here. As the Planning Board points out, the use of a checklist procedure for determining whether and when an application is complete is specifically permitted by the MLUL, see N.J.S.A 40:55D-10.3 and has specifically been endorsed by our courts, see Purwin v. Bernards Twp. Planning Board, 221 N.J.Super. 243, 534 A.2d 96 (Law Div.1987). Nor is there anything in the use of a checklist or the inclusion on the list of the requirement for a Board of Health hearing or certificate which violates the MLUL or constitutes an impermissible delegation of duties. Plaintiff had the option under the MLUL of seeking a waiver, a remedy of which it did not initially avail itself, and which was promptly reviewed when the applicant sought the waiver after the failed effort to have the Board of Health act in early December. Nothing in the requirement itself bespeaks a decision by the Planning Board to defer its decision making authority to the Board of Health, which would be improper under the MLUL, as the Board of Health input is and remains advisory only. As there is no ground on which to find that the requirement, which the Planning Board asserts and Sprint does not seriously contest is included in the Township Ordinance as required by the MLUL, of compliance with the matters on the checklist constitutes an impermissible delegation under that statute, the application by the plaintiff before the Court on this ground must be denied.
We turn then to the contentions of the plaintiff that the requirement for Board of Health review violates the provisions of the Telecommunications Act of 1996. That Act provides, in pertinent part,
no State or local government or instrumentality thereof may regulate the placement, construction, and modification of personal wireless services facilities on the basis of the environmental effects of radio frequency emissions to the extent that such facilities comply with the Commission's regulations concerning such emissions.
47 U.S.C.A. § 332(c)(7)(B)(iv). The real focus of the dispute and of the plaintiff's contention here, is the scope of the preemptive language in the Act. Plaintiff contends that the preemptive scope is broad and all-inclusive, prohibiting any inquiry of any type relating to RF emissions. Plaintiff cites the Act but also contends that our Supreme Court adopted this view in its only published decision to touch upon the issue, citing Smart SMR v. Fair Lawn Bd. of Adjustment, 152 N.J. 309, 334, 704 A.2d 1271 (1998). Defendants disagree, arguing that the Act does not deprive them of the right to inquire into health related issues other than the effects of RF emissions and that the Act does not prevent *722 them from assuring themselves that the facility does comply with RF emissions regulations.
This Court agrees with the defendants. First, while the Act expresses a strong preemptive policy, see 47 U.S.C.A. § 332(c)(3), the Act also expresses an intention to preserve, in general, the authority of state or local government to assert and to perform its usual zoning functions. Specifically, the Act provides
(7) Preservation of local zoning authority
(A) General Authority
Except as provided in this paragraph, nothing in this chapter shall limit or affect the authority of a state or local government or instrumentality thereof over decisions regarding the placement, construction, and modification of personal wireless service facilities.
47 U.S.C.A. § 332(c)(7)(A). As a result, the preemptive language which is included in subsequent paragraphs is to be narrowly and not broadly construed, for the expressed intention of Congress is to effect a limited preemption and not an expansive one.
Second, the actual preemptive language of the Act rests upon a demonstration by the applicant of compliance with the RF emissions as established in the applicable federal regulations. That language, by its own terms, requires compliance with federally-established RF emissions levels as a prerequisite to preemption. In Sprint's view, compliance is shown merely by serving a report which it contends establishes its compliance with the applicable RF emissions requirements. And in Sprint's view, it is beyond the scope of the local authority's powers to review that report, to raise questions about its methodology or its calculations, or to make any inquiry of any kind, in spite of the fact that in this particular case, its report was unsigned and unverified as required by applicable federal regulations, see 47 C.F.R. §§ 1.17, 1.52, and in spite of its initial concession, by its appearance before the Board of Health, that the Board retained some authority to review the report and to act. Here, plaintiff submitted a report from Bell Labs addressing RF emissions at the proposed facility one day before a previously scheduled hearing. While plaintiff's counsel appeared at the meeting of the Board of Health accompanied by an expert from Bell Laboratories, it has, since that time, been apparent that plaintiff believes that it has no obligation to explain that report or its methodology. Plaintiff contends that the report in and of itself was sufficient to demonstrate that the proposed facility will comply with Federal RF emission standards. More significant, plaintiff suggests that the Act requires the municipality to simply accept its assertion of compliance without question. Defendants contend that the report fails to make clear the method by which plaintiff's expert arrived at his conclusions or performed his calculations, and assert it is necessary to question plaintiff's expert on how he arrived at the conclusions outlined in the report. Nothing in this request or this procedure violates the conceded preemptive reach of the Act. The Board has made no effort to impose its own view of RF levels on the application nor to substitute its judgment for that of the FCC, but has merely sought a demonstration of compliance. Nothing in the statutory language is so broadly preemptive as to excuse the applicant from having to demonstrate compliance with FCC regulations regarding RF emissions. And nothing in this language permits the applicant to submit an unsigned report with technically complex calculations and contend, as plaintiff does here, that the municipality is bound by statute to accept its assertion that the facility is in compliance.
Pursuant to the Act, an applicant must demonstrate compliance with RF emission standards established by the *723 FCC. 47 U.S.C.A. § 332(C)(7)(b)(iv). It is not, by virtue of the Act, exempt from showing that it complies, it is merely exempt from a locally-imposed and more stringent emissions standard. It is this Court's opinion, therefore, that nothing in the Board of Health review procedure here utilized contravenes the authority of the FCC as preserved in the Act.
Nor is there anything in our Supreme Court's most recent decision respecting the preemptive reach of the Act which compels us to reach the conclusion urged upon us by plaintiff. In Smart SMR v. Fair Lawn Bd. of Adjustment, supra, the Supreme Court held that the Board of Adjustment violated the Act by permitting neighbors of the proposed facility to testify that they believed that the RF emissions sanctioned by the FCC were not sufficiently stringent to protect their health. Id. at 333, 704 A.2d 1271. It was this type of input and this expression of local concern which that Board not only permitted but on which it relied in rejecting the application and which the Supreme Court held was specifically preempted. Id. at 334, 704 A.2d 1271. Nothing in that decision, however, implies that the preemptive reach of the Act is so broad or all encompassing as to require a Municipal Board to accept without question that a complex technical report in and of itself demonstrates compliance with federal regulations. Rather, we hold that the preemptive reach of the Act does not prevent a municipality from requiring an explanation to ensure that the federal RF emissions standards have been met and the federal standards satisfied. As a result, while the supplemental submission by the applicant satisfied the federal requirements concerning verification and cured that threshold defect, the explanations of the methodology remain an area of appropriate Board of Health inquiry. Furthermore, the Board of Health here sought information from plaintiff regarding issues other than RF emissions such as site security, the use of back-up generators, battery storage and leakage. These issues and these ordinary health concerns are not preempted under any analysis of the Act and these inquiries have yet to be addressed by plaintiff.
Thus, as it respects the Board of Health, its refusal to issue a certification pending the appearance by plaintiff's representative is entirely appropriate. Moreover, the refusal of the Planning Board to waive that requirement based upon its interpretation of the Federal Act was permissible. Here, the Planning Board simply requested that plaintiff satisfy the same check list requirements facing every other such applicant. Based upon this analysis, plaintiff's request to have the Court deem its application complete and require the Planning Board to act must be denied. To grant it the relief it seeks would be to exempt it completely from review by the appropriate local authorities, a result neither mandated by nor permitted by the Act.
Furthermore, plaintiff's civil rights claim is without any merit. Actions under the Civil Rights Act are only sustainable when a person or governmental entity, acting under color of state law, allegedly violates a Federal law. Maine v. Thiboutot, 448 U.S. 1, 100 S.Ct. 2502, 65 L.Ed.2d 555 (1980). The defendants' actions as to plaintiff were not taken in violation of the Telecommunications Act. Here, defendants are simply enforcing, in a nondiscriminatory and permissible fashion, municipal ordinances relating to matters clearly within their purview. As such, plaintiff cannot recover on its civil rights claim, which claim must as a result be dismissed.
Based on the foregoing, plaintiff's Order to Show Cause seeking to deem its application for site plan approval complete is denied. Defendants' request that plaintiff's complaint be dismissed is granted. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535975/ | 737 A.2d 342 (1999)
Eva COMITALO, Petitioner,
v.
UNEMPLOYMENT COMPENSATION BOARD OF REVIEW, Respondent.
Commonwealth Court of Pennsylvania.
Submitted on Briefs May 14, 1999.
Decided August 25, 1999.
*343 Joanne Rathgeber, Doylestown, for petitioner.
Jennifer LaPorta Baker, Harrisburg, for intervenor, Giant Food Stores.
Before SMITH, J., KELLEY, J., MIRARCHI, Jr., Senior Judge.
SMITH, Judge.
Eva Comitalo (Petitioner) petitions the Court for review of an order of the Unemployment Compensation Board of Review (Board) that reversed the decision of the referee who granted benefits to Petitioner after finding that she quit work with cause of a necessitous and compelling nature pursuant to Section 402(b) of the Unemployment Compensation Law (Law), Act of December 5, 1936, Second Ex.Sess., P.L. (1937) 2897, as amended, 43 P.S. § 802(b). Section 402(b) of the Law provides that an employee shall be ineligible for compensation for any week in which the employee's unemployment is due to voluntarily leaving work without cause of a necessitous and compelling nature. Petitioner questions whether the Board erred as a matter of law in determining that she did not have cause of a necessitous and compelling nature for leaving her employment.
I
Petitioner was employed in the bakery department of Giant Food Stores (Employer) in its Horsham location for five months as a cake decorator. Her final day of work was January 6, 1998. During the course of her employment, Petitioner experienced repeated sexual harassment from the bakery manager Michael Andrae (Andrae). In addition to making lewd and suggestive comments to her, Andrae would sometimes touch or grab Petitioner in an offensive manner, and on one occasion he penned her against a wall. She requested Andrae to stop this behavior, but the harassment continued.[1] After Andrae left a suggestive note on Petitioner's windshield, her husband complained to Employer. Employer took no action, and upon further complaints by Petitioner's husband, Employer suggested that they complain to the human resources department. Petitioner filed a complaint, and after investigation and an apparent finding that Andrae committed sexual harassment against Petitioner as charged, he was suspended from December 23, 1997 until his transfer to the bakery manager's position in Employer's Warminister store on January 5, 1998. During his suspension Andrae returned to Petitioner's store in a drunken state and accused her of lying. Petitioner did not report this incident to Employer, but she believed that Andrae was permitted to return to her store at any time.
Bob Saraullo (Saraullo), the bakery manager from the Warminister store, was transferred to Petitioner's store to replace Andrae. During the first two days of his transfer, Saraullo repeatedly yelled at Petitioner and constantly criticized her. Petitioner believed that Saraullo acted in retaliation against her for his transfer to the Horsham store caused by her sexual harassment complaint. Other employees criticized Petitioner as well for filing the complaint against Andrae. On January 6, 1998, Petitioner informed Jim O'Connor *344 (O'Connor), the assistant store manager, about the behavior of Saraullo and the other employees, and she offered to give her notice of resignation. O'Connor suggested instead that Petitioner take a few days off and that she "stick it out" until things calmed down; he did not offer, however, to protect Petitioner from any further harassment. Petitioner took off work on January 7 and 8 and thereafter refused to return to work.
The referee concluded that Petitioner left her employment for cause of a necessitous and compelling nature due to the hostile work environment and that Employer failed to sufficiently resolve the situation and to prevent further harassment against Petitioner. She therefore was entitled to benefits. The Board reversed the referee, reasoning that Petitioner was ineligible for unemployment compensation because Employer took steps to resolve the sexual harassment against her by transferring Andrae and because Petitioner did not give Employer time to remedy her complaints about Saraullo and the other employees. The Court's review of the Board's order is limited to determining whether its findings of fact are supported by substantial evidence in the record, whether an error of law was committed or whether constitutional rights were violated. Chamoun v. Unemployment Compensation Board of Review, 116 Pa.Cmwlth. 499, 542 A.2d 207 (1988).
II
Whether an employee has cause of a necessitous and compelling nature to quit employment is a legal conclusion subject to appellate review. Anchor Darling Valve Co. v. Unemployment Compensation Board of Review, 143 Pa.Cmwlth. 171, 598 A.2d 647 (1991). In order to show necessitous and compelling cause, "[t]he claimant must establish that: 1) circumstances existed which produced real and substantial pressure to terminate employment; 2) like circumstances would compel a reasonable person to act in the same manner; 3) she acted with ordinary common sense; and 4) she made a reasonable effort to preserve her employment." Fitzgerald v. Unemployment Compensation Board of Review, 714 A.2d 1126, 1129 (Pa.Cmwlth.1998), appeal denied, ___ Pa. ___, ___ A.2d ___ (No. 839 M.D. Alloc. Dkt., filed April 28, 1999). Harassment can constitute a necessitous and compelling cause to leave one's employment. Homan v. Unemployment Compensation Board of Review, 107 Pa. Cmwlth. 172, 527 A.2d 1109 (1987).
Petitioner argues that Employer took no effective remedial action against Andrae's sexual harassment and that Employer's nonfeasance is demonstrated by the fact that Andrae was allowed to return to Petitioner's store after his transfer to make disparaging comments about Petitioner. Petitioner also argues that her failure to report Andrae's return to the store after his transfer does not defeat her claim, citing Mutual Pharmaceutical Co., Inc. v. Unemployment Compensation Board of Review, 654 A.2d 37 (Pa.Cmwlth.1994), where the Court held that an employee who quits due to sexual harassment is not required to report each and every incident to the employer. Furthermore, in Mercy Hospital v. Unemployment Compensation Board of Review, 654 A.2d 264 (Pa. Cmwlth.1995), the Court held that co-worker harassment may constitute good cause for an employee to quit his or her employment so long as the employee has informed supervisory staff of the existence of the co-worker harassment.
Additionally, Petitioner asserts that Employer's action to remedy the harassment against her was insufficient, where Employer merely transferred Andrae to another store as bakery manager with continued access to Petitioner's store and where it took no action to resolve the retaliatory harassment of Petitioner by Saraullo or the hostile conduct of her co-workers. Moreover, the record is devoid of any evidence that the harassment would have ceased had she returned to work. To buttress her claim of nonfeasance, Petitioner *345 noted Andrae's extensive history of sexual harassment of other female employees at the Horsham store, her store manager's statement that Andrae was permitted to return to the store at any time and the failure of Employer to appropriately discipline Andrae or Saraullo for their conduct.[2] Petitioner specifically challenges the Board's findings that Employer took proper steps to resolve the harassment against her and that she quit solely because of Saraullo's retaliatory harassment. She posits that the Board disregarded undisputed evidence in the record that Andrae was allowed to return to her store after his transfer and her testimony that a confluence of events caused her to quit, including Andrae's sexual harassment and Employer's hesitant response thereto followed by Saraullo's retaliatory harassment and her co-workers' hostile behavior.
Employer nonetheless counters that Petitioner's challenges are based on findings made by the referee which differ from those made by the Board as the ultimate factfinder and that Petitioner's analysis of the evidence is improper and contrary to the law. Employer cites Ryan v. Unemployment Compensation Board of Review, 120 Pa.Cmwlth. 80, 547 A.2d 1283 (1988), for the proposition that where the Board's findings of fact are supported by substantial evidence, they are binding on the Court even though evidence to the contrary may exist in the record. It argues that the Board's finding that proper steps were taken by Employer to resolve the harassment against Petitioner is in fact supported by substantial evidence. In particular, Employer maintains that Andrae's transfer out of Petitioner's store and the lack of evidence to prove that his new position carried greater financial reward as she contended indicate that the Board's findings are supported in the record.
Before quitting, Petitioner advised O'Connor about Saraullo's retaliatory harassment and the hostile behavior of her co-workers, but O'Connor merely suggested that Petitioner take time off to allow the situation to settle down rather than taking immediate action under the circumstances presented to protect Petitioner from further harassment. Employer postulates that O'Connor's response was appropriate and that Petitioner had the burden to take steps to retain her job. Notwithstanding Employer's position, Petitioner believed that Employer would not sufficiently remedy her current situation in view of Employer's earlier response and the failure of O'Connor to indicate that Employer would act to resolve the current harassment against her. The Court cannot say that these circumstances would not produce real and substantial pressure to terminate one's employment and would not compel a reasonable person to act any differently.
In order to demonstrate sexual harassment as cause of a necessitous and compelling nature to quit employment, an employee must present evidence of reasonable and prudent efforts to alleviate the harassment. See Johnson v. Unemployment Compensation Board of Review, 725 A.2d 212 (Pa.Cmwlth.1999) (citing Peddicord v. Unemployment Compensation Board of Review, 166 Pa.Cmwlth. 676, 647 A.2d 295 (1994)). On the other hand, the Court made it clear in Peddicord, Mutual Pharmaceutical Co. and Mercy Hospital that there is a certain level of conduct that an employee will not be required to tolerate and that the Court will not place all responsibility upon an employee to resolve his or her work dilemma. Ultimately the employer bears the responsibility for eliminating harassment against employees in the workplace. An employer policy existed *346 here that prohibited sexual harassment of employees and retaliation against an employee for having complained of such harassment. The evidence does not support the Board's finding that Employer took proper steps necessary to enforce its policy to eliminate harassment against Petitioner, whether by Andrae or by Saraullo and Petitioner's co-workers. Accordingly, because the Board committed an error of law in determining that Petitioner did not have cause of a necessitous and compelling nature to quit her job, the Court reverses the Board and reinstates the decision of the referee.
ORDER
AND NOW, this 25th day of August, 1999, the order of the Unemployment Compensation Board of Review is reversed, and the referee's decision granting unemployment compensation benefits to Eva Comitalo is reinstated.
NOTES
[1] The referee admitted without objection notarized affidavits from four female employees who recounted numerous instances of obscene and lewd behavior perpetrated by Andrae, which included his suggestion to an employee that she perform oral sex, his comments about touching various female employee body parts, his offer to perform sexual relations and his references to female employees as "sluts." Petitioner's Ex. C-3.
[2] Petitioner also argues that the Board capriciously disregarded evidence. However, the capricious disregard test applies only where the burdened party is the sole party to present evidence but does not prevail before the agency. See Van Duser v. Unemployment Compensation Board of Review, 164 Pa.Cmwlth. 96, 642 A.2d 544 (1994). Because both parties presented evidence, the substantial evidence test applies. Chamoun. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535916/ | 114 B.R. 943 (1990)
In re SUBURBAN MOTOR FREIGHT, INC., Debtor.
Stephen K. YODER, Trustee, Plaintiff,
v.
T.E.L. LEASING, INC., et al., Defendants.
Bankruptcy No. 2-87-00822, Adv. No. 2-87-0276.
United States Bankruptcy Court, S.D. Ohio, E.D.
April 25, 1990.
*944 *945 Stephen K. Yoder, Bricker & Eckler, Columbus, Ohio, Chapter 7 Trustee.
Quintin F. Lindsmith, Bricker & Eckler, Columbus, Ohio, for plaintiff.
Thomas C. Pavlik, William J. Novak, Sindell, Rubenstein, Einbund, Pavlik, Novak & Celebrezze, Cleveland, Ohio, for Shareholder defendants.
Edward F. Chuha, Kincaid, Palmer & Randall, Joseph A. Butauski, John C. Nemeth & Associates, Columbus, Ohio, co-counsel, for Samuel B. Randall.
Polly J. Harris, Columbus, Ohio, for Huntington Nat. Bank.
Jennifer T. Mills, Porter, Wright, Morris & Arthur, Columbus, Ohio, for Huntington Nat. Bank, Escrow Agent.
Michael J. Fusco, Fusco & Ison, Westerville, Ohio, for T.E.L. Leasing, Inc. and Transp. Equipment Services, Inc.
Reginald W. Jackson, Vorys, Sater, Seymour & Pease, Columbus, Ohio, for Banc-Ohio Nat. Bank.
Robert J. Sidman, Vorys, Sater, Seymour & Pease, Columbus, Ohio, for Buckeye Nominee Co.
Charles M. Caldwell, Columbus, Ohio, Asst. U.S. Trustee.
OPINION AND ORDER
R. GUY COLE, Jr., Bankruptcy Judge.
I. Preliminary Matters
There are two contested motions before the Court for decision following an oral hearing. The first is the Motion for Leave to File Amended Answer to Third Amended Complaint ("Motion for Leave"), filed on March 1, 1990, by Defendants Helen M. Riley; BancOhio National Bank, Trustee of the Estate of Leo Kletzly; Marcelle S. Kletzly; Michael Kincaid; William C. Sexton; Joanne S. Bagby; BancOhio National Bank, Trustee of the Estate of Donald Dawson; Marjorie Losh; Susan L. Kollar; James C. Losh; Thomas A. Kuhn; Lawrence K. LeGrand; Patricia Ann Holland; Mary Sharon Logan; Thomas J. Holland; William M. Holland, III; and Thomas C. Losh (hereinafter collectively referred to as *946 the "Shareholder Defendants"). The Motion for Leave is opposed by the Plaintiff; Defendant Huntington National Bank, Escrow Agent ("Huntington"); and Defendant Samuel Randall. The Shareholder Defendants have filed a reply to Huntington's memorandum in opposition to the Motion for Leave.
The other motion before the Court is the Plaintiff's Motion to Strike Defendants' Jury Demand ("Motion to Strike"), filed on March 20, 1990. The Shareholder Defendants filed a response to the Motion to Strike on March 30, 1990. The Plaintiff filed a supplemental memorandum in support of his Motion to Strike on April 3, 1990.
The Court has jurisdiction over these motions pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this judicial district. These are core proceedings which the Court may hear and determine. 28 U.S.C. § 157(b)(2)(A), (H), and (O). This opinion constitutes the Court's findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.
II. Findings of Fact
As a preliminary matter, the Court has endeavored, through judicial notice of the court file, its own recollection of the parties' agreements and disagreements in prior status conferences, and the uncontested facts presented at the hearing, to make findings of fact, in the absence of testimonial evidence. The Court has also given due consideration to its own docket and delays which might be occasioned by the grant or denial of the motions at issue.
This adversary proceeding was initially commenced on September 28, 1987 by the filing of a Complaint by Suburban Motor Freight, Inc. ("SMF"), a debtor-in-possession in a then pending Chapter 11 proceeding in this Court. SMF's Chapter 11 case was converted to a case under Chapter 7, and Stephen K. Yoder was appointed trustee, on November 3, 1987. The Complaint sought, inter alia, the recovery of property of the bankruptcy estate, the set aside of preferential transfers and fraudulent conveyances of property, the recovery of damages for fraud and the unlawful distribution of certain corporate dividends.
Prior to the filing of any answers to the Complaint, Yoder, as trustee for the estate of SMF, filed the First Amended Complaint on January 21, 1988. By Yoder's own admission, the First Amended Complaint "significantly expanded" the allegations of the complaint. The Shareholder Defendants did not answer the First Amended Complaint due to stipulations entered into by and between the parties which extended the time in which the Shareholder Defendants could move or plead.
On March 22, 1988, Yoder (hereinafter referred to as "Plaintiff") filed his Second Amended Complaint with Demand for Declaratory Judgment and Demand for Permanent Injunction. The Second Amended Complaint added Continental Trucking Service, Inc. as a defendant, but made no substantive change in the claims against the Shareholder Defendants. No party opposed the filing of the Second Amended Complaint. The Shareholder Defendants answered the Second Amended Complaint on May 5, 1988, and asserted cross-claims against various defendants. No demand for a trial by jury was made by the Shareholder Defendants at this time or within ten days thereafter.
On May 25, 1989, Plaintiff filed his Motion for Leave to file Third Amended Complaint. That motion requested leave to amend the complaint for the following reasons:
Since the filing of the second amended complaint, Plaintiff has conducted further discovery, has reviewed voluminous documents from various sources, and has interviewed witnesses to events described in the second amended complaint. The Trustee has concluded that the complaint should be amended one final time to clarify the issues before the court, dismiss those actions which the Trustee does not believe would benefit the estate, and add parties who are necessary to this litigation.
Plaintiff's Motion for Leave to File Third Amended Complaint at 2. The Third *947 Amended Complaint was filed on July 26, 1989.
The Third Amended Complaint narrowed the scope of the Plaintiff's allegations by deleting certain claims and defendants. Various other defendants, including Continental Trucking Service, Inc., had been dismissed previously on Plaintiff's motions.[1] Although the action was "streamlined" using Plaintiff's counsel's characterization by the filing of the Third Amended Complaint, the core bankruptcy claims, namely those premised on §§ 544, 547, 548, were retained. The allegations asserted against the Shareholder Defendants were not greatly amended.[2]
On September 13, 1989, the Shareholder Defendants filed their Answer to Third Amended Complaint and Cross-claim ("Answer and Cross-Claim"). Again, no demand or request for a jury trial was made at this time by the Shareholder Defendants. A number of the other defendants have answered the Third Amended Complaint as well as the Shareholder Defendants' cross-claims. No other party has requested a trial by jury.
On February 20, 1990, the law firm of Baker & Hostetler, then counsel to the Shareholder Defendants, filed its Motion to Withdraw as Counsel. In its supporting memorandum, Baker & Hostetler represented that there were potential conflicts of interest between and among its clients, and that those potential conflicts could not be resolved adequately without the substitution of replacement counsel. On February 22, 1990, the Court entered its order permitting Baker & Hostetler to withdraw as counsel to the Shareholder Defendants.
On February 8, 1990, the law firm of Sindell, Rubenstein, Einbund, Pavlik, Novak & Celebrezze, through Messrs. Pavlik and Novak, filed a motion to appear pro hac vice. The motion represented that Messrs. Pavlik and Novak had been retained as replacement counsel for the Shareholder Defendants. Messrs. Pavlik and Novak also filed their notice of appearance pursuant to Bankruptcy Rule 9010(b) on February 8, 1990.
On March 1, 1990, the Shareholder Defendants filed the following papers: Motion for Leave; proposed Amended Answer to Third Amended Complaint and Cross-claim (hereinafter "Proposed Amended Answer and Cross-Claim"); Motion to Add Third-Party Defendant; Third-Party Complaint; and Jury Demand. This was the first time that the Shareholder Defendants requested a trial by jury. On March 1, 1990, the Court granted ex parte the Motion to Add Third-Party Defendant, thereby adding the law firm of Morgan, Lewis & Bockius as a defendant.
A. Motion for Leave
In their Motion for Leave, the Shareholder Defendants assert that the Third Amended Complaint "expanded the allegations in this lawsuit." Motion for Leave at 3. The Shareholder Defendants also claim as follows:
Since the filing of the Third-Amended Answer, [sic] Defendants have appointed new counsel and learned of the existence of new evidence. Defendants have therefore concluded that their Answer should be amended again to add new cross-claims against parties in this litigation and bring in additional defendants.
Id. If the Motion for Leave is granted, the Shareholder Defendants will bring new cross-claims against two parties who already are defendants to the lawsuit. One defendant to the new cross-claims would be Samuel B. Randall, arising from legal advice he allegedly provided to the Shareholder Defendants with respect to a sale to Transportation Equipment Services, Inc. Another cross-claim would be asserted against Huntington in its capacity as escrow agent for the former shareholders of Suburban Distribution Systems, Inc. It is alleged that Huntington received a check in the amount of $2,500,000 at a "stock sale *948 closing" and breached its fiduciary duty as escrow agent by failing to establish an escrow account for said sums. The Shareholder Defendants assert that these claims are necessary and proper, and will not prejudice any of the parties to this action.
Although the Motion for Leave cites the discovery of new evidence, the Shareholder Defendants conceded at the hearing that there was no basis for this claim. Instead, they now assert that a letter from Plaintiff's counsel to the Shareholder Defendants' previous counsel, dated December 20, 1989, serves as the primary basis for their request. The Shareholder Defendants contend that this letter, apparently constituting a communication with respect to a settlement offer (the Court has agreed to review only one paragraph of the letter) was the first clear and concise articulation of the Plaintiff's lawsuit. The Shareholder Defendants also maintain that the letter narrowed the issues in dispute. For these reasons, the Shareholder Defendants argue that they should now have an opportunity to amend their answer and assert new cross-claims.
1. Amendment of the Answer to Assert Affirmative Defenses
The Plaintiff opposes the Motion for Leave. The Plaintiff notes, in addition to asserting new cross-claims, the Proposed Amended Answer and Cross-Claim adds seven, new affirmative defenses. The Plaintiff claims that there has been an undue delay in the attempt to add these affirmative defenses. The addition of these new affirmative defenses, the Plaintiff argues, would unduly prejudice him in the prosecution of the case.
Noting that the Complaint was filed over two and one-half years ago, the Plaintiff contends that the request to add the aforementioned new defenses substantially expands the scope of the litigation, and would cause an unreasonable hardship on him and the estate in proceeding to trial. For example, allowance of the affirmative defenses will require additional discovery with respect to parties who already have been subject to discovery, as well as of parties for whom no discovery was planned; further, the Plaintiff will have to take the deposition of each of the Shareholder Defendants concerning the new defenses. Moreover, to the extent the Motion for Leave seeks acceptance of the jury demand, Plaintiff also would need to take the depositions of the Shareholder Defendants to ascertain, among other things, the impact of their testimony on a jury.
The Plaintiff also claims that a number of the newly-asserted affirmative defenses are frivolous. The Plaintiff implies that these new defenses are futile and merely included for the purpose of delay. The Plaintiff emphasizes that these affirmative defenses could have been raised more than two and one-half years ago, and that their allowance at this juncture would significantly prejudice the Plaintiff in the prosecution of his case.[3]
The Plaintiff states that allowance of the affirmative defenses would necessitate the engagement of a second expert witness to testify regarding reasonable operating capital in the trucking industry, an issue which Plaintiff does not believe he needs to address with expert testimony in a bench trial. Retention of the current accounting expert took a considerable period of time due to the nature of the engagement; the Court would expect a similar difficulty in Plaintiff securing a second expert. Plaintiff asserts that the cost to the estate would be considerable.
In sum, the Plaintiff contends that allowance of the newly-asserted affirmative defenses will lead to a significant delay in the trial of this action as it will require a considerable adjustment in his preparation for and approach to the trial.
2. Addition of New Cross-Claims
Counsel for Randall also opposes the Motion for Leave to the extent that it seeks *949 allowance to assert new cross-claims. Randall notes that he became a party to this proceeding, for the first time, on July 26, 1989, by the filing of the Third Amended Complaint. The Third Amended Complaint alleged, inter alia, Randall's receipt of $38,312.50 in fees for legal services rendered to the Shareholder Defendants constituted a fraudulent conveyance pursuant to 11 U.S.C. § 548 of the Bankruptcy Code. The Shareholder Defendants' Answer and Cross-Claim, filed September 13, 1989, failed to assert a cross-claim against Randall. The Proposed Amended Answer and Cross-Claim seeks to add a legal malpractice cross-claim against Randall.
To date, Randall's limited involvement in this proceeding has been to defend solely against the Plaintiff's claim that receipt of the legal fees amounted to a fraudulent conveyance. Randall maintains he will be severely prejudiced if he is forced to defend, at this late date, a legal malpractice claim which previously had not been contemplated by the parties. Pointing to the Court-imposed deadlines for discovery and dispositive motions, Randall claims the Shareholder Defendants have unduly delayed in asserting the cross-claims and such delay will result in imposing a substantial burden upon the parties against whom the cross-claims are asserted.
Randall further argues that the Shareholder Defendants do not possess any new evidence which justifies their request for leave to add these new cross-claims. Randall had submitted to a Rule 2004 examination in the summer of 1987. Since this examination, no other discovery devices have been employed by the Shareholder Defendants to obtain information from Randall. Randall expressed grave doubts as to whether the Shareholder Defendants had discovered new evidence, or merely new legal strategies.
Finally, Randall claims that allowance of the cross-claim would be futile. Citing to decisional authority, Randall asserts the cross-claim would be barred by the one-year statute of limitations with respect to legal malpractice claims in Ohio. Randall implies that the assertion of the cross-claim is merely a dilatory tactic to further delay a trial on the merits.
Huntington, likewise, vehemently opposed the Shareholder Defendants' request for leave to assert additional cross-claims. Raising the same concerns enunciated by the Plaintiff and Randall, Huntington argued that the court system's policy of judicial economy would be substantially hindered by Shareholder Defendants' delay tactics. These cross-claims, Huntington argues, should have been asserted in previous pleadings; the Shareholder Defendants had knowledge of these facts, which they now claim as new evidence, since the inception of this adversary proceeding. Huntington emphasizes that the insertion of the cross-claims at this stage in the proceeding only serves to complicate the case and interject many issues that would otherwise not be heard by the Court.
The Court finds that there has been undue delay in the Shareholder Defendants' attempt to amend the September 13, 1989, answer, including the attempt to assert new affirmative defenses and add new cross-claims. The Court further finds that, in balancing the interests of the various parties, the prejudice to the Plaintiff, Randall and the Huntington greatly outweighs any benefit to the Shareholder Defendants if the Motion for Leave were to be granted.
B. Motion to Strike
With respect to the Motion to Strike, the Court notes that the Shareholder Defendants' Jury Demand was not filed until March 1, 1990. That demand came nearly two years after the Shareholder Defendants filed their answer to the Second Amended Complaint and almost six months after they filed their Answer and Cross-Claim to the Third Amended Complaint.
The Shareholder Defendants assert that they have a right to a trial by jury. They claim that their right did not exist, or was not certain, until the issuance of Granfinanciera, S.A. v. Nordberg, ___ U.S. ___, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989). The Court takes judicial notice of the opinion's issuance on June 23, 1989, nearly two *950 months prior to the filing of the Shareholder Defendants' Answer and Cross-Claim.
The Plaintiff maintains that the jury demand was waived due to its tardy filing. The Plaintiff argues further that the Shareholder Defendants possessed the right to a trial by jury, if at all, from the inception of the lawsuit; Granfinanciera merely and presumably shed more light on that right. Finally, the Plaintiff asserts that the Shareholder Defendants had nearly two months after the issuance of Granfinanciera to make a demand for trial by jury, either before, at the time, or within ten days after, they filed their Answer and Cross-Claim on September 13, 1989.
III. Conclusions of Law
A. Motion for Leave
The Shareholder Defendants have requested leave to amend their Answer and Cross-Claim. A motion for leave to amend a pleading necessarily requires consideration of Rule 15 of the Federal Rules of Civil Procedure, made applicable to adversary proceedings by Bankruptcy Rule 7015. Rule 15(a) states in pertinent part as follows:
A party may amend his pleading once as a matter of course at any time before a responsive pleading is served or, if the pleading is one to which no responsive pleading is permitted and the action has not been placed upon the trial calendar, he may so amend it at any time within twenty days after it is served. Otherwise a party may amend his pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires.
Rule 15 is premised on the theory "[t]hat pleadings are not an end in themselves, but are only a means to the proper presentation of a case; that at all times they are to assist, not deter, the disposition of litigation on the merits." Bush v. Camp Hosiery (Matter of Metropolitan Co.), 85 B.R. 783 (Bankr.S.D.Ohio 1988) quoting Moore, Vestal, Kurland, 3 Moore's Federal Practice and Procedure, § 15.02[1], 15-11 (2d ed. 1989); Matter of Schwartzman, 63 B.R. 348, 352-56 (Bankr.S.D.Ohio 1986).
Rule 15(a) clearly provides that "leave shall be freely granted when justice so requires." Freedom to amend, however, is not without limit. Continental Illinois Nat'l Bank and Trust Co. v. Tacoma Boatbuilding Co. (In re Tacoma Boatbuilding Co.), 81 B.R. 248, 260 (Bankr.S.D.N.Y. 1987). In Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962), the United States Supreme Court observed:
If the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the merits. In the absence of any apparent or declared reason such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc. the leave sought should, as the rules require, be "freely given."
Foman, 371 U.S. at 182, 83 S.Ct. at 230. The determination of whether a motion to amend is to be granted is left to the sound discretion of the trial court. Foman, 371 U.S. at 182, 83 S.Ct. at 230; Zenith Radio Corp. v. Hazeltine, 401 U.S. 321, 330, 91 S.Ct. 795, 803, 28 L.Ed.2d 77 (1971); Estes v. Kentucky Utilities Co., 636 F.2d 1131, 1133 (6th Cir.1980); Minor v. Northville Public Schools, 605 F.Supp. 1185 (E.D. Mich.1985). Analysis of the Foman factors must be made in light of the Rule 1 directive stating that the Federal Rules of Civil Procedure "are to be construed to secure the just, speedy, and inexpensive determination of every action." Federal Rule of Civil Procedure 1; Foman, 371 U.S. at 182, 83 S.Ct. at 230.
In assessing the equities of a motion, this Court is compelled to balance several factors. At the outset, the Court notes that delay alone is insufficient grounds for denying a motion to amend. Boyle v. Texasgulf Aviation, Inc., 696 F.Supp. 951, 956 (S.D.N.Y.1988), aff'd, 875 F.2d 307 (2d Cir.1989); Friedman v. Local 144 Nursing Home Pension Fund (Matter of Greenwald), 107 B.R. 28, 30 (Bankr.S. *951 D.N.Y.1989); Minor, 605 F.Supp. at 1201. Crucial to the Court's inquiry, however, is whether substantial prejudice would result to the nonmoving party and whether the notice of the amended pleading would be insufficient. Estes, 636 F.2d at 1134; Hageman v. Signal L.P. Gas, 486 F.2d 479, 484 (6th Cir.1973); Minor, 605 F.Supp. at 1201. In measuring the prejudice to the adverse party, courts must weigh the party's reason for any delay in raising the issue proposed for amendment against the prejudice likely to be suffered by the other side. Head v. Timken Roller Bearing Co., 486 F.2d 870, 874 (6th Cir.1973). A bankruptcy court must find some "significant showing of prejudice to the opponent" if the motion is to be denied. Janikowski v. Bendix Corp., 823 F.2d 945 (6th Cir.1987) quoting Moore v. City of Paducah, 790 F.2d 557, 562 (6th Cir.1986). However, "the longer the period of unexplained delay the less will be required of the nonmoving party to show prejudice." Minor, 605 F.Supp. at 1201 quoting Advocat v. Nexus Industries, Inc., 497 F.Supp. 328, 331 (D.C. Del.1980).
Plaintiff asserts that the Sixth Circuit Court of Appeals has established, along with a number of other courts, a four-part test for the examination of requests for leave to amend. See Estes v. Kentucky Utilities Co., 636 F.2d 1131 (6th Cir.1980). These tests involve a determination of whether:
(1) there is an undue delay in seeking an amendment;
(2) there is evidence of bad faith or dilatory tactics in requesting an amendment;
(3) there is, or will be, undue prejudice to the nonmoving parties; and
(4) the amendment is futile.
1. Amendment of the Answer to Assert Affirmative Defenses
In the case sub judice, allowance of the Proposed Amended Answer and Cross-Claim would delay trial of this matter. It would, for example, wreak havoc on the discovery process. Many depositions would have to be re-taken, and others, not presently planned, would have to be scheduled. It therefore would be difficult, if not impossible, to hold firm to the December 1990 trial date. While the Court cannot state with any precision when the case realistically would be in a posture to be tried if the Motion for Leave were granted, the Court believes that delays attributable to discovery alone would approximate six months at a minimum.
The Court's position is fortified by the Shareholder Defendants' failure to present any evidence or argument in support of their request to add seven, new affirmative defenses. In fact, the court record is devoid of any basis for the Shareholder Defendants' request to add affirmative defenses, especially at this late date. If allowed, these defenses will necessitate a massive re-working of Plaintiff's trial preparation and strategy.
Allowance of these new defenses likewise would result in a financial burden to the estate in a case which already has consumed considerable estate resources. Additional discovery and retention of a second expert witness by Plaintiff will further deplete the limited funds available to the estate. The Court is unwilling to allow the continued depletion of these precious resources on the grounds stated.
The Plaintiff also implies that the Motion for Leave was filed in bad faith or with a dilatory motive. One of the reasons, the Plaintiff argues, the Shareholder Defendants seek leave to amend their Answer and Cross-Claim is to enable them to make a timely demand for a jury trial upon the submission of their Proposed Answer and Cross-Claim. The Court agrees acceptance of the jury demand likely would delay the trial. Viewing the totality of the circumstances, it certainly is not inconceivable that the Shareholder Defendants are trying to buy more time. Examined in a more charitable light, the request to amend their answer, add cross-claims, and request a jury trial, reflects the new legal theories and strategies of replacement counsel. However, new legal theories and strategies are impermissible grounds for seeking *952 leave to amend and are but a few of the bases for denying the Motion for Leave.
The Court cannot accept the Shareholder Defendants' assertion regarding the December 20, 1989, letter. If the Shareholder Defendants did not understand the allegations of the complaint as it proceeded through its various stages of amendment, a number of avenues of redress were available to them. For example, they could have filed motions to dismiss, for a more definite pleading, or to strike certain claims. The Court finds it difficult to believe that these Shareholder Defendants truly did not understand the allegations set forth in the complaints, when a plain reading of the complaints makes those allegations quite clear. It is possible, however, that the letter in question focused the Shareholder Defendants' attention on the seriousness of the allegations contained in the Third Amended Complaint and the fact that the case was proceeding in the direction of an actual trial date.[4]
The Court further observes that, at a minimum, the Motion for Leave is unreasonably late. The claim by Messrs. Pavlik and Novak that their office, whose practice in the bankruptcy area is substantial, did not become aware of Granfinanciera until the late fall of 1989 has a hollow ring. Granfinanciera was issued by the Supreme Court on June 23, 1989, and was widely-discussed amongst the bankruptcy bar from the moment it was announced. It is inconceivable that the Shareholder Defendants' counsel were unaware of its existence and holding within days of its issuance.[5] The Answer and Cross-Claim was filed nearly two months after the Granfinanciera opinion was issued, more than enough time to decide whether that case had any impact or bearing on a decision to demand a trial by jury.
Additionally, Messrs. Pavlik and Novak did not become counsel of record until February 8, 1990, long after the Answer and Cross-Claim to the Third Amended Complaint was filed. The fact that they learned about Granfinanciera in November or December, 1989, would therefore be immaterial.
While the Court appreciates the liberality associated with the amendment of pleadings, there is a limit. Because the Court also finds that the proposed amendment is not made in good faith, would work a substantial prejudice to Plaintiff and the estate in prosecuting the action, and would be futile as to the affirmative defenses, the Motion for Leave is denied.
2. Addition of New Cross-Claims
At the outset, the Court notes that the Shareholder Defendants actually must clear two hurdles in order to assert their proposed cross-claims against Randall and the Huntington. The first obstacle requires the Shareholder Defendants to satisfy the four-part test for leave to amend enunciated in Estes. Next, the Shareholder Defendants must show compliance with Rule 13(g) of Rules of Civil Procedure. Rule 13(g), which speaks to cross-claims against a co-party, is made applicable to this adversary proceeding by Rule 7013.
With respect to both cross-claims, the record made at the hearing contains ample illustrations of the prejudice that would result if leave to amend were granted. Counsel for Randall and the Huntington echoed those concerns expressed by the Plaintiff with respect to his opposition to assert additional affirmative defenses. Both Randall and the Huntington have completed extensive discovery based upon the numerous defenses and cross-claims previously asserted by the Shareholder Defendants in the Answer and Cross-Claim to *953 the Third Amended Complaint. New cross-claims, advanced at this late date, would necessarily re-open much of the discovery. See generally Mercantile Trust Co. Nat'l Assoc. v. Inland Marine Products Corp. v. Gulf Tex Brokerage, Inc., 542 F.2d 1010, 1013 (8th Cir.1976).
The Shareholder Defendants had sufficient opportunity and time in which to assert their cross-claims. The setting of discovery deadlines is to be taken seriously. Discovery must be conducted so as to prepare the parties for trial, not merely to develop new theories and claims which in turn further delay the trial. Id. The Court finds that the Shareholder Defendants' attempt to include new cross-claims in this matter represents counsel's new theories and strategies, and will only serve to complicate unnecessarily this adversary proceeding.
The Shareholder Defendants' request to amend their answer to add new cross-claims against existing defendants is governed by Fed.R.Civ.P. 13(g). That rule provides as follows:
(g) Cross-Claim Against Co-Party. A pleading may state as a cross-claim any claim by one party against a co-party arising out of the transaction or occurrence that is the subject matter either of the original action or of a counterclaim therein or relating to any property that is the subject matter of the original action. Such cross-claim may include a claim that the party against whom it is asserted is or may be liable to the cross-claimant for all or part of a claim asserted in the action against the cross-claimant.
However, because the Court finds the Motion for Leave should not be granted pursuant to Fed.R.Civ.P. 15(a), it is unnecessary to consider the merits of the Shareholder Defendants' cross-claims under Rule 13(g).[6]
In short, the Court denies the Shareholder Defendants' Motion For Leave to assert cross-claims based upon the grounds set forth in Estes. See generally Weiboldt v. Schottenstein, No. 87-C-8111 (N.D.Ill. March 16, 1990) (LEXIS Bankr. library, Cases file).
B. Motion to Strike
Prior to August 1, 1987, Bankruptcy Rule 9015 mirrored the language of Rule 38 of the Federal Rules of Civil Procedure. Rule 38 provides, in relevant part, as follows:
Rule 38. Jury Trial of Right.
(a) Right preserved. The right of trial by jury as declared by the Seventh Amendment to the Constitution or as given by a statute of the United States shall be preserved to the parties inviolate.
(b) Demand. Any party may demand a trial by jury of any issue triable of right by a jury by serving upon the other parties a demand therefore in writing at any time after the commencement of the action an not later than ten days after service of the last pleading directed to such issue. Such demand may be endorsed upon a pleading of the party.
. . . .
(d) Waiver. The failure of a party to serve a demand as required by this Rule and to file it as required by Rule 5(d) constitutes a waiver by him of trial by jury. A demand for trial by jury made as herein provided may not be withdrawn without the consent of the parties.
The 1987 Advisory Committee Notes to the national bankruptcy rules, adopted August 1, 1987, stated that Rule 9015 was abrogated because it "had been cited as conferring a right to jury trial in other matters [other than personal injury or wrongful death actions, addressed in 28 *954 U.S.C. § 1411, trial of which is specifically confined to the district court pursuant to 28 U.S.C. § 157(b)(5)] before bankruptcy judges." Since a procedural rule may not enlarge any substantive rights, the rule was abrogated unless and until "the courts of appeals or the Supreme Court define a right to jury trial in any bankruptcy matter, . . ." See Leonard v. Wessel (In re Jackson), 90 B.R. 126, 132 (Bankr.E.D.Pa. 1988).
As a result of the abrogation of Rule 9015, all procedural rules relating to demands for jury trials in bankruptcy cases were eliminated. However, since 1987 bankruptcy courts have applied Rule 38 in its absence. See Ben Cooper, Inc. v. The Insurance Co. of the State of Pennsylvania (In re Ben Cooper, Inc.), 896 F.2d 1394 (2d Cir.1990); Kroh Bros. Dev. Co. v. United Missouri Bank of Kansas City, N.A., 108 B.R. 710, 711 (Bankr.W.D.Mo.1989); In re 222 Liberty Assoc., 99 B.R. 639, 634 (Bankr.E.D.Pa.1989); In re W.G.M.C., Inc., 96 B.R. 5, 6 (Bankr.D.Me.1989); In re Direct Satellite Communications, Inc., 91 B.R. 7, 9 (Bankr.E.D.Pa.1988); In re Jackson, 90 B.R. at 133. But see In re Silver Mill Frozen Foods, Inc., 80 B.R. 848, 854 n. 13 (Bankr.W.D.Mich.1987) (abrogation of Bankruptcy Rule 9015 eliminates any governing procedural rule). As the decisional authority lacks any expressed concern regarding the application of Rule 38 to a bankruptcy proceeding, the Court finds the time strictures set forth in Rule 38 to be persuasive. As such, the time frames noted therein shall be embraced and adopted by this Court. Accordingly, under Rule 38, the demand for a jury trial was due within ten days after the defendants' Answer and Cross-Claim, filed on September 13, 1989.
It must be noted, however, that Federal Rule of Civil Procedure 39(b) allows a party who fails to comply with the Rule 38 deadline to request a jury trial by motion. Rule 39(b) provides in relevant part that: "[n]ot withstanding the failure of a party to demand a jury in an action in which such a demand might have been made of right, the court in its discretion upon motion may order a trial by a jury of any or all issues." See generally Merritt v. Faulkner, 697 F.2d 761 (7th Cir.1983), cert. denied 464 U.S. 986, 104 S.Ct. 434, 78 L.Ed.2d 366 (1983). Rule 39(b) motions should be liberally granted when no prejudice results. In re Kroh Bros. Dev. Co., 108 B.R. at 711; Littlefield v. Fort Dodge Messenger, 614 F.2d 581, 585 (8th Cir.1980). No such motion has been made. The Shareholder Defendants merely submitted a document captioned "Jury Demand".
Here, the uncontested facts clearly demonstrate that the Shareholder Defendants waited nearly six months after their most recent answer, the Answer and Cross-Claim to the Third Amended Complaint, to file their jury demand. Under Rule 38(b), this demand was not made timely. Accordingly, the Shareholder Defendants are entitled to a jury trial only if they meet the five-factor balancing test outlined in Parrott v. Wilson, 707 F.2d 1262, 1267 (11th Cir.1983), cert. denied 464 U.S. 936, 104 S.Ct. 344, 78 L.Ed.2d 311 (1983). The Parrott test involves a balancing of: (1) whether the case involves issues best tried to a jury; (2) whether granting the motion for jury trial would disrupt the court's or adverse parties' schedules; (3) how greatly adverse parties will be prejudiced; (4) how long the movant had delayed in requesting the jury trial; and (5) why the movant had not made a timely request for a jury trial.
In assessing the Parrott factors, courts are encouraged to weigh carefully each enumerated factor in making its determination. Id. While this case involves issues which, arguably, may be tried to a jury, the Court believes, given the complex nature of the issues, the untimeliness of the demand and the quickly-approaching trial date, these issues would best be resolved by a bench trial. At this point, "to switch gears" in the proceeding would result in a significant delay in adjudication of the matter. This case is already two and one-half years old; any further delays will only increase the chances of lapses and inaccuracies in the memories of the witnesses, many of whom have been described as elderly.
*955 Further, as mentioned previously, the granting of the demand for a jury trial would cause substantial prejudice to the Plaintiff in terms of time and expense to the estate. The Shareholder Defendants have had sufficient opportunities to request a jury trial. Such a demand, at this late date, would not be within the spirit and intent of Rules 38 and 39. The explanations offered change of counsel, the rendering of the Granfinanciera opinion, and the December 20, 1989 letter are so implausible and generalized as to be wanting in candor. In view of the lateness of the demand and the fact that the trial is merely eight months away, the Court finds that the Plaintiff was not provided with adequate notice of the jury trial in order to prepare accordingly.
As an aside, the Court notes that even if it had granted the Motion for Leave, possible entitlement to a jury trial would have been restricted to the new issues raised in the Proposed Amended Answer and Cross-Claim. The failure of the Shareholder Defendants initially to demand a jury trial, within ten days after filing their Answer to the Third Amended Complaint, constituted a waiver of a trial by jury as to those issues. The Court observes that this result is not changed by either the Plaintiff amending the complaint or the Shareholder Defendants amending their answer. See Olund v. Swarthout, 459 F.2d 999, 1000 (6th Cir.1972), cert. denied 409 U.S. 1008, 93 S.Ct. 441, 34 L.Ed.2d 301 (1972); Rupe v. Fourman, 532 F.Supp. 344 (S.D. Ohio 1981); 5 Moore's Federal Practice Para. 38.39[2] at 38-353 (2d ed. 1981). The fact that an amended answer was later filed is of no consequence when no new issues or facts are introduced. Irvin v. Airco Carbide, 837 F.2d 724 (6th Cir.1987); Las Vegas Sun, Inc. v. Summa Corp., 610 F.2d 614 (9th Cir.), cert. denied 447 U.S. 906, 100 S.Ct. 2988, 64 L.Ed.2d 855 (1980); Guajardo v. Estelle, 580 F.2d 748 (5th Cir.1978); Olund v. Swarthout, 459 F.2d 999 (6th Cir.1972), cert. denied 409 U.S. 1008, 93 S.Ct. 441, 34 L.Ed.2d 301 (1972).
It is settled doctrine that the waiver embraces all matters contained in the answer, and the right to a jury trial of all matters contained in the original answer cannot be resurrected merely by amending the answer. Bank of India v. Handloom House (India) Ltd., 629 F.Supp. 281 (S.D.N.Y.1986); Hostrop v. Board of Junior College Dist. No. 515, 523 F.2d 569, 581 (7th Cir.1975), cert. denied 425 U.S. 963, 96 S.Ct. 1748, 48 L.Ed.2d 208 (1976); Trixler Brokerage Co. v. Ralston Purina Co., 505 F.2d 1045, 1049 (9th Cir.1974); Lanza v. Drexel & Co., 479 F.2d 1277, 1310 (2d Cir. 1973) (en banc); Olund, 459 F.2d at 1000; Williams v. Farmers and Merchants Ins. Co., 457 F.2d 37, 38 (8th Cir.1972); cf. American Fidelity and Casualty Co. v. All-American Bus Lines, Inc., 190 F.2d 234, 237-38 (10th Cir.1951), cert. denied 342 U.S. 851, 72 S.Ct. 79, 96 L.Ed. 642 (1951). However, a party may demand a jury trial as to any new issues raised in the amended pleadings. Rosen v. Dick, 639 F.2d 82, 94 (2d Cir.1980); First Wisconsin Nat'l Bank of Rice Lake v. Klapmeier, 526 F.2d 77, 80 (8th Cir.1975); Lanza v. Drexel & Co., 479 F.2d at 1310. Therefore, after the time for requesting a jury trial has run, amendments to pleadings which do not introduce new issues, do not revive the right to demand a jury. Accordingly, only the seven affirmative defenses and the two cross-claims, if allowed, would have been eligible for a jury trial.
In conclusion, the Motion to Strike has been well-supported by decisional authority and through argument. Opposition to that motion has been insubstantial in weight. Accordingly, the motion is GRANTED and the jury demand is hereby STRICKEN.
IT IS SO ORDERED.
JUDGMENT ENTRY
Judgment in the above-captioned adversary proceeding is hereby entered in favor of the Plaintiff against the Shareholder Defendants with respect to the Motion to Strike Defendants' Jury Demand. Further, the Court enters judgment in favor of the Plaintiff, Defendant Huntington National Bank, Escrow Agent, and Defendant *956 Samuel Randall against the Shareholder Defendants with regard to the Motion for Leave to File Amended Answer to Third Amended Complaint. Judgment shall be entered pursuant to an Opinion and Order dated April 25, 1990.
IT IS SO ORDERED.
NOTES
[1] Continental Trucking Service, Inc. was dismissed as a defendant to this litigation by order of the Court entered July 29, 1988.
[2] The only significant change was a revision in the Third Amended Complaint which added a preference action against the Shareholder Defendants for the recovery of $250,000.
[3] It should be noted here that this is a complex case which has just recently been scheduled for trial in December 1990. The pre-trial scheduling ordered by the Court contains the customary deadlines for discovery, dispositive motions, and the like, but would be difficult to maintain, the Court believes, if the Proposed Amended Answer and Cross-Claim were allowed.
[4] The Court has conducted a number of status conferences in this case over the past two and one-half years. Because the action is complex, has multiple parties, and involved significant and ongoing settlement discussions, the Court has allowed the parties the time requested for these pre-trial matters without insisting upon a more firm trial date. At the most recent status conference, the Court expressed its concern regarding the delays in getting this matter to trial and, with the consent of all parties, established a firm pre-trial and trial schedule.
[5] A Supreme Court opinion is available on legal computers within twenty-four hours of its issuance.
[6] Given the policy encouraging the disposal of an entire subject matter arising from the same set of facts within an action, the Court notes that absent the tardiness in asserting the cross-claims, the issues presented by the cross-claims probably should have been adjudicated in this adversary proceeding. See Weiboldt Stores v. Schottenstein, No. 87-C-8111, 1990 WL 36797 (N.D.Ill. March 16, 1990) (LEXIS Bankr. file, Cases library); Sicilia v. Sanders (In re SPI Communications & Marketing, Inc.), 112 B.R. 507 (Bankr.N.D.N.Y.1990). See also McLaughlin v. Weiser, No. 86-C-2129, 1988 WL 102129 (N.D. Ill. September 28, 1988) (LEXIS Genfed library, Courts file); Aul v. Cali, No. 84-C-7884, 1986 WL 11015 (N.D.Ill. September 23, 1986) (LEXIS Genfed library, Courts file). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535503/ | 214 N.J. Super. 649 (1987)
520 A.2d 832
YIK SANG CHEUNG AND ELEANORA CHEUNG, PLAINTIFFS-APPELLANTS,
v.
WILLIAM F. CUNNINGHAM, M.D., DEFENDANT-RESPONDENT.
Superior Court of New Jersey, Appellate Division.
Argued November 6, 1986.
Decided January 12, 1987.
Amended January 26, 1987.
*650 Before Judges DREIER, SHEBELL and STERN.
Richard J. Levinson argued the cause for appellant (Levinson, Conover, Axelrod, Wheaton & Grayzel, attorneys for appellants; George H. Conover, Jr. and Richard Levinson, of counsel; Madeline Schillaci Kropoth, on the brief).
Melinda Fabrikant argued the cause for respondent (McDonough, Murray & Korn, attorneys for respondent; Robert P. McDonough, of counsel; Melinda Fabrikant, on the brief).
The opinion of the court was delivered by SHEBELL, J.A.D.
*651 Appellants, Yik Sang Cheung and Eleanora Cheung, his wife, brought an action against respondent, William F. Cunningham, M.D., who performed a surgical procedure on Yik Sang Cheung's spine which left him paralyzed. The case proceeded to the jury only on the theory of lack of informed consent. It returned a verdict of no cause for action after being charged that it was not only necessary that plaintiffs prove defendant inadequately informed plaintiffs of the risks of surgery but also that plaintiffs must prove that a reasonable person, if adequately informed, would have refused the surgery. We reverse and remand.
The issue is whether it is sufficient for the jury to find that the patient would not have consented to the surgery had the defendant informed the patient in accordance with the duty owed or whether it was error to advise the jury that it must make the additional finding that a prudent person in plaintiff's position would reasonably have declined the surgery. The first alternative is referred to as a subjective standard, whereas the second is labeled an objective standard. These are misnomers. The so-called subjective test is a pure cause in fact or "but for" test of proximate cause. It is the truly objective test. The test which has been labeled the objective test limits proximate cause, even where it can be proven that plaintiff's injury would not have occurred but for the failure of defendant to properly inform the patient of the risks of treatment, to those cases where plaintiff can also convince the factfinder that a reasonably prudent person would not have consented if adequately informed.
The fault of the objective standard is that plaintiff must for all practical purposes prove that any reasonable person placed in the same position would necessarily withhold consent even though plaintiff may have withheld consent and thereby have avoided injury. This is the antithesis of the doctrine of informed *652 consent which is intended to protect the individual patient's right to decline treatment.
In the case of Canterbury v. Spence, 464 F.2d 772, 790-791 (D.C. Cir.), cert. den. 409 U.S. 1064, 93 S.Ct. 560, 34 L.Ed.2d 518 (1972), the United States Court of Appeals for the District of Columbia addressed the question of which standard was preferable. That court correctly pointed out that the problem revolves around the issue of causal connection, and that causality exists only when disclosure of significant risks would have resulted in a decision against it. 464 F.2d at 790. It noted that "the very purpose of the disclosure rule is to protect the patient against consequences which, if known, he would have avoided by foregoing the treatment." Ibid.
Nonetheless, the Canterbury court found that "a technique which ties the factual conclusion on causation simply to the assessment of the patient's credibility is unsatisfactory." Ibid. The court recognized that in the purist sense the issue of causation "is to be resolved according to whether the factfinder believes the patient's testimony that he would not have agreed to the treatment if he had known of the danger which later ripened into injury." Ibid. However, it found the difficulty to be that the patient's answer at the point in time it is elicited for litigation purposes "hardly represents more than a guess, perhaps tinged by the circumstance that the uncommunicated hazard has in fact materialized." Ibid. Therefore, it concluded that the causality issue was better resolved "in terms of what a prudent person in the patient's position would have decided if suitably informed of all perils bearing significance ...;" or stated another way, could adequate disclosure reasonably "be expected to have caused that person to decline the treatment because of the revelation of the kind of risk or danger that resulted in harm...." Id. at 791.
The concept of informed consent is based on a theory of liability grounded in negligence. Perna v. Pirozzi, 92 N.J. 446, 459 (1983). It is the duty "of a physician to disclose to a patient *653 information that will enable him to `evaluate knowledgeably the options available and the risks attendant upon each' before subjecting that patient to a course of treatment." Id. at 459 (quoting Canterbury, 464 F.2d at 780). We have recognized generally that there must be proof "that the breach was a proximate cause of plaintiff's injuries; that is, that the patient would not have given consent to the procedure if full and adequate disclosure had been made." Nicholl v. Reagan, 208 N.J. Super. 644, 651 (App.Div. 1986). The issue of a subjective versus an objective standard for determination of the proximate cause issue was considered in Skripek v. Bergamo, 200 N.J. Super. 620, 636-638 (App.Div.), certif. den. 102 N.J. 303 (1985), which endorsed the objective standard relying on the Canterbury rationale. The objective standard was also approved in Nicholl. 208 N.J. Super. at 651.
The trial judge here was guided by Civil Model Jury Charge § 5.28(E) which states: "[t]he question is not what the plaintiff would have decided if properly advised, but what a reasonably prudent person in plaintiff's position would have decided if fully informed." No decision of our Supreme Court has settled the question of the proper standard to be charged. Our Supreme Court however has stressed the importance of preserving the integrity of the patient's will when it comes to matters concerning the integrity of the patient's body. In re Conroy, 98 N.J. 321, 346-347 (1985). Speaking of the circumstances under which life sustaining treatment may be withheld from an incompetent, institutionalized, elderly patient, the Court noted that "it is the doctor's role to provide the necessary medical facts and the patient's role to make the subjective treatment decision based on his understanding of those facts." Id. at 347. Thus, our Supreme Court in Conroy declared:
The standard we are enunciating is a subjective one, consistent with the notion that the right that we are seeking to effectuate is a very personal right to control one's own life. The question is not what a reasonable or average person would have chosen to do under the circumstances but what the particular patient would have done if able to choose for himself. [Id. at 360-361].
*654 In our view, the totally objective standard used in the court's charge denies the individual's right to decide what is to be done with his or her body and may deny the individual the right to base consent on proper information in light of their individual fears, apprehensions, religious beliefs and the like. See McPherson v. Ellis, 305 N.C. 266, 287 S.E.2d 892, 897 (1982).
It is to be recognized that there is a relationship akin to that of a fiduciary between doctor and patient. There is a clear danger in embracing the objective test espoused in Skripek and Nicholl that the doctor knowing the patient would not elect treatment if advised of the risks may withhold such advice and yet escape liability because of a determination that a reasonably prudent person in plaintiff's position would have elected treatment or surgery if fully informed. Such a breach of fiduciary relationship would result in liability of other professionals. In re Dolan, 76 N.J. 1, 9 (1978) (attorney client); Ellsworth Dobbs, Inc. v. Johnson, 50 N.J. 528, 553 (1967) (real estate brokers principals).
It would appear that the main policy consideration weighing in favor of the purely objective test which suppresses the absolute right of the individual is the fear of purposeful or even unwitting deception by the claimant. We do not perceive that the risk is any greater in these circumstances than in any other litigated case. We regularly entrust to the factfinder the task of finding the truth and protecting both defendants and the justice system against abuse. The system has been found to work well. We see no justification for subscribing to a special rule of law premised upon the fear that in this instance the factfinder may not carry out its assigned task.
As noted, liability under the informed consent doctrine is premised upon the legal and factual determination that the doctor has a duty to impart to the patient a particular level of information and that failure to carry out that duty has resulted in injury to the patient for the reason that the patient would not have undertaken the treatment if advised in accordance with *655 the applicable medical standards. We are not persuaded that there is justification for excluding from recovery under the aforementioned doctrine all of those persons who because of their personal and individual traits might be classified as more cautious and circumspect than the hypothetical reasonably prudent person. Individuals are just that; different persons with different views and characters. Each is entitled to make a personal judgment as to what each will subject his or her body to after having had the benefit of such information as is reasonably necessary for that purpose. As stated in Conroy, "[i]ndeed, if the patient's right to informed consent is to have any meaning at all, it must be accorded respect even when it conflicts with the advice of the doctor or the values of the medical profession as a whole." 98 N.J. at 353.
We would be limiting the individual's right to recover upon proof that his or her decision may be too personal, because it is not the same decision that all reasonable persons would make. This limitation is not in any way related, as in other tort areas, to a party's failure to exercise reasonable care in avoiding harm to one's self or others. Rather, under the objective standard, the individual injured is denied recovery for failure to conform to the consensus of the majority as to whether the treatment for the malady he or she suffers is advisable notwithstanding the risks, personal considerations, and the fiduciary nature of the doctor-patient relationship. We find no legal or philosophical justification for this court to adopt such a principle.
We reverse and remand for a new trial in accordance with this opinion.
STERN, J.A.D., concurring.
By adopting the subjective test today we reject the opinion of this court in Skripek v. Bergamo, 200 N.J. Super. 620, 633-638 (App.Div. 1985), certif. den. 102 N.J. 303 (1985), which was followed in Nicholl v. Reagan, 208 N.J. Super. 644, 651 (App. *656 Div. 1986).[1] I write separately only to indicate why I am ultimately persuaded by the majority based on the record before us and a balancing of the competing factors.
The issue before us is whether a patient, in the absence of advice which a reasonably prudent doctor would give, should be permitted to recover for injuries sustained during a non-negligent medical procedure he would not have elected to undergo had he known the possible consequences, even though a reasonably prudent patient would have taken the risk. Skripek would deprive the individual of his or her preference to die, for example, as opposed to becoming a paraplegic when that person would opt against an operation out of fear of paralysis, notwithstanding that the possibilities of such a result would flow in an infinitesimal number of cases.
I have concerns that adoption of the subjective test in the present context would have the potential of converting each patient into a litigant and would promote a doctor-adversarial relationship as opposed to a doctor-patient status, thereby increasing malpractice litigation and escalating medical costs. There is, however, nothing in the record to support that fear or the opposite conclusion that the majority opinion will promote more disclosure and less litigation.
Moreover, it must be emphasized that the obligation to advise the patient is to be judged by reasonable medical standards in the community and that deviation from the duty to properly advise must be found before the question of proximate cause is ever reached. See Nicholl v. Reagan, supra, 208 N.J. Super. at 651; Skripek v. Bergamo, supra, 200 N.J. Super. at 633-634. See also Perna v. Pirozzi, 92 N.J. 446, 460 (1983). "Informed consent is a negligence concept predicated on the duty of a physician to disclose to a patient information that will enable him to `evaluate knowledgeably the options available and the risks attendant upon each' before subjecting that patient to a *657 course of treatment." Perna v. Pirozzi, supra, 92 N.J. at 459 (1983); see also Canterbury v. Spence, 464 F.2d 772, 780 (D.C. Cir.1972), cert. den. 409 U.S. 1064, 93 S.Ct. 560, 34 L.Ed.2d 518 (1972); Annot. "Modern Status of Views as to General Measure of Physician's Duty to Inform Patient of Risks of Proposed Treatment," 88 A.L.R.3d 1008 (1978). Thus, the duty to warn or disclose, like all questions of negligence, is to be tested by an objective standard of reasonableness in this instance, deviation from accepted standards of medical care. Hence, absent breach of the duty to warn, the question of proximate cause (involving the objective or subjective standard) is never reached. See Perna v. Pirozzi, supra, 92 N.J. at 460.[2] In this context, I am prepared to accept the subjective standard, particularly because "a competent adult person generally has the right to decline to have any medical treatment initiated or continued." Matter of Conroy, 98 N.J. 321, 347 (1985).
A number of practical problems were considered in Canterbury v. Spence, which was in turn quoted in Skripek v. Bergamo:
It has been assumed that the issue is to be resolved according to whether the factfinder believes the patient's testimony that he would not have agreed to the treatment if he had known of the danger which later ripened into injury. We think a technique which ties the factual conclusion on causation simply to the assessment of the patient's credibility is unsatisfactory. To be sure, the objective of risk-disclosure is preservation of the patient's interest in intelligent self-choice on proposed treatment, a matter the patient is free to decide for any reason that appeals to him. When, prior to commencement of therapy, the patient is sufficiently informed on risks and he exercises his choice, it may truly be said that he did exactly what he wanted to do. But when causality is explored at a post-injury trial with a professedly uninformed patient, the question whether he actually would have turned the treatment down if he had known the risks is purely hypothetical: `Viewed from the point at which he had to decide, would the patient have decided differently had he known something he did not know?' And the answer which the patient supplies hardly represents *658 more than a guess, perhaps tinged by the circumstance that the uncommunicated hazard has in fact materialized.
In our view, this method of dealing with the issue on causation comes in second-best. It places the physician in jeopardy of the patient's hindsight and bitterness. It places the factfinder in the position of deciding whether a speculative answer to a hypothetical question is to be credited. It calls for a subjective determination solely on testimony of a patient-witness shadowed by the occurrence of the undisclosed risk.... [Canterbury v. Spence, 464 F.2d at 790-791]. [200 N.J. Super. at 637].
While these concerns are legitimate and noteworthy, factfinders resolve credibility issues every day, and the patient would have the burden of persuasion even under the subjective standard. See Evid.R. 1(4); Buckelew v. Grossbard, 87 N.J. 512, 525 (1981); Skripek v. Bergamo, supra, 200 N.J. Super. at 634-636.
Accordingly, I concur in the judgment of the court.
NOTES
[1] See also Perna v. Pirozzi, 92 N.J. 446, 460 n. 2 (1983).
[2] As stated in Skripek, supra, 200 N.J. Super. at 636, "[T]here must be a causal relationship established between the physician's failure to inform the patient of the risks and alternatives attendant to the proposed [treatment] and the injuries sustained by the plaintiff." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535921/ | 737 A.2d 366 (1999)
STATE of Vermont
v.
Vernon CRAWFORD
No. 98-323.
Supreme Court of Vermont.
June 25, 1999.
Vincent Illuzzi, Essex County State's Attorney, Orleans, and Thomas R. Paul, Deputy State's Attorney (On the Brief), St. Johnsbury, for Plaintiff-Appellee.
Robert Appel, Defender General, and William A. Nelson, Appellate Attorney, Montpelier, for Defendant-Appellant.
Present: AMESTOY, C.J., DOOLEY, MORSE, JOHNSON and SKOGLUND, JJ.
AMESTOY, C.J.
Defendant Vernon Crawford appeals from a district court judgment denying his motion to dismiss three counts of criminal trespass. Defendant argues that the State was barred from prosecuting him for trespass after previous charges for burglary based on the same alleged conduct were dismissed with prejudice pursuant to the Interstate Agreement on Detainers (IAD). We affirm, holding that a dismissal with prejudice pursuant to the IAD does not prohibit a subsequent prosecution for conduct arising out of the same alleged criminal transaction unless the newly charged crime is a lesser included offense of the charge dismissed with prejudice.
On October 25, 1995, the Essex County prosecutor charged defendant with one count of sexual assault and thirteen counts *367 of burglary. At the time the charges were filed, defendant was serving a prison sentence in New Hampshire. The Vermont charges were lodged as detainers against defendant, and the State requested temporary custody pursuant to the IAD. See 28 V.S.A. §§ 1501-1509.
The IAD sets forth procedures for the prompt disposition of criminal charges filed in one state against a prisoner in another state. A prosecutor in the jurisdiction where such untried charges are pending may file the charges as detainers in the "sending state," the state in which the prisoner is incarcerated, and request temporary custody of the prisoner for purposes of prosecution. See id. § 1504. A prisoner with detainers lodged against him may serve the prosecuting authority a "request for a final disposition to be made of the indictment, information or complaint" pursuant to § 1503, which requires the "receiving state," the state in which the trial is to be had, to bring the prisoner to trial within 180 days. See id. § 1503(a). Once a receiving state has temporary custody of a prisoner pursuant to the IAD, trial must be had on the pending charges before the prisoner is returned to the sending state, or the "indictment, information or complaint shall not be of any further force or effect, and the court shall enter an order dismissing the same with prejudice." Id. §§ 1503(d), 1504(e).
On November 30, 1995, defendant filed a request for the final disposition of informations pursuant to § 1503 of the IAD. Defendant was transported to Vermont, arraigned on the charges on December 5, 1995, and returned to the custody of New Hampshire without being tried. On January 29, 1996, citing these prior proceedings, defendant filed a motion to dismiss the pending Vermont charges on grounds that he was returned to New Hampshire before trial in violation of 28 V.S.A. § 1504(e). Defendant's motion to dismiss was granted on February 6, 1996, and the sexual assault count and all thirteen counts of burglary were dismissed with prejudice. The State did not appeal the dismissal.
On February 25, 1997, the Essex County prosecutor filed a new fourteen-count information. Eleven of the new charges were for unlawful trespass, one was a charge of burglary which the State subsequently withdrew, and the other two were charges of unlawful mischief. The new charges were lodged as detainers at the New Hampshire prison where defendant was still incarcerated. Defendant moved to dismiss the trespass charges, arguing that trespass is a lesser included offense of burglary and, therefore, he could not be charged with trespass after the burglary charges had been dismissed with prejudice pursuant to § 1504(e) of the IAD. Defendant also argued that the charges were barred by the Fifth Amendment guarantee against double jeopardy.
The Essex District Court denied the motion, concluding that dismissal with prejudice of the burglary charges did not preclude prosecution for trespass and that jeopardy had not attached in the prior burglary proceeding. The court granted permission to take an interlocutory appeal, which we denied for having been improvidently granted. The defense and the State then entered into a conditional guilty plea whereby defendant would plead guilty to three counts of unlawful trespass, the State would dismiss the remaining counts and defendant would reserve the right to appeal the denial of his motion to dismiss. Pursuant to this agreement, defendant pleaded guilty and filed a timely notice of appeal.
It is instructive to first take note of the arguments defendant is not advancing on appeal. Defendant does not contend, as he did below, that the double jeopardy clause of the Fifth Amendment bars the prosecution of the charged crimes because they are lesser included offenses of the charges dismissed with prejudice. Indeed, defendant concedes that the 1997 trespass charges "were almost, but not quite, lesser included offenses of the 1995 *368 burglary charges."[*] Nor is defendant urging us to apply the doctrine of res judicata or claim preclusion to this case, correctly observing that we have not applied the doctrine of claim preclusion to criminal cases. See State v. Dann, 167 Vt. 119, 125, 702 A.2d 105, 109 (1997).
Defendant's claim here is best described as an argument for a generous interpretation of the phrase "with prejudice" as it appears in the IAD. To that end, defendant, while conceding that neither the double jeopardy clause nor the doctrine of res judicata are directly applicable to the case before us, urges that we conclude that the drafters of the IAD intended the phrase "with prejudice" to prohibit the refiling not only of previously dismissed charges but to bar as well the filing of charges arising out of the "same transaction."
As applied to the facts, defendant contends that the court's dismissal of the 1995 burglary charges unchallenged by the State and required by the IAD precluded the subsequent filing of criminal trespass charges based on the same alleged conduct. Defendant argues that in our examination of other claim preclusion cases we have looked to the Restatement for guidance on what constitutes identical or substantially identical claims. The Restatement rule bars relitigation of related claims which arise out of "all or any part of the transaction, or series of connected transactions, out of which the action arose." Restatement (Second) of Judgments § 24(1) (1982). Defendant concedes that trespass is not a lesser included offense of burglary but argues that the trespass charges arise out of the identical factual circumstances and, therefore, the 1997 charges violate the Restatement rule.
The State, basing its response primarily on the specific issue raised by defendant in the trial court, argues that because jeopardy did not attach to the burglary charges the dismissal of those charges having occurred before a jury was empaneled, see Serfass v. United States, 420 U.S. 377, 95 S.Ct. 1055, 43 L.Ed.2d 265 (1975) prosecution on the trespass charges does not subject defendant to double jeopardy. The State also argues that while the doctrine of collateral estoppel or issue preclusion is part of the constitutional guarantee against double jeopardy, there is no indication that the doctrine is embodied in the statutory remedy in 28 V.S.A. §§ 1503(d) *369 or 1504(e), particularly where the dismissal occurred before a jury verdict of acquittal. See Sealfon v. United States, 332 U.S. 575, 68 S.Ct. 237, 92 L.Ed. 180 (1948). Accordingly, the State contends it was not collaterally estopped from filing trespass charges after the burglary charges were dismissed with prejudice.
Although defendant would have us look to the Restatement to determine the applicability of the "same transaction" test in IAD cases, two more instructive sources are the United States Supreme Court's decision in Ashe v. Swenson, 397 U.S. 436, 90 S.Ct. 1189, 25 L.Ed.2d 469 (1970), and the New York Federal District Court's decision in United States v. Cumberbatch, 438 F.Supp. 976 (S.D.N.Y.1976). The relevance of the "same transaction" analysis to the trespass charges is fairly summarized in Cumberbatch, where, as here, the defendant argued that dismissal of criminal charges with prejudice for failure to comply with the IAD should bar any subsequent prosecution charging different crimes arising from the original underlying conduct:
The defendant's ... argument is premised on the "same transaction" test in the double jeopardy area .... In Ashe, the Supreme Court held that the doctrine of collateral estoppel was included in the fifth amendment's guarantee against double jeopardy. [T]he Court[] did not adopt the "same transaction" test, and, thus, it has not been held to be part of the collateral estoppel element of the double Jeopardy Clause. Moreover, the collateral estoppel argument is wholly inapplicable to this case. As the Court in Ashe stated, collateral estoppel bars the relitigation by the same parties of an issue of ultimate fact which has been determined by a valid and final judgment. No such fact has been litigated in the present case, and, thus, the collateral estoppel rule does not apply.
Cumberbatch, 438 F.Supp. at 979 (citations omitted).
Collateral estoppel, or issue preclusion, is a constitutional right embodied in the Fifth Amendment guarantee against double jeopardy, see Ashe, 397 U.S. at 445, 90 S.Ct. 1189, and, while there is no question it applies to criminal matters, see Dann, 167 Vt. at 126, 702 A.2d at 110, it does not apply here. As in Cumberbatch, no issue of ultimate fact has been determined and, thus, the State is not collaterally estopped from prosecuting defendant for trespass. See Trepanier v. Getting Organized, Inc., 155 Vt. 259, 265, 583 A.2d 583, 587 (1990) (dispensing with appellant's argument for application of collateral estoppel based on determination of second element only that is, that no ultimate issue of fact was resolved by final judgment on merits). Here, as in Cumberbatch, the State, in indicting defendant on trespass charges, is attempting to "salvage its prosecution" in the wake of the dismissal of the burglary indictments. Cumberbatch, 438 F.Supp. at 978. However, neither the language of the IAD nor the facts of this case compel a result that would insulate defendant from all criminal liability solely because the State did not charge defendant with every possible criminal offense arising out of the initial alleged misconduct. "The [IAD] does not create consequences beyond those accompanying the dismissal with prejudice of the particular indictment that was subject to the [IAD's] time constraints. In other words, the Act does not prevent subsequent indictments that would not be barred by the protections against double jeopardy." United States v. Boone, 959 F.2d 1550, 1554 (11th Cir.1992).
The "with prejudice" language of the IAD barred the prosecution of defendant on the dismissed sexual assault and burglary charges, not on every possible charge arising out of the conduct underlying the dismissed counts. See id. The "anti-shuttling" objective of the IAD to prevent repeated transfers of a prisoner who has more than one charge against him in the receiving state was amply served by precisely what transpired here when *370 the State of Vermont failed to try the case against defendant within the proscribed time limits of the IAD: the dismissal and permanent bar of prosecution for one sexual assault charge and thirteen burglary charges, each of which carried substantially greater exposure for lengthy incarceration than defendant now faces.
Affirmed.
NOTES
[*] The Fifth and Fourteenth Amendment guarantees against double jeopardy bar subsequent prosecution for a lesser offense, if, in proving the greater offense, the prosecution "relies on and proves" the elements of the lesser offense as an element of the greater offense. Illinois v. Vitale, 447 U.S. 410, 421, 100 S.Ct. 2260, 65 L.Ed.2d 228 (1980). See also State v. Grega, 168 Vt. ___, ___, 721 A.2d 445, 459 (1998) (double jeopardy clause does not prevent multiple punishment if "`each [statutory] provision requires proof of a fact which the other does not.'") (quoting Blockburger v. United States, 284 U.S. 299, 304, 52 S.Ct. 180, 76 L.Ed. 306 (1932)). Defendant was originally charged with burglary in violation of 13 V.S.A. § 1201. A person is guilty of burglary if he "enters any building or structure knowing that he is not licensed or privileged to do so, with the intent to commit a felony, petit larceny, simple assault, or unlawful mischief." Id. § 1201(a). The 1997 indictment charged defendant with unlawful trespass in violation of 13 V.S.A. § 3705(d). A person is guilty of criminal trespass in violation of § 3705(d) if he "enters a dwelling house, whether or not a person is actually present, knowing that he is not licensed or privileged to do so." Id. § 3705(d). To convict a defendant of criminal trespass, the State is required to prove that the defendant entered a "dwelling house," while for burglary, entry of "any building or structure" could support a conviction. Although the elements of entry and knowledge are common to both statutes, burglary does not require entry into a "dwelling house" and trespass does not require intent to commit a felony or other a crime, a point which defendant concedes in his brief. "[T]he lesser offense is considered to be included in the greater offense only if each of its elements is `always a necessary element' of the greater offense." State v. Forbes, 147 Vt. 612, 617, 523 A.2d 1232, 1235 (1987) (quoting Vitale, 447 U.S. at 419, 100 S.Ct. 2260). Trespass in violation of § 3705(d) requires the State to prove an element not included in burglary; it is therefore not a lesser included offense. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535507/ | 360 Pa. Superior Ct. 270 (1987)
520 A.2d 451
COMMONWEALTH of Pennsylvania, Appellee,
v.
Woodrow W. KIRKWOOD, Jr., Appellant.
Supreme Court of Pennsylvania.
Argued September 5, 1986.
Filed January 23, 1987.
*271 David F. Megnin, Kittanning, for appellant.
Before CAVANAUGH, WIEAND and JOHNSON, JJ.
WIEAND, Judge:
The principal issue in this appeal is whether a simple assault is committed by one who, during a dance, grabs a partner by the arm and swings the partner violently about the dance floor as a result of which the partner sustains bruises and fingernail marks of the arms.
As a result of such an incident, Woodrow W. Kirkwood was tried by a jury and was found guilty of simple assault. Post-trial motions were denied, and the court thereafter suspended a sentence of imprisonment and placed Kirkwood on probation for a period of two years. On direct appeal from the judgment of sentence, Kirkwood argues that: (1) the evidence was insufficient to show bodily injury inflicted intentionally, knowingly or recklessly; (2) the prosecutor improperly interviewed defense witnesses prior to trial; (3) *272 trial counsel was constitutionally ineffective for failing to plead surprise and cross-examine a defense witness after she had given testimony at variance with her pre-trial statement; and (4) after-discovered evidence compelled the granting of a new trial.
Section 2701(a) of the Crimes Code, 18 Pa.C.S. § 2701(a) provides that "[a] person is guilty of assault if he: (1) attempts to cause or intentionally, knowingly or recklessly causes bodily injury to another. . . ." The term "bodily injury" is defined as an "impairment of physical condition or substantial pain." 18 Pa.C.S. § 2301.
"In reviewing the sufficiency of the evidence, we view all the evidence and all reasonable inferences to be drawn therefrom in the light most favorable to the Commonwealth, which has won the verdict." Commonwealth v. Rivera, 349 Pa.Super. 303, 305, 503 A.2d 11, 12 (1985) (en banc). The evidence in this case included the following.
Paula Sheasley testified that on the evening of August 11, 1984, she, along with her husband, her sister, and her brother-in-law, went to the Greendale Tavern in Cowanshannock Township, Armstrong County, to dance and to get something to eat. At approximately 1:30 a.m. on the following morning, she observed that Kirkwood was also at the tavern. Sheasley was a correctional officer at the Armstrong County Prison, and she knew Kirkwood as a former inmate who was then on parole. Later, while she was dancing a fast dance with the other members of her party, she said, Kirkwood had approached her, had grabbed her by the arm and had begun to swing her violently around the dance floor. Sheasley said that she had pleaded with Kirkwood to stop because he was hurting her, but that he had continued to swing her until her husband intervened. The incident, she said, lasted approximately forty seconds and left her with bruises and cut marks on her arms. As a result, she testified, she suffered pain in her arms and her right knee for a short period of time thereafter. Her *273 version of the incident was corroborated by her husband, her sister and her brother-in-law.[1]
The term "bodily injury" and the definition thereof contained in 18 Pa.C.S. § 2301 have not been considered by the appellate courts of this Commonwealth in the factual context of a strenuous or violent dance. This Court, on two occasions, has concluded in the context of facts constituting the crime of rape that a simple assault occurred (1) when the victim was struck upon the head with an object hard enough to almost knock her unconscious, Commonwealth v. Adams, 333 Pa.Super. 312, 482 A.2d 583 (1984); and (2) when the victim was twice struck across the face from which, a majority of the court concluded, pain could be inferred, Commonwealth v. Jorgenson, 341 Pa.Super. 550, 492 A.2d 2 (1985). These decisions, however, are of little assistance to us as we attempt to apply the simple assault section of the Crimes Code to the facts of the instant case. Of greater assistance are this Court's decisions in Commonwealth v. Fry, 341 Pa.Super. 333, 491 A.2d 843 (1985), where we held that it was not an assault to put one's arms about a child and pick her up, and The Interest of J.L., 327 Pa.Super. 175, 475 A.2d 156 (1984), where we held that the *274 act of pushing another away with one's elbow without evidence of an intent to injure was insufficient to constitute an assault.
The Official Comment to the Pennsylvania Crimes Code suggests that the definition of bodily injury appearing at 18 Pa.C.S. § 2301 was derived from Section 210.0 of the Model Penal Code. The Comment to the Model Penal Code, in turn, suggests that the definition of "bodily injury" was based on section 10.00 of the crimes code of New York. See: Toll, Pennsylvania Crimes Code Annotated § 2301 (1974 ed.). Therefore, we look also to decisions of the courts of New York, where we are able to find additional guidance. In interpreting the crimes code of New York, the courts of that state have held that petty slaps, kicks and shoves do not amount to "bodily injury." In re Philip A., 49 N.Y.2d 198, 424 N.Y.S.2d 418, 400 N.E.2d 358 (1980). In the absence of evidence of physical impairment, moreover, testimony that the alleged victim sustained a very sore neck was insufficient to show that she had suffered the requisite bodily injury or substantial pain. People v. Hargrove, 95 App.Div.2d 864, 464 N.Y.S.2d 224 (1983). And where there was a swelling and a red mark on the victim's face, this was held insufficient as a matter of law to establish "impairment of physical condition or substantial pain." In re Philip A., supra. Also, a one centimeter cut above the lip, without more, was held to be inadequate to show that the alleged victim had suffered either "substantial pain" or "impairment of physical condition." People v. Jimenez, 55 N.Y.2d 895, 449 N.Y.S.2d 22, 433 N.E.2d 1270 (1982). Finally, an incidental reference to a blackened eye without any development of its appearance, seriousness, accompanying swelling, or suggestion of pain was held insufficient in People v. McDowell, 28 N.Y.2d 373, 321 N.Y.S.2d 894, 270 N.E.2d 716 (1971). On the other hand, a punch in the nose, even where the victim has missed no time from work, was held adequate to show bodily injury in People v. Chesebro, 94 App.Div.2d 987, 463 N.Y.S.2d 711 (1983); and a kick in the stomach, even though not requiring medical attention, was held to be sufficient to show bodily injury within the *275 statutory definition in In re Parks, 78 Misc.2d 281, 356 N.Y.S.2d 440 (1974).
The New York decisions, of course, are not binding upon us in our quest to ascertain the intent of the legislature in this Commonwealth. Nevertheless, the prior decisions in New York and the prior decisions of this Court suggest that the assault section of the Crimes Code was intended to protect and preserve one's physical well being and was not intended to prevent temporary hurts resulting from trivial contacts which are a customary part of modern day living. See: Interest of J.L., supra, 327 Pa.Super. at 178, 475 A.2d at 157. (". . . it is difficult to attach criminality to the pushing, shoving, slapping, elbowing, hair-pulling, perhaps even punching and kicking, that frequently occur between siblings or other members of the same family."). The Pennsylvania legislature, in recognition that not all physical contact constituted an assault and in an attempt to close any loophole which remained by virtue of the definition of assault, created the summary offense of harassment, which it defined to include a situation in which "[a] person . . . with intent to harass, annoy or alarm another person: (1). . . strikes, shoves, kicks or otherwise subjects him to physical contact, or attempts or threatens to do the same. . . ." 18 Pa.C.S. § 2709.
In the instant case, the defendant's uninvited attentions and violent dancing, according to the victim, caused bruises and slight cuts on her arms, and her right knee and arms hurt as a result of the manner in which appellant swung her during the dance. There was no evidence that she had consulted a physician or that she had lost time from work. We conclude that this evidence was insufficient to establish either the "physical impairment" or the "substantial pain" which is necessary to prove the crime of criminal assault as defined in 18 Pa.C.S. § 2701. Temporary aches and pains brought about by strenuous, even violent, dancing are an inadequate basis for imposing criminal liability upon a dance partner for assault. Appellant's invitation to the *276 dance, even if uncivil and harassing, was not assaultive within the meaning of the statute.
The judgment of sentence is reversed, and appellant is discharged.[2]
CAVANAUGH, J., files a concurring opinion.
JOHNSON, J., files a dissenting opinion.
CAVANAUGH, Judge, concurring:
I concur with the majority's analysis and agree that appellant is properly ordered discharged. I write separately because I believe that the behavior involved in this case does not rise to the level of criminal harassment but rather falls within the purview of 18 P.S. § 312, relating to de minimus infractions.[1]
In relevant part, the de minimus infractions statute reads as follows:
(a) General rule. The court shall dismiss a prosecution if, having regard to the nature of the conduct charged to constitute an offense and the nature of the attendant circumstances, it finds that the conduct of the defendant:
(1) was within a customary license or tolerance, neither expressly negatived by the person whose interest was infringed nor inconsistent with the purpose of the law defining the offense;
(2) did not actually cause or threaten the harm or evil sought to be prevented by the law defining the offense or did so only to an extent too trivial to warrant the condemnation of conviction;
or
*277 (3) presents such other extenuations that it cannot reasonably be regarded as envisaged by the General Assembly or other authority in forbidding the offense.
Appellant's conduct during the 40-second whirlwind encounter and its lack of resultant bodily harm constitutes an infraction too trivial in nature to warrant the condemnation of conviction. The circumstances surrounding this incident indicate that appellant may not be held criminally culpable for complainant's minor and temporary injuries. Appellant should not be stigmatized with a criminal conviction for actions which may be considered, if not customary, at least not wholly extraordinary during a fast dance at a tavern.
JOHNSON, Judge, dissenting:
In his appeal to this Court appellant raises five issues:
I. Whether the recantation testimony of a central witness warrants the granting of a new trial?
II. Whether defendant should have been granted a new trial on the basis of after-discovered evidence?
III. Whether the conduct of the prosecution in handling this case was so improper as to constitute a denial of due process and equal protection?
IV. Whether defendant had effective assistance of counsel prior to and in the course of the trial?
V. Whether the evidence was sufficient to support a conviction of simple assault?
The majority reverses the judgment of sentence and discharges appellant based on its finding that the evidence was insufficient to support a conviction of simple assault. I disagree. I believe the evidence was sufficient and, finding no merit in Appellant's other arguments, I would affirm the conviction. Accordingly, I dissent.
The majority concludes that the:
evidence was insufficient to establish either the "physical impairment" or the "substantial pain" which is necessary to prove the crime of criminal assault as defined in 18 Pa.C.S. § 2701. Temporary aches and pains brought *278 about by strenuous, even violent, dancing are an inadequate basis for imposing criminal liability upon a dance partner for assault.
Majority op. at 275. I believe the evidence presented by the Commonwealth sufficienty supports the conviction.
We have stated on previous occasion that:
In determining whether the evidence is sufficient to support a conviction, we accept as true all the evidence, and the reasonable inferences therefrom, upon which the factfinder could have based its verdict and then ask whether that evidence, viewed in a light most favorable to the Commonwealth, was sufficient to prove guilt beyond a reasonable doubt.
Commonwealth v. Crawford, 334 Pa.Super. 630, 632-33, 483 A.2d 916, 917 (1984). The testimony of the victim, Paula Sheasley, established the following. The victim, her husband, her brother-in-law and his wife were fast dancing at the Greendale Tavern. While they were dancing in a circle the appellant tapped Sheasley on the shoulder. Sheasley testified that she turned around and appellant grabbed her by the arms. He said something to her and started flinging her around. His nail went into the lower part of her arm. Sheasley testified that appellant Woodrow Kirkwood:
just started flinging me. Like I couldn't call it dancing. I mean he was flinging me and I asked him to stop. The first time I said, "Woody, would you please stop, you're hurting me." And he didn't stop. So the second time I said I was getting angry and it was hurting. I was in pain, and I said, "Woody, would you please stop, it hurts." And he didn't stop. Then the third time I said, "Please stop, Woody, it hurts." And I almost fell then. I asked him to stop the third time after I almost fell, but he still had a hold of me at the time. And I slid down on my right leg, but I didn't completely fall to the floor. But I slid and my right leg went out from underneath me.
N.T. 11/23/84 at 26. The incident lasted 40 seconds, until Sheasley's husband intervened. Sheasley sustained bruises *279 and nail marks on both arms where appellant grabbed her. In fact, her arms were slightly sore for the next day or few days and her right knee bothered her for over a month.
In defining the offense of simple assault, 18 Pa.C.S. § 2701 provides that:
A person is guilty of assault if he:
(1) attempts to cause or intentionally, knowingly or recklessly causes bodily injury to another;
18 Pa.C.S. § 2701(a). Bodily injury consists of:
Impairment of physical condition or substantial pain.
18 Pa.C.S. § 2301.
My reading of Sheasley's testimony, as well as the testimony of her husband and her brother-in-law, is that appellant impaired Sheasley's physical condition and caused her substantial pain. She suffered bruises on her arms and scars from appellant's fingernails. At the time of the incident, she told appellant three times that he was hurting her and asked him to stop. Appellant ignored her pleas. Sheasley eventually slid down on her right leg in such fashion that her knee bothered her for over a month.
This case does not present this Court with the situation of an intra-family squabble, as in the case cited by the majority, In the Interest of J.L., 327 Pa.Super. 175, 475 A.2d 156 (1984). The majority states that:
the prior decisions in New York and the prior decisions of this Court suggest that the assault section of the Crimes Code was intended to protect and preserve one's physical well being and was not intended to prevent temporary hurts resulting from trivial contacts which are a customary part of modern day living.
Majority, op. at 275. I do not consider the 40 second violent flinging of Sheasley to be a trivial contact which is a customary part of modern day living.
I believe the evidence is not only sufficient to establish bodily injury but also sufficient to establish intent. The Pennsylvania Crimes Code provides that:
*280 (1) A person acts intentionally with respect to a material element of an offense when:
(i) if the element involves the nature of his conduct or a result thereof, it is his conscious object to engage in conduct of that nature or to cause such a result;
18 Pa.C.S. § 302(b). Intent can be inferred from circumstantial evidence. Commonwealth v. Moore, 261 Pa.Super. 92, 395 A.2d 1328 (1978). The evidence adduced at trial shows that appellant not only approached Sheasley, grabbed her and began flinging her, but that he continued to fling her despite her three pleas to stop. I believe that the factfinder could properly infer from this that appellant intended to cause bodily injury to Sheasley. I would accordingly find the evidence sufficient to sustain his conviction for simple assault.
Having reviewed appellant's first four issues, I would find them to be meritless.
Appellant contends that the recantation of Goldia Elkin warrants the grant of a new trial. Elkin testified at trial immediately after appellant testified. The thrust of appellant's testimony was that Sheasley bumped him on several occasions while he was dancing with Goldia Elkin and that it was Sheasley who asked him to dance. Appellant testified that he turned from Goldia Elkin and then began dancing with Sheasley. Appellant contends that he did not swing Sheasley on the dance floor. Goldia Elkin testified that Sheasley came up to appellant and punched him on the arm. According to Elkin's testimony at trial, appellant did not dance with Sheasley, but continued dancing with Elkin. Several months later Elkin recanted and testified at a post-trial motions hearing that appellant did leave her on the dance floor and danced with Sheasley. Elkin explained at the hearing that she had received intimidating phone calls and had therefore altered her testimony at trial.
Recanted testimony is generally viewed as exceedingly unreliable and a new trial will be denied where a court is not satisfied that such testimony is true. Commonwealth v. Hubble, 314 Pa.Super. 99, 460 A.2d 784 (1983). This *281 Court will not reverse an order denying a new trial on the basis of recanted testimony absent an abuse of discretion. In its opinion of April 24, 1985 the lower court found the testimony given by Elkin at the post-trial hearing to be contradictory in some instances and somewhat difficult to interpret. The court stated that:
[I]t appears that the testimony of Ms. Elkin at the February 28th hearing may at least be somewhat closer to the truth than the testimony which she offered at trial. . . .
Opinion 4/24/85 at 7. The court went on to find that Elkin's trial testimony was not essential to the guilty verdict and that appellant was not entitled to a new trial based on this recantation. I agree with the trial court. It does not appear clear to me that the court found Elkin's new testimony to be true. I would find no abuse of discretion in the ruling.
Appellant's second issue is that the after-discovered evidence of witnesses at the scene warrants the grant of a new trial. The evidence to which appellant refers is the testimony of witnesses who had been present at the tavern on the night in question, but who had not testified at trial. The testimony was to the effect that these witnesses had been present at the tavern on the night of the incident and they were unaware of the occurrence of any incident or altercation such as the one about which Sheasley testified. A new trial will not be granted on the basis of after-discovered evidence if the evidence was merely cumulative or offered only to impeach credibility. Commonwealth v. Hubble, supra. Appellant's own testimony and that of his defense witnesses at trial, was that no altercation or incident occurred between appellant and Sheasley at the tavern. The testimony of these new witnesses is merely cumulative of that trial testimony. I would find that the trial court did not err in refusing to grant a new trial based on this evidence.
Appellant next contends that the conduct of the prosecution in handling this case was so improper as to constitute a denial of due process and equal protection. Specifically, *282 appellant claims that defense counsel made a request for the names and addresses of prosecution witnesses and had been denied this information, yet the defense was required to disclose the names of its eyewitnesses in the context of the request for a continuance. Appellant correctly draws this Court's attention to his Request for Informal Disclosure or Discovery filed pursuant to Pa.R.Crim.P. 305 A. In the document appellant requested the names and addresses of eyewitnesses from the attorney for the Commonwealth. What appellant fails to mention, and what the record fails to contain, is any pre-trial motion made to the Court requesting this information. Apparently, appellant did not follow his informal request for disclosure with a motion to the court. Rule 305 A provides that:
When there are items requested by one party which the other party has refused to disclose, the demanding party may make appropriate motion to the court. Such motion shall be made fourteen (14) days after arraignment, unless the time for filing is extended by the court. In such motion the party must set forth the fact that a good faith effort to discuss the requested material has taken place and proved unsuccessful.
Pa.R.Crim.P. 305 A. Subsection B of Rule 305 addresses the issue of eyewitnesses. It provides that:
if the defendant files a motion for pretrial discovery, the court may order the Commonwealth to allow the defendant's attorney to inspect and copy or photograph any of the following requested items, upon a showing that they are material to the preparation of the defense, and that the request is reasonable:
(a) the names and addresses of eyewitnesses;
Pa.R.Crim.P. 305 B(2). Having failed to file such a pretrial motion I cannot see that appellant is entitled to any relief on this basis. I would affirm the lower court's ruling on this issue.
Finally, appellant contends that he did not have effective assistance of counsel prior to and in the course of trial. A claim of ineffectiveness will not be sustained unless it is *283 determined that, in light of all the alternatives available to counsel, the strategy actually employed was so unreasonable that no competent attorney would have chosen it. Commonwealth v. Litzenberger, 333 Pa.Super. 471, 482 A.2d 968 (1984). Appellant's first claim of ineffectiveness is that his counsel should have obtained a written statement from Goldia Elkin and should have moved for leave to cross-examine her at trial when her testimony was not in accord with her prior oral statements. To have confronted Elkin about her inconsistent testimony through the use of a written statement after motioning to call her for cross-examination, may well have proved disastrous to appellant. While her trial testimony as given, conflicted with that of appellant, her testimony tended to establish not only that no altercation occurred between appellant and Sheasley, but that they never even danced together. It is impossible to determine how Elkin would have responded to the proposed cross-examination. The testimony may well have cast a doubt over appellant's entire case. In light of this risk, I agree with the trial court and I would not find counsel ineffective in this respect.
Appellant contends that counsel erred in excusing the tavern owner, Larry Boyer, from testifying. Boyer was subpoenaed to testify by the defense, but requested permission to leave the trial and was allowed to do so. Appellant also contends that counsel was ineffective for failing to present at trial the testimony of other witnesses who did testify at the post-trial motions hearing. As I have already discussed, the testimony of Boyer and the others present at the tavern would have been cumulative of the testimony actually presented. Their testimony would have established that they were unaware of any incident at the tavern on the night in question. Defense testimony actually presented at trial already attempted to establish that no incident occurred. As such I would find that appellant has failed to establish any ineffective assistance of counsel.
Because I believe the simple assault conviction is supported by sufficient evidence and appellant's other arguments *284 are without merit, I would affirm appellant's judgment of sentence.
NOTES
[1] Kirkwood denied that an assault had occurred. The defense contended that the charge was false and that criminal proceedings had been instituted in retaliation for a civil action which Kirkwood had filed against the warden of the Armstrong County Prison. Although conceding his presence at the dance and that he had danced with Paula Sheasley, his testimony was sharply at variance with the Commonwealth's version. He testified that while dancing a slow dance with Golda Elkin, Sheasley had cut in and asked him to dance with her. Kirkwood, according to the defense version, had agreed and had left his date standing on the dance floor. The dance had been completed, he said, without incident. His testimony was corroborated by Edna Kilgore, who had been seated at the same table with Kirkwood and others. It was also confirmed in part by Golda Elkin. She surprised the defense, however, by testifying that Kirkwood had rejected Sheasley's invitation to dance and had continued to dance with her. It was defense counsel's failure to plead surprise and cross-examine Golda Elkin regarding contradictory pre-trial statements which gave rise to Kirkwood's contention that trial counsel was constitutionally ineffective. It was Golda Elkin's post-trial admission that her testimony had been incorrect and that Kirkwood, in fact, had accepted Sheasley's invitation to dance which was the after-discovered evidence upon which the motion for new trial was based.
[2] Although our decision makes it unnecessary to decide the arguments advanced by appellant in support of a new trial, we have nevertheless reviewed the same and find that they were correctly decided by the learned trial judge.
[1] Although appellant did not argue dismissal on this basis before the lower court, dismissal for a de minimus infraction should be granted sua sponte where the circumstances warrant. Commonwealth v. Gemelli, 326 Pa.Super. 388, 474 A.2d 294 (1984). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535924/ | 737 A.2d 1076 (1999)
356 Md. 142
In the Matter of the Petition for REINSTATEMENT to the Bar of Maryland OF Wendell H. GRIER.
Misc. (Subtitle BV) No. 51, Sept. Term, 1993.
Court of Appeals of Maryland.
September 22, 1999.
Edward Smith, Jr., Baltimore, for petitioner.
Melvin Hirshman, Bar Counsel for the Attorney Grievance Commission of Maryland, for respondent.
Submitted to BELL, C.J., and ELDRIDGE, RODOWSKY, CHASANOW,[*] RAKER, WILNER and CATHELL, JJ.
RODOWSKY, Judge.
This petition for reinstatement to the bar of this Court, which we shall grant, has generated differences of opinion on its way to, and in, this Court.
The petitioner, Wendell H. Grier (Grier), is a forty-eight year old alcoholic. This Court placed him on indefinite suspension by order dated June 18, 1990, based upon a joint petition filed by Grier, through counsel, and by Bar Counsel. At the end of December 1993 he petitioned for reinstatement, and we referred the matter to Bar Counsel for appropriate investigation. The investigation was completed in September 1998. It confirmed the allegations of the petition for reinstatement and developed no information adverse to Grier since his suspension. Next, a five member panel of the Inquiry Committee unanimously recommended Grier's reinstatement, subject to conditions which we shall discuss, infra. The Review Board, however, recommended against reinstatement, by a vote of thirteen to one. This Court has divided on the issue.
At the time of Grier's indefinite suspension by consent, a petition for disciplinary charges was pending against him. It alleged that his misconduct involved "a lack of competence and an escrow account which fell below the required balance to be held for a client." Other client complaints had been, or shortly thereafter were, made to Bar Counsel. One of these involved the failure to pay, out of a client's recovery, the client's $161 bill due to a pharmacy. The other client complaints principally involved *1077 the failure diligently to follow through on matters undertaken for clients and the failure to communicate with clients. All of the charges and client complaints involved Grier's conduct during the period when he was an active alcoholic.
The petition for indefinite suspension reveals that Grier had conferred with Richard Vincent, the Director of Lawyer Counseling for the Maryland State Bar Association, as early as 1988 and that "in the past few years" preceding the consent petition Grier had "been treated for seizures and been in a detoxification program at Greater Baltimore Medical Center." The record also reflects that between April 26 and May 8, 1990, Grier was a patient at Baltimore County General Hospital. There, his first five discharge diagnoses were: "1. Acute pancreatitis[;] 2. Seizure disorder, possibly secondary to alcohol abuse[;] 3. Acute and chronic alcoholism[;] 4. Dehydration[; and] 5. Delirium tremens with alcoholic withdrawal syndrome." When the consent petition was filed Grier was an inpatient in a thirty day detoxification program at a treatment facility. It further appears that Grier relapsed into drinking alcohol in January 1991.
Significantly, Grier has abstained from alcohol since April 1991. He attends Alcoholics Anonymous meetings on a regular basis, and his continued compliance with his program of sobriety was verified to the inquiry panel by the Director of Lawyer Counseling.
Following his suspension Grier worked for approximately one year in telemarketing prior to obtaining a position as a legal assistant at the Injured Workers' Insurance Fund, first in the claims department and, for the past three or four years, in the legal department. Grier's supervisor in the legal department testified before the inquiry panel that Grier's work product is "satisfactory" and that he "has always responded timely." Grier's previous supervisor in the claims division told Bar Counsel's investigator that Grier "has excellent work habits, [and] performs detailed and thorough legal research in performing his daily functions." Since 1992 Grier has held a license from the State of Maryland as a real estate appraiser, and he earns part-time income from work referred to him by attorneys.
The conditions under which the inquiry panel recommended Grier's reinstatement are summarized in the report of the Review Board as follows:
"(1) In accordance with Mr. Vincent's suggestions, the Panel required as a condition for termination of suspension that the Petitioner continue to attend regular meetings of Alcoholics Anonymous and that he report regularly and directly to Richard Vincent....
"(2) The Panel recommended that Mr. Vincent render a written report for five (5) years from the date of an Order terminating suspension to Bar Counsel indicating Petitioner is complying with this condition for termination of suspension.[1]
"(3) The Panel recommended as another condition that in the event Petitioner does not affiliate himself with a law firm that maintains a separate bookkeeping department, that any escrow or trust account that the Petitioner maintains, shall be co-signed by a member of the Bar acceptable to Bar Counsel.
"(4) The Panel recommended also that a member of the Bar monitor the Petitioner's law practice with said monitoring to include a random review of a minimum of five (5) files, selected by that monitor and not by the Petitioner, on a monthly basis for eighteen (18) months and then on a quarterly basis for *1078 forty-two (42) months from the date of an Order terminating suspension. The Panel suggested that whoever undertakes the monitoring of the Petitioner's practice render quarterly reports to Bar Counsel for five (5) years from the date of this Order."
(Emphasis added).
The inquiry panel reached its recommendation for reinstatement, subject to the above conditions, after seeing and hearing from Grier, his employment supervisor, a District Court of Maryland judge, who appeared as a character witness, and Mr. Vincent. The Review Board reached its decision based on the record. Its recommendation against reinstatement rests on three grounds. First, the Board did "not feel that the Petitioner would either accept or cooperate" with the recommended conditions. Second, the Board found "difficulties with the Petitioner's arrogance and perceived evasiveness." Third, the Board was "not convinced that the Petitioner's problems would not have occurred absent his alcoholism."
Bar Counsel recommends "[t]hat the Court take such action on the Petition as to the Court shall [s]eem just and proper." Should the Court determine to reinstate Grier, Bar Counsel recommends, as conditions, continued attendance at Alcoholics Anonymous, continued cooperation with Mr. Vincent and, "should the Petitioner engage in the private practice of law immediately or within two (2) years of reinstatement, that his practice be monitored by a member of the bar satisfactory to Bar Counsel with monthly reports for the first six (6) months and quarterly reports thereafter and under such reasonable terms of monitoring as [are] worked out between Bar Counsel and the monitor."
In this Court, three judges have dissented from reinstatement on conditions. Based on the inquiry panel's recommendation for a co-signor on escrow account checks, the dissent concludes that the reason for the condition is that Grier is not "sufficiently trustworthy to maintain an escrow or trust account without an overseer." From the premise that Grier "cannot be trusted to write checks on a trust account without a co-signor," the dissent concludes that he "is not fit to practice law in this State."
The diversity in the recommendations that we have received represents differences of opinion with respect to monitoring. The concept of monitoring is traceable in this State at least to the late 1970s when the Standing Committee on Rules of Practice and Procedure of this Court was considering rules on attorney competency and the possible creation of a complaint-oriented peer review entity. Rules Committee drafts of possible rules placed this subject in a proposed new subtitle BX of the former Special Proceedings Rules. See Court of Appeals Standing Committee on Rules of Practice and Procedure (Rules Committee), Minutes of June 14-15, 1977, at 1 ("Consideration of the Report of the Attorney Competency Subcommittee"). Michael J. Kelly, then Dean of the University of Maryland School of Law and a member of the subcommittee, advocated that the contemplated entity not be viewed "as a censuring, disciplinary body, but rather as one which should counsel and assist lawyers to improve their performance." Id. at 5. At that meeting the BX subcommittee was directed to draft rules that would "establish an informal body to provide voluntary assistance and counseling to lawyers" against whom complaints of incompetence had been filed. Id. at 11. About one year later a redraft of proposed BX rules was discussed by the Rules Committee. Illustrations of the type of causes for complaints concerning competence that the proponents of the BX rules envisioned were unpreparedness, inexperience, understaffing, alcoholism, family stress, poor health, and poor case-control. Rules Committee, Minutes of May 12-13, 1978, at 5.
The Board of Governors of the Maryland State Bar Association "endorsed the concept that attorney counseling is necessary and desirable to enhance the competency *1079 of practicing attorneys," Maryland State Bar Association, Inc., Programs and Reports, Transactions, Jan. 1979, at 15, but the M.S.B.A. Board was evenly divided over whether responsibility for the counseling function should be assigned to the Attorney Grievance Commission or placed in a new entity. Rules Committee, Minutes of Jan. 5, 1979, at 2. The proposed BX rules were never adopted. Discussion of the counseling concept, however, lead to the creation of the lawyers' counseling position in the M.S.B.A. That discussion also led to this Court's incorporation of the monitoring concept into the case law of attorney discipline in Attorney Grievance Commission v. Bailey, 286 Md. 630, 408 A.2d 1330 (1979).
Bailey was a criminal law practitioner who undertook to handle a real estate closing. He withheld $1,000 to cover his fee, recordation costs, and transfer taxes, but he did not record in the Land Records instruments required to consummate the closing until almost ten months thereafter. Id. at 636, 408 A.2d at 1333. In the interim, he had not placed in his escrow account the money withheld to cover costs and taxes. We said that Bailey's case was one of the types of situations contemplated by the lawyer counseling proposal. Id. at 637, 408 A.2d at 1334. The Court suspended Bailey for three years, but with the right to apply, after thirty days of suspension, for reinstatement on conditions, one of which was that "for the remainder of the original period of suspension [Bailey] may participate in no field of the law other than the trial of criminal cases unless he is associated in each and every endeavor outside the criminal field with some other attorney or attorneys whom the Attorney Grievance Commission or its designee has previously approved." Id. at 638, 408 A.2d at 1335. We said that this was "as close as we are able to come at this time to the type of counseling which the Maryland State Bar Association earlier recommended." Id.
An alcoholic attorney who had neglected his practice was before this Court in Attorney Grievance Commission v. Finlayson, 293 Md. 156, 442 A.2d 565 (1982). Finlayson had "hit bottom" but had been abstaining from alcohol for approximately ten months. Id. at 159, 442 A.2d at 567. We suspended Finlayson indefinitely, but with the right to reapply under numerous conditions, including that he "shall be associated with another member of the bar of this Court who shall monitor his activities as a practicing lawyer...." Id. at 160, 442 A.2d at 567.
Since the Bailey and Finlayson cases, it has become relatively common to require monitoring appropriate to the circumstances as a condition of reinstatement after a suspension for disciplinary violations that concern competency. Typically the requirement has stated generally that the monitor "oversee" the practice of the sanctioned lawyer. See, e.g., Attorney Grievance Comm'n v. Brugh, 353 Md. 475, 727 A.2d 913 (1999); Attorney Grievance Comm'n v. Kuhn, 353 Md. 423, 726 A.2d 1269 (1999); Attorney Grievance Comm'n v. Perweiler, 353 Md. 312, 726 A.2d 238 (1999); Attorney Grievance Comm'n v. Kreamer, 353 Md. 85, 724 A.2d 666 (1999); Attorney Grievance Comm'n v. Domingues, 352 Md. 395, 722 A.2d 883 (1999); Attorney Grievance Comm'n v. Massagli, 352 Md. 277, 721 A.2d 698 (1998). Monitoring does not infringe on client confidentiality because the client consents to disclosure to the monitor.
In Attorney Grievance Commission v. Aler, 301 Md. 389, 483 A.2d 56 (1984), this Court addressed a case analogous to Grier's. Aler was an attorney admitted to the bar in 1963, who was "`generally respected as a competent trial attorney'" until he became severely alcoholic in the late 1970s. Id. at 396, 483 A.2d at 60 (quoting the findings of the hearing judge). After settling a personal injury suit, Aler's client asked him to hold the funds in escrow and disburse them on a monthly basis in order to cover the client's living expenses; instead *1080 of doing so, Aler commingled the funds with his operating account, failed to keep an accounting, and used the funds for his personal and office use. Aler later attempted, unsuccessfully, to account for all of the funds, but did represent the same client in subsequent matters without charging the client fees to which Aler was entitled. Id. at 391-94, 483 A.2d at 57-59. Aler later sought the help of Richard Vincent, the same counselor in Grier's case, who verified that Aler had been sober for almost two years and had an "excellent" prognosis for continued compliance. Id. at 397, 483 A.2d at 60. The Court imposed an indefinite suspension, with right to reapply after thirty days, subject to a number of conditions, including having a monitoring attorney co-sign all trust and escrow checks. Id. at 400, 483 A.2d at 61-62.
See also Attorney Grievance Comm'n v. Armanas, 336 Md. 562, 649 A.2d 1118 (1994) (indefinitely suspending attorney, and conditioning her reinstatement on "having an attorney, satisfactory to Bar Counsel, to serve as a monitor of her legal practice, including ... co-signing any attorney escrow account maintained by [her]" for a period of three years); Attorney Grievance Comm'n v. Noonan, 336 Md. 473, 648 A.2d 1025 (1994) (same, for a period of at least two years); Attorney Grievance Comm'n v. Brown, 332 Md. 451, 632 A.2d 149 (1993) (same, for a period of two years).
In Attorney Grievance Commission v. Larsen, 324 Md. 114, 596 A.2d 623 (1991), our order terminating the indefinite suspension of Larsen had included a condition that his monitor co-sign all escrow checks. Id. at 115, 596 A.2d at 623. Larsen, however, opened a second office, of which his monitor had no knowledge. In the reported decision we reimposed an indefinite suspension.
Against the foregoing background, we now address the particular concerns expressed by the Review Board. We do not conclude, from the record as a whole, that Grier will refuse to accept the conditions proposed by the inquiry panel or fail to cooperate with a monitor. He cooperated with the five year investigation by Bar Counsel's office which began after Grier was no longer actively alcoholic. Bar Counsel's investigator verified all of the information furnished by Grier. Although Bar Counsel did not expressly recommend reinstatement to the inquiry panel, he advised that group that there "were no specific factors which would cause him to recommend" that reinstatement be denied.
The issue of Grier's perceived arrogance and evasiveness, mentioned by the panel chair and by the Board, is not generated by any common ground. The panel chair stated that he "had some problems with the Petitioner's arrogance and perceived evasiveness and elusiveness," but that "the general consensus [of the entire five member panel] is that the Petitioner was as forthcoming as possible with his testimony." The panel said that Grier "was questioned directly as to his plans if he is reinstated to the practice of law and he was equivocal at best and evasive at worst." This is understandable. He has no definite plans. Indeed, it might be considered presumptuous for a suspended lawyer to assume that reinstatement is going to be granted and to plan accordingly.
The Review Board quotes from the panel hearing transcript where Bar Counsel questioned Grier about a possible condition for a co-signor on escrow account checks. Grier, in substance, replied that the proposal carried a connotation that it was necessary as "a watch for my greed, avarice or black heartedness." He said that he did not need "a watch for that because I'm not infected with that." He said that his past problems were due to his alcoholism and that they "did not arise out of some failing in my morals or my character." If such a condition was based on the belief that he could not "be trusted," then Grier would "have difficulty with that. I'd be insulted." Nevertheless, Grier stated:
*1081 "I'll submit to any order that the Court of Appeals determines is necessary in my case." In our view this portion of Grier's testimony is favorable to reinstatement. Any honorable lawyer would be insulted if told that the purpose for requiring two signatures on the escrow account of the lawyer's solo practice was the belief that, otherwise, the lawyer would steal from clients.
Nor do we find arrogance in Grier's attributing his earlier misconduct to alcoholism. The joint petition for indefinite suspension by consent averred that "[t]he [Attorney Grievance] Commission believes that the misconduct of Respondent is substantially related to his dependence on alcohol and an indefinite suspension [as contrasted with disbarment] is warranted." As this Court pointed out in In re Barton, 273 Md. 377, 382, 329 A.2d 102, 105 (1974), "to be reinstated, one need not express `contrition' which is inconsistent with a position to which he honestly and sincerely adheres."
The panel's recommendation for a co-signor actually was prompted by two concerns, neither of which impugns Grier's honesty. The first is possible relapse into alcoholism, and the second is Grier's lack of office management skills. Mr. Vincent, Grier's expert witness on alcohol counseling, told the panel that there was a ninety-five percent chance that Grier would never relapse into active alcoholism. It is that five percent risk which the co-signor condition addresses. Indeed, if the panel's recommendation were motivated by a concern over Grier's honesty, the panel should not have recommended reinstatement at all, as the dissenters in this Court point out. The panel, however, obviously had no concern about Grier's honesty inasmuch as it found no need for a co-signor were Grier to be practicing in a law firm that maintains a separate bookkeeping department.[2]
The second concern of the panel was that Grier "has not established to the satisfaction of the Panel clear and convincing evidence that he is competent to handle a private practice without any guidance or assistance relating to the handling of escrow and trust accounts." Although the panel accepted that Grier's "problems were caused at least in major part by his active alcoholism," the panel also expressed "concern that [Grier] did not have the support and ... wherewithal[] to maintain a practice" during the period of his misconduct. He had "worked alone and had no consistent staff to speak of." The panel also noted that he neither engaged an accountant's services nor took any meaningful courses in maintaining a trust account. These concerns go to competence, not to trustworthiness; they are the type of concerns that ordinarily can be successfully addressed by monitoring.
The Review Board also was "not convinced that ... [Grier's] problems ... would not have occurred absent [his] alcoholism." This conclusion seems to relate to the panel's concern with competence described in the immediately preceding paragraph. Under the circumstances here, it is a basis for a monitoring condition, but not for denial of reinstatement. If we were to reject Grier's application for this reason we would be rejecting counseling, as contrasted with the exclusive use of disciplinary sanctions, as a method of dealing with problems of competency, particularly in office management. Counseling is a policy that we adopted at the urging of the bar and that we have sought to implement, when appropriate, for the past twenty years.
Here, Grier has been suspended for over nine years, and the issue is whether the sanction should be continued or whether Grier should be given the opportunity, under safeguards designed to protect the public, to demonstrate that he can *1082 competently manage his law practice. Based on our independent review of the record we conclude that Grier should be given that opportunity and be conditionally reinstated. Having carefully considered the analyses presented by the inquiry panel and by the Review Board, we find the former to be more persuasive. We also are mindful that Bar Counsel does not oppose reinstatement but has presented proposed conditions acceptable to that office.
Accordingly, Grier is reinstated to the bar of this Court, subject to the conditions set forth below.
1. Continued and regular participation in Alcoholics Anonymous for the indefinite future.
2. Continued counseling with Richard Vincent, or his designee or successor, as counselor at the Maryland State Bar Association, at intervals and for a period to be determined by Mr. Vincent, with reports to Bar Counsel at intervals and for a period to be determined by Bar Counsel.
3. In the event Grier engages in the private practice of law, monitoring of his practice by a member of the bar who is satisfactory to Bar Counsel and who may be a member of a firm with which Grier is associated. If Grier's private practice is as a solo practitioner, checks on Grier's escrow account shall be co-signed by the monitor. The monitor shall submit reports monthly to Bar Counsel for the first six months of monitoring, and quarterly thereafter. Monitoring shall be conducted under such other reasonable terms as are agreed upon between the monitor and Bar Counsel. The conditions of this paragraph three remain in effect until altered or terminated by further order of this Court.
4. Grier shall pay all costs of the reinstatement investigation.
5. Grier shall attend the professionalism course required of new admittees.
IT IS SO ORDERED.
RAKER, WILNER and CATHELL, JJ., dissent
RAKER, Judge, dissenting:
This matter is before the Court on a petition for reinstatement to the practice of law by Petitioner Wendell H. Grier. After a hearing pursuant to Maryland Rule 16-714, Courts, Judges and Attorneys, TerminationModificationReinstatement, the Review Board of the Attorney Grievance Commission, in a 13-1 vote, voted to recommend denial of Grier's Petition for Reinstatement, concluding that Grier had not shown the necessary present qualifications to practice law at this time. Nonetheless, this Court has reinstated Grier as a member of the Bar of this State, with the condition that should Petitioner engage in the private practice of law within two years of his reinstatement, his practice be monitored by a member of the Bar, with monthly reports for the first six months and quarterly reports thereafter and under such reasonable terms of monitoring as worked out between Bar Counsel and the monitor. I agree with the near unanimous recommendation of the Review Board, and respectfully dissent. In my view, Petitioner has failed to satisfy his heavy burden that he presently possesses the good moral character to practice law. Based on the record before this Court, and the recommendation and findings of the Review Board and Inquiry Panel, I am unable to assure the public that this Petitioner, if he were restored to the practice of law, can be trusted to do so in a responsible and competent manner. See In re Barton, 273 Md. 377, 381, 329 A.2d 102, 105 (1974).
A person who has been suspended from the practice of law may file a petition in the Court of Appeals to terminate a suspension. See Maryland Rule 16-714 a. The Court may reserve judgment on the petition until after a hearing. If the Court reserves judgment, the rule directs Bar Counsel to conduct an appropriate investigation and to refer the petition to an Inquiry Panel and subsequent review by the *1083 Review Board. See Maryland Rule 16-714 d 2. Bar Counsel shall transmit to the Court the recommendations of the Review Board, and any evidence. See id. The burden is on the petitioner to establish the averments of the petition by clear and convincing proof. See Maryland Rule 16-714 d 4.
The principal criteria this Court has traditionally considered in assessing whether a person should be readmitted or reinstated to the Bar are as follows:
1. The nature and circumstances of petitioner's original misconduct;
2. Petitioner's subsequent conduct and reformation;
3. Petitioner's present character; and
4. Petitioner's present qualifications and competence to practice law.
See Reinstatement of Keehan, 342 Md. 121, 125, 674 A.2d 510, 512 (1996); In re Braverman, 271 Md. 196, 199-200, 316 A.2d 246, 247 (1974).
On January 22, 1990, Bar Counsel filed a Petition for Disciplinary Action against Wendell Harry Grier, charging that Grier misused client funds and commingled funds in his escrow account. The Petition alleged violations of Maryland Rules of Professional Conduct 1.1 (Competence), 1.4 (Communication), 1.5 (Fees), 1.15 (Safekeeping Property), 1.16 (Declining or Terminating Representation), 8.1 (Bar Admission and Disciplinary Matters), and 8.4 (Misconduct), as well as of the statute governing attorney trust accounts, Maryland Code (1989, 1995 Repl.Vol., 1998 Cum.Supp.) § 10-301 to 10-307 of the Business Professions and Occupations Article. In the Petition, Bar Counsel alleged that Grier's escrow account balance fell below the amount he should have been holding for client Larry Levenson, and that checks issued on the escrow account were returned for insufficient funds. Bar Counsel further alleged that during the period of September 1, 1987 through February 29, 1988, Grier commingled funds from several estates in his general escrow account, and on various occasions drew checks from the escrow account payable to himself, without notation regarding his entitlement to those funds. Grier failed to respond to oral and written requests of Bar Counsel for information regarding the returned checks.
Petitioner was indefinitely suspended, by consent, on June 18, 1990.[1] He was an active alcoholic at that time. Shortly after he was suspended, several additional client complaints were received by the Attorney Grievance Commission.[2] The complainants were informed that their complaints would be placed in Grier's file, to be considered when and if he applied for reinstatement.[3]
On December 29, 1993, Wendell H. Grier filed a Petition for Reinstatement in the Court of Appeals. This Court ordered an investigation and that costs in the sum of $800.00 be deposited with the Commission. The money was not received by the Commission until November 29, 1996. A hearing was held, and the Inquiry Panel recommended reinstatement, with special conditions as follows: (1) that in the event Petitioner did not affiliate himself with a law firm that maintains a separate bookkeeping department, any escrow or trust account Grier maintains be co-signed by a member of the Bar, (2) that five files a month be reviewed on a random basis for eighteen months and quarterly for forty-two months thereafter, and that whoever undertakes monitoring of his practice render quarterly reports to Bar Counsel for five years, (3) that Petitioner continue to *1084 attend Alcoholics Anonymous and that he report regularly and directly to Richard Vincent, the Director of Lawyer Counseling for the Maryland State Bar Association, and (4) that a written report for a period of five years after reinstatement be sent to Bar Counsel from Richard Vincent. As previously indicated, the Review Board voted to deny reinstatement.
Petitioner's present fitness to practice law must be considered in light of the nature and circumstances of his original misconduct. Petitioner's transgressions were of the utmost gravitymisuse of client funds and commingling of funds in his escrow account. See In re Barton, 273 Md. 377, 380, 329 A.2d 102, 104 (1974); In re Lombard, 242 Md. 202, 206, 218 A.2d 208, 211 (1966). The Board was not convinced that Petitioner's problems would not have occurred absent his alcoholism, noting that Petitioner employed no consistent staff, did not engage the services of an accountant, and had taken no courses in regard to maintaining an escrow or trust account. In addition, to aggravate matters, he failed to cooperate with Bar Counsel's investigation. Ordinarily, a member of the Bar would be disbarred for the trust account violations. See Attorney Griev. Comm. v. Milliken, 348 Md. 486, 519, 704 A.2d 1225, 1241 (1998); Attorney Griev. Comm. v. Kenney, 339 Md. 578, 587, 664 A.2d 854, 858 (1995). This Court has said that "the more serious the original misconduct was, the heavier is the burden to prove present fitness for readmission to the bar." In re Barton, 273 Md. at 380, 329 A.2d at 104. I agree with the conclusion of the Review Board that Petitioner has not satisfied his burden in establishing that he is presently fit to practice law.
As to Petitioner's subsequent conduct and reformation, the evidence was largely favorable. As to his present character, the Inquiry Panel noted the favorable testimony of the Honorable Askew Gatewood, but the Review Board had concerns with what they perceived as arrogance and evasiveness on the part of Petitioner. The Board noted:
A review of the complete transcript indicates that Petitioner seldom answered a direct question in a direct manner. Rather, Petitioner used a great deal of verbiage to impart very little substantive knowledge to the questions posed by the Inquiry Panel. Petitioner's response to Mr. Hirshman's question regarding the setting of conditions for reinstatement appears symptomatic of a lack of insight into the underlying problems that brought him to the attention of the Attorney Grievance Commission in the first place.
Finally, both the Review Board and Inquiry Panel had concerns regarding Petitioner's present qualifications to practice law.
The Review Board believed that Petitioner had not shown the necessary qualifications to practice law at this time. The Board did not believe that Petitioner would either accept or cooperate with a monitor or the conditions suggested by the Inquiry Panel. In the Board's report, several significant observations were noted:
1. The Panel noted that this Bar has been very consistent in the harsh handling of attorneys who violate the trust of the public in misusing trust accounts.
2. Petitioner had not taken courses or classes of note regarding the maintenance of an escrow or trust account.
3. While Petitioner's misconduct may have been caused in major part by his alcoholism, both the Panel and the Review Board were not convinced that these are problems that would not have occurred absent the alcoholism.
4. Petitioner did not establish that he is presently competent to handle a private practice without guidance and assistance in relation to the maintenance of escrow and trust accounts.
5. There existed a marked paucity of evidence regarding Petitioner's present qualifications and competence. Petitioner presented no evidence that he took *1085 continuing legal education courses during the past 8 years regarding any substantive areas of law that he may go into if reinstated.
The Panel and the Board had the opportunity to view the witnesses and judge their veracity and credibility. While the final determination as to reinstatement rests with this Court, and we review the recommendation of the Board de novo, the findings of the Panel and the Board are entitled to some consideration, if not some measure of deference.
In the discharge of our duty and our original jurisdiction in disciplinary proceedings, this Court is charged with the responsibility to protect the public, to maintain the integrity of the legal profession and to deter other lawyers from engaging in violations of the Rules of Professional Conduct. See Milliken, 348 Md. at 516, 704 A.2d at 1239. There is perhaps no greater act of professional misconduct than the misuse of client funds. The Supreme Court of New Jersey noted, in In the Matter of Wilson, 81 N.J. 451, 409 A.2d 1153, 1154 (1979), that the rule against misappropriating client funds has its roots in the confidence and trust which clients place in their attorneys.
Having sought his advice and relying on his expertise, the client entrusts the lawyer with the transactionincluding the handling of the client's funds. Whether it be a real estate closing, the establishment of a trust, the purchase of a business, the investment of funds, the receipt of proceeds of litigation, or any one of a multitude of other situations, it is commonplace that the work of lawyers involves possession of their clients' funds. That possession is sometimes expedient, occasionally simply customary, but usually essential. Whatever the need may be for the lawyer's handling of clients' money, the client permits it because he trusts the lawyer.
It is a trust built on centuries of honesty and faithfulness. Sometimes it is reinforced by personal knowledge of a particular lawyer's integrity or a firm's reputation. The underlying faith, however, is in the legal profession, the bar as an institution. No other explanation can account for clients' customary willingness to entrust their funds to relative strangers simply because they are lawyers.
How does a monitor and co-signor fit with this philosophy? Is the client told of the requirement for an overseer and a co-signor on the escrow account? And the reasons therefor?
The practice of appointing a monitor to serve as a watch person over an escrow account is, in my view, highly inappropriate. First and foremost, every member of the Bar should be sufficiently trustworthy to practice law without a monitor. Second, there is evidence that the monitor system does not work. See, e.g., Attorney Griev. Comm. v. Larsen, 324 Md. 114, 596 A.2d 623 (1991) (attorney's indefinite suspension reimposed after he violated condition that a monitor co-sign all escrow checks).
I cannot conclude, based on the record before us, that we uphold our grave responsibility when we reinstate Petitioner at this time. A member of the Bar of this State should be sufficiently trustworthy to maintain an escrow or trust account without an overseer. If an attorney cannot be trusted to write checks on a trust account without a co-signer, that person is not fit to practice law in this State. I would deny the Petition for Reinstatement at this time.
Judge WILNER and Judge CATHELL have authorized me to state that they join in the views expressed herein.
NOTES
[*] Chasanow, J., now retired, participated in the conference consideration of this petition while an active member of this Court; after being recalled pursuant to the Constitution, Article IV, Section 3A, he also participated in the decision and adoption of this opinion.
[1] We interpret recommendations one and two to mean that the schedule of meetings between Grier and Mr. Vincent would be determined by Mr. Vincent in his discretion and that Mr. Vincent report to Bar Counsel after each of those meetings as to whether Grier is complying.
[2] The mere requirement for co-signors on checks does not demonstrate that any authorized signatory is untrustworthy. Were that the case then all large law firms that, as a matter of general prudence, have a two signature requirement on checks would be composed of lawyers who should not be practicing.
[1] A suspension by consent in light of allegations of escrow violations will not render the misconduct less serious than a judicial determination of the same conduct, and will not affect the test that must be satisfied to justify reinstatement.
[2] In total, eight disciplinary complaints were either pending at the time of Petitioner's suspension or were subsequently received in the office of Bar Counsel.
[3] These complaints were reviewed with Petitioner as part of the reinstatement Petition. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535932/ | 737 A.2d 696 (1999)
325 N.J. Super. 27
Gino BENEVENGA, Al Major and Boietes, Inc., a Corporation of the State of New Jersey, t/a The Bayshore Club, Plaintiffs-Respondents/Cross-Appellants,
v.
Dominic DIGREGORIO, Intervening Plaintiff,
v.
Security Indemnity Insurance Company, a Corporation of the State of New Jersey, Dining Car Agency, a Corporation of the State of New Jersey and Speciality Insurance Agency, a Corporation of the State of New Jersey, Defendants-Appellants/Cross-Respondents.
Superior Court of New Jersey, Appellate Division.
Argued September 15, 1999.
Decided October 6, 1999.
*697 Douglas M. Calhoun, Spring Lake Heights, for defendants-appellants/cross-respondents Security Indemnity Insurance Company and Specialty Insurance Agency, Inc. (Calhoun & Tice, attorneys; Mr. Calhoun, of counsel and on the brief).
Michael F. Chazkel, Brunswick, for plaintiffs-respondents/cross-appellants (Chazkel & Associates, attorneys; Mr. Chazkel and Thomas A. Chaseman, on the brief).
*698 Before Judges KLEINER, PAUL G. LEVY and CARCHMAN.
The opinion of the court was delivered by PAUL G. LEVY, J.A.D.
In 1991, plaintiffs purchased a waterfront restaurant in Union Beach for $250,000 ($225,000 for restaurant; $25,000 for liquor license). The restaurant was built partly on land and partly on pilings. During a severe wind and rain storm in December 1992, the back part of the restaurant and its supporting pilings collapsed, and the business was totally destroyed. Shortly before the storm, plaintiffs had purchased a special multi-peril insurance policy from defendant, Security Indemnity Insurance Company (Security), insuring the building for $150,000, business personal property for $50,000 and loss of business income up to $24,000. The policy was obtained through defendant Dining Car Agency (DCA), and although the policy specifically excluded any loss or damage caused by water, "driven by wind or not," DCA did not procure a separate flood insurance policy for plaintiffs.
Plaintiffs sued Security to compel payment for its losses under the policy and sued DCA for negligence in failing to obtain the appropriate type of coverage. Prior to trial, DCA settled with plaintiffs for $175,000. At trial, the jury found Security liable to plaintiffs for $279,000 (consisting of $172,000 for damage to the building, $83,000 for contents damages and $24,000 for business interruption). The trial judge molded the verdict to conform to the limits of liability under the policy, yielding a total award of $224,000. Additionally, defendants' motion to setoff the amount of the settlement with DCA was denied, and the judge awarded pre-judgment interest calculated at the rates set forth in R. 4:42-11(b).
On appeal, defendants contend the pretrial settlement with DCA should have been setoff against the judgment and also that the trial judge erred in excluding certain evidence they offered. Plaintiffs cross-appeal, contending that the amount of interest awarded was insufficient and should not have been calculated pursuant to R. 4:42-11(b). We affirm each decision by the trial judge.
I.
Security claims it is entitled to a pro tanto credit of $175,000 against the $224,000 verdict to prevent a double recovery. Its claim is that the $175,000 constitutes "other coverage" for which the policy requires a deduction, and is considered mitigation of damages inuring to Security's benefit. We reject these arguments because the DCA settlement was unrelated to the damages sustained by plaintiffs for an insured event.
Plaintiff sued DCA for "failure to properly advise", acting "contrary to the provisions of applicable statutes concerning the conduct of insurance agents and brokers," "failure ... to obtain proper insurance," and violations of the Consumer Fraud Act. In particular "plaintiffs den[ied] that the loss sustained was excluded under the policy of insurance, [but] if, in fact, it is determined that the loss sustained was, in fact, excluded, then there was a failure on the part of [DCA] to properly advise the plaintiffs or properly secure insurance to cover the ... property." All of plaintiffs' claims against DCA arose out of damages completely unrelated to any loss insured by Security, and would be incurred only if Security was found not liable under the insurance contract.
Security relies on Riccio v. Prudential Prop. & Cas. Ins. Co., 108 N.J. 493, 531 A.2d 717 (1987) and Childs v. New Jersey Mfrs. Ins. Co. 108 N.J. 506, 531 A.2d 723 (1987), but those cases are factually inapplicable. Here there is no joint tortfeasor and there is no apportionment of liability between two insureds. A jury found that the damage caused to plaintiffs' property and business was the result of wind and thus was not excluded, making SSI liable *699 under the insurance contract. The claims for which plaintiffs settled with DCA were not for the same damages or the same cause. Rather, they are based on alleged negligence, breach of contractual obligation and fraud in the procurement of an insurance policy.
For the same reasons, plaintiff did not interfere with Security's rights of subrogation by reaching a settlement with DCA. Security claims that plaintiffs are not entitled to recover because they violated the terms of the insurance contract, which stated, in part:
If any person or organization to or for whom we make payment under this coverage part has right to recover damages from another, those rights are transferred to us to the extent of our payment. That person or organization must do everything necessary to secure our rights and must do nothing to impair them.
The right to subrogation is a derivative one and inures "only the rights of the insured against the tortfeasor subject to defenses of the wrongdoer against the insured." State Farm Mutual Auto. Ins. Co. v. Licensed Beverage Ins. Exchange, 146 N.J. 1, 8, 679 A.2d 620 (1996) (quoting Aetna Ins. Co. v. Gilchrist Bros., Inc., 85 N.J. 550, 560-61, 428 A.2d 1254 (1981)). Here, any right given away by plaintiffs to DCA was either completely unconnected to Security's right of subrogation or existed only in the event that Security was not liable.
Finally, Security argues that plaintiffs had a duty to mitigate against its payout and thus it is entitled to a set-off against the settlement amount. Again, this argument is specious because plaintiffs' settlement with DCA was not a payment from a third party for the damages sustained by plaintiffs as a result of the storm. DCA was not a co-insurer for weather damage to plaintiffs' business. Plaintiffs sued DCA for breach of contract, negligence and fraud, none of which formed the basis for plaintiffs' claim against their Security policy.
II.
Security argues that the trial judge committed reversible error by excluding from evidence the DCA settlement, a conversation between plaintiffs and their insurance agent, and a video tape of the storm.
N.J.R.E. 403 specifically allows a judge, in his or her discretion, to exclude otherwise admissible evidence under specified circumstances. These decisions are reviewed under the abuse of discretion standard. State v. Erazo, 126 N.J. 112, 131, 594 A.2d 232 (1991). "Traditional rules of appellate review require substantial deference to a trial court's evidentiary rulings." State v. Morton, 155 N.J. 383, 453, 715 A.2d 228 (1998).
First, Security argues that the settlement between plaintiffs and DCA should have been permitted as rebutting plaintiffs testimony that they were certain that wind damage destroyed their business. The trial judge excluded this evidence because he found it had little or no probative value and a high potential for prejudice. This was not an abuse of discretion. "[Such] evidence should have been excluded because it had little or no probative value with respect to [defendant's] responsibility for the accident and yet had an inherent capacity to unduly influence the jury." Wyatt v. Wyatt, 217 N.J.Super. 580, 587, 526 A.2d 719 (App.Div.1987).
Security claims the settlement impeaches plaintiffs' testimony that the damage to their business was caused by wind. To the contrary, there is nothing unusual about a plaintiff maintaining multiple, and even mutually exclusive, theories. In this particular case, the complaint against DCA states that plaintiffs believed the damage to their business was caused by wind ("plaintiffs deny that the loss sustained was excluded under the policy...."). It is that complaint from which the settlement *700 was reached. We agree that the settlement lacked any probative value.
Security next argues that the court improperly excluded a taped conversation between plaintiffs and their insurance agent where plaintiffs allegedly claim the damage was caused by a flood. The record reveals that the judge did not make such a ruling. He said that he had to review the transcript or recording of the conversation before he could rule, but Security never offered the evidence thereafter.
Finally, Security argues that the court erred by excluding a video tape of the storm. However, the tape did not depict the part of the storm affecting the bay in Union Beach. Accordingly, the judge excluded the tape because its probative value was substantially outweighed by it potential for prejudice. Since the storm caused both wind and water damage and because the video was not specific to the site of plaintiffs' business, the judge's ruling that the proffered evidence lacked probative value was not an abuse of discretion.
III.
Plaintiffs cross-appeal the amount of the prejudgment interest award. Initially, Security argues that the trial judge should not have granted prejudgment interest at all, but we disagree. Prejudgment interest in non-tort actions is not a matter of right but one based on equitable principles. See Bak-A-Lum Corp. v. Alcoa Building Prod., 69 N.J. 123, 131, 351 A.2d 349 (1976). Where a coverage dispute involves the applicability of an exclusion, rather than the amount of a claim, the equities favor the claimant in the award of prejudgment interest. Ellmex Const. Co., Inc. v. Republic Ins. Co., 202 N.J.Super. 195, 211, 494 A.2d 339 (App. Div.), certif. denied 103 N.J. 453, 511 A.2d 639 (1986).
The amount of the award was calculated using the rate of return of the State of New Jersey Cash Management Fund, as used in tort actions pursuant to R. 4:42-11. Tobin v. Jersey Shore Bank, 189 N.J.Super. 411, 460 A.2d 195 (App.Div. 1983), has been cited by each party. In that case, various formulae were explored to determine the rate of prejudgment interest to be paid by a bank that had wrongfully converted funds from a trust account. The Tobin court considered the rate the creditor would have had to pay to borrow the amount in question (the prime rate), the rate actually received by the bank while it wrongfully possessed the funds, and the rate the creditor could have earned if the money had not been converted (the passbook savings rate).
There is a service maintained by A.M. Best that reports the rate of return by insurance companies on their investments and on their overall profitability. Plaintiffs maintain they were entitled to the same rate of return that Security earned on its funds, but calculated as the after tax rate of return on its investments and underwriting, that is, its overall profitability. Security also looks to Tobin as a basis for calculating what it may owe, but it urges a rate in accord with its statutory limit of investing in only the safest investments. N.J.S.A. 17:24-1. Thus, Security contends that we should use the yield on invested assets as reported by A.M. Best.
If the equities of the matter were unusual, a trial judge might look to sources like A.M. Best for guidance in setting the appropriate rate for an award of interest. But lacking unusual circumstances, we conclude that the rate of return earned by the State Treasurer contemplated by R. 4:42-11(a)(ii) is the standard to which trial judges should adhere. Judge Feldman did just that in this case, and his determination does not amount to an abuse of discretion.
We affirm the trial judge's ruling on both the appeal and cross-appeal. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535938/ | 737 A.2d 272 (1999)
COMMONWEALTH of Pennsylvania, Appellee,
v.
Gabriel I. PITTMAN, Appellant.
Superior Court of Pennsylvania.
Argued April 27, 1999.
Filed July 29, 1999.
*273 Craig B. Neely, Allentown, for appellant.
Douglas G. Reichley, Asst. Dist. Atty., Allentown, for Commonwealth, appellee.
Before DEL SOLE, MONTEMURO[*] and BECK, JJ.
DEL SOLE, J.:
¶ 1 This is an appeal from a Judgment of Sentence imposed as a result of Appellant's plea of guilty to third degree murder, recklessly endangering another person and firearms carried without a license, and a nolo contendere plea to aggravated assault. The charges stemmed from Appellant's shooting death of an acquaintance outside a crowded after-hours club and his subsequent shooting toward a pursuing police officer. Appellant was sentenced to a term of imprisonment of 20-40 years on the third degree murder charge. Consecutive sentences on the remaining convictions resulted in an aggregate sentence for a period of incarceration of 26-59 years.
¶ 2 Appellant in this appeal challenges the sentence he received. Specifically he contends that application of the Pennsylvania Sentencing Guidelines, 204 Pa.Code Ch. 303, to those convicted of third degree murder deny defendants their due process rights. He further contends that the trial court erred in sentencing when it failed to take into account any mitigating circumstances, when admitting that they existed, and when it considered the fact that the Commonwealth was originally seeking a first degree murder conviction prior to Appellant's plea to the third degree murder charge.
¶ 3 Because these issues challenge the discretionary aspects of sentencing, we must first decide whether to accept Appellant's appeal. 42 Pa.C.S.A. § 9781. Appellant's brief contains the requisite *274 statement of reasons relied upon in support of appeal as required by Pa.R.A.P. 2119(f) and Commonwealth v. Tuladziecki, 513 Pa. 508, 522 A.2d 17 (1987). Therefore, we must determine if Appellant has raised a substantial question that the sentence imposed is not appropriate under the Sentencing Code. Commonwealth v. Felix, 372 Pa.Super. 145, 539 A.2d 371 (1988). In this case we conclude that Appellant has met this threshold requirement by claiming that the court considered irrelevant factors in formulating his sentence. Commonwealth v. Smithton, 429 Pa.Super. 55, 631 A.2d 1053 (1993). Further his due process claims do not concern the discretionary aspects of his sentence and are therefore reviewable.
¶ 4 Turning first to the due process challenge we note that this claim has two components. Appellant notes that, regardless of his prior record score, the Sentencing Guidelines for third degree murder provide for a sentence at the top of the standard minimum range which is equal to the maximum minimum sentence allowed by law, 240 months. Appellant claims that this deprives him and others convicted of third degree murder of receiving an aggravated sentence or a sentence outside the Guidelines, for which the court would have to provide specific reasons. He further asserts that because these Guidelines provide for a standard term sentence which is the highest allowed by law, the court will always sentence within the Guidelines and such a sentence will be virtually unreviewable by the appellate courts. Appellant's argument fails on both counts.
¶ 5 Although the Guidelines suggest a standard range sentence which would allow for the imposition of a legal minimum period of incarceration, the Guidelines are that, merely guidelines. While they must be considered by a sentencing court, the court is free to formulate whichever sentence it deems appropriate under the specific circumstances provided. Commonwealth v. Jones, 433 Pa.Super. 266, 640 A.2d 914 (1994). The Guidelines recognize the severity of the crime of third degree murder and do include a 20-year sentence at the top end of the minimum term of a standard sentence, regardless of the prior record score. However in view of the fact that the court is free to sentence to any statutorily allowed term it deems appropriate to the specific circumstances of the case, we do not perceive how this fact alone deprives defendants of any constitutional rights.
¶ 6 Further, the fact that a third degree murder sentence will never exceed the sentencing guideline recommended ranges does not, as Appellant suggests, mean that it will be unreviewable as a discretionary sentence. Where a court sentences within the Guidelines but it is claimed the guidelines were erroneously applied, or where specific circumstances make application of the guidelines unreasonable, Appellant will satisfy his burden of demonstrating that there is a substantial question that the sentence imposed is not appropriate. Commonwealth v. Kopp, 405 Pa.Super. 110, 591 A.2d 1122 (1991). Also, where an appellant suggests, as does Appellant here, that the sentencing court considered inappropriate information at sentencing, he will be entitled to review. Commonwealth v. Smithton, supra.
¶ 7 Turning to Appellant's specific claims that the court failed to consider his remorse, for which he offered concrete evidence, his alcohol abuse problem, and his good upbringing but considered inappropriate information, the record belies this claim. It is evident from a reading of the transcript that the court was well aware of the evidence presented by Appellant on his behalf in support of mitigation. The court recognized that it had to balance this mitigating evidence against the facts of this crime in which Appellant shot an individual in the head, a crime for which he could have faced a first-degree murder charge. Recognition of this factual background of the crime was not inappropriate. The sentencing transcript is over 100 *275 pages long. The court was very familiar with the particulars of this case and Appellant personally. The court formulated the sentence it imposed in an effort to protect the public, and we see no reason to conclude that the court abused its discretion.
¶ 8 Judgment of Sentence affirmed.
NOTES
[*] Retired Justice assigned to the Superior Court. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2336464/ | 738 A.2d 974 (1999)
325 N.J. Super. 244
Manuel GONZALEZ, Petitioner-Appellant,
v.
BOARD OF EDUCATION OF the ELIZABETH SCHOOL DISTRICT, UNION COUNTY, Respondent-Respondent.
Superior Court of New Jersey, Appellate Division.
Argued September 21, 1999.
Decided October 21, 1999.
*975 Maria M. Lepore, Trenton, for petitioner-appellant (Ms. Lepore, on the brief).
David F. Corrigan, Little Silver, for respondent-respondent Elizabeth Board of Education (Murray, Murray & Corrigan, attorneys; David A. Rapuano, of counsel and on the brief).
Terri A. Cutrera, Deputy Attorney General, for respondent-respondent State Board of Education (John J. Farmer, Jr., Attorney General of New Jersey, attorney; Mary C. Jacobson, Assistant Attorney General, of counsel; Ms. Cutrera, on the brief).
Andrew Babiak, Cherry Hill, for amicus curiae New Jersey Association of School Administrators (Mr. Babiak, on the brief).
Before Judges HAVEY, KEEFE and A.A. RODRIGUEZ.
The opinion of the court was delivered by
HAVEY, P.J.A.D.
The central issue raised by this appeal is whether a local school board is empowered to appoint a superintendent whose term would begin during the term of office of the succeeding board. Petitioner and amicus *976 curiae, New Jersey Association of School Administrators, argue that a school board's authority to make such an appointment is found in N.J.S.A. 18A:17-20.1, which requires a local school board to notify its superintendent that he or she will not be appointed at least one year before the expiration of the superintendent's term. Petitioner and amicus reason that, by enacting N.J.S.A. 18A:17-20.1, the Legislature intended to authorize a school board to appoint a new superintendent at the time of such notification, with the term of the newly-appointed superintendent beginning upon expiration of the incumbent's term. The State Board of Education concluded that such an appointment is "void ab initio." We agree with the State Board of Education and affirm.
On June 29, 1994, respondent Board of Education of the Elizabeth School District (Board), notified Thomas Dunn, the Superintendent of Schools, that his contract, expiring on June 30, 1996, would not be renewed. Dunn was relieved of his duties. However, the Commissioner of Education ruled that the local board could not ignore Dunn's statutory entitlement to the position of superintendent for the duration of his contract. Thus, the Board could relieve Dunn of his duties, but no "vacancy" would occur in his position until the expiration of his contract.[1]
On July 13, 1994, petitioner, then an assistant superintendent, was appointed acting superintendent, effective immediately. By resolution of February 8, 1995, the Board appointed petitioner superintendent for three years, beginning July 1, 1996, when Dunn's contract expired. On February 22, 1995, the Board approved an employment contract with petitioner for the three-year term.
On May 1, 1996, after the annual school board election, the newly constituted Board directed that Dunn resume his duties as superintendent, and returned petitioner to his prior position as assistant superintendent. On June 6, 1996, the Board appointed Dunn to a five-year term as superintendent, beginning July 1, 1996.
Petitioner filed a petition with the Commissioner of Education, claiming that the Board's actions breached his contract and were arbitrary, capricious and unreasonable. Petitioner demanded restoration to the position of superintendent and retroactive adjustment of his salary.
Administrative Law Judge Lucchi-McCloud, to whom the matter was assigned as a contested case, granted summary judgment to the Board. She determined that, although Dunn had been relieved of his duties as superintendent, that office was not vacant until his contract expired on June 30, 1996, since he had a statutory entitlement to the position for the duration of his contract. The ALJ reasoned that the February 1995 Board "had no authority to reach forward beyond its own official life and into the term of its successor to make a decision not due until July 1, 1996." She therefore concluded that petitioner's contract was "null and void ab initio " and that no "illegal reduction of compensation occurred...."
The Commissioner modified the initial decision of the ALJ. He agreed with petitioner that N.J.S.A. 18A:17-20.1 "appears to contemplate, indeed, compel, that local boards will anticipate vacancies by notifying superintendents of their decisions not to reappoint them `at least one year prior to the expiration' of their contracts." However, the Commissioner declined to allow a local board "unfettered power to bind future boards."
Instead, the Commissioner holds that the appropriate balance between the well-established stricture against binding future boards and the clear demands of N.J.S.A. 18A:17-20.1 may be struck by a reading which permits, apart from a current board, only that the board constituted immediately prior to twelve *977 months before the expiration of its superintendent's contract to appoint a successor. Such a reading recognizes both a board's obligation to notify its superintendent of its intentions well in advance, while still not binding future boards unnecessarily or beyond the express prescription of the statute.
Applying this interpretation, the Commissioner held that the Board "acted beyond the scope of its lawful authority" when it appointed petitioner superintendent as of July 1, 1996, by "binding both the April 1995 Board and the April 1996 Board."
The State Board rejected the "compromise" fashioned by the Commissioner, that "apart from the current board, only that board constituted immediately prior to twelve months before the expiration of its superintendent's contract [may] appoint a successor." The State Board agreed with the ALJ that the February 1995 contract, effective July 1996, was "void ab initio" and held that it could not be ratified by later conduct of the Board. It thereupon affirmed the Commissioner's decision to grant summary judgment "substantially for the reasons expressed by the ALJ in [her] initial decision...."
I
N.J.S.A. 18A:17-20.1 provides:
At the conclusion of the term of the initial contract or of any subsequent contract as hereinafter provided, the superintendent shall be deemed reappointed for another contracted term of the same duration as the previous contract unless either: a. the board by contract reappoints him for a different term which term shall be not less than three nor more than five years, in which event reappointments thereafter shall be deemed for the new term unless a different term is again specified; or b. at least one year prior to the expiration of the first or any subsequent contract the board shall notify the superintendent in writing that he will not be reappointed at the end of the current term, in which event his employment shall cease at the expiration of that term.
[Emphasis added.]
Petitioner and amicus argue that since N.J.S.A. 18A: 17-20.1 requires a local board to notify its incumbent superintendent that he or she will not be reappointed at least one year before the expiration of the superintendent's term, the Legislature must have intended to authorize a local board to appoint a new superintendent at the time of that notification. We disagree.
The common-law rule is that a public body empowered to appoint a public officer "may not forestall the rights and obligations of [its] successor by making an appointment where the term of the appointee will not take effect until after the expiration of the term of the appointing [body]." Georgia v. Suruda, 154 N.J.Super. 439, 448, 381 A.2d 821 (Law Div.1977). In Georgia, the Law Division applied this common-law rule to invalidate the appointments of two members to the Jersey City Board of Education by the lame-duck mayor. Their terms were not to begin until after the new mayor was sworn in. The court applied N.J.S.A. 40A:9-156, which, it said, "is in essence a restatement of that rule." Ibid.[2]
Similarly, in Pashman v. Friedbauer, 4 N.J.Super. 123, 126, 66 A.2d 568 (App.Div. 1949), the Board of Commissioners of the City of Passaic established a municipal court and assigned it to the Department of Public Safety, whose director appointed defendant to the position of municipal magistrate in December 1948, effective January 16, 1949. Ibid. Later, in December 1948, the Board assigned the municipal court to the Department of Public Affairs, *978 whose director appointed plaintiff to the same position, effective January 16, 1949. Id. at 126-27, 66 A.2d 568. The court invalidated the first appointment as prospective, since the Director of Public Safety was not empowered to fill the vacancy when it arose in January 1949. Id. at 127, 66 A.2d 568. The court cited the commonlaw rule that a public officer shall not forestall the right and prerogative of his or her successor by making a prospective appointment to fill an office, the term of which does not begin until his or her own term and power to appoint has expired. Ibid. See also Dickinson v. Mayor of Jersey City, 68 N.J.L. 99, 102, 52 A. 278 (Sup.Ct.1902). This is the prevailing rule throughout the country. See 3 McQuillin on Municipal Corporations § 12.83 (3d ed. rev.1990) and cases annotated therein.
The policy considerations grounding the common-law rule are self-evident. Such a prospective appointment usurps the will and power of a future board to fill a vacancy based on the future board's consideration of prevailing policy, personnel and general welfare concerns. Moreover, any other rule "would work for confusion and disorganization" in the affairs of the public body. Dickinson, supra, 68 N.J.L. at 102, 52 A. 278. If an existing board can make an appointment effective within the term of the next succeeding board, "why not for one falling in the term of the same board two or five years hence?" Ibid.
Here, the Board's appointment of petitioner in February 1995 clearly violated the common-law rule, since the position was effective upon the expiration of Dunn's term on July 1, 1996. A board of education is a noncontinuous body whose authority is limited to its own official life and whose actions can bind its successors only in those ways and to the extent expressly provided by statute. Skladzien v. Board of Educ., 12 N.J. Misc. 602, 604-05, 173 A. 600 (Sup.Ct.1934), aff'd, 115 N.J.L. 203, 178 A. 793 (E. & A.1935). No statutory authority is found under Title 18A expressly authorizing a local board to make such prospective appointments.
II
We reject petitioner's and amicus' argument that N.J.S.A. 18A:17-20.1, by implication, authorizes such an appointment. First, the construction advanced by petitioner and amicus is in direct conflict with established common law. "In the absence of a clear manifestation to the contrary, we shall not impute to the Legislature an intention to change established law." State v. Dalglish, 86 N.J. 503, 512, 432 A.2d 74 (1981).
Further, "[c]onstruction of any statute necessarily begins with consideration of its plain language." Merin v. Maglaki, 126 N.J. 430, 434, 599 A.2d 1256 (1992). We must enforce the legislative will as expressed by the clear language of the statute, and not presume that the Legislature intended something not expressly stated. In re Howell Township, 254 N.J.Super. 411, 419, 603 A.2d 959 (App. Div.), certif. denied, 127 N.J. 548, 606 A.2d 362 (1991). It cannot be presumed by the clear and unambiguous language of N.J.S.A. 18A:17-20.1 that the Legislature intended to empower a present board to bind a future board with appointments to take effect during the tenure of a future board. It merely provides that a superintendent will be deemed reappointed when the superintendent's contract expires, unless the board has notified him or her at least one year in advance that he or she will not be reappointed. Significantly, the statute is silent as to when the successor should be reappointed.
Finally, when construing a statute, we consider not only the provision in question, but the entire legislative scheme. Fiore v. Consolidated Freightways, 140 N.J. 452, 466, 659 A.2d 436 (1995). "Our task is to harmonize the individual sections and read the statute in the way that is most consistent with the overall legislative intent." Ibid. N.J.S.A. 18A: 17-20.1 was *979 part of a package of amendments and additions to Chapter 17 of Title 18A relating to the terms of office of superintendents, which removed lifetime tenure for superintendents appointed after August 24, 1991. See L. 1991, c. 267, §§ 1-9 (codified as N.J.S.A. 18A:17-15 to -20.5). The 1991 amendments provide that a board "may, by contract" appoint a superintendent "for a term of not less than three nor more than five years." N.J.S.A. 18A: 17-15. The statement of the Assembly Education Committee declared:
This bill revises existing law regarding the tenure of a superintendent of schools to substitute for the present career tenure a period of tenure for the duration of the contract between the local board of education and the superintendent. Under the bill's provisions, the term of the contract between the board and the superintendent is to be not less than three years nor more than five years.
[Assembly Educ. Comm., Statement to Assembly Bill No. 1131 (1991).]
The legislative scheme fashioned a tradeoff. A board has the flexibility of granting a three to five-year term without having to suffer the lifetime tenure of a superintendent who has lost the board's confidence. In exchange, the appointed superintendent is given the security of a determinate term, immunizing him or her from dismissal at the whim of future boards.
N.J.S.A. 18A:17-20.1 was added to fortify a superintendent's rights by providing for automatic reappointment to a new "contracted term of the same duration" if the board fails to give at least one-year notice of its intention not to reappoint. It also provides a superintendent who has received such notice ample lead time to seek new employment. It therefore must be construed as accommodating superintendents under contract, not as giving license to a board to reach forward beyond its official life by making an appointment effective after expiration of the incumbent superintendent's term.
We are mindful of petitioner's and amicus ' argument that precluding local boards from making appointments, as the Board did here, will leave new boards with a narrow two-month window, between May (the date the new board is constituted) and July (the expiration of the superintendent's contract) to find a new superintendent. They assert that "it is recognized in the educational community that a search for a new superintendent can take up to one year or more." Thus, it is argued, a board aware of a vacancy in the office of superintendent to occur a year or more in advance might find, but lose, the perfect candidate because it cannot make a commitment before May of the year in which the new superintendent is to begin.
We have no record before us to test the correctness of the concerns expressed by petitioner and amicus. Moreover, neither petitioner nor amicus have explained why a responsible board could not or would not begin the search during its term, but leave the ultimate decision to its successor, or why the new board could not appoint an acting superintendent during the search process. In any event, it is our view that such concerns, if justified, should be expressed to the Legislature, the body politic having the power to address them by appropriate amendment to the statute.
III
Petitioner argues that if there was an irregularity in the appointment and award of his contract, the appointment and award were at most "voidable," and the Board "ratified" his appointment and contract by resolution on July 26, 1995. In Summer Cottagers' Ass'n v. Cape May, 19 N.J. 493, 504, 117 A.2d 585 (1955), the Court observed that:
There is a distinction between an act utterly beyond the jurisdiction of a municipal corporation and the irregular exercise of a basic power under the legislative grant in matters not in themselves jurisdictional. The former are ultra vires in the primary sense and void; the *980 latter, ultra vires only in a secondary sense which does not preclude ratification or the application of the doctrine of estoppel in the interest of equity and essential justice.
See also Wood v. Borough of Wildwood Crest, 319 N.J.Super. 650, 657, 726 A.2d 310 (App.Div.1999); Independence One Mortgage Corp. v. Gillespie, 289 N.J.Super. 91, 94, 672 A.2d 1279 (App.Div.1996). Consequently, "[a] void act is a nullity and can never be cured by subsequent events, because it is an act by a public official `utterly without capacity' to act in that manner." Ibid. (quoting Bauer v. City of Newark, 7 N.J. 426, 434, 81 A.2d 727 (1951)). On the other hand, a public body can ratify a public contract when the deficiency invalidating it consists only of the exercise of an authorized but imperfectly executed power. Johnson v. Hospital Serv. Plan of New Jersey, 25 N.J. 134, 140, 135 A.2d 483 (1957).
In our view, petitioner's February 1995 appointment and award of contract were void ab initio because they were made in direct contravention of the common-law rule and without any express or implied statutory authority. As such, they were acts "utterly beyond [the Board's] jurisdiction," rather than an "irregular exercise of a basic power." Summer Cottagers' Ass'n, supra, 19 N.J. at 504, 117 A.2d 585. See DiPaolo v. Passaic County Board of Chosen Freeholders, 322 N.J.Super. 487, 490, 731 A.2d 519 (App.Div.1999) (holding that since governing statute sets forth no term of office for county adjuster and does not authorize board of freeholders to set a term, five-year appointment by outgoing board was ultra vires act).
Even if we were to accept petitioner's proposition that the Board's February 1995 actions were merely "voidable," there was no subsequent action by the new board ratifying his appointment and contract. "[R]atification of irregular contracts for goods or services is permitted only after full compliance with all statutory conditions precedent." Casamasino v. City of Jersey City, 158 N.J. 333, 345, 730 A.2d 287 (1999). The 1996 board did not reconfirm or ratify its appointment of petitioner in accordance with N.J.S.A. 18A:17-15. Petitioner also ignores the fact that on or after May 1, 1996, the new board appointed Dunn as superintendent for a five-year period and returned petitioner to his position as assistant superintendent.[3]
IV
We reject petitioner's contention that the Board was time-barred from challenging its prior appointment of petitioner because the Board failed to file a petition with the commissioner within ninety days of its February 1995 actions. Petitioner cites N.J.A.C. 6:24-1.2(c), which requires that to initiate a contested case, a petitioner "shall file a petition no later than the 90th day of receipt of the notice of a final order, ruling or other action by the district board of education, individual party, or agency, which is the subject of the requested contested case hearing." Petitioner points out that the "commissioner shall have jurisdiction to hear and determine... all controversies and disputes *981 arising under the school laws...." N.J.S.A. 18A:6-9; Bower v. Board of Educ., 149 N.J. 416, 420, 694 A.2d 543 (1997). He reasons that the new board was therefore required to file a petition with the commissioner within ninety days of the prior board's 1995 actions. We disagree.
First, the "controversy" or "dispute" involved here did not arise until the Board had Dunn resume his duties as superintendent and returned petitioner to his position as assistant superintendent in May 1996. Further, petitioner cites no authority for the proposition that a local board must file a petition with the commissioner in order to rescind or change its prior action. Independence One Mortgage Corp., cited by petitioner, is distinguishable. There, a mortgagor of foreclosed property sought to void a sheriff's sale because it was conducted at 11 a.m. in violation of N.J.S.A. 2A:61-4. 289 N.J.Super. at 93, 672 A.2d 1279. We held that the sale was voidable as opposed to ultra vires because the sheriff was authorized to sell the property, but that authority was "imperfectly executed." Id. at 94, 672 A.2d 1279. However, we concluded that defendant was precluded from challenging the sale because she failed to do so in a timely manner. Id. at 94-95, 672 A.2d 1279.
Here, as stated, the "controversy" arose when the Board rescinded petitioner's appointment in May 1996, not when it initially appointed him in February 1995. Since petitioner was the party challenging this action, it was incumbent upon him, not the Board, to file a petition with the commissioner. Petitioner did so in a timely manner.
V.
Petitioner raises the following additional points:
Point IIIThe State Board decision must be reversed as it fails to enforce a binding contract entered into between the Board and the [petitioner].
Point IV[Petitioner] was entitled to full recognition for previous service on the salary scale when he was returned to the position of assistant superintendent.
Point V The Elizabeth Board is barred from challenging the prior appointment of [petitioner] to the position of superintendent, effective July 1,1996.
A. The Elizabeth Board is out of time to collaterally attack the actions of the Board in February 1995.
B. The prior board's action was already challenged by Thomas Dunn, Jr. and determined to be legal and proper.
Point VIThe decision of the State Board was arbitrary and capricious and must be overturned.
We have considered the contentions and supporting arguments and are satisfied they are without merit and do not warrant extensive discussion. R. 2:11-3(e)(1)(D) and (E).
Affirmed.
NOTES
[1] Dunn v. Elizabeth Board of Educ., 96 N.J.A.R.2d (EDU) 279, 284 (1995).
[2] N.J.S.A. 40A:9-156 provides in part:
No appointment of any officer shall be made by the mayor or other chief executive officer or by the governing body of any municipality where the term of the office is to commence after the expiration of the term of the officer making the appointment or of any member of the governing body.
[3] In support of his argument that the new board "ratified" his contract, petitioner refers to a July 26, 1995 resolution pertaining to the Commissioner's decision in Dunn, supra, rendered after the Board had relieved Dunn of his position as superintendent. Pursuant to the Commissioner's decision, the Board "relieved" Dunn of his rights and duties as assistant superintendent of schools. The resolution has a "whereas" clause stating that "the subsequent actions of the Board appointing [petitioner] to the position of Acting Superintendent and the awarding of a three-year contract for the position of Superintendent of Schools to [petitioner] commencing July 1, 1991 also have been upheld." This "whereas" clause has no legal consequence since a preamble to a resolution is not to be given substantive effect "particularly where the enacting portion of the [resolution] is expressed in clear and unambiguous terms." PRB Enters., Inc. v. South Brunswick Planning Board, 105 N.J. 1, 5-6, 518 A.2d 1099 (1987). More importantly, the purpose of the resolution was to relieve Dunn of his rights and duties as assistant superintendent, a position for which he held tenure; it cannot be read as an express or even implied ratification of the Board's February 1995 contract award to petitioner. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535489/ | 360 Pa. Super. 173 (1987)
520 A.2d 40
Margaret JONAS, Jay Asper and Romain Whittacker, Supervisors of Delaware Township
v.
WIESMETH CONSTRUCTION COMPANY, Appellant,
v.
POCONO CONSTRUCTION COMPANY, INC., National Steel Products Company and Strand Building Corporation.
Supreme Court of Pennsylvania.
Argued October 22, 1986.
Filed January 15, 1987.
*175 Salvatore Vito, Milford, for appellant.
John H. Klemeyer, Milford, for Jonas, Asper and Whittacker, appellees.
Matthew D. Blumberg, Milford, for Pocono, appellees.
Before WIEAND, OLSZEWSKI and CERCONE, JJ.
CERCONE, Judge:
In this appeal we are asked to determine whether the sixty day period of limitations within which to join an additional party pursuant to Pa.R.C.P. 2253 is tolled where the original defendant files preliminary objections, in the nature of a demurrer, to the plaintiff's complaint which if granted would result in dismissal of the cause of action against the defendant.
On July 16, 1984 Delaware Township brought an action in trespass and assumpsit against appellant, Wiesmeth Construction Company for faulty construction of the roof on its municipal building. Subsequently, appellant filed preliminary objections in the nature of a demurrer to the complaint which were denied by the lower court on December 27, 1984. Thereafter on January 25, 1985 appellant filed a praecipe to join Pocono Construction Co. (Pocono) as an *176 additional defendant. Pocono responded by filing preliminary objections to its purported joinder and by order of court dated June 25, 1985, the court below granted Pocono's preliminary objections in the nature of a motion to strike stating, inter alia, "The original defendant's praecipe for joinder is hereby dismissed without prejudice."[1] The order was supported by an opinion giving as its reason for denial the untimeliness of appellant's petition. Nevertheless, appellant attempted to have a rule entered upon Pocono to show cause why joinder should not be granted. On April 9, 1986 the lower court denied appellant's petition for rule to join Pocono as an additional defendant as "moot" in light of its order of June 25, 1986.[2] This appeal followed.
While neither party has questioned the appealability of the lower court's order of April 9, 1986, it is an issue we may raise sua sponte. Tate v. MacFarland, 303 Pa. Super. 182, 449 A.2d 639 (1982). At first blush this order seems to be interlocutory and accordingly not appealable. It is also well settled law that Superior Court can only entertain an appeal if the order appealed from is final. 42 Pa.C.S.A. § 742; Temtex Products Inc. v. Kramer, 330 Pa. Super. 183, 479 A.2d 500 (1984); Commercial Banking Corp. v. Culp, 297 Pa. Super. 344, 443 A.2d 1154 (1982).
In the case sub judice appellant filed a praecipe to join an additional party to which the additional party responded *177 by filing preliminary objections. In its June 25, 1985 order pursuant to these actions the lower court granted the additional defendant's preliminary objection in the "nature of a motion to strike" and dismissed appellant's praecipe for joinder. An order dismissing a party from a suit is always final and appealable. Temtex, supra; Fireman's Fund Ins. v. Nationwide Mut. Ins., 317 Pa. Super. 497, 464 A.2d 431 (1983). However, the lower court's order contained the proviso that the order was granted "without prejudice". Our court has interpreted the phrase "without prejudice" as importing the contemplation of further proceedings. Robinson v. Trenton Dressed Poultry Co., 344 Pa. Super. 545, 496 A.2d 1240 (1985). Furthermore, when this phrase appears in a decree it shows that the judicial act done is not intended to be res judicata of the merits of the controversy Robinson, supra; Commonwealth ex rel. Eldredge v. Eldredge, 175 Pa. Super. 276, 104 A.2d 185 (1954). In essence, through its order the court granted itself an opportunity to inquire into its own record and to rectify it if incorrect. See, Eldredge, supra. Thus, it is possible appellant perceived the qualifying language in the June 25th order as granting a second bite of the apple for thereafter he entered upon Pocono a rule to show cause why joinder should not be granted. The court's denial of this motion as "moot", by its April 9, 1986 order, in light of the order of June 25, 1985 would appear to have the effect of making the June 25th order the one that is final and from which appellant's appeal should lie. But, it is from the April 9th order which appellant appeals. Nonetheless we find the proviso "without prejudice" contained in the court's June 25th order to be ambiguous as it appeared to lull appellant into a false sense of believing he had further opportunity to address the issue of Pocono's joinder. Hence, we find that appellant's taking this appeal from the April 9th order is not fatal and we will address the merits of his claim. See, Feingold v. SEPTA and Duncan, 512 Pa. 567, 517 A.2d 1270, (1986) (Procedural rules are *178 analyzed by the circumstances of each individual case. To analyze them otherwise would exalt the rules to a status far beyond their inherent power).
Appellant contends that the sixty day period for adding additional parties pursuant to Pa.R.C.P. 2253 is tolled where the original defendant preliminary objections in the nature of a demurrer to the plaintiff's complaint. We agree.
The court below found that appellant's praecipe to join was untimely as it was filed more than sixty days after the original complaint was filed and appellant did not seek leave of the court to enter it. Furthermore appellant did not present a showing to the court of cause for a late filing. The court concluded that all of appellant's acts were in direct contradiction of Pa.R.C.P. 2253.
Our Supreme Court in Graham v. Greater Latrobe School District, 436 Pa. 440, 260 A.2d 731 (1970) carved out an exception to the time period in which an additional defendant may be joined as prescribed by Pa.R.C.P. 2253.[3]
There the court propounded:
Rule 2253 does not explicitly cover the situation of the joinder of additional defendants when the original defendant has filed preliminary objections to the complaint. If the objections are sustained, no problem will arise, however, for either the action will be dismissed or an amended complaint will be filed after which a sixty day period begins. When the objections are overruled, as here, reason and policy require that the defendant be given *179 sixty days to join additional defendants. Preliminary objections attack the validity of the pleading, and until those objections are overruled, a court has not determined that the plaintiff has filed a valid complaint. Applying that reasoning to time periods (1) and (2), the most reasonable construction of Rule 2253 would be that the defendant has sixty days from the time it is determined that plaintiff has filed a valid complaint. If no preliminary objections are filed, that will be the date of the filing of the complaint. If they are filed, that will be the date they are overruled. Also, it makes no sense to require the defendant to proceed as if the action will continue when he has before the court objections which, if successful, will terminate the litigation. No reasons of policy require that he follow these inconsistent paths at the same time.
Id., 436 Pa. at 443-444, 260 A.2d at 733.
The court's holding in Graham has been followed in other cases where a complaint was filed, and the original defendant filed preliminary objections which would terminate the litigation if granted. See, Commercial Banking Corporation, supra.
The instant appeal is exactly on point with the cases we cite as precedent. Appellant was served with a complaint by Delaware Township to which it responded by filing preliminary objections in the nature of a demurrer. The sixty day period for joining an additional party was tolled and did not start to run until December 27, 1984 when the lower court issued its order denying the objections. Appellants filed a praecipe to join Pocono on January 25, 1985 well within the sixty day period. We see no reason to deviate from the holdings of Graham and Commercial Banking Corporation, supra.
Accordingly we reverse the order of the court denying the joinder of Pocono as an additional defendant. Jurisdiction relinquished.
NOTES
[1] The June 25th order states in pertinent part:
AND NOW, this 25th day of June, 1985, Additional Defendant, Pocono Construction Co., Inc.'s Preliminary Objection in the nature of a Motion to Strike is hereby granted. The Original Defendant's Praecipe for Joinder is hereby dismissed without prejudice. (Emphasis supplied)
[2] The order of April 9, 1986 reads as follows:
AND NOW, this 9th day of April, 1986, Defendant-Wiesmeth Construction Company, Incorporated's Petition for Rule to Join Pocono Construction Co., Incorporated as Additional Defendant is Hereby Denied. Such Petition is moot, because, it was previously decided on June 25, 1985 by Order of This Court. The reasons were delineated in that OPINION AND ORDER.
[3] Rule 2253. Time for Filing Praecipe or Complaint
Neither praecipe for a writ to join an additional defendant nor a complaint if the joinder is commenced by a complaint, shall be filed by the original defendant or an additional defendant later than sixty (60) days after the service upon the original defendant of the initial pleading of the plaintiff or any amendment thereof unless such filing is allowed by the court upon cause shown.
Adopted Feb. 14, 1939, effective Sept. 4, 1939; amended and effective Dec. 30, 1942; amended and effective Sept. 1, 1958. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535551/ | 520 A.2d 1310 (1987)
Arthur NEMON
v.
SUMMIT FLOORS, INC., et al.
Supreme Judicial Court of Maine.
Argued January 12, 1987.
Decided February 20, 1987.
*1311 T.A. Fitanides (orally), Biddeford, for plaintiff.
Black & Hopkinson, William R. Black (orally), Logan, Kurr & Hamilton, Michael S. Haenn, Portland, for defendant.
Before McKUSICK, C.J., and ROBERTS, WATHEN, GLASSMAN, SCOLNIK, and CLIFFORD, JJ.
McKUSICK, Chief Justice.
Plaintiff Arthur Nemon appeals from the summary judgment entered by the Superior Court (Kennebec County) in favor of defendants Finance Authority of Maine (FAME), Summit Floors, Inc., and the Town of Scarborough. We vacate that judgment and remand the case to the Superior Court for direct review under M.R.Civ.P. 80C of FAME's issuance of a certificate of approval for a bond issue inuring to the benefit of Summit Floors, Nemon's competitor.
On December 18, 1985, the Town of Scarborough and Donald Smith, the sole owner and principal officer of Summit Floors, Inc., filed an application with FAME under the Municipal Securities Approval Program (MSAP), 10 M.R.S.A. §§ 1061-1074 (Supp. 1986), for authorization for the Town to issue $560,000 in industrial revenue bonds. MSAP is an economic development program. Because interest payable on bonds issued under MSAP is lower than the prevailing commercial rate for private borrowers, the program provides the businesses benefited by the MSAP bond issues with a competitive advantage. Smith planned to construct a warehouse with the bond proceeds and to lease it to Summit Floors for the expansion of its commercial flooring business in Scarborough.
FAME on February 18, 1986, held the public hearing on the proposed bond issue. Nemon, who operates a retail flooring business in the Scarborough area, appeared at that hearing and asserted that over 25% of Summit Floors' business was retail in nature, rendering Summit Floors ineligible to participate in MSAP under the statute establishing, the program. 10 M.R.S.A. § 1061-A(1).[1] Nemon's argument was unavailing, and FAME made a finding that the proposed project would "not result in a substantial detriment to existing business...." 10 M.R.S.A. § 1063(2)(B). FAME issued a certificate of approval for the bond issue on April 15, 1986, and an amended certificate of approval on April 29, 1986. The certificates designated Scarborough as the issuing municipality and Summit Floors as the "project user."
Pursuant to 10 M.R.S.A. § 1064(1)(C), Nemon filed a complaint in the Superior Court on July 2, 1986, naming as defendants FAME, Summit Floors, and the Town of Scarborough. The complaint asked the *1312 court to "enjoin" the approval issued by FAME on the ground that it was "arbitrary, capricious and unreasonable, discriminatory and unlawful." On August 4, 1986, Summit Floors and the Town of Scarborough jointly filed a motion for summary judgment, contending that Nemon's complaint was untimely under 5 M.R.S.A. § 11002(3) (1979). Their accompanying memorandum noted without argument and without citation to any authority that Smith had not been made a party to the action. Nemon's response was to send letters to the court, one dated August 6, 1986, and a second dated August 18, 1986, pointing out that he had taken his appeal under 10 M.R. S.A. § 1064, according to the terms of which his complaint was timely.
The Superior Court on September 4, 1986, held a hearing on the motion for summary judgment. Neither Nemon nor any attorney for Nemon attended that hearing. Summit Floors and the Town of Scarborough repeated their argument that Nemon had failed to file his complaint in timely fashion and elaborated upon their memorandum noting the nonjoinder of Smith, labeling him an "indispensable party." They also contended for the first time that Nemon's complaint failed to state a cause of action against the Town of Scarborough. At the conclusion of that hearing, the court granted summary judgment for defendants, declaring that Nemon was not entitled to relief.
Although it is impossible from the record to determine with any certainty the basis of the Superior Court's decision,[2] defendants contend on appeal that that decision is defensible for three reasons: (1) Nemon filed his complaint beyond the allowable time; (2) Nemon's failure to join Smith as a defendant was fatal; and (3) Nemon failed to state a claim for relief against the Town of Scarborough.[3] We find no merit in any of those contentions. Initially, however, we must address an argument, made by defendants for the first time on appeal, that Nemon lacks standing to challenge FAME's approval of the MSAP financing for Summit Floors.
1. Nemon's standing to contest the certificate of approval
We will entertain a question of standing at any time. See Smith v. All-state Insurance Co., 483 A.2d 344, 346 (Me.1984). Nonetheless, that question need not long detain us here. Nemon was a party to the proceedings before FAME, "a necessary element of standing" to obtain direct judicial review of agency action. Anderson v. Commissioner of Department of Human Services, 489 A.2d 1094, 1097 n. 6 (Me.1985). Nemon is a competitor of Summit Floors, and Nemon's complaint can, in view of Nemon's contentions at the public hearing on the bond issue, be read to allege: 1) that FAME had violated 10 M.R.S.A. § 1061-A by approving a project for a business that was over 25% retail in nature; and 2) that the approved *1313 project would have a substantially detrimental impact on Nemon's already existing business in violation of 10 M.R.S.A. § 1063(2)(B). Admittedly conclusory and nonspecific, those allegations "are minimally sufficient to withstand a motion to dismiss the petition based on standing alone." Hammond Lumber Co. v. Finance Authority of Maine, 521 A.2d 283, 287 (Me.1987). As a business competitor of Summit Floors, Nemon has standing to challenge the certificate of approval issued by FAME for a bond issue that would provide a competitive advantage to Summit Floors. Id.
2. The timeliness of Nemon's complaint
Nemon's complaint was timely under 10 M.R.S.A. § 1064 and Rule 80C. By Rule 80C(b) the time period specified by the Administrative Procedure Act (5 M.R.S.A. § 11002(3)), namely, not more than 40 days after final agency action, will generally be the time for the filing of an 80C complaint. However, Rule 80C(a) makes an exception wherever another statute provides a different time period.[4] The MSAP statute provides exactly such a different time period; section 1064 thereof measures the time for seeking review as follows:
Any action or proceeding in any court to set aside a ... certificate of approval or to obtain relief upon the grounds that the... certificate of approval was improperly adopted, was adopted for unauthorized purposes or is otherwise invalid for any reason, must be started within 30 days after the date of the publication [of a notice of the intent of the municipality to issue the securities in the state newspaper and in a newspaper of general circulation in the municipality].
10 M.R.S.A. § 1064(1)(C). Nemon filed his complaint well before the expiration of the time period set forth in the MSAP statute. The Town of Scarborough published a notice of its intent to issue the MSAP bonds in the Portland Press Herald on June 10, 1986. Nemon filed his complaint on July 2, 1986, 22 days after the publication and 8 days before the expiration of the statutory period for filing.
3. The failure to join Smith as a defendant
Summit Floors and the Town of Scarborough contend that Smith was an "indispensable party" to Nemon's action, M.R.Civ.P. 19(b), and that Nemon's failure to name Smith as a defendant by itself justified the summary judgment. That highly formalistic argument is completely without merit. Smith was the sole principal of Summit Floors. Summit Floors, which may fairly be called Smith's corporate alter ego and which is actively participating as a named party defendant, cannot be heard to argue that Nemon's failure to join Smith justified summary judgment. Even assuming that Smith should have been joined, the Superior Court failed to fulfill its duty to "order that he be made a party." M.R.Civ.P. 19(a). A litigant's failure to join a necessary party does not result in a dismissal "if that person can be made a party to the action. If joinder is feasible, the court must order it; the court has no discretion at this point because of the mandatory language of the rule." 7 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure § 1611, at 161-66 (1986) (discussing Fed.R.Civ.P. 19(a), which is substantially the same as M.R.Civ.P. 19(a)). In the circumstances of this case, Summit Floors and the other defendants gain nothing from the Superior Court's failure to order Smith to be formally named as a party defendant.
4. The claim against the Town of Scarborough
Finally, we reject the contention that Nemon's complaint fails to state a claim against the Town of Scarborough. Nemon's complaint asked for judicial review of FAME's approval of an MSAP bond issue by the Town. The only effect of the relief requested by Nemon would *1314 have been to reverse that approval of the Town's proposed bond issue. The complaint's identification of the challenged agency action and of the relief sought sufficed to give the Town fair notice of the claim against it. See Vahlsing Christina Corp. v. Stanley, 487 A.2d 264, 267 (Me. 1985). Had the Town truly felt that Nemon's complaint when served upon it left it in any doubt as to what Nemon was seeking against it, the Town could have filed a motion for a more definite statement pursuant to M.R.Civ.P. 12(e). Under the modern concept of simplified pleading, the complaint, while inartfully drafted, satisfied the requirements of M.R.Civ.P. 8(a) to make "a short and plain statement of [Nemon's] claim." Nothing more was required.
The entry is:
Summary judgment for defendants vacated.
Remanded for further proceedings consistent with the opinion herein.
All concurring.
NOTES
[1] 10 M.R.S.A. § 1061-A(1) (Supp.1986) provides in pertinent part: "A municipality may not use proceeds of its revenue obligation securities to provide financial assistance for a project the principal element of which, as determined by the authority, is one or more stores primarily used in making retail sales of consumer goods for household use to customers who personally visit the stores to obtain the goods...." FAME has specifically defined a retail store as follows: "A project is a retail store if 25% or more of the proceeds of the securities is intended to be used for the retail sale of goods or merchandise directly to individual consumers who visit the premises and make purchases of such goods or merchandise." Rule of Finance Auth. of Maine, ch. 201, Municipal Sec. Approval Program, § 1(B) (1984).
[2] In his written order directing entry of judgment "that the Plaintiff is not entitled to relief," the Superior Court justice stated that he did so "for the reasons stated on the record." The transcript of the motion hearing, however, reveals no articulated rationale, but only the following cryptic statement by the justice: "I think procedurally this case has some problems. Substantively I think it has some problems, too." From the record we cannot discern the ground or grounds on which the justice based his decision. Such a "shortcut" hampers appellate review and in the end adds to, rather than reduces, the delays and costs of litigation.
[3] Summary judgment is not an appropriate procedural route for deciding the merits of judicial review of administrative action under M.R.Civ.P. 80C. Except where additional evidence is ordered under Rule 80C(e), the Superior Court's function on such review is not that of a factfinder, but rather that of an appellate tribunal reviewing for legal error the record made before the administrative agency. See M.R.Civ.P. 80C(d); 5 M.R.S.A. § 11006 (1979 & Supp.1986). An 80C case proceeds to final decision in the Superior Court on an automatic schedule of briefing and oral argument set out in the rule. See M.R.Civ.P. 80C(g), (l). That schedule was not followed in this case; and, therefore, even though the administrative record had been filed before the Superior Court entered judgment, the court did not rule on the merits of Nemon's attack on FAME's certificate of approval. Defendants' three contentions would have been more appropriately the subject of motions to dismiss under M.R.Civ.P. 12(b)(1), (7), and (6), respectively.
[4] In pertinent part Rule 80C(a) states:
A review of final agency action ... shall be governed by these Rules of Civil Procedure as modified by this rule, except to the extent inconsistent with the provisions of a statute. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535561/ | 102 Pa. Commw. 422 (1987)
520 A.2d 131
Commonwealth of Pennsylvania, Department of Transportation, Bureau of Driver Licensing, Appellant
v.
Joseph La Salle, Appellee.
No. 1648 C.D. 1984.
Commonwealth Court of Pennsylvania.
Submitted on briefs October 23, 1986.
January 22, 1987.
Submitted on briefs October 23, 1986, to President Judge CRUMLISH, JR., Judge COLINS, and Senior Judge BLATT, sitting as a panel of three.
Harold H. Cramer, Assistant Counsel, with him, Spencer A. Manthorpe, Chief Counsel, and Jay C. Waldman, General Counsel, for appellant.
Randall C. Flager, Groen, Goldberg & Rubenstone, for appellee.
*423 OPINION BY JUDGE COLINS, January 22, 1987:
The Department of Transportation, Bureau of Driver Licensing (DOT) appeals a Philadelphia County Common Pleas Court order reversing a one-year license suspension imposed upon Joseph La Salle (appellee) for refusing to submit to a blood alcohol test in violation of Section 1547(b) of the Vehicle Code (Code), 75 Pa. C. S. §1547(b). We reverse.[1]
Preliminarily, we note that an opinion in this matter was previously filed on December 11, 1986. The appellee had filed no brief as of the date of the opinion's release. However, on December 11, 1986, an attorney recently retained by appellee filed a request that he be able to submit a brief on his client's behalf. In the interests of justice, we withdrew the opinion and allowed appellee to submit a brief in order to consider all arguments which appellee might advance.
The facts of the case are as follows. A police officer was called to the scene of an accident on February 19, 1984. Upon arrival, he discovered that appellee's vehicle had been struck head-on by an oncoming vehicle which crossed the center of the roadway. During an investigation of the accident, the officer detected an odor of alcohol on appellee's breath and, additionally, noticed that appellee had difficulty walking and staggered as he exited his vehicle. At that time, appellee was placed under arrest for driving while intoxicated. Since appellee was being transported to a hospital for treatment of his injuries, the officer requested that appellee submit to a chemical blood alcohol test. Before the trial court, the officer testified that appellee initially agreed to the *424 chemical test; however, once he arrived at the hospital, he stated that the "test would not be in his best interest" and refused the test. By contrast, appellee testified that he remembered nothing of any substance following the collision and, specifically, that he remembered neither consenting nor refusing to take the test. The trial court held that it believed that appellee was unable to consciously refuse or consent to take the test as a result of injuries he sustained in the accident.
On appeal, DOT contends that the trial court erred in concluding that appellee had met his burden of demonstrating that his refusal to submit to a chemical test was not knowing and conscious due to the injuries he sustained. We agree.
Where the Commonwealth has proven that the driver failed to submit to a blood alcohol test, the burden shifts to the driver to prove by competent evidence that he was physically unable to take the test or not capable of making a knowing and conscious refusal. Department of Transportation, Bureau of Traffic Safety v. Struzzeri, 95 Pa. Commw. 12, 504 A.2d 961 (1986). Although the evidence indicates that appellee did, indeed, sustain some injuries as a result of the accident, his behavior did not indicate that he was unable to make a knowing and conscious refusal. This Court has previously stated:
[N]o medical testimony as to whether the appellee suffered a concussion or as to what effects a severe blow to appellee's head would have had on him was introduced. We note that a driver's simple declaration that he is physically unable to perform a chemical test, without support of medical proof of his incapacity, will not justify a refusal.
Department of Transportation, Bureau of Traffic Safety v. Dauer, 52 Pa. Commw. 571, 574-575, 416 *425 A.2d 113, 115 (1980) (citations omitted). Therefore, in accordance with Struzzeri and Dauer, appellee's incapacity defense must be supported by competent medical evidence, since he suffered no obvious inability.
Appellee cites Department of Transportation, Bureau of Traffic Safety v. Day, 93 Pa. Commw. 49, 500 A.2d 214 (1985) in support of the proposition that medical evidence is not a per se requirement and that each case must be determined on an individual basis. Day is totally inapposite here. In Day, there was medical evidence of record that the driver had suffered multiple injuries, including: a broken jaw, severe facial lacerations, a broken arm, an injured leg, and blows to the back of the head. Although there was no expert testimony that these injuries rendered the driver incapable of making a knowing and conscious refusal, the Court concluded this, due to the massive injuries which had been proven.
Here, however, there was no medical evidence of record that petitioner had even suffered a blow to the head, as he claimed. Furthermore, even if petitioner had produced medical evidence that he had sustained the injuries he alleged, those injuries are not comparable to the serious injuries sustained by the driver in Day and thus, there would be no basis to infer petitioner's incapacity. All that petitioner produced in the instant case was his and his wife's self-serving testimony that he was incapacitated. Such testimony, standing alone, is insufficient to support an incapacity defense.
Since appellee in the instant matter was required to have produced medical evidence and he produced none, we hold that the trial court erred in sustaining the appeal.
Accordingly, we reverse the decision of the Court of Common Pleas and reinstate the one-year license suspension.
*426 ORDER
AND NOW, this 22nd day of January, 1987, the order of the Court of Common Pleas of Philadelphia County in the above-captioned matter is reversed. The one-year suspension of appellee's driving privileges imposed by the Department of Transportation is reinstated.
NOTES
[1] Our scope of review of a common pleas court decision in a license suspension case is limited to determining whether the court made findings of fact unsupported by substantial evidence, committed an error of law, or abused its discretion. Waigand v. Commonwealth, 68 Pa. Commw. 541, 449 A.2d 862 (1982). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535879/ | 114 B.R. 310 (1990)
In re Virgil W. HEATH, Debtor.
AMERICAN GENERAL FINANCE, INC., f/k/a Creditthrift of America, Inc., Plaintiff,
v.
Virgil W. HEATH, Defendant.
Bankruptcy No. A89-02050-JB, Adv. No. 89-0284A.
United States Bankruptcy Court, N.D. Georgia, Atlanta Division.
March 12, 1990.
Kirby G. Bailey, The Bailey Law Offices, P.C., Decatur, Ga., for plaintiff.
Thomas L. Washburn, III, Atlanta, Ga., for defendant.
ORDER
JOYCE BIHARY, Bankruptcy Judge.
This adversary proceeding involving a claim objecting to the dischargeability of a particular debt is before the court on cross motions for summary judgment. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(I). The defendant is entitled to a summary judgment on the plaintiff's § 523(a)(4) claim, and the viability of the § 523(a)(6) claim will depend on whether the § 523(a)(6) claim can relate back to the filing of the original complaint.
Plaintiff American General Finance, Inc., f/k/a Creditthrift of America, Inc. filed a complaint against defendant-debtor Virgil W. Heath on May 30, 1989, the last day for filing complaints to determine dischargeability of a debt pursuant to 11 U.S.C. § 523(c). The complaint alleges that defendant pledged a boat and certain automobiles to plaintiff as collateral for loans and that defendant disposed of some or all of the collateral without plaintiff's permission. The complaint alleges that the disposition *311 of the collateral amounts to an act which is nondischargeable under 11 U.S.C. § 523(a)(4).
On January 8, 1990, plaintiff filed a motion for summary judgment, contending that the debt with regard to "two items of collateral, a 1933 Plymouth, and a 1961 Mercedes" should be declared nondischargeable. In the brief accompanying the motion, plaintiff contends that the debt should be declared nondischargeable pursuant to both § 523(a)(4) and § 523(a)(6) of the Bankruptcy Code. Defendant filed his brief in opposition to plaintiff's motion for summary judgment and his own motion for summary judgment.
The court has carefully reviewed the affidavits submitted by the parties.[1] While defendant admits that he is indebted to plaintiff on certain loans for which he pledged a 1933 Plymouth and a 1961 Mercedes, there are a number of factual disputes. Defendant's affidavit is to the effect that he traded cars for a hobby and for profit, that plaintiff allowed him to exchange collateral freely, that he was never required to obtain consent before trading or disposing of collateral, and that Roger Durham, manager of plaintiff's Jonesboro office, had actual knowledge of the trade of the 1933 Plymouth. Defendant also alleges that the value of the collateral substituted for the Plymouth and the Mercedes was equal to or exceeded the sums owed to plaintiff. Plaintiff, on the other hand, argues that the value of the collateral substituted for the Plymouth and the Mercedes was much less than the sums owed, that Roger Durham never agreed to a swap of collateral, and that every time there was an exchange of collateral there were new loan papers executed. Thus, there is a dispute between the parties' description of their business dealings and their account of these transactions. These factual disputes prevent the granting of plaintiff's motion for summary judgment.
Defendant's motion for summary judgment is based on several grounds. Defendant argues that the facts alleged by plaintiff do not constitute a claim under § 523(a)(4) as a matter of law. Claims by secured creditors objecting to the dischargeability of their debts based on an alleged conversion of collateral securing a loan are typically brought under § 523(a)(6), not under § 523(a)(4). See, e.g. United Bank of Southgate v. Nelson (In re Nelson), 35 B.R. 766, 768 (N.D.Ill.1983); Pioneer Bank & Trust Co. v. Scotella (In re Scotella), 18 B.R. 975, 977 (Bankr.N.D. Ill.1982); People's Savings Bank of Brockton v. Cardillo (In re Cardillo), 39 B.R. 548, 550 (Bankr.D.Mass.1984). Section 523(a)(4) of the Bankruptcy Code excepts from discharge any debt "for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny." 11 U.S.C. § 523(a)(4). The relationship between plaintiff and defendant in this case is a debtor-creditor relationship, and there are no facts asserted by plaintiff upon which the court could find a fiduciary relationship. See Kraemer v. Crook, 94 B.R. 207 (N.D.Ga.1988), aff'd, 873 F.2d 1406 (11th Cir.1989). (In Kraemer, the court noted that the requisite trust on which the fiduciary relationship relies must be an express or technical trust.) Thus, plaintiff cannot prevail on any claim that the debt is for "fraud or defalcation while acting in a fiduciary capacity".
Defendant properly contends that plaintiff's allegations, even if true, do not constitute embezzlement or larceny under § 523(a)(4). Larceny requires the unlawful taking of another's property, and embezzlement involves the appropriation or conversion of another's property where the property was legally in the offending party's possession. Here, it is undisputed that the automobiles were owned by defendant subject to plaintiff's security interest. Defendant *312 was in lawful possession of the automobiles and plaintiff's security interest does not give plaintiff an absolute ownership interest nor does it defeat defendant's ownership interest. Since the property at issue belonged to defendant and was not property of another, the debt here could not be for larceny or embezzlement. First Nat'l Bank of Fayetteville, Arkansas v. Phillips (In re Phillips), 882 F.2d 302, 304-305 (8th Cir.1989). Accordingly, defendant is entitled to a summary judgment on the plaintiff's claim under § 523(a)(4).
Defendant also urges the court to dismiss any claim under § 523(a)(6), arguing that plaintiff has abandoned its claim under § 523(a)(6) by failing to assert it until filing a motion for summary judgment. Bankruptcy Rule 4007(c) requires that "[a] complaint to determine the dischargeability of any debt pursuant to § 523(c) of the Code shall be filed not later than 60 days following the first date set for the meeting of creditors held pursuant to § 341(a)." The date set for the first meeting of creditors was March 29, 1989, and the sixty day deadline was May 30, 1989. The original complaint asserting a claim under § 523(a)(4) was timely filed on May 30, 1989. Whether plaintiff can now seek relief under § 523(a)(6) requires an analysis of the law on when an amended complaint relates back to the original pleading.
An amended complaint is deemed timely filed if it relates back to the date of the filing of the original complaint which was timely. The amended complaint will relate back if the claims asserted in the amended complaint "arose out of the conduct, transaction or occurrence set forth or attempted to be set forth" in the original complaint. Fed.R.Civ.P. 15(c). 163rd St. and Jamaica Ave. Mgmt. Co. v. Hussain (In re Hussain), 54 B.R. 755, 759 (Bankr.E.D.N.Y. 1985); Framingham UAW Credit Union v. Kelley (In re Kelley), 46 B.R. 63, 67 (Bankr.E.D.Va.1985). In considering whether to allow leave to amend the original complaint, "[p]rejudice to the opposing party is the most important factor considered by the courts in deciding whether leave to amend should be granted." Citizens Fidelity Bank and Trust Co. v. Wahl (In re Wahl), 28 B.R. 688 (Bankr.W.D.Ky. 1983) (citing Foman v. Davis, 371 U.S. 178, 83 S. Ct. 227, 9 L. Ed. 2d 222 (1962)).
Plaintiff has never sought leave to amend the complaint to add a claim under § 523(a)(6), and the parties have not addressed the test of relation back in their briefs. Accordingly, plaintiff has ten (10) days from the entry of this Order in which to file a motion for leave to amend the complaint under Bankruptcy Rule 7015 and defendant will be given ten (10) days to file any response in opposition to the motion. If plaintiff does not file such a motion, then defendant's motion for summary judgment on plaintiff's § 523(a)(6) claim will be granted.
In accordance with the above reasoning, plaintiff's motion for summary judgment is DENIED; defendant's motion for summary judgment on plaintiff's claim under § 523(a)(4) is GRANTED; and the court's ruling on defendant's motion for summary judgment on plaintiff's § 523(a)(6) claim is deferred until the parties properly address whether the complaint can be amended at this time to add a claim under § 523(a)(6).
IT IS SO ORDERED.
NOTES
[1] While the plaintiffs brief and Statement of Material Facts cite to a deposition of defendant, Virgil W. Heath, the court has checked the court dockets and files in both the main Chapter 7 case and this adversary proceeding and finds that no deposition has been filed for the court to review. (See LR 225-3(b)(1), NDGa., incorporated by reference in BLR 705-2, NDGa., which requires the custodial party to file the deposition with the filing of the motion referring to the deposition.) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535941/ | 737 A.2d 897 (1999)
In re Appeal of Max E. JEWELL and Judith Belyea.
Town of Hartford
v.
Max E. Jewell and Judith Belyea, d/b/a Jewell Transport and Evergreen Recycling.
No. 98-092.
Supreme Court of Vermont.
July 13, 1999.
*898 Present AMESTOY, C.J., and DOOLEY, MORSE, JOHNSON and SKOGLUND, JJ.
ENTRY ORDER
The Town of Hartford appeals from an environmental court decision and two postjudgment orders, which involve an appeal by Max Jewell and Judith Belyea, permittees, from a decision of the zoning administrator of zoning violations and from the Town's enforcement action. The Town contends that the trial court erred by: (1) modifying its original decision to allow sorting of metal recyclable material outside the bunker in violation of the 1994 permit, and (2) denying the Town's request for fines. We affirm.
Permittees own property in the Town of Hartford where they operate a trucking business and a recycling business. In 1994, permittees applied for and received a permit under the town zoning regulations to conduct their businesses. The relevant permit provisions provide:
12. The northeast portion of the lot is proposed to be used for the selection and storage of logs, tires, ferrous and non-ferrous metals.
13. Logs will sorted to grade in the sorting area....
15. Tires would be stored in the selecting/storage area....
16. Ferrous and non-ferrous metals would be sorted and stored in the selecting/storage area. The metals would then be baled inside in the recycling area, then shipped.
These provisions identify three areas: (1) the sorting area, (2) the selecting/storage area, also called "the bunker," and (3) the recycling area.
On November 16, 1995, the zoning administrator issued a notice of violation of the 1994 permit. Permittees appealed to *899 the zoning board of adjustment, which upheld the notice of violation. Permittees appealed further to the environmental court. The Town also filed a complaint for enforcement of the decision of the zoning board of adjustment, requesting that the court impose fines for each day of violation.
The environmental court consolidated the two cases. It found violations of several 1994 permit conditions and ordered the permittees to bring their operation into compliance with their permit within fifteen days, except for changing the size of the noncomplying bunker. The court further ordered permittees to submit a noise abatement plan to the zoning board of adjustment within forty-five days. The court declined to impose any fines on the ground that the Town had not requested them.
Both parties filed post-judgment motions. Permittees requested a clarification of the order concerning metals, claiming that they initially deposit metals in the sorting area but then move them to the bunker for selecting and storage. They contended that the court's finding that short-term accumulation of recyclables for approximately one week does not constitute "storage" as the term is used in the field of waste management contradicted its statement that "[p]ermittees must remove any metals in piles outside the bunker." In response, the court amended its decision, to state: "permittees must remove any metal in piles outside the bunker no later than eight days after they have been placed in such piles." (Emphasis added.)
The Town also filed a motion to modify the court's decision, asserting the court erred by stating that the Town had not requested fines because both the complaint and the proposed findings and conclusions included such a request. The Town requested that the court impose fines of twenty dollars per day from November 23, 1995, which was seven days after the notice of violation. The court denied the motion, stating it could not find from the evidence that violations occurred on all 466 days but granting leave to renew the motion "if supported by a list of dates of violations keyed to the evidence." The court stated that, if the motion were renewed, it would give permittees an opportunity to submit evidence on the penalty issue, and, in determining the appropriate fine, it would take into consideration the money permittees had spent on compliance. See Town of Hinesburg v. Dunkling, 167 Vt. 514, 529, 711 A.2d 1163, 1172 (1998) (no abuse of discretion to consider cost of compliance in determining amount of fine to impose).
The Town appealed. It first claims that the court erred by modifying its decision to allow piles of metal to remain outside the bunker for up to eight days. The Town maintains that this modification allows permittees to sort metal outside the bunker, which is inconsistent with the 1994 permit. In response, permittees claim that metals can be sorted only in front of the bunker and that sorting the metals outside is the purpose of making piles outside the bunker.
Sorting metals outside the bunker violates the plain language of both condition 16 of the 1994 permit and the environmental court's order, which enjoins permittees from sorting or storing metals outside the bunker. See Secretary v. Handy Family Enters., 163 Vt. 476, 481, 660 A.2d 309, 312 (1995) (ordinarily we rely on plain meaning of permit conditions because we presume they indicate underlying intent). Short-term accumulation of metals is not "storage" as that term is generally used in the field of solid waste; thus, short-term accumulation of metals outside the bunker does not violate the 1994 permit or the order here on appeal. We find no error in the trial court's order. It does not, however, allow any sorting of metal outside the bunker.
Next, the Town argues that the court erred by not imposing fines and by requiring the Town to provide a list of *900 dates of violations keyed to the evidence before it would consider imposing fines. According to the Town, such a list is not necessary to support the imposition of fines under 24 V.S.A. § 4444(a). The Town maintains that for the court to impose a fine for each day from the notice of violation to the court's decision, it need only present evidence demonstrating that permittees engaged in a pattern of continued violations of the 1994 permit conditions. We agree. To the extent that the trial court implied the Town must prove the permit violations continued each day, the court erred.
Section 4444(a) provides: "[e]ach day that a violation is continued shall constitute a separate offense," and violators "shall be fined not more than fifty dollars for each offense." If we accepted that the Town must prove permit violations on each day of the period for which it seeks penalties, the Town's burden of proof would be so onerous as to vitiate the statute's deterrent purpose by rendering it nearly impossible to demonstrate a continuing violation. Cf. United States v. SCM Corp., 667 F. Supp. 1110, 1124-25 (D.Md.1987) (agreeing it would be impossible for EPA to nail down proof for each day of claimed continuous emissions violation, but requiring such proof nonetheless because agency failed to use available means to avoid proof problem). We will not construe a statute in such a way that its application is at odds with its underlying purpose. See Mesa Leasing Ltd. v. City of Burlington, 169 Vt. ___, ___, 730 A.2d 1102, 1104 (1999).
Contrary to the Town's contention, the burden of proof remains with the Town, and, to establish a continuing violation, it must demonstrate more than that the permittee received notice of the permit violations and failed to cure them. We hold that the Town need not produce evidence of a continuing violation for each and every day to sustain its burden of proof but that evidence, such as that produced in this case, of periodic noise complaints by neighbors and periodic inspections by the zoning administrator disclosing unpermitted activity outside the bunker may weave a sufficient pattern of violations for the court to infer a continuing violation for some or all of the period for which the Town requests that the court impose penalties. See, e.g., State v. City of Greenville, 726 S.W.2d 162, 167 (Tex.Ct.App.1986) (evidence of continuing violation where same violation found during eleven site inspections over four-year period). We note that the number of days for which the evidence supports a continuing violation merely sets the maximum penalty available under § 4444(a). The environmental court has discretion given the purpose of the statute and the leeway it grants the court to determine the amount of fine per violation not only to balance permittee's continuing violation against its compliance costs but also to consider such factors as those specified in the Uniform Environmental Enforcement Act. See Handy Family Enters., 163 Vt. at 485-86, 660 A.2d at 314 (discussing application of factors); Agency of Natural Resources v. Godnick, 162 Vt. 588, 596-97, 652 A.2d 988, 993-94 (1994) (same).
Affirmed as to the permit modification. Reversed and remanded for consideration of penalties. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1562803/ | 758 S.W.2d 663 (1988)
Edmond Albert STAFFORD, Appellant,
v.
The STATE of Texas, Appellee.
No. 01-86-00812-CR.
Court of Appeals of Texas, Houston (1st Dist.).
August 31, 1988.
*664 Mary B. Hennessy, Houston, for appellant.
John B. Holmes, Dist. Atty., Harris County, Calvin Hartmann, Asst. Dist. Atty., for the State.
Before EVANS, C.J., and SAM BASS and DUNN, JJ.
OPINION
SAM BASS, Justice.
A jury convicted appellant of delivery of more than 28 grams of cocaine and assessed punishment at 75 years confinement and a $20,000 fine. The trial court reformed the judgment to delete the fine.
Court-appointed counsel on appeal provided this Court with what is commonly termed an "Anders brief." See Anders v. California, 386 U.S. 738, 87 S. Ct. 1396, 18 L. Ed. 2d 493 (1967). In this brief, counsel asserted that the record and history of the instant cause reflected no errors significant enough to merit briefing on appeal. Upon receiving a copy of his attorney's brief, appellant chose to exercise his right to submit a pro se petition. His lengthy brief raised several issues of importance. Indeed, the State filed a response brief that addressed each of appellant's points of error in detail. Appellant then filed an extensive supplemental brief in order to refute the arguments the State raised in its reply.
On March 17, 1987, out of concern that counsel had not sufficiently considered and analyzed the merits of appellant's cause sufficiently, this Court ordered counsel to rebrief in accordance with Tex.R.App.P. 74. Counsel failed to respond to this order and, on May 4, 1988, this Court again ordered her to rebrief appellant's cause or appear for a contempt hearing on June 7, 1988.
On May 19, 1988, counsel submitted her second brief in the instant cause. This brief's substantive body was five pages long and addressed only one point of error, viz., that appellant received ineffective assistance of counsel at trial. Upon receiving a copy of this court-ordered brief, appellant filed a motion on June 14, 1988, to dismiss court-appointed counsel and to allow him to represent himself pro se on appeal.
To date, this Court has exercised much caution and patience in its efforts to protect appellant's constitutional rights. As a result, we now have for review: (1) a pro se brief and supplemental brief filed by appellant; (2) two briefs, one court-ordered, by appellant's counsel; and (3) the State's brief.
As an initial matter, we determine that we issued our order of March 17, 1988, improvidently. Upon reflection, we are of the opinion that appellant more than adequately briefed the salient issues of the instant cause. Appellant's pro se brief is far superior in breadth and analysis than his court-appointed counsel's first brief; counsel's second brief provided nothing to further either appellant's arguments or her own previous efforts. Therefore, in the interest of justice, and in order to protect *665 appellant's constitutional rights, we withdraw our order of March 17, 1988.
The result of our March 17, 1988 order was to render court-appointed counsel's court-ordered brief the only brief available for our consideration. This is because an appellant is not allowed "hybrid representation" on appeal except in the Anders context. Hubbard v. State, 739 S.W.2d 341, 342 (Tex.Crim.App.1987); Dunn v. State, 733 S.W.2d 212, 213 n. 1 (Tex.Crim. App.1987) (and cases cited therein). By ordering counsel to rebrief, we terminated this cause's status as an Anders brief.
In returning this cause to the position that it occupied prior to our order, we return this cause to Anders status and are again empowered to consider both counsel's Anders brief and appellant's pro se efforts. Furthermore, in withdrawing our order of March 17, 1988, we render irrelevant appellant's motion to dismiss court-appointed counsel.
In his motion, appellant stated that his request to proceed pro se was based on his desire to direct this Court's attention to his own briefs, and away from those of his attorney. Because we are withdrawing our March 17, 1988 order, we are able to consider both counsel's initial Anders brief and appellant's two pro se briefs; appellant's motion, were it granted, would do little more than interfere with the orderly procedure of this Court, as well as with the fair administration of justice. See Hubbard v. State, 739 S.W.2d at 344-45. On this basis, we deny appellant's motion.
Moving to the merits of appellant's contentions, we observe that appellant contests the sufficiency of the evidence. Therefore, a brief description of the events that culminated in his arrest is necessary.
Officer Hughes testified that she learned from an informant that drugs were being sold at 3404 Arlington Street. Based upon this information, she asked Officer Reeves to attempt to purchase drugs at that address.
Reeves testified that on the date of the arrest, he and several other officers, including Officers Blair and Jordan conducted an undercover investigation of the suspected transactions in controlled substances at 3404 Arlington. Reeves stated that he entered the house on Arlington, noting that a silver Corvette was parked nearby. Upon entering the house, he saw appellant sitting with a woman at a "podium." The couple was selling cocaine to a man standing before the podium. Reeves testified that he requested a $50 "rock" of cocaine. Appellant received the officer's money, and the woman displayed an array of bags of cocaine, from which appellant selected his "rock."
Reeves then returned to his patrol car and discussed these events with Blair. After 15 to 20 minutes, the officers engaged in a second transaction that resulted in the arrest of the house's occupants. Appellant was not among these occupants.
Reeves testified that, after they had arrested the various persons in the house, and as they were loading these persons into the patrol cars, he saw appellant drive by the house in a silver Corvette. Although Reeves instructed some of the officers to follow the car, they were unable to detain appellant. Reeves stated that, based upon the informant's suggestion of places that appellant frequented, he and the other officers investigated several establishments in the vicinity. Ultimately, the officers found appellant at a restaurant/club and arrested him.
Officer Blair testified that he waited in the patrol car while Reeves made the two purchases. Blair stated that he never saw a silver Corvette parked near the house. The first time Blair saw the Corvette was when it passed by the house as the officers were placing the arrestees in the patrol cars. Blair further testified that he did not see appellant at the Arlington address.
In his first point of error, appellant contends that the evidence is insufficient to support a finding of guilty as to each element of the offense of delivery of cocaine. In addressing this point, we begin with a determination of the elements of "delivery of [28 grams or less of] cocaine."
Tex.Rev.Civ.Stat.Ann. art. 4476-15, sec. 1.02(7) (Vernon Supp.1988), the "Controlled Substances Act," defines "delivery" as: *666 the actual or constructive transfer from one person to another of a controlled substance ... whether or not there is an agency relationship. For purposes of this Act, it also includes an offer to sell a controlled substance....
Cocaine is a controlled substance. Id., secs. 1.02(4), 2.04(b)(4). Appellant was charged with delivery of less than 28 grams. See id., sec. 4.03(b) (delivery of 28 grams or less of cocaine is a first degree felony). Thus, there must be: (1) an intentional or knowing, (2) actual or constructive transfer (or offer to sell), (3) of a controlled substance, (4) weighing less than 28 grams. Mendoza v. State, 577 S.W.2d 240, 241 (Tex.Crim.App.1979); Martinez v. State, 640 S.W.2d 378, 380 (Tex.App.-San Antonio 1982, pet. ref'd).
The State alleged in its indictment that appellant either actually or constructively transferred cocaine to Reeves. Appellant does not contest whether the substance purchased by the officer was cocaine, whether his act was intentional or knowing, nor whether the amount involved weighed less than 28 grams. Therefore, what remains at issue is the sufficiency of the evidence regarding whether appellant transferred, either actually or constructively, cocaine to Reeves.
In assessing the evidence, we view it in the light most favorable to the verdict. Flournoy v. State, 668 S.W.2d 380, 383 (Tex.Crim.App.1984). The critical inquiry is whether, after viewing the evidence in the light most favorable to the verdict, any rational trier of fact could have found the essential elements of the crimeor, as in the instant cause, an actual or constructive transferbeyond reasonable doubt. Jackson v. Virginia, 443 U.S. 307, 319, 99 S. Ct. 2781, 2789, 61 L. Ed. 2d 560 (1979).
Appellant clearly did not engage in an actual transfer. Conaway v. State, 738 S.W.2d 692, 695 (Tex.Crim.App.1987). Addressing the question of whether appellant's acts could be found by a jury to have amounted to a constructive transfer, we note that a constructive transfer, as interpreted under the Controlled Substances Act, has been defined as:
[T]he transfer of a controlled substance either belonging to the defendant or under his direct or indirect control, by some other person or manner at the instance or direction of the defendant....
Whaley v. State, 717 S.W.2d 26, 31 (Tex. Crim.App.1986) (quoting Davila v. State, 664 S.W.2d 722, 724 (Tex.Crim.App.1984)); but see Daniels v. State, 754 S.W.2d 214, 220 (Tex.Crim.App.1988).
In addition, the State must show that, prior to the alleged delivery, the defendant/transferor had either direct or indirect control of the substance transferred, and that the defendant/transferor knew of the existence of the transferee. Id. at 221.
Keeping in mind the above definitions and requirements, we hold that the evidence was sufficient to support the jury's finding that appellant committed an act of constructive transfer. The record reflects that when Reeves entered the house for the first transaction, appellant and the woman were engaged in a sale to an unnamed person. This would indicate that appellant had indirect control of the cocaine, as would his participation in the first transaction itself. Furthermore, by taking money from Reeves when Reeves requested a "rock" of cocaine, it is clear that appellant knew who the ultimate transferee of the cocaine was.
Appellant correctly observes that his conviction rests almost entirely upon Reeves' testimony and that Hughes' testimony conflicted in its particulars with portions of Reeves'. He also correctly observes that certain defense witnesses' testimony conflicted with that of Reeves. Conflicts in the evidence, however, will not call for reversal if there is enough credible testimony to support the conviction. Losada v. State, 721 S.W.2d 305, 309 (Tex.Crim.App. 1986).
Furthermore, regardless of whether the State's witnesses gave conflicting testimony, that fact alone does not entitle an appellant to a reversal of his conviction. Brown v. State, 477 S.W.2d 617, 623 (Tex. Crim.App.1972). This is true because the jury may believe some of the witnesses and refuse to believe others, and it may accept *667 portions of the testimony of a witness while rejecting other portions of this same witness' testimony. Bowden v. State, 628 S.W.2d 782, 784 (Tex.Crim.App.1982).
Appellant's arguments are directed more toward the credibility of the witnesses, and it is well-established that the credibility of the witnesses lies in the exclusive domain of the trier of fact (in the instant case, the jury). Hilliard v. State, 170 Tex. Crim. 290, 340 S.W.2d 494 (Tex.Crim.App.1961). In short, Reeves' testimony, when viewed in the light most favorable to the verdict, is sufficient to support the jury's finding that appellant delivered cocaine to him, and therefore the evidence adduced at trial is sufficient to support the verdict.
We overrule the first point of error.
In his second and third points of error, appellant contends that the evidence is insufficient to show probable cause and, therefore, that his arrest was illegal. Appellant bases this argument on the fact that the State failed both to demonstrate how Hughes obtained her information concerning appellant from the informant, and to establish the credibility of the informant. The State argues that, because it offered no evidence obtained as a result of appellant's arrest, appellant has failed to show error requiring a reversal of his conviction. In support of its position, the State cites the well-established rule that in order for reversible error to be present, some evidence from an illegal arrest must have been admitted at trial and contributed to his conviction. Keen v. State, 626 S.W.2d 309, 314 (Tex.Crim.App.1981) (and cases cited therein).
Unfortunately, in so responding, the State misconceives appellant's argument. Appellant's second and third points of error do not refer to any searches made pursuant to his arrest at the restaurant/club. Instead, appellant is complaining about the search of the 3404 Arlington address.
We observe initially that no objection was raised at trial to Reeves' testimony concerning his initial purchase of contraband and subsequent seizure of cocaine and cash. The failure to object during trial will waive error in the admission of evidence, even if the resulting error is one of constitutional dimension and involves fourth amendment rights against wrongful search and seizure. Little v. State, 758 S.W.2d 551, 563 (Tex.Crim.App.1988) (and cases cited therein).
We further observe that, even if appellant had preserved this point for consideration on appeal, appellant has not demonstrated that he has standing to complain about the legality of the 3404 Arlington search. The Texas Court of Criminal Appeals has interpreted Rakas v. Illinois, 439 U.S. 128, 99 S. Ct. 421, 58 L. Ed. 2d 387 (1978), as holding that a defendant's privacy interest in the premises searched is a substantive element of his fourth amendment claim, and it is his burden to establish this element's existence. Wilson v. State, 692 S.W.2d 661, 669 (Tex.Crim.App.1984) (op. on reh'g).
In the instant cause, the record reflects no facts tending to show a legitimate expectation of privacy in the premises searched. The only descriptions of the house at 3404 Arlington were to the effect that it was abandoned and that nobody lived there. Appellant asserted neither a property interest nor a possessory interest in the Arlington address or the items seized therein. In short, appellant has failed to show that he has standing to complain of the officers' search of the house on Arlington. Calloway v. State, 743 S.W.2d 645, 649-51 (Tex.Crim.App.1988).
Finally, we observe that appellant could not have established any reasonable expectation of privacy because the parties at 3404 Arlington who sold the cocaine to the officers voluntarily transferred any possessory interest in that substance to the purchaser, Reeves, upon receipt of his funds. An undercover officer does not violate the fourth amendment when he engages in a business transaction freely with a member of the public. Maryland v. Macon, 472 U.S. 463, 470, 105 S. Ct. 2778, 2782, 86 L. Ed. 2d 370 (1985).
We overrule the second and third points of error.
*668 In his fourth point of error, appellant contends that his arrest was illegal because there was no showing of probable cause for his warrantless arrest. Assuming without deciding that appellant's arrest was illegal, we observe that the record reflects no evidence obtained as a result of this arrest.
An unreasonable seizure of the person, in and of itself, does not necessarily require the reversal of a judgment of conviction. Keen v. State, 626 S.W.2d at 314. In order for error to be present, some evidence resulting from the unlawful arrest must have: (1) been admitted at trial; and (2) contributed to the defendant's conviction. Id. (and cases cited therein). The State obtained no evidence as a result of appellant's arrest; therefore, appellant's point is without merit.
We overrule appellant's fourth point of error.
In his fifth point of error, appellant strenuously contends that he was denied effective assistance of counsel. Appellant lists numerous examples of ineffective assistance of counsel. In particular, appellant asserts the following:
1. Trial counsel failed to prepare sufficiently for trial, e.g., counsel failed to investigate adequately the facts of the case;
2. Trial counsel failed to move to suppress and to object to evidence (e.g., evidence resulting from the second, controlled substance transaction and arrests at 3404 Arlington, testimony of Off. Jordan concerning weapons found at this address);
3. Trial counsel failed to attack the validity of the complaint;
4. Trial counsel failed to call a witness on behalf of appellant;
5. Trial counsel failed to object to prosecutorial misconduct;
6. Trial counsel admitted appellant's guilt in final argument and, thus, foreclosed the possibility of the jury accepting appellant's alibi defense;
7. Trial counsel failed to investigate the validity of appellant's prior convictions, alleged for enhancement purposes, and counsel erroneously advised appellant to sign a stipulation of evidence concerning these prior offenses;
8. Appellate counsel failed to obtain a complete record for this Court to consider;
9. Appellate counsel prepared an Anders brief before she had a complete record before her; and,
10. Appellate counsel failed to raise significant and obvious issues on appeal.
The law on the right to counsel is the same under the United States and Texas Constitutions. U.S. Const. amend. VI; Tex. Const. art. I, sec. 10; Hernandez v. State, 726 S.W.2d 53, 55-56 (Tex.Crim.App. 1986). The general standard of review is stated both in Strickland v. Washington, 466 U.S. 668, 687, 104 S. Ct. 2052, 2064, 80 L. Ed. 2d 674 (1984), and Ex parte Duffy, 607 S.W.2d 507, 516 (Tex.Crim.App.1980). See Stone v. State, 751 S.W.2d 579, 582 (Tex.App.-Houston [1st Dist.]) (op. on reh'g) (not yet reported). Furthermore, the same standard is used to analyze claims of ineffective assistance of trial counsel as that of appellate counsel. Schwander v. Blackburn, 750 F.2d 494, 502 (5th Cir. 1985).
Texas case law requires a two-fold showing to establish a claim of ineffective assistance: (1) an act that constitutes ineffective assistance of counsel; and (2) that the defendant suffered harm due to this ineffective assistance. Strickland v. Washington, 466 U.S. at 687, 104 S.Ct. at 2064; Ex parte Duffy, 607 S.W.2d at 516; Mercado v. State, 615 S.W.2d 225, 228 (Tex.Crim. App.1981). The final determination of counsel's effectiveness of assistance turns on the particular circumstances of each case. Mercado v. State, 615 S.W.2d at 227. We first determine whether appellant's trial counsel committed any act or acts of ineffective assistance, and then determine whether, if there are such acts, they were prejudicial to appellant, causing him to suffer harm.
A. Acts of Ineffective Assistance
1. Trial Preparation
Appellant alleges that he received ineffective assistance of counsel in that his *669 trial attorney failed to prepare adequately for trial. Appellant's specific example of this negligence is that his attorney failed to investigate the facts of the case thoroughly.
As appellant recites, a criminal defense lawyer must have a firm command of the facts of the case, as well as governing law, before he can render reasonably effective assistance to his clientin or out of the courtroom. Ex parte Duffy, 607 S.W.2d at 516. A thorough factual investigation is the foundation upon which effective assistance of counsel is built. Id. Thus, counsel has a duty to make reasonable investigations or to make a reasonable decision that makes particular investigations unnecessary. Strickland v. Washington, 466 U.S. at 691, 104 S.Ct. at 2066. Appellant's assertion that his attorney failed to investigate the facts of this case is serious, but it is unsubstantiated by affirmative facts preserved in the record.
Although "experience has taught us that in most instances where the claim of ineffective assistance of counsel is raised, the record on direct appeal is simply not in ... shape, perhaps because of the very alleged ineffectiveness below," Ex parte Duffy, 607 S.W.2d at 513, allegations of ineffective representation will be sustained only if they are firmly founded. Mercado v. State, 615 S.W.2d at 228. Appellant did not request that the trial court hold a hearing on this issue, nor did the trial court or the State suggest that an ineffectiveness hearing be held. Thus, unless appellant can demonstrate that, by virtue of its omissions and voids, the record reflects a failure to investigate, appellant's argument must fail. See, e.g., Ex parte Duffy, 607 S.W.2d at 519 ("this record glaringly reflects that trial counsel failed to advance an insanity defense or in any other way make use of psychiatric evidence available to him").
The transcript reveals that trial counsel did not file a "Brady" motiona request that the State inform the defense of exculpatory materials within its possession, see Brady v. Maryland, 373 U.S. 83, 83 S. Ct. 1194, 10 L. Ed. 2d 215 (1963), nor any other motion to discover evidence within the State's possession. In fact, counsel filed only one pretrial motion, it being a request for a continuance. This request was based upon the alleged fact that appellant had informed counsel of newly-discovered evidence in the form of three witnesses who could support appellant's alibi defense and that counsel, therefore, needed time to investigate and prepare for trial. The motion does not reveal the names of these three witnesses.
The record reflects, then, that appellant's trial counsel informed the trial court prior to trial that he was conducting an investigation about the facts of the case. Thus, although scanty, the record does not provide the firm foundation appellant must establish if he is to obtain a reversal on the basis of an unsubstantiated allegation of his counsel's failure to investigate. Mercado v. State, 615 S.W.2d at 228.
2. Motion to Suppress and Failure to Object
Appellant alleges that he received ineffective assistance of counsel in that his trial attorney failed to raise a motion to suppress and failed to object to inadmissible, irrelevant, and/or highly prejudicial evidence offered by the State. Addressing first his suppression argument, appellant contends that trial counsel should have argued that Reeves' transactions at 3404 Arlington constituted a "search and seizure," under the fourth amendment.
The failure to file a suppression motion does not constitute per se ineffective assistance of counsel. Kimmelman v. Morrison, 477 U.S. 365, 106 S. Ct. 2574, 2588, 91 L. Ed. 2d 305 (1986). Furthermore, as noted above, appellant has not established that he has standing to complain about a wrongful search or seizure; nor could he, given the facts of the instant cause. See our discussion of points two and three above; Rakas v. Illinois, 439 U.S. at 138-40, 99 S.Ct. at 427-29. Finally, and, again, as noted above, a motion to suppress would not have been appropriate. An undercover officer does not commit an illegal search and seizure by accepting an offer to do business *670 that is freely made to members of the public. Maryland v. Macon, 472 U.S. at 470, 105 S.Ct. at 2782.
Addressing appellant's alternative contention that he received ineffective assistance because his attorney failed to object to inadmissible, irrelevant, and/or highly prejudicial evidence, the record reflects that trial counsel filed a motion in limine requesting that the State not offer before the jury "evidence that the defendant has committed any offense whatsoever other than the offense specifically alleged in the indictment in this cause." The trial court granted this motion. It is important to note that this motion in no way speaks to the evidence acquired as a result of the transactions at 3404 Arlington, as well as the resulting arrests, because that evidence tended to show offenses committed by persons other than the defendant, and thus was not controlled by the motion in limine.
Furthermore, trial counsel only objected twice to the relevancy of the State's evidence regarding the facts of the second transaction and subsequent arrests. His first objection was directed only to whether the arresting officers saw appellant "speed off" in the silver Corvette. Counsel raised this objection at the tail-end of Reeves' testimony, after most of the prejudicial testimony had been entered before the jury. Thus, trial counsel failed to object to any of the State's repeated showings of prejudicial evidence concerning and/or deriving from the second transaction and subsequent arrest.
Second, trial counsel objected to testimony of Off. Jordan, regarding weapons found at 3404 Arlington, after the persons present were arrested. Counsel, however, failed to pursue this objection to a final ruling, despite the fact that when the trial court recessed the proceedings for the day, he specifically instructed both defense counsel and the State to obtain "some law" on the matter. Indeed, when the trial court asked counsel the next day if he wished to return Jordan to the stand, counsel replied, "No need, just beat it to the point where he might come back to life, Judge."
In determining whether any evidence is admissible, the court first must make a comparison of the probative value and prejudicial or inflammatory aspects, if any. Ruiz v. State, 579 S.W.2d 206, 209 (Tex. Crim.App.1979). The evidence in the instant case was both prejudicial and inflammatory in that it indicated a large quantity of drugs and weapons were seized from persons who had engaged as a team in many deliveries of controlled substances. The State did not prosecute appellant on a "parties" theory. Thus, unless this evidence had probative value that outweighed its prejudicial and inflammatory nature, it should not have been admitted. Id.
Tex.Rule of Crim.Evid. 401 states, "that `relevant evidence' means evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence." In the case of Ford v. State, 484 S.W.2d 727, 729-30 (Tex.Crim.App.1972), the Court of Criminal Appeals discussed the meaning and significance of relevancy, and therefore probativeness, when at issue is an extraneous offense being offered to prove identity:
The evidence of the other crime is offered as circumstantial evidence of the identity of the accused as the perpetrator of the principal case. That is, if it is established that the accused committed an extraneous offense, and that there is some distinguishing characteristic common both to it and the offense for which the accused is on trial, then an inference may be drawn that the accused was the person who committed the primary offense.
Id. at 729 (emphasis added). The court further observed that both the primary offense and the extraneous offense must share an element or characteristic that "marks both crimes as having been committed by the same person." Id. (emphasis added).
This language underscores the fact that an extraneous offense is admissible only when it involves the defendant on trial in the primary case. As the court noted in *671 Ford, evidence of other crimes may unduly prejudice the jury and, therefore, it must be shown to be more reliable and of greater probative value. In the instant case, the testimony and evidence conclusively established that appellant was not present during the second transaction. Thus, none of this evidence was relevant to the criminal charge against which appellant defended himself.
Contrary to the State's arguments, we do not feel that trial counsel's failure to object to these numerous references to highly prejudicial and irrelevant testimony was "trial strategy." See Ruth v. State, 522 S.W.2d 517, 519 (Tex.Crim.App.1975) (Morrison, J., concurring) ("[t]he failure to make the proper objection to clearly inadmissible evidence relating to juvenile convictions approximately 64 times during one trial could not be construed as trial strategy"). Furthermore, we think it is important to look at the quantity of this inadmissible evidence. The Court of Criminal Appeals has stated, "[a]lthough an isolated instance of a failure to object to inadmissible evidence does not necessarily render counsel ineffective," in a case in which there is not a single objection to numerous and repeated showings of irrelevant and prejudicial evidence, reversal is appropriate. Cude v. State, 588 S.W.2d 895, 898 (Tex.Crim.App.1979). We agree with appellant that trial counsel's failure to object to this evidence was an act of ineffective assistance.
3. Failure to Attack Validity of Complaint
Appellant contends that trial counsel was ineffective in his assistance because he failed to challenge the validity of the indictment. Appellant bases his argument on the fact that counsel established at trial that Hughes did not in fact sign her name at the bottom of the complaint, where a signature was entered, purporting to be her own. Appellant contends that this "forged" complaint rendered the indictment invalid and, therefore, under Baldauf v. State, 456 S.W.2d 136, 137 (Tex.Crim. App.1970), his counsel should have demanded a mistrial and that the State dismiss all charges against appellant.
Appellant's argument is entirely without merit. The name that appellant claims is a forged signature is not a signature at all, but rather an entry indicating the name of the officer who reported the arrest. Thus, we do not have a case in which the signature of the affiant, or "complainant," appears to be forged.
Furthermore, Baldauf involved a totally unrelated situation (one in which the complaint alleged the defendant drove while intoxicated on "private" property, while the information alleged that he drove while intoxicated on "public" property) and, therefore, does not apply in the instant cause. Appellant's trial counsel did not act improperly in failing to complain of an invalid complaint to the trial court.
4. Failure to Call a Witness
Appellant contends that his trial counsel committed an act of ineffective assistance when he failed to call a witness whose testimony would have strengthened appellant's alibi defense. Appellant has not pointed to any portion of the record that would indicate whether this witness would have been available to testify, nor does appellant even provide the witness' name, although appellant's reference to the record indicates the witness to have been Robert Lyles, a "businessman."
In the absence of a showing that Lyles was available to testify, and that appellant would have benefitted from his testimony, appellant's claim of ineffective assistance, based on this issue, must fail. Wilkerson v. State, 726 S.W.2d 542, 551 (Tex.Crim.App.1986); King v. State, 649 S.W.2d 42, 44 (Tex.Crim.App.1983). Although appellant may argue in his appellate brief(s) that this witness would have been available to testify and, had he done so, would have strengthened appellant's defense, mere assertions in an appellate brief, unsupported by the record, will not be accepted as fact. Vanderbilt v. State, 629 S.W.2d 709, 717 (Tex.Crim.App.1981), cert. denied, 456 U.S. 910, 102 S. Ct. 1760, 72 L. Ed. 2d 169 (1982).
*672 5. Failure to Object to Prosecutorial Misconduct
Appellant contends that his trial counsel failed to assist his defense effectively because counsel did not object to prosecutorial misconduct. Appellant asserts that the prosecutor purposefully grabbed a bag displayed in the courtroom in such a manner that its contentsgunsfell onto a table in the full view of the jury. The record reflects no such incident.
As stated above, allegations of ineffective representation will be sustained only if they are firmly founded. Mercado v. State, 615 S.W.2d at 228. The record does not reflect that this incident in fact occurred; therefore, we cannot hold that trial counsel was ineffective on this basis.
6. Admission of Appellant's Guilt in Final Argument
Appellant contends that the following excerpt from his trial counsel's final argument constituted an admission of appellant's guilt and thus foreclosed any possibility of the jury accepting appellant's alibi defense:
I've told you about the evidence that's supposed to hurt us. And since I don't have much that's going to help us except people who were here, who were there, who came here and told you they were and that they were arrested andI don't know how much weight you're going to give that. Beulah Mae said he wasn't there. Ernest said he wasn't there. There was the lady who wasn't there but who was at the restaurant, who said, "He was here with me for thirty minutes." Then here comes the police, flashing guns looking for him. They knew who they were looking for. They were looking for the money they went there to get in the first place; they just weren't slick enough to get him.
(Emphasis added.)
Appellant relies on two cases to support his argument. Miller v. State, 728 S.W.2d 133, 134-35 (Tex.App.-Houston [14th Dist.] 1987, no pet.), however, involved a much more extreme example of final argument, culminating a trial characterized by egregiously offensive references to the race of the two State's witnesses. Hutchinson v. State, 663 S.W.2d 610, 613 (Tex. App.-Houston [1st Dist.] 1983, pet. ref'd), on the other hand, is very similar to the instant case.
Hutchinson involved a conviction for delivery of a controlled substance. On appeal, the defendant complained of ineffective assistance. As this Court noted in Hutchinson, the totality of the representation is the gauge of ineffective assistance, not an isolated event at trial. Id. at 612. This Court came to the conclusion that the defendant's counsel in Hutchinson never intended to present any defense to the charges, at least not one that he seriously urged. Id. In particular, the defendant complained of his counsel's closing argument, which ran as follows, "That's the way the system works. The prosecutor brings you the evidence against him. I bring whatever evidence I have in his favor." Id. at 613. This Court observed that, in light of the events at trial, this argument had the effect of confessing his client's guilt.
Similarly, in the instant case, trial counsel's closing argument in the instant case, when considered in conjunction with the events at trial, essentially admitted the defendant's guilt. One of the many facts adduced at trial in appellant's favor was the fact that the $50 bill exchanged for cocaine in the first transactionthe transaction allegedly involving appellantwas never recovered by the police. Counsel's closing argument, rather than emphasizing that the bill was not in appellant's possession at the time of the arrest, indicated that the bill was in appellant's possession but that the police were not clever enough to find it.
Although standing alone this comment might not be harmful to appellant, in the instant cause, as was the case in Hutchinson, when this statement is considered along with the highly prejudicial testimony that was admitted without objection by the defense, it appears to have been to the great detriment of appellant's cause. We agree with appellant that trial counsel committed *673 an act of ineffective assistance when he made this comment in final argument.
7. Failure to Investigate the Validity of Prior Convictions, Alleged for Enhancement Purposes, and Advice to Sign Stipulation of Evidence Concerning Prior Offenses
Appellant contends that his trial counsel's performance was harmfully deficient in that counsel failed to notice and/or act on the fact that one of the prior convictions used as an enhancement allegation reflected that appellant had appealed. Appellant further contends that his trial counsel erred by advising him to stipulate to all prior convictions.
Regarding appellant's first contention, viz., that counsel failed to investigate the prior convictions alleged by the State for purposes of enhancement, the record neither affirmatively nor implicitly reflects any failure to investigate. Indeed, we have already determined that the record reflects no failure to investigate in general on the part of trial counsel. Therefore, for the reasons expressed above concerning trial counsel's investigation in the instant cause, appellant fails to present this Court with error requiring reversal. See Cook v. Lynaugh, 821 F.2d 1072, 1078 (5th Cir.1987) (the Constitution imposes no general, or per se, duty on counsel to investigate a defendant's prior convictions); Mercado v. State, 615 S.W.2d at 228 (allegations of ineffective representation will be sustained only if they are firmly founded); compare Ex parte Duffy, 607 S.W.2d at 519 (in which the court found that an attorney failed to prepare or investigate because of the fact that, inter alia, "this record glaringly reflects that trial counsel failed to advance an insanity defense or in any other way make use of psychiatric evidence available to him").
Furthermore, even if counsel had failed to investigate, there was no lack of finality in the two enhancement allegations. In its first enhancement, the State alleged that before the commission of the primary offense, the defendant was convicted of "felony robbery by assault" in cause number 173,264. Appellant contends that the judgment and sentence for this cause number reflect that he gave notice of appeal. Therefore, argues appellant, trial counsel erred by not putting the State to task and requiring that they demonstrate that this appeal was final. Alternatively, appellant argues, counsel should have filed a motion to quash the indictment because this enhancement allegation was incorrect.
Our examination of the record, however, reveals that appellant is confused about the cause number from which he took appeal. On June 29, 1972, appellant was convicted of three separate offenses, each with its own cause number: (1) 173,264robbery by assault; (2) 173,265assault with intent to rob; and, (3) 172,572rape. Appellant only gave notice of appeal in cause number 172,572, the rape conviction. The rape conviction, however, was not used by the State for enhancement. Appellant's complaint in this regard is therefore meritless.
Regarding appellant's second argument, viz., that counsel erroneously advised him to stipulate to the evidence of his prior convictions, the decision to stipulate to evidence of past convictions would seem to be a classic example of trial strategy. See United States v. Giangrosso, 779 F.2d 376, 380-81 (7th Cir.), cert. denied, 475 U.S. 1031, 106 S. Ct. 1237, 89 L. Ed. 2d 345 (1986), and United States v. Zylstra, 713 F.2d 1332, 1338-39 (7th Cir.), cert. denied, 464 U.S. 965, 104 S. Ct. 403, 78 L. Ed. 2d 344 (1983) (both holding that decisions to stipulate to evidence are determinations of trial strategy).
It is well-established that the mere fact that another attorney would have adopted a different trial strategy will not support a finding of ineffective assistance of counsel. Faz v. State, 510 S.W.2d 922, 926 (Tex. Crim.App.1974). Trial counsel may well have considered the situation and determined that the harm caused by allowing the State to prove appellant's five prior convictions greatly exceeded the harm caused by stipulating to their existence. Furthermore, because the two prior convictions alleged in the enhancement portion of *674 the indictment were final, appellant fails to demonstrate that trial counsel's decision in the instant case was particularly harmful because appellant was facing punishment as a habitual offender. The State clearly could establish the two prior offenses alleged in the indictment. Therefore, it was inevitable that, if convicted on the indictment as it read in its entirety, appellant would face punishment as a habitual offender. We do not hold that trial counsel was ineffective on this basis.
8. Failure to Obtain a Complete Record on Appeal
Appellant contends that his court-appointed appellate attorney was ineffective in her assistance because she failed to obtain a complete record for this Court to consider. Prior to appellant's filing his pro se brief, however, his appellate counsel filed a motion to supplement the record and provided this Court with the precise materials that appellant argues counsel was negligent in failing to obtain. Therefore, appellant's complaint about the completeness of the record is moot. See Merkel v. State, 439 S.W.2d 838, 839 (Tex.Crim.App.1969) (holding that when past problem of ineffective assistance on appeal is corrected, issues about that ineffective assistance are rendered moot).
9. & 10. Preparing an Anders Brief Before Obtaining a Complete Record and Failure to Raise Significant and Obvious Issues on Appeal
If nothing else, the length of the opinion so far should indicate the numerous failures on the part of appellate counsel. Appellant has raised several issues on appeal that have required serious consideration and extensive analysis.
In Texas, defendants have a constitutional right to counsel on appeal when they are pursuing their first appeal of right. Ex parte Lopez, 745 S.W.2d 29, 30 (Tex.Crim. App.1988). The right to appellate level counsel also comprehends the right to effective assistance of counsel. Evitts v. Lucey, 469 U.S. 387, 105 S. Ct. 830, 837, 83 L. Ed. 2d 821 (1985); Ward v. State, 740 S.W.2d 794, 799 (Tex.Crim.App.1987).
Appellate counsel has a duty to raise every non-frivolous issue. Jones v. Barnes, 463 U.S. 745, 751, 103 S. Ct. 3308, 3312, 77 L. Ed. 2d 987 (1983). This does not mean, however, that counsel is required to raise every issue the record reflects. The right to effective assistance of appellate counsel does not require an attorney to advance every conceivable argument on appeal that the trial record supports. Gray v. Greer, 800 F.2d 644, 647 (7th Cir.1986). Appellate counsel is required, however, to raise in his Anders brief "anything that might arguably support appeal." Anders v. California, 386 U.S. at 744, 87 S.Ct. at 1400.
The Anders brief appellate counsel submitted in the instant cause failed to address any issue discussed by this Court beyond a bare allusion to the question of evidentiary sufficiency. Although counsel did refer to the failure of the trial court to include in the charge an application paragraph on the law of parties, she did not pursue the significance of this fact. For example, because there was no attempt by the State to pursue a parties theory of culpability, the evidence of the second transaction at 3404 Arlington and the ensuing arrests was entirely irrelevant. Clearly, then, appellate counsel was deficient in her duties to appellant.
B. Whether the Above-Enumerated Acts of Ineffective Assistance Were Prejudicial to Appellant
Had appellant's trial counsel timely objected to the relevancy of the evidence obtained during and after the second controlled substance transaction, and had his objection been sustained, the only evidence before the jury tying appellant to the initial transaction at 3404 Arlington would have been that of Reeves, the eyewitness, and that of Ernest Hill, one of the persons arrested after the second transaction.
Reeves testified that in the early evening, in March, in a house without electricity and illuminated only by two candles, he briefly encountered appellant. He later *675 saw appellant drive by this address in a silver Corvette. The officers thereafter arrested appellant at a nightclub.
Hill, called by the defense, testified that appellant was "in and out" of the house at 3404 Arlington. Hill, however, qualified this statement by adding that appellant was not present when the officers were present. All other witnesses testified that they either did not see appellant at the house or that appellant unequivocably was not there. Thus, the trial was reduced to a swearing match.
In light of this testimony adduced at trial, we hold that there is a reasonable possibility that this evidence contributed to appellant's conviction. White v. State, 729 S.W.2d 737, 742 (Tex.Crim.App.1987). We hold further that, compounding the harm caused by the admission of the detrimental evidence, discussed above, was trial counsel's final argument, in which he alluded to the culpability of his client. The only defense counsel raised at trial was that of alibi. Thus, it was essential for counsel to convey to the jury the fact that appellant was in no way involved in the drug transactions at 3404 Arlingtonthat he was elsewhere. By implying that appellant had in his possession the $50 bill from the first transaction but that the police were not "slick enough" to locate the bill, counsel seriously undermined appellant's only defense.
Finally, it is clear that counsel on appeal has failed to adequately fulfill her duties to appellant. Counsel failed even to refer to the errors in the admission of prejudicial evidence and in trial counsel's closing argument in her Anders brief. In light of the errors committed by appellant's counsel at trial, which on their own would be sufficient to require a reversal and new trial, and the errors committed by appellant's counsel on appeal, we hold that appellant has shown harm resulting from the acts of ineffective assistance committed in the instant cause.
We sustain appellant's fifth point of error.
In his sixth and final point of error, appellant contends that the evidence is insufficient to support the enhancement allegations in the indictment. Those allegations, however, apparently were abandoned prior to the submission of the charge to the jury because the verdict reflects no provision for these allegations and the range of punishment was that applicable to appellant's unenhanced offense. Controlled Substances Act, secs. 4.01(b)(1) and 4.03(a), (b).
Addressing first appellant's complaint that the State improperly placed before the jury evidence of these prior convictions, it is well-settled that objections to the introduction of evidence concerning former convictions, alleged in the indictment, need not be considered on appeal from the conviction of the crime charged when the jury failed to find that defendant had been convicted previously. Brown v. State, 152 Tex. Crim. 39, 211 S.W.2d 234 (1948). Addressing second appellant's complaint about the sufficiency of the evidence, he has suffered no harm because the sufficiency of the evidence is to be judged according to the charge given. Benson v. State, 661 S.W.2d 708, 714-15 (Tex.Crim.App.1982), cert. denied, 467 U.S. 1219, 104 S. Ct. 2667, 81 L. Ed. 2d 372 (1984). The charge did not request the jury to find the enhancement allegations as true. As discussed in point of error one, the evidence was sufficient to support the charge as it read. Therefore, appellant's argument is without merit.
We overrule appellant's sixth point of error.
Therefore, based upon our holding upon point of error five, viz., that appellant's trial counsel and appellate counsel denied the appellant effective assistance of counsel, we reverse and remand for a new trial. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1467944/ | 320 F. Supp. 172 (1970)
NORTHERN STATES POWER COMPANY, Plaintiff,
v.
The STATE OF MINNESOTA, the Minnesota Pollution Control Agency and Robert Tuveson, Howard Anderson, John Borchert, Milton J. Fellows, Steve J. Gadler, Mace Harris, Homer Luick, Mrs. R. C. Nelson and F. Wayne Packard, individually and as members of the Minnesota Pollution Control Agency, and director and secretary of the Minnesota Pollution Control Agency, Defendants.
No. 3-69-Civ-185.
United States District Court, D. Minnesota, Third Division.
December 22, 1970.
*173 Edward J. Schwartzbauer, William J. Hempel, Donald E. Nelson, Minneapolis, Minn., for plaintiff.
Douglas M. Head, Atty. Gen. of Minnesota, St. Paul, Minn., Sid P. Gislason, New Ulm, Minn., and G. Robert Johnson, Minneapolis, Minn., Sp. Asst. Attys. Gen., for defendants.
MEMORANDUM & DECLARATION
DEVITT, Chief Judge.
The issue in this Declaratory Judgment Action is whether the Atomic Energy Commission's authority to regulate radioactive releases by nuclear power plants is exclusive so as to preclude state action.
The plaintiff is a public utility producing and delivering electrical power in the states of Minnesota, North Dakota, South Dakota and Wisconsin. Upon the grant of a permit from the Atomic Energy Commission (AEC) the plaintiff built an atomic energy generating plant at Monticello, Minnesota, on the Mississippi River 40 miles north of the Twin Cities of Minneapolis and St. Paul. Preliminary testing of the plant is under way. Plaintiff's application for an operating license from the AEC is pending.
The defendants are the State of Minnesota, its Pollution Control Agency, and the members and Executive Director of the Agency. Acting pursuant to a Minnesota law, the Pollution Control Agency (PCA) has issued plaintiff a permit to discharge cooling water and liquid waste into the Mississippi River in connection with operation of the Monticello Plant, but has attached to the grant thereof certain conditions governing the discharge of radioactive waste which, plaintiff contends, are practically impossible of fulfillment, at least in the foreseeable future, and at a prohibitive and unnecessary expense, and all to the detriment of the plaintiff and the consuming public. Plaintiff asserts that Minnesota is without authority to regulate the discharge of radioactive waste because this field of regulation has been preempted by the federal government. Defendants deny this. They assert that Minnesota has the right under the Tenth Amendment to the United States Constitution to protect the health of its citizens and to regulate and prevent pollution within its borders.
Defendants threaten criminal sanctions if plaintiff does not comply with the state-prescribed conditions.
The parties have filed a 24-page stipulation of facts with 21 attached exhibits.
It is stipulated that plaintiff is engaged in interstate commerce. It serves areas in adjoining states with electrical energy and participates with other power suppliers in the operation of a "grid system" which transmits power back and forth between major power systems in the United States depending upon the consumer needs in an area. The Monticello Plant will contribute electric power to this interstate system. The Monticello Plant is being built by a California-based company, the reactor vessel was furnished by an Illinois-based supplier, and nuclear fuel elements for the plant are manufactured in North Carolina. Plaintiff serves electric power to many locally-based industries extensively engaged in interstate commerce, i. e. Minnesota Mining and Manufacturing, Honeywell, Inc., and Burlington Northern Railway Company.
It is not disputed that plaintiff has complied with all federal laws and requirements *174 of the AEC in the construction and expected operation of the Monticello Plant.
The parties have agreed that the PCA requirements governing radioactive discharge from the Monticello Plant cover the same area as, and are more restrictive than, those of the AEC. It is stipulated that "* * * the plant will not be able to commence operations without violating some of the provisions" of the PCA permit and that "such situation may arise before the plant reaches full capacity, and possibly during the testing period." (Stip. ¶ 11.)
A detailed description of the means by which radioactive wastes will be produced and released under the federal laws and the regulations of the AEC is set out in the stipulation. (Stip. ¶¶ 25 through 35.)
It is agreed that an attempt by plaintiff to comply with the stricter state standards would require substantial alterations in the present plant and that "* * * some of the equipment and facilities needed for the systems necessary to attempt compliance with the PCA permit would have to be designed and manufactured for the Monticello Plant * * *." (Stip. ¶ 42.)
By pretrial order No. 1 it was agreed that the adequacy or inadequacy of the federal and of the state regulations to protect the public health and safety is not in issue in this litigation.
By pretrial order No. 2, and by virtue of the fact stipulation of the parties, the court determined that there was no fact issue for determination under the pleadings.
Briefs have been lodged. The Attorneys General of seven states[1] and attorneys for certain members of the Southern Governors' Conference have filed briefs as amicus curiae in support of the position of the defendants. The parties have waived oral argument.
Jurisdiction is established. 28 U.S.C. §§ 1331, 1337. There is a justiciable controversy. Employment of the Declaratory Judgments Law, 28 U.S.C. § 2201, is appropriate.
Under Article VI, Clause 2 of the United States Constitution the laws of the United States are "the supreme law of the land" in areas subject to congressional control. The regulation of atomic energy is a proper field for congressional control in the regulation of interstate commerce (Constitution, Article I, Sec. 8, Clause 3), providing for the common defense and security (Constitution, Article I, Sec. 8, Clauses 11-14), and with respect to United States property and territory (Constitution, Article IV, Sec. 3, Clause 1). The Congress based its enactment of the Atomic Energy Law on these constitutional provisions, 42 U.S.C. § 2011 et seq.
But mere occupation of a field by the federal government does not necessarily preclude concurrent state regulation. The Congress may expressly or impliedly "preempt" the subject. It may expand or contract the scope of a state's power to regulate in an area properly subject to congressional control. Southern Pacific Co. v. Arizona ex rel. Sullivan, 325 U.S. 761, 769, 65 S. Ct. 1515, 89 L. Ed. 1915 (1945).
The question here is whether Congress has preempted the field of regulation of radioactive releases by nuclear power plants. In my view it has, and Minnesota is without authority to enforce its regulations in this field.
It should be emphasized that we are concerned here, not with the relative merits of the conflicting policies of regulation by the federal and state governments, but with the presence or absence of preemption of the field by the Congress, for as Justice Jackson has observed:
"We cannot resolve conflicts of authority by our judgment as to the wisdom or need of either conflicting policy. The compact between the states creating the Federal Government resolves *175 them as a matter of supremacy. * * *" Franklin Nat'l Bank v. People of State of New York, 347 U.S. 373, 74 S. Ct. 550, 554, 98 L. Ed. 767 (1954).
That Congress has exercised its constitutional power to preempt the field of regulation of radioactive releases by nuclear power plants is made clear by a reading of the federal statutes, the reports of the congressional committees which accompanied their enactment, and by an appraisal of the practical construction which those statutes have received in the administration of the law. The conclusion is reinforced by court decisions, by opinions of the Attorneys General of two states, and by the opinion of the General Counsel of the Atomic Energy Commission. Additionally, and assuming the absence of express congressional intent, an examination of the Atomic Energy Act of 1954 and of its 1959 Amendment in the light of decisions of the United States Supreme Court leads to a finding of an implied congressional intent to exert federal occupancy of the field to the exclusion of state authority.
The Atomic Energy Act of 1954 did not provide any clear expression of congressional intent on the subject of preemption, but the 1959 amendment did. It was enacted
"to clarify the respective responsibilities * * * of the States and the Commission with respect to the regulation of byproduct, source, and special nuclear materials." 42 U.S.C. § 2021 (a) (1).
and
"to promote an orderly regulatory pattern between the Commission and State governments with respect to nuclear development and use and regulation of byproduct, source, and special nuclear materials." 42 U.S.C. § 2021 (a) (3).
After providing in § 274(b), now 42 U.S.C. § 2021(b), that the AEC may enter into agreements ceding to the states authority over "byproduct materials, source materials" and/or "special nuclear materials in quantities not sufficient to form a critical mass," Congress further provided in § 2021(c) that
"No agreement entered into pursuant to subsection (b) of this section shall provide for discontinuance of any authority and the Commission shall retain authority and responsibility * * [with respect to] * * * construction and operation of any production or utilization facility."
The Committee report which accompanied the bill said:
"* * *
"(b) The bill applies to some, but not all, atomic energy activities now regulated exclusively by AEC. It applies principally to radioisotopes, whose use and present licensing by AEC is widespread, but whose hazard is local and limited. Moreover, the radiation hazard from radioisotopes has similarities to that from other radiation sources already regulated by Statessuch as X-ray machines and radium. Licensing and regulation of more dangerous activitiessuch as nuclear reactors will remain the exclusive responsibility of the Commission. Thus, a line is drawn between types of activities deemed appropriate for regulation by individual States at this time, and other activities where continued AEC regulation is necessary.
"* * *
"3. It is not intended to leave any room for the exercise of dual or concurrent jurisdiction by States to control radiation hazards by regulating byproduct, source, or special nuclear materials. The intent is to have the material regulated and licensed either by the Commission, or by the State and local governments, but not by both. The bill is intended to encourage States to increase their knowledge and capacities, and to enter into agreements to assume regulatory responsibilities over such materials.
"* * *
"5. The Joint Committee believes it important to emphasize that the radiation *176 standards adopted by States under the agreements of this bill should either be identical or compatible with those of the Federal Government. For this reason the committee removed the language `to the extent feasible' in subsection g. of the original AEC bill * * *. The committee recognizes the importance of the testimony before it by numerous witnesses of the dangers of conflicting, overlapping, and inconsistent standards in different jurisdictions, to the hinderance of industry and jeopardy of public safety." (Emphasis added.)
S.Rep. No. 870, 86th Cong., 1st Sess. (1959) (2 U.S.C.Cong. & Adm.News, pp. 2872, 2879 (1959)).
At the time of the enactment of the 1959 amendment Congress was aware of the beginning efforts of the State of Minnesota to regulate the field when Minnesota sought to require a permit from its State Board of Health as a condition to the construction of a nuclear reactor in the States. Selected Materials on Federal-State Cooperation in the Atomic Energy Field, 86th Cong., 1st Sess. 5-6 (March 1959).
The Congress obviously acted to clarify the potential conflict by ceding certain authority to the state through turnover agreements, but specifically retaining federal (AEC) authority over "construction and operation of any production or utilization facility," 42 U.S.C. § 2021(c). It was expressly stated in the accompanying report that licensing and regulation of nuclear reactors was to remain the exclusive responsibility of the AEC. S.Rep. No. 870, supra.
This, to me, is a "clear and manifest"[2] assertion by the Congress of the exercise of its constitutionally granted authority to preempt the field of regulation of radioactive discharges from nuclear power plants.
The administrative interpretation of the law has been that states are without authority to regulate discharge of effluents from nuclear power facilities. On May 2, 1969 the AEC, pursuant to its statutory authority, 42 U.S.C. § 2201(q), issued a regulation that
"(a) By virtue of the Atomic Energy Act of 1954, as amended, the individual States may not, in the absence of an agreement with the Atomic Energy Commission, regulate the materials described in the Act from the standpoint of radiological health and safety. Even states which have entered into agreements with the AEC lack authority to regulate the facilities described in the Act, including nuclear power plants and the discharge of effluents from such facilities, from the standpoint of radiological health and safety." 10 C.F.R. § 8.41.
Such an administrative interpretation is entitled to much weight, see cases cited in Modern Federal Practice Digest, Statutes, 217-218, and the Supreme Court has so held in preemption questions. E. g., Cloverleaf Butter Co. v. Patterson, 315 U.S. 148, 828, 62 S. Ct. 491, 86 L. Ed. 754, 1223 (1942); Mintz v. Baldwin, 289 U.S. 346, 53 S. Ct. 611, 614, 77 L. Ed. 1245 (1933).
Courts in California and in New York have held that the AEC has exclusive authority to regulate the disposal of radioactive waste. Boswell v. City of Long Beach (Cal.Super.Ct.1960), 1 CCH Atomic Energy Law Reporter § 4045; Lewis v. Alexander, 4 CCH Atomic Energy Law Reporter § 16.579.
The Attorneys General of Michigan and South Dakota have held that the regulation of radioactive hazards is preempted to the federal government.[3] The *177 General Counsel of the Atomic Energy Commission has issued a reasoned opinion to the same effect.[4] It has been adopted as a Commission Regulation. 10 C.F.R. § 8.4, supra. The staff of the Joint Committee on Atomic Energy of the United States Congress has expressed the same conclusion.[5] The Atomic Energy Committee of the New York State Bar Association has reached the same judgment, concluding that
"* * * it seems clear that Congress intended so to preempt, if not by the provisions of the 1954 Act, then, certainly by means of the Federal-state amendment in 1959. * * *" State Jurisdiction to Regulate Atomic Activities: Some Key Questions. (July 12, 1963.
Additionally legal scholars who have written on the subject conclude that Congress has preempted the whole field to the exclusion of the states except where turnover agreements are executed pursuant to 42 U.S.C. § 2021(b).[6]
In an exhaustive article in 60 Michigan Law Review[7] the authors, Estep and Adelman, after a review of the law and the federal licensing plan in the light of pertinent Supreme Court opinions on the subject of preemption, conclude that:
"* * * it seems reasonably safe to assume that the Supreme Court will hold that Congress has prevented any state or local government from requiring a person, who is licensed or otherwise authorized by the Commission, to obtain prior state or local permission to operate if the granting or denying of that permission is predicated upon an independent analysis or standards of radiation health and safety." p. 1064.
But the defendants and the amici urge that radioactive waste releases to the environment fall squarely within the traditional concept of the state police power, that under the Tenth Amendment to the United States Constitution, Minnesota has the responsibility to protect the health and safety of its citizens, that Congress has not clearly preempted the field of regulation and, absent a clear expression of preemption, the principles enunciated by the United States Supreme Court in Florida Lime and Avocado Growers, Inc. v. Paul, 373 U.S. 132, 83 S. Ct. 1210, 10 L. Ed. 2d 248 (1963) govern the disposition of the issue here.
That case involved the preemptive intent of Congress in regulating the marketing of avocados vis-a-vis a California statute which also regulated them, although by a different test and for a different purpose.
The Court held that it could not find the California statute invalid absent "an unambiguous congressional mandate" to preempt this field of regulation. Mr. Justice Brennan, speaking for the Court, said "The maturity of avocados seems to be an inherently unlikely candidate for exclusive federal regulation." 83 S.Ct. at p. 1218.
Not so here. The Congress expressed its "unambiguous mandate" to preempt the field when it enacted what is now 42 U.S.C. § 2021(c), providing that the AEC was to retain "authority and responsibility * * * [with respect to] * * * construction and operation of any production or utilization facility" (emphasis added). And while the maturity of avocados might not be a likely candidate for exclusive federal regulation, certainly the field of atomic energy is not only a likely, but a logical, candidate for exclusive federal *178 regulation as a reflection upon its magnitude and importance, an examination of its history, and a reading of the Atomic Energy Act so poignantly illustrates. Moreover, in Avocado Growers, the regulations of the state and federal government applied to different subject mattersthe federal regulation applied to production, the state regulation governed marketing of avocados. In our case the federal and state regulations seek to regulate the same field, to wit, the discharge of radioactive releases.
But, if, as urged, doubt exists as to the expressed preemptive intent of the Congress, the cannons of construction many times stated by the Supreme Court in such cases strongly favor the conclusion that the disputed field of regulation has been preempted.
Thus the admitted pervasiveness of federal supervision over the entire field of atomic energy by the statutes and regulations is a strong factor favoring a finding of preemption. Bethlehem Steel Co. v. New York State Labor Relations Bd., 330 U.S. 767, 772, 67 S. Ct. 1026, 91 L. Ed. 1234 (1947); La Crosse Telephone Corp. v. Wisconsin Employment Relations Bd., 336 U.S. 18, 69 S. Ct. 379, 93 L. Ed. 463 (1949); Garner v. Teamsters etc. Union, 346 U.S. 485, 74 S. Ct. 161, 98 L. Ed. 228 (1953); Weber v. Anheuser-Busch, Inc., 348 U.S. 468, 75 S. Ct. 480, 99 L. Ed. 546 (1955); Oregon-Washington R. & Nav. Co. v. Washington, 270 U.S. 87, 46 S. Ct. 279, 70 L. Ed. 482 (1926); Penn. R. R. Co. v. Public Service Commission, 250 U.S. 566, 40 S. Ct. 36, 63 L. Ed. 1142 (1919); Napier v. Atlantic Coast Line R. Co., 272 U.S. 605, 47 S. Ct. 207, 71 L. Ed. 432 (1926); Cloverleaf Butter Co. v. Patterson, 315 U.S. 148, 828, 62 S. Ct. 491, 86 L. Ed. 754, 1223 (1941); Hines v. Davidowitz, 312 U.S. 52, 66, 61 S. Ct. 399, 85 L. Ed. 581 (1941); and Pennsylvania v. Nelson, 350 U.S. 497, 76 S. Ct. 477, 100 L. Ed. 640 (1956).
The fact that the Congress has directed, and not merely authorized, the AEC to effect a comprehensive licensing program for atomic energy activity is a strong indication of preemptive intent. International Union, United Automobile etc. Workers v. Russell, 356 U.S. 634, 78 S. Ct. 932, 2 L. Ed. 2d 1030 (1958): Oregon-Washington R. & Nav. Co. v. Washington, supra; and Welch v. New Hampshire, 306 U.S. 79, 59 S. Ct. 438, 83 L. Ed. 500 (1939).
The fact that diverse state laws occasioning contradictory or overlapping regulations vis-a-vis federal regulations in the same field would frustrate the congressional purpose to achieve uniformity, as here, has been viewed by the Supreme Court as a factor favoring preemption. Hill v. Florida ex rel. Watson, 325 U.S. 538, 65 S. Ct. 1373, 89 L. Ed. 1782; Hines v. Davidowitz, supra; Cloverleaf Butter Co. v. Patterson, supra; Napier v. Atlantic Coast Line R. Co., supra; Amalgamated Ass'n of Street, etc., Employees v. Wisconsin Employment Relations Bd., 340 U.S. 383, 71 S. Ct. 359, 95 L. Ed. 364 (1951); and International Union of United Automobile etc. Workers v. O'Brien, 339 U.S. 454, 70 S. Ct. 781, 94 L. Ed. 978 (1950).
Several expressions of the Supreme Court in the field of labor regulations support the conclusion that state health and safety requirements at variance with, or more restrictive than, the federal requirements would be viewed by the Court as an obstacle to the achievement of the congressionally expressed objectives of the federal law and hence invalid. Hill v. Florida, supra; Automobile Workers v. O'Brien, supra; and Amalgamated Ass'n of Street, etc., Employees v. Wisconsin Employment Relations Bd., supra.
More specifically, it is likely that the Supreme Court would hold, as it did in Hill v. Florida, supra, that the attempted state regulation here would be "an obstacle to the accomplishment and execution of the full purposes and objectives of Congress" in enacting the Atomic Energy Act and thus that the Congress intended *179 to preempt the field. Hill v. Florida, 65 S. Ct. 1373 at 1375.
It may be true, as urged, that prudence dictates subscription to stricter standards against radiation hazards, such as those promulgated by the PCA, in the interest of insuring a maximum of safety for the public, but the adequacy or inadequacy of the federal and of the state regulations is not in issue here. Our province is limited to determining the legal question of preemption. The United States Congress has the power to preempt a field of activity within its constitutional authority. It has done that here. It also has the power to relinquish that authority to the states. If the exercise of federal authority in this field is inadequate or unwise, recourse lies with the AEC to raise its standards or with the Congress to relinquish its authority to the states.
I am satisfied from an examination of the statutes and of the congressional reports which accompanied their enactment that the Congress has expressly and effectively manifested its intent to preempt the disputed field of regulation; and in light of the practical construction afforded the administration of the law, the interpretation it has received from official legal authorities, the evaluation of the issue by legal scholars, and the inference to be drawn from previous decisions of the Supreme Court in those cases where it established standards for determining the implied intent of the Congress to preempt a field of regulation that, if called upon to do so, the Supreme Court of the United States would hold that the Atomic Energy Commission's authority to regulate radioactive releases by nuclear power plants is exclusive.
Under authority of 28 U.S.C. § 2201 the Court finds, and declares, that the State of Minnesota is without authority to regulate the release of radioactive discharges from plaintiff's Monticello Nuclear Power Plant, and this declaration shall have the force and effect of a final judgment.
NOTES
[1] Pennsylvania, Michigan, Maryland, Wisconsin, Vermont, Missouri and Virginia.
[2] Florida Lime and Avocado Growers, Inc. v. Paul, 373 U.S. 132, 147, 83 S. Ct. 1210, 1219, 10 L. Ed. 2d 248 (1963).
[3] Opinion of Attorney General of Michigan, Oct. 31, 1962; Opinion of Attorney General of South Dakota, July 23, 1964. (Frank Kelly, present Attorney General of Michigan, states, in his amicus brief, p. 14, that the 1962 opinion properly may not be interpreted to support plaintiff's position in this case.)
[4] Opinion of General Counsel Joseph F. Hennessey, March 14, 1969, F.R.Doc. #69-5296.
[5] Summary Legal Analysis of Federal and State Jurisdiction to Regulate Atomic Energy, April, 1969.
[6] Estep and Adelman, State Control of Radiation Hazards: An Inter-Governmental Relations Problem, 60 Mich.L.Rev. 41 (1961); Cavers, State Responsibility in the Regulation of Atomic Reactors, 50 Ky.L.J. 29, 29-32 (1961); The author of a note in 68 Mich.L.Rev. 1294 concludes that the Supreme Court "probably" would find preemption.
[7] See note 6, supra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535667/ | 520 A.2d 995 (1986)
Ralph HARLOW and Claire Harlow
v.
Seldon MILLER and Pearl Miller.
No. 84-357.
Supreme Court of Vermont.
December 5, 1986.
*996 Davis, Rounds & Sachs, P.C., Windsor, for plaintiffs-appellants.
Fucci, Fucci & Fucci, White River Junction, for defendants-appellees.
Before ALLEN, C.J., and HILL, PECK, GIBSON and HAYES, JJ.
PECK, Justice.
Plaintiffs appeal the trial court's rejection of their claim to a strip of land based on adverse possession. We affirm.
Plaintiffs raise two issues on appeal. First, they argue that a key finding made by the trial court is not supported by the evidence. Second, plaintiffs contend that the trial court erred in its application of the doctrine of adverse possession by attributing significance to an absence of acquiescence on the part of defendants.
At issue is a strip of land, four feet in width, joining the undisputed portions of plaintiffs' and defendants' respective parcels. Plaintiffs claim that their adverse possession began in 1960, when Claire Harlow (then Claire Miller) and her first husband (defendants' son, Darwin Miller) planted three maple trees on the property in question. There was testimony in the lower court to the effect that plaintiffs have maintained the area since that time, and that this maintenance has included mowing, planting flowers, and paying for professional treatment of the trees. Defendants testified that they informed plaintiffs in 1960 that the trees were planted on defendants' land, and there was also testimony that a son of defendants had mowed the area in subsequent years. In July of 1982, defendants erected a fence along what they asserted to be the true boundary of their parcel. In May of 1983, plaintiffs brought an action in the Windsor Superior Court claiming title to the parcel by adverse possession. The superior court concluded that adverse possession had not been proved because no acquiescence had *997 been established. The action was dismissed, and this appeal followed.
Findings of fact must be reviewed in the light most favorable to the party prevailing below, and the findings will stand if there is reasonable and credible evidence to support them. Darken v. Mooney, 144 Vt. 561, 568, 481 A.2d 407, 412 (1984). The effect of modifying evidence will be disregarded. Id. Only if the findings are clearly erroneous will this Court set them aside. Id.; V.R.C.P. 52(a).
Plaintiffs argue that Finding No. 8 of the trial court is not supported by the evidence. The portion of the finding specifically challenged states: "At the time they were planted, Pearl Miller told Darwin Miller that the trees were on the defendants' land. She also told this to then Claire Miller." Plaintiffs contend that absolutely no evidence was presented to the trial court that could support this finding.
The transcript reveals, however, that defendant Pearl Miller testified at trial as follows:
Q. When were you aware for the first time that these three trees were on your property?
A. From the time they set them out. I didn't know, and I saw they had some stuff in there, and I told Darwin about it and said you know they're on our land, and he just laughed, and we had an argument from then on.
Q. You ever talk to Claire about this?
A. Yes I have.
This testimony provides credible support for the trial court's finding that Pearl Miller informed Darwin Miller about the ownership of the land at the time they were planted, and we do not consider the finding to be clearly erroneous. Plaintiffs contend that this evidence shows that Pearl Miller did not discuss the problem with Claire until legal proceedings had been initiated. They base their argument on subsequent testimony by Pearl Miller:
Q. And, you told Claire outright that the trees were on your property?
A. I think I wrote Mr. Rounds [plaintiffs' counsel] a letter on that.
Even if plaintiffs' argument is plausible, this later testimony constitutes modifying evidence; as such, its effect is to be excluded on appeal. Eddins v. O'Neil, 145 Vt. 364, 365, 488 A.2d 1230, 1230 (1985). We hold that Finding No. 8 is supported by reasonable and credible evidence, and it must stand.
Plaintiffs' second argument on appeal is that the trial court applied the doctrine of adverse possession erroneously because its conclusion was based on plaintiffs' failure to establish acquiescence by defendants. This Court has stated that the "ultimate element in the rise of a title through adverse possession is the acquiescence of the real owner in the exercise of an obvious, adverse, or hostile ownership through the statutory period." Laird Properties New England Land Syndicate v. Mad River Corp., 131 Vt. 268, 277, 305 A.2d 562, 567 (1973). Our use of the term "acquiescence" in Laird may be misleading, to some degree, because the theory of adverse possession is the antithesis of peaceful acquiescence. See Warner v. Noble, 286 Mich. 654, 282 N.W. 855 (1938); 2 C.J.S. Adverse Possession § 4. In Laird, we used the term in its technical, legal sense, referring to the situation where a person fails to enforce a known right. Thus, our requirement of acquiescence by the true owner was merely another way of stating that a claim of adverse possession depends on the true owner's failure to exercise his rights of ownership during the statutory period.
Here, although the trial court did not elaborate on its conclusion that acquiescence had not been demonstrated, the court's findings reveal that the doctrine of adverse possession was properly applied. "[A] possession that will work an ouster of the owner must be open, notorious, hostile and continuous for the full statutory period of fifteen years." Laird, supra, 131 Vt. at *998 277, 305 A.2d at 567. It is presumed that the use of land by one who has record title is the exercise of his right to enjoy it, and such use interrupts the continuity of adverse possession by another. Id. Here, the trial court found that defendants' son maintained the area in question by mowing the grass periodically. This use of the parcel negated the claim of adverse possession, and the court was correct in ruling for defendants. See Camp v. Camp, 88 Vt. 119, 120, 92 A. 12, 12 (1914) (maintenance of garden on disputed land by true owner's daughter held to have same legal effect as use by true owner).
Even if the lower court misunderstood the concept of acquiescence, a trial court can reach the right result for the wrong reason. Gilwee v. Town of Barre, 138 Vt. 109, 111, 412 A.2d 300, 301 (1980). In this case, a second ground supports the judgment below. Where a family relationship between claimants is involved, proof of adverse possession must be established by stronger evidence than is required in other cases. Bellamy v. Shryock, 211 Ark. 116, 123, 199 S.W.2d 580, 583 (1947); 3 Am. Jur.2d Adverse Possession §§ 202-203. In such a situation, the possession of the land of the one by the other is presumptively permissive and amicable. A claim of adverse possession will succeed only where there is some clear, definite, and unequivocal notice of the adverse claimant's intention to assert exclusive ownership of the property. Bellamy, supra, 211 Ark. at 123, 199 S.W.2d at 583. In Bellamy, the Supreme Court of Arkansas considered a claim based on the possession of a mother as against her daughter and son-in-law, who resided on an adjoining parcel of land. The only evidence of adverse possession was that the mother had maintained a fence, planted shrubs and flowers, and placed some concrete blocks to prevent erosion of the disputed area. The Bellamy court upheld the lower court's determination that such evidence was insufficient to manifest an intention to hold the disputed property adversely. Here, the planting of trees by defendants' son, Darwin Miller, and the later maintenance of the property by the plaintiffs, were not sufficient evidence to carry their heavy burden of proof. Under these circumstances, the trial court's conclusion must be upheld.
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535673/ | 513 Pa. 264 (1986)
520 A.2d 15
Arthur J. HODGE, Appellant,
v.
Patricia HODGE, Appellee.
Supreme Court of Pennsylvania.
Argued May 16, 1986.
Decided December 29, 1986.
Reargument Denied April 23, 1987.
*265 Thomas B. Rutter, Mary B. Stein, Philadelphia, for appellant.
Charles E. Friedman, Harrisburg, for appellee.
Before NIX, C.J., and LARSEN, FLAHERTY McDERMOTT, HUTCHINSON, ZAPPALA and PAPADAKOS, JJ.
*266 OPINION
ZAPPALA, Justice.
We granted cross-petitions for allowance of appeal to determine whether or not a medical license is "marital property" under our Divorce Code[1] and whether the award of alimony was proper. The relevant facts are as follows:
The parties were married in 1967. At that time, Dr. Hodge was a student of medical technology at St. Luke's Hospital in Bethlehem, Pennsylvania while Mrs. Hodge was a clinical instructor there. Prior to the marriage, Dr. Hodge enlisted in the United States Army Medical Service Corps and was sent to Fort Hood, Texas, where he was stationed until 1970. While in Fort Hood, Texas, Mrs. Hodge served as a laboratory technologist at Darnell Army Hospital. After his discharge, Dr. Hodge became employed as a serologist with Ortho-Pharmaceutical in Raritan, New Jersey where he remained for approximately nine months. His earnings at that time were $6,938.00 a year.
In January, 1971, Dr. Hodge enrolled in the medical program at the medical school of the University of Guadalajara, Mexico. During his first year of medical school, both Mrs. Hodge and their daughter remained in Pennsylvania where Mrs. Hodge worked to support the family and to facilitate Dr. Hodge's education. Mrs. Hodge and their daughter joined Dr. Hodge in Mexico for the last three years of medical school.
The Hodge family returned to Pennsylvania in January, 1975, where Dr. Hodge undertook his required fifth year of medical training at Harrisburg Poly-clinic Hospital. After successful completion of this required residency program, Dr. Hodge took an internship at the same hospital. During 1975-1976, Dr. Hodge lived at the residents' quarters while Mrs. Hodge and their three children resided in a rented home in Schuylkill County.
Dr. Hodge entered a two-year residency program specializing in internal medicine in January 1977. Thereafter, he *267 received his license to practice medicine in February 1977. On August 27, 1977, Dr. Hodge informed his wife that he no longer wished to continue their marital relationship. Thereafter, Mrs. Hodge commenced an action in divorce in Schuylkill County on December 26, 1978. Action on this complaint remained dormant, resulting in Dr. Hodge filing a complaint under section 201(d) of the Divorce Code on March 19, 1981. After preliminary objections of Mrs. Hodge were dismissed, a divorce decree was entered October 9, 1981, with the court retaining jurisdiction over the issues of support, alimony and equitable distribution.
The trial court appointed a special master to take testimony and make recommendations with regard to alimony and the division of property. After taking testimony, the master rejected Mrs. Hodge's claim that Dr. Hodge's medical license was `marital property' under the Divorce Code, and recommended $100 a week alimony for Mrs. Hodge until September 26, 1994. Mrs. Hodge filed exceptions to the master's determination that the medical license was not `marital property', while Dr. Hodge excepted to the determination of alimony. After hearing arguments on the exceptions, the trial judge approved the recommendations of the special master and entered a final decree.
Both parties filed appeals to the Superior Court which affirmed. 337 Pa.Super. 151, 486 A.2d 951. (Del Sole and Montemuro, Wickersham Concurring and Dissenting). We thereafter granted allocatur and in Part I affirm the Superior Court by a majority while in Part II affirm by an equally divided Court.
PART I
Under the Divorce Code, the court shall equitably divide the "marital property" between the parties. 23 P.S. § 401(d). The Code defines "marital property" as "all property acquired by either party during the marriage" subject to certain enumerated exceptions. 23 P.S. § 401(e). Furthermore, subsection (f) states that "[a]ll property, whether real or personal, acquired by either party during the marriage *268 is presumed to be marital property." 23 P.S. § 401(f). As can be seen from reviewing these sections of the Divorce Code, implicit in any discussion of whether an item is "marital property" under the Divorce Code, is a preliminary determination of whether that item is "property". Therefore, we must first determine whether a professional license, such as a medical license, is in fact "property", before determining whether it is "marital property" under the Divorce Code.
Relying upon In re Marriage of Graham, 194 Colo. 429, 574 P.2d 75 (1978), the Superior Court concluded that ". . . increased earning capacity is neither real or personal property in any classic sense of the word." 337 Pa.Super. at 156, 486 A.2d at 953. In Graham, the Colorado Supreme Court held:
An educational degree, such as an M.B.A., is simply not encompassed even by the broad views of the concept of "property". It does not have an exchange value or any objective transferrable value on an open market. It is personal to the holder. It terminates on death of the holder and is not inheritable. It cannot be assigned, sold, transferred, conveyed, or pledged. An advanced degree is a cumulative product of many years of previous education, combined with diligence and hard work. It may not be acquired by the mere expenditure of money. It is simply an intellectual achievement that may potentially assist in the future acquisition of property. In our view, it has none of the attributes of property in the usual sense of that term.
194 Colo. at 432, 574 P.2d at 77. (See also, Stevens v. Stevens, 23 Ohio St. 3d 115, 492 N.E.2d 131 (1986)). We are in accord with the Colorado Supreme Court's legal analysis rejecting the argument that an advanced degree is "property". Since a professional license does not have the attributes of property, it cannot be deemed "property" in the classical sense. Nor does the Divorce Code demonstrate any legislative intent to give "property" a different meaning than its traditional definition. Unless otherwise defined, *269 words must be interpreted according to common usage. 1 Pa.C.S. § 1903(a). Therefore, we hold that an advanced degree, such as a medical license, is not "property" under our Divorce Code.
Even if we were to conclude that a professional license is property, it is clear that the increased earning capacity attained as a result of a professional license does not come within the statutory purview of section 401(e). Specifically, section 401(e) is predicated upon the property being "acquired" during the marriage. In instances such as the one now before the Court, the real value being sought is not the diploma but the future earned income of the former spouse which will be attained as the result of the advanced degree. The property being sought is actually acquired subsequent to the parties' separation. Thus, the future income sought cannot be "marital property" because it has not yet been earned. If it has not been earned, it has not been acquired during the marriage. Furthermore, the contributions made by one spouse to another spouse's advanced degree plays only a small part in the overall achievement. There is no question that in cases such as the one now before this Court, one spouse very often struggles to support the other spouse and the family while the non-working spouse is completing his education and post-education training. However, we must not forget that others, including the student-spouse, have made sacrifices to aid him in achieving his advanced degree and increased earned income. Thus, it is inherently unfair to compensate one spouse, to the exclusion of all other contributing persons, for the achievements of the other spouse.
A majority of this Court, therefore, holds that a professional license is not "marital property" subject to equitable distribution under the Divorce Code. Since a professional license is not property and any future earnings are not acquired during the marriage, the lower courts were correct in excluding Dr. Hodge's future earnings attained as a result of his medical degree from equitable distribution under the Divorce Code.
*270 PART II
Next, Dr. Hodge argues it was improper to award Mrs. Hodge alimony for fourteen years. Section 501(a) states:
(a) The court may allow alimony, as it deems reasonable, to either party, only if it finds that the party seeking alimony:
(1) lacks sufficient property, including but not limited to any property distributed pursuant to Chapter 4, to provide for his or her reasonable needs; and
(2) is unable to support himself or herself through appropriate employment.
Subsection (b) lists the factors to be considered in determining whether alimony is necessary and in determining the nature, duration and amount of any such award.
In awarding Mrs. Hodge fourteen years of alimony, the trial court adopted the special master's conclusion that the "only remaining method which our law allows by which economic responsibility can be equitably adjusted under such circumstances is to impose an order of alimony upon plaintiff for the benefit of defendant." (R. 16a). The trial court stated that this "equitable adjustment (is) needed in order to place some economic responsibility on the plaintiff for the defendant's sacrifices made during the marriage." (Slip opinion p. 27). Superior Court affirmed finding no abuse of discretion on the part of the trial court. We cannot agree.
Although the Divorce Code was adopted with the intent to "effectuate economic justice", 23 P.S. § 102(a)(6), we cannot ignore that alimony was intended to be based on "actual need and ability to pay." Id. This is clear from reading sections 501(a)(1) and (2) and 501(c). The primary purpose of alimony is to provide one spouse with sufficient income to obtain the necessities of life, not to punish the other spouse. Semasek v. Semasek, 331 Pa.Super. 1, 479 A.2d 1047, (1984), rev'd on other grounds 509 Pa. 282, 502 A.2d 109 (1985). Any alimony order must be based on need. Although both parents have an equal duty to support their children, Conway v. Dana, 456 Pa. 536, 318 A.2d 324 (1974), *271 the fact that one parent is a student and not contributing support for the children does not result in a future claim by the other spouse for the unpaid past support. Therefore, the purpose of alimony under our statute is rehabilitation not reimbursement. Pacella v. Pacella, 342 Pa. Super. 178, 492 A.2d 707 (1985). As Judge Wieand has astutely stated:
The duty of support is imposed by rule of law on both spouses. Compliance with this legal duty does not result in unjust enrichment to the other. Marriage is for better or worse. It is not entered with a conscious intent that at some future time there will be an accounting of and reimbursement for moneys contributed to the support of the family. To inject such a concept would, in my judgment, have far-reaching and unfortunate consequences. If I am correct in my view regarding the duty of spousal support, then it is difficult to perceive good reason for creating an exception which would reimburse a spouse for support contributed while the other is attending an institution of higher learning or otherwise obtaining advanced training.
Lehmicke v. Lehmicke, 339 Pa.Super. 559, 573-74, 489 A.2d 782, 790 (1985) (Wieand, J., Concurring and Dissenting). Accordingly, after a spouse has established a need for alimony, the court may then take into consideration those expenses incurred in excess of the traditional support obligation (i.e., tuition, books, fees, etc.), in determining an alimony award.
How then should the factors listed in section 501(b) be applied to section 501(a)? In applying section 501(b), the trial court must keep in mind the purpose of alimony, i.e., to provide support when there exists a lack of sufficient property and appropriate employment to provide for reasonable needs. Since section 501(b) sets forth factors to be considered in determining whether alimony is necessary and in determining the amount, duration and manner of payment, it is clear that certain factors are only relevant to a determination of entitlement while others are relevant to the amount, duration and manner of payment. Thus, when *272 a trial court considers these enumerated factors in determining whether alimony is appropriate, the court must keep in mind the purpose of alimony as set forth in section 501(a) in evaluating whether a certain factor is relevant. A factor may be important in determining the duration of alimony a spouse should receive, but be irrelevant in making the initial determination of whether that spouse is entitled to alimony at all. To interpret section 501 otherwise would virtually eliminate the introductory language of section 501(b), that "[i]n determining whether alimony is necessary," the court must consider the factors enumerated therein. 23 P.S. § 501(b).[2]
Applying this reasoning to the present appeal, it is evident that both the special master and the lower courts applied section 501 incorrectly in determining the award of alimony. Both the special master and the trial court attempted to effectuate economic equality through the use of alimony. Although an honorable attempt to compensate the wife for lack of marital property, it clearly was improper. Since the alimony award was based upon an erroneous application of the statute, this matter should be remanded to the trial court for a redetermination of the issue of alimony. On remand, the trial court must first determine whether Mrs. Hodge is entitled to alimony, keeping in mind that alimony is intended to rehabilitate a spouse not to provide a source of economic equalization, before determining an appropriate amount and duration.
Accordingly, Part I of this opinion being joined by a majority of the Court, affirms the opinion and order of the Superior Court with respect to its determination that a medical license is not marital property. The Court being equally divided, with regard to Part II of this opinion, we affirm the Superior Court on the issue of alimony for Appellee.
*273 McDERMOTT, J., did not participate in the consideration or decision of this case.
HUTCHINSON, J., filed a concurring and dissenting opinion in which PAPADAKOS, J., joined.
LARSEN, J., filed a dissenting opinion.
HUTCHINSON, Justice, concurring and dissenting.
I concur in the result Mr. Justice Zappala reaches in Part I of his opinion, which states that a medical license acquired during a marriage and the increased earning capacity arising therefrom do not constitute marital property or an otherwise divisible asset of the marriage subject to equitable distribution. Analysis of Chapters 4 (Property Rights) and 5 (Alimony and Support) of our Divorce Code[1] convinces me that the legislature did not intend a medical license or resultant increased earning capacity to be considered such an asset. Instead, the legislature provided that "[t]he contribution by one party to the education, training, or increased earning power of the other party" should be a factor considered in the equitable distribution of marital property, 23 P.S. § 401(d)(4), and in the determination of the necessity for, and the nature and duration of, alimony, 23 P.S. § 501(b)(6). The inclusion of this factor in both of these chapters makes it clear that the legislature intended to give our trial courts the flexibility needed to fashion a fair and just economic resolution when the parties acquire substantial assets subject to distribution, and when, as here, they have few such assets at the time of divorce.[2] Thus, the lower courts properly rejected the claim that Dr. *274 Hodge's medical license constitutes marital property subject to equitable distribution.
I dissent, however, from the reasoning in Part II of Mr. Justice Zappala's opinion and his conclusion that the lower courts incorrectly applied Section 501 of the Divorce Code in determining and reviewing the alimony award. Precisely because the parties had few assets subject to distribution, the courts correctly considered Mrs. Hodge's contributions to her husband's professional education and resultant increased earning power in awarding her alimony of $100 per week for fourteen years under Section 501. The propriety of this award is the issue raised in appellant's cross-appeal by allowance.
I would begin by noting that the scope of appellate review in questions of alimony is limited to a determination of whether the lower court abused its discretion. Remick v. Remick, 310 Pa.Superior Ct. 23, 456 A.2d 163 (1983). I find no indication here that Common Pleas abused its discretion in awarding Mrs. Hodge alimony for fourteen years.
In analyzing Chapter 5 of the Divorce Code, Mr. Justice Zappala has construed Subsections (a) and (b) of Section 501 in a manner that invites the application of the two conditions in Section 501(a) as threshold requirements for entitlement to alimony. I believe this construction is erroneous. Section 501(a) provides:
(a) The court may allow alimony, as it deems reasonable, to either party, only if it finds that the party seeking alimony:
(1) lacks sufficient property, including but not limited to any property distributed pursuant to Chapter 4, to provide for his or her reasonable needs; and
(2) is unable to support himself or herself through appropriate employment.
23 P.S. § 501(a).
At first blush, the use of the word "only" in Section 501(a) along with the word "and" as a connector between 501(a)(1) and 501(a)(2) would seem to support Mr. Justice *275 Zappala's position. However, Section 501(b) of the Divorce Code provides:
(b) In determining whether alimony is necessary, and in determining the nature, amount, duration, and manner of payment of alimony, the court shall consider all relevant factors including: . . . .[3]
23 P.S. § 501(b). Thus, Section 501(b) requires a consideration of all relevant factors in making the determination of whether alimony is "necessary". Obviously, if it is necessary a court "may allow" alimony in an amount it "deems reasonable". See Section 501(a), supra.
Mr. Justice Zappala states that the analysis in Part II of his opinion is in accord with Hess v. Hess, 327 Pa.Superior Ct. 279, 475 A.2d 796 (1984) and Bickley v. Bickley, 301 Pa.Superior Ct. 396, 447 A.2d 1025 (1982), in which Superior Court held that the two conditions set forth in Section 501(a) do not establish threshold requirements for entitlement to *276 alimony. However, in reading Section 501(a) as embodying the purpose of alimony and then requiring the master and trial court to apply the factors enumerated in Section 501(b) only in light of this purpose, Mr. Justice Zappala accords paramount status to Section 501(a). As applied to this record, his reasoning recreates a threshold for entitlement to alimony. I believe that reading is contrary to sound principles of statutory construction and is out of line with the legislative intent expressed generally in Section 102 of the Divorce Code[4] and specifically in Subsection (a)(6), which reads:
(a) The family is the basic unit in society and the protection and preservation of the family is of paramount public concern. Therefore, it is hereby declared to be the policy of the Commonwealth of Pennsylvania to:
.....
(6) Effectuate economic justice between parties who are divorced or separated and grant or withhold alimony according to the actual need and ability to pay of the *277 parties and insure a fair and just determination and settlement of their property rights.
23 P.S. § 102(a)(6) (emphasis added).
The object of all statutory interpretation is to ascertain and effectuate the intention of the legislature. 1 Pa.C.S. § 1921(a). Section 102(b) of our Divorce Code explicitly states that the objectives set forth in Subsection (a) shall be regarded as expressing the legislative intent and shall be considered in construing provisions of the Code. 23 P.S. § 102(b). Further, the language of a statute shall be construed, if possible, so as to give effect to all of the statute's provisions. 1 Pa.C.S. § 1921(a). Commonwealth ex rel. Bagnoni v. Klemm, 499 Pa. 566, 574, 454 A.2d 531, 535 (1982); Commonwealth v. Butler County Mushroom Farm, 499 Pa. 509, 513, 454 A.2d 1, 4 (1982). Therefore, Section 501 of the Divorce Code must be construed, if possible, in a way that gives effect to all of its subsections and Section 102(a) must be considered in giving effect to these subsections.
In its introductory language, Section 501(b) states that all relevant enumerated factors shall be considered "[i]n determining whether alimony is necessary, and in determining the nature, amount, duration, and manner of payment of alimony." 23 P.S. § 501(b) (emphasis added). This wording acknowledges the relationship between Sections 501(a) and (b); the only way to determine what is a "reasonable need" under Section 501(a)(1) or "appropriate employment" under Section 501(a)(2) is to refer to the specific facts of each case as they compare with the factors listed in Section 501(b)(1)(14). I agree with Mr. Justice Zappala that certain of these factors are more relevant to a determination of entitlement to alimony than others which go primarily to the nature, duration, amount and manner of payment of alimony. I cannot agree with Mr. Justice Zappala's discussion of the manner in which trial courts should evaluate Section 501(b) factors, however, because it provides little guidance to these courts and invites application of the Section 501(a) conditions as threshold requirements.
*278 I believe instead that all the 501(b) factors (except factors 5, 14 and possibly 7, which are unrelated to either need, ability to pay or the parties' current economic situation) should be used to decide whether the spouse seeking alimony is able to "provide for his or her reasonable needs" and is "unable to support himself or herself through appropriate employment", as required by Section 501(a). After need, ability and relative wealth are so determined, all of the other 501(b) factors, including (5), (7) and (14), should be considered in determining the nature, amount, duration and manner of payment of alimony. This analysis is largely in accord with Judge Beck's reasoning in Hess v. Hess, 327 Pa.Superior Ct. 279, 289, 475 A.2d 796, 801 (1984). Since factor (6), "[t]he contribution by one party to the education, training or increased earning power of the other party", is clearly an economic factor, such contributions are properly considered in deciding whether an award of alimony is necessary. 23 P.S. § 501(b)(6).
In the fact situation this record presents, it is not possible to effectuate economic justice if Section 501(a) is read as imposing conditions on entitlement to alimony which must be met before the factors set out in 501(b) can be considered. This is apparent when we consider: this wife's contribution to her husband's education, the couple's lack of tangible assets to divide, the interpretive and practical problems precluding consideration of the medical license as property and the resultant lifetime income benefit this husband will enjoy from that license without recompense to the spouse who sacrificed to provide the means of his obtaining that benefit. That injustice is ably shown by Mr. Justice Larsen's factual recital in his dissenting opinion.
Sections 501(a) and (b) must be read together, therefore, in determining whether alimony is necessary, keeping in mind that the purpose of the Divorce Code, as stated by the legislature and affirmed by this Court, goes beyond the granting of alimony according to the actual need and ability to pay of the parties and includes:
deal[ing] effectively with the `realities of the matrimonial experience' by giving `primary consideration to the welfare *279 of the family,' `mitigat[ing] the harm to spouses and their children caused by the legal dissolution of the marriage,' and effectuating `economic justice' as well as `a fair and just determination and settlement of . . . property rights.' 23 P.S. § 102(a).
Bacchetta v. Bacchetta, 498 Pa. 227, 231, 445 A.2d 1194, 1196 (1982).
I believe Mr. Justice Zappala errs in applying his modified threshold analysis to the question of whether the alimony award was excessive. Although Mr. Justice Zappala's reasoning is not entirely clear to me on this point, it would appear that his objection is to the duration of the alimony award (fourteen years) and not to the amount periodically due. Of course, $100 per week for fourteen years, or $72,800 undiscounted, is more than $100 per week for some lesser period and, thus, duration and amount are woven together in a very real sense.
I believe, however, that the nature, amount, duration and manner of payment of alimony are matters to be determined by the trial court in accordance with Sections 501(b) and (c) of the Divorce Code, which must be read together and applied in light of the particular facts of each case. Section 501(c) provides:
(c) Unless the ability of the party seeking the alimony to provide for his or her reasonable needs through employment is substantially diminished by reason of age, physical, mental or emotional condition, custody of minor children, or other compelling impediment to gainful employment, the court in ordering alimony shall limit the duration of the order to a period of time which is reasonable for the purpose of allowing the party seeking alimony to meet his or her reasonable needs by:
(1) obtaining appropriate employment; or
(2) developing an appropriate employable skill.
23 P.S. § 501(c).
As the record indicates, Mrs. Hodge is now forty-six years old. For the past ten years, she has been a homemaker *280 and primary caretaker of the parties' three children, two of whom are still minors. Mrs. Hodge has not worked in her profession during this time. Further, she presented evidence that employers where she resides now require a four-year degree in medical technology rather than the two-year associate degree that she possesses. As noted by Superior Court, these "impediment[s] to gainful employment" exempt Mrs. Hodge from the general rule set forth in Section 501(c) that alimony shall be limited to a period of time that reasonably allows the party to obtain appropriate employment or develop an appropriate employable skill. 23 P.S. § 501(c). Hodge v. Hodge, 337 Pa.Superior Ct. 151, 158, 486 A.2d 951, 954 (1984).
The trial court must consider all relevant 501(b) factors in determining the duration of alimony. On the facts of this case, the relative earning capacities of the parties (factor 1), the ages of the parties (factor 2), the contribution by one party to the other's increased earning capacity (factor 6), the relative education of the parties and the time necessary to acquire sufficient education to enable the party seeking alimony to find appropriate employment (factor 8) and the contribution of a spouse as a homemaker (factor 12) are relevant in determining the duration of the alimony award. Moreover, factor 7, the extent to which it would be inappropriate for a party to seek employment outside the home because that party has custody of a minor child, seems especially relevant. Considering these relevant factors in light of this record, I cannot agree with Mr. Justice Zappala that Common Pleas abused its discretion in ordering alimony of $100 per week for fourteen years, the period during which the Hodge's two youngest children remain minors.
Finally, I would note that this alimony award may be modified, pursuant to Section 501(e) of the Code, if the circumstances of the parties should change. That Section provides:
(e) Any order entered pursuant to this section is subject to further order of the court upon changed circumstances of either party of a substantial and continuing nature *281 whereupon such order may be modified, suspended, terminated, reinstituted, or a new order made. Any such further order shall apply only to payment accruing subsequent to the petition for the requested relief. Remarriage of the party receiving alimony shall terminate the award of alimony.
23 P.S. § 501(e). While two of his three children remain minors, I believe it entirely appropriate and fair to place the burden of pursuing such a modification upon Dr. Hodge, given the relative economic positions of these parties. To do otherwise would be contrary to the policy of this Commonwealth, which is to give primary consideration to the welfare of the family and to mitigate the harm to spouses and their children caused by the legal dissolution of a marriage. 23 P.S. § 102(a)(3) and (4), supra note 4 (emphasis added).
Reading this statute as a whole, it seems obvious to me that the legislature intended to give the trial courts of this Commonwealth broad discretion in tailoring alimony awards and property distribution to the myriad fact situations which modern marriage presents. That being so, it seems to me the absence of assets necessarily affects the alimony award if economic justice is to be done. The ruling that a medical license is not property affects this wife's right to alimony. Under all the circumstances of this case, I am at a loss to see how the trial court abused the broad discretion the legislature gave it in awarding fourteen years of alimony to Mrs. Hodge.
Accordingly, I would affirm the order of Superior Court in its entirety.
Mr. Justice PAPADAKOS joins in this concurring and dissenting opinion.
LARSEN, Justice, dissenting.
I take thee to be my wedded wife; and I do promise and covenant, before God and these witnesses; to be thy loving and faithful husband in plenty and in want; in joy *282 and in sorrow; in sickness and in health; as long as we both shall live.
Reciting these vows on July 15, 1967, appellant, Arthur J. Hodge, married a reluctant bride, appellee Patricia Hodge. Appellant had only recently begun his medical training when he made his proposal of marriage, and appellee knew from her experience as a clinical instructor in a hospital that divorce is a plague among physicians upon completion of their education. Appellant assured members of his own family and his in-laws that a goal of his medical education was to provide his wife and family with a decent life. Yet, in August of 1977, with the ink still wet on his license to practice medicine in the Commonwealth, appellant left his wife and three children (then aged 11 months, 2, and 8) to begin his lucrative career as a physician to live in the company of a nurse he had met during his residency program in internal medicine. So much for the promise to be a loving and faithful husband in plenty and in want.
No marital assets of any value were accumulated during the couple's ten years together, as all their income and savings and gifts from both sets of parents were expended on the attainment of appellant's medical degree. The couple resided at six different locations, including several years at a substantially lowered standard of living in Guadalajara, Mexico, where appellant attended medical school. Appellee dutifully traveled at appellant's beck and call and worked to support the family while she raised their children.
Appellee, who is unemployed, lives with her children in rental property which is in poor condition; she has problems with the circulation in her legs, and she must undergo two more years of full-time education in her field of medical technology to be employable at a living wage in her community. Appellee lives with his new wife in a home valued at $72,000 in 1982, and is employed in a medical practice which grosses $300,000 a year.
Mr. Justice Zappala correctly observes that "the Divorce Code was adopted with the intent to `effectuate economic justice', 23 P.S. § 102(a)(6)." Maj. op. at 270. The refusal *283 of the majority, however, to recognize as a marital asset the increased earning capacity made possible by a medical degree earned during the marriage makes a mockery of justice in this case and is the antithesis of enlightened jurisprudence.
Although I agree with the majority that a professional degree or license is not property, I disagree that the proceeds generated by that degree are not. Certainly, proceeds are inheritable, assignable, salable, transferrable, conveyable, and pledgeable. That the proceeds were not in existence during the time of coverture is not fatal to our designation of them as marital assets subject to equitable distribution, where, as here, both spouses have significantly contributed toward the potential to attain those proceeds.[1]
Marriage is more than a mere economic partnership, yet, when a marriage fails, it is beneficial for society to subject the marital relationship to a strict economic accounting. In this way, we are best able to "insure a fair and just determination and settlement of [the spouses'] property rights." 23 P.S. § 102(a)(6). With this principle in mind, we must analyze marriage as a joint economic venture. A spouse lends money without a credit check or loan agreement, secure in the knowledge that repayment will be made. A supporting spouse expects that any contribution made to the student spouse's education or career potential is an investment in the future a future in which every family member will benefit. No prudent business partner would expend time, effort and money without the promise of a return on his or her investment. Similarly, a spouse may defer realization of personal career goals or make economic *284 contributions and sacrifices in order that his or her "partner" will attain a level of proficiency, evidenced by a degree or license, that will make possible the future rewards to both of the enhanced earnings of one.
The supporting spouse invests in the potential for increase in future earning capacity, much as a business partner would invest in the development of a new idea. When the idea comes into existence, the investing partner owns a piece of it and is entitled to share in whatever profit it generates. The potential to generate profits exists from the moment the idea is created. The owner's interest in that potential is recognized by the law in many ways. Trade secret law, licensing and franchise agreements extend legal recognition and protection to the intangible asset that exists as a bare potential for future profit.
We must likewise protect the property interest of the spouse who, because of a divorce, will not enjoy the future benefits of his or her contributions (can include sacrifices) in the "company" of the spouse in whose name the degree or license is conferred. The supporting spouse has provided more than financial aid in enhancing the value of this marital property, and I would not limit a property award to the value of the financial contribution. I would therefore reverse Superior Court and remand to the trial court to evaluate appellee's contribution to her husband's potential for increased earning capacity and award appellee a like share of the proceeds generated by the degree which was conferred with appellee's aid. I would further impose a constructive trust upon the proceeds with appellant as trustee. The trust device is entirely necessary, for the trustee may then not, in spite, attempt to reduce the proceeds to the detriment of the other.
I agree with Judge Wickersham, Hodge v. Hodge, 337 Pa.Super. 151, 486 A.2d 951 (1984) (concurring and dissenting), that an intangible asset in the guise of increased earning capacity is a property interest under the Divorce Code and fully subject to equitable distribution.
*285 In light of my view to equitably distribute the proceeds of appellant's medical degree, I would also remand for a new alimony hearing and direct the lower court to apply the relevant law set forth in Mr. Justice Hutchinson's concurring and dissenting opinion herein.
NOTES
[1] Act of April 2, 1980, P.L. 63, No. 26, 23 P.S. § 101, et seq.
[2] This analysis is in complete accord with previous Superior Court decisions rejecting the theory that section 501(a) sets forth a threshold which must be met before considering section 501(b). (See, Hess v. Hess, 327 Pa.Super. 279, 475 A.2d 796 (1984) and Bickley v. Bickley, 301 Pa.Super. 396, 447 A.2d 1025 (1982).
[1] Act of April 2, 1980, P.L. 63, No. 26, 23 P.S. §§ 101-801 (Supp.1986).
[2] We do not today have before us the third possible situation, where the parties have acquired few assets but alimony is not available to the spouse who contributed toward the other's education because he or she is self-supporting and rehabilitation into the work place is not necessary. Such a case has been before Superior Court, which approved a remedy under Section 401(c) of the Divorce Code. That Section provides, in relevant part: "In all matrimonial causes, the court shall have full equity power . . . to protect the interests of the parties . . . and may grant such other relief or remedy as equity and justice require against either party. . . ." 23 P.S. § 401(c). See Lehmicke v. Lehmicke, 339 Pa.Superior Ct. 559, 489 A.2d 782 (1985).
[3] The factors to be considered by the court include:
(1) The relative earnings and earning capacities of the parties.
(2) The ages, and the physical, mental and emotional conditions of the parties.
(3) The sources of income of both parties including but not limited to medical, retirement, insurance of other benefits.
(4) The expectancies and inheritances of the parties.
(5) The duration of the marriage.
(6) The contribution by one party to the education, training or increased earning power of the other party.
(7) The extent to which it would be inappropriate for a party, because said party will be custodian of a minor child, to seek employment outside the home.
(8) The standard of living of the parties established during the marriage.
(9) The relative education of the parties and the time necessary to acquire sufficient education or training to enable the party seeking alimony to find appropriate employment.
(10) The relative assets and liabilities of the parties.
(11) The property brought to the marriage by either party.
(12) The contribution of a spouse as homemaker.
(13) The relative needs of the parties.
(14) The marital misconduct of either of the parties during the marriage; however, the marital misconduct of either of the parties during separation subsequent to the filing of a divorce complaint shall not be considered by the court in its determinations relative to alimony.
23 P.S. § 501(b).
[4] Section 102 of the Divorce Code provides:
(a) The family is the basic unit in society and the protection and preservation of the family is of paramount public concern. Therefore, it is hereby declared to be the policy of the Commonwealth of Pennsylvania to:
(1) Make the law for legal dissolution of marriage effective for dealing with the realities of matrimonial experience.
(2) Encourage and effect reconciliation and settlement of differences between spouses, especially where children are involved.
(3) Give primary consideration to the welfare of the family rather than the vindication of private rights or the punishment of matrimonial wrongs.
(4) Mitigate the harm to the spouses and their children caused by the legal dissolution of the marriage.
(5) Seek causes rather than symptoms of family disintegration and cooperate with and utilize the resources available to deal with family problems.
(6) Effectuate economic justice between parties who are divorced or separated and grant or withhold alimony according to the actual need and ability to pay of the parties and insure a fair and just determination and settlement of their property rights.
(b) The objectives set forth in subsection (a) shall be considered in construing provisions of this act and shall be regarded as expressing the legislative intent.
23 P.S. § 102.
[1] The proceeds which will be generated by a professional degree or license are similar in many respects to retirement or pension rights, which, although accumulated during the marriage, are not realized income until some time in the future. Pension rights are recognized as a form of marital property in this jurisdiction. See, e.g., Flynn v. Flynn, 341 Pa.Super. 76, 83, 491 A.2d 156, 160 (1985) where Superior Court cogently observed:
Since a pension benefit is an economic resource acquired with funds that would otherwise have been utilized by the parties during their marriage to purchase other assets, it constitutes marital property. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535961/ | 363 B.R. 614 (2006)
In re John. F. DAVIS, Debtor.
Deborah C. Menotte, Plaintiff,
v.
John F. Davis, Defendant.
Bankruptcy No. 6:05-bk-14478-ABB, Adversary No. 6:06-ap-00090-ABB.
United States Bankruptcy Court, M.D. Florida, Orlando Division.
December 21, 2006.
*615 *616 Rilyn A. Carnahan, Elk Bankier Christu & Bakst LLP, West Palm Beach, FL, for Plaintiff.
David L. Wildman, David L. Wildman, P.A., Melbourne, FL, for Defendant.
MEMORANDUM OPINION
ARTHUR B. BRISKMAN, Bankruptcy Judge.
This matter came before the Court on the Complaint Objecting To Discharge ("Complaint")[1] filed by Deborah C. Menotte, the Plaintiff and Trustee in Bankruptcy for Jerold M. Davidson and Virginia L. McCoy-Davidson herein (the "Plaintiff'), against John F. Davis, the Defendant and Debtor herein (the "Debtor"). The Plaintiff seeks denial of the Debtor's discharge pursuant to 11 U.S.C. §§ 727(a)(2)(A), 727(a)(2)(B), 727(a)(3), 727(a)(4)(A), and 727(a)(5). An evidentiary hearing was held on November 16, 2006 at which the Debtor, his counsel, and counsel for the Plaintiff appeared. The Court makes the following Findings of Fact and Conclusions of Law after reviewing the pleadings and evidence, hearing live testimony and argument, and being otherwise fully advised in the premises.
FINDINGS OF FACT
The Plaintiff is a creditor and judgment holder against the Debtor. The Plaintiff brought suit against the Debtor on December 16, 2004 in the Southern District of Florida as the Trustee in the bankruptcy estate of Jerold M. Davidson and Virginia L. McCoy-Davidson, Case No. 04-32983-BKC-SHF, Adversary Case No. 04-3303-BCK-SHF-A. The Plaintiff sought a judgment in the amount of $76,000 for alleged fraudulent or preferential transfers made to the Debtor. The Debtor was the transferee of two lots of real property *617 from Jerold Davidson and he sold both lots, one for a net amount of $30,000.00 and the other for the net amount of $46,000.00. The Plaintiff obtained a Default Final Judgment against the Debt on January 31, 2005. The Debtor attempted to have the judgment set aside but ultimately his efforts were unsuccessful.
The Debtor attended a post-judgment deposition with the Plaintiff on August 23, 2005. He was not forthcoming with requested documentation, limiting the Plaintiffs ability to formulate an assessment or trace the $76,000.00. The Plaintiff was required to file a motion to compel the production of documents due to the Debtor's noncompliance, and the Debtor again presented insufficient material.
The Debtor revealed at the deposition he owned real property with his former wife located in Orange County, Florida at 3046 Knightsbridge Road, Orlando, FL 32818 ("the Orlando Property"). He testified the Orlando Property was awarded to his former wife in their divorce and he no longer had an interest. The Debtor, however, retained the Orlando Property and was entitled to half of the net proceeds of a sale of the home pursuant to the Marital Settlement Agreement ("Settlement Agreement") incorporated in the parties' Amended Final Judgment of Dissolution of Marriage ("Divorce Decree").[2] The Orlando Property was sold the following month after his deposition, two weeks prior to the filing of the involuntary petition, and received a net of $94,763.78.[3] He and his former wife each received a check for $47,000.00, and he negotiated the full amount of his check. He then purportedly gave $30,000.00 of the cash to his former wife for payment of the second mortgage. The amount of the second mortgage of $32,235.47 was deducted from the sale proceeds in the closing of the Orlando Property, thus the Debtor's former wife was only entitled to receive $16,117.73 from the Debtor pursuant to the Settlement Agreement.[4] The $16,117.73 amount represents one-half of the second mortgage. The Debtor spent the remaining funds on his IRS liability, new tires for his truck, medical bills, and other miscellaneous expenses. The Debtor made no payment to the Plaintiff to satisfy any portion of the judgment.
The Plaintiff filed the Debtor's Chapter 7 involuntary bankruptcy petition on October 13, 2005 ("Petition Date"). The Debtor filed a Motion to Dismiss Involuntary Petition ("Motion to Dismiss") on November 18, 2005[5] which was subsequently withdrawn on January 9, 2006.[6] The Debtor did not disclose several items in his bankruptcy Schedules and Statement of Financial Affairs which he executed under *618 oath and filed on February 17, 2006.[7] The Debtor answered "NONE" on Schedule B to "Other contingent and unliquidated claims of every nature, including tax refunds, counterclaims of the debtor, and "i" rights to setoff claims".[8] The Debtor had recently been involved in a motorcycle accident and he did not disclose his personal injury claim for which he had obtained counsel. The Debtor had not communicated with his attorney to confirm a claim had actually been filed. He did not disclose a judgment he obtained in a landlord-tenant eviction action because he was unaware his action constituted a claim within the bankruptcy schedule's meaning. The Debtor did not list any income from real property in his Schedules.[9] He did not disclose the sale of the Orlando Property where he received $47,000.00, nor did he disclose the payment of $30,000.00 to his former wife. He additionally failed to disclose his receipt of rental income during 2004 and the beginning of 2005, prior to the tenant's eviction.
The Plaintiff subsequently filed her Complaint on April 6, 2006 seeking denial of the Debtor's discharge. The Debtor filed an amendment to his Schedule B on April 25, 2006, after the Plaintiff initiated the adversary proceeding.[10] The Plaintiff asserts the Debtor acted with the intent to hinder, delay, and defraud his creditors, he knowingly made a false oath, he failed to preserve any record of his financial condition, and he failed to explain satisfactorily the loss or depletion of his assets. The Plaintiff's Complaint is due to be granted.
The Debtor had competent counsel throughout his bankruptcy case. His counsel assisted him with the completion of his bankruptcy papers, and he executed the documents under oath subject to the penalty of perjury. There are substantial discrepancies in his Schedule disclosures. The Debtor has not produced sufficient records concerning the disposal of his sale proceeds. He did not list income other than from employment or operation of business in his Statement of Financial Affairs. He, for a lack of understanding or knowledge, did not disclose his personal injury cause of action in Schedule B or any lawsuits in his Statement of Financial Affairs relating to the personal injury matter.
The Debtor was unable to fulfill his most basic and important obligations as a debtor. He is not a sophisticated debtor, but there is a minimal obligation to comply with the bankrupting filing requirements. He needed only to take rudimentary measures to successfully fulfill his responsibility as a debtor in bankruptcy. He did not disclose material information in his bankruptcy papers relating to his income, assets, and the disposition of sale proceeds. He did not preserve important information regarding his financial condition and business transactions. No excusable reason exists for the Debtor's failure to keep and preserve his financial records. He has not explained satisfactorily his loss of his assets, specifically the sale proceeds of the Orlando Property. The Debtor is not deserving of a discharge. His discharge is due to be denied.
CONCLUSIONS OF LAW
The Plaintiff seeks denial of the Debtors' discharge pursuant to 11 U.S.C. §§ 727(a)(2)(A), 727(a)(2)(B), 727(a)(3), 727(a)(4)(A) and 727(a)(5). The Chapter 7 Involuntary bankruptcy petition was filed *619 prior to the applicability of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), thus the pre-BAPCPA Code provisions will be relevant.[11]
The party objecting to a debtor's discharge or the dischargeability of a debt carries the burden of proof and the standard of proof is preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291, 111 S. Ct. 654, 112 L. Ed. 2d 755 (1991); Fed. R. Bankr.P. 4005 (2005). Objections to discharge are to be strictly construed against the creditor and liberally in favor of the debtor. In re Hunter, 780 F.2d 1577, 1579 (11th Cir.1986); In re Bernard, 152 B.R. 1016, 1017 (Bankr.S.D.Fla.1993). "Any other construction would be inconsistent with the liberal spirit that has always pervaded the entire bankruptcy system." 4 COLLIER ON BANKRUPTCY ¶ 523.05, at 523-24 (15th ed. rev.2005).
Section 727(a) of the Bankruptcy Code sets forth a debtor shall be granted a discharge unless certain abuses have been committed by the debtor. A discharge will be denied where a debtor has, among other things: (i) within one year of the petition date and with the intent to hinder, delay, or defraud a creditor, transferred, removed, destroyed, mutilated, or concealed property of the debtor or the estate (11 U.S.C. § 727(a)(2)); (ii) concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information from which the debtor's financial condition might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case (11 U.S.C. § 727(a)(3)); (iii) knowingly and fraudulently, in or in connection with the case, made a false oath or account (11 U.S.C. § 727(a)(4)(A)); or (iv) failed to explain satisfactorily any loss of assets or deficiency of assets to meet the debtor's liabilities (11 U.S.C. § 727(a)(5)).
"Section 727(a)(2) is intended to prevent the discharge of a debtor who attempts to avoid payment to creditors by concealing or otherwise disposing of assets." 6 COLLIER ON BANKRUPTCY ¶ 727.02, at 727-13 (15th ed. Rev.2005). A discharge should be " denied where the omission from the schedules or statement of financial affairs is both fraudulent and material. Swicegood v. Ginn, 924 F.2d 230, 232 (11th Cir.1991).
The Debtor is not entitled to a discharge due to violating Section 727(a)(2). The Debtor sold the Orlando Property and negotiated his proceeds check within two weeks of the Petition Date. He did not disclose this sale in his Schedules. He transferred the majority of his proceeds to his former wife, but there is no record to confirm this transaction. He offered no receipts or bank records verifying the disposition of the sale proceeds in their entirety. The Debtor did not disclose documentation relating to his personal injury action nor did he list the action in his Schedules, although this was omitted due to the Debtor's lack of understanding the status of his claim.
The purpose of § 727(a)(3) is to make certain the creditors and the trustee are given sufficient information to understand the debtor's financial condition. 6 COLLIER ON BANKRUPTCY ¶ 727.03[3][a], at 727-31. The debtor's presented records must enable his creditors to ascertain his present financial condition and to follow his business transactions for a reasonable period of time in the past to qualify as *620 sufficient. In re Juzwiak, 89 F.3d 424, 427 (7th Cir.1996). Section 727(a)(3) does not require a full accounting of every business transaction, but "there should be some written records, orderly made and pre-4" served, from which the present and past financial condition of the debtor may be ascertained with substantial completeness and accuracy." In re Sowell, 92 B.R. 944, 947 (Bankr.M.D.Fla.1988). Each case must be determined on its own facts. In re Milam, 172 B.R. 371 375 (Bankr. M.D.Fla.1994). The standard applied to a debtor who is involved in business may be more stringent than the standard imposed on a debtor who is an unsophisticated wage earner. Id.; Meridian Bank v. Alten, 958 F.2d 1226, 1231 (3d Cir.1992).
Once the objecting party makes an initial showing that a debtor failed to maintain or preserve adequate records from which his financial condition or business transactions could be ascertained, the burden then shifts to the debtor "to explain satisfactorily the loss." In re Chalik, 748 F.2d 616, 619 (11th Cir. 1984); 6 COLLIER ON BANKRUPTCY ¶ 727.03[4], at 727-37. The debtor carries the burden of persuasion to explain the failure to keep records because the information necessary to establish such an excuse is generally in the possession of the debtor. Meridian Bank v. Alten, 958 F.2d at 1233. A debtor must explain his or her losses or deficiencies of documentation in such a manner to convince the Court of good faith and businesslike conduct. Id. "The plain language of section 727(a)(3) places the burden on the debtor to justify the lack of adequate record keeping." Id. at 1234.
The Debtor did not keep or preserve books, documents, records, and papers from which his financial condition and transactions might be ascertained. He was unable to explain satisfactorily the disposal of the sale proceeds or deficiency of assets to meet his liabilities, and he did not list any income other than from employment or operation of business in his Statement of Financial Affairs. The Debtor has offered no documentation reflecting his substantial expenditures, and he is required as a debtor in bankruptcy to be forthcoming with sufficient financial information. The Debtor amended his Schedules only after the Plaintiff initiated this adversary proceeding. The Debtor has violated Sections 727(a)(3) and (a)(5) of the Bankruptcy Code.
The Debtor violated Section 727(a)(4)(A) by not disclose accurate information in his bankruptcy Schedules and Statement of Financial Affairs. The documents he filed were executed under oath and subject to the penalty of perjury.
The Plaintiff has established all elements of 11 U.S.C. §§ 727(a)(2)(A) & (B), 727(a)(3), 727(a)(4)(A), and 727(a)(5). The Debtor is not a sophisticated individual, but he did not comply with the most elementary steps to fulfill his obligation as a debtor in bankruptcy. He did not apply the minimal effort necessary. Denial of the Debtor's discharge is appropriate considering these circumstances. A separate judgment in favor of the Plaintiff and against the Debtor consistent with these Findings of Fact and Conclusions of Law shall be entered contemporaneously.
JUDGMENT
This matter came before the Court on the Complaint Objecting To Discharge filed by Deborah C. Menotte, the Plaintiff and Trustee in Bankruptcy for Jerold M. Davidson and Virginia L. McCoy-Davidson, against John F. Davis, the Defendant and Debtor. The Plaintiff seeks denial of the Debtor's discharge pursuant to 11 U.S.C. §§ 727(a)(2)(A), 727(a)(2)(B), *621 727(a)(3), 727(a)(4)(A), and 727(a)(5). An evidentiary hearing was held on November 16, 2006 at which the Debtor, his counsel, and counsel for the Plaintiff appeared. After reviewing the pleadings and evidence, hearing live testimony and argument, and in conformity with and pursuant to the Memorandum Opinion entered contemporaneously herewith, it is
ORDERED, ADJUDGED and DECREED that the relief sought in Counts I through V of the Complaint is GRANTED; and it is further
ORDERED, ADJUDGED and DECREED that JUDGMENT is hereby entered in favor of the Plaintiff Deborah C. Menotte and against the Defendant John F. Davis; and it is further
ORDERED, ADJUDGED and DECREED that John F. Davis's discharge is hereby DENIED pursuant to 11 U.S.C. §§ 727(a)(2)(A) & (B), (a)(3), (a)(4)(A) and 727(a)(5).
NOTES
[1] Doc. No. 1.
[2] Debtor's Exh. 1 at ¶ 10: "In the event the home cannot be refinanced or transferred from the name of the Petitioner, the home shall be sold immediately by a Broker mutually agreed upon by both parties and all proceeds shall be split equally with the following condition: If it is necessary to sell the marital residence, then both parties agree that the second mortgage shall be paid out of the Respondent's share of the proceeds only. The Petitioner is not liable in any manner for the second mortgage as the Respondent's agreement to pay off the second mortgage in full is a part of the equitable distribution of marital debts. Therefore, if there is not enough money to cover the costs of the second mortgage, then the Respondent shall repay the Petitioner within thirty days of closing any deficit which was taken from her share of the proceeds."
[3] Plaintiff's Exh. 9: Warranty Deed; Debtor's Exh. 5: Closing Statement.
[4] Debtor's Exh. 5.
[5] Doc. No. 4 of Main Case No. 6:05-bk-14478-ABB.
[6] Doc. No. 13 of Main Case.
[7] Doc. No. 22 of Main Case.
[8] Id. at p. 5.
[9] Id. at 16.
[10] Doc. No. 33 of Main Case.
[11] Pub.L. No. 109-8, 119 Stat. 23 (April 20, 2005). Generally applicable October 17, 2005. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535964/ | 737 A.2d 1179 (1999)
325 N.J. Super. 150
In the Matter of the GUARDIANSHIP OF D.J.M.
Superior Court of New Jersey, Chancery Division, Family Part, Hudson County.
Decided July 7, 1999.
*1180 John Farmer, Jr., Attorney General for New Jersey Division of Youth and Family Services (Marcia Goldstein, Deputy Attorney General, attorney).
Kathleen F. Gahles, Neshanic Station, for D.A.M.
O'SHAUGHNESSY, J.S.C.
The issue before this Court is whether to stay a guardianship proceeding pending the outcome of a simultaneous criminal proceeding arising out of the same facts.
Guardianship proceedings are not typical civil actions. Indeed, they are the most weighty and often the most heart wrenching cases that a Superior Court, Family Part judge has to decide. The termination of an individual's parental rights is permanent, and the impact extends not only to the parents but to extended family members.
On July 14, 1998, a verified complaint was filed by the Attorney General's Office on behalf of the Division of Youth and Family Services ("DYFS"). The Attorney General petitioned the court for an order terminating the parental rights of D.A.M. (a.k.a.D.O.) and D.R.M. and granting guardianship of the minor, D.J.M., to DYFS. The court signed an order to show cause ordering the defendants to appear on September 15, 1998, and show cause why an order should not be entered terminating their parental rights. Hearings were held on September 15, 1998, and November 10, 1998. Defendants failed to appear at both hearings because they were not properly served. At a hearing on December 15, 1998, a default judgment was entered against the natural father D.R.M. The hearing, scheduled for January 5, 1999, was continued to permit the appointment of a law guardian for the child. The matter was rescheduled for February 23, 1999, and subsequently adjourned with the consent of the Deputy Attorney General ("DAG"). The parties appeared before this court for the first time on April 7, 1999. Defendant's counsel requested an adjournment of the hearing due to a personal emergency which was granted, and a hearing was rescheduled for April 28, 1999. Defendant petitioned the court for a stay of the guardianship proceeding pending the outcome of the simultaneous criminal proceeding. The court ordered both parties to submit briefs within seven days and rescheduled the hearing for oral argument. On May 19, 1999 the court heard oral argument on Defendant's motion and ordered the DYFS caseworker to give D.A.M. a recent photo of D.J.M. and current school information.
The Defendant, D.A.M., has an lengthy history with DYFS. According to the complaint, D.A.M.'s initial involvement with DYFS began on May 17, 1995, when DYFS received a referral alleging that D.A.M. struck D.J.M. in the face at a *1181 parent-teacher conference. On August 6, 1995, DYFS filed an abuse and neglect complaint against D.A.M. She failed to appear on the scheduled court date resulting in an order that if she failed to appear at the next hearing a warrant would issue. On October 31, 1995, the Defendant failed to appear and the Court issued a bench warrant. During this period, DYFS received several referrals alleging that D.J.M. frequently had bruises on his body including a black eye and had a number of unexcused absences from school. The allegations as to the black eye and bruises were unsubstantiated. On January 5, 1996, DYFS was notified by truant officers that D.J.M. had been absent from school since December 12, 1995, and that they were planning to charge D.A.M. for her son's truancy. On February 8, 1996, D.J.M. was removed from his home, and D.A.M. was arrested and incarcerated in the County Jail. D.A.M. was subsequently ordered to cooperate with DYFS, to undergo a substance abuse screening and psychological evaluation and to receive therapy. The complaint asserts that D.A.M. was receptive to joint therapy with her son, and DYFS opined that she was making progress. During a counseling session on September 30, 1996, however, D.J.M. disclosed that both his mother and maternal grandfather, L.O., had sexually abused him. Criminal charges were subsequently filed against D.A.M. and L.O. On the advice of counsel, D.A.M. thereafter ceased communicating with DYFS and refused to accept any services.
In addition to the allegations of abuse and neglect, the DYFS complaint further alleges that D.A.M. has a history of substance abuse and dysfunctional relationships. The DAG asserts that D.A.M. failed to protect D.J.M. and/or sexually abused him herself.
The Defendant wishes to stay this guardianship proceeding pending the outcome of the criminal action. She asserts that guardianship actions are coercive by nature. As such, asking her to choose between self-incrimination and her child is violative of the Fifth Amendment. The DAG acknowledges that pursuant to N.J.S.A. 9:6-8.10(a), DYFS is obligated to provide its records to the County Prosecutor and that transcripts of the proceeding would be similarly available to the State for use in the criminal trial. The DAG contends, however, that the focus of the guardianship proceeding must be the safety of the minor, D.J.M., and that his interests are paramount to those of his biological mother.
I.
On March 31, 1999, Governor Christine Todd Whitman signed into law Senate Bill 1705 which effectively amended Title 9 and Title 30 to conform to the Federal Adoption and Safe Families Act of 1997 ("ASFA"). The bill was introduced on February 18, 1999, and the legislative statement preceding the proposed bill highlighted its principal tenet with the following statement: "The bill clearly establishes as public policy in Titles 9 and 30 of the Revised Statutes that the safety of children shall be the paramount concern, expanding the current State policy which protects a child's best interests." Senate Judiciary Committee Statement to Senate Bill No. 1705 (1999). This law mandates that a child's health and safety be the paramount concern and places a priority on permanency for the child. The Appellate Division also acknowledged, in passing, that the ASFA "[S]eems to place a greater degree of emphasis upon permanency by imposing reduced time limits, under certain circumstances, upon the duration of foster care and the timely freeing of foster care children for adoption." In the Matter of Guardianship of K.H.O., 308 N.J.Super. 432, n. 3, 706 A.2d 226 (App. Div.1998).
One of the primary goals of Congress in passing ASFA was to reduce the amount of time children spend in foster care. Congress recognized that children who are placed in foster care are often transferred *1182 from foster care to the natural parents and back into foster care multiple times. The instability that inherently results from these multiple placements can permanently affect a child's psyche. While foster care serves a valuable purpose, prolonged it can have a negative psychological impact on the child(ren). "Even in a loving, long term foster home, the uncertainty of the foster status may cause hardship." Robert M. Gordan, Drifting through Byzantium: The Promise and Failure of the Adoption and Safe Families Act of 1997, 83 Minn. L.Rev. 637, 655 (1999)(describes Congress's intentions and argues for the need to consider further reforms to implement effectively the law).
The New Jersey Legislature's adoption of ASFA clearly expresses its desire to expedite these proceedings. In the most notable amendment to N.J.S.A. 30:4C-15, DYFS is required to file for termination as soon as any one of the five standards for termination is met and "[N]o later than when the child has been in placement for 15 of the most recent 22 months," unless an exception applies. This amendment effectively provides a time frame within which the natural parents must demonstrate that they are capable of being nurturing caregivers or risk losing their children forever. Additionally, the statute requires that a final hearing be held within three months from the date the petition is filed. N.J.S.A. 30:4C-15.2 (emphasis added). The amendments made to Title 30 demonstrate that once a guardianship complaint is filed, the Legislature clearly intends that there be a prompt resolution. Distilled to its essence, the adoption of ASFA shifted the focus from reunification with the biological parents to the safety of the child(ren).
II.
The Fifth Amendment right against self-incrimination as applied to the states under the Fourteenth Amendment grants individuals the right to decline to answer questions in any proceeding "civil or criminal, formal or informal, where the answers might incriminate [this individual] in future criminal proceedings." Lefkowitz v. Turley, 414 U.S. 70, 77, 94 S.Ct. 316, 322, 38 L.Ed.2d 274 (1973); Minnesota v. Murphy, 465 U.S. 420, 426, 104 S.Ct. 1136, 1141, 79 L.Ed.2d 409, 418 (1984) (quoting Lefkowitz at 77, 94 S.Ct. 316); Banca v. Town of Phillipsburg, 181 N.J.Super. 109, 114-15, 436 A.2d 944 (App.Div.1981); New Jersey Div. of Youth & Family Servs. v. S.S., 275 N.J.Super. 173, 179, 645 A.2d 1213 (App.Div.1994). The touchstone of the Fifth Amendment is compulsion. The inquiry must, therefore, focus on whether an individual has been put in a position that by its very nature is so coercive, due to either physical or psychological factors, that it compels the individual to make an incriminatory statement involuntarily. Garrity v. State of New Jersey, 385 U.S. 493, 87 S.Ct. 616, 17 L.Ed.2d 562 (1967); Miranda v. Arizona, 384 U.S. 436, 86 S.Ct. 1602, 16 L.Ed.2d 694 (1966). In Garrity, several New Jersey police officers were questioned as part of an investigation of alleged traffic ticket fixing. The officers were advised that any statements made might be used against them in a criminal proceeding and that they could refuse to answer questions that might tend to incriminate them. They were also advised, pursuant to a state statute, that if they chose to invoke the Fifth Amendment, their refusal to answer the questions would subject them to removal from office. The officers answered the questions. The State subsequently brought charges against the officers for conspiracy to obstruct the administration of traffic laws. Their prior statements to the investigators were admitted into evidence, over their objection, and the officers were convicted. The Supreme Court held, "There are rights of a constitutional stature whose exercise a state may not condition by the exaction of a price." Garrity, 385 U.S. at 500, 87 S.Ct. at 620, 17 L.Ed.2d 562. In short, the officers were made to choose between self-incrimination and job forfeiture. Duress inherently exists when statements *1183 are secured in this manner. Justice Douglas, writing for the majority, reasoned that such a choice was one between "the rock and the whirlpool" and violative of the Fifth Amendment. Id. at 498, 87 S.Ct. 616, quoting, Stevens v. Marks, 383 U.S. 234, 243, 86 S.Ct. 788, 15 L.Ed.2d 724 (1966).
The New Jersey State Constitution does not expressly provide for a right against self-incrimination. The right is derived from our common law and has been subsequently codified in our statutes and rules. State v. P.Z., 152 N.J. 86, 100, 703 A.2d 901 (1997); State v. Reed, 133 N.J. 237, 250, 627 A.2d 630 (1993); See N.J.S.A. 2A:84A-19; N.J.R.E. 503. The absence of express constitutional articulation in no way diminishes its significance. P.Z., supra, 152 N.J. at 100, 703 A.2d 901; Reed, supra, 133 N.J. at 250, 627 A.2d 630. "The privilege is not self-executing under either federal or state law and must be invoked by anyone claiming its protection". P.Z., supra, 152 N.J. at 101, 703 A.2d 901; Reed, supra, 133 N.J. at 251, 627 A.2d 630; See, Murphy, supra, 465 U.S. at 428-29, 104 S.Ct. at 1142-43, 79 L.Ed.2d at 419-20. Generally, when the privilege is not asserted and the person questioned chooses to answer, the choice to respond is considered voluntary. Murphy, supra, 465 U.S. at 429, 104 S.Ct. at 1143, 79 L.Ed.2d at 420; P.Z., supra, 152 N.J. at 101, 703 A.2d 901; State v. Fary, 19 N.J. 431, 435, 117 A.2d 499 (1955). There are exceptions to this axiom. The most notable exception was articulated by the United States Supreme Court when it held that a custodial interrogation by lawenforcement officers is inherently coercive, automatically triggering the Fifth Amendment. Miranda, supra, 384 U.S. at 436, 86 S.Ct. 1602, 16 L.Ed.2d 694 (1966).
While the exercise of the Fifth Amendment privilege is a basic constitutional right, its application is not absolute. It is a fact-sensitive inquiry and no case law in New Jersey directly addresses the issue to be decided by this court. Therefore, this Court has looked to other states for guidance. It should be noted that while other jurisdictions addressed the issue from different perspectives, common themes emerged.
The Montana Supreme Court addressed an appeal from a defendant who alleged that the State compelled him to testify at his termination proceeding because, if he failed to testify, he would risk the loss of his child. In the Matter of Declaring C.L.R., Youth in Need of Care, 211 Mont. 381, 385, 685 P.2d 926, 928 (1984). The Court held that no violation of the Fifth Amendment occurred because Appellant was not compelled to testify Id. at 387, 685 P.2d 926 (emphasis added). "Appellant clearly could remain silent if he so desired without fear of certain penalty for not testifying. Appellant's determination to testify hinged upon a tactical decision and not a penalty of certain loss of parental rights." Ibid. The Montana Supreme Court cited favorably the New York case, Matter of Roman, 94 Misc.2d 796, 405 N.Y.S.2d 899 (1978), which addressed a similar issue. In Roman, the State was attempting to establish that the child at issue suffered abuse and neglect at the hands of his natural mother and a live-in boyfriend. The New York court presaged the Montana rationale that no compulsion had occurred which violated the defendant's Fifth Amendment rights. The Montana Supreme Court quoted Roman at length:
This is not a situation where a failure to testify will cause a penalty to be exacted. See, supra, Lefkowitz, 414 U.S. 70, 94 S.Ct. 316, 38 L.Ed.2d 274 (1973). Rather, as in a criminal case, the decision to testify or not in the presentation of a defense remains in the unfettered discretion of the Respondent. The decision is a tactical, not a compelled one. A defense to the allegations may be established by alternative methods which do not require the Respondent's testimony. Roman, 94 Misc.2d at 801, 405 N.Y.S.2d at 904.
*1184 [C.L.R., 211 Mont. at 387, 685 P.2d at 929 (1984).]
In another New York case, the appeal was based upon the contention that the respondent's Fifth Amendment right to remain silent was violated when he was required by the trial court, over his objection, to answer questions concerning alleged sexual abuse of his daughters. In the Matter of Gladys "H", 235 A.D.2d 841, 653 N.Y.S.2d 392 (App.Div.1997). During his trial testimony, the respondent refused to admit that he had sexually abused his daughters. The New York Appellate Court held, in part, "It was not improper in these circumstances for Family Court to compel respondent to decide whether to testify and face the possibility that his testimony may be used in a criminal proceeding or to remain silent and face the risk of losing the care and custody of his daughters." Id. at 843, 653 N.Y.S.2d 392 (emphasis added).
Several states have addressed the related issue of the use of statements made to a therapist during the course of an abuse and neglect or guardianship proceeding.
A California court held that, pursuant to a state statute, therapist-patient communications are privileged and cannot be revealed in court. In doing so, the Court emphasized that psychological counseling is vital to the determination of parental fitness. In Re Eduardo, 209 Cal.App.3d 1038, 1042, 261 Cal.Rptr. 68, 70 (Cal.Ct. App.1989). However, the precise scope of the privilege as defined in California is far from clear. The Court distinguished between a court referral to a therapist for counseling and a court ordered psychiatric examination which is primarily an "information-gathering tool, rather than a treatment tool." Id. at 69. The privilege was found not to encompass the latter, "information-gathering examination". Ibid. In addition, in Tarasoff v. Regents of University of California, 17 Cal.3d 425, 551 P.2d 334, 131 Cal.Rptr. 14 (1976), the court held that a therapist may be required to reveal information gathered during counseling if the patient's statements indicate that he/she is likely to injure seriously a third party.
The State of Minnesota has also addressed this issue. The Minnesota court acknowledged the possibility of a subsequent criminal prosecution based upon disclosures made in therapy. Nevertheless, following the rationale of the New York courts, it held that statements made during evaluations do not violate the Fifth Amendment because there is no compulsion. In Re Welfare of S.A.V., 392 N.W.2d 260, 264 (Minn.Ct.App.1986). The Court reasoned that the State has an interest in protecting children and that the termination proceeding was a result of the parents' unfitness. Ibid. This holding, however, does not permit the Court to compel parents to reveal specific evidence which could prove inculpatory in a separate criminal proceeding. In the Matter of the Welfare of J.W. and A.W., 415 N.W.2d 879 (Minn.1987); See, In re Matter of J.G.W. and J.L.W., 433 N.W.2d 885, 886 (Minn. 1989)("It is a violation of the parent's Fifth Amendment privilege to directly require the parent to admit guilt as a part of a court-ordered treatment plan ... However, the privilege does not protect the parent from the consequences of any failure to succeed in a court-ordered treatment plan.").
III.
The Defendant asserts, that, not unlike the police officers in Garrity, without a stay she will be forced to choose between "the rock and the whirlpool". Garrity, supra, 385 U.S. at 498, 87 S.Ct. at 619, quoting, Stevens v. Marks, 383 U.S. 234, 243, 86 S.Ct. 788, 15 L.Ed.2d 724 (1966). She contends that her choice will be between self-incrimination and her child. She argues that the coercive atmosphere that exists in a termination action is far greater than that faced by the officers in Garrity. The Defendant, however, has overlooked a vital distinction between Garrity and the case at bar: A third party, *1185 the minor-D.J.M., has a substantial interest in this matter. Case law confirms that the focus must be on the rights of the child in guardianship proceedings. The above referenced amendments to Title 30 elucidate the Legislature's intent. The child's interests and an expeditious determination are paramount in this proceeding. ASFA expressly requires a final determination within three months. N.J.S.A. 30:4C-15.2. Additionally, when codifying the public policy behind ASFA, the Legislature amended, N.J.S.A. 30:4C-1 to provide in pertinent part:
This act is to be administered strictly in accordance with the general principles laid down in this section, which are declared to be the public policy of this State, whereby the safety of children shall be of paramount concern:
(a) That the preservation and strengthening of family life is a matter of public concern as being in the interests of the general welfare, but the health and safety of the child shall be the State's paramount concern when making a decision on whether or not it is in the child's best interest to preserve the family unit.
[N.J.S.A. 30:4C-1(a) (emphasis added)]
The phrase "[T]he health and safety of the child shall be of paramount concern" is used liberally throughout Title 30. It requires Courts to focus upon the interests of the minor. Accordingly, the child must be the primary focus and concern of this Court. Defendant argues that a stay of this proceeding would not harm the minor at issue because he has been with the same foster family for some time. The Court finds this argument unpersuasive for two reasons. First, the longer D.J.M. spends with his foster parents, away from his biological mother, the stronger his ties become to his foster family. This psychological bonding to his foster parents is an issue that must be addressed in the termination proceeding. Second, based upon the facts before the court it is difficult to determine the necessary length of the requested stay. There is no set trial date and even if such a date were known, it would not impact on the exercise of the Defendant's Fifth Amendment privilege. This Court must also consider that any stay would necessarily involve the time required for any criminal appeal. The net effect of this uncertainty as to the time required to prosecute the criminal charge is to leave this child in limbo for months or even years. The Legislature's intent regarding these matters is quite explicit: Prompt disposition of guardianship proceedings is essential to advancing this child's health, stability and permanency. Courts in this state have recognized the importance of permanency. In New Jersey Div. of Youth and Fam. Servs. v. K.M., 136 N.J. 546, 559, 643 A.2d 987 (1994), the Supreme Court held that the Division could bring concurrent abuse and neglect and termination proceedings involving the same family. In doing so, the Court recognized that the Child Placement Bill of Rights Act, N.J.S.A. 9:6B-1 et seq., made permanency a primary concern. The Court reasoned that if "DYFS cannot bring a termination proceeding until an abuse and neglect action finally winds its way through the courts, the Legislature's goal of achieving permanency for the placement of children will be frustrated and the child will suffer. "Id. The Appellate Division similarly stated, "The goal of permanency, not necessarily of reunification, is paramount." In the Matter of the Adoption of a Child by P.S. and J.S., H/W, 315 N.J.Super. 91, 115, 716 A.2d 1171 (1998) (The Court emphasized that the purpose of the Child Placement Bill of Rights Act, N.J.S.A. 9:6B-1 et seq., was to advance each child's need for permanency in a timely manner). The court's reasoning in K.M. is applicable to the case at bar. Every abuse and neglect and guardianship proceeding has the potential to be criminally prosecuted. Accordingly, every such defendant would have the constitutional right to invoke the Fifth Amendment whether or not he/she had been formally *1186 charged with a violation of a criminal statute. The net effect would be a serious disruption in the timely prosecution of abuse and neglect and guardianship cases, thereby preventing permanent placement of a child(ren) for an undeterminable amount of time. According to the Legislature, time is not on the child's side. Indeed, time was the Legislature's primary concern when it amended Title 9 and Title 30.
The court's ruling in this case does not eviscerate D.A.M.'s defense. DYFS still has the burden of proof by clear and convincing evidence. D.A.M. has the right to cross-examine the State's witnesses and present her own defenses. If she so chooses, she may testify and invoke the Fifth Amendment in response to particular inquires. As in a criminal trial, whether or not she testifies is a tactical decision to be made by her.
This Court recognizes that in making this decision, it has been forced to balance the rights of the respective parties. This unfortunately dilutes one right in favor of the other. It is this Court's view that granting use immunity to defendants would be a less restrictive way to resolve the tension that exists in guardianship proceedings. The authority to grant such immunity does not lie with this Court but rather with the Legislature.
Defendant presents compelling Fifth Amendment arguments; however, her rights must yield to the rights of her issue. The minor, D.J.M, has been in foster care for three years. A review of the procedural history reveals the first court hearing was held on September 15, 1998, and this matter has had eight consecutive court hearings. Simply stated, a determination on the merits is long overdue. The individual constitutional rights of the adults and the modus operandi of the criminal justice system must not be utilized to delay a prompt disposition of this guardianship proceeding. To hold otherwise would be to set a disturbing precedent thereby committing a grave injustice to the only indisputably innocent partythe child, D.J.M.
Defendant's motion to stay this proceeding is denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535998/ | 363 B.R. 239 (2007)
In re Susan Page McDANIEL, Debtor.
United States of America, Appellant,
v.
Susan Page McDaniel, Appellee.
Nos. 6:06-cv-1584-Orl-19KRS, 6:06-cv-1585-Orl-19DAB.
United States District Court, M.D. Florida, Orlando Division.
January 8, 2007.
*240 *241 Brian R. Harris, U.S. Department of Justice, Tax Division, Washington, DC, Paul I. Perez, U.S. Attorney's Office, Middle District of Florida, Tampa, FL, for Appellant.
Kevin E. Mangum, Mangum & Associates, PA, Casselberry, FL, William H. Davis, Law Office of William H. Davis, Orlando, FL, for Appellee.
ORDER
FAWSETT, Chief Judge.
Appellant United States of America appeals from an Order entered by the United States Bankruptcy Court for the Middle District of Florida ("Bankruptcy Court") on August 16, 2006, which vacated its Debtor's Discharge Order of January 12, 2006 and dismissed Appellee Susan McDaniel's main bankruptcy case and a related adversary proceeding. (Main Bankr.Dkt. No. 29; Adv. Bankr.Dkt. No. 26, hereinafter the "Aug. 16 Order").[1] This case comes before the Court on the following:
1. Brief For Appellant United States Of America (Case. No. 06-1584, Doc. No. 13, filed October 30, 2006);
2. Reply To Brief of Appellee Susan Page (Case. No. 06-1544, Doc. No. 16, filed November 14, 2006);
3 Reply Brief For Appellant (Case No. 06-1584, Doc. No. 17, filed November 22, 2006);
4 Brief For Appellant (Case. No. 06-1585, Doc. No. 12, filed October 30, 2006); and
5. Reply Brief For Appellant (Case, No. 06-1585, Doc. No. 15, filed November 22, 2006).
Background of the Case
After retaining counsel, Appellee filed a Chapter 7 petition in the Bankruptcy Court on September 2, 2005. (Aug. 16 Order, p. 2; Main Bankr.Dkt. No. 1). The Bankruptcy Court concluded, after reviewing the filed bankruptcy schedules, that Appellee's primary purpose in filing for bankruptcy was to obtain a discharge of her federal and state tax debts which amount to $278,136.11 for the 1999 tax year and $46,142.00 for the 2000 tax year. (Aug. 16 Order, p. 2; Transcript of the August 7, 2006 Hearing, p. 4, hereinafter "Aug. 7 Hearing").[2] According to the Appellant, Appellee's tax debt should be calculated as 836,254.16 for the 1999 tax year and $362,978.31 for the 2000 tax year. (Aug. 16 Order, p. 2; Aug. 7 Hearing, p. 4). These tax debts formed the majority of Appellee's overall debt. (Aug. 16 Order, *242 p. 2; Aug. 7 Hearing, pp. 4, 9, 12). Appellee listed no secured debts and only $60,496.00 in unsecured non-priority claims against the bankruptcy estate. (Aug. 16 Order, p. 2; Aug. 7 Hearing, p. 4).
Appellee, again acting through counsel, then filed an adversary proceeding in the Bankruptcy Court against Appellant seeking a determination that her federal tax debts were dischargeable under Title 11 U.S.C. § 523(a)(1) and 507(a)(8)(A). (Aug. 16 Order, p. 2; Adv. Bankr.Dkt. No. 1, ¶ 1). The United States Trustee declared this bankruptcy a "no asset" case on October 5, 2005, and the Bankruptcy Court issued a discharge. Order on January 12, 2006. (Aug. 16 Order, p. 2; Main Bankr. Dkt. No. 12; Main Bankr.Dkt. entry made on October 5, 2005).[3]
By then, however, Appellee's case had unraveled. She had previously filed for bankruptcy under Chapter 7 on March 11, 1999, in the District of Arizona. (Aug. 16 Order, pp. 2-3; Aug. 7 Hearing, pp. 5). She had filed for bankruptcy again, under Chapter 13," in 2001. (Aug. 7 Hearing, pp. 5). Because of her bankruptcy filings, the collection of her tax debt was equitably tolled during the period of automatic stay.[4] (Aug. 16 Order, pp. 2-3; Aug. 7 Hearing, pp. 5, 8-9, 11-13). Appellee was, therefore, unable to obtain a full discharge of her tax debts. (Aug. 16 Order, pp. 2-3; Aug. 7 Hearing, p. 5). Appellee's counsel knew that her primary purpose in filing the instant bankruptcy petition was to discharge her tax debts, and he knew of Appellee's two prior bankruptcy cases. (Aug. 16 Order, pp. 2-3; Aug. 7 Hearing, pp. 4-5). Appellee's counsel simply did not consider the toll period when calculating the time to file that case, and as a result counsel had filed the bankruptcy petition too early to discharge all of Appellee's tax debts under Section 523(a) of the Bankruptcy Code. (Aug. 16 Order, pp. 2-3; Aug. 7 Hearing, p. 4).
According to Appellee, her counsel erred in other respects, too. First, he failed to advise her that she was required to file a separate adversary proceeding against the State of Arizona in order to discharge her state tax debt. (Aug. 7 Hearing, pp. 4-5). Secondly, he purportedly entered into a stipulation with Appellant which admitted that the majority of Appellee's tax debt was not dischargeable. (Id. at 5-6). Appellee allegedly did not authorize counsel to enter into this stipulation. (Id.). The Bankruptcy Court, however, did not consider these additional failures of counsel in its Order. (See Aug. 16 Order).
Based on the foregoing, Appellee's counsel sought to withdraw from the case. Once she obtained replacement counsel, the Bankruptcy Court permitted Appellee's original counsel to withdraw. (Id. at 2; Aug. 7 Hearing, p. 3-4). Appellee's new counsel then sought to voluntarily dismiss both the main bankruptcy case and the related adversary case pursuant to Title 11 U.S.C. § 707(a). (Aug. 16 Order, p. *243 2; Main Bankr.Dkt. No. 22; Adv. Bankr. Dkt. No. 23). Appellant initially did not oppose the motion, but it subsequently changed position and challenged the motion on the grounds that the circumstances in the instant case did not constitute cause for dismissal. (Aug. 16 Order, p. 2; Main Bankr.Dkt. No. 27, p. 2; Adv. Bankr.Dkt. No. 24, p. 2).
Upon consideration of Appellee's Motion To Dismiss, the Bankruptcy Court analyzed the circumstances of the instant case through the lens of equity. (Aug. 16 Order, p. 4). The Bankruptcy Court found that Appellee had not acted with unreasonable delay; that she was not delinquent in the payment of any bankruptcy fees or charges, and that she had met all of the duties required under Section 521 of the Bankruptcy Code. (Id. at 5). The Court also found that Appellee had acted in good faith throughout the proceedings and that she did not have a history of abuse of the bankruptcy system. (Id.).
In its Order, the Court balanced the best interests of Appellee with the likely prejudice to Appellant that would result from vacating the discharge Order and dismissing the Bankruptcy Cases. (Id. at 4-6). The best interests of Appellee, reasoned the Bankruptcy Court, included whether she can obtain the benefit of a fresh start once she emerges from bankruptcy. (Id. at 5). The Court also determined that dismissal would not significantly prejudice Appellant because the United States had "ample time" to pursue the collection of its tax debts. (Id. at 5-6). The Bankruptcy Court concluded the balance of the equities favored dismissal. (Id. at 6).
Appellant subsequently appealed the Bankruptcy Court Orders in both the main case and the related adversary case. (Main Bankr.Dkt. No. 30; Adv. Bankr.Dkt. No. 27). As these consolidated appeals concern core proceedings, see 28 U.S.C. § 157(b), this Court has jurisdiction pursuant to 28 U.S.C. § 158(a).
Applicable Standards
This appeal concerns the dismissal of a bankruptcy petition under Section 707(a) of the Bankruptcy Code. The question of whether to grant a motion to dismiss is guided by equitable principles, and consequently the decision to do so lies within the discretion of the Bankruptcy Court. Peterson v. Atlas Supply Corp. (In re Atlas Supply Corp.), 857 F.2d 1061, 1063 (5th Cir.1988). This Court may reverse the Bankruptcy Court only where there is an abuse of such discretion. Id. Thus, the Court must affirm unless it finds that the Bankruptcy Court has made a clear error of judgment, or has applied the wrong legal standard. United States v. Frazier, 387 F.3d 1244, 1259 (11th Cir. 2004).
Discussion
Section 707(a) of the Bankruptcy Code provides for the voluntary dismissal of a Chapter 7 bankruptcy petition, after notice and hearing, "only for cause". See 11 U.S.C. § 707(a); Dionne v. Simmons (In re Simmons), 200 F.3d 738, 743 (11th Cir. 2000). That statue states:
(a) The court may dismiss a case under this chapter only after notice and a hearing and only for cause, including
(1) unreasonable delay by the debtor that is prejudicial to creditors;
(2) nonpayment of any fees or charges required under chapter 123 of title 28; and
(3) failure of the debtor in a voluntary case to file, within fifteen days or such additional time as the court may allow after the filing of the petition commencing such case, the information required by paragraph (1) of section *244 521, but only on a motion by the Unit ed States trustee.
11 U.S.C. § 707(a). Although the statute places the burden of showing cause on the movant, the three enumerated examples of cause do not form an exclusive list.[5]In re Simmons, 200 F.3d at 743.
Another consideration is the debtor's lack of good faith in filing the bankruptcy petition. Turner v. United States (In re Turner), 195 B.R. 476, 493 (Bankr.N.D.Ala.1996). A Court determining whether a debtor lacked good faith undertakes a fact-sensitive inquiry that is "guided by equitable principles and should balance the benefit and harm to creditors and the debtor." Id. at 494 (Quoting In re Ripley & Hill, P.A., 176 B.R. 596 (Bankr. M.D.Fla.1994)). At a minimum, good faith requires that the debtor have honest intentions. In re Ripley & Hill, P.A., 176 B.R. at 598. Other factors that may shed light upon whether the debtor acted in good faith include:
[1] the debtor reduced his creditors to a single creditor in the months prior to filing the petition;
[2] the debtor made no life-style adjustments or continued living an expansive or lavish life-style;
[3] the debtor filed the case in response to a judgment, pending litigation, or collection action;
[4] there is an intent to avoid a large, single debt;
[5] the debtor made no effort to repay his debts;
[6] the unfairness of the use of Chapter 7;
[7] the debtor has sufficient resources to pay his debts;
[8] the debtor is paying debts of insiders;
[9] the schedules inflate expenses to disguise financial well-being;
[10] the debtor transferred assets;
[11] the debtor is over-utilizing the protections of the Code to the unconscionable detriment of creditors;
[12] the debtor employed a deliberate and persistent pattern of evading a single major creditor;
[13] the debtor failed to make candid and full disclosure;
[14] the debtor's debts are modest in relation to his assets and income; and
[15] there are multiple bankruptcy filings or other procedural "gymnastics".
In re Cappuccetti, 172 B.R. 37, 39 (Bankr. E.D.Ark.1994).
In addition, "courts also seek to protect the debtor's fresh start and to facilitate the fair and orderly distribution of assets" in Chapter 7 cases. In re Ripley & Hill, P.A., 176 B.R. at 598. "[E]nsuring a `fresh start' for individual debtors," Justice Souter reminds us, "[is] at the core of federal bankruptcy law." BFP v. Resolution Trust Corp., 511 U.S. 531, 563, 114 S. Ct. 1757, 128 L. Ed. 2d 556 (1994) (Souter, J., dissenting).
Appellant argues that the Bankruptcy Court failed to follow "precedent", that is, a decision by the Bankruptcy Appellate Panel ("BAP") of the U.S. Court of Appeals of the Ninth Circuit which held *245 that a debtor's mistake in filing a bankruptcy petition too early to discharge a tax debt does not constitute cause for dismissal under Section 707(a). (Doc. No. 13, 5-6). Appellant also contends that the Bankruptcy Court erred in determining the prejudice to it by improperly calculating the time period that Appellee would have to wait before she could re-file her bankruptcy petition. (Id. at 9).
Appellee asserts that the Order of the Bankruptcy Court properly considers the factors enumerated in Section 707(a) of the Bankruptcy Code; discussed by the U.S. Court of Appeals for the Eleventh Circuit in In re Simmons; and considered by the Court in In re Fultz, 2004 WL 451258, 2000 Bankr.LEXIS 195 (Bankr.N.D.Fla. 2004). (Doc. No. 16, pp. 6). Appellee also points out that Appellant has improperly calculated her discharge date in its opening brief. (Id. at 6).
In reply, Appellant concedes that Appellee correctly identified its calculation error and concedes that Appellee would have to wait until some time in 2008 before she could re-file for bankruptcy. (Doc. No. 17, p. 2). Thus, Appellant has from about eighteen months to about twenty-four months to collect the outstanding tax debt, depending upon one's calculation.[6] (Id.). Nevertheless, Appellant contends that it would be unduly prejudiced because it would have an additional six years to collect the subject tax debt if the instant case was not dismissed by the Bankruptcy Court. (Id.).
Appellant places the greater weight of its position on the holding of the Ninth Circuit Bankruptcy Appellate Panel in Leach v. United States (In re Leach), 130 B.R. 855 (9th Cir. BAP 1991), and the Court begins its analysis with that case. Initially, its important to note that In re Leach is only useful for its persuasive authority. The holding of the Ninth Circuit BAP is not binding on this Court or the Bankruptcy Court, and for that matter, it is not entirely clear whether a BAP decision is binding on any Court. See Zimmer v. PSB Lending Corp. (In re Zimmer), 313 F.3d 1220, 1225 n. 3 (9th Cir.2002) ("Although the binding nature of Bankruptcy Appellate Panel decisions an open question in this circuit is not squarely before us in this case, we join Judge O'Scannlain's call for the Judicial Council to consider an order clarifying whether the bankruptcy courts must follow the BAP."); Bank of Maui v. Estate Analysis, Inc., 904 F.2d 470 (9th Cir.1990); Daly v. Deptula (In re Carrozzella & Richardson), 255 B.R. 267 (Bankr.D.Conn.2000) (holding that a decision of the Second Circuit BAP does not bind Bankruptcy Courts in the Second Circuit).
Secondly, the correctness of the holding itself is dubious to the extent that In re Leach stands for the proposition that a Bankruptcy Court may do no more once a creditor ferrets out some "legal prejudice" if the debtor's dismissal were to be granted. 130 B.R. at 857 ("This case can be disposed of based on Hull without any further discussion. The equitable considerations insisted upon by Leach are only relevant in the absence of dispositive legal arguments.") (footnote omitted). That is clearly not the case. The Bankruptcy Court must still undertake a fact-sensitive inquiry that is guided by equitable considerations, which balances the benefit and harm to creditor and debtor alike. See Quenzer v. United States (In re Quenzer), 19 F.3d 163, 165 (5th Cir.1993) (noting the *246 importance of a fact driven inquiry when deciding to discharge a debt under Section 523 of the Bankruptcy Code); In re Hull, 339 B.R. 304, 307 (Bankr.E.D.N.Y.2006) (balancing the benefit and harm to the creditor and debtor despite the presence of prejudice to the taxing authorities); cf. eBay v. MercExchange, L.L.C., 547 U.S. ___, ___, 126 S. Ct. 1837, 1842, 164 L. Ed. 2d 641 (2006) ("[T]raditional equitable principles do not permit . . . broad classifications."). The presence of prejudice to one creditor does not short-circuit this inquiry.
As to the circumstances of the instant case, the Court concludes that the Bankruptcy Court did not abuse its discretion when it dismissed Appellee's case. Appellant does not dispute that Appellee has acting in good faith throughout these proceedings. It does not dispute the Bankruptcy Court's finding the Appellant did not unreasonably delay her motion to dismiss, or its findings that she had paid her bankruptcy fees and complied with the requirements of Section 521. It also does not dispute the Bankruptcy Court's finding that Appellee is not abusing the bankruptcy system. The only prejudice that the Appellant has identified is the loss of approximately six years of time in which to collect Appellee's 2000 tax debt.[7] (Doc. No. 17, p. 2). Appellant acknowledges, however, that it has at least a year-and-a-half to two years to undertake a collection action against Appellee. (Id.).
The Court does not find Appellant's argument concerning prejudice compelling. First, creditors are not generally prejudiced by dismissal of bankruptcy cases as they will no longer be stayed from resorting to the courts to collect their outstanding debts. See In re Hull, 339 B.R. at 309. Secondly, Appellant's argument is not based on its reasonable pre-petition legal expectations but is based instead upon the loss of an opportunity to collect that only exists because of the bankruptcy process. See id. ("[I]t is the reasonable pre-petition legal expectations of a debtor's creditors that should be considered in the context of a . . . motion to dismiss, not the loss of an opportunity to receive a distribution through the bankruptcy process."). Although Appellant may have identified some legal prejudice, its entirely reasonable for the Bankruptcy Court to give such prejudice little weight in view of the remaining equitable considerations in the instant case.
Thus, when such modest prejudice is balanced against the conduct of Appellee's former attorney, her good faith, and her desire to obtain a fresh start, the tilt of the equitable considerations become clear, and the Bankruptcy Court did not abuse its discretion in granting Appellee's Motion To Dismiss.
Conclusion
Based on the foregoing, the Court AFFIRMS the August 16, 2006 Order of the Bankruptcy Court.
NOTES
[1] These consolidated appeals arose out of Appellee's main bankruptcy case (case no. 6:05-bk10028-ABB) and a related adversary proceeding filed by Appellee against Appellant (case. no. 6:05-ap-00303-ABB). Citations to the record of the Bankruptcy Court in this opinion are abbreviated "Main Bankr.Dkt. No." for docket entries in case no. 6:05-bk-10028-ABB and "Adv. Bankr.Dkt. No." for docket entries in case no. 6:05-ap-00303-ABB. Because the parties' filings in this Court are substantially similar in both appeals, unless otherwise noted, all citations to this Court's docket refer to case no. 06:06-cv-1584-Orl-19KRS. The Court further abbreviates case no. 06:06-cv-1584-Orl19KRS as 06-1584 and case no. 6:06-cv-1585-Orl-19DAB as 06-1585, when appropriate.
[2] The parties have not designated the bankruptcy disclosures, statements and schedules as part of the record on appeal. Therefore, the Court takes the tax debt amounts from the August 16, 2006 Order of the Bankruptcy Court and from the statements of the parties at the August 7, 2006 Hearing.
[3] The Court infers that this docket entry memorializes the notice of the meeting of creditors under Bankruptcy Rule 2002, which states in relevant part:
In a chapter, 7 liquidation case, if it appears from the schedules that there are no assets from which a dividend can be paid, the notice of the meeting of creditors may include a statement to that effect; that it is unnecessary to file claims; and that if sufficient assets become available for the payment of a dividend, further notice will be given for the filing of claims.
BANKR.R. 2002(e).
[4] This result flows naturally from the holding of the U.S. Supreme Court in Young v. United States, 535 U.S. 43, 47, 122 S. Ct. 1036, 152 L. Ed. 2d 79 (2002). In. Young, the Court concluded that a prior bankruptcy petition should toll the time period for priority status and dischargeability of federal taxes. Id.
[5] "The only guidance Congress provided as to the meaning of `cause' in this section is an admonition that the `ability of the debtor to repay his debts in whole or in part [does not] constitute[] adequate cause for dismissal.'" Novak v. Wagnitz (In re Wagnitz), 2004 WL 626821, *3 (N.D.Ill.2004) (quoting H.R. Rep. 95-595, at 380 (1978), U.S.C.C.A.N. 1978, pp. 5963, 6336).
[6] Its not entirely clear from Appellant's reply what exact time frame it now thinks is appropriate, but it does state that the difference between these time periods and its own is "not significant". (Doc. No. 17, p. 2).
[7] Appellant suggests it would have at least this much time because, if the instant case were discharged, Appellee could not petition the Bankruptcy Court again for eight years. See 11 U.S.C. § 727(a)(8). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1536032/ | 928 A.2d 1013 (2007)
PROGRAM ADMINISTRATION SERVICES, INC., f/k/a R.D. Fowler & Assoc., Inc., Appellee
v.
DAUPHIN COUNTY GENERAL AUTHORITY, Appellant.
Supreme Court of Pennsylvania.
Re-Submitted May 18, 2006.
Decided August 20, 2007.
*1014 Guy Paul Beneventano, Nauman, Smith, Shissler & Hall, LLP, Debra P. Foutlas and David E. Lehman, McNees, Wallace & Nurick, LLC, Harrisburg, for Dauphin County General Authority.
Thomas W. Scott, Killian & Gephart, LLP, Harrisburg, for Program Admin. Services, Inc.
CAPPY, C.J., CASTILLE, SAYLOR, EAKIN, BAER, BALDWIN, and FITZGERALD, JJ.
OPINION
Justice SAYLOR[1].
This appeal by allowance involves the issue of whether the board of directors of the Dauphin County General Authority may terminate, without cause, contracts executed by its predecessor board relating to the administration of certain school-related financing activities.
Appellant, the Dauphin County General Authority (the "Authority"), is a corporate agency of the Commonwealth created by Dauphin County pursuant to the Municipality Authorities Act.[2] The act authorizes the creation of municipality authorities for a wide range of purposes, one of which is to secure long term financing for public projects or uses, including public schools, by issuing revenue bonds for a term not exceeding forty years. Included among its powers under the act, the Authority may "make agreements with the purchasers or holders of the bonds or with others in connection with any bonds, whether issued or to be issued, as the authority shall deem advisable." 53 Pa.C.S. § 5607(d)(12).
Pursuant to these powers, in 1986 the Authority launched a program to provide financial assistance to Pennsylvania school districts seeking to borrow money to finance new capital improvements or refinance existing debt. This program, known as "School Pool I," was funded by $200 million in proceeds from the public sale of 40-year tax-exempt bonds set to mature in 2026. The governing agreement for this project made Dauphin Deposit Bank (later Allfirst Bank) the trustee of the funds, and *1015 Appellee, Program Administration Services, Inc., the program administrator. The Authority began a similar program in 1997, known as "School Pool II," with $250 million from the public sale of tax-exempt 35-five year bonds set to mature in 2032. A similar agreement made Commerce Bank the trustee and, again, made Appellee the program administrator.[3]
Under both of these arrangements (the "Program Administration Agreements"), the bonds were purchased by private investors and the proceeds were used to create a "pool" of money that was available for the Authority to lend to qualifying school districts. The Authority lends money from these pools to school districts for dedicated purposes such as construction or reconstruction of school facilities, or debt refinancing. As school districts repay the principal and interest on their loans, interest is paid to the bondholders and principal is returned to the pool, from which it is available to be re-loaned. The Authority thus provides "conduit" financing, as it is positioned between school-district borrowers and the private-investor lenders. As program administrator, Appellee is responsible, inter alia, to market the programs to prospective school districts, assist school districts with their applications, calculate note payments, bill the school districts, and assist the Authority in securing investment of funds with the trustee banks. The Program Administration Agreements provide that they shall continue in force until one of the following three conditions occurs: (1) no portion of the bonds remains outstanding and unpaid; (2) continuing failure of Appellee to perform in any material respect; or (3) mutual consent of the parties to terminate.
In November 2000, under a newly-appointed board of directors, the Authority notified Appellee that it intended to terminate the contracts without cause. Appellee initiated a declaratory judgment action in the trial court seeking a judicial determination that the contracts may not be terminated outside the terms specified by the agreements. The trial court ultimately entered a declaratory judgment in favor of the Authority, however, concluding that any agreements entered into by the parties or their predecessors were unenforceable as against the current Dauphin County General Authority. See Program Admin. Services, Inc. v. Dauphin County Gen. Auth., No. 2992 S 2001 (C.P. Dauphin 2003).
On appeal, a divided, en banc panel of the Commonwealth Court reversed in a published decision. Program Admin. Services, Inc. v. Dauphin County Gen. Auth., 874 A.2d 722 (Pa.Cmwlth.2005) (en banc). The majority reasoned that the central question was whether the Program Administration Agreements involved a governmental function or a proprietary function, because contracts involving governmental services may be terminated by a successor governing body, without cause, irrespective of the termination date or other procedures for termination set forth in the contract. Id. at 725 (citing Lobolito, Inc. v. North Pocono Sch. Dist., 562 Pa. 380, 755 A.2d 1287 (2000)). The majority then stated that, in deciding whether the activity at issue was governmental or proprietary in nature, it should employ the test set forth in County of Butler v. Local 585, Service Employees Int'l Union, AFL-CIO, 158 Pa.Cmwlth. 519, 631 A.2d 1389 (1993). Under this test, a court considers whether the activity: 1) is one that government is not *1016 statutorily required to perform; 2) also may be carried on by private enterprise; or 3) is used as a means of raising revenue.
Applying this test to the present case, the majority held that the Authority's activity of lending money to school districts was proprietary in nature since the Authority was not statutorily required to perform the activity and it is one that is carried on by many private lenders. The majority explained that the "mere fact that the Authority lends money to a school district for school construction does not make the act of lending governmental in character any more than it would be if the loan was made by a private bank." Program Admin. Services, 874 A.2d at 728. Furthermore, the majority distinguished this Court's decision in Lobolito, on the basis that Lobolito involved the decision of whether to build a school building a clear governmental function. In this case, however, the Authority is not involved in any decision to build schools, but only in financing such projects once the decision is made by another body. Likewise, the majority distinguished another Commonwealth Court case, State Street Bank & Trust Co. v. Commonwealth, 712 A.2d 811 (Pa.Cmwlth.1998), on the basis that the funds being lent in that case were assets of the state, whereas here they are assets of the bondholders, akin to the holdings of private depositors. Thus, the majority reasoned:
Although the School Pool programs unquestionably facilitate school construction projects and so serve a valuable public purpose, it is incontrovertible that financing of school construction does take place through private channels and would do so if the School Pool programs cease to exist.
Id. at 729.
Finally, the majority also agreed with Appellee's alternative argument that Section 5607(d)(12) represents a "statutory exception" to the general rule that current governing bodies may not bind successors with regard to governmental functions. Program Admin. Services, 874 A.2d at 729. Thus, by noting that, under Section 5607(d)(12) of the Municipality Authorities Act, administration agreements are statutorily permitted to be coextensive with the full maturity period of the bonds, the court deemed the Program Administration Agreements fully enforceable.
Judge Cohn Jubelirer authored a dissenting opinion, joined by Judge Pellegrini, in which she used the same test from County of Butler, but concluded that the conduit financing employed by the Authority is distinct from ordinary borrowing, since the funds were raised by the sale of bonds and the bondholders have no recourse against the Authority. Further, the ultimate borrowers are the school districts, the ultimate lenders are the bondholders, and unlike a private bank, the Authority earns no profit. She further noted that, in Lobolito, this court considered the "crux" of the agreement in resolving the governmental versus proprietary question, and Lobolito concluded that the "crux" of the agreement was the construction of a new school, and that the "services aspect of the agreement [i.e., that portion pertaining to water and sewage treatment] would be devoid of meaning without the school board's predicate promise to build the school." Program Admin. Services, 874 A.2d at 733 (Cohn Jubelirer, J., dissenting). Similarly, Judge Cohn Jubelirer opined that the "crux" of the Program Administration Agreements is the financing of new capital improvements for the public school system, which is ancillary to the capital improvement projects themselves; therefore, in her view, they involve governmental functions.
*1017 In a separate dissent joined by Judge Cohn Jubelirer, Judge Pellegrini expressed discomfort with the idea that a public entity such as the Authority could be locked into a 40-year contract with a private party notwithstanding changes in the Authority's governing board and the concomitant new policies that the successor boards may wish to implement. He noted, in this regard, that the purpose of the rule allowing government entities to be free from long-term contracts entered into by their predecessor boards is to avoid such "capture" by private interests at the potential expense of public interests as ultimately expressed by the electorate through the ballot box. See id. at 730-31 (Pellegrini, J., dissenting).
Both the trial court and the Commonwealth Court panel concentrated their analysis primarily on the distinction between contracts relating to governmental functions and those pertaining to proprietary or business functions. Indeed, as noted by the Commonwealth Court majority and by this Court in Lobolito, Inc. v. North Pocono Sch. Dist., 562 Pa. 380, 755 A.2d 1287 (2000), such a distinction has been recognized in Pennsylvania since the mid-Nineteenth Century. See id. at 384, 755 A.2d at 1289 (citing Western Saving-Fund Soc'y of Phila. v. City of Phila., 31 Pa. 175, 183 (1858) (distinguishing governmental contracts, or contracts encompassing "things public," from proprietary contracts, or contracts encompassing "things of commerce")). Likewise, the parties presently open their arguments to this Court by reference to this consideration and differ chiefly in whether the functions performed by Appellee should be deemed governmental or proprietary in nature. See Brief for Appellant at 15-27; Brief for Appellee at 19-29.
The policy basis for the governmental-proprietary distinction, as developed in the common law of this Commonwealth, was discussed at length in Lobolito, in which the Court there undertook a historical survey, see Lobolito, 562 Pa. at 384-87, 755 A.2d at 1289-91, and recognized the underlying rationale as it had previously been expressed:
The obvious purpose of the rule is to permit a newly appointed governmental body to function freely on behalf of the public and in response to the governmental power or body politic by which it was appointed or elected, unhampered by the policies of the predecessors who have since been replaced by the appointing or electing power. To permit the outgoing body to `hamstring' its successors by imposing upon them a policy[-]implementing and to some extent, policy[-]making machinery, which is not attuned to the new body or its policies, would be to most effectively circumvent the rule.
Id. at 385, 755 A.2d at 1289-90 (quoting Mitchell v. Chester Housing Auth., 389 Pa. 314, 324-25, 132 A.2d 873, 878 (1957)). Lobolito also noted that the rule's only exception recognized at common law pertains to situations in which "considerations of urgency and necessity, especially when coupled with the stipulated public interest and absence of bad faith or ulterior motivation," militated in favor of upholding the contract at issue. Id. at 386, 755 A.2d at 1290 (quoting MacCalman v. County of Bucks, 411 Pa. 316, 321, 191 A.2d 265, 267 (1963)).
Thus, the precept that governmental contracts are voidable in some range of circumstances is a common-law rule premised upon considerations of public policy. In applying this principle, however, courts should not lose sight of the respective roles of the General Assembly and the courts in terms of establishing public policy. In particular, it is the Legislature's *1018 chief function to set public policy and the courts' role to enforce that policy, subject to constitutional limitations. See generally Parker v. Children's Hosp. of Philadelphia, 483 Pa. 106, 116, 394 A.2d 932, 937 (1978) (explaining that "the power of judicial review must not be used as a means by which the courts might substitute [their] judgment as to the public policy for that of the legislature"). Accordingly, with the common-law framework as a backdrop, and absent constitutional infirmity, the Legislature may nonetheless modify the approach in particular sets of circumstances. See generally Hilkmann v. Hilkmann, 579 Pa. 563, 578-79, 858 A.2d 58, 68 (2004); Scheipe v. Orlando, 559 Pa. 112, 116, 739 A.2d 475, 477 (1999); Gingold v. Audi-NSU-Auto Union, A.G., 389 Pa.Super. 328, 348, 567 A.2d 312, 323 (1989) ("The function of the common law is to fill the interstices left by the legislatures." (quotation marks omitted)). This is undoubtedly what the Commonwealth Court panel meant by the term, "statutory exception."
The Commonwealth Court previously recognized this principle in Chichester Sch. Dist. v. Chichester Educ. Ass'n, 750 A.2d 400, 403 (Pa.Cmwlth.2000), where it upheld certain holdover collective bargaining agreements entered into by a predecessor school board as against its successor board by relying upon the statutory authority for such agreements contained in the Public Employee Relations Act. The court acknowledged that the previous board's actions were governmental in character, but continued:
Here, the contracts executed between the Board and the [employee organizations] were actually ratified by the Board at public hearings approximately two years prior to the election and seating of the successor Board members. Sections 701 through 904 of the Public Employee Relations Act (PERA) provide the Board members with the statutory authority to engage in negotiations and execute such contracts with employee organizations.
Id. at 404 (footnotes omitted); see also Falls Township v. Scally, 115 Pa.Cmwlth. 56, 59, 539 A.2d 912, 914 (1988) ("If Scally was performing a governmental function, then, absent a statute to the contrary, the outgoing Board of Supervisors had no authority to tie the hands of its successors." (emphasis added)); Altoona Hous. Auth. v. City of Altoona, 785 A.2d 1047, 1053 (Pa. Cmwlth.2001) ("The Court agrees with the Housing Authority as to the vitality of the general principle that a board exercising legislative authority lacks the power to bind its successors as to governmental functions. Nevertheless, specific statutory provisions may affect the analysis in particular situations." (citations omitted)).
As applied here and as noted above the General Assembly has expressly authorized municipality authorities "to make agreements with the purchasers or holders of [authority] bonds or with others in connection with any bonds . . . as the authority shall deem advisable," 53 Pa.C.S. § 5607(d)(12); see also id., § 5607(d)(6) (enabling municipality authorities to "finance projects by making loans, which may be evidenced by and secured as may be provided in loan agreements, mortgages, security agreements or any other contracts, instruments or agreements, which contracts, instruments or agreements may contain such provisions as the authority shall deem necessary or desirable for the security or protection of the authority or its bondholders" (emphasis added)). These provisions embody a legislative policy decision favoring predictability, stability, and certainty with regard to some range of matters connected with public bond issues by municipality authorities. Because bond terms may be as long as *1019 forty years, these provisions authorize the execution of contracts that outlast the terms of the individual board members who approve the contracts, which are generally limited to five years. See 53 Pa.C.S. § 5508(b). To the extent this legislative policy is in tension with the competing common-law concern relating to the freedom of a new board to respond to popular pressures, the latter must yield to the former. For purposes of this inquiry, then, we must determine whether the Program Administration Agreements constitute agreements "in connection with" the Authority's 1986 and 1997 bond issues for purposes of Section 5607(d)(12).[4]
We find that they do. Although the Authority extensively develops that the agreements are not directly intertwined with, or validated by, the 40-year bond issues authorized by Section 5607(d)(12), see Brief for Appellant at 28, the statutory language does not contemplate such specific intertwining with, or validation by, particular documents. Rather, the same passage that enables bond issues, Section 5607(d)(12), also authorizes contracts "with others in connection with" such bonds, as set forth above. The most reasonable conclusion is that a contract under which an entity, such as Appellee, is to provide support for the administration of a bond program including marketing the bonds to school districts and investing the funds on deposit with a trustee is an agreement "with [another] in connection with" the bond issue.[5],[6]
Relatedly, the Authority also urges that the trust indenture documents that secure the bonds make no commitment to the duration of Appellee's services as program administrator, but rather, define that term to include "any other person appointed by the Authority, from time to time, to administer the Program. . . ." Trust Indenture, dated July 1, 1986, at 15; see RR. 280a. The Authority suggests that this and other provisions of these documents clearly refrain from granting any rights to Appellee to continue as administrator indefinitely, and correspondingly, give the Authority the discretion to replace Appellee at will. In this respect, the Authority also notes that nothing in Section 5607(d)(12) requires the term of a program administrator to be coextensive with the maturity date of the issued bonds.
While we agree that the statute does not require such coextensiveness, the Legislature would not need to require long-term contracts in order to authorize municipality authorities to enter into legally-binding, long-term contracts; it needed only to authorize them. Additionally, we have no present occasion to consider *1020 whether a proper interpretation of the specific provisions of the indenture agreements and/or the Program Administration Agreements would affirm that Appellee was intended to be replaceable at the Authority's sole discretion. Based on the questions framed in the Authority's Petition for Allowance of Appeal, review in this case is limited to whether conduit financing services constitute a governmental activity; whether the mere existence of statutory authority for long-term contracts ancillary to financing by a municipality authority make administrative service contracts enforceable against the Authority's subsequent governing boards; and whether the agreements should be deemed unenforceable as against public policy. See Petition for Allowance of Appeal at 6. In answering the second question affirmatively, the first was rendered moot. See supra note 6. As to the third, we have already observed that the General Assembly's policy choices as reflected in the statute are controlling.[7]
This is not to say that there can never be circumstances under which a successor board of directors may avoid a contract held over from its predecessor, even where such a long-term contract is statutorily authorized. In this respect, it is relevant that the governmental-functions test was originally directed to bad faith efforts on the part of "lame duck" governing bodies to "handcuff" their successors. Fraternal Order of Police, E.B. Jermyn Lodge No. 2, by Tolan v. Hickey, 499 Pa. 194, 200, 452 A.2d 1005, 1008 (1982). See generally Chichester, 750 A.2d at 403 ("An outgoing board that attempts to create these types of long-term obligations . . . is commonly referred to as a `lame duck' board."). In Mitchell, for example, the Housing Authorities Act provided for gubernatorial appointment of a majority of the Chester Housing Authority. When a new governor was elected, the prospect of a change in control of the board prompted the existing board to enter into a five-year employment contract with the secretary of the authority, a contract that this Court allowed the incoming board to avoid. Compare Falls Township v. McManamon, 113 Pa. Cmwlth. 504, 508-09, 537 A.2d 946, 947 (1988) (invalidating a holdover police-chief employment contract entered into by a lame-duck board of supervisors), and Moore v. Luzerne County, 262 Pa. 216, 220, 105 A. 94, 95 (1918) (denying recovery on a contract between a board of county commissioners and an engineer, where the contract was executed in bad faith just before the expiration of the commissioners' terms), with Horvat v. Jenkins Township Sch. Dist., 337 Pa. 193, 10 A.2d 390 (1940) (upholding a supervising principal's employment agreement extending beyond the school board's term where the parties entered into the agreement in good faith well before the expiration of that term). Thus, nothing in this Opinion should be understood to foreclose the possibility that the avoidance of a holdover contract entered into in bad faith by an outgoing board may ultimately be upheld, notwithstanding the *1021 presence of legislation authorizing the making of the contract in the first instance. However, that situation is not presently before us.
For the foregoing reasons, the judgment of the Commonwealth Court is affirmed.
Chief Justice CAPPY and Justices CASTILLE, BAER and FITZGERALD join the opinion.
Justice EAKIN files a concurring opinion.
Justice BALDWIN files a dissenting opinion.
CONCURRING OPINION
Justice EAKIN.
I agree with the majority's decision to affirm the Commonwealth Court's order because the statutory scheme authorizes long-term contracts; however, I believe in order to enter into contracts that bind successor boards, there must be an ongoing benefit to the municipality.
The Pennsylvania Municipality Authorities Act allows the Authority "to make agreements with the purchasers or holders of the bonds or with others in connection with any bonds. . . ." 53 Pa.C.S. § 5607(d)(12). These agreements can be made up to 40 years in duration. Id. However, because the agreement with Appellee is solely for the administration and marketing of the bond program to school districts and not affiliated with the issuance or servicing of bonds, it falls outside the scope of § 5607(d)(12) and is more akin to an employment contract. Such a contract with Appellee violates the public policy against permitting a governmental entity to bind its successors in pursuing its governmental functions. See Commonwealth ex rel. Fortney v. Bartol, 342 Pa. 172, 20 A.2d 313, 314 (1941) ("[A] municipal board having legislative authority . . . cannot enter into a contract which will extend beyond the term for which the members of the body were elected."). Nevertheless, as the majority suggests, long-term contracts are authorized and will be upheld absent a showing of bad faith. Majority Op., at 1020-21.
In addition to the good faith inception of the contract, I believe a benefit to the municipality must also result from the contract to justify binding successor boards into such agreements. Here, the Authority did not earn a profit pursuant to its "conduit financing," but it is unclear whether there was any benefit, financial or otherwise, to the municipality through the continued use of Appellee's services. It cannot be that the statute allows an out-going board to bind the municipality to 40 years of a one-sided agreement. I do not suggest this was such a deal, the record being bereft of evidence one way, or the other. Therefore, I would remand the case to the trial court for an evidentiary hearing to determine the benefit, if any, to the municipality through upholding the contract with Appellee.
DISSENTING OPINION
Justice BALDWIN.
I respectfully dissent. I disagree with the majority's conclusion that section 5607(d)(12) of the Pennsylvania Municipality Authorities Act constrains the Authority to maintain contracts with the Appellee which are related to the governmental functions of the Authority. The Act permits Authorities to incur long-term indebtedness for up to 40 years through the issuance of bonds, and to contract with private entities in connection with these bond issuances. The purpose of the Act is to further the public policy of making low-cost, long-term funds available to government entities for public projects; and the *1022 contracts that it contemplates are those with bond investors. This is clear from the legislative statement that a purpose of the statute is to "provide for the security of the bonds and the rights of the bondholders." 53 Pa.C.S. § 5607(d)(12) (Purposes and Powers).
The majority interprets the language of the statute, that municipal authorities may make agreements with the purchasers or holders of bonds "or others in connection with any bonds," to include even the type of program administrative contract at issue here. I do not agree that this statutory enactment encompasses contracts with entities such as the Appellee, who by their own admission carry out functions that are merely ministerial and ancillary to the primary business of securing financing for schools. I believe that this provision applies to contracts with bond investors, or trustee banks, which would be consistent with the purpose of the statute to ensure the security of bondholder's rights. The majority subscribes to an overbroad interpretation of this language to apply it to any contract that the Authority executes relating to School Pool program administration. This interpretation would be anathema to the expressed legislative purpose that long-term contracts are permitted to ensure the security of bondholders, and is not consistent with the frequently expressed public policy of permitting governmental entities to disavow contracts relating to governmental functions that their predecessors have enacted.
Nothing in the contract between the Authority and the Appellee impairs, or indeed even affects, bondholder rights. Moreover, 53 Pa.C.S. § 5617 states, "the Authority shall not be authorized to do anything which will impair the security of the holders of the obligations of the Authority or violate any agreements with them or for their benefit." This language underscores that the Act is intended to ensure that no contract with bondholders may be terminated. I cannot subscribe to the majority's view that the program administration agreements are equivalent in importance to the financing or security documents that are contemplated by the language of the Act, as they are not connected with the issuance or servicing of bonds.[1]
Consequently, I believe this Court is required to address the central issue of this case, i.e. whether a municipal authority, in issuing tax-exempt revenue bonds for the use of school districts to build and finance public school buildings, is performing a governmental or a proprietary function.[2] If the function is governmental, the board of the Authority may not bind successor Boards to long-term contracts entered into for the administration of such bond programs, in contrast to the generally binding nature of long-term contracts of non-governmental entities. The rationale for the rule is that newly appointed or elected governmental figures should be responsive to their electorate or appointing bodies, rather than to their predecessors' contractual partners. I would hold that the "conduit financing" bond program at issue in this case is a governmental function, and that the Authority is thus permitted *1023 to terminate its contract with the Appellee.
The doctrine that governmental entities may not contract with others beyond their term of office in the exercise of their governmental functions has a convoluted history. It has changed continuously as political approaches to local governmental powers have changed and has been the subject of much confusion and disparate application in our state and federal courts. Indeed, as we stated in Morris v. Sch. Dist. of Twp. of Mount Lebanon, 393 Pa. 633, 637-38, 144 A.2d 737, 739 (1958): "Perhaps there is no issue known to the law which is surrounded by more confusion than the question whether a given municipal operation is governmental or proprietary in nature."[3] The doctrine causes friction between two important public policies, namely: (1) the expectation that contracts will be performed and not abrogated; and (2) the sovereignty of governments in performing their essential functions to promote public health, education and welfare. While the balancing of these competing interests has been inconsistent, no federal or state court has been able to create a viable alternative approach.[4]
Despite the competing interests involved, the rule that an authority or governmental entity may not bind its successors in pursuing its governmental functions has been expressed over decades in this Commonwealth, and is succinctly explained in Commonwealth ex rel. Fortney v. Bartol, 342 Pa. 172, 20 A.2d 313 (1941):
In the performance of sovereign or governmental, as distinguished from business or proprietary, functions, no legislative body, or municipal board having legislative authority, can take action which will bind its successors. It cannot enter into a contract which will extend beyond the term for which the members of the body were elected.
Id. at 175, 20 A.2d at 314 (citations omitted).
The question of whether a municipal authority is acting in a governmental capacity has resisted a simple response. A useful starting point in this analysis is our decision in Mitchell v. Chester Hous. Auth., 389 Pa. 314, 321, 132 A.2d 873, 876 (1957). In Mitchell, our Court discussed the considerations present in analyzing contracts "relating inseparably to the overall functioning of a public body." Id. As we noted there, inasmuch as municipal authorities are instrumentalities of government, they are agencies that perform governmental functions although they may also perform proprietary functions. Id. at 320, 132 A.2d at 876. In Mitchell, we held that a municipal housing authority performed governmental functions in pursuance of the Housing Authorities Act then in place (35 P.S. § 1541 et seq.), including responsibility to clear substandard housing and plan and reconstruct safe and sanitary housing for low-income people.
Our Court continued the governmental-proprietary function discussion in Lobolito, Inc. v. North Pocono School Dist., 562 Pa. 380, 755 A.2d 1287 (2000). In Lobolito, a school district entered into an agreement with a private developer to build a sewage *1024 treatment plant in connection with the planned construction of a school. When a successor school board decided that the school would not be built, the school district disavowed its agreement with the sewage treatment plant developer. The developer brought suit to recover costs incurred in preparation for construction. Our Court undertook a detailed analysis of the distinction between governmental functions and proprietary functions in agreements with governmental bodies. We wrote:
This Court has long viewed agreements involving governmental bodies in a different light than agreements made exclusively between private parties. Since the mid-nineteenth century, we have distinguished between agreements encompassing governmental functions of governing bodies from agreements encompassing proprietary or business functions. See Western Saving Fund Soc'y of Philadelphia v. City of Philadelphia, 31 Pa. 175, 183 (1858) (distinguishing governmental contracts or contracts encompassing "things public," from proprietary contracts, or contracts encompassing "things of commerce").
Lobolito, 562 Pa. at 384, 755 A.2d at 1289. In determining how to interpret the agreement to construct the sewage plant, our Court in Lobolito noted the importance of examining the "crux" of the Agreement, which was not to build a sewage treatment plant, but to construct a new school. We noted "[t]he creation and operation of public schools have traditionally been governmental functions in Pennsylvania." Id. at 388, 755 A.2d at 1291.
Without descending too deeply into the quagmire of the governmental/proprietary debate, I believe that the ability to issue tax-exempt bonds for the purpose of constructing new public schools, or allowing public school districts to refinance existing debt, is a governmental function that a private enterprise could not undertake. The purpose of School Pool I and School Pool II was to assist school districts within Dauphin County to obtain financing for capital improvements or new construction of schools. The bondholders, or lenders, received tax-exempt interest on the bonds. The borrowers, or school districts, received the benefit of lower cost borrowing than if they issued the bonds themselves because of shared economies with regard to the administration of the program. The Authority acted as a conduit between the two for the benefit of the school districts, and did not earn a profit from the operation of the program. Notably, as an instrumentality of state government, the bonds issued by the Authority are tax exempt. Tax-exempt financing can also be accomplished if individual school districts issued the bonds themselves, but cannot be accomplished by a private bank, bond underwriter or other non-governmental entity. Lending money that comes from the purchase of tax-exempt bonds to school districts to build schools is simply not a proprietary function, as it could not be carried out by private businesses. Moreover, the bond revenue was being used exclusively for public purposes.
For the foregoing reasons, I believe that the majority erred in finding that the Act precludes our Court from addressing the primary issue in this case, and that had the majority addressed it, it would have been required to conclude that the Authority's tax-exempt bond financing programs are governmental functions.
NOTES
[1] This appeal was reassigned to this author.
[2] Act of May 2, 1945, P.L. 382, No. 164, §§ 1-19 (as amended, 53 P.S. §§ 301-322). The act was recodified and replaced by the Act of June 19, 2001, P.L. 287, No. 22, § 1 (as amended, 53 Pa.C.S. §§ 5601-5623). With regard to the issues involved in this case, the current statute is substantively identical to the former one. See 53 P.S. § 306(B)(i) (repealed and recodified as amended at 53 Pa.C.S. § 5607(d)(12)).
[3] At the time the 1986 agreement was executed, Appellee was conducting business as R.D. Fowler & Associates. It later changed its name to Program Administration Services, Inc., and is listed as such in the 1997 agreement.
[4] The issue is preserved for our consideration because Appellee highlighted the statutory authorization in its underlying action, see First Amended Complaint at ¶ 4, RR. 2a-3a, raised the issue before the Commonwealth Court, see Program Admin. Services, 874 A.2d at 729, and repeats its argument to this Court. See Brief for Appellee at 30-33.
[5] The dissent indicates that our understanding of the word "others" within the statutory phrase, "to make agreements . . . with others in connection with any bonds," is overly broad, and would apparently constrain its meaning to the trustee banks. See Dissenting Opinion, at 1022. We may assume, however, that if the Legislature had intended so specific a limitation, it would have said so. Moreover, unlike the dissent, we do not view the promotion of predictability, stability, and regularity as to such agreements as "vitiating the Authority's ability to carry out its governmental functions." Id. at 1022 n. 1.
[6] This conclusion is not intended to imply any predicate finding by this Court that the Program Administration Agreements embody governmental functions. Rather, the point here is that the existence of statutory authorization for the contracts eliminates the need to distinguish between governmental and proprietary functions.
[7] In forwarding its policy argument, the Authority asserts that Appellee's faulty business judgment has caused it to lose confidence in Appellee as administrator. Whether Appellee's alleged deficiencies in this regard would supply the Authority with cause under the terms of the Program Administration Agreements to terminate Appellee's role as administrator is a question that is not before us in view of the limited scope of this appeal. As discussed, we here determine only that the Program Administration Agreements constitute agreements "in connection with" the Authority's 1986 and 1997 bond issues for purposes of Section 5607(d)(12), and thus, assuming that their effective period extends beyond the term of the governing board that approved them, they are enforceable against successor boards.
[1] While it is true, as the majority points out, that the Legislature's function is to set public policy, the statute in question does not embody the public policy of vitiating the Authority's ability to carry out its governmental functions, but merely permits municipal authorities to enter into contracts. I do not subscribe to the majority's opinion that the current statute alters the general rule that contracts are voidable if they concern an Authority's governmental functions.
[2] A proprietary function is a business function that may be performed by governments but is also performed by private enterprises.
[3] In Morris we discussed this issue in the context of governmental immunity which we later eliminated in Ayala v. Philadelphia Bd. Of Public Ed., 453 Pa. 584, 305 A.2d 877 (1973), thus overruling Morris on other grounds.
[4] For a discussion of the history and application of the doctrine, see Janice C. Griffith, Local Government Contracts: Escaping from the Governmental/Proprietary Maze, 75 Iowa L.Rev. 277 (1990). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1536044/ | 928 A.2d 1102 (2007)
COMMONWEALTH of Pennsylvania, Appellee
v.
James GREEN, Appellant.
Superior Court of Pennsylvania.
Submitted May 1, 2007.
Filed July 12, 2007.
*1103 Karl Baker, Public Defender, Philadelphia, for appellant.
Hugh J. Burns, Jr., Asst. Dist. Atty., Philadelphia, for Com., appellee.
BEFORE: TODD, J., McEWEN, P.J.E., and JOHNSON, J.
OPINION BY TODD, J.:
¶ 1 James Green appeals the December 8, 2005 judgment of sentence imposed by the Philadelphia Court of Common Pleas after he was convicted at a bench trial of retail theft.[1] We vacate and remand for resentencing.
¶ 2 On December 8, 2005, Green was convicted of the foregoing offense for stealing two bottles of Tylenol from a CVS store. At his sentencing that same day, Green's conviction was graded as a felony of the third degree due to two prior retail theft convictions stemming from an incident that occurred in 1999, when he stole four bottles of body wash from a CVS. Green was sentenced to 2 years probation, and thereafter filed a petition for reconsideration of his sentence, alleging that his conviction should have been graded as a misdemeanor of the second degree because his 1999 convictions for retail theft involved only one incident. Apparently, two complaints were generated in connection with the 1999 incident, one listing a simple assault charge against Green for striking a grandmother while fleeing the scene, and the other listing a simple assault charge against Green for also striking the woman's grandson in the process of fleeing. Even though the charge of retail theft was duplicated on each complaint, it is undisputed that there was only one incident of retail theft. Nonetheless, because Green pled guilty to the charges listed on both complaints, his record reflects that he has two retail theft convictions arising out of the 1999 incident. Ultimately, the trial court denied Green's petition to reconsider his sentence, and this appeal followed, wherein Green claims that the trial court erred in grading his retail theft offense as a felony of the third degree.
¶ 3 Essentially, Green challenges the legality of his sentence and claims that the trial court erred in grading his retail theft offense as a felony of the third degree under 18 Pa.C.S.A. § 3929(b)(iv)[2] because *1104 even though he technically had two prior convictions for retail theft on his record, the convictions involved the same incident and should only be considered a single "offense" for grading purposes under Section 3929. The Commonwealth agrees, noting that because Green's current retail theft offense is his second rather than third such offense, it should have been graded as a misdemeanor of the second degree. In its opinion filed pursuant to Rule 1925(a) of the Pennsylvania Rules of Appellate Procedure, the trial court noted that, regardless of whether Green's prior convictions involved the same incident, the time to establish that those convictions were a single offense was during the proceedings in 1999, and by failing to do so, Green waived any challenge he may have to whether those convictions should now be considered one offense for grading purposes under Section 3929. We disagree.
¶ 4 Contrary to the trial court's conclusion in this case, our courts have examined a defendant's prior convictions at the time of sentencing to determine whether they constitute one or more offenses under a statutory enhancement provision. See, e.g., Freundt v. Commonwealth Dept. of Transp., 584 Pa. 283, 290-91, 883 A.2d 503, 507-08 (2005) (in concluding that prior drug convictions constituted a single "offense" under the suspension of driving privileges section of the Vehicle Code, 75 Pa.C.S.A. § 1532(c), court examined prior convictions to determine whether they were part of a single criminal episode). Examining the prior convictions in this case, it is undisputed that they are duplicate convictions and thus we deem they constitute just one offense under 18 Pa. C.S.A. § 3929(b)(1). Accordingly, we agree with Green and the Commonwealth that his current offense of retail theft should have been graded as a misdemeanor of the second degree.[3]
¶ 5 Finding that the trial court erred in grading Green's retail theft offense as a felony of the third degree, we vacate Green's judgment of sentence, and remand to the trial court for resentencing with instructions that Green's retail theft conviction be graded as a second-degree misdemeanor.
¶ 6 Judgment of sentence VACATED. Case REMANDED with instructions. Jurisdiction RELINQUISHED.
NOTES
[1] 18 Pa.C.S.A. § 3929(a)(1).
[2] Section 3929(b) provides, in pertinent part:
(b) Grading.
(1) Retail theft constitutes a:
* * *
(ii) Misdemeanor of the second degree when the offense is a second offense and the value of the merchandise is less than $150.
* * *
(iv) Felony of the third degree when the offense is a third or subsequent offense, regardless of the value of the merchandise.
18 Pa.C.S.A. § 3929(b).
[3] It is undisputed that the value of the stolen merchandise was less than $150. See 18 Pa. C.S.A. § 3929(b)(1)(ii). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1536048/ | 363 B.R. 902 (2007)
In re Darrin J. SCHULTZ, Debtor.
No. 06-24781.
United States Bankruptcy Court, E.D. Wisconsin.
January 12, 2007.
*903 Christine Wolk, Oshkosh, WI, for Debtor.
MEMORANDUM DECISION ON TRUSTEE'S OBJECTION TO CONFIRMATION
MARGARET DEE. McGARITY, Chief Judge.
Darrin J. Schultz commenced this case with the filing of a chapter 13 petition on August 29, 2006. The Standing Chapter 13 Trustee filed a timely objection to confirmation of the debtor's plan. A hearing on that objection was held, and the court took the matter under advisement.
This is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(A), (t) and (0), and the court has jurisdiction under 28 U.S.C. § 1334(a). The following constitutes the court's findings of fact and conclusions of law pursuant to Fed. R. Bankr.P. 7052. For the reasons stated below, the trustee's objection is overruled, and the plan shall be confirmed.
BACKGROUND
Prior to the bankruptcy filing, the lender holding a security interest in the debtor's homestead had commenced foreclosure proceedings, and judgment was entered. The Sheriffs Sale was held on August 3, 2006. According to the lender, $78,644.86 was required to pay off the loan by the date of the sheriffs sale, which was not done. Confirmation of the sale was not held before the debtor filed his chapter 13 petition. The creditor has not moved for relief from the stay to do so, nor has the creditor objected to confirmation of the debtor's proposed plan.
The debtor's plan provides for monthly payments of $533.24 of principal and interest on the mortgage loan, with the unpaid balance due at the end of 60 months to be paid by refinancing. The plan estimates this final payment to be about $71,195.68. According to the plan, no escrow for taxes is required at this time, and the debtor will maintain his own insurance.
The trustee opposed confirmation of the plan on the grounds that, by providing for monthly payments at the rate due under the mortgage with a balloon payment at the end of the 60-month term, the plan did not comply with the equal payment requirement of 11 U.S.C. § 1325(a)(5)(B)(iii)(I). The debtor contends his plan is confirmable because 11 U.S.C. § 1322(b)(3) provides for the curing or waiving of any default. He points out that the final scheduled payment under the mortgage extends beyond the term of the plan and cites In re Davis, 343 B.R. 326 (Bankr.M.D.Fla.2006), in support of the argument that 11 U.S.C. § 1325(a)(5)(B)(iii)(I) does not control.
The question, as the parties framed the issue, is whether the debtor's decision to pay the creditor in full under the plan brings the claim within the ambit of the subsection requiring equal payments on a secured claim, or does the debtor's right to cure a default on a secured claim that extends beyond the term of the plan remove the requirement for equal payments, notwithstanding full payment under the plan.
DISCUSSION
Section 1325(a) sets forth the conditions under which a court shall confirm a chapter *904 13 plan. Subsection 1325(a)(5) describes how allowed secured claims are to be treated in the plan. Under one of the options relevant to payment of secured claims, the plan may require that the holder of the claim retain the lien and that
(5) with respect to each allowed secured claim provided for by the plan
. . . . .
[B] (ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim; and (iii) if
(I) property to be distributed pursuant to this subsection is in the form of periodic payments, such payments shall be in equal monthly amounts;. . . .
11 U.S.C. § 1325(a)(5)(B)(iii)(I). Since the debtor's plan provides for current payments of principal and interest with a balloon payment at the end of the plan, amounts that are obviously unequal, the trustee finds this provision objectionable. He contends that the balloon payment makes the plan unconfirmable.
The language in question was added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Regarding the new BAPCPA provision, Collier on Bankruptcy has concluded as follows:
Section 1325(a)(5)(B)(iii)(I), enacted in 2005, provides that if property to be distributed to the holder of an allowed secured claim is to be in the form of periodic payments, such payments shall be in equal monthly amounts. It is important to note that this provision refers to the distributions to the holder of the allowed secured claim and not to the debtor's plan payments. As long as the plan provides that the trustee's distributions to the holder of the allowed secured claim be in equal monthly amounts, the debtor's plan payments need not be. There also does not seem to be any requirement that the equal monthly amounts extend throughout the plan. A debtor may, for example provide for equal monthly amounts to be distributed to a particular secured creditor for the first 24 months of a 36 month plan or, if the requirement of providing adequate protection is met, the last 24 months of a 36 month plan. Because section 1325(a)(5)(B)(iii)(I) only applies if the plan provides for periodic payments, it also does not preclude a plan providing for a single lump sum payment to a creditor.
8 COLLIER ON BANKRUPTCY ¶ 1325.06[3][b][ii][A] (15th ed. rev.2006).
The debtor, citing the above Collier commentary, argues it makes no sense to allow a debtor to avoid the effect of the equal payment requirement by proposing a one payment plan without intervening adequate protection payments. That is undoubtedly correct. However, when a secured debt is being reinstated under 11 U.S.C. § 1322(b)(5), and the original debt required periodic payments as this one does, a one-payment proposal would not result in the "maintenance of payments" contemplated by subsection 1322(b)(5). While the debtor's plan is better than a one-payment alternative, this argument will not win the day.
There are a few reported decisions interpreting the language of the BAPCPA amendment requiring equal payment on secured claims in the context of a proposal by the debtor to make regular monthly payments followed by a balloon payment at the end of the plan.
The bankruptcy court in In re Wagner, 342 B.R. 766 (Bankr.E.D.Tenn.2006), required equal monthly payments over the life of the plan. In that case, the proposed *905 chapter 13 plan provided for full payment of a mortgagee's surviving in rem claim, following the discharge of the debtor's personal liability for the mortgage debt in her prior chapter 7 case, through 23 payments of $728.00 per month and a balloon payment in the 24th month of the plan. Thus, the plan did not provide for periodic payments to the mortgagee in "equal monthly amounts" as required by 11 U.S.C. § 1325(a)(5)(B)(iii)(I). The court held that it could not be confirmed over the objection of the secured creditor. Id. at 772. Like the debt in this case, the original mortgage extended beyond the term of the plan, but for the plan in question (the debtor had proposed three), the proposal was to pay the secured debt in full during the term of the plan. Because the original mortgage would have been a long-term debt, possibly curable under 11 U.S.C. § 1322(c)(1) and (b)(5)[1], the debtor had argued that the equal payment requirement of 11 U.S.C. § 1325(a)(5)(B)(iii)(I) did not apply. However, the court, citing In re Nichols, 440 F.3d 850 (6th Cir.2006), and In re DeSardi, 340 B.R. 790 (Bankr. S.D.Tex.2006), held that equal payments were required.
Likewise, in In re Lemieux, 347 B.R. 460 (Bankr.D.Mass.2006), the court refused to confirm a proposed chapter 13 plan over the objection of both the secured creditor and the trustee. In that case, the original debt matured during the term of the plan. See 11 U.S.C. § 1322(c)(2). The plan proposed that the debtors make periodic payments to a junior mortgagee over the first 35 months of their 36-month plan in an amount allegedly sufficient to protect the creditor's interest. The debtors would then use the significant equity that they anticipated would be available to refinance and to make a balloon payment to pay off the creditor in the final month of the plan. The balloon meant that the plan failed to provide the mortgagee with payments in equal monthly amounts, as required by section 1325(a)(5)(B)(iii)(I), and the court denied confirmation. Id. at 465. The court quoted In re DeSardi, 340 B.R. 790, 804-05 (Bankr.S.D.Tex.2006), in interpreting the applicable section, holding the statute "require[s] payments to be equal once they begin, and to continue to be equal until they cease." The court in DeSardi had also held that distributions need`not be equal starting with the first distribution and need not extend for the full term of the plan, but they must be equal as long as they are being made.
Mr. Schultz distinguishes the Lemieux case from his own because in the former the mortgage was due in full during the term of the plan. Mr. Schultz's original mortgage and note provide that the last payment is due April 1, 2034, well after the term of the plan.
The debtor urges this court to adopt the approach taken in In re Davis, 343 B.R. 326 (Bankr.M.D.Fla.2006). In that case, the debtor relied upon subsection 1322(b)(5) to cure and maintain payments on her mortgage, the last payment for which was due after the due date of the final plan payment. Her plan proposed to pay the mortgage arrearage at the rate of $0.00 per month for months one through 10, and $122.23 per month for months 11 through 57. The bankruptcy court, examining the interplay between subsection 1325(a)(5) and subsection 1322(b)(5), found subsection 1325(a)(5)(B)(iii) inapplicable and that "equal monthly payments are not *906 required as the claim at issue is one in which arrears on long term debt are being cured." Id. at 328. In other words, if the entire secured debt is not being paid, payments to the secured creditor do not have to be equal. This argument was addressed and rejected in Wagner, 342 B.R. at 771-72.
This court is not persuaded that subsection 1325(a)(5)(B)(iii) does not apply when only a portion of the allowed secured claim, i.e., current payments and the arrearage, are being paid pursuant to the plan. If that were the case, the balance would be paid after the plan is completed, presumably according to its original terms or a refinance. The payments under the plan, however, are still "property distributed pursuant to this subsection," they are "periodic payments," and they are "with respect to [an] allowed secured claim provided for by the plan." 11 U.S.C. § 1325(a)(5). Section 1322(b)(5) just means that the entire secured claim need not be paid in full under certain circumstances allowing cure of default, but the claim is still an allowed secured claim. This court holds that periodic payments must be equal, period. This applies when the default is cured and only current payments and the arrearage are being paid pursuant to the plan pursuant to 11 U.S.C. § 1322(b)(5) and when a long-term or matured debt are paid in full under the plan. Accordingly, we find the statutory interpretation of the equal payment provision in Wagner more persuasive than in Davis.
The court in Davis based its holding on the fact that the plan provided only for the reinstatement of payments under the original debt, payment of the arrearage, and cure of the default, not payment in full. Apparently, this option could have been chosen by Mr. Schultz. See In re Wescott, 309 B.R. 308 (Bankr.E.D.Wis.2004) (analyzing Wisconsin law regarding cure of default and reinstatement of mortgage under chapter 13 plan when case is filed after foreclosure sale and before confirmation). He could hive made regular monthly payments (actually, the mortgage note provides for interest adjustments which might make the payments not equal, but we decline to wade into that quagmire right now) and refinanced in month 61, after completion of the plan. Such a plan would meet equal payment requirements of 11 U.S.C. § 1325(a)(5)(B)(iii)(I). However, we must analyze a plan as proposed, not as it might have been proposed.
Here, as in Wagner, Mr. Schultz's plan is arguably more favorable to the creditor than the one clearly allowable under Wescott. He proposes to pay not just the arrearage but the entire debt before the expiration of 60 months. As with the debtor's one-payment argument discussed above, the fact that a proposal is better for the creditor than the statute provides is not controlling. The merits of the proposal may indeed be the reason the creditor did not object to its treatment under this plan.
This brings the court to an issue that was not addressed by either party. In all of the cases interpreting whether a secured creditor's treatment under a proposed plan required equal payments pursuant to 11 U.S.C. § 1325(a)(5)(B)(iii)(I), the creditor had objected. Here, it did not. Certainly, the trustee has a right to be heard whenever there is an issue as to confirmation. 11 U.S.C. § 1302(b)(2)(C). Therefore, he has standing to object that the debtor's plan in some way does not meet the requirements of the Bankruptcy Code.
As was stated at the beginning of this decision, the parties focused on whether the debtor's plan provision dealing with a secured creditor met the requirements of 11 U.S.C. § 1325(a)(5). Section 1325(a) *907 states that "[e]xcept as provided in subsection (b), the court shall confirm a plan if " (emphasis added), and the statute goes on to list nine requirements, plus a hanging paragraph. None of the exceptions in subsection 1325(b) apply, nor do the other eight requirements, other than subsection 1325(a)(5) as identified by the parties. However, subsection 1325(a)(5) itself has three parts, and the court addressed the second part, paragraph 1325(a)(5)(B) above. Actually, only a portion of that paragraph, subsection 1325(a)(5)(B)(iii)(I) was put into dispute; nothing else was raised. However, this court is mindful that the prefatory language of 11 U.S.C. § 1325(a) makes it mandatory for a court to confirm a plan if the nine-plus requirements of that subsection are met.
They are. Even 11 U.S.C. § 1325(a)(5).[2] That is because the subsection is in three parts (A), (B) (discussed above), and (C) (not applicable) joined by "or" at the end of paragraph (B). Under the usual rules of statutory construction, only one of the requirements of subsection 1325(a)(5) need be met for the provision to pass muster. 1A SUTHERLAND STATUTORY CONSTRUCTION § 21:14 (6th ed., updated October 2006) ("Generally, courts presume that `or' is used in a statute disjunctively unless there is clear legislative intent to the contrary."). Indeed, subsection 1325(a)(5)(C) states that a surrender of the property would meet the requirements of that subsection, which would be mutually exclusive of at least one of the others, and sometimes both. Here, even though the court has held that the debtor's plan runs afoul of 11 U.S.C. § 1325(a)(5)(B), it nevertheless meets the requirement of 11 U.S.C. § 1325(a)(5)(A) in that "(A) the holder of such claim has accepted the plan." The creditor has not objected, and therefore it is deemed to have accepted the plan. See, e.g., In re Vankell, 311 B.R. 205 (Bankr. E.D.Tenn.2004). This is no great surprise as the creditor will receive its money sooner than it would have with a plan pursuant to In re Wescott, 309 B.R. 308 (Bankr. E.D.Wis.2004).
CONCLUSION
For the reasons discussed above, the court holds that the debtor's proposed plan meets all the requirements of 11 U.S.C. § 1325(a). The trustee's objection to confirmation is overruled, and the plan is confirmed. *908 A separate order will be entered accordingly.
NOTES
[1] It is not clear from the case whether the debtor had to pay the claim in full under the plan because the foreclosure sale was complete under Tennessee law or whether reinstatement was an option. See 11 U.S.C. § 1322(c)(2). The distinction is not critical for this analysis.
[2] That subsection provides:
(5) with respect to each allowed secured claim provided for by the plan
(A) the holder of such claim has accepted the plan;
(B)(i) the plan provides that
(I) the holder of such claim retain the lien securing such claim until the earlier of
(aa) the payment of the underlying debt determined under nonbankruptcy law; or
(bb) discharge under section 1328; and
(II) if the case under this chapter is dismissed or converted without completion of the plan, such lien shall also be retained by such holder to the extent recognized by applicable nonbankruptcy law;
(ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim; and
(iii) if
(I) property to be distributed pursuant to this subsection is in the form of periodic payments, such payments shall be in equal monthly amounts; and
(II) the holder of the claim is secured by personal property, the amount of such payments shall not be less than an amount sufficient to provide to the holder of such claim adequate protection during the period of the plan; or
(C) the debtor surrenders the property securing such claim to such holder;
11 U.S.C. § 1325(a)(5) (emphasis added). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1536079/ | 928 A.2d 731 (2007)
YATES
v.
U.S.
No. 05-CO-979.
District of Columbia Court of Appeals.
July 11, 2007.
Decision without published opinion Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1536071/ | 363 B.R. 492 (2007)
In re Bobbie Jean CLARK.
No. 06-11943.
United States Bankruptcy Court, N.D. Mississippi.
February 23, 2007.
*493 John M. Sherman, Clarksdale, MS, for Bobbie Jean Clark.
OPINION
DAVID W. HOUSTON, III, Bankruptcy Judge.
On consideration before the court is the objection to confirmation filed by AmeriCredit Financial Services, Inc., (AmeriCredit); response to said objection having been filed by the debtor, Bobbie Jean Clark, (debtor); and the court, having heard and considered same, hereby finds as follows, to-wit:
I.
The court has jurisdiction of the subject matter of and the parties to this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core contested proceeding as defined in 28 U.S.C. § 157(b)(2)(A), (B), (L), and (O).
II.
The facts relevant to this proceeding are undisputed. The debtor filed her voluntary petition under Chapter 13 of the United States Bankruptcy Code on August 21, 2006. Within the 910 day period preceding the date of the filing of her petition, the debtor entered into a purchase money security interest transaction with Ameri-Credit applicable to the acquisition of, a motor vehicle for her personal use.
Pursuant to a motion filed by AmeriCredit, an order granting relief from the automatic stay was entered in this case on November 13, 2006. The order provided that the debtor's motor vehicle, which was subject to the aforementioned security interest, was to be surrendered to Ameri-Credit, and, thereafter, AmeriCredit could file an amended claim to reflect the unsecured balance that would result following the liquidation of the said vehicle by AmeriCredit. Contrary to this position, the debtor, in her Chapter 13 plan, proposed that the surrender of the vehicle would fully satisfy the claim owed to AmeriCredit. AmeriCredit has objected to the confirmation of this plan, contending that the debtor should be liable for any deficiency claim that might ultimately arise. In her response, the debtor asserted that since § 1325(a) of the Bankruptcy Code[1], as amended by the Bankruptcy Abuse Prevention Consumer Protection Act of 2005 (BAPCPA), effectively deems the claim of AmeriCredit to be fully secured, the surrender of the vehicle fully satisfies the claim.
III.
Section 1325, as amended by BAPCPA, requires the court to confirm a plan if certain conditions are met. The treatment of allowed secured claims is found in § 1325(a)(5), which provides as follows, to-wit:
(a) Except as provided in subsection (b), the court shall confirm a plan if
. . .
(5) with respect to each allowed secured claim provided for by the plan
*494 (A) the holder of such claim has accepted the plan;
(B) (i) the plan provides that
(I) the holder of such claim retain 4, the lien securing such claim until the earlier of
(aa) the payment of the underlying debt determined under nonbankruptcy law; or
(bb) discharge under section 1328; and
(II) if the case under this chapter is dismissed or converted without completion of the plan, such lien shall also be retained by such holder to the extent recognized by applicable nonbankruptcy law; and
(ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim; and
(iii) if
(I) property to be distributed pursuant to this subsection is in the form of periodic payments, such payments shall be in equal monthly amounts; and
(II) the holder of the claim is secured by personal property, the amount of such payments shall not be less than an amount sufficient to provide to the holder of such claim adequate protection during the period of the plan; or
(C) the debtor surrenders the property securing such claim to such holder.
11 U.S.C. § 1325(a)(5).
Following subsection (9) of § 1325(a), Congress in enacting BAPCPA added a paragraph that has been labeled as the "hanging paragraph." It reads as follows, to-wit:
For purposes of paragraph (5), section 506 shall not apply to a claim described in that paragraph if the creditor has a purchase money security interest securing the debt that is the subject of the claim, the debt was incurred within the 910-day [sic] preceding the date of the filing of the petition, and the collateral for that debt consists of a motor vehicle (as defined in section 30102 of title 49) acquired for the personal use of the debtor, or if collateral for that debt consists of any other thing of value, if the debt was incurred during the 1-year period preceding that filing.
Section 506(a)(1) ordinarily permits a debtor to bifurcate a secured creditor's claim into secured and unsecured portions based on the value of the collateral. However, subsequent to the effective date of BAPCPA, courts have held that the bifurcation of claims held by so-called "910 creditors" is not permitted because of the hanging paragraph, and that a claim of a "910 creditor" must be treated as fully secured in a plan.
Several courts have considered the effect of the hanging paragraph when a debtor proposes to surrender a vehicle pursuant to § 1325(a)(5)(C). A majority of the decisions addressing this issue have found that the language of the hanging paragraph is unambiguous. See In re Osborn, 348 B.R. 500 (Bankr.W.D.Mo.2006); In re Sparks, 346 B.R. 767 (Bankr. S.D.Ohio 2006); In re Long, 2006 WL 2090246 (Bankr.E.D.Tenn.2006); In re Payne, 347 B.R. 278 (Bankr.S.D.Ohio 2006); In re Ezell, 338 B.R. 330 (Bankr. E.D.Tenn.2006); In re Nicely, 349 B.R. 600 (Bankr.W.D.Mo.2006); In re Evans, 349 B.R. 498 (Bankr.E.D.Mich.2006); In re Pool, 351 B.R. 747 (Bankr.D.Or.2006); and In re Bayless, No. 06-31517, 2006 WL 2982101 (Bankr.E.D.Tenn.2006).
*495 The court in In re Osborn offered the following:
The language of the hanging paragraph is clear. It provides that "[f]or purposes of paragraph (5), section 506 shall net apply" to a secured claim if the creditor is a hanging paragraph creditor. There is no ambiguity in this provision: if you are a hanging paragraph creditor, § 506 does not apply to your claim, and a plan cannot provide for bifurcation of it. . . . [T]his plain language does not differentiate, in any way, between the options provided in paragraphs (B) and (C) of § 1325(a)(5). Thus, in order to prevail, [a creditor] must show that literal application would either be contrary to congressional intent or would produce an absurd result.
Osborn, 348 B.R. at 504.
Congress articulated without qualification in the hanging paragraph that § 506 does not apply for purposes of § 1325(a)(5) to "910 creditors." However, is there a distinction between the scenario where a debtor retains possession of the vehicle and proposes to pay for it through the Chapter 13 plan compared to the scenario where a debtor proposes to surrender the vehicle to the secured creditor. The language of § 506(a)(1) provides significant insight, to-wit:
(a)(1) An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under section 553 of this title, is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property, or to the extent of the amount subject to setoff, as the case may be, and is an unsecured claim to the extent that the value of such creditor's interest or the amount so subject to setoff is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor's interest.
On an earlier occasion, this court had an opportunity to address this issue in a case styled In re Hollis, No. 06-11256, in which an order was entered October 12, 2006, to the effect that the debtors' surrender of their vehicle to their "910 creditor" fully satisfied that creditor's claim. This court concluded that the debtors would not be liable for any deficiency to the creditor should a deficiency actually materialize.
At the time of the Hollis decision, this court had found only one contrary decision, In re Duke, 345 B.R. 806 (Bankr. W.D.Ky.2006), but declined to follow that court's analysis. In addition, neither the secured creditor nor the debtors addressed the language appearing in § 506(a)(1), recited hereinabove. Subsequently, this court has seen two cases which support AmeriCredit's view that it is entitled, even after a vehicle has been surrendered, to the payment of a deficiency claim by the Chapter 13 debtor: Dupaco Community Credit Union v. Zehrung (In re Zehrung), 351 B.R. 675 (W.D.Wis.2006), and In re Particka, 355 B.R. 616 (Bankr.E.D.Mich. 2006). The reasoning in Particka is particularly compelling, to-wit:
On the other hand, the surrender of collateral changes the parties' interests in the property and consequently the impact of § 506(a). As explained earlier in this opinion, 506(a) applies by its terms only to "an allowed claim of a creditor secured by a lien on property in which the estate has an interest. . . . " 11 U.S.C. § 506(a) (emphasis added).
. . . . Accordingly, upon confirmation of a Chapter 13 plan providing for surrender under § 1325(a)(5)(C), the estate no longer has an interest in the collateral. *496 By rendering § 506 inapplicable to § 1325(a)(5), the hanging paragraph did work a change in the law with respect to 910 creditors, but only with respect to debtors who retain the collateral securing their debt. Because § 506 does not apply to a vehicle surrendered under § 1325(a)(5)(C), the specific direction of the hanging paragraph that § 506 no longer apply to § 1325(a)(5) does not cause any change in the outcome where a debtor surrenders a vehicle under § 1325(a)(5)(C) to a 910 creditor and the estate no longer retains an interest in such vehicle. While it might have been more precise for the hanging paragraph to state that as to 910 creditors § 506 no longer applies to § 1325(a)(5)(B), because that was all it has ever applied to, the effect of the hanging paragraph's statement that § 506 no longer applies to § 1325(a)(5) creates the same result. The result is that a debtor cannot retain a 910 vehicle under § 1325(a)(5)(B) by paying a cram down value determined by the bifurcation process of § 506. That is a significant change. But the hanging paragraph causes no change when a debtor surrenders a vehicle to a 910 creditor under § 1325(a)(5)(C). Prior to BAPCPA, § 506 did not bifurcate a secured creditor's claim upon surrender, nor does it do so post-BAPCPA. Upon surrender, the 910 secured creditor still is entitled to enforce its right to payment and, after disposition of the collateral, that right to payment can still be filed and allowed as an unsecured deficiency claim under § 502. There is nothing in the hanging paragraph that somehow disallows an unsecured deficiency claim of a 910 creditor whose debt was a full recourse obligation under non-bankruptcy law and whose depreciated collateral has been surrendered to it by a Chapter 13 debtor under § 1325(a)(5)(C).
The Court recognizes that the weight' of authority is in favor of the Debtors' position. It is tempting to follow the trend. But on close inspection, those cases seem to proceed from the incorrect assumption that it is only somehow because of § 506 that an under-secured 910 creditor has a right to pursue a deficiency claim. For example, in In re Ezell, 338 B.R. 330 (Bankr.E.D.Tenn. 2006), the court stated that "[b]ecause application of § 506(a) is entirely removed from the picture, there can be no deficiency balance, either secured or unsecured, and surrender satisfies an allowed secured claim in full." Id. at 342.
The only two published cases to date that have rejected the Debtors' position are In re Duke and In re Zehrung. The court in Duke did so based on its conclusion that the hanging paragraph is ambiguous. In re Duke, 345 B.R. 806, 809 (Bankr.W.D.Ky.2006) (citation omitted). From there, the Duke court looked to legislative history for guidance. Acknowledging that the legislative history was "not expansive," the Duke court nonetheless found that it did not support the position of the debtors in that case. Id. However, as explained earlier in this opinion, the Court does not consider the hanging paragraph to be ambiguous. Therefore, resort to even the scant legislative history that exists is unnecessary.
The Zehrung court reached the same conclusion as Duke but took a different path to get there. Dupaco Community Credit Union v. Zehrung (In re Zehrung), 351 B.R. 675 (W.D.Wis.2006). First, the court observed that the phrase "`allowed secured claim' in § 1325[a](5) is used in the sense that the claim is allowed under § 502 and se cured by some collateral, not in the § 506 sense of the term." Id. at 677-78. *497 The Zehrung court then explained that [a] creditor taking possession of collateral does not depend upon § 506 to determine the value of its unsecured claim. Section 506 has application only when the estate retains an interest in the collateral, a circumstance which disappears with surrender. Rather, when collateral is surrendered pursuant to § 1325[a](5)(C) the amount of the remaining unsecured claim is determined by state law, uniform commercial code sections 9-610 to 9-624. The creditor's rights being unmodified by § 506, it is entitled to its state law right to liquidate the collateral and retain an unsecured claim for the balance due.
Particka, 355 B.R. at 624-26.
Having now considered the analysis in Particka, this court is convinced that its earlier ruling in Hollis was erroneous. Once the debtor surrenders the vehicle and it no longer is considered a part of the bankruptcy estate, § 506 has no application. As such, if the secured creditor, after regaining possession, then liquidates the vehicle in a commercially reasonable manner, that creditor is entitled to file an amended claim to reflect the amount of the unsecured deficiency. This deficiency must then be treated by the debtor in the Chapter 13 plan in the same manner as other unsecured' claims. It is no longer a secured claim, nor is it a priority claim. This is the identical result that would have occurred prior to the enactment of BAPCPA. Once the vehicle ceases to become a part of the debtor's bankruptcy estate, the entire dynamic of the "hanging paragraph" changes because of the language found in § 506(a)(1).
IV.
Because of the reasoning set forth hereinabove, the court is of the opinion that the objection to confirmation filed by Ameri-Credit is well taken. Following the liquidation of the vehicle, AmeriCredit shall be permitted to amend its claim to reflect the unsecured deficiency balance. AmeriCredit, however, is admonished to liquidate the vehicle in a commercially reasonable manner. Thereafter, the debtor's plan must treat the deficiency claim in the same manner as other general unsecured claims.
V.
Because of this decision, the order previously entered in the Hollis case on October 12, 2006, is hereby vacated. A copy of this opinion will be entered in the Hollis case superceding the effects of the aforesaid order.
A separate order, consistent with this opinion, shall be entered contemporaneously herewith.
NOTES
[1] Hereinafter, all Code sections cited will be considered as sections of the United States Bankruptcy Code unless specifically noted otherwise. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1536103/ | 928 A.2d 1132 (2007)
DUNCAN
v.
FILONE.
No. 2623 EDA 2006.
Superior Court of Pennsylvania.
April 2, 2007.
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/169886/ | 505 F.3d 1082 (2007)
UNITED STATES of America, Plaintiff-Appellee,
v.
Felipe ROMERO-HERNANDEZ, Defendant-Appellant.
No. 05-2154.
United States Court of Appeals, Tenth Circuit.
October 16, 2007.
*1083 *1084 Submitted on the briefs:[*]
Jerry A. Walz and Alfred D. Creecy, Walz and Associates, Cedar Crest, New Mexico, for the Defendant-Appellant.
David C. Iglesias, United States Attorney, and Norman Cairns, Assistant United States Attorney, Office of the United States Attorney for the District of New Mexico, Albuquerque, New Mexico, for the Plaintiff-Appellee.
Before TACHA, Chief Circuit Judge, BRISCOE, and GORSUCH, Circuit Judges.
TACHA, Chief Circuit Judge.
Defendant-Appellant Felipe Romero-Hernandez, a citizen of Mexico, pleaded guilty to illegal reentry following removal for commission of an aggravated felony in violation of 8 U.S.C. § 1326(a) and (b)(2). At sentencing, the District Court applied a sixteen-level upward adjustment to Mr. Romero-Hernandez's sentence under § 2L1.2(b)(1)(A)(ii) of the U.S. Sentencing Guidelines ("U.S.S.G." or "Guidelines") after concluding that he had previously been deported following a felony conviction for a crime of violence. On appeal, Mr. Romero-Hernandez argues that the District Court erroneously applied the adjustment because his prior state conviction is not a crime of violence. We exercise jurisdiction pursuant to 28 U.S.C. § 1291 and 18 U.S.C. § 3742(a) and AFFIRM.
I. BACKGROUND
On March 10, 2004, in Denver County Court, Mr. Romero-Hernandez pleaded guilty to and was convicted of misdemeanor unlawful sexual contact in violation of Colorado law, Colo.Rev.Stat. § 18-3-404(1). Mr. Romero-Hernandez was sentenced to 720 days' imprisonment with 60 days' credit for time served and 660 days suspended and was thereafter removed from the United States. On August 14, 2004, Mr. Romero-Hernandez was apprehended in southern New Mexico and was subsequently charged with illegal reentry following removal for commission of an aggravated felony, a violation of 8 U.S.C. § 1326(a) and (b)(2).
Mr. Romero-Hernandez pleaded guilty to the federal charge. The presentence report ("PSR") calculated his base offense level as eight pursuant to U.S.S.G. § 2L1.2(a). In addition, the PSR recommended a sixteen-level upward adjustment under U.S.S.G. § 2L1.2(b)(1)(A)(ii), which provides for an increase to the base offense level when the defendant has a prior felony conviction for a crime of violence. According to the PSR, Mr. Romero-Hernandez's conviction is a felony for federal sentencing purposes (despite its characterization as a misdemeanor under Colorado law) because it is punishable by a term of imprisonment exceeding one year, see U.S.S.G. § 2L1.2 cmt. n. 2, and is a "crime of violence" because Mr. Romero-Hernandez had non-consensual sexual contact with a minor and "sexual abuse of a minor" is an enumerated crime of violence under the Guidelines, see U.S.S.G. § 2L1.2 cmt. n. 1(B)(iii).[1] The PSR also recommended a *1085 three-level downward adjustment for acceptance of responsibility pursuant to U.S.S.G. § 3E1.1. Applying these adjustments, the PSR reported an adjusted offense level of 21. With a criminal history category of III, the recommended Guidelines sentence was 46 to 57 months' imprisonment. See U.S.S.G. ch. 5 pt. A.
Mr. Romero-Hernandez objected to the PSR, arguing that his prior state conviction was neither a felony nor a crime of violence. The District Court rejected these objections, concluding that the offense was a felony and that a "plain reading" of the Colorado statute reveals that a violation of the statute constitutes a "forcible sex offense," an offense specifically enumerated as a "crime of violence" under the Guidelines, see U.S.S.G. § 2L1.2 cmt. n. 1(B)(iii). The District Court sentenced Mr. Romero-Hernandez to 46 months' imprisonment to be followed by two years' supervised release. On appeal, Mr. Romero-Hernandez does not contest that the state conviction is a felony offense for purposes of the Guidelines. He maintains, however, that the offense of unlawful sexual contact is not a "crime of violence."
II. DISCUSSION
This Court reviews de novo a district court's determination that a prior offense qualifies as a "crime of violence" under U.S.S.G. § 2L1.2(b)(1)(A)(ii). See United States v. Torres-Ruiz, 387 F.3d 1179, 1180-81 (10th Cir.2004). "In interpreting a guideline, we look at the language in the guideline itself, as well as the interpretative and explanatory commentary to the guideline provided by the Sentencing Commission." Id. at 1181 (quotation omitted).
The 2004 Guidelines, under which the District Court sentenced Mr. Romero-Hernandez, provide a sixteen-level upward adjustment to the base offense level if the "defendant previously was deported, or unlawfully remained in the United States, after . . . a conviction for a felony that is . . . a crime of violence." U.S.S.G. § 2L1.2(b)(1)(A)(ii). The application notes to § 2L1.2 define "crime of violence" as:
any of the following: murder, manslaughter, kidnapping, aggravated assault, forcible sex offenses, statutory rape, sexual abuse of a minor, robbery, arson, extortion, extortionate extension of credit, burglary of a dwelling, or any offense under federal, state or local law that has as an element the use, attempted use, or threatened use of physical force against the person of another.
U.S.S.G. § 2L1.2 cmt. n. 1(B)(iii) (emphasis added).
When a defendant contests whether a prior conviction is a crime of violence, the sentencing court is generally required to follow the "categorical approach" as adopted in Taylor v. United States, 495 U.S. 575, 600, 110 S.Ct. 2143, 109 L.Ed.2d 607 (1990). United States v. Perez-Vargas, 414 F.3d 1282, 1284 (10th Cir.2005). The categorical approach requires the sentencing court to look "only to the statutory definitions of the prior offenses, *1086 and not to the particular facts underlying those convictions." Id. (quotation omitted). But when an examination of the statute reveals that the statute "reaches a broad range of conduct, some of which merits an enhancement and some of which does not, courts resolve the resulting ambiguity by consulting reliable judicial records." United States v. Martinez-Hernandez, 422 F.3d 1084, 1086 (10th Cir. 2005). At this stage, the analysis is referred to as the "modified categorical approach." See Gonzales v. Duenas-Alvarez, ___ U.S. ___, 127 S.Ct. 815, 819, 166 L.Ed.2d 683 (2007); Batrez Gradiz v. Gonzales, 490 F.3d 1206, 1211 (10th Cir.2007). In applying the modified categorical approach, the court is limited to examining "the terms of the charging document, the terms of a plea agreement or transcript of colloquy between judge and defendant in which the factual basis for the plea was confirmed by the defendant, or to some comparable judicial record of this information." Shepard v. United States, 544 U.S. 13, 26, 125 S.Ct. 1254, 161 L.Ed.2d 205 (2005). The court may also rely on any admissions the defendant has made regarding the facts of the prior conviction. Perez-Vargas, 414 F.3d at 1285. Ultimately, the purpose of this analysis is to avoid "collateral trials." Shepard, 544 U.S. at 23, 125 S.Ct. 1254.
Following the categorical approach here, we look first to the language of the statute to determine whether Mr. Romero-Hernandez was convicted of a crime of violence. Because we conclude that the particular section of the Colorado statute at issue prohibits conduct that is categorically a crime of violence under § 2L1.2, our analysis ends with the language of the statute and we do not proceed to apply the modified categorical approach.
Mr. Romero-Hernandez was convicted under Colo.Rev.Stat. § 18-3-404(1),[2] which provides:
Any actor who knowingly subjects a victim to any sexual contact commits unlawful sexual contact if:
(a) The actor knows that the victim does not consent; or
(b) The actor knows that the victim is incapable of appraising the nature of the victim's conduct; or
(c) The victim is physically helpless and the actor knows that the victim is physically helpless and the victim has not consented; or
(d) The actor has substantially impaired the victim's power to appraise or control the victim's conduct by employing, without the victim's consent, any drug, intoxicant, or other means for the purpose of causing submission; or
[(e) Repealed by Laws 1990, H.B.90-1133, § 25, eff. July 1, 1990.]
(f) The victim is in custody of law or detained in a hospital or other institution and the actor has supervisory or disciplinary authority over the victim and uses this position of authority, unless incident to a lawful search, to coerce the victim to submit; or
(g) The actor engages in treatment or examination of a victim for other than bona fide medical purposes or in a manner *1087 substantially inconsistent with reasonable medical practices.
The District Court concluded that a conviction under the Colorado statute is categorically a "forcible sex offense" and thus a crime of violence. The statute prohibits nonconsensual sexual contact that is not necessarily achieved by physical force.[3] We must therefore determine whether nonconsensual sexual contact constitutes a forcible sex offense and therefore a crime of violence. As we explain below, we conclude that it does.
The Guidelines do not define the phrase "forcible sex offenses." Mr. Romero-Hernandez argues that to qualify as a forcible sex offense the offense must involve the use of physical force apart from the force inherent in the sexual contact itself, while the Government contends that a sex offense can be "forcible" even though no physical force is involved. According to the Government, a sex offense is "forcible" if it is nonconsensual, including those situations in which the victim is legally or medically unable to consent. This is an issue of first impression for this Circuit, and other circuits appear to be split on the issue. Compare United States v. Beltran-Munguia, 489 F.3d 1042, 1051 (9th Cir. 2007) (noting that, "[n]ot surprisingly, given its language, we have interpreted the phrase `forcible sex offenses' as requiring the use of force," and force "must actually be violent in nature"), and United States v. Gomez-Gomez, 493 F.3d 562, 568, 2007 WL 2070276, at *3 (5th Cir.2007) (collecting Fifth Circuit cases discussing § 2L1.2's "forcible sex offenses" enhancement and explaining that, for those cases to which the enhancement did not apply, "the act may well be against the will of the victim . . . but [if] there is no force or threat of force, . . . it is not a `forcible sex offense' under the Guidelines"), with United States v. Remoi, 404 F.3d 789, 794-95 (3d Cir.2005) (rejecting an interpretation of § 2L1.2 limiting "forcible sex offenses" to those offenses involving physical force and concluding that a sex offense against a victim who is "physically helpless, mentally defective or mentally incapacitated" is categorically a "forcible sex offense").
Because the Guidelines do not define the term "forcible sex offense," we look to the "ordinary, contemporary, and common" meanings of the words used. Perrin v. United States, 444 U.S. 37, 42, 100 S.Ct. 311, 62 L.Ed.2d 199 (1979); see also United States v. Bolanos-Hernandez, 492 F.3d 1140, 1144 (9th Cir.2007); United States v. Mungia-Portillo, 484 F.3d 813, 816 (5th Cir.2007). A "sex offense" is commonly understood as "[a]n offense involving unlawful sexual conduct." Black's Law Dictionary 1112 (8th ed.2004) (defining "sexual offense"); see also Bolanos-Hernandez, 492 F.3d at 1144 (applying dictionary definition of "sexual offense"). Section 18-3-404(1) proscribes "unlawful sexual contact."[4] The full range of conduct prohibited *1088 by § 18-3-404(1) is thus a "sex offense" as that term is commonly understood.
The more difficult question is whether the full range of conduct prohibited by § 18-3-404(1) is a forcible sex offense. Black's generally defines "forcible" as "[e]ffected by force or threat of force against opposition or resistance." Black's Law Dictionary 674 (8th ed.2004) (emphasis added). This rather circular definition could be read to imply that the word "forcible" requires physical compulsion sufficient to overcome "opposition or resistance." Such a reading would be incorrect for two reasons. First, as Black's explains in the context of a personal trespass, unlawful contact with another person is a forcible injury: "To lay one's finger on another person without lawful justification is as much a forcible injury in the eye of the law . . . as to beat him with a stick." Black's Law Dictionary 674 (8th ed.2004). Thus, the inclusion of "opposition or resistance" should not be read to require active opposition or resistance. A legal right to be free from interference will suffice to satisfy this definition.
Second, the word "force" does not necessarily connote the use of physical compulsion. Black's defines force as "[p]ower, violence, or pressure directed against a person or thing." Black's Law Dictionary 673 (8th ed.2004). "Power" is in turn defined as "[d]ominance, control, or influence." Black's Law Dictionary 1207 (8th ed.2004). These definitions omit any reference to physical power, pressure, dominance, or control. This omission is consistent with how we have defined "force" in similar contexts. For example, we have stated that "force may be inferred by such facts as disparity in size between victim and assailant, or disparity in coercive power." United States v. Holly, 488 F.3d 1298, 1302 (quotation and citation omitted) (10th Cir.2007) (holding that in the context of aggravated sexual assault, force does not mean "the brute force [commonly] associated with rape"). These facts do not get at the issue of physical compulsion, but rather go to the disparity of influence. Thus, where one party has sufficient control of a situation to overcome the another's free will, force is present.
The language of the crime-of-violence definition, § 2L1.2 cmt. n. 1(B)(iii), also indicates that use of physical compulsion is not required for a sex offense to be "forcible." The application note specifically uses the word "physical" to modify force in denoting an offense committed by means of physical compulsion. See § 2L1.2 cmt. n. 1(B)(iii) (defining crime of violence to include any offense that "has as an element the use, attempted use, or threatened use of physical force against the person of another" (emphasis added)). The Sentencing Commission's omission of the "physical" modifier from the term "forcible sex offense" indicates that the word "forcible" must mean more than physical compulsion. This conclusion is bolstered by the fact that there are other enumerated offenses that do not necessarily involve physical compulsion, permitting an inference that physical compulsion is not necessary for a crime to be a crime of violence generally. For example, the list of specifically enumerated crimes of violence include statutory rape and sexual abuse of a minor, neither of which requires physical compulsion. See Remoi, 404 F.3d at 795 (noting that sexual abuse of a minor is a crime that involves exploitation, but *1089 not necessarily physical compulsion). Thus, a sex offense may be committed by means that do not involve "physical" force, yet the offense may still be "forcible."
Though we have determined that a "forcible" sex offense need not be accomplished by means of physical compulsion, the question remains whether nonconsensual sexual contact, such as that prohibited by the Colorado statute, is necessarily "forcible." When an offense involves sexual contact with another person, it is necessarily forcible when that person does not consent. See Remoi, 404 F.3d at 796 ("If a `forcible' sexual offense is not associated with physical compulsion, it must therefore mean a sexual act that is committed against the victim's will or consent."). In the instant case, this conclusion is reinforced by reference to the specifically enumerated situations that are covered by the statute in question: victims unable to comprehend the nature of their conduct; physically helpless victims; victims whose self-control is impaired through the perpetrator's actions; or victims who are in the power of the perpetrator for medical purposes or pursuant to some legal or disciplinary authority. Colo.Rev.Stat. § 18-3-404(1)(b)-(d), (f)-(g). These examples are all ones in which the victims' situational lack of power, influence, or control renders them unable to give consent. Read with these examples in mind, subsection (a), which requires merely that the perpetrator know that the victim did not consent, id., should be read to cover an analogous situation: where, due to disparities in power or influence, the victim's lack of consent and the perpetrator's knowledge of this lack of consent is insufficient to protect the victim. Like the more specific examples discussed in the later subsections, such situations clearly fall under the definition of "force" discussed in Holly, 488 F.3d at 1302.
Because, as noted supra, the use of such disparities in situational power or influence meet the definition of force, the offense in question is categorically a crime of violence, and the District Court did not err by applying the § 2L1.2 enhancement to Mr. Romero-Hernandez's sentence.
III. CONCLUSION
For the foregoing reason, we AFFIRM the sentence imposed by the District Court.
NOTES
[*] After examining the briefs and the appellate record, this three-judge panel has determined unanimously that oral argument would not be of material assistance in the determination of this appeal. See Fed. R.App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore ordered submitted without oral argument.
[1] The PSR describes the offense conduct as follows:
Offense documentation reflects the victim[,] who was [15] years old at the time, told her father of the defendant's inappropriate sexual behavior. . . . The victim advised the defendant went into her room while she was sleeping and he attempted to grab her breasts as he reached under her shirt. The victim stated she pushed the defendant's hands away while telling him to stop and leave her alone. The victim related the defendant was telling her to touch him and rubbed her outer thigh with his hand. The victim reported the defendant tried to get into bed with the victim and again put his hand in the victim's shirt, grabbing her breast while stating "those mine." The victim advised she then told the defendant "no they're mine!" and pushed him away again.
[2] We may look to the criminal complaint at this stage only to narrow the state offense we examine under the categorical approach. See Taylor, 495 U.S. at 602, 110 S.Ct. 2143 (requiring courts, under the categorical approach, "to look only to the fact of conviction and the statutory definition of the prior offense"); see also United States v. Remoi, 404 F.3d 789, 793 (3d Cir.2005) (explaining that "[e]ven under the categorical approach, we have been willing to consider charging documents in refining the state offense [that] we examine").
[3] A conviction under § 18-3-404(1) does not require the use of physical force against the victim apart from the force inherent in the unlawful contact itself. Section 18-3-404 provides two separate penalty provisions. Generally, unlawful sexual contact is a "class 1 misdemeanor," Colo.Rev.Stat. § 18-3-404(2)(a), punishable by up to two years' imprisonment, id. § 18-1.3-501(1), (3)(a), (3)(b)(II)(a), unless the accused "compels the victim to submit by use of . . . [physical] force, intimidation, or threat," in which case the crime is a "class 4 felony," id. §§ 18-3-404(2)(b), 18-3-402(a)-(c), punishable by two to eight years' imprisonment, id. §§ 18-1.3-406, 18-1.3-401(10), 18-1.3-401(a)(V)(A). Because the penalty depends on whether physical force, threats, or intimidation were used to accomplish the sexual contact, it is clear that a person can be convicted under the statute without a showing of physical force, threats, or intimidation.
[4] Colorado law defines "sexual contact" as:
[T]he knowing touching of the victim's intimate parts by the actor, or of the actor's intimate parts by the victim, or the knowing touching of the clothing covering the immediate area of the victim's or actor's intimate parts if that sexual contact is for the purposes of sexual arousal, gratification, or abuse.
Colo.Rev.Stat. § 18-3-401(4). | 01-03-2023 | 08-14-2010 |
https://www.courtlistener.com/api/rest/v3/opinions/1536119/ | 928 A.2d 1290 (2007)
COM.
v.
SMITH.
No. 233 MAL (2007).
Supreme Court of Pennsylvania.
July 19, 2007.
Disposition of petition for allowance of appeal. Denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1602748/ | 8 So.3d 1136 (2009)
EXIUS
v.
FLORIDA UNEMPLOYMENT APPEALS COM'N.
No. 1D09-0447.
District Court of Appeal of Florida, First District.
May 15, 2009.
Decision without published opinion. Dismissed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1546577/ | 38 F.2d 71 (1930)
ENSTEN et al.
v.
SIMON ASCHER & CO., Inc.
No. 242.
Circuit Court of Appeals, Second Circuit.
February 3, 1930.
O. Ellery Edwards, of New York City, for appellants.
Hoguet & Neary, of New York City (Daniel L. Morris, of New York City, of counsel), for appellee.
Before SWAN, AUGUSTUS N. HAND, and CHASE, Circuit Judges.
PER CURIAM (after stating the facts as above).
The question is whether a patentee, to save the life of his patent, when one claim thereof has been held invalid by an interlocutory decree, must either appeal from such decree, or promptly file a disclaimer. With respect to this very patent, Judge Westenhaver held that he must. Ensten v. Rich-Sampliner Co. (D. C.) 13 F.(2d) 132. But this was reversed on another point, and the disclaimer question called moot, in 19 F.(2d) 66 (C. C. A. 6). In the case at bar, the court below followed the reasoning of Judge Westenhaver.
The appellants contend that election between the alternatives of appeal or disclaimer should not be required until entry of a final decree. They argue that an interlocutory decree does not finally determine the invalidity of a claim, because the correctness of such interlocutory ruling may be questioned upon an appeal from the final decree; that to require a patentee, to elect between appealing and disclaiming, when only an interlocutory decree has been entered, allows him the privilege of testing the interlocutory ruling upon appeal from the final decree only at the risk of losing his entire patent, if he fails to reverse the interlocutory order; and that the disclaimer statute should not be construed to have contemplated any such result. However persuasive these arguments might appear to the court as now constituted, we think we are foreclosed from considering them by the recent decision of Hoe & Co. v. Goss Printing Press Co. There the plaintiff's bill was dismissed for non-infringement. On appeal this court reversed the decree, holding one claim of the patent good and several invalid. 30 F.(2d) 271. Our decree was interlocutory, and yet, on motion to recall and amend our mandate [31 F.(2d) 565], we required the plaintiff either to petition for certiorari or to file a disclaimer within 30 days after expiration of the time for such a petition. The logic of that decision is equally applicable to an interlocutory decree of the district court. In fact, in such case it operates with slightly less severity, for the patentee may appeal as of right from the district court, while the entertainment of his petition for certiorari is a matter of grace. Adherence to the Hoe Case requires an affirmance of the decree below.
This decision appears to be in direct conflict with the principle upon which a decision of the Seventh Circuit has very recently been *72 handed down. Excelsior Steel Furnace Co. v. F. Meyer & Brother Co. (C. C. A.) 36 F. (2d) 447. In that litigation the patentee's bill was dismissed by the district court. On appeal, certain claims were held valid and others invalid, the opinion being rendered in May, 1917. (C. C. A.) 244 F. 172. Thereafter the District Court entered an interlocutory decree for injunction and accounting. During the accounting, in February, 1922, the defendant asked for dismissal of the suit because no disclaimer had been filed. The motion was sustained by the District Court. This action the Circuit Court of Appeals has reversed, holding that the delay was not unreasonable, since the prior decision was merely interlocutory and the plaintiff could reasonably delay the filing of its disclaimer until after the final decree. In view of this diversity of views between two Circuit Courts of Appeals, it would seem probable that the appellants can secure a certiorari, if so disposed, and thus enable this important question of the law of patents to be authoritatively determined.
Decree affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535999/ | 737 A.2d 862 (1999)
COMMONWEALTH of Pennsylvania, DEPARTMENT OF PUBLIC WELFARE
v.
LUBRIZOL CORPORATION EMPLOYEE BENEFITS PLAN, Appellant.
Commonwealth Court of Pennsylvania.
Argued June 17, 1999.
Decided September 15, 1999.
*864 Judith F. Olson, Pittsburgh, for appellant.
Jason W. Manne, Pittsburgh, for appellee.
Before McGINLEY, J., KELLEY, J., and RODGERS, Senior Judge.
*863 KELLEY, Judge.
Lubrizol Corporation Employee Benefits Plan (the Plan) appeals from an order of the Court of Common Pleas of Allegheny County (state court) which denied the Plan's motion for judgment on the pleadings. We affirm.
The facts of this case are as follows. The Plan provides health care benefits to retirees of the Lubrizol Corporation and their dependents. Francis L. was a retiree of the Lubrizol Corporation and member of the Plan. Francis, who suffered from dementia, was hospitalized at Warren State Hospital, a state facility, from September 17, 1991 to May 10, 1993. Thereafter, he was transferred to Pleasant Ridge Manor, a nursing facility, where he resided until his death on August 17, 1994. The *865 Medicaid program paid for Francis' care at both institutions.
The Department of Public Welfare (DPW),[1] as assignee of Medicaid recipients, submitted claims to the Plan to recover the costs of Francis' care at Warren State Hospital and Pleasant Ridge Manor. The Plan denied DPW's claims. For the period prior to January 1, 1993, the Plan denied DPW's claim because of an exclusion for custodial care under the Plan's terms.[2] For the period subsequent to January 1, 1993, the Plan denied DPW's claims based upon a broader exclusionary provision for custodial care which was adopted January 1, 1993.
In 1992, DPW commenced an action in the United States District Court for the Western District (federal court) against the Plan seeking to recover Medicaid expenditures for Francis' care at Warren State Hospital. DPW voluntarily withdrew the federal complaint and refiled with the state court. The Plan then removed the case to federal court. DPW filed a motion to remand the case to the state court on the ground that its complaint did not raise any federal questions. By order and opinion dated May 26, 1998, the federal court granted DPW's motion and remanded the matter to the state court.
Upon remand, DPW filed, with the state court, a first amended complaint on July 16, 1998 seeking to recover Medicaid expenditures for Francis' care at Warren State Hospital and Pleasant Ridge Manor and challenging the legality of the adoption process of the January 1, 1993 amendment. Following the close of the pleadings, the Plan filed a motion for judgment on the pleadings on the grounds that DPW's first amended complaint is preempted by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., and that the state court lacks jurisdiction to decide any of the claims raised in DPW's complaint. By interlocutory order dated February 10, 1999, the state court denied the Plan's motion. The Plan filed a petition for permission to appeal with this Court pursuant to Pa. R.A.P. 312,[3] which was granted by order dated April 26, 1999.[4] The Plan has raised the following issues for our review:
I. Did the state court err in denying the Plan's motion for judgment on the pleadings since the claims asserted in DPW's first amended complaint arise under and are governed exclusively by ERISA?.
II. Did the state court err in denying the Plan's motion for judgment on the pleadings since ERISA preempts any state law which may govern the claims for benefits from an ERISA-governed employee benefit plan?
III. Did the state court err in applying Sections 1404(b) and 1409(a)(3) of the Public Welfare Code[5] to DPW's claims?
*866 IV. Did the state court err in denying the Plan's motion for judgment on the pleadings on the basis that exclusive jurisdiction over DPW's claims rests in the federal courts and, therefore, the state court lacks jurisdiction to decide this matter?
I.
First, the Plan contends that the state court erred in denying the Plan's motion for judgment on the pleadings as the claims asserted in DPW's first amended complaint arise under and are governed exclusively by federal law, not state law. We disagree.
Section 502 of ERISA deals with the civil enforcement of the ERISA statute. This section provides that a civil action may be brought by a participant or beneficiary 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. Section 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B). This section further provides that a civil action may be brought by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this title or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this title or the terms of the plan. Section 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3).
The Plan contends that DPW's claims fall squarely within ERISA's civil enforcement provisions for two reasons. First, DPW claims that the Plan wrongly denied DPW benefits under the terms of the Plan, an action described in Section 502(a)(1)(B). Second, DPW claims that the Plan illegally adopted the January 1, 1993 amendment, an action which is equitable in nature and contained within Section 502(a)(3). While DPW's claims do appear to fall within the scope of ERISA's civil enforcement provisions, a problem arises with regard to whether DPW is permitted to bring an action under ERISA.
In order for a party to bring an action under ERISA as described above, a party must qualify as a participant, beneficiary or fiduciary. A participant is defined under ERISA as "any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or members of such organization, or whose beneficiaries may be eligible to receive any such benefit." Section 3(7) of ERISA, 29 U.S.C. § 1002(7). A beneficiary is defined as "a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder." Section 3(8) of ERISA, 29 U.S.C. § 1002(8). A fiduciary is defined as "a person ... (i)[who] exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii)[who] renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii)[who] has any discretionary authority or discretionary responsibility in the administration of such plan." Section 3(21)(A) of ERISA, 29 U.S.C. § 1002(21)(A). A "person," as used within the definitions of beneficiary or fiduciary, is defined as "an individual, partnership, joint venture, corporation, mutual company, joint-stock company, trust, estate, unincorporated organization, association, or employee organization." Section 3(9) of ERISA, 29 U.S.C. § 1002(9).
DPW is a governmental agency and an assignee of Francis' rights. Unfortunately, neither governmental agencies nor assignees are included among the enumerated list of parties empowered to bring *867 an action pursuant to ERISA's civil enforcement provisions. First, DPW does not qualify as a participant as DPW is not an employee or former employee of the Plan. Second, although it appears that DPW could fall within the definition of beneficiary or fiduciary, an examination of the term "person" as defined by ERISA precludes such an interpretation.[6]See Northeast Department ILGWU v. Teamsters Local Union No. 229, 764 F.2d 147, 154 n. 6 (3rd Cir.1985) ("Congress simply made no provision in § 1132(a)(1)(B) for persons other than participants and beneficiaries to sue, including persons purporting to sue on their behalf."); Department of Public Welfare v. Quaker Medical Care & Survivors Plan, 836 F. Supp. 314, 318 (W.D.Pa.1993); Allergy Diagnostics Laboratory v. Equitable, 785 F. Supp. 523, 527 (W.D.Pa.1991). As DPW is not a participant, beneficiary or fiduciary, DPW's claims fall outside the scope of ERISA's civil enforcement provision.[7]
II.
The Plan contends that the state court erred in denying the Plan's motion for judgment on the pleadings since ERISA preempts any state law which may govern the claims for benefits from an ERISA-governed employee benefit plan. We disagree.
ERISA was designed to protect the interests of employees and their beneficiaries in employee benefit plans. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90, 103 S. Ct. 2890, 77 L. Ed. 2d 490 (1983). ERISA's comprehensive regulatory scheme was intended to establish the regulation of benefit plans as "exclusively a federal concern." Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 46, 107 S. Ct. 1549, 95 L. Ed. 2d 39 (1987). In order to maintain federal control over benefit plan regulation, ERISA contains a "very broad preemption clause." Hydrostorage, Inc. v. Northern California Boilermakers, 891 F.2d 719, 726 (9th Cir.1989), cert. denied, 498 U.S. 822, 111 S. Ct. 72, 112 L. Ed. 2d 46 (1990). This preemption clause, contained in Section 514(a) of ERISA, 29 U.S.C. § 1144(a), provides:
"[e]xcept as provided in subsection (b)..., the provisions of this title and title IV shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 4(a) [29 U.S.C. § 1003(a) ] and not exempt under section 4(b) [29 U.S.C. § 1003(b)]."
ERISA's broad preemption of state laws, however, is qualified by subsection (b). Of import to our discussion is subsection (b)(8), which protects certain state causes of action relating to state Medicaid programs. This section, as amended in 1993, provides:
Subsection (a) shall not be construed to preclude any State cause of action
(A) with respect to which the State exercises its acquired rights under section 609(b)(3) [29 U.S.C.A. *868 § 1169(b)(3)][[8]] with respect to a group health plan (as defined in section 607(1) [29 U.S.C.A. § 1167(1) ]), or
(B) for recoupment of payment with respect to items or services pursuant to a State plan for medical assistance approved under title XIX of the Social Security Act [42 U.S.C.A. § 1396 et seq.] which would not have been payable if such acquired rights had been executed before payment with respect to such items or services by the group health plan.
Section 514(b)(8) of ERISA, 29 U.S.C. § 1144(a) (effective August 10, 1993).[9]
Both parties seem to agree that prior to the 1993 amendments, DPW could not have sued the Plan in federal court. Both parties also agree that as a result of the 1993 amendments, DPW may bring a lawsuit against the Plan to recoup Medicaid benefits provided to a participant. The dispute, however, is over whether the claims raised in DPW's first amended complaint must be pursued in federal court or whether DPW may pursue these claims under state law in state court.
The Plan contends that DPW must pursue these claims in federal court. The Plan asserts that Section 514(b)(8) merely permits states to pass legislation permitting them to become an assignee; once an assignee, the state must follow the same procedures and the same causes of action as the participant under ERISA. This argument, while persuasive, is not without its flaws. First, as aptly explained in the opinion issued by the federal court in this matter, the 1993 amendments did not expand Section 502(a) to allow a governmental body as an assignee to sue in federal court, but simply lifted the preemption for certain State causes of action. Second, the Plan's interpretation would have the effect of rendering the word "State" within the clause "State cause of action" meaningless.[10]
The more persuasive interpretation is that Section 514(b)(8) of ERISA lifts preemption for "any State cause of action" with respect to which a state Medicaid program is exercising (as an assignee or subrogee) the rights of a participant of the benefit plan. See Belshe v. Laborers Health and Welfare Trust Fund for Northern California, 876 F. Supp. 216 (N.D.Cal.1994). In other words, Section 514(b)(8), as amended, permits a governmental body in a state court action to obtain reimbursement for those benefits to which a participant was entitled under the Plan.
We note, however, that Section 514(b)(8) protects state laws and state causes of action only to the extent that the state is enforcing its acquisition of the rights of the beneficiary. As a result, this section cannot serve to preclude from preemption a state law or state cause of action that seeks to enforce additional rights the state has attempted to acquire by statute rather than by assignment[11] or subrogation.[12]*869 See Belshe (state law which expanded the statute of limitations period was not protected from preemption as it created greater rights than by subrogation).
III.
The Plan contends that the state court erred in applying Sections 1404(b) and 1409(a)(3) of the Public Welfare Code to DPW's claims. We agree in part.
Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq., establishes the medical assistance program known generally as "Medicaid." Medicaid is a cooperative federal-state program which provides payment for medical services to eligible individuals and families. 42 U.S.C. § 1396. If a state elects to participate in the program, the costs of Medicaid are shared by the federal government. See 42 U.S.C. § 1396a(a)(2); Northwood Nursing & Convalescent Home, Inc. v. Commonwealth, 523 Pa. 483, 567 A.2d 1385 (1989). In return, participating States must comply with requirements imposed by the Social Security Act and regulations promulgated thereunder. Atkins v. Rivera, 477 U.S. 154, 156-57, 106 S. Ct. 2456, 91 L. Ed. 2d 131 (1986) (citations omitted); Fifty Residents of Park Pleasant Nursing Home v. Department of Public Welfare, 94 Pa.Cmwlth. 491, 503 A.2d 1057 (1986). A participating state must submit a "State plan for medical assistance" to the Secretary and obtain approval of the plan. 42 U.S.C. § 1396. The federal statute sets forth in considerable detail certain mandatory features of any acceptable State plan. Pertinent to the present controversy, a State plan must provide:
(A) that the State ... will take all reasonable measures to ascertain the legal liability of third parties ... to pay for care and services available under the plan, including
....
(ii) the submission to the Secretary of a plan (subject to approval by the Secretary) for pursuing claims against third parties ... [and]
....
(B) that in any case where such a legal liability is found to exist after medical assistance has been made available on behalf of the individual and where the amount of reimbursement the State can reasonably expect to recover exceeds the costs of such recovery, the State ... will seek reimbursement for such assistance to the extent of such legal liability,
...
42 U.S.C. § 1396a(a)(25). Additionally, State plans must require individuals who receive benefits "to assign the State any rights ... to support ... and to payment for medical care from any third party." 42 U.S.C. § 1396k(a)(1)(A). See also 42 U.S.C. §§ 1396a(a)(45), 1396k(a)(1)(B). Regulations of the Department of Health and Human Services further specify a participating State's obligations. See 42 C.F.R. §§ 433.135-433.153.
Pennsylvania is a participating state. In accordance with Title XIX of the Social Security Act, Pennsylvania has implemented the above requirements into state law through the enactment of the Public Welfare Code. The sections of the Public Welfare Code at issue herein are Sections 1404 and 1409.
Section 1404(b) of the Public Welfare Code, 62 P.S. § 1404(b), provides that the "acceptance of medical assistance benefits shall operate as an assignment to the department, by operation of law, of the assistance recipient's rights to recover support, specified by a court as support for the payment of medical care, and to payment for medical care from any third party." *870 Section 1409(a)(3) of the Public Welfare Code provides that "[e]ach publicly funded health care program that furnishes or pays for health care services to a recipient having private health care coverage shall be entitled to be subrogated to the rights that such person has against the insurer of such coverage to the extent of the health care services rendered."
In determining whether or not the state court erred in applying these sections to DPW's claims, we find it necessary to first determine whether DPW has presented a "cause of action" with respect to these sections. An examination of DPW's first amended complaint reveals that DPW has failed to specifically identify the legal theory for the relief requested. In the complaint, DPW does allege that it is "assigned Francis L.'s rights to recover against [the Plan]" and "owns and operates Warren State Hospital." DPW, however, does not allege that it is a "subrogee" of Francis' rights. We, therefore conclude that the state court erred in applying Section 1409 to DPW's claims.
With regard to Section 1404(b), DPW has sufficiently alleged that it is an assignee of Francis' rights. Unfortunately, Section 1404, while establishing rights of assignment, does not create an independent cause of action. See Wisconsin Department of Health and Social Services v. Upholsterers International Union Health and Welfare Fund, 686 F. Supp. 708 (W.D.Wis.1988). Rather, this section merely confers upon DPW a cause of action that would have been available to Francis against the Plan.
The question then is whether DPW has sufficiently presented a cause of action that would have been available to Francis against the Plan. Based upon our review of DPW's first amended complaint, it appears that DPW has alleged facts sufficient to establish an action based on common law breach of contract. While a common law right to sue for breach of contract would have been preempted prior to the 1993 amendment, we conclude that such an action is now saved from preemption. See McMahan v. New England Mutual Life Insurance Co., 888 F.2d 426 (6th Cir.1989). On this basis, we conclude that DPW, as assignee of Francis' rights under Section 1404(b), has asserted a state cause of action for breach of contract.
IV.
Lastly, the Plan contends that the state court lacks jurisdiction to decide this matter as exclusive jurisdiction over DPW's claims rests in the federal courts under the express terms of ERISA. We disagree.
Section 502(e) of ERISA, 29 U.S.C. § 1132(e), provides, "[e]xcept for actions under subsection (a)(1)(B) of this section, the district courts of the United States shall have exclusive jurisdiction of civil actions under this title." As discussed above, DPW has not asserted an action arising under ERISA, but a "State cause of action." We, therefore, conclude that jurisdiction of this matter properly rests in the state court, not the federal court.
Accordingly, the order of the state court denying the Plan's motion for judgment on the pleadings is affirmed.
ORDER
AND NOW, this 15th day of September, 1999, the order of the Court of Common Pleas of Allegheny County, at Docket No. GD97-12694, dated February 10, 1999, is affirmed.
NOTES
[1] DPW is the state agency which administers and supervises the Medicaid program under Title XIX of the Social Security Act. Section 201 of the Public Welfare Code, Act of June 13, 1967, P.L. 31, as amended, 62 P.S. § 201.
[2] The exclusion relating to custodial care relied upon by the Plan existed within the Plan's definition of a "hospital" which excluded certain institutions which provided custodial care.
[3] Rule 312 provides: "An appeal from an interlocutory order may be taken by permission pursuant to Chapter 13 (interlocutory appeals by permission)."
[4] This Court's scope of review of a trial court's decision to grant or deny a motion for judgment on the pleadings is limited to determining whether the trial court committed an error of law or abused its discretion. Ithier v. City of Philadelphia, 137 Pa.Cmwlth. 103, 585 A.2d 564 (1991). The opposing party's well-pled allegations are viewed as true, but only those facts specifically admitted by the opposing party may be considered against him. Id. The motion may only be granted where no material facts are at issue and the law is clear that a trial would be a fruitless exercise. Id.
[5] 62 P.S. §§ 1404(b), 1409(a)(3). Sections 1404 and 1409 were added by the Act of July 10, 1980, P.L. 493.
[6] Unfortunately, no legislative history is determinative with respect to whether Congress intended Section 502 of ERISA to be an exclusive grant of jurisdiction. It is clear, however, that when Congress intended to provide a civil action for a State with respect to pension plans it clearly did so. For instance, Section 502(a)(7) of ERISA, 29 U.S.C. § 1132(a)(7), provides that a civil action may be brought "by a State to enforce compliance with a qualified medical child support order...." Congress' failure to specifically mention the term "assignee" or "State" in Section 502 or within the definitions of participant, beneficiary or fiduciary must, therefore, be construed as meaning that Congress intended to exclude state governments from the provisions of that section.
[7] The Third Circuit has approved a similar result with respect to actions by an employer to recover excess contributions. Crown Cork & Seal Co. v. Teamsters Pension Fund of Philadelphia, 549 F. Supp. 307, 311 (E.D.Pa. 1982), aff'd, 720 F.2d 661 (3d Cir.1983) (Section 502 "clearly restricts the categories of individuals empowered to bring a civil action..., none of which includes employers.").
[8] This section pertains to the acquisition by States of rights of third parties.
[9] The original version of Section 514(b)(8) of ERISA (effective October 1, 1986) provided:
Subsection (a) of this section shall not apply to any State law mandating that an employee benefit plan not include any provision which has the effect of limiting or excluding coverage or payment for any health care for an individual who would otherwise be covered or entitled to benefits or services under the terms of the employee benefit plan, because that individual is provided, or is eligible for, benefits or services pursuant to a plan under title XIX of the Social Security Act [42 U.S.C.A. § 1396 et seq.], to the extent such law is necessary for the State to be eligible to receive reimbursement under title XIX of that Act.
[10] It is a fundamental principle of statutory construction that words in a statute should be given full effect and not be treated as mere surplusage. In re DeYoung, 129 Pa.Cmwlth. 265, 565 A.2d 226 (1989).
[11] See 3 P.L.E. Assignments § 72 at 197 (The rights of an assignee rise no higher than those of his assignor.).
[12] See 35 P.L.E. Subrogation § 6 at 260-261 (Generally, a subrogee is placed in the precise position of the one whose rights he is subrogated. Subrogated rights may rise as high as, though no higher than their source.). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1536089/ | 928 A.2d 1162 (2007)
Robert ROOMET, Appellant
v.
BOARD OF LICENSE AND INSPECTION REVIEW, Department of Licenses and Inspections of the City of Philadelphia and the Philadelphia Historical Commission, City of Philadelphia, and the City of Philadelphia.
Commonwealth Court of Pennsylvania.
Argued June 11, 2007.
Decided July 11, 2007.
*1163 Christopher F. Stouffer, Philadelphia, for appellant.
Leonard F. Reuter, Philadelphia, for appellees.
BEFORE: SMITH-RIBNER, Judge, SIMPSON, Judge, and McCLOSKEY, Senior Judge.
OPINION BY Judge SIMPSON.
Robert Roomet (Landowner) appeals an order of the Philadelphia County Common Pleas Court (trial court) dismissing his appeal of a decision of the City of Philadelphia Board of License and Inspection Review (Board) that affirmed the Philadelphia Historical Commission's (Commission) denial of a permit application to alter historic property. Landowner argues the Commission improperly characterized his property's side-yard as historical. We affirm.
Landowner owns residential land located at 3416 Baring Street in the City of Philadelphia (Property). A building sits on the Property, and in 1981, the Commission placed the building on the Philadelphia Historic Register pursuant to Section 14-2007 of the Philadelphia Code (Preservation Ordinance).
During the summer of 2005, Landowner obtained a use permit for a driveway and parking pad on the Property's side-yard. Without obtaining a building permit, Landowner excavated the side-yard and removed a wrought-iron fence and bricks from the abutting sidewalk.
An inspection officer subsequently discovered the alterations to the Property and orally notified Landowner a building permit and retroactive approval from the Commission were required because of the Property's historical designation. Landowner stopped work and sought a building permit, requesting approval for the driveway and parking pad. He also requested permission to erect two, two-foot retaining walls, remove a portion of a wrought-iron fence, and to remove and reinforce the abutting sidewalk.
When a property owner seeks a permit to alter historic property, applications are subject to a three-step process within the Commission. Specifically, applications are considered by the Commission's staff, by the Commission's Architectural Committee, and finally, by the full Commission. Here, the full Commission adopted the recommendation of its staff and Architectural Committee to deny Landowner's permit request.
Landowner appealed to the Board. A hearing ensued at which testimony and photographs of the Property were introduced into evidence. Subsequently, the Board found, in pertinent part:
13. The [Property's building] was placed on the Historic Register in the 1980's.
14. The addition of a parking pad would be a change of the character of the [Property] that would not be minimal with respect to its distinctive materials, features, spaces, and spacial relationships.
15. The Board considered the photographs of the [Property] submitted in evidence and found that the photographs supported the decision of the [Commission].
*1164 16. The Board finds that the changes proposed by [Landowner] would alter the character of the [Property].
17. The Board finds that the carving out of the side-yard . . . would have a negative effect on the historical character of the [Property].
18. The Board finds that the installation of the proposed driveway would interfere with the appearance of the [Property] and its historical integrity.
Bd. Op., Finding of Fact Nos. 13-18; Reproduced Record (R.R.) at 59a-60a. Based on these findings, the Board affirmed.
Subsequently, Landowner appealed to the trial court. Concluding the Property's side-yard fell within the Commission's purview and the Board's findings were supported by substantial evidence, the trial court affirmed. Landowner appeals to this Court.
On appeal,[1] Landowner maintains the Property's side-yard is not historical; rather, it is merely a historical building's site. Thus, alterations to the side-yard are not subject to Commission approval. Landowner agrees that the building, which sits on the Property, is designated historical and subject to the Preservation Ordinance; however, such designation does not extend to the Property's side-yard.
Alternatively, Landowner argues that the Commission lost the ability to address the "appropriateness" of the proposed changes. The Commission designated the Property's building historic in 1981, but it failed to identify the "character" of the building and the elements that contributed to such character. Landowner claims that as a consequence authorities can no longer determine what affects the building's character.
Before we address the merits, however, we first consider a preliminary issue raised by the Board. Specifically, the Board contends Landowner waived all arguments because he failed to raise them below. We disagree as to the two contentions discussed above.
Before the Board, Landowner argued "[t]his is not a historic site, it's a historic building. They didn't say this was historic ." R.R. at 53a. He also elicited testimony that the character of the building on the Property will not change as a result of the alterations to the side-yard. R.R. at 45a. Thus, Landowner sufficiently preserved these arguments, and we will address their merits.
On the merits, the Preservation Ordinance provides "[u]nless a permit is first obtained from the Department [of License and Inspection], no person shall alter or demolish [a] historic building, structure, site or object, or alter, demolish, or construct any building, structure, site or object within [a] historic district." Section 14-2007(7)(a) (emphasis added). All permit applications to alter historic property require Commission approval. Section 14-2007(7)(c). Significantly, the Preservation Ordinance expressly defines a "building" as "[a] structure, its site and appurtenances created to shelter any form of human activity." Section 14-2007(2)(b) (emphasis added).
Here, the Property's side-yard is subject to the Preservation Ordinance. More specifically, Landowner admits the *1165 Property's building is historic. By virtue of the express definition of a "building" under the Preservation Ordinance, the land surrounding the building, that is, the Property's side-yard, is subject to the Preservation Ordinance. Accordingly, alterations to the Property's side-yard require Commission approval.
In addition, we reject Landowner's contention the Commission erred in failing to "characterize" the Property's building's historic elements. No statute, regulation, or court decision mandates such a requirement. Moreover, Landowner does not contend the building's exterior characteristics changed at any prior point. Simply stated, the building's "character" is determinable today by mere inspection. No error is apparent.[2]
Based on the foregoing, we affirm.
ORDER
AND NOW, this 11th day of July, 2007, the order of the Philadelphia Common Pleas Court is AFFIRMED.
NOTES
[1] This Court's review is limited to determining whether constitutional rights were violated, whether an error of law was committed or whether necessary factual findings were supported by substantial evidence. Society Hill Civic Ass'n v. Phila. Bd. of License & Inspection Review, 905 A.2d 579 (Pa.Cmwlth.2006), appeal denied, ___ Pa. ___, 923 A.2d 412 (2007).
[2] Landowner also argues the Commission exceeded its authority by denying him a permitted use of his property, misapplied federal guidelines, and violated constitutional legal principles. Section 753(a) of the Local Agency Law incorporates the waiver doctrine by requiring all legal questions be raised before the administrative agency hearing the appeal. See 2 Pa.C.S. § 753(a); Korsunsky v. Housing Code Bd. of Appeals, City of Harrisburg, 660 A.2d 180 (Pa.Cmwlth.1995). Before the Board, Landowner neither expressly raised these issues nor elicited testimony to support his positions. Accordingly, these issues are waived. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1536177/ | 928 A.2d 494 (2007)
2007 VT 48
STATE of Vermont
v.
Donald WIGG.
No. 05-530.
Supreme Court of Vermont.
May 24, 2007.
*495 Present: REIBER, C.J., DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ.
ENTRY ORDER
¶ 1. Defendant Donald Wigg appeals a district court order mandating that he comply with 20 V.S.A. § 1933 (2000), which requires that all persons convicted of enumerated violent crimes submit a DNA sample to the State for testing and inclusion in the state and federal DNA databases.[1] On appeal, defendant does not claim any error in the proceedings that led to the sampling order, but instead challenges the proceedings that led to his conviction for the underlying crime. He also claims several errors in our decision affirming that conviction and denying his motion for reargument. Finally, defendant challenges the DNA statute under the state and federal constitutions. We affirm.
¶ 2. In 2003, a jury convicted defendant of felony lewd or lascivious conduct with a child, 13 V.S.A. § 2602, one of the crimes enumerated in the DNA statute, 20 V.S.A. § 1932(M) (2000). Defendant appealed his conviction to this Court, and we affirmed in July 2005. State v. Wigg, 2005 VT 91, ¶ 1, 179 Vt. 65, 889 A.2d 233. While defendant was incarcerated on that charge at a facility in Kentucky, he received notice in February 2005 from the Vermont Department of Corrections (DOC) that he was required to submit a DNA sample to the State. When a DOC employee arrived to collect defendant's DNA in March 2005, defendant refused and signed the State's Refusal Form. The State immediately moved to compel DNA sampling from defendant. 20 V.S.A. § 1935 (2000). Attached to its motion, the State submitted the signed Refusal Form, the notice form, and an affidavit from the DOC employee who had attempted to collect defendant's DNA. Based on these supporting materials, the district court granted the State's motion, subject to defendant's statutory right to a hearing.[2]
*496 ¶ 3. After receiving notice of the district court's order, in April 2005, defendant filed an objection to the State's motion and requested a hearing. The basis of defendant's objection was that, because the direct appeal of his underlying conviction was still pending before this Court, the judgment against him was not final. The hearing regarding defendant's DNA sampling was held in November 2005, after we affirmed defendant's underlying conviction and denied his motion for reargument. Following the hearing, the district court ordered defendant to provide the State a DNA sample. This appeal followed.
¶ 4. The district court's initial provisional order directing defendant to provide a DNA sample was based on its finding that the State's submissions demonstrated that defendant was a person required by statute to submit a sample. At the hearing, the court found facts, which defendant conceded, establishing that defendant was required to provide a sample under the terms of the statute. The final order, issued after the hearing, implicitly incorporates the court's findings. We reverse the district court's factual findings only when they are clearly erroneous. State v. Willis, 2006 VT 128, ¶ 22, ___ Vt. ___, 915 A.2d 208. There was no error here.
¶ 5. The statute limits the scope of the compelled-sampling hearing to the sole issue of whether the person refusing to provide the sample is a person statutorily required to provide one. 20 V.S.A. § 1935(b), (c) (2000).[3] The hearing is intended simply to determine whether a defendant is a "person convicted in a court in this state of a violent crime on or after the effective date of [the DNA database statute]," 20 V.S.A. § 1933(a)(1) (2000), or a "person who was convicted in a court in this state of a violent crime prior to the effective date of [the statute] and [who], after the effective date," is in state custody, on probation, parole, or serving a supervised community sentence for the violent crime, id. § 1933(a)(2). The effective date of the statute was April 29, 1998. Defendant was convicted in 2003, and his conviction was affirmed in 2005. Defendant never disputed that he was convicted of an enumerated violent crime after the effective date of the statute. Given these undisputed facts, the district court did not err in finding that defendant was required to provide a sample.
¶ 6. Defendant argued at his hearing, and contends on this appeal, that he was wrongfully convicted of the underlying lewd-or-lascivious-conduct charge due to a variety of errors at the trial court, that his direct appeal was wrongly decided by this Court, and that we wrongly denied his motion to reargue. But a § 1935 hearing is not a forum for defendants to collaterally attack their convictions. The district court properly declined to consider these alleged errors. There are avenues available to defendants to further challenge their convictions after a direct appeal has failed, but the § 1935 hearing is not one of them.[4] In the event that defendant's conviction *497 is overturned or he is pardoned, the statute provides that his DNA sample and information will be removed from the state data bank and from the state and federal databases. 20 V.S.A. § 1940(a) (Cum. Supp. 2006). By including that provision, the Legislature indicated that it did not intend to allow defendants to refuse to submit DNA samples until every possible avenue of appeal, pardon, or post-conviction relief is exhausted. Even if defendant may one day obtain relief from his conviction, by way of his habeas petition or otherwise, that possibility is no bar to requiring him to submit a DNA sample now.
¶ 7. Defendant also raises state and federal constitutional challenges to the DNA database statute. He claims that the statute violates Article 11 of the Vermont Constitution and the Fourth Amendment to the United States Constitution. As noted supra, note 3, defendant could have raised these challenges at the sampling hearing, but did not do so. Accordingly, we do not review them here. State v. Nash, 144 Vt. 427, 433, 479 A.2d 757, 760-61 (1984).
Affirmed.
NOTES
[1] This statute has been amended to require a person convicted of any felony in Vermont to submit a DNA sample. 2005, No. 83, § 8. This order refers only to the statute in effect prior to the 2005 amendment.
[2] We observe that the district court's provisional grant of the State's motion varies from the procedure dictated by the DNA statute. According to the statute, a defendant is entitled to a hearing before the court issues an order compelling him to provide a DNA sample. 20 V.S.A. § 1935(b). Because defendant requested and received a hearing before being compelled to submit a sample, however, he was not denied any of the rights guaranteed by the statute. Since defendant claims no error in this procedure, it is not preserved for review, and we need not address it further. See N. Terminals, Inc. v. Smith Grocery & Variety, Inc., 138 Vt. 389, 394, 418 A.2d 22, 25 (1980).
[3] Of course, a defendant may challenge the constitutionality of the sampling statute itself at the sampling hearing.
[4] Defendant currently has a habeas corpus petition pending in federal district court. See 28 U.S.C. § 2253. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1536132/ | 928 A.2d 556 (2007)
103 Conn.App. 303
Jeanette POULIN
v.
COMMISSIONER OF CORRECTION.
No. 27065.
Appellate Court of Connecticut.
Argued February 14, 2007.
Decided August 14, 2007.
*558 Christopher M. Neary, special public defender, for the appellant (petitioner).
John A. East III, senior assistant state's attorney, with whom, on the brief, were Scott J. Murphy, state's attorney, and Angela R. Macchiarulo, senior assistant state's attorney, for the appellee (respondent).
FLYNN, C.J., and DiPENTIMA and BERDON, Js.
FLYNN, C.J.
The petitioner, Jeanette Poulin, appeals from the judgment of the habeas court denying her petition for a writ of habeas corpus. On appeal, the petitioner claims that the court improperly concluded that she failed to prove that she had received ineffective assistance of counsel.[1] We affirm the judgment of the habeas court. *559
The following facts and procedural history are relevant to our resolution of the petitioner's appeal. On December 22, 2000, the petitioner was charged with the murder of her six week old son. The charge of murder arose out of an incident that took place more than fourteen years earlier, on August 31, 1986. Evidence presented at the habeas hearing revealed that the victim was born in July, 1986, and found dead in the petitioner's apartment on August 31, 1986. The Bristol police department began an investigation into the death. At this time, the police were denied access to relevant documentation contained within the records of the department of children and youth services, now the department of children and families (department). The chief medical examiner performed the victim's autopsy and discovered a blue cloth fiber in the victim's mouth. The autopsy revealed that the victim suffered multiple petechial hemorrhages in the epicardium, surrounding the heart, and in the visceral pleurae, surrounding the lungs. At the time, the chief medical examiner attributed the victim's death to sudden infant death syndrome. With the release of this finding, the police suspended their investigation.
In March, 1996, the Bristol police department was able to get access to the department's records.[2] The records revealed that the victim's older sister had been removed from the petitioner's care by the department on the basis of allegations of abuse and neglect, which included stuffing a washcloth into her daughter's mouth to quiet her. Afterward, the chief medical examiner reexamined his autopsy report and listed the victim's cause of death as "undetermined." Additionally, the chief medical examiner found that the circumstances surrounding the victim's death were consistent with either manual suffocation or sudden infant death syndrome.
On December 22, 2000, more than fourteen years after the August 31, 1986 incident had taken place, the petitioner was charged with murder in violation of General Statutes § 53a-54a. That crime carries a maximum sentence of sixty years imprisonment and requires that a minimum sentence of twenty-five years imprisonment be imposed. General Statutes § 53a-35a(2); General Statutes § 53a-35b. The crime of murder is not barred by any statute of limitations. Sometime thereafter, the prosecution offered the petitioner a plea bargain whereby she would plead guilty to one count of manslaughter in the first degree in violation of General Statutes § 53a-55(a)(3). The prosecution offered a maximum sentence of twenty years, with the petitioner retaining the right to argue for a lesser sentence, not to fall below twelve years.[3] The petitioner accepted the offer and entered a guilty plea pursuant to the Alford doctrine.[4] By entering a plea of guilty under a plea agreement reached with the state, the petitioner foreclosed any conviction for murder *560 with its twenty-five year minimum and sixty year maximum sentence. The trial court imposed a total effective sentence of fifteen years imprisonment.
The petitioner thereafter filed an amended petition for a writ of habeas corpus alleging ineffective assistance of her trial counsel, Kenneth Simon. The habeas court rejected the petitioner's claim of ineffective assistance of counsel but later granted the petition for certification to appeal to this court. This appeal followed. Additional facts will be set forth as necessary.
The petitioner claims that the habeas court improperly concluded that she was not deprived of the effective assistance of counsel. Specifically, the petitioner claims that her guilty plea to the charge of manslaughter in the first degree, due to counsel's ineffectiveness, was not voluntary, knowing and intelligent and was made absent sufficient awareness of the relevant circumstances and likely consequences.[5] The petitioner argues that Simon's advice to plead guilty was based on his erroneous understanding of the law. We disagree.
We first set forth our standard of review. "In a habeas appeal, this court cannot disturb the underlying facts found by the habeas court unless they are clearly erroneous, but our review of whether the facts as found by the habeas court constituted a violation of the petitioner's constitutional right to effective assistance of counsel is plenary." (Internal quotation marks omitted.) Baillargeon v. Commissioner of Correction, 67 Conn.App. 716, 720, 789 A.2d 1046 (2002).
"Because a defendant often relies heavily on counsel's independent evaluation of the charges and defenses, the right to effective assistance of counsel includes an adequate investigation of the case to determine facts relevant to the merits or to the punishment in the event of conviction....
"A habeas petitioner can prevail on a constitutional claim of ineffective assistance of counsel [only if he can] establish both (1) deficient performance, and (2) actual prejudice.... For ineffectiveness claims resulting from guilty pleas, we apply the standard set forth in Hill v. Lockhart, 474 U.S. 52, 59, 106 S. Ct. 366, 88 L. Ed. 2d 203 (1985), which modified [the] prejudice prong of Strickland v. Washington, 466 U.S. 668, 687, 104 S. Ct. 2052, 80 L. Ed. 2d 674 (1984)." (Citations omitted; internal quotation marks omitted.) Baillargeon v. Commissioner of Correction, supra, 67 Conn.App. at 721, 789 A.2d 1046. "To satisfy the prejudice prong, the petitioner must show a reasonable probability that, but for counsel's errors, he would not have pleaded guilty and would have insisted on going to trial. Hill v. Lockhart, [supra, at 59, 106 S. Ct. 366].... Reasonable probability does not require the petitioner to show that counsel's deficient conduct more likely than not altered the outcome in the case, but he must establish a probability sufficient to undermine confidence in the outcome. Strickland v. Washington, [supra, at 693-94, 104 S. Ct. 2052] ...." (Citation omitted; internal quotation marks omitted.) Baillargeon v. Commissioner of Correction, supra, at 722, 789 A.2d 1046.
*561 "To satisfy the performance prong, the petitioner must show that counsel's representation fell below an objective standard of reasonableness.... A petitioner who accepts counsel's advice to plead guilty has the burden of demonstrating on habeas appeal that the advice was not within the range of competence demanded of attorneys in criminal cases.... The range of competence demanded is reasonably competent, or within the range of competence displayed by lawyers with ordinary training and skill in the criminal law.. . . Reasonably competent attorneys may advise their clients to plead guilty even if defenses may exist.... A reviewing court must view counsel's conduct with a strong presumption that it falls within the wide range of reasonable professional assistance ... ." (Citations omitted; internal quotation marks omitted.) Id., at 721-22, 789 A.2d 1046. "Because both prongs [of Strickland] must be established for a habeas petitioner to prevail, a court may dismiss a petitioner's claim if he fails to meet either prong." (Internal quotation marks omitted.) Pierce v. Commissioner of Correction, 100 Conn.App. 1, 11, 916 A.2d, 864, cert. denied, 282 Conn. 908, 920 A.2d 1017 (2007).
We conclude that the petitioner has failed to satisfy the first prong of the Strickland test for establishing ineffective assistance of counsel. During the petitioner's habeas proceeding, Simon testified that in preparing for trial, he had reviewed the evidence, interviewed potential witnesses, retained a medical expert, conducted research and had the petitioner psychologically evaluated.[6] He testified that he had informed the petitioner that he thought it was not likely that she would be convicted of murder at trial. He further testified that after conducting research on the statute of limitations, issue, he had determined that if the petitioner had initially been charged solely with manslaughter, the statute of limitations would bar prosecution.[7] He also noted, however, that his research had indicated that in Connecticut the issue was open as to whether the statute of limitations would operate to time bar the manslaughter charge as a lesser offense included within the crime of murder. He testified that he had discussed with the petitioner all the possible scenarios that might occur, which included the possibility that the prosecution might add, as a lesser included offense, a charge of manslaughter in the first degree, and the relative likelihood of conviction on either charge, and the possible penalties the petitioner had faced.
The record indicates that the petitioner's counsel thoroughly investigated the issues and discussed them with her. *562 The petitioner now challenges her counsel's belief that the statute of limitations defense was an undecided issue in Connecticut and that such a belief constitutes ineffective assistance of counsel. "The question is not whether [defense] counsel's interpretation was correct, but only whether it was one a reasonably competent attorney could have made." Rouillard v. Commissioner of Correction, 35 Conn.App. 754, 761, 646 A.2d 948, cert. denied, 231 Conn. 945, 653 A.2d 827 (1994). "Reasonably competent attorneys may advise their clients to plead guilty even if defenses may exist." Baillargeon v. Commissioner of Correction, supra, 67 Conn.App. at 722, 789 A.2d 1046. Simon testified that after doing a large amount of research, he had believed that the statute of limitations was a legitimate defense against a charge of manslaughter. He further testified that he wanted to try the case but that he could not guarantee the petitioner that she could not be convicted of manslaughter because there was no case law specifically on point in Connecticut. Because of that lack of appellate authority, Simon's advice that the issue is unsettled was an interpretation that a reasonably competent attorney could have made. It was possible that the trial court could have determined the issue in a way that was unfavorable to the petitioner, and the precise issue has never been decided on appeal by any Connecticut appellate court.
The petitioner primarily relies on State v. Littlejohn, 199 Conn. 631, 649, 508 A.2d 1376 (1986), in support of her argument that Simon's performance was deficient because, in her view, contrary to the habeas court's finding, the statute of limitations issue in this case is not unsettled.[8] Our Supreme Court has stated several times that the statute of limitations is an affirmative defense and the burden is on the defendant to prove the elements of the defense by a preponderance of the evidence. See, e.g., State v. Figueroa, 235 Conn. 145, 177-78, 665 A.2d 63 (1995). In Littlejohn, our Supreme Court made clear that the defense of the statute of limitations could be waived by a defendant who sought to plead guilty to a lesser offense that was barred by the statute of limitations. State v. Littlejohn, supra, at 639-40, 508 A.2d 1376. Littlejohn, however, is devoid of any holding concerning whether an offense, which if brought standing alone would be time barred, would be defeated by a statute of limitations defense if charged as a lesser offense included within a greater offense. The petitioner does not cite any case law demonstrating that this *563 is a settled area of the law, and we are unable to find any.
Consistent with Littlejohn, the petitioner had the right to waive the affirmative defense of the statute of limitations and to accept the plea agreement for the lesser included offense of manslaughter. Simon had assessed the merits of the prosecution's case and had discussed with the petitioner all the possible scenarios that might have occurred. The evidence against her included the autopsy report, which revealed that the victim had a blue cloth fiber in his mouth and that the manner of death was consistent with either sudden infant death syndrome or manual suffocation. Reports from the department revealed that the petitioner had stuffed washcloths in the mouth of the victim's sister to quiet her cries. The habeas court found that the petitioner had accepted the plea bargain because the evidence against her had been damaging and she had been afraid of being incarcerated for sixty years if convicted of murder.
We additionally conclude that the petitioner has failed to demonstrate that, but for Simon's allegedly deficient performance, she would not have pleaded guilty, but instead would have proceeded to trial. The petitioner claims that no reasonable jury could have concluded that she acted with the requisite specific intent to murder the victim. "The state of mind of one accused of a crime is often the most significant and, at the same time, the most elusive element of the crime charged." (Internal quotation marks omitted.) State v. Smith, 35 Conn.App. 51, 63, 644 A.2d 923 (1994). "Intent may be, and usually is, inferred from the defendant's verbal or physical conduct.... Intent may also be inferred from the surrounding circumstances .... Furthermore, it is a permissible, albeit not a necessary or mandatory, inference that a defendant intended the natural consequences of his voluntary conduct." (Citations omitted; internal quotation marks omitted.) Id., at 63-64, 644 A.2d 923.
By pleading guilty, the petitioner obviated the need for the state to produce any evidence at trial. We therefore concentrate our attention not on what evidence was not produced, but on what factual allegations were in the arrest warrant application and the evidence from the petitioner at the habeas hearing. The petitioner admitted at the habeas hearing that her trial attorney had reviewed the state's evidence with her and that ultimately, "because of the evidence that he had reviewed," she decided to plead guilty. As noted by the habeas court, the petitioner admitted in her testimony that it was her decision to plead guilty and that she took the plea because she was afraid of damaging evidence being presented before the jury, which might result in her conviction of the originally charged crime of murder, and was afraid of being incarcerated for sixty years if convicted.
The allegations contained within the arrest warrant affidavit and the probable cause hearing testimony indicate that the petitioner had abused the victim's older sister by stuffing a washcloth into her mouth to quiet her and had threatened to kill that daughter. The petitioner had repeatedly brought the victim to a hospital, and each time the victim had seemed healthy. The victim's pediatrician believed that the petitioner had taken the victim to the hospital because she had been unable to cope with the pressures of caring for him. The petitioner had stated to a member of the hospital's social services department that the victim would still be alive if the hospital had kept the victim an additional night, as opposed to having released him on August 30, 1986, the day before his death. After the Bristol police *564 department had been able to get access to the department's records concerning the victim's older sister, the chief medical examiner reexamined his autopsy report and found that the circumstances were consistent with either manual suffocation or sudden infant death syndrome. Furthermore, the victim's pediatrician believed that the death was suspicious and testified at the probable cause hearing that on the basis of a review of all the information, he believed that the victim's death was a homicide and that something had been placed in the victim's mouth to suffocate him. Given the evidence against the petitioner and the finding of the habeas court that the petitioner accepted the plea bargain because the evidence against her was damaging and she was afraid of being incarcerated for sixty years if convicted of murder, the petitioner's claim fails to meet the prejudice prong set forth in Strickland v. Washington, supra, 466 U.S. at 687, 104 S. Ct. 2052, as applied in Hill v. Lockhart, supra, 474 U.S. at 52, 106 S. Ct. 366.
We conclude that the court properly denied the petitioner's amended habeas petition for failure to establish the claim of ineffective assistance of counsel.
The judgment is affirmed.
In this opinion DiPENTIMA, J., concurred.
BERDON, J., dissenting.
I respectfully dissent. I would grant the writ of habeas corpus and order a new trial for the petitioner, Jeanette Poulin, because she did not have effective assistance of trial counsel as guaranteed by the federal and state constitutions. This resulted in her pleading guilty to the charge of manslaughter of her infant child, which charge was barred by the statute of limitations.
Fourteen years after the death of her infant son, the petitioner was charged with the murder of the child, a crime for which there is no statute of limitations. There was no evidence that the petitioner intentionally caused the death of her infant son. Indeed, even the trial attorney for the petitioner, during the habeas hearing, conceded that proof of intentional murder was unlikely.
Even if it was proven that the petitioner had caused the child's death by placing a cloth in the child's mouth to quiet him (the only proof of which was a blue cloth fiber found in the child's mouth), as she was accused of doing to another child who was removed from her care, that does not establish the intent necessary to prove murder. See State v. Robertson, 254 Conn. 739, 783, 760 A.2d 82 (2000) (to act intentionally as required for murder conviction, defendant must have had conscious objective to cause victim's death). The pediatrician's suspicion or belief that the child suffocated also does not establish the necessary intent.
Notwithstanding the claims of the majority, there was not a scintilla of evidence that would support a charge of intentional murder. The majority, for support, focuses on the "factual allegations ... in the arrest warrant application and the evidence from the petitioner at the habeas hearing." The simple answer to the majority's reliance on the arrest warrant is to read the thirty-three pages of the arrest warrant application.[1] There is not a single allegation or even collective allegations in the application that would support probable cause for intentional murder. As to *565 the majority's reliance on the petitioner's testimony in the habeas hearing admitting that she had reviewed the state's evidence with her attorney, the simple answer is that she did not have effective assistance of counsel. This, coupled with the fact that she was a person with mental problems and low intelligence who was under the care of a psychiatrist, led her to believe, contrary to the evidence, that the state had a case for intentional murder.
Given the totality of the circumstances, it is not conceivable that the jury would return a verdict of guilty of intentional murder in this case, and, if such a verdict had been returned, it would not have been sustained on appeal. There may have been sufficient evidence to convict the petitioner of manslaughter in the first degree in violation of General Statutes § 53a-55(a)(3) ("under circumstances evincing an extreme indifference to human life, he recklessly engages in conduct which creates a grave risk of death to another person, and thereby causes the death of another person") or manslaughter in the second degree in violation of General Statutes § 53a-56(a)(1) ("recklessly causes the death of another person"), but the statute of limitations would be a complete defense to these crimes.
The trial attorney's concern was that although the statute of limitations applied to manslaughter, he was not certain whether it could be a defense to manslaughter as a lesser offense included within murder, the offense with which the petitioner originally had been charged. The trial attorney testified: "I don't believe Connecticut has decided that specific issue." Case law from Connecticut was not necessary to guide the trial attorney on this issue. Common sense would dictate that if the statute of limitations is a defense to a crime, it would also be a defense to that particular crime as a lesser included offense. See, e.g., Askins v. United States, 251 F.2d 909, 912 (D.C.Cir.1958); Padie v. State, 557 P.2d 1138, 1140 (Alaska 1976); People v. Picetti, 124 Cal. 361, 362, 57 P. 156 (1899); People v. Di Pasquale, 161 A.D. 196, 198, 146 N.Y.S. 523 (1914); see generally annot., 47 A.L.R. 2d 887 (1956). An attorney of reasonable competence would have come to this conclusion.[2] The majority justifies its position by stating that it is possible that the trial court could have determined the issue in a way that was unfavorable to the petitioner; however, we have appellate courts to assure that such errors are corrected.
The trial attorney never advised the petitioner of this common sense conclusion that he should have made as an attorney. Instead, he advised the petitioner to plead guilty to manslaughter and, in effect, to waive the statute of limitations. Simply put, the trial attorney's performance was deficient.
Nevertheless, even if I agreed with the majority, I would grant the petition for habeas corpus and order a new trial for another reason. Although the majority does not reach the issue because it was not raised before the habeas court,[3] the canvass of the petitioner as to her guilty plea did not comport with due process, and trial counsel's failure to object denied her effective assistance of counsel. We have the authority to address the issue even though it was not preserved. Practice Book § 60-5 *566 provides in relevant part: "The [appellate] court may in the interests of justice notice plain error not brought to the attention of the trial court...." Furthermore, the rule must be interpreted liberally to "facilitate business and advance justice .. .." Practice Book § 60-1.
In this case, we should do so for two other reasons. The habeas attorney on appeal addressed the issue, and counsel for the respondent, the commissioner of correction, although objecting because it was not raised before the habeas court, addressed the substance of the issue. Second, if we do not address this issue, it will be the subject of another petition for ineffective assistance of habeas counsel. See Lozada v. Warden, 223 Conn. 834, 844-45, 613 A.2d 818 (1992). Simply put, it makes sense to address the issue at this time.
Like the waiver of other statutory rights, "[a]ny waiver of the statute [of limitations] must, of course, be voluntary and intelligent and a waiver presents a question of fact in each case." State v. Littlejohn, 199 Conn. 631, 641, 508 A.2d 1376 (1986); see also United States v. Wild, 551 F.2d 418, 424-25 (D.C.Cir.), cert. denied, 431 U.S. 916, 97 S. Ct. 2178, 53 L. Ed. 2d 226 (1977). During the plea proceeding, the only statement by the trial judge that could possibly be construed as obtaining the petitioner's consent to a waiver of the statute of limitations to the charge of manslaughter was the following: "At the time of trial, you would also [have] an opportunity to put on a defense to these charges. Again, there will be no defense because there will be no trial. Do you understand that?" The petitioner expressly replied in the affirmative. Clearly, the foregoing is not sufficient because it did not elicit from the petitioner a knowing, voluntary and intelligent waiver of the statute of limitations defense to manslaughter.[4] See State v. Littlejohn, supra, at 638-39, 508 A.2d 1376.
In sum, I would conclude that the petitioner has shown that, but for the ineffective assistance of counsel, she would not have pleaded guilty to manslaughter and would have gone to trial. See Copas v. Commissioner of Correction, 234 Conn. 139, 157, 662 A.2d 718 (1995). I would grant the petition for a writ of habeas corpus, reverse the conviction of manslaughter and order a new trial for the petitioner.
Accordingly, I dissent.
NOTES
[1] The petitioner also claims for the first time on appeal that her conviction was illegal because the court had not canvassed her on the waiver of the statute of limitations and that counsel had been ineffective in not objecting and assuring that a proper waiver had been made. Notwithstanding the issue of whether any of these claims are more properly raised on direct appeal, the petitioner cannot raise an entirely new ground for habeas relief for the first time on appeal. Because the petitioner never distinctly raised this claim to the habeas court, and, therefore, the court did not address it, we decline to afford it review. See Kelley v. Commissioner of Correction, 90 Conn.App. 329, 335, 876 A.2d 600 ("[t]his court is not bound to consider claimed errors unless it appears on the record that the question was distinctly raised ... and was ruled upon and decided by the court adversely to the appellant's claim" [internal quotation marks omitted]), cert. denied, 276 Conn. 909, 886 A.2d 423 (2005).
[2] The state claims in its brief that the ten year delay in getting the records was the result of statutory constrictions.
[3] Pursuant to General Statutes § 53a-35a(5), manslaughter in the first degree in violation of General Statutes § 53a-55(a)(3) carries a maximum penalty of twenty years.
[4] "Under North Carolina v. Alford, 400 U.S. 25, 91 S. Ct. 160, 27 L. Ed. 2d 162 (1970), a criminal defendant is not required to admit his guilt, but consents to being punished as if he were guilty to avoid the risk of proceeding to trial .... A guilty plea under the Alford doctrine is a judicial oxymoron in that the defendant does not admit guilt but acknowledges that the state's evidence against him is so strong that he is prepared to accept the entry of a guilty plea nevertheless." (Internal quotation marks omitted.) State v. Stevens, 278 Conn. 1, 3 n. 2, 895 A.2d 771 (2006).
[5] The first issue in the petitioner's statement of issues is "whether the habeas court abused its discretion in denying the petitioner's certification to appeal." However, despite the petitioner's contrary claim, the habeas court granted certification to appeal and, therefore, could not be held to have abused its discretion by a purported denial of something it actually granted. We do not further address this issue, because the habeas court granted certification to appeal.
[6] The petitioner had been assessed as having low intelligence but also as being competent.
[7] General Statutes § 54-193 provides in relevant part: "(a) There shall be no limitation of time within which a person may be prosecuted for a capital felony, a class A felony or a violation of section 53a-54d or 53a-169.
"(b) No person may be prosecuted for any offense, except a capital felony, a class A felony or a violation of section 53a-54d or 53a-169, for which the punishment is or may be imprisonment in excess of one year, except within five years next after the offense has been committed. No person may be prosecuted for any other offense, except a capital felony, a class A felony or a violation of section 53a-54d or 53a-169, except within one year next after the offense has been committed...."
Accordingly, there was no time period within which the state's charge of murder against the petitioner had to be prosecuted, but a charge of manslaughter in violation of § 53a-55(a)(3) was governed by a five year statute of limitations, unless our highest court were to decide that this does not apply to lesser included offenses in cases where the defendant proceeds to trial.
[8] The petitioner also cites several other cases as authority. See, State v. Ali, 233 Conn. 403, 660 A.2d 337 (1995) (whether failure to instruct jury as to affirmative defense of statute of limitations improper); State v. Figueroa, 235 Conn. 145, 665 A.2d 63 (1995) (whether trial court properly denied defendant's motion to dismiss charges against him on grounds that service of process was unreasonably delayed and state failed to prosecute within statute of limitations); State v. Crawford, 202 Conn. 443, 521 A.2d 1034 (1987) (whether issuance of arrest warrant within period of limitation tolled statute); State v. Harrison, 34 Conn.App. 473, 642 A.2d 36 (whether trial court improperly failed to dismiss certain count in information because prosecution was barred by statute of limitations), cert. denied, 231 Conn. 907, 648 A.2d 157 (1994); State v. Parsons, 28 Conn.App. 91, 612 A.2d 73 (same), cert. denied, 223 Conn. 920, 614 A.2d 829 (1992). However, a careful reading of these cases reveals that none concerns whether the trier of fact could consider lesser included offenses of a more serious crime charged where the statute of limitations had not run against the more serious crime but had run against the lesser included offense. We also note, specifically, that State v. Aloi, 86 Conn.App. 363, 376, 861 A.2d 1180 (2004), rev'd on other grounds, 280 Conn. 824, 911 A.2d 1086 (2007), and State v. Cooke, 42 Conn.App. 790, 802 n. 9, 682 A.2d 513 (1996), contain an issue similar to the one at hand, but in both cases we, for various reasons, declined to review the claim.
[1] I refrain from reprinting the extensive arrest warrant here because it would be an unnecessary waste of paper; however, my thorough review of the warrant did not reveal any allegations that would support probable cause for intentional murder.
[2] If this was not the law, the state could always avoid the statute of limitations as to manslaughter by charging murder and then seeking manslaughter as a lesser included offense.
[3] The special public defender who brought and tried the habeas petition before the habeas court is not the same attorney who represents the petitioner on this appeal.
[4] Whether a waiver of a statute of limitations defense to a crime must be in writing, as the petitioner argues, need not be decided. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1536136/ | 928 A.2d 731 (2007)
COX
v.
U.S.
No. 06-CM-711.
District of Columbia Court of Appeals.
July 16, 2007.
Decision without published opinion Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1535549/ | 520 A.2d 300 (1987)
DISTRICT OF COLUMBIA, Appellant,
v.
Henry B. HUNT, Appellee.
No. 85-770.
District of Columbia Court of Appeals.
Argued December 1, 1986.
Decided January 26, 1987.
*301 Edward E. Schwab, Asst. Corp. Counsel, with whom John H. Suda, Acting Corp. Counsel at the time the brief was filed, and Charles L. Reischel, Deputy Corp. Counsel, Washington, D.C., were on the brief, for appellant.
Edward J. Tolchin, with whom Jill L. Martin, Washington, D.C., was on the brief, for appellee.
Before PRYOR, Chief Judge, and MACK, Associate Judge, and GALLAGHER, Senior Judge.
PRYOR, Chief Judge:
This case raises questions of statutory interpretation relating to the District's Comprehensive Merit Personnel Act, D.C. Code §§ 1-601.1 et seq. (1981), and the District's Self-Government Act (Home Rule Act), D.C.Code §§ 1-201 et seq. (1981). The issue presented is whether entitlement to attorney's fees, available under the former federal civil service scheme, survives for District of Columbia employees who successfully litigate personnel actions and who were hired before the District superseded those portions of the federal scheme in the Comprehensive Merit Personnel Act (CMPA).
The instant case was filed in the Superior Court by appellee Henry B. Hunt, an employee of the District of Columbia Department of Human Services (DHS), to obtain review of the decision of the District of Columbia Office of Employee Appeals (OEA) that denied him attorney's fees after OEA had reversed a decision by DHS to terminate his employment.[1]
The Superior Court reversed the decision of the OEA and awarded Mr. Hunt attorney's fees, holding (1) that the attorney's fees provision of the Federal Back Pay Act, 5 U.S.C. § 5596(b)(1) (1982) remained applicable to District employees employed before January 1, 1980, and (2) that the District's attempted supersession of the Federal Back Pay Act, D.C.Code § 1-633.2(a)(5)(G) (1981), was invalid because it is contrary to the carryover provision of the Home Rule Act, D.C.Code § 1-242(3) (1981), and the savings clause of the District's Comprehensive Merit Personnel Act, D.C.Code § 1-602.4(a) (1981). The Superior Court entered an order granting Mr. Hunt $21,010.69 in legal fees, including attorney's fees for litigating a contempt motion that was denied following an evidentiary hearing. This appeal by the District followed. We affirm in part, except that we vacate that portion of the order granting attorney's fees for the unsuccessful contempt motion and remand for appropriate modification of the trial court order.
I
This case arose on September 23, 1981, when DHS terminated Mr. Hunt from his duties as an Institutional Counselor at the Cedar Knoll juvenile facility, based on charges that he assaulted several juveniles at the facility. Mr. Hunt, an employee since 1976, appealed his termination to OEA. On August 19, 1982, OEA entered a default judgment against DHS and ordered it to reinstate Mr. Hunt with back pay on the ground that DHS had failed to defend the appeal. DHS sought reconsideration of that decision in an internal agency appeal; OEA denied reconsideration on September 21, 1982. OEA also denied Mr. Hunt's request for attorney's fees in these orders.
Both DHS and Hunt petitioned for review of the OEA decision in the Superior Court. DHS sought reversal of the OEA decision and a remand to OEA with instructions to decide the case on the merits. Mr. Hunt cross-appealed the OEA's denial of attorney's fees. On December 1, 1982, the Superior Court (Bowers, J.) denied the District's appeal, upheld the OEA decision, and ordered Mr. Hunt's immediate reinstatement *302 with full back pay. The District complied on December 6, 1982, but reassigned Mr. Hunt to an administrative position. Mr. Hunt then moved to hold the District and the Director of DHS in contempt of court, alleging that the reassignment was in violation of the court's December 1 order affirming the OEA decision.[2] On February 16, 1983, after an evidentiary hearing, the trial court denied the motion, finding that the director of DHS had not acted unreasonably in placing Mr. Hunt in an administrative position, and that the reassignment was within management discretion. On May 30, 1983, however, Mr. Hunt was reassigned to a caseload as a juvenile community counselor.
Subsequently, the Superior Court (Hamilton, J.) heard oral argument on Mr. Hunt's petition for attorney's fees. On May 24, 1984, the court issued a written decision, holding that he was entitled to attorney's fees for both the action on the underlying discharge as well as the contempt motion.
II
Statutory Framework
In the 1973 Home Rule Act, Congress directed the District government to establish its own comprehensive personnel system to replace the federal system which previously controlled. Congress was careful, however, to ensure that the rights of existing District employees would be protected during the transition to home rule. D.C.Code § 1-242(3) (1981) states in pertinent part:
Personnel legislation enacted by Congress prior to or after January 2, 1975, including, without limitation, legislation relating to appointments, promotions, discipline, separations, pay, unemployment compensation, health, disability and death benefits, leave, retirement, insurance, and veterans' preference applicable to employees of the District government. . . shall continue to be applicable until such time as the Council shall, pursuant to this section, provide for coverage under a District government merit system. . . . The system may provide for continued participation in all or part of the Federal Civil Service System and shall provide for persons employed by District government immediately preceding the effective date of such system personnel benefits, including but not limited to pay, tenure, leave, residence, retirement, health and life insurance, and employee disability and death benefits, all at least equal to those provided by legislation enacted by Congress, or regulation adopted pursuant thereto, and applicable to such officers and employees immediately prior to the effective date of the system established pursuant to this Act.
Pursuant to this congressional mandate, the District Council adopted the CMPA on October 31, 1978, and it became effective on March 3, 1979. The CMPA contains a savings clause which implements the directive of § 1-242(3) that certain personnel benefits are to remain "at least equal to" those established under the former Federal Civil Service System. D.C.Code § 1-602.4(a) (1981) provides:
Persons employed by the District of Columbia government serving on the date this chapter becomes effective . . . shall be guaranteed rights and benefits at least equal to those currently applicable to such persons under provisions of personnel law and rules and regulations in force on the date immediately prior to the date that this chapter becomes effective. . . .
At the time Mr. Hunt was hired in 1976, and at all times prior to the effective date of the CMPA, the Federal Back Pay Act, 5 *303 U.S.C. § 5596 (1982), applied to District of Columbia government employees.[3]
Subsequent to the enactment of the CMPA, the District attempted to supersede the applicability of the Federal Back Pay Act to District employees. In its original form, the CMPA provided, at D.C.Code § 1-362.2 (1973 & Supp. VII 1980):
The following provisions of Title V of the United States Code are superseded for employees hired by the District of Columbia government on or after the date this chapter becomes effective[4] . . . U.S.C. . . . 5596(a)(5) (relating to pay administration for employees of the District of Columbia government).
Section 1-362.2 has been amended and recodified at D.C.Code § 1-633.2(a)(5)(G) (1981) to extend the supersession of the Back Pay Act to all District government employees, regardless of when they were hired.[5]
III
We have held previously that the "at least equal to" language of the Home Rule Act's carryover provision and the CMPA's savings clause, D.C.Code §§ 1-242(3) and -602.4(a) (1981), "provides a floor for benefits under the D.C.CMPA, equal to those applicable to federal employees `immediately prior' to enactment of District personnel legislation." American Federation of Government Employees v. Barry, 459 A.2d 1045, 1049 (D.C.1983) (AFGE). There we attempted to set a standard for determining which previously applicable federal benefits must be retained for District government employees who were working at the time when the CMPA was implemented.
This standard recognizes a distinction between concrete statutory entitlements and benefits on the one hand and statutory processes, mechanisms or procedures used in personnel administration on the other. The District is required by § 1-242(3) to retain the federal personnel procedures, mechanisms, and processes only until it develops its ownas it did in the CMPA. However, the District must retain personnel benefits and entitlements at least equal to those previously available under the federal system, even after the CMPA went into effect. AFGE, supra, 459 A.2d at 1052.
The District argues that it is not required to maintain the Back Pay Act's attorney fee provision for successful employee litigants because such fees are not a concrete benefit cognizable under D.C.Code §§ 1-242(3) and -602.4(a). It therefore asserts that it was free to rescind the federal provision through supersession.
In AFGE, supra, we concluded that the District did not have to retain a federal pay comparability formula, which set standards and procedures for potential cost-of-living pay adjustments, but was free to supersede *304 it and adopt its own in the CMPA. We reached this conclusion by finding that such a process or mechanism was not a concrete entitlement, such as pay, tenure and leave. Instead, we found that such a process implicated precisely the kind of administrative autonomy that Congress intended the District to now exercise in the Home Rule Act. Id. at 1051, 1053. We were careful to point out that the "at least equal to" language of §§ 1-242(3) and -602.4(a) does not require a "carbon copy" of all former federal personnel processes, and we therefore recognized that the District's alternative CMPA pay comparability provision was an acceptable substitute for the former federal formula. Id.
We find the District's attempted supersession of the Back Pay Act to represent a different circumstance. First, we conclude that the attorney's fees provision of 5 U.S.C. § 5596 is not an administrative process or mechanism but is instead a concrete personnel entitlement or benefit that the District must retain, or replace with an equivalent alternative pursuant to D.C. Code §§ 1-242(3) and -602.4(a). There is no District process involved in the calculation or award of such fees. Rather, they are merely a restitutionary form of compensation for employees who are forced to litigate District personnel actions later determined to be improper. Such a benefit merely returns these employees to the position they would have occupied if such improper action never took place.
The District therefore cannot supersede the Back Pay Act as applied to pre-January 1, 1980[6] employees, since there is no current back pay provision in the CMPA to replace it. The District has recognized on several occasions that the Back Pay Act must remain in force until a replacement is found. Mayor's Memorandum, Number 81-53, July 17, 1981, at 2; Memorandum of the Corporation Counsel, July 15, 1981, at 2. However, the District now apparently attempts to argue that it may selectively supersede those portions of the act relating to attorney's fees. It may not do so until such benefits are replaced with equivalent alternatives in the CMPA for these pre-1980 employees, who previously enjoyed the federal entitlement. D.C.Code §§ 1-242(3), -602.4(a) (1981).
It is, therefore, clear that the portion of the Superior Court's decision upholding Mr. Hunt's right to attorney's fees for his reinstatement action was proper, since this award was clearly authorized under the Back Pay Act,[7] and the Act remains in force for such employees until an alternative District scheme is enacted to replace it.
IV
The District also challenges the Superior Court's award of attorney's fees for the subsequent contempt motion. The District argues that Mr. Hunt is not entitled to counsel fees incurred in litigating this motion because he did not prevail on that motion. We agree.
This court generally defers to the broad discretion of the trial judge in the calculation and award of attorney's fees. American Federation of State, County and Municipal Employees v. Ball, 439 A.2d 514, 515 (D.C.1981); Trilon Plaza Co. v. Allstate Leasing Corp., 399 A.2d 34, 38 (D.C.1979). To be entitled to such attorney's fees, however, a party must be authorized to receive them by operation of statute or contract.[8]
*305 Here, the authorizing statute, the Back Pay Act, sets out the standard as follows: "attorney's fees . . . shall be awarded in accordance with standards established under section 7701(g) of this title." 5 U.S.C. § 5596(b)(1)(A)(ii) (1982). Section 7701(g) provides that a party may receive reasonable attorney's fees "if the employee or applicant is the prevailing party . . . and if the payment . . . is warranted in the interest of justice." Appellee Hunt fails to meet this standard since he did not prevail in the contempt proceeding. The motion was denied.
The Superior Court, after conducting an evidentiary hearing, rejected each of appellee's asserted legal bases for the motion.[9] Yet the court below awarded the fees for the motion because it found that the contempt proceeding involved a common core of facts which flowed directly from Mr. Hunt's successful reinstatement action, and that the matters related to the contempt motion were not distinct from Mr. Hunt's successful claims.
The Supreme Court has recently addressed a similar problem in Hensley v. Eckerhart, 461 U.S. 424, 103 S. Ct. 1933, 76 L. Ed. 2d 40 (1983).[10] There the Court held that recovery of legal fees depended in large part on the extent of a party's success. Id. at 440, 103 S.Ct. at 1943. Where the party is deemed "prevailing" even though he succeeds on only some of his claims for relief, two questions must be answered in order to determine whether he should recover for the unsuccessful claims:
First, did the plaintiff fail to prevail on claims that were unrelated to the claims on which he succeeded? Second, did the plaintiff achieve a level of success that makes the hours reasonably expended a satisfactory basis for making a fee award?
Id. at 434, 103 S.Ct. at 1940.
Applying these factors to the contempt action, the second question is clearly answered in the negative. As pointed out above, Mr. Hunt's contempt motion was denied on all legal theories advanced. He therefore failed to meet the "prevailing party" standard set forth in the Back Pay Act, although he did prevail on his cross-appeal of the OEA decision.[11] The first question is therefore controlling; here the motion was not significantly related to appellee's successful cross-appeal of the OEA order.
In its petition for review, the District sought to have the Superior Court hear the merits of the case after the OEA entered a default against it for failure to defend Mr. Hunt's appeal. Mr. Hunt cross-appealed to reverse the OEA's denial of attorney's fees. The contempt motion, however, only involved the propriety of DHS's subsequent decision to reassign Mr. Hunt to a different position than the one he originally had. The motion sought relief including an injunction, contempt adjudication, and fines. It had nothing to do with the issues in the cross-petitions for review of the OEA decisiondefault judgment and attorney's fees. It simply concerned whether Mr. Hunt's alleged history of assaultive behavior *306 could form a proper basis for his reassignment.
Given that the failed motion was not significantly related to and in no way advanced Mr. Hunt's successful cross-appeal of the OEA decision, we find that the unsuccessful claim "cannot be deemed to have been `expended in pursuit of the ultimate result achieved'." Id. at 435, 103 S.Ct. at 1940. Therefore, "the hours spent on the unsuccessful claim should be excluded in considering the amount of a reasonable attorney's fee." Id. at 440, 103 S.Ct. at 1943. Since it is unclear from the record the precise amount granted for this unsuccessful motion, we remand the case to the Superior Court with instructions to delete this portion from the award.
Conclusion
The order of the Superior Court is
Affirmed in part and remanded for actions consistent with this opinion.
NOTES
[1] D.C.Code § 1-606.3(d) (1981) provides the Superior Court with jurisdiction to hear appeals from the OEA in cases under the CMPA.
[2] Mr. Hunt maintained that he should have been reassigned to his original position as a counselor at Cedar Knoll.
[3] 5 U.S.C. § 5596 provided in relevant part (and continues to provide after amendment immaterial to this case):
Back pay due to unjustified personnel action (a) For purposes of this section, "agency" means
* * * * * *
(5) the government of the District of Columbia.
(b)(1) An employee of an agency who, on the basis of a timely appeal or an administrative determination . . . is found by appropriate authority. . . to have been affected by an unjustified or unwarranted personnel action . . .
(A) is entitled, on correction of the personnel action, to receive for the period for which the personnel action was in effect
* * * * * *
(ii) reasonable attorney's fees related to the personnel action. . . .
[4] D.C.Code § 1-366.1 (1973 & Supp. VII 1980) provided that this chapter was effective January 1, 1980.
[5] This section now provides:
(a) The following provisions of the United States Code are superseded for all employees of the District of Columbia Government:
* * * * * *
(5)(G) 5 U.S.C. [§] 5596(a)(5).
On July 29, 1980, the City Council adopted this enactment. The Mayor signed the Bill on August 1, 1980, and it became effective on September 26, 1980, at the end of the congressional review period.
[6] This is the effective date of the original supersession act, see supra note 4. We also point out that although this first supersession act was aimed at pre-January 1, 1980 employees such as Mr. Hunt, the second supersession act cannot alter the result we reach, because as applied to these employees, it is also contrary to D.C.Code §§ 1-242(3) and -602.4(a).
[7] It is the well settled American Rule that attorney's fees are generally not available unless there exists an explicit statutory or contractual entitlement. See Aleyska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 249, 95 S. Ct. 1612, 1618, 44 L. Ed. 2d 141 (1975); In re Antioch University, 482 A.2d 133, 135 (D.C.1984).
[8] See supra note 7.
[9] Judge Bowers rejected Hunt's basic assertion that the OEA decision exonerated him from the allegations of misconduct, noting that the decision was a default judgment. He also rejected the contentions that the OEA decision precluded DHS from considering the incidents that triggered the termination, that the reassignment of Hunt was a second adverse action, and that the OEA decision had res judicata and collateral estoppel effect on the contempt motion.
[10] Although Hensley involves a fee award made pursuant to 42 U.S.C. § 1988 (1982), the Court points out that the standards set forth in its opinion "are generally applicable in all cases in which Congress has authorized an award of fees to a `prevailing party.'" Id. at 433 n. 7, 103 S.Ct. at 1939 n. 7.
[11] Mr. Hunt asserts that his contempt motion, although legally denied, in fact won him reappointment as a counselor, and that he therefore should be presumed to have met the prevailing party standard. We point out that while Mr. Hunt was reassigned to a counselor position, this reassignment took place a substantial time after the motion, and was not the reassignment he requested at the time of the motion, i.e., his original position at Cedar Knoll. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/281508/ | 400 F.2d 172
GOVERNMENT EMPLOYEES INSURANCE COMPANY, Appellant,v.UNITED STATES of America, Appellee.
No. 9862.
United States Court of Appeals Tenth Circuit.
Sept. 16, 1968.
Lowell White, Denver, Colo., for appellant.
Robert v. Zener, Atty., Dept. of Justice (Edwin L. Weisl, Jr., Asst. Atty. Gen., Lawrence M. Henry, U.S. Atty., and John C. Eldridge, Atty., Dept. of Justice, on the brief), for appellee.
Before MURRAH, Chief Judge, and HILL and SETH, Circuit Judges.
HILL, Circuit Judge.
1
Government Employees Insurance Company (GEICO), a third-party defendant below, appeals from a judgment entered in favor of the United States as a third-party plaintiff in a negligence action originally instituted against one Alfred Pittman, a serviceman in the United States Army. On October 24, 1964, while in the process of changing duty stations, Pittman, an insured of GEICO under an automobile liability insurance policy, was involved in an automobile collision. Pursuant to the Federal Tort Claims Act, 28 U.S.C. 1346(b) and 2671 et seq., the United States has become the sole defendant, the action against Pittman having been dismissed.
2
The defendant, United States, as a third-party plaintiff filed a third-party complaint against GEICO, alleging that at the time of the automobile accident in question, Pittman had in effect an insurance policy under the terms of which GEICO agreed to be responsible for all damages occasioned to all persons as a result of the negligence of Pittman. The third-party defendant asserted that at the time of the accident there was in effect an endorsement to the policy which excluded the United States as an omnibus insured. The lower court thereafter entered a judgment against GEICO in the amount of $8,136.01.1
3
The liability insurance policy in question was initially issued to Pittman to cover the period from April 21, 1961 to April 21, 1962. The basic policy was revived and continued in effect until July 1, 1963 when it was canceled for nonpayment of the premium. On October 4, 1963 the policy was again reinstated and again contained the standard omnibus clause extending coverage to anyone responsible for the operation of the vehicle. Prior to expiration of the policy, GEICO mailed to Pittman a form seeking information to ascertain whether a policy should be issued to cover the period beginning October 4, 1964. The insured having responded in the affirmative GEICO, on September 11, 1964, issued a new policy contract to become effective October 4, 1964. This policy charging the same annual premium, bearing an identical number and containing the same general provisions as the previous policies, had attached separately thereto an endorsement excluding the United States as an additional insured. The cover letter transmitted with the new insurance contract advised the insured to read the new policy carefully.
4
The district court in a Memorandum Opinion and Order2 held that the endorsement was void for lack of consideration and mutuality of assent, citing United States v. National Insurance Underwriters, 266 F. Supp. 636 (D.Minn.1967) and Engle v. United States, 261 F. Supp. 93 (W.D.Ark.1966).
5
GEICO in seeking reversal contends: (1) that the United States has no standing to bring an action under the policy (not being privy thereto), and (2) that the policy to become effective October 4, 1964 was a separate and distinct contract completely independent of the prior policy. The parties assert that the applicable law is either that of the District of Columbia, where the renewal policy was issued, or Alaska, where Pittman received it. Whether this be correct or whether the case is controlled by federal law because of the inapplicability of Erie,3 is of no moment, for it is agreed that there is no direct authority in point. Consequently, the issue is governed by general case authority.
6
As to whether the United States is a proper party to assert the invalidity of the endorsement, it can be stated, without reaching the issue of whether the modification was void, that the United States had the right to implead GEICO as a third-party defendant under Rule 14 Fed.R.Civ. Procedure.4 Having this right, it cannot be doubted that the United States had the necessary standing to assert its interpretation of the contract so as to bring it within the protection afforded an omnibus insured. This right to require an interpretation of the contract would also extend to the right to assert the invalidity of a modification thereof.5
7
This brings us then to the question of the status of the new policy, with attached endorsement, as issued October 4, 1964. In searching in vain for sufficient consideration to support the modification of the omnibus clause, the district court apparently failed to appreciate the distinction between this case and the cases relied upon by that court to support its decision. The appellee, in urging So. Farm Bureau Cas. Ins. Co. v. United States, 395 F.2d 176 (8th Cir. 1968), has joined in this misconception of the issue. In the Engle, National Underwriters and So. Farm Bureau cases, the endorsement seeking to modify the omnibus clause was sought to be made effective at a time when the previous policy was in effect. It was then contended that upon the subsequent renewal, the prior modification, although void for lack of consideration at the time it was annexed to the existing policy, had become incorporated into the renewal policy contract. In this factual setting the courts applied the rule that requires consideration to support the modification of an existing contract. In disposing of the contention that the renewal incorporated the void endorsement into the policy, it was stated that a modification defective as a result of lack of consideration therefor would not be revived by a later renewal of the policy.6 In such a case it may be necessary to consider the lack of consideration as invalidating an attempted modification of an existing policy. However, here the endorsement first became an issue in connection with its submission together with a copy of the new policy contract, at a time when the parties were arranging for coverage to begin upon the expiration of the previous contract. As a result, the question here is not whether there was a valid modification of an existing contract, but rather, whether the modification of the policy was properly incorporated into the new contract. This follows as a result of the fact that although there is a continuity between successive policy contracts, to be discussed later, each renewal is a separate contract and is to be treated as such in this respect.7 As a result, the crucial issue presented for decision is whether the insured agreed to the endorsement, or stated conversely, what in fact were the terms of the policy as exemplified by the new contract.
8
While the renewal of an insurance policy constitutes a separate contract to be governed by general contract principles,8 it is the general rule that an insurance company is bound by the greater coverage in an earlier policy where the renewal contract is issued without calling to the insured's attention a reduction in policy coverage.9 This proposition was set forth, but in different terms, by Judge Phillips, speaking for this court, and indicating that 'When a renewal policy is issued, it is presumed, unless a contrary intention appears, that the parties intended to adopt in the renewal policy, the terms, conditions and coverage of the expiring policies.'10
9
In this case the insurer, GEICO, transmitted a new policy contract and instructed the insured to carefully read the contract as submitted. This alone is insufficient to call attention to the change in coverage. However, when coupled with the fact that the endorsement excluding the United States was attached as a separate addition to the contract, it becomes apparent that even a casual reading of the mailed material would result in informing the insured of the change.11 Hence, while it is inequitable to require an insured to search the fine print of each renewal policy, to require that he be aware of a short, separately attached boldly worded modification, seems clearly appropriate.12
10
Even if it be that the insured was not adequately notified of the policy change, an analysis of the reasoning underlying the rule requiring an insured to call attention to policy modifications will demonstrate that the United States still must fail in its attempt to be brought within the terms of the contract. This follows because the theory holding the insurer bound by the prior policy is based on the premise that an insurer who fails to call attention to policy changes is guilty of fraudulent or inequitable conduct or has committed an error, and in either event the insured, who has relied on the assumption that the renewal contract provisions remained unchanged, is entitled to recover as though there had been no modification in the policy coverage.13
11
Accordingly, while it may be that at the suit of the insured, the endorsement excluding the United States as an omnibus insured would be stricken from the contract, we are not here dealing with a suit by the insured. But rather, this is a suit by a third party who is seeking a gratuitous benefit. In this instance the equitable considerations are inapposite. The third party has not, as has the insured, relied upon the assumption that the policy remains unaltered, for indeed, the third party has not relied at all upon the insured's contract of insurance. Thus, as to the United States, the contract that presently governs the relationship of the parties expressly eliminates any rights of the third-party plaintiff thereby precluding the contention that the United States is entitled to indemnification from the insurer, GEICO.
12
Reversed.
1
Courtright v. United States, 276 F. Supp. 489 (D.Colo.1967)
2
Courtright v. United States, supra
3
Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188, 114 A.L.R. 1487 (1938)
4
United States v. Myers, 363 F.2d 615 (5th Cir. 1966)
5
So. Farm Bureau Cas. Ins. Co. v. United States, 395 F.2d 176 (8th Cir. 1968); United States v. National Insurance Underwriters, 266 F. Supp. 636 (D.Minn.1967); and Engle v. United States, 261 F. Supp. 93 (W.D.Ark.1966)
6
So. Farm Bureau v. United States, supra; Engle v. United States, supra; and United States v. National Insurance Underwriters, supra
7
Id
8
United States v. National Insurance Underwriters, 266 F. Supp. at 638
9
See Annot., 91 A.L.R. 2d 546 (1963)
10
Pearl Assur. Co. v. School Dist. No. 1, etc., 212 F.2d 778, 782 (10 Cir. 1954)
11
Annexed separately to the insurance policy was the endorsement reading as follows:
'Automobile Policy Amendment
Government Employees Insurance Company
A Capital Stock Insurance Company-- Not Affiliated with the United States Government
Washington, D.C. 20005
Policy Amendment
Federal Employees Using Automobile in Government Business
It is agreed that the policy does not apply under the Liability Coverages for Bodily Injury or Property Damage to the following as insureds:
1
The United States of America or any of its Agencies
2
Any person, including the named insured, if protection is afforded such person under the provisions of the Federal Tort Claims Act
In Witness Whereof, the Government Employees Insurance Company has caused this amendment to be signed by the President and Secretary of the Company.
(George F. Levin) Secretary (David Lloyd Kraeger) President. A-32 (10-64).'
12
A better procedure would be for the insurer to indicate in the cover letter, in a manner similar to that employed in So. Farm Bureau, supra, the extent to which the policy has been modified
13
Annot., 91 A.L.R. 2d 546, 548-549 (1963) | 01-03-2023 | 08-23-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/1536307/ | 364 B.R. 767 (2007)
In re TONG SENG VUE and Mai Yer Vue, Debtors.
No. 05-66116-fra13.
United States Bankruptcy Court, D. Oregon.
March 16, 2007.
*768 MEMORANDUM OPINION
FRANK R. ALLEY, Bankruptcy Judge.
The Debtors seek to confirm a modified plan of reorganization pursuant to 11 U.S.C. § 1329[1]. The new plan contemplates an early payoff of claims required to be paid under the original plan, using the proceeds (or some of them) from a refinance of Debtors' real property financing. The Trustee objects, arguing that the debtors are required as a matter of law to continue making plan payments for at least 36 months. Moreover, the Debtors' new plan is not, the Trustee asserts, made in good faith.
The threshold issue has previously been determined by the Ninth Circuit's Bankruptcy Appellate Panel (BAP) in a controversial opinion. The threshold question is: must this court follow the BAP's decision? I find that I must, and hold that the matter must proceed to trial on the trustee's good faith objection.
BACKGROUND
Debtors filed for bankruptcy under Chapter 7 of the Bankruptcy Code on July 25, 2005, prior to the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), and received a discharge of debts on December 7, 2005. Oh April 5, 2006, the Chapter 7 Trustee filed an application to employ a real estate broker to sell the Debtors' residence in Salem, Oregon. The Debtors moved on April 18 to convert their bankruptcy case to one under Chapter 13, and an order granting the motion and *769 vacating Debtors' Chapter 7 discharge was entered on the following day.
After the conversion order was entered, an initial Chapter 13 plan was filed which provided for payments over 40 months. The Trustee filed a written objection to confirmation alleging that the amount that had to be paid to unsecured creditors under the best interest of creditors test[2] was $9,000 (the plan proposed to pay only $2,530), and that the claimed homestead exemption was higher than allowed. The Trustee indicated at the confirmation hearing that his objections had been resolved, and an order of confirmation was entered on July 27, 2006 which amended the plan of reorganization to provide for an 8% dividend to general unsecured creditors.
On December 21, 2006, Debtors filed, a post-confirmation modified plan which provided for the refinancing of their residence by February 28, 2007. From the proceeds of the refinance, Debtors, would pay to the Trustee an amount sufficient to pay all claims due under the original Chapter 13 plan. Debtors would then be entitled to a discharge. The Trustee objected on good faith grounds and argued that the Chapter 7 Trustee's listing price for the property of $165,000, rather than the value indicated in Debtors' schedules, should be used to calculate a best interest of creditors amount for the modified plan. Using that figure, the best interest amount would be $ 19,769, rather than $9,000. Further, the Trustee objected that a Chapter 13 plan must last at least 36 months; that is, that the. Debtors must continue to make monthly payments of their disposable income for 36 months from the date of the petition, or until all allowed unsecured claims are paid in full, whichever first occurs.
At the confirmation hearing on the modified plan, the Debtors' attorney stated that the amount paid to holders of allowed unsecured claims would be increased to $19,769. Debtors argue that the modified plan thus benefits both the Debtors and creditors, which would be paid more than under the confirmed plan. They rely on In re Sunahara, 326 B.R. 768 (9th Cir. BAP2005) to counter the Trustee's argument that the plan must last at least 36 months. At the conclusion of the hearing, I took the matter under advisement, and allowed both parties to submit memoranda regarding the Sunahara opinion and whether the Bankruptcy Court is bound by its holding. The parties thereafter submitted their well-reasoned memoranda. After reading the parties' submissions and researching the issue further, the Court concludes that the Sunahara opinion is binding authority.
DISCUSSION AND ANALYSIS
A. Sunahara
Sunahara, as in the present case, involved a Chapter 13 Debtor which modified his confirmed 36-month Chapter 13 plan to provide for a lump-sum payoff of all allowed claims provided for in the confirmed plan and an early discharge. The bankruptcy court denied confirmation and the Debtor appealed to the Bankruptcy Appellate Panel (BAP).
The BAP analyzed the interplay of the various sections of the Code invoking confirmation in Chapter 13 as they relate to 11 U.S.C. § 1329, the section governing modification of a plan after confirmation. Section 1329(b)(1) provides that "[s]ections 1322(a), 1322(b), and 1323(c) of this title *770 and the requirements of 1325(a) of this title apply to any modification under subsection (a) of this section." [Emphasis added]. Section 1325 reads in relevant part as follows:
(a) Except as provided in subsection (b), the court shall confirm a plan if
(1) the plan complies with the provisions of this chapter and with the other applicable provisions of this title;
(2) any fee, charge, or amount required under chapter 123 of title 28 or by the plan, to be paid before confirmation, has been paid;
(3) the plan has been proposed in good faith and not by any means forbidden by law;
(4) the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title on such date;
(5) with respect to each allowed secured claim provided for by the plan
(A) the holder of such claim has accepted the plan;
(B) (I) the plan provides that the holder of such claim retain the lien securing such claim; and
(ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim; or
(C) the debtor surrenders the property securing such claim to such holder; and
(6) the debtor will be able to make all payments under the plan and to comply with the plan.
(b) (1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan-
(A) the, value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or
(B) the plan provides that all of the debtor's projected disposable income to be received in the three-year period beginning on the date that the first payment is due under the plan will be applied to make payments under the plan. (emphasis added)
* * * *
The Panel held that because the requirements of § 1325(b), including the disposable income test of § 1325(b)(1)(B), are not included in the language of § 1329, a post-confirmation modified plan does not have to comply with the requirement in § 1325(b)(1)(B) that a plan, to be confirmed, must run for 36 months when confirmation is objected to. Instead, a modified plan confirmed under § 1329 may provide for an early payoff, without the necessity of paying all allowed unsecured claims in full. In determining whether to authorize such an early payoff of a previously confirmed Chapter 13 plan, the Panel directed the Bankruptcy Court to
carefully consider whether the modification has been proposed in good faith. . . . Such a determination necessarily requires an assessment of a debtor's overall financial condition including, without limitation, the debtor's current disposable income, the likelihood that the debtor's disposable income will significantly increase due to increased income or decreased expenses over the remaining life of the original plan, the `proximity of time between confirmation of the original plan and the filing of the modification motion, and the risk of default over the remaining term of the plan versus *771 the certainty of immediate payment to creditors.
Sunahara at 782-83.
B. The Sunahara Opinion is Binding on This Court
If I were writing on a clean slate, I would be inclined to deny confirmation of the modified plan, following the logic of In re Keller, 329 B.R. 697 (Bankr.E.D.Cal. 2005) and other authority cited in the Trustee's memorandum. However, this Court is not free to ignore the BAP's opinion in Sunahara.
The BAP has held that the decisions of the Panel are binding on each of the Bankruptcy Courts in the districts comprising the Ninth Circuit. In re Windmill Farms, 70 B.R. 618, 622 (9th Cir.BAP1987); In re Proudfoot, 144 B.R. 876, 878 (9th Cir. BAP1992). Bankruptcy judges in the District of Oregon have generally agreed to this proposition: see Harry Ritchie's Jewelers, Inc. v. Chlebowski (In re Chlebowski), 246 B.R. 639, 645 (Bankr.D.Or.2000); In re Platt, 270 B.R. 773, 775 (Bankr.D.Or. 2001). The rationale for the holding is that Congress's purpose in establishing the BAP was to provide a uniform and consistent body of bankruptcy law throughout the circuit.
The District Court in Oregon has held that "because a bankruptcy court is not bound by decisions from other districts, it should not be bound by BAP decisions originating in another district." In re Selden, 121 B.R. 59, 62 (D.Or.1990)(Panner, J.). (Note that Sunahara arose in the Northern District of California.) Selden relies on Judge Hess's opinion in In re Junes, 76 B.R. 795, 797 (Bankr.D.Or 1987), aff'd on other grounds, 99 B.R. 978 (9th Cir.BAP1989). Junes reasoned that: The BAP is an intermediate appellate court, sitting between the trial court and the Court of Appeals. District Court judges, acting as courts of appeal from Bankruptcy Courts, sit in the same position relative to the trial court and the Circuit Court of Appeals. Since a ruling of one District Court is not binding on another District Court within the circuit, it follows that the BAP, acting on a case from a particular district, cannot bind Bankruptcy Courts in other districts. See also In re Crook, 62 B.R. 937, 941 (Bankr. D.Or.1986), rev'd 79 B.R. 475 (9th Cir. BAP1987) (Reversed on the merits.) While there is some logic to the argument, it overlooks entirely Congress' purpose in establishing the BAPs to advance uniformity in the law.
It has been held that the opinion of a single District Court judge is not binding in subsequent cases in any event. See e.g. In re Barakat, 173 B.R. 672 (Bankr. C.D.Cal.1994); In re Gaylor, 123 B.R. 236 (Bankr.E.D.Mich.1991). The logic behind Barakat and similar cases is that, since no District Court Judge can bind another District Court judge in the same district, there is no uniform authority binding the bankruptcy courts. Individual panels of the BAP, on the other hand, are bound by the decision of other panels unless the decision has been undermined by the Court of Appeals or the Supreme Court. In re Rowley, 208 B.R. 942 (9th Cir. BAP1997).
In the present case, the BAP's opinion in Sunahara should control for the following reasons:
The Doctrine of stare decisis advances two important principles: the uniformity of case law throughout a jurisdiction, and the resulting predictability of results required in order to ensure fairness of the judicial process to litigants. As a matter of fundamental fairness to parties before it, a trial court must strive to apply the law as it is held by courts which may review its decisions. Otherwise, parties will often be forced to the trouble and expense of an appeal to *772 achieve a lawful result whenever the trial court disagrees with the higher court's view of the law. Rules of comity and stare decisis are essentially corollaries of this basic rule.
In this case, there is appellate authority from the BAP that is directly on point. There is no decision from any Oregon District Court judge addressing the issues before the Court at present. I do not read Selden as an invitation (much less an instruction) to bankruptcy courts to disregard BAP authority in cases where there is no contrary District Court authority. It is one thing to say that District Court authority somehow outweighs the BAP's where the two conflict; it is quite another to say that, where the District Court has been silent, the Bankruptcy Courts are free to disregard the opinions of the BAP. Such a rule would seriously undermine the BAP's role in promoting uniformity in the law in this Circuit.
I hold that where the Bankruptcy Appellate Panel has issued an opinion applicable to the facts before the Bankruptcy Court, and there is' no District Court opinion applicable to those facts, the Bankruptcy Appellate Panel's opinion is binding.[3]
CONCLUSION
The Sunahara opinion is binding on this Court and confirmation of the modified plan filed by the Debtors in this case may not be denied solely because the plan seeks to pay off Debtors' confirmed plan in less than 36 months, absent payment in full of all unsecured creditors. At the confirmation hearing on January 30, the Trustee had sought to question the Debtors as to good faith and other matters, but the Debtors' attorney stated that the Debtors were not in attendance as the issues involved in confirmation were, at that time, entirely legal matters. However, as the court in Sunahara noted, good faith is still at issue in the confirmation of a modified plan `which seeks an early payoff of a confirmed plan. If the Trustee finds that good faith is still at issue and wishes to present additional evidence, he should request within seven days of the date of entry of this Memorandum Opinion and associated order an adjourned evidentiary hearing. Absent such a request, the order confirming the modified plan of reorganization should be submitted in the regular course.
NOTES
[1] Unless otherwise indicated; all chapter, section and rule, references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1330, and to the Federal Rules of Bankruptcy Procedure, Rules XXXX-XXXX, as enacted and promulgated prior to the effective date (October 17, 2005) of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub.L. 109-8, Apr. 20, 2005, 119 Stat. 23.
[2] Code § 1325(a)(4) requires as a condition of confirmation that the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim be not less than the amount that would be paid on account of such claim in a Chapter 7 case.
[3] Whether the Bankruptcy or District Court would prevail where there are conflicting on point opinions, must be left for another day. Once a final order is entered in this case, the Trustee may appeal this decision to the BAP, unless of course the Debtors object, in which case the appeal will go to a District Court Judge. The BAP has held that, while it is not bound by "a decision of a District Court acting in its appellate capacity, it "pays great deference to the decision of the District Court and [follows] such decisions when possible." In re Windmill Farms, Inc. 70 B.R. 618, 622 (9th Cir.BAP1987) rev'd on other grounds 841 F.2d 1467 (9th cir.1988). There is no reason to believe that District Courts would not take the same approach with respect to BAP decisions. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/855433/ | NOTE: This disposition is nonprecedential.
United States Court of Appeals
for the Federal Circuit
______________________
PHILLIP M. ADAMS & ASSOCIATES, LLC,
Plaintiff-Cross Appellant,
v.
DELL COMPUTER CORPORATION, ITE
TECHNOLOGIES, INC., MPC COMPUTERS, MSI
COMPUTER CORP., MICRO-STAR
INTERNATIONAL, SONY ELECTRONICS, INC.,
AND WINBOND ELECTRONICS CORPORATION,
Defendants,
AND
ASUSTEK COMPUTER INC. AND
ASUS COMPUTER INTERNATIONAL, INC.,
Defendants-Appellants.
______________________
2012-1238
______________________
Appeals from the United States District Court
for the District of Utah in Case No. 05-CV-0064,
Chief Judge Ted Stewart.
______________________
Decided: March 18, 2013
______________________
2 ADAMS & ASSOC v. DELL COMPUTER
GREGORY D. PHILLIPS, Phillips, Ryther & Winchester,
of Salt Lake City, Utah, argued for plaintiff-Cross Appel-
lant. With him on the brief was JACOB R. ADAMS, Dumke
Law, of New York, New York.
RONALD S. LEMIEUX, Cooley LLP, of Palo Alto, Cali-
fornia, argued for defendants-appellants. With him on
the brief was VIDYA R. BHAKAR. Of counsel on the brief
was PHILLIP E. MORTON, of Reston, Virginia.
______________________
Before PROST, MOORE, and WALLACH, Circuit Judges.
WALLACH, Circuit Judge.
The district court judgments now on appeal arose
from patent infringement and trade secret litigation
between Phillip M. Adams & Associates, LLC (“PMAA”)
and ASUSTeK Computer, Inc. (“ASUSTeK”) and Asus
Computer International (“ACI”) (collectively, “ASUS”).
Over the course of this litigation, the district court: (1)
imposed an adverse inference sanction against ASUS for
spoliation of evidence; (2) granted summary judgment
dismissing PMAA’s trade secrets claim for untimeliness;
(3) denied ASUS’s post-verdict motion for judgment as a
matter of law (“JMOL”) of noninfringement; and (4)
denied PMAA’s motion for attorney fees under 35 U.S.C. §
285. ASUS appeals from the imposition of an adverse
inference sanction and the denial of its motion for JMOL.
PMAA cross appeals from the summary judgment dis-
missing its trade secrets claim and the denial of attorney
fees. Because the district court abused its discretion in
granting an adverse inference sanction against ASUS and
because there is inadequate evidence to support a jury
verdict of infringement absent such adverse inferences,
we reverse the denial of JMOL of noninfringement. The
district court’s grant of summary judgment and denial of
attorney fees are affirmed.
ADAMS & ASSOC v. DELL COMPUTER 3
BACKGROUND
I.
Phillip M. Adams (“Dr. Adams”) is the inventor of
PMAA’s U.S. Patent No. 5,983,002 (“the ’002 patent”). In
the early 1990s, Dr. Adams discovered a data corruption
defect affecting Floppy Disk Controllers (“FDC”) in cer-
tain Super I/O computer chips. 1 Dr. Adams developed a
technique to detect such defects, and on November 9,
1999, he obtained the ’002 patent claiming this detection
system and method.
The FDC controls “[d]ata transfer to and from a floppy
diskette,” including transfers to and from the computer’s
Central Processing Unit (“CPU”). ’002 patent col. 1 ll. 35-
38. The FDC must transfer such data at a specified rate
so that the data is written to the correct location on the
spinning floppy diskette. Id. col. 1 ll. 39-41. In some
situations, however, the data transfer rate fails to match
up to the correct location on the diskette. When this
occurs, the FDC generally detects this failure and “aborts
the write operation and signals to the CPU that a data
underrun condition has occurred.” Id. col. 1 ll. 42-47.
However, as noted above, a defect in certain FDCs results
in a failure to detect a “data underrun on the last byte of a
diskette read or write operation.” Id. col. 1 ll. 61-63.
Instead of being detected and aborted, this data underrun
results in incorrect data being “written to the diskette and
validated by the FDC.” 2 Id. col. 2 ll. 4-5. The ’002 patent
1 Super I/O computer chips perform multiple in-
put/output functions, including the function of FDCs.
2 The specification explains the concerns associated
with such an FDC defect: “Maintaining the integrity of
the stored data is essential to the proper function of
[computer systems like those used by businesses and
government national defense systems]. . . .” Id. col. 1 ll.
18-21.
4 ADAMS & ASSOC v. DELL COMPUTER
claims an apparatus and a method for detecting such FDC
defects.
Independent claim 1 discloses an apparatus compris-
ing: (1) a processor executing a detection program, (2) a
memory device and a system clock both connected to the
processor, (3) a media drive for storage, (4) an FDC con-
nected to the media drive, and (5) a direct memory access
controller connected to both the FDC and the memory
device that controls transfers of data between the two. Id.
col. 1 ll. 17-36. Independent claim 12 discloses a method
comprised of delaying the last byte of data when transfer-
ring data from the memory device to the media drive
through the FDC; in short, it forces an underrun error in
the FDC’s data transfer. After the transfer is complete,
claim 12 teaches “verifying whether the floppy diskette
controller detected the underrun error.” Id. col. 1 ll. 29-30.
If it did not detect the error, the FDC is defective.
II.
During the late 1990s and early 2000s, ASUSTeK, a
Taiwan-based manufacturer of computer motherboards,
was a supplier to Sony and Hewlett Packard (“HP”),
among other computer companies; ACI was ASUSTeK’s
United States sales and inventory management subsidi-
ary. 3 ASUS’s motherboards incorporated Super I/O chips
purchased from Winbond Electronics Corporation (“Win-
bond”), among others.
In 1999, Dr. Adams cooperated in a class action law-
suit against Toshiba Corporation (“Toshiba”) related to
defective FDCs in Toshiba computers, which resulted in
3 For the sake of convenience, and because it was the
predominant practice of the district court and the parties,
the remainder of this opinion will refer to both ASUSTeK
and ACI as “ASUS,” even when only one entity is impli-
cated.
ADAMS & ASSOC v. DELL COMPUTER 5
Toshiba paying a $2.1 billion settlement. Following
announcement of the Toshiba settlement, there was
“industry-wide knowledge” of FDC defects and “the perva-
sive apprehension of pending litigation regarding the
defect.” Phillip M. Adams & Assocs. v. ASUSTeK Com-
puter, Inc., No. 05-64, slip op. at 5 (D. Utah Sept. 27,
2010) (“Sanctions Op.”). In late 1999, the same law firm
that brought the Toshiba litigation filed a similar suit
against HP, one of ASUS’s customers. HP then sent an
email to ASUS asking it to determine whether the ASUS
motherboards sold to HP contained the FDC defect.
ASUS assigned one of its Taiwan-based engineers, Sam
Yang, to develop software to detect such FDC defects.
The result was an executable software called IFDC.exe,
which Mr. Yang provided to HP and Winbond in January
2000.
III.
On May 12, 2005, PMAA filed suit against Sony and
several other defendants, alleging infringement of
PMAA’s ’002 patent and other patents related to the
detection of FDC defects. Sony then filed a third-party
complaint against Winbond and ASUS on the ground that
the allegations against Sony were based on “Super I/O
chips designed, manufactured, tested, and sold by Win-
bond . . . and computers and motherboards containing
these Super I/O chips designed, manufactured, tested and
sold by ASUS.” J.A.408. On May 3, 2007, PMAA asserted
cross claims for patent infringement and misappropria-
tion of trade secrets against Winbond and ASUS. The
trade secrets claim was dismissed for untimeliness.
Phillip M. Adams & Assocs. v. Winbond Elecs. Corp., No.
05-64 (D. Utah Aug. 25, 2010) (“Summary Judgment
Op.”). The parties then proceeded to trial, with PMAA
asserting multiple patents, including the ’002 patent,
against ASUS, Winbond, and other remaining defendants
who had not already settled with PMAA.
6 ADAMS & ASSOC v. DELL COMPUTER
On September 27, 2010, the district court reversed the
magistrate judge’s earlier pretrial order denying spolia-
tion sanctions and ordered an adverse inference sanction
against ASUS for spoliation of evidence, based on ASUS’s
failure to produce the source code for its IFDC.exe pro-
gram. 4 Sanctions Op. at 10. Based on this spoliation of
evidence, the district court found the case was exceptional
under 35 U.S.C. § 285. Phillip M. Adams & Assocs. v.
Sony Elecs. Inc., No. 05-64, slip op. at 5 (D. Utah Sept. 26,
2011) (“Attorney Fees Op.”). However, it declined to
award attorney fees to PMAA under § 285, finding the
adverse inference sanction was an adequate penalty
under the circumstances. Id.
On September 27, 2010, the same day as the district
court’s sanction order, ASUS moved for JMOL pursuant
to Fed. R. Civ. P. 50(a), which was denied by the district
court. The jury then returned verdicts of infringement of
various claims of the ’002 patent against ASUS and
Winbond. 5 However, the other two patents asserted by
PMAA were found not to be infringed. After the jury
verdict, Winbond settled with PMAA. ASUS, on the other
hand, renewed its motion for JMOL pursuant to Fed. R.
Civ. P. 50(b). The district court denied the motion, letting
the jury verdict stand. Phillip M. Adams & Assocs. v.
Sony Elecs. Inc., No. 05-64 (D. Utah Sept. 26, 2011)
(“JMOL Op.”). ASUS filed this timely appeal, and PMAA
cross appeals. We have jurisdiction pursuant to 28 U.S.C.
§ 1295(a)(1).
4 Although ASUS did not provide the IFDC.exe
source code to PMAA, it did provide the IFDC.exe pro-
gram itself.
5 In particular, the jury found that ASUSTeK in-
fringed claims 1, 11, 12, and 15 of the ’002 patent and
that ACI infringed claims 1 and 15 of the ’002 patent.
ADAMS & ASSOC v. DELL COMPUTER 7
DISCUSSION
Four separate issues are appealed to this court.
ASUS appeals (1) the adverse inference sanction and (2)
the denial of its motion for JMOL. PMAA cross appeals
(1) the grant of summary judgment dismissing its trade
secrets claim and (2) the refusal to grant it attorney fees
under 35 U.S.C. § 285. Each issue is addressed in turn.
I. ASUS’S APPEAL
1. THE DISTRICT COURT ERRED IN IMPOSING AN ADVERSE
INFERENCE SANCTION AGAINST ASUS
ASUS appeals from the district court’s imposition of
an adverse inference sanction for spoliation of evidence.
This court reviews such procedural matters not unique to
patent law under the law of the regional circuit. Sitrick v.
Dreamworks, LLC, 516 F.3d 993, 1002 (Fed. Cir. 2008).
The Tenth Circuit reviews a district court’s ruling on a
motion for spoliation sanctions for abuse of discretion.
Burlington N. and Santa Fe Ry. Co. v. Grant, 505 F.3d
1013, 1032 (10th Cir. 2007).
PMAA’s pretrial motion for spoliation sanctions
against ASUS was referred to a magistrate judge. The
magistrate judge found ASUS’s failure to produce the
IFDC.exe source code during discovery violated its duty to
preserve evidence. However, he also found that “[t]he
evidence that Adams lists from other parties does not
show that ASUS has willfully spoliated its evidence . . . .
In fact, the evidence that Adams obtained from other
parties shows just the opposite—other parties also have
very little documentary evidence involving ASUS.” Phillip
M. Adams & Assocs. v. Winbond Elecs. Corp., No. 05-64,
slip op. at 3 (D. Utah July 21, 2010) (“Magistrate’s Sanc-
tions Op.”). Accordingly, the magistrate judge concluded
there had been no bad faith spoliation, and thus denied
8 ADAMS & ASSOC v. DELL COMPUTER
sanctions. 6 PMAA objected to the magistrate judge’s
order.
According to statute and the Federal Rules of Civil
Procedure, a district court may reconsider a magistrate
judge’s nondispositive pretrial order, such as an order
denying discovery sanctions, only if such order is “clearly
erroneous or contrary to law.” 28 U.S.C. § 636(b)(1)(A); see
also Fed. R. Civ. P. 72(a). Following PMAA’s objection, the
district court found no clear error in the magistrate
judge’s order; that is, it left intact the magistrate judge’s
finding of no bad faith. Sanctions Op. at 10. In spite of
this finding, the district court determined a sanction was
warranted and imposed a broad adverse inference sanc-
tion against ASUS. 7 Id.
6 The magistrate judge issued two decisions relating
to discovery sanctions. In 2009, the magistrate found
ASUS violated its duty to preserve evidence of the
IFDC.exe source code, but requested additional eviden-
tiary submission and briefing on whether PMAA had
suffered prejudice as a result. In 2010, the magistrate
judge denied PMAA’s motion for sanctions, finding there
had been no bad faith spoliation by ASUS and an inade-
quate showing of prejudice to PMAA. With respect to
prejudice, the magistrate judge reasoned that both parties
could present their evidence to the jury, and “[t]he jury
will consider these facts and draw their inferences.”
Magistrate’s Sanctions Op. at 6. This was not an adverse
inference sanction, however, but simply an analysis that
such evidence was relevant, and that an opportunity to
present its argument to the jury meant that PMAA suf-
fered little prejudice from the missing evidence.
7 The district court’s decision could be interpreted as
making an independent finding of bad faith. Sanctions
Op. at 2 (finding ASUS failed to preserve certain evidence
with “pinpoint precision.”). If this was the case, the
district court abused its discretion by failing to properly
ADAMS & ASSOC v. DELL COMPUTER 9
A spoliation sanction is proper under Tenth Circuit
law when “(1) a party has a duty to preserve evidence
because it knew, or should have known, that litigation
was imminent, and (2) the adverse party was prejudiced
by the destruction of the evidence.” Burlington N., 505
F.3d at 1032. An adverse inference sanction in particular
“must be predicated on the bad faith of the party destroy-
ing the records.” Aramburu v. Boeing Co., 112 F.3d 1398,
1407 (10th Cir. 1997) (emphasis added). The district
court committed legal error by imposing an adverse
inference sanction absent a finding of bad faith. “A dis-
trict court by definition abuses its discretion when it
makes an error of law.” Koon v. United States, 518 U.S.
81, 100 (1996). Accordingly, we reverse the district
court’s imposition of an adverse inference sanction, and
consider whether there is adequate evidence to support
the jury verdicts against ASUS absent such adverse
inferences.
2. THE DISTRICT COURT ERRED IN DENYING JMOL OF
NONINFRINGEMENT
The Tenth Circuit reviews de novo the denial of a mo-
tion for JMOL, and reapplies the district court’s standard
of review. Miller v. Eby Realty Group LLC, 396 F.3d 1105,
1110-11 (10th Cir. 2005). JMOL is proper when “the
evidence and all inferences to be drawn therefrom are so
clear that reasonable minds could not differ on the conclu-
sion.” Id. (internal quotation marks and citations omit-
ted). Moreover, review of a jury verdict is “limited to
determining whether that verdict is supported by sub-
stantial evidence when the record is viewed in the light
defer to the magistrate judge’s factual findings, as it is
required to do when reviewing a pretrial order. Fed. R.
Civ. P. 72(a).
10 ADAMS & ASSOC v. DELL COMPUTER
most favorable to the prevailing party.” 8 Beck v. N. Natu-
ral Gas Co., 170 F.3d 1018, 1021 (10th Cir. 1999).
The evidence presented in PMAA’s briefing to this
court can be summarized into two categories: evidence of
ASUS’s allegedly infringing IFDC.exe program and evi-
dence of ASUS’s allegedly infringing certification testing
of its motherboards. 9 On appeal, ASUS contends this
8 As a preliminary matter, PMAA argues ASUS was
precluded from challenging the jury verdict regarding
claim 12, the only method claim, because claim 12 was not
challenged in ASUS’s Rule 50(a) motion for JMOL.
However, PMAA did not raise this issue before the district
court, and instead represented that ASUS’s 50(b) motion,
which included the challenge to claim 12, was “simply a
rehash” of its earlier 50(a) motion. J.A.6465; see also
J.A.6476, 6488. Therefore, it is proper to review the
JMOL in its entirety, including the challenge to claim 12.
Guides, Ltd. v. Yarmouth Grp. Prop. Mgmt., Inc., 295 F.3d
1065, 1076 n.3 (10th Cir. 2002) (“When the non-moving
party fails to raise the inadequacy of a Rule 50(a) motion
in opposition to a Rule 50(b) motion, that party cannot
raise waiver as an argument on appeal.”).
9 PMAA maintains that it has more evidence than
this, but the record does not support these assertions. For
instance, PMAA’s opening brief argues that “[t]here is
substantial evidence that ASUS’[s] infringing testing was
not limited to IFDC.EXE in 2000.” PMAA’s Opening Br.
at 46. However, the citations PMAA provides in this
section refer to a detector program provided by ASUS to
Winbond in January 2000, which is the very IFDC.exe
program and 1999-2000 timeframe PMAA seeks to dis-
claim. Any listed citations that do not relate to IFDC.exe
do not appear to implicate ASUS at all. See Trial Ex. 29 at
J.A.7281 (regarding testing efforts undertaken by Win-
bond using test software provided by ASUS in January
2000); Trial Ex. 30 at J.A.7299 (referring to the same);
ADAMS & ASSOC v. DELL COMPUTER 11
evidence is insufficient to show infringement within the
United States during the six years before the infringe-
ment claim was filed.
With respect to the first category of evidence, PMAA
submitted evidence showing that ASUS’s IFDC.exe pro-
gram infringed the ’002 patent. PMAA argues ASUS’s
use of the IFDC.exe program within the United States is
sufficient to support a jury verdict of infringement under
35 U.S.C. § 271(a). However, evidence of the IFDC.exe
program is limited to the 2000 time period, over six years
before PMAA filed its claim for patent infringement
against ASUS.
Title 35 U.S.C. § 286 sets forth a limitation on dam-
ages:
Except as otherwise provided by law, no recovery
shall be had for any infringement committed more
than six years prior to the filing of the complaint
or counterclaim for infringement in the action.
In applying this section, “one starts from the filing of a
complaint or counterclaim and counts backward to deter-
mine the date before which infringing acts cannot give
rise to a right to recover damages.” Standard Oil Co. v.
Nippon Shokubai Kagaku Kogyo Co., Ltd., 754 F.2d 345,
348 (Fed. Cir. 1985) (emphases in original). Here, PMAA
may not recover for infringing acts taking place before
May 3, 2001, six years before it brought suit against
ASUS. PMAA provided evidence that the IFDC.exe
Trial Ex. 35 at 7303 (referring to same); Trial Ex. 84 at
7325 (referring to same); Trial Ex. 369 at J.A.7472 (refer-
ring to same); Trial Ex. 98 at J.A.7335 (emails primarily
between Winbond and HP employees, one of which was
sent to ASUS employees but otherwise making no refer-
ence to ASUS); Trial Ex. 155 at J.A.7357 (same).
12 ADAMS & ASSOC v. DELL COMPUTER
program was completed in 2000, and was sent to Winbond
and HP on January 27, 2000. ASUS employees may have
used the IFDC.exe program on HP products during a trip
to Cupertino, California in early 2000. These events all
occurred in 2000, over six years before PMAA filed suit
against ASUS. Accordingly, the IFDC.exe evidence
cannot form the basis for the jury verdict of infringe-
ment. 10
With respect to PMAA’s second category of evidence,
PMAA presented testimony that ASUS engaged in certifi-
cation testing of its motherboards, including stress tests,
Federal Communications Commission certification tests,
European Conformity certifications tests, and Windows
operating system compliance tests. PMAA argues this
certification testing infringed the ’002 patent and that
ASUS’s motherboards were “made by” this allegedly
infringing testing such that importation of the mother-
10 ASUS filed U.S. Patent Application 09/976,063
(“the ’063 application”) on October 15, 2001, entitled
Method for Preventing Data Corruption by a Floppy
Diskette Controller, but abandoned it in 2005. PMAA
argues that “[b]ecause of the great deal of evidence spoliat-
ed by ASUS, and the related jury instruction, the jury was
free to infer that [the infringing IFDC.exe] testing had
occurred in the United States up until at least 2005 when
ASUS finally abandoned its U.S. patent application.”
PMAA’s Opening Br. at 49-50 (emphasis added). Howev-
er, even this argument appears to concede that, absent
the adverse inference jury instruction, it is not reasonable
to infer the existence of infringing testing based solely on
the prosecution of a patent application. See Sunward
Corp. v. Dun & Bradstreet, Inc., 811 F.2d 511, 521 (10th
Cir. 1987) (“Although a jury is entitled to draw reasonable
inferences from circumstantial evidence, reasonable
inferences themselves must be more than speculation and
conjecture.”).
ADAMS & ASSOC v. DELL COMPUTER 13
boards into the United States constituted infringement
under 35 U.S.C. § 271(g). However, this argument fails
on two counts. First, the record does not show that the
certification testing constituted infringement of the ’002
patent. When asked on cross examination whether any of
the certification testing ran a detector program to reveal
an FDC defect and thereby infringed the ’002 patent,
PMAA’s expert Dr. Kraft testified that such proof was “in
a test report.” J.A.4698. Dr. Kraft then admitted that “if
it [was] not in the test report . . . , then [he had] no evi-
dence.” Id. In its brief, PMAA does not assert that the
referenced test report had any such information, but
simply argues that the certification testing logically must
include FDC testing. The fact that ASUS’s certification
testing comprehensively tested all parts of the machine
does not show that ASUS infringed the ’002 patent by
forcing a data underrun to detect an FDC defect.
Second, even assuming the certification testing consti-
tuted infringement of the ’002 patent, the motherboards
were not “made by” the certification testing pursuant to
35 U.S.C. § 271(g). The mere “production of information
is not covered” by § 271(g). Bayer AG v. Housey Pharm.,
Inc., 340 F.3d 1367, 1377 (Fed. Cir. 2003). PMAA’s argu-
ment that ASUS’s certification testing was “integrated
into ASUS’[s] manufacturing process” is thus unpersua-
sive. PMAA’s Opening Br. at 57. Rather, the certification
testing constituted mere “production of information” that
ASUS’s motherboards were or were not compliant with
certification standards. Accordingly, certification testing
was not part of the process to “make” the motherboards.
PMAA thus cannot show that ASUS’s importation of
motherboards into the United States constitutes in-
fringement under § 271(g). 11
11 ASUS also argues that Winbond’s post-verdict
settlement agreement with PMAA releases ASUS from
infringement liability. This settlement agreement grant-
14 ADAMS & ASSOC v. DELL COMPUTER
In sum, PMAA has failed to present substantial evi-
dence of infringement within the United States after May
3, 2001. Accordingly, the district court erred in denying
ASUS’s post-verdict motion for JMOL, and this court
reverses that determination.
II. PMAA’S CROSS APPEAL
PMAA cross appeals the grant of summary judgment
dismissing its trade secrets claim for untimeliness and
the denial of its motion for attorney fees under 38 U.S.C. §
285.
1. THE DISTRICT COURT CORRECTLY GRANTED SUMMARY
JUDGMENT DISMISSING PMAA’S TRADE SECRETS CLAIM FOR
UNTIMELINESS
This court reviews the grant of a motion for summary
judgment under the law of the regional circuit. The Tenth
Circuit subjects the grant of summary judgment to de
novo review. Lundstrom v. Romero, 616 F.3d 1108, 1118
(10th Cir. 2010). Summary judgment is appropriate only
if “the movant shows that there is no genuine dispute as
to any material fact and the movant is entitled to judg-
ment as a matter of law.” Fed. R. Civ. P. 56(a).
ed Winbond a retroactive license covering Winbond-made
chips. ASUS contends this settlement releases ASUS, as
a customer of Winbond Super I/O chips, from all liability
to PMAA relating to ASUS’s purchase of Winbond prod-
ucts. PMAA, however, maintains that ASUS’s infringing
testing was not limited to Winbond products, and that the
Winbond settlement would not release ASUS for ASUS’s
independent liability. Even assuming PMAA’s argument
is correct, PMAA has failed to present substantial evi-
dence to support a finding of any such independent in-
fringement by ASUS in the United States during the
relevant time period.
ADAMS & ASSOC v. DELL COMPUTER 15
The Utah Uniform Trade Secrets Act (“Trade Secrets
Act”) provides that “[a]n action for [trade secret] misap-
propriation shall be brought within three years after the
misappropriation is discovered or, by the exercise of
reasonable diligence, should have been discovered.”
Utah Code Ann. § 13-24-7 (LexisNexis 2012). The Utah
Supreme Court has interpreted such language to estab-
lish a “statutory discovery rule,” under which a statute of
limitations is triggered “when a plaintiff first has actual
or constructive knowledge of the relevant facts forming
the basis of the cause of action.” Russell Packard Dev.,
Inc. v. Carson, 108 P.3d 741, 746 (Utah 2005).
The district court found that PMAA had constructive
knowledge of its trade secrets claim against ASUS by
March 4, 2004—over three years before PMAA filed its
cross claim against ASUS on May 3, 2007—when PMAA’s
lawyer sent an email to Winbond implicating both Win-
bond and ASUS in “potential theft” of PMAA’s patented
programs (“the March 4th email”). J.A.3174. The March
4th email stated:
[W]e discovered this past week that Gateway
somehow obtained an unauthorized copy of Dr.
Adams’ Detector from Quanta in 2000-2001. We
believe that Winbond also obtained or had posses-
sion of a copy of Dr. Adams’ Detector and related
programs. . . .
[W]e have also learned that Gateway claims that
Winbond’s detector (test utility) was actually ob-
tained from ASUS, who developed the test utility
from an IBM supplied design. These two files,
ifdc.exe and w2sec.exe, constitute the Winbond
test utility. Due to the legal ramifications and po-
tential theft involved, we would appreciate a copy
of these files immediately so that we can exoner-
ate your client.
16 ADAMS & ASSOC v. DELL COMPUTER
J.A.3174 (emphases added). The district court deter-
mined that this email reflected PMAA’s knowledge “that
ASUS had developed a utility that was a ‘potential theft’
of what [PMAA] claims to be trade secrets.” Summary
Judgment Op. at 5. Accordingly, the district court found
the statute of limitations was triggered on March 4, 2004,
and had expired by May 3, 2007, when PMAA filed its
claim against ASUS. Id. at 5-6.
PMAA argues the district court erred in granting
summary judgment because at the time of the email
“there was no evidence . . . that ASUS (1) had used
PMAA’s trade secrets, and (2) knew or had reason to
know that it was not in rightful possession of the infor-
mation.” 12 PMAA’s Opening Br. at 64. However, consid-
eration of the elements of a trade secrets claim confirms
the district court’s conclusion that the March 4th email
shows constructive knowledge sufficient to trigger the
statute of limitations.
The Trade Secret Act provides that “a complainant is
entitled to recover damages for misappropriation.”
Utah Code Ann. § 13-24-4 (LexisNexis 2012). Misappro-
priation is defined as follows:
(a) acquisition of a trade secret of another by a
person who knows or has reason to know that the
trade secret was acquired by improper means; or
12 In arguing that its trade secrets claim was not un-
timely, PMAA focuses on the district court’s earlier cau-
tioning that “‘reliance on third-hand information is
inappropriate.’” PMAA’s Opening Br. at 63 (quoting
J.A.3886.275). However, the district court’s statement
regarding third-hand information was chastising another
party for nonproduction of requested evidence in discov-
ery, not cautioning PMAA about when to file its trade
secrets claim.
ADAMS & ASSOC v. DELL COMPUTER 17
(b) disclosure or use of a trade secret of another
without express or implied consent by a person
who:
(i) used improper means to acquire knowledge
of the trade secret; or
(ii) at the time of disclosure or use, knew or
had reason to know that his knowledge of the
trade secret was:
(A) derived from or through a person who
had utilized improper means to acquire it;
(B) acquired under circumstances giving
rise to a duty to maintain its secrecy or
limit its use; or
(C) derived from or through a person who
owed a duty to the person seeking relief to
maintain its secrecy or limit its use. . . .
Utah Code Ann. § 13-24-2(2) (LexisNexis 2012). The
March 4th email reflects PMAA’s knowledge that ASUS
obtained or developed a copy of Dr. Adams’s Detector from
IBM and provided it to Winbond. See March 4th email at
J.A.3174 (alleging Winbond had a “copy of Dr. Adams’[s]
Detector” and that it had obtained such detector from
ASUS, “who developed the test utility from an IBM sup-
plied design.”). This is adequate to show constructive
knowledge of misappropriation pursuant to the Trade
Secrets Act. That is, if IBM was authorized to have the
detector, ASUS’s disclosure to Winbond would constitute
“disclosure” of a trade secret that was “derived from or
through a person who owed a duty to the person seeking
relief to maintain its secrecy or limit its use.”
Utah Code Ann. § 13-24-2(2)(b)(ii)(C) (LexisNexis 2012).
If, on the other hand, IBM was not authorized to have the
programs, ASUS’s acquisition was prohibited misappro-
priation, and its disclosure to Winbond was “derived from
or through a person who had utilized improper means to
18 ADAMS & ASSOC v. DELL COMPUTER
acquire it.” Id. § 13-24-2(2)(a),(b)(ii)(A) (LexisNexis 2012).
PMAA’s contention that it did not know whether ASUS
“used” the misappropriated detector program is thus
inapposite, because the March 4th email reflects sufficient
knowledge to meet the elements of misappropriation in a
variety of ways.
Additionally, PMAA’s argument that it had no infor-
mation of ASUS’s state of mind does not defeat PMAA’s
constructive knowledge of facts sufficient to make up its
trade secrets claim. The statutory discovery rule “does
not allow plaintiffs to delay filing suit until they have
ascertained every last detail of their claims.” McCollin v.
Synthes Inc., 50 F. Supp. 2d 1119, 1124 (D. Utah 1999);
see also id. (quoting United Park City Mines Co. v. Greater
Park City Co., 870 P.2d 880, 889 (Utah 1993)) (“‘All that is
required [to trigger the statute of limitations] is . . .
sufficient information to apprise [the plaintiff of the
underlying cause of action] so as to put them on notice to
make further inquiry if they harbor doubts or questions’
about the defendant’s actions.”) (alterations in
McCollin). 13 Additionally, the fact that ASUS did not
admit it had stolen PMAA’s trade secrets when ques-
tioned, PMAA’s Opening Br. at 69, does not defeat
PMAA’s “constructive knowledge” of facts sufficient to
make up its trade secrets claim. Statutes of limitations
would be rendered meaningless if claims did not accrue
until the potential defendant admitted wrongdoing.
In sum, there is no genuine issue of material fact that
PMAA had constructive knowledge of its trade secrets
13 With respect to state of mind, the Utah Su-
preme Court has held that constructive notice of a fraud
claim was shown as a matter of law by a letter in which
plaintiffs accused defendant of the underlying fraudulent
conduct, even though the letter did not make allegations
regarding defendant’s state of mind. Allred ex rel. Jensen
v. Allred, 182 P.3d 337, 345 (Utah 2008).
ADAMS & ASSOC v. DELL COMPUTER 19
claim by March 4, 2004, more than three years before it
brought its claim against ASUS on May 3, 2007. The
district court’s grant of summary judgment is thus af-
firmed.
2. THE DISTRICT COURT DID NOT ABUSE ITS DISCRETION IN
DENYING ATTORNEY FEES
The district court found that ASUS’s litigation mis-
conduct relating to its spoliation of the IFDC.exe source
code made the case “exceptional” under 35 U.S.C. § 285.
Attorney Fees Op. at 5. However, the court declined to
grant attorney fees to penalize such spoliation, having
already imposed an adverse inference sanction for the
same conduct. Id. On appeal, PMAA argues this denial of
attorney fees was an abuse of discretion.
“A district court abuses its discretion when ‘its deci-
sion is based on clearly erroneous findings of fact, is based
on erroneous interpretations of the law, or is clearly
unreasonable, arbitrary or fanciful.’” Forest Labs., Inc. v.
Abbott Labs., 339 F.3d 1324, 1328 (Fed. Cir. 2003) (quot-
ing Cybor Corp. v. FAS Techs., 138 F.3d 1338, 1460 (Fed.
Cir. 1998)). None of these situations is present here. To
the contrary, it was reasonable for the district court to
decide against imposing two different penalties for the
same conduct. Furthermore, this court’s determination
with respect to ASUS’s motion for JMOL of noninfringe-
ment means that PMAA is no longer a “prevailing party”
in the case, making attorney fees under § 285 inappropri-
ate. 35 U.S.C. § 285 (“The court in exceptional cases may
award reasonable attorney fees to the prevailing party.”)
(emphasis added).
CONCLUSION
For the foregoing reasons, this court reverses the dis-
trict court’s imposition of an adverse inference sanction,
and its denial of ASUS’s motion for JMOL. However, the
grant of summary judgment dismissing PMAA’s trade
20 ADAMS & ASSOC v. DELL COMPUTER
secrets claim and the denial of attorney fees under 35
U.S.C. § 285 are affirmed.
REVERSE-IN-PART and AFFIRM-IN-PART | 01-03-2023 | 03-18-2013 |
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