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https://www.courtlistener.com/api/rest/v3/opinions/1537830/ | 918 A.2d 82 (2007)
COMMONWEALTH of Pennsylvania, Appellant
v.
Troy MULLINS, Appellee.
Supreme Court of Pennsylvania.
Argued October 17, 2005.
Decided March 26, 2007.
*83 Hugh J. Burns, Jr., Philadelphia Dist. Attorney's Office, Molly Beth Selzer, for the Com. of PA. appellant.
Peter J. Lesh, Doylestown, for Troy Mullins, appellee.
BEFORE: CAPPY, C.J., CASTILLE, NIGRO, NEWMAN, SAYLOR, EAKIN AND BAER, JJ.
OPINION
Justice EAKIN.
The Superior Court reversed the revocation of appellee's probation and vacated his judgment of sentence because it determined the record did not establish a basis for doing so. We reverse and remand for a new violation of probation (VOP) hearing.
On March 6, 2000, appellee pled guilty to possession of a controlled substance with intent to deliver (PWID) before the Honorable Gregory Smith, who sentenced him to 11½ to 23 months imprisonment, followed by three years probation. He was paroled February 28, 2001. On April 6, 2001, appellee was arrested and charged with PWID. On June 5, 2001, he pled guilty to that charge before the Honorable Sheila Woods-Skipper, and was sentenced to one and one-half to three years imprisonment.
On June 24, 2003, appellee appeared before Judge Smith for a VOP hearing. Appellee's probation officer appeared at the hearing, presented Judge Smith with a hearing summary sheet, and adopted the information in the hearing summary sheet as his testimony.[1] The probation officer also testified appellee had been on probation imposed by the Honorable Teresa Sarmina, who had revoked that probation and sentenced appellee to one and one-half to three years imprisonment. The court found appellee directly violated his probation. Appellee testified during the sentencing phase of the hearing, specifically acknowledging he was caught selling drugs while on parole. The court then sentenced appellee to one and one-half to three years imprisonment to run consecutively to the other sentences he was serving.
Appellee appealed, arguing there was insufficient competent evidence to support the revocation of his probation. The Superior Court reversed the probation revocation rather than remanding for a new VOP *84 hearing, and vacated the judgment of sentence. It stated the trial court revoked appellee's probation based on the hearing summary sheet even though the hearing summary sheet was not entered into evidence and is not part of the record.[2]Commonwealth v. Mullins, No. 2178 EDA 2003, 859 A.2d 833, unpublished memorandum at 2 (Pa.Super. filed July 21, 2004). It also stated there was "[n]o testimony . . . offered regarding [appellee's] actions while on probation, or his failure to abide by the terms of his probation." Id. The court concluded there was simply nothing in the record to support the determination that appellee violated his probation terms.
The Commonwealth sought allowance of appeal, which we granted to determine whether the Superior Court exceeded its authority in vacating appellee's sentence without remanding for a new VOP hearing. This is a question of law; therefore, our scope of review is plenary, and our standard of review is de novo. Commonwealth v. Cousin, 585 Pa. 287, 888 A.2d 710, 714 (2005).
The Commonwealth argues the Superior Court disposed of this case as if it were a challenge to the sufficiency of the evidence for a finding of guilt beyond a reasonable doubt; in such cases, the appropriate remedy "is an arrest of judgment, and not a remand for a new trial, because the Double Jeopardy Clause of the Fifth Amendment of the United States Constitution has been interpreted to forbid a new trial in those circumstances." Commonwealth's Brief, at 9 (citing Lockhart v. Nelson, 488 U.S. 33, 39, 109 S.Ct. 285, 102 L.Ed.2d 265 (1988)). The Commonwealth argues, however, that a VOP hearing is not a trial, and "the Double Jeopardy Clause is . . . not implicated when a defendant is lawfully recommitted following a violation of probation or parole." Id., at 10 (citing Commonwealth v. Pierce, 497 Pa. 437, 441 A.2d 1218, 1220 (1982); Commonwealth v. Colding, 482 Pa. 112, 393 A.2d 404, 407 (1978)). The Commonwealth argues that when proper evidentiary procedures are not followed in a VOP hearing, the appropriate remedy is to vacate the revocation and remand for a new VOP hearing.[3]Id., at 11.
Appellee argues a remand for a new hearing allows the Commonwealth to re-litigate the hearing when it failed to adduce sufficient competent evidence of a direct probation violation in the first instance. He contends there should be no second bite at the proverbial apple. He argues Commonwealth v. Akridge, 275 Pa.Super. 513, 419 A.2d 18 (1980), rev'd, 492 Pa. 90, 422 A.2d 487 (1980), "is a paradigm of the facts and legal issues arising in the [Commonwealth's] case. . . ." Appellee's Brief, at 10. Although acknowledging Akridge involves a speedy trial hearing, while this case involves a VOP hearing, appellee asserts both cases present *85 the same issuewhether the Commonwealth should be afforded multiple opportunities to meet its burden.
The Double Jeopardy Clause bars retrial after a defendant's conviction has been overturned because of insufficient evidence. Burks v. United States, 437 U.S. 1, 14-15, 18, 98 S.Ct. 2141, 57 L.Ed.2d 1 (1978); United States v. Leppo, 634 F.2d 101, 103 (3d Cir.1980); Commonwealth v. Vogel, 501 Pa. 314, 461 A.2d 604, 610 (1983).[4] However, the double jeopardy considerations present in the context of retrial are not present in the situation at hand.
A VOP hearing differs from a trial, as probation and parole are not part of the criminal prosecution; the full panoply of rights due a defendant in a criminal trial does not apply at a VOP hearing. Commonwealth v. Holder, 569 Pa. 474, 805 A.2d 499, 503 (2002) (plurality) (citing Gagnon v. Scarpelli, 411 U.S. 778, 781, 93 S.Ct. 1756, 36 L.Ed.2d 656 (1973)). Probation revocation is not a second punishment for the original conviction, but rather is an integral element of the original conditional sentence, and thus does not violate the Double Jeopardy Clause. Pierce, at 1220; see also Colding, at 408 ("[W]e perceive no double jeopardy prohibition against imposition of a sentence which is more severe than that originally vacated when a[sic] intervening sentence of probation has been violated.").
The primary concern of probation, as well as parole, is the rehabilitation and restoration of the individual to a useful life. Commonwealth v. Marchesano, 519 Pa. 1, 544 A.2d 1333, 1336 (1988). It is a suspended sentence of incarceration served upon such lawful terms and conditions as imposed by the sentencing court. See Commonwealth v. Walton, 483 Pa. 588, 397 A.2d 1179, 1184-85 (1979). It requires only "a truncated hearing by the sentencing court to determine whether probation remains rehabilitative and continues to deter future antisocial conduct." Holder, at 504 (citations omitted). "[T]he purpose of the revocation hearing is simply to establish to the satisfaction of the judge who granted probation that the individual's conduct warrants his continuing as a probationer." Commonwealth v. Kates, 452 Pa. 102, 305 A.2d 701, 710 (1973). The controlling consideration at a VOP hearing is "whether the facts presented to the court are probative and reliable and not whether traditional rules of procedure have been strictly observed." Marchesano, at 1336 (citations omitted). "Such a hearing takes place without a jury, with a lower burden of proof, and with fewer due process protections." Holder, at 504 (citations omitted); see also Kates, at 710.
The Superior Court has consistently remanded for new VOP hearings when probation revocations are vacated due to insufficient evidence. In Commonwealth v. Sims, 770 A.2d 346 (Pa.Super.2001), the court reversed the appellant's probation revocation and remanded for a new revocation hearing because the Commonwealth offered no proof the appellant violated probation. Id., at 353. Likewise, in Commonwealth v. Homoki, 413 Pa.Super. 490, 605 A.2d 829 (1992), the court reversed the appellant's probation revocation and remanded for a new revocation hearing because *86 proper procedures were not followed in the original revocation proceeding. Id., at 831; see also Commonwealth v. Maye, 270 Pa.Super. 406, 411 A.2d 783, 786 (1979) (reversal of probation revocation and remand for new revocation hearing because insufficient competent evidence offered by Commonwealth). But see Commonwealth v. Griggs, 314 Pa.Super. 407, 461 A.2d 221, 225 (1983) (reversal of probation revocation and remand with instructions to reinstate original probation order because not enough evidence to justify revocation offered at VOP hearing).
Akridge is distinguishable from the matter before us. In Akridge, the appellant argued his motion in arrest of judgment should have been granted because he was not brought to trial within 180 days as Pa.R.Crim.P. 1100 required.[5]Akridge, 419 A.2d at 19. He alleged extensions of time were granted improperly because the Commonwealth failed to show it exercised due diligence. Id. The Superior Court remanded for an evidentiary hearing because the Commonwealth did not present evidence to support its assertions of due diligence. Id., at 21. In a per curiam order, this Court reversed the Superior Court's order and directed the appellant be discharged. We stated "such a remand for a `second bite' of the Commonwealth's evidentiary burden on the `due diligence' requirement of Rule 1100 is in contradiction to the mandates we set forth in Commonwealth v. Ehredt, [485 Pa. 191, 401 A.2d 358 (1979)]."[6]Akridge, 422 A.2d at 487.
Akridge involves the promptness of bringing a presumptively innocent defendant to trial. The matter at hand involves a conditional part of an already imposed sentence. These matters are clearly different, and thus Akridge is not controlling here.[7]
The potential for a VOP hearing is an integral part of the original conditional sentence, the purpose of which is to establish to the satisfaction of the court that granted probation, that the individual's conduct warrants continuing him as a probationer. See Kates, at 710. Even where the VOP hearing record is insufficient to sustain revocation of probation, this purpose should not be frustratedthe court that granted probation should not be precluded from determining whether probation remains the proper course only because the Commonwealth failed to include certain formalities in the record. Probation is given by grace, not by right. To hold the Double Jeopardy Clause is somehow implicated at a VOP hearing would elevate something of grace to the status of constitutional dimension.
The nature of VOP hearings constrains us to hold the Superior Court exceeded its authority in diverting from it's prior precedent and vacating appellee's sentence without remanding for a new VOP hearing. The decision of the Superior Court is reversed, *87 and we remand for a new VOP hearing.
Order reversed. Jurisdiction relinquished.
Former Justices NIGRO and NEWMAN did not participate in the decision of this case.
Justices CASTILLE and BAER join the opinion.
Chief Justice CAPPY files a concurring opinion in which Justice SAYLOR joins.
Chief Justice CAPPY concurring.
I join the majority's holding that, under these facts, the matter be remanded for a new violation of probation (VOP) hearing.[1] I write separately, however, because I fear that the majority opinion can be misconstrued as enunciating a per se rule requiring a remand to the trial court for a new VOP hearing in each instance where the VOP hearing record is insufficient to support revocation of probation. Upon disposition of an appeal, an appellate tribunal has an array of options available. 42 Pa. C.S. § 706. Accordingly, I cannot endorse the articulation of a bright-line rule that restricts those options. See e.g., Commonwealth v. Griggs, 314 Pa.Super. 407, 461 A.2d 221 (1983)(Superior Court vacated the judgment of sentence of revocation when the finding of participation in criminal activity was not substantiated at the VOP hearing).
Justice SAYLOR joins this concurring opinion.
NOTES
[1] The trial court stated the summary sheet contained information regarding appellee's March 6, 2000, and June 5, 2001 convictions. Trial Court Opinion, 12/12/03, at 2.
[2] The Superior Court failed to acknowledge the probation officer adopted the hearing summary sheet as his testimony at the VOP hearing. See N.T. VOP Hearing, 6/24/03, at 4. However, we are not reviewing the sufficiency of the record here, but rather the appropriate procedure if insufficiency is found.
[3] The Commonwealth acknowledges there may be situations where remand is not appropriate, such as where a VOP hearing is not held in a timely manner and the delay prejudices the probationer, Commonwealth's Brief, at 12 (citing Commonwealth v. Stancil, 362 Pa.Super. 276, 524 A.2d 505 (1987); Commonwealth v. McCain, 320 Pa.Super. 394, 467 A.2d 382 (1983); Commonwealth v. Smith, 266 Pa.Super. 234, 403 A.2d 1326 (1979); Commonwealth v. Young, 262 Pa.Super. 253, 396 A.2d 741 (1978)), and where the revocation court lacks jurisdiction to revoke parole, id. (citing Commonwealth v. Call, 249 Pa.Super. 511, 378 A.2d 412 (1977)). None of these are present instantly.
[4] This Court has stated the Double Jeopardy Clause in the Pennsylvania Constitution "differs only stylistically from that contained in the Fifth Amendment [of the Federal Constitution]." Commonwealth v. Hogan, 482 Pa. 333, 393 A.2d 1133, 1137 (1978) (citations omitted). Further, this Court stated, "there is no basis for suggesting . . . the framers of our Constitution intended to provide a greater protection [under our double jeopardy clause] than that afforded under the Fifth Amendment." Id., at 1138.
[5] Rule 1100 has been renumbered as Pa. R.Crim.P. 600.
[6] In Ehredt, this Court reversed the judgment of sentence and discharged the appellant since the Commonwealth did not establish it acted with "due diligence" in commencing his trial under then Rule 1100. Ehredt, at 360-61.
[7] Appellee also relies on United States v. Matthews, 240 F.3d 806 (9th Cir.2000); United States v. Dickler, 64 F.3d 818 (3d Cir.1995); United States v. Leonzo, 50 F.3d 1086 (D.C.Cir.1995); and United States v. Parker, 30 F.3d 542 (4th Cir.1994) to support his argument. These cases, like Akridge, do not involve VOP hearings. A VOP hearing is a unique process, which gives the court flexibility in sentencing, making these cases inapplicable.
[1] Although, as the majority notes, the issue of sufficiency of the evidence is not before us, I nevertheless agree with the majority's intimation that the evidence presented at the VOP hearing was, indeed, sufficient to support revocation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1537839/ | 918 A.2d 1266 (2007)
173 Md. App. 370
Richard A. DOYLE et al.
v.
FINANCE AMERICA, LLC.
No. 540, September Term, 2006.
Court of Special Appeals of Maryland.
March 15, 2007.
*1268 John A. Mattingly, Jr., Lexington Park, M.D., for appellant.
Brian L. Moffet, Baltimore, for appellee.
Panel EYLER, JAMES R., ADKINS, THIEME, RAYMOND G. JR. (Retired, specially assigned), JJ.
THIEME, J.
This case arises from a dispute over the collection of interest associated with a mortgage loan. Appellants, Richard A. Doyle and Ruth M. Doyle, brought suit against appellee, Finance America, LLC, to recover the interest.[1] The Circuit Court for Montgomery County granted appellee's motion to compel arbitration and stayed appellants' suit pending arbitration.
Appellants challenge the court's ruling that arbitration is required and present a series of questions to this Court, which we have consolidated and rewritten as follows:[2]
I. Does the plain language of the arbitration agreement prevent litigation from being pursued before a circuit court?
II. Does the arbitration agreement permit appellants to choose whether to proceed in arbitration or in court?
III. Is the arbitration agreement void on policy grounds?
Is the arbitration agreement unconscionable?
*1269 Finding no error, we shall affirm the decision of the circuit court.
FACTUAL AND PROCEDURAL HISTORY
Appellants secured a mortgage loan from appellee for the purchase of a new home. Settlement for the residence was to take place on April 26, 2004. On that day, the parties executed a Dispute Resolution Agreement (the "Agreement"), which states, in part:
Maintaining good relationships with our loan applicants and borrowers, is very important to us at Finance America, LLC (hereinafter referred to as "Lender"). We ask you to contact us immediately if you have a problem with a loan application or loan transaction with us. Often, a telephone call to us will resolve the matter amicably and as quickly as possible. However, if you and we are not able to resolve our differences informally, you and we agree that any dispute, regardless of when it arose, shall be resolved, at your option or ours, by arbitration in accordance with this agreement.
* * *
Only disputes involving you and us may be addressed in the arbitration. The arbitration shall not address any dispute on a "class wide" basis nor shall it be consolidated with any other arbitration proceeding. This means that the arbitration will not address disputes involving other persons that may be similar to the disputes between you and us.
Appellants assert that appellee failed to disburse the loan proceeds until April 27, 2004 the day following settlement. Appellants filed suit in circuit court to recover damages from appellee, pursuant to Maryland Code Annotated (1974, 2003 Repl.Vol.), § 7-109 of the Real Property Article. Appellee filed a motion to dismiss and motion to compel arbitration. After a hearing on the motions, appellee's motion to compel arbitration was granted and the case was stayed, pending an outcome in arbitration. This appeal followed.
STANDARD OF REVIEW
The circuit court's order, compelling arbitration, is appropriate where a valid and enforceable arbitration agreement exists. Holmes v. Coverall North America, Inc., 336 Md. 534, 546, 649 A.2d 365 (1994). As a question of law, whether a valid and enforceable arbitration agreement exists will be reviewed de novo. Holloman v. Circuit City Stores, Inc., 391 Md. 580, 588, 894 A.2d 547 (2006).
DISCUSSION
The Agreement states that "arbitration shall be governed by the Federal Arbitration Act." The Federal Arbitration Act ("FAA") is set forth under Title 9 of the United States Code. Section 2 of the Act states that an arbitration clause will not be enforceable where "any grounds . . . for the revocation of any contract" apply. Because state courts "are not bound by the federal procedural provisions of the FAA," our enforcement of Section 2 requires that we "look to the pertinent Maryland law" for guidance. Walther v. Sovereign Bank, 386 Md. 412, 423, 872 A.2d 735 (2005). The Maryland Uniform Arbitration Act ("MUAA") is codified under Maryland Code Annotated (1974, 2006 Repl.Vol.), §§ 3-201 et seq. of the Courts and Judicial Proceedings Article ("CJ").
I. Plain Language of the Agreement
The interpretation of a contract is a question of law and subject to de novo review. United Servs. Auto. Ass'n v. Riley, 393 Md. 55, 79, 899 A.2d 819 (2006). On review, we shall examine the language of the contract objectively. 8621 Ltd. P'ship v. LDG, Inc., 169 Md.App. 214, 226, *1270 900 A.2d 259 (2006). "`Where the language of the contract is unambiguous, its plain meaning will be given effect. There is no need for further construction.'" Spengler v. Sears, Roebuck & Co., 163 Md.App. 220, 239, 878 A.2d 628 (2005).
Appellants argue that the Agreement is a contract of adhesion and thus must be viewed with heightened scrutiny; any ambiguity must be resolved against appellee.[3] Appellants assert that the plain language of the Agreement does not require arbitration of their claim for two reasons. First, the Agreement requires the parties to attempt an "informal resolution" prior to arbitration. This failed to occur. Second, the Agreement does not prohibit class actions from being pursued in the circuit court.
A. Informal Resolution
The introductory paragraph of the Agreement reads as follows:
Maintaining good relationships with our loan applicants and borrowers, is very important to us at Finance America, LLC (hereinafter referred to as "Lender"). We ask you to contact us immediately if you have a problem with a loan application or loan transaction with us. Often, a telephone call to us will resolve the matter amicably and as quickly as possible. However, if you and we are not able to resolve our differences informally, you and we agree that any dispute, regardless of when it arose, shall be resolved, at your option or ours, by arbitration in accordance with this agreement.
(Emphasis added.)
Appellants assert that the word "if" creates a condition that must be satisfied prior to arbitration; specifically, an attempt must be made to informally resolve any problems that arise, prior to arbitration. We do not read the Agreement to contain such a requirement.
When all four sentences of the introductory paragraph are read together, it is clear that the Agreement recommends, but does not require, that disputes be resolved through informal means. The first sentence acknowledges appellee's desire to maintain "good relationships" with its borrowers. The second sentence simply "ask[s]," aggrieved borrowers to contact appellee when a problem arises it does not "require" borrowers to contact appellee. The third sentence suggests that placing a telephone call to appellee might "resolve the matter amicably" it does not require borrowers to place a telephone call. The fourth sentence merely recognizes that problems are not always resolved informally and, if the borrower and appellee "are not able to resolve [their] differences informally," arbitration must proceed.
*1271 We also note that appellants are the moving party in this case and chose to initiate formal proceedings in the circuit court. Contrary to the advice and suggestion in the Agreement, appellants determined to forgo any attempts at resolving the matter amicably through informal means and filed a complaint against appellee. In essence, appellants have waived their ability to challenge the arbitration provision on this ground.
Appellants rely on Wells v. Chevy Chase Bank, F.S.B., 363 Md. 232, 768 A.2d 620 (2001), for the proposition that a condition precedent contained in an arbitration agreement must be satisfied prior to proceeding with arbitration. Because we have already determined that the Agreement between appellants and appellee does not contain a condition precedent, Wells is inapposite.[4]
B. Class Action Law Suits Are Barred
Appellants also claim that arbitration is not required because they are properly pursuing a class action in the circuit court. Appellants assert that the Agreement only limits their opportunity to file a class action in arbitration, leaving open the option to file a class action in the circuit court.
The portion of the Agreement relating to class action proceedings states as follows:
Only disputes involving you and us may be addressed in the arbitration. The arbitration shall not address any dispute on a "class wide" basis nor shall it be consolidated with any other arbitration proceeding. This means that the arbitration will not address disputes involving other persons that may be similar to the disputes between you and us.
This paragraph must be read in conjunction with the sentence that requires arbitration: "[Y]ou and we agree that any dispute, regardless of when it arose, shall be resolved, at your option or ours, by arbitration in accordance with this agreement."
The plain language of the Agreement requires that any dispute arising out of or in any way related to the loan shall be resolved by arbitration.[5] Therefore, if the Agreement bars the filing of a class action claim in arbitration, there can be no filing of a class action claim at all. Appellants contend that, without a blanket or general restriction on class action suits, they may proceed with a class action in the circuit court. Although it may have been wise to expressly include a "no-class-action" provision in the Agreement,[6] we cannot say that appellee's failure to do so renders the class action provision in the Agreement any less clear.
II. Arbitration Is Not Permissive
Appellants contend that the arbitration provision "is permissive" because it "allows either party to sue or arbitrate."
*1272 This contention is simply incorrect. The Agreement pellucidly states that "any dispute . . . shall be resolved . . . at your option or ours, by arbitration." (Emphasis added.) Appellants' argument clings for life to the word "option" as though its very presence in the Agreement allows them to bring a suit in the circuit court. Like Hannibal, "Aut viam inveniam aut faciam."[7] To the contrary, either party has the option to proceed in arbitration and once that option is exercised, arbitration is required.
As the moving party, appellants elected to file a lawsuit in the circuit court, which they were entitled to do pursuant to the Agreement. Had appellee preferred that venue, it could have proceeded in circuit court. Appellee desired arbitration, however, and under the plain language of the Agreement, any dispute shall be resolved by arbitration at the option of either party. Having exercised that option, arbitration must proceed.
Appellants take their argument one step further. CJ § 3-207(a) states:
Refusal to arbitrate. If a party to an arbitration agreement described in § 3-202 of this subtitle refuses to arbitrate, the other party may file a petition with a court to order arbitration.
(Emphasis added in bold.) Appellants interpret this provision as requiring appellee to make two requests for arbitration; the first request must be denied by appellants and only after they refuse to arbitrate may the court properly rule on appellee's second request.[8]
We are convinced that CJ § 3-207(a) has been satisfied. We shall not require the parties to jump hurdles that are nonessential to proceed in arbitration, particularly when arbitration is patently mandated under the plain meaning of the Agreement. Under CJ § 3-207(c), "[i]f the court determines that the agreement [to arbitrate] exists, it shall order arbitration. Otherwise, it shall deny the petition." Having found that an arbitration agreement exists, the court ordered arbitration. We concur with that determination.
III. Policy Considerations
An arbitration agreement is valid and enforceable unless grounds exist that would render the arbitration agreement revocable as a contract. CJ § 3-206(a). Appellants assert that the Agreement is invalid and unenforceable for two reasons. First, the Agreement is repugnant to the public policy of Maryland. Second, the Agreement is procedurally and substantively unconscionable. We shall address the unconscionability claim in Part IV of this opinion.
Appellants argue that the Agreement is "nothing more than a thinly veiled exculpatory agreement" that denies consumers access to the courts while preserving appellee's ability to file certain claims in court. In support of their policy argument, appellants note that "the nation's largest funders and guarantors of home loans . . . have . . . banned the use of predispute arbitration provisions." This argument is, in essence, nothing more than a *1273 policy-based assault on the shortcomings of arbitration. Dèjá vu.
In Bel Pre Med. Ctr., Inc. v. Frederick Contractors, Inc., 21 Md.App. 307, 319-20, 320 A.2d 558 (1974), we stated:
The Uniform Arbitration Act constitutes a radical departure from the common law. Executory agreements to arbitrate are to be deemed "valid, irrevocable and enforceable," and suits to compel arbitration or to stay the action of a court pending arbitration may now be brought. The prime purpose of these provisions is to discourage litigation and to foster voluntary resolution of disputes in a forum created, controlled and administered according to the parties' agreement to arbitrate. Thus, by its enactment, the General Assembly established a policy in favor of the settlement of disputes through the arbitration process and ended the ambivalence of courts under the common law. Not only suits to enforce an arbitrator's award, but also suits to compel arbitration and suits to stay court action pending arbitration, are now to be viewed as "favored" actions.
(Internal citations omitted.)
Since our announcement in Bel Pre Med., 21 Md.App. 307, 320 A.2d 558, this Court and the Court of Appeals have continued to recognize the legislative policy favoring enforcement of arbitration agreements. See Questar Homes of Avalon, LLC v. Pillar Constr., Inc., 388 Md. 675, 684, 882 A.2d 288 (2005) (The MUAA "expresses the legislative policy favoring enforcement of agreements to arbitrate." (internal cite omitted)); Holmes, 336 Md. at 541, 649 A.2d 365 ("The same policy favoring enforcement of arbitration agreements is present in both" the MUAA and the FAA.); The Redemptorists v. Coulthard Servs., Inc., 145 Md.App. 116, 150, 801 A.2d 1104 (2002) (Maryland law "reflect[s] a strong public policy in favor of arbitration."); Howard County Bd. of Educ. v. Howard County Educ. Ass'n, Inc., 61 Md. App. 631, 641, 487 A.2d 1220 (1985) (recognizing the legislative policy "in favor of" arbitration agreements); Southern Maryland Hosp. Ctr. v. Edward M. Crough, Inc., 48 Md.App. 401, 406, 427 A.2d 1051 (1981) ("Arbitration is a `favored' process in Maryland.").
We are keenly aware of the opposition to arbitration agreements taken by consumers and consumer-advocates. Nonetheless, arbitration agreements enjoy "favored" status in Maryland. "`The Legislature makes the laws[ and] the Judiciary expounds them. . . .'" Schisler v. State, 394 Md. 519, 582, 907 A.2d 175 (2006) (quoting City of Baltimore v. State, 15 Md. 376, 456 (1860)). The law on this issue is clear, leaving us with nothing to decipher. We shall not entertain a debate that should be directed to the General Assembly.
IV. Unconscionability
Unconscionability is an "extreme unfairness" in the formation or substance of a contract. See Black's Law Dictionary 1560 (8th ed.2004).[9] The Uniform Commercial Code allows a court to modify a contract if the contract, or any of its terms, is unconscionable. U.C.C. § 2-302 (2001). It is problematic, however, that the U.C.C. does not define unconscionability, nor does it provide any guidance as to the factors, circumstances, and standards that should be employed in making such a finding. "Unconscionability is an amorphous concept that evades precise definition. Indeed, it has been said that `[i]t is not possible to define unconscionability. It is not a concept but a determination to be made in light of a variety of factors not *1274 unifiable into formula.'" Coady v. Cross County Bank, No.2005AP2770, 2007 WL 188993 at ¶ 26 (Wis.App. Jan.25, 2007).
The doctrine of unconscionability contains two components, substantive and procedural aspects. Procedural unconscionability concerns deceptive practices employed at the bargaining table. See Holloman, 391 Md. at 603, 894 A.2d 547. Thus procedural unconscionability looks to how the agreement was reached. It relates to the individualized circumstances surrounding each contracting party at the time of contracting. Substantive unconscionability concerns the actual terms of the contract. Id. "The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability." Id. (internal cite omitted). This is also the position taken in Maryland. See, e.g., Walther, 386 Md. at 431, 872 A.2d 735.
A. Procedural Unconscionability
Certain elements of the bargaining process tend to indicate the presence of procedural unconscionability: "overwhelming bargaining strength or use of fine print or incomprehensible legalese may reflect procedural unfairness in that it takes advantage of or surprises the victim of the clause." 8 Richard A. Lord, Williston on Contracts § 18:10 (4th ed.1999). Additional factors include, but are not limited to:
age, education, intelligence, business acumen and experience, relative bargaining power, who drafted the contract, whether the terms were explained to the weaker party, whether alterations in the printed terms would have been permitted by the drafting party, and whether there were alternative providers of the subject matter of the contract.
Wisconsin Auto Title Loans v. Jones, 290 Wis.2d 514, 534-535, 714 N.W.2d 155, 165 (2006). That the arbitration agreement was presented as an adhesion contract is also significant.[10]See Holloman, 391 Md. at 603, 894 A.2d 547; Walther, 386 Md. at 453, 872 A.2d 735.
Appellants claim that the Agreement is procedurally unconscionable because they were only made aware of the need to sign the Agreement on the settlement date, after their loan had already been approved. Because the proceeds of the loan were needed to effectuate the closing, appellants argue that they were constrained to sign the loan, which was presented on a take-it-or-leave-it basis.
A similar argument was presented to the Court of Appeals in Walther, 386 Md. 412, 872 A.2d 735.[11] Petitioners claimed that they "were provided no opportunity to review the [arbitration agreement] on the night of the closing and were provided no opportunity to review the [arbitration agreement] beyond a cursory perusal." Id. at 428, 872 A.2d 735. They also argued "that the arbitration agreement should [have been] set aside because the arbitration clause `was provided on a take-it-or-leave-it basis, with no opportunity for negotiation.'" Id. at 430, 872 A.2d 735.
The appeal presented in Walther was, if anything, more compelling on this issue. The arbitration agreement in Walther is better characterized as an arbitration "clause." The document presented to petitioners at closing contained 17 enumerated paragraphs, the last of which was an arbitration clause. Petitioners claimed, which appellants in this case do not, that they were unaware of the presence of an arbitration clause in the document. The Court responded:
*1275 As this Court stated in the case of Merit Music Service, Inc. v. Sonneborn, 245 Md. 213, 221-22, 225 A.2d 470, 474 (1967), "the law presumes that a person knows the contents of a document that he executes and understands at least the literal meaning of its terms." See also Vincent v. Palmer, 179 Md. 365, 375, 19 A.2d 183, 189 (1941) (stating that, "as a general rule, when one signs a release or other instrument, he is presumed in law to have read and understood its contents, and he will not be protected against an unwise agreement"); Owens v. Graetzel, 149 Md. 689, 696, 132 A. 265, 268 (1926) (stating that parties to mortgage are bound by its terms and "must be held to know its meaning as thereby expressed"). In the nearly-century-old case of Smith v. Humphreys, 104 Md. 285, 65 A. 57 (1906), Judge Boyd expressed the Court's generally critical view of such defenses to the enforcement of a contract:
Any person who comes into a Court of equity admitting that he can read, and showing that he has average intelligence, but asking the aid of the Court because he did not read a paper involved in the controversy, and was thereby imposed on, should be required to establish a very clear case before receiving the assistance of the Court in getting rid of such document. It is getting to be too common to have parties ask Courts to do what they could have done themselves if they had exercised ordinary prudence, or, to state it in another way, to ask Courts to undo what they have done by reason of their own negligence or carelessness.
Id. at 290-91, 65 A. at 59.
Id. at 429, 872 A.2d 735.
The Court did not directly resolve petitioners' argument. Recognizing that both procedural and substantive unconscionability must exist in order to find that an arbitration agreement is invalid, the Court proceeded to "consider whether the terms in the arbitration clause [were] so one-sided as to oppress or unfairly surprise an innocent party or whether there exist[ed] an egregious imbalance in the obligations and rights imposed by the arbitration clause." Id. at 431, 872 A.2d 735. We shall analyze the procedural unconscionability argument further before turning to the issue of substantive unconscionability.
This issue raises a question that remains unaddressed by the Court in Walther: whether it is procedurally unconscionable for a mortgagee to approve a loan and wait until the day of closing to present the mortgagor with an arbitration agreement that must be signed, in order that the loan proceeds be disbursed. We believe that such conduct, at least, approaches procedural unconscionability.[12]
Appellants argue that "the first time the Doyles were informed of the arbitration `agreement' was at the settlement table." In Walther, petitioners argued that they were presented with a document containing an arbitration clause "on the night of the closing." Id. at 428, 872 A.2d 735. Appellee demands that a rule, requiring "a lender . . . to present to borrowers an agreement to arbitrate prior to settlement . . . would treat arbitration agreements differently than other contracts and thus would be contrary to established law." We disagree.[13]
*1276 At the motions hearing, the following discussion ensued between the court and counsel for appellants:
[COUNSEL]: You Honor, I would like to point out there is no dispute that this is a contract of adhesion. As such, the Court
THE COURT: Why do you say it's a contract of adhesion?
[COUNSEL]: Because it's giv[en] on a take it or leave it basis. There was no negotiation back and forth.
THE COURT: All right.
[COUNSEL]: In fact, if they want the loan, it even states in [the Agreement that] . . . they have to sign this. Obviously, there's not equal bargaining power between the two parties.
THE COURT: They go to some other lender.
[COUNSEL]: That's true.
THE COURT: There's not a lack of lenders. Adhesion occurs when there's no negotiation and no choice of party with whom to negotiate.
[COUNSEL]: You Honor, obviously I would argue that anytime you have unequal bargaining power in the context of this
THE COURT: All contracts are negotiated with unequal bargaining power. Let's start from that premise. They all start that way.
* * *
THE COURT: We're never on the same playing field. . . .
While it may be true that appellants were not initially limited to appellee as the only lender available for a mortgage loan, the court's response to counsel fails to consider that appellants, at settlement, were required to sign the Agreement or possibly risk some adverse consequences related to their new commitment. No documents that appellants may have signed were presented to the court during the motions hearing. We have no knowledge of the nature of the contract that appellants entered into for the purchase of the home, what loan documents appellants may have initially executed, and what, if any, penalties appellants may have incurred by refusing to execute the arbitration agreement. No evidence was presented of appellants' age, education, intelligence, business acumen and experience, whether the terms were explained to them, whether alterations in the printed terms would have been permitted by appellee, or whether there were alternative providers of the subject matter of the contract.
In Walther, the Court noted that petitioners "did not allege that they needed to negotiate and were rebuffed by respondent. . . ." Id. at 431 n. 6, 872 A.2d 735. We are aware that the same argument could be made in this case. This argument is unpersuasive. If appellants had challenged appellee's presentation of the Agreement, they would be then faced with two adverse results, one resulting within seconds of saying, "No, we refuse to sign," or one resulting later, such as litigation concerning this identical issue. It is not difficult to imagine that, faced with such a Hobson's choice, they would have signed the Agreement.
B. Substantive Unconscionability
Appellants claim that the Agreement is substantively unconscionable because fees associated with arbitrating this dispute will consume more than the amount of their claim. Appellants estimate that they will be required to pay, at a minimum, $1,550 to arbitrate a claim worth only $1,539. The total value of $1,550 is *1277 comprised of two expenses: (1) a filing fee and a case service fee amounting to $950, and (2) the arbitrator's compensation, which will be no less than $600.[14]
In support of this allegation, appellants rely on two affidavits. The first was filed in a case in the United States District Court for the Eastern District of Virginia, which disclosed that in an AAA administered dispute, the National Rules for the Resolution of Employment Disputes would apply and the median daily rate of an arbitrator's compensation is $1,500. The second affidavit was filed in the District Court, Boulder County, State of Colorado, applying the AAA's Arbitration Rules for the Resolution of Consumer-Related Disputes, establishing that the median daily rate of arbitrator compensation is $1,500.
Appellee contends that the estimated fees and expenses claimed by appellants are "misplaced" and constitute "mere speculation." Appellee maintains that appellants' affidavit regarding AAA rules for employment disputes is irrelevant to consumer related disputes, and as to the affidavit from Colorado, the "Supplementary Procedures" of the AAA apply to this consumer dispute, which provide:
If the consumer's claim or counterclaim does not exceed $10,000, the consumer is responsible for one-half the arbitor's fees up to a maximum of $125.
Appellee further contends that, even if appellants' estimate of the fees and expenses is accurate, appellee "has acknowledged and agreed to pay the costs associated with proceeding in arbitration. . . ."
Again, Walther proves instructive. Presented with a similar argument, the Court relied on the pronouncements of the United States Supreme Court in Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000), and the United States Court of Appeals for the Fourth Circuit in Bradford v. Rockwell Semiconductor Sys., Inc., 238 F.3d 549 (4th Cir.2001). As explained by the Court of Appeals of Maryland,
[t]he Supreme Court . . . reversed the Eleventh Circuit's holding that the arbitration agreement's silence as to the filing fees, arbitrators' costs, and other arbitration expenses had rendered the arbitration provision unenforceable because it exposed the buyer to potentially steep arbitration costs. [Green Tree Financial, 531 U.S.] at 84, 121 S.Ct. [513]. Acknowledging that the Green Tree Financial parties had provided no detail of the expected arbitration fees and costs, the Supreme Court observed that while "the existence of large arbitration costs could preclude a litigant" of limited resources from effectively pursing her claims in an arbitral forum, "[t]he `risk' that [the buyer] will be saddled with prohibitive costs is too speculative to justify the invalidation of an arbitration agreement." Id. at 90-91, 121 S.Ct. [513] (alteration added). Effectively, Green Tree Financial placed upon the party asserting the prohibitive expense "the burden of showing the likelihood of incurring such costs." Id. at 92, 121 S.Ct. [513].
Id. at 439-440, 872 A.2d 735.
The Court continued:
In a case decided shortly after Green Tree Financial, the United States Court of Appeals for the Fourth Circuit observed it would be inappropriate to apply a broad per se rule to the efficacy of an arbitral forum:
The cost of arbitration, as far as its deterrent effect, cannot be measured *1278 in a vacuum or premised upon a claimant's abstract contention that arbitration costs are "too high." Rather, an appropriate case-by-case inquiry must focus upon a claimant's expected or actual arbitration costs and his ability to pay those costs, measured against a baseline of the claimant's expected costs for litigation and his ability to pay those costs. Another factor to consider in the cost-differential analysis is whether the arbitration agreement provides for fee-shifting, including the ability to shift forum fees based upon the inability to pay. We note that parties to litigation in court often face costs that are not typically found in arbitration, such as the cost of longer proceedings and more complicated appeals on the merits.
Bradford v. Rockwell Semiconductor [Sys.], Inc., 238 F.3d 549, 556 n. 5 (4th Cir.2001) (rejecting argument that arbitration clause containing a fee-splitting provision which required employee to share the arbitration costs and pay half the arbitrator's fee rendered the arbitration agreement per se unenforceable).
Id. at 440-441, 872 A.2d 735.
At the motions hearing, the trial court stated:
I've read the papers and I think I'm satisfied that I'm familiar with them. But I'd be happy to have any additional factual information identified first and then I'd hear from you (sic) legal argument.
[APPELLANTS' COUNSEL]: Your Honor, the plaintiff would have no additional factual submissions for the Court at this time.
The trial court indicated that it had before it "a motion to compel arbitration and to dismiss by the defendants against Finance America with opposition thereto."[15]
As indicated, no evidence was presented by appellants to demonstrate the excessive costs of the arbitration forum. Although the question of whether a contract is unconscionable is a question of law and subject to de novo review, the factual findings of the trial court that inform its judgment are subject to the clearly erroneous standard. See, e.g., Monetary Funding Group, Inc. v. Pluchino, 87 Conn.App. 401, 867 A.2d 841, 848 (2005) ("[T]he factual findings of the trial court that underlie [an unconscionability] determination are entitled to the same deference on appeal that other factual findings command."); Md. Rule 8-131(c). As the Court of Appeals has recognized, "the burden of showing the likelihood of incurring such costs" is "placed upon the party asserting the prohibitive expense." Id. at 440, 867 A.2d 841. In Walther, the Court did not conclude that the arbitration clause was substantively unconscionable "[b]ecause the fees arising from the arbitration [could not] be predicted in detail and petitioners [did] not show them to be unduly burdensome." Id. at 422, 872 A.2d 735. We are compelled to conclude the same.
JUDGMENT AFFIRMED.
COSTS TO BE PAID BY APPELLANTS.
NOTES
[1] Appellants filed suit on behalf of a putative class.
[2] The questions, as posed by appellants, are as follows:
I. Whether arbitration could be compelled considering the purported arbitration agreement's condition of informal resolution had not been met.[.]
II. Whether the Doyles could be compelled to arbitrate their class action suit considering class actions were excluded from the purported arbitration agreement[.]
III. Whether Maryland law requires the adverse party to refuse to arbitrate prior to petitioning a court to compel arbitration[.]
IV. Whether the purported arbitration agreement is enforceable, considering the purported arbitration agreement is procedurally and substantively unconscionable[.]
V. Whether Finance America's coercion of the Doyles renders the purported arbitration agreement procedurally unconscionable[.]
VI. Whether the excessive cost of arbitration renders the purported arbitration agreement substantively unconscionable[.]
Appellee presents the following questions:
I. Did the circuit court correctly determine, as a matter of law, that Appellants have an unconditional obligation to arbitrate their individual claims upon the request of Finance America?
II. Did the circuit court correctly determine, as a matter of law, that the parties' agreement to arbitrate is neither procedurally nor substantively unconscionable?
III. Did the circuit court correctly determine, as a matter of law, that by agreeing to arbitrate their individual claims, Appellants waived their ability to bring a putative class action in a court of law?
[3] An adhesion contract "has been defined as one `that is drafted unilaterally by the dominant party and then presented on a "take-it-or-leave-it" basis by the weaker party who has no real opportunity to bargain about its terms.'" Meyer v. State Farm Fire & Cas. Co., 85 Md.App. 83, 89, 582 A.2d 275 (1990) (citing Restatement (Second) of Conflict of Laws § 187, Comment b.). Black's Law Dictionary defines the term as a "standard-form contract prepared by one party, to be signed by the party in a weaker position, [usually] a consumer, who adheres to the contract with little choice about the terms." 342 (8th ed.2004).
There is no doubt that the Agreement constitutes a contract of adhesion. Adhesion or form contracts are not the same as an unconscionable contract and do not render the Agreement invalid, per se. See Walther v. Sovereign Bank, 386 Md. 412, 430, 872 A.2d 735 (2005). Instead, as appellants assert, the courts simply examine such contracts with "special care" and "construe ambiguities against the draftsman." Id. at 431, 872 A.2d 735.
[4] The arbitration agreement in Wells states that "any Claim based on or arising from an alleged tort, shall . . . be submitted to mediation. . . . If mediation fails to resolve the claim . . . then the Claim shall be determined by binding arbitration." Id. at 236-37, 768 A.2d 620 (emphasis added). The language of the arbitration agreement in Wells is in marked contrast to the Agreement in this case.
[5] The Agreement contains three exceptions to the rule that all disputes must proceed in arbitration. None relate to the factual circumstances presented in this case.
[6] In Walther, 386 Md. at 436-38, 872 A.2d 735, the Court of Appeals held that "no-class-action" provisions in arbitration agreements are valid and not unconscionable. Although a minority of jurisdictions take the position that "no-class-action" provisions are unenforceable, Maryland stands firm in the majority. See id. at 438, 872 A.2d 735.
[7] "I'll either find a way or make one." (Quotation attributed to the Carthaginian general, Hannibal (c. 247-183 BC)).
[8] In their brief, appellants explain:
[Appellants have] not refused to arbitrate, nor has [appellee] requested that [appellants] arbitrate. Instead, [appellee] has merely responded to the class action complaint by a motion to compel arbitration, without first meeting the condition precedent set by Md.Code Ann., Cts. & Jud. Proc. § 3-207(a). In fact, [appellee] did not even allege that it made a request for arbitration that was refused by [appellants].
[9] Unfortunately, such a definition is but a tautology.
[10] See footnote 3, supra.
[11] Walther was decided 5-2 by the Court.
[12] Although the present action is a class action, we do not reach the question of whether there can be procedural unconscionability in a class action suit. Procedural unconscionability relates to the individualized circumstances surrounding each contracting party at the time of contracting and it seems questionable that it can be established as a general proposition for a group of contracts containing similar terms between different parties.
[13] Both parties recognize, and we agree, that arbitration agreements must be treated like any other contract. See, e.g., Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991) (The courts must "place arbitration agreements upon the same footing as other contracts.").
[14] The filing fee and case service fee of $950.00 is based on the "Commercial Arbitration Rules and Mediation Procedures" for the American Arbitration Association ("AAA"), a copy of which is included in the record extract. The estimates for the arbitrator's compensation are based on a random sampling of fees conducted by the AAA in 2001.
[15] The parties' actual pleadings were not included in the Record Extract. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1537849/ | 6 B.R. 497 (1980)
In the Matter of Gregory D. ZELLMER, Debtor.
Bankruptcy No. 80 B 00580.
United States Bankruptcy Court, N.D. Illinois, W.D.
September 22, 1980.
*498 Rolland McFarland, Rockford, Ill., for debtor, Gregory D. Zellmer.
Charles Wellington, for First National.
John B. Roseberg, Rockford, Ill., for General Tire.
Mary Gorman, Rockford, Ill., for Kelley-Williamson.
MEMORANDUM OPINION
RICHARD N. DeGUNTHER, Bankruptcy Judge.
This matter comes before the Court on the following pleadings:
1) Application of First National Bank of Monroe to Order the Trustee to Abandon Property.
2) Notice of Rejection of Plan, also filed by First National.
3) Objection of General Tire Company to Confirmation.
4) Objection of Kelley-Williamson Company to Confirmation.
These matters have been consolidated for trial. The Debtor, Gregory D. Zellmer, is represented by Attorney Rolland McFarland; First National by Attorney Charles Wellington; General Tire by Attorney John Roseberg; and Kelley-Williamson by Attorney Mary Gorman.
* * * * * *
At the outset questions of procedure are raised due to the somewhat misleading pleadings filed by First National.
1) The "Application to Abandon Property" seeks an Order that the Trustee abandon property. The authority for such an order, although not set forth in the pleading, presumably is Section 554. The consequence of such an order would be the removal of the abandoned property from the estate and termination of the automatic stay by application of Section 362(c)(1). First National could then file a replevin in the state courts.
An "Application to Order the Trustee to Abandon Property" is not an Adversary Proceeding under Part VII of the Federal Rules of Bankruptcy Procedure and requires no filing fee. A "Complaint to Vacate the Automatic Stay" and a "Complaint to Reclaim Property" are Adversary Proceedings under Part VII and require a $60 filing fee. Inasmuch as the "Application" achieves virtually the same results as the "Complaints", counsel for secured creditors are filing such applications with increasing frequency to avoid the filing fee and the more formalized procedures of Part VII. This is a matter to be considered and perhaps dealt with in the good judgment of the Rules Committee.
Section 554(b) permits the court to order a trustee to abandon property that is burdensome or of inconsequential value. In this case the Debtor's truck is anything but burdensome to the estate or of inconsequential value. Indeed, it is just about the only asset of the estate, and essential to the successful completion of the Debtor's Chapter 13 Plan. It would appear, then, that First National's Application to Order the Trustee to Abandon Property could be dismissed on this ground alone.
2) First National's "Notice of Rejection of Plan" does not constitute an "Objection to Confirmation". When the Code became effective many creditors filed their Proofs of Claim with the notation "REJECT" or "OBJECT". Rarely, however, did these creditors appear at the 341 Meeting or the Confirmation Hearing to advise the court of the grounds for their "Rejection" or "Objection". Presumably, these creditors expected the court to prosecute their "Rejections" or "Objections". This the Court will not do.
A creditor seeking to Object to Confirmation must file such a pleading, so captioned and containing allegations necessary to advise the court and the debtor of the basis of the Objection.
* * * * * *
In this case, there being no objection, the Court will treat First National's pleadings in the nature of a "Complaint to Vacate Automatic Stay" and an "Objection to Confirmation".
* * * * * *
*499 FACTS
Zellmer filed his Chapter 13 Petition on June 9, 1980. The Plan proposes to pay a priority claim of $1615.31 in full; First National, the only secured creditor, with a "payoff" balance near $20,000, will be paid in full; unsecured claims totalling approximately $16,000 will be paid at 1%.
First National's security is a 1975 International Truck and a 1975 Oldsmobile.
There is the usual disagreement concerning the value of the truck. The low estimate is $13,000 offered by a witness who sold the truck to Zellmer last year for $22,000. The high estimate is $18,000 offered by the Debtor himself.
Happily, there is general agreement that the Olds is worth $1000.
ANALYSIS
1. THE DEBTOR
Zellmer was candid in his testimony. He made no attempt to paint a prettier picture than that which exists. He is in deep financial trouble. At best he can hope to pay a priority tax claim and preserve the truck upon which his livelihood depends. Payment of unsecured claims totalling $16,000 is beyond his reach and he offers to pay these creditors a dividend of only 1%.
In short, he seeks to achieve what amounts to a "forced reaffirmation" of one secured debt under the liberal provisions of Chapter 13, and to deal with the unsecured debts in a manner not unlike a Chapter 7 liquidation. He asks that the old purpose of Chapter XIII, to pay one's debts, yield to a new purpose, to keep one's truck.
When asked if he could complete the Plan, Zellmer testified, "Sure gonna try, it's better'n quittin'". When asked what he would do if he couldn't complete the Plan, Zellmer replied, "I'll find out who my friends are".
2. FIRST NATIONAL'S COMPLAINT TO VACATE STAY
The Court addresses first the issue raised by the request of First National to vacate the automatic stay of Section 362.
Recently this Court held, as a collateral issue in an Adversary Proceeding, that Section 362(d) does apply to Chapter 13:
"A threshold question is whether the concept of "adequate protection" found in Section 361 applies to Chapter 13 proceedings. Section 362(d), which mandates relief from the stay if adequate protection is lacking, mysteriously employs the term "reorganization", suggesting Congress had in mind Chapter 11 proceedings only. It is true that under the Code a businessman is eligible for Chapter 13, but it is inappropriate and misleading to label a Chapter 13 "Adjustment of Debts of an Individual with Regular Income" with the same word that constitutes the title of Chapter 11 of the Code: "Reorganization". Moreover, under Section 361(1) adequate protection may be provided by periodic cash payments from the trustee to the creditor. The very nature of Chapter 13 proceeding satisfies this method of providing adequate protection if there is a fair relationship between the depreciation in the value of the property and the periodical payments to the creditor.
Did Congress, then, intend that the protection given to a secured creditor in a Chapter 13 proceeding be limited to Section 1325? Apparently not, for there is no specific exclusion of Sections 361 and 362 from Chapter 13 proceedings, and the general rule is that Chapter 3 of the Code applies to Chapter 13 proceedings. The Court concludes, therefore, that Sections 361 and 362 apply to Chapter 13 proceedings."
In the meantime, Bankruptcy Judge Norton held in In the Matter of Joseph Feimster, 3 B.R. 11, 6 B.C.D. 131, 1 C.B.C.2d 596, that:
"The critical term "reorganization" appearing in subsection (B) of 362(d)(2), is a term no-where else appearing in the Bankruptcy Code except in Chapter 11. It does not appear in Chapter 13. The term "Adjustment of Debts of an Individual" is the phrase used in Chapter 13. Reorganization is not defined in § 101. If *500 Congress, in drafting § 362(d)(2)(B), had intended to make said subsection applicable to debtors other than a debtor in Chapter 11 reorganization, Congress could easily have added the phrase "an Adjustment of Debts of an Individual with Regular Income". Or, Congress could have stricken the word "reorganization" and inserted "rehabilitations under Chapter 11 and 13", or something like: "Chapter 11 Reorganization or Chapter 13 Adjustment Debts".
The absence of the use of the term "reorganization" anywhere except in Chapter 11 leads this court to the conclusion that its use in § 362(d)(2)(B) makes § 362(d)(2) applicable only to Chapter 11 Reorganization cases; and not applicable to Chapter 13 cases. The Chapter 13 automatic stay may not be terminated under Section 362(d)(2)(B)."
While I applaud Judge Norton's reasoning, I am again compelled to the conclusion that Section 362 in its entirety is applicable to Chapter 13 proceedings. Congress, in spite of its ill-advised use of the word "reorganization", can hardly have intended that part of Section 362(d) should apply to Chapter 13 proceedings, and part of it not apply.
* * * * * *
If ever there was a trap for the unwary creditor it is Section 362(d). Under subsection (2) thereof First National must prove that the debtor does not have equity in the property AND that such property is not necessary to an effective reorganization (sic). First National has proved the first element, but clearly fails on the second. In attempting to prove the lack of equity First National has offered a witness who testified the truck's value is as low as $13,000.
Now look at subsection (1). Here First National seeks to show that there is a lack of adequate protection. On this issue it would be to First National's advantage to prove the highest possible value for the truck. Accepting the testimony of First National's own witness the Court need only compute adequate protection based on a $13,000 valuation.
Payment of a $13,000 debt over 5 years at 14% would require payments of approximately $300 per month. Zellmer's Plan should provide payments of at least $400 per month on the First National claim, thereby satisfying the requirement of adequate protection, even if the truck depreciates to zero at the end of 5 years.
(The creditor with a secured claim who offers testimony of value of the secured property in the low range of what the property is worth exposes himself to another risk: Unless the Plan provides to the contrary, a creditor with a secured claim is paid in full the value of his security and the balance as an unsecured claim. Here, First National is almost inviting Zellmer to amend his Plan to provide that First National be paid 100% of $13,000, and only 1% on the unsecured balance of its claim. Such is not the present intent of the Plan and the Court will not so order.)
3. THE OBJECTIONS TO CONFIRMATION OF FIRST NATIONAL, GENERAL TIRE AND KELLEY-WILLIAMSON
The case presents a challenge to this Court as to whether it will find "good faith" and confirm a plan that seeks to do little more than achieve a "forced reaffirmation" of an unsecured debt and provide for only a 1% dividend to unsecured creditors.
The revulsion of bankruptcy judges across the country to zero percent and one percent Chapter 13 Plans is demonstrated in many reported cases. Having administered Chapter 13 Plans under the philosophy that Chapter 13 was a method of repaying creditors, I tend to share that revulsion. Nevertheless, in some rare instances the circumstances in which a debtor finds himself are such that he is capable of making payments only in an amount which would enable him to preserve selected secured property, such as his home, or equipment necessary for his livelihood. This is such a case, and the liberal provisions of Chapter 13 are available.
*501 The issues raised by the concept of good faith are many, perhaps infinite. In this case the primary initial thrust of the unsecured creditors' Objection to Confirmation was that the Debtor was capable of paying more to unsecured creditors than he offered. (There were some misleading entries in the Debtor's Schedules which may have led the creditors to this conclusion.)
As it turns out, the Debtor is not capable of making more payments to unsecured creditors than he has offered. Indeed, after hearing the Debtor's testimony, counsel for one of the objecting creditors asked Zellmer if he thought he could even make the payments proposed.
I find the Plan was filed in good faith, that all the requirements of Section 1325 are met, and conclude that the Plan should be confirmed.
An Order consistent with this Memorandum Opinion is filed herewith. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1537798/ | 142 B.R. 364 (1992)
In re John Robert DYER and Beverly Jean Dyer, Debtors.
Bankruptcy No. B-91-01445-PHX-SSC.
United States Bankruptcy Court, D. Arizona.
June 23, 1992.
Michael Hickman, Mesa, Ariz., for debtors.
Anne M. Kimmick, Law Offices of Holbert & Moss, La Mesa, Cal. and Robert R. Hall, Hammerman & Hultgren, P.C., Phoenix, Ariz., local counsel, for Associates Nat. Mortg. Co.
*365 Ralph McDonald, Phoenix, Ariz., Chapter 13 Trustee.
MEMORANDUM DECISION AND ORDER
SARAH SHARER CURLEY, Bankruptcy Judge.
Preliminary Statement
This Court has jurisdiction over this matter, and this is a core proceeding. 28 U.S.C. §§ 157 and 1334; General Order No. 128 of United States District Court, District of Arizona. This Decision shall constitute this Court's findings of fact and conclusions of law pursuant to Rule 7052, Rules of Bankruptcy Procedure. On April 14, 1992, this Court rendered its decision on the record. This written Memorandum Decision and Order expands upon that oral decision, with the Court considering a Bankruptcy Appellate Panel decision and a decision of the Court of Appeals, Second Circuit, which were not discussed by the Court at the time of the oral decision on the record.
Factual Discussion
John Robert Dyer and Beverly Jean Dyer, the Debtors, filed a Chapter 13 petition[1] on February 7, 1991. The Debtors initially filed a plan of reorganization, which was later amended. The amended plan was filed with the Court on or about March 27, 1991. Two objections to confirmation were interposed to the amended plan. The objection of Associates National Mortgage Company ("Associates") was filed on May 17, 1991, and the pro se objection of Jeffrey Wagner and Mary Wagner (the "Wagners") was filed on April 10, 1991. Thereafter, the Court scheduled an evidentiary hearing to determine the merits of the objections. The evidentiary hearing was held on January 28, 1992. However, the Wagners were not in attendance at the hearing. The Wagners' absence is not material to this Decision, since Associates vigorously presented its position at the time of the hearing, and its position was aligned with that of the Wagners.
At the time of the hearing, the argument of Associates and the Wagners was that the value of the Debtors' residence exceeded the amount of the indebtedness and, hence, that Associates and the Wagners were oversecured. The Debtors' position was that the residence had declined in value, that Associates was an undersecured creditor, and that the Wagners had become unsecured creditors.
On January 28, 1992, the Court heard evidence concerning the value of the residence and the aggregate amount of the indebtedness that encumbered the real property. At the conclusion of the hearing, the Court determined that the residence had a value of $77,000.
Because Associates had shown at the hearing that its indebtedness was in the amount of $79,202.79, the Court bifurcated the Associates' claim. Associates had a secured claim in the amount of $77,000 (the value of the Debtors' residence), and an unsecured claim in the amount of $2,202.79.
The Wagners, of course, originally also had a lien against the property. The Wagners had sold the property to the Debtors, providing purchase-money financing. At the hearing, because of the value of the Debtors' residence, the Court held the Wagners' claim to be unsecured. That particular claim was found to be in the amount of $2,000.
At a confirmation hearing on February 14, 1992, this Court noted that the Supreme Court had recently rendered the decision of Dewsnup v. Timm, ___ U.S. ___, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992). The Court requested the parties present posttrial memoranda of law to focus on the Dewsnup decision. The Court was concerned that it might have to reconsider its findings of fact and conclusions of law set forth on the record on January 28. The Court was also concerned that other relief should be accorded to the various parties as a result of the Dewsnup decision.
*366 On or about February 24, 1992, this Court did execute an interim order concerning the January 28 hearing. The Court initially bifurcated the Associates claim and noted that the Wagners had an unsecured claim.
Issue
Whether the Supreme Court decision of Dewsnup v. Timm prohibits the bifurcation of a claim into a secured and an unsecured claim, if the creditor is determined to be an undersecured creditor, or prohibits the avoidance of a lien encumbering the Debtors' principal residence in a Chapter 13 proceeding. In essence, does Dewsnup v. Timm overrule the Ninth Circuit decision of In re Hougland?[2]
Legal Discussion
The decision of Dewsnup v. Timm should not be reviewed without reference to other precedent. The reasoning in Dewsnup relies upon an earlier United States Supreme Court decision; specifically, the decision of Johnson v. Home State Bank, ___ U.S. ___, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991).
The debtor, in Johnson, had executed a number of promissory notes in favor of a secured creditor, and the aggregate amount of those promissory notes was $470,000 at one point in time. Those particular notes were secured by various liens against certain real property. Subsequently, the debtor was unable to make payments on those notes, and the debtor filed a Chapter 7 bankruptcy proceeding. During the course of the Chapter 7 bankruptcy proceeding, the debtor did not challenge the validity of the secured creditor's claim or lien, and the debtor obtained a discharge. At the conclusion of the Chapter 7 proceedings, the debtor still owed the sum of $200,000 to the secured creditor.[3]
Thereafter, the debtor was once again unable to make payments to the secured creditor, and the debtor filed a Chapter 13 proceeding. The debtor then proceeded to propose a Chapter 13 plan of reorganization that would require the remaining indebtedness in the amount of $200,000 to be paid over a four-year period. The debtor proposed to make those payments in annual installments, with a balloon payment at the end of the plan term. The secured creditor filed an objection to the confirmation of the plan.[4]
The issue to be determined was whether a creditor had a "claim" in a Chapter 13 proceeding, if the personal liability of the debtor to the creditor had been discharged in the Chapter 7 proceeding and only the creditor's lien against the real property and the ability of the creditor to foreclose its lien (if payments were not made to the creditor) remained.
The Supreme Court, in Johnson, initially discussed the nature of a discharge order in the Chapter 7 proceedings. The discharge order prohibited the creditor from executing upon the indebtedness owed by the debtor to the creditor to the extent it was a personal liability of the debtor. The Court noted that there still remained an interest of the creditor after the discharge of the personal liability. The Court focused on this residual interest as an in rem interest.
A defaulting debtor can protect himself from personal liability by obtaining a discharge in a Chapter 7 liquidation. See 11 U.S.C. § 727. However, such a discharge extinguishes only "the personal liability of the debtor." 11 U.S.C. § 524(a)(1). Codifying the rule of Long v. Bullard, 117 U.S. 617, 6 S.Ct. 917, 29 L.Ed. 1004 (1886), the Code provides that a creditor's right to foreclose on the *367 mortgage survives or passes through the bankruptcy. [Citations omitted.]
Id., ___ U.S. at ___, 111 S.Ct. at 2153, 115 L.Ed.2d at 74.
The Court noted that pursuant to 11 U.S.C. § 101(5),[5] the term "claim" had a broad definition, and noted that even if the debtor's personal liability were discharged, there was still this "enforceable obligation" that the creditor had. For instance, if the property were foreclosed upon and sold, the creditor would then have a right to the foreclosure sale proceeds. This was a "right to payment." The creditor's ability to foreclose might also be considered an "equitable remedy". If the creditor did not receive payments on its lien, it had the ability to proceed with the equitable remedy of foreclosure.
Therefore, the Supreme Court concluded that even though the personal liability portion of the indebtedness had been discharged in the Chapter 7 proceeding, the in rem nature of the claim still existed, and the in rem claim could be paid in a Chapter 13 plan.
At 111 S.Ct., page 2155 of the Supreme Court decision in Johnson, the Supreme Court discussed the impact of its decision. The discharge of the debtor in the Chapter 7 proceedings transformed a negotiated obligation, with both an in rem and in personam aspect, into a nonrecourse claim.
. . . [W]e must infer that Congress fully expected that an obligation enforceable only against a debtor's property would be a "claim" under § 101(5) of the Code. . . . The legislative history surrounding § 102(2) directly corroborates this inference. The Committee Reports accompanying § 102(2) explain that this rule of construction contemplates, inter alia, "nonrecourse loan agreements where the creditor's only rights are against property of the debtor, and not against the debtor personally." H.R.Rep. No. 95-595, supra, at 315; accord, S.Rep. No. 95-989, supra, at 28, U.S.Code Cong. & Admin.News 1978, pp. 5814, 6272. Insofar as the mortgage interest that passes through a Chapter 7 liquidation is enforceable only against the debtor's property, this interest has the same properties as a nonrecourse loan. It is true, as the Court of Appeals noted, that the debtor and creditor in such a case did not conceive of their credit agreement as a nonrecourse loan when they entered it. [Citation omitted.] However, insofar as Congress did not expressly limit § 102(2) to nonrecourse loans but rather chose general language broad enough to encompass such obligations, we understand Congress' intent to be that § 102(2) extend to all interests having the relevant attributes of nonrecourse obligations regardless of how these interests come into existence.
Id., ___ U.S. ___, 111 S.Ct. at 2155, 115 L.Ed.2d at 76.
Dewsnup is a logical extension of Johnson. In Dewsnup, the real property was valued at $39,000; however, the property was encumbered by an indebtedness in the amount of $120,000. The facts in Dewsnup are unusual in that the property had already been abandoned from the bankruptcy estate.[6] Section 506(a) provides in pertinent part:
*368 (a) 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. [Emphasis added.]
Once the property had been abandoned, the bankruptcy estate no longer had "an interest in such property," and the Court did not have to address the issues under Section 506(a). However, there was a conflict among the Circuit Courts as to the interpretation of 11 U.S.C. § 506(d), and this may have prompted the Supreme Court to interpret the issues raised under Section 506.
In Dewsnup, the Supreme Court determined that Section 506(a) should still be utilized, with an undersecured creditor to have a secured and an unsecured claim. However, the Supreme Court then interpreted Section 506(d), in essence the critical language concerning an "allowed secured claim," in a different manner. The Court interpreted Section 506(d) to mean that if a creditor had a claim that was not allowed, to the extent that the claim was secured by a lien on real property, the lien could also be avoided.
The Court, in Dewsnup, refers to the Johnson v. Home State Bank decision. Reenforcing the concept of an in rem claim, or an in rem interest, the Supreme Court, in Dewsnup, emphasizes that a creditor may retain only an in rem claim or interest at the conclusion of the bankruptcy proceedings. The claim or interest that permitted the creditor to proceed against the debtor's real property, as well as the ability to proceed personally against the debtor, is transformed into a nonrecourse claim as a result of the bankruptcy proceedings. The Court then stated that Section 506(d) did not permit the avoidance of such a lien which secured only an in rem claim. The decision of Dewsnup is consistent with Johnson as to this idea of an in rem, or nonrecourse, claim existing at the end of the bankruptcy proceedings.
These Supreme Court cases may be interpreted in a manner to provide continued vitality to the Ninth Circuit decision of In re Hougland, 886 F.2d 1182 (9th Cir.1989).
In Hougland, the Ninth Circuit did not focus on Section 506(d).[7] The Court relied only on Section 506(a) in determining to what extent a claim might be bifurcated in a Chapter 13 proceeding, and to what extent Section 1322(b)(2)[8] prohibited that bifurcation. The Ninth Circuit stated that Section 1322(b)(2) permitted the claim of a creditor to be bifurcated into a secured and unsecured claim and that only the secured claim (to the extent that it pertained to an indebtedness secured only by a lien on the debtor's principal residence) might not be *369 modified by the debtor in a Chapter 13 plan as to the terms of repayment.
Initially, the language in Section 1322(b)(2) refers to a secured and unsecured claim, but the Section also contains an exception. The language contained in the exception does not refer to a "secured claim". It refers only to a particular creditor with a claim that has a lien against the debtor's principal residence, and states that said lien cannot be modified. Of course, to the extent that the Section is ambiguous, the Legislative History for the Section should be consulted.[9]
The Courts have struggled with the interpretation of 11 U.S.C. § 506(a) and the Section's interrelationship with, or modification of, 11 U.S.C. § 1322(b)(2) concerning those creditors with unsecured or undersecured claims that previously obtained liens encumbering the debtor's principal residence to secure repayment of the creditors' indebtedness. In re Hart, 923 F.2d 1410 (10th Cir.1991); Wilson v. Commonwealth Mortgage Corp., 895 F.2d 123 (3rd Cir. 1990); In re Hougland, 886 F.2d 1182 (9th Cir.1989); In re Nobelman, 129 B.R. 98 (N.D.Tex.1991); In re Harris, 94 B.R. 832 (D.N.J.1989); In re Russell, 93 B.R. 703 (D.N.D.1988); In re Hussman, 133 B.R. 490 (Bankr.D.Minn.1991); In re Etchin, 128 B.R. 662 (Bankr.W.D.Wis.1991); In re Mitchell, 125 B.R. 5 (Bankr.D.N.H.1991); In re Chavez, 117 B.R. 733 (Bankr.S.D.Fla. 1990); In re Sauber, 115 B.R. 197 (Bankr. D.Minn.1990); In re Schum, 112 B.R. 159 (Bankr.N.D.Tex.1990); In re Frost, 96 B.R. 804 (Bankr.S.D.Ohio 1989), aff'd, 123 B.R. 254 (S.D.Ohio 1990); In re Kehm, 90 B.R. 117 (Bankr.E.D.Pa.1988); In re Brown, 91 B.R. 19 (Bankr.E.D.Va.1988); In re Catlin, 81 B.R. 522 (Bankr.D.Minn.1987); In re Caster, 77 B.R. 8 (Bankr.E.D.Pa.1987); In re Hemsing, 75 B.R. 689 (Bankr.D.Mont. 1987); In re Simmons, 78 B.R. 300 (Bankr. D.Kan.1987); In re Hynson, 66 B.R. 246 (Bankr.D.N.J.1986); In re Bruce, 40 B.R. 884 (Bankr.W.D.Va.1984); In re Spadel, 28 B.R. 537 (Bankr.E.D.Pa.1983); In re Neal, 10 B.R. 535 (Bankr.S.D.Ohio 1981).
In light of the Dewsnup decision, three approaches have perhaps developed concerning the creditor that only has a lien on the debtor's principal residence. One approach permits the bifurcation of the creditor's claim into a secured and unsecured claim, but prohibits the avoidance of the lien if the debtor does not propose to pay off the entire secured claim in the reorganization plan. In re Zeigler, 1992 WL 50006 (Bankr.E.D.Pa.1992); In re Taras, 136 B.R. 941 (Bankr.E.D.Pa.1992). Another approach is to follow strictly Section 1322(b)(2) (and utilize Dewsnup as further support therefor), prohibit bifurcation of the creditors' claim, and prohibit any avoidance of the creditor's lien. In re Davidoff, 136 B.R. 567 (Bankr.M.D.Fla.1992); In re Ireland, 137 B.R. 65 (Bankr.M.D.Fla. 1992).[10] Finally, a third approach is to permit bifurcation of the claim and avoidance of the lien as to the unsecured portion of the indebtedness. At least one Court may have so ruled in dicta. In re Bellamy, 22 BCD 1476, 962 F.2d 176 (2nd Cir. 1992). This Court believes that the first approach must be followed in light of the Dewsnup and Hougland decisions.
Because Hougland does not rely on Section 506(d) in its reasoning, this Court may initially follow Hougland in bifurcating a claim into a secured and unsecured portion in a Chapter 13 proceeding. However, in reviewing Dewsnup and Johnson, this Court must next conclude that a Chapter 13 Plan may not vitiate or avoid the lien that is secured only by the debtor's principal residence. The claim is affected. The Debtors may make payments on the secured portion of the claim during the course of the Chapter 13 proceedings. The unsecured claim, after bifurcation, may then be paid as any other unsecured claim. *370 However, the lien continues to encumber the residence to secure the bifurcated claim.
In this particular case, the lien not only of Associates, but also of the Wagners remains in effect. The Wagners' lien cannot be avoided at this point in time, and it shall remain a lien against the Debtors' residence. Interpreting Dewsnup, Johnson and Hougland, at the conclusion of the payments under the Chapter 13 Plan, the Debtors shall then receive a discharge. 11 U.S.C. § 1328, Subsections (a) or (b). The discharge will eliminate any personal liability that the Debtors may owe to their creditors. However, the liens of Associates and the Wagners will continue to exist. Any indebtedness then owing to Associates or the Wagners (after due credit for the payments made on the secured and unsecured portions of their claims during the course of the Chapter 13 proceedings) will become in rem claims or in rem liabilities secured by the Debtors' residence.
This so-called in rem analysis requires a Court, at the conclusion of the Chapter 13 proceedings, to note the payments actually made by the Debtor during the course of the Chapter 13 plan, both on the secured and unsecured claims, and then determine the amount that is still owing for the in rem liability. Subsequently, if the Debtors default in a payment on this in rem liability, Associates or the Wagners can proceed under state law to foreclose on their particular liens. However, if the residence of the Debtors has insufficient value to pay in full the liens of Associates and the Wagners at a foreclosure or other sale of the residence, the remaining liability is extinguished. Again, based upon the reasoning in Dewsnup and Johnson, the Debtors also have the possibility of filing yet another Chapter 13 petition to pay these remaining in rem liabilities. The reasoning of Dewsnup and Johnson create these in rem claims, which still exist at the conclusion of the Chapter 13 proceedings and are not discharged. Only the personal liability of a debtor is discharged. Essentially, creditors with recourse claims (the ability to pursue the debtor personally to the extent that the real property does not pay the creditor in full) are having their claims transformed into nonrecourse claims. It's an unusual result.
Some commentators[11] have noted that in the context of a Chapter 11 proceeding, the Dewsnup decision vitiates the Section 1111(b)(2)[12] election, and transforms all creditors with security into creditors with nonrecourse claims, irrespective of whether an election is made under Section 1111(b)(2).
Of course, the reasoning in Dewsnup or Johnson as to the discharge of the debtor's personal liability is of little comfort to Chapter 13 debtors in Arizona. If a debtor chooses to encumber his residence with a consensual mortgage or deed of trust, he/she need not worry about a deficiency judgment being obtained against him/her. Arizona has enacted anti-deficiency judgment statutes, which prohibit (inter alia) a creditor from obtaining an in personam judgment against the debtor, if the debtor's residence is sold and the proceeds are insufficient to pay the creditor in full.[13]
The reasoning of Dewsnup and Johnson, however, is clear that a creditor with a lien on the debtor's principal residence should receive the benefit of an appreciation in value of the residence over a period of time. To have a bankruptcy court artificially determine the value of the residence *371 at a Section 506 hearing or a confirmation hearing, and then avoid that portion of the lien which is deemed unsecured pursuant to Section 506(d) is inconsistent with a number of other Bankruptcy Code provisions, such as Sections 101(5), 102(2), 524(a)(1), 1322(b)(2), and 1328.
The Bankruptcy Appellate Panel ("BAP") has also addressed, in dicta, the bifurcation issue of secured and unsecured claims and the continuing vitality of liens in the context of a Chapter 13 proceeding. This Court initially did not consider the decision of In re Lange, 120 B.R. 132 (9th Cir. BAP 1990), in its April 14, 1992 decision on the record. However, the reasoning is instructive. The narrow issue to be determined was whether the Chapter 7 debtor could use 11 U.S.C. § 506(d) to avoid the undersecured portion of an indebtedness secured by a lien on real property.
The BAP relied on the Tenth Circuit decision of Dewsnup v. Timm (In re Dewsnup), 908 F.2d 588 (10th Cir.1990) in its analysis. The BAP stated:
. . . the Code and the legislative history strongly encourage repayment plans rather than liquidation. As the court in Dewsnup noted, Congress has provided numerous incentives to debtors choosing reorganization or rehabilitation under Chapters 11, 12 or 13 rather than liquidation under Chapter 7. Consequently, it is unlikely that Congress intended § 506 to be interpreted in a manner that permits a debtor to avoid consensual liens on his residence in Chapter 7 that could not be removed in one of the rehabilitative Chapters.
To illustrate, in a Chapter 11 proceeding a creditor can make an election which would result in allowing its secured lien to remain on the property to the full extent of the original obligation. [Citations omitted.] . . . However, if an election is not made, the creditor still receives payments on the allowed amount of the claim while the creditor retains his or her lien on the unsecured portion of the debt. In other words, whether or not an election is made, the holder's lien remains on the unsecured portion of the debt. [Citations omitted.]
Likewise, in a Chapter 13, § 1322(b)(2) prohibits the debtor from modifying the mortgage if it is on its principal residence and if the creditor holds no other security. While the debt may be severed into secured and unsecured portions for treatment under the plan, the terms of the debt including payments may not be restructured. A debtor would have little motivation for a Chapter 13 remedy with its strictures and trustee supervision if § 506 alone could be used in a Chapter 7 to effect a strip down of the lien. Accordingly, in our view, § 506 is not the stand alone avoidance provision Gaglia mandates that it become; rather, we believe that § 506 serves a very plain and important function, namely the implementation of a host of other provision of the Code. [Citations omitted.] [Emphasis added.]
Id. at 135-136.
The BAP refers to an "unsecured portion of the debt" still being secured by a lien. Thus, the BAP, in dicta, has focused on the continuing validity of liens in a Chapter 11 or a Chapter 13 proceeding, irrespective of the claims that a creditor may have in such proceedings. Moreover, the BAP does not conclude that the lien is somehow void, even though the lien may provide security for a secured and unsecured portion of an indebtedness.
The Court anticipates that the Debtors may argue that the lien should be extinguished to the extent that it secures an unsecured claim, which claim is subsequently paid according to the Chapter 13 plan. The difficulty with such a proposition is that the discharge provisions of 11 U.S.C. § 1328(a) or § 1328(b)[14] only vitiate *372 the ability of a creditor to pursue an in personam judgment against the debtor. An in rem claim, which is bifurcated into a secured and unsecured claim during the course of a Chapter 13 proceeding, is not affected by Section 1328. Moreover, the reasoning of Dewsnup and Johnson adds further support for the proposition that the lien continues to exist as to the secured and unsecured claim at the consummation of the Chapter 13 plan. The lien is only extinguished when the entire indebtedness is paid in full or foreclosure proceedings under applicable State law extinguish the indebtedness.
In this case, at the conclusion of the Debtors' five-year plan, if all payments are made (or earlier if Section 1328(b) is applicable), the Debtors will receive a discharge. By consulting the various tables that financial institutions provide, the Debtors will compute the amount paid on the secured and unsecured claims of the creditors. The remaining balance of the secured and unsecured claims of Associates and the Wagners will remain in rem liabilities, secured by the Debtors' residence, which must be paid if the Debtors' residence is subsequently sold as a result of foreclosure proceedings, or otherwise.
The benefit to the Debtors is that during the term of the Chapter 13 plan, the unsecured claim may be treated in a different manner than the secured claim.[15] The Debtors may propose a minimal repayment to all unsecured creditors, including the creditor with a bifurcated claim. Thus, the Debtors may pay less to the creditor over the term of the Chapter 13 plan than the Debtors would have paid if the creditor had a fully secured claim, with interest accruing on the full amount of the secured claim.
This Court does note that the recent Second Circuit decision of In re Bellamy, 22 BCD 1476, 962 F.2d 176 (2nd Cir.1992) seems to state, in dicta, that the lien securing *373 an unsecured portion of a bifurcated claim may be avoided once a debtor has made all plan payments on the bifurcated claim. The Bellamy decision was rendered after this Court's April 14 decision on the record, and a brief discussion of Bellamy is warranted. The Bellamy Court considers the Dewsnup decision in its analysis, and concludes that Dewsnup does not prohibit the bifurcation of a claim, if the creditor is secured only by the debtor's principal residence.
The Second Circuit then notes that the bifurcation of the claim is not a modification of the secured creditor's rights under Section 1322(b)(2). Because the secured creditor's claim is not being modified, the Court further concludes that the creditor need not be paid off in full within five years as mandated by Sections 1322(c) and 1325(a)(5)(B). See Section 1322(b)(5); Id. at 1481, 962 F.2d 176. The Court then adds the following language:
Section 1322(b)(5) addresses, as does the Code in general, secured and unsecured claims. In light of the goals of Chapter 13, §§ 1322(b)(2) and (5) must be read as allowing a debtor to reinstate in its stripped down form a residential mortgage that comes due beyond the life of the plan. The debtor must cure arrearages within a reasonable time, see § 1322(b)(5), but need make scheduled mortgage payments only until the secured claim is fully paid. See In re Franklin, 126 B.R. at 712-13; In re Hayes, 111 B.R. [924] at 927. Such treatment of a residential mortgage lender's secured claim is neither a modification prohibited by § 1322(b)(2) nor does it implicate §§ 1325(a)(5)(B) or 1322(c). [Emphasis added.]
Id. This language seems to imply that the debtor may reinstate the mortgage "in a stripped down form", or a reduced principal balance equal to the value of the residence at the time of the Section 506 or confirmation hearing, pay the arrearages pursuant to a plan of reorganization, and make regular monthly payments until the reduced principal balance or the secured claim is paid in full. However, this analysis effectively avoids the lien of the secured creditor pursuant to Section 506(d) without directly so stating. This result may not have been intended. However, to the extent that the Second Circuit did intend to avoid the lien as to the unsecured portion of the claim, said analysis is inconsistent with the in rem analysis in Johnson and Dewsnup. Indeed this Court has independently reviewed In re Franklin, 126 B.R. 702 (Bankr.N.D.Miss.1991), upon which the Bellamy Court relied. Franklin was decided prior to the Dewsnup decision. Moreover, it specifically bifurcates the undersecured creditor's claim and further orders that the interested parties proceed with a Section 506(d) adversary proceeding to avoid the lien of the creditor to the extent that the lien provides security for the unsecured portion of the claim. The Bankruptcy Appellate Panel, in the Lange decision, disagrees with the Franklin Court's analysis as to the continuing validity of the lien as to the unsecured portion of the bifurcated claim. This Court believes the Lange analysis is more appropriate in light of Johnson and Dewsnup.
Moreover, this Court notes that the Court in Bellamy relied on Section 1322(b)(5) in its analysis. Section 1322(b)(5) provides as follows:
(b) Subject to subsections (a) and (c) of this section, the plan may
(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.
This Section specifically permits a Chapter 13 plan of reorganization to cure the arrearages on, and pay, unsecured claims, even though the final payment on the unsecured claim is due and payable after the final payment has been made by a debtor pursuant to a confirmed Chapter 13 plan. Although originally intended to focus on the repayment of student loans, this Section provides further authority for the proposition that a lien encumbering the debtor's principal residence may provide security *374 for an unsecured claim during the period when the debtor is making payments pursuant to a confirmed Chapter 13 plan.
Therefore, there is no specific statutory provision which supports the Bellamy Court's conclusion that once the payments are made on the secured claim pursuant to a confirmed Chapter 13 plan, the lien must be extinguished as to the secured and unsecured portion of a bifurcated claim.
This Court reaffirms its analysis as set forth hereinabove as to what will transpire at the conclusion of the Debtors' five-year plan. Such a result is mandated by Johnson and Dewsnup.
IT IS SO ORDERED.
NOTES
[1] Unless specifically noted to the contrary, all references in this Decision are to the Bankruptcy Reform Act of 1978, as amended (the "Bankruptcy Code").
[2] In re Hougland, 886 F.2d 1182 (9th Cir.1989).
[3] The debtor apparently reduced the amount of the secured indebtedness prior to the filing of the Chapter 7 proceeding.
[4] One of the issues presented in the case was whether the debtor could obtain a discharge in a Chapter 7 proceeding and then file a Chapter 13 petition; that is, was a so-called "Chapter 20" permissible? The Court concluded that there was nothing inherently improper about filing a Chapter 7 proceeding, obtaining a discharge, and then filing a Chapter 13 petition. However, the debtor should be proceeding in good faith. Id., ___ U.S. at ___, 111 S.Ct. at 2156, 115 L.Ed.2d at 77.
[5] 11 U.S.C. § 101(5) provides in pertinent part:
§ 101. Definitions.
In this title
* * * * * *
(5) "claim" means
(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.
[6] On the issue of abandonment, 11 U.S.C. § 554 provides:
§ 554. Abandonment of property of the estate.
(a) After 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.
(b) On request of a party in interest and after notice and a hearing, the court may order the trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.
(c) Unless the court orders otherwise, any property scheduled under Section 521(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor and administered for purposes of section 350 of this title.
(d) Unless the court orders otherwise, property of the estate that is not abandoned under section (a) or (b) of this section and that is not administered in the case remains property of the estate.
[7] Interestingly enough, the lower Court decision had determined that the lien could be avoided pursuant to Section 506(d). In re Hougland, 93 B.R. 718 (D.Or.1988).
[8] 11 U.S.C. § 1322(b)(2) provides in pertinent 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, or leave unaffected the rights of holders of any class of claims.
[9] At least one appellate court has noted the ambiguity of Section 1322(b)(2). In re Harris, 94 B.R. 832 (D.N.J.1989). Contra, In re Bellamy, 22 BCD 1476, 962 F.2d 176 (2nd Cir.1992); In re Hougland, supra.
[10] On April 14, 1992, this Court referred to the analysis set forth in In re Strober, 136 B.R. 614 (Bankr.E.D.N.Y.1992). However, this decision has now been effectively overruled by In re Bellamy, 22 BCD 1476, 962 F.2d 176 (2nd Cir. 1992).
[11] Margaret Howard, Washington SceneDew-What?, NORTON BANKR.LAW ADVISER, Mar. 1992, at 1.
[12] 11 U.S.C. § 1111(a) provides that irrespective of the terms in the underlying documentation, all creditors initially have a recourse claim in bankruptcy. A creditor may elect to have the claim become nonrecourse. 11 U.S.C. § 1111(b)(2) then provides:
(2) If such an election is made, then notwithstanding section 506(a) of this title, such claim is a secured claim to the extent that such claim is allowed.
[13] Ariz.Rev.Stats.Ann. §§ 33-729(A), 33-730(A) and 33-814(G) (1991). The Arizona anti-deficiency judgment statutes have a broad application. See Mid Kansas Fed.S. & L. v. Dynamic Dev., 167 Ariz. 122, 804 P.2d 1310 (1991), stating that a developer may take advantage of the provisions of the statutes.
[14] 11 U.S.C. § 1328(a) provides in pertinent part:
(a) As soon as practicable after completion by the debtor of all payments under the plan, unless the court approves a written waiver of discharge executed by the debtor after the order for relief under this chapter, the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title * * *
and
11 U.S.C. § 1328(b) provides:
(b) At any time after the confirmation of the plan and after notice and a hearing, the court may grant a discharge to a debtor that has not completed payments under the plan only if
(1) the debtor's failure to complete such payments is due to circumstances for which the debtor should not justly be held accountable;
(2) the value, as of the effective date of the plan, of property actually distributed under the plan on account of each allowed unsecured claim is not less than the amount that would have been paid on such claim if the estate of the debtor had been liquidated under chapter 7 of this title on such date; and
(3) modification of the plan under section 1329 of this title is not practicable.
[15] In Arizona, a debtor previously paid interest on the prepetition arrearages due and owing to a secured creditor that was paid in a Chapter 13 plan of reorganization. The recent Ninth Circuit decision of In re Laguna, 944 F.2d 542 (9th Cir.1991), cert. denied, ___ U.S. ___, 112 S.Ct. 1577, 118 L.Ed.2d 219 (1992), now prohibits the payment of interest on such a prepetition arrearage. However, in this case, the Debtors may not alter the interest rate or the amount of the monthly mortgage payment as to the secured claim. Therefore, the effective principal balance of the loan has been reduced to the amount of $77,000 (the value of the residence), rather than the principal balance of $79,202.79 (the aggregate amount due and owing to Associates). By not making any payments, or de minimus payments, on the Associates' unsecured claim, and recomputing the payments made by the Debtor on the reduced principal balance of the secured claim, the Debtors may have a cost savings to them over the life of the 5-year plan.
An interesting point is that if the courts reduce the effective principal balance of the loan, but do not and cannot modify the monthly mortgage payments (which include principal and interest payments), a debtor necessarily repays the loan on an accelerated basis. Effectively the debtor is making an excess payment of principal on a monthly basis, because of the reduced principal balance determined by the bankruptcy court as to the secured claim. This excess or additional payment by the debtor must necessarily be applied in reduction of the loan's reduced principal balance, since no other terms and conditions of the loan may be modified. In re Hayes, 111 B.R. 924, 927 (Bankr. D.Or.1990).
In the context of a Chapter 11 proceeding, and in light of the Dewsnup decision, the benefit to the debtor would be a reduced principal balance if the claim were bifurcated. The debtor could then alter the repayment terms of the secured, as well as the unsecured, claim. If a Section 1111(b)(2) election were made, the creditor would then arguably (pursuant to Dewsnup) have a secured claim to the full extent of the indebtedness and could demand that interest be computed on the full amount of the claim, irrespective of the value of the collateral. Such an analysis is necessary in a Chapter 11 proceeding. Otherwise, there would be no difference between an electing and a nonelecting creditor. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1537857/ | 918 A.2d 362 (2007)
In re Laurence A. ELGIN, Respondent.
A Member of the Bar of the District of Columbia Court of Appeals Bar Registration (Bar Registration No. 159582).
No. 04-BG-919.
District of Columbia Court of Appeals.
Argued October 13, 2005.
Decided March 8, 2007.
*365 James P. Schaller, with whom Arthur D. Burger was on the brief, Washington, for respondent.
Julia L. Porter, Senior Assistant Bar Counsel, with whom Wallace E. Shipp, Jr., Acting Bar Counsel at the time, was on the brief, Washington, for Bar Counsel.
Elizabeth J. Branda, Executive Attorney, for the Board on Professional Responsibility.
Before REID and GLICKMAN, Associate Judges, and SCHWELB, Senior Judge.
REID, Associate Judge:
The Board on Professional Responsibility ("the Board" or "the BPR") has recommended that respondent, Laurence A. Elgin, be suspended from the practice of law for six months and be required to pay Saundra Burka, one of his clients and a close friend of Mr. Elgin's wife, restitution in the amount of $5,000.00 with interest as a condition of reinstatement. The Board adopted the findings of the Hearing Committee ("the Committee") which determined that Mr. Elgin had violated the District of Columbia Rules of Professional Responsibility because he: 1) failed to consult with his client concerning a settlement;[1] 2) intentionally prejudiced his client's interests;[2] 3) failed to keep his client reasonably informed about the terms and conditions involved in the initiation and settlement of a lawsuit;[3] 4) failed to adequately explain to his client the basis for his legal fees;[4] 5) failed to disclose a conflict of interest to his client;[5] 6) entered into an impermissible business transaction with his client;[6] 7) engaged in dishonest *366 conduct;[7] and 8) interfered with the administration of justice.[8] The Board agreed with the Committee that Mr. Elgin had not violated Rule 1.15(b) by making unauthorized use of Ms. Burka's credit card, and that, in fact, Ms. Burka had authorized use of the credit card.[9] However, because the Board decided that the Committee's recommendation of a one-year suspension as a sanction was overly harsh, it reduced the recommended sanction to six months, with the condition that Mr. Elgin pay restitution to Ms. Burka before he could be reinstated. The District of Columbia Bar Counsel ("Bar Counsel") and Mr. Elgin filed exceptions to the Board's report and recommendation.
Bar Counsel argues that Mr. Elgin's "dishonesty was far more pervasive and egregious than the Hearing Committee and the Board concluded," and that the sanction recommended by the Board is too lenient. Bar Counsel believes the appropriate sanction is either disbarment or a three-year suspension, full restitution,[10] and a fitness requirement as a condition of reinstatement. Mr. Elgin contends in his brief that a suspension of six months is inordinately severe, and that the court should impose public censure as his sanction, in addition to ordering restitution as a condition of reinstatement. During oral argument, Mr. Elgin expressed the view that, in the alternative, a three-month suspension, with a restitution requirement, would be acceptable.
Given the seriousness of Mr. Elgin's misconduct and in light of sanctions imposed in pertinent past cases, we impose the Board-recommended sanction of suspension for six months, and restitution in the amount of $5,000.00 to Ms. Burka, with interest, as a condition of reinstatement.
FACTUAL SUMMARY
As a result of Ms. Burka's complaint, on August 16, 2000, Bar Counsel filed specification of charges and began formal disciplinary proceedings against Mr. Elgin, alleging that he violated Rules 1.2, 1.3(b)(2), 1.4(a) and (b), 1.5(b), 1.7(b)(4), 1.8(a), 1.15(b), 8.4(c), and 8.4(d) of the Rules of Professional Conduct. This matter was heard by the Committee on February 2, 7 and 16; March 19 and 21; and May 5 and 12, 2001. Bar Counsel called several witnesses, including Ms. Burka and Mr. Burka. Mr. Elgin testified and called Mrs. Elgin and other witnesses. The Hearing Committee issued its report and recommendation on December 3, 2003, finding *367 that Mr. Elgin had violated Rules 1.2, 1.3(b)(2), 1.4(a) and (b), 1.5(b), 1.7(b)(4), 1.8(a), 8.4(c), and 8.4(d), but not Rule 1.15(b).
The Committee's Pertinent Factual Findings
The record compiled by the Committee shows that Mr. Elgin first met Ms. Burka in 1980 at his wedding. His wife, Eileen Elgin ("Mrs. Elgin"), and Ms. Burka met in 1973 while working together as real estate trainees and agents in Northern Virginia. They later became close personal friends. In 1982, Ms. Burka lent Mrs. Elgin $6,000.00 to assist the Elgins' with their personal expenses.[11]
The controversy over Mr. Elgin's representation of Ms. Burka has its roots in the year 1983. In early 1983, Mr. Elgin provided Ms. Burka with legal services in relation to a greeting card company that she intended to create. The Committee found that Mr. Elgin had worked 36.25 hours for Ms. Burka on this venture and was compensated in the amount of $2,500. Despite Mr. Elgin's contentions that he regularly represented Ms. Burka between 1983 and 1993, the Committee determined that from April 5, 1983 to 1993, he received no other remuneration for any legal services he provided to Ms. Burka. While the Committee concluded that Mr. Elgin had intermittently provided legal advice to Ms. Burka, it did not consider such advice to constitute "regular representation in the usual sense of the phrase."
The relationship between Ms. Burka and the Elgins became more complicated in 1993, when the Burkas' marriage collapsed and Ms. Burka required legal assistance. As part of the termination of their marriage, in early 1993, the Burkas entered into a Property Settlement Agreement ("PSA"). The PSA provided that a defaulting party would be responsible for "all reasonable fees and costs (attorney's fees, court costs, and the like) incurred by the party seeking enforcement of the Agreement." Consistent with the PSA, Ms. Burka was awarded a cash sum and alimony for five years. A few months later, in or about May 1993, Mr. Burka sued his ex-wife, alleging that during her final walk-through of their marital home, she had violated the terms of the PSA by taking property designated for him. Mr. Burka sought the return of or compensation for the property, as well as attorney's fees. In October 1993, this action was consolidated by the Fairfax, Virginia Circuit Court with the Burkas' divorce proceeding. Ms. Burka initially chose Mark Barondess to represent her, but when it became clear he might be called as a witness, she began searching for alternate, less expensive counsel.
After discussing the matter with Mrs. Elgin, Ms. Burka asked and Mr. Elgin agreed in October 1993 to represent her in the consolidated action for a flat fee of $10,000.00 plus expenses.[12] It is uncontested *368 that this oral fee agreement was never reduced to writing. Ms. Burka paid the $10,000.00 fee in addition to other expenses, which included charges for local counsel since Mr. Elgin was not a member of the Virginia Bar. The Committee found that there was such confusion over the cost of the representation that it could not be said that Mr. Elgin had adequately explained the terms of his fees to Ms. Burka.[13]
The confusion over the attorney's fees intensified in late 1993 when the Internal Revenue Service ("IRS") notified Ms. Burka that she owed $34,000.00 plus $4,500.00 in interest relating to a joint 1991 tax return filed by the Burkas; she paid the sum in protest. In early 1994, Mr. Elgin alleged as an affirmative defense in the consolidated action against Ms. Burka, that Mr. Burka had breached the PSA by applying to the IRS for payment of that portion of the 1991 tax refund received by Ms. Burka. Mr. Elgin also filed a separate action in May 1994, alleging the same misconduct on the part of Mr. Burka, and submitted a motion to join the separate claim to the consolidated action. In July of 1995 the Fairfax Circuit Court denied Mr. Elgin's motion, and on August 30, 1995, Mr. Elgin filed a breach of contract action in the Fairfax Circuit Court pertaining to the IRS matter. When Mr. Burka's motion to dismiss this claim failed in early December 1995, the discovery phase proceeded during which Mr. Elgin offered and Mr. Burka rejected a settlement offer. In July 1996, the Fairfax court dismissed the breach of contract action with prejudice.
In July of 1994, Mr. Burka won his consolidated action. Ms. Burka, still represented by Mr. Elgin, appealed and lost again as the Court of Appeals of Virginia affirmed the judgment in favor of Mr. Burka on May 2, 1995. Mr. Elgin, on behalf of Ms. Burka, then petitioned for leave to appeal to the Supreme Court of Virginia but on September 15, 1995, that court dismissed the petition. The Committee found that "Ms. Burka was deeply involved in many of the details of the litigation of the [various legal actions], . . . that she raised many considerations that required substantial amounts of Mrs. Elgin's time to listen and record them and required significant amounts of [Mr. Elgin's] time to review and consider what action to take."
From an examination of the evidence regarding these legal actions and from the testimony of various witnesses, the Committee discredited Ms. Burka's testimony that she only discovered that Mr. Elgin was not a Virginia lawyer on the "`first day of court in March '94.'" Although the Committee found that the Elgins never explicitly advised Ms. Burka at the outset that Mr. Elgin was not a Virginia lawyer, it credited Mrs. Elgin's testimony that Ms. Burka knew this from previous legal dealings with Mr. Elgin and it also credited Mr. Elgin's testimony that Ms. Burka was heavily involved in the selection of local counsel. The Committee did not agree with Bar Counsel that Ms. Burka was unaware that she would have to pay additional expenses above the $10,000.00 amount for local counsel.
In addition, the Committee stated that "[d]ue to the complications that arose with regard to the IRS and the affirmative actions that were filed, it would be reasonable for [Mr. Elgin] to seek a revision to the flat fee arrangement." Although there were considerable discrepancies regarding *369 additional fees paid to Mr. Elgin by Ms. Burka, the Committee determined that pursuant to an agreement between the Elgins and Ms. Burka, the Elgins were
to accept $4,000 as a fee payment for the affirmative IRS matter (to be paid through Ms. Burka's repayment of bills incurred by [the Elgins] on [a] Crestar credit card), with an understanding that [Mr. Elgin's] request for a $10,000 retainer (for matters beyond those reasonably expected at the time representation began in October 1993) was being discounted by a $6,000 repayment of the 1982 loan to the Elgins.
The Crestar credit card which belonged to Ms. Burka and which had a maximum limit of $10,000.00 and a zero balance, created more problems. Ms. Burka not only gave the card to Mrs. Elgin but also indicated that she would pay charges up to the specified amount. True to her word, Ms. Burka paid the first $4,000.00 the Elgins charged to the card. Ms. Burka maintained that she did not authorize the Elgins to make charges on the card in excess of $4,000.00. However, the Committee concluded that by the end of June 1994, the Elgins had charged $9,420.04 on the credit card and Ms. Burka was aware of these charges because the bill was sent to her home. Bar Counsel asserted that Mr. Elgin misused the credit card by making charges on the card in excess of $4,000.00, but the Committee stated that Bar Counsel "failed to prove by clear and convincing evidence that the Elgins were authorized to charge only the $4,000. . . ." The Committee again discredited Ms. Burka's testimony, noting:
If Ms. Burka felt coerced to hand over the card and intended to limit charges to $4,000 . . . her subsequent behavior seems unusual. First, it seems inconsistent with the very friendly note [Ms. Burka sent with a] replacement card.[14] Further, Ms. Burka was, at least to some degree, aware of the Elgins' past financial problems. She had previously loaned them $6,000 that was never repaid. Given the degree of sophistication about business that she displayed to the Committee, the Committee found it hard to believe that she would have given her credit card for use by another except for the reasons given by the Elgins a degree of personal concern for their situation[15] and the convenience to her of not having to come up with a lump of cash right away.
Ms. Burka's account of her actions when the Elgins had charged more than $4,000 seems odd as well. She knew they had a credit card of hers with a $10,000 limit and were having some difficulty paying the bills. She nonetheless had the statements sent to their address and did not cancel the card.[16] She says she did not cancel the card because [Mr. Elgin] told her it had been destroyed. If she believed that at the time, however, it still seems odd that someone with *370 Ms. Burka's sophistication would not have canceled the card with Crestar.
In July of 1994, Ms. Burka paid down another $5,000.00 on the Crestar credit card. The reason for this was also in dispute, with Ms. Burka characterizing it as a loan given to the Elgins in a time of need, and the Elgins characterizing it as payment for Mr. Elgin's work on the appeal of the consolidated action. The Committee
credit[ed the Elgins'] testimony insofar as Ms. Burka was aware that they considered the $5,000 payment to be applied to fees. Their testimony [wa]s consistent with the timing of the payment in connection with the loss at trial of the [consolidated] action and Ms. Burka's desire to appeal. . . . Further, the amount [wa]s consistent with a minimal fee for an appeal in what appears to have been a rather complex matter. Ms. Burka's notation on the check, `loan to L.E.'[17] [wa]s consistent with her testimony at the hearing, but that check would not have been something seen by the Elgins. . . . Ms. Burka's rationale for not requesting a note for the `loan' [wa]s inconsistent with her business acumen and her knowledge at the time.[18] Therefore, [the Committee found] that while, with the lack of clarity about what the original $10,000 fee was to cover, there may have been some dispute about payment of the $5,000, the Elgins believed that Ms. Burka had agreed to the $5,000 extra payment for the appeal, while Ms. Burka did not see it that way.
By September 20, 1994, the Crestar credit card showed a balance of $11,200.86, including a fee for charges in excess of the card's $10,000.00 limit. Although the Elgins attempted to pay down the balance, by July 20, 1995 the outstanding balance was $10,840.51, including $840.51 in excess of the $10,000.00 credit limit. As a result, Crestar Consumer Finance Corporation ("Crestar") sued Ms. Burka in Fairfax Circuit Court seeking repayment. The Motion of Judgment was posted on the front door of the Elgins' house on July 24, 1995; Ms. Burka initially had no notice of the action against her.
The Committee found that Mr. Elgin failed to notify Ms. Burka of the Crestar action against her in a timely fashion. In fact, there is little dispute that Mr. Elgin filed an answer to the complaint on August 14, 1995 on Ms. Burka's behalf without even informing her of the suit.[19] Although *371 Mr. Elgin claimed to have told Ms. Burka about the lawsuit within a day or two of receiving notice, the Committee discredited his testimony. However, the Committee chose not to credit Ms. Burka's testimony that the Elgins never informed her of the lawsuit. Instead, the Committee found that it was "at least as likely as not that Ms. Burka was told about the Crestar lawsuit," based largely on Mrs. Elgin's testimony that she heard Mr. Elgin conduct a three-way conversation with Mr. Burka and Ms. Burka sometime in October or November of 1995 regarding the lawsuit. Mr. Elgin settled the Crestar lawsuit and the Fairfax Circuit Court dismissed the case on March 11, 1996. Mr. Elgin claims that the settlement was simply a matter of telling Crestar's counsel of the repayment schedule he had agreed to with Crestar. However, the details of that schedule and the terms of the settlement were never disclosed.
The Elgins took responsibility for the credit card balance and by August 11, 1998, they had reduced it to $5,937.48. However, they consistently had difficulty raising the money to pay off the debt, and while Ms. Burka testified that she was unaware of the 1995 Crestar lawsuit, she was aware of the Elgins' struggles.[20] In the late summer of 1995, Ms. Burka applied for a mortgage on a new home and was advised that her credit report reflected a debt to Crestar. She then insisted that Mr. Elgin put in writing that he was responsible for the debt and, further, pay the outstanding balance; she received the requested letter in October 1995. Ms. Burka also said that she was contacted by Crestar in mid-1996 because of a number of bad checks that the Elgins had been sending in.
Since the Elgins did not extinguish the outstanding balance, Crestar threatened to file suit against Ms. Burka again in August, 1998; however, this time Crestar contacted Ms. Burka directly. Ms. Burka again told the Elgins to pay down the outstanding balance but she claims that the Elgins informed her that they had no money to pay the bill and that they would pay her back when they had the money. As a result Ms. Burka arranged a settlement with Crestar whereby she paid a lump sum of $5,000 and Crestar agreed to drop the suit.
Ms. Burka then sued the Elgins on October 7, 1998 alleging that Mr. Elgin had "improperly used her Crestar credit car and abused his fiduciary duty as her attorney. She sought damages in the amount of $10,000." Mr. Elgin answered the complaint *372 on November 6, 1998, claiming that he was not indebted to Ms. Burka because she owed him and his co-counsel, Vail Pischke, $92,396.38 for legal fees as a result of the work he had done for Ms. Burka regarding the PSA and IRS issues. After discussing the case with her lawyer, Ms. Burka ultimately decided to drop the suit due to the low probability that the Elgins would ever be able to pay the damages.
The Committee's Credibility Determinations and Conclusions
The Committee's findings rested largely upon credibility determinations, especially regarding the testimony of Ms. Burka and the Elgins. The Committee considered Ms. Burka an "intelligent woman, relatively sophisticated in business and legal affairs." However, it questioned Ms. Burka's testimony at the hearing on the charges against Mr. Elgin. Overall, it found her testimony to be "inconsistent with documents and logical inferences from other evidence" and therefore not credible. As the Committee put it: "[Ms. Burka] seemed almost always to take the most extreme view of the facts, e.g. to be sure something `never' happened if that supported her claim versus Respondent's." The Committee went on to provide several examples of situations where it considered Ms. Burka's testimony to be inconsistent with documentary evidence and not credible in other respects.[21]
Mr. Elgin's testimony was somewhat "erratic" and the Committee did not credit it entirely. However, unlike Ms. Burka, he did not provide testimony favorable only to his case, and the Committee viewed his demeanor more consistent with that of an honest person.
The Committee determined "Ms. Elgin to be the most straightforward and to the point and to offer what seemed to be the most accurate account of past events." "In her demeanor and in the substance of her testimony," Ms. Elgin appeared to be "genuinely seeking to remember what happened." Moreover, her testimony "did not always seem simply calculated to put her husband in the best light."
After concluding that Mr. Elgin violated all but one of the rules on which Bar Counsel's charges were based, the Committee recommended that Mr. Elgin be suspended for one year. Bar Counsel and Mr. Elgin filed exceptions and oral argument was heard before the Board on May 6, 2004. The Board adopted the Committee's findings of fact, assessments of credibility, and determinations of Rule violations; however, in its report of July 30, 2004, the Board recommended a six-month suspension, rather than a one-year suspension, based on its analysis of several cases of our past cases.
ANALYSIS
Bar Counsel's central argument, supported by reference to particular actions by Mr. Elgin and findings it believes the Committee should have made, is that the record shows a pattern of dishonesty so *373 pervasive that it warrants Mr. Elgin's disbarment, or at the minimum, three years suspension plus fitness and restitution in the amount of $10,000.00. From Bar Counsel's perspective, Mr. Elgin's "misconduct was not isolated, but occurred over several years beginning in October 1993 . . . and continuing through the time [Ms. Burka] filed a civil action and subsequent ethical complaint against him in 1999." Bar Counsel faults Mr. Elgin for not having reimbursed Ms. Burka and for not "show[ing][any] remorse for his misconduct." Bar Counsel also contends that Mr. Elgin's "secret settlement provided no benefit to his client, but severely prejudiced her interests by leaving her exposed for his debt and further breaches."
The Board did not submit a brief but presented oral argument at the request of the court. The Board takes issue with the sanction advocated by Bar Counsel, asserting that its advocacy of disbarment or a three-year suspension is based on a case it failed to prove in its entirety. In particular, the Board emphasizes the Committee's finding that Ms. Burka had in fact authorized the use of her credit card above the $4,000.00 amount. Furthermore, while the Board viewed Mr. Elgin's misconduct as quite serious, it was not severe enough to merit disbarment or a three-year suspension, given this court's past cases.
Mr. Elgin requests leniency concerning his sanction. Specifically, he advocates public censure or, at a maximum, a three-month suspension. He claims that his lengthy, previously unblemished record; the unusual nature of his relationship with Ms. Burka because of his wife's friendship with her; and the strain on his emotions and finances caused by his son's illness are all mitigating factors. And he notes that both the Board and the Committee found that there was little likelihood that he would repeat his misconduct in the future; consequently, a severe sanction would be unnecessary to protect the courts, the Bar and the public.
Standard of Review
When examining a Report and Recommendation from the Board on Professional Responsibility, "the scope of our review . . . is limited." In re Bailey, 883 A.2d 106, 115 (D.C.2005) (internal quotation marks and other citation omitted) (quoting In re Berryman, 764 A.2d 760, 766 (D.C.2000)). We must "accept the findings of fact made by the Board unless they are unsupported by substantial evidence of record, and shall adopt the recommended disposition of the Board unless to do so would foster a tendency toward inconsistent dispositions for comparable conduct or otherwise would be unwarranted." D.C. Bar R. XI, § 9(g) (2006); see Bailey, supra, 883 A.2d at 115; In re Thyden, 877 A.2d 129, 137 (D.C.2005). In a similar fashion, "the Board is obliged to accept the hearing committee's factual findings if those findings are supported by substantial evidence in the record, viewed as a whole." Berryman, supra, 764 A.2d at 766 (citing In re Micheel, 610 A.2d 231, 234 (D.C.1992)). Moreover, "the Board `must defer to . . . [the] credibility determinations[] made by the [Board's] fact-finding body (the hearing committee). . . ." Id. (quoting Micheel, supra, 610 A.2d at 234).
We have no doubt that there is substantial evidence in the record to support the Committee's findings, which have been adopted by the Board. Moreover, given the Committee's credibility determinations, which the Board did not disturb, we are satisfied that some of the allegations of dishonesty lodged by Bar Counsel were not established by clear and convincing evidence, as the Committee and the Board concluded. Bar Counsel and the Board are divided by whether these additional *374 allegations of dishonesty should have been sustained by the Committee. And, the Board, Bar Counsel and Mr. Elgin disagree about the seriousness of Mr. Elgin's conduct. Hence, as a prelude to consideration of the sanction we impose on Mr. Elgin, we examine the seriousness and the implications of his misconduct.
The Seriousness of the Violations
Mr. Elgin's conduct was undeniably serious. The thorough and detailed work of the Committee in this case depicts a member of our bar who looked upon his wife's close friend, who later became his client, as a resource for coping with difficult financial situations.
Mr. Elgin's early contact with Ms. Burka was not problematic. When his wife sought a loan from the then apparently financially secure Ms. Burka in 1982 to help meet the Elgins' family expenses while Mr. Elgin handled a medical malpractice case, Ms. Burka had not yet become his client. Mr. Elgin's initial legal assistance to Ms. Burka, in 1983, was relatively simple and concerned her desire to create a greeting card business. In 1993 and beyond, however, Mr. Elgin's representation of Ms. Burka was much more complex and extensive, and he permitted his personal life and finances to become entangled with Ms. Burka's interests, and he ignored certain of his ethical responsibilities.
After Ms. Burka's marriage failed, she requested legal representation by Mr. Elgin, including her defense against Mr. Burka's lawsuit for breach of the couple's property settlement agreement, defense of a lawsuit against her filed by the IRS, representation of her during divorce proceedings, an offensive lawsuit against Mr. Burka for breach of contract, and appeals relating to some of these actions. Yet, Mr. Burka did not enter into a formal, written fee agreement with Ms. Burka, and his oral agreement for a $10,000.00 fee eventually spawned questions as to whether that flat fee also covered more than the property settlement lawsuit representation. In short, Mr. Elgin violated Rule 1.5(b) by failing to adequately explain the basis of his legal fees to Ms. Burka.[22]
Significantly, efforts to sort out how much above the $10,000.00 flat fee, if anything, Mr. Elgin should receive for his services sent him deeper into the mire of unethical entanglement with Ms. Burka. As a way to pay for some additional legal services, Ms. Burka permitted the Elgins to use her Crestar credit card with the understanding that she would pay off their charges; ultimately, Ms. Burka made a $4,000.00 and a $5,000.00 payment for the Elgins' charges against her Crestar credit card.
Obviously Mr. Elgin felt pressured not only by the severe, chronic physical condition of one of his twin sons whose ability to breathe at times was threatened by harsh asthma attacks requiring emergency hospitalization and even long-term intensive care treatment on at least one occasion, but also by mounting medical bills in the face of his apparently limited resources. Ms. Burka's credit card served as a convenient way for the Elgins to pay for basic necessities as well as pharmaceutical and other medical expenses, and office supplies for Mr. Elgin's law practice. Because of the Elgins' personal charges on her credit card, Ms. Burka arranged for her Crestar credit card bills to be sent directly to the Elgins for payment. Mr. Elgin continued to participate in the use of *375 Ms. Burka's credit card for personal expenses, ignoring the admonition of Rule 1.7(b)(4) that he should not represent a client where his "professional judgment on behalf of the client will be or reasonably may be adversely affected by . . . the lawyer's own financial, business, . . . or personal interests," and he failed to advise Ms. Burka that his financial and personal interests conflicted with her interests.
When Ms. Burka decided to move to Virginia Beach, Virginia around 1995 and explored mortgage options for the purchase of a home there, she was stunned to learn that her credit rating had eroded badly because the Elgins were not making timely and complete payments for their personal credit card charges. The pressure on Mr. Elgin increased and instead of acting responsibly and in a trustworthy manner, he descended into dishonesty and deceit, in violation of Rule 8.4(c) and committed other ethical violations. After Crestar sued Ms. Burka in July 1995, Mr. Elgin initially concealed the lawsuit from her and sought to defend it, even filing an Answer on her behalf without notifying her, in violation of Rule 1.3(b)(2). In addition, he did not obtain the signature of local Virginia counsel (required because he was not a member of the Virginia Bar), but either he or his wife signed the name of a Virginia counsel, Dennis Burke.
To make matters worse, Mr. Elgin settled the Crestar action in 1996, on terms which he negotiated and apparently did not disclose to Ms. Burka, in violation of the canon requiring a lawyer to "abide by a client's decision whether to accept an offer of settlement" (Rule 1.2(a)); the rule admonishing a lawyer not to "intentionally . . . [p]rejudice or damage a client during the course of a professional relationship" (Rule 1.3(b)(2)); the canon requiring a lawyer to keep his client reasonably informed about a matter and to provide sufficient information on which a client could make an informed decision (Rule 1.4(a)); the rule prohibiting an attorney from acquiring a "pecuniary interest adverse to his client," and in such circumstances, requiring that the attorney be "given a reasonable opportunity to seek the advice of independent counsel in the transaction" (Rule 1.8(a)). He also violated Rule 8.4(d) not only by filing an Answer and settling the Crestar lawsuit without proper disclosure to Ms. Burka, but also by not seeking pro hac vice status in Virginia, the site of the Crestar lawsuit, where he is not a member of the bar. In addition, Mr. Elgin may have violated Virginia Rule 5-104(a) because of his failure to disclose to Ms. Burka, either in writing or orally, that she had potential liability pertaining to the Crestar lawsuit.
Even after his settlement of the Crestar lawsuit, Mr. Elgin's conduct was not honorable or straightforward under Rule 8.4(c). He failed to abide by the settlement terms, and when Crestar threatened Ms. Burka with another lawsuit in August 1998, she paid $5,000.00 to settle the action. After she sued the Elgins in an effort to recoup her $5,000.00, Mr. Elgin filed a counterclaim for $92,396.38 in alleged outstanding legal fees for himself and a Virginia co-counsel. Eventually, after consultation with other counsel, Ms. Burka dropped the lawsuit given the Elgins' financial status.
Simply put, there is substantial evidence of Mr. Elgin's serious violations of our professional conduct rules, even without the additional acts of dishonesty (impacted by the Committee's credibility determinations) which Bar Counsel believes to be supported by clear and convincing record evidence. Given our standard of review, however, we must defer to the factual findings and the credibility determinations of the Board which is bound by the Committee's *376 findings and credibility determinations. Bailey, supra, 883 A.2d at 115; Berryman, supra, 764 A.2d at 766.
The Sanction
"So long as the Board's sanction recommendation falls within the wide range of acceptable outcomes, it comes to us with a strong presumption in favor of its imposition. . . ." In re Bingham, 881 A.2d 619, 623 (D.C.2005). But, we base sanctions on a number of factors, including, but not limited to:
(1) the seriousness of the conduct at issue; (2) the prejudice, if any, to the client which resulted from the conduct; (3) whether the conduct involved dishonesty and/or misrepresentation; (4) the presence or absence of violations of other provisions of the disciplinary rules[;] (5) whether the attorney had a previous disciplinary history; (6) whether or not the attorney acknowledged his or her wrongful conduct; and (7) circumstances in mitigation of the misconduct.
In re Thyden, 877 A.2d 129, 144 (D.C. 2005) (citing In re Jackson, 650 A.2d 675, 678-79 (D.C.1994) (per curiam)); and In re Hill, 619 A.2d 936, 939 (D.C.1993) (per curiam). Similarly, we have said that "[i]n deciding whether to adopt the Board's recommendation, we must examine the `nature of the violation, aggravating and mitigating circumstances, the absence or presence of our prior disciplinary sanctions, the moral fitness of the attorney, and the need to protect the legal profession, the courts, and the public.'" Bingham, supra, 881 A.2d at 623 (quoting In re McLain, 671 A.2d 951, 954 (D.C.1996)); In re Robinson, 736 A.2d 983, 988 (D.C. 1999). We also consider the number of clients prejudiced by an attorney's misconduct, see In re Ryan, 670 A.2d 375, 381 (D.C.1996); the degree of vulnerability of the client prejudiced and the experience level of the attorney, see Austin, supra, 858 A.2d at 976; In re Jones-Terrell, 712 A.2d 496 (D.C.1998); and the time span of the misconduct, see In re Shay, 749 A.2d 142 (D.C.2000), republished at 756 A.2d 465 (D.C.2000), together with the Report and Recommendation of the BPR; Ryan, supra, 670 A.2d at 381. We do not base sanctions solely on the consequences of an attorney's misconduct. See Hager, supra, 812 A.2d at 913-14. And, "[o]ur purpose in conducting disciplinary proceedings and imposing sanctions is not to punish the attorney; rather, it is to offer the desired protection by assuring the continued or restored fitness of an attorney to practice law." In re Bettis, 855 A.2d 282, 287 (D.C.2004) (quoting In re Steele, 630 A.2d 196, 200 (D.C.1993)). In the final analysis, it is the court which decides the sanction to be imposed. See In re Temple, 629 A.2d 1203, 1207 (D.C.1993).
Given the factors we consider in imposing sanctions, and in light of the Committee's factual findings, and Mr. Elgin's multiple violations of our ethical rules, his request for public censure as a sanction is far off the mark, as the Board, Committee and Bar Counsel perceived. Even his alternative advocacy of a three-month maximum sanction does not fit the seriousness of his violations of our ethical rules. On the other hand, Bar Counsel's call for disbarment on the facts of this case, particularly where there was no misappropriation charge and finding and no determination that he was motivated by greed, appears to fall outside of the warranted sanction and to be punitive. Bar Counsel's alternative recommendation of a three-year suspension also appears to be too strong a sanction given the factual findings and credibility determinations of the Committee, which the Board accepts. As we view this case and our case law, the Board's recommended sanction of suspension for six months is a closer fit with *377 respect to the severity of Mr. Elgin's ethical violations.
Bar Counsel seems to portray Mr. Elgin as an underhanded swindler who lured Ms. Burka to hire him as her counsel by offering to accept a flat rate of $10,000.00 as his total fee, only to later charge her an additional $15,000.00 in fees.[23] However, there is much in the record to support the Committee's finding that it was reasonable for Mr. Elgin to charge Ms. Burka more money considering the work that was involved in her legal struggles. Mr. Elgin could not have predicted that he would be representing Ms. Burka over the IRS matter when he first agreed to the $10,000.00 charge, and it is entirely possible that he did not consider the agreement to cover appeals. Thus, it appears quite reasonable that he would charge Ms. Burka more for the added work, but this does not excuse either the haphazard, informal manner in which he charged Ms. Burka, or his demand for over $90,000.00 after Ms. Burka sued him. And there is no excuse for his blatantly unethical conduct following the lawsuit filed by Crestar against Ms. Burka.
The Board focused mainly on the following cases in determining the sanction to be recommended to this court: In re Reback, 513 A.2d 226 (D.C.1986) (en banc) (Reback II) (six-month suspension); In re Hager, 812 A.2d 904 (D.C.2002) (one-year suspension), Shay, supra, 749 A.2d at 142 (three-month suspension), and In re Austin, 858 A.2d 969 (D.C.2004) (disbarment). Although the Committee believed that the present case "arose out of a business transaction that benefitted Respondent, as was the case in Hager and Austin, rather than representation of another client as was the case in Shay," and therefore recommended a one-year suspension ("a sanction at the higher end of the range"); the Board concluded that the misconduct in Hager and Austin was more serious than in the present case, and determined that a six-month suspension plus restitution would be sufficient to serve the interests of the public and the bar, just as it was in In re Reback, supra, (involving attorneys hired to pursue a divorce claim who forged their client's name while filing a second complaint after the first was dismissed without informing the client of the dismissal and subsequent refiling), which the Board considered to be the "same general type of dishonesty." The Board believed that six months was still a "substantial suspension [that] should send a strong signal that dishonesty will not be tolerated and that there are serious risks associated with undue informality in dealing with clients and failure to comply scrupulously with the rules on conflicts of interest and prohibited business transactions." As the Board commented, "Bar Counsel's recommendation . . . that [Mr. Elgin's] misconduct warrants disbarment, or at the minimum a three-year suspension plus fitness and restitution . . . fails to take full account of the facts as found by the Hearing Committee, which fully supports its conclusion that Respondent did not act out of greed or avarice."
We are not persuaded by either Bar Counsel or Mr. Elgin's arguments concerning sanctions. Bar Counsel's comparison of this case to Gil is unpersuasive. In Gil, supra, 656 A.2d at 303, a case in which we imposed the sanction of disbarment, we wrote, "[a] Hearing Committee and the Board both concluded that respondent engaged in conduct which amounted to theft, as well as other dishonest acts, and thereby violated Rule 8.4(b) . . . (committing a *378 criminal act that reflects adversely on the honesty, trustworthiness or fitness of a lawyer). . . ." The respondent in Gil did not even "dispute that his conduct would constitute larceny under District law. . . ." Id. at 305. Although the facts of Gil are somewhat similar to the present case in that the Respondent and his client had known each other for fifteen years, what distinguishes Gil is that the Hearing Committee in that case found, and we agreed, that the respondent "had used over $60,000 of funds entrusted to him by [his client] for his own purposes without her knowledge or consent." Id. at 306 (internal quotation marks omitted). The present matter is different for two important reasons: 1) Bar Counsel never charged Mr. Elgin with violating Rule 8.4(b); and 2) the Committee found and the Board agreed that Ms. Burka had consented to the Elgins' use of the card above the $4,000.00 mark.
Bar Counsel also compares the present case to Austin, supra, a case in which we disbarred an attorney for defrauding a poor, uneducated, unsophisticated, elderly woman. In that case, the Respondent engineered a reverse mortgage on behalf of his 73-year-old client who never hired him for that purpose and then, over the course of a year and a half, borrowed nearly $27,000.00 from her on inequitable terms and failed to pay her back. 858 at 976. In Austin, like Gil, our focus was on "acts that amounted to theft and fraud." Id. In fact, we cited principally to Gil when we noted that "disbarment is appropriate in cases of fraudulent taking of funds." Id. at 977-78. We do not consider Austin persuasive for the present case because Ms. Burka was not an elderly vulnerable client, and she authorized the Elgins' use of her credit card.
Bar Counsel provides no other examples of cases wherein an attorney was disbarred for committing violations of the kind engaged in by Mr. Elgin. Bar Counsel would have had a stronger case in support of disbarment had it been able to charge and prove that Mr. Elgin intentionally or even recklessly misappropriated funds in violation of Rule 1.15(b). See In re Carlson, 802 A.2d 341, 348 (D.C.2002) ("Because of the seriousness of a misappropriation offense, we have adhered to a standard of presumptive disbarment since 1990, except in cases of negligent misappropriations, or extraordinary circumstances."); In re Addams, 579 A.2d 190, 191 (D.C.1990) (en banc) ("in virtually all cases of misappropriation, disbarment will be the only appropriate sanction unless it appears that the misconduct resulted from nothing more than simple negligence."). However, since this case does not involve criminal activity or intentional or reckless misappropriation, we agree with the Board that disbarment would be too onerous a sanction.[24]
Yet, we do not agree with Mr. Elgin that his suspension should be reduced or replaced with a public censure. Rather, we agree with the Board's conclusion that the present case "involves much more serious misconduct" than found in In re Bland, *379 714 A.2d 787 n. 2 (D.C.1998) [("The Board took particular note that the violations did not include . . . 8.4(c) (dishonesty or misrepresentation).");] or In re Hadzi-Antich, 497 A.2d 1062, 1063 (D.C.1985) (mandating public censure for falsehoods on a resume).
Moreover, we do not agree with Mr. Elgin that his behavior was less serious than that of the respondent in Rosen, supra, 481 A.2d at 452-55. In that case, the attorney was found guilty of making three knowing misrepresentations to the United States District Court for the District of Columbia and was suspended for thirty days due to the aggravating factor that he had previously been sanctioned for unethical behavior. Although the attorney's conduct was intentional, his misrepresentations were not critical to the case he was pursuing. Essentially, the attorney lied to the court in order to gain more time to prepare for the trial because of his procrastination. We compared Mr. Rosen's conduct to that of another respondent who was publicly censured because he "misrepresented to the court his reason for failing to publicly appear in court on time. . . ." Rosen, supra, 481 A.2d at 455. Mr. Elgin's attempt to associate his behavior with that of Mr. Rosen must fail because his dishonesty rose to a much higher level. Both the Committee and the Board agreed that Mr. Elgin had been "dishonest in respect to the Crestar suit," violating Rule 8.4(c). Mr. Elgin failed to advise Ms. Burka of the conflict of interest inherent in his representing her in the Crestar lawsuit, and indeed barely advised her of the lawsuit at all, and then he agreed to a settlement without involving her. All of this resulted in the tarnishing of Ms. Burka's credit rating, another lawsuit by Crestar against Ms. Burka which she paid $5,000.00 to settle despite the fact that the charges on her card were those of the Elgins. Thus, Rosen is hardly precedent for the sanction to be imposed on Mr. Elgin.
Thus far we have determined that disbarment is too severe a penalty and public censure or thirty days suspension is too lenient. Mr. Elgin suggests, along with the Board, that Shay, supra, is a comparable case because it involved "conflicts of interest and dishonesty motivated not by self-interest but by the desire to help a friend." Shay involved an attorney who represented a friend ("J.C.") in various legal and financial matters. The attorney was privy to the fact that J.C. had not completed his divorce from his first wife when he married another woman ("E.Y."). J.C. then asked the attorney not only to draw up wills both for himself and E.Y., but also to keep secret the status of his first marriage until he could finalize the divorce. Giving great weight to her duty to keep this information in confidence and believing that she could still serve E.Y.'s interests, the attorney did not disclose to E.Y. that J.C. was still married to another woman. We ordered that the attorney be suspended for three months because we agreed with the Board's finding that "the conflict of interest was serious; it put a client at risk for a period of six years and caused her understandable emotional harm; it deprived a client of vigorous independent legal representation; and it was accompanied by dishonesty." Shay, supra, 756 A.2d at 483.
We see one major fault with Mr. Elgin's contention that Shay is a comparable case: Mr. Elgin clearly was acting out of his own financial self-interest in mishandling the Crestar suit, whereas the respondent in Shay was not. While we agree with the Board that Mr. Elgin "was not motivated by greed," we have doubts about the Board's conclusion that he "engaged in no deliberate self-dealing. . . ." The Committee decided that the "conflict at issue here *380 arose out of a business transaction that benefitted [Mr. Elgin], . . . rather than representation of another client as was the case in Shay." Any competent lawyer, free of a conflict of interest, would have advised Ms. Burka to bring the Elgins in as third-party defendants in the Crestar lawsuit or to in some way legally establish that she was relieved of financial liability. Despite the Committee's comment that "Respondent's dishonesty . . . does not appear to have been motivated by self-dealing . . .," Mr. Elgin cannot pretend that he was serving the best interests of Ms. Burka; Mr. Elgin could only have been motivated to act so unprofessionally by a desire for his own self-preservation, and that of his family at Ms. Burka's expense. "[A]n element of self-dealing," Id. at 485, casts a shadow on the entire legal profession when combined with dishonesty and failure to disclose a conflict of interest. We therefore conclude that a three-month suspension (imposed in Shay) would be too lenient. See In re Evans, 902 A.2d 56, 58 (D.C.2006) (citing cases imposing sanctions ranging from ninety-day suspension to one-year suspension for conflict of interest violations).
The Board seemed to recognize that, despite the purported similarities to Shay, the present case involved more serious rule violations. The Board decided that six months was an adequate suspension and supported its conclusion by referring to Reback II, wherein the "misconduct [] was somewhat analogous" in that it "involved the same general type of dishonesty as found here. . . ." Reback II involved two attorneys who neglected to follow-up on a client's divorce claim, which led to the dismissal of the claim by the Superior Court. The attorneys attempted to cover up their mistake by preparing a second complaint and, without telling their client, forging her signature in order to file it. A three-member panel initially ordered the respondents suspended for one year and a day, see In re Reback, 487 A.2d 235, 243 (D.C.1985), (Reback I), vacated, 492 A.2d 267 (D.C.1985). However, after en banc review, we reduced the sanction to six months, Reback II, supra, 513 A.2d at 233, primarily because of the following factors of mitigation: "respondents ha[d] admitted their wrongdoing, [we]re contrite, and ha[d] cooperated fully throughout the[] proceedings." Id. Moreover, after the attorneys had been dismissed by their client upon her discovery of their misconduct, "they promptly returned the fee she had paid."[25]Id.
It is true that neither the Committee nor the Board found that Bar Counsel had proved by clear and convincing evidence that Mr. Elgin concealed the existence of the Crestar lawsuit, as the attorneys in Reback did. It is also the case that forgery is not a major issue in the present case.[26] However, Reback did not involve a *381 conflict of interest whereby the attorneys' personal and financial interests had become intertwined with those of their client. Rather, the attorneys in Reback were merely attempting to reinstate a complaint that their client had asked them to pursue in the first place. See Hutchinson, supra, 534 A.2d at 926 ("Reback and Parsons' objective was to revive their client's case and restore it to the court's docket, which was not inherently improper and which would indeed have somewhat rectified their prior negligence.") Their attempts to do so were clearly highly unethical, but not as serious as Mr. Elgin's misconduct. Mr. Elgin purported to represent a client without her approval, inadequately apprised her of the case, and then settled the case to her disadvantage without consulting her. In addition, unlike the sincerity of the respondents in Reback, Mr. Elgin's purported contrition leaves much to be desired;[27] and he still has not repaid Ms. Burka the $5,000.00 it cost her to settle the second Crestar lawsuit.[28] Nevertheless, there are cases involving conflict of interest and dishonesty violations in which we imposed a six-month suspension. See Evans, supra, (ordering a six-month suspension primarily for violating Rules 1.7(b)(4) (conflict of interest) and 8.4(d) (conduct that seriously interferes with the administration of justice), but not 8.4(c) (dishonesty)); In re Starnes, 829 A.2d 488, 489-90 (D.C.2003) (ordering a six-month suspension primarily for violation of Rule 8.1(a)) (misleading the Admissions Committee about pre-admission unauthorized practice of law in the District of Columbia) as well as a series of other Rules including 1.1(a) and (b), 1.3(a), (b), and (c) (neglect), 1.4(a) (failure to communicate), and 1.16(a) (failure to withdraw)); and In re Lopes, 770 A.2d 561, 565 (D.C.2001) (ordering a six-month suspension primarily for violation of Rules 8.4(c) and 8.4(d) and 1.3(a) and (c), but not 1.7(b)(4)).
The Committee, the Board, Bar Counsel and Mr. Elgin all examined Hager, supra, (one-year suspension) as a possible precedent for Mr. Elgin's sanction. The Committee regarded Mr. Elgin's case as comparable to Hager but the Board described Mr. Elgin's conduct as "far less dangerous than that in Hager.. . . ." Mr. Elgin agrees with the Board, contending "that the conduct in Hager was orders of magnitude graver than that of Mr. Elgin here, as was any accompanying `ethical' numbness." Bar Counsel asserts that Mr. Elgin's "misconduct is far worse than that in [] Hager," in part, because he entered into "a secret settlement [which] provided no benefits to his client whereas the settlement in Hager `provided the clients significant relief and benefits.'" Hager involved a lawyer (Mr. Hager) who agreed to represent clients in a potential class action suit against a manufacturer of head-lice shampoo. Without his clients' permission, Mr. Hager entered into a settlement agreement with the manufacturer whereby the latter would pay Hager $225,000 in exchange *382 for Mr. Hager's promise to a) keep the pay-off secret from his clients; and b) eschew the representation of any other client pursuing similar claims against the manufacturer.[29] Mr. Hager was found guilty of violating many of the same provisions as Mr. Elgin violated, including 1.7(b)(4) (conflict of interest) and 8.4(c) (dishonesty), but also was found guilty of violating Rule 1.8(e):
A lawyer shall not accept compensation for representing a client from one other than the client unless:
(1) the client consents after consultation;
(2) there is no interference with the lawyer's independence of professional judgment or with the client-lawyer relationship; and
(3) information relating to representation of a client is protected as required by Rule 1.6.
The Committee found especially persuasive our comment in Hager, supra, 812 A.2d at 921, that Mr. Hager's misconduct "demonstrated at best an ethical numbness to the integrity of the attorney-client relationship . . . this `occurred because respondent accorded a higher priority to the collection of his fee than to serving his client or complying with professional standards'" Id. (quoting In re James, 452 A.2d 163, 170 (D.C.1982)). We concluded that "[Respondent's] misconduct strikes at the heart of the attorney-client relationship . . . [it] encompasses precisely the fear clients have that their attorneys will be `bought off' by opposing counsel, or that their attorneys will use the clients' case to surreptitiously profit from the representation." Id. While Mr. Hager was motivated by greed, the driving force behind Mr. Elgin's misconduct was somewhat comparableself-preservation and the preservation of his family; his client's best interests clearly were ignored as he attempted to extricate himself and his family from personal and financial difficulties by using a financial resource belonging to his client. But, Mr. Elgin had only one client, Ms. Burka. Mr. Hager had multiple clients in a class action suit, each of whom looked to him to protect his or her legal interests, and each of whom was impacted by his behavior. Under these circumstances, it was not unreasonable for the Board to conclude that Mr. Elgin's misconduct was "far less dangerous" than that of Mr. Hager.
Finally, we turn to Mr. Elgin's request for leniency based on his previously unblemished disciplinary record, as well as the strain he was under due to his son's illness. In the past, we have taken into account aggravating and mitigating factors such as, but not limited to: the number of times an attorney has been sanctioned, see Hutchinson, supra, 534 A.2d at 924 (citing In re Roundtree, 467 A.2d 143, 147-48 (D.C.1983); and Reback II, supra, 513 A.2d at 233); and any work the attorney has done on behalf of the community, see Hager, supra, 812 A.2d at 922.
The fact that this is Mr. Elgin's first time being disciplined for violating the Rules of Professional Responsibility does work in his favor. However, a six-month or a one-year suspension "on [an] attorney[] with [a] previously unblemished record gives the Bar and the public notice that we consider the attorney's misconduct serious." Reback II, supra, 513 A.2d at 233. It is not unprecedented to order a suspension of considerable length on first-time offenders. See Hager, supra, 812 A.2d at 922 (ordering a one-year suspension *383 despite attorney's previously spotless disciplinary record, his "extensive record of pro bono service," and the fact that "three witnesses testified . . . as to [his] good character in general."); Hutchinson, supra, 534 A.2d at 925 (ordering a one-year suspension despite absence of prior disciplinary record). Despite Mr. Elgin's lengthy, untarnished career, we are troubled by his apparent abandonment of several of the major tenets of professional conducthonesty, openness about conflicts of interest, and cooperation with the administration of justiceand his informality in dealing with a client solely because she was a friend. As the Committee wrote, "this case is appropriately seen through the lens of the dangers arising in representation of family and friends when there is a temptation to be less formal than one might be in dealing with strangers."
Mr. Elgin requests leniency based on his son's illness and the resulting financial and emotional strain it imposed on him. It is true, as Mr. Elgin indicates in his brief, we noted in Hutchinson, supra, that the respondent's "disciplinary violations occurred at a time of marital crisis when he was emotionally dependent on his close friend. . . ." Id. at 925. However, the respondent in Hutchinson "was remorseful," id., but on this record, Mr. Elgin's remorse is questionable. And, as we said in In re Whitlock, 441 A.2d 989, 992 (D.C. 1982), "while poor health, marital [or family] difficulties, and a heavy case load undoubtedly contributed to respondent's acts and omissions, they do not excuse respondent's conduct." In addition, Mr. Elgin failed to ask for Kersey mitigation, and even if he had, it is unlikely that we would have found a causal connection between his dishonesty and the emotional and psychological strain he suffered as a result of his son's illness.[30] In Lopes, supra, 770 A.2d at 568-69, we said: "Dishonesty cuts away at the heart of the legal profession. We are not inclined to diminish the seriousness of the misconduct by relying on too tenuous a link between dishonesty and physical or psychological impairments." Therefore, while Mr. Elgin's preoccupation with and deep concern about his son's illness may weigh in his favor, we reject his view that his sanction should be public censure or a three-month suspension.
Mitigating factors, including Mr. Elgin's lack of a disciplinary record and his son's illness are counterbalanced by an insufficient showing of remorse and by his failure, at least as of the date of oral argument, to repay Ms. Burka the $5,000.00 (with interest) that he purportedly admits to owe her. Yet, these two mitigating factors merit some consideration and may suggest that a six-month suspension is not unreasonable or inappropriate in this case. Indeed, considering the standard by which we are bound, we cannot say on this record that a six-month sanction falls outside of "the wide range of acceptable outcomes," Bingham, supra, 881 A.2d at 623, or "would foster a tendency toward inconsistent dispositions for comparable conduct or otherwise would be unwarranted," D.C. Bar XI, § 9(g); Bailey, supra, 883 A.2d at 115. Furthermore, a six-month suspension, together with a requirement that Mr. Elgin pay Ms. Burka restitution in the amount of $5,000.00 as a condition of reinstatement, is consistent with the fact that "`our purpose in conducting disciplinary proceedings and imposing sanctions is not to punish the attorney; rather, it is to *384 offer the desired protection by assuring the continued or restored fitness of an attorney to practice law,'" Bettis, supra, 855 A.2d at 287 (quoting Steele, supra, 630 A.2d at 200). Therefore, based on the deference we owe to the Board's recommended sanction, we impose a six-month sanction and restitution of $5000.00, with interest, as a condition of reinstatement.
Accordingly, it is therefore ORDERED that Laurence A. Elgin is suspended from the practice of law in the District of Columbia for six months, with restitution to Ms. Burka of $5,000.00 plus interest at the legal rate of 6% from August 14, 1998, as a condition of reinstatement.[31]
So ordered.
NOTES
[1] Rule 1.2(a) ("A lawyer shall abide by a client's decision whether to accept an offer of settlement of a matter.").
[2] Rule 1.3(b)(2) ("A lawyer shall not intentionally: . . . (2) Prejudice or damage a client during the course of a professional relationship.").
[3] Rule 1.4(a) ("A lawyer shall keep a client reasonably informed about the status of a matter and promptly comply with reasonable requests for information.") and (b) ("A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.").
[4] Rule 1.5(b) ("When the lawyer has not regularly represented the client, the basis or rate of the fee shall be communicated to the client, in writing, before or within a reasonable time after commencing the representation.").
[5] Rule 1.7(b)(4) ("[A] lawyer shall not represent a client with respect to a matter if: . . . (4) The lawyer's professional judgment on behalf of the client will be or reasonably may be adversely affected by the lawyer's responsibilities to or interests in a third party or the lawyer's own financial, business, property, or personal interests.").
[6] Rule 1.8(a) ("A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless: (1) The transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client in a manner which can be reasonably understood by the client; (2) The client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and (3) The client consents in writing thereto.").
[7] Rule 8.4(c) ("It is professional misconduct for a lawyer to: . . . Engage in conduct involving dishonesty, fraud, deceit, or misrepresentation.").
[8] Rule 8.4(d) ("It is professional misconduct for a lawyer to: . . . Engage in conduct that seriously interferes with the administration of justice. . . . ").
[9] Rule 1.15(b) states:
Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this Rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property, subject to Rule 1.6.
In concluding that Mr. Elgin did not violate Rule 1.15(b), the Committee stated that his "use of the [Crestar credit] card [belonging to Ms. Burka], in any amount, was authorized by Ms. Burka," and that if Ms. Burka "had any concern about the use of the card, it made little sense . . . that she did not cancel the card and/or have bills sent to her own address so she could keep an eye on the charges."
[10] Bar Counsel considers full restitution to amount to $10,000.00 plus interest.
[11] Although Ms. Burka related the $6,000.00 loan to medical costs for the twins who were diagnosed with asthma at an early age, the Committee credited Ms. Elgin's recollection that Ms. Burka lent the money to her at her request while Mr. Elgin was in a medical malpractice trial in Little Washington, Virginia. Ms. Elgin asked to borrow $5,000.00, but Ms. Burka sent her $6,000.00 (Mr. Elgin was not a party to the loan). Ms. Burka apparently never asked that the money be repaid by a certain date.
[12] While the Committee found that Mr. Elgin agreed to the $10,000.00 flat fee, it also determined that he "thought he might be able to recover attorney's fees from Ms. Burka's husband under the [Property Settlement Agreement]. . . ." Furthermore, the Committee "believe[d] that [Mr. Elgin] expected to keep track of time spent and at some point [to] calculate bills on an hourly basis in the chance of recovering [the hourly sum] from Mr. Burka."
[13] Three different co-counsels are mentioned in the Committee report: Kenneth Bergquist, Vail Pischke, and Dennis Burke.
[14] Upon realizing the first card she sent had expired, Ms. Burka sent along a new card with the following note, postmarked April 25, 1994:
Dear Eileen,
I guess I've really lost my mind. Here is a new credit card for your use! Say hello to the kids for me and take good care of yourself and Lar. See you in July if not sooner.
Love,
Sandee
[15] Prior to February 4, 1995, Matthew Elgin, one of the Elgins' twin boys, had been hospitalized seven times for medical complications resulting from his chronic asthma, two of which required treatment in intensive care.
[16] Ms. Burka testified that after June 1994 she had the credit card company send the bills to the Elgins' house so that the charges "would become their responsibility."
[17] Ms. Burka testified that she did not take a note on the loan, but that she did write "loan to L.E." on the check itself. However, this was a check sent to Crestar, not the Elgins.
[18] Ms. Burka claimed that she was willing to loan the financially strapped Elgins the money because 1) they were "desperate"; 2) she thought she was going to win the appeal; and 3) she did not think that Mr. Elgin would default on the loan, or as she puts it "steal from me."
[19] The name of Mr. Dennis Burke, a local Virginia counsel, was signed by either Mr. or Mrs. Elgin at the bottom of the answer to the Crestar complaint. Mr. Burke only recalled being advised that the suit had been filed and that it was settled; he did not recall making any further inquiry about the case and he testified that he would not have agreed to serve as local counsel if he had known the facts of the case.
Mr. Burke was diagnosed with leukemia in either 1996 or 1997. When he testified by phone during the Committee's hearings, he noted that he had just come back from chemotherapy, had "a whole skin full of drugs, and [was] not operating at peak efficiency." He commented that the chemotherapy treatment impaired his memory: "I'm having difficulty with long-term memory. Previously, I think I'd probably be fairly certain about dates, but I can't be now because I don't recall dates." When asked if it was likely that he could forget an event, like a telephone call, had occurred at all, Mr. Burke replied "[i]t is entirely possible that I may have forgotten a telephone conversation. . . . It concerns me a great deal." Consequently, while the Committee took account of Mr. Burke's thoughts on ethical matters, it concluded that his testimony was "unreliable given the medication he was taking and its effects on him." Therefore, his testimony that he did not remember having a three-way telephone conversation with Mr. Elgin and Ms. Burka, see infra p. 12, concerning the lawsuit was not credited.
[20] The ill health of Matthew Elgin was a major factor in the Elgins' lives. His most severe asthmatic attack came on February 4, 1995, when he was taken to the emergency room, unable to breathe on his own. He remained in intensive care for forty-four days. Ultimately he was transferred from Fairfax Hospital to the Children's Medical and Surgical Center at Johns Hopkins and then transferred again on May 10, 1995 to the Kluge Children's Rehabilitation Center at the University of Virginia via an ambulance and private plane, accompanied by a nurse and EMT crew. He returned home but received physical therapy twice a week from May 23-July 20, 1995. On October 18, 1995 his doctor estimated that he would fully recover 12-15 months from the onset of the illness. During some of the periods of Matthew's illness, the Elgins did not have medical insurance though they did receive Virginia Medicaid for Matthew's 1995 hospitalization, which cost "a couple hundred thousand dollars," according to Mrs. Elgin's estimations.
[21] For example, Ms. Burka's testimony that she had little involvement in the details of her litigation with her former husband conflicted with numerous exhibits reflecting her involvement in the minutia of preparation of discovery responses, deposition questioning etc. The Committee also examined Ms. Burka's testimony in her divorce action and found it suspicious (and reminiscent of her testimony before the Committee) that she was unable to recall whether she lent her sister up to $150,000 during the course of her marriage. Finally, "the Committee found Ms. Burka consistently attempting to minimize [her] relationship [with the Elgins] while physical evidence and the logic of events, such as Mrs. Elgin's role in Ms. Burka's wedding, Ms. Burka's attention to the birth of the Elgin's first child, and the 1982 loan suggested otherwise."
[22] We agree with the Committee's finding that when Mr. Elgin agreed to represent Ms. Burka in 1993, she was not his regular client and hence could not successfully argue that he "regularly represented the client," within the meaning of Rule 1.5(b).
[23] $10,000.00 for the added work which resulted from the IRS matter, and $5,000.00 for appealing the specific performance action.
[24] In In re Goffe, 641 A.2d 458, (D.C.1994), we wrote that "prior precedent does not limit possible sanctions in attorney dishonesty cases to a suspension and that the misconduct here is of a magnitude compelling disbarment." However, the facts of Goffe made it unusual in that the Respondent/attorney engaged in outrageously deceitful behavior including "the repeated resort not only to false testimony but to actual manufacture and use of false documentary evidence in official matters." Id. at 464. Moreover, we distinguish Goffe from the present case because there is little in the record to show that Mr. Elgin's behavior mirrored that of Mr. Goffe who "seemed determined to use every deception he could to accomplish a premeditated, illicit end...." Id. at 465.
[25] It is true that we also wrote: "Most important is the fact that both [attorneys] have had unblemished records of professional conduct during 30 and 15 years of practice respectively. This factor weighs heavily in favor of imposing upon them the lightest sanction...." Reback II, supra, 513 A.2d at 233. However, we wrote that in the context of the other mitigating factors, as well as our acknowledgment that "their dishonesty, as such, caused the client little, if any, prejudice." Id. at 232.
[26] The fact that the attorneys in Reback had forged their client's signature was a major factor in the case. Reback II, supra, 513 A.2d at 232. In the present case, there was some concern that the Elgins had forged the signature of Mr. Burke on the answer Mr. Elgin filed in response to the Crestar lawsuit. However, neither the Committee nor the Board made a finding of fact concerning this issue. Mr. Elgin explained at oral argument that it is customary for lawyers to sign for local counsel with the latter's consent. Since the Committee found Mr. Burke's testimony that he knew nothing about the Crestar lawsuit unreliable, it is impossible to know whether he consented. Moreover, because he testified that had he known the facts of the case, we must assume that he did agree to act as local counsel at some point.
[27] We agree with the findings by the Committee, adopted by the Board, that Mr. Elgin was not being dishonest when he averred, in defense of Ms. Burka's claims against him, that he could not be indebted to her because he believed she owed him in excess of $90,000.00. However, in light of this fact, his contention that he always took responsibility for the debt rings hollow.
[28] As we have written, "Reback . . . was never intended to place a ceiling on the suspension to be imposed on an attorney who has engaged in dishonest conduct." Hutchinson, supra, 534 A.2d at 925.
[29] The manufacturer also agreed to refund the purchase price of the shampoo to Hager's clients.
[30] In order to qualify for a reduced sanction under the doctrine set forth in In re Kersey, 520 A.2d 321 (D.C.1987), one must demonstrate "a causal nexus ... between [a respondent's] [mental health] and the misconduct." In re Lucy Edwards, 870 A.2d 90, 96 (D.C. 2005).
[31] We call Respondent's attention to the affidavit requirement set forth in D.C. Bar R. XI, § 14(g). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538343/ | 69 B.R. 737 (1984)
In re D.C. SULLIVAN & CO., INC., Bankrupt.
Bankruptcy No. 70-614-G.
United States Bankruptcy Court, D. Massachusetts.
September 19, 1984.
Benjamin Goldman, Goldman & Goldman, Daniel F. Featherston, Jr., Irving Widett, Mark Berman, Boston, Mass., for trustee Robert Robinson.
*738 Robert Robinson, Widett, Slater & Goldman, Boston, Mass., trustee.
Edward I. Perkins, Needham, Mass., for creditors.
MEMORANDUM AND ORDER ON FEE APPLICATIONS
PAUL W. GLENNON, Bankruptcy Judge.
Before the Court are the fee applications of counsel, for services rendered in connection with the suit entitled Daniel M. Glosband (later amended to Robert Robinson (successor trustee)) as he is Trustee in Bankruptcy of the D.C. Sullivan & Co., Inc. v. Watts Detective Agency, Inc., Consolidated Service Corporation, Christopher P. Recklitis, Billy Otte, and Daniel Sullivan, filed in the United States District Court for the District of Massachusetts, ("Watts litigation") Docket No. CA 70-1336N, on October 6, 1970.
BACKGROUND
On May 22, 1970, an involuntary petition in bankruptcy was filed against D.C. Sullivan & Co., Inc. On the same day, the corporation was adjudicated a bankrupt pursuant to a consent to adjudication. On July 13, 1970, Daniel M. Glosband, Esq. ("Glosband") was elected the Trustee in Bankruptcy. On January 9, 1976 Glosband resigned and Robert Robinson, Esq. ("Robinson") was appointed successor Trustee. Glosband had been an associate in the firm of Widett & Kruger for many years prior to January 1976. Robinson was an associate in Widett & Kruger for many years prior to January 1976 and thereafter was an associate and partner with the successor firm of Widett & Widett, and then, with its successor firm of Widett, Slater & Goldman, up to the present time. Irving Widett, Esq. ("Widett") was a member of the first two firms until about 1976, but not of the third. Edward I. Perkins, Esq., ("Perkins") (who had been counsel to the petitioning creditors) and the firm of Widett & Kruger were appointed general co-counsel to the Trustee in Bankruptcy on July 16, 1970.
On the request of the Trustee, filed July 31, 1970, an order was entered that same day which authorized the employment of Goldman & Goldman as special counsel to the Trustee in Bankruptcy for the purpose of prosecuting the Watts litigation. The order further provided that "the compensation to be paid to the said law firms of Goldman and Goldman as special counsel, and Widett & Kruger and Edward I. Perkins as counsel for the Trustee, for assistance which they may render to special counsel in regard to the particular investigations and actions described above shall, exclusive of costs and expenses, be contingent upon a recovery from any of the actions instituted in accord with Paragraph 2 thereof, and shall be in an amount equal to thirty-three and one-third (33 1/3) percent of the amount recovered from such actions." The firm of Goldman & Goldman was retained because of Benjamin Goldman's extensive experience in the trial of fraudulent conveyance actions and because of his familiarity with the facts of the subject case. Goldman proceeded to fashion the theory of the case, draft the complaint, and prepare the case for trial, with limited assistance from Widett.
In 1975, shortly before the case was to be called for trial, Hale and Dorr, counsel for the defendants, advised Benjamin Goldman that he would be called as a trial witness. Goldman thereupon conferred with the Trustee and they concluded that because Goldman had become a potential witness, it would be necessary to engage another attorney to try the case on behalf of the Trustee and that Goldman would work with that attorney.
Daniel F. Featherston, Jr., Esq. ("Featherston") agreed to try the case and commenced working on the case in September of 1975. The Trustee neglected to seek Court approval for Featherston's retention until May 14, 1982, when the Trustee filed an application for approval of Featherston's retention as special counsel nunc pro tunc. On this date, the Court entered *739 an order allowing the employment of Featherston as special counsel, nunc pro tunc to September 16, 1975. The order further provided that "the compensation to be paid to Daniel F. Featherston, Jr. as special counsel, in regard to his representation of the Trustee as described above, and in conjunction with the services rendered to the Trustee by special counsel, Benjamin Goldman, of the firm of Goldman and Goldman shall, exclusive of costs and expenses, be contingent upon a recovery in the action specified in Paragraph 2. hereof, and shall not increase the total attorneys fees which would then be awarded herein, but be a part thereof, all in accordance with the previous order of this Court, dated July 31, 1970." Unbeknownst to the Court, Goldman and Featherston had agreed to divide equally whatever fee Goldman would receive.
Through no fault of counsel, the case was not tried until March 1980. The jury returned verdicts for the plaintiff on two of the three counts. Post-trial motions were filed by both sides, and appeals taken by both sides and ultimately each side filed a petition in the United States Supreme Court for a writ of certiorari. While the petitions were pending in the Supreme Court, upon the motion of the parties to the litigation, this Court approved a compromise which provided that SCA Disposal Services of New England, Inc. ("SCA"), the successor in interest to some of the above-named defendants, would pay Robinson, as Trustee, $900,000 in full settlement and discharge of any and all claims. The $900,000 was to be delivered to counsel to SCA and held in escrow by him in an interest-bearing account. Upon the approval by this Court of the compromise, the money held in escrow would be paid to Robinson, and the parties would individually withdraw their petitions for writs of certiorari. The proceeds from the settlement are sufficient to pay all timely filed claims, possibly with substantial interest. Over the objection of Daniel C. Sullivan, an officer and director of SCA and a defendant in the Watts litigation, the Court approved the compromise on March 31, 1983. See In re D.C. Sullivan & Co., Inc., No. 70-614-G slip op. (Bankr.D.Mass. Mar. 31, 1983).
Counsel to the Trustee have filed their fee requests. Interim fee awards were made on November 7, 1983: $75,000 to Featherston and $50,000 to Goldman.[1] Action on Perkins' application, lacking necessary details, was deferred, as were allowances for Robinson and Widett.
The applications have now all been filed and the Court is prepared to enter final fee awards as to the Watts litigation.[2] The Court however feels it must first address the issue of the fee-sharing agreement entered into (but since repudiated) by Featherston and Goldman. Fee sharing agreements, outside of bankruptcy, are quite common, not necessarily improper and do not need court approval. The fee-sharing agreement was not brought to the Court's attention[3] until mid-1983; approximately one year after the application for approval of special counsel nunc pro tunc was allowed. There is no question that both parties performed valuable services in preparing for and prosecuting the Watts litigation. In making the fee awards set forth below the Court did not consider the terms of the fee-sharing agreement but instead followed the well-recognized guidelines employed by the courts of this Circuit. However, the problem of the fee-sharing agreement lingers and must be addressed.
Chief Justice Taft's opinion in the leading case of Weil v. Neary [278 U.S. 160, *740 49 S.Ct. 144, 73 L.Ed. 243 (1929)], expounded the manifest dangers of sharing compensation. It was there also said that such agreements are not less reprehensible because in a particular case they may not have resulted in any clearly discernible harm to the estate or its creditors. It is the potential danger alone that makes them obnoxious. Any division of fees or other compensation represents, above all, an incentive for the applicant to claim a compensation high enough to make his own share in it a worth-while renumeration. It thereby tends toward extravagance of expenditure. Another evil is that it subjects the officer or attorney entitled to compensation to outside influences, over which the court has no control and which may affect the administration by depriving the court's functionaries of their requisite independence of judgment. Finally, it results in a clear transfer of judicial power over expenditure and allowances from the court to persons who, at best, have a distinctly lesser degree of public responsibilities.
The present Act rested the prohibition of "fee-splitting" on a broader basis. It incorporated the prohibition into the Act itself, instead of referring it to the General Orders. Now, under Rule 219(d) agreements for sharing fees and other compensation are prohibited if concluded with any person not contributing to the services to be compensated, except with law partners, regular associates of his legal firm and forwarding attorneys.
An attorney, accountant, custodian, receiver or trustee rendering services in connection with bankruptcy proceedings and who violates the statutory prohibition shall not be compensated. By making lack of contribution to the compensable services the crucial test, the statute opens itself to evasion by persons who in some way assist and contribute to the services of attorneys and other officers of the court. It is conceivable that such assistance be regarded as sufficient justification for sharing compensation. Such a construction would, however, considerably jeopardize the effectiveness of the statutory prohibition. Fortunately, the safeguards now surrounding the employment of assistance, particularly the appointment of lawyers, offer little opportunity for assistance unauthorized by the court, yet if the statute is to fulfil [sic] its purpose the court will not only have to deny compensation out of the estate to unauthorized services, but will have to construe Rule 219(d) as requiring that services contributing to compensable services must have been authorized by the court before any agreement to share the compensation will be allowed to stand.
3A Collier on Bankruptcy ¶ 62.37 (14th ed. 1975) (footnotes omitted).
While the Court in no way condones the fee-sharing agreement of Goldman and Featherston, the Court believes it may compensate Featherston and Goldman for their services performed based on their contribution to the estate and in accordance with the cases set forth below. As respects the agreement, the specific employment of both attorneys was authorized by the Court. Further, this is not a case where either of these attorneys have been paid fees which, surreptitiously, they then shared between themselves. For these reasons, inter alia, the cases of In re Futuronics Corp., 655 F.2d 463 (2d Cir.1981), cert. denied, 455 U.S. 941, 102 S.Ct. 1435, 71 L.Ed.2d 653 (1982) and In In re Arlan's Department Stores, Inc., 615 F.2d 925 (2d Cir.1979) are distinguishable.
The Court now turns to the applications themselves. The factors which this Court must consider in making final fee awards are set forth in the case of Furtado v. Bishop, 635 F.2d 915 (1st Cir.1980). See also, Grendel's Den, Inc. v. Larkin, 582 F.Supp. 1220 (D.Mass.1984). While these factors were first enunciated in civil rights litigation, they have been consistently applied in this Circuit in bankruptcy proceedings. See, e.g., In re Continental Investment Corp., 28 B.R. 972 (D.Mass.1982) and In re Idak Corporation, 26 B.R. 793 (Bankr.D.Mass.1982).
*741 Essentially, the Court must conduct a two-step analysis fee requests. First, the Court must determine the appropriate "lodestar" or base fee. This is accomplished by multiplying the number of hours reasonably expended, by a reasonable hourly rate of compensation. In determining the appropriate "lodestar" amount, such factors as time and labor reasonably required, customary fees billed, fee awards in similar cases, the experience and skill of the personnel involved and whether, considering the difficulties presented, the level of commitment was appropriate. After the "lodestar" fee is determined, upward or downward adjustments of that fee may be made by consideration of factors "which have not already been taken into account in computing the `lodestar' and which are shown to warrant the adjustment by the party proposing it." Miles v. Sampson, 675 F.2d 5, 8 (1st Cir.1982) (quoted in In re Casco Bay Lines, Inc., 25 B.R. 747, 756 (Bankr. 1st Cir.1982)). Such factors may include the contingent nature of success and the delay in receipt of payment. See Copeland v. Marshall, 641 F.2d 880, 892 (D.C.Cir.1980).
The "lodestar" may be further adjusted to reflect the "quality of representation." This adjustment is appropriate "only when the representation is unusually good or bad, taking into account the level of skill normally expected of an attorney commanding the hourly rate used to compute the `lodestar'." Id. The bankruptcy court should evaluate the results of an attorney's representation in a bankruptcy proceeding and the resultant benefit to the estate, (i.e., "quality of representation") to determine if the situation warrants an adjustment of the "lodestar" amount. In re Casco Bay Lines, Inc., supra, at 756. See also Copeland v. Marshall, supra, at 894. Where an attorney's services have produced particularly exceptional benefits for the estate taking into account the hourly rate commanded and the number of hours expended an upward adjustment of the "lodestar" may be in order to correct an hourly rate that turned out to be overly conservative. Similarly, if a high-priced attorney performs in a competent but undistinguished manner, a decrease in the hourly rate would be warranted. Id.
I have considered the standards set forth in Furtado with regard to each applicant. The attorneys involved provided detailed accounts of the time spent on the Watts litigation in accordance with the practice in the bankruptcy court and the requirements of Souza v. Southworth, 564 F.2d 609 (1st Cir.1977) and King v. Greenblatt, 560 F.2d 1024 (1st Cir.1977), cert. denied, 438 U.S. 916, 98 S.Ct. 3146, 57 L.Ed.2d 1161 (1978), except as otherwise noted below. Set forth below are brief descriptions of the Court's analysis. As a general matter, the Court notes that the Watts litigation involved novel questions of fact and law which were competently examined and presented by both Featherston and Goldman. The responsibility was divided by the attorneys, because of the potential conflict Goldman might have encountered. That is, while Goldman spent time on the Watts litigation after 1975, his work was different from or in conjunction with Featherston's services. I find little, if any, duplication.
Basically, the fraudulent conveyance action was brought in a "no asset" case. Complete details of the suit may be found at Robinson v. Watts Detective Agency, Inc., 685 F.2d 729 (1st Cir.1982). This was a novel case in which the First Circuit ultimately held that at-will employees and customers were in the aggregate "property" which was fraudulently transferred.
Benjamin Goldman
Benjamin Goldman spent 438 1/3 hours over the course of thirteen years on services rendered in the Watts litigation. A little more than one third of the work was completed between 1970 and 1975. Using an average hourly rate of $175.00, I conclude that Goldman is entitled to receive $74,957.75 plus $1,671.84 as reimbursement of expenses. The $50,000 interim award is confirmed and the Trustee is directed to transmit the difference forthwith. The Court believes the rate of $175.00 per hour *742 is justified under the circumstances. Goldman is seventy-eight years old, a graduate of Harvard College and Harvard Law School, and has been actively practicing law for fifty-five years. He has had considerable trial experience in both state and federal courts and while his particular contributions were related mostly to the pretrial aspects of the Watts litigation (including preliminary investigations, examinations and conferences, drafting the complaint, interrogatories and statement of agreed facts and research of the law) he conferred regularly with Featherston and worked on various post-trial matters.
Daniel Featherston
Featherston and an associate employed by his office spent a total of 1661.15 hours from 1975 to 1983 on services in connection with the Watts litigation. The Court concludes that the associate's hourly rate was reasonable ($40 for 1975-1980 and $50 from 1981-1983). Through 1980, Featherston's hourly rate was also reasonable ($90-$175). The Court however believes that $200 in 1981 and $250 in 1982 and 1983 is unreasonable and accordingly will reduce Featherston's request by $25/hour in 1981, $50/hour in 1982 and $75/hour in 1983. Besides the fact that the hourly rates themselves are high, the services performed by Featherston during these later years were either largely of an administrative nature or were rehashes of prior work, e.g., on briefs. Accordingly, Featherston is entitled to receive $194,690.00 for his services and $3,950.75 for reimbursement of expenses. The $75,000 interim award is confirmed and the Trustee is directed to transmit the difference forthwith. Featherston participated in numerous pre-trial and post-trial out-of court conferences, argued motions before the District Court and tried the case which continued for six days. Extensive legal research was performed by him or an associate from his office. Additionally, Featherston was involved in lengthy post-trial matters.
Irving Widett et al.
I have deleted[4] from my calculations, services which were part of general counsel's duty to monitor the case and which did not contribute directly to the Watts litigation. I have also deleted items which simply were too indefinite to evaluate, e.g., "telephone conference with Benjamin Goldman, Esq.". Also, I have used an hourly rate of $150.00 rather than $175.00 for Mr. Widett's services during the period 1970-1980, and $200.00 for the period 1980-1983. I have reduced Mr. Robinson's hourly rate for the year 1980 from $160 to $130. While the advice of Widett and Robinson was undoubtedly valuable, they had a limited role in the Watts litigation. As to Daniel Glosband, I find that only 6 hours of the time reported is attributable to legal services, as opposed to Trustee services, and directly contributed to the Watts litigation. The Lane C. Tyler services were deleted for indefiniteness. The Diane M. Caracci services were deleted because they were Trustee rather than legal duties. No breakdown was made between Watts litigation disbursements and other disbursements. Therefore, no reimbursements for expenses will be made until the close of the case. In accordance with the above, Irving *743 Widett et al., shall be entitled to a total award of $30,838 in fees.
Edward I. Perkins
I have reviewed the time sheets appended to Mr. Perkins' application and find that only four items thereon are in the nature of services rendered in the Watts litigation:
Jul 1970 Conference with Attorney Goldman 6.0 hours
and Widett re: employment of special
counsel to commence, a suit against
Watts and other defendants by the
Trustee to set aside a fraudulent
conveyance. General discussion
about th merits and facts of the
proposed litigation. T/C with Ben
Goldman re: examination of various
witnesses and attendance at hearings.
Letter to follow outlining the details.
Jul 1970 Letter to Goldman with suggestions 1.0 hours
and offering my co-operation and
assistance at trial.
Sept 1975 Discussion with Goldman re: .4 hours
engaging Featherstone [sic] as special
counsel.
11, 12, 13, Case reached for trial before J. 24.0 hours
14, 17, 18, Nelson and a jury verdict for
21 Mar 1980 $750,000.00, 10 years interest to be
added.
The balance of the services represent performance of the duties of general counsel and did not particularly benefit the prosecution of the Watts litigation, i.e., these services primarily involved the monitoring, by Perkins, of the Watts litigation. The time sheets identify services totalling 58.5 hours. In addition, Perkins requests compensation for 40 hours of work, performed by the late Richard H. Perkins and by Donald J. O'Bell who is now practicing in Texas. No time sheets, or comparable documentation, were submitted to support the request for compensation for the additional 40 hours. Perkins requests $17,700 for the 98.5 hours of professional services. This comes to an hourly rate of $180.00.
The Court cannot award compensation for undocumented services. Only 31.4 hours of the 58.5 which are documented are services in furtherance of the Watts litigation. An appropriate hourly rate for the type of services rendered in connection with the Watts litigation is $150. Accordingly, Perkins' fee in connection with the Watts litigation will be $4,710.00.
NOTES
[1] Goldman appealed the interim fee award order. After hearing, the motion of Goldman for stay of the November 7, 1983 order was denied. The appeal of Goldman of the November 7, 1983 order was subsequently withdrawn on December 21, 1983.
[2] There are two other matters outstanding the claim of Benjamin Goldman, the claim of Capitol Bank and Trust Company and the objections thereto which will be addressed in a separate memorandum and order.
[3] The Court first became aware of the agreement at or just prior to the hearing on the fee applications.
[4] The work performed on the following dates by Widett were deleted: July 13, 14, 20, 22, 30, and 31, 1970; August 3, 13, and 14, 1970; September 29, 1970; March 26, 1971; April 1, 1971; May 26, 1971; November 2, 1971; January 27, 1972; February 3 and 4, 1972; March 14, 1973; March 6, 1974; August 28 and 29, 1975; September 4, 1975; February 27, 1976; March 27, 1979; March 19, 20 and 21, 1980; September 3, 1981; April 7, 1982; July 22, 1982; and April 4, 1983. The work performed on the following dates by Robinson was deleted: July 22, 1970; April 5, 1976; October 4, 1977; October 31, 1979; March 21, 1980; April 11 and 28, 1980; June 6 and 12, 1980; August 20, 1980; September 20, 1980; October 1, 1980; November 26, 1980; January 7, 1981; March 18, 1981; June 3, 5, 8 and 12, 1981; July 17, 1981; July 27, 1982; August 13, 1982, November 5 and 9, 1982; December 13, 23 and 27, 1982; January 27 and 28, 1983; April 15, 1983; May 9, 1983.
As to Guy Moss, the work performed on February 27, 1976 is deleted. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1537872/ | 918 A.2d 998 (2007)
100 Conn.App. 524
Paula W. DEEGAN et al.
v.
Ollie J. SIMMONS et al.
No. 27125.
Appellate Court of Connecticut.
Argued November 15, 2006.
Decided April 17, 2007.
*1000 Philip F. von Kuhn, for the appellants (plaintiffs).
Julia B. Morris, Hartford, for the appellees (defendants).
BISHOP, ROGERS, and HENNESSY, Js.
BISHOP, J.
In this personal injury action arising from a motor vehicle accident, the plaintiffs, Paula W. Deegan and Michael G. Deegan,[1] appeal from the judgment of the trial court, rendered after a jury trial, in favor of the defendants, Ollie J. Simmons and Robert DeMagistris.[2] On appeal, the plaintiffs claim that the court improperly (1) admitted evidence concerning the speeds at which other motorists customarily drive, (2) allowed a police officer to testify as to his practice concerning the circumstances in which he would issue tickets to motorists, (3) granted the defendants' motion in limine to preclude evidence of a laboratory report indicating that Simmons tested positive for marijuana and (4) disallowed an offer of proof concerning Simmons' familiarity with an alleged tradition among marijuana users. We agree with the plaintiffs on claims one and two and disagree regarding claims three and four. Accordingly, we reverse the judgment of the trial court and remand the matter for a new trial.[3]
The following factual and procedural history is relevant to our discussion of the issues on appeal. This case arises from a motor vehicle accident that occurred on April 20, 2000, in Meriden. Paula Deegan, while operating a sport utility vehicle, was traveling on Murdock Avenue approaching its intersection with Research Parkway. Simmons was operating a tractor-trailer truck on Research Parkway. The accident occurred when Paula Deegan proceeded from a stop sign and attempted to take a left turn onto Research Parkway, traveling into the path of the truck operated by Simmons. The plaintiffs claim that the accident was due to the negligence of Simmons. The defendants denied that Simmons was negligent and, in turn, alleged a special defense of contributory negligence by Paula Deegan.
At trial, the court charged the jury on the applicable law following the conclusion of the evidence. Acting on the agreement of counsel for the parties, the court provided the jury with verdict forms and interrogatories. Interrogatory one asked the jurors to answer whether the plaintiffs proved by a fair preponderance of the evidence that Simmons was negligent in the operation of the tractor-trailer truck. In accordance with the instructions contained in the interrogatories, the jury, in returning a defendants' verdict, was not required to proceed beyond the *1001 first interrogatory to answer the remaining questions. The jury, after deliberating, answered "No" to interrogatory one and returned a verdict for the defendants. On June 3, 2005, the plaintiffs filed a motion to set aside the verdict and for a new trial, claiming that the court made various incorrect evidentiary rulings that are the subject of this appeal. On November 15, 2005, the court denied the plaintiffs' motion. This appeal followed. Additional facts will be set forth as necessary.
Because all four claims on appeal concern the court's evidentiary rulings, we, as a threshold matter set forth the standard by which we review the trial court's determinations concerning the admissibility of evidence. "The trial court's ruling on evidentiary matters will be overturned only upon a showing of a clear abuse of the court's discretion. . . . We will make every reasonable presumption in favor of upholding the trial court's ruling, and only upset it for a manifest abuse of discretion. . . . [Thus, our] review of such rulings is limited to the questions of whether the trial court correctly applied the law and reasonably could have reached the conclusion that it did. . . . Even when a trial court's evidentiary ruling is deemed to be improper, we must determine whether that ruling was so harmful as to require a new trial. . . . In other words, an evidentiary ruling will result in a new trial only if the ruling was both wrong and harmful. . . . Finally, the standard in a civil case for determining whether an improper ruling was harmful is whether the . . . ruling [likely] would [have] affect[ed] the result." (Citation omitted; internal quotation marks omitted.) Smith v. Greenwich, 278 Conn. 428, 446-47, 899 A.2d 563 (2006).
I
The plaintiffs' first claim is that the court improperly allowed the defendants to introduce evidence regarding the speeds at which other motorists typically drive on Research Parkway. Specifically, the plaintiffs argue that Leroy Harris, the investigating police officer, and Matthew Potter, an eyewitness to the subject accident, should not have been allowed to testify as to speeds at which other motorists customarily drive on Research Parkway because the testimony was irrelevant and harmful. We agree.
The following additional facts are necessary for our disposition of the plaintiffs' claim. Because a central issue at trial was whether Simmons drove the vehicle in a negligent manner, both parties presented expert testimony regarding the speed at which Simmons was traveling at the point of impact.[4] Although the plaintiffs' expert, George Ruotolo, testified that Simmons was traveling at a speed of forty nine to fifty one miles per hour at the point of impact, the defendants' expert, Peter Plante, stated that Simmons was traveling at a speed of 39.03 miles per hour. Subsequently, when Harris testified, the following colloquy took place:
"[The Defendants' Counsel]: In your experience with that road, what is the typical speed people travel over
"[The Plaintiffs' Counsel]: Objection, if Your Honor please.
"The Court: Basis of the objection?
"[The Plaintiffs' Counsel]: It's not relevant to this case. The issue is how fast was this tractor-trailer going.
"The Court: Well, I think there are, I don't think that that's the proper question. I think there is a, there are other questions that could be asked about what he observes on this roadway. I don't think he can say what's the typical speed of any particular motorist.
*1002 "[The Defendants' Counsel]: Officer, what have you observed about the traffic on Research Parkway?
"[The Plaintiffs' Counsel]: Objection, relevance.
"The Court: Overruled. This is a question of reasonable speed, as well. You can answer that question, officer.
"[The Witness]: Average speed of vehicles, depending on the time, can average anywhere between forty to fifty miles an hour. Sometimes, later at night, that will increase because there's less traffic.
"[The Defendants' Counsel]: Above fifty?
"[The Witness]: Correct."
When the defendants' counsel revisited the same issue through his direct examination of Potter, the following colloquy ensued:
"[The Defendants' Counsel]: Okay. Based on your frequent experience on Research Parkway, what would the typical flow of traffic be at that location?
"[The Plaintiffs' Counsel]: Objection, if Your Honor please, relevance.
"The Court: You travel it twice per day?
"[The Witness]: Yes, I do.
"The Court: Were you traveling it twice per day or frequently on April 20, 2000?
"[The Witness]: Well, I traveled it in the morning and in the afternoon, when I got out of work.
"The Court: Understood. And that was the same in April of 2000?
"[The Witness]: Yes.
"The Court: And you, obviously, were in the flow of traffic at those two times a day?
"[The Witness]: Yes.
"The Court: And so you're familiar with the speed [of] that flow of traffic normally? I don't know about on April 20, 2000, but normally proceeded on that roadway.
"[The Witness]: Yes, sir.
"The Court: Go ahead.
"[The Defendants' Counsel]: Sir, what was the normal speed you observed the flow of traffic traveling on Research Parkway, typically?
"[The Witness]: Forty-five, fifty."
"When evidence of a common practice or custom is offered, the question whether it will be of sufficient assistance in determining the ultimate question of negligence to make it properly admissible, in view of the collateral issues which may be raised and the danger of its misuse, must rest in the discretion of the court." Eamiello v. Piscitelli, 133 Conn. 360, 369, 51 A.2d 912 (1947). "The general rule unquestionably is that a party charged with negligent conduct will not be allowed to show that such conduct was common or customary among those . . . placed under like circumstances and owing the same duties." (Internal quotation marks omitted.) Id., at 367, 51 A.2d 912.
"A common practice or custom is not permitted to be shown for the purpose of establishing that practice or custom as the standard upon the basis of which conduct is to be held negligent or not negligent, but merely as evidence for the assistance of the trier in determining whether the conduct of the person charged with negligence was in the particular situation that of a reasonably prudent person. . . . In such a case it may be admitted as evidence of what ought to be done, but what ought to be done is fixed by a standard of reasonable prudence, whether it is usually complied with or not. . . . The distinction between a proper and improper use of such evidence is often not easy to draw, and there is danger that a trier will give too much weight to the evidence; and this would be particularly true of a jury, *1003 no matter how strongly [it] may be cautioned not to do so. . . .
"At the foundation of the rule lies the idea that the act constituting the subject of the custom is one in respect to which the manner of doing it is not a matter of common knowledge. If this were lost sight of, and evidence allowed to prove the customary way of doing anything, however common, a rule which, restricted within reasonable limits, promotes the due administration of justice, would be quite likely to have the very opposite effect. Where the evidence in a case is such that the trier, applying to the facts found proven the common knowledge and experience of men in general, has an adequate basis for determining whether the conduct in question is that of an ordinarily prudent person, the practice of other persons would serve no sufficient purpose to justify its admission, especially in a jury trial where it might create confusion as to the ultimate test to be applied. . . . When the question is, did a person use ordinary care in a particular case, the test is the amount of care ordinarily used by men in general, in similar circumstances. If it be matter of common knowledge, such amount of care needs no proofthe jury take notice of it." (Citations omitted; emphasis added; internal quotation marks omitted.) Id., at 367-68, 51 A.2d 912.
In this matter, a central issue regarding liability was whether Simmons was traveling at an unreasonable rate of speed at the moment of impact. The defendants, through the testimony of Harris and Potter, introduced evidence regarding the speeds at which other motorists drive on Research Parkway to support their position that Simmons was driving the truck at a reasonable speed at the time of the accident. Because we believe the issue of whether Simmons was driving his vehicle at an unreasonable speed at the time of the accident was, in this instance, within the common knowledge and experience of the jury, we conclude that this evidence was improperly admitted by the court.
This was not an issue beyond the common knowledge or experience of the jury or too complicated a problem requiring evidence of custom and practice to assist the jury. Instead, the conduct at hand involved the question of whether Simmons acted as a reasonably prudent person. Thus, there was no sufficient purpose to justify the admission of such evidence. Moreover, this was the precise scenario that our Supreme Court envisioned in Eamiello concerning whether a jury in a civil case may give too much weight to custom or practice evidence. Thus, we conclude that the court improperly admitted Potter's and Harris' testimony concerning common practice or custom. Our inquiry, however, does not end with this assessment. We must next discuss whether the court's ruling was harmful.
As noted, the test on review in a civil case regarding evidentiary rulings is whether the court's improper ruling likely affected the result. Here, the jury was faced with the question of whether Simmons was traveling at an unreasonable rate of speed at the moment of impact. The jury heard testimony from two persons, one a police officer, stating that it was typical or customary for people to drive above the speed limit. The jury also heard conflicting testimony from the experts regarding the speed at which Simmons was traveling. Thus, even if the jury believed the plaintiffs' expert that Simmons was traveling fifty miles per hour at the time of the accident, the testimony that other motorists customarily drive at that speed would have likely influenced their opinion as to whether Simmons was driving unreasonably. Thus, we conclude that the court's evidentiary ruling on this issue was both improper and harmful.
*1004 II
The plaintiffs' next evidentiary claim is that the court abused its discretion by allowing Harris to testify that he would not ticket motorists for traveling up to fifteen miles per hour over the forty mile per hour posted speed limit on Research Parkway. Specifically, the plaintiffs argue that the court improperly permitted the defendants to present opinion evidence on an ultimate issue, which is a question for the jury to determine. We agree.
The following additional facts are pertinent to this issue. After the examination of Harris regarding the speeds at which other motorists travel on Research Parkway, the following colloquy occurred during which the defendants' counsel inquired whether Harris would ticket someone for traveling fifty miles per hour on Research Parkway, the speed the plaintiffs' expert testified that Simmons was traveling when the subject accident occurred:
"[The Defendants' Counsel]: And if vehicles, you are, at least, in this period responsible for the enforcement of the laws in the town of Meriden?
"[The Witness]: Correct.
"[The Defendants' Counsel]: All right. Would you ticket for somebody traveling at fifty miles per hour on Research Parkway?
"[The Plaintiffs' Counsel]: Objection, if Your Honor please.
"The Court: Overruled. We're talking about him and his experience as a police officer.
"[The Witness]: Would I ticket? Depending on the speed.
"[The Defendants' Counsel]: If somebody was going fifty miles an hour on Research Parkway?
"[The Witness]: If it was over, I usually ticket over fifteen miles over the posted speed limit.
"[The Defendants' Counsel]: All right. Why is that?
"[The Witness]: Because I feel it's reasonable. There's other officers who go maybe twenty miles an hour. It depends on the officer."
We begin with § 7-3(a) of the Connecticut Code of Evidence, which provides in relevant part that, "[t]estimony in the form of an opinion is inadmissible if it embraces an ultimate issue to be decided by the trier of fact. . . . As the commentary to § 7-3 indicates, the rule adopts the common-law bar against admission of a witness' opinion on an ultimate issue in a case."[5] (Internal quotation marks omitted.) State v. Finan, 275 Conn. 60, 66, 881 A.2d 187 (2005). "[T]he phrase ultimate issue is not amenable to easy definition."[6]*1005 (Internal quotation marks omitted.) Id., at 66, 881 A.2d 187. An ultimate issue is "one that cannot reasonably be separated from the essence of the matter to be decided [by the trier of fact]." (Internal quotation marks omitted.) Id.
Here, it is undisputed that an ultimate issue at hand was the reasonableness of the speed at which Simmons was driving at the time of the accident. Thus, the question is whether Harris' testimony constituted an opinion on this ultimate issue. Although the defendants argue that Harris' testimony was factual[7] in nature and not opinion testimony, we conclude that his testimony, taken as a whole and given its logical effect, was an opinion on the ultimate issue in the case. Thus, it should not have been admitted.
Harris' testimony regarding the speeds he considers to constitute a chargeable offense constituted no more than an indirect or disguised opinion of whether Simmons' actions were unreasonable. In essence, Harris was suggesting by implication that he does not ticket drivers for speeds up to fifteen miles per hour over the speed limit because he believes it is reasonable for motorists to drive at such speeds on Research Parkway. Thus, in the guise of a factual representation, Harris was permitted to suggest that Simmons was traveling at a reasonable speed. Indeed, when asked why he usually tickets someone driving more than fifteen miles per hour over the posted speed limit, Harris responded "[b]ecause I feel it's reasonable." Accordingly, we conclude that under the facts of the present case, the court improperly admitted Harris' testimony because it constituted improper opinion evidence.
As previously stated, having determined that the court improperly allowed this evidence, we next turn to the harmfulness of this evidentiary ruling. In this instance, we conclude that the court's ruling was harmful. Here, as a result of improperly admitted evidence, the jury could have believed that Simmons was driving over the speed limit but could also have concluded that Simmons was acting reasonably on the basis of this police officer's testimony. Additionally, this opinion testimony on an ultimate issue likely served to invade the jury's province as the finder of fact. Thus, we conclude that the admission of this testimony was both incorrect and harmful.
III
Next, the plaintiffs contend that the court improperly precluded them from introducing evidence that Simmons allegedly tested positive for marijuana at the hospital after the accident. Specifically, the plaintiffs argue that the court improperly granted the defendants' motion in limine to preclude evidence of a laboratory report indicating an abnormal result in a test known as the cannabinoid screen. In response, the defendants argue that, even assuming this evidence was relevant, (1) expert testimony was necessary to establish the accuracy and reliability of the report and to interpret and explain it, and (2) its prejudicial effect greatly outweighed its probative value. We agree with the defendants.
The following additional facts and procedural history are relevant to our discussion of this issue. In the course of pretrial discovery, it was learned that on the day of the accident, Simmons was taken by ambulance to Midstate Medical Center in Meriden where a test for a cannabinoid in his system resulted in a finding of "abnormal." On that basis, the plaintiffs' complaint was *1006 amended to include the allegation that Simmons was operating a vehicle under the influence of marijuana. The defendants subsequently filed a motion in limine on April 26, 2005, to exclude the laboratory report. The court granted the defendants' motion in limine.
The plaintiffs first argue that the laboratory report itself should have been admitted into evidence without expert testimony explaining or supporting it. In support of this proposition, the plaintiffs rely on State v. Clark, 260 Conn. 813, 824, 801 A.2d 718 (2002), in which the court held that expert testimony was not needed for the jury to consider the effects of marijuana use on the ability of a witness to observe and relate facts. In that case, however, the witness testified and admitted to smoking five marijuana cigarettes shortly before the incident in question. Id., at 817, 801 A.2d 718. Thus, Clark pertains to a situation in which drug use has been established, and the issue to be determined was the effect it had on the user. The facts in this case, however, are clearly distinguishable from those in Clark because here, unlike in Clark, there was no evidence that Simmons had used marijuana during any time period relevant to the timing of the accident. More to the point is the holding of LePage v. Horne, 262 Conn. 116, 809 A.2d 505 (2002). There, the court opined that "[e]xpert testimony is required when the question involved goes beyond the field of the ordinary knowledge and experience of judges or jurors." (Internal quotation marks omitted.) Id., at 125, 809 A.2d 505.
In the case at hand, the court correctly noted that there was no evidence that marijuana had been used prior to the accident and no evidence that Simmons was impaired while driving his vehicle. Without corroborating evidence, the laboratory report itself would not explain: (1) how long a cannabinoid substance stays in a person's system; (2) the amount of cannabinoid in Simmons' system at the time of the accident; (3) the relationship between cannabinoid and marijuana; (4) what other products might cause a positive result for a cannabinoid substance; (5) whether urine tests could produce a false positive result and, if so, how often; (6) the possibility for contamination of the sample; and the chain of custody of any sample. These are not subject areas within the common knowledge of the jury and yet each of these factors has evidentiary significance. Thus, the court correctly concluded that the laboratory report indicating an "abnormal result" for a cannabinoid screen was inadmissible absent explanatory expert opinion. Accordingly, the court did not abuse its discretion in excluding the laboratory report.
Furthermore, as noted by our Supreme Court, evidence, even if relevant, may be excluded by the court if "its probative value is outweighed by the danger of unfair prejudice or surprise, confusion of the issues, or misleading the jury, or considerations of undue delay, waste of time or needless presentation of cumulative evidence. Conn.Code Evid. § 4-3." (Internal quotation marks omitted.) State v. Cortes, 276 Conn. 241, 254, 885 A.2d 153 (2005). "The trial court . . . must determine whether the adverse impact of the challenged evidence outweighs its probative value. . . . Finally, [t]he trial court's discretionary determination that the probative value of evidence is . . . outweighed by its prejudicial effect will not be disturbed on appeal unless a clear abuse of discretion is shown. . . . [B]ecause of the difficulties inherent in this balancing process ..,. every reasonable presumption should be given in favor of the trial court's ruling. . . . Reversal is required only whe[n] an abuse of discretion is manifest or whe[n] injustice appears to have been *1007 done." (Internal quotation marks omitted.) State v. Peeler, 267 Conn. 611, 637, 841 A.2d 181 (2004).
Our review of the record supports a conclusion that the laboratory report's potential for prejudicing the defendants and confusing the jury well outweighed its probative value, if any. To permit evidence of a laboratory result indicating an abnormal result for a cannibinoid, without any further explanation of that finding, would be highly prejudicial to the defendants. As noted, the laboratory report related only that the testing of Simmons produced an "abnormal test result," and nothing further. This, alone, is an ambiguous finding. The report did not indicate that Simmons was under the influence of marijuana at the time of the accident, and there was no other evidence adduced at trial that would support a reasonable belief that Simmons was operating his vehicle while he was under the influence of any drug or controlled substance. Thus, this evidence, if admitted, would likely have confused and prejudiced the jury against the defendants. Accordingly, we conclude that the court did not abuse its discretion in determining that the laboratory report should not be admitted.
IV
Finally, the plaintiffs argue that the court improperly disallowed an offer of proof regarding Simmons' knowledge of the term "420," which purportedly relates to a tradition among marijuana users of smoking marijuana on the date, April 20. Specifically, the plaintiffs argue that if they had been permitted to question Simmons outside the presence of the jury regarding "420," Simmons might have admitted to knowledge and participation in the traditional behavior of marijuana users on April 20. The defendants argue that the evidence would have been irrelevant and prejudicial. We agree with the defendants.
"Evidence is admissible only if it is relevant. . . . The trial court is given broad discretion in determining the relevancy of evidence and its decision will not be disturbed absent a clear abuse of that discretion." (Citations omitted; internal quotation marks omitted.) Williams Ford, Inc. v. Hartford Courant Co., 232 Conn. 559, 569, 657 A.2d 212 (1995). "Section 4-1 of the Connecticut Code of Evidence provides in pertinent part that evidence is relevant if it has any tendency to make the existence of any fact that is material to the determination of the proceeding more probable or less probable than it would be without the evidence." (Internal quotation marks omitted.) Shepherd v. Mitchell, 96 Conn.App. 716, 721, 901 A.2d 1230 (2006). Moreover, "[t]he proffering party bears the burden of establishing the relevance of the offered testimony. Unless a proper foundation is established, the evidence is irrelevant." (Internal quotation marks omitted.) Drea v. Silverman, 55 Conn. App. 107, 109, 737 A.2d 990 (1999). "Nevertheless [and as stated previously], relevant evidence may be excluded by the court if its probative value is outweighed by the danger of unfair prejudice or surprise, confusion of the issues, or misleading the jury. . . ." (Internal quotation marks omitted.) Shepherd v. Mitchell, supra, at 721, 901 A.2d 1230.
Here, the plaintiffs did not satisfy the burden of establishing the relevance of this proffered testimony. The plaintiffs offered no more than mere speculation that if Simmons was asked about "420," he would testify that he knew that April 20, the day of the accident, was "National Smoking Day" and that he smoked marijuana prior to the accident because of that tradition. A trial is not an opportunity for counsel to embark on a fishing expedition or to induce fact finders to engage in speculation. Without more foundation regarding Simmons' alleged marijuana use, *1008 the court properly exercised its discretion to exclude this proffer.
The judgment is reversed and the case remanded for a new trial.
In this opinion the other judges concurred.
NOTES
[1] Michael Deegan is the husband of Paula Deegan. He was not involved in the accident but claimed bystander emotional distress and loss of consortium.
[2] The truck involved in the accident in question was owned by DeMagistris, who employed Simmons, the operator.
[3] Because we agree with the plaintiffs on the first two issues, the matter must be remanded for a new trial. We nevertheless address issues three and four, as they are likely to arise again at the retrial.
[4] The speed limit was forty miles per hour.
[5] Moreover, the commentary to § 7-3, which discusses the possibility that our Supreme Court relaxed the restriction on the admissibility of such testimony in State v. Spigarolo, 210 Conn. 359, 556 A.2d 112, cert. denied, 493 U.S. 933, 110 S.Ct. 322, 107 L.Ed.2d 312 (1989), ultimately concludes that "any such exception is rejected in favor of a complete ban on the admissibility of such testimony." (Internal quotation marks omitted.) State v. Finan, 275 Conn. 60, 69, 881 A.2d 187 (2005).
[6] Although "the term ultimate issue is often found in our decisional law, it is not amenable to easy definition. We find help in the Ballentine's Law Dictionary definition of the allied term ultimate fact as [a] fact upon the existence or nonexistence of which liability is to be determined. . . . The final and resulting fact reached by processes of legal reasoning from the detailed or probative facts, as distinguished from evidentiary facts and conclusions of law. . . . Ballentine's Law Dictionary (3d Ed.1969). Thus, the idea of an ultimate issue or fact is that it is interwoven with the core of the fact to be proven or elemental to it." (Internal quotation marks omitted.) State v. Finan, 82 Conn.App. 222, 231, 843 A.2d 630 (2004), rev'd on other grounds, 275 Conn. 60, 881 A.2d 187 (2005).
[7] Even if we accept the defendants' assertion that Harris' testimony was factual and not an opinion, we still would deem that testimony irrelevant. We believe that the speed at which Harris tickets motorists is simply not probative of whether Simmons was negligent. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1537874/ | 918 A.2d 1067 (2007)
50 Conn.Sup. 207
Virginia FALLON et al.
v.
The MATWORKS et al.
No. X01 CV-03 0185487S.
Superior Court of Connecticut, Complex Litigation Docket at Waterbury.
January 2, 2007.
*1071 Jacobs, Jacobs & Shannon, PC, New Haven, for the named plaintiff et al.
Pomeranz, Drayton & Stabnick, Glastonbury, for the intervening plaintiff Rite Aid Corporation.
McNamara & Kenney, Bridgeport, for the named defendant, third party plaintiff.
Russo & Larose, for the third party defendant Thomas J. Anthoine Company, Inc.
Kernan & Henry, LLP, Southbury, for the third party defendant Griswold Rubber Company, Inc.
Goldstein & Peck, PC, Bridgeport, for the third party defendant Ludlow Composites Corporation.
Law Offices of Jack V. Genovese, Glastonbury, for the third party defendant Tennessee Adhesives Company.
Milano & Wanat, Branford, for the third party defendant Vallis Carpet, Inc.
CREMINS, J.
I
INTRODUCTION
The present case arises out of a fall in a Rite Aid Pharmacy on July 26, 2001 in East Haven. The named plaintiff, Virginia Fallon, an employee of the pharmacy, claims that she slipped and fell on a defective carpet tile. A products liability action has been commenced by Fallon and her spouse, coplaintiff George Miller, against the named defendant and alleged seller of the tile, The Matworks (Matworks). Thereafter, Fallon's employer, Rite Aid Corporation (Rite Aid) intervened pursuant to General Statutes § 31-293a to recover workers' compensation benefits paid to Fallon. (Fallon, Miller and Rite Aid will subsequently be referred to collectively as the plaintiffs.) Matworks filed a third party complaint against various companies that allegedly supplied components of the product. Matworks alleged that Heckmonwike of Wellington Mills (Heckmonwike), an English company, supplied the carpet, Tennessee Adhesives Company (Tennessee) and/or Volunteer Adhesives Company (Volunteer) supplied the adhesive and Griswold Rubber Company, Inc. (Griswold) and/or Thomas J. Anthoine Company, Inc. (Anthoine) supplied the rubber backing. Ludlow Composites Corporation (Ludlow) was also named as a third party defendant on the basis that Ludlow assembled the tile for Matworks. The finished product was then installed on the floor of the pharmacy by a company that applies adhesive to the floor. It is alleged that Vallis Carpet, Inc. (Vallis) installed the carpeting in the Rite Aid Pharmacy in question.
*1072 After Matworks impleaded the various alleged component and service providers (Heckmonwike-carpet, Tennessee/Volunteer-adhesive, Griswold/Anthoine-rubber backing, Ludlow-assembler, and Vallis-installer,) as third party defendants, the plaintiffs filed a direct action against them. The operative complaint is dated July 12, 2004. The third party complaint is dated February 5, 2004. Heckmonwike, Volunteer and Anthoine are no longer in the lawsuit due to jurisdictional dismissals or withdrawals.
The product, which allegedly caused Fallon's injury, is referred to as a Pharmacy Preference Area EZE Tile (EZE carpet tile). This EZE carpet tile is not available because after the incident, the entire floor covering was taken up and discarded. Prior thereto, however, Fallon herself appeared on the premises and evidently obtained another carpet tile (or portion of a carpet tile) from the floor in question, although not the one that she allegedly tripped on. That carpet tile has been available for inspection and was marked as an exhibit at Fallon's deposition. The product consists of carpet with a rubber backing joined together by an adhesive. The product is assembled by obtaining rolls of carpet and rubber backing, joining them together with the adhesive and then cutting the tile into eighteen inch by eighteen inch squares.
Fallon claims that the carpet tile was defective and that it delaminated in the space between the carpet and the rubber backing. Alternatively, she claims that the carpet tile was not properly attached to the underlying floor.
A scheduling order was entered on this matter on August 4, 2004. Under the scheduling order, the plaintiffs' experts were to be disclosed by September 30, 2005. The defendants' experts were to be disclosed by March 10, 2006. Neither the plaintiffs nor any of the defendants (either named or third party) have disclosed any liability experts.
Currently before the court are the five following motions for summary judgment. First, Griswold's motion for summary judgment as to the plaintiffs and Matworks. Matworks has objected and the plaintiffs have filed no objection. Second, Tennessee's motion for summary judgment as to the plaintiffs and Matworks. Matworks has objected and the plaintiffs have filed no objection. Third, Vallis' motion for summary judgment as to the plaintiffs and Matworks. Matworks has objected and the plaintiffs have filed no objection. Fourth, Ludlow's motion for summary judgment as to the plaintiffs. The plaintiffs have objected. Fifth, and finally, Matworks' motion for summary judgment as to the plaintiffs, to which the plaintiffs have objected.
Matworks, the named defendant, and the remaining third party defendants can be separated into three groups: (1) sellers and manufacturers/assemblers-Matworks and Ludlow; (2) installer-Vallis; and (3) component suppliers-Griswold and Tennessee.
Summary judgment is sought by the defendants on the basis that liability cannot be proven without expert testimony and that neither the plaintiffs nor the named defendant has such an expert. Additionally, summary judgment is sought on the basis that neither the rubber backing to the EZE carpet tile nor the adhesive used to bind the rubber backing to the carpet can even be shown to have been manufactured and sold by Griswold and Tennessee respectively.
II
APPLICABLE LAW
Summary judgment shall be rendered "if the pleadings, affidavits and any *1073 other proof submitted show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Practice Book § 17-49. "The courts are in entire agreement that the moving party for summary judgment has the burden of showing the absence of any genuine issue as to all the material facts, which, under applicable principles of substantive law, entitle him to a judgment as a matter of law." (Internal quotation marks omitted.) Zielinski v. Kotsoris, 279 Conn. 312, 318, 901 A.2d 1207 (2006). "[T]he party opposing such a motion must provide an evidentiary foundation to demonstrate the existence of a genuine issue of material fact." (Internal quotation marks omitted.) Deming v. Nationwide Mutual Ins. Co., 279 Conn. 745, 757, 905 A.2d 623 (2006). "The existence of the genuine issue of material fact must be demonstrated by counteraffidavits and concrete evidence." (Internal quotation marks omitted.) Pion v. Southern New England Telephone Co., 44 Conn.App. 657, 663, 691 A.2d 1107 (1997). "A material fact . . . [is] a fact which will make a difference in the result of the case." (Internal quotation marks omitted.) Deming v. Nationwide Mutual Ins. Co., supra, at 757, 905 A.2d 623. "In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party." (Internal quotation marks omitted.) Brown v. Soh, 280 Conn. 494, 501, 909 A.2d 43 (2006). "The test is whether a party would be entitled to a directed verdict on the same facts." (Internal quotation marks omitted.) Niehaus v. Cowles Business Media, Inc., 263 Conn. 178, 188, 819 A.2d 765 (2003). "In ruling on a motion for summary judgment, the court's function is not to decide issues of material fact, but rather to determine whether any such issues exist." Nolan v. Borkowski, 206 Conn. 495, 500, 538 A.2d 1031 (1988). "A conclusory assertion [in an affidavit] does not constitute evidence sufficient to establish the existence of a disputed material fact for purposes of a motion for summary judgment." Hoskins v. Titan Value Equities Group, Inc., 252 Conn. 789, 793-94, 749 A.2d 1144 (2000).
"In ruling on a motion for summary judgment, the court must decide whether there is a genuine issue of material fact. If there are issues of fact, the court may not resolve them without giving the parties a full hearing." Gould v. Mellick & Sexton, 66 Conn.App. 542, 556, 785 A.2d 265 (2001), rev'd on other grounds, 263 Conn. 140, 819 A.2d 216 (2003), citing Town Bank & Trust Co. v. Benson, 176 Conn. 304, 307, 407 A.2d 971 (1978); McColl v. Pataky, 160 Conn. 457, 459, 280 A.2d 146 (1971). "[S]ummary judgment is appropriate only if a fair and reasonable person could conclude only one way." (Internal quotation marks omitted.) Dugan v. Mobile Medical Testing Services, Inc., 265 Conn. 791, 815, 830 A.2d 752 (2003). "[A] summary disposition . . . should be on evidence which a jury would not be at liberty to disbelieve and which would require a directed verdict for the moving party. . . . [A] directed verdict may be rendered only where, on the evidence viewed in the light most favorable to the nonmovant, the trier of fact could not reasonably reach any other conclusion than that embodied in the verdict as directed." (Emphasis in original; internal quotation marks omitted.) Id.
III
DISCUSSION
The court will first address the summary judgment motions directed at the plaintiffs to which they have not objected. "Once the moving party has presented evidence in support of the motion for summary judgment, the opposing party *1074 must present evidence that demonstrates the existence of some disputed factual issue." (Internal quotation marks omitted.) Scrapchansky v. Plainfield, 226 Conn. 446, 450, 627 A.2d 1329 (1993). "When a motion for summary judgment is filed and supported by affidavits and other documents, an adverse party, by affidavit or as otherwise provided by [§§ 17-45 and 17-46 of the Practice Book], must set forth specific facts showing that there is a genuine issue for trial, and if he does not so respond, summary judgment shall be entered against him." Farrell v. Farrell, 182 Conn. 34, 38, 438 A.2d 415 (1980).
Here, the plaintiffs have filed no response to the summary judgment motions filed by Griswold, Vallis and Tennessee. "A trial court may appropriately render summary judgment when the documents submitted demonstrate that there is no genuine issue of material fact remaining between the parties and that the moving party is entitled to judgment as a matter of law." (Emphasis added; internal quotation marks omitted.) Daily v. New Britain Machine Co., 200 Conn. 562, 568, 512 A.2d 893 (1986). Therefore, the following motions for summary judgment are granted: Griswold's as to the plaintiffs; Vallis' as to the plaintiffs; Tennessee's as to the plaintiffs.
With regard to the other parties, "[i]t is now well established under Connecticut law that a plaintiff may, under proper circumstances, prove the existence of a product defect without the benefit of expert testimony." Debartolo v. Daimler Chrysler Corp., Superior Court, Complex Litigation Docket at New Haven, Docket No. X10 CV-03 0482725S (December 22, 2005) (40 Conn. L. Rptr. 503, 505) (Munro, J.) (finding that airbag failing to deploy in moderate impact accident was evidence of defect that could go to jury without expert). "Connecticut courts . . . have consistently stated that a jury may, under appropriate circumstances, infer a defect from the evidence without the necessity of expert testimony. See, e.g., Standard Structural Steel Co. v. Bethlehem Steel Corp., 597 F.Supp. 164, 183 (D.Conn.1984) (recognizing Connecticut law permits fact finder to draw inference of defect from circumstantial evidence); Living & Learning Centre, Inc. v. Griese Custom Signs, Inc., 3 Conn.App. 661, 664, 491 A.2d 433 (1985) (`It is not necessary that the plaintiff in a strict tort action establish a specific defect as long as there is evidence of some unspecified dangerous condition. In the absence of other identifiable causes, evidence of malfunction is sufficient evidence of a defect under § 402A of the Second Restatement of Torts.'); Kileen v. General Motors Corp., 36 Conn. Supp. 347, 349, 421 A.2d 874 (1980) (`[t]he fact finder can find, where other identifiable causes are absent, that the mere evidence of a malfunction is sufficient evidence of a defect'). . . ." Potter v. Chicago Pneumatic Tool Co., 241 Conn. 199, 218, 694 A.2d 1319 (1997).
Section 3 of the Restatement (Third) of Torts, Products Liability is entitled "Circumstantial Evidence Supporting Inference of Product Defect" and provides "[i]t may be inferred that the harm . . . was caused by a product defect . . . without proof of a specific defect, when the incident . . . (a) was of a kind that ordinarily occurs as a result of product defect; and (b) was not, in the particular case, solely the result of causes other than product defect existing at the time of sale or distribution." Restatement (Third), Torts, Products Liability § 3, p. 111 (1998). Comment b to this Restatement section elaborates that "[s]ection 3 claims are limited to situations in which a product fails to perform its manifestly intended function, thus supporting the conclusion that a defect of some kind is the most probable *1075 explanation." (Emphasis added.) Id., p. 112. Comment c explains further that there is "[n]o requirement that [the] plaintiff prove what aspect of the product was defective. The inference of defect may be drawn under this Section without proof of the specific defect. Furthermore, quite apart from the question of what type of defect was involved, the plaintiff need not explain specifically what constituent part of the product failed." Id., p. 114. Some courts refer to the rule in this section as the "malfunction doctrine." In this particular case, a fact finder could find that the carpet tiles in question failed to perform their manifestly intended function, namely, providing a smooth surface for walking.
The malfunction doctrine relied upon by the plaintiffs can be summarized as follows: "In modern products liability litigation . . . a plaintiff normally must prove that a product was defective, that the product contained the defect when it left the defendant's control, and that the defect proximately caused the plaintiff's harm. A plaintiff who fails to establish each of these elements by a preponderance of the evidence fails to make a prima facie case. If a manufacturing defect causes a product accident, usually the plaintiff can prove the defect and its causal relation to both the manufacturer and the accident largely by direct evidence-as by testimony from an expert that the product contained an identifiable production flaw, deviating from design specifications, that caused the product to fail in a particular manner. Sometimes, however, a product may malfunction under circumstances suggesting a manufacturing defect . . . but without leaving any direct physical evidence as to how or why, specifically, the product failed to operate properly. In such cases, the absence of direct evidence of product defectiveness and causation hampers a plaintiff's efforts to establish a prima facie products liability case.
"In negligence law, if the specific cause of a product malfunction is unknown, the doctrine of res ipsa loquitur allows a jury to infer the manufacturer's negligence when the circumstances of the accident suggest that the product was negligently manufactured or designed. However, because the res ipsa doctrine is designed to establish a defendant's negligence rather than a product's defectiveness, most courts consider the res ipsa doctrine technically inapplicable to strict liability in tort or breach of warranty, both of which are unconcerned with a defendant's conduct. Although not entirely necessary, the courts, in an effort to maintain a fundamental distinction between negligence and strict liability, began at an early date to tailor principles similar to those that underlie res ipsa loquitur into a separate doctrine for proving claims in strict products liability. Dubbed the `malfunction theory,' these special principles of circumstantial evidence now provide a widely accepted means for proving defectiveness in cases where direct evidence of defectiveness is unavailable.
"Under the malfunction doctrine, a plaintiff may establish a prima facie case of product defect by proving that the product failed in normal use under circumstances suggesting a product defect. Put otherwise, a product defect may be inferred by circumstantial evidence that (1) the product malfunctioned, (2) the malfunction occurred during proper use, and (3) the product had not been altered or misused in a manner that probably caused the malfunction. The malfunction doctrine may be described less formally as providing that a plaintiff need not establish that a specific defect caused an accident if circumstantial evidence permits an inference that the product, in one way or another, probably was defective.
*1076 "Since normal products liability doctrine requires a plaintiff to establish that a product was defective and that the defect caused his harm, requiring a plaintiff to prove that a specific defect caused the accident might appear to make good sense. But the very purpose of the malfunction doctrine is to allow a plaintiff to prove a case by circumstantial evidence when there simply is no direct evidence of precisely how or why the product failed. Sometimes the specific cause of a malfunction disappears in the accident when the product blows up, burns up, is otherwise severely damaged, or is thereafter lost. Not infrequently, however, products simply malfunction, and mysteriously so, leaving no tangible trace of how or why they failed. In all such situations, where direct evidence is unavailable, the courts have properly refused to require the plaintiff to prove what specific defect caused the product to malfunction.
"Because the malfunction doctrine is merely a principle of circumstantial evidence rather than a formal definition of what constitutes a manufacturing defect, the doctrine is logically compatible with a definition of manufacturing defect in terms of a departure from the manufacturer's design specifications." (Emphasis in original.) D. Owen, "Manufacturing Defects," 53 South Carolina L.Rev. 851, 871-74 (2002).
"While courts have applied the malfunction doctrine in many cases to help plaintiffs get to the jury when evidence of a specific defect is unavailable, plaintiffs have lost many other cases in which they have relied unreasonably upon this type of circumstantial proof. The doctrine presents a seductive but faulty shelter for plaintiffs with insufficient proof of defect and causation, and the law reports brim with decisions that recite the propriety of the doctrine as a general proposition but hold it inapplicable to the facts. The opinions in such cases frequently note that, while the malfunction doctrine provides a method for plaintiffs in proper cases to establish defectiveness and causation, the law will not allow plaintiffs or juries to rely on guess, conjecture, or speculation.
"Although the malfunction doctrine may come to a plaintiff's rescue when circumstances fairly suggest the responsibility of a product defect, it is hornbook law that proof of a product accident alone proves neither defectiveness nor causation. Nor does further proof that the accident was caused by a malfunction suffice to prove these elements. The crucial additional showing required of a plaintiff in a malfunction case is the negation of causes for the malfunction other than a product defect." Id., at 878.
A
Griswold Rubber
The plaintiffs in their fourth amended complaint and the third-party plaintiff in its third party complaint all allege that Griswold provided the "rubber backing" used to make the EZE carpet tile. Griswold has filed a motion for summary judgment as to the plaintiffs, the intervening plaintiff and the third-party plaintiff, Matworks, in which it asserts two grounds for summary judgment. One ground is that there is no proof that their component was the rubber backing used in the carpet tile at issue in the present case, and the other basis is that, if in fact it is their rubber backing, there is no expert proffered by either the plaintiffs or the third-party plaintiff that indicates any defect in the rubber backing component of the product. The plaintiffs and the intervening plaintiff have not filed objections to the motion for summary judgment.
Three of the employees of Griswold, who have been deposed or offered affidavits in *1077 connection with the present case, have indicated that the rubber backing on the carpet tile in question (partial tile removed from Rite Aid store no. 3264 by the plaintiff Virginia Fallon) could be Kushon Sponge 3110 ordered from Griswold by Matworks on April 3 and April 12, 2000 with the last shipment date of May 5, 2000. All three: David Natorski, director of sales and marketing, Brian Reynolds, research and development manager, and Daniel Mahoney, record keeper and designated representative, believe other suppliers were also providing rubber backing to Matworks. Mahoney named Expanded Rubber as a producer of an identical product. No documents provided to the court indicate invoices or evidence exists pointing to the purchase by Matworks of rubber backing, in the relevant timeframe, from anyone other than Griswold. At this point it remains a question of fact as to whether the rubber backing in question was in fact a Griswold component. Summary judgment is denied as to that ground.
The other ground for summary judgment asserted by Griswold is that, if in fact the rubber backing is Griswold's, a liability expert is required to show that the rubber backing was the defective component which led to the product itself being defective and ultimately causing the injuries the plaintiffs allege. As to that ground, the court agrees with Griswold. No expert has been disclosed with regard to any defect in the rubber backing. Matworks does not address the distinction between the carpet tile as opposed to the rubber backing "failing in its manifestly intended purpose," in their objection to Griswold's motion for summary judgment.
Following the reasoning of the court in Debartolo, a reasonable fact finder could infer from their own lay experience that the EZE carpet tile was defective, because the delamination that occurred was a malfunction of the product, absent any expert testimony as to the specific defect, the same fact finder would not be able to find a defect in the component rubber backing. Just as in Debartolo, where a finding as to the specific reason the airbag failed to deploy (and perhaps implicating a specific component of the airbag or related mechanisms) would have required an expert witness with knowledge beyond that of a lay person, in the present case a finding that a specific component or a specific part of the manufacturing process was defective would require an expert witness with knowledge beyond that of a lay person.
The Restatement of Torts supports this reasoning. Section 5 of the Restatement (Third) of Torts, Products Liability addresses the harm caused by products into which components are integrated. Liability can be found for producers of components if: "(a) the component is defective in itself . . . or (b)(1) the seller or distributor of the component substantially participates in the integration of the component into the design of the product; and (b)(2) the integration of the component causes the product to be defective . . . and (b)(3) the defect in the product causes the harm." Restatement (Third), supra, § 5, p. 130.
There is no evidence that Griswold participated in the integration of their component into the design of this product. (Apparently they did participate in integrating the rubber into later versions of the carpet tile.) In order to find the rubber backing component itself was defective, the fact finder would need expert testimony, because what actually caused the carpet tile to delaminate is beyond the knowledge of the average lay person.
The motion for summary judgment is granted in favor of Griswold as to the plaintiffs and third-party plaintiff Matworks.
*1078 B
Tennessee Adhesives
Like Griswold, Tennessee is alleged to be the producer of a component used to make the EZE carpet tile. Fallon and Miller in their fourth amended complaint and Matworks in its third party complaint allege that Tennessee provided the "adhesive" used in fabricating the carpet tile. Tennessee has filed a motion for summary judgment as to Fallon, Miller, Rite Aid and the third party plaintiff, Matworks, in which it asserts two grounds for summary judgment. One ground is that there is no proof that their component was the adhesive used in the carpet tile at issue in the present case, and the other basis is that, if in fact it is their adhesive, there is no expert proffered by either Fallon and Miller or Matworks indicating any defect in the adhesive component of the product. Neither Fallon and Miller nor Rite Aid have filed objections to the motion for summary judgment.
Randall Dobbs, an employee of Ludlow, the company that fabricated the EZE carpet tile, testified at his deposition that Ludlow purchased adhesive from two suppliers in the time frame when the EZE carpet tile, which ultimately was shipped on May 31, 2000 to the East Haven Rite Aid Pharmacy, was made. They purchased adhesive from Tennessee on April 27 and from Volunteer on March 27 and May 1, 2000. Because of the overlap in purchases, no one at Ludlow can say which company, Tennessee or Volunteer, supplied the adhesive used in the EZE carpet tile in question in the present case. At this point it remains a question of fact as to whether the adhesive in question was in fact a Tennessee component. Summary judgment is, therefore, denied as to that ground.
The other ground for summary judgment asserted by Tennessee is that, if in fact the adhesive is Tennessee's, a liability expert is required to show that the adhesive was the defective component which led to the product itself being defective and ultimately causing the injuries the plaintiffs allege. As to that ground, the court agrees with Tennessee. No expert has been disclosed with regard to any defect in the adhesive. Matworks does not address the distinction between the EZE carpet tile as opposed to the adhesive "failing in its manifestly intended purpose," in their objection to Tennessee's motion for summary judgment. As with Griswold, there is no evidence that Tennessee participated in the integration of their component into the design of this product. Following the same analysis used earlier as to the Griswold component, in order to find the adhesive component itself was defective, the fact finder would need expert testimony, because what actually caused the carpet tile to delaminate is beyond the knowledge of the average lay person.
The motion for summary judgment is granted in favor of Tennessee as to the plaintiffs and the third party plaintiff Matworks.
C
Vallis Carpet, Inc.
Vallis admits that it installed the original EZE carpet tile at the Rite Aid Pharmacy where Fallon fell on July 26, 2001. This original installation occurred on or about June, 2000. Vallis performed no further work at the premises. Matworks does not dispute that on or about January, 2001 and May, 2001 it hired National Entry Installation (not a party to the present action) to repair and replace carpet tiles at the Rite Aid Pharmacy in question. The repairs were based on a delamination of certain carpet tiles in various areas of the store, including the area where Fallon fell on July 26, 2001. Fallon has testified that *1079 she does not know if the carpet tile she is alleged to have tripped over was one of the carpet tiles that has been replaced or repaired. Vallis asserts two grounds in its motion. First, it argues that the installation of the carpet tiles requires special skills and knowledge beyond that of an ordinary person and the claims are, therefore, tantamount to a claim of professional negligence or malpractice and cannot stand absent expert testimony. Matworks argues in opposition that a product defect, under appropriate circumstances, can be proven without the benefit of expert testimony by applying the malfunction doctrine. The court agrees with Matworks.
Matworks, in that its action directed at Vallis sounds in professional negligence/malpractice, is required to put forth expert testimony to establish the applicable standard of care a carpet installer owes and expert testimony showing how the defendant allegedly violated that standard. "[P]rofessional negligence or malpractice . . . [is] defined as the failure of one rendering professional services to exercise that degree of skill and learning commonly applied under all circumstances in the community by the average prudent reputable member of the profession with the result of injury, loss or damage to the recipient of those services." (Emphasis in original; internal quotation marks omitted.) Vona v. Lerner, 72 Conn.App. 179, 187, 804 A.2d 1018 (2002), cert. denied, 262 Conn. 938, 815 A.2d 138 (2003).
The plaintiff in a professional negligence or malpractice action must demonstrate: (1) the relevant standard of care in the circumstances; and (2) that the defendant deviated from the standard of care and that the deviation caused harm to the plaintiff. Pisel v. Stamford Hospital, 180 Conn. 314, 334, 430 A.2d 1 (1980).
In the present case, the plaintiffs' negligence claim is "akin to [an allegation] of professional negligence or malpractice, which [our Supreme Court has] previously defined as the failure of one rendering professional services to exercise that degree of skill and learning commonly applied under all the circumstances in the community by the average prudent reputable member of the profession with the result of injury, loss, or damage to the recipient of those services." (Internal quotation marks omitted.) Santopietro v. New Haven, 239 Conn. 207, 226, 682 A.2d 106 (1996). "[I]f the determination of [this] standard of care requires knowledge that is beyond the experience of an ordinary fact finder, expert testimony will be required." (Internal quotation marks omitted.) Doe v. Yale University, 252 Conn. 641, 699-700, 748 A.2d 834 (2000).
There is no expert testimony to support Matworks' claim against Vallis. Therefore, the motion for summary judgment is granted in favor of Vallis as to the plaintiffs and third party plaintiff Matworks.
D
Ludlow Composite Corporation
Ludlow admits that it assembled the EZE carpet tile for Matworks and shipped the tile to the Rite Aid Pharmacy for installation. Ludlow argues that because the plaintiffs cannot produce the specific defective carpet tile that is alleged to have caused the fall, there is no evidence to establish that a specific defective carpet tile caused the fall and, therefore, the plaintiffs' claims directed to Ludlow must fail. The plaintiffs admit that the specific EZE carpet tile that Fallon is alleged to have tripped over is unavailable. The plaintiffs argue that the unavailability of the specific EZE carpet tile in issue does not entitle Ludlow to summary judgment. The court agrees with the plaintiffs. Judge Corradino addressed the issue as follows: "[T]he case now before the court can be said to fall into one or another *1080 of two evidentiary categories which are analytically related, often factually related and have similar consequences as to proof problems. Both are strict liability torts, are generally referred to as malfunction cases, and do not depend on a negligence theory. One type of case is noted in [W. Prosser & W. Keeton, Torts (5th Ed. 1984) § 99, p. 696] ([the] second category) and the leading case Henningsen v. Bloomfield Motors, Inc., [32 N.J. 358, 161 A.2d 69 (1960)]. In that type of case as Prosser [and Keeton note] a user of the product testifies `that a component part malfunctions, but for some reason, either because the accident destroys the evidence or the product disappears, there is no evidence as to an identifiable flaw that could have caused the accident,' [W. Prosser & W. Keeton, supra, p. 696.] In Henningsen, the court permitted the inference to be drawn of some kind of flaw in the steering mechanism of the car. [Henningsen v. Bloomfield Motors, Inc., supra, at 409-10, 161 A.2d 69]. In such cases, since the product is no longer available for inspection and the inference based on circumstantial evidence is permitted without predicate of expert testimony but is just based on the nature of the accident, it seems to go without saying that expert testimony need not be produced by the plaintiff to make out a prima facie case. The Henningsen court seemed to underline this when it [stated:] `It may be conceded that the opinion of the automobile expert produced by the plaintiffs in the present case was not entitled to very much probative force.'" [Id., at 411, 161 A.2d 69]. O'Connor v. General Motors Corp., Superior Court, judicial district of Milford, Docket No. CV-89 028104 (April 25, 1997) (21 Conn. L. Rptr. 151, 151-52) (Corradino, J.).
Thus, Ludlow's summary judgment motion as to the plaintiffs is denied.
E
The Matworks
Matworks' summary judgment motion argues that Matworks is not liable because it did not install the EZE carpet tiles which Fallon claims caused her injuries. The plaintiffs respond that the present case relates to the product (EZE carpet tile), and not the installation of the product. Putting aside Matworks' antipodal position in this summary judgment motion directed to the plaintiffs versus its position in response to the summary judgment motions directed at it from other third party defendants, the court agrees with the plaintiffs.
The present action is one sounding in strict product liability. The Connecticut Supreme Court has outlined the essential elements of a strict product liability claim as follows: "(1) the defendant was engaged in the business of selling the product; (2) the product was in a defective condition unreasonably dangerous to the consumer or user; (3) the defect caused the injury for which compensation was sought; (4) the defect existed at the time of the sale; and (5) the product was expected to and did reach the consumer without substantial change in the condition." Giglio v. Connecticut Light & Power Co., 180 Conn. 230, 234, 429 A.2d 486 (1980).
The plaintiffs' allegation against Matworks is that the product itself, not the installation of the product, was defective and caused Fallon's injuries. Thus, Matworks' motion for summary judgment as to the plaintiffs is denied.
IV
CONCLUSION
In summary, the court's conclusions are as follows. First, Griswold's motion for summary judgment is granted as to the plaintiffs, Fallon, Miller and Rite Aid and *1081 as to the third party plaintiff Matworks. Second, Tennessee's motion for summary judgment is granted as to the plaintiffs, Fallon, Miller and Rite Aid and as to the third party plaintiff Matworks. Third, Vallis' motion for summary judgment is granted as to the plaintiffs, Fallon, Miller and Rite Aid and as to the third party plaintiff Matworks. Fourth, Ludlow's motion for summary judgment as to the plaintiffs, Fallon, Miller and Rite Aid is denied. Fifth, and finally, Matworks' motion for summary judgment as to the plaintiffs, Fallon, Miller and Rite Aid is denied | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538353/ | 69 B.R. 93 (1987)
In re Joseph L. BRADEN, Debtor.
Basil T. SIMON, Trustee, Plaintiff,
v.
Joseph L. BRADEN, and Teachers Insurance and Annuity Association, College Retirement Equities Fund, Defendants.
Bankruptcy No. 84-01052-R, Adv. No. 85-0634-R.
United States Bankruptcy Court, E.D. Michigan, S.D.
January 13, 1987.
Kenneth Schneider, Detroit, Mich., for plaintiff.
Gerald Rosen, Detroit, Mich., David Goldstein, Ann Arbor, Mich., for defendants.
SUPPLEMENTAL MEMORANDUM OPINION GRANTING THE DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
STEVEN W. RHODES, Bankruptcy Judge.
This adversary proceeding was brought by Basil T. Simon, the Chapter 7 trustee, against Joseph L. Braden, the debtor, the Teachers Insurance and Annuity Association (TIAA), and the College Retirement Equities Fund (CREF). The latter two defendants are holding approximately $133,000 in annuity and retirement plans for the debtor, who is a professor at Eastern Michigan University. Count I of the complaint alleges that this sum is property of the estate, and seeks an order requiring that the defendants turn over this sum to the trustee.
Initially the parties disagree as to whether the debtor's rights under these plans constitute property of the estate under section 541(a)(1). This section provides:
(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:
(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.
The Court concludes that it is unnecessary to determine whether the debtor's *94 rights under those plans constitute property of the estate under 11 U.S.C. § 541(a)(1), in light of its conclusion that section 541(c)(2) mandates a judgment in favor of the defendant.
11 U.S.C. § 541(c)(2) provides:
A restriction on the transfer of the beneficial interest of a debtor in a trust that is enforceable under applicable non-bankruptcy law is enforceable in a case under this title.
The application of this section raises three issues: (a) whether the debtor's interest is a beneficial interest in a trust; (b) whether there is a restriction on the transfer of that beneficial interest; and (c) whether that restriction is enforceable under non-bankruptcy law.
Initially, there is no dispute here that the debtor's interest is a beneficial interest in a trust. The TIAA Retirement Annuity contract and the CREF Retirement Annuity certificate specifically provide that this beneficial interest is the right to receive these future payments upon the occurrence of certain events, such as termination of employment, death or retirement.
Further, there can be no dispute as to whether there is a restriction on the transfer of that beneficial interest, or as to the extent of that restriction. The affidavit of James Latch of Eastern Michigan University and the plan documents clearly indicate that there is a complete restriction on the transferability of the debtor's beneficial interest in these plans. Simply stated, the debtor has no right to make any kind of assignment or transfer of his future rights in these plans.
Thus, the final issue is whether this restriction is enforceable under applicable non-bankruptcy law. The Court concludes that these restrictions would be completely enforceable under applicable non-bankruptcy law. The trustee has suggested nothing to the Court otherwise and the authority cited by the defendants under "applicable non-bankruptcy law," which pursuant to the plan documents is the law of the State of New York, fully supports their contention that the anti-alienation, garnishment, and assignment provisions are enforceable. Alexandre v. Chase Manhattan Bank, N.A., 403 N.Y.S.2d 21, 61 A.D.2d 537 (1978). Accordingly, the Court holds that the application of 11 U.S.C. § 541(c)(2) mandates summary judgment for the defendants.
The parties have cited and discussed numerous cases on these issues. However, experience suggests that the prime conclusion to be drawn from these cases is that each case must be evaluated on its own facts. Different retirement plans have varying provisions regarding alienation and transferability. Thus, to conclude that one case should dictate the results in another case is inappropriate.
Specifically, the Court concludes that the appellate cases cited by the trustee are substantially distinguishable from the present case, because they deal with different kinds of retirement plans created in different circumstances with different provisions. For example, Lichstrahl v. Bankers Trust, 750 F.2d 1488 (11th Cir.1985) involved two pension plans which the debtor created for himself through his professional association; the court held that the debtor's interest in these plans were not excluded from the bankruptcy estate because plan restrictions were not enforceable under applicable non-bankruptcy law. See also Samore v. Graham, 726 F.2d 1268 (8th Cir.1984), and In the Matter of Goff (Goff v. Taylor), 706 F.2d 574 (5th Cir. 1983), involving a self-employed retirement trust (a Keogh Plan). Although it serves no purpose to address all the distinctions in all these cases, it is somewhat helpful to note that there is language in some of those cases which foresees this particular case, but which nevertheless is dicta. See e.g., In re Goff, 706 F.2d at 589. See also In the Matter of LaFata, 41 B.R. 842, 843 (Bankr.E.D.Mich.1984).
A case which is on point and which supports the defendants' position is Bentz v. Sawdy, 49 B.R. 383 (Bankr.W.D.Pa.1985).
Finally, the Court draws some support for its conclusion that the defendants are entitled to summary judgment in the practical *95 problems which would result from the opposite conclusion. See In re Miller, 33 B.R. 549, 553 n. 11 (Bankr.D.Minn.1983).
Accordingly, the Court grants summary judgment in favor of the Plans on Count I of the complaint. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538366/ | 362 A.2d 114 (1976)
Absalom F. JORDAN, Jr., Petitioner,
v.
DISTRICT OF COLUMBIA et al., Respondents.
No. 9444.
District of Columbia Court of Appeals.
Argued December 4, 1975.
Decided August 3, 1976.
*115 Absalom F. Jordan, Jr., pro se.
E. Calvin Golumbic, Asst. Corp. Counsel, Washington D.C., with whom C. Francis Murphy, Corp. Counsel, Washington D.C.; at the time the brief was filed, Louis P. Robbins, Principal Asst. Corp. Counsel, and Richard W. Barton, Asst. Corp. Counsel, Washington, D.C., were on the brief, for respondents.
Before REILLY, Chief Judge, HARRIS, Associate Judge, and GREEN, Associate Judge, Superior Court.[*]
REILLY, Chief Judge:
This is a petition for review of a decision of the Board of Appeals and Review affirming a denial by the Metropolitan Police Department of an application under D.C.Code 1973, § 22-3206, for a license to carry a concealed pistol. It is the third occasion in which this court has been asked to pass on rejections of similar applications by petitioner.
This particular application was filed on March 8, 1974. No action was taken within the 30-day period established by Article 55, § 4(a) of the Police Regulations,[1] and petitioner appealed to the Board. On that very day the Police Department denied petitioner's application in a letter informing him that guidelines to be followed in event of reapplication would soon be published. The appeal to the Board was withdrawn and then refiled.
While this was pending before the Board, the Police Department, following a *116 suggestion of this court,[2] published proposed regulations for the issuance of licenses respecting applications under § 22-3206. See 20 D.C.Reg. 1218-1226 (June 3, 1974). One week later petitioner unsuccessfully sought a writ of mandamus from this court to compel the Board to convene a hearing on his appeal.[3]
On July 1, 1974, the Board remanded the case to the Police Department for reconsideration under the new police regulations, once adopted. Thereupon the Chief of Police rescinded his previous denial and reinstated petitioner's license application, informing petitioner that he would be given the opportunity to supplement his application when the new regulations became effective.
Two months later the regulations were adopted[4] and although he had notice of their publication, petitioner never supplemented or amended his application to comply with them. Instead, petitioner requested that his notice of appeal to the Board be reinstated pursuant to Section D, part 7, of the Police Regulations.[5] His request was granted and after a testimonial hearing the Board issued on February 5, 1975, findings of fact and conclusions of law sustaining the denial of petitioner's application.
Petitioner asserts essentially two grounds for reversal and remand: (1) the police regulations on which the Board rested its findings and conclusions were unlawful, and (2) the Board itself failed to comply with § 742(a) of the District of Columbia Self-Government Act.[6]
Subsequent to the opinion of this court in Jordan v. District of Columbia Board of Appeals and Review, D.C.App., 315 A.2d 153 (1974), the Police Department promulgated regulations which, contrary to petitioner's contention, were adopted and published according to procedural law and are consistent with Congressional policy set forth in the applicable code provision. See 21 D.C.Reg. 413-421.
Petitioner failed to comply with these regulations in several respects. Section B.1 of such regulations provides that:
(a) application must allege serious threats of death or serious bodily harm to his person or theft or destruction of property in writing, under oath. The applicant must also allege that the threats are of a nature that the legal possession of a pistol would provide adequate protection.
and
(b) The Chief of Police or his designated agent will conduct an investigation into the allegations of the applicant to determine if the alleged threats are serious and factual and are of a nature that can be protected by carrying a pistol. Factors to be considered include the substance of the alleged threat, whether or not the applicant made a timely report to the police of such threats, and whether or not the applicant has made a sworn complaint to the police in the courts of the District of Columbia. (Emphasis supplied.)
No allegations of threats were made under oath. Nor did petitioner make timely reports of any alleged threats to the police or sworn complaints to the police in the courts of the District of Columbia. Such failure to conform to the regulations obviously deprived the Police Chief of any opportunity to conduct an investigation to *117 determine the substantiality of threats and the need of petitioner to carry a defensive weapon.
Futhermore, petitioner applied for a license to carry a Smith & Wesson 9mm automatic pistol. Section C.5 of the Regulations,[7] in pertinent part, provides that:
The pistol for which the license is applied must be a five or six shot revolver of no greater than .38 calibre. Automatic or semi-automatic pistols will not be approved. (Emphasis supplied.)
Thus under the current regulations, petitioner's application is fatally defective. Moreover, this limitation on the categories of licensable weapons is plainly reasonable.
Despite the opportunity to correct these infirmities in his application, petitioner chose to ignore them, contending that under the D.C. Administrative Procedure Act[8] the burden of proof in contested cases is on the proponent of a rule or order. Therefore he asserts that under D.C. Code 1973, § 22-3206,[9] he must allege only need and suitability and that the Police Department then had the burden of going forward to disprove these claims. The wording of § 22-3206 does not support this contention, for unless the applicant provided the information specified by the police regulations, the requisite showing was lacking.
Petitioner raises several other procedural objections, none of which in our opinion has merit, and only one of which warrants discussion. This objection is directed to the fact that after the public hearing at which petitioner and other persons testified, the Board of Appeals and Review went into executive session. Presumably its ultimate written findings and conclusions were based upon the deliberations which then ensued.
Petitioner contends that this procedure violated § 742 (a) of the District of Columbia Self-Government and Governmental Reorganization Act,[10] popularly known as the "Sunshine Act." Consequently he urges this court to hold that this administrative decision and the subsequent denial of a motion for reconsideration were invalid because the Board did not comply with this subsection.
This is the first time that this court has had to consider the impact of the open meetings amendment, § 1-1503a, to agency actions under the Administrative Procedure Act. To interpret this provision as broadly as petitioner would have us do, would mean that in an adjudicatory proceeding, even though testimony and arguments are entertained in public and the transcript made available to the parties and any interested persons, the members of the quasi-judicial agency when they convene to review the record and discuss possible findings would have to admit the parties and any member of the public to their deliberations. Such a construction of the amended act is not an appealing one. It would effectively prevent the frank exchange of views in private among members of quasi-judicial agencies in reaching a decision thus putting them on an entirely different footing from appellate courts and juries to say nothing of federal administrative *118 agencies where experience has shown that the free flow of discussion unimpeded by the presence or reactions of the parties to the controversy has encouraged fair and just results.
We also note that, contrary to petitioner's views, the Corporation Counsel has interpreted the new law as not applicable to the deliberative processes of agencies engaged in adjudication. His opinion was adopted by the Mayor and circulated to the heads of departments and agencies.[11]
In pertinent part, that opinion states:
The statute pertains to all official actions of an executive or legislative nature, but does not apply to adjudicatory type hearings ("contested cases"). While such adjudicatory proceedings are normally open to the public, except where specific laws provide otherwise, the statute does not require the deliberative processes of the members to be open to the public. These matters are, and continue to be, controlled by the District of Columbia Administrative Procedure Act, which does not require deliberations to be held in public. Also excluded from the coverage of the statute are those incidental actions of the adjudicatory process, such as whether to file charges or take action against a licensee.
It is well established that such... rulings are entitled to weight as construction of the District of Columbia Code unless plainly unreasonable or contrary to ascertainable legislative intent." Williams v. W.M.A. Transit Company, 153 U.S.App.D.C. 183, 189, 472 F.2d 1258, 1264 (1972). In enacting the "sunshine" provision, Congress expressed no intent at odds with that particular ruling.
In his brief in this court, the Corporation Counsel has cited Dayton Newspapers, Inc. v. City of Dayton, 28 Ohio App.2d 95, 274 N.E.2d 766 (1971), as well as decisions of other state appellate courts, as supporting his quoted opinion. Because of differences in wording, however, these holdings are not directly in point so far as the statutory provisions drawn into issue here are concerned. Nevertheless we are of the opinion that the limited application of the statute for which the government is contending accurately reflects the Congressional purpose.
We are not persuaded by the one judicial decision cited to us in which a statute very similar to ours was held to apply to quasi-judicial as well as quasi-legislative deliberations. This was a 4-3 holding by the Supreme Court of Florida,[12] to the effect that even when a local school board acts in a quasi-judicial capacity, it is part of the legislative branch of government and hence forbidden by the Florida "sunshine act"[13] to decide a contested suspension case in private after it had gone to hearing.
We have examined both the majority and minority opinions, and deem convincing the reasoning of the minority. Justice Dekle, writing for himself and the other dissenters, made these observations with which we agree:[14]
The Legislature itself has recognized its grant of quasi-judicial powers to various boards and agencies as "something apart" from those agencies' principle functions, and that they are to be treated in a different manner. This is reflected in the Legislature's adoption of the Administrative Procedure Act, which sets *119 forth the procedure (like our court rules) regulating the exercise of that quasi-judicial power granted to the agency. It is apparent that such distinctive quasi-judicial activity was never intended to be melted into an agency's regular duties and responsibilities and thereby treated in a "nonjudicial" manner in its consideration. I believe that the Legislature is as conscious as anyone in preserving private rights and due process of individuals who may come before a board or agency and that the Legislature intended to insure that those rights were afforded in accordance with due process in a judicious manner, as reflected by adoption of the Administrative Procedure Act for state agencies.
The regular activities of an agency and those which are quasi-judicial are altogether different. Those rights of persons and property involved in a hearing should be preserved in a judicial atmosphere which is essential to a fair and impartial deliberation upon the rights involved. To afford less in such a judicial type of proceeding would be a denial of due process and of a fair hearing in which a person's rights and interests are at stake, as much as if he were before a judicial tribunal. We might as well return to the Roman Arena for a "thumbs up or thumbs down" result by the public clamor if we are to eliminate the judicial protections and safeguards in matters of this kind.
* * * * * * *
The result of depriving an administrative body of free deliberation among themselves, just as a regular judicial body or jury may do, is to shut off the free flow of discussion among them and an exchange of ideas and an open discussion of differing views to the end that a fair and just result may be reached by the body based upon the evidence and arguments at the hearing. Ask any juror. The answer will be that the free interchange and discussion among the group is essential to a fair and just conclusion of the interests before them for decision. This is not the area in which one need fear the alleged "private deals" and extraneous considerations to the matter at hand, so that really the asserted reason undergirding the sunshine law is not present in a judicial deliberation of a matter before an administrative board for a review of judicial character. The basic concept of the "right of the public to know" is fulfilled upon reaching such a fair and just result which is then publicly conveyed. (Footnotes omitted.)
There can be no question that the case before us for review was an agency adjudicatory proceeding, in contradistinction to a legislative or quasi-legislative action. Cf. Hotel Association v. District of Columbia Minimum Wage and Industrial Safety Board, D.C.App., 318 A.2d 294 (1974). As it is our considered opinion that the deliberative process incident to final orders in such proceedings is not covered by the so-called "sunshine" amendment, it follows that the challenged orders in this case are not defective either because the Board members arrived at their decision at a non-public conference or because no transcript of such conference was made.[15] Accordingly the orders of the Board must stand.
Affirmed.
NOTES
[*] Sitting by designation pursuant to D.C.Code 1973, § 11-707(a).
[1] Article 55, § 4(a) of the Police Regulations reads as follows:
(a) When an application for a registration certificate under Art. 51 or a license under Art. 52 or Art. 54 of these Regulations is denied, or when the Chief of Police fails to act on any such application within 30 days of its receipt, or when such registration certificate or license is revoked as provided for these Regulations, the aggrieved party may within 5 days appeal in writing to the Commissioner, and the Commissioner shall schedule a hearing before him within 15 days after the appeal has been made. Any ruling from such hearing and any order of the Commissioner denying such an application for a dealer license made pursuant to Art. 55 of these Regulations shall be subject to appropriate judicial review.
[2] Jordan v. District of Columbia Bd. of App. and Rev., D.C.App., 315 A.2d 153 (1974).
[3] Jordan v. Washington, D.C.App. (No. 8510, June 28, 1974, unpublished).
[4] See 21 D.C.Reg. 413-421 (Sept. 3, 1974).
[5] If there is no "notice to the applicant that his application has been approved within 30 days of the date of application, the application shall be presumed to be denied." 21 D.C. Reg. 420.
[6] D.C.Code 1975 Supp., § 1-1503a.
[7] 21 D.C.Reg. 418 (Sept. 3, 1974).
[8] D.C.Code 1973, § 1-1509(b).
[9] The relevant portion of which states that the license may be issued by the superintendent of police "... if it appears that the applicant has good reason to fear injury to his person or property or has any other proper reason for carrying a pistol and that he is a suitable person to be so licensed."
[10] D.C.Code 1975 Supp., § 1-1503a provides in part:
(a) All meetings (including hearings) of any department, agency, board, or commission of the District government, including meetings of the District Council, at which official action of any kind is taken shall be open to the public. No resolution, rule, act, regulation or other official action shall be effective unless taken, made, or enacted at such meeting.
[11] Mayor's Memorandum 75-6, Jan. 6, 1975.
[12] Canney v. Board of Pub. Instruction of Alachua Cty., 278 So.2d 260 (Fla.1973).
[13] Fla.Stat. § 286.011 (1973) reads in pertinent part:
(1) All meetings of any board ... at which official acts are to be taken are declared to be public meetings open to the public at all times, and no resolution, rule, regulation or formal action shall be considered binding except as taken or made at such meeting.
[14] 278 So.2d at 264-265.
[15] D.C.Code 1975 Supp., § 1-1503a(b) provides:
A written transcript or a transcription shall be kept for all such meetings and shall be made available to the public during normal business hours of the District government. Copies of such written transcripts or copies of such transcriptions shall be available upon request to the public at reasonable cost.... | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1537891/ | 6 B.R. 265 (1980)
In the Matter of Fred L. STANFIELD, an individual, and Fred L. Stanfield Construction Co., a partnership, Debtors.
FRED L. STANFIELD CONSTRUCTION CO., Plaintiff,
v.
STEARNS CORPORATION OF NEVADA, a Nevada Corporation; Truckee Meadows Development Co., a Nevada limited partnership; Phillip A. Stearns, individually; Black and White, a corporation; Red and White, a partnership; and Doe's I-V; Defendants.
Bankruptcy No. 79-00445, Adversary No. 80-0001.
United States Bankruptcy Court, D. Nevada.
September 26, 1980.
*266 Henderson, Nelson & Moschetti by Timothy J. Henderson, Reno, Nev., for debtor-plaintiff.
Durney, Guinan & Brennan by David J. Guinan, Reno, Nev., for defendants.
IN PROCEEDINGS FOR REORGANIZATION UNDER CHAPTER 11
OPINION AND DECISION ON DEFENDANTS' MOTIONS AT THE CLOSE OF PLAINTIFF'S CASE IN CHIEF
BURT M. GOLDWATER, Bankruptcy Judge.
Plaintiff's complaint is against the owner of property, Truckee Meadows Development Co., a general partnership, the general construction contractor on the property, Stearns Corporation of Nevada, a corporation, and Phillip A. Stearns, individually. Stearns is president of the general contractor and general partner of Stearns Properties, a limited partnership which is one of the two limited partner joint venturers comprising Truckee Meadows Development Co. The other joint venturer is Truckee Meadows Developers, a Nevada limited partnership in which Valley Ranch Company, a Nevada corporation is general partner. Charles G. Schlegel is president of the general partner, Valley Ranch Company, a corporation.
*267 The complaint alleges two claims for relief:
1. For foreclosure of a mechanic's lien on the property of the owner.
2. For recovery of the reasonable value of work against the contractor and owner.
In late 1978, plaintiff entered into several subcontracts for work and materials on the owner's project known as Silver State Condominiums in Sparks, Nevada. All subcontracts were directly with the corporate contractor, Stearns Corporation of Nevada.
Stearns Properties sold its interest in Truckee Meadows Development Co. on November 18, 1978 (Ex. 7). Plaintiff's lien was recorded in October 1979. The sale agreement provided that Stearns Properties retained managing partner's rights as "set out in the joint venture agreement" (Ex. 5) until paid.
Plaintiff has filed a motion to permit the submission in evidence on his case in chief of a number of copies of notices of completion recorded by the County Recorder of Washoe County. Each of the notices of completion is signed by Phillip A. Stearns on behalf of Truckee Meadows Development Company and bears a date after the time of filing of the plaintiff's notice of lien. The purpose of the motion and documents is to establish Stearns was an active general partner in the owner joint venture despite a sale agreement between his limited partnership and the owner (Ex. 7).
Upon the conclusion of plaintiff's case in chief, defendants moved as follows:
1. To dismiss Phillip A. Stearns as an individual defendant.
2. To dismiss the claim for relief based upon a mechanic's lien upon the grounds that:
a. No proper notice of filing a lien was given.
b. No notice was given to another lienor.
c. No prelien notice was given.
I.
Plaintiff had no subcontract for work and materials with Stearns as an individual. His subcontracts were with a corporate general contractor. There has been no evidence that would constitute a showing of disregard of the corporate entity and there is no showing of fraud. The mere fact that plaintiff thought Stearns was the owner of the project does not establish that Stearns may be made an individual defendant in a suit upon the subcontracts against the corporate contractor.
On the other hand, Stearns is a general partner of a limited partnership which is a joint venturer of the partnership owner. In such case he may be named as a party. General partners may be proper parties defendant in actions against a partnership entity. [Diamond National Corp. v. Thunderbird Hotel, Inc. (1969) 85 Nev. 271 at p. 274, 454 P.2d 13 at p. 15.] Judgment may be given in a case against one or more defendants according to their respective liabilities. [Fed.R.Civ.P. 20(a).] Stearns cannot be liable as an individual for corporate liability; he may be liable jointly with the general partnership owner, but execution against a partner must wait upon exhaustion of partnership assets. [Diamond National Corp. v. Thunderbird Hotel, Inc., supra.] The motion to dismiss Stearns as an individual party defendant is denied.
II.
A.
Defendants claim no proper notice of filing of the lien was given. Notice must be served upon the record owner in one of three ways: (a) by delivering a copy personally or (b) by leaving a copy with a person of suitable age at the owner's place of business, or (c) by posting at the property and also delivering a copy to a person there residing and sending a copy through the mail to the owner at the place the property is situated. [NRS 108.227(1).] Plaintiff chose posting and mailing.
Plaintiff's notice of lien gives "Mr. Phillip A. Stearns doing business as Stearns Corporation *268 of Nevada" as the owner or reputed owner. The notice describes the property as the Silver State Condominiums at Sparks, Nevada. Mailing was to Stearns individually and Stearns Corporation of Nevada.
At all times Stearns individually was a general partner in Stearns Properties, a limited partnership, and Stearns Properties was a joint venturer in the owner Truckee Meadows Development Company, a general partnership.
The statute provides that no variance between the lien and proof shall defeat the lien except for fraud or prejudice. [NRS 108.229.] Certainly Stearns as general partner of the limited partnership which was a partner joint venturer in charge of the owner was not misled. No fraud is alleged. See Peccole, et al. v. Luce & Goodfellow, Inc., et al. (1949) 66 Nev. 360, 212 P.2d 718.
Plaintiff's receipts in evidence show certified mailings to Phillip A. Stearns (Ex. V). Also a mailing to Charles G. Schlegel. Mr. Schlegel was president of Valley Ranch Company, a corporation, which was a general partner of the limited partner Truckee Meadows Developers which was a partner joint venturer of the owner Truckee Meadows Development Company.
Service of the lien by mistake as to allegation of true owner is not fatal. And service upon the general partners of the joint venturer owners is sufficient. In Fisher Bros., Inc., v. Harrah Realty (1976) 92 Nev. 65, 545 P.2d 203, no notice was served at all. Here the notice was served upon the general partners in charge of the owner. The notice of lien is adequate.
B.
The failure to serve one Draculich, who also had a lien, is not fatal. NRS 108.239(2) prescribes that notice shall be published for all persons who may claim liens. This was done (Ex. V). Service on such persons is also required. [NRS 108.239(3).] Service was not made on Draculich; he has filed his own action.
Both Draculich and defendants have remedies to join and have not been prejudiced.
C.
Defendants contend that plaintiff failed to give a prelien notice as required by NRS 108.2394(1) and that no lien may be perfected or enforced unless the notice has been given. [NRS 108.2394(3).]
Plaintiff contends that he was not required to give a prelien notice because he is a person who contracted "directly with the owner" and is thus excused. [NRS 108.2394(5).]
The general rule is that absent a direct contract with the owner the failure to give a prelien notice is fatal. [J.W. Copeland Yards v. Taranoff (1964) 238 Or. 167, 392 P.2d 259.]
The mechanic's lien statutes are structured so as to provide the owner and those providing labor and material with concomitant rights and duties hinging upon notice.
Where there is no direct contract with the owner the latter may protect himself from liens by filing a notice of nonresponsibility within three days after he has knowledge of the construction. [NRS 108.234.] If the owner knows of the intended construction on his land by reason of the terms of a lease or option he may protect himself from liens of persons with whom he has no direct contract by filing a notice of nonresponsibility within three days of the execution of the lease or option. [NRS 108.234(1)(2).]
If the owner fails to file a notice of nonresponsibility within the time provided in the law, after knowledge of the construction, the statute provides that the construction is at the instance of the owner. It is thus a "direct contract" and this is particularly true in cases involving landlord and tenant. [M. Arthur Gensler, Jr. & Associates, Inc. v. Barrett, Inc. (1972) 7 Cal.3d 695, 103 Cal.Rptr. 247, 499 P.2d 503; Halspar, Inc. v. La Barthe (1965) 238 Cal.App.2d 897, 48 Cal.Rptr. 293; Scott, Blake & Wynne v. Summit Ridge Estates, Inc. (1967) 251 Cal. App.2d 347, 59 Cal.Rptr. 587.] Generally, *269 the rule is based upon estoppel of the landlord to deny a direct contract where he has failed to file notice of nonresponsibility permitted him by statute. [Gensler v. Barrett, supra.]
The landlord-tenant cases do not apply where the owner has made a direct contract because in that event the owner has knowledge of the construction.
The purpose of the prelien statute is to put the owner on notice of work and materials furnished by third persons with whom he has no direct contract. Generally these are subcontractors and materialmen who deal with the general contractor on the construction. Such prelien notice protects the owner from hidden claims to future liens and gives him the opportunity to withhold payment from the general contractor (or surety on the contractor's bond) until he is certain that the general contractor has paid those who performed work or furnished material to the construction on his land. Persons who have a direct contract such as a general contractor are not required to give a prelien notice. [NRS 108.2394(5).]
Phillip A. Stearns was president of Stearns Corporation of Nevada, the general contractor on the Silver State Condominium project on the owner's land.
Stearns was also general partner in Stearns Properties, a California limited partnership.
The owner of the land and the construction project was Truckee Meadows Development Company. This was a general partnership joint venture composed of Stearns Properties, a limited partnership with Phillip A. Stearns the general partner and Truckee Meadows Developers, a Nevada limited partnership. The general partner of the latter was Valley Ranch Company, a Nevada corporation.
As Stearns was president of the contractor and also a general partner in one of the two joint venturers as owner the issue is whether the owner had a direct contract with plaintiff.
Of course Stearns had knowledge of the construction in both capacities and also notice of all subcontracts and materialmen. In such case it would be a vain and useless act to give a prelien notice as the owner was already on notice and the plaintiff is not required to give notice that he may file a lien to an owner who knows of his subcontracts.
A case in point is Burton Drywall, Inc. v. Kaufman, 69 Mich.App. 85, 244 N.W.2d 367 (1976), reversed 402 Mich. 366 at 263 N.W.2d 249. The facts are stated in the Appeals Court decision. Westland Park Apartments was a partnership of Harry Kaufman, Ben Kaufman and Joseph Rickard. The partnership entered into an agreement with Ricco, Inc. to act as general contractor for an apartment project. The president and sole stockholder of the contractor Ricco, Inc. was Joseph Rickard.
Ricco, Inc. subcontracted with plaintiff to provide the drywall and labor to the construction project. No notice of intent to claim a lien (prelien) notice was given. Michigan requires a preliminary notice within 90 days after furnishing materials or labor.
It was argued in the Appeals Court that Rickard's knowledge as president of the contractor was binding on the partnership of which he was also a member and no prelien notice was required. This was rejected by the Appeals Court which held that there was no direct contract and notice was required as a condition to filing a lien.
The Supreme Court of Michigan reversed holding that the direct dealing exception was not "judicially created". The Court said that those who deal directly with the owner need not give notice; that such was inherent in the statute. The conclusion must be that dealing with Ricco, Inc. as contractor imputed notice to the partnership when the president of Ricco, Inc. was also a general partner of the owner and made a direct contract for the purpose of the prelien statute.
Hence, here, where one of the chief partners was also president of the contractor, there is a "direct contract" with the owner *270 and no prelien notice is required because the actual knowledge of both entities through a common principal person in both entities.
The motion to permit the filing of notices of completion as evidence on plaintiff's case in chief is granted.
The motion to dismiss the claim for relief from foreclosure of lien is denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1537893/ | 918 A.2d 910 (2007)
100 Conn.App. 297
Meredith FINAN
v.
John FINAN.
No. 26463.
Appellate Court of Connecticut.
Argued October 24, 2006.
Decided April 3, 2007.
*912 Charles D. Ray, with whom, on the brief, was Suzanne M. Raudenbush, Hartford, for the appellant (plaintiff).
*913 Sperry A. DeCew, for the appellee (defendant).
DiPENTIMA, HARPER and HENNESSY, Js.
DiPENTIMA, J.
The plaintiff, Meredith Finan, appeals from the judgment of the trial court dissolving her marriage to the defendant, John Finan. On appeal, the plaintiff claims that the court improperly (1) entered financial orders because it (a) failed to value the parties' interests with respect to the marital home as of the date of dissolution, (b) relied on the parties' proposed findings of fact, which contained several inaccuracies, (c) failed to require the defendant to provide a value for certain stock options, (d) refused to admit into evidence a report detailing the defendant's preseparation dissipation of marital assets, and (e) ordered time limited alimony that was inconsistent with the facts and inequitable; (2) ordered the parties to file a joint income tax return for the year prior to the dissolution; and (3) failed to consider security for the defendant's alimony obligation. We vacate the trial court's order with respect to the income tax return and affirm the judgment in all other respects.
The parties married on September 11, 1982, and, at the time of the trial, had three children, of which two were minors. The court rendered judgment dissolving the marriage on March 11, 2005. The court found that the marriage had broken down irretrievably without attributing fault to either party as to the cause of the breakdown.
The court entered orders regarding property distribution, alimony, child support and other miscellaneous matters. As part of the dissolution decree, the court ordered the defendant to pay to the plaintiff "unallocated alimony and child support in equal semimonthly installments on the first and fifteenth of each month, the annual sum of $95,000 based on his base salary of $225,000." This appeal followed. Additional facts will be set forth as necessary.
I
The plaintiff's first claim is comprised of five separate challenges to the financial orders entered by the court as well as the factual bases underlying those orders. We conclude that the court's financial orders were proper.
We review each of these claims under the same well settled standard of review. "An appellate court will not disturb a trial court's orders in domestic relations cases unless the court has abused its discretion or it is found that it could not reasonably conclude as it did, based on the facts presented. . . . In determining whether a trial court has abused its broad discretion in domestic relations matters, we allow every reasonable presumption in favor of the correctness of its action. . . . Appellate review of a trial court's findings of fact is governed by the clearly erroneous standard of review. The trial court's findings are binding upon this court unless they are clearly erroneous in light of the evidence and the pleadings in the record as a whole. . . . A finding of fact is clearly erroneous when there is no evidence in the record to support it . . . or when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." (Internal quotation marks omitted.) Demartino v. Demartino, 79 Conn.App. 488, 492, 830 A.2d 394 (2003).
"A fundamental principle in dissolution actions is that a trial court may exercise broad discretion in awarding alimony and dividing property as long as it *914 considers all relevant statutory criteria. . . . In reviewing the trial court's decision under [an abuse of discretion] standard, we are cognizant that [t]he issues involving financial orders are entirely interwoven. The rendering of judgment in a complicated dissolution case is a carefully crafted mosaic, each element of which may be dependent on the other." (Internal quotation marks omitted.) Kunajukr v. Kunajukr, 83 Conn.App. 478, 481, 850 A.2d 227, cert. denied, 271 Conn. 903, 859 A.2d 562 (2004).
We apply the abuse of discretion standard of review because it "reflects the sound policy that the trial court has the unique opportunity to view the parties and their testimony, and is therefore in the best position to assess all of the circumstances surrounding a dissolution action, including such factors as the demeanor and the attitude of the parties." Casey v. Casey, 82 Conn.App. 378, 383, 844 A.2d 250 (2004).
A
The plaintiff first claims that the court abused its discretion when it entered its order with respect to the parties' marital home. Specifically, the plaintiff claims that the court's order (1) fails to value the parties' respective interests at the time of dissolution, (2) requires the plaintiff to fund the defendant's investment and (3) creates a potential for future disputes. We are not persuaded.
The following additional facts are necessary for our resolution of the plaintiff's claim. In its memorandum of decision, the court entered the following order with respect to the parties' marital home. "The [plaintiff] shall have the sole right of occupancy in the marital residence located at Sparrow Lane, Greenwich . . . and she shall indemnify [the defendant] in connection with the expenses associated with the occupancy of said residence. The marital residence shall be placed on the market no later than ninety days from the date of graduation from college of the youngest child, but no later than March 1, 2012, whichever occurs first, unless the [plaintiff] agrees to sell said property at an earlier date. The defendant shall be entitled to 25 percent of the net equity once the marital residence is sold, after payment of all expenses related to such sale. If the [plaintiff] wishes to retain full ownership of said property on that date, she shall have the right to pay [the defendant] a sum equivalent to 25 percent of the net value at that time after calculating all expenses due on the property, including the expenses of selling said property. If the [plaintiff] does not wish to retain said property, she shall give [the defendant] the right of first refusal to purchase her interest at 75 percent of any agreed net price or based on the appraised value of said property."
The plaintiff essentially makes a wholesale attack on the court's order with respect to its disposition of the marital home and posits several scenarios in which the court's order would seemingly frustrate the parties. We do not find those scenarios persuasive. With respect to her first two arguments, which are that the court failed to value the parties' respective interests at the time of dissolution and that its order requires the plaintiff to fund the defendant's investment, the plaintiff is essentially arguing that any capital improvements made to the home and mortgage payments made by the plaintiff would not be accounted for in a future sale. In support of this argument, the plaintiff suggests that our holding in Osakowicz v. Osakowicz, 57 Conn.App. 807, 810, 750 A.2d 1135 (2000), is dispositive of this claim and requires reversal of the court's order with respect to the marital home.
*915 In Osakowicz, the trial court set a fixed sales price, $180,000, for the marital home that was based on the stipulated agreement of the parties. Pursuant to the court's order, if the plaintiff chose to sell the property, the defendant had the right to purchase it for the stipulated amount. If the property was not sold by the time the youngest child reached maturity, the defendant could then purchase the home for the same stipulated price. Id., at 811, 750 A.2d 1135. We remanded the case to the trial court to refigure this calculation on the basis of its failure to account for normal market fluctuations. Id., at 811-12, 750 A.2d 1135.
In the present case, the court did not order a fixed price for the sale of the home but rather used a percentage of the home's value at the time of any future sale. That distinction eliminates any inequity arising from future improvements or mortgage payments made to the property.[1] "The purpose of a property division pursuant to a dissolution proceeding is to unscramble existing marital property in order to give each spouse his or her equitable share at the time of dissolution." Smith v. Smith, 249 Conn. 265, 275, 752 A.2d 1023 (1999). In its memorandum of decision, the court meticulously detailed the parties' financial situation, valued the home at $597,979.93 and took note of the plaintiff's down payment of $210,000. On the basis of the record, we conclude that the court properly valued the parties' respective interests in the marital home at the time of dissolution and that its order provided an equitable division of the marital home. As to the plaintiff's assertion that the court's order will cause future disputes between the parties, we merely note that unfortunately, some level of discord naturally flows from most marital dissolutions. Accordingly, we conclude that the court did not abuse its discretion with respect to its order relating to the marital home.
B
The plaintiff next claims that the court improperly relied on the parties' proposed findings of fact, which contained several inaccuracies. Specifically, the plaintiff argues that there are twenty-six instances in which the court improperly relied on the defendant's proposed findings of fact, three instances in which it relied on the plaintiff's proposed findings of fact and one instance in which the court relied on the plaintiff's proposed orders.
There can be no doubt that verbatim adoption, from another source, of the fact section "invites error or sloppy analysis on the judge's part. More importantly, the appearance of justice is just as important as the reality, and a verbatim adoption of the facts [proffered] by one of the advocates invites a public suspicion of the trial court's decision. The perceptions by the public and by the losing litigant of our system of justice are surely not enhanced by such a practice." Grayson v. Grayson, 4 Conn.App. 275, 284, 494 A.2d 576 (1985), appeal dismissed, 202 Conn. 221, 520 A.2d 225 (1987) (certification improvidently granted.). As this court has *916 most recently reiterated, "a verbatim adoption of the findings proposed by a prevailing party is not a per se finding of a denial of a fair trial. . . . Instead, [t]he ultimate test as to the adequacy of [the] findings is whether they are sufficiently comprehensive and pertinent to the issues to provide a basis for the decision and whether they are supported by evidence." (Citation omitted; internal quotation marks omitted.) In re Halle T., 96 Conn. App. 815, 825-26, 902 A.2d 670, cert. denied, 280 Conn. 924, 908 A.2d 1087 (2006); see also MacCalmont v. MacCalmont, 6 Conn.App. 117, 118, 503 A.2d 624 (1986). We have rejected review that would give less weight to the court's findings in these types of cases "because a conscientious appellate court will make such examination of the record as is necessary in every case in which it is claimed that the finding is not supported by the evidence." Grayson v. Grayson, supra, at 285, 494 A.2d 576.
The plaintiff has provided a spreadsheet detailing twenty-six instances in which she claims the court did precisely that which we have just strongly cautioned against. Although we in no way condone the court's verbatim adoption of any of the facts set forth by the defendant, that alone is not enough to warrant reversal. See id. Although the plaintiff cites a total of thirty instances in which the court supposedly adopted the proposed facts from either her own or the defendant's proposed findings of fact,[2] she asserts that in only five of those thirty instances were the court's findings not supported by the evidence presented at trial.
In the first two instances, the court attributed additional bonus payments to the defendant of $100,000 in 1997 and $105,000 in 2003 that were deposited to a joint account. In the third instance, the court included $105,000 as deferred compensation payable in 2005. We agree with the plaintiff that those findings are not supported by the record. "Where, however, some of the facts found [by the trial court] are clearly erroneous and others are supported by the evidence, we must examine the clearly erroneous findings to see whether they were harmless, not only in isolation, but also taken as a whole. . . . If, when taken as a whole, they undermine appellate confidence in the court's fact finding process, a new hearing is required." (Internal quotation marks omitted.) Lambert v. Donahue, 78 Conn.App. 493, 507, 827 A.2d 729 (2003); Owens v. New Britain General Hospital, 32 Conn. App. 56, 78-79, 627 A.2d 1373 (1993), aff'd, 229 Conn. 592, 643 A.2d 233 (1994).
The court awarded unallocated alimony and child support on the basis of the defendant's base salary and any future cash bonus or deferred income. First, the court awarded the plaintiff $95,000 annually on the basis of its finding that the defendant's base salary for 2005 would be $225,000. The plaintiff does not challenge that finding. Second, the court awarded the plaintiff 35 percent of any cash bonus or deferred income awarded to the defendant "commencing with deferred income awarded to him for the year 2004." We note as well that the court ordered that all "remaining assets of the parties jointly owned," which included any joint accounts, be divided equally between them. We fail to see how the court's findings regarding previous bonus payments paid to the defendant and deposited in a joint account prior to 2004 negatively affects the plaintiff's interest. As for the court's finding *917 that the defendant would receive deferred compensation in 2005 for $105,000, we again fail to see how that finding negatively affects the plaintiff's interests. The court awarded the plaintiff a percentage amount of future cash bonuses and deferred compensation paid to the defendant rather than a set dollar value. On the basis of our careful review of the record, we are not persuaded that the challenged findings either formed the basis of the court's orders or were harmful. See Lambert v. Donahue, supra, 78 Conn.App. at 507, 827 A.2d 729. The court's findings as a whole provide more than ample support for it's financial orders. We conclude that the inaccuracies in the court's findings as to the defendant's bonus payments and deferred compensation do not undermine our confidence in the court's fact-finding process. See id.[3] Accordingly, we conclude that its error was harmless.
C
The plaintiff next claims that the court failed to require the defendant to provide a value for certain stock options. Specifically, the plaintiff argues that the court failed to make a finding regarding the value of the defendant's employee stock options before awarding them to the defendant. We are not persuaded.
We first note that "no single rule or formula is applicable to every dissolution case involving employee stock options." (Internal quotation marks omitted.) Wendt v. Wendt, 59 Conn.App. 656, 667, 757 A.2d 1225, cert. denied, 255 Conn. 918, 763 A.2d 1044 (2000). "As a general framework, [t]here are three stages of analysis regarding the equitable distribution of each resource: first, whether the resource is property within [General Statutes] § 46b-81 to be equitably distributed (classification); second, what is the appropriate method for determining the value of the property (valuation); and third, what is the most equitable distribution of the property between the parties (distribution)." (Internal quotation marks omitted.) Bender v. Bender, 258 Conn. 733, 740, 785 A.2d 197 (2001). As noted, we review the court's financial orders under the abuse of discretion standard. See Kunajukr v. Kunajukr, supra, 83 Conn.App. at 481, 850 A.2d 227.
In its memorandum of decision, the court found that the value of the defendant's stock options were "undetermined." Evidence was proffered at trial through the defendant's testimony that the stock options he owned through his employer were "both under water." A stock option that is "under water" has no present value.[4] Therefore, the court properly treated the stock options as property subject to distribution but with an undetermined cash value as stated in its memorandum of decision.
D
The plaintiff next claims that the court improperly refused to admit into evidence *918 a report detailing the defendant's preseparation dissipation of marital assets. Specifically, the plaintiff claims that the court failed to consider evidence that the defendant dissipated marital assets by spending large sums of money prior to the parties' separation. We decline to review this claim because the record is inadequate.
During the course of the trial, the plaintiff submitted a report that contained certain expenditures made by the defendant. The report was entered into evidence over the defendant's objection. Upon a renewed objection, the court ordered that certain parts of the report were to be redacted and the report resubmitted. The first report was stricken and the new report was then submitted in its place. The defendant contends that the first report is not part of the record because it was stricken and replaced with the second redacted report. The first report, which contains the evidence that the plaintiff now contends should have been considered by the court, was neither entered as a full exhibit nor marked for identification after it was replaced by the second report and, therefore, is not part of the record.[5]
"The duty to provide this court with a record adequate for review rests with the appellant. Practice Book § 61-10. . . . The appellant shall determine whether the entire trial court record is complete, correct and otherwise perfected for presentation on appeal. . . . Conclusions of the trial court cannot be reviewed where the appellant fails to establish through an adequate record that the trial court incorrectly applied the law or could not reasonably have concluded as it did. . . . The purpose of marking an exhibit for identification is to preserve it as part of the record and to provide an appellate court with a basis for review." (Citation omitted; internal quotation marks omitted.) Daigle v. Metropolitan Property & Casualty Ins. Co., 257 Conn. 359, 364, 777 A.2d 681 (2001).
We conclude that because the plaintiff did not offer the report for identification purposes, the record is incomplete and, therefore, we cannot properly review the plaintiff's claim.
E
The plaintiff's final claim with respect to the court's financial orders is that the court improperly ordered time limited alimony that was inconsistent with the facts and inequitable. We are not persuaded.
With respect to unallocated alimony and child support, the court made the following order: "This order shall commence on March 1, 2005, and will continue until the death of either party, the plaintiff's remarriage or cohabitation as provided in our statute or thirteen years from March 1, 2005, whichever first occurs. This order shall be nonmodifiable as to term. It shall not be a basis for modification by [the defendant] unless the [plaintiff's] gross salary or employment income is in excess of $45,000, in which event, the defendant may seek a modification. If the [plaintiff's] income exceeds $45,000, the [defendant] shall be entitled to a credit toward his unallocated and support payments of 50 percent of such earnings by the [plaintiff]. . . . If she earns $60,000, he may deduct 50 percent of $15,000 or $7500 from *919 his payments. In addition to the unallocated alimony and child support recited above, the defendant shall pay to the plaintiff the following sums:
"3. The plaintiff . . . is awarded 35 percent of any cash bonus or deferred income awarded to the defendant as of the date of payment to him, commencing with deferred income awarded to him for the year 2004. She shall have the right to and be paid for the next six years, including the year 2004 and ending in the year 2009. The court will retain jurisdiction of any [qualified domestic relations order] or other necessary documents necessary to carry out this order."
Time limited alimony is often awarded. "[Our Supreme Court] has dealt with challenges to an award of time limited alimony on numerous occasions. . . . The trial court does not have to make a detailed finding justifying its award of time limited alimony. . . . Although a specific finding for an award of time limited alimony is not required, the record must indicate the basis for the trial court's award. . . . There must be sufficient evidence to support the trial court's finding that the spouse should receive time limited alimony for the particular duration established. If the time period for the periodic alimony is logically inconsistent with the facts found or the evidence, it cannot stand." (Internal question marks omitted.) Nashid v. Andrawis, 83 Conn.App. 115, 122-23, 847 A.2d 1098, cert. denied, 270 Conn. 912, 853 A.2d 528 (2004); Ippolito v. Ippolito, 28 Conn.App. 745, 751-52, 612 A.2d 131, cert. denied, 224 Conn. 905, 615 A.2d 1047 (1992). In addition to being awarded to "provide an incentive for the spouse receiving support to use diligence in procuring training or skills necessary to attain self-sufficiency," time limited alimony is also appropriately awarded "to provide interim support until a future event occurs that makes such support less necessary or unnecessary." (Internal quotation marks omitted.) Ippolito v. Ippolito, supra, at 752-53, 612 A.2d 131. We have stated previously that the type of future event considered to be a valid purpose for the award of time limited alimony award includes providing interim support until any minor child reaches the age of majority. Id., at 753, 612 A.2d 131.
The plaintiff argues that the court failed to make a finding with respect to her future employment prospects and that its time limited alimony award was entirely speculative. On the basis of our review of the record, we conclude that the court did not abuse its discretion in awarding the plaintiff alimony for a period of thirteen years, nonmodifiable as to term. Although the court did not specifically state the basis for its award of time limited alimony, the record discloses evidence that supports a reasonable rationale for such an award. The plaintiff was forty-nine years old and in good health at the time of the dissolution. She previously had a career in the advertising industry negotiating television and radio contracts. Additionally, at the time of dissolution, the parties had two minor children, ages fifteen and seventeen. In thirteen years, the youngest child will be twenty-eight. The thirteen years of alimony is reasonable in light of those factors.
We therefore conclude that the court did not abuse its discretion when it awarded the plaintiff alimony for a period of thirteen years and that there is sufficient evidence in the record to support the award.
II
The plaintiff's remaining two claims on appeal are that the court improperly (1) ordered the parties to file a joint income tax return for the year prior to the dissolution *920 and (2) failed to consider security for the defendant's alimony obligation. Because these two claims are severable from the preceding challenges to the court's financial orders, we review them together. We agree with the first part of the plaintiff's argument but are not persuaded by the second part.
With respect to the first of these claims, the court ordered that the parties "shall file a joint tax return for the year 2004 and shall split any refund equally or share any tax liability proportionate to their respective income listed by each party." As our Supreme Court has established, "[a] trial court has the authority to order a party to file a joint federal personal income tax return if there was a prior agreement between the parties to do so. See Wolk v. Wolk, 191 Conn. 328, 330, 464 A.2d 780 (1983)." Kane v. Parry, 24 Conn.App. 307, 315, 588 A.2d 227 (1991). In the present case, the record shows no evidence of a prior agreement between the parties to file a joint income tax return. Unlike the situation presented in Kane, the defendant in the present appeal has represented to this court that both parties have filed separate tax returns for the year 2004. The plaintiff, however, claims that the record is devoid of any evidence that either party has filed such a return. We agree that the record does not contain evidence of either party's filing an income tax return for 2004. As the court's order with respect to the parties' filing a joint income tax return is in contravention of established precedent, we must vacate that specific order.[6]
The plaintiff's second argument, which is that the court failed to consider security for the defendant's alimony obligation, is unavailing. The court made the following order with respect to life insurance: "the [defendant] shall maintain his employer provided life insurance, the face amount of which is three times his annual salary." Previously in its order, the court made the determination that the defendant's base salary was $225,000. The record shows that the defendant reported that his employer group life insurance on his financial affidavit has a $225,000 death benefit, with $450,000 for accidental death only. Contrary to the plaintiff's assertions, there is no indication that the court misinterpreted the defendant's financial affidavit when ordering him to maintain his life insurance policies, of which the total face amount equaled three times his annual salary.
The judgment is vacated with respect to the parties' filing a joint income tax return for 2004; the judgment is affirmed in all other respects.
In this opinion the other judges concurred.
NOTES
[1] The plaintiff contends that it is inequitable for the court to have allowed the defendant the option to purchase the home at a future date on the basis of any "agreed net price or, based on the appraised value of said property." That contention warrants little discussion. The decision to either remain in the home until the time specified by the court or to sell it prematurely was put entirely within the plaintiff's control. If the plaintiff decided to sell, the defendant had the option of purchasing. If the parties could not agree on a particular net price, then it was reasonable for the court to order that the parties rely on the appraised value.
[2] We note that most of the instances in which the plaintiff claims that the court adopted findings from the defendant's or her own proposed findings contain certain facts that have only a finite number of ways of being stated.
[3] The remaining instances in which the plaintiff argues that the court improperly relied on proposed facts are equally unpersuasive. Whether the court recited the exact date with regard to the plaintiff's period of employment or when the parties first consulted an estate planning attorney does not impact its financial orders as a whole. Accordingly, we conclude that those incorrect findings were harmless as well.
[4] "When the market value of a stock sinks below the exercise price of an option, the option has no value or is `under water.'" See Bankrate; Stock Options Glossary; available at http://www.bankrate.com/brm/news/insurance/benefits2004/stock-options-terms1.asp (accessed 01/16/07).
[5] We note that the plaintiff could have preserved the original report as part of the record by marking it for identification at trial or, on the basis of the facts and circumstances of this case, at a later time by way of a motion for rectification pursuant to Practice Book § 66-5. See, e.g., State v. Irizarry, 95 Conn. App. 224, 239 n. 22, 896 A.2d 828, cert. denied, 279 Conn. 902, 901 A.2d 1224 (2006).
[6] The plaintiff has not asked this court to reverse all of the trial court's financial orders on the basis of the order that the parties file a joint income tax return, nor would we do so if asked. We note that every improper order "does not necessarily merit a reconsideration of all of the trial court's financial orders. A financial order is severable when it is not in any way interdependent with other orders and is not improperly based on a factor that is linked to other factors." (Internal quotation marks omitted.) Montoya v. Montoya, 280 Conn. 605, 617, 909 A.2d 947 (2006); Smith v. Smith, supra, 249 Conn. at 277, 752 A.2d 1023. Clearly, the court's order with respect to the income tax return is severable. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1537899/ | 6 B.R. 555 (1980)
In the Matter of James R. WILLIS, Jr., Debtor.
GENERAL MOTORS ACCEPTANCE CORPORATION, Plaintiff,
v.
James R. WILLIS, Jr., Defendant.
Bankruptcy No. 80 B 7780.
United States Bankruptcy Court, N.D. Illinois, E.D.
October 9, 1980.
*556 Michael L. Thiel, Chicago, Ill., for plaintiff.
Kornfeld & Spitz, Chicago, Ill., for defendant.
OPINION AND ORDER
RICHARD L. MERRICK, Bankruptcy Judge.
This cause arose on a motion of General Motors Acceptance Corporation (hereinafter "G.M.A.C.") that the confirmation of a Chapter 13 plan be vacated because the Court refused to approve as being excessive a priority stipulation respecting a 1979 Buick Riviera. The particular significance of this claim is that the plan proposes to pay secured creditors 100% of their claims in contrast to 10% for unsecured creditors, over a period of fifty-three months. The plan affords a second priority to an automobile security, which becomes a first priority because current mortgage payments are to be made outside the plan.
This opinion will be considerably broader in its scope than it would need to be if it were to be limited to the precise issue before the Court. The reason for the expanded opinion is that the elemental questions to be considered here are similar to those frequently presented in Chapter 13 plans at one of several stages or in Chapter 7 proceedings at the time of the reaffirmation hearings. The question of determining the present value of an automobile is the same whether the question is raised in a Chapter 7 or a Chapter 13, case. The question of determining the future equivalent of present value is substantially the same in most respects; the differences between the chapters will be described as they arise.
The purpose of the detailed analysis of the elements of installment contracts is that the Court wishes to establish guidelines which will be followed by attorneys practicing before the Court. If other courts choose to adopt the guidelines, so much the better. At least this Court will not have to repeatedly and at considerable length, analyze and explain figures which have little economic reality during crowded courtroom hours. It has been this Court's experience that neither the debtors, nor the creditors, nor their respective attorneys understand *557 many of the implications of the agreements which they propose for court approval. From decisions which have come to the attention of the Court it is apparent that many courts do not appreciate all aspects of the problems either.
As a matter of exposition there first will be set out the guidelines by which the Court expects to establish a pattern which will eliminate the need for repetitious hearings on present and future value of collateral at Chapter 7 reaffirmation hearings and at Chapter 13 confirmation hearings. A recital of the guidelines will be followed by an explanation for selecting each aspect of them. Finally, the guidelines will be applied to the specifics of the instant case. It goes without saying that the guidelines establish maximum allowable values and that any lower values reached by the parties will be acceptable to the Court because lower secured values always will benefit the debtor or unsecured creditors.
GUIDELINES
1. The agreement or stipulation will state
(a) as separate dollar figures
(i) the present value of the collateral,
(ii) the amount of interest to be added,
(iii) the sum of the present value and the amount of interest.
(b) the annual percentage rate, and
(c) the monthly payment.
2. The reaffirmation agreement or stipulation will state that calculation of unearned interest will be by the straight line method of accounting.
3. The reaffirmation agreement or stipulation will state that there shall be no further interest or other charges except those specified above. (If no interest is to be included in the reaffirmation or stipulation, that shall be stated in paragraph 1).
4. A compliance clause signed by the attorneys for the debtor and creditor, respectively, shall appear below the signature of the debtor and the creditor, and it shall state that the agreement complies with the principle enunciated in In re Willis, 80 B 7780.[1]
5. Interest over the term of the repayment period will be allowed against the present value at an annual percentage rate not to exceed ½ of 1% more than the auction average of 3 month United States Treasury Bills on Monday of the week in which the petition for relief under Chapter 7 or Chapter 13 was filed.
6. The details of the calculation of present value need not be stated nor does the collateral have to be described in detail, but the calculation shall conform to the following standards:
(a) Automobiles
The Average TradeIn value as shown in the N.A.D.A. Official Used Car Guide for the month in which was filed the debtor's petition for relief will be taken as present value.
(b) Furniture
The cost of the furniture new will be used as a base against which the following percentages shall be applied to determine present value:
Less than one year old 75%
One year to two years old 50%
Two years to three years old 25%
More than three years old 0
(c) Appliances (including TV and Stereo)
The cost of the appliances new will be used as a base against which the following percentages shall be applied to determine present value:
Less than one year old 80%
One year to two years old 65%
Two years to three years old 50%
Three years to four years old 25%
More than four years old 10%
*558 (d) Carpeting and Draperies
The cost of the finished goods new will be used as a base against which the following percentages shall be applied to determine present value:
Less than one year old 25%
One year to two years old 10%
More than two years old 0
Valuation hearings will be conducted on the first and third Mondays of each month at 8:00 a.m. for the purpose of establishing present value in any circumstances where the adversary parties are unable to reach an agreement on present value which complies with the foregoing guidelines, or are unable to agree on the conversion of the present value to future value.
EXPLANATION OF GUIDELINES
1. Time of Valuation Hearings
This Court feels that it is a waste of a lawyer's time to be sitting in a crowded courtroom waiting for a case to be called. The waiting may represent a double expense to the debtor if he has to pay for the lawyer's time and also is losing the wages which he might have been earning otherwise. Spreading the court call out over a greater number of hours reduces the courtroom congestion and needless waiting. An early hearing time may produce an incidental benefit by causing to be settled those matters over which there is only a minor difference of opinion, thereby permitting courtroom hours to be devoted to matters over which there is a serious controversy.
2. Ascertainment of Present Value
(a) Automobiles
The Used Car Guide published by the National Automobile Dealers Used Car Guide Co. probably is the most widely used of the guides to automobile values. It is the one which this Court has found to be most useful and has been established as the norm for that reason. The Guide assumes a clean car with average mileage for its age. High mileage and low mileage adjustments are contained in the Guide. The attorneys will be allowed to use their discretion on the reduction to be applied against a car in poor condition, with this caveatThe debtor probably will be the only witness with knowledge of the condition of the car under consideration, and he has an interest in the outcome. If the attorneys wish to use some other method of valuation, they should feel free to do so, but the value at which they arrive will be subject to scrutiny by the Court and will not be approved without a separately scheduled valuation hearing.
(b) Household furnishings
There is no acceptable guide to the value of used household furnishings for two principal reasons:
(1) there is not a limited number of standard models with a broad ownership of each model, and
(2) the use and abuse to which the furniture is subjected will have tremendous variations.
The percentages given here are intended to represent a reasonable average, and it is considered unnecessary to take recognition of the probability that a stove will outlast a television set.
3. Meaning of Value
Value is defined in several different ways in the Code. § 506(a) provides a flexible meaning of value:
". . . Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of the property . . . "
Obviously a standardized procedure cannot be based upon such a subjective approach. The generally accepted meaning of market value is that it is the amount which a reasonable willing buyer not under compulsion to buy would pay to a reasonable willing seller not under duress to sell. To the extent that such a meaning is not acceptable to the respective attorneys a valuation hearing may be held to deal with exceptional situations. That meaning of value appears to be consistent with the exemption section of the Code:
*559 "Sec. 522(a). In this section . . . (2) `value' means fair market value as of the date of the filing of the petition . . . "
One reason for adopting average trade-in value for automobiles is that it covers a broad series of transactions between willing buyers and willing sellers, and the sellers (of the traded-in cars) are consumers similar to the debtors before the Court.
4. "effective date of the plan"
§ 1325(a)(5)(B)(ii) of the Code provides in part with respect to the valuation of collateral:
"§ 1325(a). The Court shall confirm a plan if
(5) with respect to each secured claim provided for by the plan
(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; . . . "
In order to have a standard procedure for Chapter 13 plans and to coordinate that procedure with Chapter 7 cases a uniform method of establishing a valuation date is required. The one element which all cases have in common is a filing date. That date will be considered the "effective date" for valuation purposes in the absence of exceptional circumstances that might require a valuation hearing. Due to the fact that the collateral in every instance will be used personalty which would not be expected to fluctuate in value to any considerable extent within the space of several months and also due to the fact that any fluctuations which might take place probably would be within the usual margin of error in establishing a value in the first instance, it is anticipated that the date of the filing of the plan will be accepted universally as the appropriate valuation date, without regard to whether it is the "effective date of the plan."
5. Conversion of Present Value to Future Value
In writing this section the Court was reminded of children's table games in which by landing on certain spot the player can skip a portion of the route and go directly to another spot. Any reader who has arrived at Item 5 of the Explanation of Guidelines may go directly to Item 6 without missing any significant legal discussion. Items 5(a) through 5(g) largely are economics and mechanical. They explain why many existing procedures do not work as intended, but if a person is willing to accept the principles without understanding them, he may omit what necessarily is rather ponderous reading.
(a) The Nature of Interest
The payment of interest serves a double purpose:
(i) it compensates the lender for the delay in receipt of payment of the principal, and
(ii) it compensates the lender for the risk that the contract will not be performed according to its terms.
Analyzing first the issue of risk we find that for an American resident ownership of a United States obligation is risk free, whether it is a Treasury Bill, a Treasury Note, or a United States Bond. Each of them is payable in a constant number of United States dollars. These dollars are legal tender for anything which the American resident may wish to purchase in this country. The same faith and credit stands behind the term obligations as behind the currency. If the term obligations were payable in gold (and the gold clause were respected), there would be a risk that at maturity the United States might not have enough gold to redeem the obligation. But if the United States does not have enough dollars at the maturity, it starts up the printing presses and creates enough. Theoretically the printing of an additional 1,000 dollars does not increase the national debt because it represents the substitution of one thousand $1 obligations for one $1,000 obligation. The risk of inflation, for example, lies in the medium of payment and not in the debt instrument. Upon maturity a United States Treasury Bill will be redeemed for 1,000 dollars, and there is no *560 risk that the redemption will not occur. What the 1,000 dollars will be able to buy may affect the desirability of the investment but that is because of lack of confidence in the medium of payment and not in the debt instrument itself.
With a private corporation, such as the creditor in the instant case, G.M.A.C., two theoretical risks are present for a lender. The maker does not control the medium of payment so that there is a risk that it may not be able to obtain one thousand dollars at maturity to use for redemption purposes. The second risk, which is closely related, is that the corporation may not exist at maturity, or may be barred from making payment for other reasons. Although these risks are not great, they are sufficiently large so that day in, day out, G.M.A.C. may be expected to have to pay an interest rate of about ½ of 1% higher than would the United States to borrow money for the same length of time. Both G.M.A.C. and the United States suffer from the lack of confidence which investors have in the medium of payment which they both use, that is, United States dollars. If the inflation rate is expected to continue at a 10% rate, investors will want to receive a 10% higher return than they would have accepted otherwise just in order to stay even in relation to everything else.
The non-risk aspect of interest is that it is a compensation for use of the principal. (For a discussion of the impact which charges for the use of money have had on the historical development of property law, see In re Michigan Avenue National Bank, 2 B.R. 171, 22 CBC 262 (Bkrtcy.1980).
Both aspects of interest come into play when an attempt is made to equate future payment with present value. Much that has been written about "adequate protection" and "indubitable equivalence" fails to recognize that an ironclad guaranty of $100 one year from now is not the economic equivalent of $100 now; $112 one year from now might be the economic equivalent of $100 now. The dichotomy between the legal and economic approaches to "indubitable equivalence" frequently is not observed, but with respect to liens on personal property in consumer cases the Code clearly appears to conform to the economic approach.
(b) Pre-computed interest
Most of the secured loans which become the subject matter of reaffirmation agreements and stipulations contain pre-computed interest. Their nature and structure is different from the familiar loan forms, and a description of what they are will be preceded by a description of what they are not.
The simplest form of loan is a conventional bank loan in which a person borrows and receives a stated sum of money. At maturity he repays the principal and also interest at whatever had been the agreed rate. There are no interim payments of either principal or interest. On a $1,000 loan for six months at 10%, the borrower will repay nothing until the end of the period and then will pay $1,050.
The next most common form of loan is a mortgage loan, where the borrower makes monthly payments which are constant in amount and combine principal and interest. For example, there might be a $24,000 twenty year mortgage at 10%. Interest for the first month would be $200 ($24,000 × .10 ÷ 12 = $200). Let us say that a principal payment of $100 is required also. Going into the second month the householder has a loan of $23,900. Interest on that amount is $199.17 per month. If there is a $300 payment, principal will be reduced by $100.84. Going into the third month the householder has a loan of $23,799.16. Interest on that amount for one month is $198.33, so that the principal reduction in the third month will be $101.67. Each month for twenty years the principal reduction will be 83 cents greater than it was the month before, and the interest payment will be 83 cents less than it was the month before.
In the example of the bank loan, the borrower had the entire principal for the full term of the loan. In the example of the mortgage loan the principal amount of the loan was being reduced periodically at a constant rate. In a typical retail installment *561 contract the interest is added to the amount borrowed at the beginning. For example, assume a $5,000 purchase financed at 10% for three years. Simple interest will be $500 per year, and for three years will equal $1,500, producing a figure of $6,500, which has to be repaid in 36 months, and commonly is referred to as the "deferred payment price." This will require monthly payments of $180.56. The allocation of the $180.56 between principal and interest will be discussed below. At the moment it is sufficient to state that because of the continuous reduction of principal the amount borrowed will decline constantly and over the life of the loan will average somewhat more than one-half of the amount borrowed originally.
(c) Rebates
Where a retail installment contract runs its full term all of the pre-computed interest becomes earned, but where the contract is paid off before maturity a portion of the interest has not become earned and has to be rebated. The standard method of computing rebates is under the Rule of 78's.
The Rule of 78's, also called the sum-of-the-digits method, derives its name from the fact that most retail installment contracts are described in terms of months to maturity, and there are twelve months in a year. The sum of the digits 1 through 12 equals 78 (1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 + 9 + 10 + 11 + 12 = 78). Because the reader probably is familiar with accelerated depreciation in real estate, that will be reviewed briefly before returning to the Rule of 78's.
Improved real estate normally is depreciated over its useful life. The estimated salvage value at the end of the life is deducted from the original cost, which produces the amount subject to depreciation. If a constant rate of depreciation is taken each year, it is called the straight line method; on a building with a useful life of 20 years, 1/20 would be taken as depreciation each year.
Recognition has been given to the fact that most tangibles depreciate faster early in their lives than they do later by allowing accelerated depreciation. One of the common methods of accelerated depreciation is sum-of-the-years digits, or SYD. This is identical in principle to the Rule of 78's. Assume a building with a 20 year life. The sum of the digits 1 through 20 is 210. In the first year 20/210 of the depreciable cost of the building can be taken; 19/210 in the second year, and progressively down to 1/210 in the last year. Over the 20 year life, 210/210 of the depreciable cost will have been written off. The reciprocal of the depreciation taken is the unused depreciation. At the end of ten years, 155/210 will have been taken, and 55/210 will remain.
The Rule of 78's is identical to SYD depreciation if one treats interest earned as being the equivalent of depreciation taken, and interest not earned as being the equivalent of depreciation not used. Returning to the example of the $5,000 retail installment contract payable over 36 years with interest at 10%, the interest due under the contract if it went full term was $1,500. Let us assume that the contract was paid in full at the end of 18 months. The sum of the digits 1 through 18 is 171, and from 1 through 36 is 666. 171/666 of the $1,500 interest would be rebated, and the balance (495/666) would be considered as having been earned. $385.14 would be rebated, and $1,114.86 would have been earned.
The method by which the monthly payment of $180.56 would be allocated between principal and interest is as follows:
In the first month 36/666 of the total interest is taken as earned, or $81.08. Deducting this from $180.56 leaves $99.48 as being applied to principal. In the second month 35/666 of the total interest is taken as earned, or $78.83. Deducting this from $180.56 leaves $101.73 as a reduction in principal. For the third month the figures would be 34/666, or $76.57, interest earned and $103.99 reduction in principal. Thus if the loan should be paid off at the end of three months, the principal balance would have been reduced by $305.75. On a loan of $5,000 the buyer would have paid $541.68 and still would owe $4,694.25. His effective interest rate *562 for the first month was 19.46%; for the second month it was 19.30%, for the third month it was 18.76%, an average rate of 19.17% for the three months.
The bias which the Rule of 78's produces for the lender pertains only where the loan is prepaid or where the loan is defaulted. If the loan is prepaid, the lender gets credit for a disproportionate amount of interest, which increases the principal remaining to be paid by the borrower. If the loan is defaulted, the result is the same. A disproportionate amount of the early payments is treated as interest with the result that the deficiency payable by the borrower is large.
Where the loan is paid in full, the Rule of 78's has no application. The total amount of interest paid does not vary according to the method of allocating interim payments between principal and interest.
Illinois has four basic small loan laws:
(a) The Consumer Finance Act (1979 Ill. Rev.Stat. Ch. 74, Secs. 19-46) covers loans up to $1,500 and contains an interest rebate section contemplating but not requiring the Rule of 78's (Sec. 31(c)1);
(b) The Consumer Installment Loan Act (1979 Ill.Rev.Stat. Ch. 74, Secs. 51-77) covers loans between $800 and $10,000 and contains an interest rebate section contemplating but not requiring the Rule of 78's (Sec. 65);
(c) The Retail Installment Sales Act (1979 Ill.Rev.Stat. Ch. 121½ Secs. 501-533) covers goods used primarily for personal, family, or household purposes, excluding automobiles, and contains an interest rebate section contemplating but not requiring the Rule of 78's (Sec. 507);
(d) The Motor Vehicle Retail Installment Sales Act (1979 Ill.Rev.Stat. Ch. 121½, Secs. 561-586) covers automobiles, trucks and trailers, and contains an interest rebate section contemplating but not requiring the Rule of 78's (Sec. 567).
At the Federal level, the Truth in Lending Act (Consumer Credit Protection Act, 15 U.S.C. § 1601 et seq.) provides generally for disclosure of credit information on credit transactions of less than $25,000 to individuals, primarily for personal, family, household or agricultural purposes. It does not contain any limitation on the method of making rebates. The most influential of the enforcement arms of the Act is the Federal Reserve System, controlling member banks. Its Regulation Z requires only that the method of computing a rebate be disclosed (12 CFR 226.8(b)(7)).
Notwithstanding the acquiescence of various state and regulatory authorities in the Rule of 78's, this Court finds that it is slanted unduly in favor of the creditor and will not permit its use on precomputed interest addon loans, which require the Court's approval, that is, on either reaffirmation under Chapter 7 or the establishment of secured priority claims under Chapter 13. The finance companies may continue to use their existing programs if they are able to interpolate in such a manner that they can calculate an appropriate base interest rate by starting with the annual percentage rate which is their maximum. Their programs can continue to be based upon the Rule of 78's, but the agreements must state that interest will be calculated on a straight line basis in the event of prepayment or default. In either of those events a simple transfer of interest paid to principal paid can be made in the account of the debtor. Whether or not the finance company wishes to reduce its earnings for tax or other purposes is not the concern of this Court. The important factor is that the agreement provide that a proportionate amount of interest will be allocated to each month of the scheduled payment period in the event of prepayment or default.
(d) Appropriate Interest Rate
As the Bankruptcy Courts around the country have dealt with this issue they have come up with a number of suggested rates, such as legal rate, prime rate, Federal Reserve discount rate, and 3 month Treasury Bill Rate. It is suggested that each of these rates is inappropriate because it does *563 not address the problem, which is, compensating the secured creditor for the delay in enabling him to enjoy the fruits of his security agreement. He is entitled to the present value of the collateral plus the value of the difference between present enjoyment and future enjoyment.
In Illinois the legal rate, that is, the interest rate paid on judgments is 9% (1979 Ill.Rev.Stat., Ch. 74 Sec. 3); 9% happens also to be the usury rate, that is, the maximum rate permitted to be charged on loans to individuals for non-business purposes (1979 Ill.Rev.Stat., Ch. 74 Sec. 4). Neither of these figures has any relationship to a secured creditor in a bankruptcy proceeding.
For the most part the Bankruptcy Courts will be dealing with finance companies, which do not have large amounts of static capital to finance installment contracts. Those companies go into the money markets on a continuing basis to obtain the money which they use for current loans. In broad terms their consumer finance business consists of borrowing money in public money markets at current rates and relending it to consumers at slightly higher rates. In theory, when the Bankruptcy Court approves a reaffirmation, the finance company has borrowed, or will borrow, an amount of capital equal to the principal in order to carry the loan. If the finance company should be authorized a rate less than its borrowing costs, the future value will not be equivalent to the present value; it will be less. If the finance company is authorized a rate greater than its borrowing costs, it is making a profit on the delay and will be receiving more than the present value of the collateral.
As will be explained more fully below, those courts which have been authorizing interest at 9% on reaffirmations in all likelihood have been causing the debtors to pay interest at a rate of 16.2% for a one year repayment period, 16.5% for a two year repayment period, and 16.3% for a three year repayment period.
(e) United States Treasury Bills
Every week on Monday (or the preceding Friday if Monday is a holiday) the United States Treasury auctions Treasury Bills to be issued the following Thursday and to mature on a Thursday thirteen weeks later. They are most commonly called 3 Month Bills, 90 day Bills, 91 day Bills, and 13 week Bills. The Bills are issued at a discount and redeemed at par, the difference being the interest earned during the interval. These 3 month Bills represent the best gauge of the current cost of short term money, and for that reason they have been chosen as the base rate for establishing the future equivalent of present value. To that base rate will be added fifty basis points if the rate is expressed as a decimal or ½ of 1% if the base rate is expressed as a percentage. The interest rate to be allowed as compensation for the delay in obtaining possession of the secured collateral will be ½ of 1% above the auction average of 3 month Treasury Bills on Monday of the week in which the petition for Chapter 7 or Chapter 13 relief, as the case may be, was filed.
The spread between what the major finance companies and the United States must pay for short term funds normally will range from somewhat less than ½ of 1% to somewhat more than ½ of 1%; ½ of 1% is sufficiently close to the middle of the range to be representative. To be compatible with the common inexpensive amortization tables which do not measure yields in increments less than ¼ of 1%, a workable spread would have to be ¼ of 1%, ½ of 1%, or ¾ of 1%. The figure chosen of ½ of 1% is closer to an historical average of the differentials than would be ¼ of 1% or ¾ of 1%, and for that reason it will be used. The annual percentage rate may not exceed a rate which is ½ of 1% higher than the auction average of 3 month Treasury Bills on Monday of the week in which the applicable petition was filed.
The Monday average auction rate can be obtained from the financial pages of Tuesday's issues of most of the metropolitan newspapers, or from the Bond Department of any bank dealing in government bonds, *564 or from most stock or bond brokers. The auction rates for the preceding twelve Mondays, together with the maximum permissible annual percentage rate, also will be posted on this Court's bulletin board.[2]
For example, this opinion was drafted Monday, October 6, 1980. The average auction rate on new 13 week Treasury Bills on that day was reported as 11.295% in the Tuesday's Wall Street Journal, and as 11.30% in The New York Times. Either figure is a satisfactory base to which to add 50 basis points, (the Court will round up at .005) producing a maximum annual rate of 11.80% for reaffirmation agreements or priority stipulations in cases filed during the week of October 6, 1980.
(f) Computation of Annual Percentage Rate
From the standpoint of practicality the only feasible method of providing that over a period of time a secured creditor will receive the future equivalent of the present value of the collateral in a Chapter 13 plan is to use an addon method of calculating interest because it is essential that a claim be filed and allowed in the gross amount of the equivalence and that the records of the Standing Trustee, the debtor and the secured creditor all show the same figure. The most feasible method of computing the periodic payments required is to use the tables which have been programmed into the computer of a finance company. The Court was not able to find an inexpensive compilation of amortization or annuity tables which shows the stated interest rate, the annual percentage rate, and the current and cumulative principal and interest payments using a straight line accounting method.
The annual percentage rate is the heart of all reaffirmations and stipulations. It is the effective interest rate which the debtor will pay and is calculated as follows:
1. Take the principal amount of money advanced,
2. Add to that simple interest for the duration of the plan (the stated rate times the number of years),
3. Divide the total of the interest and principal by the number of months in the plan, which will produce a constant monthly payment,
4. Apply the Rule of 78's or other rebate formula to the total finance charge to determine how much earned interest is allocable to that month. Subtract that amount from the monthly payment. The remainder is a principal payment,
5. Subtract the principal payment for each month from the principal balance,
6. Repeat step 5 as many times, including step 5 itself, as there are periodic payments,
7. Add together all of the separate principal balances,
8. Divide the total produced in step 7 into the total amount of simple interest found in step 2.
*565 The result found in step 8 will be the true interest rate paid by the debtor. It will be in a range between 1½ and 2 times the amount of the stated interest rate, depending primarily on the rebate method used and the duration of the payments. The reason for this is that the average amount borrowed will be slightly more than ½ the initial loan because of the periodic repayments of principal. Stated differently, all of the money could be considered as being borrowed one-half of the time, or one-half of the money could be considered as being borrowed all of the time. (A person who understands algebra can combine steps 5 and 6).
Tables and computer programs have simplified the process of establishing the annual percentage rate. Unless they specify otherwise, the probabilities are that the figures shown are calculated on the basis of the Rule of 78's.
(g) Establishment of Equivalence
Many courts have established the future equivalence of present value by formula, such as present value plus 9% interest for three years. The most serious problems with this approach will develop in Chapter 13 plans.
The Chapter 13 Standing Trustee can pay only allowed claims. A formula value is not sufficient for him to use, and it must be translated into dollar terms. Probably there is no Standing Trustee with clerks sufficiently trained so that they can convert a formula into a fixed dollar amount. Also it is necessary that the creditor and the debtor agree on the amount. It might be that the parties between themselves would agree to accept any figure established by the Standing Trustee, which would provide only a temporary palliative. At some point payments from the Standing Trustee to the secured creditor will begin to exceed the credit which the creditor shows on its books. At that time it will begin to refund to the Standing Trustee all of the payments which represent interest, and the reconciliation of records will present tremendous burdens upon the office of the Standing Trustee.
Furthermore, stipulations with secured creditors subordinate unsecured creditors until the stipulated sums have been paid. A substantial question of due process arises if the Court should abandon, or permit the abandonment of, those procedures for claim allowance which have been provided by the Code.
The nagging problems arising in a Chapter 7 case probably will not surface until after the case has been closed. Thus they do not become problems of the Court but rather problems of the debtor caused by the Court. If the reaffirmation is approved as a dollar value of the collateral plus an interest allowance, it will be difficult to establish the deficiency because the formula will not have described the rebate method to be used, and the principal payments cannot be computed. What undoubtedly will happen in most instances is that the finance company will use a programmed formula based upon the Rule of 78's, so that the principal payments will be small and the effective interest rate will be somewhere between 15% and 25%.
6. Discharge and Reaffirmation Hearings
This Court is aware that some courts cause discharges to be issued shortly after a scheduled § 341 meeting of creditors and before a discharge hearing or reaffirmation hearing. This Court also is aware that under that arrangement discharges may be issued without a debtor ever being confronted by his creditors, an interim trustee or the Court, if the meeting of creditors is continued beyond the scheduled discharge date. No comment need be made other than to state that such is not the way that this Court understands that the Congress intended things to be.
This Court is aware that § 524(d) provides with respect to a discharge hearing, "the Court shall hold a hearing at which the debtor shall appear in person", but that there is no penalty provided by the Code for failure to appear. Most of the debtors in this district are hourly paid employees whose wages for one day may exceed their *566 entire discretionary income for a month, the balance of their pay being required for rent, food, clothing and other necessities. Under such circumstances this Court has not in the past and does not propose presently to apply any sanctions against a debtor whose attorney states that the debtor's attendance would create a hardship. It is expected that the debtor's attorney will attend the discharge hearing in any event.
Provided that the reaffirmation disclaimer has been signed by the debtor's attorney and also that the attorney represents to the Court that he has discussed the debtor's budget with him and that the attorney and the debtor agree that the debtor can maintain the reaffirmation payment schedule without undue pressure, the debtor's presence at the reaffirmation hearing will be excused upon the attorney's representation that attendance would create a hardship.
This Court's practice has been to hold discharge hearings and reaffirmation hearings concurrently, at which time the discharge is entered, with one copy of the discharge order being presented to the debtor and one to his attorney. The hearings are set for dates three to four weeks after receipt from the interim trustee of a no asset report, at such intervals that not fewer than 10 nor more than 20 will be scheduled for one time. The hearing is opened with a ten minute general discussion of the effect of a discharge and of a reaffirmation agreement, after which the cases are called individually. It is anticipated that the debtors will be able to continue to ask questions about the discharge and reaffirmation agreement, but that the Court will have few questions, if any. Reaffirmations containing the attorney disclaimer will be presented to the calendar clerk for signature by the Court off the bench. Reaffirmations not containing the disclaimer shall be accompanied by a motion slip requesting the setting of a valuation hearing.
This Court is aware that other Courts issue discharges prior to the discharge hearing and reaffirmation hearing, notwithstanding the Note to Interim Bankruptcy Rule 4002. This Court also is aware that in those other Courts reaffirmation agreements are being approved which were not entered before the discharge was issued, contrary to § 524(c)(1). It seems particularly unfortunate and ironic that false statements and back-dating of the associated documents should become prevalent just as the Bankruptcy Courts are on the threshold of gaining the respect and stature of independent courts.
FINDINGS OF FACT
A valuation hearing was held in the instant case prior to the time that the foregoing principles were enunciated. It was stipulated that on June 10, 1980, the debtor, James R. Willis, (hereinafter "Willis"), entered into an installment contract to purchase a 1979 Buick Riviera from Warren Buick, Inc. The Court will take judicial notice of the fact that most dealers of General Motors Corporation manufactured cars write retail installment contracts and discount them to General Motors Acceptance Corporation. The contract called for payments of $256.04 in monthly installments commencing July 25, 1980. Willis made a payment of $256.04 on July 25 but has not made any other payments. On June 24, 1980, exactly two weeks after purchasing the car, Willis filed the instant petition for Chapter 13 relief.
The principal area of dispute between G.M.A.C. and Willis is over the issue of whether the Court should base its valuation of the car upon the N.A.D.A. guidebook, as it clearly would do if Willis had owned the car for one year before filing his petition, or whether the Court should use the contract value.
Willis testified that he had visited this agency on two prior occasions before making his purchase and also that there were two other Buicks similarly priced at the Warren dealership. He did not testify about when he first considered filing a Chapter 13 petition, nor was there any representative from Warren Buick to testify about statements which Willis might have made to him.
*567 To be specific with reference to the current posture of the case, it has been presented as a motion to vacate the confirmation of the debtor's plan. The attorney for G.M.A.C. was present at the confirmation hearing, and the debtor's attorney presented a priority stipulation signed by the debtor and by G.M.A.C. placing a value of $12,033.38 on the car. The N.A.D.A. Guide which was on the bench showed a wholesale value for the car of $7,600 and a retail value of $8,650. The Court rejected the stipulation as constituting an excessive present value and also an excessive interest charge.
Whenever an item is to be valued by a court, the court will obtain the best evidence available, consistent with the expense of obtaining it. The market value of an item is what a willing buyer will pay and a willing seller will accept. Used car guides are a form of hearsay declaration of what other buyers were paying and other sellers were receiving for similar cars during a period shortly before publication. In the instant case, however, we have a better gauge of what a willing buyer would pay and a willing seller would accept. We have the price to which Willis and Warren agreed only 14 days before the filing. Neither was under any compulsion to buy or to sell.
There is no evidence that anything happened to this particular car between June 10, 1980 and June 24, 1980, nor is there any evidence that anything occurred during those two weeks which would affect the prices of used cars generally. Therefore, we find that the value of the Buick in question on June 24 was the same as on June 10, and in each case it was $9,800.
The deferred payment price of $12,289.52 included a finance charge of $3,755.22. Applying the Rule of 78's to that amount we find that of the first month's payment, 53/1431, or $139.08, represented earned interest; $3,616.14 is to be rebated, leaving a principal balance of $8,673.38 before allocation of the payment of $256.04 on July 25, which breaks down into $139.08 interest and $116.96 principal. Deducting $116.96 from the principal balance of $8,673.38 leaves a debt of $8,556.42 owed to G.M.A.C. by Willis. That entire amount is secured because we have found the car to have a value of $9,800, considerably in excess of the indebtedness secured.
The Court will approve a priority stipulation of $8,556.42 plus 53 months interest at an annual percentage rate not to exceed ½ of 1% over the June 23, 1980 average auction rate of 3 month United States Treasury Bills,[3] provided that the stipulation complies with the other principles set forth in this opinion.
§ 1330(a) of the Code provides for revocation of an order of confirmation if the order was procured by fraud. There has been no allegation nor evidence of any fraud in the instant case. It appears that both parties acted in good faith in presenting the stipulation for a priority order and that neither of them had any reason to believe that the Court would reject it sua sponte.
IT IS ORDERED THAT the motion to vacate the confirmation be denied.
NOTES
[1] Compliance Clause
The undersigned hereby certify that the above agreement conforms to the principles set forth in In re Willis 80B 7780.
_____________________ _______________________
Attorney for Creditor Attorney for Debtor
Date ______________________
[2] Maximum annual percentage rate permissible under the principles of In re Willis, 80 B 7780, by week of petition filing
Average Auction
1980 3 Month Maximum Annual
Week of Filing Treasury Bills Percentage Rate
June 24 7.08 7.58
June 30 8.15 8.65
July 7 8.21 8.71
July 14 8.17 8.67
July 21 7.88 8.38
July 28 8.22 8.72
August 4 8.88 9.38
August 11 8.72 9.22
August 18 9.41 9.91
August 25 10.03 10.53
September 1 (8/29) 10.12 10.62
September 8 10.06 10.56
September 15 10.64 11.14
September 22 10.46 10.96
September 29 11.52 12.02
October 6 11.30 11.80
October 13 (10/10)
October 20
October 27
November 3
November 10
November 17
November 24
December 1
December 8
December 15
December 22
December 29
[3] 7.58%. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538828/ | 4 B.R. 145 (1980)
In re Carter Clemen TARPLEY, Ind. & fmly. d/b/a Carter Tarpley Homebuilders, and Ind. and presently d/b/a a partner in the partnership of Tarpley, Moss & Cooper, Bankrupt.
Richard F. LaROCHE, Jr., Gloria E. LaRoche, T. Larry Edmondson, Trustee, Plaintiffs,
v.
Carter Clemen TARPLEY, and Ed C. Loughry, Trustee for Murfreesboro Bank & Trust Co., Defendants.
Bankruptcy No. 79-30227.
United States Bankruptcy Court, M.D. Tennessee.
April 23, 1980.
*146 Julie N. Jones, Bass, Berry & Sims, Nashville, Tenn., Matt B. Murfree, III, Murfreesboro, Tenn., for Ed C. Loughry.
Ken Burger, Murfreesboro, Tenn., for plaintiffs.
T. Larry Edmondson, Nashville, Tenn., trustee in bankruptcy.
Royce Taylor, Murfreesboro, Tenn., for bankrupt.
ORDER
PAUL E. JENNINGS, Bankruptcy Judge.
This matter is before the court upon motion of the Defendant Loughry as Trustee for Murfreesboro Bank and Trust to dismiss the above styied litigation. The following shall constitute findings of fact and conclusions of law pursuant to F.R.B.P. 752.
Carter Clemen Tarpley filed bankruptcy on February 16, 1979. On his schedule he listed a transfer to Murfreesboro Bank and Trust (hereinafter Bank) "in June of 1978 to cover unsecured notes in the amount of $45,500.00." The transfer was the conveyance of a deed of trust to the residence of the bankrupt, a house and lot in Lascassas, Tennessee. He also listed a suit filed in Chancery Court by Norman and Kathleen Dietrich against him and the Bank "to set aside transfer for security."
On April 18, 1979, an abandonment application was filed by the trustee, listing the property in question. On April 23, 1979, the Dietrichs filed suit in this court requesting that their debt be excepted from discharge and again questioning the deed of trust given to the Bank. A copy of this action was sent to the trustee. On May 18, 1979, a complaint was filed in this court by Richard and Gloria LaRoche against the bankrupt and the Bank requesting that their debt be excepted from discharge and challenging the transfer to the Bank. A second abandonment application was filed by the trustee on May 31, 1979.
On January 4, 1980, an agreed order was signed by the parties and approved by the court finding the debt of the bankrupt to the LaRoches to be nondischargeable. Thereafter the Bank filed a motion to dismiss the complaint filed by the LaRoches and the trustee (who had been allowed to intervene) for failure to state a claim upon which relief may be granted and for lack of jurisdiction.
The issues presented are whether the abandonment of property by the bankruptcy trustee may be revoked and if not, whether the bankruptcy court may retain jurisdiction to decide the issue of fraudulent conveyance of property abandoned by the trustee.
The cases are clear in delineating the duty of the trustee in abandoning property. He is given a reasonable time in which to evaluate property and reach a decision to retain or abandon property found not to benefit the estate. See 4A COLLIER ON BANKRUPTCY ¶ 70.42 (14th ed.) Knowingly made, such an abandonment is irrevocable. The trustee is "absolutely precluded from reclaiming" abandoned property. In re Polumbo, 271 F.Supp. 640, 643 (W.D.Va.1967).
The exception to the rule of irrevocability of abandonment is found where property is concealed or where the trustee lacks "knowledge, or sufficient means of knowledge, of its existence." Dushane v. Beall, 161 U.S. 513, 516, 16 S.Ct. 637, 639, 40 L.Ed. 791 (1896). Where the trustee has knowledge that is "certainly sufficient to put him upon diligent inquiry as to the transaction", the abandonment is held to have been knowingly made and hence irrevocable. Webb v. Raliegh Hardware Co. (In re Webb), 54 F.2d 1065, 1067 (4th Cir. 1932).
Once abandoned, title to such property revests in the bankrupt as of the date of commencement of the bankruptcy proceedings. Sessions v. Romadka, 145 U.S. 29, 12 S.Ct. 799, 36 L.Ed. 609 (1892). Liens encumbering the property are not affected in any way by the abandonment and the debtor holds title in the same way as prior to the filing of the bankruptcy. Webb v. Raliegh Hardware Co., supra; In re Malcom, 48 F.Supp. 675 (E.D.Ill.1943). As stated most clearly in Polumbo:
*147 Since abandonment has no effect upon the validity of the liens encumbering the property (Collier ¶ 70.42[4] n. 19a), the practical effect of the election is to remove the asset entirely from the jurisdiction of the bankruptcy court. It is simply a declaration by the trustee that the bankrupt estate wants nothing further to do with the property and that the lienors are free to proceed against it just as they normally would under applicable state law. In re Polumbo, 271 F.Supp. 640 at 643.
Thus, the bankruptcy court has no jurisdiction over abandoned property in the hands of the bankrupt. The court cannot exercise jurisdiction over disputes which involve neither the trustee nor property in actual or constructive possession of the bankruptcy court. In re Whitney, 5 CBC 494 (W.D.Wisc.1975).
In the instant case the trustee was fully aware of the conveyance to the Bank. The debtor listed on his schedule not only the transfer but also the challenge filed in state court by the Dietrichs. The trustee received a copy of the papers attacking the transfer filed in this court. Surely the facts are "sufficient to put him upon diligent inquiry as to the transaction." An abandonment made under these circumstances is not open to challenge and must be held irrevocable.
The abandonment having been held irrevocable, this court no longer has jurisdiction over the property. The filing of the bankruptcy petition in no way affects the rights that any of the parties has under state law and they may pursue them in that forum. Accordingly, the court finds that the motion to dismiss must be GRANTED.
The attorney for the plaintiffs is requested to file with this court copies of any further pleadings in the state court cause and any judgments obtained in those proceedings.
It is the order of the court that these proceedings be open until the state court proceedings are terminated in order that creditors in this case may review the result of the state court litigation.
It is so ordered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1537937/ | 918 A.2d 720 (2007)
391 N.J. Super. 509
STATE of New Jersey, Plaintiff-Respondent,
v.
Joseph BIANCO, Defendant-Appellant.
Superior Court of New Jersey, Appellate Division.
Submitted March 7, 2007.
Decided April 3, 2007.
*721 Yvonne Smith Segars, Public Defender, attorney for appellant (William Welaj, Designated Counsel, of counsel and on the brief).
Theodore J. Romankow, Union County Prosecutor, attorney for respondent (Steven J. Kaflowitz, Assistant Prosecutor, of counsel; Amy F. Newcombe, Law Intern, on the brief).
Before Judges WEFING, PARKER and C.S. FISHER.
The opinion of the court was delivered by
FISHER, J.A.D.
In this appeal, defendant claims the right to a new trial because a juror, upon realizing during deliberations that he knew defendant, failed to make that fact known to the trial judge and, as a result, participated in the rendering of the guilty verdict. Although the juror should have immediately brought this to the trial judge's attention, we affirm because defendant also realized during the trial that he and the juror had been acquainted in the past, and waived the right to complain by remaining silent until after the verdict.
I
The jury heard evidence in this matter that, at the time of the alleged offenses, nine-year old E.B. lived with her mother, stepfather and two half-brothers in a two-family home; E.B.'s grandmother, Cathy Osterman, lived in the other half of the two-family home. Defendant had been dating Osterman for more than ten years and, as a result of this long-standing relationship, E.B. viewed defendant as a grandfather-figure, and referred to him as "Pop-Pop."
Defendant often took E.B. and her siblings to the park or out to eat. The jury *722 heard testimony that, on certain of those occasions, defendant inappropriately touched E.B. The last such touching was alleged to have occurred on July 24, 2002.
Defendant testified on his own behalf and denied any wrongdoing. At the conclusion of the trial, defendant was found guilty of second-degree sexual assault, N.J.S.A. 2C:14-2(b), and third-degree endangering the welfare of a child, N.J.S.A. 2C:24-4(a).
Defendant moved for a new trial, arguing, among other things, that he realized after the verdict that he and Osterman knew one of the jurors from their past employment at Merck Pharmaceuticals in Rahway. He claimed that the juror had engaged in misconduct by failing to come forward with this information during jury selection or thereafter. Judge Scott J. Moynihan conducted an evidentiary hearing into these circumstances, and heard testimony from the juror in question on November 21, 2003, the remaining members of the jury, Osterman, and defendant's trial attorney on February 6, 2004, and Sherry Bianco, defendant's daughter, on August 6, 2004. For the reasons thoroughly expressed in his oral decision of September 20, 2004, Judge Moynihan denied defendant's motion for a new trial.
Defendant was later sentenced. Following a merger of the two counts, Judge Moynihan imposed a seven-year term of imprisonment with an 85% period of parole ineligibility.
Defendant appealed, raising the following arguments for our consideration:
I. THE TRIAL COURT ERRED IN DENYING DEFENSE COUNSEL'S MOTION FOR A NEW TRIAL.
A. Factual Introduction.
B. In Reaching Its Conclusion That The Defendant's Motion For A New Trial Should Be Denied, The Trial Court Made Certain Credibility Findings Which Were Clearly Mistaken And Factually Unsupported By The Trial Record.
C. The Defendant Was Denied His Right To Utilize A Peremptory Challenge Against [The Juror], Justifying A New Trial On That Basis.
D. The Defendant Was Denied His Right To Have His Case Tried Before And Decided By A Completely Fair And Impartial Jury By Virtue Of The Failure Of [The Juror] To Disclose His Knowledge Of And Relationship With Cathy Osterman.
E. The Defendant Was Denied His Right To A Fair Trial As A Result Of [The Juror's] Failure To Inform The Court That He Realized He Knew The Defendant During Jury Deliberations.
II. THE JURY'S VERDICT WAS AGAINST THE WEIGHT OF THE EVIDENCE.
III. THE SENTENCE IMPOSED WAS MANIFESTLY EXCESSIVE.
We find insufficient merit in the arguments contained in Points II and III to warrant discussion in a written opinion. R. 2:11-3(e)(2). We also reject the arguments contained in Point I for the following reasons.
II
Defendant argues that he is entitled to a new trial because a juror's failure to disclose his past acquaintance with him and Osterman deprived him of an impartial jury and unduly interfered with his ability to knowingly exercise peremptory challenges during jury selection. In considering these issues, we first reject defendant's argument that the judge's credibility findings were mistaken. As will be seen, there was more than adequate evidence to support all the judge's findings, *723 and the inferences he drew from the evidence were permissible and reasonable. We, thus, discern from the record no sound reason to reject the judge's findings, which are deserving of our deference. State v. Locurto, 157 N.J. 463, 470, 724 A.2d 234 (1999).
An examination of the circumstances that prompted defendant's motion for a new trial must begin with jury selection. During that process, Judge Moynihan provided each member of the venire with a typed list of questions that he also verbally posed to the initial fourteen persons seated in the jury box; the juror in question (hereafter "Juror 11") was one of the original fourteen seated.
The second of the judge's scripted questions inquired whether any of the jurors knew any persons "who might be called as witnesses or whose names you might hear during the course of the trial." Among the persons the judge then identified was "from Rahway, Cathy Osterman." Following the posing of all these questions to the group of fourteen, Judge Moynihan then asked each person individually whether he or she had any affirmative response to any of his questions. When he eventually turned his attention to Juror 11, the judge observed that this juror had not responded in the affirmative to any question, causing the judge to ask whether he "miss[ed] something." Juror 11 said, "No." Upon further probing about his family and employment, Juror 11 revealed that he lived with his wife and two grandchildren, and that he and his wife had both worked at Merck Pharmaceuticals in Rahway, but were retired.
During the hearing, which the judge conducted in order to illuminate and scrutinize the factual contentions posed in defendant's motion for a new trial, Juror 11 testified that he did not recognize defendant at the time of jury selection. It had been four years since he had last seen defendant, and his appearance had greatly changed in the interim. Defendant no longer wore a beard or his hair in a ponytail; instead, as the judge observed in his findings, "defendant was clean shaven and his hair was shorter at trial."
Juror 11 testified, however, that he began to think that he knew defendant upon reviewing an exhibit during deliberations. He also acknowledged during the post-verdict hearing that he knew Osterman. When asked why he did not divulge those facts during voir dire, Juror 11 explained that he did not then recognize defendant nor realize that Osterman was the same "Cathy Osterman that I knew."
Judge Moynihan found Juror 11 to have given "highly credible testimony," and synopsized his view of its significance in the following way:
Here, [Juror 11] did not disclose what was at the time not known to him. One could not disclose what [one] does not know. Although [Juror 11] was known to the defendant it does not correlate that the defendant or Cathy Osterman was known to [Juror 11] during voir dire. In fact, the [c]ourt is sure [Juror 11] did not possess knowledge of defendant or Cathy Osterman at the time the jury was questioned.
The judge additionally found that defendant was aware, during the course of the trial, that Juror 11 knew him, and Cathy Osterman as well. Judge Moynihan based this finding on a number of sources. First, the judge received a letter from Sherry Bianco (Sherry), defendant's daughter, on October 24, 2003, which stated that defendant informed his attorney during the trial that he might have known Juror 11. In her letter, Sherry urged the judge to grant a new trial because her father's attorney failed to "follow[] up on this," and, if he had, "I believe he would *724 have brought it to your attention during trial" (emphasis added). As the judge observed in his decision on the motion for a new trial, this letter permitted an inference that Sherry was informed by defendant of his past acquaintance with Juror 11 during the course of the trial. Although Sherry testified to the contrary during the post-verdict hearing, Judge Moynihan found that testimony to be unworthy of credit:
The [c]ourt does not believe Miss Bianco's testimony that her father . . . did not tell her [of his] connection with [Juror 11] until after the verdict was returned.
Miss Bianco's concern for her father was evident as she testified. Although she attributed statements in her letter to mistakes made in haste[,] this [c]ourt believes the letter to contain the truth . . . [and that Sherry] recanted her letter to protect her father, whom she obviously loves. . . .
Second, the judge relied on defendant's trial attorney, who testified that defendant told him, during jury selection, "that [Juror 11] looked familiar to him," but that they did not further discuss the matter, choosing instead to "wait[ ] to see what happened during jury selection." This fact also buttressed the judge's finding that defendant was aware of his past relationship with Juror 11 during the course of the trial and not, as argued in his motion, until after the verdict was rendered.
Third, the judge relied on Osterman's testimony that defendant told her there was a juror on the panel who worked with them at Merck. In a certification executed by Osterman and submitted in support of defendant's motion, she stated that after his conviction, defendant spoke with her by telephone and said that he thought one of the jurors was known to them. However, at the post-verdict hearing, Osterman testified that defendant told her "during the trial" that a member of the jury had worked at Merck and that the juror "looked familiar," although defendant "couldn't place him." The judge credited Osterman's testimony that defendant indicated during trial that he was aware that Juror 11 knew him. As Judge Moynihan observed, this conclusion was further supported by the fact that although Osterman was uncertain about where her conversation with defendant had taken place, "she was certain it was not in the Union County Jail or in the courthouse." Relying upon this testimony, Judge Moynihan drew the permissible inference that Osterman's conversation with the defendant "took place during trial, since the defendant was not incarcerated during the trial." That is, if the conversation had occurred after the trial, it would have been while defendant was in the county jail since his bail was revoked immediately after the verdict was rendered.
Based on all this evidence, the judge concluded:
It is obvious to this [c]ourt that when [Juror 11] disclosed he worked at Merck [during jury selection] the defendant recognized him and told his [c]ounsel of this familiarity with the juror [and that] defendant knew [Juror 11] was on the jury and left him there thinking [Juror 11's] presence on the jury could only help him.
Consequently, Judge Moynihan determined that defendant waived his right to complain of the juror's failure to reveal his past familiarity with defendant and Osterman by choosing not to seek Juror 11's removal prior to the rendering of a verdict.
In addition, the judge found that this omitted information did not impact on defendant's utilization of peremptory challenges because defendant believed that his past relationship with the juror might *725 be of benefit to him and defendant would not have challenged him during jury selection.
Ultimately, as the judge perspicaciously recognized, defendant made a "strategic decision" to remain silent about Juror 11's oversight during voir dire, believing, first, that there was an advantage to having Juror 11 on the panel, but that also, if he was convicted, he could get "a second bite of the apple" by seeking a new trial based upon Juror 11's failure to disclose. Concluding that defendant should not be rewarded for attempting to "manipulate" the system, the judge denied defendant's motion for a new trial.
III
An accused is constitutionally guaranteed the right to trial by an impartial jury. State v. Fortin, 178 N.J. 540, 575, 843 A.2d 974 (2004); State v. Tinnes, 379 N.J.Super. 179, 183, 877 A.2d 313 (App.Div.2005). Jury selection is "an integral part of the process to which every criminal defendant is entitled," State v. Singletary, 80 N.J. 55, 62, 402 A.2d 203 (1979), and necessarily requires "a thorough voir dire," State v. Fortin, supra, 178 N.J. at 575, 843 A.2d 974, which presupposes that prospective jurors will provide complete and accurate responses during voir dire. It, thus, follows that a juror's failure to mention, after jury selection, an incorrect or a misleading answer that was given during voir dire, potentially endangers an accused's right to a fair trial.
Recently, our Supreme Court emphasized the importance of a thorough and meaningful voir dire by revamping the standards that govern the conducting of jury selection:
The purpose of jury selection is to obtain a jury that can decide the case without bias against any of the involved parties, that will evaluate the evidence with an open mind, and that will apply the law as instructed by the judge. Voir dire practices must be geared to eliciting meaningful information from prospective jurors so those with a real potential for bias can be excused.
[Standards for Jury Selection (promulgated by Directive # 21-06 on December 11, 2006) at page 1.]
If clear and accurate answers from prospective jurors are not encouraged through a thorough and meaningful process, counsel may be hampered, if not foreclosed, from learning of a basis for excusing the prospective juror for cause or by peremptory challenge. Ibid. When the court and counsel are misinformed, or inadequately informed, and the parties' ability to exercise peremptory challenges is infringed, then it may be said that there has been a deprivation of the parties' fundamental right to a fair trial. State v. Thompson, 142 N.J.Super. 274, 282, 361 A.2d 104 (App.Div.1976). It matters not, in this regard, whether the juror's omission or misstatement is deliberate or, as here, unintentional. Id. at 280, 361 A.2d 104.
The failure of voir dire to produce accurate information, however, does not compel the granting of a new trial in all cases. This case presents circumstances which fully support the judge's denial of the motion for a new trial. First, because defendant was aware, prior to the verdict, of the juror's omission, and remained silent until after the verdict was rendered, he waived his right to complain. And, second, the trial judge found, after weighing the evidence adduced at the post-verdict hearing, that the information the juror failed to disclose during jury selection, or later during the trial, was not potentially prejudicial to defendant; as a result of that finding, there is no reason to believe that defendant would have been inclined to exercise *726 a peremptory challenge if the juror had provided the information during jury selection.
A
Although the need to obtain accurate information during jury selection cannot be understated, a defendant may waive the right to complain about shortcomings in the selection process, or of a juror's failure to disclose information, if defendant knowingly failed to seek the juror's removal prior to the rendering of the verdict. Here, the judge found that defendant was aware that Juror 11 had not disclosed his familiarity with defendant and Osterman. Had defendant raised this oversight prior to the rendering of a verdict, Juror 11 could have been removed. See, e.g., State v. Jenkins, 182 N.J. 112, 861 A.2d 827 (2004); State v. Farmer, 366 N.J.Super. 307, 841 A.2d 420 (App.Div.), certif. denied, 180 N.J. 456, 852 A.2d 192 (2004). If the juror was removed prior to the rendering of a verdict, what defendant complains of now that the jury was not impartial and that he was deprived of his ability to exercise a peremptory challenge to remove Juror 11 would have been avoided.
Although our courts have not decided this precise issue, we conclude that defendant's knowing failure to speak prior to the jury's verdict constitutes a waiver of his right to later complain of Juror 11's continued participation in the case, as all other courts, which have encountered this circumstance, have concluded. For example, in United States v. Costa, 890 F.2d 480, 482 (1st Cir.1989), both defendants sought a new trial because a member of the jury was a "prior acquaintance" of one of the defendants a fact not revealed by the juror during voir dire. After conducting a hearing, the district judge concluded that defendants had waived their right to complain, and the court of appeals agreed, observing that it was well-established that a defendant's failure to raise a claim of juror misconduct until after trial, when the issue was known to defendant during trial, amounts to a waiver. The court of appeals explained that "[a]ny other rule would allow defendants to sandbag the court by remaining silent and gambling on a favorable verdict, knowing that if the verdict went against them, they could always obtain a new trial by later raising the issue of juror misconduct." Ibid. Other courts have drawn the same conclusion. See United States v. Bolinger, 796 F.2d 1394, 1400-01 (11th Cir.1986), modified on other grounds, 837 F.2d 436 (11th Cir.), cert. denied sub. nom., De La Fuente v. United States, 486 U.S. 1009, 108 S.Ct. 1737, 100 L.Ed.2d 200 (1988); United States v. Ramsey, 726 F.2d 601, 604 (10th Cir.1984), cert. denied, 474 U.S. 1082, 106 S.Ct. 851, 88 L.Ed.2d 892 (1986); United States v. Breit, 712 F.2d 81, 83 (4th Cir.1983); United States v. Dean, 667 F.2d 729, 730 (8th Cir.) (en banc), cert. denied, 456 U.S. 1006, 102 S.Ct. 2296, 73 L.Ed.2d 1300 (1982); United States v. Bertoli, 854 F.Supp. 975, 1115 (D.N.J.1994); Titus v. State, 963 P.2d 258, 265 (Alaska 1998); State v. Adams, 27 Ariz.App. 389, 555 P.2d 358, 360 (1976); State v. Durfee, 322 N.W.2d 778, 786 (Minn.1982); State v. Roden, 216 Or. 369, 339 P.2d 438, 439 (1959). In generally adhering to the waiver concept expressed by these federal and state courts, we conclude that when a defendant knows a juror has failed to reveal during voir dire that he and defendant were once acquainted, he has waived the right to later complain of the juror's continued service on the jury.
B
We also conclude that even if the record did not support a finding of waiver, the juror's failure to disclose that he was *727 acquainted with defendant and Osterman in the past did not require a new trial.
Defendant chiefly relies upon State v. Thompson, supra, 142 N.J.Super. at 280-82, 361 A.2d 104, in arguing that a new trial is required. Notwithstanding defendant's forceful argument, our holding is not inconsistent with State v. Thompson or other decisions of our courts which have held that an omission or falsification of information by a juror during voir dire will constitute grounds for reversal without a showing of prejudice if it can be shown that a peremptory challenge would have been utilized to excuse the juror had the information been known. See, e.g., State v. Cooper, 151 N.J. 326, 349-51, 700 A.2d 306 (1997), cert. denied, 528 U.S. 1084, 120 S.Ct. 809, 145 L.Ed.2d 681 (2000); State v. Scher, 278 N.J.Super. 249, 262-68, 650 A.2d 1012 (App.Div.1994), certif. denied, 140 N.J. 276, 658 A.2d 299 (1995). The type of information that was misrepresented or omitted during jury selection in those cases suggested the potential for the juror's bias against defendant,[1] unlike here, where the judge found that the omitted information suggested that the juror might be biased in favor of defendant.
In other words, we have held that it is the juror's failure to disclose material that is "potentially prejudicial" to the defendant that is critical. State v. Scher, supra, 278 N.J.Super. at 264, 650 A.2d 1012. As explained by the Court in In re Kozlov, 79 N.J. 232, 239, 398 A.2d 882 (1979):
Where a juror on voir dire fails to disclose potentially prejudicial material, such as that involved in this case, a party may be regarded as having been denied [a] fair trial. This is not necessarily because of any actual or provable prejudice to his case attributable to such juror, but rather because of his loss, by reason of that failure of disclosure, of the opportunity to have excused the juror by appropriate challenge, thus assuring with maximum possible certainty that he be judged fairly by an impartial jury.
In short, as the Court held in State v. Cooper, a juror's omission of information during voir dire "is presumed to have been prejudicial if it had the potential to be prejudicial." 151 N.J. at 349, 700 A.2d 306.
To summarize, Judge Moynihan found that Juror 11's past relationship with defendant and Osterman did not suggest he would be biased against defendant. To the contrary, the judge credited Juror 11's testimony that based on his familiarity with defendant he found it particularly difficult to accept that defendant had engaged in the offenses alleged by the State. In describing Juror 11's state of mind, Judge Moynihan found that, during deliberations, Juror 11 "did not think the *728 defendant would be involved with the crimes with which the defendant was charged . . .[;][h]e knew defendant and Cathy Osterman to be close, so close that he did not think the defendant would be the one charged with sexual assault." In short, as Judge Moynihan found, Juror 11's reaction, once he recognized the defendant, "was the reaction that the defendant hoped for when he left [Juror 11] on the jury;" that is, defendant anticipated Juror 11's initial "disbelief that the defendant could commit ... a crime of this nature."
In light of these findings, to which we defer, State v. Locurto, supra, 157 N.J. at 470, 724 A.2d 234, we conclude that defendant was not prejudiced by Juror 11's failure to come forward upon realizing that he knew defendant and Osterman.
IV
In light of the absence of any arguable prejudice resulting from the juror's failure to disclose his past acquaintance with defendant and Osterman, and in light of defendant's failure to raise the matter until after the verdict was rendered, we find the colorful description of the basis for a finding of waiver expressed by the court in United States v. Breit, supra, 712 F.2d at 83, to be particularly apt here: "[a] defendant who remains silent about known juror misconduct who, in effect, takes out an insurance policy against an unfavorable verdict is toying with the court." We, thus, conclude that the trial judge correctly found that defendant waived the right to complain about the juror's omissions during voir dire or about the juror's failure to come forward immediately upon realizing his mistaken voir dire responses, and that the juror's omission had no conceivable prejudicial impact on defendant's right to a fair trial or in the exercise of his peremptory challenges during jury selection.
We make one final observation. As we have indicated, Juror 11 was obligated to come forward and advise the trial judge immediately upon realizing that he had incorrectly responded during voir dire. Juror 11's failure to meet that obligation demonstrates the need for the rendering by trial judges of an additional preliminary instruction.
Here, the trial judge adhered to the preliminary instructions contained in our Model Jury Charges. A section of those model charges, the essence of which the trial judge provided to the jury here, impresses upon the jury the importance of remaining impartial and free from outside influence:
During the trial, you are not to speak to or associate with any of the attorneys, the witnesses or the defendant, . . . nor are they permitted to speak or associate with you. This separation should not be regarded as rudeness but rather as a proper precaution to ensure fairness to both sides. If anyone connected with this case, or any other person, approaches you or attempts to influence you in any way, do not discuss it with the other jurors. Simply tell the sheriff's officer and I will be notified immediately.
[Model Jury Charges (Criminal), "Instructions After Jury Is Sworn" (2004).]
This model jury charge instructs that jurors who have been approached by an outside source must immediately report that occurrence. However, the obligation to immediately come forward and correct a misstatement or omission during jury selection is not included. We hold that such an instruction ought to be given by trial judges in their preliminary instructions.
As mentioned earlier, the Supreme Court recently directed changes in the manner in which voir dire is to be conducted, recognizing the need for greater depth *729 in the examination of potential jurors than had been the prior practice in some trial courts. One of the Court's chief purposes in imposing these changes was to create a process by which greater information could be obtained from prospective jurors in order to enhance the parties' ability to knowingly seek a prospective juror's dismissal for cause or to knowingly exercise peremptory challenges. See Standards for Jury Selection, supra, at page 1. The present case demonstrates the need for trial judges to also firmly remind jurors of their obligation to immediately report to the judge any misstatement or omission the juror may have made during the selection process.
Affirmed.
NOTES
[1] For example, in State v. Cooper, supra, 151 N.J. at 351, 700 A.2d 306, the Court held that a new trial was not required in this capital case when a juror failed to disclose she had a cousin serving a term in federal prison because this fact did not suggest that she was "a `bad' defense juror." In State v. Scher, we held there was no "practical impact on the trial" when a juror failed to reveal his father and brother were involved in law enforcement because the juror, having been estranged from his father since he was thirteen years old, was unaware of his father's involvement in law enforcement, and although he knew his brother was a police detective, by the time of jury selection his brother had been disabled and the juror did not believe his brother would return to the police department. 278 N.J.Super. at 260-61, 267, 650 A.2d 1012. In Scher, we also observed that defendant had not exercised peremptory challenges to excuse other jurors who had relatives in law enforcement. Id. at 267, 650 A.2d 1012. By comparison, we held that a new trial was required in State v. Thompson, where a juror had failed to reveal that he had been a correctional officer. 142 N.J.Super. at 277, 361 A.2d 104. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1537939/ | 918 A.2d 87 (2007)
COMMONWEALTH of Pennsylvania, ex rel. JUDICIAL CONDUCT BOARD, Petitioner,
v.
Deborah Shelton GRIFFIN, Respondent.
Supreme Court of Pennsylvania.
Argued October 16, 2006.
Decided March 26, 2007.
*88 Francis J. Puskas, II, Esq., Warren, for Commonwealth of Pennsylvania, ex rel. Judicial Conduct Board.
Samuel C. Stretton, Esq., West Chester, for Deborah Shelton Griffin.
BEFORE: CAPPY, C.J., and NEWMAN, SAYLOR, EAKIN, BAER and BALDWIN, JJ.
OPINION
Chief Justice CAPPY.
Petitioner, the Judicial Conduct Board, brings an Application for Leave to File Original Process, seeking leave to proceed with a Complaint in Quo Warranto to declare Respondent, Deborah Shelton Griffin, unqualified for the Office of Judge of the Philadelphia Municipal Court of Philadelphia County. Upon receipt of the Application, this court directed the parties to brief and argue three questions: 1) Whether the Supreme Court of Pennsylvania has original jurisdiction over the quo *89 warranto action; 2) Whether the Judicial Conduct Board has standing to bring the quo warranto action; and, 3) Whether Respondent should be removed from the Office of Judge of the Philadelphia Municipal Court and be permanently prohibited from occupying or holding herself out as occupying such office and from receiving any compensation, expense, reimbursement, or other emolument of office.
For the reasons set forth herein, we find that the Supreme Court of Pennsylvania has original jurisdiction over an action in quo warranto brought against a Judge of the Philadelphia Municipal Court; however, the Judicial Conduct Board does not have standing to bring an action in quo warranto. Given our resolution of the second question, we will not address the third question briefed by the parties.
Prior to filing the present Application for Original Process, Petitioner requested that the District Attorney of Philadelphia County initiate an action in quo warranto. On November 4, 2004, the District Attorney refused. See Petitioner's Application for Leave to File Original Process, Exhibit A. Petitioner then requested that the Attorney General for the Commonwealth of Pennsylvania initiate an action in quo warranto. By letter dated April 28, 2005, the Attorney General declined. See Petitioner's Application for Leave to File Original Process, Exhibit B. Petitioner initiated the present action on September 7, 2005, challenging Respondent's qualifications to hold judicial office.
Germane to this action are two facts. First, Respondent is a Judge of the Philadelphia Municipal Court, having been elected for a six-year term to that position commencing in 2001. Second, in 1984 Respondent pled guilty to two felony counts of fraudulent use of a social security number, a violation of 42 U.S.C. § 408(g)(2)[1], in the United States District Court for the Southern District of New York.[2] With these two facts in hand, Petitioner asserts that by virtue of Respondent's felony convictions for crimen falsi offenses, Article II, Section 7 of the Pennsylvania Constitution bars Respondent from holding judicial office.[3] Petitioner moves forward with this challenge to Respondent's right to hold judicial office by seeking leave to proceed with an application for Original Process in the Supreme Court of Pennsylvania with a Complaint in quo warranto.
Respondent raises several arguments in response to Petitioner's actions. On the factual premise, Respondent asserts that because her guilty plea on the federal indictment resulted in a suspended sentence, there is no conviction of a crimen falsi offense under Pennsylvania law. Addressing the procedural aspects of the instant *90 action, Respondent avers that this court is without jurisdiction as a Judge of the Philadelphia Municipal Court is not a statewide judicial officer, and furthermore, that Petitioner does not have standing to bring an action in quo warranto.
The questions presented are questions of law; accordingly, our standard of review is de novo, and our scope of review is plenary. Buffalo Twp. v. Jones, 571 Pa. 637, 813 A.2d 659, 664 n. 4 (2002).
Our initial task is to determine the jurisdiction of this court to proceed. As this is a question of statutory construction, the Statutory Construction Act of 1972 ("Act"), 1 Pa.C.S § 1501 et seq., is controlling. The Act directs that "[t]he object of all interpretation and construction of statutes is to ascertain and effectuate the intention of the General Assembly." 1 Pa.C.S. § 1921(1). In this regard, the Act sets forth two instructions. First, in 1 Pa.C.S. § 1921(b), the Act directs that "[w]hen the words of a statute are clear and free from all ambiguity, the letter of it is not to be disregarded under the pretext of pursuing its spirit." Second, in Pa.C.S.1921(c), the Act directs that "[w]hen the words of the statute are not explicit," the General Assembly's intent may be ascertained by considering specified matters which include the occasion and necessity for statute; circumstances of its enactment; mischief it remedies; object it seeks to attain; former law; consequences of particular interpretation; contemporaneous legislative history; and legislative and administrative interpretations of statute.
42 Pa.C.S. § 721 provides in pertinent part:
The Supreme Court shall have original but not exclusive jurisdiction of all cases of:
* * * *
(3) Quo warranto as to any officer of Statewide jurisdiction.
Looking at the plain language of the statutory grant of jurisdiction to this court, the obvious inquiry is whether a judge of the Philadelphia Municipal Court is an officer of Statewide jurisdiction. Jurisdiction and venue of the Philadelphia Municipal Court is established in 42 Pa.C.S.A. § 1123, and the pertinent parts of that statute provide:
(b) Concurrent and exclusive jurisdiction. The jurisdiction of the municipal court under this section shall be concurrent with the Court of Common Pleas of Philadelphia County except with respect to matters specified in subsection (a)(2) [relating to criminal offenses by any person other than a juvenile for which no prison term may be imposed or which are punishable by imprisonment for a term of not more than five years], as to which the jurisdiction of the municipal court shall be exclusive except as otherwise prescribed by any general rule adopted pursuant to section 503.
(c) Venue and process. The venue of the municipal court concerning matters over which jurisdiction is conferred by this section shall be prescribed by general rule. The process of the court shall extend beyond the territorial limits of the City and County of Philadelphia to the extent prescribed by general rule.
Referencing the jurisdictional framework above, each party argues a different outcome. Petitioner focuses on the concurrent jurisdiction of the municipal court to the court of common pleas to assert that Respondent is a statewide officer. Respondent relies on the limitation of the municipal court jurisdiction to Philadelphia County to conclude that a Philadelphia Municipal Judge is not a statewide officer.
The case of Collins v. Gessler, 452 Pa. 471, 307 A.2d 892 (1973), is instructive on *91 resolving the current jurisdictional contest. In Collins, a dispute arose over who was the lawful District Justice of the Peace for Magisterial District 32-1-10. The debate began when District Justice William J. Getty, Jr. was removed from serving as the Justice of the Peace for Magisterial District 32-1-10, by order of this court entered July 10, 1972, pursuant to Article V, Section 18(d) of the Pennsylvania Constitution.[4]Collins, 307 A.2d at 893. Shortly after District Justice Getty's removal from office, the Court of Common Pleas of Delaware County, wherein Magisterial District 32-1-10 was located, abolished the neighboring Magisterial District of 32-2-9. Id. The abolished Magisterial District was merged into and consolidated with Magisterial District 32-1-10. Joseph P. Gessler, who had been serving as the District Justice of the Peace for the abolished district, was designated to serve as the District Justice for the newly-merged District 32-1-10. The actions of the Delaware County Court of Common Pleas in creating the new district and designating Gessler as the District Justice thereof were approved by this court in an Order dated November 1, 1972. Id.
Subsequently, the Governor, unaware of the merger and designation of Gessler as District Justice for the newly created Magisterial District, appointed Arthur W. Collins to fill the vacancy caused by the removal of District Justice Getty for the office of District Justice of the Peace for Magisterial District 32-1-10. Id. Collins brought an action in quo warranto in the Commonwealth Court, seeking the removal of District Justice Gessler. Gessler filed preliminary objections to the Complaint in Quo Warranto, raising an objection to the jurisdiction of the Commonwealth Court, and asserting that jurisdiction lay in the Supreme Court of Pennsylvania in the first instance. The Commonwealth Court transferred the matter to this court for resolution of the jurisdictional question. Id. at 894.
Upon considering the jurisdictional dispute, the court began with Article V, Section 1 of the Pennsylvania Constitution, which provides for a "unified judicial system" that encompasses all courts and justices of the peace. Id. at 895. Justices of the peace are clearly designated as judicial officers within the statewide "unified judicial system." Id. Next, it was noted that the jurisdiction of the district justices is concurrent with that of judges in the court of common pleas. Id. Just as common pleas judges, district justices are empowered to issue subpoenas throughout the Commonwealth. Id.[5] The power to issue statewide subpoenas is a telling indication that the party possessing that power is an official with statewide jurisdiction. Id. Finally, looking to the decision in Commonwealth ex rel. v. Hyneman, 242 Pa. 244, 88 A. 1015 (1913), in which the court had declared that a common pleas judge is a statewide officer for purposes of investing original jurisdiction over an action in quo warranto in this court, the Collins court held:
[I]f our original jurisdiction is properly invoked in a quo warranto action involving a common pleas judge, because he has statewide jurisdiction, and a district *92 justice of the peace has concurrent jurisdiction, as mandated by statute, with that of a common pleas judge, it follows inexorably that this Court possesses original jurisdiction in a quo warranto proceeding involving a district justice of the peace.
307 A.2d at 895.
Taking our lead from Collins, we examine the jurisdiction of a Judge of the Philadelphia Municipal Court. Unquestionably, the Philadelphia Municipal Court is a designated part of the statewide unified judicial system as described in Article V, Section 1 of the Pennsylvania Constitution:
The judicial power of the Commonwealth shall be vested in a unified judicial system consisting of the Supreme Court, the Superior Court, the Commonwealth Court, courts of common pleas, community court, municipal and traffic court in the City of Philadelphia, such other courts as may be provided by law and justices of the peace. All courts and justices of the peace and their jurisdiction shall be in this unified judicial system.
Pa. Const. art. V. § 1 (emphasis supplied).
Within that constitutional framework of judicial organization, the Philadelphia Municipal Court was established at the same organizational level as Magisterial District Judges.[6] Pa. Const. art. V, § 1, chart. A judge in the Philadelphia Municipal Court has concurrent jurisdiction with the court of common pleas of Philadelphia County, and is imbued with statewide subpoena power. 42 Pa.C.S.A. § 1123. Respondent makes much of the fact that a municipal court judge's concurrent jurisdiction is limited to that of the Court of Common Pleas of Philadelphia County. The argument is that this geographic limitation distinguishes Philadelphia Municipal Court Judges from magisterial district judges. Additionally, Respondent points to the historical creation of the Philadelphia Municipal Court as a helpmate for the Court of Common Pleas in Philadelphia to assist in handling the large volume of litigation in that court. Reinhart v. Shirm, 18 D. & C. 151 (Pa.Mun., 1932). Stringing these points together, Respondent urges this court to conclude that the jurisdiction of a Philadelphia Municipal Court Judge was intentionally limited to Philadelphia County and therefore Respondent cannot be an officer of statewide jurisdiction for purposes of 42 Pa.C.S.A. § 721.
Taking Respondent's points in reverse order, we note that the historical purpose in creating the Philadelphia Municipal Court to aid in the volume of litigation burdening the court of common pleas may explain its origin, but fails to supply a reason for limiting the statewide jurisdiction of the municipal court judges. A similarly broad claim could be made in reference to all courts within the minor judiciary serving as helpmates to the common pleas courts of the county in which they sit. However, the volume of litigation within a county and the number of minor judicial officers created to serve therein, does not answer the question of whether or not the designated judicial officer is an officer of statewide jurisdiction.
Returning to Respondent's first point, in examining the statute establishing the jurisdiction of judges of the court of common pleas, 42 Pa.C.S.A. § 931, there is no distinction drawn between the jurisdiction of all judges in the courts of common pleas and that of judges in the court of common pleas of Philadelphia County. Unquestionably, a judge of the Philadelphia County *93 Court of Common Pleas is an officer of statewide jurisdiction and an action in quo warranto concerning a judge of that court would be in the original jurisdiction of the Supreme Court of Pennsylvania. See Hyneman, 88 A. at 1016. As a Philadelphia Municipal Court Judge has concurrent jurisdiction to a judge of the Court of Common Pleas of Philadelphia County, we find that a judicial officer of either court is an officer of statewide jurisdiction, and therefore, this court has jurisdiction to address an action in quo warranto seeking to remove a judge of the Philadelphia Municipal Court.
Having established the original jurisdiction of this court under 42 Pa.C.S. § 721, we turn to the standing of Petitioner to proceed with the Complaint in Quo Warranto. Standing is a core jurisprudential requirement that looks to the party bringing a legal challenge and asks whether that party has actually been aggrieved as a prerequisite before the court will consider the merits of the legal challenge itself. In re T.J., 559 Pa. 118, 739 A.2d 478, 481 (1999). A party who is not adversely affected by the matter he seeks to challenge is not "aggrieved" and therefore does not have standing. Id.
Quo warranto is a challenge to the title or right to public office. Andrezjwski v. Borough of Millvale, 543 Pa. 539, 673 A.2d 879, 881 (1996). Once a person has been duly elected, the right to exercise the authority of office is not to be lightly disturbed. A complaint in quo warranto is aimed at the right to exercise the powers of the office, which is a public injury, rather than an attack upon the propriety of the actions performed while in office, which would be a private injury. Accordingly, standing to pursue quo warranto is generally within a public entity such as, the Attorney General, or the local district attorney. Spykerman v. Levy, 491 Pa. 470, 421 A.2d 641, 648 (1980); Lehman v. Tucker, 470 Pa. 362, 368 A.2d 670, 672 (1977).[7] A private individual or entity is generally barred from bringing a quo warranto action; but a private petitioner will be deemed to have standing where that petitioner can show that it has been specially damaged or has some special right or interest. Spykerman, 421 A.2d at 649. see also In re One Hundred or More Qualified Electors of Clairton, 546 Pa. 126, 683 A.2d 283, 286-87 (1996) (finding qualified electors lacked standing to bring an action in quo warranto for failure to show an interest beyond that shared in common by all citizens of municipality).[8]
Petitioner argues that this history regarding quo warranto establishes that "Pennsylvania courts have repeatedly focused on preserving from intrusion the Commonwealth's standing in quo warranto by a private relator, not another Commonwealth *94 prosecutorial agency." Petitioner's brief at 16 (emphasis in the original). It states that these limitations placed on private parties' standing to bring actions in quo warranto are simply not applicable to it as it is not a private party; rather, Petitioner sees itself as being on an equal footing with a public prosecutor insofar as the ability to bring an action in quo warranto.
Petitioner correctly characterizes itself as possessing functions similar to that of prosecuting attorneys in the criminal justice system. The investigation and prosecution of complaints of judicial misconduct are its assigned task within the defined structure described in Article V, § 18. Yet, unlike the Attorney General or a district attorney, Petitioner is not an elected official charged with an obligation to the public at large. Rather, Petitioner is an appointed entity of limited scope, created within the judicial system itself and granted a deliberately precise function. Pa. Const. art. V, § 18(2), (6) & (7). Although the Petitioner functions in ways similar to a public prosecutor, the differences in origin of authority and scope of jurisdiction set it sufficiently apart from public prosecutors negating its assertion that it possesses standing to proceed in quo warranto similar to that of any public prosecutor. Additionally, nothing within its constitutional framework invests Petitioner with the power and authority to act in a public manner outside the confinement of its constitutionally-limited role, and this court would be remiss if we were to extend to Petitioner standing to pursue quo warranto on a par typical of that of public prosecutors.
Petitioner also asserts that it possesses standing as a governmental entity with a unique interest in this issue as it is was created to preserve the public confidence in the judicial system by ensuring a judiciary composed of officers of good character. In support of this argument, Petitioner relies heavily on Com., Pennsylvania Game Comm's v. Com., Dept. of Environmental Resources, 555 A.2d 812 (1989) and In re T.J., supra. In both of those matters, the issue was whether a legislatively-created administrative agency had standing even though it had not met the traditional standing requirements of being aggrieved or adversely affected. This court found that since the Legislature had conferred upon these agencies a broad interest, then the agencies had standing to pursue matters which touched upon the agencies' concerns. Pennsylvania Game Commission, 555 A.2d at 815; In re T.J., 739 A.2d at 482. Yet, Pennsylvania Game Commission and In re T.J. do not control this matter. Those cases granted standing to agencies which the Legislature had granted broad, policy-making authority. Petitioner, as noted supra, is a constitutionally-created entity of clearly delineated and limited authority.
Even though Pennsylvania Game Commission and T.J. do not control this matter, the next logical question would seem to be whether we should adopt a similar rule for the matter sub judice. We decline to do so. In 1993, the electorate approved of a constitutional amendment creating a brand new entity to wit, Petitioner. From its inception, Petitioner's powers and authority were carefully delineated. See Pa. Const. Art. V, § 18. The constitutional provision at issue describes a self-contained system for the investigation, prosecution, and imposition of discipline in cases of judicial wrongdoing. Art. V, § 18(a)(7) (setting forth the investigative tools of the Judicial Conduct Board); Art. V, § 18(b)(5) (describing the functions of the Court of Judicial Discipline); Art. V, § 18(d)(1) (setting forth the available array of potential disciplinary actions within the authority of the Court of Judicial Discipline). *95 Yet, the electorate, in approving this amendment, did not grant Petitioner the power and authority to pursue actions in quo warranto. See Firing v. Kephart, 466 Pa. 560, 353 A.2d 833 (1976) (A provision of the constitution will be interpreted not in a strained or technical manner but as understood by the people who adopted it). As we find it to be improper to augment Petitioner's powers beyond that which the electorate granted via the constitutional amendment, we conclude that Petitioner does not have standing to pursue an action in quo warranto.[9]
Accordingly, the request to file original process is granted and the complaint in quo warranto is dismissed.
Justice CASTILLE and former Justice NEWMAN did not participate in the decision of this case.
Justice SAYLOR, EAKIN and BAER and Justice BALDWIN join the opinion.
NOTES
[1] 42 U.S.C. § 408(g)(2) was redesignated as subsection (a)(7) in 1990.
[2] Copies of the relevant documents obtained from the National Archives and Records Administration regarding the indictment, plea and sentence are attached as Petitioner's Exhibit A to the Civil Action in Quo Warranto filed at 128 EM 2005.
[3] Pa. Const. art. II, § 7 provides:
No person hereafter convicted of embezzlement of public moneys, bribery, perjury or other infamous crime, shall be eligible to the General Assembly, or capable of holding any office of trust or profit in this Commonwealth.
In Commonwealth ex rel. Baldwin v. Richard, 561 Pa. 489, 751 A.2d 647, 653 (2000), this court held that "[a] crime is infamous for purposes of Article II, Section 7, if its underlying facts establish a felony, a crimen falsi offense, or a like offense involving the charge of falsehood that affects the public administration of justice."
Because of the posture of this case, the court takes no position on the issue of whether the convictions cited above meet the definition of crimen falsi.
[4] The 1972 action involving District Justice Getty was in accord with the then-existing framework for judicial discipline under the Judicial Inquiry and Review Board. That framework was replaced with the current system, known as the Judicial Conduct Board, by constitutional amendment on May 18, 1993.
[5] The Rule cited in Collins is currently found at Pennsylvania Rules of Conduct, Office Standards, and Civil Procedure for Magisterial District Judges, Rule 214.
[6] District Justices were redesignated as Magisterial District Judges by Act 2004-207, Section 13 of 2004, Nov. 30, P.L. 1618, No. 207, effective Jan. 31, 2005.
[7] As noted previously, the Attorney General of the Commonwealth of Pennsylvania and the District Attorney of Philadelphia County each declined Petitioner's request to proceed with an action in quo Warranto in this case. See Petitioner's Application for Leave to file Original Process, Exhibits A and B.
[8] We note that Petitioner also references this court's decision in League of Women Voters of Lower Merion and Narberth v. Board of Commissioners of Lower Merion Twp., Montgomery Cty., 451 Pa. 26, 301 A.2d 797 (1973), claiming that it supports its position. League of Women Voters is not on point with this matter. While it is true that in that case the governmental entities declined to institute an action in quo warranto, that is where the similarities between that case and this one end. In that matter, there was no standing question. Furthermore, that matter was not a quo warranto action. In fact, we noted that "[t]he first argument that must be dealt with in this appeal is whether appellees' failure to bring their action in quo warranto is fatal to their cause." Id. at 799.
[9] Nothing in this opinion speaks to the authority of the Judicial Conduct Board to move forward with a complaint against Judge Griffin in its capacity as outlined in Pa. Const. art. V § 18. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1537951/ | 6 B.R. 258 (1980)
In re BIRCHMINSTER CORPORATION OF CALIFORNIA d/b/a Central Valley Steel and Pipe Company (Jointly administered with Birchminster Industries, Inc., Bankruptcy No. 80-00185K) Debtor.
Bankruptcy No. 80-00221K.
United States Bankruptcy Court, E.D. Pennsylvania.
September 26, 1980.
*259 Erwin Pincus, Philadelphia, Pa., for debtor-Birchminster Corp. of California.
Thomas Holman, San Francisco, Cal., Horace A. Stern, Philadelphia, Pa., for creditors' committee.
OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge.
The creditors' committee has filed the present motion seeking an order transferring venue in the case of Birchminster Corporation of California, d/b/a Central Valley Steel and Pipe Company, to the United States Bankruptcy Court for the Eastern District of California, at Fresno. Security Pacific National Bank, the major secured creditor in the case, supports and has joined in the motion.[1]
On January 25, 1980, Birchminster Industries, Inc. filed a petition under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the Eastern District of Pennsylvania. Subsequently, on February 1, 1980, Birchminster's wholly-owned subsidiary, Birchminster Corporation of California, trading as Central Valley Steel and Pipe, the present debtor, also filed a Chapter 11 petition with this Court. It is agreed that venue properly lay in the Eastern District of Pennsylvania under 28 U.S.C. § 1472 which states:
"[A] case under title 11 may be commenced in the bankruptcy court for a district
* * * * * *
(2) in which there is pending a case under title 11 concerning such person's affiliate . . . "
The question presented for decision is whether, despite proper venue, the case should be transferred to the Eastern District of California. Because we find that transfer of this proceeding is in the interest of justice and for the convenience of the parties, the instant motion will be granted.
The question of the transfer of a case under Chapter 11 is governed by § 1475 of Title 28, United States Code. Section 1475 which concerns the change of venue of cases originally filed in either the proper or improper venue is not to be confused with § 1477 which only deals with transfer of *260 cases filed originally in the wrong district, 1 Collier on Bankruptcy, para. 3.02[4][a] at 3-196 (15th ed. 1979). In circumstances, such as this, where jurisdiction exists and venue is proper, § 1475 is applicable and provides:
A bankruptcy court may transfer a case under Title 11 or a proceeding arising under or relating to such a case to a bankruptcy court for another district, in the interest of justice and for the convenience of the parties.
Thus, the test for transferring a properly filed case is twofold: the interest of justice and the convenience of the parties. This standard under § 1475 is the same as it was under Bankruptcy Rule 116(b)(1) and the cases decided thereunder remain persuasive. Id., para. 3.02[4][d] at 3-202. In re Macon Uplands Venture, 2 B.R. 444 (Bkrtcy.D.Md.1980).
In general, the factors by which courts are prone to judge whether venue should be changed include: (1) proximity of creditors and the bankrupt to court; (2) proximity of witnesses necessary to the administration of the estate; (3) location of the assets; and (4) the economic and efficient administration of the estate. In re Bankers Trust, 403 F.2d 16, 23 (7th Cir. 1968); In re Button Co., 137 F. 668, 672-3 (D.Del.1904); In re Kerr's, Inc., 253 F.Supp. 742 (S.D.N.Y.1966), aff'd 360 F.2d 163 (2nd Cir.1966); In re Macon Uplands Venture, supra, at 445.
The courts have also used the two-fold tests of "convenience of parties" and "in the interest of justice" to give consideration to the following factors in connection with the transfer of a particular proceeding:
(1) the relative ease of access to sources of proof; (2) the availability of compulsory process for attendance of unwilling, and the cost of obtaining the attendance of willing witnesses; (3) the enforceability of judgment if one is obtained; (4) relative advantages and obstacles to a fair trial; (5) a local interest in having localized controversies decided at home; and (6) a trial in the state the laws of which will govern the action. In re Macon Uplands Venture, supra, 1 Collier on Bankruptcy, para. 3.02[4][b] at 3-200, 3-201 (15th ed. 1979 and cases cited [5] herein). These criteria are relevant under § 1475 and are to be applied on a case-by-case basis. The burden of establishing that the case should be transferred is on the moving party and must be shown by a fair preponderance of the evidence. United Button, supra at 673; In re Fairfield Puerto Rico, Inc., 333 F.Supp. 1187, 1189 (D.Del.1971); In re Macon Uplands Venture, supra.
The debtor argues that a change of venue violates the principle of "economy of administration" in that the transfer of the proceedings from Pennsylvania to California would entail dual administration, at great expense. While counsel's point is well taken, this is merely one of the many considerations that must be weighed by the court.
In In re United Button Co., supra, the court stated:
What may be for the greatest convenience of parties in interest does not necessarily depend upon only one fact or circumstance entering into the situation. Proximity of the place of the bankrupt to the court entertaining the proceedings in bankruptcy, though a circumstance entitled to weight, is by no means conclusive, . . . Proximity of a majority of the creditors of the bankrupt in number or amount of their claims is a circumstance which should also be duly weighed. Id., at 672
The first factor to be considered is the proximity of creditors to the court. Counsel for the moving party, by failing to introduce into evidence either the claims docket or the relevant schedules has limited the court's inquiry into this factor. In their memorandum of law, counsel has attempted to establish the various percentages of creditors found in the judicial districts. This court may consider only the evidence presented at the trial, not other evidence which may have been in the files of the administration proceeding. In re Aughenbaugh, 125 F.2d 887 (3rd Cir. 1942); In re *261 Stridacchio, 107 F.Supp. 486 (D.N.J.1952). See also In re Crown Sportswear, Inc., 575 F.2d 991 (1st Cir. 1978). The Aughenbaugh court stated:
To hold otherwise would be to violate the fundamental concept of procedural due process that a party to litigation is entitled to have the evidence relied on by his opponent presented at the hearing of his case so that he may have opportunity to cross-examine his opponent's witnesses and to offer evidence in rebuttal. As the Supreme Court said in Interstate Commerce Commission v. Louisville & Nashville R. Co., 227 U.S. 88, 93, 33 S.Ct. 185, 187, 57 L.Ed. 431, "manifestly there is no hearing when the party does not know what evidence is offered or considered, and is not given an opportunity to test, explain, or refute." And again as stated in United States v. Abilene & Southern R. Co., 265 U.S. 274, 288, 44 S.Ct. 565, 569, 68 L.Ed. 1016: "Papers in the Commissioner's files are not always evidence in a case. New England Divisions Case [Akron, C. & Y.R. Co. v. United States], 261 U.S. 184, 198, note 19, 43 S.Ct. 270, 276 note 19, 67 L.Ed. 605. Nothing can be treated as evidence which is not introduced as such." Particularly apposite is the statement of Chief Justice Hughes in Crowell v. Benson, 285 U.S. 22, 48, 52 S.Ct. 285, 291, 76 L.Ed. 598, that "Facts conceivably known to the deputy commissioner, but not put in evidence so as to permit scrutiny and contest, will not support a compensation order." If this is the rule as to administrative bodies which are expected to apply their expert knowledge in their special field a fortiori it applies to the proceedings of a purely judicial body such as a court of bankruptcy.
Id., at 889
Thus, it appears that our review is limited to the testimony and evidence presented at trial. The testimony of the president of the debtor corporation revealed that of the total number of creditors, approximately seventy or eighty percent, are located in California with no creditors in Pennsylvania. [N.T. 19]. The veracity and credibility of the witness's testimony has not been questioned and is accepted as establishing that the majority of creditors are located in California.
The location of the debtor is the second factor to be considered. Testimony disclosed that the Board of Directors of the debtor, consisting of one man, meets in Pennsylvania [N.T. 10] and that its policy decisions are made here. [N.T. 24]. The daily operating decisions for the debtor are made in Fresno, California. [N.T. 15]. The chief operating officer of the debtor operates out of and resides in Fresno, California. Id. Of the approximately nineteen (19) employees of the debtor corporation, fifteen (15) are located in Fresno; two (2) in Chico, California; one (1) in Windsor, California; and one (1) in Carson City, Nevada. [N.T. 14]. The debtor employs no persons in Pennsylvania. [N.T. 14, 15]. In addition, the books and records of the debtor are maintained in Fresno, California.
From the foregoing, it is clear that the debtor's business is conducted in California and not Pennsylvania.
In summary, the majority of creditors, the chief operating officer, and the books and records of the debtor are located in California. It seems clear that those witnesses who would be competent to testify concerning the business and operations of the debtor are those located in California. Should appraisals or other expert testimony be necessary, the most reliable valuations will be obtained from California appraisers who have knowledge of the Fresno area and the business climate.
The testimony of the President and chief operating officer of the debtor also disclosed that its assets are located in Fresno, Chico and Windsor, California and Carson City, Nevada. [N.T. 19]. No assets are located in this district or in any other location. Id.
The court finds that since the property and assets are located and being operated in California, rulings may be required to be made in accordance with the laws of the state of California. The United States Bankruptcy Court for the Eastern District *262 of California at Fresno would be in a better position than this court to make those rulings.
The court also finds that this case would be more conveniently administered by the court which is closest to the property and to the majority of the creditors, since that court would be in the best position to meet any emergency situations that may arise; answer inquiries which may be raised; grant approvals and authorizations that may be requested; and be in closer touch with the property, its condition and operation; and be in a better position to evaluate any appraisals and the appraisers who make such appraisals.
In the case of In re Kerr's, Inc., supra, the court granted a motion for change of venue with respect to one of five (5) debtor corporations in Chapter XI proceedings filed in the Southern District of New York. Venue was changed to Minnesota for one corporation because all its operating assets (consisting of retail department stores), its operating officers and its books and records were in Minnesota. Also, many of its creditors were in Minnesota (18.6% in number and 22.7% in amount), although slightly more of the creditors were located in New York (18.8% in number and 45% in amount). Although the court believed that the New York office of the debtor was the "policy making head and source of working capital for each of the subsidiaries," 253 F.Supp. at 744, nevertheless the court held that in the interest of justice and the convenience of the parties, venue should be changed to Minnesota. The court pointed out that in the absence of consolidation for substantive purposes, each corporation would have to file a separate plan of arrangement and deal with its creditors separately in order to gain the requisite majorities of acceptances so that there was no reason why the administration of the cases could not proceed in separate bankruptcy courts.
In the case of In re Ocean Sea Breeze, Inc., 11 CBC 306 (M.D.Fla.1977), the court granted a motion for change of venue with respect to two (2) of three (3) affiliated debtor corporations in Chapter XI proceedings filed in the Middle District of Florida. Most of the creditors and all of the assets and books and records of the transferred corporations were located in St. Louis, Missouri. Therefore, the bankruptcy court transferred the cases to the U.S. District Court for the Eastern District of Missouri. The debtor had argued, inter alia, that venue was proper in the Middle District of Florida because of a pending Chapter XI case in that court involving an affiliated corporation, Winter Park, Inc. However, in dismissing the debtor's contention, the court stated that the presence of the affiliated corporation is a "slender reed . . . on which to hang the affairs of these two debtors."
In the case at bar, it is uncontradicted that the corporate stock of the debtor is pledged as collateral security to Michigan Metal Processing Corporation for a debt owed to Michigan Metal by Birchminster Industries, Inc. In its answer, the debtor contends that this court must adjudicate the issues of fact and questions of law pertaining to that debt and pledge in conjunction with the proposal, funding and confirmation of a plan proposed by the debtor. Such a contention is premature at this time in that there are no outstanding issues of fact and questions of law pertaining to that transaction. The prospect of litigation in and of itself is not sufficient to disturb our finding here. Furthermore, any prospective litigation may well be brought and concluded in the Bankruptcy Court for the Eastern District of California if, in fact, the action involves the debtor. If the parent corporation, Birchminster Industries, Inc., is a party in interest, this court may accept jurisdiction and adjudicate the dispute here. Such a determination is not within the scope of our inquiry and is far too speculative.
Thus, we find that the moving party has established that the balance of interest is strongly in their favor. B.J. McAdams, Inc. v. Boggs, 426 F.Supp. 1091, 1103-4 (E.D.Pa.1977). Those factors which strongly favor transfer of the case sufficiently outweigh the possibility of dual administration here. While this district is the forum *263 of choice for the debtor and the home forum of its one-man Board of Directors, its local counsel and its accounting firm, these factors are not as persuasive as are the four (4) primary considerations outlined earlier. (p. 260, above).
Having given due consideration to the many significant factors to be considered in deciding questions of transfer and in the interest of justice and the convenience of the parties, we find that the creditors' committee has sustained its burden of proof in establishing that the Chapter 11 case filed by the debtor should be transferred to the Eastern District of California at Fresno.
Accordingly, an appropriate Order will be entered.
NOTES
[1] This Opinion constitutes findings of fact and conclusions of law in accordance with Bankruptcy Rule 752. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1537965/ | 6 B.R. 298 (1980)
In the Matter of Clermont LOUBIER, Debtor.
NEW ENGLAND BANK & TRUST CO. et al., Plaintiff,
v.
Clermont LOUBIER, Debtor, Defendant.
Bankruptcy No. 2-80-00725, Adv. No. 2-80-0314.
United States Bankruptcy Court, D. Connecticut.
September 30, 1980.
*299 Martin W. Hoffman, Hartford, Conn., for plaintiff.
Edward M. Muska, Enfield, Conn., for defendant.
MEMORANDUM AND ORDER
ROBERT L. KRECHEVSKY, Bankruptcy Judge.
The matter before the court is the resolution of a request for relief from the automatic stay imposed by 11 U.S.C. § 362.[1] The debtor-defendant, Clermont Loubier (Loubier) filed a petition for reorganization under Chapter 11 of the Bankruptcy Code on July 11, 1980. The complainants, New England Bank and Trust Company (Bank), and Michael A. Mack, Committee of the Superior Court for the Judicial District of Tolland, Connecticut (Committee) seek relief from the automatic stay in order to complete a transaction authorized by order of the said superior court confirming a judicial sale arising out of a foreclosure action.
*300 Loubier has, in the past, acted as a building contractor. On December 6, 1978, he obtained a construction loan from the Bank and executed a mortgage on the property located in Somers, Connecticut and known as 317 Turnpike Road (property). Loubier became in default of the provisions of the mortgage deed, and the Bank, on August 11, 1979, instituted foreclosure proceedings in the Superior Court for the Judicial District of Tolland. Judgment for foreclosure by sale was entered on January 28, 1980, appointing Michael A. Mack a committee of sale, but delaying the public auction until June 7, 1980. On that date, after advertising as ordered by the superior court, the Committee received 15 bids and accepted as the highest bid an offer of $85,000 received from George A. Colli, Jr., President of Homeco, Inc. A deposit of $10,000.00 was made by Colli and a contract of sale executed by Colli and the Committee. Subsequently, on July 7, 1980, hearings were held in the superior court on a motion by Loubier to set aside the sale and a motion of the Committee to ratify and confirm the sale. The superior court (Satter, J.) denied Loubier's motion, ratified and confirmed the sale, approved the committee deed and allowed committee expenses of $5,814.00. July 14, 1980 was set by the Committee as the closing date to deliver the deed. On July 11, 1980, Loubier filed his Chapter 11 petition, and on July 29, 1980, the Bank and the Committee filed their complaint for relief from stay.
Testimony and stipulations at trial established that the debt due the Bank amounts to $68,966.16 and that interest continues to run at the rate of $20.45 per diem. The total of all encumbrances upon the property is $87,914.00. The Bank's appraiser valued the property, on which the house is 90% completed, at $90,000, while Loubier's appraiser valued the property at $118,200.00. Loubier testified he is not presently engaged in the contracting business due to an injury he received in January, 1980. The only other real property claimed by Loubier in his petition is his personal residence in South Windsor, Connecticut.
The parties concede that, although not directly raised by the complaint, a threshold issue to be determined in this proceeding is the effect of the ratification and confirmation of the foreclosure sale upon the estate's interest in the property. The Bank and the Committee argue that a judicial sale of the property was completed prior to the filing of Loubier's Chapter 11 petition, thereby terminating any equity of redemption of Lobuier, and that they are thus entitled to have the automatic stay lifted to allow the delivery of the deed and receipt of the proceeds. Loubier claims that despite the fact that the foreclosure sale by public auction was held and confirmed before he filed his petition, no deed was delivered and no money was paid, and he is thus entitled under § 362 to have the foreclosure action stayed while he, as debtor-in-possession, seeks a sale through the bankruptcy court at a price closer to what he claims the true value of the property to be.
What a debtor's estate includes is determined by § 541 of the Code, which provides in pertinent part that:
(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located:
(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.
Given the fact that the Bankruptcy Code of 1978 has been in effect for less than a year, there is little decisional law construing § 541. The brief explanation of the section appearing in the legislative history includes the following language:
. . . Thus, as section 541(a)(1) clearly states, the estate is comprised of all legal or equitable interests of the debtor in property as of the commencement of the case. To the extent such an interest is limited in the hands of the debtor, it is equally limited in the hands of the estate. . . . 124 Cong.Rec. H 11,096 (September 28, 1978); S 17,413 (October 6, 1978).
*301 By extending the logic of this language, if a debtor had no interest in property at the commencement of a case (i.e., the filing of a petition), the estate would take no interest in that property. Thus, with respect to the instant proceeding, the threshold question becomes: When Loubier filed his petition, did he have an equity of redemption in the property that passed to his Chapter 11 estate? 4 Collier on Bankruptcy (15th ed.) ¶ 541.07 indicates that non-bankruptcy state law determines what interest a debtor has in property and that Congress has not conferred additional property rights upon the estate.
The holding of a pre-Bankruptcy Code case, State Bank of Hardinsburg v. Brown, 317 U.S. 135, 63 S.Ct. 128, 87 L.Ed. 140 (1942) is significant and instructive. In Bank of Hardinsburg, the court construed a provision of the Bankruptcy Act of 1898, § 75, which provided certain composition and extension relief to farmers. The Supreme Court held that where the redemption period under state law had expired, and a foreclosure sale had been confirmed, the rights of a mortgagor-debtor were cut off and § 75 did not bring the property within the jurisdiction of the bankruptcy court, despite the fact that the statute in its literal terms provided for extension of the redemption period "where deed had not been delivered".[2] The court observed that
A fair reading of the entire section indicates a clear intent to extend the bankruptcy jurisdiction over all property which still remains subject to redemption under state law at the time of filing the petition. The section does not evidence any intent on the part of Congress to bring back into the bankruptcy proceeding property which was once owned by the bankrupt and as to which his ownership and interest has been extinguished, unless such intent can be drawn from the provisions qualifying the general words of the section. We think that if Congress intended that a bankruptcy might reach back into the past and bring under the court's jurisdiction a former interest in property, which, under state law, had irrevocably passed to a third person, it would have so stated in terms too clear to leave any doubt. Id. at 138-39, 63 S.Ct. at 130.
See also Jelks v. Aetna Life Ins. Co., 134 F.2d 870 (10th Cir. 1943); Ross v. Carey, 174 F.2d 872 (5th Cir. 1949).
In Bank of Hardinburg, supra, it was also held that where a sale has cut off a mortgagor's right to redeem property,
delivery of a deed by the sheriff . . . becomes a ministerial act which he can be compelled to perform. Such delivery constitutes mere record evidence of the purchaser's title which is perfect from the date of sale. As the sale cut off all rights of the debtor, § 75(n) does not bring the property within the jurisdiction of the bankruptcy court. Id. 317 U.S. at 141-42, 63 S.Ct. at 132.
From all of the foregoing, I conclude that the rights of Loubier in the property involved in the pre-petition state court foreclosure sale are determined by Connecticut law and that no additional property rights have been bestowed by the Bankruptcy Code.
I now turn to the question of what interest remains in a mortgagor, under Connecticut law, after court confirmation of a foreclosure sale, but prior to delivery of a deed. In Connecticut, the legislation provides for two methods of foreclosure, strict foreclosure and foreclosure by sale. The applicable statutes of Connecticut are as follows:
Conn.Gen.Stat. § 49-24.
All liens and mortgages affecting real property may, on the written motion of any party to any suit relating thereto, be *302 foreclosed by a decree of sale instead of a strict foreclosure at the discretion of the court before which the foreclosure proceedings are pending.
Conn.Gen.Stat. § 49-25.
When the court in any such proceeding is of the opinion that a foreclosure by sale should be decreed, it shall, in its decree, appoint a person to make the sale and fix a day therefore, and shall direct whether the property shall be sold as a whole or in parcels, and how the sale shall be made and advertised; but, in all cases in which such sale is ordered, the court shall appoint three disinterested persons who shall, under oath, appraise the property to be sold and make return of their appraisal to the clerk of the court. If they cannot agree, an amount agreed upon by a majority may be accepted by the court at its discretion, and the expense of the sale and appraisal shall be paid by the plaintiff and be taxed with the costs of the case. If, after judgment has been rendered, the amount found to be due and for which foreclosure is decreed, together with the interest and the costs, is paid to the plaintiff before the sale, all further proceedings in the suit shall be stayed. (Emphasis supplied.)
Conn.Gen.Stat. § 49-26.
When a sale has been made pursuant to a judgment therefore and ratified by the court, a conveyance of the property sold shall be executed by the person appointed to make the sale, which conveyance shall vest in the purchaser the same estate that would have vested in the mortgagee or lienholder if the mortgage or lien had been foreclosed by strict foreclosure, and to this extent such conveyance shall be valid against all parties to the cause and their privies, but against no other persons, and the court may order possession of the property sold to be delivered to the purchaser.
Connecticut decisional law indicates that a judicial sale under such statutes becomes complete and creates legal rights and obligations among the parties when it is confirmed and ratified by the court. Mariners Savings Bank v. Duca, 98 Conn. 147, 118 A. 820 (1922); Raymond v. Gilman, 111 Conn. 605, 151 A. 248 (1930); See also Melrose v. Industrial Associates, Inc., 136 Conn. 518, 72 A.2d 469 (1950). In Duca, the court held that under the Connecticut foreclosure-by-sale statutes, ratification or confirmation is the determinative element of such foreclosure.
So we see what the ratification of the sale is in a way the focal point of the proceeding after the judgment therein. As regards what has gone before it makes valid the advertisement of the sale, the proper conduct of the same pursuant to the original judgment and notice and, if such be the case, the fact of money paid into court. Regarding what follows, it fixes the various disbursements and expenses of the sale and regulates the disposal of the net proceeds among the parties thereto. It makes operative the various acts and proceedings required by the statute. The ratification or confirmation of the sale would therefore appear to be a condition precedent to any operative effect arising out of the sale. Id. at 153, 118 A.2d at 822.
In Raymond, supra 111 Conn. at 613, 151 A. at 251, the court noted that
A judicial sale is one made as a result of judicial proceedings by a person legally appointed by the court for the purpose. The court is the vendor, and the person appointed to make the sale is the mere agent of the court. The sale is not absolute until confirmed. The order of confirmation gives the judicial sanction of the court, and when made, it relates back to the time of the sale,. . . .
Duca, supra, further holds that default of a purchaser at a judicial sale, may, upon confirmation, give rise to a court order to the purchaser to complete payment, failure to comply with which may result in the purchaser being held in contempt. The sanction of a contempt citation emphasizes the finality with which confirmation of a foreclosure sale allocates legal rights and obligations under Connecticut law.
*303 The court finds that in Connecticut, the law is that the rights of a mortgagor in mortgaged property are terminated by confirmation of a foreclosure sale, and that subsequent to such a sale, any interest the mortgagor may claim is in proceeds of the sale solely and not in the property. The delivery of a deed is a ministerial act only and does not constitute the event which terminates an equity of redemption. This finding leads me to conclude that in the case at bar, the court can have no jurisdiction over the property. When the foreclosure sale of June 7, 1980 was confirmed by superior court order on July 7, 1980, at that moment, Loubier's equity of redemption in the property was terminated, and his interest, if any, thereafter was in the proceeds of the sale. Loubier filed his petition commencing his case on July 11, 1980, at which time, he had no legal or equitable interest in the property. Thus, the property was not property of the estate as of the commencement of the case, and this court would have no jurisdiction to order its further disposition. See In re Butchman, 4 B.R. 379 (Bkrtcy., S.D.N.Y.1980). I hold that the Bank and the Committee have established cause, under the circumstances of this proceeding, pursuant to § 362(d)(1) to permit the granting of relief from stay. Judgment may enter for the complainants, the Bank and the Committee, modifying the automatic stay to permit delivery of a deed from the Committee to the Bank and receipt of proceeds by the Committee, and it is
SO ORDERED.
This memorandum shall constitute Findings of Fact and Conclusions of Law pursuant to Rule 752 of the Rules of Bankruptcy Procedure.
NOTES
[1] Sec. 362. Automatic Stay.
(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title operates as a stay, applicable to all entities, of
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;
(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;
(3) any act to obtain possession of property of the estate or of property from the estate;
(4) any act to create, perfect, or enforce any lien against property of the estate; . . .
(d) On request a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest; or
(2) with respect to a stay of an act against property, if-
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization.
[2] Former § 75 of the Bankruptcy Act provided in pertinent part,
In all cases where, at the time of filing the petition, the period of redemption has not or had not expired, or where the right under a deed of trust has not or had not become absolute, or where the sale has not or had not been confirmed, or where deed had not been delivered, the period of redemption shall be extended or the confirmation of sale withheld for the period necessary for the purpose of carrying out the provisions of this section. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1537968/ | 6 B.R. 612 (1980)
In re Arthur D. McGRANN and Susan E. McGrann, Debtors.
Bankruptcy No. 80-01046K.
United States Bankruptcy Court, E.D. Pennsylvania.
October 15, 1980.
Sheldon A. Goodstadt, Philadelphia, Pa., for debtors.
Suzanne Cohen, Philadelphia, Pa., Trustee.
OPINION
WILLIAM A. KING, Jr., Bankruptcy Judge.
In the instant proceeding, debtors seek court approval of an agreement to reaffirm two (2) consumer debts which are not secured by real property.[1] The obligations are as follows: $972.00 for a Magnavox color television set and $4,710.04 for a 1972 Buick Electra and 1978 Suzuki motorcycle. The television set, at the time of purchase in October, 1979, listed at $850.00, and its present value is approximately half of that.[2] The estimated value of the Buick is $600.00, and the Suzuki $2,100.00.[3]
Section 524(c) of the Bankruptcy Reform Act of 1978 governs agreements between debtor and creditor, and provides that the court may approve such agreement as (1) not imposing an undue hardship on the debtor or a dependent of the debtor, and (2) in the best interest of the debtor. 11 U.S.C. 524(c)(4)(A).
The issue presented is whether the best interests of the debtor are served by the reaffirmation of the instant debts?
In discussing the congressional intent of the reaffirmation provision, the court in the Matter of Avis, 3 B.R. 205 (Bkrtcy.S.D.Ohio, 1980), stated that the apparent intent of the Senate in its amendments to § 524 was to make possible a truly voluntary reaffirmation without eroding the effectiveness of bankruptcy relief, and that effectiveness was dependent on compliance with three (3) principles underlying the Code, namely:
1. to give the bankrupt a "fresh start"
2. to discourage bankrupts from immediately seeking credit, and
3. to treat all creditors substantially alike. Id., at 206.
The court concluded that the easing of the ban on reaffirmations was to be viewed with the stated principles underlying bankruptcy *613 relief and hence, the intended meaning of a debtor's "best interests" are strictly financial. Id.
The court in In re Jenkins, 4 B.R. 651 (Bkrtcy.E.D.Va., 1980) noted that "the best-interest-of-the-debtor test is largely, though not exclusively, an economic inquiry given a specific factual setting. Simply put, either the debtor is entering into a mutually beneficial agreement or he is not." Id., at 652. The Jenkins case involved an agreement which would reaffirm an indebtedness of $792.76 on furniture valued at $200.00. In holding that the agreement, which required payment of approximately $600.00 more than the value of the collateral, was not in the best interests of the debtor, the court looked at the alternatives available to the debtor:
(1) He could redeem the furniture for $200.00. 11 U.S.C. § 722.
(2) he could have sought a better bargain with the creditor for some figure between $200.00 and $792.76.
(3) He could allow the creditor to recover or reclaim the property and purchase, not necessarily new, but replacement furniture. Id., at 653.
The inevitable conclusion in the case sub judice is that the debtors would benefit financially from a discharge rather than a reaffirmation. Paying $972.00 for a television the debtor himself admits is worth less than $425.00, and $4,710.04 for a Buick Electra and a motorcycle valued at $2,700.00 does not appear to be economically advantageous to the debtor seeking the protection of the bankruptcy court when considering the various alternatives available to him. See above.
However, as the court has already stated, an economic inquiry is not exclusive, given a specific factual setting. Debtor and his attorney stated at the discharge hearing that the two (2) vehicles are used and needed for transportation back and forth to work-the motorcycle being used in warm weather and the Buick in the winter. Testimony revealed a lack of public transportation and that a vehicle is a necessity to the debtor's continued employment. The cost of fuel for the Buick seems to be counterbalanced by the fuel efficiency of the motorcycle. Thus, allowing the debtors to reaffirm the debt on the two (2) vehicles, though not economically feasible, is, in light of the present circumstances, in the best interests of the debtors.
However, this court questions the necessity of such an expensive television set (or even the necessity of a television set at all!). The options available to the debtors, the exorbitant cost, and the questionable necessity of such an item, forces this court to conclude that a reaffirmation of that debt would not be in the best interest of the debtors and therefore, will not be allowed.
NOTES
[1] The following Opinion constitutes findings of fact and conclusions of law in accordance with Bankruptcy Rule 752.
[2] Notes of testimony, September 24, 1980, p. 4.
[3] Id., at p. 6. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538253/ | 97 Pa. Commonwealth Ct. 419 (1986)
509 A.2d 964
Edward Penczkowski, Petitioner
v.
Workmen's Compensation Appeal Board (Foster-Wheeler Energy Corp. and The Hartford), Respondents.
No. 3481 C.D. 1984.
Commonwealth Court of Pennsylvania.
May 22, 1986.
*420 To Judges ROGERS and PALLADINO, and Senior Judge KALISH, sitting as a panel of three.
Joseph A. Prim, Jr., Stephen A. Sheller & Associates, for petitioner.
Hugh F. Mundy, with him, Marianne C. Smith, Dougherty, Mundy & Leventhal, for respondents.
OPINION BY JUDGE PALLADINO, May 22, 1986:
This is an appeal by Edward Penczkowski (Claimant) from an order of the Workmen's Compensation Appeal Board (Board) affirming a referee's decision which denied a modification petition presented by Foster Wheeler Energy Corporation (Employer) but declined to award attorney's fees to Claimant pursuant to Section 440 of The Pennsylvania Workmen's Compensation Act (Section 440).[1] Claimant is appealing only the denial of attorney's fees. We affirm the Board's order.
*421 The facts as found by the referee are not in dispute. On February 28, 1975, Claimant sustained a work-related fracture of the upper tibia. Claimant was totally disabled as a result of the fracture and received workmen's compensation pursuant to a notice of compensation payable. On January 4, 1982, Employer filed a petition for modification alleging that Claimant's injury had resolved itself into a specific loss of use of the left leg or, in the alternative, that Claimant was capable of performing sedentary work which was available. After a hearing, at which both Claimant and Employer presented the deposition testimony of expert medical witnesses, the referee concluded that Employer had not met its burden of proving either that Claimant's injury had resolved itself into a specific loss or that Claimant was able to perform available sedentary work. The referee made no determination as to whether Employer's contest was reasonable and did not specifically award or deny attorney's fees.
Both parties appealed the referee's decision to the Board, which affirmed the referee's decision on the merits. The Board also stated that "the Referee made no finding on assessment of counsel fees and reasonableness of contest because no request of an award of attorney's fees was made in Claimant's Answer, or anywhere in the record. . . ." The Board concluded that the request for attorney's fees must be denied because the request was not properly raised below. We agree.
This Court has held that it is error for a referee to award attorney's fees against an employer pursuant to Section 440 without a request being presented by the claimant. Cooper-Jarrett, Inc. v. Workmen's Compensation Appeal Board, 61 Pa. Commonwealth Ct. 12, 432 A.2d 1128 (1981), citing C.P. Wright Construction Co. v. Workmen's Compensation Appeal Board, 46 Pa. Commonwealth Ct. 531, 406 A.2d 1202 (1979); Landis *422 v. Zimmerman Motors, Inc., 27 Pa. Commonwealth Ct. 99, 365 A.2d 190 (1976). Claimant asserts that attorney's fees were requested. In support of this assertion, Claimant points to the transcript of the hearing wherein he was asked by his attorney whether he had a fee agreement with his attorney and he responded that he had such an agreement which obligated him to pay twenty percent of any award received to his attorney. This testimony does not satisfy the requirement that an award of attorney's fees must be requested before the referee. This is particularly true in view of Section 442 of The Pennsylvania Workmen's Compensation Act,[2] which requires that all fees paid to a claimant's attorney be approved by the referee. Claimant's testimony is more appropriately addressed to seeking such approval than to securing an award of attorney's fees to be paid by Employer.
Furthermore, whether or not an employer's contest of liability is reasonable is a question of law subject to review by this Court. Cleaver v. Workmen's Compensation Appeal Board (Wiley/Continental Food Service), 72 Pa. Commonwealth Ct. 487, 456 A.2d 1162 (1983). A specific finding on the issue of whether the contest was reasonable is not required. Murray v. Workmen's Compensation Appeal Board, 45 Pa. Commonwealth Ct. 3, 404 A.2d 765 (1979); Poli v. Workmen's Compensation Appeal Board, 34 Pa. Commonwealth Ct. 630, 384 A.2d 596 (1978). A prevailing claimant is entitled to an award of attorney's fees pursuant to Section 440 unless the record supports a conclusion that the employer had a reasonable basis for contesting liability. Smith v. Workmen's Compensation Appeal Board (Westinghouse Electric Corp.), 90 Pa. Commonwealth Ct. 246, 494 A.2d 877 (1985). A reasonable contest is established *423 where the medical evidence is conflicting or subject to contrary inferences and where there is no evidence that the contest was frivolous or made for the purpose of harassment. Id.
Our thorough review of the record in the case at bar reveals that there is conflicting medical evidence with respect to the residual type and amount of disability suffered by Claimant. Because the medical evidence is conflicting and there is no evidence that the modification petition was frivolous or filed for purposes of harassment, Employer's contest was, as a matter of law, reasonable.
Accordingly, the order of the Board is affirmed.
ORDER
AND NOW, May 22, 1986, the order of the Workmen's Compensation Appeal Board, at A-86700, dated November 1, 1984, is affirmed.
NOTES
[1] Act of June 2, 1915, P.L. 736, added by Act of February 8, 1972, P.L. 25, as amended, 77 P.S. §996.
[2] 77 P.S. §998. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538280/ | 69 B.R. 352 (1987)
In the Matter of Debra Alice SCHUSTER, Debtor.
FAMILY FEDERAL CREDIT UNION, Plaintiff,
v.
Debra Alice SCHUSTER, Defendant.
Bankruptcy No. 2-85-01057, Adv. No. 2-86-0059.
United States Bankruptcy Court, D. Connecticut.
January 14, 1987.
Nicholas A. O'Kelly, Schatz & Schatz, Ribicoff & Kotkin, Hartford, Conn., for plaintiff.
John F. Delaney, Delaney & Delaney, Hartford, Conn., for debtor-defendant.
MEMORANDUM OF DECISION
ROBERT L. KRECHEVSKY, Chief Judge.
At issue in this litigation is the dischargeability of a debt owed Family Federal Credit Union (credit union) by the debtor, Debra Alice Schuster. An evidentiary hearing held on November 13, 1986, established the following factual background.
I.
The debtor, on August 24, 1983, applied to the credit union (apparently then named St. Francis Hospital Hartford Federal Credit Union) for a loan. As requested by *353 the credit union, she filled out and submitted a document entitled "Personal and Credit Information" (credit application). On September 6, 1983, the debtor executed an "Open End Credit Loan Agreement and Truth-In Lending [sic] Disclosure" (credit agreement) which the parties agree entitled the debtor to borrow periodically from the credit union sums not to exceed $5,000.00 outstanding after the most recent advance. The credit agreement, in paragraph 2, provides that "[e]ach request for an advance will require our approval. We may refuse any requested advance for any reason. For example, we may refuse to advance because of changes in the economy or changes in your or our financial condition."
The credit union made two immediate advances to the debtor on September 6, 1983, one for $3,273.89 to pay off an existing forty-eight-month term loan with the credit union made three months earlier, and a second advance for $1,000.00 to pay bills. The debtor took subsequent advances of $400.00 on October 3, 1983, for car repairs; $300.00 on October 27, 1983, for car repairs; $194.00 on November 11, 1983, to purchase a computer; and $350.00 on July 10, 1984, for car repairs. During this ten-month period, the credit union did not request any financial information from the debtor at the time of each advance. The debtor filed a chapter 7 petition on December 5, 1985, listing $15,783.46 in liabilities and $1,150.00 in assets (household goods, apparel, and a 1973 automobile), all claimed exempt.
The credit union's complaint alleges that its loan balance of $4,992.31 is nondischargeable because the debtor obtained the loan by use of a materially false financial statement, issued with intent to deceive, on which the credit union reasonably relied. See 11 U.S.C. § 523(a)(2)(B). The credit union claims to have established the debtor's fraud by comparing the debt information listed by the debtor on the credit application with the liabilities shown on her bankruptcy petition. There are four such debts appearing in the bankruptcy schedules, but not on the credit application. Three of those debts are credit card accounts, and the fourth is a debt due Mechanics Savings Bank for $1,235.84, representing a student loan. The debtor testified that no monies were due on the credit card accounts on the date of the credit application, but acknowledged that the student loan was then in existence. She stated that she was a part-time student at the time, no payments were required on the loan, and she did not understand that she had to list the student loan as an obligation. Frank Levanti, the loan officer who handled the debtor's credit application, testified that he relied solely upon the application in approving the credit line of $5,000.00, and that no independent credit check was made either of the debts or of the assets which the debtor listed on the credit application. The debtor filled out the credit application on her own; no person from the credit union discussed the contents with her; no questions were asked of her; and she did not read the "black box", hereinafter described.
II.
A.
At the outset, it should be noted that based upon the record in this proceeding, any recovery by the credit union would be limited to the "fresh cash" advanced upon the approval of the debtor's $5,000.00 credit line, that is, the sum in excess of the $3,273.89 received by the credit union to pay off its pre-existing debt. There has been no attempt to show that the prior loan was fraudulently obtained or that the purpose of the latter loan was to extend, renew, or refinance credit. See Household Fin. Corp. v. Danns (In re Danns), 558 F.2d 114, 116 (2d Cir.1977) ("[O]nly that portion of the credit obtained as a result of a fraudulent statement should be barred from discharge."). Section 523(a)(2)(B) "codifies the reasoning expressed by the Second *354 Circuit in In re Danns, 558 F.2d 114 (2d Cir.1977)." 124 Cong. Rec. H 11,095-96 (9/28/78); S 17,412-13 (10/6/78).
B.
The credit application utilized by the credit union for the debtor's loan is a printed form with average-size black print on white paper. It apparently was supplied to the credit union by a national organization. Questions of a general, personal nature take up about two-thirds of the page. Toward the bottom of the page are six horizontal lines divided vertically into eight segments under the headings: Name, Address, Original Amount Borrowed or Charged, Date, Purpose, Monthly Payment, Balance Owed, Are You Current? Above these lines, the page has been blackened and extremely small, white type is used (black box). The wording is exceedingly difficult to decipher. In fact, the credit union at the trial initially introduced into evidence, as its Exhibit No. 3, a photocopy of the credit application. When it became apparent that it was impossible for the court or counsel to read the language in the black box, the credit union introduced the original credit application as its Exhibit No. 4. The wording, culled from the black box, is as follows:
Credit references and outstanding obligations, including amounts charged on credit cards. Complete all spaces. First list all present obligations and then paid accounts as references. Attach additional listing, if necessary. Include all accounts which you and a spouse are permitted to use or for which you and a spouse have signed an agreement to repay.
The credit union, in its post-trial memorandum, concedes it presented no evidence to contradict the debtor's testimony that there was nothing due on the credit card accounts at the time she filled out the credit application. The credit union focuses upon the portion of the black-box wording which states that the debtor shall "list . . . paid accounts as references" and shall "[i]nclude all accounts which you and a spouse are permitted to use". It argues that the lack of anything due on the debtor's credit card accounts "does not excuse the Debtor from reporting the existence of such accounts. This is especially the case where although there may be no charges due and owing on certain credit cards, there is nevertheless a potential for significant charges (as was the case here) which could and in fact did impair the Debtor's ability to repay its loan to the Plaintiff." Credit union memorandum at 4.
The credit union's argument is founded on a discredited function of a credit application. The debtor completed a credit application without instruction and filled out the lines which, to her thinking, called for listing only existing debts on which periodic payments were currently to be made. She cannot be held accountable for failing to decipher the language in the black box requiring her to list charge accounts on which nothing was then due, for use as "references." The credit union would have the court find the debtor liable for actual fraud because she did not follow unclear instructions printed in unreasonably small type. The size of the print, the use of the black background, the location of the black box, the language ambiguously mixing debts and credit references for listing all suggest a motive in the minds of those responsible for the drafting of this form, a motive which Congress has condemned.
In 1970 Congress formed a Commission on the Bankruptcy Laws of the United States to recommend changes in the substance and administration of the bankruptcy law. See Klee, Legislative History of the New Bankruptcy Code, 54 Am.Bankr. L.J. 275, 277 (1980). The Report of the Commission on the Bankruptcy Laws of the United States, H.R. Doc. No. 93-137, 93d Cong., 1st Sess. (1973) (the Report), formed the basis for the Bankruptcy Code enacted in 1978. Evidence of creditor-induced false financial statements led the *355 Commission to recommend the elimination of the nondischargeability of a consumer debt obtained by the use of a false financial statement. The Report stated:
Substantial evidence of the abuse of this exception by creditors has come to the attention of the Commission. The exception has also generated a substantial amount of litigation and partially frustrated the "fresh start" goal of the discharge. On balance, the abuses and the harmful effects far outweigh the benefit to creditors by this exception. No evidence has come to the Commission's attention that indicates the exception has any prophylactic effect.
Report, Pt. I at 176.
Congress chose not to eliminate the exception from the Bankruptcy Code, but it recognized the problem and the House Judiciary Committee proposed attorney fee provisions as a compromise "to balance the scales more fairly in this area . . . The present pressure on the honest debtor to settle in order to avoid attorney's fees in litigation on a creditor-induced false statement is eliminated. The creditor is protected from dishonest debtors by the continuance of the exception to discharge." H.R. Rep. No. 595, 95th Cong., 1st Sess. 131, reprinted in 1978 U.S. Code Cong. & Ad. News 5787, 5963, 6092. The final draft of the Bankruptcy Code contained a provision for the payment of attorney fees to a prevailing debtor.[1]See Beneficial Fin. Co. of Conn. v. Majewski (In re Majewski), 7 B.R. 904 (Bankr.D.Conn.1981). I find that the form of financial statement on which this proceeding is based tends to induce debtor noncompliance.
A party who objects to the dischargeability of a debt has the burden of proving all of the facts essential to sustain the objection by clear and convincing evidence. Barwick v. Brewer (In re Brewer), 66 B.R. 214, 217 (Bankr.S.D.N.Y.1986). A finding of intent to deceive is unwarranted when an omission on a credit application can reasonably be laid to a defect in the format of the credit application combined with a lack of instruction by a lender to a loan applicant. See Martha's Vineyard Coop. Bank v. Andrews (In re Andrews), 33 B.R. 970, 973 (Bankr.D.Mass.1983); Waterbury Community Fed. Credit Union v. Magnusson (In re Magnusson), 14 B.R. 662, 670 (Bankr.N.D.N.Y.1981). The credit union has failed to establish that the debtor submitted the credit application with intent to deceive the credit union.
C.
In view of the conclusion in subsection B, it is not necessary to address the further question of whether the credit union could have relied reasonably upon the credit application when an advance of some of the monies occurred ten months after the submission of the credit application. See First Bank v. Nacol (In re Nacol), 27 B.R. 116, amended 30 B.R. 193 (Bankr.M.D.Fla. 1983).
III.
Judgment may enter that the debt of Debra Alice Schuster to the Family Federal Credit Union be discharged.
This Memorandum shall constitute Findings of Fact and Conclusions of Law mandated by Bankruptcy 7052. It is
SO ORDERED.
NOTES
[1] This provision, as modified in 1984, is § 523(d). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538287/ | 69 B.R. 717 (1987)
In re COHOES INDUSTRIAL TERMINAL, INC., Debtor.
Bankruptcy No. 86 B 20201.
United States Bankruptcy Court, S.D. New York.
February 6, 1987.
*718 Leon C. Baker, White Plains, N.Y., for debtor.
Zubres, D'Agostino & Hoblock, P.C., Albany, N.Y. (David M. Siegal and Pamela A. McMahon, of counsel), for Latham Sparrowbush Associates.
Kissam & Halpin, New York City (John F. Scheffel, of counsel), for trustee.
DECISION ON OBJECTION TO CLAIM OF LATHAM SPARROWBUSH ASSOCIATES
HOWARD SCHWARTZBERG, Bankruptcy Judge.
The Chapter 11 trustee of Cohoes Industrial Terminal, Inc., the debtor in this case, invokes Bankruptcy Rule 3007 and objects to the claim of Latham Sparrowbush Associates ("LSA"), the debtor's former lessor. LSA has filed a claim against the debtor in the total sum of $2,504,255.70, arising out of a written lease between LSA and the debtor with respect to an apartment complex known as Sparrowbush Apartments, located in Albany County, New York (the "lease").
LSA, as owner of the fee of Sparrowbush Apartments, has recovered the leasehold pursuant to an option in the lease which gave LSA the right to reacquire the leasehold in exchange for a $350,000 payment to the debtor. LSA's motion for relief from the automatic stay pursuant to 11 U.S.C. § 362(d) to regain possession of the apartment complex was granted by this court. In re Cohoes Industrial Terminal, Inc., 62 B.R. 369 (Bankr.S.D.N.Y.), aff'd, 70 B.R. 214 (S.D.N.Y.1986), (Brieant, C.J.).
STATE COURT LITIGATION
LSA's state court complaint was titled as an action for specific performance. It sought a declaratory judgment that the termination clause in the lease was valid and enforceable and an order directing the debtor to deliver possession of the premises to LSA in exchange for LSA's tender of the $350,000 termination payment required under the lease. The debtor had disputed the validity of the termination clause on the ground that it violated the rule against perpetuities.
On April 15, 1985, an order and default judgment was signed by Justice Lawrence E. Kahn of the New York Supreme Court, which:
*719 (1) held that Article 32 of the Lease (the termination clause) was valid and enforceable;
(2) directed the debtor to deliver possession of the premises to LSA: and
(3) ordered that upon delivery of possession, LSA should tender to the debtor a certified check for $350,000.
The debtor moved to vacate the default judgment on the ground that it had not received a copy of the summons and complaint from the New York Secretary of State because the debtor had failed to designate a replacement for the original agent for service of process, who had died some years before. Mr. Justice Kahn denied the debtor's motion to vacate LSA's default judgment. The Appellate Division affirmed Justice Kahn's denial of the debtor's motion to vacate the default judgment and thereafter denied the debtor permission to appeal to the New York Court of Appeals. The New York Court of Appeals subsequently denied the debtor's appeal from the Appellate Division's order denying it leave to appeal. The debtor's motion in the New York Court of Appeals for reargument was also denied.
LSA's PROOF OF CLAIM
In paragraphs 3(a) and 4(a) of its proof of claim, LSA seeks $162,390.70, together with accrued interest to the date of the petition for additional contingent rent and additional bonus rent pursuant to an amended lease dated August 27, 1975, for the period from September 1, 1975 through February 25, 1985.
Paragraphs 3(b) and 4(b) of LSA's proof of claim demand $1,300,000, together with accrued interest, on the ground that the lease agreement required the debtor at its sole cost and expense to take good care of the leased premises. LSA contends that the debtor breached this duty and also committed waste.
Paragraphs 3(c) and 4(c) seek $1,040,000 for the debtor's use and occupancy of the leased premises for periods commencing after February 25, 1985, the effective date of LSA's termination of the lease.
LSA seeks $1,750 in paragraphs 3(d) and 4(d) of its proof of claim for filing fees which it paid to the American Arbitration Association with regard to a portion of its contingent rent claim.
In paragraphs 3(e) and 4(e) of its proof of claim, LSA demands the $115, together with accrued interest, pursuant to the judgment which was entered by the New York Supreme Court on April 18, 1985 in favor of LSA and against the debtor.
THE DEBTOR'S FIRST OBJECTION
The debtor's first objection to LSA's proof of claim is that all of the claims arising out of the lease were merged into the default judgment which LSA obtained against the debtor for specific performance of the option in the lease to reacquire or terminate the leasehold. The debtor argues that LSA may not split a cause of action and, therefore, all claims arising out of breaches of the lease which had accrued at the time LSA commenced its state court action on February 13, 1985, should have been sued on in that action. Therefore, the debtor maintains that any accrued claim which LSA did not assert in that action is now barred by the default judgment in favor of LSA which was entered in the New York Supreme Court on April 18, 1985. This position is bottomed on various theories, such as merger by judgment, prohibition against splitting a cause of action and the rule of discharge by adjudication.
THE DEBTOR'S SECOND OBJECTION THE KAMIKAZE DEFENSE
The debtor's second objection is that it cannot be liable to LSA because the debtor was allegedly a nominee and the agent of a disclosed principal, namely, Gloria Baker, and that an agent may not be personally liable for acts performed within the agent's apparent scope of authority. This objection is based upon a contention that the debtor held bare legal title to the Sparrowbush leasehold as a nominee and agent for Gloria Baker, who was really the beneficial owner of the leasehold pursuant to an unrecorded verbal transaction between Gloria *720 Baker and the debtor. This objection is in reality a suicide defense which would extinguish the debtor's interest in the right to receive the $350,000 termination payment which LSA delivered pursuant to the terms of Article 32 of the lease. Before the Chapter 11 trustee was appointed, and at a time when Leon Baker, Gloria Baker's husband, acted as president of the debtor and attorney for the debtor, this court had denied the debtor's motion for leave to transfer the debtor's interest in the leasehold to Gloria Baker, who claimed to be the beneficial owner of the leasehold. This court ruled that since the lease was terminated, the debtor had nothing to transfer. Moreover, this court ruled that it would not permit a transfer without notice to all creditors because a debtor in possession could be compelled to assert the strong-arm powers made available under 11 U.S.C. § 544(a)(3).
The debtor argued that the asserted nominee relationship between Gloria Baker and the debtor could not be avoided under 11 U.S.C. § 544(a)(3) because the debtor did not transfer any property to Gloria Baker; she allegedly caused the title to the leasehold to be taken in the debtor's name as her nominee. This mistaken view of § 544(a)(3) overlooks the fact that this section applies not only to transfers made by the debtor, but also to "any obligation incurred by the debtor that is voidable" by a trustee acting as a hypothetical bona fide purchaser of real property. (Emphasis added). A debtor in possession or a trustee in bankruptcy could exercise the avoiding powers of a hypothetical bona fide purchaser of real estate to set aside the verbal nominee relationship, despite the debtor's alleged equitable duty to recognize the beneficial title claimed by Gloria Baker. The debtor's unrecorded agreement or obligation to Gloria Baker could be viewed as an "obligation incurred by the debtor that is voidable" within the meaning of 11 U.S.C. § 544(a). See Abney v. Cox Enterprises (In re Fulton Air Service, Inc.), 777 F.2d 1521 (11th Cir.1985) (unrecorded state tax liens were obligations which a trustee in bankruptcy, as a hypothetical bona fide purchaser, may avoid); U.S. v. Gleneagles Investment Co., Inc., 565 F.Supp. 556, 576 (D.M.D.Pa.1983) ("the guarantees are clearly `obligations incurred' under the Act. . . . ").
As stated by Chief Judge Charles L. Brieant in his affirmance:
The primary purpose of § 544 to protect a bankrupt's creditors against secret liens would be ill-served by honoring an unrecorded title claim of an insider of the Debtor. Creditors reasonably could have relied on the Debtor's title to the property in extending credit. The Debtor in possession, as trustee in bankruptcy, was under a duty to avoid the unrecorded nominee relationship or equitable interest and claim the $350,000.00. If it failed to do so, a creditor's committee or trustee, with court approval, would have been entitled to pursue this asset.
In re Cohoes Industrial Terminal, 70 B.R. at 223.
The Chapter 11 trustee retained Leon Baker, Gloria Baker's husband, as special counsel to object to LSA's claims upon his assertion that, for this purpose, Leon Baker held no interest adverse to the estate within the meaning of 11 U.S.C. § 327(e). Obviously, if Leon Baker succeeds in establishing that LSA has no claim against the debtor because the debtor is only a nominee for his wife, Gloria Baker, who was the beneficial owner of the leasehold, and, therefore, entitled to receive the $350,000 termination payment, this debtor and its other creditors will be affected adversely.
Accordingly, Leon Baker is disqualified from asserting this objection as special counsel for the Chapter 11 trustee. This second objection will be dismissed without prejudice to the Chapter 11 trustee's rights to reconsider whether or not he knowingly wishes to assert this type of kamikaze objection which may wipe out the estate's claim to LSA's $350,000 lease termination payment. Therefore, the court will only consider at this juncture the objection bottomed on the merger by judgment theory *721 which Leon Baker, as special counsel, advanced on behalf of the debtor.
MERGER BY JUDGMENT OR CLAIM PRECLUSION
Pursuant to Article 32 of the lease, LSA had the right to terminate the lease with the debtor in exchange for the payment of $350,000 to the debtor as consideration for such termination. LSA gave notice to the debtor of its intention to terminate the lease effective February 25, 1985 and also tendered a check for $350,000. The debtor then took the position that LSA could not terminate the lease because Article 32 violated the rule against perpetuities. This position was asserted by Gloria Baker, the wife of Leon Baker, the debtor's president, in an action which she commenced in the New York State Supreme Court on February 8, 1985. This action was dismissed because the state court ruled that Gloria Baker had no standing to sue in view of the fact that the lessee under the lease was the debtor and not Gloria Baker. LSA, in turn, commenced its action against the debtor in the New York Supreme Court on February 13, 1985, seeking a declaratory judgment that the termination clause in Article 32 of the lease was valid and enforceable and for an order directing the debtor to deliver to it possession of the premises. On April 18, 1985, LSA obtained this relief pursuant to an order and subsequent judgment which was entered by default in the New York Supreme Court. It is this judgment which the debtor now contends precludes LSA from claiming (1) contingent rent through February 25, 1985; (2) damages caused by the debtor's waste or failure to maintain the leased premises through February 25, 1985, and (3) compensation for the debtor's use and occupancy of the leased premises after LSA's termination of the lease, effective February 25, 1985.
The concept of merger by judgment or claim preclusion, is bottomed on the theory that there should not be more than a single suit for a single cause of action so as to prevent harassment and wasteful dissipation of judicial energies. This doctrine is actually the application of the principle of res judicata. See 5 New York Civil Practice, Weinstein, Korn & Miller, ¶ 5011.15. The rule was stated in Alyeska Pipeline Service Company v. U.S., 231 Ct.Cl. 540, 688 F.2d 765, 769 (1982), cert. den. 461 U.S. 943, 103 S.Ct. 2120, 77 L.Ed.2d 1301 (1983) as follows:
In general, a final judgment on the merits of a claim (i.e., cause of action) precludes the same plaintiff from bringing against the same defendant a subsequent action on the same claim, or any part of the claim that was or reasonably could have been, brought in the initial action. Container Transportation International, Inc. v. United States, 199 Ct.Cl. 713, 717, 468 F.2d 926, 928 (1972) (and cases cited there); see also RESTATEMENT (SECOND) OF JUDGMENTS §§ 18, 19 (1980) [hereinafter cited as RESTATEMENT]. Simply, a plaintiff may not split his claim or cause of action between different suits. Everett Plywood Corp. v. United States, 206 Ct.Cl. 244, 252, 512 F.2d 1082, 1087 (1975).
The definition of what constitutes the same cause of action invokes a pragmatic standard to be applied to a common nucleus of operative facts which may cause a number of harms or invade a number of interests and may give rise to several theories for relief, although there is but one transaction. This point is expressed in RESTATEMENT (SECOND) OF JUDGMENTS § 24 (1980) as follows:
§ 24. Dimensions of "Claim" for Purposes of Merger or Bar General Rule Concerning "Splitting"
(1) When a valid and final judgment rendered in an action extinguishes the plaintiff's claim pursuant to the rules of merger or bar (see §§ 18, 19), the claim extinguished includes all rights of the plaintiff to remedies against the defendant with respect to all or any part of the transaction, or series of connected transactions, out of which the action arose.
(2) What factual grouping constitutes a "transaction", and what groupings constitute *722 a "series", are to be determined pragmatically, giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage.
See also 18 C. Wright, A. Miller & E. Cooper, Federal Practice And Procedure § 4407 (1981).
In the instant case, the transaction which gave rise to LSA's state court cause of action consisted of LSA's notice of termination of the debtor's lease and the debtor's rejoinder that the termination was ineffective because the termination clause in Article 32 of the lease was invalid in that it violated the rule against perpetuities. The New York Supreme Court default judgment in LSA's favor established that the lease was effectively terminated by LSA as of February 25, 1985 and that LSA was thereafter entitled to possession of the premises.
LSA's claims for contingent rent and waste through February 25, 1985, or its claim for the debtor's alleged improper use and occupancy of the premises after February 25, 1985, were all separate causes of action which were not implicated in LSA's suit for a declaratory judgment that the lease was terminated effective February 25, 1985. In seeking to sustain its right to terminate the lease LSA was not obliged to allege also its pre-termination claims for additional rent and waste or its post-termination claim for use and occupancy at the peril of thereafter being precluded from asserting these claims. There was no splitting of a cause of action because these claims are separate and independent of LSA's rights under the termination clause in Article 32 of the lease. They were not outcome-determinative in LSA's state court action to sustain its termination of the lease nor were the facts concerning these claims related in any way to the transaction out of which the state court action arose. Therefore, the debtor may not now object to these claims, as set forth in LSA's proof of claim, on the alleged theory that they were merged into LSA's judgment and are barred by that judgment.
CONCLUSIONS OF LAW
1. This court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(B).
2. The debtor's first objection, that all of LSA's claims arising out of the lease were merged into the default judgment which upheld LSA's termination of the lease, is dismissed. LSA's claims for pre-termination contingent rent and waste and its post-termination claim for use and occupancy are not barred by the state court judgment which sustained LSA's termination of the lease in question, nor do these claims reflect a splitting of the cause of action which was the subject of the state court judgment.
3. Leon Baker, as special counsel for the Chapter 11 trustee, is disqualified from asserting the debtor's second objection that it is not liable to LSA because the debtor was merely the agent for Gloria Baker and held title to the leasehold as her nominee. The debtor's objection on this ground is dismissed, without prejudice to the Chapter 11 trustee's right to reassert this objection later if he really believes that it would be in the best interest of the estate to do so, unencumbered by Leon Baker's patent conflict of interest as to this issue.
SETTLE ORDER on notice in accordance with the foregoing rulings. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538290/ | 69 B.R. 663 (1987)
In re ROBINTECH, INC., Debtor.
No. 483-00558-11.
United States Bankruptcy Court, N.D. Texas, Ft. Worth Division.
February 3, 1987.
*664 Maureen Bucek, Asst. Atty. Gen., Atty. Gen. of Texas, Austin, Tex.
Jo Ann Biggs, Moore & Peterson, Dallas, Tex. for trustee.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
HAROLD C. ABRAMSON, Bankruptcy Judge.
On January 24, 1984, the United States Bankruptcy Court for the Northern District of Texas, Ft. Worth Division, entered an order establishing February 14, 1984 as the bar date in which proofs of claim must have been filed in this case. Notice of that order was sent to the Comptroller of Public Accounts of the State of Texas ("the Comptroller"), on January 25, 1984. The notice was addressed, however, to
State Treasurer Bob Bullock
Comptroller of Public Accounts
Capitol Station
Austin, Texas 78774.
The correct address was
State Comptroller
P.O. Box 13528
Capital Station
Austin, Texas 78711.
The Comptroller received the notice, via other state offices, on January 31, 1984. The Comptroller did not file its proof of *665 claim until February 16, 1984, two days after the bar date. The Trustee filed its objection to the claim and a motion for summary judgment on the ground that the claim was filed after the bar date.
Bankruptcy Rule 9006(e) states that "[s]ervice of process and service of any paper other than process or of notice by mail is complete on mailing." Thus once an item is placed in the mail, notice is considered complete. When mail is properly addressed, stamped and deposited, there is a rebuttable presumption that it was received by the party to whom it was sent. Proper mailing, however, must be proved before the presumption is activated. In re American Properties, Inc., 30 B.R. 239, 243-44 (Bankr.D.Kan.1983). If the proper and correct address was not used the presumption cannot be activated. Id. at 244. Standards of correctness vary with the nature of the entity, private or public, and a less definite and more general address may be sufficient for a well known public entity. Id. Where an address is only slightly incorrect, as it was held to be in the American Properties case, the presumption is weakened, but still raised. Denial of receipt does not, as a matter of law, rebut the presumption, but rather creates a question of fact. Id.
The question of improper mailing in the case at bar is mentioned by the court in order to exemplify the importance of a proper address used by a Debtor or Trustee, in order to safeguard the rights of parties receiving such notice; also the purpose of this discussion is to exemplify the importance of a party receiving the notice to seek an extension of time in order to preserve its rights.
In a Chapter 11 case, the court has the power to set the time for filing of proofs of claim. Bankruptcy Rule 3003(c)(3). Under Rule 2002(a)(8), notice of a bar date may be given not less than twenty days prior to the time set.
In the instant case, the order setting bar date was signed and notice of bar date mailed on January 25, 1984, exactly twenty days before the bar date of February 14, 1984. In the normal course of mail, the Comptroller should have received notice by at least January 27 or 28, giving the Comptroller 17 or 18 days to respond. This time was shortened by the fact that claims are not considered filed until actually received by the clerk and filed. Thus, the Comptroller would had to have mailed it before the actual bar date in order to ensure receipt and filing by February 14, 1984. Again, the time to file was further shortened by the debtor's failure to correctly address the notice. Due to this error, the Comptroller did not receive the notice until January 31, 1984. All factors considered, if the Comptroller had been able to use Express Mail for overnight delivery on the 13th, the Comptroller had a maximum of thirteen to fourteen days to file its claim, without an extension or the application of Rule 9006(f), discussed infra.
In In re American Properties, 30 B.R. 239 (Bankr.D.Kan.1983), similar facts occurred with similar consequences. See also related cases. In re American Properties (Board of County Commissioners of Johnson County, Kansas v. Coleman American Properties, Inc.), 30 B.R. 235 (Bankr.D.Kan.1983), and Board of County Commissioners of Sedgwick County, Kansas v. Coleman American Properties, 30 B.R. 247 (Bankr.D.Kan.1983). The court in that case had ordered a bar date of September 9, 1980 on August 22, 1980, a time limit of eighteen days. The misaddressed notice was held to have reached the county tax creditor eventually, even though it denied receipt. However, the court held that fifteen days was too short a time period for allowing claims to be filed, and thus the notice was constitutionally insufficient to forever bar the county's claim. Id. at 245.
In the instant case, due to the debtor's negligence in misaddressing the notice, the Comptroller had less than fourteen days in which to file its claim. A creditor has the right to assume that proper, adequate and constitutional notice will be provided before its claim is forever barred. American Properties, 30 B.R. at 245 citing New York v. New York, N.H. & Hartford *666 R.R., 344 U.S. 293, 297, 73 S.Ct. 299, 301, 97 L.Ed. 333 (1953); In re Intaco Puerto Rico, Inc., 494 F.2d 94, 99 (1st Cir.1974). The Comptroller here was not afforded this protection.
Rule 9006(f) provides that if notice is sent by mail to do some act or undertake some proceedings within a prescribed period, then three days shall be added to the prescribed period to allow for mailing. The Trustee argues that the additional three days to allow for mailing granted by Bankruptcy Rule 9006(f) is inapplicable here because creditors were given a deadline on or before which they were to file claims rather than a requisite number of days within which to file a claim.[1] The court does not recognize this distinction, and holds that 9006(f) applies in the instant case to afford the Comptroller an additional three days beyond the bar date to file its proof of claim. Since the Comptroller filed its claim on February 16, within the three days added by 9006(f), its claim was timely filed and should be allowed.
The Trustee also argues that allowing a claim to be filed after the bar date would be inequitable and prejudicial to the debtor and other creditors who complied with and acted in reliance on the bar date, by dissipating the pool of funds available for distribution. The equities in this case are difficult to balance. On the one hand, the Debtor's negligent actions impaired the Comptroller's ability to file a timely claim. On the other hand, although the Comptroller had insufficient time to file its claim before the bar date, it also took no action to seek an extension of such time. Rule 3003(c)(3) allows the court to extend the time for filing for good cause shown, which, in this case, could have been found in the incorrect address and delayed notice. Although the allowance of this claim will further dissipate the funds available to other creditors, the Comptroller's claim was timely filed and thus it is not inequitable to allow it.
The Trustee's motion is accordingly denied, and the Comptroller's claim hereby allowed, and the Attorney General of Texas is directed to prepare an appropriate order.
NOTES
[1] The case of In re Whitten, 49 B.R. 220 (Bankr. N.D.Ala.1985), cited by the Trustee in support of this proposition, is improper precedent for the Chapter 11 case at bar. Whitten is a Chapter 13 case and specifically makes applicable Rule 9006(f) to Chapter 9 and Chapter 11 cases. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538294/ | 69 B.R. 949 (1987)
In re Roy F. SKLARIN, a/k/a and d/b/a Sklarin Interiors, Debtor.
DULBINA OF AMERICA, LTD., Plaintiff,
v.
Roy F. SKLARIN, a/k/a and d/b/a Sklarin Interiors, Defendant.
Bankruptcy No. 86-01888-BKC-SMW, Adv. No. 86-0672-BKC-SMW-A.
United States Bankruptcy Court, S.D. Florida.
February 13, 1987.
*950 *951 Rodolfo Pittaluga, Jr., Holland & Knight, Miami, Fla., for plaintiff.
Raymond B. Ray, Fort Lauderdale, Fla., for defendant.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
SIDNEY M. WEAVER, Bankruptcy Judge.
THIS CAUSE coming on to be heard upon an Adversary Proceeding pursuant to Part VII of the Bankruptcy Rules and 11 U.S.C. § 727, objecting to the Discharge of the Debtor, Roy F. Sklarin, d/b/a Sklarin Interiors, and the Court, having heard the testimony and examined the evidence presented, observed the candor and demeanor of the witnesses, considered the arguments of counsel, and being otherwise fully advised in the premises, does hereby make the following findings of fact and conclusions of law:
This Court has jurisdiction of the parties and of the subject matter of this action by virtue of 28 U.S.C. § 157 and § 1334.
Since 1975, Roy F. Sklarin has been continuously doing business under the name of Sklarin Interiors (the "Debtor").
In April of 1984, the Debtor caused Star Designs, Inc. ("SDI") to be incorporated under the laws of the state of Delaware for the purposes of purchasing, remodeling, and selling of a yacht called the "Double Z," subsequently renamed as the "10" (the "10"). On June 25, 1984, SDI purchased the "10" from the Plaintiff, Dulbina of America, Ltd. ("Dulbina"), for $775,000.00. In order to purchase the "10," SDI required financing by two parties: by First New England Financial Corporation ("FNEFC") and Dulbina which financed $550,000.00 and $380,000.00, respectively.
On June 25, 1984, SDI executed and delivered to Dulbina a promissory note in the principal amount of $380,000.00 (the "Note"). In addition, the Debtor executed and delivered to Dulbina an unconditional guaranty (the "Guaranty") whereby the Debtor irreparably and unconditionally guaranteed the full and prompt payment of the Note. To secure the payment and performance required under the Note and Guaranty, the Debtor executed and delivered to Dulbina a mortgage dated June 25, 1984 (the "Mortgage") granting to Dulbina a second mortgage on a condominium owned by the Debtor (the "Condominium"). The Note provided for the acceleration of all principal and interest due under the Note in the event that title in the "10" or in the Condominium was sold, transferred, encumbered, or liened prior to the due date of the Note; to wit, June 24, 1986.
In April of 1985, SDI sold the "10" for $930,000.00. SDI applied a portion of the $930,000.00 proceeds to pay the balance of the first mortgage on the "10," the commissions due as a result of said sale, and other costs associated with the closing. After paying the above bills, the Debtor caused SDI to be dissolved, caused Star Design & Yacht Sales, Inc. ("SDYS") to be incorporated under the laws of the state of Florida for the purposes of purchasing, remodeling, and selling yachts, and on April 26, 1985, had the balance of the proceeds from the sale of the vessel "10," approximately $323,041.68, to be transferred into the account of SDYS.
Between the time of the initial $323,041.68 deposit (April 26, 1985) and the next deposit (May 21, 1985), a small amount of money was documented as having been spent by SDYS to pay those expenses incurred by SDI in connection with the remodeling *952 and sale of the "10." The majority of the balance went to the Debtor, was applied towards the purchase and remodeling of the first vessel purchased by SDYS, the "Fame," or was unallocable.
On or about April 29, 1985, SDYS made an offer to purchase the vessel "Fame" for $1,045,000.00, and at that time a deposit of $40,000.00 was given to the seller $20,000.00 by the Debtor and $20,000.00 by SDYS (SDYS's deposit coming from the initial April 26, 1985 deposit). In June of 1985, SDYS consummated the purchase of the vessel "Fame." FNEFC again financed a portion of the purchase price ($825,000.00), with the balance of the purchase price, approximately $160,000.00, being paid by the Debtor and his father, Herman Sklarin.
In September of 1985, SDYS purchased another vessel, the "Night Crossing," for $3,250,000.00. The "Fame" and "Night Crossing" were eventually repossessed by creditors which held validly perfected security interests against each of the vessels.
Dulbina eventually brought suit against SDI and the Debtor on the Note, Guaranty, and Mortgage, and on May 13, 1986, and May 23, 1986, two judgments in the total amount of $490,863.51 were entered in favor of Dulbina.
On June 26, 1986, the Debtor filed with the Bankruptcy Court his voluntary petition for relief under Chapter 7, his Statement of Assets and Liabilities, and his Statement of Financial Affairs. Dulbina timely filed with the Court its Complaint Objecting to the Debtor's Discharge under 11 U.S.C. § 727(a). Specifically, Dulbina objects to the Debtor's discharge on the grounds that: (i) the Debtor has failed to adequately explain the loss or deficiency of assets as required under 11 U.S.C. § 727(a)(5); (ii) the Debtor knowingly and fraudulently made false oaths in this case, as prohibited under 11 U.S.C. § 727(a)(4)(A), when (a) he certified, under penalty of perjury that his Statement of Financial Affairs was true and correct when at the time the he executed same, he well knew that said Statement omitted that within the past six years immediately preceding the filing of the Chapter 7 petition, he had conducted business under, and had been a shareholder and officer in SDI and SDYS, and (b) he certified, under penalty of perjury, that his Statement of Assets and Liabilities was true and correct when at the time the Debtor executed same, he well knew that said Statement omitted the assets and property of his alter egos, SDI and SDYS, as property of the Debtor in the Chapter 7 proceedings; and (iii) on or within one year prior to the filing of the Chapter 7 petition, the Debtor, with the intent to hinder, delay, or defraud his creditors removed, transferred, and/or concealed cash and other property of the Debtor by transferring cash and/or property to other entities, including, but not limited to, his father, Herman Sklarin, SDYS, and SDI for no or inadequate consideration.
A. Failure to Explain Loss of Assets
11 U.S.C. § 727(a)(5) provides that a Court shall deny granting a discharge when a debtor fails to explain to the Court's satisfaction any loss or deficiency of assets to meet the debtor's liabilities. See In re Chalik, 748 F.2d 616 (11th Cir. 1984); see also In re Martin, 698 F.2d 883 (7th Cir.1983); Baum v. Earl Millikin, Inc., 359 F.2d 811 (7th Cir.1966); and McBee v. Sliman, 512 F.2d 504 (5th Cir. 1975). Thus, the plaintiff has the burden of identifying the assets in question and showing that the debtor at one time had said assets and that said assets are now not presently available for creditors. Rule 4005, Rules of Bankruptcy Procedure. Upon such a showing, a plaintiff has established a prima facie case and the burden then shifts to the debtor to explain to the Court's satisfaction the loss or deficiency of such assets. In re Frank, 14 B.R. 166 (Bankr.S.D.Fla.1981); and In re Chalik, 748 F.2d 616 (11th Cir.1984); see also, 4 Collier on Bankruptcy, Paragraph 727.08 (15th Ed.). "Vague and indefinite explanations of losses that are based upon estimates uncorroborated by documentation are unsatisfactory." In re Reed, 700 F.2d 986, 993 (5th Cir.1983).
*953 Based upon the testimony, this Court finds that the Debtor had inherited some property from his mother, that at one time the Debtor had said property, and that said property was not now presently available for creditors. The Debtor attempted to explain that the loss of this property was due to the fact that he had given his interest in his mother's estate to his father, Herman Sklarin. However, the Debtor was unable to corroborate said gift to his father by way of a written disclaimer of his interest in his mother's estate as required under FLA.STAT. § 732.801 or by way of his having paid a gift tax. In fact, the Debtor admitted at trial that neither he nor his father had paid a gift tax on said alleged gift. Such an uncorroborated unexplanation consisting of nothing more than generalities is insufficient, unsatisfactory, and fails to meet the standard required by law. The Court thus finds that the Debtor has failed to explain to this Court's satisfaction the loss of his interest in his mother's estate.
B. False Oaths
11 U.S.C. § 727(a)(4)(A) provides that a Court shall deny a discharge to a debtor when the debtor knowingly and fraudulently makes a false oath in connection with the bankruptcy proceedings. In its Complaint, Dulbina alleges that the Debtor has made two false oaths in connection with the bankruptcy proceedings, and that therefore, the Debtor should be denied a discharge pursuant to 11 U.S.C. § 727(a)(4)(A). This Court finds that the Debtor has in fact made two false oaths in connection with the bankruptcy proceedings.
1. Statement of Financial Affairs
The first false oath made by the Debtor concerns the sworn Statement of Financial Affairs executed by the Debtor on June 25, 1986, and filed with the Bankruptcy Court on June 26, 1986. Question 1d to the Statement of Financial Affairs required the Debtor to respond to the following question:
"1d. Where else, and under what other names, have you carried on business within the six years immediately preceding the filing of the original petition herein? (Give street addresses, the names of any partners, joint adventures, or other associates, the nature of the business, and the periods for which it was carried on.)"
The Debtor's response to the above question was "None."
The Debtor testified that from the time SDI was incorporated in April of 1984 to the time it was dissolved in April of 1985, he was the sole 100% shareholder of SDI's stock and that he alone had absolute control over SDI. The Debtor further testified that ever since SDYS was incorporated in April of 1985, the Debtor had been and remains the President of, a 5% shareholder in, and in control of SDYS. Thus, the record in this case supports Dulbina's allegation that the Debtor made a false oath in connection with this case, when, under penalty of perjury, the Debtor signed the sworn Statement of Financial Affairs which omitted the material fact that within the past six years immediately preceding the filing of the Chapter 7 petition, the Debtor had conducted business under and had been a shareholder and officer in SDI and SDYS. However, for Dulbina to prevail under 11 U.S.C. § 727(a)(4)(A), it must establish that said false oath was knowingly and fraudulently made by the Debtor.
Although it is rarely possible to find direct evidence of intent to knowingly and fraudulently make a false oath, an inference of such an intent can be drawn from circumstances surrounding and observations of the Debtor. See In re Hirsch, 14 B.R. 59 (Bankr.S.D.Fla.1981). The Debtor testified that sometime in April of 1986, he first met with his attorney to discuss his filing of a petition in bankruptcy. The Debtor further testified that he alone was the one who provided his attorney with the information to complete the Chapter 7 petition, the sworn Statement of Financial Affairs, and all other sworn Statements in support of his petition; that *954 if he was "uncertain" as to his interpretation of any question he could call his attorney; and that he reviewed said sworn Statement of Financial Affairs before it was filed with the Bankruptcy Court. Given the Debtor's involvement in the preparation of the sworn Statement of Financial Affairs, his apparent understanding of what inquiry was being made in Question 1d of said Statement, his apparent ability to contact his attorney to answer any question he may have had, and the high level of sophistication of this Debtor, this Court can only conclude from the testimony and its observations of the Debtor that the Debtor's failure to disclose his past interest in and relationship with SDI and SDYS was not unintentional, but rather was intentional, knowing, and fraudulent on the part of the Debtor.
2. Statement of Assets and Liabilities
The second false oath made by the Debtor concerns the sworn Statement of Assets and Liabilities. This Statement required the Debtor to have accurately scheduled all of his assets and liabilities. Dulbina alleges that the Debtor made a false oath when the Debtor, under penalty of perjury, certified his sworn Statement of Assets and Liabilities to be true and correct, when he then well knew that said sworn Statement omitted to include the assets of his alter egos, SDI and SDYS.
"It is well established that property of the Debtor in the possession, custody and control of its alter ego comprises property of the estate at the commencement of the case," and that bankruptcy courts have the power to disregard separate corporate entities so as to reach the assets of its nondebtor alter ego to satisfy debts of the Debtor. In re F & C Services, Inc., 44 B.R. 863, 868 (Bankr.S.D.Fla.1984); and see also, In re Crabtree, 39 B.R. 718, 11 BCD 1075 (Bankr.E.D.Tenn.1984) and cases cited therein. It is also a settled principle of law that
"`When one legal entity is but an instrumentality or alter ego of another, by which it is dominated, a court may look beyond form to substance and may disregard the theory of distinct legal entities in determining ownership of assets in a bankruptcy proceeding.' In re Eufaula Enterprises, Inc. 565 F.2d 1157, 1161 (10th Cir.1977). See also In re Continental Vending Machine, 517 F.2d 997, 1000 (2d Cir.1975); cert. denied, 424 U.S. 913, 96 S.Ct. 1111, 47 L.Ed.2d 317 (176)...."
In re Crabtree, 39 B.R. 718, 723 (Bankr.E. D.Tenn.1984).
In support of its contention, Dulbina argues that SDI and SDYS are the mere instrumentalities of the Debtor, and thus, that SDI and SDYS are the alter egos of the Debtor. The Debtor's testimony indicated that at all times he was an officer and shareholder in SDI and SDYS; that the Debtor had complete control over SDI and SDYS; that the Debtor, SDI, and SDYS shared the same bookkeeper, accountant, mailing address, and employees; that the Debtor had personally guaranteed the debts of SDI and SDYS; that the Debtor paid its own as well as SDYS's payroll; that the Debtor did design work for SDI and SDYS involving substantial sums of money without any contracts or agreements evidencing the duties and/or obligations of the Debtor, SDI, or SDYS; that the Debtor had complete control over the funds in the accounts of SDI and SDYS; that SDI and SDYS were "similar" corporations; that SDYS was the "continuation" of SDI; that the funds in the accounts of the Debtor, SDI, and SDYS were transferred in and out as the need arose without notes evidencing said indebtedness between these entities; and that the funds in the accounts of the Debtor would be used to pay the expenses of SDI and SDYS and vice versa.
Based on the evidence presented, this Court is convinced that SDI and SDYS are the instrumentalities of the Debtor, and thus, that said entities are the alter egos of the Debtor. Moreover, given the Debtor's high level of sophistication and the fact that the Debtor was the one individual who not only caused SDI and SDYS to be incorporated, but was the one individual who *955 controlled said entities and the transfers of assets to and from the Debtor, SDI, and SDYS, this Court finds that the Debtor knowingly and fraudulently made a false oath in connection with the bankruptcy proceedings when the Debtor, under penalty of perjury, certified his sworn Statement of Assets and Liabilities to be true and correct when the Debtor omitted in said Statement the assets and property of SDI and SDYS as property of the Debtor.
C. Fraudulent Transfers On Or Within One Year Of Petition
11 U.S.C. § 727(a)(2)(A) provides that a debtor is to be denied a discharge when he,
"with the intent to hinder, delay or defraud a creditor or an officer of the estate ... has transferred, removed or concealed ... property of the debtor within one year before the date of the filing of the petition...."
Dulbina alleges that the Debtor made such transfers and that therefore the Debtor should be denied a discharge under 11 U.S.C. § 727(a)(2)(A).
The testimony is most illuminating on this issue. The Debtor testified that on or within one year prior to the filing of the Chapter 7 petition, numerous transfers involving substantial sums of money (by way of checks) were made by and between the Debtor and SDYS. Thus, it is uncontroverted that substantial transfers of cash were made by the Debtor to SDYS on or within one year prior to the filing of the petition. However, for Dulbina to prevail under 11 U.S.C. § 727(a)(2)(A), it must show that said transfers of cash were made with the intent to hinder, delay, or defraud creditors or the trustee in this case.
Although the intent to hinder, delay, or defraud a creditor must be actual, it may be proven through circumstantial evidence or inferred by a court when the debtor has failed to disclose assets in his Statement of Assets and Liabilities and/or has given false answers in his Statement of Financial Affairs. In re Cycle Accounting Services, 43 B.R. 264 (Bankr.E.D.Tenn. 1984); Farmers Coop. Association v. Strunk, 671 F.2d 391 (10th Cir.1982); and Montgomery Ward & Co., Inc. v. Gordley, 38 B.R. 630 (Bankr.S.D.Ohio 1984).
The Court finds that the Debtor failed to disclose assets in his Statement of Assets and Liabilities and that the Debtor has given false answers in connection with his Statement of Financial Affairs. Further, this Court finds that the legal effect of the transfers of cash from the Debtor to SDYS hindered and/or delayed the Debtor's creditors in these proceedings. The Debtor has offered no evidence to overcome the prima facie case established by Dulbina. Accordingly, this Court finds that on or within one year prior to the filing of the Chapter 7 petition, the Debtor transferred substantial sums of cash to SDYS with the intent to hinder, delay, or defraud his creditors.
In summary, each of the foregoing actions of the Debtor, in and of itself, is sufficient to warrant the denial of the Debtor's discharge. On all of the foregoing grounds, the Court finds that the discharge of the Debtor should be DENIED pursuant to 11 U.S.C. § 727.
As required, a separate Final Judgment will be entered in accordance with these Findings and Conclusions. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538195/ | 69 B.R. 726 (1987)
In re Mark G. and Jean JOHNSON, Debtors.
Bankruptcy No. 86-20771.
United States Bankruptcy Court, W.D. New York.
February 9, 1987.
*727 Lawrence A. Perot, Batavia, N.Y., for debtors.
Ronald J. Mendrick, Rochester, N.Y., for McCurdy & Co.
George Reiber, Rochester, N.Y., Chapter 13 trustee.
MEMORANDUM AND DECISION
EDWARD D. HAYES, Bankruptcy Judge.
In this Chapter 13 case, confirmation of the debtors' plan has been delayed because of a dispute involving the classification of unsecured claims.
On June 11, 1986, the debtors, Mark and Jean Johnson, filed a joint petition and Chapter 13 plan. The plan proposed to pay the Johnsons' unsecured creditors a dividend of fifteen percent. On July 31, 1986, an unsecured creditor, McCurdy and Company (McCurdy), filed an objection to confirmation of the plan. On August 13, 1986, a confirmation hearing was held pursuant to 11 U.S.C. § 1324 and counsel for McCurdy appeared to object. The decision on confirmation was withheld pending a ruling on the McCurdy objection. Before the Court could rule, however, the debtors filed the amended plan now in dispute. The amended plan proposes to pay unsecured creditors a dividend of fifteen percent and McCurdy a dividend of one hundred percent. The debtors and McCurdy have each submitted a brief supporting confirmation of the plan as amended. The Chapter 13 trustee, George Reiber, has submitted a brief opposing confirmation because the amended plan classifies the McCurdy claim separately from other unsecured claims and gives it more favorable treatment.
The facts of the case are these. On May 20, 1986, the balance due on two credit accounts that the debtor, Mark Johnson, had with McCurdy was $707.21. The debtor purchased a stereo system from McCurdy on May 25, 1986, and charged $231.95. The debtor purchased a television from McCurdy on May 26, 1986, and charged $818.52. Additional purchases made on or about those dates resulted in an aggregate balance being due McCurdy of $2,002.05. In all, $1,294.84 was charged by the debtor in the eighteen day period preceding the June 11, 1986 bankruptcy filing. It is this portion of the outstanding balance due McCurdy that the debtors seek to treat separately under their Chapter 13 plan.
The question squarely presented is whether the debtors may treat $1,294.84 of the McCurdy consumer credit obligation, nondischargeable under § 523(a)(2) of the Bankruptcy Code,[1] more favorably than other unsecured claims.
*728 The debtors' plan proposes to distribute their available monthly income so that McCurdy will receive a one hundred percent dividend while other unsecured creditors receive a fifteen percent dividend. The trustee argues that this arrangement is an improper classification under 11 U.S.C. § 1322(b)(1). That provisions states:
§ 1322. Contents of plan.
(b) . . . the plan may
(1) designate a class or classes of unsecured claims, as provided in section 1122 of this title, but may not discriminate unfairly against any class so designated, however, such plan may treat claims for a consumer debt of the debtor if an individual is liable on such consumer debt with the debtor differently than other unsecured claims;. . . .
11 U.S.C. § 1322.
Section 1122, referred to in the language of section 1322, reads:
§ 1122. Classification of claims or interests.
(a) Except as provided in subsection (b) of this section, a plan may place a claim or an interest in a particular class only if such claim or interest is substantially similar to the other claims or interests of such class.
(b) A plan may designate a separate class of claims consisting only of every unsecured claim that is less than or reduced to an amount that the court approves as reasonable and necessary for administrative convenience.
11 U.S.C. § 1122.
Section 1122(a) specifies that "substantially similar" claims may be classed together. It does not require that all similar claims be grouped together, but only that each group created be homogenous. See 5 Collier on Bankruptcy. Here, the two groups of unsecured claims classified by the debtors are homogenous. The first group consists of the McCurdy claim which alone is nondischargeable in Chapter 7. 11 U.S.C. § 523(a)(2), see note 1 supra. The second group consists of all other general unsecured claims, fully dischargeable in Chapter 7. Thus, each group of unsecured claims classified by the debtors' amended plan satisfies the homogeneity requirement of § 1122(a). Despite its designating homogeneous classes, the debtors' plan should not be confirmed.
Section 1322(b)(1) of the Code permits a Chapter 13 plan to designate homogeneous classes of unsecured claims, but requires that any class so designated not be "unfairly discriminated against. . . ." The critical question in this case is not whether the debtors may treat unsecured claims differently, but rather whether the different treatment proposed rises to the level of unfair discrimination.
No clear consensus has been reached among Bankruptcy Courts regarding unfair discrimination, and there is no authoritative ruling on the subject in this Circuit. Some difference in the treatment of unsecured claims must have been contemplated by Congress, or the provision for classifying claims under § 1322(b)(1) would be purposeless. As Bankruptcy Judge Creahan, of this District, observed,
". . . It is difficult to imagine any classification of unsecured creditors which would not discriminate against some class in one manner or another. Classification in itself would seem to denote discrimination. The crux of the issue, however, is unfair discrimination. . . . "
In re Stewart, 52 B.R. 281 at 283 (Bkrtcy. W.D.N.Y.1985), citing In re McKenzie, 4 B.R. 88 (Bkrtcy.W.D.N.Y.1980).
It is argued that the classification proposed by the debtors does not unfairly discriminate because confirmation of the plan, requiring good faith under Code § 1325(a)(3), could not be achieved unless the nondischargeable McCurdy debt be paid in full. The debtors and McCurdy reason that the plan cannot satisfy the requirement of good faith should it fail to fully pay the McCurdy debt. The question of good faith has been addressed by this *729 Court several times. In re Bellgraph, 4 B.R. 421 (Bkrtcy.W.D.N.Y.1980); In re Manning, 5 B.R. 387 (Bkrtcy.W.D.N.Y. 1980); and In re Tramonto, 23 B.R. 464 (Bkrtcy.W.D.N.Y.1982). Never has good faith been viewed as rigidly requiring the repayment of specific types or percentages of claims. Instead, the principle has been advocated that good faith turns on an amalgam of factors including, but not limited to, the debtors' budget and future income, the amount of the outstanding indebtedness, the percentage of repayment proposed, and the nature of the debts being discharged. Under the facts of this case, good faith is evaluated by examining the amounts proposed by the debtors for repayment to each class of unsecured claims in light of the rationale for separate classification. An eighty-five percent differential in the amount paid each class, based on the McCurdy claim being nondischargeable in Chapter 7, is unfairly discriminatory.
This Court has consistently approved the rule that unsecured claims in Chapter 13 be classed together. A dim view has been taken of attempts to classify unsecured claims separately. See e.g. In re Frank Tramonto, 23 B.R. 464 (Bkrtcy.W.D.N.Y. 1982) (confirming the debtor's Chapter 13 plan over the objection of creditors whose claims, representing debts potentially nondischargeable under §§ 523(a)(4) and 523(a)(6), were not classified separately from other general unsecured claims). In the case of In re Frank D. Stewart, 52 B.R. 281 (Bkrtcy.W.D.N.Y.1985) (denying confirmation of a Chapter 13 plan which proposed to treat differently from other general unsecured claims the debtor's nondischargeable child support obligations), the Court stated that, "the classification of nondischargeable unsecured debt into a special class provides unfair discrimination against parties who have substantial[ly] similar claims, [i.e.] unsecured claims." 52 B.R. 281 at 283. Between the claims denied special treatment in Tramonto and Stewart and the McCurdy claim there is no distinction so alarming as to now require approval of the separate classification proposed by the debtors' amended plan. Absent a legislative directive to the contrary, the McCurdy claim does not deserve special recognition. Where Congress has seen fit to recognize claims for special treatment, it has legislated accordingly.[2] As discussed in Tramonto, supra,
To force upon a debtor a requirement that they classify unsecured debts to meet some criteria of dischargeability not set forth in the law, would be a perversion of the expressed provisions of Chapter 13. It would require this Court to rewrite the law to conform to its own ideas of justice rather than the explicit provisions of the Code enacted by the Congress.
23 B.R. 464 at 466.
This Court has refrained from engaging in judicial legislation in the past and declines the invitation of the debtors and McCurdy to do so now.
Because the debtors' plan as amended "unfairly discriminates" against general unsecured creditors, it is violative of § 1322(b)(1). Accordingly, the plan will be denied confirmation unless and until the McCurdy obligation is treated equally with the claims of the other unsecured creditors and it is so ordered.
NOTES
[1] Section 523(a)(2) states in pertinent part:
§ 523. Exceptions to discharge.
(a) A Discharge under section 727, 1141, or 1328(b) 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;
(C) for purposes of subparagraph (A) of this paragraph, consumer debts owed to a single creditor and aggregating more than $500 for "luxury goods or services" incurred by an individual debtor on or within forty days before the order for relief under this title, or cash advances aggregating more than $1,000 that are extensions of consumer credit under an open end credit plan obtained by an individual debtor on or within twenty days before the order for relief under this title, are presumed to be nondischargeable: "luxury goods or services" do not include goods or services reasonably acquired for the support or maintenance of the debtor or a dependent of the debtor . . . ;
[2] In 1984, 11 U.S.C. § 1322(b) was amended. The amendment permits "debts guaranteed by an individual [co-signed consumer debts] to be treated differently in a plan from other unsecured debts." 11 U.S.C. § 1322, Collier Pamphlet Edition Comment 1984 Amendments. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3085673/ | Fourth Court of Appeals
San Antonio, Texas
February 13, 2015
No. 04-15-00066-CV
CONOCOPHILLIPS COMPANY,
Appellant
v.
VAQUILLAS UNPROVEN MINERALS, LTD.,
Appellee
From the 406th Judicial District Court, Webb County, Texas
Trial Court No. 2014CVQ000438-D4
Honorable Oscar J Hale, Jr., Judge Presiding
ORDER
Sitting: Sandee Bryan Marion, Chief Justice
Karen Angelini, Justice
Marialyn Barnard, Justice
The appellant’s unopposed petition for permission to appeal from an interlocutory order
is GRANTED. TEX. R. APP. P. 28.3. “A separate notice of appeal need not be filed” as “a notice
of appeal is deemed to have been filed on [the date of this order].” Id. at 28.3(k). This appeal is
governed by the rules for accelerated appeals. Id.
The clerk’s record is due no later than February 23, 2015. Id. at 35.1(b). The clerk of
this court is directed to file a copy of this order with the trial court clerk. Id. at 28.3(k).
_________________________________
Sandee Bryan Marion, Chief Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 13th day of February, 2015.
___________________________________
Keith E. Hottle
Clerk of Court | 01-03-2023 | 10-16-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1538304/ | 69 B.R. 861 (1987)
In re SUN WEST DISTRIBUTORS, INC., Debtor.
SUN WEST DISTRIBUTORS, INC., a California corporation, also known as Southwest Solar Distributors; Socalso, Inc., a California corporation; and Richard D. Mangiarelli, Plaintiffs,
v.
GRUMMAN ENERGY SYSTEMS COMPANY, a New York corporation, Defendants.
Bankruptcy No. 84-02122-LM11, Adv. No. C86-0345-LM11.
United States Bankruptcy Court, S.D. California.
February 9, 1987.
*862 Lee W. Cotugno, Kalisch & Fisher, Beverly Hills, Cal., for plaintiffs.
Andrew J. Guilford, Michael W. Kinney, Sheppard, Mullin, Richter & Hampton, Newport Beach, Cal., for defendants.
Everett G. Barry, Jr., Mulvaney & Kahan, San Diego, Cal., for debtor.
LOUISE DeCARL MALUGEN, Bankruptcy Judge.
Defendant, Grumman Energy Systems Company, a division of Grumman Allied Industries, Inc., a New York corporation ("Grumman") has moved this Court for determination of core proceeding and discretionary abstention under 28 U.S.C. § 1334(c)(1). An adversary proceeding for violation of automatic stay and breach of contract has been brought by Sun West Distributors, Inc., a California corporation ("Debtor"). Clearly, the automatic stay cause of action is a core proceeding under 28 U.S.C. § 157(b)(2)(G). Debtor contends that because the remaining causes of action constitute a core proceeding under 28 U.S.C. § 157(b)(2)(C), discretionary abstention is not appropriate.
FACTS
Grumman manufactures solar collectors and solar products ("collectors") and sells them to authorized distributors. These distributors then resell the collectors to authorized dealers, who modify them and later resell them at retail to residential homeowners. On December 17, 1982, debtor became an authorized distributor of Grumman collectors, contracting with Grumman under the name of Southwest Solar Distributors, Inc. Southwest Solar Products, Inc. ("Southwest") was debtor's primary authorized dealer.
*863 During late 1983, a contract dispute arose between debtor and Grumman. Thereafter, both Southwest and a third party, Lessor's Management And Data Services, Inc. ("LMDS") claimed ownership of certain collectors bought by debtor but stored by Grumman. A series of court proceedings followed. On February 15, 1985, Grumman filed a declaratory relief action in Orange County Superior Court against Southwest and LMDS, who both claimed ownership of collectors bought by debtor from Grumman. On May 14, 1985, debtor filed a petition under Chapter 11, Title 11 of the U.S. Code. Thereafter, on March 4, 1986, Grumman filed a creditor's claim of $1,089,907, of which amount $790,000 was claimed as secured by purchase money mortgage. Finally, on May 14, 1986, this adversary proceeding was filed by debtor and others against Grumman for breach of contract, fraud, conversion and violation of automatic stay. On that same date, an identical complaint omitting the automatic stay cause of action was filed in San Diego Superior Court, but has not yet been served on Grumman.
ISSUES
I. Whether this proceeding is a "core" or "non-core" proceeding within the meaning of 28 U.S.C. § 157.
II. Whether discretionary abstention under 28 U.S.C. § 1334(c)(1) is appropriate.
I. DETERMINATION OF CORE PROCEEDINGS.
A. Counterclaim Against Person Filing A Claim.
Under 28 U.S.C. § 157, proceedings in the Bankruptcy Court are segregated into "core" and "non-core" proceedings. 28 U.S.C. § 157(b)(2) defines core proceedings to include, among others, (a) matters concerning administration of the estate, (b) allowance or disallowance of claims against the estate, and (c) counterclaims by the estate against persons filing claims against the estate. Non-core proceedings are those which are "otherwise related to a case under Title 11." 28 U.S.C. § 157(b)(3). The distinction is significant because the Bankruptcy Court is authorized to hear core proceedings and to issue final judgments therein. In non-core proceedings, the bankruptcy judge may hear such proceedings but, absent consent of the parties, must submit proposed findings of fact and conclusions of law to the District Court for entry of a final judgment. 28 U.S.C. § 157(c). If the parties consent, non-core matters which are otherwise related to a pending bankruptcy case are handled by the Bankruptcy Court in the same manner as core matters.
Because the term "core proceeding" is not explicitly defined in the Bankruptcy Code, there is much uncertainty surrounding what constitutes a core proceeding as opposed to a related proceeding. There are two general interpretations of the parameters of core jurisdiction under 28 U.S.C. § 157(b)(2). The "expansive" analysis construes the definition of core proceedings broadly to encompass all proceedings that come within the literal meaning of § 157(b)(2). This viewpoint is premised on the belief that the Bankruptcy Amendments and Federal Judgeship Act of 1984 (1984 Amendments) rectified the constitutional infirmities enunciated in Northern Pipeline v. Marathon Pipeline, 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982).[1]
The "restrictive" analysis holds that the term "core proceeding" must be interpreted narrowly in light of Marathon. These courts take the view that the 1984 Amendments do not cure the constitutional defects detailed in Marathon, but that the *864 1984 Amendments adjust the bankruptcy court's jurisdiction to comport with guidelines established by the Supreme Court. Thus, § 157(b)(2) must be construed narrowly to fit within the constitutional purview of Marathon.[2]
Under the language of 28 U.S.C. § 157(b)(2), this action is a core proceeding. Debtor commenced this proceeding as a counterclaim against Grumman, who has filed a claim based on contract against the estate. Section 157(b)(2)(C) specifically defines as core proceedings counterclaims by the estate against persons filing claims against the estate.
In the recent decision of In re Castlerock Properties, 781 F.2d 159 (9th Cir.1986), the Ninth Circuit held:
[S]tate law contract claims that do not specifically fall within the categories of core proceedings enumerated in 28 U.S.C. § 157(b)(2)(B)-(N) are related proceedings under § 157(c) even if they arguably fit within the literal wording of the two catch-all provisions, sections 157(b)(2)(A) and (O). To hold otherwise would allow the bankruptcy court to enter final judgments that this court has held unconstitutional. In re Castlerock Properties, 781 F.2d at 162.
Because the state law contract claims of debtor against Grumman fall within the explicit provisions of 28 U.S.C. § 157(b)(2)(C), In re Castlerock Properties does not appear to mandate that this action be deemed a non-core proceeding.
Unlike Grumman in this case, the creditor in Castlerock did not file his creditor's claim until after debtor's counterclaims were asserted. For that reason, the court declined to hold that the counterclaim was core under § 157(b)(2)(C), and further declined to consider debtor's arguments based upon jurisdiction by consent. The court did acknowledge that debtor "relies on well-settled law that a creditor consents to jurisdiction over related counterclaims by filing a proof of claim." In re Castlerock Properties, supra, at 162.
However, the Ninth Circuit's holding in Castlerock was prefaced by the following "restrictive" language:
[W]e are persuaded that a court should avoid characterizing a proceeding as "core" if to do so would raise constitutional problems. (citations). The apparent broad reading that can be given to § 157(b)(2) should be tempered by the Marathon decision. In re Castlerock Properties, supra, at 162.
Although this Court concludes that this matter is a "core" proceeding under 28 U.S.C. § 157(b)(2)(C), in the event that to do so would raise constitutional problems, an alternative basis for bankruptcy jurisdiction exists. Grumman has consented to bankruptcy jurisdiction by filing its proof of claim.
B. Jurisdiction By Consent.
Before the Marathon decision, the Supreme Court had previously considered the propriety of a non-Article III court in bankruptcy matters exercising jurisdiction to determine a counterclaim filed in response to a creditor's claim in Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966). In Katchen, the counterclaim sought to recover a preference made voidable by § 57g, 11 U.S.C. § 93(g) (1964 Ed.) of the predecessor Bankruptcy Act. That counterclaim arose out of the Bankruptcy Act itself and, according to Marathon, supra, was in the nature of a public right.
The Katchen decision was premised on the theory of jurisdiction by consent, concluding that a person who files a claim in a bankruptcy proceeding is subject to the summary jurisdiction of the Bankruptcy *865 Court. The Marathon decision questioned the jurisdiction by consent theory. However, a recent decision of the Ninth Circuit, Pacemaker Diagnostic Clinic of America, Inc. v. Instromedix, Inc., 725 F.2d 537 (9th Cir.1984), cert. denied, 469 U.S. 824, 105 S.Ct. 100, 83 L.Ed.2d 45., and two later Supreme Court opinions reaffirm the concept of jurisdiction by consent expressed by Katchen v. Landy, supra.
In Thomas v. Union Carbide Agricultural Products Co., 473 U.S. 568, 105 S.Ct. 3325, 87 L.Ed.2d 409 (1985), the court explained its Marathon decision:
The Court's most recent pronouncement on the meaning of Article III is Northern Pipeline. A divided Court was unable to agree on the precise scope and nature of Article III's limitations. The Court's holding in that case establishes only that Congress may not vest in a non-Article III court the power to adjudicate, render final judgment, and issue binding orders in a traditional contract action arising under state law, without consent of the litigants and subject only to ordinary appellate review. Thomas, supra, 105 S.Ct. at 3335.
The most recent Supreme Court decision regarding jurisdiction under Article III is Commodity Futures Trading Commission v. Schor, ___ U.S. ___, 106 S.Ct. 3245, 92 L.Ed.2d 675 (1986). In Commodity Futures, the court dealt with the provisions of the Commodities Exchange Act, 7 U.S.C. § 1, et seq. Under that act, a customer or commodity broker can seek redress by applying to the Commodity Futures Trading Commission ("CFTC") for an order directing the offender to pay reparations. The CFTC is further given jurisdiction to adjudicate counterclaims which arise out of the transaction or occurrence which gave rise to the complaint. Alternatively, suit may be filed in district court. In Commodity Futures, the customer originally filed for reparation before the CFTC. Thereafter, the broker sued Schor in district court, but then voluntarily dismissed his action and presented it as a counterclaim before the CFTC. Ultimately the CFTC found in favor of the broker and Schor appealed.
On appeal, Schor challenged the CFTC's statutory authority to adjudicate the counterclaim. The Court of Appeals, relying upon Marathon, found that the CFTC "lacks authority to adjudicate" common law counterclaims. Schor v. Commodity Futures Trading Commission, 740 F.2d 1262, 1264 (D.C.Cir.1984). The Supreme Court reversed, finding that the jurisdictional scheme under the Act was permissible. In doing so, it discussed the propriety of resolving the entire dispute in the administrative forum as a means of promoting the administrative remedy and of judicial economy. The Court concluded that the constitutional right to have matters heard by an Article III judge serves to protect "primarily personal, rather than structural interests" and that, as a personal right, the guaranty of Article III of the Constitution of an impartial and independent federal adjudication is subject to waiver. In doing so, the court expressly reaffirmed Katchen v. Landy, supra, as follows:
Similarly, in Katchen v. Landy, 382 U.S. 323 [86 S.Ct. 467, 15 L.Ed.2d 391] (1966), this Court upheld a Bankruptcy referee's power to hear and decide state law counterclaims against a creditor who filed a claim in bankruptcy when those counterclaims arose out of the same transaction. Commodity Futures, supra, 106 S.Ct. at 3258.
Thus, jurisdiction by consent can be inferred from the filing of a creditor's claim.
Commodity Futures expands the jurisdiction by consent concept of Katchen v. Landy. In Katchen, the counterclaim was premised on the statutory right to avoid preferences. In Commodity Futures, the Court observed that Katchen upheld the bankruptcy court's power to hear and decide state law counterclaims against creditors who filed claims "when those counterclaims arose out of the same transaction." Both the claim and counterclaim in this case arise out of the same transaction, i.e., the contract between debtor and Grumman for collectors. Grumman asserts a proof *866 of claim for approximately $1.1 million. Debtor counterclaims for damages of $3.7 million based on a non-delivery of collectors under the contract. If debtor prevails on its counterclaim, Grumman must turn over either $3.7 million in damages or the collectors as property of the estate. 11 U.S.C. § 541; see also, In re Scanlon, 10 B.R. 245 (Bankr.S.D.Cal.1981). Because Grumman has voluntarily filed its creditor's claim in bankruptcy court, it has consented to this court's jurisdiction over the instant proceeding.
In summary, under the foregoing authority, this matter is a "core" proceeding within the meaning of 28 U.S.C. § 157 and this Court has the jurisdiction to enter a final judgment and order herein. Even if this proceeding were considered to be non-core in nature, the parties have consented to this Court's jurisdiction and such consent is constitutionally permissible.
This Court must now consider the issue of discretionary abstention of a core proceeding.
II. ABSTENTION.
Abstention under 28 U.S.C. § 1334(c)(2) is mandatory where the action is: (1) based upon a state-law claim or cause of action that is non-core; (2) the case could not have been commenced in federal court absent the fact of a bankruptcy petition; and (3) if the case were commenced in a state court it could be timely adjudicated.
Mandatory abstention under § 1334(c)(2) is not required in this matter because: (1) this matter is a core proceeding; (2) a separate basis for federal jurisdiction exists in this court diversity jurisdiction under 28 U.S.C. § 1332(a)(1); and (3) the timely adjudication in state court was not considered because no evidence was adduced on that issue.
Grumman has also moved for discretionary abstention under 28 U.S.C. § 1334(c)(1). Under this section, the court has discretion to abstain from hearing a bankruptcy proceeding "in the interests of justice, or in the interest of comity with state courts or respect for state law." Grumman argues that discretionary abstention is warranted due to the needless duplication which will occur because of the pending state action. To support this argument, Grumman relies upon In re Counts, 54 B.R. 730 (Bankr.D. Colo.1985) and In re Dakota Grain Systems, Inc., 41 B.R. 749 (Bankr.D.N.D.1984). In both cases the creditor had not filed a proof of claim against the debtor. The court in Dakota Grain Systems, applied discretionary abstention only because mandatory abstention under § 1334(c)(2) was not available to non-core matters pending prior to the effective date of the 1984 Amendments. Grumman's reliance on the foregoing authority is misplaced.
Voluntary abstention should be considered where the debtor's estate acquires the right to prosecute an unliquidated claim based upon a transaction totally unrelated to the debtor's financial affairs, such as a claim arising from personal injury, wrongful death or a division of marital property upon divorce. Such claims ordinarily would be tried in a state court but, because of a pending bankruptcy action, are swept into the jurisdiction of an Article I bankruptcy court because of the expansive definition of "property of the estate" as set forth in 11 U.S.C. § 541. These are the claims that concerned the Supreme Court in its Marathon decision. Macon Prestressed Concrete v. Duke, 46 B.R. 727, 731 (D.Ga.1985).
Debtor's counterclaim asserted in this adversary proceeding is "inextricably tied to the bankruptcy proceeding."[3]In re *867 All American of Ashburn, Inc., 49 B.R. 926, 927 (Bankr.N.D.Ga.1985). If debtor prevails on the merits of its complaint, over $3 million in property will come into the estate. If debtor does not prevail, Grumman's creditor's claim which exceeds $1 million will be included in debtor's plan of reorganization. Each is "inextricably tied to the bankruptcy proceeding." Although the rights of the parties regarding the contract dispute are controlled by state law, the applicable state law does not appear to be unsettled to the extent that it requires state law interpretation. c.f., In re World Financial Services Center, Inc., 64 B.R. 980 (Bankr.S.D.Cal.1986). Voluntary abstention is not warranted, and this action should be retained within the jurisdiction of this Court.
Attorney for debtor is directed to prepare an order in conformance with this Memorandum Decision within ten (10) days from the date of entry hereof.
NOTES
[1] See, e.g., In re Wood, 52 B.R. 513 (Bankr.N.D. Ala.1985); Matter of Baldwin-United Corp., 52 B.R. 539 (Bankr.S.D.Ohio 1985); In re Pied Piper Casuals, Inc., 50 B.R. 549 (Bankr.S.D.N.Y.1985); In re All American of Ashburn, Inc., 49 B.R. 926 (Bankr.N.D.Ga.1985); In re De Lorean Motor Co., 49 B.R. 900 (Bankr.E.D.Mich.1985); In re Harry C. Partridge, Jr. & Sons, Inc., 48 B.R. 1006 (Bankr.S.D.N.Y.1985); In re Lion Capital Group, 46 B.R. 850 (Bankr.S.D.N.Y.1985); Macon Prestressed Concrete Co. v. Duke, 46 B.R. 727 (D.Ga. 1985); In re Marketing Resources Intern Corp., 43 B.R. 71 (Bankr.E.D.Pa.1984).
[2] See, e.g., In re Sturm, 66 B.R. 325 (Bankr.N.D. Ill.1986); In re L.T. Ruth Coal Co., Inc., 66 B.R. 753 (Bankr.E.D.Ky.1986); In re Shaford Companies, Inc., 52 B.R. 832 (Bankr.D.N.H.1985); In re TWI, Inc., 51 B.R. 470 (Bankr.E.D.Va.1985); In re American Energy, Inc., 50 B.R. 175 (Bankr.D. N.D.1985); In re Morse Electric Co., Inc., 47 B.R. 234 (Bankr.N.D.Ind.1985); In re Pierce, 44 B.R. 601 (D.Colo.1984); Mohawk Industries v. Robinson Industries, 46 B.R. 464 (D.Mass.1985); In re Smith-Douglass, Inc., 43 B.R. 616 (Bankr.E.D.N. C.1984); In re Atlas Automation, Inc., 42 B.R. 246 (Bankr.E.D.Mich.1984); In re Dakota Grain Systems, Inc., 41 B.R. 749 (Bankr.D.N.D.1984).
[3] Abstention here would create an anomalous result. By filing this adversary proceeding, debtor combines its objection to Grumman's creditor's claim with its claim for affirmative relief. Both claims arise out of the same contract. The anomaly is that by debtor's procedural choice to join these two causes of action, it may lose bankruptcy jurisdiction under the doctrine of abstention. To avoid this result, debtor is forced to split its causes of action by first objecting to Grumman's creditor's claim in bankruptcy court and later seeking affirmative relief in a state court action. The twin policies of bankruptcy (1) debtor relief and rehabilitation, and (2) fair, equitable and orderly treatment of creditors are not served by abstaining in this matter. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538305/ | 169 Conn. 50 (1975)
JUDSON NALLY
v.
CARL M. CHARBONNEAU ET AL.
Supreme Court of Connecticut.
Argued April 3, 1975.
Decision released July 1, 1975.
HOUSE, C. J., LOISELLE, MACDONALD, BOGDANSKI and LONGO, JS.
*51 Snow Gene Munford, for the appellant (plaintiff).
John J. Reid, with whom was Stephen M. Riley, for the appellees (defendants).
LONGO, J.
The plaintiff, Judson Nally, manager of a service station in Manchester, brought this action to recover damages for personal injuries sustained when he was struck by an automobile operated by the defendant Carl M. Charbonneau and owned by his mother, the defendant Lois M. Charbonneau, claiming negligence on the part of the defendant operator. The defendants denied negligence and pleaded special defenses of assumption of risk and contributory negligence. The plaintiff has appealed from the verdict and judgment in favor of the defendants. Error is assigned in a ruling on evidence, in the court's charge, and in the court's denial of the plaintiff's motion to set aside the verdict.
The plaintiff attacks the court's charge to the jury, claiming error in the charge with respect to the special defenses of contributory negligence and assumption of risk, and also in the court's refusal to charge in accordance with certain of the plaintiff's requests. The correctness of the charge is tested by the claims of proof of the parties. Practice Book § 635; Bell v. Bihary, 168 Conn. 269, 271, 362 A.2d 963; Maltbie, Conn. App. Proc. § 145.
The defendants claimed to have proved the following facts: At the time of the accident in 1965, the defendant Carl M. Charbonneau, hereinafter the defendant, would occasionally work for the plaintiff at a service station, and they had a good working relationship. On the day of the accident, the brakes on the defendant's vehicle began to fail as the *52 defendant left the driveway of his home. He thereupon drove the vehicle in first gear to the plaintiff's service station, where he stopped the car by turning off the ignition and letting the compression bring the vehicle to a halt. The defendant explained to the plaintiff that his brakes were low, that he had a leak in them and that he was using his emergency brake to stop; this indicated to the plaintiff that the defendant's vehicle had practically no brakes. In response to the defendant's request for help, the plaintiff looked at the braking system while the car was in the station yard. The defendant told the plaintiff that he would use the center bay rather than the first one for the purpose of fixing his brakes. The plaintiff asked the defendant to bring the car into the center bay. When the defendant started driving into the center bay, the plaintiff was standing against the wall at the center bay, directing the defendant forward. The plaintiff came across in front and stopped in front of the car while it was still moving forward. By the time the plaintiff arrived at the center bay, the defendant was getting close to the tire stop. After the plaintiff reached the point in front of the car on the driver's side, he did not thereafter move. He could have taken one or two steps further to the left of the car and not have been in front of the car and would have been closer to the driver to tell him to back out. The plaintiff was standing in front of the car not more than two or three seconds.
The plaintiff claims to have proved certain additional facts: The defendant was not driving into the first bay, as he had been instructed, but instead was entering the center bay. The plaintiff called to the defendant to stop, but apparently the defendant did not hear him. The plaintiff then walked *53 over to the safety zone which is located beyond the bay's tire stop or tire bump. The safety aisle and safety zone is used by hundreds of people and customers while a car is on a lift. There had been no other instance of a car going through the end of the lift, past the safety zone and into the wall, even with cars that had no brakes, although thousands of cars had driven onto the lift in the past.While the plaintiff was in the safety zone, he was waving to the defendant to stop or to go back when suddenly the car jumped forward and pinned the plaintiff against the garage wall where he was standing. The plaintiff had no chance to move or jump out of the way, as he had no warning or indication that the car was going to accelerate and jump forward. Had the defendant jammed the transmission, pulled up the hand brake and shut off the ignition, he could have stopped the car as it was barely crawling into the center bay.
The defense of assumption of risk is applicable when a person knows or as a reasonable person should know that in pursuing a certain course he will expose himself to the risk of injury, comprehends or ought as a reasonable person to comprehend the nature and extent of the risk and voluntarily subjects himself to it. He thus assumes the risk and cannot recover damages resulting from it. Meyers v. Paro Realty & Mortgage Co., 128 Conn. 249, 251, 21 A.2d 379; Hassett v. Palmer, 126 Conn. 468, 477, 12 A.2d 646; Restatement, 2 Torts § 463. The plaintiff may not foresee the exact manner by which injury may ensue but he must know and comprehend that the peril exists.
The jury could reasonably have concluded from the evidence as indicated in the claims of proof that the information imparted to the plaintiff by *54 the defendant, together with the plaintiff's inspection of the braking system, furnished him with sufficient knowledge to conclude that the car was practically without a braking system. This knowledge, coupled with the action of the plaintiff in positioning himself directly in front of the moving and brakeless car with his back to the wall, presented the jury with the important question of whether the plaintiff's actions indicated an assumption of risk or such a lack of due care for his own safety that they constituted contributory negligence. Petrizzo v. Commercial Contractors Corporation, 152 Conn. 491, 500, 208 A.2d 748.
The plaintiff next claims that the court was in error in refusing to charge the jury on what he referred to as "The Three Postulates of Negligence," in accordance with his request to charge. The "postulates," in brief, relate to the assumptions that (1) persons will normally do others no injury; (2) persons will act with due care; and (3) persons who maintain conditions that are likely to get out of control will restrain them or keep them under proper control.[1] In examining the court's instructions *55 to the jury on negligence as set forth in the finding, we find that the subject-matter enunciated in the postulates was essentially contained in the charge on negligence as it applied to the conduct of the defendant and to the special defenses as they applied to the plaintiff himself. The charge on negligence and contributory negligence was complete and accurate. It encompassed an explanation of the assumptions contained in the postulates on which the plaintiff requested the court to charge, in language which this court has consistently approved. "Extensive, intricate, abstract requests to charge in the language of a law review article ... do not necessarily follow our rule that the jury be given an understandable criterion of the legal principles involved and their application to the facts and the claims of the parties, because the charge as a whole must be considered from the standpoint of its effect on the jury in giving them practical guidance in reaching a correct verdict." Hally v. Hospital of St. Raphael, 162 Conn. 352, 360, 294 A.2d 305; Berniere v. Kripps, 157 Conn. 356, 358, 254 A.2d 496.
Error cannot be predicated on a failure to adopt the particular language of a request to charge where the matter is adequately and fairly covered in the charge. Hally v. Hospital of St. Raphael, supra, 361. Although it would not have been considered error if the court had charged as requested, in addition to the charge as given by the court, the trial court committed no reversible error in refusing to charge on the "three postulates of negligence." The court performs its duty when its instructions are calculated "to give the jury a clear comprehension of the issues presented for their determination under the pleadings and upon the evidence, *56 and suited to their guidance in the determination of those issues." Radwick v. Goldstein, 90 Conn. 701, 706, 98 A. 583; Doe v. Saracyn Corporation, 138 Conn. 69, 75, 82 A.2d 811.
The plaintiff further assigns error in that the court sustained the defendant's objection to a question asked in the plaintiff's cross-examination of the defendant, claiming that he was deprived of a fair and full opportunity to cross-examine. The plaintiff was examining the defendant on his ability to stop his automobile when the occasion demanded. To show the extent of his knowledge of the exact stopping power, the defendant testified that the hand brake was not in the best condition, and that he was using only the hand brake going down a hill as he was driving to the garage. The defendant was then asked the following question: "[I]f somebody had walked out in front of you or some little kid had run out in front of you, you would have had to use the hand brake to stop your car, wouldn't you?" The court excluded the question upon objection by the defendant. The question was hypothetical. "The determination of the admissibility of a hypothetical question calls for the exercise of discretion as to whether the question (1) presents facts in their true relationship to each other and to the whole evidence, (2) is not so worded as to mislead or confuse the jury, and (3) is not lacking in essential facts as to be without value in the decision of the case." Holden & Daly, Connecticut Evidence § 121 (a); Floyd v. Fruit Industries, Inc., 144 Conn. 659, 665, 666, 136 A.2d 918. There is no indication that the question had any relationship to the evidence in the case. "As a general rule, the extent of a cross-examination is much in the discretion of the judge, yet it should be liberally allowed. Papa *57 v. Youngstrom, 146 Conn. 37, 40, 147 A.2d 494; Fahey v. Clark, 125 Conn. 44, 46, 47, 3 A.2d 313. The cross questioning must be relevant and its limitation is within the discretion of the court, especially if the subject is remote to the main issue. Conley v. Board of Education, 143 Conn. 488, 495, 123 A.2d 747; Jennings v. Connecticut Light & Power Co., 140 Conn. 650, 675, 103 A.2d 535." Kukanskis v. Jasut, 169 Conn. 29, 37, 362 A.2d 499. Since the question was not relevant and was properly characterized by the court as calling for conjecture, it was properly excluded.
Finally, the plaintiff assigns error in the refusal of the court to set aside the verdict as not supported by the law and the evidence on the issue of liability. A general verdict, such as the verdict at issue in favor of the defendant, imports that all issues submitted to the jury were found in his favor. If the jury could reasonably have found for the defendant on the issue of negligence, this would suffice to support the verdict. Kelly v. Bliss, 160 Conn. 128, 130, 273 A.2d 873. In viewing the action of the trial court in denying the plaintiff's motion to set aside the verdict, we consider the evidence most favorable to the sustaining of the verdict. Petrizzo v. Commercial Contractors Corporation, 152 Conn. 491, 499, 208 A.2d 748; Maltbie, Conn. App. Proc. § 189. The refusal of the trial court, which saw and heard the parties, to disturb the verdict is entitled to weighty consideration in this court. Kelly v. Bliss, supra, 131. The court's action is tested by the evidence contained in the appendices to the briefs. Guglielmo v. Klausner Supply Co., 158 Conn. 308, 320, 259 A.2d 608. The jury could reasonably have found from the evidence offered that the plaintiff's knowledge of the condition of the *58 braking system, and his action in positioning himself directly in front of the moving car with his back to the wall, was such a lack of due care for his own safety as to constitute contributory negligence on his part. The court properly denied the motion to set aside the verdict.
There is no error.
In this opinion the other judges concurred.
NOTES
[1] "1st PostulateIn a civilized society, men must be able to assume that others will normally do them no injury. We assume others will not injure us. The Savage must move stealthily, avoid the skyline and go armed. The civilized man moves openly among his fellow men and unarmed, going about his business. This postulate is the foundation of the economic order in civilized society.
"2nd PostulateIn a civilized society, men must be able to assume that their fellow men when they are in a course of conduct will act with due care so as not to impose an unreasonable risk of injury upon us. This postulate is the business of our doctrine of negligence and the greater the danger the greater the degree of due care that is required.
"3rd PostulateMen can assume that others who keep things and maintain conditions that are likely to get out of hand and do damage will restrain them or keep them in proper bounds and under proper control." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538322/ | 238 Pa. Superior Ct. 488 (1976)
Weiser, Appellant,
v.
Weiser.
Superior Court of Pennsylvania.
Argued June 11, 1975.
March 29, 1976.
*489 Before WATKINS, P.J., JACOBS, HOFFMAN, CERCONE, PRICE, VAN DER VOORT, and SPAETH, JJ.
*490 Marvin Comisky, with him Norman Perlberger, and Blank, Rome, Klaus & Comisky, for appellant.
Paul Matzko, with him Krusen, Evans & Byrne, for appellee.
OPINION BY WATKINS, P.J., March 29, 1976:
This is an appeal from the order of the Court of Common Pleas of Philadelphia County, Family Division, in which the court below directed the defendant-appellee, Gerald J. Weiser, to pay to the wife, Norma Rae Weiser, the appellant, the sum of $150 per week for the support of the wife and three children.
The position of the wife in this appeal is that the court's order is inadequate because the court failed to take into consideration the husband's earning potential and the standard of living to which he had acclimated the family.
The husband is a patent lawyer who had been employed in the law firm of Dechert, Price and Rhoads at a yearly salary of about $40,000.00. In March, 1973, the husband terminated his employment at Dechert, Price and Rhoads and went into practice on his own, eventually forming his own partnership with two other attorneys. *491 His earnings from the new employment at the time of the hearing were $340.00 per week.
The parties were married on April 15, 1951. The husband moved out of the family home on July 4, 1973. The three children of the marriage were 20, 18 and 16 years of age and remained with the wife. Two of the children are presently enrolled in college while the youngest is a student at a private boarding school. The wife has a separate income of $10,000.00 a year. At the hearing before the court below the wife presented evidence that tuition and expenses of the children's education amounted to $16,715.00 per year and the household expenses amounted to over $20,000.00 per year. We are not convinced that this is not exaggerated, especially the household expenses.
This Court's review of support orders is limited to a determination of whether there is evidence to support the order and if so, the order will be reversed only if there has been an abuse of discretion. Commonwealth ex rel. Goichman v. Goichman, 226 Pa. Superior Ct. 311, 316 A. 2d 653 (1973).
Appellate courts are becoming more reluctant to substitute themselves as super-support courts when they have not had the opportunity to see and hear the witnesses and so determine credibility. We are mindful of the rule which provides that it is the earning potential of the father which is the determinative factor in ascertaining the ability to pay support to the family rather than the actual earnings. Commonwealth ex rel. Raitt v. Raitt, 203 Pa. Superior Ct. 226, 199 A. 2d 512 (1964).
It is undisputed that a father or husband cannot intentionally reduce his actual earnings and then use the reduction in earnings to obtain a reduction in the amount of support he must provide for his family. Courts have traditionally viewed with suspicion any sudden reduction of the support payments based on such income reductions. Commonwealth ex rel. Snively v. Snively, 206 Pa. Superior Ct. 278, 212 A. 2d 905 (1965).
*492 Be that as it may, we are not constrained to say that a man once he has established a certain income level for himself and his family in the employ of another cannot decide to go into business for himself even though it results in a decrease of his present earnings. A man should have freedom of choice to be an employee of another or to establish his own business even though such change may result in present financial sacrifice with the hope of future increased income.
The court below in a very detailed and carefully reasoned opinion had this to say:
"Counsel for petitioner in arguing that defendant's former salary should control submitted precedents in which a defendant either intentionally left a lucrative position and thereby drastically reduced his earnings, intentionally kept his earnings to a minimum, or asserted a reduced income out of proportion to the amount he appeared to be spending. Commonwealth ex rel. McNulty v. McNulty, 226 Pa. Superior Ct. 247 (1973) (lower court found that defendant's testimony was incredible and that his reduction in income was intended to defeat his wife's claim to support); Commonwealth ex rel. Snively v. Snively, 206 Pa. Superior Ct. 278 (1965) (defendant voluntarily quit his job and went to college, virtually eliminating his income and taking on a financial burden in the form of school expenses); Commonwealth ex rel. Raitt v. Raitt, 203 Pa. Superior Ct. 226 (1964) (a pharmacist with post graduate degrees had an earning potential far greater than the amount he made in a local pharmacy); Commonwealth v. Trimble, 197 Pa. Superior Ct. 644 (1962) (defendant made an insufficient effort to obtain employment and deliberately withdrew from income producing work); Commonwealth ex rel. Kane v. Kane, 193 Pa. Superior Ct. 98 (1960) (defendant's standard of living belied his claim to a very low income); Commonwealth ex rel. Wieczorkowski v. *493 Wieczorkowski, 155 Pa. Superior Ct. 517 (1944) (son contributed his services to parent for his board and keep). In such situations the courts have indicated that the husband's earning potential should be the basis for the support order.
"However, in the instant case, there was no indication that Mr. Weiser struck out on his own so as to defeat his family's right to support. In fact he began his new association several months before he was separated from Mrs. Weiser. There was no evidence that he was concealing income or that his standard of living was inconsistent with his claimed earnings. Moreover, the amount he was drawing was not inconsiderable.
"A case which is more on point is Commonwealth ex rel. Shaffran v. Shaffran, 92 Montg. Co. L.R. 339 (1969), aff'd. 217 Pa. Superior Ct. 856 (1970). This case involved a husband who left a job in an advertising agency, where his monthly income was $1350, to form his own agency. His monthly income for the first year was about half his former income but it increased in successive years so that at the time of the court's decision, he was earning about $986. The court found that the change was not made to deliberately reduce his income but for the purpose of avoiding a limited future in the former agency and with the hope of increased future earnings. The court entered a support order averaging about 62% of his current income for the maintenance of his wife and two children. The wife wanted the order to be based on his past income. The Court stated that `(a) support order should not be based on the husband's past earnings, if it would be unrealistic to do so in light of present circumstances.' Id. at 341. See also, Commonwealth ex rel. Haimowitz v. Haimowitz, 221 Pa. Superior Ct. 364 (1972).
*494 "`The Court may ordinarily only make support orders based on a husband's property, income, and earning ability at the time of the hearing, not on what they may have been in the past.' Commonwealth v. Testa, 226 Pa. Superior Ct. 585, 588 (Advance Reports, 1974). Accordingly, based upon Mr. Weiser's earning ability at the time of the hearing the award in the present case was approximately one half of Mr. Weiser's spendable income after taxes. `Although there is no rule which says that an award for a wife and children may not exceed one half of the husband's income, it must not, nevertheless, impose an unreasonable burden on him.' Commonwealth ex rel. Lipsky v. Lipsky, 214 Pa. Superior Ct. 215, 218 (1969).
"Mr. Weiser had considerable expenses. His rent was $58.50 weekly; his car payments were $33.00 per week. He alleged that he spent $60.00 per week on food, about $5 per week on clothing, $7.50 for Blue Cross and Blue Shield for the entire family, totalling $164.00, plus additional amounts for other need. In all he alleged the total of his weekly expenses and outstanding bills[1] to be $587.70. No matter how inflated that figure might have been, it was clear that he was in need of at least $165 taking into account the amounts specifically listed above, additional expenses and his debts. This figure when added to the support order of $150.00 totals $315.00, which could well be the net remainder after taxes are deducted from his earnings of $400 per week in 1973, and unquestionably when deducted from his draw of $340 at the time of the hearing."
*495 As we said in Commonwealth ex rel. Hauptfuhrer v. Hauptfuhrer, 226 Pa. Superior Ct. 301, 306, 310 A. 2d 672, 674 (1973): "It seems certain that appellee (wife) and her children are quite capable of spending any sum appellant (husband) is ordered to provide for them."
However, in this case, as pointed out by the court, his change of employment came before the separation so that it is contended that it was not for the purpose of reducing the income of the family on separation. As he was a lawyer, we are not so naive as to believe that support payments may not have been anticipated by him. Another disturbing factor is that he continued his own standard of living as if he were receiving the income to which he had been accustomed and which was clearly extravagant in relation to his current income. This is illustrated by the fact that he took three expensive vacations since the separation and continued his life style.
Appellee's change in employment resulted in an income reduction of more than one half. It is also a fact that as a partner in the law firm he could control the draw and his weekly income of $340 may not accurately reflect his new earnings. It is for these reasons that we feel the award is inadequate. Most certainly he has the right to establish his own business but not at the expense of his family, whose life style he created based on $40,000.00 per year income which now must be changed to meet the new conditions while he continues to enjoy his usual high standard.
Under the circumstances set forth in this case, we feel constrained to hold the amount of the award to be an abuse of discretion and direct that the award be modified upward to provide for the payment of support of the wife and three children to the sum of $200 weekly.
JACOBS, J., dissents.
*496 CONCURRING AND DISSENTING OPINION BY SPAETH, J.:
Appellant, Norma Rae Weiser, has asked that we reverse the support order of the Court of Common Pleas of Philadelphia County awarding her $150.00 per week for herself and her three children. She argues, first, that the lower court abused its discretion when it failed to consider appellee's earning capacity and instead based its support award upon his actual earnings, and, second, that the lower court erred when it gave credence to appellee's testimony about his current income. The majority holds that the amount of the award constitutes an abuse of discretion, and directs that the award be increased to $200.00 per week. I cannot join this disposition. Although I find the record before us inadequate to sustain the order of the lower court, I find it an even more inadequate basis for this court's independent computation of a new award. In my view, the better disposition would be to reverse the order of the lower court and remand for a new evidentiary hearing. At such a hearing, the lower court could order further testimony in the areas in which the instant record is most unsatisfactory: the income actually available to appellee in his new position, the reasons for his voluntary change in employment five months prior to his separation from his wife, and the financial needs and resources of appellant.
I
In Commonwealth ex rel. Grillo v. Shuster, 226 Pa. Superior Ct. 229, 236-237, 312 A.2d 58, 63 (1973), this court explained the importance of an adequate record in custody proceedings: "So that there may be assurance. . . that the fact finding process and ultimate adjudication did focus on . . . the issue to which `all other considerations are subordinate,' . . . the hearing judge should file in every custody case a comprehensive opinion reflecting a thorough analysis of the record as a whole and specifying the reasons for the ultimate decision."
*497 In my view, an adequate record that includes all the important issues and the relevant evidence is at least as important in support cases. Typically, in such cases, the actual needs of the dependents and the resources of the wage earner are obscured by the bitter accusations and competing claims of the parties. It is indeed difficult for the hearing judge, who observes the witnesses and assesses their credibility, to reject exaggeration and concealment and to formulate an award that reflects the real requirements of the parties. Because of the complexity of the issues in support cases, a "comprehensive opinion reflecting a thorough analysis of the record as a whole" is essential.
I recognize the limited scope of appellate review in support proceedings. We have often repeated the proposition that "[i]n a support proceeding, the trial judge who sees and hears the witnesses is in a better position than the Superior Court to decide the issue on its merits." Commonwealth ex rel. Friedman v. Friedman, 223 Superior Ct. 66, 67, 297 A.2d 158, 159 [allocatur refused, 223 Pa. Superior Ct. xxxv] (1972). An appellate court arrives at its decision on the basis of the printed record before it. Consequently, absent a clear abuse of discretion, we will defer to the order of the lower court. Commonwealth ex rel. Hauptfuhrer v. Hauptfuhrer, 226 Pa. Superior Ct. 301, 303, 310 A.2d 672, 673 (1973); Commonwealth ex rel. Long v. Long, 181 Pa. Superior Ct. 41, 43, 121 A.2d 888, 889 (1956). I suggest that even when the lower court has erred, it is preferable to remand the case to that court, so that it may amend the support order, rather than for us to make our own independent revisions. See Commonwealth ex rel. Goichman v. Goichman, 226 Pa. Superior Ct. 311, 316 A.2d 653 (1973).
I submit, however, that in the exercise of our review powers, we must do more than accept as given the analysis and conclusions of the lower court. Although we cannot nullify the fact-finding function of the hearing *498 judge, Commonwealth ex rel. Harry v. Eastridge, 374 Pa. 172, 97 A.2d 350 (1953), "[W]e do, however, have the power to require such procedures as will ensure that the record, including the opinion filed by the hearing judge in support of the [custody] order, is complete." Commonwealth ex rel. Grillo v. Shuster, supra at 234, 312 A.2d at 62. We are also charged with the responsibility of seeing that the relevant legal principles are correctly applied. Commonwealth ex rel. Kraus v. Kraus, 185 Pa. Superior Ct. 167, 172, 138 A.2d 225, 227 (1958). Without careful scrutiny of the record to ascertain whether the evidence supports the reasoning of the lower court, this court cannot meet its responsibility of determining whether there has been an abuse of discretion, that is, whether an order "misapplies the law" or reaches a "manifestly unreasonable, biased, or prejudiced result." Girard Trust Bank v. Remick, 215 Pa. Superior Ct. 375, 377, 258 A.2d 882, 884 (1969).
Applying these considerations to the case before us, it appears to me that the record does not provide a sufficient basis for the conclusions of the hearing judge. To explain why I find this to be so, it is necessary to refer to the testimony in the case, first appellee's, and then appellant's.
II
In order to decide whether to base its support decree upon appellee's current income or his potential earnings, the lower court found it necessary to consider appellee's reasons for leaving a well-paying job with a prestigious law firm as well as the evidence appellee submitted to substantiate his reported earnings. The lower court concluded that ". . . there was no indication that Mr. Weiser struck out on his own so as to defeat his family's right to support . . ." and that the record showed ". . . no evidence that he was concealing income or that his standard *499 of living was inconsistent with his claimed earnings." Opinion at 245a. I find these conclusions difficult to reconcile with appellee's contradictory and evasive testimony about his past and present income.
Although counsel for appellant questioned appellee with vigor and persistence, appellee's answers were reserved and unresponsive. For example, when asked on cross-examination, "What income did you enjoy as an employee of Dechert, Price and Rhoads?", appellee first answered, "I believe about $35,000.00". Appellee did not reveal that he had received an additional $5,000.00 in salary during the year in question until cross-examined further:
"Q. So your annual rate for 1972 was $40,000.00 and not $35,000.00; is that correct?
A. Before taxes, it is correct." (Record, 9a-10a).
Appellee was even less responsive when appellant's counsel attempted to inquire about his income from sources other than the practice of law:
"Q. Did you receive an inheritance from your father's estate?
A. No, I don't have, directly.
Q. Directly or indirectly, did you get any money from your father's estate?
A. No, I did not.
Q. You are not the beneficiary of your father's estate? Were you not the beneficiary under his will?
A. My mother is the beneficiary of the will.
Q. The answer is no?
A. Yes, the answer is no.
Q. Did you receive $12,000.00 from your mother?
A. No, I did not.
Q. Did you receive $12,000.00 from your father's estate?
A. No.
Q. We have the will here, Mr. Weiser. Do you want to reconsider your answer?
*500 A. I tell you I did not receive any money from my father's estate.
Q. Did you receive any assets, any stocks or bonds?
A. Yes, I did." (Record at 16a).
When questioned about the income he was deriving from his new partnership, appellee offered contradictory and incomplete answers. He reported his personal income from the partnership as $17,381.00 on his 1973 Partnership Return (Exhibit P-2, Record at 202a) and stated that his efforts had produced $17,000.00 of the $62,963 earned by the partnership during that year (Record at 13a). He also asserted, however, that he had generated over 50% of the partnership's business (representing approximately $32,000.00 in fees). Although he attempted to resolve this obvious inconsistency by claiming that the $17,000.00 represented net income and that he had in fact produced more than 53% of the firm's gross income, Record at 14a, his testimony remains unconvincing. Moreover, the reliability of the tax returns in which appellee reported his personal income is questionable; for example, although no previous support order had been entered, and appellee was still married at the time, he listed himself as single on his 1973 State and Federal income tax returns, and claimed a $4,378.00 deduction on the Federal return for alimony paid. (Record at 11a-12a).
Even accepting appellee's testimony that at the time of the hearing he was drawing $340.00 per week from the partnership, it is not at all apparent to me how he was able to live in the manner he did on the income he reported. Appellee rented an apartment at the Plaza on the Parkway, paid an additional sum for rented furniture and parking (Record, 121a-123a), took three costly vacations during 1974 (Record at 23a-26a) and financed the purchase of a new automobile in June, 1974. In addition, appellee claimed that he had arranged with creditors to make weekly payments on over $9,000.00 in bills which *501 he and his wife had jointly incurred. At first, he contended that he was obligated to pay the creditors $587.00 per week. However, under cross-examination, he reduced this figure to one more consistent with his admitted earnings:
"Q. We are then down to about $475.00 a week that you have according to your testimony arrangements to pay that sum weekly to creditors; is that correct?
A. That is correct.
Q. Now, you testified that you only draw a gross amount of $450.00 a week?
A. That is right.
Q. You made commitments to pay creditors, exclusive of your own expenses which are reflected on page 1, exclusive of college expenses, page 3 of Schedule 4; how can you do this, Mr. Weiser?
A. I just exist by paying what I can. I don't have the money.
. . .
The Court: It looks to me as though the payments are approximately $475.00 a week, if he is paying at all.
The Defendant: That amounts to $200.00 a week if I divide the $9,000.00." (Record at 164a-166a).
In addition to these major expenditures, appellee testified that he had paid his wife $200.00 per week through June, 1974, and that he had also paid $16,000.00 in tuition for his three children and in psychiatric bills by that date (Record at 30a-31a).[1] He explained that he had borrowed $21,000.00 against his life insurance in order to meet those expenses. Even if this substantial loan permitted him to reserve most of his income for his own use,[2] his *502 expenditures appear excessive when compared to the income to which he testified.
One more illustration may be given of why I find it difficult to credit appellee's testimony about his income. Appellee was questioned about his relationship with a young woman in Switzerland, and his receipt of several letters from her (Record at 40a-49a). Although he stated, "I don't know what these letters are all about, what language that is" (Record at 43a), he admitted to reading German, the language in which the letters were written, and to speaking it fluently (Record at 45a). He said that he had never seen the letters before (Record at 43a, 47a) and that he did not know any "Rose Marie." The letters, however, discussed such facts as the opening of appellee's new law offices (Exhibit P-3A, Record at 214a), and they had been found by appellant in appellee's briefcase.
Given such contradictory and evasive testimony, I find the record inadequate to sustain the lower court's decision to base the order of support on the income to which the appellee testified and which he reported in his income tax returns.
III
My opinion of appellant's testimony is not much more favorable than it is of appellee's. To say the least, her responses to questions about her resources were extremely guarded. Although she admitted to receiving income from several trusts (Record at 86a) and to receipt of $10,000.00 in interest from her share of a condemnation award (Record at 87a-90a), she consistently disclaimed any *503 knowledge or understanding of her finances. Statements such as the following were frequent:
"It wouldn't refresh my memory. I don't take care of my financial matters, my brother does." (Record at 90a)
"Yes. I guess I wrote it. I cannot tell you what I wrote. If you question me, please understand I don't understand all of that." (Record at 114a)
"I never understood it all. My husband took charge of the finances and my brother took care of the estate. I am trying to understand all of this. Please don't expect me to understand it." (Record at 114a)
When, on cross-examination, appellant was questioned about notations that she had made on her financial records, her responses were faltering and evasive:
"Q. Referring to the top of the page, `Trust', one trust you have four trusts and you have encircled one as 901-903 Market Street, and alongside of that is a notation that appears in your handwriting, `Net income about $13,000.00, child.' Does this mean per child?
A. I must tell you that this must have been written a couple of years ago. It is obviously my handwriting. I can't really tell. It takes time to get it in my head. I am not saying "
On the other hand, when asked to discuss her budget (Record at 66a-68a, Exhibit P-5 at 226a-232a), or to testify to the relative contributions made by her father and husband to the purchase of a home (Record at 183a-185a), appellant showed an excellent memory for financial detail and an acute understanding of costs. I note that appellant's budget lists expenses for herself and her three children that total $44,628.00, a figure in excess of appellee's entire former annual income as an attorney at Dechert, Price and Rhoads (Record at 226a).
Appellant is a college graduate, who was working toward a Master's Degree in guidance counselling at the *504 time of the hearing. She stated that "[E]ducation is extremely important to me," Record at 60a, and claimed that she had financed her husband's way through law school. I find it difficult to believe that a woman with the education and values of appellant could be so uninformed about her personal financial situation as her testimony makes her appear.
Appellant's evasiveness about her financial resources makes evaluation of the adequacy of the support order extremely difficult. Moreover, the record provides very little information about her employment potential. Although appellant worked briefly during 1974, she appears to have not been employed during most of her marriage (Record at 82a). Thus, she will enter the labor market with certain disadvantages, despite her recent degree. Nevertheless, now that her three children are over eighteen, it is possible that appellant may be able to contribute more substantially than she has in the past to her own support and to the children's educational expenses.
IV
As the lower court recognized, Opinion at 242a, it is a well-established rule that in formulating an equitable support order, the court may look to earning capacity as well as to current earnings. Commonwealth ex rel. Raitt v. Raitt, 203 Pa. Superior Ct. 226, 199 A.2d 512 (1964); Commonwealth ex rel. Hoffman v. Hoffman, 184 Pa. Superior Ct. 500, 135 A.2d 822 (1957). "This is especially true where it appears that appellant voluntarily left his position with an extreme reduction in pay. The court may consider such a reduction as an intended circumstance, and . . . look to the earning capacity of the party." Commonwealth ex rel. McNulty v. McNulty, 226 Pa. Superior Ct. 247, 250-251, 311 A.2d 701, 703 (1973). See also, Commonwealth ex rel. Wieczorkowski v. Wieczorkowski, 155 Pa. Superior Ct. 517, 519, 38 A.2d 347, *505 348 (1944). Although we said in Commonwealth ex rel. Hauptfuhrer v. Hauptfuhrer, supra, 226 Pa. Superior Ct. at 304, 310 A.2d at 673, that "It is the standard of living to which a family becomes accustomed that governs the calculation of a proper support order, consistent, of course, always with the husband-father's income and assets," I do not suggest that this court fashion a rule which would require that the wage earner in a support proceeding subordinate his valid professional aspirations to the needs of his family, and remain in a position which frustrates his ambitions. Such a policy would be unwise, particularly in the context of the instant case. If, however, the testimony taken at the rehearing fails to explain the marked inconsistencies between appellee's reported earnings and his actual expenditures, and if appellant's testimony justifies a more substantial support order, I would find it appropriate for the trial judge to consider appellee's potential earnings in formulating an order of support.
I question in particular the lower court's reliance on appellee's tax returns as indicia of his income, given such inconsistencies as an unwarranted alimony deduction. As we have said, it is appropriate for the hearing judge in a support case to look beyond the wage earner's tax returns to his actual cash flow:
"The net income of a defendant as shown on income tax returns is not to be accepted in a support case as the infallible test of his earning capacity. Particularly is this true where the defendant is in business for himself and is allowed substantial business `expenses', . . . which enable him to live luxuriously before spending his taxable income." Commonwealth v. Miller, 202 Pa. Superior Ct. 573, 577, 198 A.2d 373, 375 (1964).
Commonwealth ex rel. Goichman v. Goichman, supra, presented a situation similar to the one before us. There, an attorney had been ordered to pay $325.00 per week *506 for the support of his children. His earning capacity had been found by the lower court to be $60,000.00 per year in 1969 and 1970. However, he claimed that his income had been reduced, and supported this claim by submitting tax returns for the years in question which showed an earning capacity of approximately $13,000.00 and $20,000.00 (226 Pa. Superior Ct. at 316, 316 A.2d at 656). The lower court refused to rely on these returns and instead, looked at his expenditures which, by his own admission, included over $29,000.00 that he had lavished upon himself. In upholding this support order, we quoted from the lower court's opinion: "Respondent petitioned to reduce the amount of support awarded for his children, while continuing to live in a lavish style. This Court felt that if there was an actual decline in Respondent's income and assets, a corresponding change would be apparent in Respondent's life style." Commonwealth ex rel. Goichman v. Goichman, supra, 226 Pa. Superior Ct. at 316, 316 A.2d at 655.
It is true that we said in Commonwealth ex rel. Haimowitz v. Haimowitz, 221 Pa. Superior Ct. 364, 367, 292 A.2d 502, 504 (1972), that:
"It is that standard of living, so reduced by the lesser salary, to which the lower court should have addressed itself, and not the standard of living that would have been afforded by defendant's prior job. . ."
That case, however, is distinguishable from the one before us. There, the wife had acquiesced in the husband's change of position before he gave up his better-paying job. Moreover, in contrast to appellee here, the husband made significant efforts to economize, such as moving in with his parents. The record before us does not show that the extenuating circumstances of that case, or of Commonwealth ex rel. Shaffran v. Shaffran, 92 Montg. Co. L.R. 339 (1969), aff'd., 217 Pa. Superior Ct. 856, 270 A.2d 251 (1970), are present here.
*507 V
Were we in a position to have confidence in the record, I would have affirmed the order of the lower court. That order recognized that "[T]he current earnings of the parties are limited, and do not furnish the amounts necessary for the parties to continue to enjoy the standard of living to which they have become accustomed." Opinion at 249a. With such testimony as we have before us, however, I have no such confidence, and cannot tell whether the order has in fact been based on "a thorough analysis of the record as a whole," Commonwealth ex rel. Grillo v. Shuster, supra at 237, 312 A.2d at 63, or whether the correct legal standard was, in fact, applied. For this reason I would reverse and remand for a new hearing consistent with this opinion.
DISSENTING OPINION BY PRICE, J.:
Although I believe that the present circumstances indicate that the lower court abused its discretion by refusing to consider the potential earning capacity of the appellee in the formulation of its support order, I disagree with the majority's disposition of this case. As the majority correctly observes, appellate courts do not wish to substitute themselves as "super-support courts" because they "[h]ave not had the opportunity to see and hear the witnesses and so determine credibility." Yet, the majority not only concludes that the lower court abused its discretion, but also directs that the award be adjusted to a sum certain. In view of the above-stated principle, I believe that we should more properly remand to the lower court with directions to increase the amount of the award in a manner which reflects the factors discussed in the majority's opinion.
I would therefore reverse the order of the court below and remand with directions to increase the award in an amount consistent with the principles of the majority opinion.
NOTES
[1] "Included in this amount was approximately $261.00 per week to reduce over $9,000 in bills incurred by him and his wife. As Mr. and Mrs. Weiser own a substantial residence, the arrangements Mr. Weiser has made to pay these obligations may serve to avoid a judgment upon that property. In addition to the debts previously mentioned, Mr. Weiser has borrowed $21,000 against his life insurance policy."
[1] Appellee did not pay his children's college or private school tuition for the 1974 school year (Record at 49a-50a).
[2] Appellant's counsel pointed out that because of the loan, appellee was able to spend at least $13,000.00 of the $17,000.00 income he reported on his own expenses and on the alleged debts:
"Q. You borrowed $21,000.00 from your life insurance company and provided support for your wife and children at the rate of approximately $25,000.00 for the same period. So am I correct then in stating that the amount you took personally from your own income was only approximately $4,000.00?
A. I accept that, yes. . . ." (Record at 32a). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538402/ | 69 B.R. 279 (1987)
In re Paul A. DiPIERRO and Carolyn E. DiPierro, Debtors.
ALSAN CORPORATION, d/b/a Best Western Motor Lodge, Plaintiff,
v.
Paul A. DiPIERRO and Carolyn E. DiPierro, Defendants.
Bankruptcy No. 85-2458, Adv. No. 85-673.
United States Bankruptcy Court, W.D. Pennsylvania.
January 2, 1987.
*280 Patricia A. O'Connor, Pittsburgh, Pa., for defendants.
M. Jay Early, Indiana, Pa., for plaintiff.
Edwin M. Clark, Indiana, Pa., Trustee.
MEMORANDUM OPINION
BERNARD MARKOVITZ, Bankruptcy Judge.
Presently before the Court is Plaintiff's, Best Western Motor Lodge (hereinafter "Best Western"), Complaint To Determine Dischargeability Of Debt. As the Supreme Court of the United States has previously determined that the doctrine of res judicata does not prevent a bankruptcy court from going behind a state court judgment to determine whether a debt is nondischargeable, the issues before this Court are whether the doctrine of collateral estoppel is applicable, and whether an individual can agree, pre-petition, to a waiver of the dischargeability of a certain debt in bankruptcy.
Based upon the testimony offered at trial and this Court's research, we find that collateral estoppel is applicable, rendering the debt to Best Western non-dischargeable; however, we further hold that a person cannot, by agreement, waive the dischargeability of a certain debt, when said agreement is made pre-petition.
FACTS
The evidence offered at trial indicates, and this Court finds as fact, that between January 21, 1983 and April 28, 1983, Defendants engaged accommodations of Best Western and incurred expenses totaling $4,067.92. When said Debtors failed and/or refused to make the appropriate payment, an action was instituted in the Court of Common Pleas of Columbiana County, Ohio, at No. 83-CIV-1205.
In said Complaint, it was averred by Plaintiff that the Debtors, inter alia, acted in concert with the purpose of defrauding the Plaintiff and that said Debtors used deception to induce Plaintiff to provide accommodations and services, when Debtors knew that they were without sufficient means to pay for same. A second claim averred that Defendants acted falsely and fraudulently; that said actions were intentional, malicious and with utter disregard to Plaintiff's legal rights; and, that as a result of the activities of Defendants, the Plaintiff was harmed.
On January 30, 1984, a Judgment Entry was filed in the Ohio Court, which Ordered, Adjudged and Decreed that a judgment be entered for Plaintiff against Defendants, in the amount of $6,800.00, plus court costs. The Court further found that the Debtors herein had consented to Plaintiff's judgment that was based upon a claim of fraud, and that said judgment would not be dischargeable in bankruptcy by, inter alia, the Debtors herein. Said Consent Order was executed by the Debtor, as president of the company and individually, and was also executed by Michael S. Delaney, Attorney at Law, who was counsel to Debtors herein.
ANALYSIS
A discharge in bankruptcy has the effect of discharging a debtor from all debts that arose before the Order for relief was entered, except as provided under Section 523. 11 U.S.C. § 727(b).
A discharge under § 727 does not discharge an individual debtor from any debt for money, property, services . . . obtained by false pretenses, a false representation or actual fraud. 11 U.S.C. § 523(a)(2)(A).
Plaintiff herein avers that a court of competent jurisdiction has had an opportunity to review the particular issue of fraud by and between the parties; accordingly, "full faith and credit" should be given to the state final judgment, and this issue by and between the parties should be determined by this Court to have been finally decided by the Ohio Common Pleas judgment.
*281 The Supreme Court in Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979), directed that res judicata does not prevent a bankruptcy court from going behind a state court judgment to determine whether a debt is nondischargeable under the Bankruptcy Act.
In Brown, the court reasoned that Congress intended the bankruptcy court, alone, to resolve dischargeability issues, and that by limiting the application of res judicata, the bankruptcy court would be able to weigh all evidence and accurately determine whether the debtor did in fact commit deceit, fraud, or malicious conversion.
Brown did not resolve the related issue of the applicability of collateral estoppel; to the contrary, the court intimated that collateral estoppel should be applied if the state court's factual findings were based on standards identical to those used by the bankruptcy court in its dischargeability determination. Id. at 2213, n. 10.
The Third Circuit has had an opportunity to review this issue in the Matter of Ross, 602 F.2d 604 (3rd Cir.1979), wherein said court determined that the doctrine of collateral estoppel will bar re-litigation of the dischargeability issue if the bankruptcy court finds the following elements:
1. the issue sought to be precluded must be the same as that involved in the prior act;
2. that issue must have actually been litigated;
3. it must have been determined by a valid and final judgment; and
4. the determination must have been essential to the prior judgment.
Id. at 608, quoting Haize v. Hanover Insurance Company, 536 F.2d 576 (3rd Cir. 1976). See also, Matter of McMillan, 579 F.2d 289 (3rd Cir.1978); In re Levinson, 58 B.R. 831 (Bankr.N.D.Ill.), aff'd, 66 B.R. 548 (N.D.Ill.1986); Matter of Moccio, 41 B.R. 268 (Bankr.D.N.J.1984).
It is established by the facts, and this Court determines, that elements 3 and 4 are clearly established. The issue of fraud is and was the central issue in the state court action, which was determined by a valid and final judgment.
Element 1 requires that the issue to be precluded be the same as that involved in the prior judgment. Therefore, we must determine whether a finding of fraud under the laws of Ohio is the same as a finding of fraud under § 523(a)(2)(A) of the Bankruptcy Code.
In Ohio the following elements must be present in order to reach a finding of fraud:
(1) There must be an actual or implied representation of a matter of fact (2) which related to the present or the past, (3) which was material to the transactions and (4) which was false when made. (5) The statement must be made with knowledge of its falsity, or with reckless disregard for whether it is true or not and (6) with the intent to mislead the other party into relying upon it. (7) The other party must be ignorant of the fact averred, causing (8) justifiable reliance and (9) injury.
Dunn Appraisal v. Honeywell Information Systems, 687 F.2d 877, 882 (6th Cir. 1982), quoting Block v. Block, 165 Ohio St. 365, 135 N.E.2d 857 (1956). In order to prevail in an action under § 523(a)(2)(A), the Plaintiff must prove that:
1) the debtor made the representations;
2) at the time he made them he knew they were false;
3) he made them with the intention and purpose of deceiving the creditor;
4) the creditor relied on such representations; and
5) the creditor sustained the alleged loss and damage as the proximate result of the representations having been made.
In re Hammill, 61 B.R. 555, 556 (Bankr.E. D.Pa.1986). See also, In re Taylor, 49 B.R. 849 (Bankr.E.D.Pa.1985); In re Fenninger, 49 B.R. 307 (Bankr.E.D.Pa.1985).
It is clear that the standard for finding fraud in Ohio is at least as high, if not higher than that under § 523(a)(2)(A). *282 Therefore, element 1 has also been established.
The only remaining element requires that the issue has actually been litigated. The parties entered into a Stipulation and/or Consent Judgment, wherein they agreed, and the court found as fact, that the Plaintiff's judgment was based upon a claim of fraud.
The Debtor, a businessman, was represented by counsel of his choosing; in fact, said attorney had been counsel to the Debtor for a long time prior to this action. The Debtor testified that his attorney explained the legal significance of the Consent Judgment to him, and said Debtor further testified that he was aware of said significance when he knowingly and voluntarily executed the Consent Order. The Debtor cannot now be heard to demand a day in court he voluntarily waived years ago in the state court. The wording of the Stipulation based in fraud, acts as a confession of his state of mind. A contrary statement at this late stage of the proceedings can only compound the improper activity by adding perjury to the fraud.
The fact that this Judgment was the result of the parties' Stipulation of Settlement does not detract from its being considered a conclusive determination of the merits of that action for purposes of collateral estoppel, where the parties intended the Judgment to resolve all the issues raised in that action.
Green v. Ancora-Citronelle Corporation, 577 F.2d 1380, 1383 (9th Cir.1978); accord In re Austin, 26 B.R. 751, 752 (Bankr.S.D. Fla.1982). See also, In re Levinson, 66 B.R. at 552. (When "[a] party stipulates in a consent judgment to the resolution of a claim against him and the specific reasons for such resolution, the matter will be deemed as `actually litigated' under collateral estoppel principles.")
In reaching this determination, the court gives no significance to the portion of the Judgment Entry determining that said Judgment shall not be dischargeable in bankruptcy. A debtor cannot contract away the right to a bankruptcy discharge in advance of the bankruptcy filing. In re Levinson, 58 B.R. at 836-37. Exceptions to discharge are strictly construed to further the policy of affording the debtor a broad discharge and an effective fresh start. Id. at 837, quoting Gleason v. Thaw, 236 U.S. 558, 35 S.Ct. 287, 59 L.Ed. 717 (1915). Waivers of dischargeability of particular debts are generally governed by the rules relating to reaffirmation of debts. 11 U.S.C. § 524(c) and (d). Clearly, the requirements of the Bankruptcy Code relating to a reaffirmation of a debt are not found in the case at bar, and the Debtor's waiver of the discharge of this certain debt is void ab initio.
In conclusion, it is the finding of this Court that the debt of Best Western, in the amount of $6,800.00, is neither discharged nor dischargeable.
An appropriate Order will be issued. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538408/ | 69 B.R. 932 (1987)
In re ALLEGHENY IMAGING INSTITUTE, A Limited Partnership, Debtor.
Bankruptcy No. 86-1497, Motion No. 86-3900.
United States Bankruptcy Court, W.D. Pennsylvania.
February 11, 1987.
*933 Richard A. Pollard, Pittsburgh, Pa., for debtor.
Garland H. McAdoo, Jr., Tucker Arensberg, P.C., Pittsburgh, Pa., for Dr. Armfeld.
James F. Grenen, Kincaid & McGrath, P.C., Pittsburgh, Pa., for Equibank.
Gary L. Smith, Pittsburgh, Pa., trustee.
MEMORANDUM OPINION
BERNARD MARKOVITZ, Bankruptcy Judge.
Before the Court is Equibank's Motion For Relief From Stay, which asserts that Equibank possesses a valid security interest in a sum of $14,500.00. Equibank characterizes this sum as a "contract right" belonging to the Debtor, arising out of a contract by and between the Debtor (also referred to as "AII") and Dr. Samuel L. Armfeld, III; wherein Dr. Armfeld agreed to purchase the assets of the Debtor. The amount of $14,500.00 represents the initial deposit of funds under said contract by Dr. Armfeld.
Equibank asserts that Dr. Armfeld breached this contract, and thereby relinquished his rights in this fund; therefore, Equibank asserts that it possesses the right to said fund, pursuant to its security interest.
Dr. Armfeld has challenged Equibank's Motion, claiming that a valid contract has never materialized as there had been no meeting of the minds; alternatively, Dr. Armfeld claims that if a contract did exist, said contract was not breached. Dr. Armfeld and the Trustee both argue that this fund constitutes a "deposit account" rather than a "contract right", which cannot be the subject of a Uniform Commercial Code ("UCC") security interest; therefore, Equibank's security interest cannot include said deposit.
A hearing was held on this Motion at which time testimony was taken from Dr. Armfeld and Mr. Joel Aronson, the Debtor's business consultant and authorized representative. Thereafter, Equibank and Dr. Armfeld submitted briefs on these issues.
Based upon the testimony offered at trial, the subsequent briefs, and this Court's own research, we find that a contract did exist and it was breached. Further, we find that Equibank was secured in "contract rights", and the proceeds thereof. While there is no question but that the $14,500.00 sum constitutes a deposit account, it is also the proceeds of the contract right. As said deposit account contains only proceeds, it is subject to Equibank's security interest. Since AII remains indebted to Equibank in the amount of $66,991.61, relief from stay will be granted.
FACTS
The Debtor was a medical center which specialized in radiological examinations and relied, for its continued operation, on patient referrals from a pool of physicians. The Debtor required highly technical and very costly equipment to maintain its practice, as well as appropriately trained staff to utilize this equipment. Equibank provided the Debtor with a loan for $85,000.00 on October 3, 1985. A Security Agreement was executed between AII and Equibank, which included "contract rights" within its rather expansive definition of receivables. Subsequent to the execution, Equibank filed the appropriate UCC financing statements, *934 which indicated that Equibank was also secured in any proceeds resulting from its security interest.
Sometime thereafter, the Debtor began to suffer serious financial difficulties. During that time, it approached Dr. Armfeld to staff the center in return for a percentage of the receivables. While Dr. Armfeld was associated with the Debtor, the number of referrals grew; however, the Debtor's financial situation was in such dire straits that in mid-November of 1985, a management consultant, Mr. Aronson, was hired.
Mr. Aronson advised the Debtor that in order to avoid bankruptcy, the Debtor's partners should sell the business to pay off their creditors. As Dr. Armfeld was already operating the medical portion of the business, he appeared to be the logical choice for buyer.
Negotiations relevant to such a purchase began. Initially these meeting involved Mr. Aronson; Mr. Beisler, the representative of AII's managing partner; Dr. Armfeld; and his financial advisor. Dr. Armfeld notified Mr. Aronson that he had located a group of investors interested in pursuing this asset purchase. These activities culminated in a meeting, wherein Dr. Armfeld and Michael Pitterich, an attorney representing the investor group, met with Mr. Beisler and Mr. Aronson. One of the results of these negotiations was a document, alternately referred to by the parties as the "contract" or the "letter of intent". Another result was a deposit of $14,500.00, by Dr. Armfeld, in a deposit account; said sum represented the deposit called for in the document. Michael Pitterich, Dr. Armfeld, and Joel Aronson signed this document. Dr. Armfeld hesitated in signing the document because of concern over the language found in Paragraph 6, which states:
If Buyer does not close this transaction due to a breach of this Agreement by Buyer, AII shall be entitled to retain as liquidated damages the fifteen thousand ($15,000) 14,500 dollars deposit. However, this shall be the only damages AII shall be entitled to and there shall be no other damages or rights of action against Buyer. Any other monies paid to AII pursuant hereto shall be returned to Buyer.
(Strike-outs and additions in original.)
When Dr. Armfeld voiced his concern over Paragraph 6, indicating that he did not want to lose the money he was depositing, he was advised by Attorney Pitterich that he was protected by the language of Paragraph 7, which states:
The obligations of Buyer hereunder are subject to legal counsel for Buyer and AII agreeing to the final closing documentation that will provide the details of the transaction described herein.
Based upon the explanation he requested and received from an individual trained in the law, Dr. Armfeld testified that he believed he would not be bound by this Agreement, until his attorney had worked with counsel for the other parties on the drafting of final documentation. Dr. Armfeld also testified that because of the time constraints being placed on him by Mr. Aronson, to close the deal, he advanced a check for $14,500.00 without seeking prior advice of his counsel. However, no testimony was presented to show that Dr. Armfeld ever did in fact seek advice of his counsel after the document was signed.
Mr. Aronson testified that there was never any discussion of a financing contingency prior to execution of the document; indeed, the document refers to the "Buyer" as Dr. Armfeld and/or an investor group. He further testified that there were several meetings prior to the February 28th date, and that while he was anxious to complete the deal, these negotiations took place over a one-month period.
Mr. Aronson further testified that upon the signing of this document, he informed another interested bidder that a deal had been made.
The transfer anticipated by the parties to this document never materialized, due in large part to the withdrawal from these *935 negotiations of Pitterich's investor group, and Dr. Armfeld's inability to obtain the necessary financing on an individual basis. Thereafter, when Mr. Aronson tried to reactivate negotiations with the other interested buyer, said buyer was no longer interested. The failure to finalize these activities caused the Debtor to seek protection under the bankruptcy laws.
ANALYSIS
When a conflict arises as to whether the parties intended a particular writing to constitute a valid and enforceable contract, the determination of whether or not such a contract exists is a question of fact; the factfinder must determine the existence or lack thereof, based upon all of the evidence provided. See Field v. Golden Triangle Broadcasting, Inc., 451 Pa. 410, 305 A.2d 689 (1973); Johnston v. Johnston, 346 Pa. Super. 427, 499 A.2d 1074 (1985); Ingrassia Construction Company, Inc. v. Walsh, 337 Pa.Super. 58, 486 A.2d 478 (1984); Yellow Run Coal Company v. Alma-Elly-Yv Mines, Ltd., 285 Pa.Super. 84, 426 A.2d 1152 (1981); National Products Company, Inc. v. Atlas Financial Corporation, 238 Pa.Super. 152, 364 A.2d 730 (1975).
It is axiomatic that there must be a meeting of the minds on the essential elements of the parties' agreement in order for there to be an enforceable contract. See, Rusiski v. Pribonic, 326 Pa.Super. 545, 474 A.2d 624 (1984), rev'd and remanded on other grounds, 511 Pa. 383, 515 A.2d 507 (1986); Onyx Oils & Resins, Inc. v. Moss, 367 Pa. 416, 80 A.2d 815 (1951); Courier Times, Inc. v. United Feature Syndicate, Inc., 300 Pa.Super. 40, 445 A.2d 1288 (1982); Yellow Run, supra; Hahnemann Medical College and Hospital v. Hubbard, 267 Pa.Super. 436, 406 A.2d 1120 (1979). Cf. Ingrassia, supra. If the essential terms are settled, the contract is enforceable, even if it is an informal document which requires future approval of incidental terms. Field, supra; Johnston, supra; Kazanjian v. New England Petroleum Corporation, 332 Pa.Super. 1, 480 A.2d 1153 (1984); Courier Times, supra; Yellow Run, supra.
In the case at bar we have a document which states the subject matter to be purchased, the seller and buyer in said transaction, the purchase price, broken down into three (3) installments, the dates of the three installments, and the signatures of the representative parties. This is more than the necessary elements to find that a contract exists. The liquidated damages paragraph (Paragraph 6), questioned by Dr. Armfeld, is a valid and enforceable clause of this Agreement. The paragraph referred to by the doctor as his "out" (Paragraph 7) does not provide such a release. As stated earlier, once the essential terms of an agreement are settled, the contract is valid and enforceable, even though the document requires approval of incidental terms at a later time. These additional terms are clearly to what Paragraph 7 of the document refers.
Furthermore, it appears that Dr. Armfeld attempted to tie the hands of the Seller, while allowing himself the ultimate flexibility. Though he claims he had no opportunity to meet with his attorney, he does not explain why, during the month-long negotiations leading up to this document, he did not contact said attorney to seek advice and counsel. Furthermore, he offers no testimony or explanation as to why such advice was not sought soon after the execution, to verify his understanding of the language.
The document before the Court speaks for itself. We find no signs of ambiguity. Dr. Armfeld's assertions of haste in the execution of this document and reliance on the wisdom of another party's interpretation of the language in Paragraph 7 are tenuous; they may provide the basis for some actionable claim, but such is not the matter presently before this Court.
Having found the existence of a contract, we must now determine if the contract was breached. Dr. Armfeld argues that the contract lacks a definition of breach, and therefore, breach cannot be *936 determined. However, such a clause is unnecessary. It is axiomatic that a breach of contract occurs whenever one party to the contract fails to perform any contractual duty of immediate performance, or violates an obligation or duty. When a contract calls for performance by both parties and one party fails to so perform, the other contracting party is entitled to consider the agreement breached. Just Mfg. Co. v. Falck, 354 Pa. 421, 47 A.2d 659 (1946); Camenisch v. Allen, 158 Pa.Super. 174, 44 A.2d 309 (1945); 8 P.L.E. Contracts § 364 (1971).
Paragraph 2 of the contract indicates that $14,500.00 was to be paid upon delivery of the letter of intent; it was in fact paid at that time. The second installment of $65,000.00 was to be paid two (2) weeks later. When Dr. Armfeld was unable to secure the funds, the parties agreed to several extensions. When AII finally determined that no further extensions could be granted, and Dr. Armfeld still failed to perform, AII was entitled to consider the agreement breached. Paragraph 6 of the contract provides that if the Buyer breached the agreement, AII was entitled to retain the $14,500.00 as liquidated damages and was limited to said sum. Therefore, the $14,500.00 belongs to AII.
We turn now to the more complex issue of whether Equibank's security interest attaches to said funds.
Pennsylvania's U.C.C. (13 Pa.C.S.A.) § 9105(a) defines collateral as the property subject to a security interest. Equibank and AII entered into a Security Agreement to protect Equibank for the $85,000.00 loan made to AII. The Security Agreement provides that Equibank is secured in all of AII's equipment, inventory, receivables, and any proceeds received therefrom.
Paragraph 1(m) of this Agreement defines "receivables" quite expansively, and includes:
... all accounts, contract rights, accounts receivables, instruments, documents, chattel paper, general intangibles ... any other obligations or indebtedness owed to the Borrower from whatever source arising; all rights of the Borrower to receive any payments in money or kind ...
Equibank filed the appropriate financing statements with the necessary offices within the State and County. Therefore, Equibank has perfected its interest and is secured in AII's contract rights, including its contract with Dr. Armfeld. The contract states that if a breach occurs, the $14,500.00 deposit will be retained as liquidated damages. The contract was breached by Dr. Armfeld's nonperformance; therefore, AII's contract right is limited to the $14,500.00 sum.
Normally, our analysis would now be complete, inter alia, Equibank would be entitled to the fund pursuant to its security interest; however, both Dr. Armfeld and the Trustee have raised an additional argument. They assert that the $14,500.00 constitutes a deposit account, and deposit accounts cannot be the subject of security interests. Indeed, § 9105(a) defines a "deposit account" as:
... a demand, time, savings, passbook or like account maintained with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a certificate of deposit;
Furthermore, § 9104(12) specifically states:
This Article does not apply ...
(12) to a transfer of an interest in any deposit account ... except as provided with respect to proceeds (section 9-306) and priorities in proceeds (section 9-312).
Facially then, it would appear that the $14,500.00, being held in a deposit account, would be outside the coverage of Article 9.
However, U.C.C. 9-306 defines proceeds as whatever is received upon the sale, exchange, collection or other disposition of collateral or proceeds. Further, Section 9306(d)(1) states:
(d) In the event of insolvency proceedings instituted against a debtor, a secured party with a perfected security interest in proceeds has a perfected *937 security interest only in the following proceeds:
(1) in identifiable non-cash proceeds and in separate deposit accounts containing only proceeds;
(emphasis added). The last sentence of 9306(d)(1) was added in 1982 when Pennsylvania adopted the 1972 Amendments to the U.C.C. The account in question contains only the $14,500.00, and any interest accrued thereon. See also, First National Bank of Amarillo v. Martin, 48 B.R. 317, 40 U.C.C.Rep.Svc. 1521 (S.D.Tex.1985); In re Barkley, 31 B.R. 924, 36 U.C.C.Rep.Svc. 1378 (Bankr.W.D.Mich.1983); In re Cooper, 2 B.R. 188 (Bankr.S.D.Tex.1980).
The U.C.C. does not define "disposition" as in disposition of collateral. Black's Law Dictionary defines "disposition" as:
Act of disposing; transferring to the care or possession of another. The parting with, alienation of, or giving up property.
We find that in return for giving up its contract right, AII received liquidated damages as proceeds of that contract; inter alia, the disposition of Equibank's collateral. As the liquidated damages represent proceeds of collateral; the U.C.C. provides that in an insolvency proceeding, a deposit account containing only proceeds of secured collateral remains secured; and Equibank's Security Agreement and financing statement cover both the contract as collateral and proceeds thereof, we find that Equibank's security interest attaches to the $14,500.00 deposit account.
Equibank is owed $66,991.61. The deposit account contains $14,500.00 plus interest accrued. Clearly, AII has no equity therein, and relief from stay should be granted.
An appropriate Order will be issued. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538409/ | 168 Conn. 619 (1975)
GRACE D. TAYLOR
v.
WILLIAM T. TAYLOR
Supreme Court of Connecticut.
Argued May 14, 1975.
Decision released June 17, 1975.
HOUSE, C. J., LOISELLE, MACDONALD, LONGO and BARBER, JS.
Robert N. Shea, with whom, on the brief, were Melvin Scott and Narcyz Dubicki, for the appellant (defendant).
Thomas B. Wilson, for the appellee (plaintiff).
PER CURIAM.
This is an appeal by the defendant from a judgment granting the plaintiff a divorce on the grounds of intolerable cruelty, awarding her alimony of one dollar per year and ordering the conveyance to her of the defendant's interest in the jointly owned property of the parties. The defendant's basic claims are that the court erred: (1) in refusing to recognize the validity of a prior decree of divorce granted to the defendant in Mississippi on the ground that the defendant was not a bona fide resident of that state; (2) in granting a divorce to the plaintiff in the absence of any finding of intolerable cruelty; and (3) in awarding alimony to the plaintiff and transferring to her the defendant's interest in the jointly owned property.
To the defendant's special defense that a Mississippi court had dissolved the marriage prior to the date of the trial in Connecticut, as evidenced by a certified copy of the Mississippi decree, the plaintiff *620 filed a reply alleging that the Mississippi court lacked jurisdiction to enter that decree because neither party was an actual bona fide resident of the state of Mississippi for one year prior to the commencement of the Mississippi action as required by the laws of that state. Although the court found that the defendant left Connecticut in the summer of 1971 to take employment in Mississippi, purchased a house and lot in Mississippi in August, 1971, and did not return to Connecticut until December, 1972, for the purpose of attending the trial of this action, it concluded that "[t]he defendant failed to prove that he was a bona fide resident of the State of Mississippi for one year prior to the commencement of this suit for divorce in said state" in August, 1972, and that "[s]ince the Mississippi court was without jurisdiction to grant a decree of divorce [to] the defendant, the Court was not required to give the Mississippi Court Decree full faith and credit."
It is obvious from the specific wording of the finding as well as from the language in the memorandum of decision that the court erroneously imposed upon the defendant the burden of proving that he was a bona fide resident of the state of Mississippi for the one-year period prior to the commencement of his divorce action necessary to give the Mississippi court jurisdiction to grant a valid decree. The plaintiff's reply to the special defense alleged that the Mississippi court lacked jurisdiction and it has been clearly stated by this court in Rice v. Rice, 134 Conn. 440, 447, 58 A.2d 523, aff'd, 336 U.S. 674, 69 S. Ct. 751, 93 L. Ed. 957, following Williams v. North Carolina, 325 U.S. 226, 234, 65 S. Ct. 1092, 89 L. Ed. 1577, that the burden of proving an allegation of lack of jurisdiction *621 under circumstances similar to those involved here falls upon the party making that claimin this instance, the plaintiff, who introduced no evidence whatsoever to dispute the fact that the defendant was properly domiciled in Mississippi at the time he commenced his divorce action there or that he had been a resident there for more than one year prior to that time. Rather, the plaintiff apparently relied upon her claim that the defendant, by admitting the allegation in the complaint that "[t]he address ... of the defendant [is] 214 Niantic River Road, Waterford, Connecticut," judicially admitted that he was still a resident of Connecticut. The defendant at that time shared with the plaintiff ownership of the property located at that address. An "address" is not domicil, and a person may have simultaneously two or more residence addresses but only one domicil at any one time. Clegg v. Bishop, 105 Conn. 564, 570, 136 A. 102. Jurisdiction to grant a divorce is founded on domicil and not residence or address; Rice v. Rice, supra, 445; Williams v. North Carolina, supra, 229; and the court erred in failing to recognize the validity of the Mississippi divorce decree under the constitutional mandate of full faith and credit; Williams v. North Carolina, 317 U.S. 287, 298, 299, 63 S. Ct. 207, 87 L. Ed. 189; even though the plaintiff made no appearance in the Mississippi proceedings. Estin v. Estin, 334 U.S. 541, 544, 68 S. Ct. 1213, 92 L. Ed. 1561.
Moreover, quite apart from any consideration of the effect of the Mississippi divorce in terminating the marriage relationship prior to the trial in Connecticut, there is no finding by the court relative to a single act of intolerable cruelty to support its conclusion that the defendant "has been guilty of *622 intolerable cruelty to the plaintiff," as alleged in the complaint, or even to link any conduct by the defendant to the supplemental finding that "by December, 1970, the conditions were intolerable to the plaintiff." The court's conclusions are tested by the finding; New Haven v. United Illuminating Co., 168 Conn. 478, 483, 362 A.2d 785; and there is no finding to support a conclusion either that there were acts of cruelty on the part of the defendant or that any acts of his were intolerable in the sense of rendering the continuance of the marital relation unbearable by the plaintiff.
The defendant's claim of error in the court's award of alimony to the plaintiff and in its transfer to her of the defendant's interest in jointly owned real estate is based not upon the theory that the Connecticut courts have no authority to adjudicate the rights and equities of the parties with respect to property located in Connecticut but that such an adjudication cannot be accomplished by a divorce action in which, as in this case, the divorce sought could not properly be granted. Then § 46-21 of the General Statutes, pursuant to which the foregoing orders were made, provided in relevant part: "The superior court may assign to any woman divorced by such court a part of the estate of her husband and, in addition thereto or in lieu thereof, may order alimony to be paid from the husband's income...." (Emphasis added.) Since we have concluded that the trial court could not, for the reasons given, properly grant a divorce to the plaintiff and that, in effect, the defendant was not her husband at the time the judgment herein was rendered, it follows that the court could not, as incidental to the entry of a decree of divorce, order the defendant to pay alimony or to transfer any *623 part of his estate to the plaintiff. See Christiano v. Christiano, 131 Conn. 589, 594, 41 A.2d 779; Dunham v. Dunham, 97 Conn. 440, 443-44, 117 A. 504.
There is error, the judgment is set aside and the case is remanded with direction to render judgment for the defendant. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538507/ | 142 N.J. Super. 512 (1976)
362 A.2d 61
LOUISE T. SCHNEIDER, PLAINTIFF,
v.
RICHARD C. SCHNEIDER, DEFENDANT.
Superior Court of New Jersey, Chancery Division (Matrimonial).
Decided June 14, 1976.
*513 Mr. Francis J. Tarrant for plaintiff (Messrs. Chasan, Leyner, Holland & Tarrant, attorneys).
Mrs. Libby E. Sachar for defendant (Messrs. Sachar, Bernstein, Rothberg, Sikora & Mongello, attorneys).
*514 GRIFFIN, J.S.C.
The issue here involved is the interpretation of the second portion of N.J.S.A. 2A:34-2(e) stating, as a ground for divorce, "habitual drunkenness for a period of 12 or more consecutive months subsequent to marriage and next preceding the filing of the complaint."
The words "next preceding the filing of the complaint" have not been interpreted by any reported case in New Jersey.
On October 29, 1975 plaintiff filed a complaint seeking a divorce based on her husband's alleged drunkenness. A separate defense in the answer reads as follows: "defendant has discontinued any drinking since September 4, 1975, and is a member of A.A. and therefore, he has not been a habitual drinker within one year prior to the filing of the complaint." The wife moves to strike this separate defense.
The pertinent facts are set forth in the husband's affidavit as follows:
I had previously a drinking problem but stopped in the middle of July, 1975. I fell back on or about August 22, 1975, as a result of which I signed myself into Overlook Hospital on August 27, 1975, and remained there until September 4, 1975. I am now a member of A.A. and for the last number of months have succeeded in discontinuing any drinking.
The parties have been separated since August 24, 1975.
For the purposes of this motion it must be assumed that the husband did not drink for approximately two months immediately preceding the filing of the complaint. He contends that the statute must be strictly construed and that no cause of action exists.
There are not many out-of-state cases involving similar statutes.
If a reasonable period has passed and the habitual drunkenness has ceased, the divorce will not be granted. Hammond v. Hammond, 240 Mass. 182, 132 N.E. 724 (Sup. Jud. Ct. 1921) (six months after drinking ceased); Meathe v. Meathe, 83 Mich. 150, 47 N.W. 109 (Sup. Ct. 1890) (six months after drinking ceased); Kennon v. Kennon, 150 Me. *515 410, 111 A.2d 695 (Sup. Jud. Ct. 1955) (one year after drinking ceased). Where the husband has been in an insane asylum so that he could not consciously break the drinking habit, the court in Fish v. Fish, 126 Me. 342, 138 A. 477 (Sup. Jud. Ct. 1927), granted a divorce even though he apparently had stopped drinking. The Supreme Court of Alabama, in the case of Meares v. Meares, 256 Ala. 596, 56 So.2d 661 (1952), denied a divorce where the wife was out of touch with the husband for one year; hence, she could not establish whether or not his drinking continued. The Connecticut case of Allen v. Allen, 73 Conn. 38, 46 A. 242 (Sup. Ct. of Err. 1900), is unusual as it required that the wife show that the habitual drunkenness continued right down to the date of judgment. This case turned on the strong public policy against divorce which existed in Connecticut at that time. The present public policy of New Jersey, however, is to terminate dead marriages. See Altbrandt v. Altbrandt, 129 N.J. Super. 235 (Ch. Div. 1974); Ballard v. Ballard, 124 N.J. Super. 462 (Ch. Div. 1973).
Counsel draws a parallel between the statute involved here and N.J.S.A. 2A:34-10 which governs jurisdiction in divorce proceedings. The jurisdictional statute provides, in substance, that no action for divorce may be commenced for any cause other than adultery "unless one of the parties has been for the 1 year next preceding commencement of the action a bona fide resident of this State."
While, perhaps, a jurisdictional statute should be strictly construed, this court feels that a statute setting forth a cause of action should be reasonably construed. In this case the defendant unsuccessfully attempted to stop drinking in July 1975. At the present time he has been discharged from the hospital but he is still a member of Alcoholics Anonymous. In a sense he is still continuing his treatment. If the position of the husband is sound, the wife's complaint based on habitual drunkenness would fail if filed the day after he entered the hospital for treatment.
*516 Must she file her complaint while he has his glass in hand? Does she lose her cause of action because she files in the afternoon and he has not had a drink since before lunch? Certainly a reasonable time must be allowed between the separation of the parties because of the drinking problem and the actual filing of the complaint. Two months is reasonable.
The court in Scully v. Scully, 122 N.J. Super. 94 (Ch. Div. 1972), held that two months abstinence did not do violence to the portion of the statute requiring "habitual drunkenness for a period of 12 or more consecutive months." Should the court differentiate between two months' abstinence in the middle of the 12-month period and at the end? Perhaps, but her cause of action should not be defeated when she files while he is still undergoing treatment.
The motion to strike the defense is granted. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538524/ | 69 B.R. 656 (1987)
In re NTW INCORPORATED Debtor.
TRANSPRO CORPORATION, Plaintiff,
v.
NTW INCORPORATED Defendant.
Bankruptcy No. 84-00867-A, Adv. No. 86-0469-A.
United States Bankruptcy Court, E.D. Virginia, Alexandria Division.
February 2, 1987.
*657 Joseph S. Luchini, Linda S. Broyhill, Attorney-at-Law Hazel, Beckhorn & Hanes Fairfax, Va., for NTW Inc.
John F. Sherlock, III, Robert S. Faron, Barnett & Alagia, Washington, D.C., for Transpro Corp.
MEMORANDUM OPINION
MARTIN V.B. BOSTETTER, Jr., Chief Judge.
This matter comes before the Court on the motion of the debtor, NTW Incorporated ("NTW"), to strike the demand for a jury trial noted both in the claim against the estate filed by Transpro Corporation ("Transpro") and in Transpro's answer to the counterclaim asserted by NTW. Transpro has opposed the motion, arguing that its claim against the estate rests upon claims at law to which it has a right to trial by jury. Although each party has cited to the Court several legal theories purported to dispose of this matter, each theory has at its heart a single question. Consequently, the resolution of this matter turns on the distinction between a legal claim for a money judgment and an equitable claim for determination of an appropriate share of a debtor's estate in bankruptcy which is grounded upon an assertion of a right to a money judgment.
The claim and counterclaim which are the subject of this adversary proceeding arise out of a franchise agreement entered into by NTW and the principals of Transpro on September 12, 1982. After a period of unsuccessful operation of an NTW franchise in Nashville, Tennessee, on January 18, 1984 Transpro signed an agreement which settled Transpro's open accounts with NTW and under which NTW assumed control of the Transpro franchise on February 15, 1984. Transpro seeks in its complaint to set aside the settlement agreement because obtained through duress, to establish that NTW fraudulently induced Transpro to enter into the franchise agreement, and to establish that NTW breached its common law duty to deal fairly with Transpro during Transpro's operation of its franchise. Transpro seeks compensatory damages in the amount of One Hundred Forty Thousand Dollars ($140,000.00) and punitive damages in the amount of One Million Dollars ($1,000,000.00).
NTW asserts various defenses to the allegations contained in the complaint, among them statutes of limitation, estoppel, waiver of claims, accord and satisfaction, contributory negligence and assumption of the risk. Arguing that the January 18, 1984 settlement agreement resolved all matters then in dispute, NTW asserts a counterclaim under that document for Forty-Eight Thousand Six Hundred Eighty-One Dollars and Forty-One Cents ($48,681.41), the amount claimed to be due NTW on Transpro's open accounts.
It is undisputed that this Court has jurisdiction over the claim filed by Transpro and over the objection and counterclaim filed by NTW pursuant to section 157 of title 28 of the United States Code. Section 157(b)(1) *658 grants this Court jurisdiction over "all core proceedings arising under title 11, or arising in a case under title 11"; section 157(b)(2) specifically categorizes as core proceedings the allowance and disallowance of claims and counterclaims.
A litigant's right to trial by jury may arise from a statutory source or from the Seventh Amendment to the Constitution of the United States. A possible statutory source for a right to a jury trial in the instant proceeding is section 1480(a) of title 28 of the United States Code, which states, in pertinent part:
this chapter and title 11 do not affect any right to trial by jury, in a case under title 11 or in a proceeding arising under title 11 or arising in or related to a case under title 11, that is provided by any statute in effect on September 30, 1979.[1]
In In re McLouth Steel Corp., 55 B.R. 357 (E.D.Mich.1985) the United States District Court for the Eastern District of Michigan considered a section 1480 demand for a jury trial by a claimant against whom the debtor-in-possession had counterclaimed for the return of a preferential transfer. The McLouth court noted that "[t]he ambiguity of this section, which appears to preserve pre-1979 law, in a statute which presumes to abolish the distinction between summary and plenary [jurisdiction] has proven to be fertile ground for judicial dispute." 55 B.R. at 360.
Further complicating the resolution of the dispute at bar is the fact that the Court must apply the jurisdictional provisions contained in the Bankruptcy Amendments and Federal Judgeship Act of 1984. The accompanying revision of title 28 concerning a litigant's right to a jury trial in a case under title 11 nonetheless does not govern this matter.[2] We thus must consider section 1480 of title 28, which arguably incorporates pre-Code law, in conjunction with the revised jurisdictional scheme enacted in 1984.
NTW, relying primarily on the decision of the United States Court of Appeals for the Eleventh Circuit in In re Graham, 747 F.2d 1383 (11th Cir.1984), argues that section 1480 permits a jury trial "if a jury trial had been required under the Bankruptcy Act of 1898, as amended." See also In re D.H. Overmyer Telecasting Co., Inc., 53 B.R. 963, 980 (N.D.Ohio 1984). The reading of section 1480 adopted by the Graham court continues in effect any preexisting right to a trial by jury of a case, matter or proceeding under title 11. Characterizing the matters presently before this Court as "the process of allowing and disallowing claims", NTW finds no right under the Bankruptcy Act to a trial by jury and, therefore, no present right on the part of Transpro.
It is clear, NTW argues, that no jury need be afforded a claimant against a bankruptcy estate by virtue of section 1480 because the Supreme Court has long since unequivocally denominated the determination, *659 allowance or disallowance of claims under the Act an equitable matter within the summary jurisdiction of the bankruptcy court. In Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966), the Court noted that
[t]he Bankruptcy Act, passed pursuant to the power given to Congress by Art. 1, § 8, of the Constitution to establish uniform laws on bankruptcy, converts the creditors' legal claim into an equitable claim to a pro rata share of the res.
382 U.S. 323, 336, 86 S.Ct. 467, 476.
Transpro finds support for an alternative interpretation of section 1480 in the case of In re Lombard-Wall, 48 B.R. 986 (S.D.N.Y. 1985). The Lombard-Wall court interpreted the section as mandating a jury trial for a litigant which "had a right to a jury trial in this kind of action prior to 1979." Id. at 993. This reading of section 1480 abandons the "summary or plenary" jurisdictional inquiry mandated by the Katchen decision, reasoning that the enactment of the Bankruptcy Code of 1978, which radically restructured the jurisdiction of the bankruptcy court, rendered Katchen inapplicable. See In re Professional Air Traffic Controllers, 23 B.R. 271, 274-75 (D.D.C.1982).
Applying a three-pronged test designed to determine whether a right to trial by jury existed, the Lombard-Wall court considered the custom of courts before the merger of courts of law and courts in equity, the remedy sought, and the practical abilities and limitations of juries. 48 B.R. at 993. The court found that a claimant against a debtor's estate in bankruptcy, against whom the debtor filed a counterclaim, was entitled to a trial by jury. Id. The matters at issue in the Lombard-Wall case were the claimant's entitlement to draw upon letters of credit issued by the debtor, and the existence of continuing obligations on the part of the debtor under both prepetition contracts and a postpetition settlement agreement. Id. at 989.
We need not resolve the dispute between the parties regarding the proper inquiry under section 1480, because the Court reaches an identical conclusion regarding Transpro's right to a trial by jury under either construction of the statute.[3] As will be discussed at greater length in our discussion of Transpro's right to a jury under the Seventh Amendment to the Constitution, it appears to this Court that the holding of the Supreme Court in Katchen v. Landy has continued vitality under present bankruptcy legislation. See In re McLouth Steel Corp., 55 B.R. 357, 362 (E.D.Mich.1985). We are convinced, therefore, that under both Supreme Court decision and Congressional legislation the proceeding presently before the Court, the entitlement of Transpro to a proportionate share of NTW's estate in bankruptcy, is by its nature equitable despite the fact that Transpro's claim to entitlement may be grounded in a claim at law. Consequently, no right to a trial by jury exists.
This Court would reach an opposite conclusion from that reached by the Lombard-Wall court even if we adopted the three-part test advocated by Transpro. While the Lombard-Wall court analyzed the nature of the disputes underlying both the claimant's asserted right against the debtor's estate and the debtor's counterclaim against the claimant, this Court finds the proper subject of inquiry under section 1480 to be the nature of the instant proceeding before this bankruptcy court. Transpro does not seek entry of a money judgment against the debtor, but the equitable allowance of its claim against the bankruptcy estate. The Lombard-Wall court's observation that "an action like this, that involves primarily state law claims of fraud, conversion, breach of warranty and misrepresentation, would have been tried [under pre-merger custom] in a court of law" ignores the essential fact *660 that the claimant against Lombard-Wall never initiated an action at law against the debtor upon its claims. 48 B.R. at 993. Rather the claimant made an equitable claim to a portion of the debtor's bankruptcy estate to which the debtor asserted an equitable counterclaim. Under this view of the facts before the Lombard-Wall court, no right to trial by jury existed.
While the Lombard-Wall court examined the law from which the claimant's claim arose, we find it more appropriate to focus upon the law under which the parties invoke the authority of this Court. It is inconsequential, therefore, that matters at law underlie the equitable rights here asserted, for the remedy available to Transpro is the equitable allowance of its claim.
Similarly, this Court cannot agree that the specification of money damages compels the conclusion that the parties seek a legal remedy. An essential element of a finding in favor of Transpro is a recission of the January 18, 1984 settlement agreement. It is undisputed that this remedy is equitable in nature. The relief contemplated by the Objection to Allowance of Claim and Counterclaim of NTW, which the Court notes is the pleading initiating this adversary proceeding, is, in part, the equitable disallowance or reduction of Transpro's claim against the bankruptcy estate. That the parties have placed a monetary value upon their respective equitable claims does not transform the claims into claims at law. See Curtis v. Loether, 415 U.S. 189, 196, 94 S.Ct. 1005, 1009, 39 L.Ed.2d 260 (1974); Whitlock v. Hause, 694 F.2d 861, 865-66 (1st Cir.1982). Thus, even under the standard adopted by the Lombard-Wall court, this Court cannot find that this proceeding is a matter at law entitling Transpro to a trial by jury.
Transpro, however, urges yet a third interpretation of section 1480. Transpro asserts that the section must be read literally to preserve in the bankruptcy forum any statutory right to trial by jury. 28 U.S.C. § 1480. Under this reading of the section, Transpro asserts that its cause of action under the Virginia Retail Franchising Act, Va.Code 13.1-557 to 13.1-574 (1985), establishes under the Constitution of Virginia a right to a trial by jury which cannot be abrogated by NTW's petition in bankruptcy.
The interpretation urged by Transpro, while not supported by an abundance of case law, is sensible when viewed in the light of the jurisdictional policy of the Bankruptcy Code of 1978, with which the section was enacted. In 1978, Congress abandoned the jurisdictional distinction between summary and plenary proceedings operative under the Bankruptcy Act in favor of a pervasive grant to the bankruptcy court of jurisdiction over all matters connected with bankruptcy. Under the Code, this Court could hear matters which involved solely an interpretation of state law if the matter was related to a petition in bankruptcy. See 28 U.S.C. § 1471(b) (repealed 1984). The preservation of all statutory rights to a jury trial, which Transpro asserts is contained in section 1480, would be a reasonable legislative response to the probability that a bankruptcy court would hear a broad range of disputed matters. Accepting arguendo Transpro's reading of the section, section 1480 reflected Congress' considered decision to preserve a litigant's right to a jury trial should a particular matter be heard in the bankruptcy court.
Accordingly, in In re Frank Meador Buick, Inc., 8 B.R. 450 (Bankr.W.D.Va. 1981), the United States Bankruptcy Court for the Western District of Virginia found that the right to a jury trial on disputes arising out of a contract for sale of an automobile dealership, afforded to the litigants by the Constitution of Virginia, was preserved in a bankruptcy proceeding in which the debtor alleged that the contract was executory and therefore could be rejected. The Meador Buick court relied exclusively on the jurisdictional provisions of the 1978 Bankruptcy Code found in section 1471 of title 28 of the United States Code. See 8 B.R. at 452-55.
The Supreme Court's decision in Northern Pipeline Construction Co. v. Marathon *661 Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 2887, 73 L.Ed.2d 598 (1982), however, invalidated the jurisdictional grant of the 1978 Code as an unconstitutional delegation of Article III judicial power upon judges who lacked life tenure and protection against salary diminution. The Supreme Court has recently summarized the Marathon holding:
[Marathon] establishes only that Congress may not vest in a non-Article III court the power to adjudicate, render final judgment, and issue binding orders in a traditional contract action arising under state law, without the consent of the litigants, and subject only to ordinary appellate review.
Thomas v. Union Carbide Agricultural Products Co., 473 U.S. 568, 105 S.Ct. 3325, 3334-35, 87 L.Ed.2d 409 (1985).
Any post-Marathon application of section 1480 must be informed by the Constitutional infirmities identified in the jurisdictional grant of the 1978 Bankruptcy Code. Under the Constitution, bankruptcy judges, as Article I judges, may not finally determine matters of state law which are not subject to a federal rule of decision and are related only peripherally to a petition in bankruptcy. See Marathon, 458 U.S. at 92, 102 S.Ct. at 2882 (Burger, C.J., dissenting). It is thus impermissible for bankruptcy judges to engage in the task for which Congress ostensibly designed the broad reservation of jury rights contained in section 1480. Thus, even if Transpro correctly interprets section 1480 as enacted, the Marathon decision and the subsequent statutory revisions now prevent the Court from accepting this reading of the section. To rule otherwise would inject the possibility of a jury trial into every bankruptcy proceeding in which matters at law are in issue; this result is inconsistent with the jurisdictional scheme prompted by the Marathon ruling and enacted by Congress in 1984. Thus, under no reading of section 1480 can this Court discern a right to a trial of this proceeding by jury.
Transpro cites Bankruptcy Rule 9015 as an alternative statutory ground for its claimed right to a trial by jury. Rule 9015(a) mandates that
[i]ssues triable of right by jury shall, if timely demanded, be by jury[.]
The question whether Rule 9015 provides a right to trial by jury, or merely effectuates an otherwise existing right has yet to be answered in a comprehensive manner. Compare In re Harbour, 59 B.R. 319, 324 (W.D.Va.1986) ("[T]he function of Bankruptcy Rule 9015 is to merely implement a statutorily or constitutionally conferred right to a jury trial if one exists") and In re Proehl, 36 B.R. 86, 87 n. 4 (W.D.Va. 1984) ("Rule 9015 permits a jury trial where there is a right to a jury trial. In order to determine if there is a right to a jury trial, the advisory committee notes to Rule 9015 send the reader to 28 U.S.C. § 1480.") with In re O.P.M. Leasing Services, Inc., 48 B.R. 824, 827 n. 2 (S.D.N.Y. 1985) ("[T]he Supreme Court provided for jury trials under Bankruptcy Rule 9015 . . . and this Court declines to find that the Supreme Court would promulgate meaningless rules.") and In re Lombard-Wall, Inc., 48 B.R. 986, 992 (S.D.N.Y.1985) ("[R]ule 9015 . . . permits the bankruptcy courts to hold jury trials.") and Macon Prestressed Concrete Co. v. Duke, 46 B.R. 727, 730 (M.D.Ga.1985) ("Rule 9015 . . . by its very nature assumes that a bankruptcy court may conduct a jury trial."). Further complicating the interpretation of Rule 9015 are the many conflicting rulings regarding the present authority of the bankruptcy court to conduct a jury trial. Compare In re Proehl, 36 B.R. 86, 87 (W.D.Va. 1984) ("Implicit in the Northern Pipeline decision is the conclusion that it would be an unconstitutional delegation to permit a bankruptcy judge to preside over a jury trial.") and King, Jurisdiction and Procedure under the Bankruptcy Amendments of 1984, 38 Vand.L.Rev. 675 (1985) with In re Gaildeen Industries, Inc., 59 B.R. 402, 406 (N.D.Cal.1986) ("Congress intended for Bankruptcy Judges to conduct jury trials in appropriate cases.") and In re Price-Watson Co., 66 B.R. 144, 160 (Bankr.S.D.Tex. 1986) (Bankruptcy Court may hold jury trial *662 of "related to" proceeding) and In re Baldwin-United Corp., 48 B.R. 49, 56 (Bankr.S.D.Ohio 1985) ("Nothing in the 1984 Amendments prohibits a Bankruptcy Court from conducting a jury trial.").
In accord with the weight of the authority on this issue, the Court cannot find that Rule 9015 confers upon any party a right to a jury trial which does not exist by statute or under the Constitution of the United States. Transpro cites no case which holds that the rule itself affords any party a jury right. Rather, as directed by the Advisory Committee note to the Rule, courts ruling upon a demand for a jury trial consider Rule 9015 only in conjunction with section 1480 or 1411 of title 28, or the Seventh Amendment to the Constitution. The rule is cited primarily in support of the proposition that a bankruptcy court possesses the authority to conduct a jury trial. See Macon Prestressed Concrete Co. v. Duke, 46 B.R. 727, 730 (M.D.Ga.1985) (rule vests bankruptcy court with same authority to conduct jury trial as is held by district court).
Our rejection of Transpro's argument under Rule 9015 is of little practical consequence, however, for Transpro argued that the issue dispositive of a jury demand under Rule 9015 is whether the matter before the Court is a matter at law or a matter in equity. This standard is identical to the test for determination of a right to trial by jury under the Seventh Amendment, a matter to which we now turn.
It has long been settled that a Seventh Amendment right to trial by jury hinges upon the legal or equitable nature of the matter before the court. See Parsons v. Bedford, 28 U.S. (3 Pet.) 433, 446-47, 7 L.Ed. 732 (1830). The matter presently at issue concerns whether, and in what amount, Transpro's claim should be allowed against the bankruptcy estate of NTW. In section 157(b)(2)(B) and (C) of title 28 of the United States Code, Congress denominated this proceeding a core proceeding; section 157(b)(1) of the same title grants this Court the power to finally determine such proceedings.
NTW argues that this Court's jurisdiction over this proceeding is analogous to the summary jurisdiction wielded by the bankruptcy court under the Bankruptcy Act of 1898. See In re Lee, 50 B.R. 683, 684 (Bankr.D.Md.1985); In re Baldwin-United Corp., 48 B.R. 49, 56 (Bankr.S.D. Ohio 1985). The legislative history of the 1984 Amendments, of which section 157 was a part, supports NTW's analogy between core proceedings under current law and summary proceedings under the Act. See Senate Conference Report, 130 Cong. Record S8887-8900 (daily ed. June 29, 1984). Citing In re Duncan, 51 B.R. 71 (Bankr.D.Md.1985) and In re Best Pack Seafood, 45 B.R. 194 (Bankr.D.Me.1984), NTW urges that the ruling of the Supreme Court in Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966) that issues subject to the summary jurisdiction of the bankruptcy court were equitable in nature, despite the possibility that their resolution might turn on matters of law, compels the conclusion that all core proceedings are per se equitable proceedings to which no right to trial by jury may attach.
Transpro argues that the characterization of a matter as a core proceeding is not dispositive of the question whether the matter before the court is legal or equitable. In Transpro's view, this Court nonetheless must inquire whether this core proceeding is equitable or legal in nature.
In In re Mauldin, 52 B.R. 838 (Bankr.N. D.Miss.1985), the United States Bankruptcy Court for the Northern District of Mississippi adopted the position advocated by Transpro. The Mauldin court set the following guidelines:
1. In a core proceeding where the relief sought is equitable in nature, i.e., the avoidance of a preferential transfer, the avoidance of a fraudulent conveyance, etc., and is not an action at law, i.e., a demand for a money judgment, a jury trial is not available.
2. In a core proceeding where the relief sought is not equitable in nature, but is an action at law, a jury trial is available.
*663 3. In a related or non-core proceeding, no jury trial is available unless all parties consent to the bankruptcy judge presiding over the case and entering the final order or judgment resulting from the jury verdict.
52 B.R. at 841-42. Under the categories established by the Mauldin court, Transpro asserts, the actions at law asserted in its complaint are triable before a jury.
Resolution of Transpro's Seventh Amendment entitlement to a trial by jury requires that the Court examine the nature of the proceeding at bar. NTW considers the matter an equitable dispute over the allowance and disallowance of claims against the bankruptcy estate. Transpro regards its claim as a state law action for money damages which concurrently establishes the extent of its right against the debtor's estate.
We find the Supreme Court's decision in Katchen v. Landy to establish unequivocally that a determination of claims in bankruptcy is an equitable proceeding. The Katchen Court clearly rejected the argument put forward here by Transpro, for the Court acknowledged that a claim to which a right to a jury trial might attach nonetheless was triable in equity before the bankruptcy court:
[A]lthough petitioner might be entitled to a jury trial . . . if he presented no claim in the bankruptcy proceeding . . . when the same issue arises as part of the process of allowance and disallowance of claims, it is triable in equity.
86 S.Ct. at 476 (citations omitted).
We therefore cannot agree with the assertion that the complaint filed by Transpro in support of its proof of claim rests on causes of action at law. Contrary to Transpro's contention, the proper characterization of the proceeding before this court has as its focus Transpro's entitlement to a portion of NTW's estate in bankruptcy. While an evaluation of this right may entail a determination of the merits of Transpro's claims at law, the claims at law are not the matter which brings these parties before this bankruptcy court, nor the matter over which this Court presently exercises jurisdiction.
Congress' identification of proceedings concerning the allowance of claims as core proceedings, over which this Court exercises "summary" jurisdiction, lends new vitality to the Katchen holding. Clearly, if Congress intended that claims proceedings in which a legal right is asserted be considered actions at law, it could have excluded such matters from the roll of matters considered to be at the core of the federal bankruptcy power. Instead, Congress categorized objections and counterclaims to claims against the estate as core proceedings and, further, expressed its intention that the bankruptcy court exercise summary jurisdiction over such proceedings. The jurisdictional scheme enacted in 1984, by reviving the concept of summary jurisdiction, thus reinforces the viability of the Katchen v. Landy decision. See In re I.A. Durbin, 62 B.R. 139, 14 B.C.D. (CRR) 1267, 1271 (S.D.Fla.1986); In re McLouth Steel, 55 B.R. 357, 362 (E.D.Mich.1985). Accordingly, we find Transpro to lack Constitutional entitlement to a trial by jury of the equitable matter at bar.
Because we find neither a statutory nor a Constitutional right to a trial by jury of the matters before us, the Court must grant the motion of NTW to strike the jury demand noted by Transpro Corporation.
An appropriate Order will enter.
NOTES
[1] We are mindful of the controversy over Congress' treatment of this section in the legislative furor following the decision of the Supreme Court in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). See In re O'Bannon, 49 B.R. 763, 765-68 (Bankr.M.D.La.1985) (discussion of conflicting provisions in 1984 legislation). Some courts decline to consider section 1480 as a source for a right to trial by jury, resting either on the conclusion that the section was never valid law, or on a determination that Congress' 1984 legislation implicitly repealed the section. See In re McLouth Steel Corp., 55 B.R. 357, 362 (E.D.Mich.1985); In re O'Bannon, supra; In re Bokum Resources Corp., 49 B.R. 854, 866-67 (Bankr.D.N.M.1985). Other courts presume that section 1480(a) remained in effect until superseded by 28 U.S.C. § 1411(a) on July 10, 1984. See In re Graham, 747 F.2d 1383, 1388 (11th Cir.1984); In re Harbour, 59 B.R. 319, 325 (W.D.Va.1986). Under this interpretation of the enactments, section 1480 may still provide a right to a jury trial in bankruptcy cases antedating the 1984 legislation. Because we find no entitlement to a trial by jury under section 1480, we need not render an opinion on the current viability of the section.
[2] In the Bankruptcy Amendments and Federal Judgeship Act of 1984, Congress replaced 28 U.S.C. § 1480(a) with 28 U.S.C. § 1411(a). Section 1411(a), which was not given retroactive application, became effective on July 10, 1984, some twelve days after NTW filed its petition for relief under Chapter 11. Pub.L. No. 98-353, § 122(b), 98 Stat. 333 (1984).
[3] We do note, however, that the legislative history of section 1480 supports the reading advocated by NTW. See H.R.Rep. No. 595, 95th Cong., 1st Sess., reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5973 and 6404; S.Rep. No. 989, 95th Cong., 2d Sess. reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5943. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538525/ | 116 N.H. 427 (1976)
STATE OF NEW HAMPSHIRE
v.
WALTER J. KOMISAREK, JR.
No. 7100.
Supreme Court of New Hampshire.
July 30, 1976.
David H. Souter, attorney general, and Peter W. Heed, attorney, by brief, for the State.
Walter J. Komisarek, Jr., pro se, by brief.
KENISON, C.J.
The question presented in this case is whether the defendant is entitled to a trial by jury in the superior court on appeal from his conviction for speeding (RSA 262-A:54) in the Laconia District Court in April 1973, prior to the enactment of RSA 592-A:2-a which was effective from August 21, 1973 to November 1, 1973 and RSA 592-A:2-b, effective since November 1, 1973 which abolished trial by jury for violations such as speeding. Upon defendant's motion to transfer to the supreme court before trial this question of law was reserved and transferred by Keller, C.J.
In a series of cases beginning in 1965 it was held that under existing statutory provisions defendants charged with misdemeanors were entitled to a trial by jury. State v. Ring, 106 N.H. 509, 214 A.2d 748 (1965); State v. Despres, 107 N.H. 297, 220 A.2d 758 (1966); State v. Desjardins, 110 N.H. 511, 272 A.2d 599 (1970); State v. Morrill, 112 N.H. 203, 291 A.2d 604 (1972). In the Morrill case supra, we pointed out that although the legislature had met six times in six-and-one-half years since Ring supra, it had not made any attempt to amend the statute. Finally in 1972, the judicial council recommended that trial by jury in the superior court should not be available in cases in which the penalty for the offense was limited to a fine or a fine and forfeiture or other civil penalty. Fourteenth Report, New Hampshire Judicial Council 84-85 (1972). By virtue of Laws 1973, chapter 264, the legislature enacted RSA 592-A:2-a and RSA 595-A:2-b. The latter statute reads as follows: "Jury Trial. Trial by jury shall not be afforded in *428 the superior court for any violation as defined in RSA 625:9." In pertinent part, violation is defined in RSA 625:9 V as follows: "A violation is an offense so designated by statute within or outside this code and, except as provided in this paragraph, any offense defined outside of this code for which there is no other penalty provided other than a fine or fine and forfeiture or other civil penalty...."
The defendant's speeding charge, his trial in the district court, and the perfection of his appeal to obtain a jury trial all occurred in March and April of 1973, several months before the effective dates of RSA 592-A:2-a and RSA 592-A:2-b. The defendant was entitled to a jury trial on his appeal before the new statutes became effective. In view of the constitutional prohibition against retrospective laws, the present statute should not be applied to this defendant. N.H. CONST. pt. I, art 23. See also J. Rawls, A Theory of Justice 238 (1971); T. Cooley, Constitutional Limitations 268 n.1 (1868) questioning the decision in State v. Arlin, 39 N.H. 179 (1859). "Where reliance on an established procedure is reasonable, and the application of a new procedure to acts committed prior to its enactment would unfairly frustrate that reliance, courts should require that the state demonstrate a legitimate need to employ the new procedure in cases involving prior acts. At the trial and appeal stages, a legitimate state interest in applying the new procedure to all criminal proceedings, instead of just to those in which the alleged act occurred after the change was enacted, may be rare since it is easy to determine whether the defendant's acts were committed prior to the enactment of the procedure. Depending on the trial backlog, most new procedures can be fully operational within one or two years." Note, Ex Post Facto Limitations on Legislative Power, 73 Mich. L. Rev. 1491, 1513-14 (1975).
Remanded.
All concurred. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538527/ | 143 N.J. Super. 65 (1976)
362 A.2d 626
STATE OF NEW JERSEY, PLAINTIFF,
v.
DIANE SINGLETON AND JAMES BROWN, DEFENDANTS.
Superior Court of New Jersey, Law Division.
Argued June 11, 1976.
Decided June 30, 1976.
*66 Mr. Joseph Ippolito for the plaintiff (Mr. Burrell Ives Humphreys, Passaic County Prosecutor, Attorney.)
Mr. Richard Barone for the defendant, Diane Singleton.
Mr. Bruno Mongiardo and Mr. Salim J. Balady for the defendant, James Brown. (Mr. Terrence P. Corcoran, Deputy Public Defender.)
JOELSON, A.J.S.C.
This is a motion to dismiss an indictment. It is based upon "the grounds of double jeopardy, collateral estoppel and compulsory joinder."
The essential facts are not in dispute. On August 6, 1975 complaints were filed against defendants in Newark Municipal Court, charging that each conspired with the other in the City of Newark to defraud Bamberger's Department Store. Upon their arraignments in the Newark Municipal Court on August 15, 1975 defendants applied for admission to the pretrial intervention program in accordance with R. 3:28. The application was apparently referred to the judge in Essex County assigned to the pretrial intervention program and to the prosecutor in conformity with R. 3:28.
Subsequently, on October 31, 1975 defendants' counsel was notified by letter from the Essex County Prosecutor's office that the defendants had been accepted by the prosecutor for a first adjournment pursuant to R. 3:28 with the approval of the appropriate designated judge. The letter added that "restitution has been stipulated." Defendants have apparently successfully completed the pretrial intervention program and made restitution despite the fact that the Newark complaints charged conspiracy only, and not the actual defrauding.
*67 On February 19, 1976 defendants were indicted in Passaic County for conspiracy, making a forged instrument and uttering a forged instrument. The place of the alleged offenses was stated to be in the Bamberger's store in Wayne Township in Passaic County. The assistant prosecutor who opposed this motion readily conceded at oral argument that the conspiracy charged in the Passaic County indictment was the same one involved in the Newark complaints, and he also stipulated that the substantive offenses charged in Passaic County would be identical with the overt acts which would have been proved in the Newark conspiracy complaints, had those complaints ever gone to trial.
It should also be noted that defendants allege that on August 15, 1975, which was the same date that they had been scheduled for arraignment in the Newark Municipal Court, their attorney wrote to the Passaic County Prosecutor, notifying that office that the Wayne Township complaints would soon arrive. A copy of that letter was attached to the brief. It advised that "the Newark Municipal Court has authorized the matter to proceed under R. 3:28 subject to the approval of the Prosecutor of Essex County." The attorney then added: "If he approves, I would hate to see this situation collapse as a result of the outstanding charge stemming from the very same incident. Is there any thing that can be done in Passaic County concerning this?" The prosecutor's office has informed the court that it has no record of this letter ever having been received or answered, nor does it have any record of follow-up phone calls which defendants' attorney says he made.
The State conceded at oral argument that if the defendants had gone to trial on the Essex County complaints, the Passaic County indictment would have to be dismissed under the rule of collateral estoppel established in State v. Cormier, 46 N.J. 494 (1966), and State v. Gregory, 66 N.J. 510 (1975). Furthermore, it seems clear that if defendants had pleaded guilty in Essex County pursuant to a plea bargain, the Passaic County Prosecutor would likewise *68 be barred. State v. Thomas, 61 N.J. 314 (1972); State v. Jones, 66 N.J. 524 (1975). The latter case demands that "the terms and conditions of a plea bargain must be meticulously carried out." The former stresses the necessity that the State should "not disappoint a defendant's reasonable expectations," adding that "essential fairness" so dictates.
The question which the court must now decide is whether it should make a difference that the defendants did not enter into a plea bargain in Essex County, but rather participated in a pretrial intervention program. It is true that defendants did not plead guilty in Essex County, but by voluntarily submitting themselves to the probationary aspects of pretrial intervention and by making restitution to Bamberger's, were not their "reasonable expectations" that upon successful completion of the program, their exposure to trial would be at an end? The court is of the opinion that those were their reasonable expectations, and that to compel them to stand trial now in Passaic County would be a denial of essential fairness.
It is immaterial whether or not the Prosecutor's office of Passaic County received the letter or phone call from defendants' attorney. When the defendants participated in the Essex County pre-trial intervention program and made restitution thereunder, they were entitled to expect surcease from prosecution for the episode. A situation such as now faces the Court can best be avoided by a prosecutor joining in a single trial multiple offenses based on the same conduct or arising from the same criminal episode. State v. Gregory, supra. The fact that the episode includes conduct in two counties is no obstacle to a single trial as R. 3:14-1(a) specifically permits a prosecution in one county under such circumstances.
The indictment will be dismissed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538529/ | 143 N.J. Super. 314 (1976)
362 A.2d 1300
STATE OF NEW JERSEY, PLAINTIFF,
v.
LANDY DONNELL HARRIS, DEFENDANT.
Superior Court of New Jersey, Law Division.
Decided July 7, 1976.
*316 Mr. Rowand D. Clark, Assistant Prosecutor, for the State (Mr. Edward W. McGrath, Union County Prosecutor, attorney).
Mr. James F. Keefe, Assistant Public Defender, for defendant (Mr. S. David Levy, Deputy Public Defender, attorney).
COLEMAN, J.C.C., Temporarily Assigned.
The matter comes before the court on a motion for the suppression of evidence pursuant to R. 3:5-7. The facts which are undisputed are as follows:
On March 21, 1975 a breaking and entry occurred at the home of Edward Ennis. A careful investigation showed that entry was gained through a window. On March 22, 1975 defendant's fingerprints were found on the window and at several locations inside the home. A television and a silver English coin were taken from the home. After an application was made for a search warrant it was issued on March 24, 1975 authorizing a search of defendant's apartment and his automobile, the seizure of the television and the old English coin.
On March 24, 1975 the search warrant was executed on the apartment of defendant. Entry into the apartment was accomplished with the aid of a visiting female. The entire apartment was searched, but the television and the silver English coin were not located. However, while searching for the television and the English coin, the police saw many other items which they seized. Those items are: four electric radios of various models; three televisions, one located behind the sofa and one in a closet, each having the wires wrapped around them and not plugged into electrical outlets; one changer, three speakers, one stereo, two turntables, *317 one stereo recorder and seven unopened boxes of Oneida silverware in a kitchen closet. Some of stereo equipment was stacked behind the refrigerator with the cords wrapped around them and not plugged into any electrical outlet. On a bar in the living room the policemen found two speakers which contained initials other than those of defendant. A United States Savings Bond in the name of Devona Watkins was found in the bedroom. One of the officers conducting the search believed that one of the clocks found in the apartment, the Panasonic turntable, the Panasonic AM/FM eight-track stereo recorder and two brown wooden speakers looked like articles wanted in connection with other burglaries.
All of the seized articles were taken by the police to police headquarters to ascertain if they had been reported as stolen in previous thefts. After the look-up all articles not recorded as such were returned to defendant, but further investigation by the police revealed that the suspension air speaker, the eight-track AM/FM stereo and the turntable belonged to a Harry Conover and this which formed the basis of Indictment No. 853, J.S. 1975. A continuing investigation further disclosed that the Sears AM/FM clock radio, the RCA portable television found on the floor of the bedroom, the Panasonic turntable, the Panasonic AM/FM eight-track stereo recorder and the two brown wooden speakers that were found hooked up on the bar belonged to Roy Southerland and this formed the basis of Indictment No. 852, J.S. 1975. Indictment No. 881, J.S. 1975 charges breaking and entering with intent to steal and larceny of the television and English coin from Edward Ennis which were never located by the police.
I
The defense challenges the constitutional sufficiency of the affidavit that ultimately led to the issuance of the search warrant. The court finds this contention to be without *318 merit. The facts, as set forth in the affidavit, make it very clear that a crime had been committed, namely, a breaking and entry with intent to steal and larceny at the home of Edward Ennis. Defendant's fingerprints were found on the window where entry was gained, as well as inside of the apartment. Fingerprints are inherently reliable as identifying evidence. Davis v. Mississippi, 394 U.S. 721, 89 S.Ct. 1394, 22 L.Ed.2d 676 (1969). Under these circumstances, the inference is sufficiently probative to establish that defendant, being a suspect in a crime of this sort, would probably secrete the purloined articles in his apartment or his automobile. United States v. Bell, 126 F. Supp. 612 (D.C. Dist. 1955); United States v. Lucarz, 430 F.2d 1051 (10 Cir.1970); State v. Kline, 42 N.J. 135 (1964); State v. Seefeldt, 51 N.J. 472 (1968). In view of the rule which mandates that this court pay substantial deferrence to the determination made by the issuing judge that probable cause existed for the issuance of the warrant, State v. Kasabucki, 52 N.J. 110 (1968), this court finds that defendant has failed to overcome the presumptive validity of the warrant. See State v. Mark, 46 N.J. 262 (1966).
II
As mentioned previously, the search of the premises was conducted pursuant to a search warrant, but the items seized were not those enumerated in the search warrant. Thus, it is defendant's contention that since the items seized were not enumerated in the search warrant, the seizure of the items was tantamount to a warrantless seizure. This is a correct postulation by the defense. Thus, the State has the burden of establishing by preponderance of the evidence, State v. Whittington, 142 N.J. Super. 45, 359 A.2d, 881 (App. Div. 1976); United States v. Matlock, 415 U.S. 164, 94 S.Ct. 988, 39 L.Ed.2d 242 (1974), the lawfulness of the seizure of those items not enumerated in the warrant.
*319 The research conducted by the court has failed to reveal any New Jersey case on point. Some of the reported cases from another jurisdiction closest to the situation hereunder consideration are persuasive but not binding on this court. There is well reasoned authority for the proposition that once the police are lawfully on certain premises pursuant to a valid search warrant, they have a right to seize articles not named in the warrant if they have probable cause to believe that the articles were stolen. See Commonwealth v. Wojcik, 358 Mass., 623, 266 N.E.2d, 645 (Sup. Jud. Ct. 1971); Commonwealth v. DeMasi, 362 Mass., 53, 283 N.E.2d, 845 (Sup. Jud. Ct. 1972), and Commonwealth v. Hawkins, 361 Mass., 384, 280 N.E.2d, 665 (Sup. Jud. Ct. 1969). While a New Jersey Court has not expressly decided the issue here presented, the court in State v. Griffin, 84 N.J. Super. 508 (App. Div. 1964), has outlined the broad rationale which this court deems dispositive of issues here presented.
In Griffin defendant was stopped after making a hazardous left turn, in contravention of an unofficial no left turn sign. A police officer stopped defendant to warn him of the dangers of such a turn. While awaiting the production of driver's credentials by defendant, the officer glanced inside the automobile and saw a pile of clothing on the left rear seat and on the floor behind the driver's seat. He noticed that several men's suits, apparently new and still on hangers, were semi-folded partly on the seat and on the floor. In addition, he was able to see that the suits still bore labels and price tags stitched to the sleeves. He also saw two briefcases. Following these observations and the failure of defendant to produce identification other than the registration to the motor vehicle, the officer directed that the defendant follow him to the State Police Barracks, which he did. After they arrived, the officer again looked into the interior of the car and saw that the hanger of the suit on top bore the name of "Olympic Shop." The police officer then contacted the police department in the township in which the "Olympic Shop" was located to ascertain if any clothing had been *320 reported stolen from that shop. The two briefcases were also opened by the police and found that the dividers had been removed to permit greater space for storage of articles, The owner of the "Olympic Shop" appeared at the police barracks and identified the clothing as having been stolen from his shop. After the further investigation by the police, defendant was charged, among other things, with possession of stolen property. The defense there urged that the police did not have probable cause to believe that defendant had committed a crime so as to justify the arrest. In rejecting the defense argument and thus denying the motion to suppress, the court stated:
The observations of the two police officers justified the conclusion that the clothing they observed was apparently stolen. The possession of stolen property is illegal; it is the equivalent of contraband, and is subject to seizure ... Having observed the stolen property, which was fully disclosed and in plain view, Investigator Walker was justified in opening the door of the motor vehicle and physically examining the same. The constitutional guarantees of the Fourth Amendment are to protect persons against unreasonable searches and seizures. We hold that the search of the defendants' vehicle and the seizure of the stolen property were reasonable under the circumstances of this case. [84 N.J. Super. at 519; citations omitted]
What is most relevant for the instant purposes is that the officers in Griffin were permitted to seize the articles pending a further investigation as to the possible criminality of the items of clothing. The events which transpired here are certainly analogous. While searching the apartment of defendant for the items enumerated in the search warrant, the officers came upon the many other articles. They confiscated them, removed them to police headquarters, conducted their further investigation and, based upon the continuing investigation, concluded that defendant should be charged with the various crimes.
The court finds that probable cause existed: that the articles seized by the police were reasonably believed to have been stolen. The police were in the apartment searching pursuant to a search warrant, believing that defendant had committed *321 a burglary and had stolen properly as a result thereof. While searching for the items enumerated in the search warrant, they came upon the numerous articles stored in the apartment in a most unusual fashion and an extremely large number of similar kinds of articles in an apartment of the size of this one. The fact that the numerous articles were stored in unusual places, such as behind the sofa and behind the refrigerator, with the electrical cords wrapped around the articles, created a reasonable inference of larceny. As was stated in State v. Waltz, 61 N.J. 83, 87 (1972), probable cause
* * * is more than mere naked suspicion but less than legal evidence necessary to convict. It is not a technical concept, but rather one having to do with "the factual and practical considerations of everyday life" upon which reasonable men, not constitutional lawyers, act. It has been described by this Court as a "well-grounded" suspicion that a crime has been or is being committed. [at 87; citations omitted]
It seems meaningless to require the officer to get another warrant before seizing the items he had inadvertently discovered while searching for those items enumerated in the search warrant. Clearly, the searching was authorized by the original search warrant. An article seen by an officer while conducting a search pursuant to a warrant is no different from an article which is in the plain view of the officer who has a right to be in a position to make such an observation. Where, as here, the officer has probable cause, based upon his observations, to believe that the articles are stolen property, he has a lawful right to confiscate the articles for further investigation. State v. Griffin, supra; State v. Brown, 132 N.J. Super. 180, 184 (App. Div. 1975). In fact, it would have been impracticable for the searching officers to obtain an additional warrant because the evidence could easily have been removed. Defendant's female friend, who was in the apartment, had been alerted that the police had seen the evidence. Thus, if the searching party had left the apartment the evidence may never have been found again.
*322 U.S. Const., Amend. IV, and N.J. Const. (1947), Art. I, par. VII, proscribe only unreasonable warrantless searches and seizures. Here we are dealing with a search pursuant to a valid search warrant. The court finds that it was most reasonable for the officer to seize the articles not enumerated in the warrant under the totality of the circumstances here involved. The seizure was not constitutionally impermissible, because a warrant is not required in every non emergent situation. United States v. Rabinowitz, 339 U.S. 56, 70 S.Ct. 430, 94 L.Ed. 653 (1950).
For the foregoing reason, the motion is hereby denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538465/ | 362 A.2d 178 (1976)
Virginia H. SMALL
v.
Beverly O. SMALL.
Supreme Judicial Court of Maine.
August 6, 1976.
*179 Vafiades, Brountas & Kominsky by Susan R. Kominsky, Lewis V. Vafiades, Esq., Bangor, for plaintiff.
Hale & Hamlin, Ellsworth, by Barry K. Mills, Blue Hill, Paul B. Fitzgerald, Ellsworth, for defendant.
Before DUFRESNE, C. J., and WEATHERBEE,[*] POMEROY, WERNICK, ARCHIBALD and DELAHANTY, JJ.
DELAHANTY, Justice.
Plaintiff Virginia H. Small and defendant Beverly O. Small were married in 1952. On April 30, 1974, the plaintiff commenced divorce proceedings by filing a complaint against the defendant in the District Court. The defendant responded with an answer and counterclaim and exercised his right to have the case removed to the Superior Court. M.D.C.Civ.R. 73(b). After the close of all the evidence the presiding Justice granted a divorce to the plaintiff on the ground of cruel and abusive treatment and denied the defendant's counterclaim.[1]
The defendant's appeal from the judgment raises the single issue of the sufficiency of the evidence to support the court's finding of cruel and abusive treatment of the wife by the husband. We hold that the presiding Justice's finding was warranted by the evidence, and deny the appeal.
"Cruel and abusive treatment" became recognized as a ground for divorce in this State with the enactment some ninety-three years ago of P.L.1883, ch. 212. It remains, of course, one of the grounds for divorce denominated in our present divorce statute, 19 M.R.S.A. § 691. This Court has on numerous occasions faced the question of whether certain proven conduct constitutes cruel and abusive treatment within the meaning of the statute. See, e.g., Holyoke v. Holyoke, 78 Me. 404, 6 A. 827 (1886); Leach v. Leach, Me., 8 A. 349 (1887); Michels v. Michels, 120 Me. 395, 115 A. 161 (1921); Bond v. Bond, 127 Me. 117, 141 A. 833 (1928); Gruber v. Gruber, 161 Me. 289, 211 A.2d 583 (1965); Dresser v. Dresser, Me., 225 A.2d 395 (1967); Husbands v. Husbands, Me., 239 A.2d 686 (1968); Utz v. Utz, Me., 273 A.2d 303 (1971).
In a divorce proceeding an allegation of cruel and abusive treatment embodies two elements. A plaintiff seeking a divorce on this statutory ground must prove, by a preponderance of the evidence, "(1) the cruel and abusive conduct of plaintiff's spouse, and (2) that such conduct caused the plaintiff physical or mental injury or that a continuation of the marriage relationship would jeopardize physical or mental health." Gruber, supra, 161 Me. at 293, 211 A.2d at 585.
It must be frankly acknowledged that cruel and abusive treatment is a legal concept which is not susceptible of a precise hornbook definition. Every marriage is unique, and conduct on the part of a spouse which one person might find inoffensive might well have a serious detrimental effect on another individual:
Temperament and character so widely differ that conduct cruel to one might scarcely annoy a more callous nature. *180 Having in mind the sacred character of the marital relation, and its influence on the happiness and purity of society, as well as upon individuals, not overlooking considerations that may not be freely discussed, each particular case must be judged of by its own particular facts and circumstances.
Holyoke, supra, 78 Me. at 410-11, 6 A. at 828. (Emphasis added.) See also Bond, supra, 127 Me. at 133, 141 A. at 839.
With these legal principles in mind, we turn to the evidence on which the judgment below is predicated. In addition to the litigants, the Court heard testimony from the couple's married daughter and the plaintiff's father. Based on all the evidence in the record, the presiding Justice could have made the following factual findings[2]:
Plaintiff and defendant were married in 1952. They have a son and daughter, both of whom had attained the age of eighteen at the time this litigation began.
The parties' marriage, which was originally mutually satisfactory, was marked by a gradual deterioration which gained momentum when the two children reached the age of majority and left the household. The defendant, a self-employed carpenter, withdrew from his wife to the extent of not speaking to her for as long as five months at a time. He ignored her efforts to discuss even such routine matters as family finances and minor repairs around the house. On several occasions the defendant "fixed" his wife's car so that it could not be started. The defendant's efforts at communication with his wife became limited to occasional sexual overtures which the plaintiff found particularly repulsive in light of the defendant's rather sporadic bathing habits. The defendant, moreover, insisted on engaging his wife in sexual intimacies which she found personally offensive.
The plaintiff became increasingly upset and nervous as a result of the failing marriage. During the year immediately prior to trial, her weight declined from one hundred twenty-eight to one hundred two pounds, a loss which is at least partly attributable to her depressed state of mind over her marriage. The plaintiff feared that she would suffer a mental as well as a physical "breakdown" if she continued to live with the defendant and consequently chose to live apart from him beginning at approximately the same time she brought this action.
These assumed factual findings are legally sufficient to support a decree of divorce on the ground of cruel and abusive treatment. Both elements of the Gruber test, supra, were satisfied.
This case is distinguishable from Dresser, supra, which it resembles in some respects. In Dresser, there was credible evidence that excessive drinking by the husband had caused the wife to lose weight and develop a case of "nerves." We concluded that this evidence, without more, did not warrant a finding of cruel and abusive treatment of the wife by the husband: "[W]e are unable to find that the drinking habits of the husband resulted in the injury to the wife, either mentally or physically, sufficient to come within the statutory cause of cruel and abusive treatment." Id., 225 A.2d at 397.
The fatal defect in the wife's case in Dresser was her failure to meet the second part of the Gruber test, i.e., to show that her husband's conduct had caused her "physical or mental injury or that a continuation *181 of the marriage relationship would jeopardize physical or mental health."
In the instant case the plaintiff, like the wife in Dresser, suffered a loss of weight and was nervous and upset as a result of the defendant's conduct. Under Dresser, these symptoms alone are not sufficient to satisfy part two of the Gruber test. The critical difference between this case and Dresser, however, is the presence in this record of credible evidence that a perpetuation of the marriage would endanger the plaintiff's physical and mental health. Both the plaintiff herself and her father gave testimony to this effect. The second part of the Gruber test is satisfied either by evidence "that [the defendant's] conduct caused the plaintiff physical or mental injury," or by evidence "that a continuation of the marriage relationship would jeopardize [the plaintiff's] physical or mental health." There was evidence to justify the latter finding here.
The record in this case reveals more than merely a "history of an unhappy marriage," Dresser, supra, at 398 and we conclude that the presiding Justice had before him sufficient evidence to warrant his decree granting a divorce to the plaintiff on the ground of cruel and abusive treatment.
The entry is:
Appeal denied.
All Justices concurring.
NOTES
[*] Mr. Justice Weatherbee sat at oral argument and participated in conference but died before this opinion was adopted.
[1] The record on appeal originally failed to include the Superior Court's entry of judgment on the defendant's counterclaim, and we were obliged to remand the case to the Superior Court for correction of this deficiency.
[2] In view of the failure of either party to request the court to make designated findings of fact, M.R.Civ.P. 52(a), the judgment contains no such findings. This Court must thus proceed on the now familiar assumption that the presiding Justice found all the facts necessary to support his ultimate decision. Cobb v. Cougle, Me., 351 A.2d 110, 111, n. 1 (1976); Boynton v. Adams, Me., 331 A.2d 370, 374-75 (1975). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538483/ | 143 N.J. Super. 35 (1976)
362 A.2d 611
STATE OF NEW JERSEY, PLAINTIFF-RESPONDENT,
v.
ROBERT ZARINSKY, DEFENDANT-APPELLANT.
Superior Court of New Jersey, Appellate Division.
Argued March 16, 1976.
Decided July 20, 1976.
*40 Before Judges KOLOVSKY, BISCHOFF and BOTTER.
Mr. Richard F. Plechner argued the cause for appellant.
Mr. John T. Mullaney, Jr., Assistant Prosecutor, argued the cause for respondent (Mr. James M. Coleman, Jr., Monmouth County Prosecutor, attorney).
*41 The opinion of the Court was delivered by BOTTER, J.A.D.
Defendant was convicted in a jury trial of the first degree murder of Rosemary Calandriello (hereafter Rosemary), and the mandatory sentence of life imprisonment was imposed. N.J.S.A. 2A:113-4; State v. Funicello, 60 N.J. 60 (1972), cert. den. 408 U.S. 942, 92 S.Ct. 2849, 33 L.Ed.2d 766 (1972). Defendant's motion for a new trial was denied. On this appeal defendant asserts a number of grounds for reversal of his conviction. He contends that the trial court erred in denying his pretrial motions to suppress evidence seized at his home and to dismiss the indictment on two grounds that the statute of limitations had run and defendant was denied a speedy trial. Defendant also contends that errors were committed by the trial judge in the admission of evidence and in charging the jury on first degree murder. He contends that his conviction was against the weight of the evidence and that the verdict cannot stand in the face of the State's failure to produce the victim's body. Finding no grounds warranting reversal, we affirm.
On August 25, 1969, at about 6 P.M., Rosemary Calandriello, a 17-year-old high school student, left her home on Center Avenue in Atlantic Highlands, New Jersey, to buy milk and ice pops at two neighborhood stores. She took $2 with her and when she left she said, "I'll be right back." She was wearing a sleeveless blouse and shorts, was barefooted and carried no purse or wallet. A neighbor saw her walking down Center Avenue toward the center of town. About the same time another neighbor, Mrs. Vaughn, saw a stocky man slouched in an old, black and white Ford automobile parked near a bowling alley on Center Avenue. Shortly thereafter four boys, who were schoolmates of Rosemary, saw her riding with a stocky man, later identified as defendant, in a white Ford Galaxie with a black convertible top. She has not been seen or heard from since, and her body has never been recovered. She was promptly reported to the police as missing and they started an investigation.
*42 Defendant's identity was determined in the following manner. On August 26 Sergeant Guzzi of the Atlantic Highlands Police Department interviewed the four boys who had seen Rosemary with defendant the night before and they furnished a description of defendant and the vehicle he was driving. Both bore distinctive features. The police learned that two days before Rosemary's disappearance a man fitting defendant's description had attempted to lure two 12-year-old girls, Lydia Hardie and Robin Spangenberg, into his car in Leonardo, a town adjacent to Atlantic Highlands. While the girls were walking down the street at about 7 P.M. a man drove up in a white car with a black convertible roof. He offered them a ride and they refused. Lydia Hardie noted the license place number, CTI 109. She testified that the man was heavy-set and had long, bushy sideburns and a goatee. She had never seen him before. The girls began to return home when the man approached again. At home Lydia told her mother of the incident and her mother reported it to the police and gave them the license plate number. The girls left home a short time later and the man approached them again and offered them a ride. They refused, but a short time later he returned once more and asked, "Are you sure?" The girls replied, "We're positive," and started to run away. The man said, "What bad little girls you are for not accepting my ride," and he uttered what was described as a "weird laugh."
The police discovered that a man fitting defendant's description had also attempted to lure two 14-year-old girls into his car two weeks earlier at the bowling alley on Center Avenue. The girls were Darlene Curren and Donna Johnson. Darlene testified that the man had a chubby face, long sideburns and a goatee, and she had never seen him before. At about 7 P.M. he approached them, offered them some drinks in his car and asked Donna if she wanted to drive his car. They refused and went into the bowling alley.
Sergeant Guzzi obtained the license plate number of the car the man was driving and learned that the car was registered *43 to defendant's father, with whom defendant and his wife lived, in Linden, New Jersey. Sergeant Guzzi signed a "John Doe" complaint on August 27, 1969 charging defendant with contributing to the delinquency of Rosemary, a minor. It described defendant as "a white male, age early twenties, heavy set with a round chubby face having long bushy sideburns and well trimmed goatee operating a 1961 white Ford Galaxy Convertible." (Defendant's correct age was 28 at the time.) In the late evening of August 27 defendant was arrested at his home in Linden and the automobile was impounded. Defendant was brought to the Monmouth County Jail around midnight. The next morning the four boys identified the vehicle and it was photographed. That same day, August 28, a lineup was held in which the four girls, Donna, Darlene, Lydia and Robin, viewed defendant. Despite the fact that defendant had shaved off his goatee and sideburns after being jailed, he was identified in the lineup as the man involved in the two incidents with these girls.
The automobile was examined pursuant to a search warrant obtained on August 29. The body of the car was in poor condition, the left rear was dented and the rear window was down. There was mud underneath the car and pieces of straw, a twig and grass were found on the lower front portions of the car. In the glove compartment were bottles of beer and blackberry brandy. The police found a .22-calibre rifle shell and a blank casing under the back seat. Hairclips were found under the right front seat and a pair of blue bikini-type panties were on the left rear floor. (There was testimony that Rosemary had worn hairclips and panties of this type, but these items were not identified as actually belonging to her.) In the trunk were found a chrome-plated hatchet and a ball peen hammer with a hair fiber on its flat face. Scrapings taken from the right rear bumper and right rear taillight rim proved upon analysis to be blood.
The door and window handles on the passenger side of the vehicle had been removed and were found under the right *44 front seat. The door and window worked properly when the handles were attached, but the holding locks on these handles had been removed. Without a handle the door on the passenger's side could not be opened from the inside, but the door and window handles on the driver's side were intact.
The initial complaint against defendant was amended on August 28 to charge defendant with abduction of Rosemary for an immoral purpose. N.J.S.A. 2A:86-3. Defendant was released on bail on August 28, 1969. Thereafter, in November 1969, defendant was indicted and arrested for attempted kidnapping or enticing a child away from parents (N.J.S.A. 2A:118-2) in connection with the incident involving the two 12-year-old girls, Lydia and Robin. He was held at the Monmouth County Jail from November 22, 1969 until December 19, 1969, when he was released on bail. During this time his jailmates included Herbert L. Williams, John Gosch and Al Glover.
In December 1969 defendant was also indicted in connection with the August 9, 1969 incident involving the 14-year-old girls, Darlene and Donna. The crimes charged were an attempt to entice a child "within the age of 14 years" to leave her father or mother, contrary to N.J.S.A. 2A:118-2, and an attempt to impair the morals of a minor by offering the minor alcoholic beverages, allegedly in violation of N.J.S.A. 2A:96-3.
In March 1970 defendant was tried on the indictment involving the 12-year-old girls, but the case was dismissed by the trial judge at the close of the State's proofs. In the subsequent trial involving the 14-year-old girls, defendant was convicted of attempting to commit the alleged crimes. However, on appeal, this court in February 1971 set aside the convictions on the ground that the proofs did not support the charges. In the meantime, in June 1970, the complaint charging abduction of Rosemary was dismissed by the trial court on defendant's motion pursuant to R. 3:25-3 for unnecessary delay in presenting the charge to a grand jury. A *45 consent order was also entered returning the impounded vehicle to defendant's father.
Although no charges were pending after June 1970, investigations involving defendant continued. Warrants were issued in February 1975 for the search of defendant's residence and vehicles, supported by affidavits asserting that defendant was a suspect in the deaths of Rosemary and of 17-year-old Linda Balabanow in 1969, and teenagers Joanne Delardo and Doreen Carlucci in December 1974. Linda Balabanow had worked at a drug store two blocks from defendant's home. She was last seen when she left the store on March 26, 1969, and her body, to which an eight-foot truck tire chain was attached, was recovered from the Raritan River in Woodbridge Township on April 27, 1969. She had been brutally beaten and was killed before her body entered the water. A piece of electrical wire was found knotted around her broken neck. In January 1972 Sergeant Guzzi was advised that federal authorities had matched a hair sample from the Balabanow girl with the hair fiber found on the ball peen hammer taken from the trunk of defendant's car in the investigation of Rosemary's death.
Similarities were noted between the death of the Balabanow girl and the deaths of the Delardo and Carlucci girls of Woodbridge Township, who were together when last seen alive on December 13, 1974. Their bodies were found on December 27 in Manalapan Township. Both girls had been strangled, and knotted electrical wire was found on Joanne Delardo's neck. The Balabanow and Delardo bodies were nude from the waist down, and Carlucci's body was almost entirely nude. Their missing clothing was never found. The preserved state of Delardo's and Carlucci's bodies led police to suspect that they had been stored in cool temperature for more than a week before being deposited in Manalapan. Defendant had an insulated truck which he and his father used in their produce business which could have been used for this purpose. However, the searches conducted on February *46 21, 1975 for evidence of these crimes were not productive so far as the record before us shows.
On February 20, 1975 defendant was indicted for the murder of Rosemary Calandriello. His pretrial motions to dismiss the indictment for untimeliness were denied, and his motion to suppress evidence seized in the February 1975 searches was also denied. Trial commenced on April 7, 1975.
As indicated above, the evidence offered by the State probative of defendant's guilt was largely circumstantial. There was extensive evidence linking defendant to Rosemary's disappearance. Two of the girls testified to the August 9 and August 23 incidents in which defendant tried to entice them into his automobile and they made positive in-court identifications of defendant. The four boys who observed Rosemary in defendant's car when she was last seen also testified and made positive in-court identifications of defendant. Theirs was not merely casual observations of Rosemary and defendant. They were approaching the intersection of Center Avenue and Avenue A in Atlantic Highlands when they observed defendant's automobile coming toward them. The vehicle turned left in front of them and they followed it at a slow pace for about five minutes. Each testified that he was able to get a good view of Rosemary and defendant, and one estimated he had a front view of defendant's face for 10 to 12 seconds. They were surprised to see Rosemary in defendant's automobile, for Rosemary had no boyfriends to their knowledge.
There was much evidence to show that it was out of character for Rosemary to be in a stranger's car. She was a shy, quiet and obedient girl who got along well at home and was never known to have hitchhiked. Rosemary had gone out with one boy several times, beginning in July 1969, but only on a double date. There was no evidence offered to suggest that Rosemary had voluntarily run away from home, yet she was never seen or heard from after riding in defendant's car. By stipulation it was proved that the following government agencies had no contact with Rosemary since August *47 25, 1969: the Social Security Administration, Internal Revenue Service, United States Post Office, Atlantic Highlands Board of Health, New Jersey Division of Motor Vehicles and New Jersey Unemployment Bureau.
Finally, three of defendant's jailmates, John Gosch, Herbert L. Williams and Al Glover, testified to statements made by defendant while in the Monmouth County Jail. Defendant implicated himself in Rosemary's murder in talking with Gosch (saying, "They'll never find that stinking broad") and, in an angry outburst, defendant admitted to Williams and Glover that he had thrown Rosemary's body, loaded with weights, into a river. Williams also testified that defendant alluded to various details of the case. Defendant explained that the inside door handles of his car were removed so that girls could not get out, and he said that he could claim that a pair of panties, found by the police in his car, were his wife's. There was also evidence that shortly before his arrest defendant was observed leaning over the open trunk of the Ford automobile with a scrub brush in his hand and a plastic pail beside him. Despite this suggestion that defendant was cleaning a portion of the vehicle, it was found generally in an unclean and untidy condition.
Defendant did not testify. Various witnesses, including his wife, mother and father and several aunts and uncles, testified that defendant was at home in Linden, New Jersey throughout the evening of August 25, 1969. However, the State was able to contradict the testimony of defendant's wife, mother and father. Defendant's father claimed he had been watching television during the evening and defendant's wife claimed she was at home. However, when questioned the day after defendant's arrest his father had said nothing about watching television; rather, he told the police he went to sleep at 5:30 P.M. At the same time defendant's mother had stated that defendant's wife had accompanied her to her weekly bingo game on the night of Rosemary's disappearance.
*48 The defense also attempted to counter the State's evidence in other respects. Defendant's wife explained that the handles in the car had been removed in an effort to repair a jammed window, that defendant was never able to install them securely and, therefore, they were kept under the seat. She also testified that the blue panties found in the car were hers, as were the hair clips. An explanation was also offered for the blood on the rear of the car: the brother of defendant's wife attempted to repair the taillight three weeks earlier and had cut his hand.
Despite this testimony the jury found defendant guilty.
I
We consider, first, whether defendant's prosecution is barred by N.J.S.A. 2A:159-2. That provision states:
Except as otherwise expressly provided by law no person shall be prosecuted, tried or punished for any offense not punishable with death, unless the indictment therefor shall be found within five years from the time of committing the offense or incurring the fine of forfeiture. This section shall not apply to any person fleeing from justice. [Emphasis supplied]
Defendant argues that because the death penalty can no longer be imposed under our existing statutes (State v. Funicello, supra) he was not accused of a crime "punishable with death." Therefore, he reasons, this prosecution must be barred because it was not instituted within five years from the time of the offense.
Defendant places primary reliance on State v. Johnson, 61 N.J. 351 (1972), which held that subsequent to Funicello an individual charged with first degree murder was bailable before conviction because murder was no longer a capital offense. However, we do not find Johnson persuasive on the issue before us. In Johnson the court was concerned with the right to bail. N.J. Const. (1947), Art. I, par. 11, provides that all persons are entitled to bail before conviction "except for capital offenses when the proof is evident or presumption great." Capital offenses are those *49 for which the death penalty may be imposed. State v. Johnson, supra, 61 N.J. at 355; State v. Williams, 30 N.J. 105, 125 (1959).
The court in Johnson examined the policies underlying the right to bail. Noting that the concept of pretrial release reflects "the everpresent presumption of innocence," the court said that the inclusion of the words "except for capital offenses" struck a balance:
The underlying motive for denying bail in capital cases was to secure the accused's presence at the trial. In a choice between hazarding his life before a jury and forfeiting his or his sureties' property, the framers * * * felt that an accused would probably prefer the latter. But when life was not at stake and consequently the strong flight-urge was not present, the framers obviously regarded the right to bail as imperatively present. [61 N.J. at 360]
Once the threat of death and its strong inducement for flight were removed the court found that there was no longer any justification for denying bail to persons accused of crimes which had been designated by the Legislature as capital offenses.
A statute of limitations strikes a balance between the right of the accused to repose and the right of the public to the prosecution of crimes. It affords protection against charges brought after events have become clouded by time, "to minimize the danger of official punishment because of acts in the far-distant past." Toussie v. United States, 397 U.S. 112, 114-115, 90 S.Ct. 858, 860, 25 L.Ed.2d 156, 161 (1970). For most crimes there is an absolute bar to prosecution after a specified period. In re Pillo, 11 N.J. 8, 18 (1952); Moore v. State, 43 N.J.L. 203, 209 (E. & A. 1881). However, the Legislature made an exception for crimes "punishable with death." These extremely serious crimes were never to be insulated by time.
Since it was enacted in 1796 our statute of limitations has excepted the crime of murder for which the legislature prescribed the death penalty. Pat. L. 1796, p. 208, § 73 (An Act for the punishment of crimes); L. 1879, c. CI, § 1 at 183; L. 1898 c. 237, § 152 at 919; L. 1953, c. 204, § 1 (N.J.S.A. 2A:159-2). (The unlimited time in which *50 to prosecute murder was extended in 1898 to all crimes "punishable by death," except for treason. L. 1898, c. 237, § 152.) Thus, throughout our history the legislature has pursued two sanctions for first degree murder: (1) that its perpetrator may suffer the death penalty and (2) that the crime would not go unpunished because of the lapse of time between the murder and the indictment.
While a statute of limitations should be liberally interpreted in favor of repose, its application must be consonant with the intent and purpose of the lawgiver. It is the legislative purpose which controls. State v. Brown, 22 N.J. 405, 415-416 (1956). Clearly, the Legislature intended to ensure that crimes of the most serious class, including first degree murder, would not escape prosecution by the mere passage of time. The phrase "offense * * * punishable with death" was a convenient means of identifying the several offenses to be included in the exception for which the death penalty was or would be provided in other sections of the criminal code. See N.J.S.A. 2A:113-2 and N.J.S.A. 2A:113-4 (first degree murder); N.J.S.A. 2A:118-1 (kidnapping for ransom); N.J.S.A. 2A:148-6 (assault with intent to kill the President, a state governor or other high executive officers) and N.J.S.A. 2A:148-1 (treason; but note the three-year statute of limitations for treason in N.J.S.A. 2A:159-1). The fact that the death penalty cannot be carried out, for constitutional reasons, does not change this identification and purpose. Unlike Johnson, the elimination of the death penalty has not affected the reason for prosecuting these crimes without time restriction. Their heinous nature remains.
The unenforceability of the death penalty has not wiped the statute off the books. See Dwyer v. Volmar Trucking Corp., 105 N.J.L. 518, 520 (Sup. Ct. 1929). Imposition of the death penalty for murder is not prohibited per se, but the criteria for its application may render the penalty unenforceable. See Gregg v. Georgia, ___ U.S. ___, 96 S.Ct. 2909, 48 L.Ed. 2d ___, 44 U.S.L.W. 5230 (1976). The constitutional basis for suspending the *51 application of the death penalty to avoid an excessive, inappropriate or cruel and inhuman punishment or its arbitrary and capricious application (see id.) are unrelated to the purposes of our statute of limitations. It is one thing to suspend the imposition of the death penalty for constitutional reasons, but this affords no reason for frustrating the legislative will by staying its additional sanction against murder, namely, the relentless prosecution of that crime without limitation in time. Thus, we conclude that N.J.S.A. 2A:159-2 does not bar this prosecution.[1]
II
Defendant next contends that his right to a speedy trial, protected by the Sixth Amendment to the United States Constitution,[2] was violated. A 5 1/2-year period separated defendant's arrest for contributing to the delinquency of Rosemary Calandriello and his indictment for her murder. Nevertheless, in the circumstances of this case, we hold that defendant's right to a speedy trial was not violated.
In reaching this decision we have considered the various factors referred to in Barker v. Wingo, 407 U.S. 514, 92 S.Ct. 2182, 33 L.Ed.2d 101 (1972), and State v. Szima, 70 N.J. 196, 358 A.2d 773 (1976). These are the length of delay, the reason for delay, whether defendant asserted the right and the degree of prejudice to defendant.
*52 The State offers a reasonable explanation for the delay in this case. Because Rosemary's body was never found the State was forced to prove her death by circumstantial evidence. In order to do this convincingly it was necessary to allow time to pass so that a jury could reasonably infer that she had not merely run away. Moreover, it was not unreasonable for the State to hope that more positive evidence would be found before trying defendant for this ultimate crime.
Defendant was first arrested in connection with Rosemary's disappearance in August 1969, but charges of abduction were dropped in June 1970. He was released on bail promptly after his arrest in August 1969. He has not demonstrated that prior to his indictment for murder his employment was interrupted, his finances drained, his associations curtailed, his reputation impaired, or that he, his family and friends were subjected to anxiety by reason of the threat of prosecution for murder. These considerations were identified in United States v. Marion, 404 U.S. 307, 320, 92 S.Ct. 455, 463, 30 L.Ed.2d 468, 478 (1971), as the "substantial underpinnings" of the right to speedy trial. Cf. State v. Smith, 131 N.J. Super. 354, 369 (App. Div. 1974), aff'd o.b. 70 N.J. 213 (May 17, 1976); United States v. MacDonald, 531 F.2d 196 (4 Cir.1976).
Prejudice to a defense due to inordinate delay in prosecution is, of course, a serious consideration. However, we find no reason on this account to invalidate defendant's conviction. There is nothing in the record to indicate that his defense was unduly impaired. See Barker v. Wingo, supra, 407 U.S. at 532, 92 S.Ct. at 2193, 33 L.Ed.2d at 118. Defendant's alibi witnesses testified they had a clear memory that defendant was home on the night in question. See id. at 532, 92 S.Ct. at 2193, 33 L.Ed. at 118. The original, early charge of abduction had served to stimulate defendant's preparation of a defense against criminal involvement with Rosemary. Thus, defendant's claim of possible prejudice is "insubstantial" and "speculative." *53 United States v. Ewell, 383 U.S. 116, 122, 86 S.Ct. 773, 777, 15 L.Ed.2d 627, 632 (1966); cf. United States v. Mann, 291 F. Supp. 268 (S.D.N.Y. 1968) (cited with approval in Barker v. Wingo, supra).
Defendant contends that he was prejudiced by reason of the death of his first attorney, Morris Spritzer, whose testimony would have been helpful on the voir dire as to the admissibility of the lineup evidence. The record shows that Spritzer represented defendant in an application for reduction of bail on November 24, 1969 in connection with the indictment pertaining to the 12-year-old girls. Shortly thereafter, on December 11, 1969, defendant's present attorney appeared for defendant in that cause and he has continued to represent defendant on all charges involving Rosemary and the four other young girls. Defendant contends that he was deprived of his right to Spritzer's counsel at the August 28, 1969 lineup identification. However, for reasons indicated below, we conclude that the loss of Spritzer's testimony was immaterial, since the denial of defendant's right to counsel, even if it occurred, was harmless error.
We also find no prejudice in the loss of other potential evidence claimed by defendant. For example, the Ford Galaxie, which was ordered returned to defendant's father in May, 1970, was destroyed in April 1973 as valueless. However, photographs of the vehicle were taken in August 1969 and were marked in evidence at the trial. The car was available to defendant before the charge of abducting Rosemary had been dismissed, and defendant has not shown what proof he lost by its unavailability at the time of trial.
Defendant contends that his motion for dismissal of the charges against him for Rosemary's abduction was tantamount to a request for speedy trial.[3]Cf. State v. Smith, *54 supra, 131 N.J. Super, at 363-367. Nevertheless, viewing the record as a whole, we have no doubt that defendant suffered no constitutional wrong by the passage of time before he was indicted for murder.
III
We reject, also, defendant's contentions that the trial judge committed prejudicial error in admitting certain evidence.
We find no error in the judge's refusal to exclude defendant's admissions of culpability to Gosch, Williams and Glover. For a confession to serve as an evidential basis for conviction "the State must introduce independent proof of facts and circumstances which strengthen or bolster the confession and tend to generate a belief in its trustworthiness, plus independent proof of loss or injury * * *." State v. Lucas, 30 N.J. 37, 56 (1959). We find that the State has met this burden.
There was ample independent circumstantial proof to give credence to defendant's admissions. The failure to produce the victim's body does not preclude a finding that she is dead. Commonwealth v. Burns, 409 Pa. 619, 629-33, 187 A.2d 552, 558-559 (Sup. Ct. 1963); State v. Dudley, 19 Ohio App.2d 14, 20, 249 N.E.2d 536, 541 (Ct. App. 1969). Proof of the corpus delicti the fact of injury or, in a homicide case, of death, by a criminal agency may be supplied by direct or circumstantial evidence. Commonwealth v. Burns, supra; State v. Dudley, supra; Campbell v. People, 159 Ill. 9, 42 N.E. 123 (Sup. Ct. 1895) (miscited by defendant as support for his position); People v. Corrales, 34 Cal.2d 426, 210 P.2d 843 (Sup. Ct. 1949); cf. United States v. Di Orio, 150 F.2d 938, 941 (3 Cir.), cert. den. 326 U.S. 771, 66 S.Ct. 175, 90 L.Ed. 465 (1945). Contra, Ruloff v. People, 18 N.Y. 179 (Ct. App. 1858), cited by defendant, and N.Y. Penal Law of 1909, § 1041. But L. 1965, c. 1046, § 2, effective Sept. 1, 1967 (N.Y. Penal Code *55 § 500.05 (McKinney 1967)), repealed the 1909 statute. New York law now bars a conviction based solely on a confession unless there is "additional proof that the offense charged has been committed." N.Y. Crim. Proc. L. § 60.50 (L. 1970, c. 996, § 1, effective Sept. 1, 1971). See People v. Jennings, 40 A.D.2d 357, 340 N.Y.S.2d 25 (App. Div.), aff'd o.b. 33 N.Y.2d 880, 352 N.Y.S. 444, 307 N.E.2d 561 (Ct. App. 1973); cf. People v. Daniels, 37 N.Y.2d 624, 376 N.Y.S.2d 436, 339 N.E.2d 139 (Ct. App. 1975). Surely, the successful concealment or destruction of the victim's body should not preclude prosecution of his or her killer where proof of guilt can be established beyond a reasonable doubt. Campbell v. People, supra, 159 Ill. at 22, 42 N.E. at 127.
Contrary to defendant's contention, a voir dire to determine the existence of corroboration is not a condition precedent to the admission of a confession. If sufficient independent corroboration is not shown by all the proofs, a judgment of acquittal at the close of the State's case is the appropriate remedy. R. 3:18-1.
Defendant next contends the trial judge erred in admitting the testimony of Lydia Hardie and Darlene Curren as to defendant's attempts to entice them into his car. We disagree.
Evid. R. 55 provides:
Subject to Rule 47, evidence that a person committed a crime or civil wrong on a specified occasion, is inadmissible to prove his disposition to commit crime or civil wrong as the basis for an inference that he committed a crime or civil wrong on another specified occasion but, subject to Rule 48, such evidence is admissible to prove some other fact in issue including motive, intent, plan, knowledge, identity, or absence of mistake or accident.
The fundamental distinction is between evidence which is relevant only to a defendant's "criminal disposition" and that which is relevant to a particular fact in issue before the jury. State v. Wright, 66 N.J. 466 (1975), adopting dissenting opinion, 132 N.J. Super. 130, 148 (App. Div. *56 1974). Evidence of defendant's prior conduct may be admitted if relevant to establish intent, plan or motive (see State v. Sinnott, 24 N.J. 408, 413-414 (1957)) even though defendant had been acquitted previously of criminal charges based upon such conduct. State v. Slocum, 130 N.J. Super. 358, 363 (App. Div. 1974). Conduct which is insufficient to establish a criminal intent toward one victim may tend to prove a criminal intent toward another victim in the light of other evidence.
Defendant contends that the State's failure to prove that his prior conduct was a crime or civil wrong prevents admission of this evidence. This contention misses the point. If the prior conduct is not a crime or civil wrong, but is relevant it is admissible. Evid. R. 7(f) provides that "all relevant evidence is admissible" unless excluded under some other rule of evidence. Here we find no abuse of discretion in the failure to exclude this evidence under Evid. R. 4 because of its potential for prejudice.
In this case evidence that defendant, a 28-year-old married man, had on two previous occasions persistently tried to lure teenage girls into his car would tend to explain how Rosemary came to be in the car of this stranger. See State v. Wright, supra. It tends to negate other hypotheses advanced by defendant for Rosemary's disappearance, namely, voluntary flight, suicide or accident.
We also agree with the trial judge's observation that the evidence was relevant to show defendant's presence in the victim's neighborhood, despite his residence in another county, and it tended to corroborate the identification of defendant as the driver of the automobile.[4]
*57 Similarly, we reject defendant's argument that admission into evidence of the out-of-court identifications of defendant by Lydia Hardie and Darlene Curren was reversible error. The identification of defendant as the man who tried to lure the girls into his automobile was made at a lineup on August 28, 1969, one day after defendant was arrested in connection with Rosemary Calandriello's disappearance. There is no absolute right to counsel at a pre-indictment lineup. Kirby v. Illinois, 406 U.S. 682, 92 S.Ct. 1877, 32 L.Ed.2d 411 (1972); State v. Earle, 60 N.J. 550, 552 (1972). Defendant argues, however, that because the police knew he had retained counsel and held the lineup out of counsel's presence, the identifications were inadmissible. See State v. Wilbely, 112 N.J. Super. 216, 219 (App. Div. 1970).
At the voir dire held to determine the admissibility of this evidence there was testimony that the police did notify counsel that the lineup would be held, but that he did not appear in time. Counsel was dead at the time of this trial and no explanation was given for his absence from the lineup.[5] In any case, both witnesses made positive in-court identifications of defendant, which are not challenged by defendant. Thus, even if there was error, we are satisfied beyond a reasonable doubt that introduction of this evidence was not "clearly capable of producing an unjust result." R. 2:10-2; Chapman v. California, 386 U.S. 18, 23-24, 87 S.Ct. 824, 827-828, 17 L.Ed.2d 705, 710 (1967); State v. Macon, 57 N.J. 325, 336-341 (1971).
Further, the trial judge did not err in permitting in-court identifications of defendant by the four witnesses who saw Rosemary in defendant's automobile. The judge had previously ruled that their identifications of defendant's *58 photograph should not be presented to the jury because the State had failed to properly preserve evidence of the photographic identification. See State v. Brown, 99 N.J. Super. 22, 27-28 (App. Div.), certif. den. 51 N.J. 468 (1968). However, there is nothing in the record to support defendant's contention that the procedure was impermissibly suggestive. On the contrary, the uncontradicted testimony was that each witness was independently shown seven photographs and asked if he could identify the driver of the automobile.
Assuming, arguendo, there was suggestiveness in the procedure, it was clear that the boys had ample opportunity to observe defendant. Thus, we have no doubt that the trial court correctly concluded that these in-court identifications were based upon their independent recollections. See Simmons v. United States, 390 U.S. 377, 384-386, 88 S.Ct. 967, 971-72, 19 L.Ed.2d 1247, 1253-1254 (1968); State v. Thompson, 59 N.J. 396, 418-419 (1971); cf. Neil v. Biggers, 409 U.S. 188, 93 S.Ct. 375, 34 L.Ed.2d 401 (1972).
We find no error in admitting into evidence various items seized from defendant's automobile which offered circumstantial evidence of the commission of the crime, although the probative weight of many items was debatable. State v. Wade, 89 N.J. Super. 139, 145 (App. Div. 1965); cf. State v. Mayberry, 52 N.J. 413, 435-436 (1968), cert. den. 393 U.S. 1043, 89 S.Ct. 673, 21 L.Ed.2d 593 (1969). The trial judge did not err in concluding that the State had met its burden in establishing the chain of possession of the items. See State v. DiCarlo, 67 N.J. 321, 329 (1975); State v. Brown, supra, 99 N.J. at 27. Nor was there error in the admission of hairclips used by Rosemary which had been found in her pocketbook, so that they could be compared with those found in the car. While the pocketbook might have been excluded, this claimed error could not justify setting aside the verdict.
*59 IV
We find defendant's remaining contentions lacking in merit.
N.J.S.A. 2A:113-2 defines murder "perpetrated by means of poison, or by lying in wait, or by any other kind of willful, deliberate and premeditated killing" [emphasis supplied] as murder in the first degree. That the trial judge charged "lying in wait" was not reversible error in the circumstances of this case.
The State contends that defendant's course of conduct, reasonably inferable from the evidence, was tantamount to concealment within the meaning of the law. The removal of the door and window handles, for example, evidences concealment of defendant's purpose to entrap the victim. See State v. Tansimore, 3 N.J. 516, 537 (1950). A jury could find "lying in wait" despite the fact that an accused has revealed his physical presence to the victim immediately before the killing. Id. Traditionally, however, an intent to ambush by watchful waiting, concealment and secrecy is the essence of the term. People v. Merkouris, 46 Cal.2d 540, 297 P.2d 999 (Sup. Ct. 1956). However, a killing by "lying in wait" is merely a form of premeditated, deliberate and willful murder. See N.J.S.A. 2A:113-2. Here, the jury must have found defendant guilty of a deliberate, premeditated and willful murder. Thus we are satisfied that in the circumstances of this case the jury could not have been misled by the charge and, if there was error, it was harmless beyond a reasonable doubt. See Commonwealth v. Mondollo, 247 Pa. 526, 93 A. 612 (Sup. Ct. 1915); cf. Turner v. United States, 396 U.S. 398, 420, n. 41, 90 S.Ct. 642, 654, n. 41, 24 L.Ed.2d 610, 625, n. 41 (1970).
Defendant also contends that the search warrants issued in 1975 were not supported by affidavits establishing probable cause to believe that defendant was guilty of any of the murders for which evidence was sought. We disagree. Nor was it unreasonable to believe that evidence of such crimes may *60 have been concealed in defendant's home or vehicles. Moreover, not only has defendant failed to demonstrate any prejudice resulting from the searches, he has not even asserted that any of the seized items were admitted in evidence.
Finally, we find no merit to defendant's assertion that his conviction was against the weight of the evidence. A motion for a new trial on this ground was denied. We are satisfied that "the evidence, viewed in its entirety including the legitimate inferences therefrom [was] sufficient to enable a jury to find that the State's charge [was] established beyond a reasonable doubt." State v. Mayberry, supra, 52 N.J. at 436-437. Thus, we have no doubt that defendant's conviction was not a "manifest denial of justice under the law." State v. Sims, 65 N.J. 359, 374 (1974).
Affirmed.
NOTES
[1] We note defendant's further argument that State v. Brown, supra, was wrongly decided by our Supreme Court. There a conviction for second degree murder was upheld where the indictment charging first degree murder was returned more than five years after commission of the crime. Defendant's contention may be addressed to the Supreme Court, not this court, since we are bound by that decision. State v. Steffanelli, 133 N.J. Super. 512, 514 (App. Div. 1975). In any event, it is irrelevant where the accused is found guilty of first degree murder.
[2] The Sixth Amendment right to speedy trial is applicable to the states. Klopfer v. North Carolina, 386 U.S. 213, 87 S.Ct. 988, 18 L.Ed.2d 1 (1967). The right is also protected by N.J. Const. (1947), Art. 1, par. 10.
[3] There is no merit to defendant's collateral estoppel claim that dismissal of the abduction charges bars the State from asserting that defendant was not prejudiced by the delay. See State v. Redinger, 64 N.J. 41, 45-46 (1973).
[4] Defendant's assertion that the trial judge did not caution the jury as to the proper consideration of this evidence (Evid. R. 6) is directly contradicted by the transcript of the judge's charge to the jury. Moreover the judge did not abuse his discretion in refusing to give a limiting instruction after the prosecutor's summation but before the jury was excused for the day. Finally, there is no merit to the complaint that the prosecutor committed prejudicial error in referring to this evidence in his summation. See State v. Slobodian, 120 N.J. Super. 68, 75 (App. Div.), certif. den. 62 N.J. 77 (1972).
[5] The trial judge made no finding as to who was responsible for counsel's absence, reasoning that defendant had no right to counsel under Kirby v. Illinois and State v. Earle, supra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538485/ | 142 N.J. Super. 516 (1976)
362 A.2d 63
JAMES STEWART POLSHEK & ASSOCIATES, PLAINTIFF,
v.
BERGEN COUNTY IRON WORKS, THE CITY OF ENGLEWOOD AND AMERICAN ARBITRATION ASS'N., DEFENDANTS.
Superior Court of New Jersey, Chancery Division.
Decided June 4, 1976.
*519 Mr. Brett S. Dankoff for plaintiff (Messrs. Chasan, Leyner, Holland & Tarrant, attorneys).
Mr. Murray Laiks for defendant Bergen County Iron Works (Messrs. Heller & Laiks, attorneys).
Mr. Frank J. Cuccio for defendant City of Englewood (Messrs. Jones, Cuccio & Klinger, attorneys).
PETRELLA, J.S.C.
This dispute arises out of the construction of a certain building for the Department of Public Works of the City of Englewood. An order to show cause was entered why an injunctive order should not issue prior to the hearing before the arbitrators, restraining and enjoining defendants from proceeding with or obtaining an award against plaintiff based on the demand for arbitration filed *520 by Bergen County Iron Works (Bergen Iron) against it; declaring and adjudging that plaintiff is under no contractual or legal obligation to arbitrate the crossclaim by Englewood; enjoining Englewood from proceeding with its crossclaim in arbitration, and severing the crossclaim.
Plaintiff James Stewart Polshek & Associates ("architect") entered into a January 26, 1973 agreement with the city to perform certain architectural services in connection with the building to be constructed, including supervisory duties over the various contractors and subcontractors.
Section 12 of the contract contains a requirement for binding arbitration in the event of controversy between the parties:
All claims, disputes and other matters in question arising out of, or relating to, this Agreement or the breach thereof shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining. This agreement so to arbitrate shall be specifically enforceable under the prevailing arbitration law.
Defendant Bergen Iron was not a party to the contract between architect and Englewood. However, its separate agreement with Englewood also contains a substantially identical arbitration clause.
The document also incorporates by reference Articles 1 through 14 of A.I.A.[1]. Document A.201 which provides, among other things:
Nothing contained in the contract documents shall create any contractual relationship between the architect and the contractor.
On April 5, 1976 Bergen Iron filed a demand for arbitration against both Englewood and architect. By letter of April 22, 1976 architect, through its New York attorney, participated in the selection of arbitrators and hearing dates, *521 reserving the right to contest jurisdiction. To date architect has refused to answer the demand for arbitration, denying that the American Arbitration Association had jurisdiction since it never contracted with Bergen Iron. However, since under the American Arbitration Association rules, arbitration proceeds despite a party's failure to answer the demand, architect thereupon commenced this action asserting that arbitration could not be effected since, although both architect and Bergen Iron had arbitration clauses in their contracts with Englewood, architect has no legal or contractual obligation to arbitrate with Bergen Iron, a party to which it was not in privity of contract. See Battle v. General Cellulose Co., 23 N.J. 538 (1957); and District 65, R.W.D.S.U. v. Paramount Surgical Supply Co., 117 N.J. Super. 125, 127-128 (App. Div. 1971).
Architect argues that it is not a signatory to the agreement between Englewood and Bergen Iron and in absence of such privity of contract, or its consent to arbitration, it cannot be made an unwilling participant in a proceeding, since arbitration is by nature "voluntarily" initiated by disputants. Architect primarily relies on the line of cases which reveal that arbitration is in essence the voluntary relinquishment of a right to have resort to the courts, a right which remains inviolate unless freely contracted away. See, e.g., Carpenter v. Bloomer, 54 N.J. Super. 157 (App. Div. 1959). Architect is correct in its assertion as far as the direct claim by Bergen Iron.
Generally, submission to arbitration is a matter governed by contract and the parties may fashion whatever provisions they wish to limit the scope of the proceeding. Newark Milk & Cream Co., v. Local 680 of Intern. Broth. of Teamsters, etc., 12 N.J. Super. 36 (App. Div. 1951); and cf. 6 C.J.S. Arbitration, § 76, at 291-293. Our arbitration statute has been stated to be compatible with the common law. Carpenter v. Bloomer, supra, 54 N.J. Super. at page 163. Settlement by this procedure is favored by the courts *522 of this State. Hudik-Ross, Inc. v. 1530 Palisade Ave. Corp., 131 N.J. Super. 159, 166 (App. Div. 1974); Keppler v. Terhune, 88 N.J. Super. 455, 461, 462 (App. Div. 1965); and Machine Printers Beneficial Ass'n of U.S. v. Merrill Textile Print Works, 12 N.J. Super. 26 (App. Div. 1951). This view has also been expressed by the U.S. Supreme Court in Atkinson v. Sinclair Refining Co., 370 U.S. 238, 82 S.Ct. 1318, 8 L.Ed.2d 462 (1962).
The contracting parties are only bound to the extent of their contract and have the right to stand upon the terms thereof. Public Utility Workers, etc. v. Public Service Electric & Gas Co., 35 N.J. Super. 414, 419 (App. Div. 1955). It also is axiomatic that arbitration agreements are to be construed according to usual methods of contract interpretation whereby "a mutual, reasonable and meaningful design is sought from the language used by the parties and maximum effect is given to their intention." Keppler v. Terhune, supra, 88 N.J. Super. at 462. The scope of the agreement, of course, is a matter for judicial scrutiny. See Newark Milk & Cream Co., supra (12 N.J. Super. at 41) and the cases cited therein.
In the matter under consideration Bergen Iron did not enter into a contractual agreement with plaintiff architect, and in fact Bergen Iron's contract with Englewood, by reference, denies any relationship with the architect. Architect may not then seek a direct award against Bergen Iron. Consequently, plaintiff is under no obligation to directly arbitrate the claim made by defendant Bergen Iron.[2] However, plaintiff by the broad language in its agreement with Englewood, is bound to submit that dispute which arises out of and relates to their contract to arbitration.
*523 Bergen Iron counters that even if architect is correct in its assessment of the controlling legal principles, plaintiff has waived its right to dispute the demand because it participated in choosing the arbiters pursuant to the demand. Although the term "waiver" is given varying definitions in varying contexts, it is generally taken to be the intentional relinquishment of a known right. See West Jersey Title & Guaranty Co., v. Industrial Trust Co., 27 N.J. 144, 152 (1958); Merchants Indemn. Corp. v. Eggleston, 37 N.J. 114, 130 (1962); 3A Corbin, Contracts § 752 (1960); 5 Williston, Contracts (3d ed. 1961) §§ 678, 679.
A claim of waiver cannot be successfully raised against the architect here for participating in the choosing of the arbiters relating to Bergen Iron's claim when there is no contractual or other basis for arbitration of that dispute. Furthermore, architect's participation was expressly subject to its objection to arbitration and was proper as a contingent measure in the event it was unsuccessful in this suit, since arbitration would have proceeded even if it refused to answer. By refusing to answer, architect risked at its peril being denied the opportunity to participate in the selection of arbiters in accordance with applicable rules.
The question now is, recognizing that the architect-Englewood and the Englewood-Bergen Iron disputes must be arbitrated, and the resolving of either controversy will certainly affect the other, does the cross-claim fail because Bergen Iron has no arbitration right against plaintiff and is enjoined from proceeding against plaintiff, or should this court refuse to in effect sever the "cross-claim" of Englewood? For practical purposes, this latter course would save time, expense and avoid any conflict or inconsistency in award.
It would be more form over substance to hold that the cross-claim would fall automatically and that Englewood must file a separate paper in arbitration labelled demand for arbitration against architect. In the circumstances the *524 cross-claim was in effect a demand for arbitration. Even if it could not be so viewed the court would grant a stay for a reasonable period to allow the filing of such a demand and an application for consolidation. Indeed, the counterclaim of defendant can be construed to request such relief. Our liberal practice does not require such a formalistic approach, however.
Architect objects to the matters proceeding together, relying on Wm. C. Blanchard Co. v. Beach Concrete Co., 121 N.J. Super. 418 (Ch. Div. 1972) which held there could be no consolidation of arbitration actions because neither court rule nor statute authorized it. In Blanchard, the court was concerned with "a web of claims and cross-claims" flowing from the construction of an office building. As in the case at bar, there were a number of contracts and subcontracts. Each contract contained an arbitration provision, but the clause did not refer to inclusion in arbitration of third-party claims or to consolidation of arbitrations.
The court in Blanchard reviewed our arbitration statute, N.J.S.A. 2A:24-1 et seq., and concluded at page 429 that:
... the use of "may" in sections 3 and 5 does not show legislative intent to confer discretionary power to enforce or not to enforce an agreement for arbitration when the parties to the agreement have a dispute covered by it. Such discretion appears to be in conflict with the unqualified declaration in section 1 that an agreement to arbitrate "shall be valid, enforceable and irrevocable...."
Judge Herbert found that he was not vested with the power under the statute, in absence of permissive language in the contract, to compel arbitration of the many claims in one proceeding. Despite his ultimate decision, he expressed his personal view by a reference (121 N.J. Super. at 428) to language in an English decision[3]:
It cannot be right to cut up this litigation into two actions, one to be tried before the arbitrator and the other to be tried elsewhere.
*525 Bergen Iron points out that Blanchard was cited with approval by the Appellate Division in Hudik-Ross, Inc. v. 1530 Palisade Ave. Corp., supra which said at 131 N.J. Super., page 168:
We are, of course, cognizant of the salutary objectives of our consolidation procedures, but a contractual right to arbitration cannot be abridged in favor of consolidation.
However, plaintiff's reliance on Hudik-Ross does not seem well taken. The Hudik-Ross statement appears to be dictum. It was directed at the consolidation of the many law suits involved in that matter and not to a consolidation in arbitration which was not in issue. Reference to refusal to allow consolidated law suits to proceed gave preference there to the parties' contractual right to arbitration. Thus, in the context of that opinion the quoted statement does not appear dispositive in considering the viability of Blanchard as present law. Other jurisdictions have considered the issue and recent authority and trends warrant reexamination of this issue in New Jersey in the absence of controlling appellate authority. Blanchard is not binding authority on this court. See Mears v. Economy Brake Serv. Inc., 78 N.J. Super. 218, 228 (App. Div. 1963), and State v. Hudes, 128 N.J. Super. 589, 596 (Cty. Ct. 1973).
Persuasive authorities in recent years concluded that in the absence of statute or rule prohibiting it, consolidated arbitration could be held over objection, provided the issues were substantially the same and as long as a substantial right of one of the parties is not prejudiced. Obviously, if the parties expressly consented, then such consolidated arbitration could proceed. Vigo Steamship Corp. v. Marship Corp., 26 N.Y.2d 157, 309 N.Y.S.2d 165, 257 N.E.2d 624, cert. den., 400 U.S. 819, 91 S.Ct. 26, 27 L.Ed.2d 46 (1970) was an action involving an agreement between plaintiff and defendant (containing an arbitration clause) for time charter of a ship. Plaintiff Vigo then entered into a voyage *526 charter agreement (providing for arbitration) with a transporter of materials. When a dispute arose between the three firms over damage to the ship, plaintiff demanded arbitration with the defendant Marship which in turn demanded arbitration under the contract relating to transport. Marship also moved for consolidation arguing common questions of law and fact. The court rejected plaintiff's arguments that consolidation was improper because it was not in privity of contract with the third party, and also refuted the assertion that the repeal of section 96 of the Civil Practice Act, which had denominated arbitration a special proceeding, controlled by rules specifically recognizing consolidation, deprived the court of jurisdiction to order the consolidation. See Met Food Corp. v. M. Eisenberg & Bros., Inc. 59 Misc.2d 498, 299 N.Y.S.2d 696 (Sup. Ct. 1969).
Relying on the more general terms of Section 7502 of the N.Y. Civil Practice Law and Rules the court stated:
Indeed, as we noted in the cited case as to an analogous issue, whether or not there is consolidation of the arbitrations, the issues of the extent of and liability for the damages to the ship will nevertheless be before the arbitrators and consolidation will make it possible to determine those issues in one proceeding involving all of the interested parties and to avoid the possibility of conflicting awards as well as the additional time and expense of separate proceedings. [309 N.Y.S.2d at 168]
The criteria for judicial consideration of whether to order consolidation was reemphasized in a subsequent New York decision, Materials Intern, etc. v. Manning Fabrics, 46 A.D.2d 627, 359 N.Y.S.2d, 812, 814 (1974), which stated:
The test is whether the issues are substantially the same and whether any substantial right is prejudiced.
A similar result was reached in C.B.S. v. American Recording and Broadcasting Assoc., 414 F.2d 1326, 1329 (2d Cir.1969) and Grover-Dimond Assoc. v. American Arbitration Ass'n, 297 Minn. 324, 211 N.W.2d 787 (1973) wherein *527 the Minnesota Supreme Court specifically rejected the Blanchard reasoning in favor of the New York rule as expressed in Vigo. See also Children's Hospital of Philadelphia v. American Arbitration Assoc., 231 Pa. Super. 230, 331 A.2d 848 (1974).
A federal District Court in Rhode Island also considered a similar issue. Robinson v. Warner, 370 F. Supp. 828 (D.R.I. 1974) was an action under 9 U.S.C. § 4, the federal counterpart of New Jersey's arbitration statute, N.J.S.A. 2A:24-1 et seq. The underlying dispute there concerned construction of a private home and disputes between the architect, contractor and owner. The owner had an arbitration provision in his contracts with both architect and contractor and demanded arbitration against both, requesting consolidation. The architect objected, arguing lack of privity between himself and the contractor. The issue expressed by the court was:
[C]an [the court] compel a consolidated arbitration when the agreements to arbitrate are embodied in separate contracts, (although there is one common party to both agreements), and neither of the separate contracts provide for consolidated arbitration[?] [370 F. Supp at 829]
The court noted the lack of specific authority in 9 U.S.C. § 4 for consolidation, but was unimpressed and opted to embrace the rationale of New York court in Vigo.
A consolidated proceeding, under such circumstances would appear to be a more efficient method of solving these disputes and apportioning any liability that may be found. Furthermore, it would avoid the possibility of conflicting awards which could conceivably leave the plaintiff without any remedy. [Id.]
For cases contra, most pre-1970, see, e.g. Stop & Shop Cos. v. Gilbane Building Co., 364 Mass. 325, 304 N.E.2d 429 (1973); Hjelle v. Sornsin Construction Co., 173 N.W.2d 431 (N.D. 1969) (based on holding that statutory procedure for selection of arbitrators implied only two parties), *528 and J. Brodie & Son, Inc. v. George A. Fuller Co., 16 Mich. App. 137, 167 N.W.2d 886 (Ct. App. 1969) (not allowed by clear language of contract). Cases on both sides of the issue are discussed in Annotation, "State Court's Power to Consolidate Arbitration Proceedings," 64 A.L.R.3d 528 (1975).
Nor should this court be dissuaded by absence of an explicit statutory directive permitting consolidation of arbitration proceedings. Indeed, there is no basis for finding our statutes or rules prohibit it where there is a common thread, and arbitration was agreed to with another party involved, and subject to the usual discretionary criteria for consolidation.
Indeed, as then Judge (later Justice) Hall stated in Carpenter v. Bloomer, 54 N.J. Super. 157, 167 (App. Div. 1959), in speaking of common law arbitration:
It is of no moment that there are no procedural provisions therefor in our rules. R.R. 4:121 states "If no procedure is specifically prescribed, the court shall proceed in any lawful manner not inconsistent with the Constitution, these rules or any applicable statutes." [citations omitted]
Present court Rule 1:1-2 carries forward the concept of its predecessor (Rule R.R. 4:121) in stating in the last sentence thereof, "In absence of rule, the court may proceed in any manner compatible with these purposes." Laudable purposes addressed by our court rules include securing a just determination, simplicity in procedure, fairness in administration, and elimination of unjustifiable expense and delay. Here, there has been no claim that allowing the two claims in arbitration to proceed together would prevent accomplishment of any of those goals. Indeed, it appears those goals would be furthered and the result would be to accomplish what Judge Herbert in Blanchard recognized should be the result.
An agreement to arbitrate confers jurisdiction upon the court to enforce it, and it follows that such jurisdiction imports *529 power to regulate the method of enforcement. Consequently this court respectfully disagrees with the view in Blanchard that consolidation is inconsistent with section one of our statute, providing that agreements to arbitrate "shall be valid, enforceable and irrevocable." Consolidation is merely a procedure controlling the manner of arbitration and does not affect the parties' contractual right to arbitration which remains "valid, enforceable and irrevocable."
As stated in Domke, The Law and Practice of Commercial Arbitration, § 27.02 at 272-273 (1968):
The general rule is a court may order consolidation of arbitration proceedings where the parties are not the same if the issues are substantially the same and if no substantial right is prejudiced. Thus, where two contracts containing broad arbitration clauses have different provisions as to the amount of goods and the price, but where the same witnesses would be called and the same testimony heard by the same persons in each proceeding, the two (or more) may be consolidated.
In this case there is an uncontroverted common thread of issues and facts arising out of a single project. Absent specific language prohibiting joint or consolidated arbitration, and where there is no showing of prejudice, consolidation is a practical, economical, convenient and preferred method of proceeding in the matters before the court. This is not doing indirectly what cannot be done directly since plaintiff has a contract with an agreement for arbitration with Englewood, and Englewood has a similar contract provision with Bergen Iron. Thus, Englewood can only seek an arbitration award against plaintiff. However, the matters can be heard contemporaneously, with witnesses and testimony that are common to other claims and witnesses who would obviously have to appear and testify in each. Nor is there any problem presented here concerning selection of arbitrators or inconsistent contractual provisions.
An order may be entered in accordance with this opinion enjoining Bergen Iron from proceeding in arbitration directly against architect, and declining to enjoin arbitration *530 of the claim by Englewood against architect and the claim by Bergen Iron against Englewood in the same arbitration proceeding, subject to the applicable rules of the American Arbitration Association. The Order to show cause will thereafter be dismissed pursuant to Rule 4:67-5. No costs.
NOTES
[1] American Institute of Architects.
[2] No reported decisions were brought to the court's attention extending the obviously broad language "all claims, dispute and other matters in question arising out of, or relating to, this contract ...." to individuals other than the parties to the contracts, or recognizing a third party beneficiary theory as to nonparties. Compare Newark Milk & Cream Co. v. Local 680, etc., supra (12 N.J. Super. at 40).
[3] Turnock v. Sartoris, L.R. (1889), 43 Ch. D. 150 (C.A.) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538494/ | 69 B.R. 960 (1987)
In re William B. WILSON a/k/a Willie B. Wilson Individually and d/b/a Wilson Ranches, Debtor.
William B. WILSON, Plaintiff,
v.
TXO PRODUCTION CORP., Defendant.
Bankruptcy No. 584-50146, Adv. No. 584-5117.
United States Bankruptcy Court, N.D. Texas, Lubbock Division.
February 13, 1987.[*]
*961 Thomas J. Griffith, Lubbock, Tex., for Wilson.
Tim Gideon, Lynch, Chappell, Allday & Alsup, Austin, Tex., for TXO.
John E. Leslie, Shannon, Gracey, Ratliff & Miller, Fort Worth, Tex., for Unsecured Creditors Committee.
MEMORANDUM OF OPINION
JOHN C. AKARD, Bankruptcy Judge.
Procedural History
On June 21, 1984, William B. Wilson, a/k/a Willie B. Wilson, Individually and d/b/a Wilson Ranches, filed for protection under Chapter 11 of the Bankruptcy Code. On November 14, 1985, Mr. Wilson, as Debtor-in-Possession (Wilson), brought this adversary proceeding against TXO Production Corp. (TXO), seeking an accounting and turnover of income withheld by TXO as operator of oil and gas leases in which Wilson owns interests. Wilson asserted such withholding is a preferential transfer pursuant to 11 U.S.C. § 549 or, in the alternative, a fraudulent transfer pursuant to 11 U.S.C. § 548. He sought to recover not only transfers made to TXO within 90 days of the filing of the bankruptcy petition but, characterizing TXO as an insider, also transfers which occurred within one year of the filing of the petition as well as postpetition funds withheld.
TXO responded that the funds it held were cash collateral of its operator's lien on the Debtor's interests in the wells operated by TXO. TXO asserted that it had the right to withhold the funds and that such withholding did not constitute transfers, either preferential or fraudulent, from the Debtor.
Subsequently, TXO filed a Motion for Relief from Automatic Stay to allow it to foreclose its operator's lien against the various interests of Wilson in certain oil and gas wells, on the grounds that Wilson had neither paid his expenses on the wells nor paid adequate protection. Hearing was held to the Court on June 4, 1986, at which time TXO argued that the various operating agreements between TXO and Wilson constituted executory contracts which Wilson had neither assumed nor rejected.
*962 Facts
Interests in oil and gas wells fall into two broad general categories: royalty interests and working interests. The royalty interest (often simply referred to as royalty) is the right to receive a share of the production of the well, free of any obligation to pay expenses in connection with that production. A working interest is the right to receive a share of the production of the well, but carries with it the obligation to pay a pro rata portion of the expenses of the well. In effect, the royalty owners receive their payments without having to bear any of the costs (and, in theory at least, as compensation for owning the property initially), while the working interest owners must pay the entire costs of operating the well in exchange for their share of the production. Typically there are a number of working interest owners and it is quite common for them to enter into an operating agreement which provides for one of them (the operator) to operate the properties for the benefit of both the working interest and royalty owners. Typically the royalty owners have no say in naming the operator. There is no requirement that the operator be one of the working interest owners, but it is the customary practice. The working interest owners who are not the operator of the well are referred to as non-operating working interest owners or non-operators.
TXO is both the operator and a working interest owner in the Noelke 8-1, the Arco 75-4, the Thompson P-1, the Thompson P-2, the Bankhead # 1, and the Bankhead # A-1 wells located in various counties in Texas. Wilson is one of a number of nonoperating working interest owners in the wells. He also owns a royalty interest in them.
Under the operating agreements in effect between the parties, TXO controlled operations on the leases on which the wells were situated and billed the non-operators for their proportionate share of expenses for the preceding month. Every month TXO sent the non-operators checks for their proportionate share of the proceeds of oil and gas sold from the wells. In short, the arrangement was a typical oil and gas operation. When Wilson failed to pay his share of prepetition operating expenses, TXO applied funds attributable to Wilson's interests in the wells to cover those expenses. After Wilson filed his Chapter 11 petition on June 21, 1984, TXO continued to set aside the proceeds which represented Wilson's interests in the wells. TXO insists that it has liens on the funds in question pursuant to the operating agreements and, in addition, asserts that the operating agreements must be characterized as executory contracts which Wilson must assume or reject.
Wilson alleges that, whether or not the operating agreements are executory contracts, the seizure of the proceeds of Wilson's interests in the wells constituted illegal transfers before the petition was filed and violations of the automatic stay after the petition was filed. Wilson further claims that the funds (now held by TXO) attributable to Wilson's interests in the wells do not represent cash collateral since TXO is not a secured creditor.
Executory Contract
The first question to be determined by the Court is whether an operating agreement is an executory contract. An executory contract is one under which the parties' obligations to the contract are so far unperformed that the failure of either to complete performance would constitute a material breach excusing the performance of the other. In re Sun Belt Electrical Constructors, Inc., 56 B.R. 686, 688 (Bankr.N.D.Ga.1986); Countryman, Executory Contracts in Bankruptcy: Part I, 57 Minn.L.Rev. 439, 458-62 (1973). While no attempt has been made to define the term "executory contract" in the Bankruptcy Code, the legislative history adopts the principle of mutuality in saying that the term "generally includes contracts on which performance remains due to some extent on both sides." 2 Collier on Bankruptcy ¶ 365.02, [15th ed. 1985]; see also Lubrizol Enterprises, Inc. v. Richmond *963 Metal Finishers, Inc. (In re Richmond Metal Finishers, Inc.), 756 F.2d 1043, 1045 (4th Cir.1985) cert. denied, ___ U.S. ___, 106 S.Ct. 1285, 89 L.Ed.2d 592 (1986). The Court holds that both Wilson and TXO have continuing obligations under the operating agreements so long as oil or gas are produced from the wells in question and, thus, the operating agreements are executory contracts.
As executory contracts, the operating agreements between TXO and Wilson are subject to the provisions of 11 U.S.C. § 365 which govern the time for curing defaults. Section 365(a) states that, subject to the Court's approval, the Trustee (in this case, the Debtor-in-Possession, Wilson) may assume or reject any executory contract. Section (b)(1) provides that the Trustee may not assume unless, at the time of assumption, he (A) cures or provides adequate assurance that he will promptly cure such default, (B) compensates or provides adequate assurance that he will promptly compensate the other party to the contract for any actual pecuniary loss he has suffered from the default and (C) provides adequate assurance of future performance under the contract.
Section 365(d)(2) provides that "the trustee may assume or reject an executory contract ... at any time before the confirmation of a plan." In the instant case no plan has been confirmed. While the Court may order the contract assumed or rejected within a specified period of time where requested to do so by a party to the contract, TXO has made no such request. Therefore, if Wilson assumes these executory contracts, he must cure his default, but he need not cure it until he assumes. NLRB v. Bildisco & Bildisco, 465 U.S. 513, 529, 104 S.Ct. 1188, 1197, 79 L.Ed.2d 482 (1984).
Operator's Lien
Several operating agreements, each relating to different leases, were introduced into evidence at the hearing. Each agreement contained an operator's lien similar to the one in Article VII of the operating agreement dated March 6, 1978:
Each Non-Operator grants to Operator a lien upon its oil and gas rights in the Contract Area and a security interest in its share of oil and or gas when extracted and its interest in all equipment to secure payment of its share of expense, together with interest thereon ... To the extent that Operator has a security agreement under the Uniform Commercial Code of the State, Operator shall be entitled to exercise the rights and remedies of a secured party under the Code. In addition, upon default by any Non-Operator in the payment of its share of expense, Operator shall have the right, without prejudice to other rights or remedies, to collect from the purchaser the proceeds from the sale of such Non-Operator's share of oil and gas until the amount owed by such Non-Operator has been paid.
One of the agreements was recorded in the Oil and Gas Records of Reagan County, Texas on June 13, 1984, within 90 days of the filing of the Bankruptcy Petition (June 21, 1984). Thus, to the extent that the recording adds enforceability to the operator's lien contained in the operating agreement, it is a preference and is clearly voidable under 11 U.S.C. § 547(b). Another agreement was recorded in the Oil and Gas Records of Reagan County, Texas on July 11, 1984, subsequent to the filing of the Bankruptcy Petition. The recording of this latter agreement, to the extent that it asserts an operator's lien, is in violation of the automatic stay provisions of 11 U.S.C. § 362(a)(4).
Once oil and gas are produced, they become personal property. United States v. Texas Eastern Transmission Corp., 254 F.Supp. 114, 118 (W.D.La.1965); Onyx Refining Co. v. Evans Production Corp., 182 F.Supp. 253, 256 (N.D.Tex.1959); Phillips Petroleum Co. v. Mecom, 375 S.W.2d 335 (Tex.Civ.App. Austin 1964, no writ). The operating agreement attempts to give the operator a lien on the oil and gas produced (in addition to a lien on the oil and gas in *964 place) for the non-operating working interest owner's share of expenses.
The Trustee-in-Bankruptcy (the Debtor-in-Possession in a Chapter 11) has the rights of a bona fide purchaser for value under 11 U.S.C. § 544(a)(3) and the rights of a hypothetical attaching lien creditor under § 544(a)(1). In order for the operator's lien to be effective against a bona fide purchaser, or an attaching lien creditor, one of the following must be done:
a. Proper recording or filing of the lien outside the preference period.
b. Constructive notice to the world of the interest of the lien claimant.
c. Possession of the collateral.
Except for the two attempts at recording described above, it was admitted that TXO did not record its operator's lien in the real estate records, nor file a financing statement concerning its operator's lien in the Uniform Commercial Code records.
TXO asserts that its possession of the lease as operator was notice to the world of its operator's lien. Although, as TXO asserts, the granting of a lien to an operator in an operating agreement may be customary in the oil industry, such customs do not constitute legally enforceable rights, nor do they give constructive notice to a prospective purchaser or attaching lien creditor.
TXO, as an owner of part of the working interest, is a co-tenant with Wilson as an owner of a part of the working interest. Shaw & Estes v. Texas Consolidated Oils, 299 S.W.2d 307 (Tex.Civ.App. Galveston 1957, writ ref'd n.r.e.). Possession by one co-tenant does not give notice of equitable rights as against another co-tenant. 16 Tex.Jur.3d, Cotenancy and Joint Ownership, § 25 (1981). One co-tenant is entitled to possession of the entire property so long as another co-tenant does not demand possession. Southern Pine Lumber Co. v. Hart, 161 Tex. 357, 340 S.W.2d 775 (1960). Our research has not revealed any Texas case holding that possession of the property by one co-tenant is notice to the world that the co-tenant in possession is claiming a lien against the other co-tenant's interest. In fact, possession consistent with record title does not constitute notice of an unrecorded claim. Dallas Land & Loan Co. v. Sugg, 237 S.W. 955 (Tex.Civ.App. Austin 1922, writ ref'd).
As between the parties, a lien is valid even though it is not properly perfected. This is true because the financing statement is not the operative document which creates the security interest between the parties; it is merely a public notice which directs one to further information. J. White and R. Summers, Uniform Commercial Code at 918 (2d ed. 1982).[1] The Court understands that the purchasers of the oil and gas made payment to TXO as the operator. It was then the operator's obligation to pay the royalties, the expenses, and the working interest owners. Thus, to the extent that TXO had possession, prepetition, of proceeds of production relating to Wilson's working interest, TXO was a secured party in possession of the collateral. As the secured party in possession of the collateral, it was entitled to apply those proceeds to Wilson's obligations for operating expenses.
Wilson argues that the payments made prepetition were setoffs. Setoff is a common law right which was specifically granted to TXO in the operating agreement and, although it operates very much like a lien, it is not technically a lien. With regard to the prepetition proceeds of Wilson's working interest, TXO exercised its lien rights, rather than its rights of setoff. Thus the improvement of position test in connection with setoffs under 11 U.S.C. § 553(a)(3) is not applicable.
Wilson asserts that TXO is not entitled to setoff because of the trustee-type relationship between the operator and the non-operating working interest owners, citing Reserve Oil, Inc. v. Dixon, 711 F.2d 951, 953 (10th Cir.1983). The Reserve Oil Court construed Oklahoma law. In Texas, it has been held that an operating agreement *965 does not create a partnership or agency between the operator and the non-operators. Luling Oil & Gas Co. v. Humble Oil & Refining Co., 144 Tex. 475, 191 S.W.2d 716, 722 (1945); U.S. Truck Lines v. Texaco, Inc., 337 S.W.2d 497 (Tex.Civ.App. Eastland 1960, writ ref'd). A mere contract does not give rise to a fiduciary duty between businessmen. Consolidated Gas & Equipment Co. v. Thompson, 405 S.W.2d 333 (Tex.1966). Based on these authorities, it seems clear that Texas Courts would hold that an operating agreement does not create a trustee-type relationship between an operator and the non-operators.
Wilson further asserts that the prepetition payments were preferences and argues that TXO is an insider such that the preference period should be one year prior to the date of the filing of the bankruptcy petition under 11 U.S.C. § 547(b)(4)(B). There is no evidence that TXO was an insider within the definition contained in 11 U.S.C. § 101(28). The one-year preference rule is inapplicable. The 90-day preference rule of 11 U.S.C. § 547(b)(4)(A) also is inapplicable because TXO merely exercised the lien rights to which it was entitled as a secured creditor in possession of the collateral.
The exercise of its lien rights by TXO does not give rise to a fraudulent transfer under 11 U.S.C. § 548.
Prepetition Royalties
To the extent that TXO was not paid for Wilson's share of the prepetition operating expenses, TXO's claim would be a general unsecured claim in these proceedings. Wilson asserts that the setoff by TXO of prepetition royalties due him against prepetition operating expenses constituted a preference under 11 U.S.C. § 553(b)(1).
The term setoff implies reciprocal demands existing between the same persons at the same time. Frost v. DeBogory, 291 S.W.2d 414 (Tex.Civ.App. Dallas 1956, no writ). The first requirement of setoff is mutuality of obligation. To be mutual, the debts must be in the same right and between the same parties, standing in the same capacity. 4 Collier on Bankruptcy ¶ 553.04[2] (15th ed. 1986); see also Republic Financial Corp., 47 B.R. 766 (Bankr.N. D.Okla.1985). Royalty owners must be paid before any payments are made for well expenses or to the working interest owners. Royalty payments represent the royalty owners' share of production and bear no portion of the operating expenses. TXO's claims against Wilson are for operating expenses. Wilson's entitlement to royalty is an entirely distinct right and he is entitled to it in an entirely different capacity. Thus, the requisite mutuality is missing.
To the extent TXO offset Wilson's prepetition royalties against Wilson's pre- or postpetition operating expenses, such offsets are disallowed. Wilson will be granted a judgment against TXO for such sums which shall bear interest at the judgment rate specified in 28 U.S.C. § 1961 from the date they should have been paid, compounded annually as specified in that statute, and continuing until fully paid.
Postpetition Production
Clearly, postpetition production, whether as a part of Wilson's working interest or as a part of royalty, cannot be used to offset prepetition obligations to TXO. Cooper-Jarrett, Inc. v. Central Transport, Inc., 726 F.2d 93 (3rd Cir.1984).
The Twilight Zone[2]
What is the status of these operating agreements/executory contracts between the date the petition was filed in this case and the date Wilson accepts or rejects them (the Twilight Zone)? Sun Belt, supra, holds the answer to our question. An executory contract is unenforceable against a Debtor-in-Possession who has not yet assumed the contract. Id. at 689, (citing Bordewieck, The Postpetition, Pre-Rejection, Pre-Assumption Status of an Executory Contract, 59 Am.Bankr.L.J. 197, 199 *966 (1985)); accord, NLRB v. Bildisco & Bildisco, supra. In Bildisco, the United States Supreme Court held that the filing of the petition in bankruptcy means that the executory agreement is no longer immediately enforceable and may never be enforceable again. Id. 465 U.S. at 532, 104 S.Ct. at 1199. Further, the Bildisco Court held that, since it is unenforceable, the Debtor-in-Possession need not comply with the terms of the contract prior to seeking the Bankruptcy Court's permission to either assume or reject. Id.
In Texas, oil and gas in place is part of the real estate. United States v. Texas Eastern Transmission Corp., supra; Onyx Refining Co. v. Evans Production Corp., supra; Phillips Petroleum Co. v. Mecom, supra. The working interest owners are co-tenants in the mineral estate. When there is no operating agreement between them, the law of co-tenancy governs their relationship. This law also governs their relationship during the Twilight Zone.
As the producing co-tenant, TXO must spend money necessarily and beneficially in the interest of the owners of the mineral estate. When one co-tenant incurs expenses benefiting the entire property, that co-tenant is entitled to contribution from the other co-tenants in proportion to their respective interests. City of Grand Prairie v. City of Irving, 441 S.W.2d 270, 273 (Tex.Civ.App. Dallas 1969, no writ). The producing co-tenant who develops the oil and gas property may deduct the reasonable expenses of producing and marketing the oil and gas from the proceeds of the production it obtains. McCurdy v. Harry L. Edwards Drilling Co., 198 S.W.2d 609, 612 (Tex.Civ.App. Galveston 1946, no writ); Estes v. Texas Consolidated Oils, 266 S.W.2d 272, 275 (Tex.Civ.App. Galveston 1954, no writ); Shaw & Estes v. Texas Consolidated Oils, supra.
The Debtor-in-Possession in a Chapter 11 proceeding has different rights and powers from the prebankruptcy debtor.[3] Thus, a line must be drawn on the date the petition is filed; TXO has a valid claim in these proceedings for operating expenses incurred for Wilson's working interest in the wells up through the day prior to the day the petition was filed. However, with respect to prepetition obligations of Wilson, TXO has no claim to any funds received by TXO on or after the date the petition was filed with respect to Wilson's working interest, even though such funds might represent proceeds from prepetition production. TXO will assert that it is injured by this conclusion because payment generally follows production by 30-90 days. Nonetheless, this is the conclusion the Bankruptcy Code demands and TXO must pursue its claim in these proceedings by the route provided in the Code.
TXO began work as the operating co-tenant on the date the petition was filed. Postpetition operating expenses can be charged against postpetition production only. Therefore, TXO may offset Wilson's working interest share of the postpetition operating expenses against Wilson's working interest share of the postpetition production. TXO must furnish an appropriate accounting to Wilson monthly and monthly *967 pay him his net share of the postpetition production as it relates to his working interest.
Wilson's royalty interest is another matter. TXO and Wilson are co-tenants only to the extent of their working interests. Royalty must be paid before any distribution is made to working interest owners. Thus, TXO has no right to withhold royalties attributable to Wilson with respect to postpetition production. TXO must account to and pay to Wilson those royalties monthly.
To the extent TXO has not paid Wilson his net postpetition share of the working interest and his postpetition royalties, such sums shall bear interest at the judgment rate specified 28 U.S.C. § 1961 from the date they should have been paid, compounded annually as specified in that statute, and continuing until fully paid. The Court realizes that this will result in different interest rates for amounts which became due in different months, but that is what the statute contemplates.
TXO's Motion to be Relieved from the Automatic Stay is denied because TXO no longer has an operator's lien.
Order accordingly.
NOTES
[*] This Memorandum shall constitute Findings of Fact and Conclusions of Law pursuant to Bankruptcy Rule 7052.
[1] See also TEX.PROP.CODE ANN. § 13.001 (Vernon, 1984).
[2] This term was suggested by Sheldon Toll of Detroit, Michigan.
[3]
The second issue raised by these cases is whether the NLRB can find a debtor-in-possession guilty of an unfair labor practice for unilaterally rejecting or modifying a collective-bargaining agreement before formal rejection by the Bankruptcy Court. Much effort has been expended by the parties on the question of whether the debtor is more properly characterized as an "alter ego" or a "successor employer" of the prebankruptcy debtor, as those terms have been used in our labor decisions. (Citations omitted.) We see no profit in an exhaustive effort to identify which, if either, of these terms represents the closest analogy to the debtor-in-possession. Obviously if the latter were a wholly "new entity," it would be unnecessary for the Bankruptcy Code to allow it to reject executory contracts, since it would not be bound by such contracts in the first place. For our purposes, it is sensible to view the debtor-in-possession as the same "entity" which existed before the filing of the bankruptcy petition, but empowered by virtue of the Bankruptcy Code to deal with its contracts and property in a manner it could not have employed absent the bankruptcy filing.
NLRB v. Bildisco & Bildisco, 465 U.S. 513, 527-528, 104 S.Ct. 1188, 1196-1197, 79 L.Ed.2d 482 (1984). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538497/ | 69 B.R. 27 (1986)
In re Frederick A. REDMAN, Debtor.
Bankruptcy No. 84-00278.
United States Bankruptcy Court, D. Hawaii.
September 18, 1986.
Erik Zen, Honolulu, Hawaii, for debtor.
*28 MEMORANDUM DECISION AND ORDER RE: APPLICATION FOR APPROVAL OF AGREEMENT BETWEEN TRUSTEE AND DEBTOR
JON J. CHINEN, Bankruptcy Judge.
On April 29, 1986, the Trustee, Joseph S.Y. Hu, filed an Application for Approval of Agreement Between Trustee and Debtor. In the Application, the Trustee seeks approval of an agreement between Trustee and Debtor whereby, in consideration for the Trustee's forbearance of any opposition to the Debtor's Motion to Dismiss, the Debtor would pay to the Trustee his hourly charges and costs, or $1,981.25 and $86.22 respectively.
BACKGROUND
On June 15, 1984, Debtor filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. On November 14, 1984, the Debtor filed a Motion to Dismiss the petition. This court granted the motion and dismissed the case on April 10, 1985. On May 20, 1985, the Trustee filed an ex parte motion to set aside the dismissal, contending that he had not been served with the motion to dismiss.
On May 20, 1985, this court set aside the dismissal. On September 23, 1985, the Debtor again moved for a Motion to Dismiss the bankruptcy proceedings. A hearing was held on April 3, 1986, at which hearing, present were the Trustee, his attorney, and the attorney representing the plaintiffs in two related adversary proceedings. The court took the matter under advisement to allow the creditors time to file objections to the dismissal of the case and the related adversary proceedings, the trustee's final accounting, and the applications for compensation of the Trustee and his counsel. This Court dismissed the Motion to Dismiss by order filed May 30, 1986, because the creditors were not noticed as required by the court at the April 3, 1986 hearing. The dismissal was without prejudice.
Subsequently, on May 30, 1986, the Trustee filed a Certificate of Service stating that notice was given to all creditors, and on June 27, 1986, the Trustee filed affidavits stating that no objections to the dismissal were filed.
The court, being advised in the premises and having reviewed the files, now renders this memorandum decision and order.
The court first notes that in the Ex Parte Motion for Order Setting Aside Dismissal filed May 20, 1985, the Trustee stated, "I am in the process of collecting substantial claims entitled to the Bankruptcy Estate which would pay for the administrative expenses incurred by the Bankruptcy Estate as well as leaving a balance for distribution to the creditors of the estate. . . . I believe that it is in the best interest of the Bankruptcy Estate to set aside the Dismissal. . . ."
In the Application for Approval of Agreement between Trustee and Debtor filed April 29, 1986, the Trustee states, "Prior to the Debtor's Motion to Dismiss Case, the Debtor and he agreed that, in consideration for his forbearance of any opposition to the Motion to Dismiss, the Debtor would pay the Trustee and his attorney all hourly charges and reimburse all expenses incurred in connection with the Chapter 7 case." (emphasis added).
In essence, the Trustee has reversed positions completely, provided that he is paid according to his hourly rate.
11 U.S.C. § 326 sets the limits on the trustee's compensation. As noted in In re Thorogood, 22 B.R. 725, 728, (Bkrtcy.E.D. N.Y.1982),
[t]he power to award reasonable compensation and reimbursement for expenses to a trustee and his attorney lies clearly with the judiciary and not the parties. 11 U.S.C. § 330(a). The Advisory Committee Notes to Rule 219 provide, "(t)he premise for including the allowance of compensation to officers, attorneys and accountants is that it is peculiarly a judicial responsibility to supervise the administration of estates and in particular to assure that allowances for compensation to those rendering services in connection therewith are fair but not excessive." *29 Reasonable compensation for a particular service to the debtor's estate is to be determined by the court acting in exercise of its sound discretion subject to statutory maximum ceilings. See Texas Bank & Trust Co. v. Crippen, 235 F.2d 472 (5th Cir.1956).
The Trustee's duty and loyalty lie with the Estate, and not to any other party. Debtor moved to dismiss this case because the dispute between Debtor and his former wife was resolved, and the Debtor's assets and earning power enabled him to pay his creditors, and thus protection under the Bankruptcy Code was no longer required. If the Debtor's motion were in the best interest of the estate, as is apparent here, the Trustee should not oppose the motion. Likewise, if the motion is not in the best interest of the estate, the motion should be opposed. But in no event should the matter of compensation to the Trustee be considered in the decision to oppose or not to oppose the motion to dismiss. It should be noted that, where a case is voluntarily dismissed, a Trustee may obtain compensation in excess of the limits imposed by 11 U.S.C. § 326. See e.g. In re Flying S. Land & Cattle Co., Inc., 23 B.R. 56 (Bkrtcy.Cal. 1982).
The Trustee is an officer of the court. As such, his responsibility is to promote and assist in the administration of the estate. At no time may the Trustee perform as a self-serving party to himself. A Trustee must be totally objective. See e.g. In re Steele, 26 B.R. 233 (Bkrtcy.W.D. Ky.1982). A Trustee is not authorized to contract with any party, including the debtor, for his compensation, and any such agreement is non-binding. See Carter v. Woods, 433 F. Supp. 291 (W.D.Mo.1977).
Here, the Trustee has blatantly violated this principal of objectivity. He has agreed not to oppose dismissal provided that the Debtor pay the Trustee his hourly rate. The Trustee has allowed self-interest to come before the interests of the estate. Such breach of the Trustee's fiduciary duty clearly warrants denial of compensation. See In re Thorogood, 22 B.R. 725 (Bkrtcy. E.D.N.Y.1982).
IT IS HEREBY ORDERED that the Application for Approval of Agreement between Trustee and Debtor filed April 29, 1986 is denied in its entirety.
IT IS FURTHER ORDERED that compensation to Joseph Hu as Trustee is hereby denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538495/ | 70 N.J. 528 (1976)
362 A.2d 1
JULIA YANHKO AND ADAM YANHKO, SR., PLAINTIFFS-APPELLANTS,
v.
SHELDON FANE AND DORA H. FANE, INDIVIDUALLY AND T/A K & H AUTO STORES; K & H AUTO STORES, INC., A CORPORATION OF THE STATE OF NEW JERSEY; AND THE CITY OF EGG HARBOR, A MUNICIPAL CORPORATION OF NEW JERSEY, DEFENDANTS-RESPONDENTS.
The Supreme Court of New Jersey.
Argued March 22, 1976.
Decided July 7, 1976.
*530 Mr. Robert F. Dunlap argued the cause for appellants (Messrs. Lipman, Antonelli, Batt and Dunlap, attorneys).
*531 Mr. Louis Niedelman argued the cause for respondents Fane and K & H Auto Stores, Inc. (Messrs. Cooper, Perskie, Neustadter and Katzman, attorneys).
Mr. Patrick T. McGahn, Jr., argued the cause for respondent City of Egg Harbor (Messrs. McGahn and Friss, attorneys; Mr. Gerard C. Gross on the brief).
The opinion of the Court was delivered by CONFORD, P.J.A.D., Temporarily Assigned.
We have undertaken to consider once more the rule of sidewalk negligence law, most recently affirmed by this court in Murray v. Michalak, 58 N.J. 220 (1971), affirming on the opinion below, 114 N.J. Super. 417 (App. Div. 1970); Barkley v. Foster Estates, Inc., 61 N.J. 576 (1972), affirming by an equal division of the court the decision in 121 N.J. Super. 453 (App. Div. 1971); and Muzio v. Krauzer, 62 N.J. 243 (1973), affirming on the opinion below, 122 N.J. Super. 221 (App. Div. 1971); that:
"An abutting owner is not liable for injuries suffered by a pedestrian on a defective or dilapidated sidewalk even though it constitutes a nuisance, unless the proofs show that that owner or his predecessor in title participated in the creation or continuance of the nuisance". 114 N.J. Super. at 418, quoting Lambe v. Reardon, 69 N.J. Super. 57, 64-65 (App. Div. 1961), certif. den. 36 N.J. 138 (1961).
The female plaintiff fell on a sidewalk in the City of Egg Harbor while walking from her place of employment to a nearby bank a journey she made daily in the course of her employment. The sidewalk was abutted by a vacant lot owned by defendants, used for parking by customers of their auto store. The store was separated from the lot by three other stores, and access to the lot for vehicles was not over the sidewalk in question but from another street. The sidewalk was in a bad state of repair. On the occasion in question plaintiff's left toe had entered a hole or crevice in the sidewalk *532 and struck the forward edge of the portion ahead of it, causing her to fall and sustain the injuries complained of. The accident occurred July 5, 1968, and the action was instituted June 3, 1970.
Defendants had owned the lot for 20 years but did not construct the sidewalk or ever repair it, nor did anyone else repair it during their ownership. There is no indication of when the sidewalk was constructed or by whom or as to any repairs ever made to it by anyone.
A search of the records of Egg Harbor City fails to reveal that the city ever built or maintained the sidewalk in question. Since long prior to defendants' ownership the city has had an ordinance imposing on abutting owners an obligation to construct sidewalks and to maintain them in good repair.
Plaintiffs' theory of the case was that the condition of the sidewalk was the result of the combination of improper construction, wear and tear by the elements and the pedestrian traffic. The facts stated above were recited as representations of intended proofs in the plaintiffs' opening, at the conclusion of which the trial court granted a motion to dismiss the complaint for failure of plaintiffs to state a prima facie case in their opening.
The Appellate Division affirmed in an unreported opinion. We granted certification, 68 N.J. 137 (1975), to review yet another time the basic sidewalk liability law of this State.
It is well settled that an abutting owner is not liable for the condition of a sidewalk caused by the action of the elements or by wear and tear incident to public use, but only for the negligent construction or repair of the sidewalk by himself or by a specified predecessor in title or for direct use or obstruction of the sidewalk by the owner in such a manner as to render it unsafe for passersby. See Moskowitz v. Herman, 16 N.J. 223 (1954); Orlik v. De Almeida, 45 N.J. Super. 403 (App. Div. 1957); Snidman v. Dorfman, 7 N.J. Super. 207 (App. Div. 1950); Krug v. Wanner, 28 N.J. *533 174 (1958); Rupp v. Burgess, 70 N.J.L. 7 (Sup. Ct. 1903); cf. Davis v. Pecorino, 69 N.J. 1 (1975).
Plaintiffs do not dispute the purport of the law as just restated, or its fatal impact on their fact presentations here. Rather they urge: (1) that considerations of justice and convenience warrant redefining common-law liability in this area of the law to impose a duty on all abutting owners not "to maintain a sidewalk in a dangerous condition," invoking the forceful dissenting opinion of Justice Proctor to that effect in Murray v. Michalak, supra (58 N.J. at 220, 222); (2) that, short of overruling the existing rule, it be modified to permit a jury to determine whether, on the alleged circumstantial case here made out, some prior owner of the property did not construct or repair the sidewalk improperly, for which the present owners should be properly accountable; and (3) that since for decades there have been in effect ordinances of the city imposing on abutting property owners the obligation of constructing and maintaining sidewalks, civil tort liability of such owners should be declared for failure to comply with the ordinance.
None of these contentions persuades us. We address them in order.
A.
Plaintiffs erect their principal thesis on the assertion in Justice Proctor's dissenting opinion in Murray v. Michalak, supra, that "one who maintains a sidewalk in a dangerous condition should be liable for injuries suffered by an innocent pedestrian as a result of that condition." 58 N.J. at 222. However, it seems to us that an abutting owner who makes no use of the sidewalk other than pedestrian passage thereover in common with the public generally is not properly to be described as "maintaining" it. This is particularly so when he does not exercise any control or dominion over it, as by constructing or repairing the sidewalk or making any other special use of it. Cf. Davis v. *534 Pecorino, supra. Presumably, defendants' title goes to the middle of the abutting street, subject to the public easement of vehicular passage in the street and of pedestrian passage on the sidewalk, with neither of which defendants are entitled to interfere. Saco v. Hall, 1 N.J. 377, 382 (1949); Starego v. Soboloski, 21 N.J. Super. 389, 392-393 (1952), aff'd 11 N.J. 29 (1952). In legal contemplation, the easement of public passage renders the sidewalk an integral part of the public highway. Id. 21 N.J. Super. at p. 392; Mount v. Recka, 35 N.J. Super. 374, 381 (App. Div. 1955).
The judicial imposition of a tort duty of care and maintenance of a portion of the public domain upon a property owner for no better reason than that his property is proximate to it would seem to be an arbitrary determination. See Stevenson, "Law of Streets and Sidewalks in New Jersey", 3 Rutgers L. Rev. 19, 25 (1949); Mount v. Recka, supra, 35 N.J. Super. at 380. The unrestrictable right of passage on the highway belongs to the public. In principle, therefore, a remedy for injury to a pedestrian caused by improper maintenance thereof should be subsumed under the heading of public liability. It should be for the Legislature as representative of the public at large to declare or regulate such liability,[1] not for the courts to impose it on the abutting owner as a convenient subject of liability. Despite decades of adherence by our courts to the principles enunciated above, the Legislature has not seen fit to impose a per se tort duty on the abutting owner. No satisfactory reason has been advanced for this court to do so now.
The rationale of public use and control formulated above undoubtedly underlies the accordant view of the American *535 Law Institute and the great majority of American jurisdictions against tort liability of the abutting owner who is otherwise without fault or contribution to the accident. Restatement, Second, Torts, Sec. 349, pp. 230-231 (1965); Annot., 88 A.L.R. 2d 331, 340-346 (1963); Prosser, Law of Torts (4th ed. 1971) 353.
B.
Plaintiffs contend it should be a jury question as to whether a predecessor in title of defendants built or repaired the sidewalk since there is evidence that the city did not do so and that there has been in effect for many years a sidewalk ordinance imposing such an obligation on abutting owners.
However, plaintiffs face the initial difficulty that they must establish not merely that the sidewalk is now dilapidated, as that could have developed from pedestrian use and wear and tear, but also that it is due to negligent construction or repair. This, in turn, requires a showing "as to when the sidewalk was constructed and the proper standard of construction at that time." Moskowitz v. Herman, supra (16 N.J. at 225). Such proof is obviously not presented by plaintiffs.
As to permitting an inference that some predecessor in title must have last constructed or repaired the sidewalk, our cases are firmly to the contrary. As pointed out by Judge Clapp in Orlik v. De Almeida, supra, work or repair on sidewalks is frequently done by municipal authorities, public utilities, Works Progress Administration (prior to World War II) and others "whose acts are not properly imputable to the owner." 45 N.J. Super. at 408. Plaintiffs' present proffer of proof is not substantial evidence negating the thesis that the last work on this sidewalk may have been done either by the city or by some entity other than a current owner. In any event, as held in Orlik and many prior decisions, a plaintiff *536 does not make out a prima facie case against the abutting owner by merely putting in proof of the present existence of a nuisance. 45 N.J. Super. at 408-409. Nor in the present matter is such a case made out by the negative proofs offered by plaintiffs. We reaffirm the procedural burden placed on the plaintiffs by our prior cases in this kind of situation and hold that they have not met it.
C.
Finally, we reject the thesis that a municipal sidewalk ordinance creates a tort duty owing to passersby on the public passageway.[2] Our settled law is to the contrary.
Our cases have consistently refused to find that ordinances requiring landowners to repair or maintain abutting sidewalks create a duty running from the property owner to the injured plaintiff, unless a statute explicitly establishes civil liability. See, e.g., Lambe v. Reardon, 69 N.J. Super. 57, 68 (App. Div. 1961), certif. den., 36 N.J. 138 (1961); Fielders v. North Jersey St. Ry. Co., 68 N.J.L. 343 (E. & A. 1902); Zemetra v. Fenchel Realty Co., Inc., 134 N.J.L. 358 (Sup. Ct. 1946), aff'd 135 N.J.L. 205 (E. & A. 1947); Coll v. Bernstein, 14 N.J. Super. 71 (App Div. 1951); cf. 19 McQuillin, Law of Municipal Corporations, Sec. 54.42b, at p. 106 (3d ed. 1967); Annot., 88 A.L.R.2d, supra, at 354-358.
While the narrow issue of civil liability based on a sidewalk ordinance has apparently never been addressed by this court, an analogous question was decided in Brown v. Kelly, 42 N.J. 362 (1964). In that case plaintiff was injured as a result of a fall on a snow-covered sidewalk abutting defendant's premises. Although a municipal ordinance required *537 removal of snow within twelve hours of daylight after a storm, the defendant owner had made no effort to comply. Refusing to upset the well settled rule that snow removal ordinances create no civil liability, absent an express provision therefor, Sewall v. Fox, 98 N.J.L. 819 (E. & A. 1923), this court affirmed the trial court's dismissal of plaintiff's suit.
The basic rationale underlying the decisions just cited stems from the long-standing premise that the primary responsibility for providing and maintaining streets and sidewalks resides in the government. Since the original duty of construction and repair is attributable to the government, breach of the responsibility delegated to a private owner by ordinance is conceived as constituting a breach of duty to the municipality rather than to the public. Otherwise stated, such ordinances are thought to be enacted for the benefit of the government, so that an injured passerby cannot qualify as "a member of the class for whose benefit the provision was adopted." The view that such municipal ordinances do not create a private cause of action absent express provision therefor was fully explicated in Fielders v. North Jersey St. Ry. Co., supra (68 N.J.L. at 352).
We adhere to the law as previously enunciated on the point in question.
Judgment affirmed.
PASHMAN, J. (dissenting).
Because of its periodic and persistent recurrence, the question posed by this case whether an abutting commercial landowner is liable for a pedestrian's injuries from a defective or dilapidated sidewalk may truly represent a legal albatross of this Court. In affirming dismissal of plaintiff's cause of action, the majority relies on precedents supporting the proposition that a landowner does not incur liability, even when the landowner is aware of the existing condition and its danger to those who use the sidewalk. While I appreciate the guidance which is afforded by precedents, I am unwilling to retain *538 the case law of yesterday to defeat the logic and needs of today. By our blind adherence to precedent we risk violation of the spirit and commonsense upon which our system of law is founded.
Plaintiff, an employee of an Egg Harbor pharmacy, was injured while she was returning to work from a nearby bank after conducting business there on behalf of the pharmacy. Her route took her past a vacant lot which served as a parking area for customers of defendant's store. Because vehicles enter this parking area through a rear entrance, it is unnecessary for them to cross the sidewalk to gain access to the lot. Hence, the sidewalk is dedicated solely to pedestrian use. Despite this limited use, at the time of the accident the sidewalk was in "an absolutely horrendous state of disrepair." Its concrete slabs were generally uneven, and there were numerous cracks and holes in each of the slabs. Although the cause of this condition is uncertain, it may be inferred that it resulted from a combination of pedestrian use, the natural wear and tear of the elements and improper construction. It may further be inferred that defendants were aware of the condition of the sidewalk even though they had neither constructed the sidewalk nor ever repaired it.
On July 5, 1968, as she was returning from the bank, plaintiff stepped into a hole in the sidewalk adjacent to defendants' vacant lot and fell, causing her to sustain serious personal injuries. Plaintiff, joined by her husband per quod, instituted this action against defendants individually, their corporation (K & H Auto Stores, Inc.) and the City of Egg Harbor.[1]
The case came to trial on June 25, 1973 before a judge and jury. Plaintiffs' attorney, in his opening statement, reviewed the facts stated above and then offered to prove that defendants had owned the sidewalk for more than 20 years. *539 Counsel also stated that he would be able to show that the sidewalk, the condition of which was the sole and exclusive cause of Mrs. Yanhko's injury, was in a state of disrepair, and that defendants were aware of this condition. Plaintiffs, however, could not allege, or declined to allege, that defendants had constructed or ever repaired the sidewalk. Although counsel for plaintiffs stated that he could inferentially demonstrate that the sidewalk had been constructed by a predecessor in title to the defendants, no proof was available as to which predecessor was actually responsible for its construction or its subsequent condition. At the conclusion of counsel's statement, the court granted defendants' motion for an involuntary dismissal because plaintiffs had failed to state a prima facie case under existing case law. The Appellate Division affirmed in an unreported per curiam opinion. This Court granted plaintiffs' petition for certification to consider the policy underlying existing law. 68 N.J. 137 (1975).
The majority today goes no further than to reaffirm the principle that an abutting owner is not liable for a pedestrian's injuries from a defective or deteriorated sidewalk absent proof that the owner or his predecessor in title constructed or repaired the sidewalk in a negligent fashion. This principle accurately reflects the current law in this State. See Murray v. Michalak, 58 N.J. 220 (1971); Barkley v. Foster Estates, Inc., 61 N.J. 576 (1972) (equally divided panel) aff'g 121 N.J. Super. 453 (App. Div. 1971) and Muzio v. Krauzer, 62 N.J. 243 (1973) aff'g o.b. 122 N.J. Super. 221 (App. Div. 1971).
While the majority concludes that it will not alter this principle because "[n]o satisfactory reason has been advanced for this court to do so," ante at 534, I would readily do so for the reasons stated in this opinion and in the forceful dissenting opinions of Justice Proctor in Murray v. Michalak, supra, and Justice Jacobs in Moskowitz v. Herman, 16 N.J. 223 (1954). I fully agree with Justice Proctor's *540 assessment that "it is high time this Court reevaluated the law relating to sidewalk negligence cases."
In reaffirming the existing law, the majority argues that it would be an "arbitrary determination" to impose liability on a landowner merely because his property is proximate to the sidewalk. Ante at 534. The majority further asserts that the public easement which belongs to pedestrians leaves the landowner with almost no control or dominion over the sidewalk and consequently:
[I]t seems to us that an abutting owner who makes no use of the sidewalk other than [in] pedestrian passage thereover in common with the public generally is not properly to be described as "maintaining" it. [Ante at 533].
I find this position to be inaccurate and untenable. While the public does acquire an easement of passage over defendants' sidewalk, defendants' title still goes to the middle of the abutting street and defendants continue to retain considerable interest in and control over that portion of the sidewalk located on their land. Saco v. Hall, 1 N.J. 377, 382 (1949); Starego v. Soboloski, 21 N.J. Super. 389, 392-93 (App. Div.), aff'd 11 N.J. 29 (1952). Accord 2 American Law of Property, § 9.54 (1952); 10 McQuillin, Municipal Corporations (3 ed. 1966), § 30.32 at 687-88; Haven Homes v. Raritan Tp., 19 N.J. 239, 244-45 (1955); Stanley Development Co. v. Millburn Tp., 26 N.J. Super. 328, 330 (App. Div. 1953). For instance, in their exercise of the power of eminent domain, state and local authorities are permitted to take only so much of an owner's title as is essential to establish the public easement. Lehigh Valley R.R. Co. v. Chapman, 35 N.J. 177 (1961), cert. den. 368 U.S. 928, 82 S.Ct. 364, 7 L.Ed.2d 192 (1961); N.J. Turnpike Authority v. Washington Tp., 16 N.J. 38, 42-43 (1954); Valentine v. Lamont, 13 N.J. 569, 577 (1953), cert. den. 347 U.S. 966, 74 S.Ct. 776, 98 L.Ed. 1108 (1954). This requirement is intended to permit the landowner to retain as many rights and privileges as are consistent with the public *541 taking. Thus, there is an obvious distinction between landowners who retain substantial rights in the property and pedestrians who may simply use the public easement but exercise no effective control over it. One leading treatise describes the rights which an abutting landowner retains as follows:
[A]s the owner of land abutting upon a public way, he has certain rights against the public over and above his rights as a member of the public. These abutter's rights are in the nature of easements in the part of the highway adjoining his land appurtenant to his lot. [2 American Law of Property, supra, § 9.54 at 493].
Accordingly, the courts of this State have consistently sought to protect these rights from unnecessary encroachments by municipally-authorized public easements. Union Towel Supply Co. v. Jersey City, 99 N.J.L. 52 (Sup. Ct. 1924); Faulks v. Allenhurst, 115 N.J.L. 456 (E. & A. 1935); Kirzenbaum v. Paulus, 57 N.J. Super. 80, 86 (App. Div. 1959).[2]
*542 In light of these limitations upon the public easement, it is clear that the landowner is not the powerless figure portrayed by the majority. In any event, to speak of a landowner's power and control to restrict access to his property is somewhat anomalous within the context of the instant case. Here, the landowners, as practical businesspeople, are not trying to restrict access to either the sidewalk or their stores. In fact, to the extent that an accessible sidewalk will facilitate the success of their business, defendants strongly encourage use of the sidewalk. This situation is hardly distinguishable from that in which a storekeeper opens his premises to business invitees. Our courts have traditionally held that a business proprietor has a duty to exercise reasonable care to protect the safety of the invited public. Handleman v. Cox, 39 N.J. 95 (1963); Brody v. Albert Lifson & Sons, 17 N.J. 383 (1955); Prosser, Torts (4 ed. 1971), § 61 at 392-93.[3] Imposition of this duty has been justified on the basis of the economic benefits which accrue to the landowner from his patrons and also on the assurances of reasonable safety which the landowner impliedly extends to them when they enter his store. Murphy v. Kelly, 15 N.J. 608 (1954); *543 Lewin v. Ohrbach's, Inc., 14 N.J. Super. 193 (App. Div. 1951); Krackomberger v. Vornado, Inc., 119 N.J. Super. 380 (App. Div. 1972). While I acknowledge the decisions that have found this reasoning inapplicable to cases involving the negligent care of sidewalks by commercial landowners, Skupienski v. Maly, 27 N.J. 240 (1958); Muzio v. Krauzer, supra; O'Neill v. Suburban Terrace Apartments, Inc., 110 N.J. Super. 541 (App. Div. 1970), certif. den. 57 N.J. 138 (1970); MacGregor v. Tinker Realty Co., 37 N.J. Super. 112 (App. Div. 1955), I do note that judicial expression on this question is not uniform. In Krug v. Wanner, 28 N.J. 174 (1958), for example, Justice Jacobs speaking for a unanimous Court stated:
For the protection of its patrons, every commercial establishment must maintain its premises, including means of ingress and egress, in reasonably safe condition.... And although the paved sidewalks fronting a commercial establishment are primarily for the use of the public generally, their condition is so beneficially related to the operation of the business that the unrestricted legal duty of maintaining them in good repair might, arguably, be placed on it. [28 N.J. at 179-180; citations omitted].
See also Latzoni v. Garfield, 22 N.J. 84 (1956); Merkel v. Safeway Stores, Inc., 77 N.J. Super. 535 (Law Div. 1962). I also note that other jurisdictions have explicitly accorded invitee status to pedestrians to permit their recovery from commercial landowners. Blaine v. United States, 102 F. Supp. 161, 164-65 (E.D. Tenn. 1951); Gilroy v. United States, 112 F. Supp. 664, 666 (D.D.C. 1953); Love v. Clam Box, Inc., 35 Misc.2d 436, 232 N.Y.S.2d 924, 925 (Sup. Ct. 1962); Cooley v. Makse, 46 Ill. App.2d 25, 196 N.E.2d 396, 398-99 (App. Ct. 1964).
However, even if I lacked the precedential support of these decisions, I would still feel compelled to reach what I regard as an inherently fairer result by permitting plaintiff to prove her case against the landowner. If it is conceded that plaintiff would have had a claim against defendant had she been actually injured within defendants' store, it makes *544 little sense to reach a contrary result where she sustains her injury elsewhere on the business property of the defendant-landowner. If the landowners were aware of the dangerous condition of the sidewalk, and failed to take the necessary action to correct it, plaintiffs' right to bring suit should not depend on the fortuitous misfortune of where the injury occurred on defendants' property.
For similar reasons, I reject the requirement that plaintiff demonstrate that the defective condition of the sidewalk was attributable to either defendants or some predecessor in title. Not only does this requirement impose an onerous burden on plaintiff[4], but it bears no real relationship to the claim that defendants were negligent for their failure to correct a defect of which they were aware. As Justice Proctor observed in Murray v. Michalak, supra:
What possible difference should it make whether a predecessor in title was responsible for creating the conditions which led to that nuisance? It strikes me as anomalous that a property owner's duty to repair should hinge on so tenuous a criterion a criterion which is wholly irrelevant to his own wrongdoing. [58 N.J. at 224].
If it could be established at trial that some other party were responsible for the negligent construction or repair of *545 the sidewalk, then defendant might conceivably seek contribution or indemnity from that party or shift liability to that party altogether. However, the fact that defendant was not originally responsible for the defective condition of the sidewalk should not automatically and necessarily preclude recovery by the plaintiff. This result is especially illogical where, as here, there is no evidence that anyone other than defendants or their predecessors in title were responsible.
Thus, I would find it unnecessary for the plaintiff to establish that the defective condition was attributable to either defendant or a predecessor in title. This requirement must be discarded as a legal fiction which bears no relationship to the negligence charged in this case i.e., negligent failure to properly maintain a sidewalk or correct an obvious defect.
For these reasons, I need not reach plaintiffs' alternate ground for reversal concerning the inference that some predecessor in title was ultimately responsible for the negligent construction or repair of the sidewalk.
My disagreement with the majority transcends its assessment of the rights and duties of commercial landowners, and extends to the undue reliance which the majority places on precedent. I, of course, recognize the important role which precedent plays in the ongoing development of the law. Precedents provide a useful summary of the past and a helpful directive for the future. Nonetheless, while past judicial decisions may afford guidance to courts, they are only a starting point for judicial inquiry. They are only a means and not an end of our decision-making process. As Justice Cardozo stated in his seminal work, The Nature of the Judicial Process (1921):
The rules and principles of case law have never been treated as final truths, but as working hypotheses, continually retested in those great laboratories of the law, the courts of justice. Every new case is an experiment; and if the accepted rule which seems applicable yields a result which is felt to be unjust, the rule is reconsidered. It may not be modified at once, for the attempt to do absolute justice in every single case would make the development and maintenance *546 of general rules impossible; but if a rule continues to work injustice, it will eventually be reformulated. The principles themselves are continually retested; for if the rules derived from a principle do not work well, the principle itself must ultimately be reexamined. [Id. at 23].
This statement, in itself, constitutes neither a denial nor a rejection of precedent. As Justice Cardozo acknowledges, "in the main there shall be adherence to precedent." Id. at 112. The salutary operation of this general rule fosters symmetry in the law and consistency in its application. Nevertheless, the adherence to precedent is only warranted where the result it yields is consistent with standards of fairness. Thus, as Justice Cardozo observed:
Symmetrical development may be bought at too high a price. Uniformity ceases to be a good when it becomes uniformity of oppression. The social interest served by symmetry or certainty must then be balanced against the social interest served by equity and fairness or other elements of social welfare. [Id. at 112-13].
Within the instant case, I have difficulty discerning the Cardozoan element of fairness which would justify continued adherence to the rule of nonliability which the majority reaffirms today. I am convinced that continued adherence to this rule will produce results which are both undesirable and inconsistent with modern notions of fairness. For instance, the rule provides no incentive for a landowner to repair a deteriorating sidewalk. In fact, because a landowner may incur liability if he repairs a sidewalk in a negligent fashion, it is more advantageous for him to ignore the defective conditions altogether. The practical operation of this rule produces a result which hardly comports with current standards of justice.[5] As Justice Jacobs stated in Moskowitz v. Herman, supra:
*547 The foregoing doctrine is pregnant with seeds of gross injustice for it tends to immunize the wrongdoer whose flagrant neglect of duty has caused injury to an innocent party who is left with recourse against no one. [16 N.J. at 228].
The result reached by the majority is all the more unfortunate because it finds its seeds in doctrines of the past which have no place in our modern society. It is difficult to conceive of a comparable situation in the law of negligence which so effectively insulates a wrongdoer from the consequences of his actions. While courts should turn to the rules of the past for guidance, our acceptance of past legal principles should be conditioned upon their continued applicability. I am mindful of Chief Justice Vanderbilt's statement in State v. Culver, 23 N.J. 495 (1957), cert. den. 354 U.S. 925, 77 S.Ct. 1387, 1 L.Ed.2d 1441 (1957):
The nature of the common law requires that each time a rule of law is applied it be carefully scrutinized to make sure that the conditions and needs of the times have not so changed as to make further application of it the instrument of injustice. [23 N.J. at 505].
Accord, Ft. Lee Sav. & Loan Ass'n v. LiButti, 106 N.J. Super. 211, 219 (App. Div. 1969). In this regard, our continual reconsideration of the question presented by this case at least indicates that litigants perceive a readiness by this Court to change an antiquated rule. This perception has been manifested in the increasing challenges which have been recently presented on this issue. Murray v. Michalak, *548 114 N.J. Super. 417 (App. Div. 1970), aff'd o.b. 58 N.J. 220 (1971); Muzio v. Krauzer, 122 N.J. Super. 221 (App. Div. 1971), aff'd o.b. 62 N.J. 243 (1973); Brown v. Lins Pharmacy, Inc., 67 N.J. 392 (1975); Davis v. Pecorino, 69 N.J. 1 (1975).
This pattern of litigation has been matched by the Court's own apparent willingness to entertain such actions. The decisions which these actions have produced confirm the belief of litigants that this Court is slowly moving towards a repudiation of the immunity which has traditionally cloaked commercial landowners. The unseemly judicial hand-wringing which has attended continued reassessment of this question has been reflected in the ambivalence which marks the cases in this State.
The three cases which the majority cites for the basic proposition of landowner nonliability are apt illustrations of this ambivalence. Ante at 531. Murray v. Michalak, supra, was decided in a 13-word, per curiam opinion in which the majority, perhaps wisely, deferred comment on this troublesome doctrine, and instead relied on the opinion of the Appellate Division. Furthermore, the Court's decision was by a divided panel, and evoked an extensive and strongly-worded dissent by Justice Proctor (joined by Justice Jacobs) which criticized the inherent unfairness of the decision. In Barkley v. Foster Estates, Inc., supra, the Court was unable to reach a concensus and the Appellate Division decision upholding nonliability was affirmed by an equally divided Supreme Court. Finally, in Muzio v. Krauzer, supra, this Court again declined to elucidate the basis for its decision and, instead, restricted itself to a three-line per curiam affirmance of the Appellate Division's own per curiam opinion. Accompanying the Appellate Division opinion in that case was a concurrence by Judge Lewis who clearly indicated that he was joining the other members of his panel because he felt bound by the prior decisions of this Court. Nonetheless, as he also stated:
*549 The facts and circumstances of this storekeepers-patron sidewalk case augur well for a needed change in our public policy as indicated in the dissenting opinions in Moskowitz v. Herman, supra, 16 N.J. at 226-231 and Murray v. Michalak, supra, 58 N.J. at 220-226. [122 N.J. Super. at 224].
If these three cases represent the logic upon which we perpetuate the doctrine of nonliability, then the strength of our reasoning may be jeopardized by the weak precedential foundation upon which it is grounded.
In the final analysis, the majority continues to adhere to established legal doctrine in the face of overwhelming considerations of policy and fairness which suggest conforming the law to meet public expectations. The majority justifies this action by suggesting that plaintiffs' remedy is "subsumed under the heading of public liability." Hence:
It should be for the Legislature as representative of the public at large to declare or regulate such liability, not for the courts to impose it on the abutting owner as a convenient subject of liability. Despite decades of adherence by our courts to the principles enunciated above, the Legislature has not seen fit to impose a per se tort duty on the abutting owner. [Ante at 534]
This statement, at best, represents an implicit admission that the rule which the majority upholds in this case should be changed. At worst, it represents an abdication of judicial responsibility which Justice Holmes criticized so long ago:
I think that the judges themselves have failed adequately to recognize their duty of weighing considerations of social advantage. The duty is inevitable, and the result of the often proclaimed judicial aversion to deal with such considerations is simply to leave the very ground and foundation of judgments inarticulate, and often unconscious, as I have said. [Holmes, "The Path of the Law," 10 Harv. L. Rev. 457, 467 (1897)].
The majority, by its decision today, has again suppressed the unconscious judgment and compelling commonsense which recommend plaintiffs' position. In so doing, the majority has maintained the consistency of the law at the price of perpetuating its unfairness. I am unwilling to do *550 so and file this opinion in the hope that a voice of dissent may become a promise for the future. This may afford small solace to Mrs. Yanhko who must bear the physical and financial burdens which will follow her injuries. Consequently, the position of the plaintiffs and the equities which it represents must await expression on another day when another case will again present an opportunity to take this progressive step.
I would reverse the judgment of the Appellate Division.
Justice SCHREIBER has authorized me to state that he joins this dissent.
For affirmance Chief Justice HUGHES, Justices MOUNTAIN, SULLIVAN and CLIFFORD and Judge CONFORD 5.
For reversal Justice PASHMAN and SCHREIBER 2.
NOTES
[1] The accident in this case occurred before the effective date of the Tort Claims Act, N.J.S.A. 59:1-1 et seq., and we do not consider its effect here, either in relation to the asserted liability of defendants or that of the City of Egg Harbor, which was joined as a defendant and later dismissed on motion. The matter of the city's liability is not raised on this appeal.
[2] A 1916 ordinance in effect when this accident occurred requires all sidewalks, curbs and gutters to be "graded, paved, constructed and repaired" by adjoining lot owners, failing which the common council may cause the work to be done and the cost thereof to become a lien on the property.
[1] A motion for summary judgment by the municipality was granted by the trial court, and the complaint against it was dismissed.
[2] Among the rights which have been traditionally accorded to abutting commercial landowners is that of an easement of view to permit pedestrians a clear and unobstructed view of the landowner's premises. Consequently, courts have enjoined public easements which have threatened this interest of the landowner. See generally, 2 American Law of Property, supra, § 9.54 at 493; Annotation, "Easement of view from public street," 90 A.L.R. 793 (1934). As Vice-Chancellor Pitney observed in an early New Jersey case upholding this interest:
An abutting owner necessarily enjoys certain advantages from the existence of an open street adjoining his property, which belong to him by reason of its location, and are not enjoyed by the general public, such as the right of free access to his premises, and the free admission and circulation of light and air to, and through his property. [Dill v. Camden Bd. of Educ., 47 N.J. Eq. 421, 435 (Ch. 1890), quoting from Lohr v. Metropolitan Ry. Co., 104 N.Y. 268, 291, 10 N.E. 528, 532 (Ct. App. 1887)].
See also, State v. Londrigan, 4 N.J. Misc. 574, 133 A. 702 (Sup. Ct. 1926); Klaber v. Lakenan, 64 F.2d 86 (8 Cir.1933); Northio Theatres Corp. v. 226 Main St. Hotel Corp., 313 Ky. 329, 231 S.W.2d 65 (Ct. App. 1950).
[3] In conjunction with this common law duty, I also take note of a 1916 ordinance in Egg Harbor which requires abutting landowners to maintain sidewalks, curbs and gutters. Ante at 536. This provision has been adopted in accordance with the statutory power conferred on municipalities by N.J.S.A. 40:180-2. The duty which this ordinance imposes on landowners is an obligation to assume a public responsibility. Stevenson, "Law of Streets and Sidewalks in New Jersey," 3 Rutgers L. Rev. 19 (1949). Because the obligation created by this provision is primarily concerned with the safety of pedestrians, it is fanciful to suggest that only a municipality may invoke its provisions. Pirozzi v. Acme Holding Co. of Paterson, 5 N.J. 178, 186 (1950). On this point, Justice Jacobs stated in his Moskowitz v. Herman dissent:
Much may be said for the position that, in the light of current urban conditions, landowners (at least those engaged in commercial activity) should now be held accountable, under this principle, for damages resulting from their failure to discharge their statutory duty of maintaining the sidewalks in front of their premises. (16 N.J. at 228); [emphasis supplied]
[4] See, for example, Justice Proctor's remarks in Murray v. Michalak., supra:
In most cases it is difficult or impossible for an injured party to come up with the required proof that a predecessor in title planted the tree or constructed the sidewalk. And even if he could prove who constructed the sidewalk, he must still meet the heavy burden of proving that the construction violated the proper standard for the time the sidewalk was built. Moskowitz v. Herman, 16 N.J. 223, 224-225 (1954). Where the sidewalk is old, this burden may be near impossible to meet since a plaintiff must first prove the age of the sidewalk and then the proper standard of construction for that time. Id. But all this is aside from the point. In my view, one who maintains a sidewalk in a dangerous condition should be liable for injuries suffered by an innocent pedestrian as a result of that condition. It should make no difference who created the condition or whether it arose from natural causes. Rather, it is the maintenance of that condition which should give rise to an action in negligence. [58 N.J. at 222].
[5] Justice Proctor made this point in his Murray v. Michalak dissent:
This rule has no place in today's society. It is manifestly unjust to permit a property owner to sit idly by and watch with impunity as his sidewalk deteriorates to a point where it becomes a trap for unwary pedestrians and then to immunize him from liability when the all too foreseeable injuries occur. Moreover, the law as it now stands discourages one from repairing his sidewalk, for if he undertakes repairs, and does so improperly, he will be held liable even if to some extent the repairs ameliorate the condition. Why should he take this risk when he can remain immune by ignoring the danger completely? Who in the eyes of the law should be considered the greater wrongdoer, the person who conscientiously undertakes repairs and does so improperly, or the person who, knowing of a hazardous condition, chooses utterly to ignore it? [58 N.J. at 223]. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538589/ | 168 Conn. 554 (1975)
CONNECTICUT SAVINGS BANK OF NEW HAVEN
v.
HANOMAN REALTY CORPORATION ET AL.
Supreme Court of Connecticut.
Argued April 2, 1975.
Decision released June 3, 1975.
HOUSE, C. J., LOISELLE, MACDONALD, BOGDANSKI and LONGO, JS.
*555 Alexander Winnick, with whom, on the brief, was Edward B. Winnick, for the appellant (defendant Hermann S. Cutler).
Richard J. Beatty, with whom was Dennis P. Anderson, for the appellee (plaintiff).
MACDONALD, J.
The plaintiff bank obtained a judgment of strict foreclosure of an open end mortgage which secured the joint and several obligation to it of Hermann S. Cutler, the appellant herein, and of Hanoman Realty Corporation and Milton Hanoman. Upon the motion of the plaintiff, three disinterested appraisers were appointed by the court, and they, under oath, within ten days after the time limited for redemption, appraised the mortgaged property and made a written report thereof to the court as required by General Statutes § 49-14. The court overruled an objection entitled a "remonstrance" [*] to the acceptance of the report and, thereafter, rendered a supplemental judgment for the plaintiff for the deficiency resulting from the difference between the total amount due on the mortgage debt with interest, costs and fees and the appraised value of the property. The defendant Cutler has appealed, assigning error in the court's overruling of his objection.
*556 The initial challenge to the appraisers' report is one of form, the defendant contending that the appraisal was not in conformity with the requirements of § 49-14, that the report merely stated that the appraisers "appraised said property" and then listed a value opposite each appraiser's name without relating the basis for the appraisers' conclusion as to this value or stating whether it constitutes the fair market value for the property and, further, that the language employed in Practice Book Form No. 361 (fourth form)[1] was not contained in the report. For purposes of comparison, we have reprinted in footnote 2 the report issued jointly by the three appraisers omitting the description of the property.
*557 The defendant's contention that the report is formally irregular is based on the absence in the report of the words "and find its value to be" as stated in Form 361. The forms set forth in the Practice Book, as stated in a preamble to the section on forms, are merely illustrative; Practice Book, p. 249; and do not carry the force of law. These forms were compiled *558 for the convenience of the bench and bar and their language is not mandatory. The report of the appraisers was in conformity with the requirement of § 49-14 and the absence of the phrase "and find its value to be" quoted by the defendant from Form 361 did not render the report invalid. The defendant's argument ignores substance and constitutes a pedantic adherence to form not required in this instance.
The absence of any stated basis for the appraisal does not render the written report invalid. The determination of value by the appraisers is final and conclusive. General Statutes § 49-14; Buck v. Morris Park, Inc., 153 Conn. 290, 293, 216 A.2d 187, appeal dismissed, 385 U.S. 2, 87 S. Ct. 33, 17 L. Ed. 2d 2. The court's power to review the determination of value upon an objection is confined to questions of law. Ibid.; Equitable Life Assurance Society v. Slade, 122 Conn. 451, 456, 190 A. 616. The appraisers determine the value of property upon their own experience and judgment. Buck v. Morris Park, Inc., supra. The defendant suggests in his brief that the appraisers should be required to employ uniformly one of three appraisal methods: (1) market data approach, (2) comparable sales approach, or (3) reconstruction approach. It is not uniformity of method that is intended by the employment of three indifferent appraisers but the obtaining of three independent judgments as to value. Although the court may properly consider the methods employed by the appraisers, errors of judgment as to the value of the property must stand uncorrected. Equitable Life Assurance Society v. Slade, supra, 457.
The defendant next complains that one of the three appraisers made a substantial mistake of fact *559 by employing what the defendant refers to as the "reconstruction approach." The simple answer to this contention is contained in Equitable Life Assurance Society v. Slade (p. 458): "[T]he appraisal is not made by one individual but is the joint act of all three, bringing to bear upon the problem the individual knowledge and the individual judgment of each, affording the opportunity for the correction of an individual member's error by action of the others. It is for this reason that a mistake by a single appraiser is insufficient to invalidate the appraisal reached by all three acting jointly. In no case can an appraisal so determined be set aside in the absence of a showing of some serious mistake of fact or the adoption of an erroneous principle of law which substantially affected it as made by the three considered as a joint board. While inquiry of the individual appraiser as to the principles and methods which he used is permissible where an appraisal is challenged on these grounds, the ultimate inquiry must be, not whether the individual appraiser made a mistake, but whether there was a mistake of fact or law which substantially affected the appraisal which was finally made."
The appraisers concluded that the cost of rehabilitating a dilapidated building upon the mortgaged property was prohibitive. All three appraisers agreed that rehabilitation was infeasible but ascribed different costs to rehabilitating or reconstructing the building. By the defendant's calculations, this reconstruction or rehabilitation approach would have resulted in a valuation by one appraiser of $13,600 rather than $4000. The higher value is based upon a reconstruction of the building and the rental of its six apartments at $140 per month. "It is the actual value of the property as *560 of the date when title vested in the plaintiff under the foreclosure decree which it was incumbent upon the appraisers to determine under the statute." Equitable Life Assurance Society v. Slade, supra, 459. The reconstruction approach urged by the defendant would not have reflected the actual value on the date of foreclosure and the selection and use of an alternate method of valuation was proper and correct.
There is no error.
In this opinion the other judges concurred.
NOTES
[*] Since adoption of the 1963 Practice Book, the term "remonstrance" is no longer used in our practice.
[1] The Practice Book suggests the following form for appraisal reports:
"361
APPRAISAL
Caption of Case
We, the undersigned, appointed to appraise under oath the property described in the judgment of foreclosure in the above entitled case, having been sworn by Joseph Smith, of New Haven, a commissioner of the superior court, to make a true appraisal thereof, so appraised it on July 12, 1962, and find its value to be $8000.
James Fox
Henry Doe
Jules Camp"
"REPORT OF APPRAISERS
To THE CLERK OF SAID COURT:
STATE OF CONNECTICUT |
|
> ss. New Haven
COUNTY OF NEW HAVEN | March 23, 1973
|
Then and there on the 23rd day of March, 1973, I administered to Fred T. Monsees, Henry Harrison and Nathan H. White the following oath:
`You solemnly swear that you will faithfully discharge according to law your duties as appraiser in the above entitled action to the best of your ability, so help you God.'
Richard J. Beatty
-----------------
Notary Public
The undersigned, Fred T. Monsees, Henry Harrison and Nathan H. White, appraisers appointed in the above entitled action by order of said Court, respectfully represent that, pursuant to said order, the above oath was administered to each of them individually on the date above set forth, and said three appraisers represent that thereafter they appraised the property hereinafter described, to wit:
All that piece of land, with all the improvements thereon, situated in the City and County of New Haven and State of Connecticut, known as Nos. 23-25 Thompson Street, bounded and described as follows: ... [description omitted].
That the undersigned appraisers appraised said property, free of all encumbrances as follows:
Fred T. Monsees $4,000.00
Henry Harrison 4,000.00
Nathan H. White 4,000.00
Fred T. Monsees
Henry Harrison
Nathan H. White
---------------
Appraisers as aforesaid
Subscribed and sworn to before me, this 23rd day of March, 1973.
Richard J. Beatty
-----------------
Notary Public.
Filed: March 30, 1973" | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538622/ | 4 B.R. 382 (1980)
In re DEVAULT MANUFACTURING COMPANY, Bankrupt.
JEFFERSON BANK, Plaintiff,
v.
DEVAULT MANUFACTURING COMPANY, Defendant.
Bankruptcy No. 79-620EG.
United States Bankruptcy Court, E.D. Pennsylvania.
June 5, 1980.
*383 Paul R. Rosen, Michael Minkin, Spector, Cohen, Hunt & Rosen, Philadelphia, Pa., for plaintiff.
Nathan Lavine, Adelman & Lavine, Philadelphia, Pa., Hope, Portnoff & Grant, Paoli, Pa., for the bankrupt.
Martin J. Aronstein, Ballard, Spahr, Andrews & Ingersoll, Philadelphia, Pa., for the creditors' committee.
*384 OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
On March 28, 1980, we entered an order in favor of the above plaintiff ("Jefferson"), allowing its complaint in reclamation against the defendant ("Devault"). This order sparked the two motions which are now before us: (1) the motion of Devault for relief from our order and for reconsideration of our opinion and order in light of a supplemental stipulation filed after the entry of our order, and in light of additional evidence sought to be offered, and (2) the motion of the creditors' committee to intervene in the reclamation proceeding and to reopen that proceeding for the purpose of offering additional evidence. We need not rule on the right of Devault to have the case reopened because Jefferson has agreed to the reopening so that we may reconsider the case in light of the supplemental stipulation. But, for the reasons hereafter articulated, we will deny Devault's motion for leave to present evidence in addition to said stipulation. However, we will grant the motion of the creditors' committee to intervene and to reopen the case for the purpose of offering additional evidence.[1]
The facts of this case are as follows:[2] On April 10, 1979, Devault filed a petition for an arrangement under Chapter XI of the Bankruptcy Act.[3] Devault continued its operations as debtor in possession[4] and able counsel with recognized expertise in the practice of bankruptcy law was appointed as Devault's attorneys. On June 15, 1979, Jefferson filed a complaint in reclamation against Devault, alleging that it held a valid security interest in equipment of Devault. In its answer, Devault asserted that the creation of Jefferson's security interest was a voidable preference pursuant to section 60 of the Act.[5] At the trial on January 31, the parties submitted a stipulation of facts and offered no other evidence.
In an opinion and order dated March 28, 1980, we concluded that, since the stipulation of facts submitted by the parties contained no evidence of Devault's insolvency at the time of the creation of Jefferson's security interest or of Jefferson's knowledge of that insolvency (two facts essential to the finding of a voidable preference), we would allow Jefferson to reclaim its collateral.
During the week following the issuance of our opinion and order, several conferences were held in chambers that which the attorneys for Devault, Jefferson, and the creditors' committee were present. Devault's counsel contended at those conferences that a supplemental stipulation of facts, which contained evidence pertinent to the issues of insolvency and Jefferson's knowledge of that insolvency, had been prepared by him in February, 1980, and had *385 been sent by him to Jefferson's attorney for signature and filing. Devault's counsel further stated that he had been unaware, until he received our opinion, that the supplemental stipulation had not been filed. On the other hand, the attorney for Jefferson stated that no agreement had been reached with respect to filing the supplemental stipulation. However, Jefferson's attorney stated, at the conference, that he would not take advantage of his opponent's mistake and would file the supplemental stipulation at that time and agree that we reconsider our March 28 opinion in light of the facts contained in the supplemental stipulation. Counsel for the creditors' committee stated that he would file a motion to intervene on behalf of the committee because he had certain evidence which he had given to Devault's counsel prior to the trial of this case, but which, through the negligence of Devault's counsel, had not been presented to this court. Counsel for the creditors' committee further contended that the evidence he had would prove both insolvency and knowledge of insolvency and that, without the opportunity to present that evidence, the unsecured creditors of Devault would be severely prejudiced.
Devault subsequently filed a motion for relief from our order of March 28, 1980, and for the reopening of the case with the opportunity to present additional evidence, and the committee filed a motion to intervene for the purpose of offering new evidence. A hearing on these motions was held on May 15, 1980. At the conclusion of that hearing, Devault filed a consent to be adjudicated a bankrupt and an order of adjudication was duly entered.
Since both Devault and Jefferson have agreed that we should reconsider our opinion of March 28 in light of the recently filed supplemental stipulation of facts, the issue before us is whether we should allow the introduction of additional evidence as requested by both Devault and the creditors' committee in their motions.
1. Devault's Motion for Relief from Order and Reopening of Case with an Opportunity to Present Additional Evidence.
In its motion for relief and reopening, Devault relies upon Rules 923 and 924 of the Rules of Bankruptcy Procedure which provide that Rules 59 and 60 of the Federal Rules of Civil Procedure apply.
The applicable provisions of Rule 59 are: Rule 59. New Trials; Amendments of Judgments.
(a) Grounds. A new trial may be granted to all or any of the parties and on all or part of the issues . . . (2) in an action tried without a jury, for any of the reasons for which rehearings have heretofore been granted in suits in equity in the courts of the United States. On a motion for a new trial in an action tried without a jury, the court may open the judgment if one has been entered, take additional testimony, amend findings of fact and conclusions of law or make new findings and conclusions, and direct the entry of a new judgment.[6]
According to interpreting case law, there are three grounds for granting a new trial under Rule 59(a)(2): (1) manifest error of law; (2) manifest error of fact; and (3) newly discovered evidence. See e.g., Brown v. Wright, 588 F.2d 708 (9th Cir. 1978), citing 6A Moore's Federal Practice ¶ 59.07 at 59-94. In the instant case, Devault does not argue that, on the facts which we had before us, we committed any manifest errors of fact or law. Nor does Devault contend that the evidence it seeks to present is newly discovered. Rather, the evidence which it seeks to introduce is evidence which Devault had before we made our decision but failed to monitor so that it became part of the record. Jefferson now having agreed to the admission of the supplemental stipulation of facts and having agreed that the court may reopen and reconsider the case in light of all of the stipulated facts, we fail to find any merit in Devault's motion that it now be granted leave to introduce additional evidence. As *386 the United States Court of Appeals for the Ninth Circuit stated in Brown v. Wright, supra, "the defendant's desire to introduce additional evidence after losing the case did not constitute a proper ground for granting a new trial."[7]
Thus, we conclude that there is no reason to grant Devault's motion for leave to introduce additional evidence under Rule 59 of the Federal Rules of Civil Procedure.
Devault also relies upon Rule 60 of the Federal Rules of Civil Procedure as a basis for its motion for relief from our order and reconsideration of our opinion with the introduction of additional evidence. Rule 60 provides, in relevant part:
Rule 60. Relief from Judgment or Order
(b) Mistakes; Inadvertence; Excusable Neglect; Newly Discovered Evidence; Fraud, etc. On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; . . . or (6) any other reason justifying relief from the operation of the judgment.[8]
The "mistake, inadvertence, surprise, or excusable neglect" which is at issue here is not the failure of the attorney for Devault to make sure that the supplemental stipulation had been filed that has already been cured by the filing of that stipulation and the agreement by the parties that we should reconsider our opinion in light of that stipulation. Rather, the "mistake, inadvertence, surprise, or excusable neglect" which is at issue here is the failure of the attorney for Devault to offer at the trial of this case, any evidence that Devault was insolvent on the relevant date[9] or that Jefferson knew or had reasonable cause to believe that Devault was insolvent. These essential facts were neither in the original stipulation nor in the subsequently filed supplemental stipulation. But such failure by Devault's attorney is not the type of mistake or neglect of which Rule 60(b)(1) speaks. Rule 60(b)(1) is addressed to the discretion of the court and is based on the desire of equity to do justice, it is not meant to relieve a party of the consequences of his own mistake or ignorance. See, e.g., Bershad v. McDonough, 469 F.2d 1333 (7th Cir. 1972); United States v. Thompson, 438 F.2d 254 (8th Cir. 1971); Hoffman v. Celebrezze, 405 F.2d 833 (8th Cir. 1969). In Hoffman, the United States Court of Appeals for the Eighth Circuit stated that "neither ignorance nor carelessness on the part of a litigant or his attorney will provide grounds for rule 60(b) relief."[10] And, generally, where the alleged mistake under Rule 60(b)(1) was the failure of a party to introduce certain evidence at trial which was then known and available to that party, courts will not allow the case to be reopened for the purpose of offering that evidence. See, e.g., Bell Telephone Laboratories, Inc. v. Hughes Aircraft Company, 73 F.R.D. 16 (D.Del.1976).
At the hearing on Devault's motion on May 15, 1980, the attorney for Devault offered an additional reason for allowing the submission of additional evidence. The argument of Devault appears to be that, by assenting to the reconsideration of the case in light of the supplemental stipulation, Jefferson has implicitly agreed to the reopening of the case for the taking of additional evidence or is otherwise estopped from arguing that the case may not be so reopened. We find no merit in this argument. While counsel for Jefferson agreed that we might reconsider the case in light of the supplemental stipulation, he objected to the taking *387 of additional evidence. Such action by Jefferson certainly does not amount to an agreement that new evidence (in addition to that contained in the supplemental stipulation) may be introduced, nor does it estop Jefferson from arguing that such additional evidence may not be offered.
2. The Creditors' Committee's Motion to Intervene for the Purpose of Offering Additional Evidence.
The motion to intervene of the creditors' committee is based on Rule 724 of the Rules of Bankruptcy Procedure which incorporates Rule 24 of the Federal Rules of Civil Procedure. Rule 24 states in applicable part:
(a) Intervention of Right. Upon timely application anyone shall be permitted to intervene in an action: . . . (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action may as a practical matter impair or impede his ability to protect that interest, unless the applicant's interest is adequately represented by existing parties.[11]
It is clear that the creditors' committee has an interest in the property which is the subject of the present action. The committee represents the unsecured creditors of Devault who have an interest in seeing that the security interest of Jefferson be avoided by Devault. Initially, its interest was in assuring that a successful plan was proposed and funded by Devault. But, with Devault's adjudication as a bankrupt, the committee has an even more compelling interest since the avoidance or nonavoidance of Jefferson's security interest will directly affect the amount which the creditors it represents will receive on their claims.
We also conclude that the adverse disposition of Jefferson's complaint in reclamation without the presentation of all relevant evidence will directly and practically impair the ability of the creditors' committee, and the unsecured creditors individually, to protect their interests. If the committee is not allowed to intervene in the present action, it and the unsecured creditors will be unable to attack Jefferson's security interest by submitting relevant evidence.[12] Consequently, the committee's interest, in insuring that as much money as possible comes into the estate so that a higher percentage of unsecured creditors' claims will be paid, will be impaired, if it is not allowed to intervene and offer additional evidence.
Finally, we must conclude that the interests of the creditors' committee and, hence, of the unsecured creditors, were not adequately represented in the reclamation proceeding. It is contended that Devault's counsel failed to offer available evidence of all of the various elements required to prove that Jefferson's security interest was a voidable preference. The strategy of Devault's attorney to submit this case on a stipulation of facts might be unassailable, but his execution of that strategy was less than exemplary. As noted in Martin v. Kalvar Corporation, 411 F.2d 552 (5th Cir. 1969), one of the grounds for finding inadequate representation is that the representative fails in the fulfillment of his duty to represent. See also, In re American Beef Packers, Inc., 457 F. Supp. 313 (D.Neb.1978); Power and Light Company v. Belcher Oil Company, 82 F.R.D. 78 (S.D.Fla.1976); 7A C. Wright & A. Miller, Federal and Procedure: Civil § 1883 (1972). Consequently, we must conclude that the interest of the creditors' committee was not adequately protected by any party to Jefferson's complaint in reclamation.
The final requirement before one may intervene under Rule 24(a)(2) is that the motion to intervene must be "timely". *388 The question of the timeliness of a motion to intervene must be decided by the trial court in the exercise of its jurisdiction. See. e.g., McClain v. Wagner Electric Corporation, 550 F.2d 1115 (8th Cir. 1977). All the factors of the case should be considered, including how far the litigation has progressed, the length of the delay in moving to intervene, the reason for the delay, and the prejudice that the parties to the action will suffer because of that delay. Id. See also, Nevilles v. EEOC, 511 F.2d 303 (8th Cir. 1975).
Generally, a motion to intervene after judgment will be looked upon by the courts "with a jaundiced eye"[13] and will require a strong showing by the proposed intervenor that intervention is necessary to protect an interest that cannot otherwise be protected.[14] However, in those cases in which a motion to intervene was found to be untimely, the reason cited by the courts most often for denying the motion to intervene was that the proposed intervenor had had ample time and opportunity to intervene earlier before judgment, but had failed to do so.[15] Where the proposed intervenor had not had an opportunity to intervene earlier, the court may allow him to intervene after judgment.[16] This is because the "timeliness of intervention is to be judged from the time when intervention was first appropriate."[17]
In the instant case, the creditors' committee did not have the time and opportunity to intervene earlier because it could not have convinced us any earlier that its interests were not being adequately represented. The firm of attorneys representing Devault is one of the most able and respected bankruptcy firms in this area and, until this case, we would not have concluded that its representation of a debtor would not also have constituted an adequate representation of the debtor's unsecured creditors in a case in which there existed a mutuality of interests. It is only in the instant case that such evidence of inadequate representation of those interests surfaced and the attorney for the creditors' committee acted promptly in moving to intervene once it learned of the need to do so. Thus we conclude that the creditors' committee did not delay in moving to intervene and, consequently, its motion to intervene is not untimely.
Having met all of the requirements of Rule 24(a)(2) of the Federal Rules of Civil Procedure, the motion to intervene of the creditors' committee will be granted.
The creditors' committee, however, seeks to do more than simply intervene. It seeks an opportunity to offer additional evidence on the issues of Devault's insolvency at the time of the creation of Jefferson's security interest and Jefferson's reasonable cause to know of that insolvency. We will treat this request as one under Rules 59 and 60 of the Federal Rules of Civil Procedure as incorporated by Rules 923 and 924 of the Rules of Bankruptcy Procedure. See our discussion of this issue in Part 1 of this opinion.
We find that the creditors' committee has not demonstrated any grounds for a new trial pursuant to Rule 59(a)(2) because, *389 as we have previously stated, it is not contended that, on the facts which we had before us, we committed any manifest error of law or fact. Nor is there any assertion that the evidence sought to be introduced is newly discovered, i.e., that it was not known or available to the creditors' committee earlier.[18]
We do find, however, that the creditors' committee has stated sufficient grounds for us to reopen the case pursuant to Rule 60(b)(1) or (6) of the Federal Rules of Civil Procedure.[19] We conclude that, pursuant to Rule 60(b)(1), the creditors' committee has demonstrated sufficient "mistake, inadvertence, surprise, or excusable neglect" to cause us to reopen the case for the taking of additional testimony. Unlike Devault, the creditors' committee has shown that the mistake or neglect in this case was not due to any fault of its own. The committee acted reasonably in providing Devault's attorney with all the evidence it had and in relying on him to present that evidence to the court. Further, any neglect on the part of the committee in monitoring the progress of the case was certainly excusable given the excellent reputation of Devault's attorney.
Even if we were to conclude, however, that there were not sufficient grounds under Rule 60(b)(1), we would have to conclude that there were sufficient grounds under Rule 60(b)(6), which allows a court to relieve a party from a judgment or order for "any other reason justifying relief from the operation of the judgment."[20] We are convinced, from the facts of this case, that justice and equity demand that we allow the creditors' committee to intervene and to introduce additional evidence because to deny it that right would result in a decision predicated on incomplete facts.
Consequently, while we will (as Jefferson agrees) reopen the case and reconsider the legal issue in light of the additional facts contained in the supplemental stipulation, we will deny Devault's motion to introduce additional evidence. But, for the reasons set forth above, we will grant the motion of the creditors' committee to intervene in the reclamation proceeding, and to reopen said proceeding for the purpose of introducing additional evidence.
NOTES
[1] This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure.
[2] This statement of facts is based on the stipulation entered into by Devault and Jefferson on January 31, 1980; and on the respective depositions of counsel for Devault and counsel for Jefferson Bank, taken on April 28, 1980; and on the affidavit of counsel for the creditors' committee, filed May 6, 1980.
[3] The Bankruptcy Act has been superceded by the Bankruptcy Code as of October 1, 1979. However, for petitions filed before that date, the provisions of the Act still govern. Bankruptcy Reform Act of 1978, Pub.L.No. 95-598, § 403, 92 Stat. 2683 (1978).
[4] Pursuant to Rule 11-18(b) of the Rules of Bankruptcy Procedure.
[5] Section 60 of the Act provides in part:
a. (1) A preference is a transfer, as defined in this Act, of any of the property of a debtor to or for the benefit of a creditor for or on account of an antecedent debt, made or suffered by such debtor while insolvent and within four months before the filing by or against him of the petition initiating a proceeding under this Act, the effect of which transfer will be to enable such creditor to obtain a greater percentage of his debt than some other creditor of the same class.
. . . . .
b. Any such preference may be avoided by the trustee if the creditor receiving it or to be benefitted thereby or his agent acting with reference thereto has, at the time when the transfer is made, reasonable cause to believe that the debtor is insolvent.
11 U.S.C. § 96a & b (1978).
[6] Fed.R.Civ.P. 59(a)(2).
[7] 588 F.2d at 710.
[8] Fed.R.Civ.P. 60(b)(1) & (6).
[9] The supplemental stipulation states that Devault was insolvent sometime after March 2, 1979, when Jefferson paid a judgment to United Hydraulics Corporation. However, the relevant dates for our purposes were March 21 and 22, 1979, and no evidence was introduced to show that Devault was insolvent on those dates or that there had been no change of circumstances from the time it was insolvent (as stipulated to) to those dates.
[10] 405 F.2d at 835.
[11] Fed.R.Civ.P. 24(a)(2).
[12] We note in this regard that the creditors' committee has demonstrated, through the affidavit of its counsel, that it has concrete evidence to present to this court and that its motion to intervene is not a frivolous motion designed merely to delay this action. Consequently, if it is allowed to intervene, the committee will have a chance by presenting that evidence, to protect its interest.
[13] McDonald v. E.J. Lavino Co., 430 F.2d 1065, 1072 (5th Cir. 1970).
[14] See, e.g., United States v. Associated Milk Producers, Inc., 534 F.2d 113 (8th Cir. 1976); Alaniz v. California Processors, Inc., 73 F.R.D. 289 (N.D.Cal.1976); Commonwealth of Pennsylvania v. Rizzo, 66 F.R.D. 598 (E.D.Pa.1975), aff'd, 530 F.2d 501 (3d Cir.), cert. denied, 426 U.S. 921, 96 S. Ct. 2628, 49 L. Ed. 2d 375 (1976); Firebird Society of New Haven, Inc. v. New Haven Board of Fire Com'rs, 66 F.R.D. 457 (D.Conn.1975); Minersville Coal Company, Inc. v. Anthracite Export Ass'n, 58 F.R.D. 612 (M.D. Pa.1973).
[15] See, e.g., United States v. United States Steel Corporation, 548 F.2d 1232 (5th Cir. 1977); Commonwealth of Pennsylvania v. Rizzo, 530 F.2d 501 (3d Cir.), cert. denied, 96 S. Ct. 2628 (1976); Hoots v. Commonwealth of Pennsylvania, 495 F.2d 1095 (3d Cir. 1974); Dodson v. Salvitti, 77 F.R.D. 674 (E.D.Pa.1977); Jones v. United Gas Improvement Corp., 69 F.R.D. 398 (E.D.Pa.1975).
[16] See, e.g., McClain v. Wagner Electric Corp., 550 F.2d 1115 (8th Cir. 1977); McDonald v. E.J. Lavino Co., 430 F.2d 1065 (5th Cir. 1970).
[17] Walpert v. Bart, 44 F.R.D. 359, 361 (D.Md. 1968). See also, S.E.C. v. Bloomberg, 299 F.2d 315 (1st Cir. 1962).
[18] It might be argued that the evidence was newly discovered in the sense that the creditors' committee, not being a party to the action at that time, did not have the opportunity to present the evidence to the court. However, it did have the opportunity, which it took, to present the evidence to a party to the action, which could have presented it to the court.
[19] For the text of Rule 60(b)(1) & (6), see text at note 8 supra.
[20] Fed.R.Civ.P. 60(b)(6). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538653/ | 4 B.R. 505 (1980)
In the Matter of Laurance Larry SHOEMAKER, Bankrupt.
S. David SWAYNE, Plaintiff,
v.
IDAHO AUTO AUCTION, Defendant.
No. 79-00972 A.
United States Bankruptcy Court, D. Idaho.
April 4, 1980.
S. David Swayne, pro se.
Dennis J. Sallaz, Boise, Idaho, for defendant.
MEMORANDUM DECISION AND CONCLUSIONS OF LAW
M.S. YOUNG, Bankruptcy Judge.
This matter is before the Court upon trustee's complaint seeking permission to sell a motor vehicle purchased from the defendant by debtor at auction, free and clear of any claimed lien of defendant. The parties stipulated the facts as follows:
"1. That on April 4, 1979, Idaho Auto Auction entered into a contract to sell a 1969 Cadillac to Larry Shoemaker, at Boise, Idaho, wherein the parties agreed that title was retained in the seller until buyer paid the purchase price and buyer's draft was honored (Exhibit "A").
2. Pursuant to said contract to sell, Idaho Auto Auction retained the title to said vehicle (Exhibit "B") and forwarded title and a sight draft signed by Larry Shoemaker (Exhibit "C") to the Orchards Branch, Bank of Idaho, Lewiston, Idaho, with instructions that upon payment of said sight draft title was to be delivered and pass to Larry Shoemaker.
3. Larry Shoemaker took possession of the Cadillac pursuant to the contract to sell on April 4, 1979.
4. The sight draft was presented and dishonored on or about the 7th day of April, *506 1979, and demand was then made by Idaho Auto Auction to Larry Shoemaker for the return of possession of the said vehicle.
5. Larry Shoemaker voluntarily went bankrupt on the 10th day of July, 1979."
Trustee contends that under Section 28-2-401 Idaho Code, the defendant as a result of the transaction in question only retained a security interest in the vehicle which it failed to perfect against trustee in his position as a hypothetical lien creditor by reason of Section 70c of the Act. Defendant relies upon the Idaho Motor Vehicle Title Act Section 49-404, to assert that debtor did not receive title.
After an examination of the stipulated facts and further examination of the law I conclude that this case is controlled by Section 28-2-511 Idaho Code, which reads as follows:
"Tender of payment by buyer Payment by check.
(1) Unless otherwise agreed tender of payment is a condition to the seller's duty to tender and complete any delivery.
(2) Tender of payment is sufficient when made by any means or in any manner current in the ordinary course of business unless the seller demands payment in legal tender and gives any extension of time reasonably necessary to procure it.
(3) Subject to the provisions of this act on the effect of an instrument on an obligation (section 28-3-802), payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment. [1967, ch. 161, § 2-511, p. 351.]"
Because a sight draft is equivalent to a check and because I am of the opinion that the sale in question is a cash sale instead of a credit sale, this section applies. It is generally construed by the authorities to be related to section 28-2-702 which allows an unpaid seller ten days within which to reclaim goods on demand after receipt, if the buyer is insolvent.
In the case at bar, the seller, according to the stipulation, did make demand for return of the goods within the ten day period after transfer of possession and after dishonor of the debtor's sight draft. This is all that is necessary even though debtor herein apparently remained in possession of the motor vehicle for almost three months before he became a bankrupt. See Metropolitan Distributors v. Eastern Supply Co., 1 UCC Reporting Service 154. 21 Pa.D. & C.2d 128, 107 Pitts.Leg.J. 451.
In reaching this conclusion I realize that I have discussed a theory which was not briefed by counsel for the parties. If either party wishes to comment upon this ruling or submit further authorities thereon, I will give them ten days from the date hereof within which to do so. If no request is made for further consideration, I will enter an order directing trustee to turn over the motor vehicle in question, or its proceeds if it has been sold, to the defendant herein, less any costs of sale incurred by trustee. Counsel for defendant is requested to prepare a Judgment in accord with this decision at the end of ten days unless this matter is reconsidered at the request of either party. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538858/ | 114 N.H. 651 (1974)
WALTER A. CALDERWOOD
v.
DOROTHY A. CALDERWOOD.
No. 6251a.
Supreme Court of New Hampshire.
October 31, 1974.
Sulloway, Hollis, Godfrey & Soden and Martin L. Gross (Mr. Gross orally) for Walter A. Calderwood.
Devine, Millimet, Stahl & Branch and James E. Townsend and Richard E. Galway, Jr. (Mr. Galway orally) for Dorothy A. Calderwood.
DUNCAN, J.
This case comes to the court upon the exceptions of Walter A. Calderwood to an order of the Superior Court (Flynn, J.), requiring him to appear to give his deposition concerning his present financial status in connection with the petition of his former wife, Dorothy A. Calderwood, under RSA 458:19 for extension of an order for her support. On an earlier transfer of the case, involving Walter's efforts to secure Dorothy's deposition, it was noted that the "evident *652 legislative purpose of the three-year provision of RSA 458:19 is to provide a periodic review of the needs and resources of the parties". Calderwood v. Calderwood, 112 N.H. 355, 358, 296 A.2d 910, 912 (1972).
At the hearing upon this petition to take Walter's deposition, he resisted entry of the order made by offering the trial court his assurance that his financial circumstances are such that he can comply with whatever order may be entered; and by contending that Dorothy may thereby be relieved of the burden of establishing his ability to pay (Taylor v. Taylor, 108 N.H. 193, 195, 230 A.2d 737, 739 (1967)), thus simplifying the issues. In response, Dorothy's counsel asserted that she is concerned that Walter may not maintain his ability to comply with an extended order in the future, or may seek to place his assets beyond her reach.
In the light of objection by Walter to disclosure of his present circumstances to his former wife and thereby allegedly to members of the public, the order of the trial court provided that use of any information provided on deposition "shall be strictly confidential", and that the contents of the deposition shall not be disclosed by Dorothy's counsel to her or to others, except upon further order of the court. In response to another motion by Dorothy for reasonable attorney's fees in connection with the prior transfer "and all subsequent appeals" the trial court ruled, subject to exception, that "it has the inherent power to award counsel fees in its discretion in this post-divorce proceeding in the interest of justice".
With respect to the first issue presented, it is acknowledged that Dorothy's petition seeks a second extension of support payments "so as to maintain Dorothy at the economic level that she enjoyed during her marriage, with due consideration for the current economic situation". Hence we are not concerned with a contention that she is entitled to share in any windfall or post-divorce prosperity which may have come to Walter since the divorce was granted, in 1965. See Arnold v. Arnold, 332 Ill. App. 586, 76 N.E.2d 335 (1945); Kaiser v. Kaiser, 290 Minn. 173, 186 N.E.2d 578 (1971). See also H. Clark, Law of Domestic Relations § 14.9, at 460-61 (1968).
"Under our statute, alimony is primarily `an allowance for *653 the support of the wife, which, under the circumstances it is considered, she ought not to be required to take at the husband's house.' Morrison v. Morrison, 49 N.H. 69, 73 (1869)." Kennard v. Kennard, 87 N.H. 320, 327, 179 A. 414, 419 (1935). The purpose of an order for support is "not to provide ... a life-time profit-sharing plan" for the wife. H. Clark, Law of Domestic Relations § 14.9, at 460 (1968). As noted in Madsen v. Madsen, 111 N.H. 315, 282 A.2d 667 (1971), the enactment of RSA 458:19 suggests that in appropriate cases a limited period of time for support of a wife where no children are involved will be adequate to enable her to establish her own source of income.
Most commonly, the husband's ability to pay is a vital factor to be considered by the court, and "in many of these cases, the financial productivity of the parties is not sufficient to meet the needs of everyone." Fortuna v. Fortuna, 103 N.H. 547, 550, 176 A.2d 708, 710 (1961); Madsen v. Madsen, 109 N.H. 457, 255 A.2d 604, 605 (1969). On her petition for an extension of the order, Dorothy has the burden of establishing Walter's ability to continue payment (Taylor v. Taylor, 108 N.H. 193, 230 A.2d 737 (1969); Morphy v. Morphy, 114 N.H. 86, 315 A.2d 631 (1974)), as well as that of showing that justice requires an extension. Madsen v. Madsen, 111 N.H. 315, 316, 282 A.2d 667, 668 (1971). The guidelines for determination of the amount of any allowance, as the trial court and parties appear to recognize, include consideration of the social standing or station in life enjoyed by Dorothy at the time of the divorce. 24 Am. Jur. 2d Divorce and Separation §§ 635, 679 (1966); Annot., 18 A.L.R. 2d 10, § 7, at 29 (1951).
Since Dorothy concededly is not entitled to share in any new prosperity enjoyed by her former husband, any improvement in his financial condition since the divorce is irrelevant. The particulars of his present financial status are likewise irrelevant, if in fact he can and will comply with any order made, since his obligation may then be determined solely with reference to what justice requires that Dorothy should receive. See Sawyer v. Boufford, 113 N.H. 627, 312 A.2d 693 (1973); Farnum v. Bristol-Myers Co., 107 N.H. 165, 167, 219 A.2d 277, 279 (1966); Hardware Mutual Cas. Co. v. Hopkins, 105 N.H. 231, 196 A.2d 66 (1963); cf. Comer v. Comer, 110 N.H. 505, 272 A.2d 586 (1970).
*654 On the other hand, neither the court nor Walter's former wife is required to accept in substitution for proof, his bare assertion that any order made will be complied with. The record of past recalcitrance in complying with the prior order does not encourage confidence in the future. In order to guarantee compliance with any extension of the support order found to be appropriate, Walter should furnish suitable security for such compliance, thereby guarding against extravagance or default at Dorothy's expense. See RSA 458:21; Guggenheimer v. Guggenheimer, 99 N.H. 399, 112 A.2d 61 (1955). Accordingly, the order for the taking of Walter's deposition should be vacated provided that he furnish security in such amount and within such time as the trial court shall determine; otherwise the order will stand, and Walter's exception is overruled.
The trial court's ruling that it has "inherent power to award counsel fees in its discretion", subject to evidentiary hearing, was broader than warranted by the authorities. To the extent that services of counsel were rendered in contempt proceedings, an allowance for counsel fees would fall within the recognized class of cases where enforcement of judicial authority is at stake. Guay v. Association, 87 N.H. 216, 221, 177 A. 409, 413 (1935); see Barber v. Company, 80 N.H. 507, 511-12, 120 A. 80, 85-86 (1923).
The statutory authority contained in RSA 458:19, "before or after the decree [of divorce to] make such orders and use such process as may be necessary" has been considered in practice to be limited, but to permit a wife's obligation for counsel fees incurred in the proceedings to be taken into account in the award of alimony. Guay v. Association, 87 N.H. 216, 222, 177 A. 409, 413 (1935). We consider that the court's discretion with respect to extension of support orders under RSA 458:19 permits it to take into account, as an element of the wife's needs, her obligation for counsel fees in post-divorce proceedings. See Annot., 15 A.L.R. 2d 1252 (1951). In deference to the finality of the divorce decree, however, as well as to the underlying intent of RSA 458:19 that the parties develop independent economic lives, that discretion should be exercised with reasonable restraint. Kuo v. Kuo, 108 N.H. 460, 461, 237 A.2d 690, 691 (1968); see *655 Salito v. Salito, 107 N.H. 77, 217 A.2d 181 (1966): "In this state ... the wife cannot demand a shifting galaxy of legal talent at her husband's expense."
Remanded.
GRIMES, J., and GRIFFITH, J., did not sit; the others concurred. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538857/ | 230 Pa. Super. 144 (1974)
Gregorich, Appellant,
v.
Pepsi-Cola Metropolitan Bottling Company, Inc.
Superior Court of Pennsylvania.
Argued April 11, 1974.
September 23, 1974.
*145 Before WATKINS, P.J., JACOBS, HOFFMAN, CERCONE, PRICE, VAN DER VOORT, and SPAETH, JJ.
Chester S. Fossee, with him Murovich, Reale & Fossee, for appellant.
*146 William C. Walker, with him Dickie, McCamey & Chilcote, for appellee.
OPINION BY HOFFMAN, J., September 23, 1974:
This appeal challenges the validity of the nonsuit judgment entered by the court below at the close of plaintiff's case.
The plaintiff was seriously injured when he was struck by defendant's truck as he was crossing a snow-covered road in Pittsburgh in order to board a bus to work. On the day of the accident, December 24, 1969, at about 6:45 a.m., it was cold, dark and snowing. West Carson Street was covered with snow which was piled up against the curb so as to make the roadway accessible to only one lane of traffic in each direction. At the northerly side of West Carson Street there was no pedestrian footwalk, but only a curb and a fence separating the road from a stretch of railroad tracks. There was bus transportation traveling both westwardly and eastwardly on the street, and boarding indentations had been cut into the curb and fence at various intervals. Because of the snow, however, the indentations located a safe distance from the driving portion of the roadway were inaccessible on the day in question.
A few minutes before the mishap, an outbound bus had come to a stop at the bus stop and put on its flashing lights. Almost immediately thereafter, an inbound bus pulled into the southern curb and turned on its flashing lights so as to permit the boarding and discharging of passengers. Because of the high snow at the curbline, the buses were a distance from the curb in a position whereby the front end of the inbound bus was in lineal parallelism to the front end of the outbound bus.
With the buses so situated plaintiff attempted to cross the roadway in the middle of the intersection so as to reach the outbound bus. As a result of the injuries *147 he sustained, he was unable to recall the entire incident. A motorist, however, who came to a stop behind the outbound bus, served as plaintiff's only spokeswoman as to the operative facts of the accident.
She testified that she first saw the plaintiff when he was a step or two in front of the inbound bus. She observed that the plaintiff was walking quickly. At about the same moment, she noticed the defendant's truck come from behind the stopped inbound bus. The truck, proceeding approximately 20-25 miles per hour and straddling the middle line of the roadway, attempted to pass between the two stopped buses. While in the process of passing this bus, the truck struck the plaintiff. The witness was able to say that the point of impact was approximately "a step" from the outbound bus. The truck had traversed the center line of the highway, striking the plaintiff while it was on "the wrong side of the road". She testified that she did not notice whether or not the plaintiff looked to his right and left to observe oncoming traffic, but she did conclude that a "split-second" later plaintiff would have safely reached the bus.
After this eyewitness to the accident testified, plaintiff rested his case. The defendant immediately moved for a nonsuit alleging that either plaintiff had failed to prove the negligence of the defendant in so negotiating its vehicle or that plaintiff had supplied sufficient evidence in his case to establish contributory negligence as a matter of law. The trial judge granted defendant's motion, and subsequently refused plaintiff's motion to remove the judgment of compulsory nonsuit. This appeal has followed.
In reviewing a judgment for compulsory nonsuit, we are guided by the general rule that the plaintiff must be given the benefit of all favorable testimony and every reasonable inference of fact arising therefrom and all conflicts therein must be resolved in favor *148 of the plaintiff. Idlette v. Tracey, 407 Pa. 278, 180 A.2d 37 (1962); Fullard v. Pittsburgh Urban Redevelopment Authority, 222 Pa. Super. 184, 293 A.2d 118 (1972). As such, a compulsory nonsuit may be entered only in a clear case and only where there is no doubt as to the inference to be drawn from the evidence. Hader v. Coplay Cement Manufacturing Co., 410 Pa. 139, 189 A.2d 271 (1963).
It first must be emphasized that because the injuries suffered by the plaintiff caused him to lose his memory and recollection of the accident facts, he is entitled to a presumption of due care. Robinson v. Raab, 216 Pa. Super. 397, 268 A.2d 225 (1970). Countervailing this presumption is the testimony of the eyewitness who testified that the plaintiff crossed in the middle of the street and not at the intersection. While the physical conditions present at the time may have made crossing at the intersection hazardous or difficult, the fact remains that crossing was attempted in the middle of the street. The law is clear that a pedestrian crossing a street between intersections is held to a higher degree of care than at street intersections, while the motor vehicle operator has a correspondingly lesser degree of care. Harris v. DeFelice, 379 Pa. 469, 109 A.2d 174 (1954). The mere fact, however, that a pedestrian crosses between intersections is insufficient to prove contributory negligence. As the late Justice MUSMANNO said in Nugent v. Joerger, 387 Pa. 330, 332-333, 127 A.2d 697 (1956): "The tempo of the twentieth century being what it is, the law recognizes that a pedestrian is entitled to cross in the middle of a block in order to gain a few seconds' time which will hasten him on to his destination . . . . Whether, and to what extent, a pedestrian and an automobilist obey the rules which, in a double adherence, would skirt every danger and avert collision, is a question of fact for the jury to decide. . . . Once it is admitted that Nugent had the right to cross *149 Main Street at the point he did, and this admission is inescapable, it would be impossible to say that persons cannot disagree that what he did after stepping off the curb was contributory negligence."
The eyewitness went on to say that both buses stopped on opposite sides of the street leaving a narrow strip by which traffic, if it was to continue to move, could traverse. To so proceed was to drive down the middle of the street straddling the center line having at least a portion of a moving vehicle on the wrong side of the highway. This is what happened. The eyewitness testified that plaintiff crossed in front of the inbound bus and had nearly crossed over to the outbound bus when he was struck on the wrong side of the road by the striking vehicle.
Taking the evidence in a light most favorable to the plaintiff, it cannot be said that the operative facts of the case as well as the physical and meteorological elements of the situation did not provide an atmosphere in which the triers-of-fact could not differ. The buses were not parked, and therefore the cases dealing with the right of a vehicle to cross to the wrong side of the road in passing a parked vehicle are not applicable. See, e.g., Weaver v. Pickering, 279 Pa. 214, 123 A. 777 (1924). The buses were stopped to permit passengers to board and alight to the street. They were stopped only momentarily. We believe that, on the basis of these facts, a jury could conclude that the defendant was negligent in swinging around a bus, with its view partially obstructed, and proceeding at a speed of between 15-25 miles an hour down the center of the road in such a manner as to be unable to stop before striking and seriously injuring a pedestrian on the opposite side of the road. As our Supreme Court held in Matkevich v. Robertson, 403 Pa. 200, 202, 169 A.2d 91 (1961): "This Court has held, again and again, that when an automobile is operated on the wrong side of *150 the highway, that fact in itself is prima facie evidence of negligence and is sufficient to carry the case to the jury on that question." See also, O'Neil v. O'Neil, 204 Pa. Super. 485, 205 A.2d 687 (1964). We are unable to say that there is not sufficient doubt as to the reasonableness of defendant's passing of the stopped bus at a point and time which it chose to proceed.
Appellee's contention that plaintiff's own evidence established that he was contributorily negligent is likewise dismissed. We have already stated, supra, that crossing between intersections is not sufficient to prove negligence. Indeed, the only circumstance which could justify such a conclusion would have been an affirmative, unqualified statement by the eyewitness that the plaintiff had not looked both ways before crossing. When the eyewitness was asked if the plaintiff properly watched for oncoming traffic before entering the highway, she answered that she did not know and frankly had not noticed. She could only describe the course which plaintiff took and that he was walking "quickly".
In a case similar to the instant one, this Court reversed a compulsory nonsuit judgment where the plaintiff as a result of his injuries could not remember the accident. It was admitted that plaintiff had a green light in his favor before stepping into the intersection. The only question was that of contributory negligence. As such, negligence could only be inferred if plaintiff had failed to look for traffic and had placed blind reliance on the green light. Having no evidence to confirm plaintiff's failure to look, we held that: "The fact that appellant had no recollection of seeing defendant's car does not establish the fact that he had not seen it or had not performed his duty to look for it. However, in the absence of proof that he did not look before he proceeded to cross the eastbound lanes of traffic on *151 Eastwick Avenue, we have no right to infer that he did not do so." Robinson v. Raab, supra at 401.
Judgment of compulsory nonsuit is reversed, and a new trial granted.
DISSENTING OPINION BY PRICE, J.:
I dissent from the majority's reversal of the nonsuit judgment entered by the lower court at the close of the plaintiff's case. The majority finds that the plaintiff had submitted sufficient evidence at trial to create a question as to defendant's negligence and also that his case was free of evidence of contributory negligence by the plaintiff. I disagree on the basis that plaintiff demonstrated no evidence of negligence on the part of the defendant and that plaintiff's evidence establishes that plaintiff was contributorily negligent as a matter of law. Therefore, I would affirm the judgment of compulsory nonsuit.
This appeal involves a plaintiff-pedestrian who was struck by defendant-driver's truck as he crossed between intersections. The plaintiff had left the curb and passed in front of a temporarily stopped bus and was struck at a point one-fourth of the way from the center of the roadway to the opposite side. Another temporarily stopped bus was at the opposite curb. The truck had passed between the buses by straddling the center of the street. It was dark and there was snow at the curbside and on the ground; however, visibility was unobstructed and headlights could be seen a couple of thousand feet.
The injuries to the plaintiff were such as to cause him to be unable to remember any of the events of the day of the accident or several days thereafter. One witness, who observed the accident, testified for the plaintiff. The lower court, at the conclusion of plaintiff's case, granted defendant's motion for a compulsory nonsuit.
*152 The majority finds evidence sufficient to create a question for the jury as to whether the defendant was negligent by the fact that defendant, in an effort to pass the stopped bus, had operated his vehicle on the wrong side of the highway immediately before striking the plaintiff.[1]
In support of this position, the majority cites Matkevich v. Robertson, 403 Pa. 200, 169 A.2d 91 (1961) and O'Neil v. O'Neil, 204 Pa. Super. 485, 205 A.2d 687 (1964), for the proposition "that when an automobile is operated on the wrong side of the highway, that fact in itself is prima facie evidence of negligence.. . ." 403 Pa. at 202, 169 A. 2d at 93. In both Matkevich and O'Neil, the defendant-driver skidded because of weather conditions into the wrong lane and collided with the other vehicle involved. Both of these cases can be distinguished in that in the instant appeal the defendant *153 was lawfully on the "wrong side" of the street in an attempt to pass the stopped bus. See Weaver v. Pickering, 279 Pa. 214, 123 A. 777 (1924).[2] Here the portion of the cartway used by the truck was the only portion of the cartway available to pass a stopped vehicle, since a bus had also stopped on the other side of the street. Further, the truck did not collide with another vehicle, but struck a pedestrian crossing between intersections, not necessarily a danger to be anticipated when using a portion of the opposite lanes of travel.
It must also be noted that before a motorist can be held liable for a collision between his automobile and a pedestrian crossing the street at a place other than a regular pedestrian crossing at an intersection, it must be shown that the pedestrian was on the street for a sufficient length of time to be seen and far enough away to enable the motorist to bring his automobile under control. See, e.g., McNett v. Briggs, 217 Pa. Super. 322, 272 A.2d 202 (1970); Cason v. Smith, 188 Pa. Super. 376, 146 A.2d 634 (1958). The plaintiff's eyewitness in her testimony did not provide this evidence. The witness could not place the relative position *154 of the pedestrian and the truck at the time of the accident. The witness also testified that the defendant was traveling within the speed limit. There was no evidence that the truck was traveling at an unreasonably high rate of speed in light of the meteorological conditions, and that the driver had an unobstructed view nor that he saw the plaintiff.[3]
The mere happening of an accident does not prove negligence on the part of an individual, Bailey v. Gibbs, 414 Pa. 238, 199 A.2d 460 (1964), and the fact that the defendant's truck straddled the middle of the road is not prima facie evidence of negligence. Weaver v. Pickering, supra. The testimony, viewed in a light most favorable to the plaintiff, proves nothing more than the occurrence of a pedestrian struck by a truck, and there is no evidence of negligence in the operation of the defendant's truck or other circumstances from which a jury could logically find or reasonably infer negligence.
The majority also found that plaintiff's own evidence did not establish contributory negligence. Because the injuries suffered by the plaintiff caused him to lose his memory and recollection of the accident facts, the majority finds that he is entitled to a presumption of due care. As a result of this presumption and the fact that the eyewitness could not testify whether plaintiff properly watched for oncoming traffic, the majority reasons *155 contributory negligence could not be inferred from the plaintiff's actions.
While it is true that where a party's mind is blank as to an accident and all its incidents, the presumption is that he did all the law required of him to do and he was not guilty of contributory negligence, Auel v. White, 389 Pa. 208, 132 A.2d 350 (1957),[4] this presumption *156 may be rebutted where the facts and proof reasonably establish that due care was not used. Metro v. Long Trans. Co., 387 Pa. 354, 127 A.2d 716 (1956); Grutski v. Kline, 352 Pa. 401, 43 A.2d 142 (1945).
In the instant appeal the facts overcome the presumption of due care, and show plaintiff to be negligent. The fact that a pedestrian is struck on a street at a point between intersections does not of itself establish that he was guilty of contributory negligence. Shuman v. Nolfi, 399 Pa. 211, 159 A.2d 716 (1960); Nugent v. Joerger, 387 Pa. 330, 127 A.2d 697 (1956). In such an event, the pedestrian must use the requisite degree of care under the circumstances. Ulmer v. Hamilton, 383 Pa. 398, 119 A.2d 266 (1956). It is well settled that the care required of a plaintiff crossing a street between intersections is the duty to look and it "rests at all times upon everyone in the use of streets . . . and where one steps into a busy street and is immediately struck by a passing vehicle which he could have seen had he looked, he is barred by his own negligence." Dando v. Brobst, 318 Pa. 325, 328, 177 A. 831, 832 (1935).
Since the undisputed testimony for plaintiff disclosed that he was struck just after he crossed the center line, he must have, or at least should have seen defendant's vehicle approaching. Once plaintiff passed the stopped bus, there was nothing to show that plaintiff's view was in any way obscured, and, therefore, he was bound to see that which must have been plainly visible at the time it became his duty to look. "The inference is unavoidable that if plaintiff had looked he could have averted the danger. . . . If he failed to look he was negligent and if he looked he must have seen defendant's moving vehicle and in stepping in front of it or into it was equally negligent." Auel v. White, 389 Pa. 208, 215, 132 A.2d 350, 354 (1957) (plaintiff *157 negligent when traversing a highway and struck after crossing the center line).
I would find the defendant-driver free of negligence and plaintiff contributorily negligent, and, therefore, affirm the lower court order of compulsory nonsuit.
NOTES
[1] Plaintiff in his brief also contends that the defendant was negligent as a matter of law in that he violated the "assured clear distance" rule. The rule requires that a driver keep his vehicle under such control that he can always stop within the distance that he can clearly see. Griffith v. Weiner, 373 Pa. 184, 95 A.2d 517 (1953). The inherent visibility of the object to be observed is important, Koelle v. Philadelphia Electric Company, 443 Pa. 35, 277 A.2d 350 (1971), as well as the fact that the assured clear distance varies according to the visibility at the time and other attending circumstances. Reifel v. Hershey Estates, 222 Pa. Super. 212, 295 A.2d 138 (1972). As the lower court properly noted in its opinion, "[t]here was no evidence establishing the visibility of the driver or what it could have been. We consider that this accident occurred in the dark early morning between intersections and that one driving under the circumstances could assume that a pedestrian would not cross the cartway as plaintiff did, or, if one did he would be cautious to anticipate that vehicles would be moving on the cartway and yield to them. Further, and most important, we have no evidence as to when or where the Pepsi truck was stopped, therefore, a jury would be unable to determine whether the truck stopped in a distance equal to the length of the driver's vision or his headlight beam, depending upon the illumination."
[2] In Weaver, a pedestrian walked between two parked cars onto the street and was struck by a car which had been temporarily driven beyond the center of the cartway to avoid an obstruction, "a line of standing automobiles." The court in finding the plaintiff contributorily negligent, noted that "[v]ehicles [are] justified in turning to the left to avoid an obstruction . . . so it cannot be blindly assumed that they will under all conditions and at all times travel only on the right-hand side of the street, as it is not possible to do so." 279 Pa. at 218, 123 A. at 778. See The Vehicle Code, Act of April 29, 1959, P.L. 58, § 1004, as amended (75 P.S. § 1004), which provides in part that a "driver of a vehicle . . . shall drive as closely as possible to the right-hand edge or curb . . ., unless it is impracticable to travel on such side of the highway . . . ." [Emphasis added]; Bailey v. Gibbs, 414 Pa. 238, 199 A.2d 460 (1964) (defendant not negligent in passing stopped bus on the left and striking pedestrian crossing the street).
[3] In Bailey v. Gibbs, 414 Pa. 238, 199 A.2d 460 (1964), a case very similar to the instant appeal, plaintiff-pedestrian stepped from in front of a stopped bus and was immediately struck by an automobile as it passed the bus on the left-hand side. The court reversed the lower court and held that defendant-driver was entitled to judgment non obstante veredicto, and noted that the defendant, even if he had seen plaintiff hesitate before stepping in front of the bus "was under no obligation to anticipate that [the plaintiff would] suddenly proceed further into the cartway . . . [The defendant] had the right to expect that the others involved would exercise proper care." 414 Pa. at 242, 199 A. 2d at 462.
[4] The reliance of the majority on Robinson v. Raab, 216 Pa. Super. 397, 268 A.2d 225 (1970) as an application of the presumption of due care is inapposite. In Robinson, the plaintiff was rendered unconscious following an intersection collision and remained so for about 1½ hours. He suffered from amnesia and was unable to testify as to the accident facts. It was not contested that the light was green in favor of the plaintiff.
The court noted that although a motorist crossing an intersection with the controlling light must nevertheless exercise a high degree of care for his safety, there is no burden imposed on him to prove that he exercised that care. Thus, "in the absence of proof that he did not look before he proceeded to cross the [street, the court has] no right to infer that he did not do so." 216 Pa. Superior Ct. at 401, 268 A. 2d at 226. The court, having found a prima facie case of negligence by the defendant-driver and lack of negligence by the plaintiff, reversed the compulsory nonsuit.
Factually, Robinson can be easily distinguished from the instant appeal. Robinson involved an accident between two vehicles in an intersection, while in this appeal the accident took place at a point between intersections and involved a pedestrian and a vehicle. In Robinson, the plaintiff's proof neither proved nor disproved whether he exercised the proper degree of care for his safety, and, therefore, in order to show negligence on plaintiff's part, evidence presented by defendant would be necessary. In the instant case, the plaintiff's proof was sufficient to allow an inference of negligence. In light of defendant's lack of negligence and the high standard of care required by a pedestrian crossing between intersections, the lower court could reasonably infer that under the circumstances plaintiff being struck upon stepping from in front of a stopped bus was negligence. See Bailey v. Gibbs, 414 Pa. 238, 199 A.2d 460 (1964); Auel v. White, 389 Pa. 208, 132 A.2d 350 (1957). In any event, a loss of memory can not overcome the obvious facts. See Snyder v. Union Paving Co., 170 Pa. Super. 112, 84 A.2d 373 (1951). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538561/ | 69 B.R. 229 (1986)
COMERICA BANK-MIDWEST, Plaintiff-Appellant,
v.
Andreas C. KOULOUMBRIS, Defendant-Appellee.
Bankruptcy No. 85-B-15892, Adv. No. 86 A 196, No. 86 C 5234.
United States District Court, N.D. Illinois, E.D.
December 19, 1986.
*230 Darryl J. Chimko, Shermeta & Chimko, Rochester, Mich., for plaintiff-appellant.
John S. Wrona, Chicago, Ill., for defendant-appellee.
MEMORANDUM OPINION AND ORDER
HOLDERMAN, District Judge:
Before the court is an appeal by Comerica Bank-Midwest ("Comerica") from Bankruptcy Judge James' dismissal of Comerica's complaint. For the reasons which follow this court affirms the bankruptcy court's decision.
BACKGROUND FACTS
In February, 1985 Comerica sent Andreas Kouloumbris a preapproved application for a credit line of $2,000. Mr. Kouloumbris returned the application and requested a credit line of $5,000. Comerica sent Mr. Kouloumbris two credit cards and established a $5,000 account for him.
On March 12, 1985 a $3,000 cash advance was charged to Mr. Kouloumbris' account. On March 13, 1985 an additional $1,950 was charged. For the remainder of March, many small purchases ($40.00 to $50.00) from numerous creditors were charged to Mr. Kouloumbris' account. On April 4, 1985 Comerica sent a statement requesting payment of Mr. Kouloumbris' overcharges ($784.00).
During April, charges of approximately $3,000 were made on Mr. Kouloumbris' account. These purchases ranged from $10.00 to $131.00 and were made from various creditors. On May 9th and for the next four months Comerica sent a monthly statement requesting payment of "over-limit and past-due amounts."
No purchases were made on Mr. Kouloumbris' account after May 3, 1985. Comerica did not terminate its credit relationship with Mr. Kouloumbris.
In late 1985 Mr. Kouloumbris filed for bankruptcy. On March 3, 1986 Comerica filed a complaint, claiming that Mr. Kouloumbris' credit card debt is nondischargeable under 11 U.S.C. § 523(a)(2)(A). The bankruptcy court held that, because Comerica had not cancelled Mr. Kouloumbris' credit line, Mr. Kouloumbris' debt to Comerica was not nondischargeable.
DISCUSSION
Section 523(a)(2)(A) of the Bankruptcy Code provides that a debt is not dischargeable to "the extent obtained by false pretenses, a false representation or actual fraud, other than a statement respecting the debtor's or an insider's financial condition." 11 U.S.C. § 523(a)(2)(A).
To prevent a discharge of debts incurred on a credit card account under this Section, a plaintiff must prove:
(1) the debtor made a materially false representation;
(2) the debtor had intent to deceive; and
(3) the creditor relied on the false representation.
Matter of Robinson, 55 B.R. 839, 845 (Bkrtcy.S.D.Ind.1985).
Courts have held that a credit card-holder's use of a credit card may be an implied representation to the issuer that the holder has the ability and intent to pay for the purchases charged. Mr. Kouloumbris may have made such a representation, therefore, when he charged his purchase.
Mr. Kouloumbris did not, however, make a materially false representation or intend to deceive. Bankruptcy Judge James did not find that when Mr. Kouloumbris charged his purchases he did not intend to pay for them. The evidence itself is equivocal on this issue. Cf. Matter of Robinson, *231 55 B.R. 839 (Bkrtcy.S.D.Ind.1985). Certain facts suggest that when Mr. Kouloumbris charged his purchases, he may have intended to pay for them. For example, Mr. Kouloumbris testified that his wife charged many of the purchases on his account and that he did not know how much she had charged. In addition, Mr. Kouloumbris worked throughout the months in which he and his wife made charges; he had a steady income with which to pay his credit card bills. He stopped charging purchases when he lost his job in May. Because Mr. Kouloumbris may have intended to pay for his purchases when he charged them, this court cannot conclude either that Mr. Kouloumbris made materially false representations to Comerica or that Mr. Kouloumbris intended to deceive Comerica. Cf. Robinson, supra at 848-49. Comerica has not, therefore, demonstrated that Mr. Kouloumbris' debt involved a false representation, as required by § 523(a)(2)(A).
CONCLUSION
For the foregoing reasons and under the principles enunciated in First National Bank of Mobile v. Roddenberry, 701 F.2d 927 (11th Cir.1983), the bankruptcy court's decision is AFFIRMED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538560/ | 69 B.R. 251 (1986)
In the Matter of Larry Arnold GERKEN, and Susan Jean Gerken Debtors.
BETHANY TRUST COMPANY, Plaintiff,
v.
Larry Arnold GERKEN, and Susan Jean Gerken, Defendants.
Bankruptcy No. 84-03274-SJ, Adv. A. Nos. 86-0301-SJ, 86-0302-SJ.
United States Bankruptcy Court, W.D. Missouri, St. Joseph Division.
December 30, 1986.
*252 Donald E. Bucher, Kansas City, Mo., for plaintiff.
James H. Thompson, Jr., Kansas City, Mo., for defendants.
FINAL JUDGMENT DENYING PLAINTIFF'S COMPLAINTS FOR DECREES OF NONDISCHARGEABILITY BUT DENYING THE DEFENDANT'S DISCHARGES IN BANKRUPTCY
DENNIS J. STEWART, Chief Judge.
The plaintiff seeks decrees of nondischargeability of the defendants' indebtedness to it on the grounds of fraud (§ 523(a)(2) of the Bankruptcy Code) and willful and malicious conversion (§ 523(a)(6)) and also seeks denial of discharge for fraudulent concealment of property within § 727(a)(2) of the Bankruptcy Code. A consolidated trial of the merits was held on December 22, 1986, at which Donald Bucher, Esquire, appeared as counsel for plaintiff and James H. Thompson, Jr., appeared as counsel for defendants.
The facts which were demonstrated by the evidence adduced in the hearing were materially as follows. The plaintiff according to facts which are apparently not disputed had a valid and perfected security interest in the debtors' livestock. It was, in part, therefore, in reliance upon the debtors' representations as to the number of livestock which they owned that the plaintiff extended credit to the debtors.[1] More specifically, it was in reliance on the debtors' written representations in successive written financial statements that they owned 60 head of cattle that these extensions of credit were made.[2] According to the evidence which has been presented, reliance was only partially on the representation as to ownership of cattle. For, throughout the period of time in issue, the plaintiff also had a security interest in the debtors' real estate, which they accorded a value which would probably cover all the debtors' outstanding indebtedness to them.[3]
Admittedly, however, the debtors' representation that they owned 60 head of cattle was later belied. The loan officer of the plaintiff bank, who had taken this representation from them in the successive financial statements, made two inspection visits to the debtors' farm one in about April 1985 and the other somewhere around March 1986. On the former, the loan officer, according to the instructions given to him by the debtor Larry Gerken as to which of the cattle belonged to him (unbranded) and which belonged to his mother (branded), found only twenty or so cattle belonging to the debtor. And, in March 1986, when the bank officer repaired to the debtors' farm to repossess the cattle after the date of bankruptcy, only 20 head of cattle were given over to the bank under the debtors' representation that the remainder of the cattle which were in a "loafing barn" and partially visible to the bank officer were, in reality, the cattle which belonged to the mother of the debtor Larry Gerken. The bank officer, Galen Jennings, *253 in his testimony before this court, stated that, at least with respect to some of these cattle, he noticed that they had been branded only very recently. The brands were fresh and had not been grown over to any appreciable extent by the hair covering of the cattle. In Mr. Jennings opinion, the brands could not have been over two or three weeks old.
The evidence before the court further shows that, in February 1984, the debtors and Larry Gerken's mother had a total herd of some 80 head of cattle.[4] According to the number which had been returned in March 1986 to the plaintiff and those which had been otherwise identified as casualty losses or other lawful dispositions,[5] it was the plaintiff's contention at trial that some 21-23 head of cattle were unaccounted for as of March 1986. But the debtors adduced in evidence in the course of trial documentary evidence of the intervening sale of some 30 head of cattle in Lamoni, Iowa.[6]
The testimonial explanation offered by the debtors for their representations in successive financial statements that they owned 60 head of cattle when fully half of those cattle according to their current contentions belonged to Larry Gerken's mother was simply that those representations were incorrect because of inattention to detail, a failure to comprehend the importance of the document which they were subscribing, and their memories, which were continually bad. To some degree, their testimonial protestations to this effect are corroborated by the somewhat halting testimony of the bank officer Jennings, who stated that he could not say that the debtors "intentionally" attempted to deceive the bank in this regard.[7] As to the value of the cattle which is involved in the series of claims sub judice, the testimony of Ms. Gerken is uncontradicted to the effect that the entire herd of 60 cattle was never at any point in time of a value exceeding $12,000 or $13,000.
Conclusions of Law
On the basis of the evidence which has provided the foundation for the above and foregoing findings of fact, the plaintiff requests the court (1) to conclude that the debtors' representation of ownership of the 60 head of cattle were either materially false so as to make their indebtedness for the credit extended in reliance thereon nondischargeable under § 523(a)(2) of the Bankruptcy Code or (2), in the alternative, if the debtors really did own the 60 cattle, that they willfully and maliciously converted them so as to make the indebtedness for their value nondischargeable under the provisions of § 523(a)(6) of the Bankruptcy Code. With respect to the first prayer for relief, however, it is incumbent upon the plaintiff in a § 523(a)(2) nondischargeability action to demonstrate by clear and convincing evidence that the material misrepresentation alleged by it was intentionally made. See Sweet v. Ritter Finance Company, 263 F. Supp. 540, 543 (W.D.Va.1967); Matter of Curl, 49 B.R. 302, 304, n. 6 (Bkrtcy.W.D.Mo.1985). In this action, it would be quite difficult, if not impossible, for the court to make this finding when the bank officer who took the allegedly false statements from the debtors was himself not convinced that any false statement was intentionally made.[8] Similarly, with respect to the allegation of willful *254 and malicious conversion, an indispensable element of the cause of action is such evidence as would provide the court with a reasonable basis for assessing damages. It is fundamental that an award of damages cannot be based upon guesswork and speculation.[9] With respect to actions sounding in conversion, the measure of damages is the value of the property converted at the time and place of conversion.[10] Further, when the property converted is the collateral of the plaintiff, the damages cannot exceed the balance due the plaintiff.[11] But, in this action, there is no intelligible evidence of the current balance due the plaintiff. The plaintiff has presented evidence of the loans made to the debtors, but no precise evidence of the balance due. It was admitted, for one thing, that the real property which was the collateral also of the plaintiff was foreclosed, but it was not stated what value was thereby subtracted from the prior balance due.[12] For these reasons, therefore, the court will not grant the plaintiff's complaints for decrees of nondischargeability.
Section 727(a)(2) of the Bankruptcy Code, however, makes it the duty of the bankruptcy court to deny the debtors' discharges in bankruptcy when it is shown that they:
"with intent to hinder, delay, or defraud a creditor or an officer of the estate . . . ha[ve] . . . concealed property of the debtor, within one year before the date of the filing of the petition; or . . . property of the estate, after the date of the filing of the petition."
In this regard, the evidence clearly and convincingly shows that the debtors actively concealed livestock from the bank which was its collateral; that the same collateral was, by operation of law, property of the estate after the date of bankruptcy, see, e.g., In re Kursh, 9 B.R. 801 (Bkrtcy.W.D. Mo.1981); and that the debtors continued to conceal the property after that date. It was the clear and uncontradicted testimony of Mr. Jennings that, when he went to the Gerken farm in about March 1986, to pick up the bank's collateral, including the livestock, it was represented to him by the debtors that only the unbranded cattle belonged to the bank; that he saw cattle in a nearby shed which had only recently been branded; and that the amount of cattle on hand which was admittedly the property of the debtors was much less than it had been represented by the debtors in their successive financial statements. Further, according to Mr. Jennings' testimony, virtually the same thing happened to him when he made an inspection visit to the debtors' farm in April 1985 the debtors[13] contended that only a few of the cattle were theirs, as contrasted with at least sixty head at the time of the rendering of a financial statement only a short time previously. And this court independently[14] agrees with Mr. Jennings' assessments of the debtors' credibility to the effect that they were more likely telling the truth when they *255 represented that they owned 60 cattle than when they later claimed that half of these cattle belonged to Mr. Gerken's mother. To conclude otherwise would be to grant debtors an all-too-facile method of retracting property which serves as creditors' collateral by simply claiming that it had all along belonged to a close relative. Such an unusual method of doing business especially with the involvement of a close relative the law itself recognizes as indicia of a fraudulent intent.[15] Such indicia, considered together with the clear evidence of recent branding and repeated, fresh admissions of ownership of twice as many cattle,[16] provide clear and convincing evidence of the debtors' intention to hinder, delay, and defraud creditors.[17] The evidence before the court thus compels a denial of discharge on this basis.[18]
NOTES
[1] Partial reliance is, of course, sufficient to warrant a decree of nondischargeability under § 523(a)(2), if all of the other elements of that species of nondischargeability are proven. But, in these action, for the reasons set out in the further text of this memorandum, the other elements have not been proven.
[2] The element of detrimental reliance is satisfactorily proven by the evidence in this case, but, as observed in the text of this memorandum, certain other elements are not.
[3] This was according to the testimony of the bank's former loan officer, Galen Jennings.
[4] This number was uncontradicted in the evidence at trial, and purports to be established by unquestioned documentary evidence. About 50 were accountable for by prior sales and return to the plaintiff in March 1986. Some 7 others were said to be casualty losses. It was initially contended that some 23, therefore, remained unaccounted for. But another documentary record of sale of some 30 cattle was adduced at trial.
[5] See note 4, supra.
[6] See note 4, supra.
[7] With respect to the question of their attempting to conceal the collateral of the bank, however, Mr. Jennings' testimony is unequivocal to the effect that the debtors did this intentionally, even going so far as to brand the cattle shortly before they were to be picked up by the bank so as to make them appear to be the property of the mother of Larry Gerken.
[8] Cf. note 7, supra.
[9] "An award of damages may not be based upon mere speculation." Rosebrough Monument Co. v. Memorial Park Cemetery, 666 F.2d 1130, 1147 (8th Cir.1982).
[10] See, e.g., Weldon v. Town Properties, Inc, 633 S.W.2d 196 (Mo.App.1982).
[11] It is a fundamental tenet of the law governing damages that the actual damages awarded should not exceed the loss suffered.
[12] The only evidence in this regard was the oral admission of plaintiff's counsel that the foreclosure had occurred. In view of the testimonial statement otherwise by the witness Jennings to the effect that the real estate's value completely secured the existing debt, the court cannot assume, in the absence of particularized evidence, that any appreciable sum remains due.
[13] The responsibility of Mrs. Gerken as well as that of Mr. Gerken for the proscribed concealment is clearly shown by the evidence. She testified as to her knowledge of the division of ownership of the cattle between the debtors and Larry Gerken's mother and, if she had such knowledge, she also had to have guilty knowledge that not all of the bank's collateral was turned over to it, but rather that it was concealed.
[14] Wide discretion is to be accorded a bankruptcy court making determinations of credibility on the issue of denial of discharge. "Because the Referee is in a superior position to make the proper determination of any issue of fact, it has been held that he has broad discretion in granting or refusing discharge." In re Brown, 314 F. Supp. 947, 954, 955 (W.D.Ark.1970), aff'd 444 F.2d 49 (8th Cir.1971).
[15] See, e.g., Matter of Perry Adams and Lewis Securities, Inc, 30 B.R. 845, 848, 849, nn 5, 6 and 9 (Bkrtcy.W.D.Mo.1983), and authorities there cited. See also Matter of Laughlin, 7 B.R. 924, 926 (Bkrtcy.W.D.Mo.1981).
[16] The debtors repeatedly signed financial statements stating they owned twice as many cattle as they professed to have when they were to yield them up to the plaintiff.
[17] See authorities cited in note 15, supra.
[18] It is always an unwelcome duty for a bankruptcy court to have to deny a discharge. The court is aware of the hardship that it may work to the debtors, sometimes a hardship of catastrophic proportions. Still, the law is clear to the effect that discharge should be denied in cases such as that at bar. The debtors had it within their power at the opportune moment to turn over to the plaintiff the existing livestock which the evidence shows to have been the collateral of the plaintiff. They elected not to do so and chose instead to attempt to conceal them. They must have believed this choice to be worth the risk of losing their discharge in bankruptcy. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538706/ | 4 B.R. 646 (1980)
In re Ronald J. PARR, Bankrupt.
Bankruptcy No. 79-B-1643.
United States Bankruptcy Court, E.D. New York, at Westbury.
June 16, 1980.
*647 Jules V. Speciner, Great Neck, N.Y., for Ronald J. Parr.
Weil, Gotshal & Manges, New York City, for Flushing Sav. Bank by Michael L. Cook, New York City.
ROBERT JOHN HALL, Bankruptcy Judge.
I.
Flushing Savings Bank (the "Bank") has moved this Court for an Order under 18 U.S.C. section 3057 and 14(d) of the Bankruptcy Act directing an investigation of Ronald Parr by the United States Attorney and Suffolk County District Attorney. For the reasons set forth below, the Bank's motion is denied.
II.
BANKRUPTCY COURT'S POWER TO DIRECT AN INVESTIGATION BY THE UNITED STATES ATTORNEY
Neither 18 U.S.C. section 3057(a) nor Bankruptcy Act section 14(d) empowers the Bankruptcy Court to issue an order directing an investigation by the United States Attorney. 18 U.S.C. section 3057(a) merely empowers the Bankruptcy Court to report the facts and circumstances surrounding a suspected violation of the bankruptcy laws or other laws of the United States relating to insolvent debtors (hereinafter collectively referred to as "Bankruptcy Laws").[1] Thus, while this Court has the power to report violations of the bankruptcy law to the United States Attorney, it does not have the power to direct a criminal investigation.
III.
BANKRUPTCY COURT'S POWER TO ORDER INVESTIGATION BY THE SUFFOLK COUNTY DISTRICT ATTORNEY
The Bank seeks, inter alia, an Order of this Court directing the Suffolk County District Attorney to investigate certain alleged violations of the New York State Penal Law purportedly committed by Ronald Parr ("Suffolk County investigation"). Neither the Bankruptcy Act nor Title 18 of the United States Code empowers the Bankruptcy Court to order an investigation *648 by an attorney for a state or a municipality of alleged violations of state law.
The Bank contends that Bankruptcy Act section 2(a)(15) empowers the Bankruptcy Court to order the Suffolk County investigation. Bankruptcy Act section 2(a)(15) provides, inter alia, that the Bankruptcy Court has the power to: "make such orders, issue such process, and enter such judgment, in addition to those specifically provided for, as may be necessary for the enforcement of the provisions of this Act . . ."
It is axiomatic that Bankruptcy Courts are Courts of limited jurisdiction. See e.g. In re J.M. Wells, Inc., 575 F.2d 329, 331 (1st Cir. 1978). "The powers of the bankruptcy court cannot exceed those expressly conferred by Congress and those deemed necessary to effect jurisdiction." In re Ross Sand and Gravel, Inc., 289 F.2d 311 (6th Cir. 1961). The Bankruptcy Court's power "to act must be found expressly or impliedly in the Bankruptcy Act." First State Bank v. Sand Springs State Bank, 528 F.2d 350, 353 (10th Cir. 1976); Ruhter v. Internal Revenue Service, 339 F.2d 575 (10th Cir. 1964); O'Dell v. United States, 326 F.2d 451 (10th Cir. 1964).
The Bankruptcy Act does not contain an express provision empowering a Bankruptcy Court to order an investigation by a state official of alleged violations of state criminal law. This Court neither has been shown nor has found a provision of the Bankruptcy Act from which the power to order the Suffolk County investigation may be implied. Thus, the Bankruptcy Court lacks jurisdiction to order the Suffolk County investigation.[2]
IV.
REPORTING ALLEGED VIOLATIONS OF THE BANKRUPTCY LAW TO THE UNITED STATES ATTORNEY
When a Bankruptcy Court has "reasonable grounds" for believing that violations of the Bankruptcy Code have been committed, it is under a duty to report to the United States Attorney all the facts and circumstances regarding the alleged violations. 18 U.S.C. section 3057(a); In re Botany Industries, Inc., 463 F.Supp. 793, 799 (E.D.Pa.1978) aff'd 609 F.2d 500 (3rd Cir. 1979).
In the instant case, the Court cannot report "all the facts and circumstances of the case, the names of the witnesses and the offense or offenses" to the United States Attorney, as required by 18 U.S.C. section 3057(a), because at this time, the Court does not possess this information. The "reasonable grounds" for believing that a violation of the Bankruptcy Laws has been committed must be based on facts, not suppositions.
The Bank has alleged that Ronald Parr may have violated various provisions of the Bankruptcy Laws. However, as will be discussed below, the Bank has not provided the Court with sufficient facts indicating such violations have been committed.
The Bank's motion is predicated on the transfer of all of the real property of the Parr Meadows Racing Association, Inc. ("Association Property") to Ronald Parr for nominal consideration, and the transfer by Ronald Parr and his wife, Barbara Parr, of their jointly owned home to Florence Wonsor. As to the transfer of the Association Property the Bank in its motion papers states that:
Because of the pending litigation between the Bank and Parr, as well as various threats made by Parr prior to this transfer, the Bank has reason to believe this transfer of the Association's Property may have been made knowingly, fraudulently, and with actual intent to hinder, delay, and defraud the Bank and *649 other creditors of Parr. (emphasis supplied).
As to the transfer of the Parr home, the Bank states that:
Upon information and belief, this transfer was made for less than fair consideration, at a time when Parr was either insolvent or rendered insolvent as a result of that transfer. By information and belief, despite the transfer of the Parr home described in paragraph "7" Parr and his spouse have continued to reside in the home, pay the mortgage outstanding on the property, maintain the property and insure it. Despite the transfer described in paragraph "7" above Parr has, on information and belief retained equitable ownership of at least his half interest in the home, and has concealed that interest with actual intent to hinder, delay and defraud his creditors including the Bank. (emphasis supplied)
V.
The Bank's allegations regarding the transfer of the Association Property consists of a "double maybe": the Bank does not know, but it has "reason to believe" that the transfer of the Association property, not was, but may have been, made knowingly, fraudulently and with actual intent to hinder, delay, and defraud the Bank and other creditors of Parr.
The allegations are indeed serious. However, the Bank has not produced any evidence to show that Ronald Parr possessed the requisite fraudulent and/or criminal intent at the time the Association Property was transferred. This Court notes that the Bank has commenced an adversary proceeding to bar Ronald Parr's discharge ("adversary proceeding"), listing as one of the grounds for relief the transfer of the Association Property. The Court assumes that at the trial on this adversary proceeding, evidence will be introduced to show whether Ronald Parr possessed the requisite intent under Bankruptcy Act section 14(c) and 18 U.S.C. section 152.
VI.
The Bank alleges upon information and belief, that Ronald Parr and his wife Barbara Parr[3] transferred the Parr home for less than fair consideration at a time when Ronald Parr was insolvent, or rendered insolvent, as the result of the transfer. The Bank also alleges, that upon information and belief, Ronald Parr continues to reside in the home, pays the mortgage outstanding on the property, maintains the property, and insures it. The Bank further alleges, again upon information and belief, that Ronald Parr has retained equitable ownership of at least his half interest in the home, and that he has concealed that interest with actual intent to hinder, delay and defraud his creditors, including the Bank.
In support of its motion, the Bank has submitted several "exhibits", to wit: a copy of the deed transferring the Parr home; a copy of Ronald and Barbara Parr's tax returns for the years 1972-1975; and two mortgage statements that bear the notation: "Parr, R & B, 6 Glenrich Dr., St. James, N.Y."
Taking the exhibits in inverse order, the mortgage statements merely indicate that they were addressed to R & B Parr at 6 Glenrich Dr., St. James, N.Y. These mortgage statements do not prove that Ronald Parr has been making the mortgage payments on the Parr home. The Court notes that the Bank has not shown any facts, such as cancelled checks drawn by Ronald Parr payable to the mortgagee, Central Federal Savings, which support the Bank's allegations. The mortgage statements in and of themselves do not create reasonable grounds for believing that Ronald Parr has violated the Bankruptcy Laws.
The Bank also has submitted the Parrs' federal income tax returns for the years 1972-1975 ("tax returns"). While the tax returns for the years 1973-1975 may *650 show that the Parrs did not pay income tax for those years, the tax returns do not prove that Ronald Parr was insolvent under a balance sheet test as set forth in Bankruptcy Act Section 1(19). That section provides that a person is deemed insolvent under the Bankruptcy Act when "the aggregate of his property . . . shall not at a fair valuation be sufficient an amount to pay his debts." The "balance sheet test" focuses not on the liquid funds available at the time of a transfer, but rather on the liquidation of the debtor's assets compared to his current liabilities. Constructora Maza, Inc. v. Banco de Ponce, 616 F.2d 573, 577 (1st Cir. 1980). The Bank's exhibits do not indicate that Ronald Parr was insolvent under a balance sheet test at the time of the alleged transfers.
Further, the Bank's motion papers do not indicate whether Ronald and Barbara Parr owned the Parr home as tenants in common, joint tenants or tenants by the entirety. Since Barbara Parr does not appear to be a bankrupt or a debtor in a bankruptcy proceeding, the question whether Ronald Parr received fair consideration for his share of the Parr home may depend on whether Ronald and Barbara Parr held the Parr home as tenants in common, joint tenants or tenants by the entirety. Moreover, since the Bank's affidavit does not specify what consideration Ronald and Barbara Parr received for the transfer of the Parr home, this Court is unable to determine whether fair consideration was received. Accordingly, the Court perceives no reasonable grounds for believing that Ronald Parr has violated the Bankruptcy Laws.
In addition, the Bank has not shown any facts indicating that Ronald Parr is maintaining an interest in the Parr home with actual intent to hinder, delay, and defraud his creditors.
The Court notes that the Bank commenced an adversary proceeding against Ronald Parr in which the transfer of the Parr home for less than fair consideration is one of the grounds set forth for relief. The Court assumes that at the trial on the adversary proceeding evidence will be introduced showing: whether Ronald Parr transferred his portion of the Parr home for less than fair consideration; whether Ronald Parr retained equitable ownership of at least half his interest in the home; whether Ronald Parr has concealed that interest with actual intent to hinder, delay, and defraud his creditors; whether Ronald Parr has continued to reside in his former home; whether Ronald Parr has continued to pay the mortgage outstanding on the property; and whether Ronald Parr has maintained the property and has continued to insure it.
VII.
In support of the instant motion the Bank has referred this Court to an action commenced by the Bank, now pending in Supreme Court of the State of New York, County of Suffolk, entitled: Flushing Savings Bank v. Alfred R. Parr, Ronald J. Parr, Barbara Parr, Mary Rauschenbach, Jean Bracciodieta, Daniel Bracciodieta, Florence Wonsor, Dolores Snyder, Lido Construction Corp., The Parr Company of Suffolk, Inc., Ting Realty Corp., and Parr Meadows Racing Association, Inc., bearing Index No. 15806/79 ("State Court action"), in which the Bank seeks to set aside under New York state law certain allegedly fraudulent conveyances made by, among others, Ronald Parr.
In opposition to the Bank's motion, Ronald Parr has referred the Court to his motion, dated January 10, 1980, made in the State Court action, to dismiss the State Court action on the ground that the Bank's causes of actions have no merit.
The Bank, in support of the instant motion, has referred this Court to its motion dated February 19, 1980, made in the State Court action, for an order granting it summary judgment on its second cause of action, i.e., declaring certain conveyances as fraudulent under the New York State Debtor and Creditor Law.
The papers relating to the State Court action submitted by both sides have been of little assistance in determining whether Ronald Parr has violated the Bankruptcy Laws. Moreover, the Court has been advised *651 by counsel for the Bank and counsel for Ronald Parr that their respective motions for summary judgment made in the State Court action are currently sub judice.
CONCLUSION
The Bank's motion for an Order of this Court directing an investigation by the Suffolk County District Attorney's Office is denied for the grounds hereinabove set forth.
The Court also finds that at this time there are no reasonable grounds for believing that Ronald Parr has violated the Bankruptcy Laws.
This decision in no way bars the Bank or any other creditor of Ronald Parr from reporting to the appropriate authorities suspected violations of state or federal law. Nor does this decision bar the Court or a trustee from reporting to the United States Attorney, upon an appropriate showing, possible violations of the Bankruptcy Laws, sua sponte, or upon the request of the Bank or any other party in interest.
Settle order on three (3) days notice.
NOTES
[1] 18 U.S.C. § 3057(a) provides that:
Any referee, receiver, or trustee having reasonable grounds for believing that any violations of the bankruptcy laws or other laws of the United States relating to insolvent debtors, receiverships or reorganization plans have been committed, or that an investigation should be had in connection therewith, shall report to the appropriate United States attorney all the facts and circumstances of the case, the names of the witnesses and the offense or offenses believed to have been committed. Where one of such officers has made such report, the others need not do so.
[2] Our system of federalism requires that in the absence of a clear Congressional mandate, Bankruptcy Courts should not interfere with State Court criminal proceedings and state criminal investigations. See, Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971); Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908). U.S.Const. Amend. X.
[3] It appears that Barbara Parr is neither a bankrupt nor a debtor in a bankruptcy proceeding. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538617/ | 4 B.R. 684 (1980)
In re Larry Lee GARBER, Barbara Marie Garber, Debtors.
In re James Edward PRAHM, Debtor.
In re Thomas Michael VIGIL, Debtor.
Bankruptcy Nos. 79-24317-PE, 79-24949-PE and 79-25189-PE.
United States Bankruptcy Court, C.D. California.
June 18, 1980.
E.M. Kruse, Anaheim, Cal., for Larry Lee Garber and Barbara Marie Garber.
John P. Stodd, interim trustee, Santa Ana, Cal.
James F. Davis, Whittier, Cal., for James Edward Prahm.
Jon R. Stuhley, trustee, Santa Ana, Cal.
A.C. Pierce, Orange, Cal., for Thomas Michael Vigil.
*685 ORDER RE FAILURE OF DEBTOR TO APPEAR AT DISCHARGE AND DISCHARGEABILITY HEARING UNDER 11 U.S.C. § 524(d)
PETER M. ELLIOTT, Bankruptcy Judge.
The above named debtors have failed to appear at their respective discharge and dischargeability hearing although ordered to do so by this court. In this District, the debtor's discharge is not entered until the debtor appears for the discharge hearing.
What disposition should be made of a debtor's Chapter 7 case when the debtor fails to appear for the discharge and dischargeability hearing under 11 U.S.C. § 524(d)? That section provides in part that the court shall hold a hearing and that the debtor shall appear in person (emphasis added).
This is an unusual requirement, to say the least. I am in full accord that reaffirmation agreements should not be enforceable unless approved by the court. However, the reason for requiring a debtor, who does not propose to reaffirm any debt, to appear in court to be informed of his rights escapes me, especially when we consider that the debtor has already lost one day away from work to attend the meeting of creditors under 11 U.S.C. § 341(a).
If "shall" has a mandatory meaning, it follows that either the debtor's discharge should be denied for failure to obey a lawful order, 11 U.S.C. § 727(6)(A), or the case should be dismissed for cause, 11 U.S.C. § 707. Both remedies are harsh and would serve no useful purpose.
In Wisdom v. Board of Supervisors of Polk County, 236 Iowa 669, 19 N.W.2d 602, 608, 609, the court construed "shall" to be permissive rather than mandatory. At page 608 the court quoted from First National Bank of Helena v. Neill, 13 Mont. 377, 34 P. 180 as follows:
"The word `may' is construed to mean `shall' whenever the rights of the public or third persons depend upon the exercise of the power or performance of the duty to which it refers. And so, on the other hand, the word `shall' may be held to be merely directory when no advantage is lost, when no right is destroyed, when no benefit is sacrificed, either to the public or to the individual, by giving it that construction. But, if any right to anyone depends upon giving the word an imperative construction, the presumption is that the word was used in reference to such right or benefit. But, where no right or benefit to anyone depends upon the imperative use of the word, it may be held to be directory merely."
Under the authorities cited in the foregoing cases, the use of "shall" in § 524(d), directing the court to hold a hearing, is mandatory and the use of "shall" in directing the debtor to appear at that hearing, is directory only, and no penalty should be imposed on the debtor for failure to appear. Accordingly,
IT IS ORDERED that the Order of Discharge of the above debtors be entered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539729/ | 974 A.2d 1216 (2009)
Michael E. SZOKO, Appellant
v.
TOWNSHIP OF WILKINS.
No. 2049 C.D. 2008
Commonwealth Court of Pennsylvania.
Argued May 4, 2009.
Decided May 28, 2009.
*1218 Scott M. Hare, Pittsburgh, for appellant.
John H. Rushford, Pittsburgh, for appellee.
BEFORE: McGINLEY, Judge, and SMITH-RIBNER, Judge, and FRIEDMAN, Senior Judge.
OPINION BY Senior Judge FRIEDMAN.
Michael E. Szoko (Plaintiff) appeals from the October 10, 2008, order of the Court of Common Pleas of Allegheny County (trial court) sustaining preliminary objections filed by the Township of Wilkins (Township) and dismissing Plaintiff's declaratory judgment action. We affirm.
Plaintiff was elected to the Township's Board of Commissioners (Board) in November 2007. In December 2007, the outgoing commissioners entered into a contract with Township Manager Rebecca Bradley, effective January 1, 2008, continuing her employment for five years. (R.R. 16a-24a.) In January 2008, Plaintiff assumed office and became chairman of the Board's Finance Committee. Plaintiff complained that the contract's provisions illegally abrogated the requirement that public employees be "at will" and that, by entering onto the contract, the outgoing board members improperly attempted to bind the current Board.[1]
In response, on February 25, 2008, the Board considered an amended employment agreement between the Township and Bradley that provides for a three-year period of employment from January 1, 2008, through December 31, 2010. (R.R. at 25a-29a.) Section A-1 of the amended contract provides for an automatic extension of the agreement, from January 1, 2011, to December 31, 2011, as of January 1, 2009, with additional one-year extensions automatically occurring unless a party provides written notice of an intent to terminate the agreement at the end of the year. The contract allows the Township the discretion to terminate Bradley at any time. It also provides that, if Bradley is terminated but is willing and able to perform her duties, she shall be entitled to the full amount of compensation due for the remainder of the contract term. The Board approved this amended contract despite objections from Plaintiff and another Board member.
Thereafter, Plaintiff filed an action for declaratory judgment, asking the trial court to declare the contract void ab initio. Plaintiff asserted that the Board lacks authority to enter into employment contracts that prevent it from summarily dismissing employees at will[2] and cannot enter into a contract that extends beyond its members' term of office.[3] The Township filed preliminary objections alleging *1219 that Plaintiff lacks standing to bring this action,[4] that the matter is not ripe[5] and that Plaintiff failed to join the Township and Bradley, who are indispensable parties.[6]
The trial court first determined that the agreement at issue was the amended contract that was approved by the present Board in 2008 and does not reflect action by a "lame duck" board. After erroneously stating that the term of the amended contract was two years, (trial ct. op. at 2, R.R. at 87a), the trial court next concluded that the issue of whether the one-year extension provisions impermissibly operate to bind a successor board is not ripe. The trial court further concluded that Plaintiff failed to demonstrate that he has standing to contest the validity of the contract and failed to join the Township commissioners and Bradley, who are necessary parties to the action. For these reasons, the trial court sustained the Township's preliminary objections and dismissed Plaintiff's complaint with prejudice.
Plaintiff raises four issues on appeal to this court: 1) whether the contract is void ab initio because it illegally abrogates the requirement that public employees be "at-will"; 2) whether the contract was illegally adopted by a lame duck board; 3) whether the controversy is ripe; and 4) whether Plaintiff has standing.[7]
We begin by addressing Plaintiff's final argument, because if we determine that Plaintiff does not have standing, the remaining issues are moot. Gulnac by Gulnac v. South Butler County School District, 526 Pa. 483, 587 A.2d 699 (1991). Generally, in order to have standing, a plaintiff must have an interest in the matter that is distinguishable from the interest shared by other citizens; to surpass that common interest, the plaintiff's interest must be substantial, direct and immediate. Sprague v. Casey, 520 Pa. 38, 550 A.2d 184 (1988). A substantial interest in the outcome of a dispute is an interest that surpasses the common interest of all citizens in seeking obedience to the law. Empire Coal Mining & Development, Inc. v. *1220 Department of Environmental Resources, 154 Pa.Cmwlth. 296, 623 A.2d 897, appeal denied, 535 Pa. 625, 629 A.2d 1384 (1993). A party has a direct interest in a dispute if he or she was harmed by the challenged action or order. Id. A party's interest is immediate if there is a causal connection between the action or order complained of and the injury suffered by the party asserting standing. Id. In accordance with the above, an individual asserting that he or she has standing must plead facts establishing that he or she has suffered a substantial, direct and immediate injury. Id.
In support of his assertion that he has standing to seek relief under the Declaratory Judgments Act, 42 Pa.C.S. §§ 7531-7541, Plaintiff cites his position on the Board and his "special responsibility" for financial matters as chairman of the Board's Finance Committee. We conclude that, absent further elaboration, these facts are not sufficient to establish that Plaintiff has an interest that surpasses the common interest of all citizens in seeking obedience to the law. More important, Plaintiff has not explained how he is harmed by the employment agreement; accordingly, he cannot show a causal connection between the agreement and his injury. Thus, Plaintiff has not pleaded facts demonstrating a direct, substantial and present interest in this matter.[8] Although our courts have recognized exceptions to the general rule, see, e.g., Sprague, (granting standing to taxpayers where governmental action might otherwise go unchallenged), Plaintiff does not argue that he has standing based on any particular theory, nor does he assert facts that would support such a conclusion. Therefore, we hold that Plaintiff does not have standing to bring this action for declaratory judgment.
Because the determination that Plaintiff does not have standing ends this controversy, Gulnac, the court need not consider the remaining issues raised by Plaintiff on appeal.
Accordingly, we affirm.
ORDER
AND NOW, this 28th day of May, 2009, the order of the Court of Common Pleas of Allegheny County, dated October 10, 2008, is hereby affirmed.
NOTES
[1] According to the Township, Plaintiff is the only newly elected member of the Board, in that the four other commissioners were either hold-over members or were re-elected in the 2007 election. (Township's brief at 3.)
[2] In Pennsylvania, public employees are employees-at-will and subject to summary dismissal unless the legislature has explicitly conferred tenure as an integral part of a comprehensive governmental employment scheme. Bolduc v. Board of Supervisors of Lower Paxton Township, 152 Pa.Cmwlth. 248, 618 A.2d 1188 (1992), appeal denied, 533 Pa. 662, 625 A.2d 1195 (1993). Therefore, public employers do not have the power, unless conferred by statute, to enter into employment contracts that prevent them from summarily dismissing their employees at will. Id.
[3] 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 that will bind its successors. Falls Township v. McManamon, 113 Pa. Cmwlth. 504, 537 A.2d 946 (1988).
[4] The essence of standing to sue "is to protect against improper plaintiffs," School Security Services, Inc. v. Duquesne City School District, 851 A.2d 1007, 1012 (Pa.Cmwlth.2004), appeal denied, 582 Pa. 690, 870 A.2d 325 (2005), and the requirement of standing arises from "the principle that judicial intervention is appropriate only when the underlying controversy is real and concrete." Stilp v. Commonwealth, 927 A.2d 707, 710 (Pa.Cmwlth.2007), aff'd, 596 Pa. 493, 946 A.2d 636 (2008).
[5] A declaratory judgment may be obtained only where there is a real controversy; it must not be employed to determine rights in anticipation of events that may never occur or for consideration of moot cases or for the rendition of an advisory opinion that may prove to be academic. Mazur v. Washington County Redevelopment Authority, 954 A.2d 50 (Pa.Cmwlth.2008), appeal denied, ___ Pa. ___, 967 A.2d 961 (2009).
[6] A party is indispensable when his or her rights are so connected with the claims of the litigants that no relief can be granted without impairing or infringing upon those rights. Church of the Lord Jesus Christ of the Apostolic Faith, Inc. v. Shelton, 740 A.2d 751 (Pa. Cmwlth.1999). The failure to join an indispensable party deprives the court of subject matter jurisdiction. Id.
[7] Our review of a trial court's order sustaining preliminary objections and dismissing a complaint is limited to determining whether the trial court abused its discretion or committed an error of law. Petty v. Hospital Service Association of Northeastern Pennsylvania, 967 A.2d 439 (Pa.Cmwlth.2009). In reviewing preliminary objections, all well pleaded relevant and material facts are to be considered as true, and preliminary objections shall only be sustained when they are free and clear from doubt. Id. Such review raises a question of law as to which our standard of review is de novo and our scope of review is plenary. Id.
[8] Plaintiff cites Boyle v. Municipal Authority of Westmoreland County, 796 A.2d 389 (Pa. Cmwlth.), appeal denied, 571 Pa. 709, 812 A.2d 1231 (2002), noting that the plaintiffs in Boyle included five individuals who were "mere residents of the county." (Plaintiff's brief at 13). However, the issue of standing was not raised in Boyle, and, therefore, Plaintiff's reliance on that decision is misplaced. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538563/ | 143 N.J. Super. 134 (1976)
362 A.2d 1204
JANE DOE, A. A., B. B., C. C., D. D., E. E., AND F. F., INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS-APPELLANTS,
v.
ANN KLEIN, COMMISSIONER, DEPARTMENT OF INSTITUTIONS AND AGENCIES; MORRIS FOYE, ADMINISTRATOR, GREYSTONE PARK PSYCHIATRIC HOSPITAL; FRANK FENNIMORE, M. D., MEDICAL DIRECTOR, GREYSTONE PARK PSYCHIATRIC HOSPITAL; MIKHAIL ROTOV, M. D., ACTING DIRECTOR, DIVISION OF MENTAL HEALTH AND HOSPITALS, DEPARTMENT OF INSTITUTIONS AND AGENCIES; RICHARD WINANS, DIRECTOR OF PERSONNEL, GREYSTONE PARK PSYCHIATRIC HOSPITAL, DEFENDANTS-RESPONDENTS.
Superior Court of New Jersey, Appellate Division.
Argued June 2, 1976.
Decided July 2, 1976.
*136 Before Judges HALPERN, CRANE and MICHELS.
Ms. Laura M. LeWinn, Deputy Director, Division of Mental Health Advocacy, argued the cause on behalf of appellants (Mr. Stanley C. Van Ness, Public Advocate, attorney).
Mr. David S. Baime, Deputy Attorney General, argued the cause on behalf of respondents (Mr. William F. Hyland, Attorney General of New Jersey, attorney).
Mr. Donald G. Collester, Jr., Morris County Prosecutor, joined in the brief submitted on behalf of respondents.
The opinion of the court was delivered by MICHELS, J.A.D.
Plaintiffs appeal by leave of this court from an interlocutory order of the Law Division denying their motion for discovery of the minutes of the testimony heard by the Morris County Grand Jury pertinent to that body's presentment on Greystone Park Psychiatric Hospital (Greystone).
The Division of Mental Health Advocacy of the Department of the Public Advocate, representing several unnamed plaintiffs who are patients or who were patients at Greystone, instituted this class action on behalf of said plaintiffs and all indigent patients presently confined at Greystone over the age of 18 years and all such patients who shall become *137 so confined during the pendency of this action, to enjoin defendants from administering treatment and maintaining conditions in a manner allegedly in violation of the constitutional and statutory rights of said plaintiffs. The principal thrust of the charge is that defendants have deprived plaintiffs of a tolerable living environment, protection from physical harm and their right to basic standards of decency. Defendants are also charged with failing to accord plaintiffs proper treatment, as required by the Federal and State Constitutions and state statutes.
On November 14, 1974, prior to the filing of the complaint in this action, the Morris County Grand Jury commenced an investigation pertaining to the management and operation of Greystone. The initial focus was the investigation of charges that patients had been beaten and otherwise mistreated by institution employees. The allegations were made by a group of student psychologists who had resigned from their positions at the institution, and were publicly aired in a series of newspaper articles which appeared in the Newark Star Ledger. The student psychologists charged that patient abuse was widespread and that supervisory authorities had failed to investigate, punish the guilty parties and assert control necessary to prevent recurrence of such acts. In addition, important areas of investigation other than the specific allegations by these student psychologists were undertaken as a result of information obtained and presented to the grand jury by an undercover agent working in Greystone under authority of the Commissioner of Institutions and Agencies, the Attorney General and the Morris County Prosecutor. The investigation became focused upon the question whether the patients' basic right to treatment and sympathetic general care was being respected at Greystone.
The grand jury conducted its investigation for six months, examining approximately 300 exhibits, many of them printed material of great length and requiring expert testimony which was ultimately received. Witnesses at every level of employment at Greystone were examined, including maintenance *138 personnel, attendants, nurses, psychologists, clinical psychiatrists, union leaders and middle and high-level administrators. The Commissioner of Institutions and Agencies and many of her assistants testified. Present and former patients in the institution, qualified experts in the field of psychiatry and hospital administration, and others who could be helpful in the proper discharge of the grand jury investigation, also testified. In all, 83 witnesses appeared and testified. In addition, the grand jury had available for examination transcripts of the testimony presented at the hearings of the Joint Subcommittee on Mental Health of the Senate and General Assembly, which hearings resulted from the charges leveled by the student psychologists. The Joint Subcommittee subsequently issued a report recommending comprehensive changes in operating procedures employed at Greystone.
The grand jury investigation eventually culminated in the return of four indictments and a lengthy presentment which severely criticized the management of Greystone. Five individuals were indicted and were charged with criminal conduct, which included charges of possession of controlled dangerous substances with intent to distribute, sodomy of a former patient, attempted sodomy, Medicaid fraud and obtaining money by false pretenses. The presentment criticized many aspects of the hospital's management, including deficiency in administration, the lack of effective personnel policies, professional nonfeasance on the part of the staff psychiatrists, physical assault on patients by nursing personnel and the failure to respect the statutory mandate of adequate and humane care and treatment as prescribed by N.J.S.A. 30:4-24.1. After returning the indictments and the presentment, the grand jury was terminated on May 29, 1975.
Following the filing of the complaint in this action, the Deputy Director of the Division of Mental Health Advocacy moved on behalf of plaintiffs to compel discovery of (1) *139 the minutes of all testimony before the Morris County Grand Jury pertinent to that body's presentment on Greystone, (2) the names and addresses of all persons called as witnesses before the grand jury, and (3) all written documents, photographs and other physical exhibits submitted to the grand jury. Judge Ard denied plaintiffs' motion for discovery of the grand jury testimony, stating in part:
I am denying this motion for the reasons stated or stating that in my judgment the traditional policy of secrecy of the Grand Jury minutes is not outweighed by the consequences of nondisclosure to the plaintiffs in this case. The fact of the matter is that the plaintiffs in this case have, as I have recited, been given tremendous latitude with respect to discovery and, as I say, absent a cogent reason, will continue to receive great latitude with respect to discovery to properly martial [sic] the evidence in order to present to the Court its strongest case.
In addition there are people I imagine who were brought before the Grand Jury, who were perhaps under suspicion at the time, were investigated during this Grand Jury session and exonerated, and I feel that their reputations are certainly in jeopardy if I release this. Let me say categorically that this is such a multi-legged creature I do not believe that I can set up a practical workable limitation which would allow me to grant your request * * *.
Thirdly, of course we can only speak theoretically now, but there is also the possibility of retribution of some sort against witnesses who testify before the Grand jury [sic] feeling safe in the thought that their testimony would not subsequently be divulged to others, and I feel very strongly that the effectiveness of future Grand Juries in terms of their ability to thoroughly delve into matters and participate in the questioning of various people who appear and testify before the Grand Jury may be deterred if * * * it becomes general knowledge that these things can be revealed in civil actions and I feel that there may be an impairment of the effectiveness of our entire Grand Jury system.
* * * * * * * *
The other items of discovery sought were agreed upon. The Attorney General and the Morris County Prosecutor agreed to furnish plaintiffs with the names and addresses of all persons called as witnesses before the grand jury, with the exception of the student psychologists and three patients at Greystone unless said patients consented to the disclosure of their names, and with a list of all the documents, photographs *140 and other exhibits viewed by the grand jury. This appeal followed.
The important issue raised by this appeal is whether material presented to a grand jury during the course of a lengthy criminal investigation may be disclosed to civil litigants.
Grand jury proceedings are traditionally secret. See United States v. Procter & Gamble Co., 356 U.S. 677, 78 S.Ct. 983, 2 L.Ed.2d 1077, 1081 (1958). The reasons for grand jury secrecy were summarized in United States v. Rose, 215 F.2d 617 (3 Cir.1954), as follows:
* * * (1) To prevent the escape of those whose indictment may be contemplated; (2) to insure the utmost freedom to the grand jury in its deliberations, and to prevent persons subject to indictment or their friends from importuning the grand jurors; (3) to prevent subornation of perjury or tampering with the witnesses who may testify before grand jury and later appear at the trial of those indicted by it; (4) to encourage free and untrammeled disclosures by persons who have information with respect to the commission of crimes; (5) to protect innocent accused who is exonerated from disclosure of the fact that he has been under investigation, and from the expense of standing trial where there was no probability of guilt. [at 628-629]
See also State v. Clement, 40 N.J. 139, 143 (1963); State v. DiModica, 40 N.J. 404, 409-410 (1963). See also 38 Am. Jur.2d, Grand Jury, § 39 at 984.
The concept of the secrecy of the grand jury has been maintained by our rules of criminal procedure. R. 3:6-7, provides in pertinent part:
* * * the requirement as to secrecy of proceedings of the grand jury shall remain as heretofore, and all persons other than witnesses, permitted by R. 3:6-6 to be present while the grand jury is in session, shall be required to take an oath of secrecy before their admission thereto. Such oath shall also be taken by typists making transcripts of testimony given before the grand jury.
However, the secrecy of grand jury proceedings is not absolute. It has long been the rule in this State that proceedings *141 before a grand jury may be disclosed if justice so requires. State v. Clement, supra, 40 N.J. at 142; State v. Moffa, 36 N.J. 219, 223 (1961); In re Presentment of Camden Cty. Grand Jury, 34 N.J. 378, 395, 401 (1961); In re 15th Essex Cty. Grand Jury, 111 N.J. Super. 564, 568-569 (App. Div. 1970). See also State v. Farmer, 45 N.J. 520, 521-522 (1965), cert. den. 386 U.S. 991, 87 S.Ct. 1305, 18 L.Ed.2d 335 (1967). Thus, our courts have lifted the veil of secrecy on being satisfied in the circumstances of a particular case that the policy of secrecy should be subordinate to the search for the whole truth. See, for example, State v. Farmer, 48 N.J. 145, 152 (1966), cert. den. 386 U.S. 991, 87 S.Ct. 1305, 18 L.Ed.2d 335 (1967); State v. Clement, supra; State v. Moffa, supra; State v. Mucci, 25 N.J. 423 (1957). R. 3:13-3(a) (3) now makes available the grand jury testimony to all defendants in criminal cases. The rules of civil procedure do not contain a comparable provision granting litigants in civil cases access to grand jury testimony.
At the heart of the problem is the conflict between the sound policy of the secrecy of grand jury proceedings and the concept that discovery in civil cases should be liberally granted so that the search for truth and justice may be facilitated. Ultimate resolution of the conflict depends upon a reconciliation of these competing values. In our view the conflict can be best resolved by requiring civil litigants to demonstrate compelling circumstances or need warranting disclosure of grand jury testimony. This accords with the principles enunciated by the United States Supreme Court in United States v. Procter & Gamble Co., supra, and Pittsburgh Plate Glass Co. v. United States, 360 U.S. 395, 79 S.Ct. 1237, 3 L.Ed.2d 1323, 1326-1327 (1959). These decisions clearly establish that the disclosure of grand jury minutes may be ordered when there is a showing of special and compelling circumstances sufficient to overcome the policy against disclosure. In United States v. Procter & Gamble Co., supra, the Supreme Court reversed an order of the United *142 States District Court for the District of New Jersey which granted the motion of defendant for discovery and production of the transcript of the grand jury investigation in a civil antitrust suit stating, in pertinent part:
* * * [w]e start with a long-established policy that maintains the secrecy of the grand jury proceedings in the federal courts. See United States v. Johnson, 319 U.S. 503, 513, 63 S. Ct. 1233, 1238, 87 L. Ed. 1546, 1555; Costello v. United States, 350 U.S. 359, 362, 76 S. Ct. 406, 408, 100 L. Ed. 397, 401. The reasons are varied. One is to encourage all witnesses to step forward and testify freely without fear of retaliation. The witnesses in antitrust suits may be employees or even officers of potential defendants, or their customers, their competitors, their suppliers. The grand jury as a public institution serving the community might suffer if those testifying today knew that the secrecy of their testimony would be lifted tomorrow. This "indispensable secrecy of grand jury proceedings," United States v. Johnson, supra (319 U.S. at 513, 63 S.Ct. at 1238), must not be broken except where there is a compelling necessity. There are instances when that need will outweigh the countervailing policy. But they must be shown with particularity.
No such showing was made here. The relevancy and usefulness of the testimony sought were, of course, sufficiently established. If the grand jury transcript were made available, discovery through depositions, which might involve delay and substantial costs, would be avoided. Yet these showings fall short of proof that without the transcript a defense would be greatly prejudiced or that without reference to it an injustice would be done. Modern instruments of discovery serve a useful purpose, as we noted in Hickman v. Taylor, 329 U.S. 495, 67 S. Ct. 385, 91 L. Ed. 451. They together with pretrial procedures make a trial less a game of blind man's buff and more a fair contest with the basic issues and facts disclosed to the fullest practicable extent. Id., 329 U.S. at 501, 67 S.Ct. at 388. Only strong public policies weigh against disclosure. They were present in Hickman v. Taylor (US) supra, for there the information sought was in the trial notes of the opposing lawyer. They are present here because of the policy of secrecy of grand jury proceedings. We do not reach in this case problems concerning the use of the grand jury transcript at the trial to impeach a witness, to refresh his recollection, to test his credibility and the like. Those are cases of particularized need where the secrecy of the proceedings is lifted discretely and limitedly. [356 U.S. at 681, 682, 78 S.Ct. at 986, 2 L.Ed.2d at 1081-1082]
Other courts have followed these principles. See Baker v. United States Steel Corp., 492 F.2d 1074 (2 Cir.1974); *143 Allis-Chalmers Mfg. Co. v. City of Fort Pierce, Florida, 323 F.2d 233 (5 Cir.1963); In re Holovachka, 317 F.2d 834 (7 Cir.1963); Corona Construction Co. v. Ampress Brick Co., Inc., 376 F. Supp. 598 (N.D. Ill. 1974); Hancock Brothers, Inc. v. Jones, 293 F. Supp. 1229 (N.D. Cal. 1968); Consolidated Edison Co. of N.Y. v. Allis-Chalmers Mfg. Co., 217 F. Supp. 36 (S.D.N.Y. 1963); Commonwealth Edison Co. v. Allis-Chalmers Mfg. Co., 211 F. Supp. 729 (N.D. Ill. 1962); City of Philadelphia v. Westinghouse Electric Corp., 210 F. Supp. 486 (E.D. Pa. 1962).
Plaintiffs have failed to demonstrate compelling circumstances or need warranting disclosure of the grand jury minutes. Plaintiffs have been furnished with the names and addresses of all witnesses, with certain limited exceptions, who appeared before the grand jury. To date no effort has been made to take the depositions of these witnesses. More importantly, there is nothing in the record to suggest that these witnesses will be uncooperative, or that they do not recall evidence of vital importance on essential issues, or that they will furnish information contrary to that furnished by them to the Grand Jury. If this occurs in the future course of this case, then clearly there would be the compelling circumstances or need justifying disclosure. See United States v. Procter & Gamble Co., supra at 356 U.S. 682, 78 S.Ct. 987, 2 L.Ed.2d 1082; Atlantic City Electric Co. v. A.B. Chance Co., 313 F.2d 431, 434 (2 Cir.1963).
While we agree that the furnishing of the transcripts of the grand jury testimony might save substantial time and expense, nevertheless, this alone does not warrant the lifting of the veil of secrecy accorded grand jury proceedings. See United States v. Procter & Gamble Co., supra; Corona Construction Co. v. Ampress Brick Co., Inc., supra. Accordingly, we are satisfied that in the circumstances the trial judge properly denied plaintiffs wholesale access to the minutes of the grand jury testimony
We are of the view that the result reached here does not conflict with our holding in Viruet v. Sylvester, 131 N.J. *144 Super. 599 (App. Div. 1974), certif. den. 68 N.J. 138 (1975), where we reversed the trial court's refusal to permit plaintiff in a wrongful death action to obtain defendant's grand jury testimony, a request based on a newspaper story suggesting that defendant's testimony at trial was different from that given by him before the grand jury. The grand jury had returned a "no bill," and for all material purposes the criminal matter was at an end, and the search for the truth outweighed the necessity for grand jury secrecy. Clearly, the compelling circumstances or need for the grand jury testimony was there established.
Accordingly, the order of the Law Division denying plaintiffs' motion for discovery of the minutes of the testimony heard by the Morris County Grand Jury pertinent to that body's presentment on Greystone is affirmed without prejudice to plaintiffs' or defendants' right to apply to the trial court for disclosure of such testimony under its supervision in the event that compelling circumstances or need are established by subsequent events during the course of this litigation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538582/ | 168 Conn. 212 (1975)
GERALD R. LUBLIN
v.
F. GEORGE BROWN, TAX COMMISSIONER OF STATE OF CONNECTICUT
Supreme Court of Connecticut.
Argued January 7, 1975.
Decision released March 25, 1975.
HOUSE, C. J., COTTER, LOISELLE, MACDONALD and LONGO, JS.
*213 Richard K. Lublin, with whom, on the brief, was Dennis N. Kantor, for the appellant (plaintiff).
Richard K. Greenberg, assistant attorney general, with whom, on the brief, were Robert K. Killian, attorney general, and Ralph G. Murphy, assistant attorney general, for the appellee (defendant).
HOUSE, C. J.
The plaintiff brought this action seeking a declaratory judgment that §§ 30 and 31 of Public Act No. 223 enacted by the 1972 session of the General Assembly are unconstitutional, null, void and unenforceable and a refund of all monies collected by the defendant pursuant to the provisions of those sections. Section 31 of the act is simply a repealer of an earlier statute and the plaintiff's attack is entirely directed to the provisions of § 30 which is now printed as § 51-81b of the General Statutes entitled "Occupational tax on attorneys."[1]
*214 Public notice of the pendency of the action was published in several newspapers in the state and subsequently, on motion of the plaintiff, the Superior Court entered an order pursuant to the provisions of § 52 of the Practice Book and § 52-105 of the General Statutes authorizing the plaintiff "to prosecute this action on behalf of all persons admitted as attorneys by the judges of the Superior Court for the State of Connecticut and who are engaged in the practice of law, including the performance of judicial duties in the State of Connecticut and who are similarly situated," and authorizing the attorney general to defend the action on behalf of all such persons who are seeking to uphold the act.
The case was not tried in the Superior Court and the parties, instead of a trial, stipulated to the facts and requested a reservation to this court, submitting *215 five questions for the consideration and advice of this court.[2] The court made the reservation in accordance with the stipulation of the parties.
The stipulated facts include a recital that the plaintiff has been admitted as an attorney by the judges of the Superior Court and is actively engaged in the practice of law. The defendant is the tax commissioner of the state of Connecticut and is charged by § 51-81b with the collection of the occupational tax prescribed by that section.
Before discussing the questions which have been reserved for the advice of this court, we deem it necessary to clarify one ambiguity in the plaintiff's motion made pursuant to the provisions of § 52 of the Practice Book and the court's order thereon. Section 52 of the Practice Book, entitled "Numerous Parties," provides that when the persons who might be made parties are very numerous so that it would *216 be impracticable or unreasonably expensive to make them all parties, one or more may sue or be sued or may be authorized by the court to defend for the benefit of all. As we have noted, the general class which is subject to the tax in question is composed of "[a]ny person who has been admitted as an attorney by the judges of the superior court, and who was engaged in the practice of law, including the performance of judicial duties," during the preceding year. Paragraph one of the plaintiff's complaint alleges that he is an attorney at law admitted by the judges of the Superior Court and "engaged in the practice of law." There is no stipulation that his practice of law includes the performance of any judicial duties. Paragraph two of the complaint alleges that he brings the action "on behalf of himself and all other attorneys practicing in the State of Connecticut, including the performance of judicial duties, similarly situated." It is apparent that the plaintiff is not "similarly situated" to those persons who are engaged in the performance of judicial duties, and the plaintiff has not asserted such a claim.
In his motion pursuant to the provisions of § 52 of the Practice Book, the plaintiff represented that his individual situation in relation to the statute in question "is typical of all other persons admitted as attorneys by the judges of the Superior Court for the State of Connecticut and who are engaged in the practice of law throughout the State of Connecticut" and that "[h]e is competent to prosecute this action on behalf of such taxpayers." His motion, however, was for an order allowing him to sue "on behalf of all persons admitted as attorneys... and who are engaged in the practice of law, including the performance of judicial duties, *217 who are similarly situated." The order of the court was in the same language, authorizing the plaintiff to prosecute the action on behalf of all admitted attorneys "who are engaged in the practice of law, including the performance of judicial duties ... and who are similarly situated" and the attorney general to defend the same described persons who seek to uphold the constitutionality of the legislation.
The problem is more than one of semantics. The ambiguity arises from the authorization to the plaintiff, by which, on the one hand, he is to represent all attorneys who are engaged in the practice of law, including the performance of judicial duties, but which, on the other, is limited to representation of those "who are similarly situated," and the plaintiff, although engaged in the general practice of law, is not engaged in the performance of judicial duties.
It is obvious that members of the bar who are engaged in the performance of judicial duties and particularly those who are constitutional officers in the judicial department of the state are in a different status from attorneys engaged in the general practice of law. They are also the only salaried constitutional officers of the state on whom a tax is levied because of the performance of the official duties which they perform for the state in the judicial magistracy. Under these circumstances, it can hardly be said with accuracy that the plaintiff's situation was typical of that of all persons on whom the tax is levied. The record and briefs disclose that no consideration whatsoever was given in these proceedings to the difference in status between a practicing attorney and a judicial officer and the case was briefed and argued solely on the constitutionality *218 of the tax as applied to those "who are similarly situated" to the plaintiff as an attorney engaged in the general practice of the law. In these circumstances, we treat the case as did the parties and answer the reserved questions only so far as they are applicable to persons "who are similarly situated" to the plaintiff.
Our foregoing observations are in no way intended to imply that the difference in status would require a difference in result, or as an invitation to seek such a determination. They are simply a recognition of the established legal principle that "[w]here the only common interest of members of a class is a common interest in some of the questions of law or fact involved in a suit relating to rights which are several, the judgment cannot, consistently with due process, be binding upon or affect the rights of any persons other than those who are or may become actual parties to or participants in the litigation." 59 Am. Jur. 2d 420, Parties, § 53. "[A] selection of representatives for purposes of litigation, whose substantial interests are not necessarily or even probably the same as those whom they are deemed to represent, does not afford that protection to absent parties which due process requires." Id. § 60, p. 432; see Hansberry v. Lee, 311 U.S. 32, 40-43, 61 S. Ct. 115, 85 L. Ed. 22.
The plaintiff challenges the constitutionality of the tax on two grounds. The first is that it violates the equal protection clauses of both § 1 of the fourteenth amendment to the constitution of the United States and article first, § 1, of the constitution of Connecticut. The second is that it violates the provisions of article second of the constitution of Connecticut in that, in enacting the statute, the General *219 Assembly "overreached its bounds and infringed upon the magistracy of the co-equal judicial branch of government in attempting to regulate and tax it."
In considering the plaintiff's first claim of unconstitutionality, we again note that the equal protection clause provision of article first, § 1, of the constitution of Connecticut has a meaning equivalent to the similar provision in the fourteenth amendment to the constitution of the United States upon which the plaintiff relies. State ex rel. Higgins v. Civil Service Commission, 139 Conn. 102, 105, 90 A.2d 862; Franco v. New Haven, 133 Conn. 544, 548, 52 A.2d 866; Lyman v. Adorno, 133 Conn. 511, 515, 52 A.2d 702. The basis for the plaintiff's argument in support of his first claim is that attorneys have been singled out as a class, have had a tax imposed upon them, the sole purpose of which is to raise revenue, and that such a tax is imposed upon no other group and, therefore, is unreasonable, arbitrary and bears no fair and substantial relation or relevance to the object of the legislation.
It is well settled that a plaintiff who attacks a statute on constitutional grounds has no easy burden. As this court said in Adams v. Rubinow, 157 Conn. 150, 152-53, 251 A.2d 49: "Because of the separation of powers, one claiming that a legislative enactment is invalid on the ground that it is unconstitutional must establish its invalidity on that ground beyond a reasonable doubt. Hardware Mutual Casualty Co. v. Premo, 153 Conn. 465, 470, 217 A.2d 698.... [W]here a statute reasonably admits of two constructions, one valid and the other invalid on the ground of unconstitutionality, courts should adopt the construction which will uphold the *220 statute even though that construction may not be the obvious one. Carilli v. Pension Commission, 154 Conn. 1, 8, 220 A.2d 439; Ferguson v. Stamford, 60 Conn. 432, 447, 22 A. 782; Wilton v. Weston, 48 Conn. 325, 338." To like effect, we said in Edwards v. Hartford, 145 Conn. 141, 145, 139 A.2d 599: "Courts in passing upon the validity of a legislative act do not feel justified in declaring it void unless there is a clear and unequivocal breach of the constitution.... We approach the question with great caution, examine it with infinite care, make every presumption and intendment in favor of validity, and sustain the act unless its invalidity is, in our judgment, beyond a reasonable doubt." As we noted in Kellems v. Brown, 163 Conn. 478, 487, 313 A.2d 53: "In Connecticut, the power to levy taxes is vested in the General Assembly. Beach v. Bradstreet, 85 Conn. 344, 348, 82 A. 1030. Unlike the federal constitutional limitation which existed prior to adoption of the sixteenth amendment, it appears that this state's power of taxation has never been constitutionally limited except by the constitutional requirements of equal protection and due process. See Montgomery v. Branford, 107 Conn. 697, 707-8, 142 A. 574." As the United States Supreme Court observed in Madden v. Kentucky, 309 U.S. 83, 87-88, 60 S. Ct. 406, 84 L. Ed. 590, and repeated with approval in San Antonio School District v. Rodriguez, 411 U.S. 1, 40, 93 S. Ct. 1278, 36 L. Ed. 2d 16: "The broad discretion as to classification possessed by a legislature in the field of taxation has long been recognized. This Court fifty years ago concluded that `the Fourteenth Amendment was not intended to compel the State to adopt an iron rule of equal taxation,' and the passage of time has only served to underscore the wisdom of that recognition *221 of the large area of discretion which is needed by a legislature in formulating sound tax policies. Traditionally classification has been a device for fitting tax programs to local needs and usages in order to achieve an equitable distribution of the tax burden. It has, because of this, been pointed out that in taxation, even more than in other fields, legislatures possess the greatest freedom in classification. Since the members of a legislature necessarily enjoy a familiarity with local conditions which this court cannot have, the presumption of constitutionality can be overcome only by the most explicit demonstration that a classification is a hostile and oppressive discrimination against particular persons and classes. The burden is on the one attacking the legislative arrangement to negative every conceivable basis which might support it."
In State v. Murphy, 90 Conn. 662, 666, 98 A. 343, this court similarly stated: "The taxing power is an inherent attribute of sovereignty and as such unlimited in character and scope save as limitations may be self-imposed. Under our form of government its exercise is vested in the legislative department which may exercise it for lawful purposes in its discretion both as regards the choice of subject-matter of taxation and the extent and manner of the tax, save as constitutional limitations may intervene, and in the case of the States save also as the property and agencies of the national government within their borders are not within the reach of their sovereignty. M'Culloch v. Maryland, 17 U.S. (4 Wheat.) 316, 428; Nathan v. Louisiana, 49 U.S. (8 How.) 73, 82; Ward v. Maryland, 79 U.S. (12 Wall.) 418, 426; North Missouri R. Co. v. Maguire, 87 U.S. (20 Wall.) 46, 62. In the choice of subject-matter there is no restriction, not constitutional, *222 short of one imposed by lack of jurisdiction. `Whether it be person or property, or possession, franchise or privilege, or occupation or right,' the legislative power to tax extends to it. `It reaches to every trade or occupation; to every object of industry, use, or enjoyment,' in fact to every subject over which the sovereignty of the State extends, and is co-extensive with that sovereignty. 1 Cooley on Taxation (3d Ed.) 9; Cooley's Constitutional Limitations (7th Ed.) 678; M'Culloch v. Maryland, 17 U.S. (4 Wheat.) 316, 429; Providence Bank v. Billings, 29 U.S. (4 Pet.) 514, 563; Ward v. Maryland, 79 U.S. (12 Wall.) 418, 426; North Missouri R. Co. v. Maguire, 87 U.S. (20 Wall.) 46, 62."
In Allied Stores of Ohio v. Bowers, 358 U.S. 522, 526, 79 S. Ct. 437, 3 L. Ed. 2d 480, the United States Supreme Court thus stated the guiding principles: "Of course, the States, in the exercise of their taxing power, are subject to the requirements of the Equal Protection Clause of the Fourteenth Amendment. But that clause imposes no iron clad rule of equality, prohibiting the flexibility and variety that are appropriate to reasonable schemes of state taxation.... `To hold otherwise would be to subject the essential taxing power of the State to an intolerable supervision, hostile to the basic principles of our Government and wholly beyond the protection which the general clause of the Fourteenth Amendment was intended to assure.' Ohio Oil Co. v. Conway,... [281 U.S. 146, 159, 50 S. Ct. 310, 74 L. Ed. 775].... `If the selection or classification is neither capricious nor arbitrary, and rests upon some reasonable consideration of difference or policy, there is no denial of the equal protection of the law.' Brown-Forman Co. v. Kentucky, 217 U.S. *223 563, 573 [30 S. Ct. 578, 54 L. Ed. 883].' ... [I]t has long been settled that a classification, though discriminatory, is not arbitrary nor violative of the Equal Protection Clause of the Fourteenth Amendment if any state of facts reasonably can be conceived that would sustain it. Lindsley v. Natural Carbonic Gas Co., 220 U.S.... [61, 78, 31 S. Ct. 337, 55 L. Ed. 369]; Quong Wing v. Kirkendall, 223 U.S. 59 [32 S. Ct. 192, 56 L. Ed. 350]; Rast v. Van Deman & Lewis Co., 240 U.S. 342, 357 [36 S. Ct. 370, 60 L. Ed. 679]; State Board of Tax Comm'rs v. Jackson, 283 U.S.... [527, 537, 51 S. Ct. 540, 75 L. Ed. 1248]."
"This court has also used similar language in describing permissible classification. `The legislature has a wide discretion in the classification of property for taxation and in granting exemptions.... The classification must be reasonable and not arbitrary and must be based upon a distinction which bears a fair and substantial relationship to the object of the legislation so that all who are similarly situated are treated alike.' First Federal Savings & Loan Assn. v. Connelly, 142 Conn. 483, 491, 115 A.2d 455, appeal dismissed, 350 U.S. 927, 76 S. Ct. 305, 100 L. Ed. 811; see also Consolidated Diesel Electric Corporation v. Stamford, 156 Conn. 33, 36, 238 A.2d 410." Kellems v. Brown, 163 Conn. 478, 490, 313 A.2d 53.
It is in the light of these decisions and wellestablished principles that we now consider the constitutionality of the statute in question as applied to members of the bar. Section 51-81b is the codification of § 30 of 1972 Public Act No. 223, which act was entitled "An Act Concerning Occupational License Fees." The plaintiff correctly points out *224 that § 30 of Public Act No. 223 (now § 51-81b of the General Statutes) singled out the legal profession for payment of an "occupational tax" and that in that act no other profession or occupation was assessed such a tax. Fees assessed against members of other professions and occupations by Public Act No. 223[3] were assessed as license fees payable to the governmental department or board charged with registration, policing and regulation of the members of the particular profession or occupation, whereas the plaintiff and all other attorneys similarly situated pay the occupational tax assessed by § 51-81b to the state tax commissioner, and the funds so collected are paid into the state's general fund.
The legislative history of the statute in question is of significance. We find its antecedent in § 37 of Public Act No. 8 of the special session of June, 1971, of the General Assembly. This act, entitled "An Act Providing for State Revenue," was a general revenue act which increased the rate of the general sales tax, imposed a tax on the receipt of services from public utilities, imposed a tax on capital gains and dividends, and increased the tax on public utility companies, on cigarettes, on corporations, and the license fees required of most professions. Section 37 provided that each member of the bar should annually receive from the Superior Court a certificate of registration upon the payment of a fee of $150 which should be transmitted to the state treasurer. It was this section, incorporated into the statutes as § 51-81a, which was repealed by § 31 *225 of 1972 Public Act No. 223 when, in lieu of it, what is now § 51-81b was adopted as § 30. This 1972 act, entitled "An Act Concerning Occupational License Fees," changed the taxed status from "[a]ny person who has complied with the requirements of the state bar examining committee for admission to the bar of this state" to "[a]ny person who has been admitted as an attorney by the judges of the superior court, and who was engaged in the practice of law, including the performance of judicial duties."
The significance of this legislative history lies in the fact that it discloses that lawyers were not singled out for taxation in an act of "hostile and oppressive discrimination" but were included in the provisions of a general revenue act which levied assessments not only of general impact but also upon most professions and many occupations. Nor do we find it oppressively discriminatory that the fees assessed against the members of other professions were required to be paid to the governmental department or agency charged with the registration, policing and regulation of the members of the particular profession or occupation. Although the fact is not recited in the parties' stipulation of facts, this court will take judicial notice of the fact that it is the judicial department which provides for the admission, suspension and disbarment of attorneys and regulation of their conduct and that the expenses of the judicial departmentincluding investigation of the qualifications of applicants and proceedings for suspension and disbarmentare paid for from the state's general fund as are funds for support of the courts of which they are officers. The tax is plainly not oppressive nor unconstitutionally discriminatory *226 in that it treats attorneys as a class in a manner substantially similar to the treatment accorded other professions.
Attorneys are no more exempt from taxation than other professions and occupations and have no cause to complain so long as the tax contribution required from them is reasonable and not the result of hostile and oppressive discrimination. In re Johnson, 47 Cal. App. 465, 190 P. 852; Franklin v. Peterson, 87 Cal. App. 2d 727, 197 P.2d 788; In re Gibson, 35 N.M. 550, 4 P.2d 643; Clay v. Monroe, 300 N.Y. 724, 92 N.E.2d 61; Sterling v. Philadelphia, 378 Pa. 538, 106 A.2d 793; Davis v. Ogden City, 117 Utah 315, 215 P.2d 616, rehearing denied, 118 Utah 401, 223 P.2d 412; Williams v. Richmond, 177 Va. 477, 14 S.E.2d 287; see also cases cited in 7 Am. Jur. 2d, Attorneys at Law, §§ 201, 202; 7 C.J.S., Attorney and Client, § 55; 16 A.L.R. 2d 1228.
The mere fact that a party sees fit to institute an action for a declaratory judgment in no way operates to alter or shift the ordinary rules as to the burden of proof by choosing the procedure of such an action. Keithan v. Massachusetts Bonding & Ins. Co., 159 Conn. 128, 267 A.2d 660; Hardware Mutual Casualty Co. v. Premo, 153 Conn. 465, 471-72, 217 A.2d 698. We conclude that the plaintiff has not sustained the burden of proving that as to him and other persons similarly situated the provisions of § 51-81b of the General Statutes violate the equal protection provisions of article first, § 1, of the constitution of Connecticut and § 1 of the fourteenth amendment to the constitution of the United States.
The second ground of the plaintiff's claim that § 51-81b is unconstitutional is that the statute is *227 an attempt by the legislative department of government to regulate the judicial department and is, accordingly, in violation of article second[4] of the constitution of Connecticut.
Stressing the truism that "the power to tax is the power to destroy," it is the plaintiff's basic contention "that, by enacting § 51-81b, the legislature has attempted to tax, and by natural implication to regulate, the judicial department of state government as a class and solely on the basis of the members' status as components of that class." With this contention, we cannot agree. Under our form of government, the taxing power is vested in the legislative department. Kellems v. Brown, 163 Conn. 478, 487, 313 A.2d 53; State ex rel. Brush v. Sixth Taxing District, 104 Conn. 192, 198, 132 A. 561; State v. Murphy, 90 Conn. 662, 666, 98 A. 343. While it is conceivable that the taxing power might be exercised in such a manner as to result in unconstitutional regulation or in contravention of the constitutional separation of magistracies, we find no such circumstance in the present case and none attempted, even by implication. Section 51-81b merely imposes a tax and the means of collecting that tax. The only provision of the statute which suggests regulation of the judicial department aside from the inclusion of the performance of judicial duties in the terms of practicing law is the one which directs that the chief court administrator be notified of the failure of any person to pay the tax and that he "shall" notify the judges of the *228 Superior Court of such failure. The statute implicitly recognizes the power inherent in the judicial branch of government to determine the qualifications necessary for the practice of law and to discipline and regulate the conduct of attorneys who are officers of its courts. Heiberger v. Clark, 148 Conn. 177, 169 A.2d 652. The question of the constitutional power of the General Assembly to appoint or prescribe the powers and duties of the chief administrative officer of the judicial department has not been raised or briefed in the limited context of the present case and we are not called upon to consider that question.
The inherent power of the judicial department to control admission to the bar, to discipline its members, and to prescribe rules for their conduct as officers of the court does not confer upon those members immunity or exemption from tax assessments or civil and criminal statutes of general application. We find ourselves in agreement with the observations of the Supreme Court of Utah as expressed in Davis v. Ogden City, 117 Utah 315, 328, 215 P.2d 616: "As members of the bar, their admission to practice and their professional conduct after admission are essentially matters to be regulated by the judicial department of the state. As members and citizens of the state, county and city, their rights, privileges and immunities, as well as their duty to pay a fair share of the expenses of government, like those of any other citizen, are controlled by the laws, ordinances and regulations of the political body of which they are a part and from which they receive protection. No one could reasonably contend that lawyers as a class are not subject to laws enacted pursuant to the police powers of the state or municipality and the members of the profession *229 would protest any attempt to deny to them the services afforded by the various sovereignties. There is no rational basis for a contention that lawyers are privileged because of their calling .... A license to practice law issued by the state does not grant immunity from taxation."
We conclude that the tax imposed by § 51-81b of the General Statutes on attorneys whose situation is similar to that of the plaintiff is not unconstitutional as a violation of article second of the constitution of Connecticut.
The questions reserved for our advice[5] are answered as follows:
1. No, except that since the question of the constitutionality of the application of the tax to those attorneys whose practice of law includes the performance of judicial duties was neither briefed nor argued, we decline to answer the reserved question as it applies to such persons.
2. No, with the same exception as noted in the answer to question number one.
3. Yes.
4. No.
5. Not answered in view of the answer to question number four.
No costs will be taxed in favor of either party.
In this opinion the other judges concurred.
NOTES
[1] "[General Statutes] Sec. 51-81b. OCCUPATIONAL TAX ON ATTORNEYS. Any person who has been admitted as an attorney by the judges of the superior court, and who was engaged in the practice of law, including the performance of judicial duties, in the year preceding the year in which an occupational tax is due hereunder, shall, on or before July 15, 1972, and on or before January 15, 1973, and annually thereafter, pay to the tax commissioner a tax in the amount of one hundred fifty dollars. Any such person who, prior to July 1, 1972, paid the fee provided in section 51-81a of the 1971 supplement to the general statutes shall be entitled to have such payment credited against the tax due on July 15, 1972, hereunder. Upon failure of any such person to pay any sum due hereunder within thirty days of the due date thereof, the provisions of section 12-35 shall apply with respect to the enforcement of this section and the collection of such sum. The tax commissioner shall notify the chief court administrator of the failure of any person to comply with the provisions of this section and the chief court administrator shall notify the judges of the superior court of such failure. Any individual required by the provisions of this section to file a return or to pay a tax hereunder who shall fail to file such return or to pay such tax when due shall be liable for a penalty of twenty-five dollars, which penalty shall be payable to, and recoverable by, the commissioner in the same manner as the tax imposed under this section. If any tax is not paid when due as provided in this section, there shall be added to the amount of the tax, in addition to any penalty hereunder, interest at the rate of one per cent per month or any fraction thereof from the date the tax became due until the same is paid. If the commissioner is satisfied beyond a reasonable doubt that the failure to file a return or to pay the tax was due to reasonable cause and was not intentional or due to neglect, he may abate or remit the whole or any part of any penalty under this section. This section shall not apply to any attorney whose name has been removed from the roll of attorneys maintained by the clerk of the superior court for Hartford county, or to any attorney who has retired from the practice of law, provided such attorney shall file written notice of such retirement with the clerk of the superior court for Hartford county, or, with respect to the tax due in any calendar year, to any attorney serving on active duty with the armed forces of the United States for more than six months in such year."
[2] "1. Do the provisions of Sec. 51-81b General Statutes of Connecticut imposing an occupational tax on any person in the State of Connecticut who has been admitted as an attorney by the judges of the Superior Court and who has engaged in the practice of law including the performance of judicial duties violate the equal protection provisions of (a) Article First, Section 1 of the Connecticut Constitution? (b) Section 1 of the 14th Amendment to the United States Constitution?
"2. Do the provisions of Sec. 51-81b General Statutes of Connecticut violate the provisions of Article Second of the Constitution of the State of Connecticut?
"3. Is the plaintiff, Gerald R. Lublin, and others similarly situated, obligated to pay the tax imposed by 51-81b General Statutes of Connecticut during the calendar year 1974?
"4. Is the plaintiff, Gerald R. Lublin, and others similarly situated, entitled to a refund of all monies paid as occupational taxes pursuant to § 51-81b General Statutes of Connecticut during the calendar years 1972 and 1973?
"5. If the plaintiff, Gerald R. Lublin, and others similarly situated are entitled to a refund of all monies paid as occupational taxes pursuant to § 51-81b General Statutes of Connecticut, is the defendant Tax Commissioner liable for interest on said refunds?"
[3] Such fees vary in amount. Examples include $200 for private detectives; $150 for dentists, practitioners of medicine, surgeons, and public accountants; $100 for funeral directors; $50 for engineers; $35 for architects and $5 for midwives and manicurists.
[4] "[Conn. Const. Art. 2] The powers of government shall be divided into three distinct departments, and each of them confided to a separate magistracy, to wit, those which are legislative, to one; those which are executive, to another; and those which are judicial, to another."
[5] See footnote 2, supra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538584/ | 26 Pa. Commw. 99 (1976)
William J. Slifer, Richard A. Nace and George Gimbar, Appellants
v.
Douglas Dodge, et al., Borough Councilmen and Mayor of Borough of Wilson, Appellees.
William J. Slifer, Richard A. Nace and George Gimbar, Appellants
v.
Borough of Wilson, Appellee.
Nos. 71 and 72 C.D. 1975.
Commonwealth Court of Pennsylvania.
Argued April 9, 1976.
August 12, 1976.
*100 Argued April 9, 1976, before Judges KRAMER, WILKINSON, JR., and BLATT, sitting as a panel of three.
Bernard V. O'Hare, with him O'Hare & Heitczman, for appellants.
Louis S. Minotti, Jr., for appellee.
*101 OPINION BY JUDGE KRAMER, August 12, 1976:
We affirm the order of the trial court, on the able opinion of Judge WILLIAMS of the Court of Common Pleas of Northampton County, which is reproduced below.
"Plaintiffs seek reinstatement as Chief, sergeant and corporal of police, respectively, in Wilson Borough. Their actions in mandamus and an appeal from the adoption of a borough ordinance eliminating their positions were dismissed at the conclusion of plaintiffs' case.
"The pleadings of record are deficient in that plaintiffs failed to file amended complaints in the form agreed upon before the Court in disposing of the defendants' preliminary objections. At the time of the hearing, therefore, in order not to delay plaintiffs' cause, the Court accepted oral amendments to the complaints and plaintiffs agreed to permit a specific denial by the defendant of any alleged lack of good faith on its part in adopting Ordinance No. 503. Rather obviously, this type of loose practice is not condoned.
"Considering plaintiffs' case most favorable to them, it appears that prior to January 14, 1974, the borough police force consisted of six full-time and eleven part-time patrolmen, including the plaintiffs. On that date Borough Council adopted an ordinance abolishing all offices of the police force and created a department consisting of patrolmen only with the Mayor having full supervision of the force.
"No charges were pending against any of the plaintiffs and no hearings were held by Council or by the borough civil service commission concerning the change in their status.
"The Mayor and the President of Borough Council admitted that the purpose of the ordinance eliminating ranks in the department was to demote the plaintiffs and to reorganize the lines of authority directly *102 under the Mayor. There was no evidence relating the ordinance to fiscal economies. Although the Mayor told some of the patrolmen that the positions would be kept open and filled at a later time, no action has been taken to re-establish [sic] officers for the force or to appoint any person to such a position.
"Plaintiffs' salaries were not reduced; in fact, in 1974 Nace and Gimbar received pay increases although none of them received the full $700 increment due patrolmen of the force.
"Friction between the Mayor and the Plaintiffs has been of long duration with accusations by the former that the officers did not respond properly to calls, while the officers accuse the Mayor of interfering in police matters. At one point several years ago the Mayor told the members of the police force that Mr. Slifer was chief `in name only'.
"The ordinance under which plaintiffs originally were appointed failed to define the duties of their offices and Borough Council has never attempted to do so. While each of the plaintiffs testified that their duties now are the same as they were prior to adoption of the ordinance, it is clear that the lines of authority have changed. Each patrolman reports directly to the Mayor, who makes decisions as to the various aspects of the department's work. The basic record-keeping and payroll duties performed by plaintiffs could be done by any patrolman with a minimum of training and do not involve the supervision or responsibility normally associated with ranking officers.
"The Borough's power to create a police department and its officers is set forth in section 1121 of the Borough Code, Act of February 1, 1966, P.L. (1965), No. 581, 53 P.S. 46121. That section provides inter alia:
*103 "`The borough council may designate one of said policemen as chief of police. The mayor of the borough shall have full charge and control of the chief of police and the police force, and he shall direct the time during which, the place where and the manner in which, the chief of police and the police force shall perform their duties, except that Council shall fix and determine the total weekly hours of employment that shall apply to the policemen.
. . . .
"`The borough may, by ordinance, establish a police department consisting of chief, captain, lieutenant, sergeants, or any other classification desired by the council, and council may, subject to the civil service provisions of this act, if they be in effect at the time, designate the individuals assigned to each office, but the mayor shall continue to direct the manner in which the persons assigned to the office shall perform their duties. The mayor may, however, delegate to the chief of police or other officers supervision over and instruction to subordinate officers in the manner of performing their duties.'
"Neither the Legislature nor case law has satisfactorily defined the duties of a chief of police although the term itself indicates that he is to be the head of a department and exercise supervision over it. Stitt vs. Madigan, 52 York L. Reg. 35 (1937). Such duties may be designated by ordinance. Salopek vs. Alberts, 417 Pa. 592, 209 A.2d 295 (1965). However, the statute clearly invests the mayor with primary responsibility for carrying out the police force functions and gives him authority to control `the manner' in which they perform their duties. This has been held to include such a minor administrative function as the assignment of police officers to teams. Bell vs. Flood, 8 Comm. Ct. 423, 303 A.2d 244 (1973). Thus, in the absence of an ordinance defining their duties, the officers *104 of a police department have no more authority than that designated by the mayor. Salopek vs. Alberts, supra, at p. 598-599.
"Both sides agree that the decision in this case is controlled by Carey vs. Altoona, 339 Pa. 541, 16 A.2d 1 (1940), and its progeny. Carey sets forth the principle that a municipality has the discretion to discontinue ranks within a police department when deemed no longer necessary or desirable despite the provisions of civil service. The principle is applicable to boroughs and to ranks other than that of chief. Simasek vs. McAdoo Borough, 352 Pa. 306, 42 A.2d 600 (1945); Mamallis vs. Millbourne Borough, 401 Pa. 375, 164 A.2d 209 (1960).
"Plaintiffs argue that the borough eliminated their positions arbitrarily and in bad faith, pointing to the testimony of the Mayor and the President of Borough Council that they were aware that the effect of Ordinance No. 503 was to demote plaintiffs to patrolmen. However, this evidence alone is not sufficient to overcome the presumption of regularity given to official acts. Mamallis vs. Millbourne Borough, supra.
"Under the rule laid down in Carey, good faith or bad faith . . .
"`. . . enters only into the determination of whether the office has really been abolished; whatever be the language of the enactment purporting to effect the abolition, if the office is substantially recreated, though under a different name, with a new appointee performing the same duties as the prior incumbent, the court will invalidate such legislation as being nothing more than a pretense. But where, as here, the position and its emoluments are wholly and unquestionably abolished, and no new rank in the police force, either in name or substance, is created similar to that which is being discontinued, it is not for a Court to say that the motive underlying the enactment of the *105 ordinance may have been personal or political rather than a disinterested desire to further the public welfare.' pp. 542-543.
"Here, while the motive underlying the ordinance may clearly have been personal and related to the differences between the mayor and the officers, the ordinance clearly abolished all ranks in the department; plaintiffs were retained as patrolmen (cf. McGuckin vs. West Homestead Borough, 360 Pa. 311, 62 A.2d 23 (1948)), their ranks have not been recreated under a different name and no one has been appointed to perform the supervisory duties they had. In fact, each of the plaintiffs agreed that all supervisory responsibility, which is the primary factor distinguishing ranks, now rests with the mayor. Plaintiffs failed to sustain their burden of proof and the action in mandamus to compel their reinstatement was properly dismissed.
"Plaintiffs nevertheless argue that the proceedings should be remanded to Borough Council to provide a hearing for each of the plaintiffs pursuant to the Local Agency Law, Act of December 2, 1968, P.L. 1133, 53 P.S. 11302, and the decision of the Commonwealth Court in Kretzler vs. Ohio Township, [14] Comm. Ct. [236], 322 A.2d 157 (1974). We disagree.
"In Kretzler, the township demoted two officers to patrolmen without affording them a hearing on the charges relied upon by the board. The Commonwealth Court held that even if the officers were not entitled to a hearing on the charges under the Police Tenure Act, 53 P.S. § 814, they were entitled to a hearing under the Local Agency Law because the township was within the definition of a local agency and the demotions were an adjudication under Section 302(1), 53 P.S. 11302(1). In the present case, however, no charges were brought against the plaintiffs; the offices themselves were eliminated. As pointed out in Carey, supra, the court will not pry into the motives *106 of the legislators who voted for passage of such an ordinance.
"Finally, with respect to the statutory appeal from the adoption of the ordinance, entered to No. 24 January Term, 1974, in the Criminal Division, plaintiffs produced no evidence of any procedural irregularity and, therefore, the appeal was properly dismissed."
ORDER
AND NOW, this 12th day of August, 1976, it is ordered that the order of the Court of Common Pleas of Northampton County is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538623/ | 143 N.J. Super. 295 (1976)
362 A.2d 1289
CHARLES C. HOLJES AND HELEN A. HOFF, PLAINTIFFS,
v.
THE PLANNING BOARD OF THE TOWNSHIP OF ALEXANDRIA; THE TOWNSHIP COMMITTEE OF THE TOWNSHIP OF ALEXANDRIA; THE TOWNSHIP OF ALEXANDRIA, A MUNICIPAL CORPORATION OF THE STATE OF NEW JERSEY, DEFENDANTS.
Superior Court of New Jersey, Law Division.
Decided June 30, 1976.
*296 Mr. Robert Benbrook for plaintiffs (Messrs. Morrow & Benbrook, attorneys).
Mr. R. Dale Winget for defendants (Messrs. Winget & Keating, attorneys).
BEETEL, J.C.C., Temporarily Assigned.
This is an action in lieu of prerogative writs wherein plaintiffs seek to set aside the decision of the Alexandria Township Committee (committee) affirming the decision of the Alexandria Township Planning Board (planning board) denying plaintiffs' request for subdivision approval. Plaintiffs seek an order directing these bodies to give full force and effect to a variance granted by the Alexandria Township Board of Adjustment (zoning board) during the course of plaintiffs' attempt to *297 gain subdivision approval. Suit was filed on May 23, 1975; the pretrial was held on February 20, 1976; and arguments, based on the record before the municipal bodies, were heard on May 11, 1976, at which time, decision was reserved.
The primary issue involves what effect, if any, the zoning board's variance should have upon the grant or denial of subdivision approval by the planning board and the committee.
On May 5, 1943, before the enactment of land use regulations by Alexandria Township plaintiffs acquired approximately 58 acres of vacant land currently identified on the township tax map as Lot 58, Block 10. In 1964 plaintiffs obtained subdivision approval for a three-acre tract which they sold to Isaac Schneider, who built a residential dwelling thereon. On June 22, 1974 plaintiffs entered into a written contract to sell the southwesterly 11.38 acres of the remaining 55-acre tract to Salvatore and Phyllis DeSabatino contingent upon the issuance of a building permit for the future construction of a residential dwelling on this new lot. The sale was brokered by Jerome Malaker, an employee of the Karlton Realty Company.
Alexandria Township is a predominantly rural municipality. Its current zoning ordinances place plaintiffs' still vacant lot in a residential zone requiring an area of 1 1/2 acres with 200' of frontage along a public road. Plaintiffs' lot undisputedly does not front on a public road, but it is bounded by a private road or driftway. The entire lot has 1,503' of frontage on this roadway, and the proposed subdivision has 609.65' frontage.
In August 1974 plaintiffs appeared at the regular meeting of the planning board and informally explained to this body their plan to seek subdivision approval for the pending sale. In an equally informal manner plaintiffs were told of the procedural steps that would be required and the likelihood that their application would be denied because the parcel did not front on a public road. Plaintiffs assert that they were also told that once their application was denied by *298 the planning board, they could then petition the zoning board for a variance.
In September 1974 plaintiffs filed their subdivision application and on October 2, 1974 Jerome Malaker, the broker, appeared before the planning board to make a formal request for subdivision approval. Plaintiffs were abroad at this time and now claim that Malaker did not represent them, but rather the buyers. In any event, the planning board denied the application. A week later, October 9, 1974, Malaker appeared before the township committee. He made no formal appeal at this time but apparently appeared to preserve whatever rights the parties may have had to appeal. The committee took no definitive action and merely ordered its clerk to obtain the minutes and the resolution of the planning board pertinent to the matter.
Upon their return from abroad plaintiffs retained legal counsel and applied to the zoning board for a variance from the requirement that a lot abut a public road. On December 9, 1974 the zoning board held public hearings on this application and conducted site inspection of the property on December 14, 1974. At its meeting on December 16, 1974 the zoning board adopted a resolution, by a 3-2 vote, approving plaintiffs' application for a variance. The resolution contained findings of fact directed primarily to the character of the private road or driftway bordering plaintiffs' property. The zoning board found that the roadway had a surface that consisted primarily of hard-packed dirt; that the width of the roadway varied from 10' to 16'; that motor vehicles could safely negotiate the terrain; that it is now passable for fire-fighting equipment, ambulances and other emergency vehicles; that the roadway did not appear to be of record, but had been used "as far as memory serves," and that the roadway presently serves as the only means of ingress and egress for several residential properties.
Armed with this variance plaintiffs appeared before the planning board on January 2, 1975. Again, the planning board refused to grant subdivision approval, stating that the *299 zoning board lacked jurisdiction to vary the requirements for subdivision approval. On February 5, 1975 the planning board formally adopted a resolution to this effect. One week later, February 12, 1975, plaintiffs appeared at the township committee's regular meeting to appeal the decision of the planning board and the Committee scheduled a formal hearing for the following month. On March 12, 1975 this hearing was held and the committee affirmed the actions of the planning board by a 2-1 vote. On April 9, 1975 a formal resolution to this effect was adopted.
Plaintiffs make two contentions. First, they assert that the actions of the planning board and the township committee in denying subdivision approval were arbitrary, capricious and unreasonable, and constituted a denial of equal protection guaranteed by our State and Federal Constitutions. Secondly, they assert that the planning board and the township committee were bound to give full force and effect to the decision of the zoning board granting them a variance from the requirement that residential dwellings have frontage upon an approved road. In their complaint plaintiffs do not challenge the validity of the subdivision and zoning ordinances enacted by the township.
It is clear that plaintiffs' proposed subdivision falls within the category of a major subdivision as defined in the township subdivision ordinances. Among the definitions of a major subdivision contained in Article IV, §§ 4 and 5 of these ordinances, is one where there is no frontage upon any existing state, county or municipal road. Although Article VII of the subdivision ordinances provides an exception to this classification for certain "low density," one-lot subdivisions, plaintiffs' proposal did not meet the requirements of this exception. There is nothing impermissible about such a classification. N.J.S.A. 40:55-1.14; Princeton Research Lands, Inc. v. Princeton Tp. Planning Bd., 112 N.J. Super. 467 (App. Div. 1970).
Since plaintiffs' proposed subdivision fell within the category of a major subdivision, approval was conditioned upon *300 compliance with the requirements set forth in Articles VIII, IX, and X of the township subdivision ordinances enacted pursuant to the enabling legislation found in the Municipal Planning Act (1953), N.J.S.A. 40:55-1.1 et seq. Among these requirements are:
Each lot must front upon an approved street at least 50 feet in width * * *. [Article X, § 4(c)]
All streets should be graded and provided with all weather surfacing * * *. [Article IX, § 1(a)]
These sections implement the legislative mandate, found in N.J.S.A. 40:55-1.20, that "streets shall be of sufficient width and suitable grade and suitably located to accommodate the prospective traffic, to provide access for fire-fighting equipment to buildings and to be co-ordinated so as to compose a convenient system * * * relating properly to the existing street system."
Plaintiffs argue, however, that the private road or driftway abutting their property fulfills the statutory requirements of N.J.S.A. 40:55-1.20 since, as the zoning board so found, motor vehicles, including emergency vehicles, can safely negotiate the roadway. They argue further that the subdivision ordinance requiring a paved street 50 feet in width is too stringent a requirement and thus, in essence, beyond the scope of the enabling legislation.
There is no merit to the argument. First, plaintiffs did not challenge the validity of the ordinances in their complaint, and secondly, the cases they rely upon to support this assertion are either clearly distinguishable or directly contrary to the proposition they are cited to support. In Brazer v. Mountainside, 55 N.J. 456 (1970), our Supreme Court stated unequivocally that "there has never been any doubt in this state that the statutory provisions authorizing a municipal requirement of approval of subdivision plats, including the design and location of streets, * * * are valid exercises of the police power," (at 465), and "there is no right to a subdivision where there is no proper street access *301 (at 470). Here, there is no question that a rational nexus exists between the need for a proper street facility and the benefit an improved roadway would confer upon plaintiffs' subdivision. See Lake Intervale Homes, Inc. v. Parsippany-Troy Hills, 28 N.J. 423, 441-443 (1958). The 50-foot width requirement is explicitly approved by the language of N.J.S.A. 40:55-1.20.
Plaintiffs' application for subdivision approval made no provision for improving their access route along an unpaved, unrecorded and narrow private roadway. In light of the customary resolution of doubt in favor of municipal planning actions, Levin v. Livingston Tp., 35 N.J. 500 (1961), and the undisputed facts of this case, plaintiffs' claim that denial of their subdivision application was arbitrary, capricious, unreasonable, and unconstitutional is simply untenable.
Plaintiffs' principal argument relates to the applicability of the variance granted by the zoning board. Article V, § 1, of the township zoning ordinances provides that "[e]very lot shall have the required frontage on a public road or upon an approved major subdivision road." This section was enacted pursuant to N.J.S.A. 40:55-1.39 which requires that a building lot abut a street giving access to any proposed structure. Acting upon the authority contained N.J.S.A. 40:55-1.40[1] and N.J.S.A. 40:55-39(c) to vary this requirement in hardship cases, the zoning board granted plaintiffs a variance exempting them from the requirement that their building lot abut a public road.
*302 Plaintiffs assert that this variance not only waives the requirements of the township zoning ordinances but also waives the requirements of the township subdivision ordinances. In support of this they cite Loechner v. Campoli, 49 N.J. 504 (1967), which may be read to hold that whenever an application for subdivision approval meets all the required tests except for noncompliance with the zoning ordinances, the planning board must approve the application conditioned upon subsequent favorable action by the zoning board of adjustment. Plaintiffs concede that Loechner is distinguishable because it dealt with the single-step procedure of gaining minor subdivision approval rather than the three-step procedure involved in obtaining major subdivision approval, as is the case here. They urge that the reasoning of Loechner compels a planning board to first classify the subdivision as minor or major, then (if the subdivision is major) before tentative approval refer the application to the board of adjustment for any required variances.
Whatever merit this suggested procedure may have, plaintiffs' argument fails to take account of the basic assumption underlying the procedure mandated by Loechner. That decision premised referral to the zoning board of adjustment upon a finding that zoning considerations are the sole reason standing in the way of subdivision approval. There, the applicant's lot failed to comply with the minimum lot size requirements of the borough's zoning ordinances, a deficiency the court described as a "zoning problem." Here, plaintiffs' proposed new lot fails to comply with both the township zoning and subdivision ordinances because it does not abut a public road. Thus to implement the jurisdiction of the zoning board, the deficiency must be a zoning problem, and the issue here boils down to whether provisions regarding street facilities present a zoning problem or a planning problem.
"Zoning and planning Legislation is cognate and complementary, but each Legislative provision is to be construed in the light of its own unique purposes and objects." Mansfield *303 and Swett, Inc. v. West Orange, 120 N.J.L. 145, 149 (Sup. Ct. 1938). The general powers conferred by zoning legislation relate primarily to the size and height of structures, the size of lots and the use to which such structures are put. N.J.S.A. 40:55-30. Subdivision legislation, classified in our State under the rubric of planning, relates primarily to the proper platting of vacant land so that streets, utilities and drainage rights-of-way conform to some orderly plan of development. N.J.S.A. 40:55-1.20. Thus it seems almost self-evident that street facilities are fundamentally the concern of the agency charged with overseeing planning functions.
In the case of Cella v. Cedar Grove Bd. of Adj., 45 N.J. Super. 585 (Law Div. 1957), a developer had applied for and obtained preliminary subdivision approval for a major subdivision. Before final subdivision approval was sought or obtained the developer applied for and obtained a building permit and erected a house on one of the lots in the subdivision. Upon completion the developer had applied for a certificate of occupancy, when the mistake was discovered and the certificate refused. The developer then applied to the board of adjustment for relief under N.J.S.A. 40:55-39. The board of adjustment contended that it had jurisdiction to hear the matter under either N.J.S.A. 40:55-39 or under N.J.S.A. 40:55-1.39, 1.40.
The court held that the refusal to grant the certificate of occupancy was not predicated on an infraction of the Zoning Act; it was occasioned by noncompliance with the requirements of subdivision, namely, lack of proper street facilities. The court said that the case was not even remotely related to a zoning case. So, also, was the board of adjustment found to be lacking in jurisdiction insofar as the issuance of the certificate of occupancy was concerned. The court noted that in the absence of an express statutory provision, the appeal from a denial of the certificate of occupancy must be by way of action in lieu of prerogative writs.
*304 In Noble v. Mendham Tp. Committee, 91 N.J. Super. 111 (App. Div. 1966), the court made the following observations:
The planning board's duty is to protect the public and future owners of property in (a) subdivision by requiring, among other conditions, adequate road facilities. * * * Where a proposed subdivision requires action by diverse municipal agencies, it would be the antithesis of "a systematic development contrived to promote the common interest," to hold that the planning board cannot act as a co-ordinating body. [at 119-120]
Based upon these cases and the purposes of zoning and planning, this court holds that street facilities are a planning problem, and therefore the Zoning Board here had no jurisdiction to grant a variance from the requirements of the subdivision ordinances.
This holding in no way conflicts with the authority conferred upon a zoning board of adjustment to grant variances under N.J.S.A. 40:55-1.40. This provision is designed for building lots which are not to be subdivided. Hence, had plaintiffs here desired to build on their 55-acre tract without subdividing off the 11 acres, their remedy would have been with the zoning board. Having chosen to subdivide, plaintiffs must comply with the subdivision ordinances. This court will not countenance plaintiffs' attempted circumvention of the subdivision regulations simply because it is a cheaper method of achieving their desired result.
It should be pointed out that this decision does not leave the plaintiffs without remedy. They are still free to seek subdivision approval from the planning board so long as they come forward with a plan to improve their access route which satisfies the reasonable requirements of that body. Admittedly, this places an additional economic burden upon them, but the improvement will inure to their benefit and the cost can be passed on to the purchasers of this lot.
Plaintiffs' final argument is that the planning board is equitably estopped from disregarding the zoning variance *305 since it advised them to petition the zoning board. It is not doubted that "[m]unicipalities, like individuals, are bound by principles of fair dealing * * *. [e]quitable principles of estoppel will be applied against municipalities `where the interests of justice, morality and common fairness clearly dictate that course.'" Palisades Properties, Inc. v. Brunetti, 44 N.J. 117, 131 (1965). Thus, assuming that the planning board did advise plaintiffs to apply to the zoning board (there is a paucity of proof on this point), the issue raised is whether plaintiffs "with good reason and in good faith" relied upon the planning board's alleged representation that they could seek approval from the Zoning Board. Summer Cottagers' Ass'n of Cape May v. Cape May, 19 N.J. 493, 503 (1955).
It should be pointed out that this is not the first time these plaintiffs sought subdivision approval. Earlier, they were successful, and at that time they dealt only with the planning board. Thus, they should have been on notice that the allegedly recommended procedure of going to the zoning board was at least a departure from past practice. Also, it is clear that the proceedings before the zoning board were much less involved and much less costly than full-fledged major subdivision approval. Hence, plaintiffs may well have decided not to question the asserted representation of the planning board that they could proceed before the zoning board, because this appeared to be the route of least resistance and a method offering an easy solution. Lastly, plaintiffs did not appear before the planning board personally, nor did they appear through counsel, but rather chose to be represented by a broker who, they now claim, did not in fact represent them. In short, the equities simply do not preponderate in plaintiffs' favor, and their claimed estoppel must fail.
This case is illustrative of one of the problems which led to the recent passage of the Municipal Land Use Law, N.J.S.A. 40:55D-1 et seq. (L. 1975, c. 291), which will go into partial effect on August 1, 1976. Under this new law applicants *306 for subdivision approval will no longer be required to seek variances from more than one municipal agency. N.J.S.A. 40:55D-25, 40:55D-60, and 40:55D-76 (L. 1975, c. 291, §§ 16a(6), 47 and 63(b)). It is hoped that this new law will prevent the abuses, by both municipal agencies and applicants, inherent in a process permitting two independent bodies to consider applications for the same relief without either having an authoritative final say in the matter.
Parenthetically, it might be noted that under this new law the result here would be the same. N.J.S.A. 40:55D-5 (L. 1975, c. 291, § 3.2) would have permitted the township to classify plaintiffs' subdivision as a "major subdivision." N.J.S.A. 40:55D-38 (L. 1975, c. 291, § 29b(2)) would have permitted the township to require the installation of an improved street as a condition for subdivision approval. The requirement that a building abut a public or approved subdivision street is still present. N.J.S.A. 40:55D-35 (L. 1975, c. 291, § 26). The only differences are that this new law makes it clear that a planning board may grant a variance from this requirement as part of its process of passing upon subdivision requests, N.J.S.A. 40:55D-36 and 40:55D-60 (L. 1975, c. 291, §§ 27 and 47(c)), and that a zoning board of adjustment may hear subdivision applications only where a use variance is necessary, N.J.S.A. 40:55D-70 and 40:55D-76 (L. 1975, c. 291, §§ 57(d) and 63(b)). In short, there could have been no confusion as to how plaintiffs should proceed a single application to the planning board.
For the reasons previously set forth, judgment is entered against plaintiffs. The Alexandria Township Planning Board and Township Committee are not bound to give any controlling weight to the variance granted by the Alexandria Township Zoning Board of Adjustment. The parties are to pay their own costs.
NOTES
[1] By its terms, this statute applies where the administrative officer having charge of the issuance of building permits decides not to issue same. Appeal from his decision then lies to the zoning board of adjustment. Here the plaintiffs apparently did not apply for a building permit before petitioning the zoning board. Thus the jurisdiction of the zoning board is questionable. However, the decision in this case should not be based upon this technicality since more substantive reasons are present. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/528723/ | 884 F.2d 581
Unpublished DispositionNOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit.UNITED STATES of America, Plaintiff-Appellee,v.Curtis NAPIER, Ray Hernandez, Tommy L. Chatfield, BrendaHarris, Ralph Jackson, Defendants-Appellants.
Nos. 88-1684, 88-1693, 88-1763, 88-1765 and 88-1766.
United States Court of Appeals, Sixth Circuit.
Sept. 1, 1989.
Before BOYCE F. MARTIN, Jr., MILBURN and RYAN, Circuit Judges.
PER CURIAM.
1
The defendants appeal the judgment of the United States District Court for the Eastern District of Michigan finding them guilty of RICO conspiracy and conspiracy to deal in narcotics. For the reasons stated below, we affirm.
2
The defendants in this case were accused of participating in the operations of the Young Boys Incorporated, a criminal organization in Detroit, Michigan. The principal activity of the Young Boys Incorporated was the purchase and sale of controlled substances, primarily heroin and cocaine. The group sold heroin in small envelopes marked with a distinctive and recognizable "A-team" logo. They used violence and murder to reduce competition for drug sales and to enforce discipline among the organization's members. In 1983, Young Boys operations were substantially reduced by the conviction of several of its members, including the group's leader, Milton David Jones. The Young Boys however, continued to operate until 1987. Milton Jones allegedly continued to direct Young Boys activities in Detroit from his prison cell in Texas with the help of his wife, Portia Jones and several Young Boys members.
3
On July 21, 1987, a grand jury indicted 26 individuals suspected of working for the Young Boys. A superseding indictment was entered on October 30, 1987, which charged these same individuals with RICO, 18 U.S.C. Sec. 1962(c), RICO conspiracy, 18 U.S.C. Sec. 1962(d), and conspiracy to possess with intent to distribute heroin, 21 U.S.C. Sec. 846. Seven of these defendants went to trial on March 9, 1988, for the RICO conspiracy and heroin conspiracy charges. Of these seven, five were convicted. Curtis Napier, Tommy Lee Chatfield, Brenda Harris and Ralph Jackson were each found guilty of RICO conspiracy. Napier and Ray Hernandez were also convicted of heroin conspiracy. Harris received a mistrial on the charge of heroin conspiracy because of a hung jury.
4
Curtis Napier argues that the evidence at trial was insufficient to convict him of RICO conspiracy because the government's proof failed to establish an "enterprise" as distinct from a "conspiracy" as the law requires. See United States v. Manzelda, 782 F.2d 533, 538-39 (5th Cir.1986). The government argues that it met this requirement. It argues that RICO conspiracy is an agreement to participate in the conduct of a criminal enterprise's activities through the commission of predicate offenses. It is not simply an agreement to commit a pattern of racketeering activity, that is, simple conspiracy. United States v. Riccobene, 709 F.2d 214, 224 (3d Cir.), cert. denied, 464 U.S. 849 (1983). The existence of the enterprise goes beyond the existence of a conspiracy to commit racketeering activity. The government correctly asserts that its proof that Young Boys Incorporated had an on-going organization and structure satisfied the requirement of the independent existence of the enterprise. The evidence showed that Young Boys Incorporated was a sophisticated organization that assigned various tasks to different members, and that this structure remained in place beyond any simple conspiracy.
5
Evidence is sufficient to prove guilt if "after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of a crime beyond a reasonable doubt." Jackson v. Virginia, 443 U.S. 307, 319 (1979) (emphasis in original). In applying this standard a court must give "full play to the responsibility of the trier of fact fairly to resolve conflicts in testimony, to weigh the evidence, and to draw reasonable inferences from basic facts to ultimate facts." Id. On appeal of a finding of guilt "[t]he government must be given the benefit of all inferences which can be reasonably drawn from the evidence ... even if the evidence is circumstantial." United States v. Adamo, 742 F.2d 927, 932 (6th Cir.), cert. denied, 467 U.S. 1193 (1984). A rational jury could have found Napier guilty of RICO conspiracy based upon the evidence presented at trial.
6
Napier also asserts that the proofs at trial established multiple conspiracies which constituted a variance from the indictment. If an indictment charges a simple conspiracy but the evidence at trial can be reasonably be construed only as supporting multiple conspiracies, then a variance exists which, if prejudicial, constitutes reversible error. United States v. Warner, 690 F.2d 545, 548 (6th Cir.1982). Napier asserts the proofs show three distinct conspiracies: one organized by Milton Jones in December 1980 until the first Young Boys indictment in December, 1982; a second in 1983 with Nicholas Scott; a third organized by Portia Jones and directed by her husband Milton. The government does not dispute the cessation of Young Boys activities following the first indictment and their resumption in 1983 under Portia Jones. Contrary to Napier's assertions, however, charging multiple conspiracies under a single RICO enterprise is permissible. See, e.g., United States v. Ruggiero, 726 F.2d 913, 912 (2d Cir.), cert. denied, 404 U.S. 849 (1983); United States v. Elliot, 571 F.2d 913, 912 (2d Cir.), cert. denied, 404 U.S. 849 (1983); United States v. Elliot, 571 F.2d 880, 903 (5th Cir.), cert. denied, 439 U.S. 953 (1978). There was no variance between the indictment and the proof at trial.
7
Napier also argues that his conviction for RICO conspiracy is prohibited by the fifth amendment's bar against double jeopardy. His RICO conspiracy conviction was predicated on racketeering activities for which he had previously pled guilty. This Court has expressly held that prior convictions may be used to obtain a RICO conviction and that such use does not violate the bar against double jeopardy. United States v. Licavoli, 725 F.2d 1040, 1050 (6th Cir.), cert. denied, 467 U.S. 1252 (1984).
8
Brenda Harris argues that the government failed to prove an agreement on her part to participate in the affairs of the Young Boys criminal enterprise. Unfortunately, Harris asserts that such agreement must somehow be explicit. An agreement can, however, be inferred from the evidence of a defendant's acts. See, e.g., United States v. Joseph, 835 F.2d 1149, 1152 (6th Cir.1987). Harris also argues that the government failed to prove her performance of two predicate offenses showing membership within the Young Boys enterprise. She asserts that use of her home for the preparation of heroin and her cocaine dealing with Kevin Wilson were not predicate acts. She asserts that the cocaine deals were independent of the Young Boys criminal enterprise. She argues that she dealt in cocaine in order to pay off a cocaine debt owed by her sister, Linda Harris, whose life Wilson had threatened. She also asserts that her apartment was used for processing and packaging heroin against her will. These, however, were matters of credibility for the jury to decide. We may not disturb a jury's determination of credibility. See, e.g., United States v. Stull, 743 F.2d 439, 442 (6th Cir.1984), cert. denied, 470 U.S. 1062 (1985).
9
The evidence shows that Harris distributed heroin and sold cocaine to other members of the enterprise. Nicholas Scott, a member of Young Boys, testified that Portia Jones informed him that Harris could supply him with heroin if other sources were unavailable. All he needed to do was to contact Harris on her beeper. Kevin Wilson, another member of the group, testified that during 1981 and 1982 he received cocaine from Jones, gave it to Harris who sold it and then returned the proceeds. David Garmon, a cellmate of Milton Jones, testified that Jones referred to Harris as one of his workers. Margaret Dixon, Charles Obey and Spencer Holloway, also members of Young Boys, testified that Harris' home was often used as a place where heroin was processed and packaged for sale. Based upon this evidence, a rational jury could find Harris guilty of RICO conspiracy.
10
Harris also argues that her conviction resulted from a fatal variance between the indictment, the document "Government's Version of the Offense," and the proof offered at trial. The government filed the document at the direction of the court to assist it in deciding several severance motions. Specifically, it was filed to eliminate confusion as to who was charged with predicate acts of murder and who was not. The document stated that Harris entered both the RICO and heroin conspiracies in approximately 1984. Harris argues the evidence at trial that she sold cocaine obtained from Milton Jones in 1981 and 1982 went beyond the government's version of the offense. Contrary to Harris' assertions, however, the "Governments Version of the Offense" was not a bill of particulars. Consequently, her argument that there was a judicial amendment to the indictment or constructive amendment fails. Furthermore, her assertion that the proof at trial was at variance with the charges in the superseding indictment is simply false.
11
Ralph Jackson argues that certain bad character evidence used against him was improperly admitted in violation of Fed.R.Evid. 404(b). He contends that the trial court failed to consider the prejudicial effect of this evidence as balanced against its probative value as required by Fed.R.Evid. 403. The government correctly asserts, however, that this evidence could be properly admitted under Rule 404(b) to show Jackson's plan and intent to participate in the Young Boys organization.
12
Jackson also argues that his conviction for RICO conspiracy is barred by the federal statute of limitations for non-capital offenses. The prosecution of offenses committed five years prior to the indictment charging those offenses is barred by 18 U.S.C. Sec. 3282. This argument lacks merit, however, because under RICO only the second predicate act need come within section 3282. The first act may occur within ten years of the second. See, e.g., United States v. Pepe, 747 F.2d 632 (11th Cir.1984).
13
Tommy Chatfield argues that the government's proof was insufficient to show his participation in the Young Boys enterprise. Kevin Wilson, a Young Boys member, testified that when he and Chatfield were cellmates, Chatfield said he supplied guns to Milton and Portia Jones. The guns were shipped by bus, hidden in potato sacks. After the two men were released from prison, Wilson, acting in cooperation with the authorities, arranged to purchase two guns from Chatfield. Tommy Chatfield insists that he had no knowledge of the nature and extent of Young Boys operations, or of the guns' intended use. Proof of explicit knowledge is not necessary, however, to show participation in a conspiracy. United States v. Betancourt, 838 F.2d 168 (6th Cir.), cert. denied, --- U.S. ----, 108 S. Ct. 1748 (1988). The jury could infer Chatfield's participation in Young Boys from his shipping of guns to Milton and Portia Jones. He asserts that his involvement in the enterprise is completely circumstantial and that Wilson's testimony as to Chatfield's own confession lacks corroborating evidence. The arrangement between Chatfield and Wilson to ship guns would, however, seem to corroborate Wilson's testimony concerning Chatfield's involvement with Young Boys. A rational jury could have found Chatfield guilty of RICO conspiracy based upon this evidence.
14
Ray Hernandez argues that the evidence at trial was insufficient to prove him guilty of conspiracy to distribute heroin. He argues that the only evidence against him was the testimony of David Garmon. Garmon testified that when in prison in Texas he heard Hernandez tell Milton Jones that he could supply Jones with a type of brown heroin known as "Mexican mud." Garmon also testified that Jones claimed to have made a deal with Hernandez in late 1983. Hernandez asserts that this evidence fails to link him with Young Boys Incorporated. He had no knowledge of the existence or nature of this enterprise.
15
All that need be proved to convict Hernandez of conspiracy to possess with intent to distribute heroin and conspiracy to distribute heroin is an agreement to participate in a known joint venture to achieve a common goal. United States v. Bourjaily, 781 F.2d 539, 544 (6th Cir.1986), aff'd, --- U.S. ----, 107 S. Ct. 2775 (1987). Indirect evidence of the conspiracy is permissible, for example, the interdependence of a "chain" drug distribution conspiracy. Id. at 544. Garmon's testimony establishes such a conspiracy. He testified that Hernandez told Jones he would supply him with all the "Mexican mud" heroin he wanted. Jones later told Garmon that he made a deal with Hernandez, including an arrangement to pay him up front through Western Union. Garmon overheard phone conversations in which Jones arranged for his wife, Portia, to pick up the heroin and deliver it to Detroit. Both Spencer Holloway and Margaret Dixon, two Young Boys members, testified that Portia Jones made trips to Texas to pick up the heroin. Finally, Nicholas Scott, another Young Boys member, testified that Portia Jones supplied him with "Mexican mud." Portia Jones told Scott that Milton Jones had a source of heroin in prison who was a Mexican.
16
In the alternative Hernandez argues that if the evidence shows any conspiracy at all it shows a small conspiracy between himself and Milton Jones to distribute heroin within the prison. He asserts that any heroin deals with Jones were in no way related to Young Boys. Hernandez fails to show how no rational jury could conclude from all the evidence at trial that Hernandez sold heroin to Young Boys members.
17
Hernandez argues that evidence was improperly admitted against him. David Garmon, Milton Jones' cellmate in Texas, testified about marijuana transactions between Hernandez and Jones. Hernandez asserts that this testimony was impermissible bad character testimony under Rule 404(b). The alleged heroin and marijuana deals were separate and distinct.
18
The government notes, however, that this Court has allowed the use of similar acts evidence in similar situations. In United States v. Ismail, 756 F.2d 1253 (6th Cir.1985), the court allowed evidence of the defendant's dealings in hashish and cocaine even though he was prosecuted for trafficking in heroin. Although these prior acts were outside the period of time in the indictment, the court found that they were relevant to show an ongoing scheme. Id. at 1255. Moreover, this Court has held that where a drug conspiracy is charged, prior drug dealing not charged in the indictment may be used to show the background and development of the conspiracy. United States v. Passarella, 788 F.2d 372 (6th Cir.1986).
19
Finally, Hernandez also argues that he is entitled to resentencing. He asserts that during sentencing he was unrepresented by counsel and that the court did not advise him as to the dangers of self-representation. Hernandez asserts that his waiver of counsel was not made voluntarily and knowingly under this Court's opinion in United States v. McDowell, 814 F.2d 245 (6th Cir.), cert. denied, --- U.S. ----, 108 S. Ct. 478 (1987). McDowell requires that the trial court make certain inquiries of a defendant considering self-representation. The court must discern the defendant's knowledge of the law, familiarity with the rules of evidence and procedure, and knowledge of the possible maximum sentence and fine. The court must discourage self-representation. If the defendant persists, the court must make an express finding of voluntary waiver. Hernandez asserts that the court did not discourage his self-representation, that it failed to make the inquiries required by McDowell, and that it failed to make the express finding of a knowing and voluntary waiver.
20
The elaborate waiver procedure outlined in McDowell does not apply to waiver of counsel during sentencing. The dangers of self-representation at trial are simply not present at sentencing. The government also notes that the court in McDowell considered the record as a whole and found that the defendant could understand the dangers of self-representation. The same finding could be made here.
21
The judgment of the district court is affirmed. | 01-03-2023 | 08-23-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/8304357/ | Mr. Chiee Justice BurNett
delivered the opinion of the Court.
This suit was filed, as specifically stated in the first paragraph of the petition, for a declaratory judgment under Title 23, Chapter 2, T.C.A. The petition then sets forth in great detail exactly what it wishes to be declared. We have read this bill a number of times, and, after doing so and thinking* about the matter, we are now satisfied with our construction of it and the conclusion we have reached.
The obvious purpose of the bill is to determine whether or not the City of Rockwood and its Board of Mayor and Commissioners have the duty, either legal or by long action, to participate in the operation of the Chamberlain Memorial Hospital, the appellee, and it is for the determination of this question that the suit was instituted.
It is alleged in the bill that the City was duly incorporated in 1903 and its charter has been subsequently amended; that it is operated by a Mayor and two Commissioners, and the present ones are named.
*470The appellee hospital is located in this City and was created by the fathers of the City of Rockwood on March 9, 1917, when the City set aside a block in that City for the purpose of erecting this hospital and authorized this block of land to be conveyed to the Trustees of the hospital, hereinafter to be referred to; that as a result of agreeing to do this on July 11, 1917, an application was filed with the Secretary of State for a charter of incorporation under Chapter 123 of the Acts of 1889, which is for a private charter of incorporation and not a public welfare corporation; that at the time of this incorporation the charter required a five member board of directors who were Mr. Fred Haggard, who drew up the charter, and a young lawyer in his office, plus an outstanding doctor of Rockwood, the general manager of the Roane Iron Company and the then Mayor of Rock-wood, Mr. Polk Tarwater. The last three gentlemen constituted the Board of Trustees of this hospital and subsequently the property, block 53, was duly deeded to this hospital. Shortly thereafter, that is within ten days after receiving the charter, these five incorporators adopted a constitution. This constitution provided for three named Trustees, that is one person representing the Roane Iron Company, another, the noted physician, representing the heirs of Captain H. S. Chamberlain, and Mr. Tarwater representing the City of Rockwood. Under the terms of this constitution these three Trustees were given the power of a board of directors and insofar as this bill shows the other two who were named in the charter did not have anything else to do with it. No five member board was ever elected by the stockholders and so far as the allegations here are concerned the stockholders were apparently non-existent as required under the terms of the charter.
*471Some fifteen years later, tfiat is, in Jnly, 1930, tfie City of Rockwood through, its Mayor and Commissioners authorized and executed a Quit Claim deed to the Memorial Hospital for this block 53. At the time of the execution of this deed the three original Trustees were still operating the hospital as provided by Article III of the Constitution. This Article provides:
“Control. The absolute control and management, in every detail of the corporation is vested in E. 0. Wells, Dr. J. C. Wilson and Polk Tarwater, as Trustees, three •of its incorporators, who shall constitute and be known as the Board of Trustees, and who shall act and serve as such Trustees for and during their respective lives, ■ or until their offices shall be vacated, — -a. Upon resig- • nation; — b. Upon removal from the City of Rockwood, Tennessee.
“1. — In the event of a vacancy in the office of E. 0. Wells, Trustee, as herein provided, his successor as Trustee, shall be elected, appointed or named by the Roane Iron Company, a corporation, its successor or successors.
“2. — In the event of a vacancy in the office of Dr. J. C. Wilson, Trustee, as herein provided, his successor shall be elected, appointed, or named by the then living heirs or nearest blood relatives of Capt. H. C. Chamberlain, deceased.
“3. — In the event of a vacancy in the office of Polk Tarwater, Trustee, as herein provided, his successors as Trustee, shall be elected, appointed, or named by ' the Board of Aldermen of the City of Rockwood, Tennessee.
*472“Upon the death, resignation or removal of any successor or successors in trust of the said E. 0. Wells, Dr. J. C. Wilson and Polk Tarwater, their respective successor or successors in trust shall at all times he elected named or appointed in like manner as is herein provided for the election, naming” or appointing of successor or successors of the said E. 0. Wells, Dr. J. C. Wilson, and Polk Tarwater.”
The bill then went on to show who succeeded [in the directions of the above constitution] these various Trustees, when they died or moved and things of the kind, for a period of more than thirty years until 1966, when, it is alleged, there became a vacancy in the trusteeship which had been named all these years by the City, and as a result of this vacancy Mr. John H. Albertson, Jr., of Rockwood was named to succeed as the Trustee. The City of Rockwood had appointed a Trustee all these years. It is then alleged that the hospital was contacted and told that Mr. Albertson had been appointed and asked when he was to come to meetings, etc., such as a new Trustee would do, and as a. result of this letter to the hospital the City received a letter from the hospital stating there was no longer any vacancy among the Trustees; that the constitution had been changed. In other words, though they did not say so in SO' many words, the door was now closed on the City and it no longer had any right to name a Trustee. This, of course, was done in a reasonable manner by asking the legal representatives of each side to contact each other about it.
The hospital used this language in their letter : “ *•* * since Chamberlain Memorial Hospital is a private corporation, there is some question as to the legality or necessity of distributing such information. However, *473we do invite yon to have your attorney contact * * * the hospital attorneys for any questions or information that might he pertinent”. Thus it was that the door was closed, and as a result thereof the present litigation was instituted.
The City takes the position that due to what has transpired, as briefly related hereinabove, that it is in a position of a cestui que trust for some reason or other and as such, having had a Trustee on this board for a period of over thirty years, it is the City’s duty to name one of these Trustees on this governing board. In other words the City says it is its duty to do this. Thus it was the City filed this suit to determine just what is its duty under the circumstances. Apparently, from a careful study of the bill, if it is determined that the City no longer had ¿ny duty the lawsuit would end, but based on the facts as above alleged as to what has been done since this hospital was organized it was for the City as it was for the heirs of Captain Chamberlain and the president of Roane Iron Company and his successor in some way to become a cestui que trust and it had this duty to perform. The purpose of this bill, it seems to us, as filed by the City, is to see what its obligation is, and the only way it has to determine this is to find out what has happened and what has been going on since the City appointed their last Trustee.
It is true that it is alleged in the bill that another Trustee has moved away and his place has become vacant under this original constitution, but all of these things are neither here nor there when we come to the major contention of this bill, and that is to determine whether or not the City of Rockwood is a cestui que trust. What is its position in view of these things that have happened *474over the years and whether or not it still has an obligation to have someone.on this Board of Trustees to look after and run this hospital for the citizens of Rockwood? By a very thoughtful reading of this bill one reaches no other conclusion.
The bill was demurred to on various grounds but the Chancellor sustained one ground alone, that is, “that the allegations of the hill and the relief sought by the bill are based upon alleged acts which fall within the purview of T.C.A. Secs. 23-2801 and 23-2802 for which the exclusive remedy would be a Quo "Warranto proceedings” * * * so that, “It must be brought in the name of the State of Tennessee by the District Attorney General ”.
' The corporate capacity of the appellee hospital is not attacked or brought into question, though there are certain references made to the effect that they have not incorporated under certain Sections of the Code; that they don’t know what they have done under the act they were incorporated under and things like that. The whole thrust of this litigation is not to tear up or disrupt the hospital and its corporate being but to determine and find out what are the duties and obligations of a cestui que trust who has exercised such duties over a period of more than thirty years. This suit, too, is not brought by just any ordinary citizen of Rockwood or Roane County, who might be interested in it, but it is brought by the City who clearly shows under the bill herein a very definite interest and obligation to find out exactly what its duties are under the circumstances. The City would like to know, in view of what has gone on since the City gave the hospital this property and a representative of the City acting as one of the Trustees along with the *475heirs of Chamberlain and a representative of the big industry of the City, what is its obligation.
It seems that clearly snch can be arrived at without saying that the bill is filed under our Quo Warranto statutory proceedings as contained in sec. 23-2801 et seq., T.C.A., which Chapter of the Code is headed “Usurpation of Office or Franchise — Yacation of Charter”. When we come to sec. 23-2802, T.C.A., it has reference to an action against corporate officers, trustees, etc., who have management of public funds for charitable purposes, etc., which at first blush would indicate that this action should be a Quo Warranto action, but upon careful thought and study of the bill it seems to us what is sought is not what you would get if you had the District Attorney General as a party to the suit in a Quo Warranto proceeding and it was not necessary to have him bring such an action here. A number of times over the years we have attempted to show by various decisions “what is Quo Warranto?” And we have used a statement of Mr. Justice Lamar, Supreme Court of the United States, on the reason why Quo Warranto is used, which can be found in one of our latest opinions, that of Country Clubs, Inc., et al. v. City of Knoxville, 217 Tenn. 104, 395 S.W.2d 789. We will not again quote this but those interested in this question may again read this opinion.
An action in Quo Warranto against the hospital would not settle the issues here sought to be determined one way or the other and would certainly be entirely improper for the City as one claiming to be a part of the make-up and control of the hospital to bring such a suit and question the capacity in which it is acting. The City here has a far greater interest than anyone of the general public would have, because it has certain elected officials *476who have to carry out this trust and over the years part of the trust has been to see that one of these Trustees was appointed by the City.
We think that under the rule as laid down in Morrison v. Crews, 192 Tenn. 20, 237 S.W.2d 1, that when there is an extraordinary proposition and when a person has an extraordinary interest in a matter like this, far greater than a citizen would have, then he has a standing whieh endows him with a right to find out what his duties are under such circumstances. In doing so, he is not attacking the corporation but he is just trying to find out what his duties are.
This statement quoted in the appellant’s brief is applicable to the situation here. It is said: “Matters dealing -with the rights and status of Corporations and/or stockholders, and the relation between the one and the other, have frequently been the subject matter of actions for declaratory judgments.” 21 A.L.R. 87; 19 A.L.R. 1135, 68 A.L.R. 130; 87 A.L.R. 1236. We think that is what is sought here, that is, the status of the City in this corporation, not trying to bore in or tear up the hospital or anything of the kind but trying to see what its duty is, and clearly when there is an effort sought to get relief from uncertainty and insecurity with respect to right, status and all legal relations under the declaratory judgment statutes the court should taire jurisdiction and act. Shelby County Board of Commissioners v. Shelby County Quarterly Court, 216 Tenn. 470, 392 S.W.2d 935, 936.
Thus it is, after fully setting forth how this hospital was originally created and organized, the City now calls upon the hospital for certain discoveries, such as books *477and records, which, according to the City reflect the true relationship between the City and the hospital and its present Trustees, if the hospital and Trustees differ from the position of the City as hereinabove set forth.
The City very frankly, succinctly and simply states in its brief that: ‘ ‘ The Complainants uo not attack the corporate capacity of the Defendant-Hospital nor do they question the status, title and/or capacity of the Officers thereof except in so far as the type of business entity would be determinative in establishing the relationship of the Complainants with the Defendant-Hospital; i. e. stockholder, member or joint owner. (Tr. p. 12, Sec. 2[f]) The Complainant-City of Rockwood through its Board of Mayor and Commissioners does claim to be stockholders, members and/or joint owners with the obligation and authority to participate in the selection of management as set out hereinabove.”
We think as we read the brief herein that this paragraph from the brief effectually sets forth the purpose of this bill. This being true, there is no attack upon the corporate existence and/or such an attack as should be brought by the District Attorney General in his official capacity as he is expected to do in proceedings against a violator of the law. As we see it, T.C.A. sec. 23-2801 et seq., setting forth a mandate under Quo Warranto is not controlling herein, and the suit may be brought as it was under the declaratory judgment act, T.C.A. sec. 23-1101 et seq. This being true, we must remand the case to the Chancery Court where future proceedings will be governed in accordance with this opinion. The suit is thus reversed and remanded and the costs assessed against the defendants, | 01-03-2023 | 10-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/1538666/ | 239 Pa. Super. 220 (1976)
Commonwealth
v.
Simmons, Appellant.
Superior Court of Pennsylvania.
Submitted September 12, 1975.
March 29, 1976.
*221 Before WATKINS, P. J., JACOBS, HOFFMAN, CERCONE, PRICE, VAN DER VOORT, and SPAETH, JJ.
Joseph T. Kelley, Jr., and Ettinger, Poserina, Silverman, Dubin & Anapol, for appellant.
*222 Francis C. Barbieri, Jr., Mark Sendrow, and Steven H. Goldblatt, Assistant District Attorneys, Abraham J. Gafni, Deputy District Attorney, and F. Emmett Fitzpatrick, District Attorney, for Commonwealth, appellee.
OPINION BY PRICE, J., March 29, 1976:
Appellant, Ezekiel Simmons, was arrested on December 20, 1973 on charges of rape, felonious restraint, aggravated assault, robbery, criminal conspiracy and various firearms violations. These charges stemmed from an incident beginning on the evening of December 19, in which a group of armed men entered a home in West Philadelphia and beat, robbed, raped and held captive its occupants until the police arrived on the following morning.
On September 11 and 12, 1974, appellant's Pre-Trial Motions to Suppress Evidence were heard and denied. On September 23, 1974, appellant was tried before a judge without a jury and found guilty of rape, aggravated assault, and criminal conspiracy. On January 13, 1975, appellant's post-trial motions were heard. His motion in arrest of judgment as to the aggravated assault conviction was granted and all remaining motions were denied. Appellant was then sentenced to not less than two nor more than seven years imprisonment on the rape conviction and sentence was suspended on the conviction for criminal conspiracy. This appeal followed.
I
The first point of error advanced by the appellant is the lower court's refusal to suppress his statement to the police. This statement was allegedly obtained in violation of Pennsylvania Rule of Criminal Procedure 130[1]*223 (formerly Rule 118). Appellant relies principally on Commonwealth v. Futch, 447 Pa. 389, 290 A.2d 417 (1972) to support this contention. In Futch, the Pennsylvania Supreme Court determined the effect of excessive pre-arraignment delay upon statements made by an accused in the period between arrest and arraignment.
"[W]e think it appropriate to follow the federal approach and exclude all evidence obtained during `unnecessary delay' except that which . . . has no reasonable relationship to the delay whatsoever." 447 Pa. at 394.
Our court examined the evolution of this doctrine in Commonwealth v. Griffin, 232 Pa. Super. 163, 170, 336 A.2d 419, 422 (1975). "Elaborating upon the Futch Rule in Commonwealth v. Williams, 455 Pa. 569, 572, 319 A.2d 419, 420 (1974), the Court established a three part rule for determining whether evidence must be suppressed because of a violation of Rule 118. The Court therein explained that: (1) The delay must be unnecessary; (2) The proffered evidence must be a result of the delay; and (3) The proffered evidence must be `prejudicial'."
In the instant case, the circumstances surrounding appellant's statement fail to satisfy at least two requirements of the three-pronged test stated in Griffin, supra, and thus fail to provide any basis on which the statement may be suppressed. First, the record does not indicate that the pre-arraignment delay in this case was unnecessary, as that term is employed in Rule 130 and the cases applying it.[2] The appellant was arrested and taken to West Detective Division along with nine or more *224 other persons, six of whom were co-defendants. During the next six hours detectives interviewed these persons, as well as police officers present at the scene, in order to determine what had taken place. The Commonwealth asserts that the delay between the appellant's incarceration and the taking of his statement was due solely to the large number of suspects and complainants to be questioned. During these five and three-quarter hours, appellant was kept in a room on the second floor of West Detective Division, where toilet facilities were available to him. At no time during this period was the appellant interrogated. There is no evidence of abusive conduct by the police in this instance, but only a protracted period of initial questioning and administrative processing due to the unusual circumstances and the number of people involved. While such a hiatus between arrest and arraignment is highly unfortunate and far from a model for police conduct, on the present facts, it does not constitute "unnecessary delay" under Pa.R.Crim.P. 130.
The second requirement which must be met in order for evidence to be excluded under the test in Williams, supra, is that the evidence must be a result of the delay. It does not appear that this delay had any coercive purpose or that any coercive pressure was placed upon the appellant. Other than the delay itself, no claims of abuse or deprivation are made. Appellant was not interrogated repeatedly or for a long period, rather his initial interrogation began after the delay and lasted little more than an hour, at the end of which time appellant signed the statement involved herein.[3]
Further, this is not a case where a suspect at first *225 denied involvement or refused to make a statement and later broke down under prolonged or repeated periods of questioning. Here, appellant was apparently willing to talk to the police as soon as his questioning began. It is thus apparent that, regardless of delay in his arraignment, appellant has shown no connection between such delay and his statement. Where no such connection exists, a statement clearly cannot be excluded under Futch, supra, or its progeny.
Finally, it is difficult to comprehend how the appellant was prejudiced by the introduction of his statement at trial. It is true that the statement places appellant at the scene of the crime, but the circumstances of his arrest and the testimony of a complaining witness also establish this fact. In addition, the statement was not a confession, but was rather almost entirely exculpatory. Appellant denied participating in a rape or even seeing a female in the house. The only incriminating part of the statement, appellant's admission that he hit one of the boys being held in a rear bedroom with a door spring, is not relevant to appellant's convictions or to this appeal. Even if the police conduct in this case violated Futch, supra, which we find it did not, the admission of appellant's statement did not result in prejudice which would necessitate a new trial. Commonwealth v. Townsell, 457 Pa. 249, 320 A.2d 111 (1974).
II
It is claimed that the court below erred in permitting the complainant's in-court identification of appellant because this identification was tainted by several improperly suggestive prior confrontations: at the scene, at the police station and at the pre-trial hearing. The only other identification introduced into evidence was the one made at the scene. The admissibility of this type of identification is controlled by Commonwealth v. Turner, *226 454 Pa. 520, 314 A.2d 496 (1974), where the court states:
"Evidence of identification should not be received at trial if the circumstances of the pretrial confrontation were so infected by suggestiveness as to give rise to an irreparable likelihood of misidentification, (citations omitted). However absent some special elements of unfairness, we do not believe that prompt on-the-scene confrontations fall within this ambit of suggestiveness." 454 Pa. at 523, 314 A.2d at 498. Here the identification in question was made shortly after the rape took place. The prosecutrix picked the appellant from a group of nine or more men being led from the house by the police. There is no special element of unfairness here as is necessary to destroy the reliability of an on-the-scene identification.
Because no impropriety was involved in the on-the-scene identification, it could have imparted no taint to the complainant's subsequent identification of appellant at trial. The complainant's testimony indicates that she had an adequate opportunity to observe the appellant, and that her in-court identification was of independent origin. Under these circumstances other ostensibly prejudicial confrontations, not admitted into evidence, are of no significance. Commonwealth v. Burton, 452 Pa. 521, 307 A.2d 277 (1973). In addition, since the on-the-scene identification was proper and sufficient in itself to identify the appellant beyond a reasonable doubt as the perpetrator of the crime, we need not consider other possibly prejudicial pre-trial confrontations. Commonwealth v. Jones, 231 Pa. Super. 323, 331 A.2d 788 (1974).
III
Appellant argues that it was reversible error for the trial court to admit his statement into evidence because Detective Brignola, who took the statement, was unable to positively identify appellant as the person who made *227 it. Each page of the statement was signed, and for the purpose of signature comparison the Commonwealth introduced a jury trial waiver form which it was stipulated that appellant had signed in court just prior to trial. The trial judge clearly had a reasonable basis upon which to conclude that appellant had made the statement and to admit it into evidence.
IV
The final point of error assigned by the appellant is that the trial court, sitting without a jury, erred in finding the evidence sufficient to convict appellant of conspiracy and rape. The standard of appellate review on this issue was stated by this court in Commonwealth v. Truss, 230 Pa. Super. 262, 263, 326 A.2d 630 (1974).
"The test of the sufficiency of the evidence is whether, accepting as true all the evidence upon which, if believed, the fact-finder could properly have based his verdict, it is sufficient in law to prove the defendant guilty of the crime charged beyond a reasonable doubt. (citations omitted). It is axiomatic that the evidence is to be reviewed in a light most favorable to the verdict winner (Commonwealth). (citations omitted). In so doing, we will accept as true the Commonwealth's evidence and all reasonable inferences arising therefrom. (citation omitted)."
The record reflects that on the night of December 19, 1973, a group of armed men entered a residence at 506 North Vodges Street and proceeded to beat, rob, rape and otherwise generally terrorize the occupants. These men had complete control of the premises from the time they entered and drew their guns until the police arrived on the following morning. During this period, the appellant was allowed access to the prosecutrix, who was confined to a bedroom.
The evidence here was sufficient to find the appellant guilty of conspiracy. There was clearly an adequate basis *228 upon which the fact-finder could infer the requisite agreement to commit a crime or crimes between the appellant and his co-defendants. As this court has pointed out:
"[T]o sustain a conviction of conspiracy there need not be direct proof of an agreement between co-defendants to perform an illegal act. `[W]here the conduct of the parties indicates that they were acting together with a common and corrupt purpose in view, the jury may properly infer that a conspiracy did exist.'" (citations omitted) Commonwealth v. Armbruster, 225 Pa. Super. 415, 420, 311 A.2d 672, 674 (1973). Here the court could properly infer from the appellant's presence at the scene, from the free movement and impunity which he apparently enjoyed and from his access to the prosecutrix that there was an agreement between the appellant and his co-defendants to commit or to promote and facilitate the commission of a crime, at least as to the rape of the complainant.
Similarly, there is more than adequate evidence to support appellant's rape conviction. The prosecutrix testified that appellant twisted her arm and threatened her when she ignored his order to undress. He then got into bed with her and inserted his penis into her vagina without her consent. The victim had an ample opportunity to observe the appellant and she made an immediate and positive identification of him within a few hours after the crime was committed. The stipulated medical report from the complainant's physical examination indicated the presence of spermatozoa in her vagina. The above evidence is clearly sufficient to support a conviction of rape. Commonwealth v. Kinnard, 230 Pa. Super. 134, 326 A.2d 541 (1974).
The judgment of sentence of the lower court is affirmed.
HOFFMAN, J., concurs in the result.
NOTES
[1] "When a defendant has been arrested without a warrant in a court case, he shall be taken without unnecessary delay before the proper issuing authority where a complaint shall be filed against him and he shall be given an immediate preliminary arraignment." Pa.R.Crim.P. 130.
[2] "Necessary delay can reasonably relate to time to administratively process an accused with booking, fingerprinting and other steps and sometimes even to make same [sic] limited preliminary investigation into his connection with the crime for which he was arrested, especially when it is directed to possible exculpation of the one arrested." Adams v. United States, 399 F.2d 574, 579 (D.C. Cir. 1968) (Concurring opinion of Judge BURGER).
[3] "Generally speaking, Futch violations have been found only where there has been an extended period of interrogation prior to the accused's confession. Commonwealth v. Cherry, 457 Pa. 201 (1974): Commonwealth v. Williams, 455 Pa. 569 (1974); Commonwealth v. Dixon, 454 Pa. 444 (1973); Commonwealth v. Dutton, 453 Pa. 547 (1973); Commonwealth v. Tingle, 451 Pa. 241 (1973)." Commonwealth v. Griffin, 232 Pa. Super. 163, 170, 336 A.2d 419, 422 (1975). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538671/ | 23 Md. App. 280 (1974)
327 A.2d 891
CREST INVESTMENT TRUST, INC. ET AL.
v.
RICHARD U. COMSTOCK ET UX.
No. 926, September Term, 1973.
Court of Special Appeals of Maryland.
Decided November 15, 1974.
The cause was argued before POWERS, DAVIDSON and MOORE, JJ.
Allan A. Noble, with whom were Joseph Patrick Clancy, Michael J. Budow and Clancy & Pfeifer on the brief, for appellant Sidney Kaplan. John Noble, with whom were Joseph B. Simpson, Jr., and Simpson & Simpson on the brief, for other appellants.
Landon Gerald Dowdey, with whom were Dowdey & Urbina and William F. Abell, Jr., and Heeney, McAuliffe & Rowan on the brief, for appellees.
MOORE, J., delivered the opinion of the Court.
This appeal arises in the aftermath of a financial disaster involving a small business launched in 1964 on part of a 118 acre tract of farmland near Woodsboro, in Frederick County, Maryland. The enterprise involved the breeding of guinea pigs and other small animals for use in laboratory research.
The proceedings in equity below were upon the bill of complaint of Mr. and Mrs. Richard Comstock, appellees, to enjoin the foreclosure of the farm and improvements, to enforce a trust by a reconveyance of part of the tract, to set aside a mortgage, for damages and other relief.
After a 7-day trial, the Chancellor granted a substantial *282 part of the relief prayed. He held that there was an attorney-client relationship between the Comstocks and one of the appellants, Sidney Kaplan, Esq.; that because the attorney-client relationship also existed between Mr. Kaplan and the appellant, Crest Investment Trust, Inc., and certain of its subsidiaries (with the knowledge of all parties), the attorney was under a fiduciary duty to make an adequate disclosure of all factors involved in an agreement between the Comstocks and Crest dated November 30, 1967, which revised a previous agreement between the parties dated July 21, 1966; that such disclosure had not been made; and that this constituted a breach of the fiduciary relationship because the agreement was unfair to the Comstocks and preferential toward Crest and its subsidiaries.
The court enjoined the foreclosure, ordered the exercise by Crest and/or its affiliated companies of an option under the 1966 agreement to purchase 97 acres of the Comstock farm, free of mortgages or other encumbrances and granted alternative relief in the event of the non-exercise of the option.
I
Summary of Facts and Relief Ordered
In 1964, Mr. and Mrs. Comstock began a potentially promising venture[1] in the breeding of small animals for laboratory research under the corporate title of Copper Oaks Farms, Inc., after borrowing $65,000 from the Farmers and Mechanics National Bank of Frederick, secured by a mortgage on the 118 acres owned by them as tenants by the entirety. The proceeds of the mortgage loan were substantially consumed in constructing and equipping a building for the purpose of the business on approximately *283 three acres of the tract. Mr. Comstock at that time was a plumber with a record of modest earnings. Mrs. Comstock was a school teacher in Frederick. Before coming to Maryland in 1953, Mr. Comstock's principal occupation was that of toolmaker, instrument designer and modelmaker. He had conceived but had not perfected an automated feeding and waste removal system to be used in uniquely designed buildings for the purpose of producing animals for research. His income projections for the business were in the range of $400,000 per year.
Pressed by business creditors and in dire need of capital, Mr. Comstock was introduced to appellant, Crest Investment Trust, Inc. in the spring of 1966. Crest, which had been established in 1956, was essentially a commercial banking institution specializing in providing funds for small businesses. Its general counsel and chief executive officer was the appellant, Sidney Kaplan, Esq. The company rejected a loan application by Mr. Comstock in the sum of $25,000. Shortly thereafter, and at a time when foreclosure of the farm was imminent, a change in policy of Crest occurred, permitting equity participations in small business promotions "where the loan application showed good possibilities for business appreciation." After a period of negotiations with Mr. Comstock, and investigation of the potential of his business, Crest entered into a written agreement with the Comstocks on July 21, 1966. The agreement was prepared by Mr. Kaplan, who was designated in the instrument as the attorney for the parties to prepare all appropriate documents to implement its terms. It was testified by Mr. Comstock that prior to execution of the agreement he suggested that his own counsel[2] examine its contents but that Mr. Kaplan replied: "Save your money, I am your attorney" a statement denied by Mr. Kaplan but *284 confirmed by a former member of the Crest Board, Mr. Hy Perry.
The July 1966 agreement, characterized by the Chancellor as "fair" to all concerned, contemplated the formation of a new corporation (referred to as "New Corporation") to carry on the animal breeding business. The substantive provisions may be summarized as follows:
1. Crest would pay into New Corporation $10,000 for which it would receive 9% non-voting preferred stock ("in the amount of $9,000"), plus 800 shares of common voting stock at no par value. New Corporation agreed to give the Comstocks an option for 200 shares of common voting stock, to be issued for $1.00 "at anytime after the existing mortgage with Farmers and Mechanics Bank of Frederick" shall have been paid; and upon the same conditions, the Comstocks would have an option to purchase a one acre parcel upon which their residence was located for the price of $1.00. (Emphasis added.)
2. The Comstocks agreed to deed the 115 acres to New Corporation which would assume the liability of the mortgage of approximately $65,000. The Comstocks also would transfer and assign the buildings, chattels and equipment free of any claims of their own or of their corporation (Copper Oaks Farms, Inc.).[3]
3. "Upon satisfaction of all present corporate and mortgage debt" New Corporation would select 18 acres out of the tract and retain that parcel. With respect to the balance of the 97 acres New Corporation would either:
(a) Convey the 97 acres back to the Comstocks for the price of $1.00; or
(b) retain any or all of the 97 acres and pay the *285 Comstocks at $500 per acre over a five year period. Any portion not thus purchased would be conveyed to the Comstocks for $1.00. (Emphasis added.)
4. New Corporation agreed to assume general trade debts of the Comstocks in the sum of approximately $12,000.
5. An employment agreement would be entered into between New Corporation and Mr. Comstock at an annual salary of $7200 for one year, plus 15% of the net profits of New Corporation and a directorship therein.
6. During the period that New Corporation would hold ownership of the 115 acres, it would lease to the Comstocks their residence at a monthly rental of $100. Contingent upon securing life insurance on Mr. Comstock in the sum of $50,000, it would also create a death benefit for Mrs. Comstock in the sum of $5.000.
7. Crest agreed to give Mr. Comstock a three-year option to purchase up to 3000 shares of Crest stock at $8.75 per share, payable in monthly installments over a three-year period from the date of exercise of the option. Crest also agreed to either loan or pledge its credit to secure a loan for New Corporation in the sum of $15,000.
8. At the sole option of Crest, the contract was contingent upon securing an agreement from Farmers and Mechanics Bank that "interest only" would be due on the mortgage for a period of one year and an agreement from the Frederick Gas Company that Comstocks' account be paid in installments for 12 months, the balance to be due thereafter.
9. Upon formation of New Corporation the stockholders would execute a Buy-Sell agreement.
10. Sidney Kaplan was designated as attorney "for the purpose of drawing the papers and *286 documents," reasonable compensation thereof to be assumed and paid by the Comstocks and Crest equally.
Mr. George Conover, a mortgage banker, realtor and insurer, who introduced the Comstocks to Crest management and testified below, had made an appraisal of the Comstocks' property in November, 1965, as follows:
Three acres and buildings $100,000
for breeding animals
Farmland 64,200
Equipment and furnishings 43,000 $207,200
________
Less: Mortgage 65,000
________
Net $142,200
Subsequently, on September 12, 1966, Mr. and Mrs. Comstock conveyed, the entire property to "New Corporation" which had been organized under the name of Comstock, Inc., and the latter assumed the mortgage debt. The conveyance was drawn by Mr. Kaplan in the form of a deed absolute without reference to the provisions of the agreement including those pertaining to the option to purchase by Crest or the alternative reconveyance to Mr. and Mrs. Comstock of the 97 acres. Shares of stock in Comstock, Inc. were issued in the name of Mr. and Mrs. Comstock but were held in escrow by Mr. Kaplan, in accordance with the agreement.
In the following 12-month period, the venture did not prosper despite a substantial infusion of funds by Crest. One explanation was the inability of Mr. Comstock to put in operation his automated system for feeding and waste removal. By the late fall of 1967 Crest's total cash contributions and commitments came to $215,346 and there were still trade debts outstanding. Between February and November, 1967, the total income of Comstock, Inc. was less than $5,000 and there were no sales from July, 1966 through January 21, 1967.
Some time prior to November 30, 1967, a decision was reached that a professional veterinarian, W.H. Dieterich, with experience in the business of breeding small animals, *287 would be brought into the business and that the July 21, 1966 agreement would be revised. Dr. Dieterich was hired to operate the business at a salary of $20,000, a five percent stock interest, life insurance and a pension plan. Negotiations with him were handled by Mr. Comstock and Mr. Perry, a Crest director.
Thereafter, the November 30, 1967 agreement was executed. It contained recitals that the purpose of the agreement was to "modify and supplement" the July, 1966 contract; that Crest had pledged its credit and supplied necessary working capital in excess of $100,000 and had purchased the preferred and common stock for $10,000 as provided in the earlier agreement. It then provided that:
1. The Comstocks' option to purchase voting common stock was reduced from 200 shares to 100 shares, to be issued at $1.00 at any time after the Farmers and Mechanics Bank mortgage "and the debt due as hereinafter mentioned" shall have been paid. The other 100 shares of voting common stock would be issued by Comstock, Inc., to a pension plan fund conditioned upon approval by the Internal Revenue Service.
2. With respect to the 115 acres, the provisions of the earlier agreement were "revoke[d] and restate[d]" so that the land previously conveyed by appellees to Comstock, Inc. "shall remain the absolute and sole property of Comstock, Inc., or its assigns," the only exception being that upon the repayment of the mortgage debt to Farmers and Mechanics Bank and the repayment[4] to Crest of all monies advanced to Comstock, Inc., the residence of Mr. and Mrs. Comstock and one acre upon which it was situated would be reconveyed to them for $1.00.
3. Mr. Comstock would be employed on a full time basis at the same salary and under the same *288 conditions as in the prior agreement, except that his participation in net profits was reduced from 15% to 5%, and the Comstocks' residence would be leased back to them at $100 per month as previously provided; and the widow's death benefit provision was retained. "As a further good and valuable consideration," Comstock, Inc. agreed to pay the Comstocks $1000 in cash.
4. Mr. Comstock's option to purchase 3000 shares of Crest stock at $8.75 per share was reduced to 1000 shares.
5. Sidney Kaplan, Esq. was again designated as attorney to prepare the necessary papers and documents.
One of the most significant features of the revised agreement, executed on November 30, 1967, was the provision that the farmland previously conveyed to Comstock, Inc. would "remain the absolute and sole property of Comstock, Inc.," with the single exception that upon repayment of the mortgage debt to Farmers and Mechanics Bank and repayment to Crest of all monies advanced to Comstock, Inc., the Comstocks' dwelling, plus one acre, would be reconveyed to them for the price of $1.00. Thus, the provision of the July, 1966 agreement, whereby Comstock, Inc. was obligated, upon satisfaction of all corporate and mortgage debt, to convey the balance of 97 acres to the Comstocks for $1.00 or purchase it at $500 per acre was totally extinguished.
According to Mr. Kaplan, this absolute conveyance of the farmland and improvements was required if Crest was to contribute any additional funds. He testified that he explained to Mr. Comstock that without additional money from Crest which would be advanced by Crest only upon the execution of the November 30th agreement the entire operation would have to cease. He said he explained that interest only had been paid on the $65,000 mortgage over the period of 18 months, that the land was occupied by a single-purpose building and that everything would be wiped out by mortgage foreclosure. Mr. Comstock testified, in response to a question relating to independent counsel, that *289 Mr. Kaplan used "words to the effect that I am the only attorney you need, don't waste your money." This was denied by Mr. Kaplan.
Not specifically discussed by Mr. Kaplan with Mr. Comstock, according to Mr. Comstock, was the fact that Crest had guaranteed the $65,000 mortgage after it had been assumed by Comstock, Inc., pursuant to the July 1966 agreement. This guarantee, made not to the Comstocks but to the mortgagee bank and at its request, was evidenced in the minutes of the Board of Directors of Crest on September 21, 1966, when the following resolution was adopted:
"WHEREAS, the Directors of this Corporation at their last meeting authorized its Executive Vice-President to negotiate with and to consummate an agreement with Richard U. Comstock and to guarantee the first mortgage indebtedness of Richard U. Comstock, be it
"RESOLVED, That Crest endorse the first mortgage on the farm property of Richard U. Comstock and Myra Johnson Comstock, his wife, to the Farmers Mechanics National Bank of Frederick in an amount not to exceed sixty-five thousand dollars ($65,000.00) which said mortgage covers a first lien on approximately 118 acres of land and the improvements thereon located in Woodsboro, Maryland and that the President and/or Secretary of this Corporation be and they are hereby authorized to execute on behalf of this Corporation said guarantee agreement." (Emphasis added.)
Subsequent to the execution of the 1967 agreement, the sum of approximately $82,000 in cash was advanced to Comstock, Inc. by Crest, bringing the total cash invested by Crest as of July 31, 1968 to the sum of $197,520, together with guaranteed notes in the sum of $3,000.
Notwithstanding these cash outlays, the business continued to founder. After Dr. Dieterich's arrival, a decision was made to discontinue the effort at automation until the company generated sufficient income *290 conventionally to meet expenses. Mr. Comstock remained as a director and was in charge of the design and mechanical operation of the plant.
Comstock, Inc. ceased doing business, however, in late 1968. Some time before its demise, in mid-1968, the Comstock land was conveyed to Crest. The purpose, according to Mr. Kaplan, was to make Crest's financial statement "acceptable to its lending sources" and to improve that of Comstock, Inc. Thereafter, the officers of Crest caused the formation of another corporate organization known as Animal Resources, Inc. (A.R.I.) for the purpose of generating additional capital. The new organization issued debentures in the sum of $15,000 each and, upon the basis of Crest's guarantee, 20 such debentures were sold providing additional cash in the sum of $300,000. All the real property and equipment of Comstock, Inc. was sold to A.R.I. and on June 18, 1969, Crest took a $45,000 mortgage as partial security for monies advanced by it.[5] The Comstocks received no stock interest in A.R.I. and the previous reservation to them of their residence and one acre for one dollar did not survive. The entire capital stock of A.R.I. was "spun-off" to the Crest stockholders on the basis of three shares of A.R.I. for one share of Crest.
For reasons not fully understandable from the record, even the additional $300,000 from debenture sales was insufficient to sustain the enterprise and on January 10, 1970, Mr. Kaplan, Dr. Dieterich and I.B. Kemick, another director of Crest, and their wives, individually borrowed $45,000 from the Maryland National Bank. The proceeds were loaned to A.R.I. which executed a $45,000 note to these individuals secured by another mortgage on the property. This note was endorsed with full recourse to Maryland National Bank as security for the loan. Maryland National required that the earlier mortgage to Crest also in the sum of $45,000 be subordinated.[6] Even this new loan, however, was not enough to keep A.R.I. from closing down.
*291 It was testified by Mr. Kaplan that the total loss to Crest on this venture before Animal Resources, Inc. ceased doing business in 1970 was $730,000, including debenture money, two-thirds of which was paid off by Crest.
In the fall of 1968, before the formation of Animal Resources, Inc., Mr. Comstock sought legal assistance from attorney Glenn Carlisle Michel of Frederick "because he was having problems with regard to his working relationship with Crest." On June 12, 1969, Mr. Michel wrote a letter to Crest stating in part:
"... I find the central problem being one of the status of the title to the farm ... as well as the nature of any working agreement with both Crest and Animal Resources, Inc."
In August, 1969, after the exchange of correspondence between Mr. Michel and Crest, Mr. Comstock was discharged from his position with A.R.I. and subsequently Mr. Michel withdrew as his counsel because of a long standing relationship between his firm and the Farmers and Mechanics National Bank. Mr. Michel properly informed Mr. Comstock that, because of the possibility of foreclosure proceedings and a resulting conflict, he could no longer represent him. Other counsel was subsequently engaged by the Comstocks and the Bill of Complaint in this case was filed on April 26, 1971.[7] On April 29, 1971, the Circuit Court (Shure, C.J.) issued an order enjoining Sidney Kaplan and Irving Bowers from proceeding with a foreclosure sale of the property scheduled for May 3, 1971.
At the trial on the merits the Chancellor initially disposed of the case in an oral opinion from the bench and thereafter entered a decree containing comprehensive findings of fact and conclusions of law. The decree stated in part:
"The law of Maryland required that the *292 defendant Kaplan having undertaken representation of more than one party to this transaction owed a continuing duty to each party to act fairly and to adequately disclose to each all relevant facts of each transaction and to act in his clients best interest as an attorney."
The court concluded that appellant Kaplan, with the knowledge of his client, Crest, failed to discharge adequately his duty to the Comstocks. It was then ordered:
"That the [appellants] Crest, Comstock, Inc. and Animal Resources, Inc., or any one of them shall [may] exercise the option of July 21, 1966 by paying the mortgage in the amount of sixty-five thousand dollars ($65,000) to Farmers and Mechanics National Bank and by the tender of the sum of forty-eight thousand five hundred dollars ($48,500) to the plaintiffs." [The latter being the option price of the 97 acres at $500 per acre.][8]
The option was required to be exercised within 60 days;
"That should the [appellants] fail to exercise their option or fail to pay the specified mortgage and make the required tender within the sixth [sic] (60) days allowed the ninety-seven (97) acres in litigation will be reconveyed to the plaintiffs free and clear of all mortgages and encumbrances including the mortgage to Farmers and Mechanics National Bank."[9] [The directory provisions of this part of the decree were addressed to the corporate appellants, Crest and A.R.I. and appellant Kaplan];
That the attempted foreclosure of the property be permanently enjoined;
That should the option be exercised and the *293 parties be unable to agree "on the one acre to accompany the residence house" or should the appellants fail to exercise the option, then the entire property be partitioned "for the purpose of accomplishing either the conveyance of the one acre and residence or the reconveyance of the ninety-seven (97) acres, whichever is appropriate."
Appellants did not exercise the option. At the time of trial the Comstocks were still occupying the farm but no business was being conducted.
II
Appellants' Contentions
The appellants contend that the Chancellor erred:
1. In finding an attorney-client relationship between the Comstocks and appellant Kaplan.
2. In finding that appellant Kaplan had acted unfairly and failed to make an adequate disclosure.
3. In ruling that the guarantee by Crest of the first mortgage indebtedness extended to the entire principal amount rather than any deficiency resulting from foreclosure.
4. In finding that the appellants' claim was not barred by laches.
5. In ordering that the option price be paid in full rather than over a five-year period as originally provided.
6. Because the relief granted in the final decree would result in unjust enrichment of the appellees.
III
The Attorney-Client Rulings
The issues which confront us with respect to the assignment of alleged error by the Chancellor in finding an *294 attorney-client relationship between the Comstocks and Mr. Kaplan are (a) whether the court's determination that the relationship existed was clearly erroneous and (b) if not, whether the holdings were clearly erroneous that the November 30, 1967 agreement was unfair and that appellant Kaplan failed to make an adequate disclosure. Maryland Rule 1086.
On the first issue, the findings stated in the decree of the court were these:
"Defendant Sidney Kaplan, a director and officer of the defendant Crest, acted as attorney for Richard and Myra Comstock beginning in 1966, a short time prior to their signing of the July 21, 1966, agreement just described, and continued to act as their attorney until 1969 when another attorney attempted to settle the difference that had arisen between plaintiffs and defendants. Throughout this time defendant Kaplan also represented defendant Crest Investment Trust, Inc., and from the time of their formation on, two wholly owned subsidiaries of Crest, defendant Comstock, Inc., and Animal Resources, Inc. There was no real controversy and no divergence of interest as between Crest and its subsidiaries, Comstock, Inc., and Animal Resources, Inc. However, in representing these several corporations in their dealings with plaintiffs, defendant Kaplan undertook a dual representation of conflicting interests."
Later in the decree, the court addressed itself to appellants' contention that there existed only a business relationship:
"The defendants contend that the plaintiff, Richard U. Comstock, and the defendants were engaged in a straight business transaction and that there was in fact no fiduciary relationship. Although Mr. Comstock had had previous business experience he was not trained as an attorney in *295 corporate and conveyancing matters and when he indicated that he would consult his own attorney he was told by the defendant Kaplan `Save your money, I'm your lawyer'. On other occasions he was dissuaded from seeking independent legal advice and was always assured that the defendant Kaplan was acting as his attorney and on his behalf. The court finds that not only was there an attorney client relationship between the plaintiffs and the defendant Kaplan but that the plaintiffs depended on Mr. Kaplan for his advice and looked to his knowledge in corporate transactions of the type the parties entered into and that they did not become fully aware of what was going on until late in 1969." (Emphasis added.)
In the court's earlier oral opinion from the bench, corroboration of the making of the above statement by Mr. Kaplan, but denied by him, was found in the testimony of Mr. Hy Perry, a former officer and director of Crest and A.R.I., who was present when the Comstocks signed their initial agreement with Crest on July 21, 1966. Mr. Perry testified:
"THE WITNESS: Mr. Comstock, in an embarrassed way, suggested that he would show this to an attorney and Mr. Kaplan told him, `Save your money, I am your attorney.'"
That was not the only occasion, as Mr. Perry went on to state:
"THE WITNESS: There was another understanding, another agreement was drawn up by Mr. Kaplan and presented to Mr. Comstock to sign that would in essence give Crest the control of the entire property and at that time Mr. Comstock, again, voiced the desire or suggestion that his attorney check this and Mr. Kaplan was annoyed and told him he was his attorney, that that wasn't necessary."
*296 Judge Barrick who had represented the Comstocks "on most matters" until August, 1967, testified that he had not been consulted by appellees with reference to the Crest transactions and had never been shown any of the Crest-Comstock agreements. No other independent counsel was consulted by Mr. Comstock until he engaged Mr. Michel in the fall of 1968. In a pretrial deposition, portions of which were read into evidence by appellees at the trial, Mr. Kaplan was asked: "You never suggested that he get independent counsel?" His answer was: "To the best of my recollection, no, sir."
Conceding that the contractual relationship of attorney and client may be implied, Ewing v. Haas, 132 Va. 215, 111 S.E. 255, 258 (1922) and, of course, that whether the relationship exists depends on the facts and circumstances of each case, Bailey, Oot and Ryan v. Butcher, Tanner and Foster, 240 N.Y. 323, 148 N.E. 537, 538 (1925), it is variously contended by appellants that the unilateral act of one party (presumably appellant Kaplan) is not sufficient to create the relationship, that the "only probative evidence ... deals with what Mr. Kaplan said and did" and this is "in dispute," that the court viewed only isolated pieces of evidence and that, to the extent that Mr. Kaplan acted as attorney for the appellees he did so not only for them but for the corporate appellants as well, for the limited purposes set forth in the two agreements and that he never received any compensation from the Comstocks over the 4-year period.
As for compensation, the Court of Appeals has held that the relationship of attorney and client is not necessarily dependent on the payment of a fee. In Central Cab Co. v. Clarke, 259 Md. 542, 270 A.2d 662 (1970), Barnes, J., speaking for the Court, stated:
"Although an agreement upon the amount of a retainer and its payment is rather conclusive evidence of the establishment of the attorney-client relationship, the absence of such an agreement or payment does not indicate conclusively that no such relationship exists. Indeed, the payment of fees is *297 not a necessary element in the relationship of attorney and client. The services of an attorney to the client may be rendered gratuitously but the relationship of attorney and client nonetheless exists." (Citations omitted.) (Emphasis added.)
Authority in other States also supports the rule that the relationship between attorney and client may be implied from the conduct of the parties and does not depend, unless the parties so specify, on the payment of a fee or the execution of a formal contract. E.F. Hutton & Co. v. Brown, 305 F. Supp. 371 (S.D. Texas 1969); Lawrence v. Tschirgi, 244 Iowa 386, 57 N.W.2d 46 (1953); Bresette v. Knapp, 121 Vt. 376, 159 A.2d 329 (1960). Thus, an attorney-client relationship was held to exist between a party and his cousin who was a practicing attorney and who did not collect a fee or have any contract of employment. Prigmore v. Hardware Mut. Ins. Co. of Minnesota, Tex.Civ.App., 225 S.W.2d 897 (1949). It is sufficient for such a relationship that the advice or the assistance of an attorney is sought and is received. Nicholson v. Shockey, 192 Va. 270, 64 S.E.2d 813 (1951). The trial court had before it testimony concerning Mr. Comstock's desire for independent counsel more than once and Mr. Kaplan's assurances that none was necessary and that he would be Mr. Comstock's attorney. It was the trial court's responsibility to weigh the testimony and to judge the credibility of the witnesses. This is not our function, West v. State, 3 Md. App. 123, 127, 238 A.2d 292 (1968); and the judgment of the lower court will not be set aside on the evidence unless clearly erroneous. Maryland Rule 1086; McFadden v. State, 2 Md. App. 725, 237 A.2d 93 (1968). We cannot say the judgment of the lower court that an attorney-client relationship existed between Mr. Kaplan and Mr. Comstock was clearly erroneous.
We turn, therefore, to the further issue, whether the court was clearly erroneous in its findings that the November, 1967 agreement was unfair and that appellant Kaplan failed to make an adequate disclosure. The findings of the Chancellor as set forth in the decree were as follows with *298 respect to the nature and fairness of the initial agreement of July, 1966:
"The court further finds that defendant Kaplan made an adequate disclosure to plaintiffs of all relevant factors involved in their entering into the agreement of July 21, 1966, with defendant Crest, for which he was also acting as attorney, and said agreement was fair to all parties ... It was the clear intention of the parties that the existing mortgage placed on the property to fund the business operation was to be paid from future profits of the business or upon default by the defendant Crest. It is also clear from their original contract and from the evidence that the ninety-seven acres of ground was to be free from the encumbrance of that mortgage although the mortgage was not released at that time. It was not the intention of the parties to include the ninety-seven (97) acres of property in the original contract of July 21, 1966, but rather to free it of all business debts. The intention is further demonstrated by the option the plaintiffs granted to the defendant Crest to purchase the remaining ninety-seven (97) acres at five hundred dollars ($500.00) per acre (thought to be the fair market value in 1966) without any reduction in price by proportioning the mortgage over the entire tract." (Emphasis added.)
On the other hand, the court characterized as "obviously preferential" to Crest and Comstock, Inc. and "manifestly unfair" to Richard and Myra Comstock, the provisions of the November, 1967 revision of the July, 1966 agreement:
"On November 30, 1967, at a time when defendant Kaplan was still acting as attorney for the plaintiffs in their dealings with defendant Crest and its subsidiary, defendant Comstock, Inc., plaintiffs entered into a written agreement with defendant Crest (Plaintiffs' Exhibit 6(A)) which *299 attempted to modify their prior agreement of July 21, 1966, in such way as to convert the option granted thereunder to purchase ninety-seven (97) acres of the Comstock farm for a stated price into an absolute transfer of such acreage, without payment, to Comstock, Inc. In the same writing plaintiffs agreed also to reduce their potential participation in the profits of Comstock, Inc., and Crest, extinguishing half of their stock options in the former and two-thirds of the latter. The plaintiff, in brief, contributed ninety-seven (97) acres of land as additional capital to the faltering business, Comstock, Inc., a subsidiary of defendant Crest, on the advice of their counsel, the defendant Kaplan and did not receive a more substantial interest in the business but less. Would any attorney acting fairly advise a client to make such an investment? The only justification is that other investors had already lost large sums of money and that Comstock had an interest in seeing the business succeed." (Emphasis added.)
Finding disclosure by appellant Kaplan inadequate under the circumstances, the decree stated:
"It is patently clear that the defendant Kaplan, acting as attorney for the plaintiffs in this transaction, failed to make an adequate disclosure to them of all relevant factors involved in their entering into the agreement of November 30, 1967, with defendant Crest for which he was also acting as attorney, and said agreement was obviously preferential to his clients, defendants Crest and Comstock, Inc., and manifestly unfair to his clients, the plaintiffs. Defendant Kaplan failed to disclose to plaintiffs that Crest, having guaranteed the mortgage on their farm, might have to pay that mortgage, and that their home and the ninety-seven (97) acres of their farm optioned to Crest's subsidiary might not be obligated for the *300 debts of Comstock, Inc. There was no disclosure measuring the value of the acres against the value of what Crest had invested or explaining how the Comstocks would receive a decreased rather than an increased interest in potential profits for having contributed their farm to the Crest subsidiary. Furthermore, the later conveyance to Crest is nowhere explained by the evidence, although made at a time when defendant Kaplan was acting as attorney for the Comstocks. Any lawyer should have known that this was not a fair transaction and the failure to protect the plaintiffs and so advise them while acting as their attorney is a complete breach of the fiduciary relationship. The court views defendant Kaplan's actions as an obvious attempt to protect his client Crest from further losses occasioned by the poor investment he had recommended to its Board of Directors by taking advantage of the plaintiffs.
"The court further finds that defendants Crest and Comstock, Inc., through the active participation of their officers and directors in the procurement and execution of the agreement of November 30, 1967, had knowledge of the attorney-client relationship existing between defendant Kaplan and plaintiffs, his failure to make an adequate disclosure to them, and the preferential treatment Crest was receiving at the expense of the Comstocks." (Emphasis added.)
We are not confronted here with a disputed transaction between the attorney and the client, as to which the rule is well established that such a transaction is prima facie fraudulent and invalid. Baker v. Otto, 180 Md. 53, 22 A.2d 924 (1941). This is rather a situation where an attorney has chosen to act for both sides (with the knowledge of both sides) in a business transaction an undertaking which is indeed fraught with serious problems and potentially dire consequences and should generally be avoided.
*301 In the first place, counsel incurs a substantial risk of violation of Canon 5 of the Code of Professional Responsibility and the Disciplinary Rule based on this Canon, DR 5-105.[10] The Canon declares that "A Lawyer Should Exercise Independent Professional Judgment on Behalf of a Client," and DR 5-105 states that in situations where the exercise of a lawyer's independent professional judgment on behalf of a client is likely to be adversely affected by his representation of another client, the lawyer may represent both clients only "if it is obvious that he can adequately represent the interest of each and if each consents to the representation after full disclosure of the possible effect of such representation on the exercise of his independent professional judgment on behalf of each."[11]
*302 In addition, when an attorney undertakes dual representation without making the full disclosure required of him, he incurs the risk of civil liability to the client who suffers loss caused by such lack of disclosure. Lysick v. Walcom, 258 Cal. App. 2d 136, 65 Cal. Rptr. 406 (1968).[12]
As the Supreme Court of New Jersey stated in the case of In re Kamp, 40 N.J. 588, 194 A.2d 236 (1963), "A conflict of interest is inherent in the relationship of buyer and seller; and [former] Canon 6 is applicable to every occasion in which an attorney undertakes to represent both the buyer and the seller under a sales contract."
Former Canon 6, which was in effect during the time of the transactions in this case, provided in part:
"It is unprofessional to represent conflicting interests, except by express consent of all concerned given after a full disclosure of the facts. Within the meaning of this canon, a lawyer represents conflicting interests when, in behalf of one client, it is his duty to contend for that which duty to another client requires him to oppose."
The instant case, to be sure, presents a situation substantially different from a single transaction for the sale of realty such as was involved in the case cited. Here, the conveyance of the land and improvements was a part of a business promotion and all parties were ultimately interested in the success of the enterprise. Even in such *303 situations, however, the "clients" involved can foreseeably have adverse economic interests and if duality of representation is undertaken, it should be "within very narrow limits." Texarkana College Bowl, Inc. v. Phillips, 408 S.W.2d 537 (Civ. App. Texas, 1966). Cf. Busey v. Perkins, 168 Md. 19, 176 A. 474 (1935); Rippon v. Mercantile Safe Dep., 213 Md. 215, 131 A.2d 695 (1957).
Furthermore, if dual representation does occur, fidelity to the Code of Professional Responsibility and prudent concern for legitimate self-interest against possible liability dictate that full disclosure be made of the possible dangers involved and that the legal representation be fundamentally fair to both sides. The requirements of full disclosure were spelled out in In re Kamp, supra (194 A.2d p. 240) in terms not inappropriate to the instant case:
"Full disclosure requires the attorney not only to inform the prospective client of the attorney's relationship to the seller, but also to explain in detail the pitfalls that may arise in the course of the transaction which would make it desirable that the buyer have independent counsel. The full significance of the representation of conflicting interests should be disclosed to the client so that he may make an intelligent decision before giving his consent. If the attorney cannot properly represent the buyer in all aspects of the transaction because of his relationship to the seller, full disclosure requires that he inform the buyer of the limited scope of his intended representation of the buyer's interests and point out the advantages of the buyer's retaining independent counsel." (Emphasis added.)
In this case it is claimed by appellant Kaplan and the corporate appellants that there was no fundamental unfairness present, that all reasonable disclosure was made and that the Chancellor erred in certain of the critical findings of fact as to what should have been disclosed to the Comstocks, including particularly his conclusion that Crest *304 had guaranteed the entire mortgage debt, and thus afforded the Comstocks' insulation against the inevitability of loss by foreclosure.
That the new agreement was grossly disadvantageous to Mr. and Mrs. Comstock is immediately clear from a brief summary of what occurred: Under the July, 1966 contract they contemplated the ultimate relinquishment of 18 acres out of the entire tract "upon satisfaction of all present corporate and mortgage debt" but as for the balance of the farm, consisting of some 97 acres, they had under the same condition the expectancy of a reconveyance for a consideration of $1.00 or the purchase of the land by Comstock, Inc., or its assigns, for $500 per acre or $48,500. The November, 1967 agreement terminated all interests on their part in the entire tract and its improvements, reduced their stock participation in Comstock, Inc. from 20% to 10%, reduced their participation in the profits of the enterprise from 15% to 5% and reduced their option to purchase stock in Crest from 3000 to 1000 shares. Because of the evanescent nature of any profits from Comstock, Inc., and the obvious inability of the Comstocks to exercise their option to buy Crest stock at $8.75 per share (the book value of which at the time of the agreement was $5.40 per share), the stark reality is that the only thing actually salvaged consisted of Mr. Comstock's job at $7200 per year and a forlorn hope after Crest was ultimately made whole of reacquiring title to their home and one of the 115 acres.
Under such circumstances, we cannot accept the contentions of appellants that the court's findings of unfairness of the November 30, 1967 agreement were based upon "speculation and surmise." Nor do we find that the court's conclusion in this regard was "clearly erroneous." Rule 1086.
We deem it a truism, however, that persons sui juris may embrace contractual unfairness in the exercise of business judgment and be bound by their bargain; but in the context of this case, that result is compelled only if Sidney Kaplan made a full disclosure not only of all the facts but also of applicable principles of law.
*305 An objective, panoramic view of the Comstocks' situation just prior to November 20, 1967 would have revealed inter alia:
1. That Comstock, Inc., having assumed the mortgage debt was under a duty to pay it and to protect the Comstocks against any demands that might be made against them for the debt which the mortgage secured. Rosenthal v. Heft, 155 Md. 410, 142 A. 598 (1928); Wright v. Wagner, 182 Md. 483, 34 A.2d 441 (1943); Brice v. Griffin, 269 Md. 558, 307 A.2d 660 (1973). However, this did not operate as a release of the mortgagors, Mr. and Mrs. Comstock, from the covenants under the mortgage to the Bank. The relationship between them and Comstock, Inc. was that of principal and surety but as to the mortgagee bank, the only liability under the covenants of the mortgage was upon the Comstocks. Wright v. Wagner, supra. The Bank had the right to proceed by either a direct action against them or by foreclosure. Of course, since Comstock, Inc. was at that time in a deficit position to the extent of $73,032.87, its assumption of the mortgage debt afforded the Comstocks no comfort, and their right of direct action against Comstock, Inc. would be unavailing.
2. That Crest, under its Resolution of guaranty, was liable to the mortgagee bank in an amount up to the principal sum of $65,000. In this respect, we must reject the contention of appellant that upon the authority of Walton v. Washington County Hospital Association, 178 Md. 446, 13 A.2d 627 (1940), Crest's liability would be limited to the amount of any deficiency after foreclosure. In Walton, the guarantor's liability was limited by contract to the sum of $5,000; the mortgage debt itself was $20,000 and the deficiency, after foreclosure, was $7709.97. In limiting the guarantor's liability to $5,000, the court stated *306 the general rule for construction of guaranty contracts (178 Md. at p. 450):
"The court should give the instrument that construction which will best accord with the intention, as manifested by the language in the light of all the surrounding circumstances."
Here, the language of the Resolution adopted by Crest contained no limitation but spoke of the "first mortgage indebtedness of Richard U. Comstock" and authorized the execution of the guaranty agreement, after reciting the full principal amount of the $65,000 mortgage. "If the contract of guaranty is unconditional and does not limit in any way the obligations of the guarantor, the guarantor's liability would be equal to that of the principal debtor." 38 Am.Jur.2d, Guaranty, § 74; Steinberg, Adm'r. v. Gonzales, 215 Md. 100, 135 A.2d 631 (1957). At the same time, however, Crest, upon payment of all of the mortgage debt or the amount of any deficiency would then be subrogated to the rights of the Bank including all its rights to the secured real property. 73 Am.Jur.2d Subrogation, §§ 53, 90; Embrey v. Embrey, 163 Md. 162, 161 A. 153 (1932); Behlen Manufacturing Co. v. The First National Bank of Englewood, 28 Colo. App. 300, 472 P.2d 703 (1970).
3. The mortgagee bank therefore had the following options: (a) initiate foreclosure proceedings; (b) proceed by direct action against Crest as guarantor; (c) proceed against the Comstocks by an independent action to recover the debt; (d) enter into negotiations.
In the light of the foregoing, Mr. and Mrs. Comstock clearly required (a) a factual and financial analysis of the consequences of a mortgage foreclosure and (b) a careful exploration of available remedies by court action. With respect to a foreclosure, the necessary information would *307 include (1) the then market value of the land; (2) the value of the buildings and equipment and their own residence; (3) the amount of any liens against the property and (4) determination of an approximate surplus after foreclosure, to which they as the original mortgagors would be entitled; or (5) a determination of a possible deficiency for which they might be liable.
Consideration of the remedies available to Mr. and Mrs. Comstock at that time would have involved an analysis of the merits of a suit or suits in equity to enjoin foreclosure by the mortgagee bank and/or the payment of the mortgage by Crest as guarantor, seeking to defeat Crest's rights of subrogation by the assertion of equitable rights accruing to the Comstocks under the 1966 contract with Crest; or the pursuit of the remedies of recission or reformation of the 1966 agreement on the grounds, inter alia, that the contingency of nonpayment of the mortgage by Comstock, Inc. was never contemplated by the parties and hence not provided against.
This brief recital is sufficient to indicate that Mr. and Mrs. Comstock were entitled to more, at the hands of Mr. Kaplan, than the advice that foreclosure was inevitable and, in effect, that their capitulation to the terms of the November 30, 1967 agreement was their only alternative to financial ruin. Indeed, it is clear beyond any reasonable doubt that Mr. Kaplan at that point should have urged that the Comstocks engage independent counsel. His failure to do so and his failure to make adequate disclosure compel a declaration that the November, 1967 agreement was void. This was essentially the conclusion of the Chancellor, and we cannot find that he was clearly erroneous. Maryland Rule 1086.
IV
Alleged Error in Interpretation of 1966 Agreement
The trial court, in its decree, interpreted the 1966 agreement to mean that the parties contemplated the absolute relinquishment by the Comstocks of the 18 acres which comprised the animal breeding center and *308 surrounding land. This is not challenged by the appellants; nor, indeed, by the appellees. It was also held, in effect, that the remaining 97 acres were still in the equitable ownership of the Comstocks, to be ultimately purchased by Comstock, Inc. or its successors and assigns for $500 per acre or reconveyed for a consideration of one dollar.
The appellants claim, as a separate ground of error, the court's further holding that the 97 acres were intended to be free of any encumbrance when it stated:
"It was not the intention of the parties to include the ninety-seven (97) acres of property in the original contract of July 21, 1966, but rather to free it of all business debts. The intention is further demonstrated by the option the Plaintiffs granted to the Defendant Crest to purchase the remaining ninety-seven (97) acres at Five Hundred Dollars ($500.00) per acre, (thought to be the fair market value in 1966) without any reduction in price by proportioning the mortgage over the entire tract."
We find upon our review of the record that there is scant support for the Chancellor's conclusions that the parties' intention was that the acreage be purchased or reconveyed unencumbered. Nor do we find it probative with respect to the parties' intention that the purchase price of the 97 acres was fixed at the full fair market value in 1966. The facts and circumstances present a totally different question not the intent of the parties but rather the proper resolution of their claims in the presence of an eventuality that was not anticipated in their 1966 agreement, viz., the collapse of the business, rendering impossible the discharge of the mortgage by Comstock, Inc.
The proper test to be applied, in our judgment, is what a reasonable person in the position of the parties involved in the July, 1966 agreement would have considered a fair and equitable solution if the failure of the business precluded the payment of the mortgage debt. U.S.I.F. Triangle Towers Corp. v. Rockwood Dev. Co., 261 Md. 379, 275 A.2d 487 (1971); Slice v. Carozza Properties, Inc., 215 Md. 357, 137 A. *309 2d 687 (1958). Leonard v. Dyer, 26 Conn. 172, 178 (1857). The function of the court in such a situation is aptly portrayed in Corbin on Contracts, Vol. 6, § 1331 (1962 ed., p. 357) where the author states:
"Of course, it is not possible to tell what the two specific persons would have provided if they had foreseen; they might have forborne to make any contract at all. What the court in fact does is to fill a gap, and to fill it in the light of full knowledge of what has in fact occurred (hindsight) in accordance with the requirements of reason, justice and good faith."
We conclude that "reason, justice and good faith" would require here that if the option be exercised or the 97 acres be reconveyed, the land purchased or reconveyed bear its fair share of the mortgage debt, based upon an independent appraisal of the 18 acres and of the 97 acres and the improvements thereon; and also that the respective parcels of the total acreage and their improvements bear their proper proportion of any encumbrances upon the property which matured prior to November 30, 1967.
Our conclusion that the land should not, as a matter of fundamental fairness, be purchased or reconveyed unencumbered is predicated, on the one hand, upon the facts and circumstances that the original agreement of 1966 (a) averted the imminent foreclosure of the Comstocks' farmland and improvements, (b) discharged the trade debts of the Comstocks and their corporation in the sum of approximately $12,000, (c) resulted in an employment contract for Mr. Comstock and, as the record indicates, some part time employment for Mrs. Comstock, (d) made available to Mr. Comstock an extended opportunity for him to develop his automated feeding and waste removal system and (e) afforded the couple the continued occupancy of their residence and the use of the 97 acres up to the present time; and, on the other hand, that while Crest has the opportunity to retain 18 acres and the improvements thereon, it also invested sums substantially exceeding its July, 1966 *310 commitment before the revised agreement of November, 1967 was entered into.
It is also our conclusion that the Chancellor should not have altered the terms of the July, 1966 agreement which provided that payment would be made by the appellants for the purchase of the ninety-seven (97) acres in equal installments over a 5-year period. The court ordered that upon the expiration of 60 days from the date of the decree, the land either be conveyed to the Comstocks or that appellants pay the sum of $48,500 in cash.
It is undisputed that the agreement clearly provided for payments over a 5-year period. We find only limited room for construction of that provision and that is not whether the purchase price was to be paid in a lump sum but whether the total amount was to be paid in monthly or yearly installments. See, Moore v. Modern Improvement Association, 190 Md. 39, 57 A.2d 316 (1948); Kasten Construction Co., Inc. v. Rod Enterprises, Inc., 268 Md. 318, 301 A.2d 12 (1973). In this connection, we consider it reasonable that the appellants be permitted, if they exercise the option, to make the payments in equal monthly installments or equal annual installments over a 5-year period, the first payment to be made within 60 days after the entry of a final order by the court, following proceedings on remand.
V
The Claim of Unjust Enrichment
The modification of the Chancellor's decree which will be required by our conclusions with respect to the aforesaid mortgage and encumbrances, dilutes to some extent appellants' contentions that the decree results in an unjust enrichment of the appellees.
We note, at all events, that while there is surface appeal to the argument that the equities here are "surely divided" and that it would be inequitable for the entire loss to fall on the appellants, nevertheless it was Crest which rejected Mr. Comstock's loan application and became instead an investor in his business. By virtue of Crest's 80% ownership interest *311 in the voting common stock of Comstock, Inc., Crest and its stockholders would reap most of the potential profits. Crest's continued financial support of the venture was certainly born of self-interest and not of solicitude for the Comstocks. Crest was investing its money for an anticipated rate of return substantially in excess of interest income had all or part of the $25,000 loan application been granted. That the investment decision of its management was unwise, is unfortunate. Appellants' reliance upon the case of Ross v. Loyola Federal Savings and Loan Association, 245 Md. 507, 226 A.2d 553 (1967), is misplaced.
VI
The Claim of Laches
In rejecting appellants' claim of laches, the Chancellor found that appellees "... did not become fully aware of what was going on until late in 1969." A perhaps more accurate statement, based upon the record, is that Mr. Comstock was not aware that he possessed a cause of action based upon an alleged breach of a fiduciary relationship until late 1969 or early 1970. The bill of complaint was filed on April 26, 1971. The court properly ruled that suit was commenced within a reasonable time. As the Court of Appeals stated in Financial Credit Corp. v. Williams, 246 Md. 575, 587, 229 A.2d 712, 717 (1967):
"Laches will not bar the assertion of a claim in equity unless the party fails to assert his rights within a reasonable time after their discovery."
Furthermore, we hold that it is rarely appropriate for the defense of laches to be interposed by an attorney and his clients in a suit by another client predicated upon a breach of the attorney-client relationship. McCreary v. Joel, 186 So. 2d 4 (Fla. 1966). In the case cited, the Supreme Court of Florida observed that the lapse of time is a factor to be considered in determining the merits of the case:
"A chancellor should consider the long delay in bringing such a suit [predicated upon fraud, unethical conduct or over reaching] in evaluating *312 the equities and in determining the weight which should be given to the testimony of interested parties."
The Court then stated, as we can here also state: "We feel confident from our examination of this record that the chancellor did exactly that."
VII
Proceedings on Remand
The aforegoing modifications of the Chancellor's decree are not, of course, self-executing but make necessary the remand of this cause for further proceedings. For the guidance of the trial court on remand, we point out that further hearings will be required at which the court will receive testimony, including the testimony of an expert appraiser or appraisers, essential to a determination of the proportion of the unpaid principal balance plus interest under the mortgage to the Farmers and Mechanics National Bank of Frederick, which should be allocated to the 18 acre parcel and the improvements thereon and to the 97 acre parcel and its improvements; and to receive testimony and documentary evidence for the purpose of ascertaining the number and amount, if any, of other encumbrances on the property which matured prior to November 30, 1967 and were recorded within the prescribed statutory period, and the amount thereof allocable to each parcel.
Decree affirmed in part and reversed in part as set forth in this opinion; cause remanded for further proceedings.
Costs to be paid by appellants.
NOTES
[1] A prospectus of The Copper Oaks Farms, Inc., dated October 1, 1965, contains a letter from the Executive Secretary of the National Academy of Sciences stating that in the United States at that time nearly a half million guinea pigs were used each year for testing, treating and experiment; and that the biomedical profession would be greatly assisted "if a commercial breeding establishment, geared to producing fine quality guinea pigs were to establish itself in this country."
[2] Mr. Comstock had been represented in legal matters by The Honorable Samuel Barrick for some time prior to August, 1967. At the time of trial the former counsel was a member of the Circuit Court for Frederick County, Maryland and had ceased private practice as of September, 1969. He was called as a witness by the Comstocks. Both Judge Barrick and Judge Robert E. Clapp, Jr. of the Circuit Court for Frederick County disqualified themselves and the case was tried by Judge H. Ralph Miller, Associate Judge of the Circuit Court for Montgomery County.
[3] The agreement was executed by the Comstocks individually, by Mr. Kaplan as executive vice-president of Crest Investment Trust, Inc., and by Mr. Comstock as president of Copper Oaks Farms, Inc.
[4] As to the amount of the advances, Mr. Kaplan testified that "[W]hen we wrote this agreement we merely stated, Dick and I in our conversation, that it was over $100,000. I did not have the exact figure before me at that time."
[5] Mr. Kaplan testified that Comstock, Inc. owed Crest more than $250,000 at the time of the sale of land and chattels to A.R.I. but that Crest could not realistically take a mortgage for more than $45,000 because the value of the encumbered real property and equipment would not justify it.
[6] Maryland National Bank, although named a party defendant did not participate in the trial, stating it would accept and abide by the decision of the court.
[7] On April 15, 1971, the Farmers and Mechanics National Bank had sent a default notice and demand for full payment of the mortgage to Mr. and Mrs. Comstock. The principal amount owing was $44,099.14 plus accrued interest to May 3, 1971 in the sum of $1,933.01.
[8] According to Mr. Comstock the value of the land was $125,000 to $130,000 in 1966 and the value at the time of trial in June, 1973 was $300,000. Mr. George Conover, the mortgage banker who testified for appellants, valued the land at $64,200 in late 1965.
[9] We are told that as of November 1, 1973 there were recorded judgments and liens on the farm property aggregating $51,683.34.
[10] The Code is contained in Appendix F. Code 1957 (1971 Repl. Vol.) "Maryland Rules" Vol. 9B and consists of three separate but inter-related parts: Canons, Ethical Considerations and Disciplinary Rules. As stated in the preamble, the Canons are statements of axiomatic norms, the Ethical Considerations are "aspirational" and represent objectives toward which the profession should strive. The Disciplinary Rules are mandatory in character and state the "minimum level of conduct below which no lawyer can fall without being subject to disciplinary action." The Code was adopted by Maryland Rule 1230, added October 13, 1970. As noted infra, former Canon 6, in effect in 1966 and 1967, governed conflicts of interest.
[11] The Ethical Considerations which accompany Canon 5 under the caption "Interests of Multiple Clients," EC 5-14 to 5-20 inclusive, contain the following relevant guidelines:
"Maintaining the independence of professional judgment required of a lawyer precludes his acceptance or continuation of employment that will adversely affect his judgment on behalf of or dilute his loyalty to a client. This problem arises whenever a lawyer is asked to represent two or more clients who may have differing interests, whether such interests be conflicting, inconsistent, diverse, or otherwise discordant." (EC 5-14)
Again:
"If a lawyer is requested to undertake or to continue representation of multiple clients having potentially differing interests, he must weigh carefully the possibility that his judgment may be impaired or his loyalty divided if he accepts or continues the employment. He should resolve all doubts against the propriety of the representation." (EC 5-15)
And also:
"In those instances in which a lawyer is justified in representing two or more clients having differing interests, it is nevertheless essential that each client be given the opportunity to evaluate his need for representation free of any potential conflict and to obtain other counsel if he so desires. Thus before a lawyer may represent multiple clients, he should explain fully to each client the implications of the common representation and should accept or continue employment only if the clients consent." (EC 5-16)
Finally:
"Occasionally a lawyer for an entity is requested by a stockholder, director, officer, employee, representative, or other person connected with the entity to represent him in an individual capacity; in such case the lawyer may serve the individual only if the lawyer is convinced that differing interests are not present." (EC 5-18)
[12] See, Annotation: "What Constitutes Representation of Conflicting Interests Subjecting Attorney to Disciplinary Action," 17 A.L.R.3d 835-854; and see, Annotation: "Malpractice: Liability of Attorney Representing Conflicting Interests." 28 A.L.R.3d 389-399. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538692/ | 4 B.R. 194 (1980)
In re William Lewis RUCK, II, dba The Ruck Corporation, Bankrupt.
Gerard ANDERSON, Trustee, Plaintiff,
v.
Jane Doe RUCK et al., Defendants.
Bankruptcy No. B-79-346.
United States Bankruptcy Court, D. Arizona.
May 5, 1980.
*195 Dennis Rosen, Tucson, Ariz., for the bankrupt.
Gerard Anderson, Tucson, Ariz., trustee.
Sidney Y. Kohn, Tucson, Ariz., for Hopkins et ux.
Curtis A. Jennings, Phoenix, Ariz., for USF&G.
MEMORANDUM OPINION
WILLIAM A. SCANLAND, Bankruptcy Judge.
The issue of the amount of attorney's fees for a party who holds a first mortgage on a portion of the bankrupt's property and a second mortgage on another portion of the bankrupt's property that was sold in these proceedings has arisen as follows: A hearing was held on the trustee's application to sell and on a complaint to determine rights in the real property of the bankrupt. Donald W. Hopkins and Eldris Jo Hopkins appeared and filed an answer through their attorney, Sidney Y. Kohn, of the firm of Aron, Fioramonti & Kohn, stating their mortgage position and among other things praying that their lien be attached to the proceeds of the sale. In their answer they claimed attorney's fees of $5,000.00. Apparently, Mr. Hopkins became interested in purchasing the property and appeared at the day of the hearing, October 17, 1979, with his attorney and actively participated in the bidding, as shown by the record of proceedings of this hearing. After the sale, it was clear that Mr. Hopkins was not the successful purchaser but would be paid all principal and interest costs and reasonable attorney's fees. On March 13, 1980, his attorney filed what is termed a Verification of Amounts Claimed in which the attorney listed the dates and time he spent in representing his client. A hearing was set on this Verification. Notice was given to all interested parties. At this hearing the trustee in open court opposed the amount of attorney's fees and costs. Mr. Kohn was ordered to file an amended Verification of Amounts claimed, which led to his filing of a pleading wherein Mr. Kohn states the date of services, the amount of time, and generally what he did on each date. The trustee filed a written opposition to his written accounting in which he states that a great deal of the time of the attorney was spent with real estate persons and architects who would be involved in possible development of the property if Mr. Hopkins was the successful bidder and eventually purchased the property. This assertion is substantiated by the breakdown of time which Hopkins' attorney submitted with his itemized accounting of attorney's fees filed on April 14, 1980.
The validity of a mortgagee's lien for attorney's fees on proceeds from a sale free and clear of liens is to be determined by reference to state law and to the mortgage contract. Security Mortgage Co. v. Powers, 278 U.S. 149, 49 S. Ct. 84, 73 L. Ed. 236 (1928).
Here, the mortgage between the bankrupt and the Hopkins provided in relevant part: "* * * [I]n any suit or other proceedings that may be had for the recovery of the said principal sum and interest thereon, it shall and may be lawful for the Mortgagee to include in the judgment that may be recovered . . . attorney's fees in a reasonable sum to be fixed by the *196 court. . . ." (Emphasis added). Docket C-31.
The validity of such a provision is well recognized in Arizona. Federal Land Bank of Berkeley v. Warner, 42 Ariz. 201, 23 P.2d 563 (1933), reversed on other grounds 292 U.S. 53, 54 S. Ct. 571, 78 L. Ed. 1120.
The only issue for the court to determine, then, is what amount may be awarded to the Hopkins as reasonable attorney's fees incurred in recovering the debt owed them.
The leading case in the Ninth Circuit on determining the reasonableness of attorney's fees in bankruptcy cases is Jacobowitz v. Double Seven Corporation, 378 F.2d 405 (1967). In this case, our Ninth Circuit Appellate Court stated the consideration for determining reasonable attorney fees, as follows: "Admittedly, the economical spirit of the Bankruptcy Act is one of the considerations going into the determination of a reasonable fee in bankruptcy cases, but it is only one consideration to be weighed and valued along with others. There is, of course, no precise measure for reasonableness. The court in a given case fixes the fee after a consideration of various elements, which the referee's order correctly states as follows: `* * * the size of this estate and the proportionate amount thereof recovered through the efforts of petitioner, the time expended by him in dealing with the matters involved, his ability and experience, the difficulty and intricacy of the legal propositions determined, the skill employed by petitioner, the opposition met, the opinions evidenced touching the reasonableness of the fee requested, all in the light of the limitation of the `economical spirit of the Bankruptcy Act' and the total costs incurred in the administration of the estate as related to the size thereof, * *'"
Reviewing Mr. Kohn's breakdown of debts and times, the Court is not satisfied that all of the time set forth was spent on representing his client in the matter of the note and mortgage. He did apparently file a foreclosure action in the Superior Court or made preparation to do this prior to the time of filing the petition in bankruptcy on May 11, 1979.
Mr. Hopkins' attorney asserts that he made court appearances on four occasions: on June 5, 1979 at the first meeting of creditors; on August 21, 1979 at a hearing on trustee's application for rent; on October 17, 1979 at the hearing on the application to sell and the complaint to determine rights in property; and on January 18, 1980 (sic) at the hearing to authorize the trustee to accept the second highest offer to purchase the property after the highest bidder failed to meet the terms and conditions of the proposed sale. The appearance sheets in the Court's files indicate that Mr. Kohn entered his appearance only at the hearing on October 17, 1979. According to the record of proceedings this hearing took 30 minutes.
In his original Verification of Amounts Claimed filed on March 13, 1980, Mr. Kohn states he spent 76.4 hours in this matter. He seeks compensation at the rate of $60.00 per hour for 62.7 hours spent in 1979, and $70.00 an hour for 13.7 hours expended in 1980.
In the Hopkins' answer filed by Mr. Kohn, he asks the Court to transfer the Hopkins' lien on the property to the proceeds from the sale. At the October 21, 1979 hearing to determine rights, the trustee acknowledged that all liens, including Hopkins', would be transferred to the proceeds of sale and that there were sufficient moneys to pay all such liens. There was no opposition to paying the Hopkins' note and mortgage and there was no difficult or intricate legal propositions involved. The Hopkins have been paid principal and interest of $124,013.23.
The Court finds that an attorney of Mr. Kohn's experience and skill, worthy of a payment of a $60.00 hourly fee, could and should have performed his duties in collecting the money due his client under the note and mortgage in twenty five hours. This, computed at a $60.00 hourly rate, is $1,500.00. The Court finds this amount is a reasonable legal fee and meets the test of *197 the Jacobowitz case. Full payment of $4,721.00 as attorney's fees is not reasonable and would be excessive. The Court further finds that any time in excess of twenty five hours was spent by Mr. Kohn in conferences or other legal activity concerning the development of the property if his client were the successful bidder. The bankruptcy estate cannot pay attorney's fees for such activity. The only attorney's fees to which Mr. Hopkins is entitled is for legal work done in collecting the moneys due.
The expenses which Mr. Hopkins seeks, as follows: Title Report, $285.75; Court Costs, $47.79; Attorney's Fees for Attorney for Trust, $450.00; U.S. Fiduciary, $772.08, are allowed.
IT IS ORDERED that the trustee shall pay to Mr. Hopkins the costs set forth above, and the sum of $1,500.00 as and for attorney's fees for the legal work of Mr. Kohn. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538725/ | 165 Conn. 19 (1973)
THOMAS F. DIMAGGIO
v.
JOSEPHINE CANNON
Supreme Court of Connecticut.
Argued April 6, 1973.
Decided May 2, 1973.
HOUSE, C. J., SHAPIRO, LOISELLE, MACDONALD and BOGDANSKI, Js.
*20 Garon Camassar, for the appellant (defendant).
C. Robert Satti, for the appellee (plaintiff).
LOISELLE, J.
The plaintiff and the defendant are brother and sister and are owners of adjoining tracts of land situated in the city of New London. Prior to 1939, the parents of the parties held title to both parcels as one tract of land. In 1939, the parents deeded to the plaintiff the easterly portion of the tract with a forty-five-foot frontage on the city street. At the time the plaintiff received his deed in 1939, there existed an old fieldstone wall about three feet wide on the easterly boundary of his land. In 1940, the plaintiff built a foundation for his home with some stones from the stone wall. After the foundation was completed, the plaintiff, with the help of his father, replaced the southerly eighty feet of the old fieldstone wall with a new flatfaced wall having a cement cap which was about twelve inches wide. In 1967, the defendant obtained the remainder of the tract. During 1967, the defendant caused to be erected a chain-link fence one and one-half feet east of the location of a fence erected in 1946 by the plaintiff, his father, and Walter Cannon, the defendant's husband, as the westerly boundary of the plaintiff's premises.
The basic issue of this action to determine title was, as litigated, whether the starting point in measuring the frontage of the plaintiff's tract runs from the east face or the west face of the wall constructed in 1940 by the plaintiff and his father at the easterly *21 boundary of the plaintiff's tract. The court found the issues for the plaintiff, and the defendant has appealed.
There were three assignments of error raised by the defendant but two of them have not been pursued in the brief and consequently are treated as abandoned. Housing Authority v. Dorsey, 164 Conn. 247, 320 A.2d 820; Lipscomb v. Renzulli, 159 Conn. 570, 576, 271 A.2d 327. The only assignment of error pursued in the defendant's brief relates to a single ruling on evidence.
While the defendant was a witness, she was asked by her attorney what John Peters, deceased, a former owner of land abutting the plaintiff's land to the east, had said concerning the location of "the wall." This statement was apparently made in the presence of the plaintiff, his father, and the defendant when they were together prior to the rebuilding of the wall in 1940 at the plaintiff's easterly boundary. There was an objection by the plaintiff on the ground of hearsay. Thereafter the court inquired specifically whether the conversation took place before the new wall was built. The defendant's counsel informed the court that the conversation occurred subsequent to the removal of part of the old wall but prior to the building of the new wall. The court then stated that "if the wall had been in existence I would permit a conversation about it. But at that time, since it was only a twinkle in the mind of everybody, I'm going to sustain the objection." The defendant then took an exception.
The defendant claims that the evidence was admissible as an exception to the rule prohibiting hearsay since it was the statement of a deceased *22 abutter concerning a boundary line. Had the court not stated that it would have permitted the hearsay evidence if the conversation had occurred after the construction of the wall, the ruling could have been supported simply on the ground that a declaration relating to an intention concerning the location of a wall is inadmissible as hearsay. Carney v. Hennessey, 74 Conn. 107, 113, 49 A. 910. Since the rationale of the ruling was that the wall was not constructed, this basis would have no bearing on the admissibility of a declaration of a deceased person relating to a boundary line, if the declaration came within an exception to the hearsay rule. The issues of the case and counsel's comments at the time of the offer of the declaration were sufficient to alert the court that the declaration would be offered as evidence to establish a boundary line.
Under our rules of procedure the sanction of an oath and the test of cross-examination are required before evidence may be admissible. On proper objection hearsay evidence is inadmissible unless the circumstances surrounding the hearsay provide some other sanction or test deemed equivalent for ascertaining the truth. South-West School District v. Williams, 48 Conn. 504, 507. In cases involving the location of boundaries, the rule has been clearly settled. The admission of hearsay evidence is permissible if the following conditions are met: (1) that the declarant has died; (2) that it must appear that the declarant would have been qualified as a witness to testify if present, and especially that he had peculiar means of knowing the boundary; (3) that the statement was made before the controversy, in the trial of which the declaration is offered, had arisen; and (4) that the declarant had *23 no interest to misrepresent in making the declaration. Turgeon v. Woodward, 83 Conn. 537, 541-42, 78 A. 577; see also Putnam, Coffin & Burr, Inc. v. Halpern, 154 Conn. 507, 514, 227 A.2d 83; Mentz v. Greenwich, 118 Conn. 137, 144, 171 A. 10; Borden v. Westport, 105 Conn. 139, 149, 134 A. 803; 5 Wigmore, Evidence (3d Ed.) § 1566; 12 Am. Jur. 2d, Boundaries, §§ 106, 107.
It is only the fourth condition that must be considered as it is clear that the first three conditions were met in this case. "By `no interest to misrepresent' is meant freedom from selfish motive or selfinterest, or personal advantage; disinterested not merely in the sense of having no pecuniary interest, but in the broader sense of being absolutely impartial and indifferent to the controversy on trial." Turgeon v. Woodward, supra, 542. In 1 Swift, Digest, p. 766, the rule was enunciated that "declarations of old people respecting the ancient bounds or monuments between the lands of individual proprietors, who were acquainted with them, have constantly been admitted in evidence." See also Wooster v. Butler, 13 Conn. 309, 316; Higley v. Bidwell, 9 Conn. 447, 451. As early as 1793, in Porter v. Warner, 2 Root 22, however, it was cautioned that declarations of an owner or abutter must be against his own interest to be admissible. See Smith v. Martin, 17 Conn. 399, 401. In Turgeon v. Woodward, supra, 549, after a complete review of the cases and authorities on this matter the rule was established that the declaration of an abutter need not be against his own interest to be admissible to establish a boundary line so long as the circumstances surrounding the making of the statement were such as to "forbid a conclusion" that it may *24 have been made through misrepresentation, and to compel the conclusion that it was impartial and disinterested.
With these principles in mind, and examining the evidence introduced before the ruling was made by the court, we find it clear that Peters had a direct interest in the location of the boundary line between his own property and that of the plaintiff. No attempt was made by the defendant to lay a foundation to establish that even though Peters had been an abutter, his declarations were made under circumstances that would compel the conclusion that it was impartial and disinterested.
The ruling of the court was not in error although it was based on an erroneous ground. Waterbury v. Commission on Human Rights & Opportunities, 160 Conn. 226, 235, 278 A.2d 771; Keyes v. Brown, 155 Conn. 469, 476, 232 A.2d 486.
There is no error.
In this opinion the other judges concurred. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538700/ | 230 Pa. Super. 563 (1974)
Commonwealth
v.
Kloch, Appellant.
Superior Court of Pennsylvania.
Argued March 11, 1974.
September 23, 1974.
*567 Before WATKINS, P.J., JACOBS, HOFFMAN, CERCONE, PRICE, VAN DER VOORT, and SPAETH, JJ.
*568 Kenneth E. Hankins, Jr., with him Thomas H. Crider, Blake E. Martin, and Crider, Martin, Bittle & Hankins, for appellant.
Edwin D. Strite, Jr., First Assistant District Attorney, with him John W. Walker, District Attorney, for Commonwealth, appellee.
OPINION BY SPAETH, J., September 23, 1974:
Appellant was convicted by a jury of operating a motor vehicle while under the influence of intoxicating liquor. The Vehicle Code, Act of April 29, 1959, P.L. 58, § 1037, 75 P.S. § 1037. On this appeal he raises numerous issues. After review of each issue we affirm.
A summary of the events surrounding appellant's arrest is essential to discussion of the issues he raises.[1] On January 29, 1971, shortly before 3:00 a.m., State Troopers Michael Belkelja and S.A. Bowser, who were assigned to the Chambersburg substation, received a dispatch over the radio that a motor vehicle was parked on the highway approximately two miles north of Chambersburg. Upon arriving at the scene the troopers found a 1970 Dodge coupe illegally parked[2] in the southbound lane with three quarters of the car on the *569 roadway and the remainder on the shoulder of the road. The car's motor was running, the lights were on and the windows were shut. Appellant was seated in the driver's seat, slumped against the left door, apparently asleep. Trooper Belkelja awakened appellant by tapping on the door window and shouting. After appellant rolled down the window the troopers smelled a strong odor of alcohol. Belkelja asked appellant what he was doing there; appellant replied that he had pulled over to sleep. Appellant was then asked to produce his operator's license and car registration. He had difficulty doing so. When appellant got out of the vehicle he was able to stand but did so by leaning against the vehicle. After appellant alighted it became apparent to the troopers that the odor of alcohol was coming from appellant. Appellant was instructed to walk toward Belkelja, who was standing by the patrol car, parked behind appellant's car. This request, which is known as "a field sobriety test," was made to enable the troopers to determine if appellant was drunk. As appellant walked toward Belkelja he staggered and at one point had to be supported by Trooper Bowser. The troopers then put appellant in the back seat of the patrol car, read him the warnings required by Miranda v. Arizona, 384 U.S. 436 (1966), and advised him that he was under arrest for operating a vehicle while intoxicated. After driving appellant's car to a safe place off the highway Belkelja asked appellant how much he had had to drink. Appellant said he had had a few drinks with friends at the officers' club at the Letterkenny Army Depot, which is about a mile from where appellant's car was found. Appellant was taken to the Chambersburg substation where he was given a blood test by a qualified physician. While there he was observed by Trooper Edward Miller, Jr., to be glassy-eyed. Miller also saw him staggering, and found his speech slurred.
*570 On April 20, 1971, after a preliminary hearing, appellant was bound over for action by the grand jury. On August 13 the grand jury approved the indictment. On August 20 appellant presented a pre-trial motion to suppress evidence. As to most of the evidence the motion was denied. The court below, however, did order the results of the blood test suppressed. The Commonwealth appealed to this court, and on June 16, 1972, the appeal was quashed.[3]
On August 18, 1972, appellant presented applications for dismissal, to quash the indictment, for change of venue, challenging the array of the grand jury, and challenging the array of trial jurors. The applications were dismissed and on August 31 and September 1 the case was tried before a jury.
On August 2, 1973, appellant's post-trial motions were heard by a court en banc. By opinion and order of October 18 the motions were dismissed.
I.
Appellant contends that his first statement to Trooper Belkelja, that he had pulled over to sleep, should have been suppressed because no Miranda warnings had been given him.
Under Miranda v. Arizona, supra, a person must be warned of his right to remain silent before the initiation of custodial interrogation. "Custodial interrogation" encompasses questioning conducted (1) "after a person has been taken into custody or otherwise deprived of his freedom of action in any significant way," id. at 444, or (2) while he is the focus of an investigation, Commonwealth v. Feldman, 432 Pa. 428, 432, 248 *571 A.2d 1, 3 (1968). Warnings are not required where general on-the-scene investigatory questioning is conducted "to determine whether a crime has been committed or is in progress." Lowe v. United States, 407 F.2d 1391, 1394 (9th Cir. 1969).[4] Such questioning is not considered "custodial." Belsky, Criminal Procedure in Pennsylvania: The Pre-Trial Issues in Four Parts, 78 Dick. L. Rev. 209, 214 (1974). This is made explicitly clear in Miranda: "General on-the-scene questioning as to facts surrounding a crime or other general questioning of citizens in the fact-finding process is not affected by our holding. It is an act of responsible citizenship for individuals to give whatever information they may have to aid in law enforcement. In such situations the compelling atmosphere inherent in the process of in-custody interrogation is not necessarily present (footnote omitted)." Miranda v. Arizona, supra at 477-78.
When these principles are applied to the present case it will be seen that Trooper Belkelja's initial question to appellant, in which he asked why appellant was illegally parked, was not "custodial interrogation" but rather "[g]eneral on-the-scene questioning." It is true that when the troopers walked up to appellant's car they intended to restrict his freedom of movement, but not in any significant way.[5] Appellant was after all illegally *572 parked and had to be detained if a ticket was to be issued. Nor was the investigatory nature of the situation altered by the fact that when appellant rolled down the car window the troopers smelled alcohol. Belkelja's question was designed to determine how appellant's car came to be where it was. The question related as much to the fact that appellant was illegally parked as to the suspicious circumstances. It was not accusatory, nor was it necessarily intended to elicit a confession of drunk driving. Appellant points to nothing suggesting that the question was asked under circumstances that were hostile or coercive. When the question was asked, appellant was still in his own car. Under these facts Belkelja's questioning cannot be considered "custodial interrogation." See State v. Dubany, 184 Neb. 337, 167 N.W.2d 556 (1969) (pickup stuck in sand, driver asked if he had been driving). See also Annot., 25 A.L.R. 3d 1076-1086 (1969). Accordingly, appellant's answer to the question was properly admitted despite the fact that he had been given no Miranda warnings.
Appellant also contends that Miranda warnings should have been given before the troopers asked him to take the field sobriety test. The contention has no merit. Miranda warnings are required by the Fifth Amendment; they inform a person that he cannot be compelled to be a witness against himself. Requiring a driver to walk in an effort to determine whether he is intoxicated does not violate his privilege against selfincrimination, for the evidence secured is not of a "testimonial or communicative nature." Schmerber v. California, 384 U.S. 757, 761 (1966). Rather, the driver is the source of "real or physical evidence," compulsion of which does not come within the purview of the Fifth Amendment. Id. at 763-64. See generally Commonwealth v. Robinson, 229 Pa. Super. 131, 324 A.2d 441 (1974). Cf. Commonwealth v. Rutan, 229 Pa. Super. 400, 323 A.2d 730 (1974).
*573 II.
Appellant next contends that he was under arrest for drunk driving from the moment the troopers smelled alcohol, after he had rolled down his window; that the arrest was illegal as a warrantless arrest; and that his statements to the troopers, the results of the field sobriety test, and the observations of him by Trooper Miller, should have been suppressed as the fruits of the arrest.
"An arrest may be accomplished by `any act that indicates an intention to take [a person] into custody and that subjects him to the actual control and will of the person making the arrest:' 5 Am. Jur. 2d, Arrest, § 1, p. 695." Commonwealth v. Bosurgi, 411 Pa. 56, 68, 190 A.2d 304, 311 (1963). Appellant was not arrested until he was placed in the troopers' patrol car. Prior to that time the troopers did nothing that subjected appellant to their control and will or indicated an intent to take appellant into custody. Rather, the troopers engaged in a course designed to determine whether there was a basis for holding appellant.
It is true that appellant was not entirely free to leave before he was placed in the patrol car. As has been stated, the troopers intended to detain appellant at the time they walked up to his car. Their intention, however, arose from the fact that appellant was illegally parked. The odor of alcohol aroused their suspicions and gave them further cause for a brief detention of appellant. Brief detentions for investigatory purposes are constitutionally permissible where probable cause for a lawful arrest is lacking. Under Terry v. Ohio, supra, a police officer may stop a person if he observes specific instances of unusual and suspicious conduct on the part of the person that reasonably leads him to conclude that criminal activity is afoot. See Commonwealth v. Hicks, 434 Pa. 153, 158 and 160-1, *574 253 A.2d 276, 279 (1969). In this case the troopers observed appellant asleep behind the wheel of an illegally parked car. When he opened the car window they smelled alcohol. These facts support a finding that the troopers' decision to detain appellant for brief investigatory purposes was lawful under Terry. The investigatory purpose of Trooper Belkelja's question concerning how appellant's vehicle came to be parked on the highway has already been discussed; see footnote 4, supra; no more need be said. It is clear that the question must be considered a product of the lawful Terry stop. The same is true of the field sobriety test. The test was conducted to obtain information as to whether appellant was intoxicated. Although appellant was no longer seated in his own vehicle, the troopers did nothing in conducting the test that subjected appellant to their control. Trooper Bowser did at one point support appellant, who was unsteady on his feet, but this assistance was not offered in order to control appellant.
Having fixed the point at which appellant was arrested, i.e., when he was placed in the patrol car, we must now decide whether that arrest, which was warrantless, was legal. We have concluded it was. Accordingly, the evidence acquired after the arrest appellant's statement concerning the number of drinks he had had and the observations of Trooper Miller were properly admitted.
One who "operate[s] a motor vehicle . . . while under the influence of intoxicating liquor" commits a misdemeanor. The Vehicle Code, supra § 1037, 75 P.S. § 1037. "A police officer may only make a warrantless arrest for a misdemeanor `where he has probable cause to believe that a misdemeanor is being committed in his presence.' Commonwealth v. Vassiljev, 218 Pa. Super. 215, 219-220, 275 A.2d 852 (1971) (emphasis added)." Commonwealth v. Reeves, 223 Pa. Superior *575 Ct. 51, 52-53, 297 A.2d 142, 143 (1972). See also The Vehicle Code, supra § 1204, 75 P.S. § 1204 (warrantless arrests can be made "upon view"). "Probable cause" means that the officer has "knowledge of sufficient facts and circumstances, gained through trustworthy information, to warrant a prudent man in [his] belief." See Commonwealth v. Hicks, 434 Pa. 153, 158, 253 A.2d 276, 279 (1969). The evidence is undisputed that when appellant rolled down the window the troopers smelled a strong odor of alcohol and therefore had reason to suppose that appellant was under the influence of intoxicating liquor. The only question, therefore, is whether they had probable cause to believe that he was "operating" his car.[6]
In Commonwealth v. Kallus, 212 Pa. Super. 504, 243 A.2d 483 (1968), this court considered the definition of "operation" as used in The Vehicle Code, supra § 1037, 75 P.S. § 1037. The defendant in Kallus was found sitting in the driver's seat of a car whose wheels were spinning. Several people were trying to push the car onto the road but it was imbedded in a snowbank and could not be moved. In holding that the defendant was nonetheless operating the car this court said:
"[I]t is not necessary that the vehicle itself must be in motion . . . [;] it is sufficient if the operator is in actual physical control of the movements of either the machinery of the motor vehicle or of the management of the movement of the vehicle itself.
"There is no doubt, in the present case, that the engine was running and that the car was in gear and *576 thus the defendant was in actual physical control of the machinery of the vehicle. It was through no fault of his that the vehicle itself was not also in motion and had he succeeded in his efforts, the public safety, which the Act was intended to protect, could have been seriously jeopardized." Id. at 507-08, 243 A.2d at 485. From this it is clear that "operation" depends upon "actual physical control." See The Vehicle Code, supra § 102, 75 P.S. § 102 ("operator" is defined as a person in "actual physical control" of a motor vehicle "upon the highway").
A driver has "actual physical control" of his car when he has real (not hypothetical), bodily restraining or directing influence over, or domination and regulation of, its movement or machinery. Webster's Third New International Dictionary 22, 1706 and 496-97 (1961). See State v. Ruona, 133 Mont. 243, 248, 321 P.2d 615, 618 (1958). See generally, Annot., 47 A.L.R. 2d 570 (1956).
It is not dispositive that appellant's car was not moving, and that appellant was not making an effort to move it, when the troopers arrived. A driver may be in "actual physical control" of his car and therefore "operating" it while it is parked or merely standing still "so long as [the driver is] keeping the car in restraint or in position to regulate its movements. Preventing a car from moving is as much control and dominion as actually putting the car in motion on the highway. Could one exercise any more regulation over a thing, while bodily present, than prevention of movement or curbing movement." State v. Ruona, supra at 248, 321 P.2d at 618. And see Annot., 47 A.L.R. 2d supra at 571-72, noting that sometimes a distinction is drawn between a statute prohibiting "driving," as compared to a statute prohibiting "operating," a motor vehicle while under the influence of intoxicating liquor, it being "held that to be guilty of driving a vehicle while *577 intoxicated, the defendant must have had the vehicle in motion. [Footnote omitted.]"
Neither is it dispositive that appellant was asleep when the troopers arrived. State v. Webb, 78 Ariz. 8, 274 P.2d 338 (1954), is very similar to the present case. There the statute forbids one "to drive or be in actual physical control of any vehicle" while under the influence of intoxicating liquor. The defendant was found at 2:00 A.M., drunk and asleep with his head and arms on the steering wheel of his truck, which was parked in a lane of traffic with its lights on and motor running. In holding that these facts showed a violation of the statute the court said: "An intoxicated person seated behind the steering wheel of a motor vehicle is a threat to the safety and welfare of the public. The danger is less than that involved when the vehicle is actually moving, but it does exist. While at the precise moment defendant was apprehended he may have been exercising no conscious volition with regard to the vehicle, still there is a legitimate inference to be drawn that defendant had of his own choice placed himself behind the wheel thereof, and had either started the motor or permitted it to run. He therefore had the `actual physical control' of that vehicle, even though the manner in which such control was exercised resulted in the vehicle's remaining motionless at the time of his apprehension." Id. at 11, 274 P.2d at 340.
State v. Ruona, supra, is in accord. There at about 3:00 A.M. a deputy sheriff found the defendant, under the influence of intoxicating liquor, slumped over the wheel of his car, parked partly in a traffic lane and with its motor running. The sheriff shook the defendant three or four times, but the defendant "just mumbled." After unsuccessfully trying to cajole the defendant from the car, the sheriff arrested him. The defendant tried to drive away, "and in fact the car lurched backwards three or four feet," id. at 245, 321 P.2d at *578 616, whereupon the sheriff grabbed his arm and prevented him from going farther. It might seem that this case is distinguishable in that the defendant did move his car, but that is not so. The arrest was before the movement, and the fact of the movement was irrelevant to the holding. The issue was the correctness of the lower court's instruction to the jury "[t]hat it need not be shown that the vehicle had actually moved or was traveling . . . ." Id. at 247, 321 P.2d at 617. In upholding this instruction the Supreme Court of Montana cited and followed State v. Webb, supra, which it described as "[t]he leading case." Id. at 249, 321 P.2d 618.
The annotation in 47 A.L.R. 2d, supra, cites State v. Wilgus, 31 Ohio Op. 443 (1945). This was a decision by a court of common pleas; it is to the same effect as Webb and Ruona and is cited in both of those decisions with approval. The annotation also cites English and Canadian decisions, but these involve different statutory language, e.g., "in charge of" the vehicle, and so are not quite so helpful. A useful contrasting decision cited in the annotation is Commonwealth v. Fox, 17 Pa. D. & C. 491 (Ct. of Q.S. Lancaster Co. 1932). The defendant, in an intoxicated condition, was a passenger in the car. The car broke down and the driver left. The defendant then tried to drive it but was unable to move it because the drive shaft was broken. The decision that he was not in "actual physical control" of the car and so was not the "operator" of it is consistent both with our decision in Commonwealth v. Kallus, supra, and with State v. Ruona, supra, and State v. Webb, supra.
In the present case appellant was seated behind the wheel, there was a strong odor of alcohol, the car was parked mostly on the highway, the motor was running, and the lights were on. In assessing whether appellant was operating the car while under the influence of intoxicating *579 liquor, i.e., was committing a crime in their presence, the troopers could rely not only on the "personal knowledge acquired at the time through his senses" but also on "inferences properly drawn from the testimony of his senses." Davids v. State, 208 Md. 377, 384, 118 A.2d 636, 638 (1955). From what they saw the troopers could reasonably infer that appellant had driven to the spot where they found his car, stopped there without pulling completely off the highway, left the motor running to provide some warmth, left the lights on to provide some safety and then had fallen asleep. In short, they could reasonably infer that the car was where it was and was performing as it was because of appellant's choice, from which it followed that appellant was in "actual physical control" of and so was "operating" the car while he slept.
It is true that the troopers might have drawn other inferences from the information they had. They might have inferred that some third person had driven the car to the spot where they found it, stopped without pulling the car off the highway, and left the scene without turning the motor and lights off. They might further have inferred that appellant had been asleep and had slumped behind the wheel after the third person had left. In such event it could not be said that appellant had actual physical control of the car. The likelihood of these possibilities, however, was not great. There was no evidence that someone other than appellant was the driver. The probability was that appellant had driven the car to the scene and that the car when found was performing pursuant to his wishes. That probability was all the troopers needed in order to make a legal arrest. "It is only the probability, and not a prima facie showing, of criminal activity that is the standard of probable cause. Beck v. Ohio, 379 U.S. 89, 85 S. Ct. 223 (1964). [Footnote omitted.]" Commonwealth *580 v. Marino, 435 Pa. 245, 253, 255 A.2d 911, 916 (1969).
III.
As noted above, upon appellant's motion the results of the blood test given shortly after his arrest were suppressed. Included in the suppression order was a directive requiring the court clerk to impound papers pertinent to appellant's motion and prohibiting the clerk from disclosing the nature and purpose of the suppression hearing.
Following the suppression hearing several newspaper articles about appellant's case appeared in The Public Opinion. The record does not disclose exactly where The Public Opinion circulates nor the number of its readers. It appears that appellant's case was of interest because a short time before his arrest appellant, who is an attorney, was hired on a trial basis as a part-time investigator for the Franklin County Public Defender's Office. On September 8, 1971, it was reported at the end of an article concerning criminal proceedings involving others that the charges against appellant had been dropped because of insufficient evidence. The next day the paper carried an article headlined, "Kloch Case Still Active." The article quoted the District Attorney as saying, "The case is still active there was a suppression hearing [.] . . . As a result we did not call it to trial. We are considering appealing this decision." On September 29, 1971, it was reported that the Commonwealth would appeal the suppression order. The next article was on February 23, 1972, by way of an answer to a reader's letter. The paper printed a chronology of the events in appellant's case. Included was the following item: "Aug. 27, suppression hearing held. Judge John W. Keller ruled that the result of blood test in case be suppressed as evidence improperly obtained." *581 At the end of the article it was reported that "[h]earings on suppression of evidence are held before many court cases go to trial, but under state law, to protect the rights of defendants to a fair trial, the fact that these hearings are held and their results are not permitted to be revealed before completion of the case in courts." On June 16, 1972, this court quashed the Commonwealth's appeal. See footnote 3, supra. This decision was briefly reported in an article of July 29, 1972.
Because of the articles in The Public Opinion appellant filed applications to have the indictment against him quashed or in the alternative for a change of venue. At the hearing on the applications one of the witnesses was the man who had been district attorney at the time the first and second articles appeared. He testified that he had disclosed to a reporter of The Public Opinion that evidence had been suppressed, but he denied that he had revealed the nature of that evidence, i.e., blood test results. The reporter who wrote the articles testified that the specific nature of the evidence was probably obtained from court records. The clerk of the court testified that the suppression order had been inadvertently entered on court records available to the public, and that the papers pertinent to appellant's motion to suppress had not been impounded. Despite this evidence the hearing judge denied appellant's request for relief. He ruled that it did not appear that appellant had been prejudiced by the violation of the impoundment order or by the publicity from the articles. Furthermore, he concluded, appellant's right to a fair trial could be adequately protected by voir dire examination of prospective jurors.
It would have been wiser and more professional of the district attorney not to indicate to the reporter from The Public Opinion that a suppression hearing had been held and evidence suppressed. Neither the fact *582 that a hearing had been held nor the order was (or should have been, rather) a matter of record. Publicity concerning the hearing and order even if not specific might hurt appellant's chances of receiving a fair trial. See ABA Standards Relating to Fair Trial and Free Press § 1.1, p. 2. Given his indiscretion, however, it is understandable that when the paper erroneously reported that the proceeding had been dropped because of insufficient evidence, the district attorney felt obliged to correct the error by saying that the suppression order would be appealed. In making this statement he did not reveal the nature of the evidence suppressed, and he cannot be held accountable for the report that the evidence was the results of a blood test. Since this information was evidently taken from the court's records, appellant's principal complaint is against the newspaper reporter who took the information from the records, which is to say, against the clerk of court for his violation of the impoundment order.
The impoundment order was issued pursuant to Pa. R. Crim. P. 323(g), which provides: "A record shall be made of all evidence adduced at the hearing [on defendant's motion to suppress]. The clerk of court shall impound the record and the nature and purpose of the hearing and the order disposing of the application shall not be disclosed by anyone to anyone except to the defendant and counsel for the parties. The record shall remain thus impounded unless the interests of justice require its disclosure."
In Commonwealth v. Ravenell, 448 Pa. 162, 173, 292 A.2d 365, 371 (1972), the Supreme Court stated that "[t]he purpose of section (g) of Rule 323 is to protect a defendant's Fifth Amendment privilege against selfincrimination. It is felt that an individual who is seeking to suppress evidence has the fullest opportunity to testify at the hearing when he knows that his testimony will not be disclosed." It is, nevertheless, by no means *583 clear that this is the only purpose of the rule. Impoundment of the results of a suppression hearing prevents dissemination of information that would not be admissible at trial. Such dissemination if made by the news media, as in the case, might reach potential jurors and make it impossible for a defendant to receive a fair trial. Thus the rule, in effect if not in intent, serves to assure fair trials untainted by pre-trial publicity.
There is no doubt that the rule was violated here. However, the evidence does not establish that appellant was prejudiced by the violation. We cannot say that appellant was denied a fair trial by an impartial jury by reason of the publication of articles containing impounded information. In making this determination we have considered as best we can such facts as are relevant when the inquiry concerns prejudice resulting from pre-trial publicity. See Commonwealth v. Jones, 452 Pa. 299, 304 A.2d 684 (1973); Commonwealth v. Pierce, 451 Pa. 190, 303 A.2d 209, cert. denied, 414 U.S. 878 (1973); Commonwealth v. Hoss, 445 Pa. 98, 283 A.2d 58 (1971); Commonwealth v. Palmer, 225 Pa. Super. 370, 310 A.2d 360 (1973). See generally 33 A.L.R. 3d 17 (1970). Appellant does not allege, nor is it shown, that any of the persons who served as jurors in his case in fact had knowledge of the articles containing the impounded information.[7] It therefore cannot *584 be said that appellant suffered actual prejudice as a result of the articles. Nor can we conclude that the articles were inherently prejudicial. While appellant's position as part-time investigator for the Public Defender may have caused readers of The Public Opinion to be more interested in his case than they would be in the ordinary drunk driving case, there is no claim or showing that that interest was more than casual. It does not appear that the community was agitated over appellant's case. The articles themselves were short. The record does not indicate on what pages the articles appeared or where on those pages. They appeared over a period of about a year, the last one thirty-three days before trial. The material contained in the articles was factual. They did not contain interpretations or speculations concerning the order or its validity. The articles were not editorials, nor did they contain expressions of opinion as to appellant's guilt.[8] Only two of the articles stated that the suppressed evidence was blood test results. In one of these there was a statement that the reason the results of a suppression hearing are not revealed is "to protect the rights of defendants to a fair trial." It is regrettable that having recognized this fact the paper nevertheless ignored it. However, *585 the explanation might have reduced the impact of the specific information the article contained. The second article reported our decision in Commonwealth v. Kloch, supra, but that was a matter of public record.
IV.
Appellant made timely objections to the exclusion of doctors and lawyers from the array of prospective jurors from which a petit jury would be drawn in his case. At a pretrial hearing a Franklin County jury commissioner confirmed the fact that doctors and lawyers were systemically excluded from the jury wheel. The hearing judge nevertheless dismissed appellant's objections.
Appellant argues that this ruling was erroneous for two reasons: first, that the jury commissioners of Franklin County are required by statute to select prospective jurors "from the whole qualified electors . . . of sober, intelligent and judicious persons," Act of April 10, 1867, P.L. 62, § 2, 17 P.S. § 942, and that since doctors and lawyers are as "qualified" as other electors they should not have been excluded, and second, that as a matter of equal protection he was entitled to select jurors from an array representative of a cross section of the entire community. It will be convenient to discuss appellant's constitutional claim first.
Because doctors and lawyers do not constitute a group characterized by a common race, nationality or religion, and because they are not members of a class that is the subject of general discrimination, there need only be a "reasonable basis" for their exclusion from jury service. Williams v. State, 285 So. 2d 13 (Fla. 1973). There is a reasonable basis to exclude doctors "because the good of the community is promoted by the uninterrupted continuation of their regular duties." Commonwealth v. Kopitsko, 177 Pa. Super. 161, *586 163, 110 A.2d 745, 746 (1955). See also Labat v. Bennett, 365 F.2d 698, 720 (5th Cir. 1966); Rawlins v. Georgia, 201 U.S. 638 (1906). The same may be said of lawyers to some extent. More important, however, lawyers because of their training possess the potential of being overly influential in a jury's deliberations. In addition, they are more likely than ordinary citizens to know the attorneys involved in a case and to be familiar with their professional reputations. This is especially true in an area where the bar is small. Even if these factors are discounted, and granting that lawyers may be as objective and impartial as any other juror, nevertheless confidence in the integrity of the jury system is better maintained if lawyers are excluded from service. It is a common misconception that most lawyers regularly appear in the courts and are therefore "insiders" in the judicial system. Insiders should not serve on juries. As stated in Harrison v. State, 231 Ind. 147, 158, 106 N.E.2d 912, 919, 32 A.L.R. 2d 875, 884 (1952): "[a]n attorney at law is an officer of the Court [citations omitted], and as such he is interested in and is an integral part of the judicial machinery which administers justice." "While attorneys at law are not public officials such as sheriffs, prosecutors and police officers, they are so much a part of the court in which cases are to be tried that they may justifiably be excluded upon the same ground as police officers, or any other person who might have a public interest in the case." Id. at 160, 106 N.E. 2d at 919-20, 32 A.L.R. 2d at 885.
With respect to appellant's statutory argument, we have no doubt that consistent with the statutory provision on which appellant relies the jury commissioners of Franklin County have some discretion in determining who is qualified to serve as a juror and who should be exempted or excepted from service. In Grove v. Toninecz, 189 Pa. Super. 32, 42, 149 A.2d 547, 552 (1959), this court, relying on Commonwealth v. Zillafrow, *587 207 Pa. 274, 56 A. 539 (1903), stated that "[t]he provision of the 1867 Act which requires that jurors shall be selected from the `whole qualified electors' of the county . . . is directory only." See generally Comment, The Key-Man System of State Jury Selection as a Source of Violation of the Fourteenth Amendment, 77 Dick. L. Rev. 117, 118-22 (1972). To be sure, the jury commissioners do not have unlimited discretion; they cannot act to contravene the Act's "spirit or intent." Commonwealth v. Zillafrow, supra at 277, 56 A. at 540.[9] However, there is no suggestion of such conduct. Appellant does not claim that the exclusion of doctors and lawyers caused a substantial or identifiable social or economic class to be unrepresented in the array, nor that as a result of the exclusion those who were included in the array were unqualified to serve; nor does appellant ascribe to the commissioners improper motives or a discriminatory intent. As noted in our discussion of appellant's equal protection claim, by excluding doctors and lawyers from the array the commissioners acted in the best interests of the community and judicial system. Their action therefore cannot be considered inconsistent with the spirit or intent *588 of the requirement that jurors be selected from the "whole qualified electors."[10]
V.
During the district attorney's closing argument the following discussion occurred out of the hearing of the jury: "MR. CRIDER [appellant's counsel]: Mr. Martin [appellant's other counsel] has asked me to object to that part of the District Attorney's charge in which at one time he said this evidence was uncontradicted, although he corrected his statement then, he added, `if there was any other way to get there, it wasn't shown.' That is an indication that the defendant has a duty to show, and I think there is a suggestion in that remark that the defendant has a duty to show THE COURT: It is the Court's understanding from defense counsel's closing argument that there are other ways the defendant could have gotten to the place where the defendant was found, and that the Commonwealth's argument was simply by way of answering the same. MR. CRIDER: `If there were such ways, they weren't shown to us.' That leaves an indication. MR. MARTIN: It is a comment on the defendant's right not to take the stand, and we move for a mistrial. THE COURT: Motion denied. The Court does intend to charge the jury on the absolute right of the defendant to not take the stand. MR. MARTIN: We take an exception. THE COURT: The District Attorney's recollection of the statement is ? MR. STRITE [the District Attorney]: I said that defense counsel said there were other ways for the defendant's vehicle to get there, and I said, `I didn't hear any and if you members of the jury did, that is up to you to remember, whether you *589 heard any or not.' That is by recollection, and paraphrased. MR. CRIDER: My recollection is that he said, `If there are any ways, I didn't hear it.' THE COURT: The objection is overruled."
This ruling was correct.
Under the Act of May 23, 1887, P.L. 158, § 10, 19 P.S. § 631, "the neglect or refusal of any defendant, actually upon trial in a criminal court, to offer himself as a witness [may not] be treated as creating any presumption against him, or be adversely referred to by court or counsel during the trial." The same safeguards are guaranteed by the Fifth Amendment. Griffin v. California, 380 U.S. 609 (1965). However, neither the statute nor the Fifth Amendment completely bars a prosecutor in cases where the defendant has not testified from saying that the state's case is "uncontroverted" or "undisputed." Holden v. United States, 393 F.2d 276 (1st Cir. 1968). Such comments are improper if they unequivocally call attention to the defendant's failure to testify. United States v. Reid, 415 F.2d 294 (10th Cir. 1969), cert. denied, 397 U.S. 1022 (1970). Thus a district attorney may not make persistent and repeated reference to the evidence as "uncontroverted," Commonwealth v. Davis, 452 Pa. 171, 305 A.2d 715 (1973), nor may he focus on the fact that only the defendant could have contradicted the evidence, id.; Commonwealth v. Reichard, 211 Pa. Super. 55, 233 A.2d 603 (1967); Desmond v. United States, 345 F.2d 225 (1st Cir. 1965). See generally Annot., 14 A.L.R. 3d 723 (1967).
Here the district attorney's statement did not specifically refer to appellant's failure to testify. The statement was evidently made only once (since only one objection was noted) and then was made not on the district attorney's initiative but in response to the suggestion by appellant's counsel in his argument to the jury that appellant's car could have gotten to where it *590 was in ways other than being driven by appellant. If, however, appellant did not drive but was driven, the person who drove him might have testified. Thus the district attorney's statement did not refer to evidence that could only be contradicted by appellant. On balance it seems clear that the jury understood the district attorney's statement to be a comment on the lack of evidence presented to substantiate the argument of appellant's counsel, rather than a comment on applicant's failure to take the stand.
VI.
While appellant's post-trial motions were pending before the court below the Supreme Court rendered its decision in Commonwealth v. Campana, 452 Pa. 233, 304 A.2d 432 (1973), "requir[ing] a prosecutor to bring, in a single proceeding, all known charges against a defendant [whether for summary or indictable offenses] arising from a `single criminal eposide.'" Id. at 253, 304 A.2d at 441. Thereupon appellant filed a supplemental post-trial motion in which he noted that following a summary proceeding held before his trial for drunk driving he had paid a fine and costs for illegal parking. He contended that under Campana both the drunk driving and illegal parking charges should have been pressed in a single proceeding. However, in Commonwealth v. Beam, 227 Pa. Super. 293, 324 A.2d 549 (1974), this court held that "the rule of Commonwealth v. Campana, should be applied only in those cases in which the first prosecution is brought after the date that case was decided." Id. at 301, 324 A.2d at 554. The prosecution against appellant for illegal parking was brought before Campana was decided.
The judgment of sentence is affirmed.
NOTES
[1] What follows is a synopsis of the trial testimony of the two arresting officers and a fellow officer who observed appellant after the arrest. Some of the facts are stated in Judge HOFFMAN'S opinion in Commonwealth v. Kloch, 221 Pa. Super. 324, 292 A.2d 479 (1972).
[2] See The Vehicle Code, supra § 1021, Act of July 13, 1959, P.L. 529, § 1; Act of July 14, 1961, P.L. 616, § 2; Act of November 10, 1965, P.L. 839, § 2, 75 P.S. § 1021.
[3] The Commonwealth did not state that "it would be substantially handicapped or concluded by the inadmissibility of the suppressed evidence." Commonwealth v. Kloch, supra at 327, 292 A.2d at 480.
[4] It should be noted that Miranda, in permitting general on-the-scene questioning without warnings, complements Terry v. Ohio, 392 U.S. 1 (1968), discussed infra at 573-74. "It is difficult to conceive how a policeman [could] avail himself of the [procedure] outlined in Terry v. Ohio, unless he is able to ask questions of the person he has stopped." Lowe v. United States, supra at 1394.
[5] In some jurisdictions, officers are not required to give Miranda warnings to drivers stopped for minor traffic offenses for which tickets are issued. See, e.g., State v. Tellez, 6 Ariz. App. 251, 431 P.2d 691, 25 A.L.R. 3d 1063 (1967). Appellant does not claim, and we therefore do not decide, that a driver is entitled to warnings when his detention depends solely upon his being illegally parked.
[6] It should be clear that in determining whether appellant's arrest was legal we cannot consider his statement that he pulled his car over in order to sleep, for the statement is not pertinent to the question of whether the troopers saw appellant operating his car. See Commonwealth v. Jacoby, 226 Pa. Super. 19, 311 A.2d 666 (1973).
[7] Appellant's counsel stated before the jury was selected that in his opinion a voir dire examination on pre-trial publicity would be ineffective and would cause further prejudice to appellant. He therefore declined to engage in such examination. Perhaps counsel was correct. He might, however, have requested individual voir dire, and the examination might have been opened in a very general way, as for example, "Do you know anything about this case?" Most trial judges have had the experience of prospective jurors replying that yes, they had read something or other about the case but did not recall what it was. A defendant's apprehensions that everyone knows about his case are quite often exaggerated. In any case, whether as a matter of tactics correct or not, counsel's decision has left us with a meager record.
[8] The February 23, 1972, article included this:
"[I]n the Kloch case, the then District Attorney Benedict broke the court-imposed secrecy on the suppression hearing in his comments to the press September 9. A person who breaks this rule is liable to contempt of court charges.
"Both Martin and Benedict said it is the first time they have heard of the local District Attorney's office appealing a court decision." Perhaps this is speculative or argumentative; a suspicious reader might decide something slightly sinister was going on. However, another reader might feel antagonism to the district attorney and sympathy to the person whose rights had apparently been ignored.
[9] There are statutorily proscribed qualifications, exemptions or exceptions that limit the discretion of jury commissioners in first-class counties, Act of May 10, 1949, P.L. 1066, § 2, 17 P.S. § 1252(c); second-class counties alone, Act of December 6, 1972, P.L. 1376, No. 292, § 6 and § 12, 17 P.S. § 1301.5 and § 1301.11; second- and second-class A counties, Act of May 11, 1925, P.L. 561, § 9, Act of April 7, 1927, P.L. 172, § 1, as amended, Act of June 16, 1972, P.L. 424, No. 123, § 1, 17 P.S. § 1279; second A and third-class counties, Act of May 17, 1939, P.L. 157, § 2, as amended, Act of May 11, 1973, No. 12, § 1, 17 P.S. § 1333. Franklin County is a county of the fourthclass; such specific proscriptions do not apply to it. Act of August 9, 1955, P.L. 323, § 210, as amended, Act of October 20, 1967, P.L. 470, No. 223, § 1, Act of September 9, 1971, P.L. 458, No. 107, § 1, 16 P.S. § 210.
[10] This conclusion is further supported by the fact that attorneys at law and doctors in active practice are expressly excluded from service in second-class counties and in second A and third-class counties. See footnote 9, supra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538763/ | 130 N.J. Super. 381 (1974)
327 A.2d 256
THERESA GIAMBUTTISTA, AND THOMAS GIAMBUTTISTA, HER HUSBAND, PLAINTIFFS,
v.
BRADLEES INCORPORATED, AND CHRISTINA BRYANT, DEFENDANTS.
Superior Court of New Jersey, Law Division.
Decided October 3, 1974.
*382 Mr. Robert J. Sussman for plaintiffs.
Mr. Arnold E. Brown for defendants.
DWYER, J.S.C.
On February 9, 1973 Theresa Giambuttista (plaintiff) filed a Complaint against Bradlees Incorporated ("shopkeeper") and Christina Bryant ("employee"), an employee of shopkeeper charging employee and shopkeeper, through employee, with assault and battery, and in a separate count charging employee with maliciously and intentionally committing an assault and battery. The alleged date of commission was April 19, 1972. Answers on behalf of shopkeeper and employee were filed by an attorney, obtained by shopkeeper, on April 30, 1973 and May 18, 1973. The answer contained a denial and then set forth separate defenses of self-defense and provocation, among others.
On July 28, 1974 a separate attorney for employee filed a notice of motion for permission to file a counterclaim on behalf of employee against plaintiff to recover for injuries employee allegedly suffered. Said notice was addressed to all the attorneys of record, including the defense attorney. In an affidavit attached to the notice of motion the employee states:
I desire to press a claim against the Plaintiff * * * for damages resulting from injuries sustained from the assault and battery committed upon me by the Plaintiff * * * * I believed that such a claim *383 was being handled by [attorney of employer who filed answer for employee] but I have now been advised to secure my own personal attorney.
Plaintiff opposes the motion on the ground that the claim is barred by the two-year statute of limitations for personal injury, N.J.S.A. 2A:14-2; i.e., the statute barred the claim on April 19, 1974, three months before the motion was filed. Failure of plaintiff to oppose might be construed as a waiver. See Consolidated Motor Lines v. M & M Transport Co., 128 Conn. 107, 20 A.2d 621 (Sup. Ct. Err. 1941).
Employee contends that the motion should be granted on the ground that where a counterclaim would not have been barred on the date the complaint was filed, a counterclaim is not considered untimely, even though it is filed in the action at a time when, if it were filed in an independent action, it would be barred by the statute of limitations, citing Atlantic City Hospital v. Finkle, 110 N.J. Super. 435, 440 (Cty. Ct. 1970).
Defense attorney filed nothing in opposition and made no appearance.
If the claim had been set forth and filed with the answer, it would have been proper under R. 4:7-1.
Even if the statute of limitations had run on the employee's claim between the filing of the complaint and the filing of the answer, such as may occur when a plaintiff files on the last day, or a few days before the end of the period of limitations, some decisions indicate that justice requires such a counterclaim not be barred by the statute of limitations. A contrary holding would encourage many plaintiffs with weak claims to file on the last day to avoid counterclaims. See Azada v. Carson, 252 F. Supp. 988 (D. Hawaii 1966).
This matter does not present such a situation. The counterclaim is being asserted by a supplemental pleading after timely answer and subsequent running of period of limitations.
In 51 Am. Jur.2d, Limitation of Actions, § 200 at 767, it is stated:
*384 * * * According to the weight of authority, unless the limitation statute otherwise provides, a counterclaim or setoff which is not barred at the commencement of an action in which it is pleaded does not become barred afterward during the pendency of the action; in other words, if a right of action relied upon as a setoff or counterclaim is alive at the time of commencement of this suit against the owner of such right, the statute of limitations does not bar his right to assert it in that action, even though the full statutory period expires during the pendency of the action and before the claim is or can be pleaded. There is, however, considerable authority for the view that the statute continues to run against the counterclaim or setoff until it is actually pleaded in the action, * * * [Emphasis supplied]
Further, if a counterclaim is not asserted in the answer when filed but by way of supplemental pleading, and the statute of limitations has run at the time of asserting the counterclaim, even though it had not run at the commencement of the action, then it is barred. Id. at 768. See also, 34 Am. Jur., Limitations of Actions, § 65.
Counsel has not referred the court to any New Jersey case deciding the question. The court has found none. Atlantic City Hospital v. Finkle, supra, and Gibbins v. Kosuga, 121 N.J. Super. 252 (Law Div. 1972) are distinguishable.
In Gibbins plaintiffs, purchasers of land, sued defendants for breach of warranty more than six years after closing. Defendants answered and filed a counterclaim based on notes that were barred by the six-year statute of limitations, which notes were given as part of the purchase price.[1] In summary, the court held that plaintiffs' cause of action did not accrue until the breach was discovered but defendants' counterclaim was barred. However, the court concluded that defendant had the right to plead and use the notes as recoupment against the amount due plaintiff:
* * * The fact that recoupment seeks the reduction of a claim because of an offsetting claim arising out of exactly the same transaction would seem in logic and in equity to justify treating it differently *385 than a set-off which seeks a reduction because of an offsetting claim arising out of a totally unrelated transaction. To hold differently would be to permit the inequity of one party to a transaction demanding full performance from the other while refusing to perform fully itself. [at 258]
In Atlantic City Hospital v. Finkle, supra, plaintiff hospital sued to collect its bill for defendant's hospitalization in August, September and October 1966. Suit was commenced in February 1968. With consent an answer and counterclaim in three counts was filed in October 1969. The first count of the counterclaim alleged a breach of warranty by the hospital in rendering the services for which it sought payment with resultant personal injuries. The court held that the first count of the counterclaim could be used as a basis for recoupment. 110 N.J. Super. at 440.
The second count was negligence resulting in personal injuries. Defendant voluntarily abandoned this.
In the cases just referred to, the courts dealt with the problem as one of recoupment. In this action, the problem is whether there can be affirmative relief.
The reasoning underlying the general rule, stated above that if, when the plaintiff commences the action, defendant has a counterclaim not then barred by the statute of limitations, then the statute will not bar the counterclaim during the pendency of the action is intended to protect the defendant in two situations.
First, if plaintiff commences the action late, so that the statute of limitations will run before defendant can assert his or her claim out of the same transaction, then defendant should have a chance to assert the claim. This explains the language in some cases, that plaintiff has agreed, or is deemed to have agreed, to a waiver of the statute of limitations. See Azada v. Carson, supra.
The second is that if a defendant has asserted his claim, either before the statute has run or under the circumstances discussed in the preceding paragraph, the claim is asserted just as much as if defendant had a complaint as a plaintiff *386 and, therefore, the expiration of the period of limitations thereafter is immaterial. The action required to meet the purpose of the statute of limitations has been taken.
However, neither reason for justification is present where a party files an answer and lets the period of limitation expire before giving notice to the other side of an intent to assert a claim.
In recoupment, which is applied in many contract cases, equity is done by allowing a defendant to show plaintiff's lack of performance and limiting plaintiff's recovery to such amount in excess of such damages as is found. Each party should have knowledge of the facts surrounding the events.
In personal injury tort actions there is an important difference in respect to the element of damages. Damages are largely awarded upon changes that have occurred to the person's body. A lapse of time without the chance for medical investigation of the claimant may adversely prejudice the other party.
In Atlantic City Hospital v. Finkle, supra, defendant's claim for recoupment against the bill for services would pose problems of medical investigation. But plaintiff certainly had available medical information on defendant which the average party would not.
Although this motion is not made by the attorney who filed the answer, the court has considered R. 4:7-4 and inquired of counsel making the motion as to the background. It was represented to the court that employee had counsel of her own choice in connection with a municipal court hearing shortly after the events in question. So far as such counsel knew, no claim was asserted in workmen's compensation. Employee did not consult counsel about any claim against the present plaintiffs.
At the time this motion was made, the case had already been listed for a weekly trial call.
To the extent that the defenses of self-defense and provocation have been pleaded, employee will be able to use the facts to dispute liability on both counts.
*387 To the extent, if any, of the existence of any problem of employee's understanding about either representation or personal exposure for liability, that problem should be resolved elsewhere.
This court holds that the counterclaim sought to be asserted is barred by N.J.S.A. 2A:14-2. Under R. 4:7-4 the court should consider the fact that the period of limitations has run, as well as the absence of persuasive evidence to establish "oversight, inadvertence, or excusable neglect." The affidavit quoted above does not establish when employee learned her claim should be handled by another attorney.
The nature of the claim sought to be asserted is not accurately known, for no copy of the proposed counterclaim has been filed. If it involves physical injury, plaintiff will have to conduct the medical investigation of employee after the period of limitations has expired, which period was established to set a limit for such purposes.
Employee's motion to assert a counterclaim is denied.
NOTES
[1] The counterclaim was stricken on motion on the ground that it was barred by the statute of limitations. 121 N.J. Super. at 255. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538761/ | 165 Conn. 73 (1973)
STATE OF CONNECTICUT
v.
JASPER ROBERSON
Supreme Court of Connecticut.
Argued April 3, 1973.
Decided June 5, 1973.
HOUSE, C. J., SHAPIRO, LOISELLE, MACDONALD and BOGDANSKI, JS.
*74 John R. Williams, special public defender, for the appellant (defendant).
Jerrold H. Barnett, assistant state's attorney, with whom, on the brief, were Arnold Markle, state's attorney, and John T. Redway, assistant state's attorney, for the appellee (state).
HOUSE, C. J.
This is an appeal from an order of the Superior Court revoking the suspension of a sentence imposed on the defendant. The sole assignment of error is that the court erred in concluding that the defendant violated the terms of his probation on being convicted of a crime.
The court's finding of facts is not disputed. In December, 1969, the defendant was found guilty of possession or control of heroin. On January 9, 1970, a sentence was imposed of not less than two nor *75 more than five years in the state prison, execution of the sentence was suspended and the defendant was placed on probation for three years. On June 30, 1971, while he was on probation, he was found guilty of the crime of robbery, and on October 1, 1971, he was found guilty of still another crime, robbery with violence. At the time of the hearing concerning the revocation of his probation, the judgment on the June, 1971, conviction had been appealed and the judgment on the October 1, 1971, conviction, according to the defendant's counsel, probably would be appealed.
The hearing concerning the violation of probation was held on October 8, 1971. The defendant was present and was represented by his present counsel as a special public defender; also present at the hearing were an assistant state's attorney and an official of the department of adult probation. The probation department's report concerning the defendant was admitted as an exhibit and both the defendant and his counsel examined it. The report, entitled "Report of Violation," recited that the defendant had been placed on probation on January 9, 1970, and that on January 18 he was arrested on two counts of robbery with violence for an offense which had taken place on January 13four days after the defendant had been placed on probation. The report then recited the details of the January 13, 1970, robbery offense, that the defendant was convicted of that crime on a jury trial and on July 9, 1971, was sentenced to state prison for a term of not less than two or more than four years. It also noted that there was then pending against the defendant still another charge of robbery with violence. Asked by the court if he agreed with the contents of *76 the probation report, the defendant said, "Yes." The hearing afforded the defendant ample opportunity to explain or disclaim the reported violations of probation, but he personally expressed his agreement with the report of his conduct and convictions and offered nothing by way of explanation or disclaimer except that the convictions were subject to appeal. The court also took judicial notice of the files in the defendant's cases. It revoked probation and ordered that the January 9, 1970, sentence be executed. The court concluded that "[t]he defendant has violated the terms of his probation included in the sentence imposed on January 9, 1970, upon being convicted of a crime."
The defendant claims that the court's conclusion cannot support the order of revocation for two reasons. One is that the judgment originally granting probation constituted an illegal delegation of judicial authority. That judgment provided, in pertinent part, that the defendant was to be "placed in charge of the Probation Officer of the Superior Court for New Haven County for the term of three years, and further ordered that said prisoner report to said Probation Officer as required by said officer and in all respects comply with said officer's orders in accordance with the rules relating to probation officers."
There is authority that, in the absence of statute or under the provisions of statutes different from those of this state, the terms of probation, to be valid, must be expressly enunciated by the sentencing court.[1] See, e.g., In re Collyar, 476 P.2d 354, *77 357 (Okla. Crim. App.). Here, however, the sentencing court incorporated the probation department's standard terms by virtue of the last clause of its order. "Standard probation conditions need not be recited in open court." United States v. Markovich, 348 F.2d 238, 240 (2d Cir.); see also Manning v. United States, 161 F.2d 827 (5th Cir.), cert. denied, 332 U.S. 792, 68 S. Ct. 102, 92 L. Ed. 374; Whitehead v. United States, 155 F.2d 460, 462 (6th Cir.), cert. denied, 329 U.S. 747, 67 S. Ct. 66, 91 L. Ed. 644; Dugas v. State, 12 Md. App. 165, 166, 277 A.2d 620. Furthermore, there is no claim here that the defendant was not aware that commission of a crime would render his probation subject to revocation.
It is universally held that the commission of a felony violates a condition inherent in every probation order. See United States v. Markovich, supra; Whitehead v. United States, supra; State v. Oliver, 247 A.2d 122, 124 (Me.); People v. Compton, 38 A.D. 2d 788, 328 N.Y.S.2d 72; State v. Hall, 4 Ore. App. 28, 476 P.2d 930; Marshall v. Commonwealth, 202 Va. 217, 219-20, 116 S.E.2d 270. The history of this state's statute, which shows that statutory conditions of probation have, over the years, been added and deleted, in no way affects the validity of the inherent condition to refrain from committing felonies. Had the sentencing court in this case merely placed the defendant on probation and said no more, commission of a felony would nevertheless constitute a violation sufficient to authorize revocation of probation.
Another contention of the defendant is that "being convicted of a crime" is not by itself a sufficient *78 ground for revocation of probation in the absence of an express finding by the revoking court that the defendant actually committed the crime of which he has already been convicted and that the crime was committed while the defendant was on probation. He relies on the fact that the court did not make an express finding that the defendant did the acts which led to his conviction but only found that the defendant "has violated the terms of his probation... upon being convicted of a crime." The ardor with which this contention has been pressed is in strong contrast to its lack of merit. As we have already noted, the defendant agreed with the contents of the violation report of the probation department. That report, whose contents were expressly made a part of the court's finding, recited the facts leading to the defendant's arrest and conviction for robbery, the fact and the date of the conviction and that the incident occurred on January 13, 1970, four days after the defendant was placed on probation. The report itself recites and simple logic demonstrates that the conviction relied on by the court occurred, and was premised on behavior that could only have occurred, while the defendant was actually on probation. The defendant admitted as much at the hearing.
The defendant's final argument is that a finding of conviction of a crime, at least where an appeal from the conviction is pending, is not a sufficient ground for revocation of probation. Some jurisdictions apparently do require an independent inquiry into the conduct underlying a conviction which is subject to appeal, although in those jurisdictions the burden of proof of the conduct is much less than "beyond a reasonable doubt" and the strict criminal *79 evidentiary rules do not apply. See, e.g., People v. Compton, supra; Jansson v. State, 473 S.W.2d 40, 42[2] (Tex. Crim. App.); Bassett, "Discretionary Power and Procedural Rights in the Granting and Revoking of Probation," 60 J. Crim. L.C. & P.S. 479, 485.
The vast majority of jurisdictions, however, hold that a finding of either conviction, whether or not final, or commission of the act, is sufficient to support an order of revocation. See, e.g., United States v. Carrion, 457 F.2d 808, 809 (9th Cir.); United States v. Knight, 413 F.2d 445 (5th Cir.), cert. denied, 396 U.S. 903, 90 S. Ct. 217, 24 L. Ed. 2d 179; United States v. Markovich, supra; People v. Lynn, 271 Cal. App. 2d 670, 674, 76 Cal. Rptr. 801; State ex rel. Roberts v. Cochran, 140 So. 2d 597, 599-600 (Fla.); People v. Johnson, 121 111. App. 2d 97, 257 N.E.2d 121, 124; State v. Ward, 182 Neb. 370, 154 N.W.2d 758; State v. Hill, 266 N.C. 107, 111, 145 S.E.2d 349; State v. Hall, supra. Generally, the distinction arises where the conviction is reversed on appeal. If revocation is based on a finding of conduct, then a reversal of a conviction resulting from the conduct ordinarily does not affect the revocation; but if conviction is the sole ground for revocation and the conviction is reversed, then the basis for the revocation no longer exists. People v. Lynn, supra, 803; State ex rel. Roberts v. Cochran, supra, 600; State v. Hill, supra, 352; State v. Blackwelder, 263 N.C. 96, 98, 138 S.E.2d 787; note, 59 Colum. L. Rev. 311, 332-33.
*80 There are several cogent reasons for allowing proof of conviction alone to sustain revocation.[3] In this state a probationer is afforded a hearing with respect to revocation. General Statutes § 53a-33. This was also true before the adoption of the Penal Code which became effective October 1, 1971. See former § 54-114, since repealed. If the probationer should not be the person referred to in the conviction, for example, he has an opportunity for explanation. See also Morrissey v. Brewer, 408 U.S. 471, 92 S. Ct. 2593, 33 L. Ed. 2d 484, which concerns the related area of parole revocation. Since the standard of proof for revocation is substantially lower than that for conviction (General Statutes § 53a-32 [b]), a conviction is deemed to constitute such overwhelming evidence of commission that the terms functionally are interchangeable in this context. See, e.g., State v. Zachowski, 53 N.J. Super. 431, 437, 147 A.2d 584. If the conviction should be reversed on appeal, the probationer is protected in that revocation based on conviction alone will be withdrawn if the conviction is successfully appealed.
The standard of review of an order revoking probation is whether the trial court abused its discretion; if it appears that the trial court was reasonably satisfied that the terms of probation had been violated and, impliedly, that the beneficial purposes of probation were no longer being served, then the order must stand. United States v. Carrion, supra; *81 United States v. D'Amato, 429 F.2d 1284, 1286 (3d Cir.); United States v. Nagelberg, 413 F.2d 708, 710 (2d Cir.), cert. denied, 396 U.S. 1010, 90 S. Ct. 569, 24 L. Ed. 2d 502; United States v. Markovich, 348 F.2d 238, 241 (2d Cir.); State v. Spicer, 3 Ore. App. 80, 471 P.2d 865; Tillinghast v. Howard, 109 R.I. 497, 501, 287 A.2d 749. Here the defendant, afforded a hearing and represented by counsel, admitted having been convicted of a felony and the admitted evidence showed that the underlying act was committed by the defendant while on probation. The trial court acted well within its discretion in revoking probation.
The state has suggested that an order revoking probation is not a final judgment for the purposes of appeal and notes a decision of the Appellate Division of the Circuit Court which held, in the circumstances of that case, that the order was not appealable. See State v. Saavedra, 5 Conn. Cir. Ct. 367, 372, 253 A.2d 677. "In a criminal case the imposition of sentence is the judgment of the court." State v. Moore, 158 Conn. 461, 463, 262 A.2d 166; State v. Smith, 149 Conn. 487, 489, 181 A.2d 446. In the days when probation was considered as purely a matter of grace, its revocation logically was considered to be a matter almost entirely within the discretion of the court. A defendant could appeal only from the original sentence; the revocation of probation, if it was to be attacked at all, could be attacked only by habeas corpus proceedings. See, e.g., Belden v. Hugo, 88 Conn. 500, 91 A. 369.
Under our present day procedure, a revocation of probation and an order for execution of sentence may be ordered only after a full hearing at which the defendant is afforded his rights to counsel, to *82 cross-examine witnesses and to present evidence in his own behalf. General Statutes § 53a-32; see Mempa v. Rhay, 389 U.S. 128, 88 S. Ct. 254, 19 L. Ed. 2d 336. The inquiry preceding a revocation of probation concerns matters totally independent of the original conviction, the decision of the court marks the final disposition of a judicial proceeding authorized by statute and it is, in effect, a final modification of the sentence which is the judgment of the court in the proceedings against the defendant. We conclude that the order revoking probation and implementing the sentence of confinement with its consequent deprivation of the defendant's liberty meets the test of a final judgment as prescribed in § 52-263 of the General Statutes. "A final judgment is the adjudication which finally disposes of the case before the court." State v. Moore, supra; and, as this court stated in Howarth v. Northcott, 152 Conn. 460, 462, 208 A.2d 540: "The test of a final judgment lies, not in the nature of the ruling, but in its effect in concluding the rights of the party appealing; if his rights are concluded so that further proceedings after the ruling cannot affect them, there is a final judgment."
There is no error.
In this opinion the other judges concurred.
NOTES
[1] The present statutory provisions, not in effect at the time the defendant was placed on probation, expressly allow either the judge or the probation department, or both, to impose reasonable conditions. See General Statutes § 53a-30.
[2] Even in Texas, however, an admitted conviction may constitute a valid sole ground for revocation. Rosemond v. State, 482 S.W.2d 871, 872 (Tex. Crim. App.).
[3] The United States Supreme Court recently stated in the context of parole revocation that "[o]bviously a parolee cannot relitigate issues determined against him in other forums, as in the situation presented when the revocation is based on conviction of another crime." Morrissey v. Brewer, 408 U.S. 471, 490, 92 S. Ct. 2593, 33 L. Ed. 2d 484. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538795/ | 4 B.R. 481 (1980)
In re Donald R. (Ray) NICKELS, Judy E. (Elaine) Nickels, Debtors.
Bankruptcy No. 2-79-03121.
United States Bankruptcy Court, S.D. Ohio, E.D.
January 8, 1980.
*482 Mitchel D. Cohen, Columbus, Ohio, for debtors.
ORDER DENYING CONFIRMATION
R.J. SIDMAN, Bankruptcy Judge.
This matter is before the Court on the requested confirmation of the Chapter 13 plan proposed by Donald and Judy Nickels. The plan, as amended, calls for the payment of $280.00 per month, the payment of all secured creditors provided for by the plan to the full value of their security, the payment of an unsecured creditor of these debtors, namely Beneficial Finance Company, 100% of its claim, and payment of no dividend to all other unsecured creditors. The first mortgage on the debtors' real estate is to be paid directly by the debtors outside the plan. The proposed length of this Chapter 13 plan is fifty-one (51) months.
This case is another in a series of decisions rendered by this Court in its attempt to interpret the provisions of Chapter 13 of the Bankruptcy Code. The interpretation process has been evolutionary in nature, giving due regard for the legislative intent behind the enactment of Chapter 13, but also giving effect to the explicit provision of the statute as finally passed by Congress. There is also the matter of dealing with the historical practices developed under the now-displaced Chapter XIII, and meshing that practice with the new Code provisions. Quite clearly, Congress intended by enacting both Chapter 7 and Chapter 13, to provide debtors a choice of different remedies in terms of solving their financial difficulties. The alternatives are not, in this Court's judgment, interchangeable. Each remedy has its own purpose and requirements. The debtors in this proceeding have chosen the remedy of Chapter 13 and the Court must examine the requirements of that remedy in passing upon confirmation.
The debtors have chosen to classify claims and provide for a differing treatment of an unsecured claimant, Beneficial Finance, on the one hand, and all other unsecured claimants on the other. This difference in treatment is alleged to be justified by the fact that Beneficial Finance Company has a co-signer on its obligation, namely Homer Nickels, the father of the debtor Donald R. Nickels. Confirmation of this plan must be denied for two reasons. First of all, no cause has been shown to this Court why the plan provides for payments *483 over a period that is longer than three years. Thus, a test for confirmation set forth in § 1322(c) of the Bankruptcy Code has not been met by these debtors. Second, the clear intent of Congress in allowing classification of claims in a Chapter 13 proceeding was to subject such classification to a test of "fairness". See 11 U.S.C. § 1322(a)(3) and (b)(1). The debtors in this case have merely presented the classifications to the Court calling for the payment of a co-signed unsecured debt, namely Beneficial Finance Co., in full, and the payment of no dividend whatsoever to all other unsecured claimants. Of course, during the pendency of this plan, the debtors propose to maintain and use their personal property, paying its valuation to secured claimants through the plan, and maintain payments on their first mortgage outside the terms of the proposed plan. The net result of this plan is, in effect, the same as a Chapter 7 bankruptcy proceeding, with Court sanctioned reaffirmations of secured debt to the value of the collateral and of the co-signed debt. The Court does not believe that this is a proper use of the provisions of Chapter 13 and the Court finds that the classification chosen by these debtors, in terms of the debts they are willing to pay in their plan, and those they wish not to pay, does meet a standard of "fairness" mandated by the Code. If the debtors wish to receive a discharge in bankruptcy, with selective reaffirmation of certain debt, they should choose the remedy provided for that purpose by Congress Chapter 7 of the Bankruptcy Code.
Based upon the foregoing findings, the Court hereby determines that confirmation of the proposed Chapter 13 plan of these debtors should be, and the same is hereby, denied.
IT IS SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538796/ | 4 B.R. 217 (1980)
In re John Calvin HOUGH, Debtor.
Bankruptcy No. 77-02137-P.
United States Bankruptcy Court, S.D. California.
May 6, 1980.
Louise D. Malugen, San Diego, Cal., trustee, pro se.
*218 Annette C. Hough, claimant, pro. per.
John Calvin Hough, bankrupt, pro. per.
Jack Krakauer, Passaic, N.J., and Hunter M. Muir, San Diego, Cal., for Harvey W. Totten.
MEMORANDUM DECISION RE: TRUSTEE'S OBJECTION TO CLAIM NO. 6
ROSS M. PYLE, Bankruptcy Judge.
This matter came on regularly for hearing before this Court on January 25, 1980, Louise D. Malugen, Trustee, appearing pro se; Annette C. Hough, Claimant, appearing in pro. per.; John Calvin Hough, Bankrupt, appearing in pro. per.; and Jack Krakauer and Hunter Muir, Attorneys at Law, appearing for Harvey W. Totten, a creditor of the bankrupt. The matter was continued to February 29, 1980, at which time the aforementioned parties made like appearance. The Court having considered the evidence both oral and documentary, the arguments and briefs of the parties and good cause appearing therefor, makes its Memorandum Decision as follows:
I
On, November 16, 1977, Annette C. Hough (hereinafter referred to as "Claimant") filed her general unsecured claim in the amount of $250,000.00 in the within bankruptcy, which claim was designated claim no. 6. The basis for this claim was listed as a "marital settlement".
On December 7, 1979, the Trustee filed her Objection to Claim No. 6 on the grounds that there was no evidence or proof of the marital settlement attached to the claim.
At the time of the hearing on January 25, 1980, the Court received into evidence Claimant's "Property Settlement Agreement", dated March 1, 1976. That Agreement purported to transfer all of the bankrupt's right, title and interest in and to a bar business known as the The Full Moon to the Claimant as her sole and separate property in consideration of certain "marital differences" between the Claimant and the bankrupt.[1]
Claimant, in her Declaration, in Support of Creditor's Claim No. 6, filed February 25, 1980, partially withdrew her claim leaving a balance claimed of $22,000.00 pursuant to the "Property Settlement Agreement".
II
At the conclusion of an earlier adversary proceeding between these parties, this Court on April 6, 1978, entered its Judgment and Order Setting Aside Fraudulent Conveyance pursuant to Findings of Fact and Conclusions of Law re: Fraudulent Conveyance[2]. The Court there determined that the transfer of the liquor license of the Full Moon by the Bankrupt to Anjoni, Inc., a corporation wholly owned by the Claimant, was a fraudulent conveyance under California Civil Code § 3439.04 and, therefore, null and void pursuant to § 70e(1) of the Bankruptcy Act [11 U.S.C. § 110e(1)]. Pursuant to that decision, the Claimant returned to the Trustee all proceeds received from her sale of the liquor license. It is the proceeds from that sale that forms the basis for the Claimant's claim against the estate in the amount of $22,000.00 plus interest at the rate of 7% per annum.
Under § 57g of the Bankruptcy Act [11 U.S.C. § 93g], the Claimant can file her unsecured claim against the estate upon surrender of the proceeds from the fraudulent conveyance.[3] However, as with any other creditor, the Claimant must still prove *219 that the bankrupt is indebted to her in the amount of her proof of claim.[4]
If the claimant had given consideration for the transfer by the Bankrupt to her of the Full Moon's liquor license, then she may have a basis for her claim against the estate for the amount of this consideration. Buffum v. Barceloux Co., 289 U.S. 227, 53 S. Ct. 539, 77 L. Ed. 1140 (1933); Gelinas v. Buffum, 67 F.2d 380 (9th Cir. 1933); Barks v. Kleyne, 15 F.2d 153 (8th Cir. 1926); Wells v. Lincoln, 214 F. 227 (9th Cir. 1914). However, in the aforementioned Findings of Fact and Conclusions of Law re: Fraudulent Conveyance, the Court reached the conclusion of law that the transfer of the liquor license by the Bankrupt to Anjoni, Inc. was made without fair consideration.
The Court in Misty Management Corp. v. Lockwood, 539 F.2d 1205 (9th Cir. 1976), summarized such a situation as follows:
"Older versions of the Bankruptcy Act did contain provisions penalizing recipients of a fraudulent conveyance. Those provisions have been eliminated, however, and the modern view is that a transferee guilty of a fraudulent behavior may nevertheless prove a claim against the bankrupt estate, once he returns the fraudulently conveyed property to the estate. [citations omitted] A rule to the contrary would allow the estate to recover the voidable conveyance and retain whatever consideration it had paid therefore. Such a result would clearly be inequitable." (emphasis added) Id. at 1214.
Thus, that Court held that the transferee should be allowed to prove whatever claim it would have had in the absence of its fraudulent behavior.
This Court has concluded that Claimant gave no consideration for the transfer by the bankrupt of the Full Moon liquor license to her. Therefore, she has no claim against the estate.
III
At the time the bankrupt and the Claimant entered into the Property Settlement Agreement, the liquor license of the Full Moon was community property and there were numerous trade creditors of the Full Moon. By the terms of this agreement, the bankrupt and claimant intended to change the status of the license to the sole and separate property of the Claimant.
The Court in Wikes v. Smith, 465 F.2d 1142, 1147 (9th Cir. 1972), in an analogous situation, held that an agreement transferring community property to the wife as her sole and separate property could not affect the rights of the creditors of the husband since they had extended credit while the property retained its community status.
"The principle of law which we find controlling in this case has been articulated most frequently by the courts of California where the transformation of property from community to separate has resulted not from a mere agreement but from a court decree which on its face purported to vest the wife with an absolute and unlimited interest in such property. One of the earliest cases, Frankel v. Boyd, 106 Cal. 608, 39 P. 939 (1895) defined the limits of the interest taken by the wife under such a decree by upholding the contention that `the authority of the court to assign all the community property to one of the spouses must be taken and construed as meaning the residue of such property after the payment of existing debts of the husband contracted on the faith of such property.' The court made it perfectly clear that the same principle would apply where the transformation was effected by agreement of the spouses.
`Had the husband, by a voluntary conveyance, transferred all the community property to his wife, leaving himself without means, it is not to be doubted but that the property would have been liable to his creditors for existing debts.' [39 P. at 941]
*220 This conclusion, of course, also would apply where, as here, the husband retains some property but not enough to satisfy his creditors' claims." 465 F.2d at 1147.
Although this case was decided prior to the amendments to the California community property laws giving both spouses equal management and control of the community property,[5] this Court feels the reasoning of Wikes v. Smith, supra, would not thereby be undermined.
Prior to the amendments to the California community property laws, the liability of the community property for the debts of the spouses was coextensive with the right of management and control. The preamble to these amendments indicates that it should remain so; thus the retroactive effect of the amendments would not impair the rights of creditors. [See Pedlar, The Implications of the New Property Laws for Creditors Remedies in Bankruptcy, 63 Calif.L.Rev. 1610 (1975)].
Therefore, the community property which the bankrupt and the Claimant attempted to transfer to the Claimant by the Property Settlement Agreement remains liable for debts to creditors who extended credit while the property retained its community status.
IV
Based on the foregoing, the Court finds that Claim No. 6 should be disallowed in its entirety.
The foregoing shall constitute Findings of Fact and Conclusions of Law pursuant to Bankruptcy Rule 752.
The Trustee shall submit her order pursuant to this Memorandum Decision within ten (10) days from the date hereof.
NOTES
[1] The subject "Property Settlement Agreement" is not a formal agreement as a part of a dissolution but merely an agreement between the parties. The Court understands that, although the parties are apparently separated, they have never gone through a formal dissolution.
[2] Malugen v. Anjoni, Inc. etc., et al., No. 77 02137, Compl. 2 (S.D.Cal.1978).
[3] § 57g provides as follows:
"The claims of creditors who have received or acquired preferences, liens, conveyances, transfers, assignments or encumbrances, void or voidable under this [Act,] shall not be allowed unless such creditors shall surrender such preferences, liens, conveyances, transfers, assignments or encumbrances."
[4] This is not overlooking the fact that a proof of claim prima facie establishes the claim. However, the burden of proof remains on the claimant although the objector initially must go forward and produce evidence to rebut this prima facie case. 3 Collier on Bankruptcy, ¶ 57.18[5] (14th Ed. 1977).
[5] See California Civil Code §§ 5100 et seq. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538797/ | 66 N.J. 32 (1974)
327 A.2d 658
GERARDO CATENA, PLAINTIFF-RESPONDENT,
v.
RICHARD A. SEIDL, SUPERINTENDENT OF YOUTH RECEPTION AND CORRECTION CENTER, YARDVILLE, NEW JERSEY, DEFENDANT-APPELLANT.
The Supreme Court of New Jersey.
Argued September 23, 1974.
Decided November 6, 1974.
*33 Mr. Martin G. Holleran argued the cause for defendant-appellant (Mr. Anthony G. Dickson, of counsel and on the brief).
Mr. Robert L. Weinberg, of the District of Columbia bar, argued the cause for plaintiff-respondent (Mr. S.M. Chris Franzblau, of counsel and on the brief; Messrs. Franzblau, Cohen & Falkin, attorneys).
PER CURIAM.
Gerardo Catena, a suspected member of the hierarchy of organized crime, was subpoenaed to appear and testify before the New Jersey State Commission of Investigation (hereinafter S.C.I.) which has been conducting a continuing investigation into the activities of organized crime in this State. He appeared at two private hearings before the S.C.I. (November 18, 1969 and February 17, 1970), but refused to answer some 80 questions relating to organized crime even though granted testimonial immunity pursuant to N.J.S.A. 52:9M-17. Accordingly, he was cited for contempt by the Superior Court, Law Division, which, on March 4, 1970, ordered that Catena be committed *34 until such time as he purged himself of contempt. To date he has refused to testify although concededly able to do so and possessing information relevant to the S.C.I.'s continuing investigation.
In December 1973 Catena sought to be released on the ground that his confinement had lost its coercive impact and had become punitive. At the hearing on his application, he presented no testimony or other evidence[1] and limited his argument to the contention that his age, condition of health and his persistent silence for four years established a prima facie case that his commitment had failed as a coercive measure. The trial court agreed with this argument and ordered that Catena be released forthwith.
This Court disagreed. In our opinion, Catena v. Seidl, 65 N.J. 257 (1974), it was noted that Catena was still in contempt and subject to the order committing him until he purged himself by testifying; that the S.C.I. was not required to demonstrate the continued efficacy of such order and that Catena had the burden of showing that the commitment, lawful when ordered, had lost its coercive impact and had become punitive. We held that "[h]e has not done so on the present record." 65 N.J. supra, at 264.
In his December 1973 complaint Catena had also raised the issue of a statutory defense under 18 U.S.C.A. § 2515 to a contempt resulting from illegal surveillance. It was also alleged that the subpoena to testify issued by the S.C.I. stemmed from illegally obtained information and was constitutionally invalid. Catena asked for the right to present evidence in support of these allegations should his other contentions be rejected. However, the trial court, since it found that Catena's confinement no longer had any coercive impact and must be terminated, found it unnecessary to receive this evidence or rule on the legality of these contentions.
*35 As heretofore noted, this Court held that Catena had not shown that his continued incarceration had lost its coercive power. We therefore vacated the order for release. At the same time we found it impossible to consider Catena's additional contentions in the absence of a record. We remanded the matter to the trial court to hold an evidentiary hearing as to these matters and we retained jurisdiction for the purpose of reviewing the ruling of the trial court on the matters covered by the remand. 65 N.J. supra, at 265.
When the matter came before the trial court on July 29 and July 30, 1974, the hearing was expanded to include not only the matters covered by the remand, but also reconsideration of the question whether continued commitment of Catena would serve any coercive purpose.
At the conclusion of the hearing the trial court determined that the provisions of 18 U.S.C.A. § 2515 were inapplicable to the S.C.I.'s proceedings and that, even if the statute was pertinent, the S.C.I. had established that the information which formed the basis for the questions propounded to Catena was not obtained by illegal or unauthorized surveillance. Since the court found that the information on which the questions were based was not the result of illegal surveillance, it found no merit in Catena's additional contention that the subpoena ad testificandum issued to him by the S.C.I. stemmed from illegally obtained information.
We also reject the argument that the S.C.I. could not lawfully interrogate Catena as to his involvement in organized crime activities, but on a broader ground. The S.C.I. is a legislatively created body exercising broad statutory powers of investigation into organized crime and racketeering. Its purpose is to find facts which may subsequently be used as the basis for legislative and executive action. To deny it the power to question Catena on the ground that some background information on organized crime activities received from other governmental agencies had its source in unauthorized electronic surveillance, would completely *36 frustrate the legislative object.[2] This same basic contention was made in In re Zicarelli, 55 N.J. 249 (1970), aff'd 406 U.S. 472, 92 S. Ct. 1670, 32 L.Ed.2d 234 (1972). There we said the following:
With respect to the effort to learn whether evidence illegally obtained prompted the legislative investigation or the questions put to appellants, they cite no authority for the extraordinary proposition that such illegality will taint the legislative process. The suppression of the truth because it was discovered by a violation of a constitutional guarantee is a judge-made sanction to deter insolence in office. It is invoked in penal proceedings, and then only at the behest of a defendant whose right was violated. Farley v. $168,400.97, 55 N.J. 31, 47 (1969). Even there, the wisdom of a suppression of the truth is not universally acknowledged. Farley, supra, 55 N.J. at 50. Appellants ask us to go further, and to suppress the truth on behalf of a mere witness, to the end that he may choose to be silent. Still more, appellants ask that we visit the sanction upon the legislative process, even though that process cannot result in a judgment against them. Pressed relentlessly and without regard to all other values, the sanction thesis could indeed deny the Legislature access to facts, and even taint a statute adopted in response to facts illegally revealed, but we think such an extension would be absurd. [55 N.J. supra, at 274-275].
On the issue of whether Catena's continued incarceration had lost its coercive force, there was presented at the remand hearing affidavits from him and three of his attorneys, as well as the testimony of his wife and one of his daughters.
Based on this proof and Catena's continued silence since March 1970, as well as his age and condition of health, the trial court found that he had established by a preponderance of the evidence that he has not changed his position "and will, if no other decision is made, stay in jail without talking until he dies." The court therefore found that Catena's continued confinement had gone beyond the coercive stage and had become punitive and that he should be released.
The S.C.I. argues that the ex parte proofs submitted by Catena in affidavit and letter form are inadequate to support *37 his burden of proof and that the aforesaid finding should be reversed. Catena maintains his proofs are sufficient, but that if this Court orders a remand, the S.C.I. should be required to demonstrate the present need for his testimony.
This Court, because of the inadequacy of the record, is unable to review the correctness of the trial court's finding and determination that continued commitment of Catena will not serve any coercive purpose. In addition to the testimony of his wife and one of his daughters, to which the trial court did not give "too much weight," the only other proofs presented were affidavits submitted by Catena and three of his attorneys. These instruments were obviously prepared by counsel and are very carefully drafted in the light of our previous opinion. The only other item before the trial court consists of a letter-report from Dr. Bernstein as to the condition of Catena's health and submitted as part of the original January 1974 hearing.
Use of these ex parte proofs was improper since it prevented the S.C.I. from testing the veracity and credibility of content. In circumstances such as are present in this case, involving a determination as to subjective intent and purpose, factual issues should be resolved only on the basis of live testimony with opportunity for cross-examination. State v. Sherry, 46 N.J. 172, 175 (1965). True, the S.C.I. could have called as witnesses the persons involved, but that would have imposed an onus on the S.C.I. which it did not rightfully bear. It was Catena who had the burden of proof. He was required to show that his continued confinement had lost its coercive impact and had become punitive, and he was required to do so by competent proofs not ex parte affidavits and reports.
In light of the foregoing, the matter is hereby remanded to the trial court so that Catena may have the opportunity to present live testimony in support of his complaint. If he chooses to take the witness stand it will in no way affect his Fifth Amendment rights against self-incrimination and he will be required to testify only as to the subject matter *38 of the hearing, namely, whether there is a reasonable likelihood that continued incarceration will cause him to break his silence.
The S.C.I. will not be required to demonstrate the present need for Catena's testimony. Counsel conceded at the previous oral argument before us "that for the purposes of this appeal, his client was able to testify and had information relevant to the S.C.I.'s continuing investigation of organized crime." Catena, supra, 65 N.J. at 263.
The trial court is to give Catena a prompt hearing and shall make new or amended findings and determinations as required. We retain jurisdiction.
For remandment Chief Justice HUGHES, Justices JACOBS, HALL, SULLIVAN, PASHMAN and CLIFFORD and Judge KOLOVSKY 7.
Opposed None.
NOTES
[1] Following the hearing a doctor's letter-report as to Catena's state of health was submitted to the trial court.
[2] The information in question was compiled prior to 1968, the year of enactment of 18 U.S.C.A. § 2515. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538855/ | 458 Pa. 67 (1974)
Pennsylvania Human Relations Commission, Appellant,
v.
Chester Housing Authority.
Supreme Court of Pennsylvania.
Argued January 11, 1974.
October 16, 1974.
*68 Before JONES, C.J. EAGEN, O'BRIEN, ROBERTS, POMEROY, NIX and MANDERINO, JJ.
Sanford Kahn, for appellant.
Francis G. Pileggi, with him Pileggi and Desmond, for appellee.
OPINION BY MR. JUSTICE ROBERTS, October 16, 1974:
The Pennsylvania Human Relations Commission appeals from the order of the Commonwealth Court affirming with modification a unanimous Commission order. Chester Housing Authority v. Human Relations Commission, 9 Pa. Commw. 415, 305 A.2d *69 751 (1973). The Commission had ordered the Chester Housing Authority, inter alia, to take affirmative steps to remedy racial segregation found by the Commission to exist in four public housing projects administered by the Authority. Because the Commonwealth Court concluded that two of the Commission's findings of fact were not supported by substantial evidence,[1] it held unenforceable certain parts of the Commission's order. The Commission sought review of the Commonwealth Court's modification and we granted the petition for allowance of appeal.[2] We agree with the Commission that the record contains substantial evidence supporting its adjudication. We therefore reinstate those portions of the Commission's order stricken by the Commonwealth Court, and affirm that court's order so modified.
On May 1, 1970, the Commission filed a complaint alleging that the Authority maintained under its supervision four housing projects that were racially segregated in violation of section 5(h) of the Pennsylvania Human Relations Act.[3] It was also charged that actions of the Authority aided and abetted racial segregation of public schools in the City of Chester and therefore contravened section 5(e) of the Act.[4] The *70 Commission then by investigation determined that probable cause existed for crediting the allegations in its complaint.[5]
As part of its investigation, the Commission obtained the names of all persons who became tenants in the four projects from January, 1970 to May, 1971. From a list of present tenants a random selection of names was made. The sample revealed seventeen incidents of racial discrimination on the part of the Authority in the leasing of apartments. The incidents were scattered throughout the test period, and each example showed the same practice. When a black prospective tenant applied, he would be denied housing until a vacancy arose in a "black" project, even though there existed a vacancy in the "white" project.[6] Likewise, a white prospective tenant would not be offered an available apartment in a "black" project, but would instead be kept waiting until a vacancy occurred in the "white" project.
After an August 5, 1971, public hearing, the Commission entered a unanimous adjudication containing ten compound findings of fact[7] and five conclusions of *71 law.[8] The Commission accepted as true the proof of the seventeen individual acts of discrimination. It further found that as a result of a pattern of discrimination, the four projects in question were racially segregated. The findings continue by stating that the racial imbalance of these four projects increased the racial segregation of Chester public schools.[9] On the basis of these findings and the conclusions of law, the Commission ordered the Authority to cease and desist from its present tenant selection procedure and to affirmatively remedy the existing racial imbalance.[10]
The Authority excepted to almost every finding of fact, conclusion of law, and portion of the order, and took a timely appeal to the Commonwealth Court. After reviewing the evidence the lower court concluded that substantial evidence demonstrated "that certain tenants had been routed through [the Authority's] tenant placement procedure into projects whose tenant majority (usually entirety) corresponded to the tenant's race." 9 Pa. Commonwealth Ct. at 424, 305 A.2d at 755.[11] However, the Commonwealth Court did not affirm the Commission's order in toto, but rather set aside portions of it. Stricken from the order were the paragraphs directing the Authority to cease renting apartments in the "black" projects to blacks and in the "white" project to whites until the racial composition *72 in each reflected the overall racial composition in Chester's public housing; to design, have approved by the Commission, and implement a plan to bring about this uniform racial composition; to make monthly reports for two years to the Commission on the progress of the approved plan; and to meet with the Chester School District to draft a plan for the priority placement of tenants with school-age children in the to-be-integrated projects. Only the Commission appealed.[12]
Despite its agreement with the Commission's proof of racial discrimination, the Commonwealth Court believed that these violations of the Human Relations Act did not justify the Commission's order. Two complaints were voiced. The Commission had neither proved the duration of the unlawful discriminatory practices nor shown that these seventeen acts were the sole cause of the racial imbalance.[13] Aside from noting that the Human Relations Act does not explicitly require either that a particular number of acts must be proved or that *73 race must be the sole factor in bringing about discrimination before the Commission may order affirmative action, 43 P.S. § 959 (Supp. 1974), we find it unnecessary to address these assertions of the lower court. In our view, substantial evidence supporting the Commission's adjudication can be found in the figures of the racial composition of the four housing projects.
Evidence of the racial composition of the four housing projects was introduced without objection and has never been challenged. The figures amply demonstrate racial imbalance.[14]
White tenants Black tenants
Lamokin Village 0 346
McCaffery Village 347 0
Ruth L. Bennett Homes 0 385
William Penn Village 20 257
These statistics paint as vivid a picture of racial segregation as can be imagined. Two projects were occupied 100% by blacks, another almost 100%, and apartments in a fourth were occupied exclusively by whites.
Further testimony at the public hearing revealed this almost-100% segregation to be a long-standing pattern.[15] The manager of the Ruth Bennett project *74 testified that to his knowledge there had never been a white tenant there. Similarly, the manager of Lamokin Village stated that the six years from 1964 to 1970 never saw a white occupy an apartment there. Since at least 1956, the William Penn project, according to its manager, maintained approximately the same racial composition as that existing in 1969. Except for a few black families living there at some unspecified time in the past, McCaffrey has always been occupied exclusively by whites.
Nearly identical statistics were before this Court in Pennsylvania Human Relations Commission v. Chester School District, 427 Pa. 157, 233 A.2d 290 (1967). There, we upheld an extensive Commission order designed to desegregate Chester's public schools. Necessarily, we held that the Human Relations Act reached the problem of de facto segregation. "Had the Legislature intended to reach by the 1961 amendments only de jure segregation, its legislative pronouncements would have been unnecessary. The 1954 Brown[[16]] decision made it eminently clear that de jure segregation racial isolation produced by the acts of public officials is unconstitutional. A legislative pronouncement to this effect, and this effect only, would be mere gild on the lily." Id. at 169, 233 A.2d at 296.
This Court has not hesitated to follow the implications of Chester School District. In Balsbaugh v. Rowland, *75 447 Pa. 423, 290 A.2d 85 (1972), we were asked to decide the constitutionality vel non of an affirmative action plan initiated by the Harrisburg School District in part to correct de facto segregation in its schools. We concluded that corrective measures, including pupil assignment and bussing, were constitutionally permissible means of overcoming segregation whether de jure or de facto. Id. at 436-39, 290 A.2d at 92-93. And in school segregation situations[17] the Commonwealth Court has sedulously enforced the rights announced in our decisions. Philadelphia School District v. Human Relations Commission, 6 Pa. Commw. 281, 294 A.2d 410 (1972), aff'd sub nom., Uniontown Area School District v. Pennsylvania Human Relations Commission, 455 Pa. 52, 313 A.2d 156 (1973) (upholding *76 Commission order directing five school districts to remedy de facto segregation).
While these cases arose in the context of racially segregated schools, the statutory scheme does not treat housing differently from schooling for purposes of ending racial discriminations. "The opportunity for an individual . . . to obtain all the accommodations, advantages, facilities and privileges . . . of commercial housing without discrimination because of race . . . [is] declared to be [a] civil [right]. . . ." 43 P.S. § 953 (Supp. 1974).
Removal of racial discrimination and assurance of equal opportunity in housing are strong and fundamental policies of this Commonwealth. The Human Relations Act's declaration of policy makes this explicit. "The denial of equal . . . housing . . . opportunities because of [racial] discrimination . . . threaten[s] the peace, health, safety and general welfare of the Commonwealth and its inhabitants." 43 P.S. § 952(a) (Supp. 1974). In Chester School District, we reasoned that racial imbalance triggered the Commission's authority under the Human Relations Act to order affirmative action because to hold otherwise would ignore "completely the legislative conclusion that racial segregation in public schools, whatever its source, threatens `the peace, health, safety and general welfare of the Commonwealth and its inhabitants.'" 427 Pa. at 170, 233 A.2d at 297. Today we reach a similar conclusion with respect to racial imbalance in housing covered by the Act. Mindful of our statutory duty to construe the provisions of the Human Relations Act "liberally for the accomplishment of [its] purposes," 43 P.S. § 962(a) (1964), we conclude the purposes of the Act would be vindicated only by holding, see Chester School District, that the Act covers de facto segregation in housing.
*77 Courts have resolved that blacks (and other minority groups[18]) are entitled to a meaningful opportunity to live in integrated housing.[19]Otero v. New York Housing Authority, 484 F.2d 1122 (2d Cir. 1973), is instructive. The regulations of the New York Housing Authority required it to give preference in newly-built public housing to those residents whose homes had been destroyed in order to build that housing. The Authority sought to show that adherence to its regulations would result in the newly-built projects becoming segregated.[20]*78 If the Authority did not have to abide by its regulations, the existing racial balance in the projects and the surrounding community could be maintained. The district courts[21] held that the Authority had to comply with its regulations, but the United States Court of Appeals for the Second Circuit reversed. That court reasoned that the Authority's constitutional and statutory duty affirmatively to integregate public housing superseded its obligation to follow its own regulations.[22] Therefore, "the Authority may limit the number *79 of apartments to be made available to persons of white or non-white races, including minority groups, where it can show that such action is essential to promote a racially balanced community and to avoid concentrated racial pockets that will result in a segregated community." Id. at 1140.
Crow v. Brown, 332 F. Supp. 382 (N.D. Ga. 1971), aff'd, 457 F.2d 788 (5th Cir. 1972), involved a challenge to a plan to disperse public housing, which the court found to attract largely poor blacks, in areas outside Atlanta's ghettoes. The selected sites lay in Fulton County, unincorporated but subject to the jurisdiction of the Atlanta Housing Authority. Officials of Fulton County, who by various stratagems had frustrated the implementation of the plan, were held to have acted unconstitutionally. The heart of the district court's opinion is the thoughtful conclusion that "[f]or better or worse, both by legislative act and judicial decision, this nation is committed to a policy of balanced and dispersed public housing. . . . Among other things, this reflects the recognition that in the area of public housing local authorities can no more *80 confine low-income blacks to a compacted and concentrated area than they can confine their children to segregated schools." Id. at 390 (citations & footnote omitted). The unifying theme of these and other cases is that this nation is dedicated to balanced and dispersed integrated, public housing.[23]
In trying to eradicate other manifestations of racial discrimination, courts, including the Supreme Court of the United States, have recognized that statistics alone can establish racial discrimination. Turner v. Fouche, 396 U.S. 346, 90 S. Ct. 532 (1970), confronted *81 the Supreme Court with the issue whether blacks had been excluded from grand juries because of their race. After reviewing the evidence, Mr. Justice STEWART, speaking for a unanimous Court, concluded: "In sum, the appellants demonstrated a substantial disparity between the percentages of Negro residents in the county as a whole and of Negroes on the newly constituted jury list. They further demonstrated that the disparity originated, at least in part, at the one point in the selection process where the jury commissioners invoked their subjective judgment rather than objective criteria. The appellants thereby made out a prima facie case of jury discrimination, and the burden fell on the appellees to overcome it." Id. at 360, 90 S. Ct. at 540 (footnote omitted). Since no acceptable explanation was offered to rebut the prima facie case, the Supreme Court concluded that the grand jury selection process under scrutiny was unconstitutional.[24]
*82 In Hawkins v. Town of Shaw, 437 F.2d 1286 (5th Cir. 1971), aff'd en banc, 461 F.2d 1171 (5th Cir. 1972) (per curiam), the United States Court of Appeals for the Fifth Circuit found a prima facie case of racial discrimination violative of the equal protection clause from statistics alone: almost 100% of the houses in Shaw not served by municipal services were occupied by blacks. Having found a prima facie case, the court considered whether a compelling governmental interest justified the disparities, and concluded none did. 437 F.2d at 1288-92.
Parham v. Southwestern Bell Telephone Co., 433 F.2d 421 (8th Cir. 1970), involved employment discrimination. The court had before it statistics that the Arkansas employer had never had more than 2% blacks in its work force, and that the black population of Arkansas, according to the 1960 census, was over 21%. The Court of Appeals for the Eighth Circuit held that "these statistics, which revealed an extraordinarily small number of black employees, except for the most part as menial laborers, established a violation of Title VII of the Civil Rights Act of 1964." Id. at 426 (footnote omitted.) See 42 U.S.C.A. § 2000e-2 (a) (1974).
NLRB v. Mansion House Center Management Corp., 473 F.2d 471 (8th Cir. 1973), held that "the remedial machinery of the National Labor Relations Act cannot be available to a union which is unwilling to correct past practices of racial discrimination." Id. at 477. At issue also was whether the hearing examiner and Board had properly excluded statistics from being used to demonstrate union racial discrimination. In holding the agency decision to be error, the court stated that *83 "statistical evidence may well corroborate and establish that a union has been guilty of racial practices in the past. In face of such proof, passive attitudes of good faith are not sufficient to erase the continuing stigma which may pervade a union's segregated membership policies. The fact that no minority applicant has been rejected by the union is not the sole test." Id.
The United States Court of Appeals for the Tenth Circuit has likewise concluded that even in the absence of proof of a single act of discrimination, an unlawful employment practice in violation of 42 U.S.C.A. § 2000e-2(a) (1974) can be made out from statistics alone. Jones v. Lee Way Motor Freight, Inc., 431 F.2d 245, 247 (10th Cir. 1970), cert. denied, 401 U.S. 954, 91 S. Ct. 972 (1971).[25]
These cases demonstrate the salutary principle: "In the problem of racial discrimination, statistics often tell much, and Courts listen." Alabama v. United States, 304 F.2d 583, 586 (5th Cir.) (footnote omitted), aff'd, 371 U.S. 37, 83 S. Ct. 145 (1962). See also Brooks v. Beto, 366 F.2d 1, 9 (5th Cir. 1966).[26] That *84 principle underlay our decision in Chester School District, and it underlies our decision today.
The Authority seeks to avoid the impact of the Human Relations Act by arguing that blacks do not want to live with whites and whites not with blacks.[27] Preliminarily, the record belies this argument. The director of the William Penn project testified that she was also responsible for the administration of another project, one for the elderly. According to her testimony, at the time of the public hearing this project was amicably integrated, with approximately an equal number of blacks and whites as tenants.
A more forceful rebuttal, however, is found in the elegant language of Justice FRANKFURTER. "Local customs, however hardened by time, are not decreed in heaven. Habits and feelings they engender may be counteracted and moderated. Experience attests that such local habits and feelings will yield, gradually though this be, to law and education. And educational influences are exerted not only by explicit teachings. They vigorously flow from the fruitful exercise of the responsibility of those charged with political official power and from the almost unconsciously transforming actualities of living under law." Cooper v. Aaron, 358 U.S. 1, 25, 78 S. Ct. 1401, 1413 (1958) (concurring opinion).[28] Or, as this Court stated in Chester School *85 District, "The best way to demonstrate the `inherent worth of [one's] neighbor' is to place individuals in a situation where they are exposed to their neighbor." 427 Pa. at 171, 233 A.2d at 297. In the final analysis, to give effect to this argument of the Authority would be to begin to undo the progress, often difficult and laborious in achievement, we as a nation have taken toward a discrimination-free society. See, e.g., Uniontown Area School District v. Pennsylvania Human Relations Commission, 455 Pa. 52, 313 A.2d 156 (1973); Balsbaugh v. Rowland, 447 Pa. 423, 290 A.2d 85 (1972); Pennsylvania Human Relations Commission v. Chester School District, 427 Pa. 157, 233 A.2d 290 (1967).
The Authority next contends that it has no responsibility to end de facto segregation because its compliance with federal law and the regulations of the United States Department of Housing and Urban Development preempts the sanctions of the Human Relations Act. This issue was raised in the Commonwealth Court and decided adversely to the Authority. Since the Authority took no appeals, it is bound by the decision of the court on this issue. See note 12 supra.
That court most emphatically rejected the factual predicate to the Authority's argument. "Reading the record with care, we find that [the Authority's] blank pronouncement of adherence to HUD's Plan B[[29]] is *86 not substantiated by sworn testimony. HUD officers testified that they never thoroughly investigated the files of [the Authority] to determine whether the plan was implemented.
"In truth, the testimony demonstrates that any HUD investigation would be futile. [The Authority] in only a few instances noted an applicant's rejection of available housing prior to ultimate acceptance of a location. This violates the HUD formulated plan which requires [the Authority] to interpose at the bottom of the list of prospective tenants an applicant who refuses housing. Where no rejections were indicated, how can one determine whether the HUD plan had been followed?" 9 Pa. Commonwealth Ct. at 423, 305 A.2d at 755.
We also cannot agree with the conclusion of the Commonwealth Court that the Commission did not support with substantial evidence its finding that racial imbalance in the four projects increased segregation in Chester's public schools. Chester School District, 427 Pa. at 170-71, 233 A.2d at 297, specifically recognized the correlation between housing patterns and segregated schooling. It would be illogical indeed to maintain that neighborhood schools do not reflect the racial composition of the neighborhoods from which they draw their pupils.[30] "One of the consequences of. . . racial concentration is that it has become virtually *87 impossible to achieve meaningful school desegregation. Indeed, as even a glimmering of objectivity will disclose, a dispersal of urban housing patterns is the only alternative to massive bussing if desegregation, rather than resegregation, is to be achieved." Crow v. Brown, 332 F. Supp. 382, 391 (N.D. Ga. 1971), aff'd, 457 F.2d 788 (5th Cir. 1972). Moreover, two officials of the Chester School District testified at the public hearing that greater racial balance in the four projects would substantially aid the district's task in integrating Chester's public schools.
Our final task is to decide whether the Commission's order is a patent attempt to achieve ends other than those which can fairly be said to effectuate the policies of the Human Relations Act. Pennsylvania Human Relations Commission v. Alto-Reste Park Cemetery Association, 453 Pa. 124, 134, 306 A.2d 881, 887 (1973) (adopting standard enunciated in Fibreboard Paper Products Corp. v. NLRB, 379 U.S. 203, 216, 85 S. Ct. 398, 406-07 (1964)).
Paragraphs two, three, and four[31] can be treated as a unit since they all relate to the Commission's directing the Authority to take affirmative steps to end the de facto segregation in its four projects. We have determined that de facto segregation in Chester's public housing is prohibited by the Human Relations Act. An unlawful discriminatory practice having been found to exist, the Commission is statutorily empowered "to take such affirmative action . . . as, in the judgment of the Commission, will effectuate the purposes of this *88 act . . . ." 43 P.S. § 959 (Supp. 1974). We cannot say on this record that the remedy embodied in paragraphs two, three, and four designed to achieve in each of the four housing projects the same racial composition that exists throughout all the Authority's projects[32] is a patent attempt to achieve ends other than those which can fairly be said to effectuate the policies of the Act.
As for the reporting requirement (paragraph eight), this Court in Alto-Reste, supra, at 136-37, 306 A.2d at 888-89, directly approved such a remedy. We note again that the Legislature specifically authorized the Commission in its discretion to require a "report of the manner of compliance." 43 P.S. § 959 (Supp. 1974). And the Commission did not abuse its discretion in determining that two years is a reasonable time period. See Alto-Reste, supra, at 136-38 nn.7 & 8, 306 A.2d at 888-89 nn.7 & 8.
Finally, paragraph ten directs the Authority to meet with the Chester School District to draft a plan to ensure that tenants with school-age children would receive priority in being assigned housing in the to-be-integrated projects.[33] This paragraph was designed to cure the violation of 43 P.S. § 955(e) (1964), prohibiting the aiding and abetting of unlawful discriminatory practices. Not only does this portion of the order seek to remedy that violation, but it will undoubtedly also *89 aid the officials of Chester's public schools in fulfilling their obligations under Chester School District. Again, the record does not allow us to conclude that by this order a patent attempt is being made to circumvent the fairly-stated policies of the Act.[34]
Accordingly, paragraphs two, three, four, eight, and ten of the Commission's final order of April 24, 1972, are reinstated. So modified, the order of the Commonwealth Court is affirmed.
Mr. Chief Justice JONES and Mr. Justice EAGEN concur in the result.
APPENDIX A
FINDINGS OF FACT
1. Complainant herein is the Pennsylvania Human Relations Commission, an administrative agency of the Commonwealth of Pennsylvania.
*90 2. Respondent herein is the Chester Housing Authority, a public housing authority of the Commonwealth of Pennsylvania.
3. Respondent is in charge of and administers the following public housing projects in Chester, Delaware County, Pennsylvania, and the tenant selection and assignment procedures thereof:
Lamokin Village, containing 350 units
McCaffery Village, containing 350 units
Ruth L. Bennett Homes, containing 390 units
William Penn Village, containing 300 units
4. In the Summer of 1969 the racial composition of the aforesaid projects were as follows:
Lamokin Village 346 Negroes 0 whites
McCaffery Village 0 Negroes 347 whites
Ruth L. Bennett Homes 385 Negroes 0 whites
William Penn Village 257 Negroes 20 whites
5. At the time of the public hearing herein the racial composition of the aforesaid projects were maintained as above set forth.
6. Although the same type of housing accommodations was sought by both Negro and white applicants, Negro applicants whose applications were prior in time to applications of white applicants were not afforded an opportunity to rent available accommodations of the type sought in McCaffery Village but were, instead, offered accommodations in Lamokin Village, William Penn Village and Ruth L. Bennett Homes, to-wit:
A. One Larrie Ellis, a Negro female, who applied on August, 1970, for a 3-bedroom unit and on February 1, 1971, was leased a unit in Ruth L. Bennett Homes (1119 Norris) which had been vacated on January 11, 1971. During the period from August 24, 1970 to February 11, 1971, a 3-bedroom unit in McCaffery Village (2800 W. 13th Street) which is totally white, was vacated on December 4, 1970, and was rented on December 18, 1970, to one Eleanor Hayes, a white *91 female, even though she applied on November 3, 1970, a date later than when the aforesaid Larrie Ellis applied.
7. Although the same type of housing accommodations was sought by both Negro and white applicants, white applicants whose applications were prior in time to applications of Negro applicants were not afforded an opportunity to rent available accommodations in Lamokin Village, William Penn Village and Ruth L. Bennett Homes but were instead, offered accommodations in McCaffery Village, to wit:
A. One Alice Ferris, a white female, applied on January 14, 1970, for a 4-bedroom unit and on November 17, 1970, was leased a unit in totally-white McCaffery Village (1010 McCaffery) which had been vacated on November 15, 1970. During the period from January 14, 1970 to November 17, 1970, 4-bedroom units were vacated in projects which were totally-Negro or substantially Negro. All were rented to Negro tenants, to wit:
1. To one Samuel Carr, a Negro male, who was leased a unit in Ruth L. Bennett Homes (1408 Alexander) on September 10, 1970, which had been vacated on June 30, 1970.
2. To one Annie Daniels, a Negro female, who was leased a unit in William Penn Village (404 Grounsell) on August 31, 1970, which had been vacated on July 2, 1970.
3. To one Valaida Washington, a Negro female, who was leased a unit in William Penn Village (409 Pancoast) on September 18, 1970, which had been vacated on July 23, 1970.
4. To one Lawton Porter, a Negro female, who was leased a unit in William Penn Village (404 Grounsell) on September 30, 1970, which had been vacated on September 21, 1970.
*92 B. One Elizabeth Willis, a white female, applied on January 20, 1970, for a 3-bedroom unit and on November 12, 1970, was leased a unit in totally-white McCaffery Village (1200 McCaffery) which had been vacated on October 30, 1970.
One Hirst, a white male, applied for a 3-bedroom unit on March 10, 1970, and on November 17, 1970, was leased a unit in McCaffery Village (1110 Booth Street) which had been vacated on October 30, 1970. During the period from January 20, 1970 to November 12, 1970 (in the case of the aforesaid Willis) and from March 10, 1970 to November 17, 1970 (in the case of the aforesaid Hirst) the following Negroes were placed in 3-bedroom units in a totally-Negro project, to-wit:
1. One Delores Hodges, a Negro female, who applied on August 17, 1970, was leased a unit in Ruth L. Bennett Homes (922 Norris) on September 11, 1970, which had been vacated on June 2, 1970.
2. One Stinney, who is Negro and who applied on July 7, 1970, was leased a unit in Ruth L. Bennett Homes (1425 Norris) on October 10, 1970, which had been vacated on September 9, 1970.
3. One Elizabeth Gorman, a Negro female, who applied on July 15, 1970, was leased a unit in Ruth L. Bennett Homes (303 Ayars Place) on that same day and which unit had been vacated on May 15, 1970.
4. One Juanita Boyland, a Negro female, who applied on April 22, 1970, was leased a unit in William Penn Village (312 Gartside) on June 1, 1970, which had been vacated on March 16, 1970.
C. One Charles Huck, a white male, applied on February 8, 1971, for a 2-bedroom unit and on June 8, 1971, was leased a unit in totally-white McCaffery Village (1002 Hardwick) which had been vacated on May 21, 1971. In the period from February 8, 1971 to June 8, 1971 a 2-bedroom unit in totally-Negro Ruth L. Bennett Homes (1118 W. Norris) had been vacated *93 on May 11, 1971, and was leased on June 9, 1971, to one Brenda Bradley, a Negro female, who applied on April 12, 1971, more than two months after the date of the aforesaid Huck's application.
D. One Charles Rothwell, a white male, applied for a 2-bedroom unit on January 12, 1971, and on April 30, 1971, was leased a unit in totally-white McCaffery Village (1207 Ganster) when on March 18, 1971, such a unit had become vacant in totally-Negro Ruth L. Bennett Homes (926 Stovall) and which, on April 5, 1971, was leased to Victoria Oliver, a Negro female, who had applied on March 17, 1971, over two months after the date of Rothwell's application.
8. Although burned-out families were to be accorded priority, Respondent, disregarding such priority, placed white applicants in a totally-white project and Negro applicants in a totally-Negro or substantially Negro project, to-wit:
A. One Adele Lewis, a Negro female, applied on February 16, 1971, for a 2-bedroom unit and was granted a burned-out priority. She was leased a unit in totally-Negro Ruth L. Bennett Homes (1316 W. Norris) on February 22, 1971, when, on February 18, 1971, such a unit in totally-white McCaffery Village (1200 Pulaski), vacant since January 30, 1971, was leased to one Sigola, a white female, who had applied on February 11, 1971, notwithstanding that the aforesaid Sigola did not have the aforesaid Lewis's priority.
B. One Althea Nickens, a Negro female, applied on June 30, 1970, for a 2-bedroom unit and was granted a burned-out priority. She was leased a unit in substantially-Negro William Penn Village (404 Ayars) on July 1, 1970, when, on July 7, 1970, such a unit in totally-white McCaffery Village (1306 Pulaski), vacant since June 19, 1970, was leased to one Barbara Hickey, a white female, who had no priority.
*94 9. As a result of the aforesaid practices the racial compositions of Respondent's aforesaid public housing projects were and are segregated by the race of the tenants thereof.
10. The maintaining of the aforesaid practices by Respondent has increased the racial segregation of the public schools of the City of Chester. Of 3,000 students in the four Chester Public Housing units, approximately 2,700 to 2,800 attend Chester Public Schools. If the aforesaid four Public Housing units were racially-balanced, the Chester School District plan for racially-balancing its Public Schools would have been redesigned so as to reduce the need and cost of busing Chester School District students.
APPENDIX B
CONCLUSIONS OF LAW
1. At all times herein mentioned Respondent, an Authority of the Commonwealth of Pennsylvania, maintained and continues to maintain the public housing projects, as aforesaid, in Chester, Delaware County, Pa., under its supervision, direction and control.
2. At all times herein mentioned Complainant had and still has jurisdiction over the subject matter of these proceedings and over Respondent.
3. Because of its tenant selection and assignment procedures Respondent has maintained and continues to maintain public housing projects under its supervision, direction and control that are segregated by the race of the tenants thereof, an unlawful discriminatory practice in violation of Section 5(h)(1) of the Act of October 27, 1955, P.L. 744, as amended, known as the Pennsylvania Human Relations Act.
4. Such aforesaid unlawful discriminatory practice by Respondent aids and abets racial segregation in the public schools of the City of Chester and is an unlawful *95 discriminatory practice in violation of Section 5(e) of the aforesaid Act.
5. The Complaint, as amended in the public hearing herein, was properly made and executed in accordance with Section 9 of the Pennsylvania Human Relations Act.
IT IS, therefore, recommended that the Commission enter an Order against Respondent requiring it to cease and desist from employing its present tenant selection and assignment procedures and to take affirmative action to eliminate its unlawful discriminatory practices.
APPENDIX C
FINAL ORDER
AND NOW, this 24th day of April, 1972, upon consideration of the foregoing Findings of Fact, Conclusions of Law, Commission's Decision and pursuant to Section 9 of the Pennsylvania Human Relations Act it is hereby
ORDERED:
That Respondent Chester Housing Authority, its agents, servants, employees and each of their respective successors:
1. Shall cease and desist from employing its present tenant selection and assignment procedures.
2. Shall cease and desist from renting housing accommodations in McCaffery Village to white tenant families until the racial composition of said project reflects the ratio of Negro to white tenant families in all public housing projects under Respondent's supervision, direction and control.
3. Shall cease and desist from renting housing accommodations in Lamokin Village, William Penn Village and Ruth L. Bennett Homes to Negro tenant families until the racial composition of each of said projects *96 reflects the ratio of white to Negro tenant families in all public housing projects under Respondent's supervision, direction and control.
4. Shall develop and submit to the Pennsylvania Human Relations Commission (at its Regional Office, Room 101, State Office Building, Broad and Spring Garden Streets, Philadelphia, Pennsylvania) for its approval, within 60 days of the effective date of this Order, an affirmative action program designed to achieve in Respondent's public housing projects the racial composition as set forth in Paragraphs 2 and 3 above, and upon obtaining said approval, forthwith to effectuate said program. Said plan shall include, but not be limited to, preoccupancy and post-occupancy counseling and the establishment of tenant councils.
5. Shall, in writing, inform all applicants and all present tenants of this Final Order and the content thereof.
6. Shall, beginning with the effective date of this Order, submit written offers to rent accommodations in its public housing projects to all applicants and require all replies thereto to be in writing, maintaining a permanent record of such offers and replies in its files.
7. Shall, from the effective date of this Order, utilize the services of the intergroup specialist of the Equal Opportunity Staff of the U.S. Department of Housing and Urban Development and the consultative services of the Pennsylvania Human Relations Commission.
8. Shall report to the Pennsylvania Human Relations Commission at its Regional Office as above set forth, beginning one month from the effective date of this Order, and monthly thereafter until such time as the racial composition in each project, as set forth in items 2 and 3 above, is achieved. Such report to contain information regarding the racial composition of each of its housing projects, as well as a list of all applicants, *97 transfers, assignment and re-assignments of all units in all said projects under its supervision, direction and control by racial identification and reflecting the ratio of Negro and white tenant families as set forth in Paragraphs 2 and 3 above, family size and size of unit requested and assigned, list of vacancies in each project and, thereafter, shall for a further period of two years, make such reports quarter-annually.
9. Shall, within 90 days of the effective date of this Order, establish objective written standards for the approval of applicants and assignment of units, copies of said standards to be submitted to the Pennsylvania Human Relations Commission (as above set forth) for its approval.
10. Shall meet with the Chester School District for discussion and drafting of a plan for a priority selection system for the placement of tenants with school-age children in Respondent's housing projects which placement will facilitate the desegregation of the schools of Chester School District and which shall be made to the Pennsylvania Human Relations Commission (as approval set forth), within 180 days of the effective date of this Order, for its approval, whereupon same shall be forthwith effectuated.
NOTES
[1] An appellate court is empowered to set aside or modify the Commission's adjudication when, inter alia, the findings of fact supporting the adjudication are "not supported by substantial evidence." Administrative Agency Law, Act of June 4, 1945, P.L. 1388, § 44, 71 P.S. § 1710.44 (1962). See Pennsylvania Human Relations Comm'n v. Chester School Dist., 427 Pa. 157, 181, 233 A.2d 290, 302-03 (1967).
[2] Appellate Court Jurisdiction Act of 1970, Act of July 31, 1970, P.L. 673, art. II, § 204(a), 17 P.S. § 211.204(a) (Supp. 1974).
[3] Act of October 27, 1955, P.L. 744, § 5(h), as amended, 43 P.S. § 955(h) (Supp. 1974).
[4] Section 5(e) makes it an unlawful discriminatory practice "[f]or any person . . . to aid, abet, incite, compel or coerce the doing of any act declared by this section to be an unlawful discriminatory practice, or to obstruct or prevent any person from complying with the provisions of this act or any order issued thereunder, or to attempt, directly or indirectly, to commit any act declared by this section to be unlawful discriminatory practice." 43 P.S. § 955(e) (1964).
[5] 43 P.S. § 959 (Supp. 1974). In compliance with the statutory directive, the Commission sent a letter together with its complaint to the chairman of the Authority, notifying him of the pending public hearing.
No challenge before either the Commission, the Commonwealth Court, or this Court has been made by the Authority to the procedure used by the Commission.
[6] For the racial composition of the four projects, see text accompanying note 14 infra.
[7] The complete findings of fact of the Commission are set out in Appendix A.
[8] See Appendix B.
[9] See text accompanying note 30 infra.
[10] See Appendix C.
[11] The Commonwealth Court also concluded: "[S]ufficient competent evidence was adduced to sustain the Commission's findings that particular tenants, both black and white, were refused housing due to racial considerations because [the Authority] had failed to offer available space, regardless of location, to a top priority tenant when it should have done so, regardless of race considerations." 9 Pa. Commonwealth Ct. at 424, 305 A.2d at 756 (emphasis deleted).
[12] By not taking an appeal from the order of the Commonwealth Court, the Authority is precluded from raising issues decided adversely to it by that court. Pennsylvania Human Relations Comm'n v. Alto-Reste Park Cemetery Ass'n, 453 Pa. 124, 128-29 n.5, 306 A.2d 881, 884 n.5 (1973). See also Cash's Appeal, 1 Pa. 166 (1845).
[13] The opinion of the Commonwealth Court is less than clear on this score, and it arguably supports another interpretation. The concern in that court perhaps was that the Commission had not established that racial discrimination proved by the Commission was in any way a cause of the de facto segregation of Chester's housing projects. If this is the correct interpretation, we find it somewhat incredible. The Commonwealth Court agreed that sufficient evidence showed "that certain tenants had been routed through [the Authority's] tenant placement procedure into projects whose tenant majority (usually entirety) corresponded to the tenant's race." 9 Pa. Commonwealth Ct. at 424, 305 A.2d at 755. Human experience and common sense dictate that when a landlord routes blacks into all-black projects and whites into all-white projects, the result is racial segregation.
[14] See Balsbaugh v. Rowland, 447 Pa. 423, 434-35 n.6, 290 A.2d 85, 91 n.6 (1972); Pennsylvania Human Relations Comm'n v. Chester School Dist., 427 Pa. 157, 158-59 n.1, 233 A.2d 290, 291 n.1 (1967).
In our view, racial imbalance means substantial statistical disparity.
[15] In its brief to this Court, the Authority concedes that the present racial imbalance in the four projects was purposefully caused. "The obviously imbalanced patterns of occupancy and site selection were brought about in large measure through the conscious design of the Federal and State governments. The result has been that various projects historically have been identified as Black or White. The Federal and State governments were knowing and willing partners in pursuing a policy which created the imbalance from 1938 until 1968." Brief for Appellee at 13.
The Authority tries to absolve itself from responsibility to end the admitted segregation by arguing that other organs of government, not it, were responsible. We do not address the question to what extent one agency of the state is responsible to undo the unlawful acts of another, because we rest our decision on the existence of de facto segregation. Cf. Banks v. Perk, 341 F. Supp. 1175, 1184 (N.D. Ohio 1972). But cf. Mayor v. Educational Equality League, 415 U.S. 605, 622-3, 94 S. Ct. 1323, 1334 (1974); Spomer v. Littleton, 414 U.S. 514, 520-23, 94 S. Ct. 685, 689-90 (1974).
[16] Brown v. Board of Educ., 347 U.S. 483, 74 S. Ct. 686 (1954).
[17] Other jurisdictions have upheld policies designed to eradicate de facto segregation in public schools. See, e.g., Guida v. Board of Educ., 26 Conn. Super. Ct. 121, 213 A.2d 843 (Super Ct. 1965); Booker v. Board of Educ., 45 N.J. 161, 212 A.2d 1 (1965); Morean v. Board of Educ., 42 N.J. 237, 200 A.2d 97 (1964); Addabbo v. Donovan, 16 N.Y.2d 619, 209 N.E.2d 112, 261 N.Y.S.2d 68, cert. denied, 382 U.S. 905, 86 S. Ct. 241 (1965); Vetere v. Allen, 15 N.Y.2d 259, 206 N.E.2d 174, 258 N.Y.S.2d 77, cert. denied, 382 U.S. 825, 86 S. Ct. 60 (1965); State ex rel. Citizens Against Mandatory Bussing v. Brooks, 80 Wash.2d 121, 492 P.2d 536 (1972).
Similarly, federal courts have approved affirmative action by school boards designed to achieve integration. E.g., Deal v. Cincinnati Bd. of Educ., 369 F.2d 55, 61 (6th Cir. 1966), cert. denied, 389 U.S. 847, 88 S. Ct. 39 (1967) (dictum); Wanner v. County Bd., 357 F.2d 452 (4th Cir. 1966); Springfield School Comm. v. Barksdale, 348 F.2d 261 (1st Cir. 1965); Norwalk CORE v. Board of Educ., 298 F. Supp. 213 (D. Conn. 1969); Offermann v. Nitkowski, 248 F. Supp. 129 (W.D.N.Y. 1965), aff'd, 378 F.2d 22 (2d Cir. 1967); Hobson v. Hansen, 269 F. Supp. 401 (D.D.C. 1967), aff'd sub nom., Smuck v. Hobson, 408 F.2d 175 (D.C. Cir. 1969) (en banc). Cf. Lee v. Nyquist, 318 F. Supp. 710 (W.D.N.Y. 1970), aff'd, 402 U.S. 935, 91 S. Ct. 1618 (1971). See also Keyes v. School Dist. No. 1, 413 U.S. 189, 93 S. Ct. 2686 (1973); Brown v. Board of Educ., 349 U.S. 294, 75 S. Ct. 753 (1955).
[18] Cf. Hernandez v. Texas, 347 U.S. 475, 74 S. Ct. 667 (1954). See also United States v. Texas Educ. Agency, 467 F.2d 848, 862 n.19 (5th Cir. 1972).
[19] See, e.g., Otero v. New York Housing Authority, 484 F.2d 1122 (2d Cir. 1973); Gautreaux v. Romney, 448 F.2d 731 (7th Cir. 1971); Shannon v. HUD, 436 F.2d 809 (3d Cir. 1970); Blackshear Residents Org. v. Housing Authority, 347 F. Supp. 1138 (W.D. Tex. 1971); Banks v. Perk, 341 F. Supp. 1175 (N.D. Ohio 1972); Mahaley v. Cuyahoga Metro. Housing Authority, 355 F. Supp. 1245, 1257 (N.D. Ohio 1973); Crow v. Brown, 332 F. Supp. 382 (N.D. Ga. 1971), aff'd, 457 F.2d 788 (5th Cir. 1972); Kennedy Park Homes Ass'n v. City of Lackawanna, 318 F. Supp. 669 (W.D.N.Y.), aff'd, 436 F.2d 108 (2d Cir. 1970), cert. denied, 401 U.S. 1010, 91 S. Ct. 1256 (1971); Hicks v. Weaver, 302 F. Supp. 619 (E.D. La. 1969); Dailey v. City of Lawton, 296 F. Supp. 266 (W.D. Okla. 1969), aff'd, 425 F.2d 1037 (10th Cir. 1970); Gautreaux v. Chicago Housing Authority, 265 F. Supp 582 (N.D. Ill. 1967) (ruling on motions and orders), 296 F. Supp. 907 (N.D. Ill. 1969) (memorandum opinion), 304 F. Supp. 736 (N.D. Ill.) (judgment order), aff'd, 436 F.2d 306 (7th Cir. 1970), cert. denied, 402 U.S. 922, 91 S. Ct. 1378 (1971); El Cortez Heights Residents & Property Owners Ass'n v. Tucson Housing Authority, 10 Ariz. App. 132, 457 P.2d 294 (1969); cf. Trafficante v. Metropolitan Life Ins. Co., 409 U.S. 205, 93 S. Ct. 364 (1972) (standing). See generally Ackerman, Integration for Subsidized Housing and the Question of Racial Occupancy Controls, 26 Stan. L. Rev. 245 (1974); Comment, Toward Improved Housing Opportunities: A New Direction for Zoning Law, 121 U. Pa. L. Rev. 330 (1972).
[20] The court supported its decision by reference to the much-commented-on "tipping point" phenomenon. "This gradual tendency of integrated areas to become more and more Negro is accentuated by the popular belief often transmitted into action that the rate at which white families move out rises with the percentage of Negroes in the area, and, more important, that there exists a `tipping point' a given percentage of Negroes, after which the departure of whites from the areas will be greatly accelerated." Kaplan, Equal Justice in an Unequal World The Problem of Special Treatment, 61 Nw. U.L. Rev. 363, 390 (1966) (quoted in Otero v. New York Housing Authority, 484 F.2d 1122, 1135 (2d Cir. 1973). See also Gautreaux v. Chicago Housing Authority, 296 F. Supp. 907 (N.D. Ill. 1969) (memorandum opinion), 304 F. Supp. 736 (N.D. Ill.) (judgment order), aff'd, 436 F.2d 306 (7th Cir. 1970), cert. denied, 402 U.S. 922, 91 S. Ct. 1378 (1971). See generally Ackerman, Integration for Subsidized Housing and the Question of Racial Occupancy Controls, 26 Stan. L. Rev. 245, 251-70 (1974); Note, 85 Harv. L. Rev. 870, 875-76 (1972).
[21] Otero was decided in two parts at the trial level, 354 F. Supp. 941 (S.D.N.Y. 1973) (preliminary injunction granted), and 344 F. Supp. 737 (S.D.N.Y. 1972) (order).
[22] Judge MANSFIELD, writing for the Second Circuit, analyzed the constitutional basis for the Authority's duty to integrate in this fashion. "We agree with the parties and with the district court that the Authority is under an obligation to act affirmatively to achieve integration in housing. The source of that duty is both constitutional and statutory. Various discriminatory housing practices have been outlawed by judicial decree as violative of the Equal Protection Clause. An authority may not, for instance, select sites for projects which will be occupied by non-whites only in areas already heavily concentrated with a high proportion of non-whites. Shannon v. HUD, 436 F.2d 809 (3d Cir. 1970), noted in 85 Harv. L.Rev. 870 (1972). A tenant assignment policy which assigns persons to a particular project because of the concentration of persons of his own race already residing at the project has been prohibited. Gautreaux v. Chicago Housing Authority, 296 F. Supp. 907, 304 F. Supp. 736 (judgment order) (N.D.Ill. 1969), aff'd, 436 F.2d 306 (7th Cir. 1970), cert. denied, 402 U.S. 922, 91 S. Ct. 1378, 28 L. Ed. 2d 661 (1971). An authority is barred from using assignment methods which seek to exclude, or have the evident effect of excluding, persons of minority races from residing in predominantly white areas or of restricting non-whites to areas already concentrated by non-white residents. Crow v. Brown, 332 F. Supp. 382 (N.D.Ga. 1971), aff'd, 457 F.2d 788 (5th Cir. 1972). Not only may such practices be enjoined, but affirmative action to erase the effects of past discrimination and desegregate housing patterns may be ordered." Otero v. New York Housing Authority, 484 F.2d 1122, 1133 (2d Cir. 1973).
[23] The sole case cited affirmatively by the Authority, Blackshear Residents Org. v. Housing Authority, 347 F. Supp. 1138 (W.D. Tex. 1971), is directly contrary to its position. There, plaintiffs sought an order compelling the housing authority to adopt an affirmative action plan to desegregate racially-imbalanced housing projects. The court's response is well-considered and apt. "In justification of the relief sought, plaintiffs analogize the present posture of the Housing Authority to that of a local school board faced with the vestiges of a formerly segregated school system. Upon the authority of Green v. County School Board, 391 U.S. 430, 88 S. Ct. 1689, 20 L. Ed. 2d 716 (1968), they contend that the Housing Authority is `clearly charged with the affirmative duty to take whatever steps might be necessary to convert to a unitary system in which racial discrimination would be eliminated root and branch,' 391 U.S. at 437-438, 88 S. Ct. at 1694, and cite subsequent Fifth Circuit school desegregation cases in support of their proposal for a desegregation plan to be implemented under the continuing supervision of the Court. The comparison appears in many respects to be quite accurate." Id. at 1145. The relief requested was denied, however, for two reasons. First, the court found that the housing authority faithfully adhered to HUD tenant selection procedures. Second, the authority had officially declared that it would disperse future housing projects outside of areas exclusively populated by minority groups. Neither factor appears instantly. The Commonwealth Court concluded (and the Authority is bound by this conclusion because it took no appeal, see note 12 supra) that the Authority had not in fact complied with HUD regulations. And the record contains no official commitment by the authority to disperse housing projects.
[24] See also Griggs v. Duke Power Co., 401 U.S. 424, 91 S. Ct. 849 (1971). There, the United States Supreme Court under the authority of the Civil Rights Act of 1964, 42 U.S.C.A. § 2000e-2 (1974), invalidated the requirements of standardized general intelligence tests or high school education for employment, where the requirements bore no relation to the jobs sought, the jobs were formerly held only by whites, and the effect of the tests was to disadvantage minority groups. "[G]ood intent or absence of discriminatory intent does not redeem employment procedures or testing mechanisms that operate as `built-in headwings' for minority groups and are unrelated to measuring job capability." Id. at 432, 91 S. Ct. at 854. See also Hawkins v. Town of Shaw, 461 F.2d 1171 (5th Cir. 1972) (en banc) (per curiam). For an exhaustive treatment on the relationship between discriminatory motive and proof of discrimination, see United States v. Texas Educ. Agency, 467 F.2d 848, 864-65 n.25 (5th Cir. 1972) (en banc).
In United States v. Medical Society, 298 F. Supp. 145 (D.S.C. 1969), the United States Attorney General sought to restrain a hospital from operating on a racially discriminatory basis. There was no finding that a black had ever been refused admission to the hospital. The court nonetheless held that where the hospital's "course of conduct has predictably resulted in practically no Negroes being patients at" the hospital, id. at 152, a Civil Rights Act violation had been made out. See 42 U.S.C.A. § 2000a-5(a) (1974).
[25] Accord, United States v. Local 46, Wood Lathers, 471 F.2d 408, 414 n.11 (2d Cir.), cert. denied, 412 U.S. 939, 93 S. Ct. 2773 (1973); United States v. Chesapeake & O. Ry., 471 F.2d 582, 586 (4th Cir. 1972), cert. denied, 411 U.S. 939, 93 S. Ct. 1893 (1973); Rowe v. General Motors Corp., 457 F.2d 348, 355 (5th Cir. 1972); Local 189, Papermakers v. United States, 416 F.2d 980 (5th Cir. 1969), cert. denied, 397 U.S. 919, 90 S. Ct. 926 (1970); United States v. N.L. Indus., Inc., 479 F.2d 354 (8th Cir. 1973); United States v. St. Louis-San Francisco Ry., 464 F.2d 301 (8th Cir. 1972); United States v. Local 86, Ironworkers, 443 F.2d 544, 551 (9th Cir.), cert. denied, 404 U.S. 984, 92 S. Ct. 447 (1971); United States v. Local 73, Plumbers, 314 F. Supp. 160 (S.D. Ind. 1969); Lea v. Cone Mills Corp., 301 F. Supp. 97, 102 (M.D.N.C. 1969), modified, 438 F.2d 86 (4th Cir. 1971); Dobbins v. Local 212, Electrical Workers, 292 F. Supp. 413 (S.D. Ohio 1968).
[26] Accord, Turner v. Fouche, 396 U.S. 346, 360, 90 S. Ct. 532, 540 (1970) (grand jury and school board selection); United States v. Board of Educ., 396 F.2d 44, 46 (5th Cir. 1968); Armstead v. Starkville Municipal Separate School Dist., 325 F. Supp. 560, 569 (N.D. Miss. 1971), modified, 461 F.2d 276 (5th Cir. 1972). See also Local 67, Iron Workers v. Hart, 191 N.W.2d 758, 769-70 (Iowa 1971).
[27] Another variation of this argument advanced by the Authority is that its compliance with the Commission order will result in substantial vacancies for considerable durations in the four projects. At this point, suffice it to say that the record is utterly barren of any indication that this will be the case.
[28] In United States v. Jefferson County Bd. of Educ., 417 F.2d 834 (5th Cir. 1969), a school desegregation case, the Court of Appeals for the Fifth Circuit stated: "There was testimony that white students would not attend formerly Negro schools. This is not a legal argument." Id. at 837 n.2. See also Stell v. Savannah-Chatham County Bd. of Educ., 333 F.2d 55, 61 (5th Cir.), cert. denied, 379 U.S. 933, 85 S. Ct. 332 (1964).
[29] The Director of Assisted Programs at HUD's Philadelphia Regional Office (covering Chester) testified at the public hearing and described the circumstances relating to the Authority's tenant selection procedure in the following fashion. In 1968 HUD required the Authority to adopt a nondiscriminatory tenant selection procedure; the choice was between a Plan A and a Plan B. Plan A contemplated that a prospective tenant would be given a single offer of housing and if he declined, would go to the bottom of the list. Plan B allowed a housing authority to extend up to three offers of housing before a refusal would require the prospective tenant to be given lowest priority. Offers, pursuant to Plan B, were made on the basis of location, not projects. In other words if two (or more) projects were physically proximate, an offer at either would be considered a single offer for both. The Authority chose Plan B; Lamokin and Ruth Bennett are defined as a single location.
[30] The Legislature as part of its findings for the Human Relations Act explicitly acknowledged the connection between racial discrimination in housing and segregated schools. "The denial of equal . . . housing . . . opportunities because of [racial] discrimination. . . compels many individuals to live in dwellings which are substandard, unhealthful and overcrowded, resulting in racial segregation in public schools . . . ." 43 P.S. § 952(a) (Supp. 1974).
[31] For the text of paragraphs two, three, four, eight, and ten, see Appendix C.
[32] Because the Commission's order seeks to make the racial composition in each housing project correspond to the ratio of whites to blacks for all projects administered by the Authority, it does not appear that either blacks or whites as groups will be favored or disadvantaged in their quest for public housing, to any greater extent than they are presently.
[33] We note there is nothing in the record or in the Commission's order that indicates tenants who currently reside in the four projects would be assigned to another project on anything but a voluntary basis.
[34] We reiterate our specific holding in Balsbaugh v. Rowland, 447 Pa. 423, 290 A.2d 85 (1972), that racial consciousness is appropriate in fashioning a remedy once unlawful discrimination has been found to exist. "`Just as the race of students must be considered in determining whether a constitutional violation has occurred, so also must race be considered in formulating a remedy.'" Id. at 437-38, 290 A.2d at 93 (quoting North Carolina Bd. of Educ. v. Swann, 402 U.S. 43, 46, 91 S. Ct. 1284, 1286 (1971)). See Swann v. Charlotte-Mecklenburg Bd. of Educ., 402 U.S. 1, 15, 91 S. Ct. 1267, 1276 (1971); United States v. Montgomery County Bd. of Educ., 395 U.S. 225, 234, 89 S. Ct. 1670, 1674-75 (1969); Coppedge v. Franklin County Bd. of Educ., 394 F.2d 410, 412 & n.2 (4th Cir. 1968). In Louisiana v. United States, 380 U.S. 145, 85 S. Ct. 817 (1965), the Supreme Court stated: "We bear in mind that the court has not merely the power but the duty to render a decree which will so far as possible eliminate the discriminatory effects of the past as well as bar like discrimination in the future." Id. at 154, 85 S. Ct. at 822. Cf. DeFunis v. Odegaard, 82 Wash. 2d 11, 507 P.2d 1169 (1973), vacated as moot and remanded, 416 U.S. 312 94 S. Ct. 1704 (1974); San Franscisco Unified School Dist. v. Johnson, 3 Cal. 3d 937, 948-51, 479 P.2d 669, 675-77, 92 Cal. Rptr. 309, 315-17, cert. denied, 401 U.S. 1012, 91 S. Ct. 1266 (1971). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538886/ | 4 B.R. 21 (1979)
In re Robert D. VINCENT, Debtor.
Bankruptcy No. 279-00105.
United States Bankruptcy Court, M.D. Tennessee.
December 7, 1979.
Aron P. Thompson, Jerry Lee Burgess, Cookeville, Tenn., for debtor.
*22 L. Thomas Austin, Dunlap, Tenn., for Donna Vincent.
Gary D. Patrick, Chattanooga, Tenn., for Unsecured Creditors' Committee.
H. Frederick Humbracht, James R. Kelley, Dearborn & Ewing, Nashville, Tenn., for trustee.
ORDER
PAUL E. JENNINGS, Bankruptcy Judge.
This matter is before the court upon motion of the debtor for allowance of necessary living expenses during the pendency of the Chapter 11 proceedings. This is a Chapter 11 case with the business being operated by the trustee. These proceedings were instituted pursuant to a voluntary petition filed by the debtor.
The facts presented the court show that subsequent to the filing of the Chapter 11 petition the trustee discussed with the debtor and debtor's attorneys the possibility of his employment in a limited advisory capacity under the strict supervision of the trustee. This agreement was not finalized as the debtor, in early November, suffered a heart attack. Further, as shown by the proof, facts have developed which may cause the trustee reservation in employing the debtor in the proceedings.
Proof was presented as to the necessary living expenses for the debtor and his family. This proof shows that the parties are expecting a child in March, 1980; rent payments are in the amount of $316.00 per month; Blue Cross Insurance payments due in the approximate amount of $180.00 (this coverage was obtained prior to the heart attack but subsequent to the pregnancy); a water bill in the approximate amount of $30.00; electric bill in the approximate amount of $95.00; telephone bill in the approximate amount of $400.00; and various other monthly bills including a gasoline credit card, Visa, American Express, and a disability insurance payment.
Additionally, there is before the court a motion filed by counsel for the ex-wife of the debtor stating that pursuant to a state court decree she is entitled to $700.00 alimony plus $100.00 child support and certain additional amounts due from the income of property owned by the debtor. This party seeks the allowance of these payments from the estate.
The proof further shows that in spite of representation to the debtor's attorney and to the trustee to the effect that debtor's doctor had ordered that he not be involved in business transactions or discussions relative to this case, the debtor has, on a number of occasions, been involved in the discussion of business transactions. It is clear that the record herein reflects that none of these discussions have been for the benefit of the debtor's estate nor the estate of Sequatchie Power Company, a company wholly owned by the debtor. No schedules and statement of affairs have been filed in either case and no attempt has been made by the debtor to assist in the preparation of these.
Further, the record reflects that, in a previous state court receivership, debtor was allowed $5,000.00 per month in expenses but that prior to the institution of the bankruptcy proceedings the Chancellor in the state court proceedings had ordered such payments stopped because of the debtor's alleged disobedience of state court orders and failure to cooperate with the state court receiver. The proof before this court indicates that the debtor continues in his attempt to circumvent orders of this court and of the Chancery Court and further has made no attempt to cooperate with the trustee in the Chapter 11 proceedings.
Pursuant to the terms of 11 U.S.C. § 541 the interest of the debtor in properties owned on that date become the property of the Chapter 11 estate. It is clear that any monies earned or property coming into the hands of the debtor after the date of filing would not be the subject of the jurisdiction of the Chapter 11 court. This statement, of course, assumes that the property coming into the hands of the debtor was not derived from property which was or should have been property of the estate under the terms of § 541 as of the date of filing. It is *23 apparent that any money earned by the debtor following the date of the petition from employment obtained by the debtor after the filing of the petition or from employment obtained from the trustee subsequent to the filing would be sole property of the debtor and would not be subject to any claims of creditors. Conversely, any property held by the debtor prior to the filing of the petition would be property which would be subject to the claims of creditors of the estate unless such property was exempted by the debtor.
Upon consideration, it is the determination of the court that no authority vests in this court to provide for the necessary expenses of the debtor from money earned as a result of property being property of the estate. That property is subject to the claims of the creditors of the estate unless such property is claimed exempt by the debtor. As counsel noted in their arguments to the court at the hearing of these motions, the debtor is only entitled to be compensated for services rendered to the trustee in the administration of the estate. The estate has no duty under any section to provide for the necessary living expenses of the debtor. The debtor's necessary living expenses must come from employment obtained subsequent to the filing of the Chapter 11 proceedings, either employment from the trustee or employment from other sources.
The analogy in this case is to a straight bankruptcy proceeding. Certainly in the event of a straight bankruptcy petition being filed by the debtor, the estate has no obligation to pay necessary living expenses. Neither is the estate, under any sections of the Code, obligated to pay necessary living expenses to a debtor in a Chapter 11 proceeding. This case is complicated by the fact that the debtor herein is incapacitated as a result of an unfortunate heart attack. This, however, is not an exception to the rules above-quoted. Accordingly, it is the judgment of the court that the court has no authority to order payments to the debtor for necessary living expenses from the estate unless the debtor is able to provide compensable services to the trustee. The motion filed by the debtor's ex-wife is in the same category. The is an obligation pursuant to a decision entered by the courts of the State of Tennessee. As to any back alimony or child support due on the date of the filing of the petition, this court's jurisdiction attaches. As to the payment of such amounts from the date of filing, the court assumes that any relief from payment of those amounts by the debtor is within the jurisdiction of the state court. Certainly the debtor's Chapter 11 estate cannot assume responsibility for the ongoing payments of these amounts. That expense is also an expense which is in the general category of the debtor's necessary living expenses which accrue after the filing of the petition in bankruptcy.
Thus, it is the determination of the court that the motion to allow necessary living expenses and the motion to direct the trustee to make alimony payments to the debtor's ex-wife must be and the same are hereby DENIED, there being no provision in the Code for such payments from the debtor's Chapter 11 estate.
It is so ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538890/ | 4 B.R. 12 (1980)
In the Matter of George T. SMITH, and Shirley Ann Smith, Debtors.
Bankruptcy No. 880-00967-17.
United States Bankruptcy Court, E.D. New York.
May 22, 1980.
Murov & Ades, Lindenhurst, N.Y., by Paul R. Ades, Lindenhurst, N.Y., for objecting creditor.
Donner, Fagelson, Hariton & Berka, P.C., Bay Shore, N.Y., by Frederick Fagelson, Bay Shore, N.Y., for debtors.
DECISION & ORDER
BORIS RADOYEVICH, Bankruptcy Judge.
The debtors filed their petition, statement and plan pursuant to chapter 13 of the Bankruptcy Code on 28 February, 1980. The plan fixed the value of the debtor's automobile at $2,600.00 pursuant to section 506 and 1325 of the Bankruptcy Code. It also provided that GMAC, the holder of a security interest in the debtors' vehicle, should retain a lien in that amount and be paid $72.22 per month for 36 months, without interest, resulting in the repayment of approximately $2,600.00. Finally, the plan provided that GMAC would participate as an unsecured creditor with respect to the balance of its claim. On 7 April, 1980, the secured creditor filed a proof of claim alleging an unpaid balance of $2,385.95, and rejected the debtors' plan. A hearing to consider confirmation of the debtors' plan was held on 28 April, 1980, at which time the attorney for GMAC appeared and presented his client's objections to the debtors' plan. Counsel for the debtors presented an opposing argument, the value of the collateral was fixed at $2,600, and decision was reversed to consider whether the objecting creditor has a right to be paid interest on its claim under section 506(b) of the Code, 11 U.S.C. § 506(b), as well as the present value equivalent of its allowed secured claim.
FINDINGS OF FACT
This Court finds that the value of the collateral as of the date of the confirmation hearing was $2,600. This is also deemed to be the value as of the effective date of the plan within the meaning of section 1325(a)(5)(B)(ii) of the Code, 11 U.S.C. § 1325(a)(5)(B)(ii). See 5 Collier on Bankruptcy ¶ 1325.01[2] at 1325-25 (15th ed. 1979). The amount of the creditor's claim is $2,385.95, which amount includes interest at an annual rate of 12.68%, effective until May 13, 1981. This is the balance owed according to the proof of claim form filed with this Court. Since the value of the collateral exceeds the balance due,[1] the "allowed amount of the secured claim" within *13 the meaning of the statute, 11 U.S.C. § 1325(a)(5)(B)(ii), also is $2,385.95.[2]
CONCLUSIONS OF LAW
Section 1325(a) of the Bankruptcy Code provides (in pertinent part):
The court shall confirm a [chapter 13] plan if
(1) the plan complies with the provisions of this chapter and with other applicable provisions of this title; [and]
. . . . .
(5) with respect to each allowed secured claim provided for by the plan
(A) the holder of the 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; . . .
11 U.S.C. § 1325(a)(1), (5). Thus, chapter 13 provides that a debtor's plan may not be confirmed unless it deals with a secured claim other than a residence mortgage[3] in one of three ways: with creditor acceptance of the plan,[4] by the so-called "cram down";[5] or, by surrender of the collateral.[6] In the instant case, the plan would utilize the "cram down" method of dealing with a secured claim.
Under the language of the chapter 13 "cram down" provisions, the creditor must receive the present value equivalent of the allowed amount of the secured claim. 11 U.S.C. § 1325(a)(5)(B)(ii). See generally 124 Cong.Rec. H 11, 107 (daily ed. Sept. 28, 1978); id. S 17,423 (daily ed. Oct. 6, 1978). The present value of such claim is the amount the creditor would realize if he had in his hands the principal amount which is due and owing as of the effective date of the plan and was able to reinvest this amount in a way which produces a return on his investment for a period equal to the extension proposed in the debtor's plan (the extension period is normally 36 months[7]). Congress contemplated that the courts would fix an appropriate discount rate, apply this rate to the allowed amount of the secured claim and determine the present value equivalent of the allowed secured claim. Of course, as both the House and Senate Reports have noted in a different context,[8] there is a presumption that the discount rate and the rate set forth in the contract are equivalent. This is so, for example, because GMAC would likely invest its money by financing the purchase of another automobile at the same annual interest rate. Therefore, absent evidence which would rebut a presumption that the discount rate and contract rate are equivalent, this Court holds that the two rates are the same.
In addition, if the value of the collateral exceeds the amount of the allowed secured claim, the secured creditor has the right to recover from this surplus reasonable interest on his claim, together with any reasonable fees, costs or charges provided for in the security agreement. 11 U.S.C. § 506(b).
Nevertheless, the plan in the instant case does not propose to give the secured creditor herein the present value equivalent of the allowed amount of the secured claim. *14 Accordingly, confirmation of the proposed plan should be and hereby is refused.
It is so ORDERED.
NOTES
[1] 11 U.S.C. § 506(a). This section applies in cases under chapter 13. 11 U.S.C. § 103(a).
[2] The creditor herein has not asserted a claim for an attorney's fee, although this would add to the total amount of the allowed claim under section 506(b) of the Code.
[3] The Code does not permit a chapter 13 plan to modify the rights of holders of a mortgage on real property which is the debtor's principal residence. See 11 U.S.C. § 1322(b)(2).
[4] 11 U.S.C. § 1325(a)(5)(A).
[5] 11 U.S.C. § 1325(a)(5)(B).
[6] 11 U.S.C. § 1325(a)(5)(C).
[7] See 11 U.S.C. § 1322(c).
[8] H.R.Rep.No.95-595, 95th Cong., 1st Sess., 352-53 (1977); S.Rep.No.989, 95th Cong., 1st Sess. 62-63 (1978), U.S.Code Cong. & Admin. News (1978), p. 5787 (discussing the Code's disallowance of interest on unsecured claims). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538888/ | 4 B.R. 168 (1980)
In re BEL AIR ASSOCIATES, LTD., Debtor.
Bankruptcy No. BK-80-00151.
United States Bankruptcy Court, W.D. Oklahoma.
May 2, 1980.
*169 *170 G. Blaine Schwabe, III, Oklahoma City, Okl., for bankrupt, Bel Air Associates, Ltd.
James F. Hartmann, Jr., Oklahoma City, Okl., for general partner, Leo R. Frey.
Murray Cohen, Oklahoma City, Okl., for creditors, P.M. & M. Co. and Leroy Properties Development Corp.
Robert W. Amis, Oklahoma City, Okl., for limited partner, Andrew H. Tompkins.
OPINION OF THE COURT
ROBERT L. BERRY, Bankruptcy Judge.
Statement of the Case
On January 29, 1980, Mr. Leo R. Frey, General Partner of Bel Air Associates, Ltd., a limited partnership, filed a Voluntary Petition in this Court on behalf of the said partnership. This petition was filed pursuant to Chapter 11 of Title 11, United States Code. On February 22, 1980, Debtor filed a Plan of Reorganization. On that date Debtor also filed an "Application for Order Authorizing Advertising, Authorizing Incurrence of Debt, Approving Disclosure Statement, Fixing Date for Filing Claims, Confirming Plan, Authorizing Sale of Property, and Providing for Notice Thereof." On February 22, 1980, this Court entered an "Order Authorizing Advertising, Authorizing Incurrence of Debt, Approving Disclosure Statement, Fixing Date for Filing Claims, Fixing Date for Hearing on Confirmation and Sale of Property, and Providing for Notice Thereof."
On March 3, 1980, Plaintiff Andrew H. Tompkins, "Tompkins", a limited partner of the partnership, filed by his attorney a Motion to vacate the Court's Order of February 22, 1980. On March 10, 1980, the Court overruled the said Motion.
On March 17, 1980, Plaintiff filed a pleading rejecting the plan of reorganization. This pleading contained objections to the plan, objections to claims, objections to the authorization to incur debts, and objections to confirmation of the plan. It also contained applications for the appointment of a trustee, examiner and creditor's committee. After a hearing on the matter on March 24, this Court overruled Plaintiff's rejections, objections and applications by formal order.
*171 Findings
Due to the complex nature of this case and the large number of various objections and applications having been filed, this Court will treat each of these matters separately.
I.
Knowledge and Consent by Limited Partners
Tompkins claimed that this Court lacked jurisdiction because the petition did not reflect an appropriate authorization by the members of their partnership.
Rule 105 of the Rules of Bankruptcy Procedure states in pertinent part:
"(a) Voluntary Petition. A voluntary petition may be filed by all the general partners on behalf of the partnership." (Emphasis added)
The Limited Partnership involved here consists of one general partner and three limited partners. The petition was duly filed by the one and only general partner thus complying with Rule 105. See also 54 O.S. §§ 231, 232.
Tompkins also claimed that the petition was filed without his knowledge or consent thereby violating Oklahoma's Uniform Limited Partnership Act.
The Oklahoma Uniform Limited Partnership Act is contained in 54 O.S. § 141 et seq. This Court assumes that Tompkins bases his claim on the provisions of 54 O.S. § 150 which states in pertinent part:
"(a) A general partner shall have all the rights and powers and be subject to all the restrictions and liabilities of a partner in a partnership without limited partners, except that without the written consent or ratification of the specific act by all the limited partners, a general partner or all of the general partners have no authority to:
"(1) Do any act in contravention of the certificate.
"(2) Do any act which would make it impossible to carry on the ordinary business of the partnership.
"(3) Confess a judgment against the partnership."
Section 16 of the Partnership Agreement, however, provides in part:
"16.01. The Limited Partnership shall commence on December 27, 1973, the effective date hereof, and shall continue until December 31, 1998, unless dissolved earlier by any of the following events:
"(i) Dissolution of the Limited Partnership by operation of law or final judgment or decree of a court of competent jurisdiction;
"(ii) Dissolution upon sale of the Apartments prior to December 31, 1998;
"(iii) Dissolution by election of the General Partner, if, in the reasonable discretion of the General Partner, continued ownership of the Apartments would be unprofitable." (Emphasis added)
Thus, the partnership agreement itself, duly signed by Tompkins provides for dissolution of the partnership at the sole discretion of the General Partner. But even if this were not the case, there is adequate legal basis for the proposition that a petition in bankruptcy need not be approved by the Limited Partners.
Oklahoma's Uniform Partnership Act is contained in 54 O.S. §§ 201 et seq. 54 O.S. § 206(2) provides that ". . . this Act shall apply to limited partnerships except insofar as the statutes relating to such partnerships are inconsistent herewith."
Section 232 provides that "(o)n application by or for a partner the court shall decree a dissolution whenever . . . (t)he business of the partnership can only be carried on at a loss." Section 231 states that "(d)issolution is caused . . . (i)n contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provisions of this section, by the express will of any partner at any time." Section 231 also provides that dissolution is caused by the bankruptcy of the partnership. Further, section 237 states that any partner, *172 upon cause shown, may obtain winding up by the court.
II.
Appointment of Trustee or Examiner
Tompkins raised the fact that there were actions pending in the Oklahoma District Court wherein Tompkins had alleged fraud on the part of the general partner. Tompkins made an oral motion at the hearing on March 24th to appoint a trustee or examiner under provisions of 11 U.S.C. § 1104, said motion being predicated on Tompkins allegations of fraud. 11 U.S.C. § 1104 provides in pertinent part:
"(a) At any time after the commencement of the case but before confirmation of a plan, on request of a party in interest, and after notice and a hearing, the court shall order the appointment of a trustee
"(1) for cause, including fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by current management, either before or after the commencement of the case, or similar cause, but not including the number of holders of securities of the debtor or the amount of assets or liabilities of the debtor; or
"(2) if such appointment is in the interests of creditors, any equity security holders, and other interests of the estate, without regard to the number of holders of securities of the debtor or the amount of assets or liabilities of the debtor.
"(b) If the court does not order the appointment of a trustee under this section, then at any time before the confirmation of a plan, on request of a party in interest, and after notice and a hearing, the court shall order the appointment of an examiner to conduct such an investigation of the debtor as is appropriate, including an investigation of any allegations of fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in the management of the affairs of the debtor of or by current or former management of the debtor, if
"(1) such appointment is in the interests of creditors, any equity security holders, and other interests of the estate; or
"(2) the debtor's fixed, liquidated, unsecured debts, other than debts for goods, services, or taxes, or owing to an insider, exceed $5,000,000."
Under 11 U.S.C. § 1104 Tompkins was entitled to the appointment of a trustee upon a showing of fraud, dishonesty or gross mismanagement on the part of the general partner, or, in the alternative, a showing that such an appointment would be in the interests of creditors, equity security holders and other interests of the estate. Plaintiff is an equity security holder as defined by 11 U.S.C. § 101(15)(B).
The voluntary petition filed herein lists two creditors in the Schedule A-2, Creditors Holding Security, attached thereto, who subsequently filed Proofs of Claims. One of these creditors is named as "Leroy Properties and Development Corporation" and accounts for approximately twenty-two percent of the secured claims of $2,333,871.55. Leroy is a public corporation in which the general partner herein owns a majority interest.
In Schedule A-3, Creditors Holding Unsecured Claims Without Priority, of the voluntary petition, the sole creditor listed is "P.M. &M. Company" with a filed Proof of Claim of $934,314.24. P.M. & M. is a wholly owned subsidiary of Leroy.
In his motion of March 3, Tompkins stated that in the pending Oklahoma District Court cases he alleged "self-dealing and a breach of the general partner's fiduciary duty" owed to Tompkins. In the Limited Partnership Agreement, however, it is plainly stated in Section 5 therein:
"5.01. The business of the Limited Partnership shall be to acquire for investment purposes the Bel Air Apartments (hereinafter "the apartments"), situated at Southwest 74th Street and Santa Fe Boulevard, Oklahoma City, Oklahoma.
"5.02. To acquire the Apartments, the General Partner may execute for the *173 Limited Partnership an Agreement for Purchase of Real Property substantially in the form of Exhibit A attached hereto and incorporated herein by reference (the "Purchase Agreement") and may also execute any and all other documents or instruments necessary or appropriate in connection with the transactions contemplated in said Purchase Agreement. Each of the undersigned Limited Partners has been advised and is aware that Leo Frey is the President and a major stockholder of LeRoy Corporation, the Seller named in the Purchase Agreement. The Limited Partners' agreement herein that such Purchase Agreement shall be executed is made with full knowledge of the above-mentioned facts, and the Limited Partners further agree that upon execution of the Purchase Agreement by the General Partner, said Purchase Agreement shall be a valid and binding obligation of the Limited Partnership." (Emphasis added)
In addition, Section 12 of the Limited Partnership Agreement provides:
"Concurrently with the execution of the Purchase Agreement, the General Partner shall execute for the Limited Partnership a Management with P.M. & M. Company, an Oklahoma corporation, substantially in the form of Exhibit B attached hereto and incorporated herein by reference (hereinafter the "Management Agreement"). Each of the undersigned Limited Partners has been advised and is aware that Leo Frey is the President and a major stockholder of LeRoy Corporation and that P.M. & M. Company is a wholly-owned subsidiary of LeRoy Corporation. Leo Frey is also the President of P.M. & M. Company. The Limited Partners' agreement herein that such Management Agreement shall be executed is made with full knowledge of the above-mentioned facts, and the Limited Partners further agree that upon execution of the Management Agreement by the General Partner, said Agreement shall be a valid and binding obligation of the Limited Partners and the Limited Partnership." (Emphasis added)
In addition, paragraph 10.07 of section 10 of the Limited Partnership Agreement provided in pertinent part:
"10.07. In the event the Limited Partnership lacks sufficient working capital, the General Partner will advance to the Limited Partnership such monies as are required therefor. Such advances may include loans from the General Partner, from any affiliated entity, or from any other entity whatsoever. . . ." (Emphasis added)
At the hearing on March 24, 1980, Tompkins presented no evidence that the general partner did any act which was outside the scope of the partnership agreement. In the absence of any such showing this Court fails to see how the appointment of a trustee would be in the interest of any of the parties involved.
Tompkins also requested, in the alternative, that an examiner be appointed. Under 11 U.S.C. § 1104, the Court must appoint such an examiner to investigate any allegations of fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in the management of the debtor's affairs if such appointment is in the interests of creditors, any equity security holders, and other interests of the estate.
Although the statute speaks in terms of allegations with regard to the appointment of an examiner, this Court is of the opinion that mere naked allegations are not enough to warrant the necessary expense and delay involved with such an appointment and investigation. This Court feels that although there is no requirement that actual misconduct or incompetence be proved, there should at least be some evidence presented that such allegations have some factual basis. To construe the statute otherwise would mean that an examiner must be appointed to conduct a complete investigation in every case where a party in interest makes a naked accusation, whether it be in good faith or bad.
As stated before, at none of the hearings conducted in this case, has Tompkins *174 made any showing whatsoever that the general partner may have done any act which was not specifically authorized by the Limited Partnership Agreement. In fact, at no time during any of the hearings did Tompkins appear other than through his counsel. No witness was presented before this Court other than the general partner. Tompkins, himself, has never appeared to testify that he was in any way misled or fraudulently induced to enter into this agreement. In the face of the evidence presented to this Court, it has no choice but to conclude that Tompkins has failed to furnish any information which would provide a basis for his allegations. The appointment of an examiner was therefore denied.
III.
Validity of Claims
The allowance of claims is covered by 11 U.S.C. § 502. Subsection (b) of that section lists the various types of claims which should be excepted from allowance. The only possible exception applicable to the claims of Leroy and P.M. & M. is of subsection (5) which excepts a claim "if such claim is for services of an insider or attorney of the debtor, such claim exceeds the reasonable value of such services."
11 U.S.C. § 101(25) defines the term "insider", as applicable here, as follows:
"(25) `insider' includes
"(C) if the debtor is a partnership
"(i) general partner in the debtor;
"(ii) relative of a general partner in, general partner of, or person in control of the debtor;
"(iii) partnership in which the debtor is a general partner;
"(iv) general partner of the debtor; or
"(v) person in control of the debtor;"
. . . . .
"(E) affiliate, or insider of an affiliate as if such affiliate were the debtor; and
"(F) managing agent of the debtor;"
Whether or not Leroy is an insider does not matter as to the issue of allowability of its claim. Since Leroy exercises no control over the debtor and provides no "services" for the debtor within the meaning of 11 U.S.C. § 502, its claim cannot be excepted from allowance.
As to P.M. & M., the hereinbefore quoted section 12 of the Partnership Agreement provided that the partnership was to execute a Management Agreement with P.M. & M. This Management Agreement was introduced into evidence as part of the Partnership Agreement. Section 1 of the Management Agreement states:
"Owner hereby employs Manager as the sole and exclusive renting, operating and managing agent of the property."
Under the provisions of 11 U.S.C. § 101(25)(F), P.M. & M. is, therefore, an insider.
P.M. & M.'s Proof of Claim filed in this case indicates that its claim is based entirely on cash advances rather than payment for services, however. Since P.M. & M. is not making any claim for payment of services, its claim does not fall within the exception of 11 U.S.C. § 502(b)(5) and must therefore be allowed.
V.
Disclosure Statement
Postpetition disclosure and solicitation is governed by 11 U.S.C. § 1125 which states in pertinent part:
"(a) In this section
"(1) `adequate information' means information of a kind, and in sufficient detail, as far as is reasonably practicable in light of the nature and history of the debtor and the condition of the debtor's books and records, that would enable a hypothetical reasonable investor typical of holders of claims or interests of the relevant class to make an informed judgment about the plan; and
"(2) `investor typical of holders of claims or interests of the relevant class' means investor having
*175 "(A) a claim or interest of the relevant class;
"(B) such a relationship with debtor as the holders of other claims or interests of such class generally have; and
"(C) such ability to obtain such information from sources other than the disclosure required by this section as holders claims or interests in such class generally have.
"(b) An acceptance or rejection of a plan may not be solicited after the commencement of the case under this title from a holder of a claim or interest with respect to such claim or interest, unless, at the time of or before such solicitation, there is transmitted to such holder the plan or a summary of the plan, and a written disclosure statement approved, after notice and a hearing, by the court as containing adequate information. The court may approve a disclosure statement without a valuation of the debtor or an appraisal of the debtor's assets.
"(c) The same disclosure statement shall be transmitted to each holder of a claim or interest of a particular class, but there may be transmitted different disclosure statements, differing in amount, detail, or kind of information, as between classes."
Under the above quoted language of § 1125 it can be seen that nonsubmissions of disclosure statements only operate to prevent solicitations of acceptances or rejections of the plan. This section seems only to require disclosure statements in the event there are solicitations of acceptances or rejections of the plan. In this case there has been no evidence presented to show that any such solicitations were made.
Notwithstanding the fact that, under § 1125, no disclosure statement may have been required in this case, this Court, in its Order of February 22, 1980, approved the plan itself as the disclosure statement since the plan contained "adequate information" as defined in § 1125(a)(1) above. Specifically this Court found that the plan contained adequate information to enable a reasonable investor to make an informed judgment about the plan.
One of the aspects which this Court considered as to the members of each class of claim or interest holders was, as stated in § 1125(a)(2)(C), their "ability to obtain such information from sources other than the disclosure" statement. Tompkins herein is an equity security holder by virtue of being a limited partner in the partnership. A limited partner has such information as the partnership agreement, management agreement, description of the partnership's property, and yearly financial information to support tax returns. This information coupled with the additional items covered by the plan itself such as the terms of the proposed sale, the sale agreement with Leroy which completely spelled out all of the procedures to be followed and dollar amounts involved, and the priority of all creditors and interest holders and how they were to be paid should have supplied "adequate information" to enable any of the limited partners to "make an informed judgment about the plan."
VI.
Confirmation of the Plan
Under 11 U.S.C. § 1129, this Court is required to confirm a plan if it meets the criteria as described therein, which the plan herein so did. Those criteria specifically at issue in this case will be discussed individually.
A.
The plan complies with the provisions of § 1129(a)(7) which states in pertinent part:
"(7) With respect to each class
"(A) each holder of a claim or interest of such class
"(i) has accepted the plan; or
"(ii) will receive or retain under the plan on account of such claim or interest property of a value, as of the effective date of the plan, that is not less than the amount that such holder would so receive or retain if the debtor were liquidated under chapter 7 of this title on such date; . . . "
*176 As to the order of payment of liabilities on dissolution of a limited partnership, Oklahoma's Uniform Limited Partnership Act, 54 O.S. § 164, provides:
"(a) In settling accounts after dissolution the liabilities of the partnership shall be entitled to payment in the following order:
"(1) Those to creditors, in the order of priority as provided by law, except those to limited partners on account of their contributions, and to general partners.
"(2) Those to limited partners in respect to their share of the profits and other compensation by way of income on their contributions.
"(3) Those to limited partners in respect to the capital of their contributions.
"(4) Those to general partners other than for capital and profits.
"(5) Those to general partners in respect to profits.
"(6) Those to general partners in respect to capital.
"(b) Subject to any statement in the certificate or to subsequent agreement, limited partners share in the partnership assets in respect to their claims for capital, and in respect to their claims for profits or for compensation by way of income on their contributions respectively, in proportion to the respective amounts of such claims."
In addition, 54 O.S. § 157 provides in part:
"(a) A limited partner shall not receive from a general partner or out of partnership property any part of his contribution until:
"(1) All liabilities of the partnership, except liabilities to general partners and to limited partners on account of their contributions, have been paid or there remains property of the partnership sufficient to pay them."
Thus it can be seen that under a Chapter 7 liquidation, no limited partner would be entitled to return of his contribution and profits, if any, until after the creditors of the partnership are paid. The plan provides that the interests of the individual partners will be satisfied from the proceeds of the sale of the partnership property after the partnership's creditor claims are satisfied. The plan thus provides the limited partners with the same right of return of their contributions and profit sharing as a Chapter 7 liquidation would.
B.
As required by 11 U.S.C. § 1129(a)(10), "(a)t least one class of claims has accepted the plan, determined without including any acceptance of the plan by any insider holding a claim of such class." John Hancock Mutual Life Insurance Company comprises one class of claims in the plan by virtue of Hancock's being the only creditor holding a first mortgage on the debtor's property. Although Hancock has not formally filed an acceptance of the plan in the case, they are deemed to have accepted the plan under the provisions of 11 U.S.C. § 1126(f) which states:
"(f) Notwithstanding any other provision of this section, a class that is not impaired under a plan is deemed to have accepted the plan, and solicitation of acceptances with respect to such class from the holders of claims or interest of such class is not required."
John Hancock is not an insider as to the debtor. Under the provisions of the proposed sale agreement the property will be sold subject to Hancock's mortgage. The mortgage is not now in default and the current payments are being made by the general partner. Since the outstanding balance of Hancock's mortgage is well above the fair market value of the property, a cash sale will insure Hancock's being paid. Hancock is therefore in no way impaired by the plan under 11 U.S.C. § 1124, and their deemed acceptance of the plan satisfies the requirements of § 1129(a)(10).
C.
11 U.S.C. § 1129(a)(8) imposes the requirement that with respect to each class, *177 such class has accepted the plan or, in the alternative, such class is not impaired under the plan. Tompkins is not impaired under the plan since, as stated in 11 U.S.C. § 1124(1), the plan leaves unaltered the legal, equitable, and contractual rights to which his interest entitles him. Also, as stated in § 1124(3)(B), under the plan, Tompkins will receive the same liquidation preference to which his interest entitles him.
This Court also finds that even if Tompkins were impaired under the plan, as to him the plan does not discriminate unfairly and is fair and equitable. Under the plan all equity security holders are treated alike, with the same priority of interest as they would otherwise have under applicable law and the partnership agreement. If the plan does not discriminate unfairly, and is fair and equitable, 11 U.S.C. § 1129(b) requires the plan be confirmed even if the requirements of § 1129(a)(8) are not met.
THIS COURT THEREFORE HOLDS, in light of the foregoing evidentiary considerations and conclusions that:
1. This Court had jurisdiction over all matters considered in this case,
2. No Trustee or Examiner need have been appointed,
3. The claims of Leroy and P.M. & M. were valid claims and properly allowed,
4. The plan and surrounding circumstances herein involved provided all parties with adequate information to make an informed judgment about the plan, and
5. The plan was properly confirmed as being fair and equitable and in compliance with applicable bankruptcy law. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538896/ | 4 B.R. 213 (1980)
In re William Henry ROBERTSON and Essie Dell Robertson, Debtors.
The BENFORD-WHITING COMPANY, Plaintiff,
v.
William Henry ROBERTSON and Essie Dell Robertson, Defendants.
Bankruptcy No. 79 B 03845 C.
United States Bankruptcy Court, D. Colorado.
May 6, 1980.
Holly E. Rebstock, Denver, Colo., for Benford-Whiting Co.
James G. Anderson, Aurora, Colo., for William Henry Robertson and Essie Dell Robertson.
*214 FINDINGS, CONCLUSIONS, AND ORDER REGARDING MOTION FOR DETERMINATION OF JURISDICTION AND FOR MODIFICATION OF PLAN
PATRICIA ANN CLARK, Bankruptcy Judge.
The matter before the Court is the Motion of The Benford-Whiting Company (Benford-Whiting) for Determination of Jurisdiction and for Modification of Plan of the Debtors, William Henry Robertson and Essie Dell Robertson. Benford-Whiting contends that the Debtors' Chapter 13 Plan (Plan) provides for the curing of a default on an indebtedness which no longer existed at the time the Debtors filed their Chapter 13 petition. Debtors contend that they were entitled to cure under their Plan the default on the obligation due Benford-Whiting. At the hearing on the motion, Holly E. Rebstock represented the Plaintiff and James G. Anderson represented the Debtors.
The facts are as follows. On August 3, 1978, the Debtors executed a promissory note payable to Benford-Whiting in the principal amount of $70,750.00. The note was secured by a deed of trust covering real property owned by the Debtors in Arapahoe County, Colorado, which is the Debtors' principal residence.
In August, 1979, the Debtors were in default on the note and Benford-Whiting commenced proceedings to foreclose the deed of trust through the public trustee of Arapahoe County. At 10:00 o'clock a.m. on December 12, 1980, a public trustee's sale was held and a certificate of purchase was issued to Benford-Whiting for $75,750.00, being the amount of the unpaid principal, interest and foreclosure costs.
On that same day at 10:22 o'clock a.m. the Debtors filed their petition under Chapter 13 of the Bankruptcy Code. At the time of such filing, the Debtors were in arrears on nine loan payments of $595.01 each on the Benford-Whiting obligation. The note evidencing this obligation had at one time been owned by California Mortgage Service and the Debtors listed them on their schedule of creditors as the holder of the note secured by their residence. The Debtors' Chapter 13 Plan provides in part:
2. That the secured claim of California Mortgage Service is secured by security interests in real property that is the debtors' principal residence and as such, will not be modified under this plan pursuant to 11 U.S.C. section 1322(b)(2), except for the curing of the default thereof, as indicated herein.
5. . . . .
b. After the above payments, payments shall be made to cure the default to the holder of the security interest in the debtors' principal residence. The debtors herein shall maintain all monthly payments on said principal place of residence after the filing of th[e] Petition herein, during the administration of this plan and thereafter pursuant to 11 U.S.C. 1322(b)(5).
c. After the above payments, dividends to secured creditors whose claims are duly proved and allowed to be paid pro rata value of the property securing their debt.
On February 1, 1980, the Court confirmed the Debtors' Plan and ordered payments to California Mortgage Service in the total amount of $6,829.58, including interest. At the time it entered its Orders, the Court had not been advised that the property was in a foreclosure proceeding or that the public trustee's sale had occurred.
The plaintiff alleges that because a certificate of purchase had been issued prior to the time the Chapter 13 petition was filed Benford-Whiting was not a creditor of the Debtors and the Court was without jurisdiction to order the curing of the default owed it. Debtors maintain that Benford-Whiting is a creditor whose claim must be disallowed because it did not file a proof of claim. They further assert that the Court is empowered to extend the time for curing their default beyond that permitted by Colorado statute.
The jurisdiction of the Court will be considered first.
*215 28 U.S.C. 1471(e) provides:
(e) The bankruptcy court in which a case under title 11 is commenced shall have exclusive jurisdiction of all of the property, wherever located, of the debtor, as of the commencement of such case.
That subsection makes ". . . explicit that all property of the debtor, which becomes property of the estate, is in custodia legis of the bankruptcy court." 1 Collier on Bankruptcy, (15th ed.) ¶ 3.01[g], p. 3-55. Was the Debtors' residence their property as of the commencement of the case?
A Chapter 13 case is commenced by the filing of a Chapter 13 petition (11 U.S.C. 301). The Debtors' petition was filed at 10:22 o'clock a.m. on December 12, 1980. Twenty-two minutes earlier the public trustee had issued a certificate of purchase to Benford-Whiting. Consequently, when the petition was filed the note had been replaced by the certificate of purchase and the redemption period had begun. C.R.S. 1973, XX-XX-XXX, as amended states:
Deed executed by trustee, sheriff, or other official form of deed. The trustee, sheriff, or such other official shall, upon the expiration of the period of redemption allowed to the owner and to all subsequent lienors entitled to redeem, make and execute a deed to the holder of the certificate of purchase, or to the lienor last redeeming in case a redemption has been made by a lienor, to the land and tenements sold, which deed shall be in the manner and form provided by law or in compliance with the terms and conditions of the original trust deed. Upon the issuance and delivery of such deed, but not until then, ttle [sic] shall vest in the grantee and such title shall be free and clear of all liens and encumbrances recorded or filed subsequent to the recording or filing of the lien on which the sale referred to in this section was based. Such deed shall be issued by the trustee, sheriff, or such other official within nine months from the expiration of the last period of redemption permitted by law and not thereafter. (emphasis added)
The Colorado Supreme Court examined certificates of purchase in Green v. Hoefler, 115 Colo. 287, 173 P.2d 208 (1946) (Green hereafter) and stated at pages 289 and 290, 173 P.2d at page 209 that:
[T]he holder of a certificate of purchase does not have equitable title to the property, requiring only the ministerial act of the proper officer to become a legal title; instead, he has a lien thereon with right to receive the redemption money or, if no redemption is made, the right, upon demand, to receive official deed thereto. Under that act it is provided that it shall be deemed that such lien became due and payable on the date that the person became entitled to such deed, and that upon the issuance and delivery of the deed, and not until then, title should vest in the grantee. This seems to be the general rule. "While there are some cases influenced by the statutes of the particular jurisdiction to the effect that title passes, the general rule is that the issuance of the certificate, although it operates to extinguish the mortgage lien, and, in some jurisdictions, itself creates a statutory lien in favor of the purchaser, is not a deed and does not pass a title to the land itself, nor does it divest the mortgagor of his title, so that if a deed is not executed and delivered to the holder of the certificate within the time limited by statute, or if the certificate is later assigned to the mortgagor and no deed is ever issued, or if the holder of the certificate neglects to secure a deed for so long a time after he is entitled to it as to constitute an estoppel, the mortgagor or those entitled under him are never divested of their title." 42 C.J. 279, § 1948.
Thus, it is clear that the Debtors still held title to the property as of the commencement of their Chapter 13 case and consequently the Court had jurisdiction over it.
Next is the question of whether Benford-Whiting was a creditor of the Debtor when the Chapter 13 petition was filed. "[I]n general, a creditor is any person, estate, trust or governmental unit that has a right to payment or performance from the Chapter 13 debtor that arose before the entry of the order for relief." 5 *216 Collier on Bankruptcy, (15th ed.), ¶ 1300.17, p. 1300-47, 11 U.S.C. 101(9) and 101(4). A "person" is defined by the Code as an individual, partnership or corporation and the plaintiff is included in the definition (11 U.S.C. 101(30)). The Debtors' filing of their petition constituted an entry of an order for relief (11 U.S.C. 102(6)). As noted by the Court in Green, supra, Benford-Whiting had a lien against the Debtor's residence. That lien secures "payment of a debt or performance of an obligation (11 U.S.C. 101(28))." Hence, Benford-Whiting was a creditor of the Robertsons when they filed their Chapter 13 petition.
The Debtors claim that they still owed the default amount to Benford-Whiting at the time of the filing of their petition. They contend that the failure of creditor Benford-Whiting to file a proof of claim or to appear at the meeting of creditors and the confirmation hearing constitutes a waiver of its rights and a bar to its claims. They further contend that the confirmation of the Plan binds the creditor pursuant to 11 U.S.C. 1327.
As noted, the Robertson's Plan only provided for curing the default purportedly owing to Benford-Whiting as permitted by Section 1322(b)(5) of the Code (11 U.S.C. 1322(b)(5)). It did not provide for future payments on the note secured by their residence. In Colorado, the right to cure a default for non-payment of sums due under a note and deed of trust is granted by C.R.S. 1973, XX-XX-XXX, as amended. That statute, which has modified the common law, requires seven days' notice of an owner's intent to cure and payment of all amounts due by noon of the day preceding the day set for sale. Foster Lumber Co. v. Weston, 33 Colo. App. 436, 521 P.2d 1294 (1974). Since the Robertsons did not cure their default in the manner prescribed by Colorado Statute, the sale occurred and the certificate was issued to Benford-Whiting. The Debtors have cited no authority and the Court is aware of none that would permit it to alter Colorado law and extend the statutory time to cure a default after the certificate of purchase has been issued. Consequently, when the petition was filed Benford-Whiting had a claim not for the default amount of $6,291.00 but for the redemption amount of $75,750.00. In other words, when the Robertsons filed their Chapter 13 petition, they only had a right of redemption and not a right to cure the default. Green, supra. Because of this, their attempt to cure the default under the Plan was meaningless.
The Debtors' Plan does not propose to pay Benford-Whiting the redemption money to which it is entitled. What, then, is the effect of creditor Benford-Whiting not filing a proof of claim for the redemption amount? In order for a claim against an estate to be allowed, a proof of claim must be filed. However, Section 506(d) of the Code (11 U.S.C. 506(d)) provides:
(d) To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless
(1) a party in interest has not requested that the court determine and allow or disallow such claim under section 502 of this title; or
(2) such claim was disallowed only under section 502(e) of this title.
As there was no request to determine and allow or disallow Benford-Whiting's claim for the redemption amount and as that claim was not disallowed under Section 502(e) (11 U.S.C. 502(e)), its lien for that amount passed "[T]hrough the bankruptcy case unaffected." House Report 95-595, 95th Cong., 1st Sess. (1977), p. 357, U.S.Code Cong. & Admin.News, 1978, p. 5787. Consequently, Benford-Whiting did not lose its claim for the redemption amount because it failed to file a proof of claim therefor.
It is true that under Section 1327 of the Code (11 U.S.C. 1327), a Chapter 13 plan binds the debtors and all creditors, whether the creditor is provided for by the plan or not. 5 Collier on Bankruptcy, 15th ed., ¶ 1327.01[1], pp. 1327-1 and 2. However, having not provided for Benford-Whiting's secured claim for redemption within their Plan, the Robertsons cannot now assert that it has been satisfied by the provisions of *217 Section 1325(a)(5) of the Code (11 U.S.C. 1325(a)(5)).
ORDERED that an order shall enter amending the Findings and Orders Regarding Claims In re William Henry Robertson and Essie Dell Robertson, Debtors, to conform with the findings and conclusions set forth in this opinion.
FURTHER ORDERED that the parties shall have ten days from the date this Order becomes final to file a written request for the withdrawal of all exhibits received in evidence, after which time the exhibits will be destroyed by the Deputy Clerk without further order of the Court. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538923/ | 4 B.R. 502 (1980)
In re HAWAII PACIFIC PACKAGE STORE, INC., a Hawaii Corporation, Debtor.
HAWAII NATIONAL BANK, HONOLULU, Plaintiff,
v.
HAWAII PACIFIC PACKAGE STORE, INC., a Hawaii Corporation; Ernest J. Jackson; Pearl Jackson; G. Douglas Fairhurst; Martha Fairhurst; Oceanside Properties, Inc.; Terrance Clarence Greenen; United States of America; and Department of Taxation, State of Hawaii, Defendants.
Bankruptcy No. 80-0017.
United States Bankruptcy Court, D. Hawaii.
April 3, 1980.
*503 Emmet T. White, Jr., Honolulu, Hawaii, for Hawaii National Bank, Honolulu.
James N. Duca, Honolulu, Hawaii, for Oceanside Properties, Inc.
Edwin L. Doernberger, Honolulu, Hawaii, for Ernest J. Jackson and Pearl Jackson.
Bradley A. Coates, Honolulu, Hawaii, for Terrance Clarence Greenen.
Allan S. Chock, Honolulu, Hawaii, for Dept. of Taxation, State of Hawaii.
G. Douglas Fairhurst, for Hawaii Pac. Package Store.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
JON J. CHINEN, Bankruptcy Judge.
A Complaint seeking Relief from Stay was filed on March 13, 1980. A preliminary hearing was held on March 31, 1980.
Based upon the memoranda, the records herein, and the arguments of counsel, the Court makes the following Findings of Fact and Conclusions of Law:
FINDINGS OF FACT
1. On April 19, 1978, Plaintiff filed a Complaint in the Circuit Court of the First Circuit, State of Hawaii, Civil No. 54401, entitled Hawaii National Bank, Honolulu, Plaintiff, vs. Hawaii Pacific Package Store, Inc., Ernest J. Jackson, Pearl Jackson, G. Douglas Fairhurst and Martha Fairhurst, Defendants.
2. Plaintiff's Complaint in Civil No. 54401 sought immediate repayment of all indebtedness owing under a promissory note dated January 6, 1977, executed by Debtor and secured by (a) UCC Security Interest in equipment, inventory, accounts, contracts, stocks; (b) an Assignment of Buyer's Interest in Agreement of Sale; and (c) a Continuing General Guaranty executed by Defendants Jackson and Fairhurst.
3. Plaintiff's complaint in Civil No. 54401 also named as party defendants and sought relief from Jacksons, G. Douglas Fairhurst and Martha Fairhurst as a result of their having executed a Guaranty under which said party defendants guaranteed payment of the promissory note.
4. On January 3, 1980, OPI filed a Complaint in the Circuit Court of the First Circuit, State of Hawaii, Civil No. 60160, entitled, Oceanside Properties, Inc., Plaintiff, vs. Hawaii Pacific Package Store, Hawaii National Bank, Honolulu, George Douglas Fairhurst, Terrance Clarence Greenen, Ernest J. Jackson, United States of America, and the Department of Taxation, State of Hawaii, Defendants.
5. OPI's Complaint in Civil No. 60160 seeks to foreclose upon the Agreement of Sale between OPI, as Seller, and Debtor, as Buyer, and upon all the interests which any of the other defendants named in Civil No. 60160 might have in the property, more commonly known as Unit No. C-101 in the Kukui Plaza Condominium Project.
6. On January 28, 1980, Plaintiff filed its Answer to OPI's Complaint in Civil No. 60160 and also filed a Cross-Claim and Counterclaim seeking to foreclose its (the Bank's) interest in that certain Assignment of Buyer's Interest in said Agreement of Sale.
7. At a pre-trial conference on January 15, 1980, Plaintiff sought to amend its Complaint in Civil No. 54401 to an additional count regarding the default of the Fairhursts and the Jacksons on a $20,000.00 *504 promissory note in favor of the Bank, the proceeds of which had been advanced to provide more monies to Debtor. Based, however, on Mr. Fairhurst's representation that an original petition under Chapter XI had been filed, the State Court in Civil No. 54401 stayed further action pending determinations by the Bankruptcy Court with respect to the automatic stay given by Section 362 of the Federal Bankruptcy Court.
8. On January 15, 1980, Debtor filed with this Court an original petition under Chapter XI.
9. Pursuant to section 362 to the Federal Bankruptcy Code said petition operated as an automatic stay of (i) the commencement or continuation of any court or other proceedings against Debtor; (ii) the enforcement of any judgments against Debtor; (iii) the commencement or continuation of any court proceedings to enforce any lien on the property of Debtor; (iv) the commencement of any court proceeding for the purpose of rehabilitation of Debtor or the liquidation of Debtor's estate.
10. As of March 1, 1980, the principal amount due the Bank in Civil No. 54401 is $44,000.00 with accrued interest in the amount of $13,249.21, which interest continues to accrue at the rate of $14.67 per day from March 1, 1980.
11. As of March 1, 1980, the principal amount due the Bank with respect to the personal indebtedness of the Fairhursts and the Jacksons sought to be included by the Bank in the Complaint in Civil No. 54401 is $7,441.64 plus per diem interest from May 26, 1979 in the daily amount of $2.48.
12. At the hearing, OPI and the Jacksons joined Plaintiff in requesting a lifting of the stay.
13. Plaintiff acknowledged that the premises occupied by Debtor is the only property owned by Debtor and is thus necessary for any plan of reorganization.
14. Debtor stated that it cannot make any periodic payments to Plaintiff. Debtor has no additional or replacement lien to offer Plaintiff.
CONCLUSIONS OF LAW
1. Sec. 362(d) of the Bankruptcy Reform Act of 1978 reads:
(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest; or
(2) with respect to a stay of an act against property, if
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization.
2. Since Plaintiff acknowledges that the premises occupied by Debtor is necessary for a plan of reorganization, Plaintiff requests adequate protection as a condition precedent to a continuation of the stay.
3. Sec. 361 of the Bankruptcy Reform Act of 1978 reads:
When adequate protection is required under section 362, 363, or 364 of this title of an interest of an entity in property, such adequate protection may be provided by
(1) requiring the trustee to make periodic cash payments to such entity, to the extent that the stay under section 362 of this title, use, sale, or lease under section 363 of this title, or any grant of a lien under section 364 of this title results in a decrease in the value of such entity's interest in such property;
(2) providing to such entity an additional or replacement lien to the extent that such stay, use, sale, lease, or grant results in a decrease in the value of such entity's interest in such property; or
(3) granting such other relief, other than entitling such entity to compensation allowable under section 503(b)(1) of this title as an administrative expense, as will result in the realization *505 by such entity of the indubitable equivalent of such entity's interest in such property. (Emphasis added).
3. Debtor requested time to build up its business. However, Debtor offered no periodic payment. Neither did Debtor offer any additional or replacement lien. Debtor offered no testimony to assure adequate protection to Plaintiff.
4. Without assurance of adequate protection to Plaintiff, this Court has no authority to continue the stay.
For the foregoing reasons, this Court hereby grants the relief from stay as requested in the Complaint.
An Order will be signed on presentation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539204/ | 118 B.R. 332 (1990)
In re PRESQUE ISLE APARTMENTS, L.P., Debtor.
Bankruptcy No. 87-00064E, Motion No. 89-586.
United States Bankruptcy Court, W.D. Pennsylvania.
August 30, 1990.
*333 Stephen H. Hutzelman, Erie, Pa., for debtor.
Richard Jankell, New York City, for Rosalind Cohen, Joseph Cohen, Stanford Klapper, Richard Jankell, Northwestern Nat. Ins. Co. of Milwaukee, Wis., and Edward S. Markman.
OPINION
WARREN W. BENTZ, Bankruptcy Judge.
BACKGROUND
Presque Isle Apartments, L.P. ("Debtor") filed objections to the unsecured claims of Joseph and Rosalind Cohen, Stanford Klapper, Edward S. Markman and Richard Jankell (collectively "Creditors"). Richard Jankell's claim has been assigned to Northwestern National Insurance Company of Milwaukee, Wisconsin. The basis of the Debtor's objection is that the contract rate of interest of 24% per annum violates New York usury law, which the Debtor asserts is applicable.
FACTS
The Debtor is a Pennsylvania Limited Partnership, organized in December 1983 for the purpose of acquiring land and buildings in Erie, Pennsylvania (the "Property") and thereafter converting them into condominiums.
The Property was acquired for that purpose on December 31, 1983. In September 1984 more than 60 of the 96 apartments in the complex were under contract of sale and scheduled to close during the first week of October, but the Debtor was unable to do so due to a soil erosion problem.
During the ensuing months, the Debtor borrowed money to meet its operating costs. Funds were borrowed from the Creditors, which is evidenced by a series of promissory notes as follows:
Interest Rate
Date of Note In Favor of Amount Stated on Note
4-5-85 Richard Jankell $59,600 24%
4-5-85 Richard Jankell 49,100 24%
4-5-85 Rosalind and Joseph Cohen 37,200 24%
4-5-85 Stanford Klapper 11,000 24%
4-5-85 Edward Markman 1,000 24%
5-1-85 Richard Jankell 9,000 None stated
(assigned to Edward Markman)
7-1-85 Edward S. Markman 3,000 None stated
The Creditors have filed proofs of claim against the Debtor in the principal amounts shown above with the exception of Rosalind and Joseph Cohen who claim a reduced principal amount due of $35,800. In addition, the Creditors have calculated and added interest to their claims. We note that said interest calculations are incorrect even at the claimed interest rate of 24%.
*334 The loan transactions occurred in New York and are payable in New York. Two of the individual creditors are New York residents and the other two are New Jersey residents.
ISSUES
1. Whether Federal, New York or Pennsylvania choice-of-law rules apply?
2. Whether an interest rate of 24% is usurious under the applicable substantive law?
3. When no rate of interest is stated on a promissory note, what is the applicable interest rate?
DISCUSSION
The Debtor asserts that, under the circumstances of this case, both New York choice-of-law rules and New York substantive laws apply, as a bankruptcy court is not bound by the choice-of-law of the forum, but rather must apply the choice-of-law of the state having the most significant relationship with the transactions at issue.
The Creditors assert that, on the facts before us, usury is not available as a defense either under New York or Pennsylvania law, that Pennsylvania law is clearer that usury is not a defense, and that this court must apply Pennsylvania law.
We must first determine what choice of law rules apply to the transactions in this proceeding.
There is substantial disagreement among the courts as to whether or not a bankruptcy court is obliged to apply the choice-of-law rules of the state of the forum.[1]
Our view is that, absent a conflict between state law and federal bankruptcy law, choice-of-law rules of the state of the forum apply. Finding no conflict between state law and federal bankruptcy law, and no overriding federal policy on the question of usury, we will apply Pennsylvania choice-of-law rules to determine which state's substantive law is applicable.
The choice-of-law rules of Pennsylvania employ a significant relationship test. Neville Chemical Co. v. Union Carbide Corp., 422 F.2d 1205 (3d Cir.1970), cert. denied, 400 U.S. 826, 91 S.Ct. 51, 27 L.Ed.2d 55 (1970). Pennsylvania looks to the substantive law of the place with the most significant relationship to the parties and the transaction or the "center of gravity" of the contract. Id. (citations omitted).
The Debtor is a Pennsylvania Limited Partnership. The money borrowed was used for business purposes in Pennsylvania, the Debtor's property is in Pennsylvania, and the Debtor chose the Western District of Pennsylvania as the forum for its bankruptcy proceeding. Although the Debtor entered into the loan transactions in New York and the loans are payable in New York, the interest of New York is considerably weaker. Pennsylvania has *335 the greatest interest in the issue before the court. Therefore, Pennsylvania substantive law is applicable.
Pa.Stat.Ann. tit. 41 § 301 (Purdon Supp.Pamph.1989) provides:
(f) The maximum lawful rate of interest set forth in this Section and in Article II of this act shall not apply to . . . (iv) an unsecured, non-collateralized loan in excess of thirty-five thousand dollars ($35,000.00); or (v) business loans the principal amount of which is in excess of ten thousand dollars ($10,000.00).
The loan was made to a business entity organized for business purposes; the proceeds were used for business purposes in the ordinary course of the Debtor's business operations; the amount of the loan was $168,500.00 which is in excess of the statutory exemption of $10,000.00; and each participant's share of the $168,500.00 loan exceeded the statutory exemption of $10,000.00.
In addition, the loan was unsecured, non-collateralized and in excess of $35,000.00. Accordingly, there is no usury under Pennsylvania law and the stated interest rate of 24% per annum is valid.
Under Pennsylvania law, where no express rate of interest is stated on a promissory note, interest is calculated at the rate of 6% per annum. Pa.Stat.Ann. tit. 41, § 202 (Purdon Supp.Pamph.1989). Therefore, the interest amount claimed by Markman on the promissory notes dated May 1 and July 1, 1985 for $3,000 and $9,000 will be limited to 6% per annum.
An appropriate order will be entered.
NOTES
[1] Some courts, following Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) ("there is no federal general common law," id. at 78, 58 S.Ct. at 822; "except in matters governed by the Federal Constitution or by Acts of Congress, the law to be applied in any case is the law of the State," id.) and Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941) (A federal court sitting in diversity must follow the conflict-of-laws rules of the state in which it sits), hold that a federal court exercising bankruptcy jurisdiction must follow the conflict-of-laws rules of the state in which it sits. See In re Medico Associates, Inc., 23 B.R. 295, 301-302 (Bankr.D.Mass. 1980); In re O.P.M. Leasing Services, Inc., 40 B.R. 380, 391-392 (Bankr.S.D.N.Y.1984); In re Goldstein, 66 B.R. 909 (Bankr.W.D.Pa.1986). Other courts, following dicta in Vanston Bondholders Protective Committee v. Green, 329 U.S. 156, 161-162, 67 S.Ct. 237, 239-240, 91 L.Ed. 162 (1946) (A bankruptcy court should determine which state's law to apply in claims litigation by exercising "an informed judgment in the balancing of the interest of all the states with the most significant contacts in order to best accommodate the equities among the parties to the policies of those states," id. at 162, 67 S.Ct. at 239), hold that a bankruptcy court must apply the federal common law choice-of-law rules. See, for example, In re Holiday Airlines Corp., 620 F.2d 731, 733-734 (9th Cir.1980) and In re McCorhill Publishing, Inc., 86 B.R. 783, 792 (Bankr.S.D.N.Y.1988) and In re Otasco, Inc., 111 B.R. 976 (Bankr.N.D.Okl.1990) and cases cited therein. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539208/ | 201 Pa. Superior Ct. 292 (1963)
Commonwealth
v.
Carey, Appellant.
Superior Court of Pennsylvania.
Argued March 4, 1963.
June 12, 1963.
*293 Before RHODES, P.J., ERVIN, WRIGHT, WOODSIDE, WATKINS, MONTGOMERY, and FLOOD, JJ.
Paul A. McGlone, with him James J. Zaydon, for appellant.
*294 Thomas J. Foley, Assistant District Attorney, with him Joseph J. Cimino, District Attorney, for Commonwealth, appellee.
OPINION BY MONTGOMERY, J., June 12, 1963:
The appellant, Rocco Carey, was indicted for the crimes of conspiracy and burglarizing the dwelling house of Walter Shimkus in the City of Scranton on December 6, 1959, and was found guilty of the burglary charge. His motions for a new trial and in arrest of judgment having been refused, he was sentenced. This appeal is from that judgment of sentence.
The errors assigned in his appeal and his contentions concerning them may be grouped in the following categories: (1) his basic rights were violated because the indictment was found without affording him a preliminary hearing; and this procedure was illegal because based upon an untrue fugitive affidavit; (2) wrongful denial of access or permission to use evidence in the hands of the Commonwealth, particularly the prior statements made by the Commonwealth's chief witness; (3) trial errors in admitting incompetent evidence; and (4) the insufficiency of the evidence to support the verdict.
Denial of a Preliminary Hearing
The affidavit referred to above in this connection was that of City Detective Alfred Petrini, who, on April 23, 1962, swore that on December 8, 1961, an information had been laid before a police magistrate of the City of Scranton charging the defendant Rocco Carey with the crime of burglary, and that upon such information a warrant was issued for the arrest of said defendant; and that diligent search and inquiry for him throughout the county and state aforesaid (Lackawanna and Pennsylvania) had failed to accomplish the arrest of appellant, said Rocco Carey. The date of December *295 8, 1961, recited in that affidavit, was admittedly an error. The record indicates that the correct date on which the information had been laid before the police magistrate was February 1, 1962. It was on that date that seven other participants in the burglary, in entering pleas of guilty to the charges, first implicated the appellant.
Based on said affidavit President Judge HOBAN found that Carey was a fugitive and ordered that an indictment for said crime be submitted to the grand jury without previous arrest and binding over of the defendant. This order was dated April 30, 1962, and pursuant thereto the grand jury considered the matter and returned a true bill on May 3, 1962. Carey subsequently surrendered and entered bail pending trial. Appellant filed a motion to quash the indictment for this reason, and an answer thereto was filed by the District Attorney in which it was further contended by the Commonwealth that the defendant had been a fugitive. The motion to quash was denied.
It is appellant's present contention that having been denied a preliminary hearing, he had no opportunity to learn the time, place and circumstances of the alleged offense from his accusers; that he was deprived of his right to challenge the array of the grand jury; and that the indictment was returned by the grand jury in the form of a true bill impressed with the court order which indicated that the defendant had been a fugitive on and after December 8, 1959. Appellant relies on the cases of Commonwealth v. Hoffman, 396 Pa. 491, 152 A. 2d 726, and Commonwealth v. Lizzie Green, 126 Pa. 531, 17 A. 878. However, these cases do not involve fugitives.
Fugitive affidavits and indictments based thereon without preliminary hearings at which the accused is present are not uncommon in our criminal processes. The subject of preliminary hearings in criminal matters *296 was thoroughly discussed in an able opinion by Judge WOODSIDE of this Court in Commonwealth v. O'Brien, 181 Pa. Superior Ct. 382, 124 A. 2d 666. In that opinion he pointed out very clearly that the right, if any, to a preliminary hearing, is not a constitutionally given right; and that although the right of an accused to a preliminary hearing has become a part of the law of this Commonwealth, this right is not without exceptions. One of those exceptions is, and has been since the time of Blackstone and throughout the history of this Commonwealth, to indict fugitives without such a hearing. It was also stated therein that upon review of an order to quash an indictment based on a special bill submitted under the supervision of the court, this Court will not set aside the action of the lower court except for an abuse of discretion both manifest and flagrant, and in a clear case where it is convinced that harm has been done to the defendant by improper conduct that interfered with his substantial rights.
In reviewing the present record in the light of those established principles, we are at a loss to find merit in the appellant's motion to quash the indictment for reasons that there has been any improper conduct, or an abuse of discretion by the lower court in ordering the indictments submitted to the grand jury without a preliminary hearing. The strongest language used by appellant in that motion is that "the fugitive affidavit of the prosecutor and the Order of Court aforesaid are all based on an error of fact." However, no facts contrary to those alleged in the County Detective's affidavit are stated in the motion. Nowhere does the appellant state where he was during the interval between the lodging of the information with the magistrate and the affidavit of the detective to the effect that appellant could not be found. He does not state that he was at his regular place of business or within the county, that his whereabouts were known, that he was *297 conspicuous by his presence, or anything to indicate that he could have been apprehended by the detective who held the warrant for his arrest. Under these circumstances we cannot say that the lower court should be reversed for submitting this matter to the grand jury on the basis of appellant being a fugitive when it had before it a definite affidavit that the detective had searched the county and Commonwealth for a period of almost three months, from February 1, 1962, until April 23, 1962, without success in finding the appellant, as against the bare statement by the appellant that the affidavit was incorrect. We are of the opinion that the important date in this matter is the date of the lower court's order submitting the charges against appellant to the grand jury, which was on April 30, 1962. Regardless of whether the transcript was laid on December 6 or February 1, under the affidavit of the officer, the appellant was a fugitive on April 23, 1962, and thereafter in the absence of evidence to the contrary. In Commonwealth ex rel. Sholter v. Claudy, 171 Pa. Superior Ct. 442, 90 A. 2d 343, the late Judge Ross of this Court pointed out that a defendant will be deemed to have impliedly waived the right to preliminary hearing where he absents himself from the state when a criminal warrant is issued.
Denial of Permission To Inspect Prior Statement of Mullen
During the course of the cross-examination of the Commonwealth's chief witness, Francis Mullen, it was disclosed that on two prior occasions he had given statements concerning the robbery involved in the charge against appellant. One of these statements had been given to the District Attorney's office of Lackawanna County and the other had been given in New York City to officers of that State in the presence of certain officials of Lackawanna County, including one *298 of its assistant district attorneys. Upon learning of the existence of these statements, counsel for the appellant demanded of the District Attorney in charge of the trial of the case that he permit inspection of the one taken in New York. This demand was acceded to only upon the condition that the statement in full be presented to the jury as part of the evidence in the case. Counsel for the appellant refused to accept this condition and moved the court for an order on the District Attorney to produce this statement for his inspection. This motion was objected to by the District Attorney. The court sustained the objection and refused to order the statement produced. This is assigned as error. It is noted that the witness Mullen was not asked whether he had made statements inconsistent with those he was making from the witness stand at the trial, and there is nothing else in the record to indicate that his counsel knew that such statements did contain any facts inconsistent with the facts being given by the witness from the stand. It is admitted by counsel for the appellant that the purpose for which he expected to use the statement was to further cross-examine the witness Mullen in order to affect his credibility. Appellant cites Jencks v. United States, 353 U.S. 657, 77 S. Ct. 1007, 1 L. Ed. 2d 1103; United States v. Benson, 20 F.R.D. 602; and Schlesinger Appeal, 404 Pa. 584, 172 A. 2d 835, in support of his demand. That a witness may be impeached by evidence of his prior declarations or statements inconsistent with or contradictory of his testimony at the trial would appear beyond question, provided the proper foundation for impeachment of the witness has been laid. 58 Am. Jur., Witnesses, § 767. However, the question before us is whether or not the Commonwealth may be compelled to produce, for inspection by a defendant, a statement made by its witness which has been received during the course of an investigation.
*299 "A defendant in a criminal case may have a right to inspect and use for purposes of impeachment a statement made by a witness for the prosecution before the trial and which is contradictory of the testimony of the witness. The matter rests in the discretion of the trial court, and in exercising such discretion the court will take into consideration the materiality of the statements or documents." 58 Am. Jur., Witnesses, § 771.
Appellant's counsel first learned of these prior statements when cross-examining Mullen, the chief witness for the Commonwealth; and his request for the right to inspect the statement was not refused because of the immateriality or irrelevancy of the contents of the statement. In his opinion Judge HOBAN gave as his reasons for refusing the motion that the statement given to the New York District Attorney was confidential and the property of that office; that without the permission of that office its production would be unauthorized; and that the offer of the Pennsylvania District Attorney to submit it on the condition previously mentioned was purely gratuitous. He distinguished the Jencks case, supra, on the basis that the present statement was not a report made by a government agent; nor a public document, as in Commonwealth v. Jennings, 129 Pa. Superior Ct. 584, 196 A. 598. Apparently appellant did not urge as a reason for his motion for a new trial the refusal of his request for the production of the statement given to the Lackawanna District Attorney.
We find no support for such distinction as made by the court, nor for the condition imposed by the District Attorney. The Jencks case is controlling and indicates no such distinction. What could be more confidential than the reports of undercover agents of the United States containing information related to the subversive actions of citizens of the United States aligned with the Communist cause?
*300 We sustain this assignment of trial error on the basis of the opinion of the Jencks case, wherein the Court said:
"We hold that the petitioner was not required to lay a preliminary foundation of inconsistency, because a sufficient foundation was established by the testimony of Matusow and Ford that their reports were of the events and activities related in their testimony. ([Page 666)]
"We hold, further, that the petitioner is entitled to inspect the reports to decide whether to use them in his defense. Because only the defense is adequately equipped to determine the effective use for purpose of discrediting the Government's witness and thereby furthering the accused's defense, the defense must initially be entitled to see them to determine what use may be made of them. Justice requires no less." (Page 668)
Schlesinger Appeal, supra, is in accord. Our opinion in Commonwealth v. Smith, 198 Pa. Superior Ct. 499, 182 A. 2d 104, is readily distinguishable on the grounds that the statement therein sought contained nothing relevant or material to the defense, and was not available at the trial. We also held it to be confidential without a waiver of its confidential status by the Attorney General of the United States. The New York District Attorney waived any right to have the present statement considered confidential when he released it to the Lackawanna District Attorney; it was available in the file of the Lackawanna District Attorney and should have been examined by the trial judge in order to determine the materiality and relevancy of its contents before appellant's motion was refused.
The prejudicial effect to appellant of this ruling is beyond question. Mullen was the main witness for the Commonwealth implicating appellant. Consequently, a new trial must be granted. In view of this conclusion *301 we will not discuss the other reasons assigned for a new trial.
Motion in Arrest of Judgment
This motion was based on the contention that there was no evidence to connect appellant with the Shimkus burglary. After reviewing the record we have reached a conclusion that is in agreement with that reached by the lower court. Although there is no direct testimony as to appellant's actual participation at the scene of the burglary, there is sufficient evidence to identify him as an interested participant in the venture and therefore it was a matter for the jury, under proper charge.
Appeal sustained, judgment of sentence reversed, and new trial awarded.
RHODES, P.J., and ERVIN, J., dissent. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539020/ | 407 B.R. 17 (2009)
In re ENRON CREDITORS RECOVERY CORP., et al., Reorganized Debtors.
Enron Creditors Recovery Corp., et al., Plaintiff,
v.
J.P. Morgan Securities, Inc., et al., Defendants.
Enron Creditors Recovery Corp., et al., Plaintiff,
v.
Mass Mutual Life Insurance Co., et al., Defendants.
Bankruptcy No. 01 B 16034(AJG). Adversary Nos. 03-92677 A, 03-92682 A.
United States Bankruptcy Court, S.D. New York.
June 29, 2009.
*20 Michael Schatzow, Esq., Venable LLP, Baltimore, MD, Robert L. Wilkins, Esq., Colleen M. Mallon, Esq., Washington, DC, Special Litigation Counsel for Enron Creditors Recovery Corp., et al.
Howard P. Magaliff, Esq., Togut, Segal & Segal, LLP, New York, NY, Co-Counsel for Enron Creditors Recovery Corp.
Sabin Willett, Esq., Mark M. Elliot, Esq., Eric A. Heining, Esq., Bingham McCutchen LLP, Boston, MA, Counsel for ING VP Balanced Portfolio, Inc., ING VP Bond Portfolio, and Aeltus Investment Management, Inc.
Michael L. Cook, Esq., Victoria A. Lepore, Esq., Schulte Roth & Zabel LLP, New York, NY, Counsel for Alfa, S.A.B. de C.V.
Katharine B. Gresham, Esq., Securities and Exchange Commission, Washington, D.C.
OPINION CONCERNING MOTIONS FOR SUMMARY JUDGMENT
ARTHUR J. GONZALEZ, Bankruptcy Judge.
The issue presented concerns whether the 11 U.S.C. § 546(e) safe harbor, which shields settlement payments from avoidance actions, extends to a transaction in which commercial paper is redeemed by the issuer prior to maturity. The Court finds that, where commercial paper is redeemed by the issuer prior to maturity, thereby extinguishing the commercial paper, *21 and when the payment made for that commercial paper is equal to the principal plus the accrued interest to the date of payment, the payment made by the issuer is for the purpose of satisfying the underlying debt. The Court concludes that because the payment would be for the retirement of the underlying debt, it would not be for a sale of the commercial paper to the issuer and the payment would not be a settlement payment. The Court further concludes that such a transfer would not be protected by the 11 U.S.C. § 546(e) safe harbor provided for settlement payments. Moreover, because the commercial paper was redeemed prior to its maturity date, and not as it customarily is at maturity, it would not be protected by the 11 U.S.C. § 547(c)(2) ordinary course of business defense.
FACTS
Commencing on December 2, 2001, and from time to time continuing thereafter, Enron Corporation ("Enron") and certain of its affiliated entities, (collectively, the "Debtors") filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). On July 15, 2004, the Court entered an Order confirming the Debtors' Supplemental Modified Fifth Amended Joint Plan of Affiliated Debtors (the "Plan") in these cases. The Plan became effective on November 17, 2004 and the Debtors emerged from chapter 11 as reorganized debtors. Effective March 1, 2007, Enron changed its name to Enron Creditors Recovery Corp. Thereafter, on April 4, 2007, an order was entered authorizing the change of the caption of the reorganized debtors' cases.[1]
In 2003, Enron filed a complaint commencing an adversary proceeding against J.P. Morgan Securities, Inc. ("JP Morgan") and various other defendants, and filed a separate complaint commencing an adversary proceeding against Mass Mutual Life Insurance Company and various other defendants. In each adversary proceeding, Enron sought to avoid and recover certain transfers made to the defendants that it alleged were preferential or otherwise avoidable. On December 1, 2003, Enron filed amended complaints with respect to each of the adversary proceedings (each individually, as amended, the "Complaint" and together, the "Complaints").
In the Complaints, Enron sought to recover transfers made by Enron between October 26 and November 6, 2001, totaling in excess of $1.1 billion. Prior to the petition date, Enron issued and sold unsecured commercial paper to various entities. The commercial paper was uncertificated and had maturities of up to 270 days. The significance of certificates not having been issued to monitor its ownership is that the ownership of the commercial paper is then tracked by "bookkeeping" entries in a computer system at The Depository Trust Company ("DTC"), a clearing agency. This tracking method is customary in the industry.[2] The DTC is used to process the *22 flow of debits and credits associated with commercial paper payments and the retirement of the numbers associated with the commercial paper when it is redeemed. Thus, the DTC only provides a bookkeeping function for the flow of commercial paper.
Pursuant to Issuing and Paying Agency Agreements between Enron and J.P. Morgan Chase Bank and its predecessors in interest (collectively, the "Chase IPA"), the Chase IPA served as issuing and paying agent in connection with Enron's commercial paper. Any issuer of commercial paper needs an issuing and paying agent within the DTC to issue the commercial paper and to pay for the commercial paper at maturity, or prior to maturity if the paper is redeemed early. The DTC does not permit an issuing and paying agent for commercial paper to participate in a "secondary trade" of a security and instead requires the early retirement of commercial paper to be processed as a "prepayment."
The purchase and sale of Enron's commercial paper, including each commercial paper note identified in the amended complaints, was made pursuant to terms set forth in an Offering Memorandum, dated September 14, 2001. The Offering Memorandum provided as follows: "The [n]otes are not redeemable or subject to voluntary prepayment by [Enron] prior to maturity."
JP Morgan acquired the Enron commercial paper for its own account, as a market maker, and on behalf of its respective customers, as a dealer.[3] The source of the notes evidencing the commercial paper that the customers purchased through one of the broker/dealers was either Enron itself or other holders of outstanding Enron commercial paper who sold certain of their holdings before maturity. JP Morgan documented its and its customers' purchases of Enron commercial paper through trading confirmation records (the "Confirmations"). The payments for the purchases were made through the DTC.
Enron had access to two lines of credit totaling $3 billion that had been made available to it by two bank syndicates. One was a $1.75 billion revolver agreement with a syndicate of various banks, and the other was a $1.25 billion long-term credit agreement with another bank syndicate. Enron could draw funds on these lines of credit to pay off maturing commercial paper and to meet its other daily cash needs. The credit facility agreements authorized Enron to use the proceeds of the lines of credit for any "general corporate purposes."
In the Complaints, Enron maintains that the transfers it made between October 26 and November 6, 2001 were for the purpose of paying, prior to their maturity date, the notes that had been previously issued by Enron. As Enron paid approximate accrued par value[4] for the commercial paper notes, which was significantly more than their market value, Enron characterized the payments as being made for the early redemption of the commercial paper notes. In the Complaints, Enron delineated the individual transfers that it sought to avoid against the various defendants in each of the actions.[5]
*23 In the Complaints, Enron alleged that, prior to making the transfers, some or all of the defendants in each of the adversary proceedings were aware that the transfers might be subject to avoidance because the dealers that facilitated the transactions had informed them that these transfers could be subject to avoidance as preferential transfers.
In Count I of the each Complaint, Enron seeks avoidance of the transfers as preferential payments under section 547(b) of the Bankruptcy Code.[6] In Count III of each Complaint, Enron seeks avoidance of the transfers as fraudulent conveyances under section 548(a). In Count V of each Complaint, Enron seeks avoidance of the transfers as fraudulent, pursuant to section 544(b) and any applicable state fraudulent conveyance or transfer law. In Counts II, IV and VI of each Complaint, Enron seeks recovery, pursuant to section 550, of the transfers that are deemed avoided, under Counts I, III and V of the respective Complaints, as preferential transfers or fraudulent conveyances or transfers. In Count VII of each Complaint, Enron seeks disallowance of any claims of each defendant against Enron unless and until such defendant turns over, or pays the value, to Enron of any transferred property for which the defendant is determined to be liable to Enron pursuant to section 550.
On June 15, 2005, the Court issued an Opinion concerning motions to dismiss that had been lodged by substantially all of the original defendants. Enron Corp. v. J.P. Morgan Secs., Inc. (In re Enron Corp.), 325 B.R. 671 (Bankr.S.D.N.Y.2005). In its June 15, 2005 Opinion, the Court denied the motions to dismiss. Id. at 687. The Court concluded that to qualify as a settlement payment protected from avoidance by section 546(e), the payment must be common in the securities trade, which was a factual issue requiring a trial. Id. at 686. Further, the Court concluded that evidence was required regarding whether the transfers were a result of the defendants' manipulation. Id. The Court further determined that a trial was required to resolve the factual issue of whether the transfers were made to repurchase the notes or to retire the debt represented by the notes and that if, after trial, it was found that the payments were to retire and extinguish the debt, the Court would need to address the issue of whether such payments qualify as settlement payments for purposes of section 546(e). Id. In addition, even if the payments were to repurchase the notes, the Court concluded that it would have to address the issue of whether the short-term commercial paper at issue qualifies as a security within the scope of section 546(e). Id.
Thereafter, certain defendants filed motions in the district court seeking leave to file an interlocutory appeal. They also sought to have the reference of the adversary proceedings to this Court withdrawn. The defendants argued, inter alia, that the question of whether short-term paper qualifies as a security within the scope of section 546(e) might require substantial interpretation of the securities laws. The district court denied those motions and, specifically with reference to the withdrawal, concluded that the securities law issues might not have to be reached if certain determinations were made by this Court. Enron Corp. v. JP Morgan Secs., *24 Inc. (In re Enron Corp.), No. M-47, 2008 WL 281972 at * 6 (S.D.N.Y. Jan. 25, 2008).
After Enron's submission of its expert reports, which set forth certain securities law issues, former defendant Goldman Sachs & Co. filed a motion in the district court seeking to have the reference withdrawn, arguing that resolution of the adversary proceedings required substantial and material consideration of the federal securities laws. The district court concluded that the theory seeking to hold the broker/dealers liable as beneficiaries of the transfers, based upon the elimination of their liability under certain securities laws, required substantial interpretation of the interplay of various securities laws. Enron Corp. v. J.P. Morgan Secs., Inc. (In re Enron Corp.), 388 B.R. 131, 140 (S.D.N.Y. 2008). While the district court concluded that it was within its jurisdiction to reach any such issue, it also concluded that if certain determinations were made by this Court, it would preclude the necessity of reaching any such issue. Id. at 141-42. Therefore, it returned the matter to this Court with the instruction that if, ultimately, it proved necessary to reach securities law issues, withdrawal of the reference would be appropriate. Id. at 142.
Thereafter, most of the nearly 200 defendants in the adversary proceedings moved for summary judgment in mid-2008. The vast majority of the defendants in both actions reached a settlement with Enron and have been dismissed from the action. The four remaining defendants are ING VP Balanced Portfolio (the "Balanced Fund"), a mutual fund; Aetna Bond VP (the "Bond Fund" and, together with the Balanced Fund, the "ING Funds"), a mutual fund; Aeltus Investment Management, Inc. ("Aeltus"), an investment advisor; and Alfa S.A.B. de C.V. ("Alfa," and together with the ING Funds, the "Investors"), a Mexican holding company whose treasury department invests the corporate cash reserves of Alfa's component businesses.
The Balanced Fund, which invests in equities and fixed-income securities, and the Bond Fund, which invests primarily in fixed-income securities, are both registered with the Securities Exchange Commission (the "SEC") as investment companies under the Investment Company Act of 1940.
Aeltus, which engages in investment transactions for the accounts of the ING Funds, is registered with the SEC as an investment advisor under the Investment Advisers Act of 1940. Aeltus, which is a separate legal entity from the ING Funds, is responsible for managing the assets of the ING Funds and making investment decisions for those Funds consistent with their respective investment objectives and policies. Aeltus does not receive a commission or other form of payment in connection with the particular transactions. Rather, the ING Funds each pay Aeltus a management fee based upon the value of the assets that Aeltus manages. At no time does Aeltus obtain legal ownership of any of the ING Funds' assets.
The Investors engaged in transactions with JP Morgan in mid-September or mid-October 2001 to acquire commercial paper issued by Enron and then transferred the commercial paper to JP Morgan in late October, prior to their respective maturity dates. The transactions were conducted through custodial bank accounts at the DTC. On the same day that the commercial paper was transferred from the Investors to JP Morgan, JP Morgan transferred that same commercial paper to Enron's Chase IPA account at the DTC and Enron paid JP Morgan, again through the DTC. Immediately upon the payment to JP Morgan, the commercial paper was extinguished. Previously, on October 25, 2001, *25 Enron had drawn down $3 billion from its revolving credit lines and those funds were used to finance the payments Enron made for the commercial paper transactions.
The specific transactions involving the ING Funds were orchestrated by Aeltus. On October 16, 2001, Aeltus entered into an agreement for the benefit of the Balanced Fund to buy from JP Morgan certain commercial paper (the "Balanced CP") issued by Enron in the principal amount of $23,216,000.00, with the purchase price being $23,157,024.91. The stated maturity date of the Balanced CP was November 16, 2001. In addition, on October 16, 2001, Aeltus entered into an agreement, for the benefit of the Bond Fund, to buy from JP Morgan certain commercial paper (the "Bond CP") issued by Enron in the principal amount of $25,000,000.00, with the purchase price being $24,936,493.06. The stated maturity date of the Bond CP was also November 16, 2001. At the time of both of these transactions, the payments made to JP Morgan were debited from the custodial bank account used for the ING Funds at the DTC. In addition, the commercial paper was credited to that account.
On October 26, 2001, Aeltus entered into an agreement to transfer, for the benefit of the Balanced Fund, the Balanced CP for $23,181,756.40. In addition, on October 26, 2001, Aeltus entered into a similar agreement, for the benefit of the Bond Fund, to transfer the Bond CP for $24,963,125.00. On the morning of October 29, 2001, the commercial paper was transferred to JP Morgan. Certain evidence presented to the Court indicates that Aeltus had been informed that JP Morgan was acting as agent for Enron and that Enron was retiring its commercial paper. The commercial paper for the ING Funds was debited from the custodial bank's DTC accounts used for the ING Funds and the payments from JP Morgan were credited to those accounts. The payments from JP Morgan were debited from JP Morgan's account and the commercial paper was credited to its account at DTC. Later that same day, JP Morgan transferred, through the DTC, the same commercial paper that it had received from the ING Funds to Enron's Chase IPA account where, upon the payment by Enron to JP Morgan's account at DTC, the commercial paper was immediately extinguished. Assuming that JP Morgan was acting as agent,[7] had the latter transactions not been consummated, the earlier transactions between the ING Funds and JP Morgan would have been unwound and the earlier debits and credits reversed. Prior to the final transfers between JP Morgan and Enron, the ING Funds could have used the credits in their custodial accounts at the DTC to effect certain transfers with other entities with DTC custodial accounts within the DTC system. However, the ING Funds could not withdraw the value from the DTC system to put the funds to their own use until the final transfers were completed.
In 2001, Alfa's treasurer was responsible for investing approximately $200 million of Alfa's cash reserves in various commercial paper obligations. The criteria utilized for such investments were the commercial paper's credit rating, expiration, and yield. On September 17, 2001, Alfa purchased approximately $5.6 million of Enron commercial paper from JP Morgan, as the commercial paper met the required ratings guidelines. Alfa's usual policy was to purchase commercial paper only on the secondary market from broker/dealers and not directly from the issuer.
*26 On October 29, 2001, Alfa transferred the Enron commercial paper to JP Morgan, one day prior to its maturity date.[8] Comparable to the ING Funds' transactions, the DTC accounts of the parties were similarly debited and credited. Later that same day, JP Morgan transferred the commercial paper to Enron's Chase IPA account at DTC where, upon the payment by Enron to JP Morgan's account at the DTC, the commercial paper was immediately extinguished. Alfa's treasurer alleges that he agreed to the transfer after having received an unsolicited telephone call from a JP Morgan representative, who inquired as to Alfa's willingness to transfer the Enron commercial paper. In September 2001, Alfa also sold its commercial paper holdings in seven other companies prior to maturity.[9]
Parties' Arguments
The Investors contend that the payments from JP Morgan for the commercial paper were made to complete securities transactions and that, as such, they were settlement payments protected from avoidance by section 546(e). The Investors argue that the transactions with JP Morgan were secondary market transactions, in which JP Morgan acted as principal, and that JP Morgan subsequently entered into separate transactions with Enron. The Investors maintain that their transactions with JP Morgan, as principal, were precisely the type of securities market transactions that the safe harbor was intended to protect against avoidance. Further, the Investors argue that even if JP Morgan acted as an agent, it was not a conduit because the transactions they engaged in with JP Morgan were concluded in the morning and JP Morgan conducted separate transactions later that same day with Enron. As such, the ING Funds argue that the avoidance provisions do not apply as they did not receive "an interest of the debtor in property." Specifically, the ING Funds contend that they received JP Morgan's property and not Enron's property because the transaction in which they received cash from JP Morgan from the transfer of Enron commercial paper had concluded in the morning, prior to the time that JP Morgan initiated its transaction with Enron. They further argue that it was only in the subsequent transfer of the commercial paper by JP Morgan to Enron that Enron funds were transferred to JP Morgan. Therefore, they contend that only JP Morgan received Enron's funds after JP Morgan had already concluded the transaction with the ING Funds, and that the ING Funds did not receive Enron's property. Finally, the Investors argue that they are protected by the earmarking defense. In addition to the arguments made by the Investors, Aeltus argues that it was not a transferee of the funds or an entity for whose benefit the funds were transferred, precluding Enron from recovering from it under section 550(a).
Enron argues that it redeemed its commercial paper and that JP Morgan merely acted as an agent in these transactions. Enron maintains that the transfers were payments for the early redemption of the notes. Enron further maintains that it *27 prepaid and redeemed the commercial paper by making full payment prior to its maturity. The payments were made at par, which was significantly more than the prevailing-market price at the time of the transfers. Therefore, Enron argues that the transfers, made for early redemption of commercial paper at significantly above-market price, were not "settlement payments" commonly used in the securities trade as required by section 546(e). Enron argues that the transfers were not to settle securities trades but, rather, were to prepay debt similar to the manner in which any borrower repays the principal and interest on a loan. At a minimum, Enron argues that evidence must be presented for the Court to determine whether the prepayment of commercial debt is ordinary or routine. Enron also argues that the safe harbor only extends to qualifying "purchases" and "sales" of securities, not to the payment or retirement of debt. Enron argues that the actual "ownership" of the instrument must transfer from seller to buyer. Here, there was no trade or exchange of ownership of a security but, rather, the payment of a debt which extinguished the instrument. In addition, Enron contends that the safe harbor protection does not apply to the commercial paper because the question of whether it qualifies as a security, within the scope of section 546(e), is made by reference to the securities trade which does not recognize short-term commercial paper as a security. More specifically, Enron maintains that short-term debt instruments issued for the purpose of funding current operations, and not for investment, are not commonly recognized as securities by the securities trade. With respect to Aeltus, Enron argues that Aeltus benefitted from the payment because if the transfer had not been made, and Enron had then defaulted on the commercial paper at maturity, Aeltus would have been subject to liability from the investors in the ING Funds. Enron contends that because the payment relieved Aeltus from this liability, Aeltus benefitted from the transfer.
Pursuant to section 1109(a), which allows the SEC to raise an issue or appear and be heard on an issue in a case under chapter 11, the SEC appeared in support of the motions for summary judgment. The SEC argued that as long as commercial paper is processed through the normal securities clearance settlement processes for commercial paper, the safe harbor protections apply regardless of whether commercial paper is retired prior to maturity.[10] While not taking a position on whether the redemption or retirement of commercial paper at maturity would qualify for protection under the section 546(e) safe harbor, the SEC argues that the redemption of the commercial paper at issue is protected because the issuer did not have an absolute right to redeem the commercial paper prior to maturity. Rather, the issuer had to reach an agreement with the holder of the commercial paper to induce the holder to part with the commercial paper in order to enter into the transaction. As such, the SEC contends that the transaction should be viewed as a two-step process where the holders sold the commercial paper to Enron and, thereafter, Enron had the commercial paper extinguished.
*28 Summary Judgment Motions
Since the Court's ruling concerning the motions to dismiss, the parties have engaged in extensive discovery and, as previously stated, the motions for summary judgment were filed. A hearing (the "Hearing") concerning the summary judgment motions for the four remaining defendants was conducted on April 7, 2009. At the Hearing, the remaining defendants continue to argue that the section 546(e) safe harbor shields the transfers at issue from avoidance. They also contend that the avoidance sections are not applicable to the transfers at issue because the transfers were not of "an interest of the debtor in property." Finally, the defendants argue that the earmarking doctrine protects the transfers from avoidance. The SEC supports the defendants' view that the transfers were settlement payments protected by the section 546(e) safe harbor.
Enron opposes the motions for summary judgments and again argues that the transfers at issue were not settlement payments protected by section 546(e). Enron maintains that the payments were not for the purchase and sale of a security but were made to redeem the commercial paper and satisfy the underlying debt obligation. Enron contends that the transfers could not be normally regarded as part of the settlement process because they were not settlement payments commonly used in the securities trade. Enron also argues that the earmarking principle is not applicable to the facts in this case.
DISCUSSION
Summary Judgment Standard
Fed.R.Civ.P. 56(c) incorporated into bankruptcy practice by Fed. R. Bankr.P. 7056 provides that summary judgment shall be rendered "if the pleadings, depositions, answers to interrogatories, and admissions of 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 judgment as a matter of law." Rule 56(c) specifies that to preclude summary judgment, the fact in dispute must be material. Substantive law determines the facts that are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202, 211 (1986). If a fact is material, it is then necessary to see if the dispute about that material fact is genuine, "that is, if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Id. at 248, 106 S.Ct. at 2510, 91 L.Ed.2d at 211-12. If the fact may be reasonably resolved in favor of either party, then there is a genuine factual issue that may only be resolved by the trier of facts and summary judgment will be denied. Id. at 250, 106 S.Ct. at 2511, 91 L.Ed.2d at 213. If, however, the evidence "is so one-sided that one party must prevail as a matter of law," then summary judgment will be granted. Id. at 251-52, 106 S.Ct. at 2512, 91 L.Ed.2d at 214. On considering a motion for summary judgment, the evidence is viewed in the light most favorable to the non-moving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-159, 90 S.Ct. 1598, 1609, 26 L.Ed.2d 142, 155 (1970).
After the non-moving party to the summary judgment motion has been afforded a sufficient time for discovery, summary judgment must be entered against it where it fails to make a showing sufficient to establish the existence of an element essential to its case and on which it has the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265, 273 (1986). It is said that there is no genuine issue concerning any material fact because "a complete failure of proof concerning an essential element of the nonmoving party's case *29 necessarily renders all other facts immaterial." Id. at 323, 106 S.Ct. at 2552, 91 L.Ed.2d at 273. In this manner, the summary judgment standard is similar to the directed verdict standard under Fed. R.Civ.P. 50(a). Id. at 323, 106 S.Ct. at 2552, 91 L.Ed.2d at 273-74.
The summary judgment standard is interpreted in a way to support its primary goal of "dispos[ing] of factually unsupported claims or defenses." Id. at 323-24, 106 S.Ct. at 2553, 91 L.Ed.2d at 274. The summary judgment movant meets its burden by "`showing' ... that there is an absence of evidence to support the nonmoving party's case." Id. at 325, 106 S.Ct. at 2554, 91 L.Ed.2d at 275. Application of the summary judgment procedure is not a disfavored procedural shortcut, but an integral part of the Federal Rules where there are no triable factual issues. Id. at 327, 106 S.Ct. at 2555, 91 L.Ed.2d at 276.
Avoidance Powers
The Bankruptcy Code provides a trustee or debtor-in-possession with the power to avoid certain transfers "of an interest of the debtor in property" and to bring that value back into the bankruptcy estate for ratable distribution to all allowed creditors. Section 547(b) concerns the avoidance of payments made 90 days before the bankruptcy filing,[11] which prefers one creditor over the others. Section 548 allows for the avoidance of transfers that are actually fraudulent (section 548(a)(1)(A)) or are deemed to be constructively fraudulent (section 548(a)(1)(B)).
Safe Harbor Provisions
Section 546(e) of the Bankruptcy Code provides a "safe harbor" for certain types of transfers by protecting the described transfers from avoidance actions.[12] Section 546(e) provides that
Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and 548(b) of this title, the trustee may not avoid a transfer that is a margin payment, as defined in section 101, 741, or 761 of this title, or settlement payment, as defined in section 101 or 741 of this title, made by or to a commodity broker, forward contract merchant, stockbroker, financial institution, or securities clearing agency, that is made before the commencement of the case, except under section 548(a)(1)(A) of this title.
11 U.S.C. § 546(e).
Section 548(d)(2)(B) provides, in relevant part, that
a ... stockbroker, financial institution, or securities clearing agency that receives a ... settlement payment, as defined in section ... 741 of this title, takes for value to the extent of such payment.
11 U.S.C. § 548(d)(2)(B).
Thus, section 546(e) and section 548(d)(2)(B) provide a safe harbor for settlement payments. The purpose of section 546 is "to protect the nation's financial markets from the instability caused by the reversal of settled securities transactions." Kaiser Steel Corp. v. Charles Schwab & Co., (In re Kaiser Steel Corp.), 913 F.2d 846, 848 (10th Cir.1990) (hereinafter, "Kaiser I"). A settlement payment is a payment made to discharge a settlement obligation. See Kaiser Steel Corp. v. Pearl Brewing Co. (In re Kaiser Steel Corp.), *30 952 F.2d 1230, 1238 (10th Cir.1991) (hereinafter, "Kaiser II") (citing Division of Market Regulation, Securities and Exchange Commission, The October 1987 Market Break at 10-5 (1988) (SEC Report)).
The routine purchase and sale of a security includes two opportunities for settlement, "street-side settlement" between the brokers and the clearing agencies, and "customer-side settlement" between the broker and its customer. See Kaiser II, 952 F.2d at 1237-38. The proper functioning of the system depends on the "guarantees of performance made by all the parties in the chain affirming that they will honor their obligations despite a default by another party in the system." See Jackson v. Mishkin (In re Adler, Coleman Clearing Corp.), 263 B.R. 406, 476 n. 47 (S.D.N.Y.2001).
In enacting the section 546(e) exception to the avoidance powers, the goal was to preserve the stability of these settled transactions to the extent that they are not fraudulent as defined in section 548(a)(1)(A). Id. at 477. If settled transactions could be reversed, it would undermine confidence in the system of guarantees and could lead to the "ripple effect" of bankruptcy filings by other participants in the chain of guarantees. Id. The purpose of section 546(e) was "to minimize the displacement caused in the commodities and securities markets in the event of a major bankruptcy affecting those industries." Jewel Recovery, L.P. v. Gordon (In re Zale Corp.), 196 B.R. 348, 353 (N.D.Tex.1996) (quoting, H. Rep. No. 420, 97th Cong.2d Sess. 1 (1982), reprinted in 1982 U.S.C.C.A.N. 583).
When first enacted, section 546 only applied to the commodities market. However, in 1982, its scope was expanded to protect the securities market. Kaiser I, 913 F.2d at 848-49. In connection with the securities trade, "settlement payment" is defined in section 741(8), which provides that
"settlement payment" means a preliminary settlement payment, a partial settlement payment, an interim settlement payment, a settlement payment on account, a final settlement payment, or any other similar payment commonly used in the securities trade.
11 U.S.C. § 741(8).
This Court previously considered the arguments concerning the breadth of the term "settlement payment" and concluded that because the definition merely lists types of settlement payments, the reference in section 741(8) to "or any other similar payment commonly used in the securities trade" provided a basis upon which to circumvent the circularity of the definition and discern the meaning of the term "settlement payment." Enron Corp., 325 B.R. at 685 (citing, Enron Corp. v. Bear Stearns Int'l Ltd. (In re Enron Corp.), 323 B.R. 857, 865, 870 (Bankr.S.D.N.Y.2005)). In Kipperman v. Circle Trust F.B.O. (In re Grafton Partners, L.P.), 321 B.R. 527, 538 (9th Cir. BAP 2005), the bankruptcy appellate panel determined that the clause made clear that to come within the definition, the payment must be "restricted to the securities trade and must be `commonly used.'" Grafton Partners, 321 B.R. at 538.
Even where a broad interpretation has been ascribed to the term "settlement payment," it has been observed that the term must be interpreted as it is "plainly understood within the securities industry." See Kaiser II, 952 F.2d at 1237; see also Official Comm. of Unsecured Creditors v. ASEA Brown Boveri, Inc. (In re Grand Eagle Cos., Inc.), 288 B.R. 484, 492 (Bankr. N.D.Ohio 2003) (noting that the term "settlement payment" has been characterized *31 as a technical word or term of art which requires reference to the industry usage of the term at the time of enactment); Adler, 263 B.R. at 475 (noting that it is clear that the provision is to be "defined with reference to the common understanding, practice and usage in the securities industry"). As such, to discern whether a payment is protected by the safe harbor provisions, a court must examine the operation of trades in the securities industry. Grafton Partners, 321 B.R. at 538.
In the Opinion concerning the previous motions to dismiss filed in these adversary proceedings, the Court concluded that because the section 546(e) safe harbor only protects from avoidance those settlement payments that are "commonly used in the securities trade" and because, on a motion to dismiss, the Court accepts Enron's allegations as true,
evidence must be presented as to whether payments made with respect to short-term commercial paper prior to the maturity date, at significantly above market prices and contrary to the offering documents in the midst of coercion by the holders of the commercial paper resulting from public announcements that make clear that the company is in a severe financial crisis constitute settlement payments commonly used in the securities trade.[13] Thus, evidence must be presented as to whether this particular transaction could be normally regarded as part of the settlement process.
Enron Corp., 325 B.R. at 686 (footnote in original, however, other internal quotations and citation omitted).[14]
An Interest of the Debtor in Property
If JP Morgan acted as principal, then JP Morgan would have been the party that acquired an interest in Enron's property.[15]*32 The Investors would not have acquired an interest in Enron's property, or a benefit traceable to Enron, because the Investors would have concluded a separate transaction with JP Morgan, not dependent in any way upon Enron making a payment to JP Morgan. Thus, the Investors would have acquired only JP Morgan's property. Acknowledging that there are factual disputes concerning whether JP Morgan acted as agent or principal, the Investors contend that even if JP Morgan acted as agent, they are entitled to summary judgment because the relevant issue is whether JP Morgan acted as a conduit.[16] The Investors concede that if, in its role as agent, JP Morgan also acted as conduit, the Investors would have been the initial transferees of the transfers of Enron's property. The Investors assert, however, that JP Morgan could not have acted as a conduit to deliver Enron's cash to them in exchange for the commercial paper because the exchange of cash for commercial paper between the Investors and JP Morgan concluded prior to the initiation of the same exchange between JP Morgan and Enron. Therefore, they argue that they received JP Morgan's cash before JP Morgan received Enron's cash and, as a consequence, they could not have received Enron's cash. Having not received Enron's cash, they maintain that they did not receive a transfer of an interest in Enron's property and the transfer is not subject to avoidance.
This argument, however, fails to recognize that when a transfer of an interest of the debtor in property is avoided, the trustee, or debtor-in-possession, may recover such avoided transfer either from the initial transferee or from the entity for whose benefit such transfer was made. 11 U.S.C. § 550(a)(1). Thus, if JP Morgan is not considered a conduit, the relevant transfer that a trustee could seek to avoid would be the later transfer between Enron and JP Morgan, where an interest of Enron in property was transferred to JP Morgan. Under that scenario, section 550(a)(1) allows the transfer to be recovered from the entity that benefitted from it, such as the Investors.[17]
Section 550(a)(1)
As previously stated, pursuant to section 550(a)(1), a transfer avoided under the Bankruptcy Code can be recovered from the initial transferee or "the entity for whose benefit such transfer was made." The prototype that illustrates the concept of an entity for whose benefit a transfer is made is a guarantor, who receives the benefit but not the actual money paid. Bonded Fin. Servs. v. European Am. Bank, 838 F.2d 890, 895 (7th Cir.1988). In the guarantor context, the borrower repays the loan to the lender. Therefore, the lender is the initial transferee of that repayment. The guarantor does not receive *33 any payment. However, the guarantor is no longer exposed to liability on its guaranty because the underlying obligation has been satisfied.
Pursuant to the structure of section 550, a transferee who actually receives the money or property is considered distinct from an entity that receives a benefit based upon another having received the money or property. Id. at 896. Further, the section 550(a)(1) benefit must result from the initial transfer. Id. A subsequent transferee is not considered to have received the benefit from the initial transfer. Id. Rather, it receives a transfer of the money or property from a previous transferee.
In the guarantor situation, it is the initial transfer that relieves the guarantor of its obligation. In another context, the court in In re B.S. Livingston & Co., 186 B.R. 841, 864-65 (D.N.J.1995) found that the principals of the debtor qualified as section 550(a)(1) beneficiaries. Id. at 865. In B.S. Livingston, it was alleged that the debtor's core business had been transferred for less than adequate consideration. Id. at 865-66. As part of the transaction, the principals obtained lucrative positions with a newly formed division of the transferee company. Id. at 847. The court noted that the principals' compensation was tied to the profitability of the assets transferred and concluded that the principals benefitted from consummation of the transaction. Id. at 865. Therefore, the principals were deemed section 550(a)(1) beneficiaries. Id.
The benefit must be "direct, ascertainable and quantifiable" and must correspond to, or be commensurate with, the value of the property that was transferred. Reily v. Kapila (In re Int'l. Mgmt. Assoc.), 399 F.3d 1288, 1293 (11th Cir.2005) (citation omitted). Thus, it is not sufficient if the benefit is incidental, unquantifiable, or remote. Id. In Intern Mgmt., as a condition to giving a loan to a corporation, a lender required that a particular party be the sole owner of the corporation. Id. at 1289. To allow that party to become the sole shareholder and obtain the loan, a $100,000 transfer was made by the corporate debtors to buy out another shareholder's interest. Id. While the remaining shareholder benefitted by obtaining 100% of the stock of the corporation, thereby enabling him to obtain the desired loan, the court found that this benefit was not the type of tangible or quantifiable benefit required by section 550(a)(1). Id. at 1292. The court was influenced by the fact that because the debtor corporations paid $100,000 for stock worth less than that amount, even though the transaction increased the remaining shareholder's ownership concentration, the total control that the shareholder obtained was over assets that had been depleted in value. Id. at 1293. As such, the court concluded that there was no direct benefit to the sole shareholder. Id. Rather, acquiring the 100% control was an incidental benefit. Id.
While it is sometimes observed that the entity must be the intended beneficiary, Secs. Inv. Prot. v. Stratton Oakmont, Inc., 234 B.R. 293, 314 (Bankr.S.D.N.Y. 1999), others question whether intent is relevant and, if relevant, whether it is the intent of the transferor or the intent of the recipient of the benefit that is at issue. Bonded Fin. Servs., 838 F.2d at 895. See also Larry Chek & Vernon O. Teofan, The Identity and Liability of the Entity for Whose Benefit a Transfer is Made Under Section 550(a): An Alternative to the Rorschach Test, 4 J. BANKR. L. & PRAC. 145 (1995) (discussing the drawbacks of applying various approaches, including intent-only, benefit-in-fact, or a combination of those approaches). In the cited article, *34 the authors address the tension in applying the various approaches. The authors maintain that recoveries of avoided transfers are for the purpose of canceling and disgorging the benefit. Id. at 156. Therefore, they note that
where the benefit to the defendant is clear, the debtor's intent ought not to matter; the defendant should be required to disgorge the benefit from an avoided fraudulent or preferential transfer. On the other hand, unless courts are prepared to extend liability under Section 550(a)(1) to the remotest frontiers of benefit-in-fact, there must be some principle to confine liability to an immediate class of beneficiaries. A requirement of intent to benefit effectively restricts the circle of liability to those who directly and foreseeably benefitted from the transfer. Furthermore, an intent element insulates defendants whose receipt of benefit was remote and incidental.
Id. at 159. Nevertheless, the authors conclude that the estate can more effectively be made whole
without burdening remote, incidental beneficiaries by requiring a showing not of intent, but rather a quantifiable, monetary benefit to the defendant. By this means no defendant is placed in the difficult position of disgorging the value of a theoretical or potential benefit, while the trustee avoids litigating the thorny issue of intent when the court has already found the relevant transfer to be fraudulent or preferential as well as a direct benefit to the defendant.
Id. at 160. The Court agrees with this latter approach. Thus, showing a direct, ascertainable and quantifiable monetary benefit to the defendant would obviate the need to show intent.
Applying Section 550(a)(1) to the Transfer Between JP Morgan and Enron
A trustee, or debtor-in-possession, pursuant to section 547(b)(1), may avoid a transfer of an interest of the debtor in property made for the benefit of a creditor and, pursuant to 548(a)(1) may avoid any transfer of an interest of the debtor in property. Thus, if the criteria of sections 547(b)(1) or 548(a)(1) are met, Enron can avoid the transfer of its interest in property made to JP Morgan and, in addition, pursuant to section 550(a)(1), it may recover any such avoided transfer from either JP Morgan or from the entity for whose benefit that transfer was made. If JP Morgan acted as an agent, and even if JP Morgan is not viewed as acting as a conduit, Enron's later transfer of funds to JP Morgan was intended to, and did actually, benefit the Investors. Enron's transfer to JP Morgan benefitted the Investors because until the Enron/JP Morgan transaction concluded, the earlier debits and credits to the custodial accounts of the Investors and JP Morgan would have been reversed, thereby canceling those earlier transfers. Moreover, the Investors could not withdraw the funds from the DTC system until the later transactions concluded. While the Investors could use the funds to make purchases of other securities within the DTC system, they could not withdraw the value from the DTC system. Enron was aware that JP Morgan was acquiring the commercial paper from the Investors, and if JP Morgan was acting as an agent, Enron's payment to JP Morgan for the transfer of the commercial paper was specifically intended to benefit the Investors for their earlier transfers.[18] Thus, if intent to benefit is a *35 required element, Enron has established that intent. More fundamentally, the Investors did actually receive a direct, ascertainable, and quantifiable benefit from the transfer as the Investors were able to finalize the transfers made earlier the same day between themselves and JP Morgan. Nevertheless, because there are factual issues as to whether JP Morgan acted as principal or agent and because, if JP Morgan acted as agent, the later transfers from Enron to JP Morgan benefitted the Investors, summary judgment is not appropriate.
Aeltus as Advisor
In addition to adopting the arguments raised by the ING Funds, Aeltus argues that it did not receive any payment and, therefore, it was not a beneficiary of the transfer. Aeltus maintains that it had neither ownership of the commercial paper transferred to the ING Funds nor the right to use the commercial paper. Aeltus also asserts that it did not receive a commission, payment, credit, or any other direct benefit as a result of the transfer of the commercial paper. Aeltus contends that it was neither a transferee nor a beneficiary of the transfers of the commercial paper from which a section 550(a) recovery can be secured.
Enron argues that Aeltus benefitted because as the entity that made the investment decisions for the ING Funds, Aeltus would have been sued by the ING Funds had they not received their payments from Enron for the underlying debt obligations. Enron maintains that because Enron made those payments, the ING Funds had no cause of action against Aeltus and Aeltus was relieved of the liability to the ING Funds for its investment decisions.
Aeltus counters that the alleged benefit is too uncertain and unquantifiable and, therefore, cannot be the basis upon which to avoid the transfer. Aeltus also argues that because Enron drew down on the bank lines of credit, it would have been able to pay the ING Funds when the commercial paper matured even if the ING Funds had not been paid prior to the maturity date. As a result, Aeltus argues that the ING Funds would not have had causes of action against Aeltus in any event.
In response, Enron asserts that Aeltus, as advisor to the ING Funds, made the investment decisions for the ING Funds. Therefore, even if there is a requirement of an intent to benefit-which Enron does not concede-Enron's desire for future re-entry into the commercial paper market would necessitate that it take actions to please and benefit Aeltus. Thus, Enron contends that it intended to benefit Aeltus in order to facilitate Enron's future re-entry into the commercial paper market. The alleged benefit Aeltus received was that because the ING Funds got paid, they had no cause of action against Aeltus. Enron *36 presented evidence of a conversation between a representative of Aeltus and a representative of JP Morgan in which the Aeltus representative acknowledged that Aeltus was prepared to take a lesser recovery for the ING Funds but that Enron acted appropriately in paying accrued par if it were Enron's intent to later re-enter the commercial paper market. Thus, Enron argues that there is evidence that even Aeltus considered the payment a benefit to it. Moreover, with respect to the argument that the benefit is too remote because Enron, in any event, could have paid off the commercial paper at maturity or the ING Funds might not have commenced actions against Aeltus, Enron contends that the measure of benefit is calculated at the time of payment. According to Enron, at that time, Aeltus was relieved of the potential liability in the total amount of the commercial paper paid by Enron.
Whether the benefit to Aeltus was sufficient to qualify as a section 550(a)(1) benefit requires an analysis of the facts and law surrounding the transactions at issue. However, that analysis is not limited to whether Aeltus could be held liable under existing law had the payment not been made. Rather, the analysis should consider, among other things, the degree of certainty that liability would result had the payment not been made. That analysis is more in line with the guarantor situation where the state of the law at issue is fully developed and, simply put, payment equals relief from the certainty of liability that arises from a contractual obligation to assume that liability.
The benefit alleged is that if Enron had defaulted on paying the underlying obligations owed on the commercial paper notes, the ING Funds would have had causes of action against Aeltus for not acting prudently in advising them to invest in Enron. Those actions would entail interpretation of various securities laws. Thus, similar to a guarantor, the claim is that the payment relieved Aeltus from exposure to liability that would have resulted from the nonpayment of the underlying obligation. The benefit flows directly from the initial transfer, as receipt of the payment eliminates any cause of action the ING Funds would have had against Aeltus for Enron's default on the underlying commercial paper obligations. Further, the value attributable to the relief from exposure corresponds to the amount of the transfer. This is because if the transfer had not been made, the relief sought in any action against Aeltus would have been equal to the amount of the payment on the underlying obligation for the commercial paper.
Aeltus argues that prior to its receiving the benefit from the elimination of any cause of action, there would be too many intervening circumstances to consider that make the benefit too remote. These potential intervening circumstances include (i) the ING Funds actually bringing a lawsuit, (ii) Aeltus being deemed to have violated the standard of care applicable thereto, under relevant securities laws and contractual arrangements, as advisor to the ING Funds, or (iii) Enron actually defaulting on the commercial paper. Some of those issues, however, would apply equally to a guarantor who, notwithstanding those issues, is considered to benefit pursuant to section 550(a)(1). Nevertheless, there are certain differentiating aspects of the potential lawsuit at issue here. The area of the law concerning the potential causes of action that could be brought by the ING Funds against Aeltus is unsettled and the related determination involving whether the relevant standard of care applicable to an advisor has been violated is a complex factual inquiry that is not applicable in the guarantor context. Given the foregoing, there is a significant *37 measure of uncertainty to the potential outcome. Such uncertainty makes the outcome a more theoretical or potential benefit, unlike that of an analogous lawsuit brought against a guarantor. Aeltus cannot be required to disgorge a theoretical or potential benefit. As such, the Court concludes that the alleged benefit received by Aeltus is too remote and unascertainable, under the current state of the substantive law at issue, to establish a benefit under section 550(a)(1). Thus, the motion for summary judgment in favor of Aeltus is granted.
Repayment of Loan
Commercial paper is a loan, with a corporation borrowing the money in the marketplace instead of from a bank. Enron maintains that all of the parties knew that Enron was paying off the commercial paper loans.[19] Ordinarily, short-term commercial paper is held until maturity. The purchaser seeks an investment for excess cash for a short period and calculates when it will require the return of its principal. The issuer of commercial paper needs funds for a particular length of time and it sets the maturity date for a time when it expects to have funds to pay off the commercial paper. Occasionally, however, the issuer may want to adjust its balance sheet to have less debt outstanding and may offer to pay off the commercial paper. Alternatively, a holder of commercial paper may have a liquidity issue and may seek to sell its commercial paper holdings prior to maturity to obtain the cash. Usually, when this situation occurs, the broker/dealer involved attempts to make a market for the commercial paper, and it will acquire the commercial paper for its own account and either hold it until maturity or sell it in the secondary market to another holder. In the secondary market, the commercial paper is sold at the prevailing market price, with the broker/dealer anticipating making a profit equal to the amount of the spread between the price at which it acquires the commercial paper and the price at which it sells it in the secondary market.
The transactions at issue, however, were not conducted in the usual manner.[20] Instead of acting as principal and making a market for the commercial paper, evidence was presented indicating that the broker/dealers, including JP Morgan, all sought to distance themselves from the transactions, often citing the risk of preference liability as their rationale. The broker/dealers allege that, initially, they *38 only consented to assist in bringing Enron and the commercial paper holders together to allow them to make their own arrangements. The broker/dealers maintain that they later agreed to accept an intermediary role but sought to limit their respective role to that of an agent.[21] Moreover, unlike previous commercial paper transactions in which broker/dealers have participated, evidence was presented here that, at least in certain of these Enron transactions, the relevant broker/dealer, quite strikingly, did not receive any type of markup, margin, spread, fee or commission. Further, in an orderly exit from the commercial paper market, the issuer usually draws down on its bank lines of credit to pay the commercial paper as it matures, not to prepay the commercial paper. On October 26, 2001, an article appeared in the Wall Street Journal indicating that Enron was preparing to draw down on its $3 billion revolver lines of credit to redeem its outstanding commercial paper prior to maturity. Indeed, certain of the commercial paper holders redeemed their notes just one to two days prior to maturity.[22]
Commercial paper is a note evidencing a debt, which entails the attendant credit risk. Enron argues that when the Investors acquired Enron's commercial paper, they also acquired Enron's credit risk, as that risk was inherent in the very nature of the instrument. Enron further argues that the section 546(e) safe harbor was not intended to protect creditors from a credit risk that they assumed. Enron maintains that the Investors freely assumed (1) the credit risk when they acquired the commercial paper, and (2) the preference risk when they accepted payoff of the debt prior to maturity. Enron further argues that the note evidencing the debt was retired before maturity. When Enron redeemed the commercial paper, it was transferred to the Chase IPA account and immediately extinguished. As soon as Enron's commercial paper was prepaid, the Chase IPA withdrew it from the DTC system. Thus, Enron maintains that it did not acquire title or ownership of the commercial paper and there was no purchase or sale of the commercial paper as required for protection under the section 546(e) safe harbor. Rather, Enron argues that it merely paid off a debt and the Investors received payment on the underlying debt obligation.
The Second Circuit has recognized that "a maker's paying a note prior to maturity in accordance with its terms would not be regarded as a `purchase.'" SEC v. Sterling Precision Corp., 393 F.2d 214, 217 (2d Cir.1968). Further, the transfer of ownership of an asset is required for a purchase and sale. Id. (noting that "purchase" means "the acquisition of title to, or property in, anything for a price"). In Sterling Precision, the court concluded that when an entity discharges a bond or debenture, it does not acquire title to it. Id. Rather, "[p]ayment and discharge of a bond is neither sale nor exchange within the commonly accepted meaning of the words." Id. (quoting, Fairbanks v. United States, 306 U.S. 436, 437, 59 S.Ct. 607, 608, 83 L.Ed. 855 (1939)).
The safe harbor is not intended to protect an investor from the credit risk *39 inherent in the instrument. Rather, it is to protect the investor from risks incidental to the flow of payments within the system set up to channel payments and transfer the instrument. As such, the transfer of "ownership" of a security is an integral element in the securities settlement process. Here, Enron redeemed its commercial paper and paid off the underlying debt. The commercial paper was transferred to the Chase IPA account and immediately extinguished. Enron did not acquire title or ownership of the commercial paper. Rather, the commercial paper was immediately withdrawn from the DTC system. Furthermore, the payments made to the Investors were not based upon the prevailing market rate of the commercial paper. Rather, the Investors received the payment of their principal and interest up until the date of payment, based upon the economic terms of the commercial paper. Thus, the payments were in substantial compliance with the economic terms of the commercial paper, in that the interest rate paid was simply a pro ration on a per-day basis.
The SEC contends that the Sterling Precision court's interpretation of whether a redemption is a "sale" is limited to application under the Investment Company Act. Further, the SEC notes that the Second Circuit recognized that the term "sale" may have a broader definition in certain contexts. In addition, the SEC directs the Court's attention to Drachman v. Harvey, 453 F.2d 722, 737 (2d Cir.1971) (en banc) where the court ruled that a redemption of convertible debentures by a corporation under section 10(b) of the Securities Exchange Act was a purchase, thereby adopting a broader meaning of the term in that context. The SEC argues that the Drachman decision indicates that the Second Circuit has withdrawn somewhat from the Sterling Precision analysis.
In Drachman, however, the redemption of the convertible debentures allowed the issuer of the debt to acquire its stock. Given the nature of the security at issue there, it was a simultaneous transaction, as convertible debentures are by definition convertible into stock. Therefore, the court may have "collapsed" the transaction and considered it a "purchase" because it viewed the redemption of the convertible debentures as the equivalent of buying the stock. Collapsing the transaction reflected its essence a purchase of the issuer's stock. Here, the essence of the transaction is that Enron paid the underlying obligation on the note. Enron's ability to pay the obligation for the commercial paper note was precisely the risk assumed by the holder of that instrument.
The SEC also argues that Enron's prepayment on the notes is distinguishable from payment at maturity. The SEC notes that Enron made an offer to purchase its notes because it had no legal right to compel the holders to surrender them, and that it was only because the holders agreed to the offer that Enron was able to retire them. The SEC contends that the case is distinguishable from a redemption at maturity or a contractual right to redeem prior to maturity. The SEC, therefore, argues that it is not inconsistent to view the transactions as both a repurchase of a debt and a repayment.
In effect, the SEC's view is that each of the overall relevant transactions at issue is a two-step process similar to that applied to the purchase of stock in a leveraged buyout, where the stock is purchased and then immediately cancelled. In such transactions, the purchase of the stock has been held to be protected by the section 546(e) safe harbor. Kaiser I, 913 F.2d at 850 (concluding that money and preferred shares received for stock was a settlement payment from perspective of financial institution); *40 Kaiser II, 952 F.2d at 1240 (reaching same conclusion from perspective of stockholder).
There is, however, a fundamental difference between a stock transaction and a commercial paper transaction. Stock cannot be extinguished by its own terms. Rather, the corporation has to reacquire its stock in order to cancel it. Thus, because the stock is "purchased" by the issuer, it is a securities transaction. On the other hand, commercial paper is extinguished automatically upon payment of the underlying debt obligation. The commercial paper is swept into the issuing and paying agent's account and immediately after payment, it is removed from the DTC system. This occurs whether the commercial paper debt obligation is paid at maturity or prior to maturity. As long as the issuer pays the monetary equivalent of the amount that would be received at maturity, pro rated to the date of payment, there is no reason to treat the retirement of the debt obligation differently whether the commercial paper is redeemed at maturity or prior to maturity. Early retirement of the commercial paper still entails payment on the underlying debt obligation and, as such, the holder assumes the credit risk of the issuer's ability to pay off the obligation. Further, the entity receiving payment assumes the related preference risk associated with the payment of a loan.
The argument seeking to treat each of the overall relevant transactions at issue as a two-step process is further undermined because the prices paid for the commercial paper were substantially above market price. To be considered a sale followed by a redemption, one would assume that the amount paid for the "sale" of the commercial paper would reflect the prevailing market price. Instead, the amounts paid here were equal to the principal plus accrued interest to the date of payment, thereby reflecting payments on the underlying loans.[23]
Finally, the Investors and the SEC argue that a ruling that section 546(e) does not protect a prepayment of commercial paper from avoidance will result in uncertainty in, and chill, the secondary market for commercial paper. This argument, however, assumes that the participants *41 originally held the belief that the section 546(e) safe harbor applied to the transactions at issue. The factual development of this case belies such notion. Notwithstanding extensive discovery concerning all of the interactions among the multiple parties involved in the various transactions originally subject to the adversary proceedings, no evidence has been presented that any party referenced the potential protection of the safe harbor. There were many references to the fear of avoidance in a bankruptcy and the benefit of having the payment up front to force the bankruptcy estate to recover any payment, but not even one reference to the possibility that the safe harbor would apply. Moreover, the insistence by each of the broker/dealers to act as agent, instead of in the usual role of principal, further supports the proposition that throughout the industry no one readily considered the safe harbor as protecting the types of transactions at issue here-redemption of commercial paper. Indeed, the record reflects that it was the insistence by the broker/dealers to depart from their usual role as principal in a commercial paper transaction that altered "business as usual" in the secondary market.
Further, the fear that sellers of commercial paper in the secondary market will be reluctant to sell commercial paper because they will not know if the broker/dealer is acting as principal or agent for an issuer redeeming commercial paper can be readily remedied by the DTC. The DTC system could put in place a mechanism that places the burden upon the broker/dealer to indicate clearly to the transferor of commercial paper whether the broker/dealer was acting as principal or as agent for an issuer redeeming its commercial paper. The broker/dealers were primary players in taking the transactions at issue outside of the realm of what was common in the trade, by their efforts to depart from their usual role of principal. Thus, it would not be inequitable, unjust, or unfair to hold the broker/dealers accountable if commercial paper holders in the secondary market are not apprised that the transaction actually involves a redemption by the issuer. Such a procedure would provide clarity and avoid any uncertainty in the secondary market.
Earmarking
Pursuant to section 547(b), a transfer can only be avoided if it is of "an interest of the debtor in property." Cadle Co. v. Mangan (In re Flanagan), 503 F.3d 171, 184 (2d Cir.2007). Courts have fashioned the "earmarking doctrine" to describe certain transfers in which a debtor does not have an interest, with the result that the transfer is not avoidable under section 547(b). Id. Where a third party lends a debtor money for the specific purpose of paying a particular creditor, the loan funds are considered "earmarked" for that creditor and the transfer of those funds from the debtor to that particular creditor cannot be avoided. Id.
Initially, the earmarking doctrine was applied in cases where a guarantor secured a debtor's obligations because it was the guarantor's property that was transferred, resulting in no diminution to the debtor's estate. McCuskey v. Nat'l Bank of Waterloo (In re Bohlen Enters., Ltd.), 859 F.2d 561, 565 (8th Cir.1988) (citing, Nat'l Bank of Newport v. Nat'l Herkimer County Bank, 225 U.S. 178, 32 S.Ct. 633, 56 L.Ed. 1042 (1912)). In that context, when a debtor fails to pay a debt it owes, the party that has guaranteed that the payment will be made is called upon to pay the amount due to the old creditor. The guarantor then directly pays the old creditor. As such the funds transferred are the guarantor's property and not the debtor's property. Id. Consequently, there is no *42 diminution in the estate and the amount available for distribution to general creditors remains unchanged. Id. Additionally, courts may have been motivated by a desire to avoid unfairness and inequity to the guarantor who would be called upon to pay the same debt twice.[24]Id.
Subsequently, the earmarking doctrine was expanded to cover instances where a third party provides the debtor with funds "for the express purpose of enabling the debtor to pay a specific creditor." Cadle, 503 F.3d at 184 (citing cases) (emphasis added). Any such transfer was viewed as a substitution of a new creditor for the former one. Id.[25]
In Cadle, the Second Circuit noted that various approaches had developed to determine whether it is appropriate to apply the earmarking doctrine to a particular case. Cadle, 503 F.3d at 184-85. The first approach described by the Cadle court was that adopted by the Eighth Circuit in McCuskey, 859 F.2d at 565. The McCuskey court held that three requirements must be met to qualify for application of the earmarking doctrine. Cadle, 503 F.3d at 184 (citing McCuskey, 859 F.2d at 566). These requirements are
(1) the existence of an agreement between the new lender and the debtor that the new funds will be used to pay a specified antecedent debt,
(2) performance of that agreement according to its terms, and
(3) the transaction viewed as a whole (including the transfer in of the new funds and the transfer out to the old creditor) does not result in any diminution of the estate.
Id. at 184-85. The Second Circuit then categorized the other formulations developed by various courts as "focus[ing] primarily on whether the debtor lacked control over the funds supplied by the new creditor." Id. at 185 (citing Coral Petroleum, Inc. v. Banque Paribas-London, 797 F.2d 1351, 1358 (5th Cir.1986) (other citation omitted)).
The Second Circuit proceeded to set forth its own history of having applied the general principles behind the earmarking doctrine without necessarily having applied the term "earmarking." Cadle, 503 F.3d at 185. Thus, the Second Circuit noted that it previously had concluded that
where a debtor receives funds subject to a clear obligation to use that money to pay off a preexisting debt, and the funds are in fact used for that purpose, those funds do not become part of the estate and the transfer cannot be avoided in bankruptcy.
Id. (citing Grubb v. Gen. Contract Purchase Corp., 94 F.2d 70, 73 (2d Cir.1938)). The Second Circuit, however, was careful to note the limitations on this principle by *43 referencing its clear expression of when a transfer of new funds remains part of a debtor's bankruptcy estate, subject to avoidance under section 547(b).
[W]here a new creditor provides funds to the debtor with no specific requirement as to their use, the funds do become part of the estate and any transfer of the funds out of the estate is potentially subject to trustee's avoidance powers.
Id. at 185 (citing Smyth v. Kaufman (In re J.B. Koplik & Co.), 114 F.2d 40, 42 (2d Cir.1940)). Moreover, the Second Circuit emphasized that this result was not altered "even where the new creditor knows, but does not require, that the new loan funds will be used to pay off a preexisting debt." Id.
The defendants argue that the requisite obligation to pay off the pre-existing debt does not have to emanate from the new lender. Rather, they argue that the obligation can flow from another source, and that it is sufficient that a debtor recognizes some obligation compelling it to use the new funds to pay off the pre-existing debt. The Investors note that Enron was legally required to use the bank-facility funds to replace the commercial paper debt. The Investors point to a directive from Enron's board requiring Enron not to issue commercial paper in an amount greater than the balance available on the commercial paper backup credit lines. According to the Investors, once Enron drew down the lines of credit, Enron could no longer have commercial paper outstanding. Thus, the Investors maintain that Enron was compelled to use the bank-facility funds to eliminate its outstanding commercial paper.[26]
However, anyone who has a pre-existing debt has some manner of obligation and compulsion to pay it off-even if it is simply the obligation under the underlying contract with the lender, and the compulsion of a potential action for breach of contract. In Schubert v. Lucent Techs. Inc. (In re Winstar Commc'ns., Inc.), 554 F.3d 382 (3d Cir.2009), the Third Circuit was faced with an argument similar to that presented by the Investors. In Winstar, the debtor was party to a credit agreement with a creditor that required the debtor to pay that creditor any increase in funds received from a separate bank facility. Id. at 392. That bank facility consisted of a revolving line of credit made available to the debtor by a consortium of bank lenders. Id. Thereafter, a new lender joined the consortium and agreed to lend the debtor an additional amount of money. Id. at 393. The relevant documents provided that the amounts under the additional loan were to be used for "general corporate purposes." Id. In the debtor's subsequent bankruptcy, in response to the trustee's preference action to recover the payment made to the old creditor, that creditor argued that the transfer was protected by the earmarking doctrine. Id. at 400. It was argued that the new lender was aware *44 that the agreement between the previous creditor and the debtor required the debtor to pay the proceeds of the new loan to the creditor, and that the debtor intended to make such payment. Id. at 401. Moreover, a failure to make such payment would have been an event of default under the credit agreement with the old creditor, which, in turn, would have cross-defaulted to the separate bank facility. Id. The Winstar court dismissed these arguments. Id. at 401-02. Citing Cadle, the Winstar court concluded that there had to be evidence of an agreement between the new creditor and the debtor that the funds would be used to pay a specified antecedent debt, and that it was not sufficient to show that the new creditor knew of the intended use of the funds, if the new creditor did not require that the funds would be so used. Id. (citing Cadle, 503 F.3d at 185).
Reviewing the facts before it, the Winstar court noted that, "at most," the new lender was aware that the credit agreement between the debtor and the old creditor required the debtor to pay the proceeds of the new lender's loan to the old creditor and that the debtor intended to make such payment. Id. at 402. The Winstar court concluded that while the debtor's failure to so pay the funds
would have ultimately led to an event of default under the Bank Facility, that merely implies that the Bank Facility lenders (including [the new lender]) could have brought breach of contract claims against [the debtor]-not that [the new lender] conditioned its loan on [the debtor's] payment to [the old lender].
Id. at 402. Thus, the Third Circuit concluded that earmarking was inapplicable, absent a requirement in the new lender's agreement conditioning the loan on payment to the creditor seeking the benefit of the earmarking doctrine.
Here, the relevant loan documents permitted Enron to apply the loan funds for general corporate purposes, with no other limitations or conditions imposed by the lender. While Enron may have faced compulsion from other sources to comply with certain obligations, such compliance was not a condition of the loan. Moreover, any failure to comply with those other obligations would have only subjected Enron to whatever consequences would flow from such failure. Enron, however, received the loan funds from the bank facility with no "specific requirement" to pay off the commercial paper. Unlike credit-backed commercial paper, where a letter of credit, or other funding, is set up to provide a back-up for payments for commercial paper, there was no enforceable obligation in the back-up bank facility to strictly apply any loan proceeds to the payment of the commercial paper. Instead, as noted previously, the funds could be used for any corporate purpose. As such, upon their receipt, the funds became part of Enron's estate. Accordingly, any transfer of those estate funds subjects such transfer to the avoidance powers.
Moreover, even following the analysis of those courts that focus on the "control" element leads to the same result. Certain of these courts analyze the doctrine as not requiring proof of third-party lender intent because the restriction placed on the use of the proceeds can emanate from any source. See e.g., Coral, 797 F.2d at 1361 (noting that, although establishing the intent of the third-party lender is one way to prove lack of control, it is not the only way). Nevertheless, the debtor's lack of "dispositive control" must still be proven. Id.
Here, as long as the funds were used for general corporate purposes, once Enron received the funds, the banks did not dictate how those funds should be applied. *45 The funds became part of the Enron's general funds to be used for any legitimate corporate purpose. As part of Enron's general funds, transfer of those funds subjected them to avoidance as a preference.
The Investors further argue that paying off the commercial paper with the funds from the bank facility did not diminish Enron's estate. This is because Enron substituted the unsecured commercial paper creditors for the unsecured back-up facility lenders, who were owed an equal amount. The Investors maintain that avoiding the transfer would result in Enron receiving a windfall which was not the intent of the avoidance section.
The absence of a diminution to the estate is not, by itself, sufficient to call for application of the earmarking doctrine. In fact, it may be argued that any time the proceeds of a new loan are used to pay off an antecedent debt, there is no diminution in the estate. However, the net value of the estate is considered only after the other elements for the application of the earmarking doctrine are met. It is only after a determination is made either (i) that the debtor complied with the new lender's specific directive that the funds be applied to the debt of the previous creditor or (ii) that the debtor lacked control over the funds supplied by the new creditor, that a court considers whether the estate has been diminished. Further, in preventing application of the earmarking doctrine when the criteria for application are not met, there is no windfall to the debtor because, as is always the case with a preference, the funds are taken from a party entitled to payment strictly for the purpose of achieving a fairer distribution to all creditors.
Therefore, because there were no restrictions on Enron's use of the credit lines, other than for general corporate purposes, Enron could use the funds for any corporate purpose. Thus, under either of the two main approaches for application of the earmarking principle, it would not apply under these circumstances because there was neither an agreement between Enron and the lenders under the lines of credit to limit use of the proceeds of the loans to payment of the commercial paper nor did Enron lack control over those funds.
CONCLUSION
The Court concludes that there are factual issues concerning whether the section 546(e) safe harbor would protect the payments at issue from avoidance. If the payments were made to retire a debt, such payments were not then for the purchase, sale, or loan of securities. Rather, the payments would have been to satisfy the underlying debt obligation. As such, they would not be settlement payments and not be protected from avoidance by the section 546(e) safe harbor. Thus, a trial is necessary to determine whether JP Morgan acted as principal or agent. If JP Morgan acted as agent for Enron, then any transfers to retire debt that benefitted the Investors are not protected from avoidance by the safe harbor.
The Court concludes that the benefit received by Aeltus is too remote and unascertainable, under the facts of this case, to qualify it as a party that benefitted under section 550(a)(1).
Further, the Court concludes that, under the circumstances of the case, the earmarking principle would not apply to protect the payments from avoidance.
Therefore, the motions for summary judgment filed by the ING Funds and Alfa are denied. However, the motion for summary judgment filed by Aeltus is granted.
Counsel for Enron is to settle an order consistent with this Opinion and include in *46 that order a date for a pre-trial conference to schedule a trial date.
NOTES
[1] For convenience, hereinafter, all references to Enron signify either Enron, the Debtors, the reorganized debtors, or Enron Creditors Recovery Corp., as the context requires.
[2] DTC] ... was created to reduce costs and provide clearing and settlement efficiencies by immobilizing securities and making "book-entry" changes to ownership of securities. DTC provides securities movements for [the National Securities Clearing Corporation's (NSCC's)] net settlements, and settlement for institutional trades (which typically involve money and securities transfers between custodian banks and broker/dealers), as well as money market instruments.
The Depository Trust Company (DTC), http:// www.dtcc.com/about/subs/dtc.php (last visited June 23, 2009).
[3] With respect to certain defendants that have reached settlements and been dismissed from these actions, Goldman, Sachs & Co. and Lehman Commercial Paper Inc. played a role similar to that of JP Morgan.
[4] The approximate accrued par value paid was the price originally paid for the commercial paper plus accrued interest.
[5] Enron did not seek to avoid those payments that were made at maturity, during the preference period, because it determined that although such payments would not be protected by the 11 U.S.C. § 546(e) safe harbor, they nonetheless would be protected from avoidance by the "ordinary course of business" defense provided by 11 U.S.C. § 547(c)(2).
[6] Hereinafter, unless otherwise indicated, all references to sections are to the Bankruptcy Code.
[7] If JP Morgan were acting as Enron's agent, a transfer from JP Morgan to an investor would have required a commensurate payment to JP Morgan from Enron, as principal.
[8] Enron does not challenge the contention that had the parties waited until the maturity date, the payment would have been protected from avoidance. This protection, however, would have been afforded by the section 547(c)(2) ordinary course of business defense and not by the section 546(e) safe harbor defense.
[9] There is no indication that the commercial paper in these seven other companies was redeemed by the respective issuers, as opposed to being held by the broker/dealer until maturity or sold in the secondary market.
[10] The SEC also viewed section 546(e) as applying to settlement payments by or to protected entities regardless of whether those payments are made in connection with a trading transaction that itself implicates the guarantees of the clearance and settlement system process, and argued that commercial paper notes are securities for purposes of the Bankruptcy Code and section 546(e).
[11] If the transfer were made to an insider, this period would extend to one year.
[12] Section 546(e) was amended in 2006, however, that amendment does not apply to this matter. Moreover, even if the 2006 amendment were intended to clarify that section 546(e) applies to commercial paper when there is a purchase and sale of commercial paper, nevertheless, as discussed subsequently, section 546(e) does not apply to the redemption of commercial paper.
[13] The Defendants argue that even assuming that the "commonly used in the securities trade" phrase modifies all of the entries in section 741(8), it is the payment itself and not the transaction that must be common in the securities trade and that payment of money must be considered common in the securities trade. The Court, however, concludes that the analysis is not as narrowly focused as Defendants suggest. Rather, it is the payment as associated with the transaction that must be considered as a whole in determining whether the settlement payment is common in the securities trade.
[14] The Court recognizes that a transaction that might be considered rare, nevertheless, could be common in the industry. Moreover, not every transaction would have to establish its "commonness," as that would undermine the purpose of the safe harbor. However, as set forth in this Court's June 15, 2005 Opinion, there were sufficient indicia of extremely unique circumstances presented in this case that set it apart and called into question whether, indeed, a "settlement payment" as contemplated by section 546(e) was at issue. Enron, 325 B.R. at 686. Nevertheless, where it is clear that a settlement payment is involved, even rare transactions may be considered common in the industry.
[15] If a broker/dealer acted as principal and acquired the commercial paper from an investor, it would then have had three options with respect to the commercial paper: (i) it could keep the commercial paper until maturity; (ii) it could sell it on the secondary market to a third-party investor; or (iii) it could seek to redeem the commercial paper with the issuer, prior to maturity. If it redeemed the commercial paper at maturity with an issuer who subsequently filed for bankruptcy, the broker/dealer would have the section 547(c) ordinary course of business defense to an avoidance action. If it resold it to a third-party investor who subsequently files for bankruptcy, then the section 546(e) safe harbor would protect the transaction. Finally, if the broker/dealer, prior to maturity, redeemed the commercial paper with an issuer and that issuer subsequently filed for bankruptcy, the transfer would not come within either the section 546(e) or the section 547(c) exception to avoidance.
Thus, the party redeeming the commercial paper is subject to an avoidance action. However, if the redemption is at maturity, the holder would have the ordinary course of business defense. If it is not redeemed at maturity, the ordinary course of business defense would not likely be available. The safe harbor would not provide protection from avoidance in either case regarding redemption. See infra note 23.
[16] Ordinarily, an agent that makes a payment using property transferred to it by the principal is considered a conduit. If an agent advances its own property to make a payment and is subsequently reimbursed by the principal, the agent, generally, is not considered a conduit.
[17] Inasmuch as a transfer could be recovered from the Investors if JP Morgan were an agent, whether or not it acted as a conduit in that capacity, the Court does not reach the issue of whether the debit and credit processing within the DTC system would support a finding that JP Morgan, in its role as agent, functioned as a conduit.
[18] The Investors argue that by redeeming the commercial paper, Enron only sought to protect its ability to re-enter the commercial paper market and that was the benefit that Enron intended. The Investors, therefore, contend that the benefit they received was just an incidental third-party benefit from Enron's actions that does not satisfy the element of intended benefit required for avoidance or recovery. The Court does not agree. Here, Enron participated in the DTC system, the very structure of which ensures that the party who initially transfers the commercial paper will ultimately reap any payments resulting from such transfer. Integral to that participation is the understanding that the later payments made within that framework are intended to benefit the party initially transferring the commercial paper. Moreover, in that structure, if the agent were not reimbursed, the credit entry to the earlier transferor would be reversed, which shows a direct material linkage between the payments at issue. This would not be the case with an "incidental" beneficiary.
[19] During this period, Enron had been under close scrutiny by financial analysts and the press. An October 26, 2001 Wall Street Journal article addressed Enron's decision to redeem its commercial paper prior to maturity. In addition, JP Morgan recorded certain telephone conversations, including one where a JP Morgan sales representative advised Aeltus, who made the ING Funds' investments, that JP Morgan was acting as agent for Enron to retire the commercial paper. Also, Bloomberg tickets related to the transfers list JP Morgan as agent to retire the commercial paper.
Although the Alfa representative claims not to have seen the Wall Street Journal article, the representative indicates that he was informed of certain rumors circulating about Enron but claims not to have inquired as to their substance. There is contradictory evidence concerning the timing of Alfa's entry into the agreement to transfer its commercial paper, and an e-mail from JP Morgan to Enron suggests that, prior to that agreement, Alfa had knowledge that Enron was involved in the transaction. The e-mail was sent before JP Morgan agreed to act as agent, during the period when JP Morgan was merely connecting commercial paper holders and Enron. In the e-mail, JP Morgan notified Enron that Alfa was a commercial paper holder interested in participating in the transactions.
[20] In the earlier transactions, pursuant to which the ING Funds and Alfa purchased Enron's commercial paper, JP Morgan acted in its customary role as principal.
[21] At the Hearing, Alfa's counsel conceded that, as a legal matter, if JP Morgan, indeed, acted as an agent, it did not matter whether Alfa was aware of its role for purposes of determining whether the transfer was subject to a preference.
[22] As previously noted, had those commercial paper holders waited until maturity, the transfers would have been protected from avoidance. The protection, however, would have been provided by the section 547(c)(2) ordinary course of business defense, and not by the safe harbor.
[23] The Investors also argue that the legislative history of the 1982 and 1984 amendments to sections 546(e) and 741(8) support a finding that section 546(e) applies to commercial paper. Enron argues that the legislative history of those amendments, as well as the legislative history of the 1984 amendments to section 547(c)(2) clearly indicate that the section 546(e) safe harbor was not intended to protect commercial paper payments from avoidance.
There is some merit to both arguments. The Investors are correct to the extent that section 546(e) applies to the purchase and sale of commercial paper. However, the legislative history of sections 547(c)(2) supports the finding, as Enron argues, that the 546(e) safe harbor does not apply to a redemption of commercial paper. While Enron argues that section 546(e) does not apply at all to commercial paper, the Court limits the finding to the issue of redemption.
The legislative history and the case law imply that redemption of commercial paper at maturity is not covered by the safe harbor. See e.g., Union Bank v. Wolas, 502 U.S. 151, 157 n. 10, 112 S.Ct. 527, 531 n. 10, 116 L.Ed.2d 514 n. 10 (1991). Rather, the 547(c) ordinary course defense protects maturity payments from avoidance. Originally, the ordinary course defense provided protection only for debts incurred within 45 days. The amendment eliminating that time restriction for its application, was implemented, in part, to address concerns by commercial paper issuers who often would limit the duration of commercial paper to 45 days because of the restriction. Id. Had the already existing safe harbor under section 546(e) applied, the commercial paper issuers would not have had those concerns.
[24] This double payment would result because the guarantor had an obligation to make the old creditor whole by insuring he received payment on the debt owed to him. After the guarantor paid the old creditor, if the payment to the old creditor were deemed a preference, the old creditor would be required to return the payment it had received to the bankruptcy estate. Thereafter, the old creditor, who was the beneficiary of a guaranty, would turn to the guarantor again to make him whole and the guarantor would be obliged to make another payment.
[25] The McCuskey court questioned the wisdom of extending the earmarking doctrine outside of the context of guarantors because the court noted that it would not help a debtor and actually would harm a new creditor, to the extent that the new creditor is a general creditor. McCuskey, 859 F.2d at 566. As such, the new creditor would receive its recovery from an estate that was diminished in value to the extent that it failed to recover the payment made to the old creditor. Id. Moreover, the McCuskey court saw no equitable basis for preferring the old creditor. Id.
[26] The Investors also contend that shortly before drawing down funds from the bank facilities, Enron made oral representations to the banks that it intended to use the proceeds to pay for the commercial paper. The Investors argue that Enron therefore was compelled to make those payments, otherwise it would have been subject to criminal law penalties for misrepresentations made to the banks for the purpose of obtaining a loan. The Court does not agree. Even if Enron made these statements, the statements were not material under the facts of this case. These bank lines were already committed. Therefore, the banks could not have relied upon the statements to make the loans as the banks were already obligated to make them. Further, the bank-facility agreements, which provided that the proceeds could be used for general corporate purposes, also provided that those agreements could be amended only by a writing. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539027/ | 134 Pa. Commonwealth Ct. 415 (1990)
580 A.2d 887
COMMONWEALTH of Pennsylvania, DEPARTMENT OF PUBLIC WELFARE, FARVIEW STATE HOSPITAL, Petitioner,
v.
Joseph KALLINGER, Respondent.
Commonwealth Court of Pennsylvania.
Heard July 18, 1990.
Decided August 14, 1990.
Publication Ordered September 10, 1990.
*416 Thomas Blazusiak, with him, Howard Ulan, Asst. Counsel, and John A. Kane, Chief Counsel, for petitioner.
Jeffrey J. Wander, Honesdale, for respondent.
David Ferleger, Philadelphia, Guardian Ad Litem, for Joseph Kallinger.
PELLEGRINI, Judge.
The Commonwealth of Pennsylvania, Department of Public Welfare, (Department), Farview State Hospital (Farview), files this Request for Special Emergency Relief asking this Court for a Declaratory Judgment authorizing the involuntary administration of necessary nutrition and medical *417 treatment in order to preserve the safety, health and life of Joseph Kallinger (Kallinger).
We are called upon to decide a sensitive matter which is without precedent in this Commonwealth. Joseph Kallinger wants to starve himself to death.[1] The Department, who has custody, wants to force him to involuntarily receive food through a nasogastric tube and other medical treatment. We must decide if the Department has such right.
The current dilemma developed after Kallinger was recently readmitted to Farview on May 17, 1990, from the State Correctional Institution at Huntingdon (Huntingdon).[2] On June 22, 1990, he stated, as a result of his vision of Christ in a toilet bowl telling him to join him, that he would refuse to eat or drink, and that he desires to "meet his maker." He has also refused treatment for an abscess on his foot. On June 30, 1990, Kallinger agreed to be transferred to Wayne Memorial Hospital in Wayne County, Pennsylvania, in order to have intravenous fluids, including antibiotics, administered to him. However, he continued in his refusal to accept nutrition and other medical treatment.
On July 3, 1990, the Department filed an action for Declaratory Relief in the Court of Common Pleas of Wayne County, seeking authority to provide necessary treatment, nutrition and hydration to Kallinger. On that day, the trial court entered a preliminary order permitting the Department to do so. However, on July 10, 1990, after holding a hearing on the matter, the trial court dissolved its preliminary order and determined that Kallinger was competent *418 and could reject nutrition and hydration necessary to preserve his health, safety and life.
The Department filed a Petition For Review seeking Special Emergency Relief pursuant to the original jurisdiction of this Court, and seeking review of the trial court's Order pursuant to our appellate jurisdiction. Sections 761 and 762 of the Judicial Code, 42 Pa.C.S. §§ 761, 762.[3]
On July 13, 1990, this Court granted the Department's request for a preliminary injunction, ordering that Kallinger may be involuntarily administered medical treatment, nutrition and hydration, pending further adjudication. On July 18, 1990, following a hearing, a second Order was issued continuing the involuntary medication and feeding of Kallinger pending final adjudication of this matter.
The Department offered testimony and evidence that if Kallinger is allowed to starve to death, this would have major negative repercussions on the prison and mental health systems; that Kallinger's death would have adverse effects on other patients, their families and the staff of the mental hospital; and other patients may also "copy-cat" Kallinger's actions.
Kallinger contends that despite such adverse repercussions to the Commonwealth, he should be allowed to die if he so chooses. He argues that his right to privacy overrides any interests of the Commonwealth because the use of a nasogastric tube to feed him is an overly intrusive procedure which could last a number of years.
We note at the outset that Kallinger is committed to Farview, a mental hospital for the criminally insane. He suffers from a serious mental illness, diagnosed by Mokarram Jafri, M.D., as a Borderline Personality Disorder. (Notes of Testimony (N.T.), July 10, 1990, p. 35; July 18, 1990, pp. 27-29). However, he is competent in the sense that he fully understands his decision and realizes that *419 death will result if he continues to refuse nutrition and medical treatment. (N.T. July 10, 1990, pp. 36, 70-71).
We also recognize that Kallinger, through this action, may be attempting to manipulate the system in order to stay at Farview rather than return to Huntingdon. His authorization of his attorneys to enter appearances on his behalf one to say that he has the right to die, the other to say the state had an obligation to make him stay alive is certainly part of that manipulation. Although Kallinger has in the past and is now manipulating the system in which he finds himself, if the Department is not allowed to involuntarily provide him with nutrition and medical care, we assume that Kallinger will indeed starve himself to death.
While Kallinger is sufficiently competent to make a decision to starve himself to death, this is not a "right to die" case in the usual sense. There has been much public debate and court activity over whether such a right exists and in what circumstances it exists, and these cases involve decisions made by enfranchised citizens or someone acting on their behalf, that their substantial rights of privacy allows them to make that decision. See e.g., Cruzan v. Director, Missouri Department of Health, ___ U.S. ___, 110 S.Ct. 2841, 111 L.Ed.2d 224 (1990). Kallinger is a convict and any rights that he may have are extremely limited and severely restricted because of the unique nature and requirements of prison custody. Bell v. Wolfish, 441 U.S. 520, 99 S.Ct. 1861, 60 L.Ed.2d 447 (1979); Jones v. North Carolina Prisoners' Union, 433 U.S. 119, 97 S.Ct. 2532, 53 L.Ed.2d 629 (1977); Price v. Johnston, 334 U.S. 266, 68 S.Ct. 1049, 92 L.Ed. 1356 (1948). What this case concerns is whether the Commonwealth's interest in an orderly administration of the prison system is paramount over any residual right of privacy that Kallinger has which would make it an invasion of privacy on the part of the Commonwealth to force feed him.
The narrow issue then presented to us is whether the Commonwealth has a right to force a competent prisoner within the Commonwealth's penal system to receive involuntary *420 medical treatment and nutrition and hydration through a nasogastric feeding tube. To decide this issue, a balancing test is employed, balancing the Commonwealth's interests against the prisoner's remaining right to privacy. Matthews v. Eldridge, 424 U.S. 319, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976).
Kallinger argues that his right to privacy is superior to the interests of the Commonwealth, no matter what effect it may have on the prison system. He argues that as a prisoner, he did not give up his right to starve himself, citing the Supreme Court of Georgia decision in Zant v. Prevatte, 248 Ga. 832, 286 S.E.2d 715 (1982). In that case, the Georgia court held that a competent prisoner had a right to starve himself to death.
The court, in ruling that the state does not have the right to force medical treatment and food on a competent prisoner, stated:
A prisoner does not relinquish his constitutional right to privacy because of his status as a prisoner. The state has no power to monitor this man's physical condition against his will; neither does it have the right to feed him to prevent his death from starvation if that is his wish. . . . The state can incarcerate one who has violated the law and, in certain circumstances, even take his life. But it has no right to destroy a person's will by frustrating his attempt to die if necessary to make a point.
Zant, 248 Ga. at 833-834, 286 S.E.2d at 716-717.
Kallinger further argues that the procedure for forcing nutrition and hydration into him is overly intrusive. The procedure which the Department has been and wishes to continue using is a nasogastric tube which is inserted through the nose into the stomach. This tube will remain in his body and will have to be frequently removed and replaced. Kallinger correctly points out that there are several risks involved in this procedure, including internal bleeding and possibly even death. (N.T. July 10, 1990, pp. 42-43, 56-57; July 18, 1990, p. 23).
*421 While admitting that there are risks to Kallinger as a result of his forced feeding, the Commonwealth argues that its interest in prison security and discipline, the morale of medical and custodial staff, as well as the law of this Commonwealth, far outweigh any right of privacy that Kallinger may have. We agree.
The Commonwealth has an overwhelming interest in maintaining prison security, order and discipline. The Supreme Court has stated that "maintaining institutional security and preserving internal order and discipline are essential goals that may require limitation or retraction of the detained constitutional rights of . . . convicted prisoners." Bell v. Wolfish, 441 U.S. at 546, 99 S.Ct. at 1878. This lack of a reasonable expectation of privacy deprives the convicts of Fourth Amendment rights in their prison cells. Hudson v. Palmer, 468 U.S. 517, 104 S.Ct. 3194, 82 L.Ed.2d 393 (1984).
Prison officials are given a wide range of discretion in the promulgation and enforcement of rules to govern the prison community in order to maintain security, order and discipline. Bell v. Wolfish; Jones v. North Carolina Prisoners' Union; Pell v. Procunier, 417 U.S. 817, 94 S.Ct. 2800, 41 L.Ed.2d 495 (1974). U.S. ex rel. Silverman v. Commonwealth of Pennsylvania, 527 F.Supp. 742 (W.D. Pa.1981), aff'd Appeal of Silverman, 707 F.2d 1395 (3rd Cir.1983). Individual freedoms may be curtailed whenever prison officials, in exercise of their informed discretion, reasonably conclude that their exercise possesses the likelihood of disrupting prison order or stability or otherwise interfering with the legitimate penological objectives of the prison environment. St. Clair v. Cuyler, 634 F.2d 109 (3rd Cir.1980), rehearing denied 643 F.2d 103 (3rd Cir.1980); See also Bell v. Wolfish; Jones v. North Carolina Prisoners Union; Wilson v. Prasse, 325 F.Supp. 9 (W.D.Pa.1971), aff'd 463 F.2d 109 (3rd Cir.1972).
Other jurisdictions confronted with the same situation have held that compelled nutrition and medical treatment is proper because of the strong state interest in orderly prison *422 administration outweighs any convict's residual rights. In Von Holden v. Chapman, 87 A.D.2d 66, 450 N.Y.S.2d 623 (1982), Mark David Chapman, serving a twenty year to life term for the murder of former Beatle John Lennon, attempted to starve himself to death while in a mental institution. The Supreme Court of New York, Appellate Division, in allowing involuntary feeding through a nasogastric tube, found that the legitimate interest in prison security and administration clearly included the right to prevent a prisoner's suicide.
In Commissioner of Correction v. Myers, 379 Mass. 255, 399 N.E.2d 452 (1979), the Massachusetts Supreme Court allowed forced hemadialysis to a prisoner suffering a kidney condition on the basis of maintaining prison order. The court stated that imprisonment imposed severe limitations on the prisoner's right to privacy and bodily integrity.
In the present case, the uncontradicted testimony shows that if Kallinger would be permitted to die, other patients at Farview would almost certainly copy the same tactic, manipulating the system to get a change of conditions, possibly resulting in their death. (N.T. July 10, 1990, pp. 13-14, 25-26, 49; July 18, 1990, pp. 16-17, 31). Allowing a prisoner to die will cause other patients to become angry and lose faith in the system and make treatment more difficult; it may even spawn rioting at Farview or from prisoners at Huntingdon or other state institutions. (N.T. July 10, 1990, pp. 13-14, 20, 26; July 18, 1990, pp. 17-20, 36). It is clear that allowing a prisoner to starve to death while in state custody would have an unpredictable negative effect on the security and order within the prison system.
Besides preserving order with the prison system, the Commonwealth has a strong interest in maintaining the health of prisoners in its custody. The obligation of the Commonwealth to provide for the health and safety of the inmates in their custody is derived from two very important interests: the preservation of human life and the prevention of suicide. The preservation of human life is of great interest to the state. John F. Kennedy Memorial Hospital *423 v. Heston, 58 N.J. 576, 279 A.2d 670 (1971). In Commonwealth v. Root, 191 Pa.Super. 238, 244, 156 A.2d 895, 900 (1959), revd. on other grds. 403 Pa. 571, 170 A.2d 310 (1961), the Pennsylvania Superior Court stated that "[t]he policy of the law is to protect human life, even the life of a person who wishes to destroy his own."
The Commonwealth has a duty under the Eighth Amendment to protect the health and welfare of those persons in its custody, Youngberg v. Romeo, 457 U.S. 307, 102 S.Ct. 2452, 73 L.Ed.2d 28 (1982); Estelle v. Gamble, 429 U.S. 97, 103, 97 S.Ct. 285, 290, 50 L.Ed.2d 251 (1976), and may be cast in civil damages for its failure to observe such duty, Simmons v. City of Philadelphia, 728 F.Supp. 352 (E.D.Pa. 1990); Lee v. Downs, 641 F.2d 1117 (4th Cir.1981). Furthermore, the Commonwealth has a duty to "provid[e] appropriate medical treatment to reduce the danger that an inmate suffering from a serious mental disorder represents to himself or others." Washington v. Harper, 494 U.S. ___, ___, 110 S.Ct. 1028, 1030, 108 L.Ed.2d 178 (1990).
The United States Supreme Court in Washington v. Harper allowed the forced administration of antipsychotic drugs to a prisoner on the basis that the state's interest in providing appropriate medical treatment outweighed the inmate's liberty interest. The Supreme Court found that the state has not only an interest, but an "obligation to provide prisoners with medical treatment consistent not only with their own medical interests, but also with the needs of the institution." Washington v. Harper, 494 U.S. at ___, 110 S.Ct. at 1039.
Other courts have also considered the state's interest in the preservation of human life. In State ex. rel. White v. Narick, ___ W.Va. ___, 292 S.E.2d 54 (1982), the West Virginia Supreme Court of Appeals allowed the force feeding of an inmate who had begun a hunger strike to protest conditions of his prison. The court found that "[a] state must preserve human life, a concern at the very core of civilization. . . . West Virginia's interest in preserving life is superior to [the prisoner's] personal privacy (severely *424 modified by his incarceration)." Narick, ___ W.Va. at ___, 292 A.2d at 58. See also Commissioner of Correction v. Myers (forced hemadialysis treatment on prisoner suffering kidney condition based on preservation of life and maintaining prison order); Superintendent of Belchertown State School v. Saikewicz, 373 Mass. 728, 370 N.E.2d 417 (1977).
The Court in Narick criticized the Georgia Supreme Court's decision in Zant by stating:
The Georgia court failed to consider compelling reasons for preserving life, not the least being civility. What sense does it make for a state to allow a prisoner to kill himself, urging as its justification his right-of-privacy right to refuse medical treatment for his voluntary debilitation; and yet preserve unto itself the right to kill him, the ultimate violation of his privacy right. We doubt that Georgia would allow him to raise his right of privacy against being put to death, as a defense against the death penalty!
Narick, ___ W.Va. at ___, 292 S.E.2d at 57.
The second related state interest is the Commonwealth's duty to prevent suicide. "American law has always accorded the State the power to prevent, by force if necessary, suicide including suicide by refusing to take appropriate measures necessary to preserve one's life." Cruzan v. Director, Missouri Department of Health, ___ U.S. at ___, 110 S.Ct. at 2859, 111 L.Ed.2d 224 (1990). (Scalia, J. concurring).
Pennsylvania public policy strongly opposes the commission of suicide. Commonwealth v. Root. Pennsylvania law makes it a crime to aid or solicit another person to commit suicide. Crimes Code, 18 Pa.C.S. § 2505. A police officer also has the right to use force to prevent a suicide from occurring. 18 Pa.C.S. § 508(d)(1). By asking the Commonwealth to stand by and watch him die while it has custody and control over him, Kallinger is asking it to aid and abet his suicide.
*425 The leading case in support of a state's duty to prevent suicide is Von Holden v. Chapman. The Supreme Court of New York, Appellate Division, in rejecting Chapman's right to privacy claim, held that "it is self-evident that the right of privacy does not include the right to commit suicide. . . . To characterize a person's self-destructive acts as entitled to Constitutional protection would be ludicrous." Von Holden v. Chapman, 87 A.D.2d at 67, 450 N.Y.S.2d at 625.
Since Kallinger is a patient at Farview, the Commonwealth's interest in maintaining the integrity of the medical and psychiatric professions is also of great importance. Several courts have held that the integrity of the medical profession is an interest which should be balanced against a person's privacy right to refuse medical treatment or nutrition. Cruzan; Narick; Saikewicz.
If Kallinger is allowed to starve himself to death, repercussions would be felt throughout the medical and psychiatric professions. (N.T. July 10, 1990, pp. 19-20, 24-25, 40; July 18, 1990, pp. 16-17). Dr. Jafri, Chief of Psychiatric Services at Farview, stated that Kallinger's death would "have a negative impact upon the staff [in] that we could not carry out a moral and ethical obligation of keeping a patient alive." (N.T. July 10, 1990, p. 41). Jack Wolford, M.D., Psychiatric Director for the Department, testified that "it would be devastating to the staff and the staff morale if they had to allow someone to cease living, virtually by their own hand, while under our care." (N.T. July 18, 1990, p. 10).
Furthermore, if he is allowed to die, other patients and their families would have serious doubts about whether the psychiatric staff is providing their patients with proper psychiatric treatment and medical care. (N.T. July 18, 1990, pp. 26-27, 40; July 18, 1990, pp. 19, 36). Dr. Jafri testified that his death "will not encourage the confidence of their patients in our ability to manage and take care their needs, as [well as] the moral confidence of the public." (N.T. July 10, 1990, p. 41). Dr. Wolford stated that the patients *426 "would lose trust in the system of care." (N.T. July 18, 1990, p. 17).
The Commonwealth of Pennsylvania has an overwhelming interest in the orderly administration of its prison system. The Commonwealth must maintain prison security, order and discipline. It must also fulfill its duty to provide proper medical care to the inmates, thus preserving life and preventing suicide. These vital interests, along with the need to preserve the integrity of the physicians and psychiatrists working within the penal system, clearly outweigh any diminished right to privacy held by Kallinger.
Accordingly, we order that Farview can and must continue to provide appropriate nutrition through a nasogastric tube and appropriate medical care to Joseph Kallinger so long as he continues to refuse nutrition and medical treatment. Kallinger shall remain committed to Farview until such time as the medical and psychiatric staff feel it's appropriate for him to return to a State Correctional Institution.
ORDER
No. 239 Misc. Dkt. 1990
AND NOW, this 14th day of August, 1990, it is ordered that the Commonwealth of Pennsylvania, Department of Public Welfare, Farview State Hospital, must provide appropriate nutrition through a nasogastric tube and appropriate medical care to Joseph Kallinger as long as he continues to refuse either. Joseph Kallinger's commitment to Farview State Hospital is extended indefinitely until such time that the medical and psychiatric staff determines that such feeding can be carried out at an appropriate State Correctional Institution.
ORDER
AND NOW, this 10th day of September, 1990, it is ordered that the opinion filed August 14, 1990 shall be *427 designated OPINION rather than MEMORANDUM OPINION and that it shall be reported.
NOTES
[1] Kallinger, a convicted murderer, is currently serving two consecutive life sentences consecutively with a thirty to eighty year sentence in Pennsylvania. He also must serve a life sentence and a forty-two to fifty-two year sentence in New Jersey. He also must serve other sentences which are too numerous to mention. Needless to say, Joseph Kallinger will spend the rest of his natural life behind bars.
[2] Kallinger began serving his Pennsylvania sentences at Huntingdon following his convictions in 1976. However, in 1977, he was committed to Farview where he stayed for over ten years, until 1988. Since 1988, he was recommitted once for a short period of time and then returned to Huntingdon. This recent recommittment was his second since returning to Huntingdon. His current recommittment is scheduled to expire on August 17, 1990.
[3] By order dated July 13, 1990, this Court directed that the Petition For Review shall be regarded as a Complaint In Equity directed to our original jurisdiction, and that the appeal from the trial court's Order shall be dismissed without prejudice. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539028/ | 407 B.R. 449 (2009)
WELLS FARGO BANK, N.A. and Option One Mortgage Corporation
v.
Ernest E. JAASKELAINEN and Kathleen M. Jaaskelainen.
Civil Action No. 08-11299-RWZ.
United States District Court, D. Massachusetts.
May 28, 2009.
*452 MEMORANDUM AND ORDER
ZOBEL, District Judge.
Wells Fargo Bank, N.A. ("Wells Fargo") and Option One Mortgage Corporation ("Option One") (collectively, "Appellants") appeal from the final order of the bankruptcy court granting judgment in favor of the debtor-appellees Ernest and Kathleen Jaaskelainen ("the Jaaskelainens" or "Debtors"). For the reasons discussed below, the order of the bankruptcy court is affirmed in part and reversed in part and the case is remanded for further proceedings.
I. Standard of Review
In considering an appeal from an order of a bankruptcy court, a district court reviews conclusions of law de novo but must accept the bankruptcy judge's findings of fact unless they were clearly erroneous. TI Fed. Credit Union v. Del-Bonis, 72 F.3d 921, 928 (1st Cir.1995). "A finding is clearly erroneous when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." In re Hill, 387 B.R. 339, 345 (1st Cir. BAP 2008) (quoting Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985)). "If the trial court's account of the evidence is plausible, in light of the record viewed in its entirety, a reviewing court may not reverse, even if convinced that if it had been sitting as a trier of fact, it would have weighed the evidence differently." Id.
II. Factual Background
A. The Refinancing
In November 2005, Debtors were facing an impending foreclosure of their home in Attleboro, Massachusetts (the "Property"). In an effort to stave off foreclosure they entered into a refinancing transaction (the "Refinancing") with Option One on November 28, 2005. In connection with the Refinancing, Debtors executed a note and mortgage to Option One secured by the Property. The total loan amount was $158,950.
The Refinancing closing occurred at the Property around 7:30 p.m. and took approximately one hour. Attorney Robert P. *453 Marks ("Marks") was engaged by Professional Settlement Services ("PSS") to act as closing agent for the Refinancing. In this capacity he was responsible for printing out the closing documents, presiding over the closing, and returning the signed documents to the lender. During the closing, Marks showed Debtors each document and briefly explained it to them before they signed. A "Notice of Right to Cancel" (the "NOR") was among the closing documents. The NOR is a form notice which discloses a borrower's limited right to rescind the transaction and is mandated by the federal Truth in Lending Act ("TILA"), 15 U.S.C. § 1601-1667, and its Massachusetts counterpart, the Massachusetts Consumer Credit Cost Disclosure Act ("MCCCDA"), Mass. Gen. Laws ch. MOD ("ch.140D"). Both the TILA and the MCCCDA require the lender to provide two copies of the NOR to each borrower. See 12 C.F.R. § 226.23(b)(1); 209 C.M.R. § 32.23(2)(a). The bottom of the NOR contains an area for the borrowers' signatures confirming their receipt of two copies each of the NOR (the "Acknowledgment"). Marks specifically explained the NOR to Debtors, and they executed the Acknowledgment. The Debtors and Marks also signed a six-page document entitled "Instructions to Closing Agent" which stated in relevant part that the closing agent was required to provide to each borrower "two (2) completed, signed, and dated copies of the notice of right to cancel at the time of execution of the loan documents." At the closing Marks also executed an Affidavit of Settlement Agent in which he certified that he gave Debtors two copies each of the NOR. Debtors received a bound set of their closing documents (the "Closing Booklet") approximately three to five days after the closing.
Debtors defaulted on their loan payments in September 2006. By this time Option One had assigned the debt to Wells Fargo, although it remained as the servicer of the loan. Wells Fargo commenced foreclosure proceedings in February 2007. In March 2007 Debtors met with Attorney Theodore Koban ("Koban") to discuss bankruptcy. Koban referred the matter to Attorney Kenneth D. Quat ("Quat") for investigation of an issue not relevant to these proceedings. The Debtors met with Quat in April 2007. According to Debtors, at that meeting it was discovered that the Closing Booklet contained only two copies of the NOR on a single double-sided sheet of paper. On May 1, 2007, Debtors sent written notification to Wells Fargo requesting rescission of the Refinancing based upon their failure to each receive two copies of the NOR. Wells Fargo responded through a letter dated May 3, 2007, that Debtors were not entitled to rescind because they had signed the Acknowledgment, indicating that they had each received two copies.
B. The Bankruptcy Court Proceedings
On May 7, 2007, Debtors filed a voluntary petition for bankruptcy under Chapter 13. In "Schedule F-Creditors Holding Unsecured Nonpriority Claims" Debtors listed Option One as holding a claim in the amount of $181,976.90 in addition to $20,848 in other debt. On May 24, 2007, Option One filed a proof of claim asserting a claim in the amount of $182,380.86 secured by real property. On June 4, 2007, Debtors filed an objection to Option One's claim on the basis that they had previously exercised their right to rescind the Refinancing by mailing notices to Wells Fargo. Option One rejoined that the objection was baseless because Debtors were not entitled to rescind.
In July 2007 the Jaaskelainens filed an adversary proceeding against Wells Fargo and Option One, alleging in a single count *454 that Appellants violated TILA by failing to deliver two copies of the NOR to each Debtor.[1] Appellants moved for summary judgment in February 2008, arguing that Debtors could not show they did not receive the correct number of copies of the NOR and that in any event the MCCCDA, not TILA, applied. Debtors opposed on the basis that genuine issues of material fact remained as to whether they had received the correct number of copies and requested that they be allowed to amend their complaint to add a claim under the MCCCDA. The bankruptcy court denied the motion for summary judgment and subsequently allowed Debtors' motion to amend their complaint, construing the complaint to assert a claim under the MCCCDA rather than the TILA.[2] The bankruptcy court held a one-day trial on April 29, 2008, at which five witnesses testified[3] and 39 exhibits were admitted into evidence. The court took the matter under advisement and both parties submitted post-trial memoranda.
In its Memorandum of Decision ("Mem." (Docket # 9-14)), the bankruptcy court noted that under the MCCCDA, signing the Acknowledgment created a rebuttable presumption that Debtors had each received two copies of the NOR. See ch. 140D, § 10(c). It then found that Debtors had rebutted this presumption by: (1) testifying credibly that they did not receive any documents at the closing; and (2) showing that the Closing Booklet contained, at most, two copies of the NOR instead of the four that were required. Although Appellants asserted that the present contents of the Closing Booklet are not representative of its contents back in 2005, the court rejected this argument. (See Mem., 23-24.) Both parties agreed that once Debtors rebutted the presumption of delivery the burden of proof shifted to Appellants to prove that each Debtor did receive two copies of the NOR. The court held that Appellants failed to meet this burden and, accordingly, that they had violated the MCCCDA It also concluded that Appellants did not fall within the safe harbor provision of the statute for "bona fide errors." See ch. 140D, § 32(c).
The violation allowed Debtors to rescind the Refinancing. Under the statute:
When an obligor exercises his right to rescind under subsection (a), he is not liable for any finance or other charge, and any security interest given by the obligor, including any such interest arising by operation of law, becomes void upon such a rescission. Within twenty days after receipt of a notice of rescission, the creditor shall return to the obligor any money or property given as earnest money, down payment, or otherwise, and shall take any action necessary or appropriate to reflect the termination of any security interest created under the transaction. If the creditor has delivered any property to the obligor, the obligor may retain possession of it. Upon the performance of the creditor's obligations under this section, the obligor *455 shall tender the property to the creditor, except that if return of the property in kind would be impractical or inequitable, the obligor shall tender its reasonable value. Tender shall be made at the location of the property or at the residence of the obligor, at the option of the obligor. If the creditor does not take possession of the property within twenty days after tender by the obligor, ownership of the property rests in the obligor without obligation on his part to pay for it. The procedures prescribed by this subsection shall apply except when otherwise ordered by a court.
Ch. 140D, § 10(b); see also 15 U.S.C. § 1635(b) (substantively identical TILA provision). Rescission under the TILA and MCCCDA differs from common law rescission in that the order of performance is reversed. Under the common law, the borrower would first need to return the loan proceeds to effect a rescission. In contrast, under the TILA and MCCCDA, the creditor must perform first and terminate any security interest it has as a result of the transaction before the borrower is required to return any loan proceeds. See generally Large v. Conseco Fin. Serv. Corp., 292 F.3d 49, 55-56 (1st Cir.2002). In the present proceedings, the bankruptcy court concluded that the rescission terminated Appellants' security interest but tender by the borrower was not required due to the bankruptcy context. (See Mem., 28-29.) Accordingly, the court held that Appellants' "security interest is void and they hold nothing more than an unsecured claim which will receive the same dividend as other unsecured claims under the Debtors' Chapter 13 plan." (Id. at 29.) This disposition left Appellants with an unsecured claim in the amount of $142,806.68, in addition to liability for Debtors' attorney's fees and costs. This appeal followed.
III. Discussion
A. Denial of Summary Judgment Motion
Appellants assign error to the bankruptcy court's rejection of their summary judgment motion and its subsequent allowance of Debtor's motion to amend their complaint. Appellants suggest that these two rulings should be viewed separately, i.e., that since it was undisputed that the MCCCDA and not the TILA applied, the bankruptcy court committed error by denying their motion for summary judgment on the TILA claim, regardless of the fact that the court subsequently allowed Debtors to substitute for their TILA claim, a claim under the MCCCDA. However, it makes more sense to view these rulings together. Debtors moved to amend concurrently with their opposition to the summary judgment motion and noted the same in their opposition. Although it may have made more procedural sense for the bankruptcy court to allow the motion to amend prior to denying the motion for summary judgment, this is quibbling. The MCCCDA was modeled after the TILA and the statutes are interpreted identically. See McKenna v. First Horizon Home Loan Corp., 475 F.3d 418, 422 (1st Cir.2007) ("the MCCCDA should be construed in accordance with the TILA").[4] Appellants do not argue with the substantive ruling that under either TILA or the MCCCDA there were material issues regarding Debtors' receipt of the required number of copies of the NOR which precluded summary judgment. Although they suggest that the motion to amend the complaint should not have been allowed at the summary judgment stage, the bankruptcy court has broad discretion to make *456 case-management decisions, and this court's review is only for abuse of discretion. See, e.g., In re Rank, 119 F.3d 46, 52 n. 10 (1st Cir.1997); In re Choinski, 214 B.R. 515, 518 (1st Cir. BAP 1997). It was well within that court's discretion to permit Debtors to proceed under the MCCCDA rather than TILA, particularly since the statutes are interpreted interchangeably and the substitution did not cause any delay in the litigation.
B. Determination of MCCCDA Violation
Appellants assert error in the bankruptcy court's determination that Debtors are entitled to rescission due to Option One's failure to provide Debtors each with two copies of the NOR. This ruling presents one issue of fact and one of law, with varying standards of review. First, the court reviews the factual determination that Debtors did not each receive two copies of the NOR for clear error. Second, it reviews de novo the legal determination that Appellants do not qualify for the bona fide error defense.
1. Number of Copies of the NOR Received by Debtors
At the bankruptcy trial Marks could not remember any specific details about Debtors' closing and instead testified to his routine procedure at closings. He stated that borrowers would typically receive five copies of the NOR: one loose copy handed to each of them during the closing, and three copies in the bound Closing Booklet. The version of the Closing Booklet submitted into evidence had, at most, two copies of the NOR.[5] The parties spill a lot of ink addressing the question of whether the Closing Booklet submitted into evidence is a complete version of the Closing Booklet that Debtors received in 2005. However, ultimately this question is not dispositive. Marks testified that pursuant to his routine practice there would be, at most, three copies of the NOR' in the Closing Booklet. The question therefore hinges upon whether Debtors received any copies of the NOR at the closing.
Although Debtors signed the Acknowledgment,[6] both testified that they did not receive any copies of the NOR at the closing; and Marks could not remember whether or not he had given Debtors copies at the closing. The bankruptcy court credited Debtors' testimony. Appellants argue that this was clear error given the inconsistencies in Debtors' deposition and trial testimonies. (See Appellant's Br. (Docket # 8), 36-37.) However, this court must give "due regard" to the "opportunity of the bankruptcy court to judge the credibility of the witnesses." Fed. R. Bank. P. 8013; see also Williams v. First Govt. Mortg. and Investors Corp., 225 F.3d 738, 751 (D.C.Cir.2000) (lower court's "credibility determinations are entitled to the greatest deference" from the reviewing court). The bankruptcy court was uniquely positioned to assess the testimony of all witnesses through its direct observation of them, and it committed no error in crediting Mrs. Jaaskelainen's testimony despite *457 some inconsistencies (see, e.g., Mem., 9 n. 47). This is particularly so since the only opposing testimony, by Marks, was based solely on his usual practice and not on any specific recollection of what occurred at the closing. Therefore, the ruling that the Debtors' testimony is sufficient to rebut the presumption of delivery stands. See Stutzka v. McCarville, 420 F.3d 757, 762-63 (8th Cir.2005) (affidavit by borrower stating that she had not received the documents at the closing "at the very least[ ] would have rebutted the presumption of delivery").
The burden remained on Appellants to prove that they did deliver a sufficient number of copies of the NOR to Debtors. See Williams, 225 F.3d at 751 (presumption of delivery requires borrower to come forward with evidence to meet presumption, but does not shift burden of proof to borrower). Appellants cannot meet this burden given the bankruptcy court's credibility determination. As discussed above, even assuming arguendo that the Closing Booklet had contained three copies of the NOR, that would still be insufficient.[7] The only way Debtors could have received a total of four copies (two each) is by receiving loose copies at the closing, a possibility foreclosed by their credited testimony. Therefore, the court's determination that Debtors did not receive sufficient copies of the NOR was not clearly erroneous.
2. Bona Fide Error Defense
Under the MCCCDA,
A creditor or assignee may not be held liable in any action brought under this section or section ten for a violation of this chapter, or any rule or regulation issued thereunder, if the creditor or assignee shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adopted to avoid any such error. A bona fide error includes, but shall not be limited to, clerical, calculation, computer malfunction and programming, and printing errors, except that an error of legal judgment with respect to a person's obligations under this chapter, or rule or regulation issued thereunder, is not a bona fide error.
Ch. 140D, § 32(c); see also 15 U.S.C. § 1640(c) (TILA counterpart). Although the list of bona fide errors in the statute is non-exhaustive, "[f]ederal courts have strictly limited this defense to purely and literally `clerical' errors, ... [and] Massachusetts courts have indicated no different view." Bizier v. Globe Fin. Servs., Inc., 654 F.2d 1, 3 (1st Cir.1981) (internal citations omitted). Although likely inadvertent, the failure to give each Debtor two copies of the NOR at the closing was not "clerical." In any event, the bankruptcy court was correct to conclude that the compliance procedures adopted by Option One to avoid this error were insufficient. As the Seventh Circuit has explained:
Congress required more than just the maintenance of procedures which were designed to provide proper disclosure[s].... Rather, it required procedures designed *458 to avoid and prevent the errors which might slip through procedures aimed at good faith compliance. This means that the procedures which Congress had in mind were to contain an extra preventative step, a safety catch or a rechecking mechanism. Congress left the exact nature of the preventative mechanism undefined. It is clear, however, that Congress required more than just a showing that a well-trained and careful clerk made a mistake. On the other hand, a showing that the first well-trained clerk's [action] was checked by a second well-trained clerk or that one clerk [employed a procedure to double check his or her own action] would satisfy Congress' requirements.
Mirabal v. Gen. Motors Acceptance Corp., 537 F.2d 871, 878-79 (7th Cir.1976), overruled on other grounds by Brown v. Marquette Sav. and Loan Ass'n, 686 F.2d 608, 614-15 (7th Cir.1982). Option One's procedure, as explained in the "Instructions to Closing Agent" form, required the agent to provide each borrower with two copies of the NOR and sign the Affidavit of Settlement Agent attesting to the fact that he had done so. The closing agent would then forward the loan papers, including the Acknowledgment, Affidavit of Settlement Agent, and Instructions to Closing Agent, to the lender. As the bankruptcy court explained,
Option One never verified that the borrowers received a sufficient number of copies of the NOR and these procedures are not designed to do so. Instead, through an affidavit, they merely require the closing agent attest to delivery. The verification of the Affidavit of Settlement Agent is insufficient because it places the rechecking mechanism, if it could even be called that, in the person who made the mistake in the first place. The present case is illustrative of the problem: Attorney Marks testified that he signed the Affidavit of Settlement Agent without ever having confirmed the contents of the Closing Booklet.
(Mem., 27.) The bankruptcy court's conclusion is unassailable.
C. Rescission
In their adversary complaint Debtors sought: (1) rescission of the Refinancing transaction; (2) a declaration that the mortgage entered into in connection with the Refinancing was null and void; (3) a return of all money or property given to Appellants in connection with the Refinancing; (4) a declaration that Debtors were not obligated to tender the amounts remaining on the loan; and (5) an award of statutory damages, costs and attorney's fees. The bankruptcy court concluded that Debtors were not required to tender as a condition of rescission. The court reasoned that the Jaaskelainens were freed from their obligation to tender back amounts they had borrowed because "[conditioning rescission upon the debtor's payment therefore imposes an obligation from which the debtor has been legally freed" and to require the debtor to tender in a bankruptcy context "would unfairly discriminate among unsecured claims in violation of 11 U.S.C. § 1322(a)(3)." (See Mem., 28-29) (quoting In re Myers, 175 B.R. 122, 128-29 (Bankr.D.Mass.1994).) On de novo review I conclude that this determination was error.
1. Rescission is Not Automatic
The bankruptcy court held that Debtors sent a valid notice of rescission to Appellants and "[a]s such, the [Appellants'] security interest is void and they hold nothing more than an unsecured claim...." (Mem., 29.) However, the majority of circuit courts addressing this issue, including the First Circuit, have concluded that rescission does not flow automatically *459 from the borrower's mailing of a notice of rescission. See, e.g., Large, 292 F.3d at 54 ("Neither [TILA] nor [Regulation Z] establishes that a borrower's mere assertion of the right of rescission has the automatic effect of voiding the contract."). The First Circuit continued: "If a lender disputes a borrower's purported right to rescind, the designated decision maker ... must decide whether the conditions for rescission have been met. Until such a decision is made, the [borrowers] have only advanced a claim seeking rescission." Id. at 54-55. See also Thompson v. Irwin Home Equity Corp., 300 F.3d 88, 90 (1st Cir.2002) (demand for rescission does not automatically void the loan agreement); Yamamoto v. Bank of New York, 329 F.3d 1167, 1172 (9th Cir.2003) (argument that notice of rescission constitutes rescission "makes no sense when, as here, the lender contests the ground upon which the borrower rescinds"). Because the security interest did not automatically become void when Debtors sought rescission, the bankruptcy court is entitled to determine whether they have met (or can meet) all of the conditions for rescission as part of its inquiry into whether rescission is available. See Yamamoto, 329 F.3d at 1172-73; In re Ramirez, 329 B.R. 727, 735-37 (D.Kan.2005).
2. Imposition of Conditions on Rescission
Debtors argue that the provisions of the MCCCDA and its implementing regulations do not permit the court to modify the automatic voiding of Appellants' security interest upon Debtors' exercise of their right of rescission. As set forth supra, the MCCCDA sets forth a sequence of procedures to be followed when a borrower exercises his right to rescind; the statute provides that such procedures "shall apply except when otherwise ordered by a court." Ch. 140D, § 10(b); see also 15 U.S.C. § 1635(b) (TILA). Section 32.23 of the Code of Massachusetts Regulations implements § 10(b) and provides:
(4) Effects of rescission.
(a) When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void and the consumer shall not be liable for any amount, including any finance charge.
(b) Within 20 calendar days after receipt of a notice of rescission, the creditor shall return any money or property that has been given to anyone in connection with the transaction and shall take any action necessary to reflect the termination of the security interest.
(c) If the creditor has delivered any money or property, the consumer may retain possession until the creditor has met its obligation under 109 CMR 32.23(4)(b). When the creditor has complied with 209 CMR 32.23(4), the consumer shall tender the money or property to the creditor....
(d) The procedures outlined in 209 CMR 32.23(4)(b) and (c) may be modified by court order.
209 C.M.R. 32.23; see also 12 C.F.R. § 226.23(d)(1)-(4) (substantively identical Federal Reserve Board Regulation Z implementing § 1635(b)). Debtors argue that the court may not modify subsection (a) to prevent Appellants' security interest from becoming void because the regulations only permit the court to modify the procedures in subsections (b) and (c). The Court of Appeals for the Ninth Circuit lucidly discussed and rejected this argument in Yamamoto. As that court noted, Debtors' argument "begs the question of when a transaction is `rescinded.'" 329 F.3d at 1172. For Debtors to prevail, rescission must occur automatically upon notice of rescission without regard to *460 whether the law permits rescission, a notion that has been rejected because it does not comport with the underlying purposes of the statute. Id. As the court in Ray v. Citifinancial, Inc. explained:
Section 1635(a) and the first sentence of section 1635(b), upon which [the debtor] relies, must be read in conjunction with the second, third, and fourth sentences of section 1635(b). Those three sentences modify conventional rescission doctrine (that contemplates a simultaneous restoration of the status quo ante) by requiring a creditor to take certain actions before becoming entitled to a tender from the debtor. However, if Congress had not contemplated that a court has the power to condition annulment of the transaction upon a debtor's return of that which he has received, its enactment of the sequencing provisions of section 1635(b), would have been nonsensical. Why should Congress have established a procedure for restoring the status quo ante if a debtor could avoid the obligations the procedure imposes upon him simply by asserting that his notice of rescission under section 1635(a) voided the creditor's security interest and eviscerated any rights that it might have other than as an unsecured creditor?
Surely, Congress's establishment in the second, third, and fourth sentences of section 1635(b) of a procedure for restoring the status quo ante was not intended to be an empty gesture. Just as surely, Congress did not intend that if faced with a debtor's refusal to return the benefit he had received in defiance of the statutory mandate, a court of equity would be powerless to grant an effective remedy. Since these are the implications of [the debtor's] interpretation of the language of section 1635(a) and the first sentence of section 1635(b), his interpretation must fail.
228 F.Supp.2d 664, 668 (D.Md.2002).
Although the First Circuit has not spoken, the majority of circuit courts to consider the issue agree that courts have the equitable power to condition rescission on tender by the borrower. See, e.g., Am. Mortg. Network, Inc. v. Shelton, 486 F.3d 815, 820-21 (4th Cir.2007); Yamamoto, 329 F.3d at 1172-73; Williams v. Homestake Mortg. Co., 968 F.2d 1137, 1140 (11th Cir. 1992); FDIC v. Hughes Dev. Co., 938 F.2d 889, 890 (8th Cir.1991); Brown v. Nat'l Perm. Fed. Sav. and Loan Ass'n, 683 F.2d 444, 447 (D.C.Cir.1982); Rudisell v. Fifth Third Bank, 622 F.2d 243, 254 (6th Cir. 1980); Rachbach v. Cogswell, 547 F.2d 502, 505 (10th Cir.1976). As Yamamoto and Williams both noted, leaving courts free to exercise equitable discretion to modify rescission procedures comports with congressional intent:
Upon application by the consumer or the creditor, a court is authorized to modify this section's procedures where appropriate. For example, a court might use this discretion in a situation where a consumer in bankruptcy or wage earner proceedings is prohibited from returning the property. The committee expects that the courts, at any time during the rescission process, may impose equitable conditions to insure that the consumer meets his obligations after the creditor has performed his obligations as required under the Act.
S.Rep. No. 368, 96th Cong., 2d Sess. 29 (1980), reprinted in 1980 U.S.C.C.A.N. 236, 264-65 (emphasis added), as quoted in Yamamoto, 329 F.3d at 1173, and Williams, 968 F.2d at 1140 (noting that the addition of statutory language providing that procedures "shall apply except when otherwise ordered by a court" was added as a reflection of TILA's equitable *461 goal to "return the parties most nearly to the position they held prior to entering into the transaction"). See also Brown v. Nat'l Permanent Fed. Sav. & Loan Ass'n, 683 F.2d 444, 447 (D.C.Cir.1982) ("[a]lthough the right to rescind is [statutory], it remains an equitable doctrine subject to equitable considerations"). This view comports with the First Circuit's discussion of TILA in other contexts. See McKenna v. First Horizon Home Loan Corp., 475 F.3d 418, 424 (1st Cir.2007) ("Congress made manifest that although it had designed TILA to protect consumers, it had not intended that lenders would be made to face overwhelming liability for relatively minor violations."); id. (discussing Congress' view that rescission was "the most draconian remedy available" and led to "devastating liability"); see also Santos-Rodriguez v. Doral Mortg. Corp., 485 F.3d 12, 17 (1st Cir.2007) (similar).
Debtors suggest that in any event, tender should not be required as a condition for rescission in the bankruptcy context. It is not immediately clear why this is so. As Ramirez notes, the legislative history of § 1635(b) supports the modification of the rescission process in this context by specifically referring to bankruptcy. See supra ("For example, a court might use this discretion in a situation where a consumer in bankruptcy ...."). Ramirez. 329 B.R. at 741-42. Indeed, multiple courts have imposed conditions upon rescission in the bankruptcy context. See. e.g., Quenzer v. Advanta Mortg. Corp., 288 B.R. 884, 886-89 (D.Kan.2003); Ray, 228 F.Supp.2d at 668-69; In re Webster, 300 B.R. 787, 802 (Bankr.W.D.Okla.2003); In re Apaydin, 201 B.R. 716, 724 (Bankr. E.D.Pa.1996); In re Buckles, 189 B.R. 752, 763-66 (Bankr.D.Minn.1995); Lynch v. GMAC, 170 B.R. 26, 30 (Bankr.D.N.H. 1994) ("This Court can see no reason why the circuit courts and the district court[s], in exercising their equitable powers, can condition the right of rescission, but the bankruptcy court cannot.").[8]
These courts premised their rulings on the equitable nature of rescission. If the creditor's secured interest were immediately void upon rescission, its claims would be relegated to an unsecured and possibly dischargeable status. "The net effect, then, would be that a debtor receives the entire benefit of the credit transaction, often substantial sums of money or what amounts to a free house, while the creditor receives nothing, which would be contrary to the purposes of rescission." Ramirez, 329 B.R. at 742 (quoting In re Stanley, 315 B.R. at 615). As Ramirez explained:
[Debtors] are attempting to use an equitable remedy to create a legal right to effectively strip Household's mortgage lien, a right they are not accorded under bankruptcy law [citing 11 U.S.C. § 1322(b)(2)]. Thus, the bankruptcy court Order requiring Mr. Ramirez to satisfy his reciprocal tender obligation prior to release of Household's mortgage is precisely the type of equitable condition contemplated by Congress. To hold otherwise would disproportionately punish Household for a technical violation of the TILA while giving the Ramirezes a windfall in excess of $80,000.
*462 Id; see also Quenzer, 288 B.R. at 889 ("Even though the defendant violated TILA, automatically relegating its entire claim to unsecured status under these circumstances would be completely inequitable and would exact a penalty entirely disproportionate to its offense."); Lynch, 170 B.R. at 30 ('Accepting [Debtors'] position would allow chapter 13 to be utilized to provide a windfall not contemplated by the provisions of chapter 13."); Shelton, 486 F.3d at 820 (Debtors' assertion of "the right to simply walk away with a windfall of $313,468 without any further obligation" offends "traditional notions of equity").
Accordingly, the bankruptcy court was in error when it concluded that Appellants' security interest became void upon Debtor's notice of rescission and that requiring tender was inappropriate in the bankruptcy context.[9] Therefore, the case will be remanded to the bankruptcy court for consideration of the appropriate conditions to impose on Debtors' exercise of rescission. In undertaking this evaluation the bankruptcy court should consider traditional equitable notions, including such factors as the severity of Appellants' MCCCDA violation and the degree to which Debtors are able to pay the principal amount. See Williams, 968 F.2d at 1141 ("While the goal should always be to restore the parties to the status quo ante, rescission must also maintain its vitality as an enforcement tool.") (internal quotation marks and citations omitted).
D. Attorney's Fees and Costs
Following its entry of judgment in favor of Debtors, the bankruptcy court approved their application for attorney's fees of $33,465 and costs of $954 against both Option One and Wells Fargo. Wells Fargo argues that it is not subject to an attorney's fee award because it is an assignee and the MCCCDA violation was not apparent on the face of the disclosure statement. However, it did not make this argument in the bankruptcy court and it is therefore waived. See B&T Masonry Const. Co., Inc. v. Pub. Serv. Mutual Ins. Co., 382 F.3d 36, 40 (1st Cir.2004) ("legal theories not raised squarely in the lower court cannot be broached for the first time on appeal"). The bankruptcy court's ruling on this issue is affirmed.
Nonetheless, the court must address the issue as Debtors seek costs and attorney's fees incurred in this appeal. The MCCCDA and the TILA both require that a defendant pay the costs of the action and reasonable attorney's fees to any person who brings a "successful action" to enforce liability under those statutes. See ch. 140D, § 32(a)(3); 15 U.S.C. § 1640(a)(3). The bankruptcy court's ruling that a violation of the MCCCDA occurred has been affirmed by this court, and Debtors are accordingly entitled to costs and attorney's fees. See Nigh v. Koons Buick Pontiac GMC, Inc., 478 F.3d 183, 186 (4th Cir. 2007). It is undisputed that: (1) Wells Fargo is an assignee; and (2) the MCCCDA violation was not apparent from the face of the disclosure. Accordingly, under Massachusetts law Wells Fargo is not liable for the attorney's fees incurred by Debtors in this appeal; such fees shall be paid solely by Option One. See Mayo v. Key Fin. Servs., Inc., 424 Mass. 862, 678 *463 N.E.2d 1311, 1313 (1997).[10] The amount of the award of fees and costs may be determined by the bankruptcy court on remand.
IV. Conclusion
For the reasons set forth above, the bankruptcy court's judgment that Appellants violated the MCCCDA is AFFIRMED. The determination that rescission may not be conditioned upon tender by Debtors is VACATED, and this case is REMANDED to the bankruptcy court for further proceedings consistent with this opinion. Judgment may be entered accordingly.
JUDGMENT
In accordance with the MEMORANDUM AND ORDER entered 5/28/09; For the reasons set forth above, the bankruptcy courts judgment that Appellants violated the MCCCDA is AFFIRMED. The determination that rescission may not be conditioned upon tender by Debtors is VACATED, and this case is REMANDED to the bankruptcy court for further proceedings consistent with this opinion.
NOTES
[1] Debtors also argued that the NOR itself was legally insufficient. The bankruptcy court rejected this argument and Debtors have not pressed it on appeal. (See Memorandum of Decision ("Mem." (Docket #9-14)), 20-21.)
[2] The bankruptcy court correctly noted that the Board of Governors of the Federal Reserve System has exempted credit transactions within Massachusetts subject to the MCCCDA from chapters two and four of the TILA. (Mem., 11 n. 64; see also Carye v. Long Beach Mortg. Co., 470 F.Supp.2d 3, 6 n. 1 (D.Mass.2007).) As a result, Debtors' claim under the TILA became a claim under the MCCCDA rather than an additional one.
[3] The Jaaskelainens, Marks, Koban and Lisa Clary, the Legal Teams Action Lead for Option One, testified.
[4] Both parties agree that cases interpreting the TILA are applicable to the MCCCDA.
[5] The Closing Booklet contained a single sheet with the NOR copied on each side. There is some question as to whether this single sheet constitutes one NOR or two, as the regulations provide that the notice "shall be on a separate document." See 209 C.M.R. § 32.23(2). Because resolution of this question would not alter the result this court assumes arguendo, as the bankruptcy court did, that the double-sided sheet with the NOR on each side constituted two copies. (See Mem., 25-26.)
[6] Debtors also signed the "Instructions to Closing Agent" sheet acknowledging that they had received sufficient copies of the NOR.
[7] As Appellants explain,
Attorney Marks testified that the closing package that he received for the Appellees' loan would have contained three copies of the NOR. He would have had them both sign the same copy of the notice (which he would keep for return to the lender) and would have handed them the two extra copies at the closing. Therefore, the booklet of documents that the Jaaskelainens received should have contained three copies of the notice. When combined with the two that he handed to them at the closing, they would have received five copies of the notice, one more than legally required.
(Docket # 8, 31.)
[8] The bankruptcy court suggested that requiring tender would unfairly discriminate among unsecured claims in violation of 11 U.S.C. § 1322(a)(3). (See Mem., 29.) However, this rationale is premised upon the refuted notion that a notice of rescission automatically voids the creditor's security interest. Cf. In re Williams, 291 B.R. 636, 662 n. 27 (Bankr. E.D.Pa.2003) (classifying lender's claim as unsecured but nonetheless requiring full payment because the claim "is different than other unsecured claims as it arises as a statutory entitlement according [the lender] full payment in connection with the rescission" of the loan).
[9] I do not suggest that the bankruptcy court's analysis is unsupported, as there is a minority of courts which has adopted his view in thoughtful opinions. See, e.g., In re Williams, 291 B.R. 636 (Bankr.E.D.Pa.2003); Celona v. Equitable Nat'l Bank, 90 B.R. 104 (Bankr. E.D.Pa.1988); aff'd, 98 B.R. 705 (E.D.Pa. 1989); Myers v. Fed. Home Loan Mortg., 175 B.R. 122 (Bankr.D.Mass.1994). I have considered these arguments but simply find the majority position more persuasive.
[10] In refusing to award attorney's fees against an assignee in a rescission action, the Supreme Judicial Court stated:
Although a borrower is given the same right of rescission against an assignee of an obligation as against the original lender, other rights may be asserted under G.L. c. 140D against an assignee only if the violation for which such action or proceeding is brought is apparent on the face of the disclosure statement.
Mayo, 678 N.E.2d at 1313. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539029/ | 398 Pa. Superior Ct. 341 (1990)
580 A.2d 1379
COMMONWEALTH of Pennsylvania
v.
Keith SHAW, Appellant
Supreme Court of Pennsylvania.
Submitted June 18, 1990.
Filed October 18, 1990.
*342 Harvey L. Anderson, Philadelphia, for appellant.
Donna G. Zucker, Asst. Dist. Atty., Philadelphia, for Com., appellee.
Before DEL SOLE, MONTEMURO and KELLY, JJ.
KELLY, Judge.
In this appeal, we are called upon to determine whether a defendant is denied due process of law where the trial judge failed to disclose that he had previously accepted bribes from other defendants. We find no due process violation instantly, and affirm.
The facts and procedural history may be set forth as follows. On January 8, 1986, appellant was arrested and charged with robbery, theft and assault following an altercation in a bar. Appellant was tried and convicted of these charges after a bench trial. Appellant thereafter was sentenced but no subsequent review of the judgment of sentence was sought.
Subsequently, appellant filed the instant petition under the Post-Conviction Hearing Act. New counsel was appointed to represent him, and he filed an amended petition which was denied. This timely appeal followed.
On appeal appellant raises the following issues: 1) whether appellant was denied due process of law, where, in a non-jury trial in which he was found guilty, the trial judge failed to disclose that he demanded and/or accepted bribes from other defendants in 1986, at or near the time of appellant's trial, in order to render results favorable to bribe-paying defendants, and whether the appearance of impropriety requires a new trial, and 2) whether trial defense counsel rendered ineffective assistance of counsel where in a highly contested case he failed to call all of the witnesses to testify, where one available witness would be an employee of the bar where the incident occurred.
Initially, appellant contends that he was denied due process by the trial judge's failure to reveal that he had *343 been taking bribes in other cases,[1] thus preventing appellant from obtaining knowledge of grounds for a recusal. We cannot agree.
In Commonwealth v. Hewett, 380 Pa.Super. 334, 551 A.2d 1080 (1988), allocatur denied, 522 Pa. 583, 559 A.2d 526 (1989), this author opined,
[I]n order for appellant to prevail, he must establish there was a nexus between the activities being investigated by the JIRB and the trial judge's conduct at trial. Cf. Johnson v. Johnson, 424 P.2d 414 (Okl. 1967) (the petitioner had the burden of convincing a constitutional majority of the Oklahoma Supreme Court that the judgment under review clearly was entered under circumstances of judicial wrongdoing, i.e. the former justice accepted a bribe in return for his vote). Moreover, even where appellant demonstrates the above requirement, he must still allege and establish that bias, prejudice or partiality infected the [fact finder] or otherwise deprived him of a fair trial.
551 A.2d at 1084, 1085.
Applying this standard instantly, we find no merit in appellant's claim. Appellant's claim of bias, i.e. that because the trial judge "solicited and received bribes" in some cases, he had to convict without regard to guilt or innocence in other cases to "show [] that there is a real need for the bribe to obtain a favorable result," see Appellant's Brief at 9, is wholly unsubstantiated in the record before this Court on appeal. Appellant's mere speculation is not sufficient. See Commonwealth v. Hewett, supra, 551 A.2d at 1083. Moreover, no ruling of the trial judge and no specific event or incident which occurred during the trial gave rise to any question as to the trial judge's objectivity or to the propriety of his rulings. See id. at 1085. As appellant has been unable to establish actual prejudice resulting from the trial judge's extrajudicial conduct, this claim fails. See id.; In *344 the Matter of: Judicial Inquiry and Review Board v. Snyder, 514 Pa. 142, 155, 523 A.2d 294, 300, cert. denied, 484 U.S. 829, 108 S.Ct. 100, 98 L.Ed.2d 61 (1987) (Nix, C.J., concurring); Commonwealth v. Weeks, 381 Pa.Super. 411, 554 A.2d 68 (1989); Commonwealth v. Curtain, 365 Pa.Super. 424, 529 A.2d 1130 (1987).[2]
Appellant's second contention is that trial counsel was ineffective for failing to investigate, interview, and produce certain witnesses at trial. Appellant's claim is entirely without merit.
The standard for ineffectiveness of counsel claims is well settled. In order to establish a claim of ineffectiveness, appellant must establish that:
". . . by act or omission, counsel was arguably ineffective; counsel's act or omission could not have had a reasonable basis designed to effectuate appellant's interest, and appellant was prejudiced by the act or omission in that but for the arguably ineffective act or omission there is a reasonable probability that the result would have been different." Commonwealth v. Petras, 368 Pa.Super. 372, 374, 534 A.2d 483, 485 (1987); Commonwealth v. Pierce, 515 Pa. 153, 155-156, 527 A.2d 973, 975-76 (1987).
Commonwealth v. Thomas, 396 Pa.Super. 92, 98, 578 A.2d 422, 425 (1990). Moreover, in order to deem counsel's failure to call a particular witness' ineffectiveness, there must be a showing that the testimony of such witnesses would have been helpful in establishing appellant's defense. Commonwealth v. Durst, 522 Pa. 2, 559 A.2d 504 (1989); Commonwealth v. Davis, 381 Pa.Super. 483, 554 A.2d 104 (1989).
Instantly, the witnesses appellant claims counsel should have called would have offered no more than cumulative *345 testimony to the testimony offered by the witnesses counsel did produce. (N.T. 12/15/88, at 10). Therefore, appellant has not established how counsel's failure to call these witnesses prejudiced him in any way. Appellant cannot show how this testimony may have altered the verdict or aided in his defense. Thus, appellant's second claim must fail.
For the foregoing reasons, the order denying appellant relief under the Post Conviction Hearing Act is affirmed.
Order Affirmed.
NOTES
[1] In May, 1988, the presiding judge was convicted of extortion for accepting money from the Roofer's Union and an attorney. See United States v. Shiomos, 864 F.2d 16 (3d Cir. 1988).
[2] We note that appellant's reliance on In the Interest of McFall, 383 Pa.Super. 356, 556 A.2d 1370 (1989), allocatur pending, is misplaced. To the extent that this case may be seen to apply a per se rule of prejudice, we find its holding limited to the facts therein. There, the presiding judge was contemporaneously acting as an agent for the prosecution. Where, as here, the presiding judge is later found to be taking bribes from certain defendants, we hold that no per se rule is applicable. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538920/ | 4 B.R. 403 (1980)
In re Daniel Thomas KOVICH, Karen Leann Kovich, Debtors.
In re Joseph MARSHALL, Debtor.
Bankruptcy Nos. HG 80 294, HG 80 194.
United States Bankruptcy Court, W.D. Michigan.
June 9, 1980.
*404 Bankruptcy Law Clinic, P.C., Murray B. De Groot, Steven J. Carpenter, Grand Rapids, Mich., for debtor.
CLASSIFICATION OF CLAIMS CODEBTOR RENT ARREARAGE
OPINION OF THE COURT
LAURENCE E. HOWARD, Bankruptcy Judge.
At the hearing on confirmation of these cases, the trustee requested the Court to determine whether the placement of obligations involving a codebtor and landlord in separate classes providing for payment of larger percentages on these debts than other unsecured debts violates the provisions of 11 U.S.C. § 1322.
For the purposes of this opinion only, I adopt the facts as set forth in the Debtors' brief:
"MARSHALL
Joseph Marshall is a married man who has filed a single petition. He is employed at Teledyne Continental, and earns $357.00 per week net, or approximately $1,547.00 per month net. He supports his wife and three children, and lists his living expenses at $1,248.00 per month, leaving approximately $299.00 per month to be paid to his creditors. He received a discharge in bankruptcy in 1976. He owes $5,460.00 to secured creditors including $1,460.00 in arrearages on his residence mortgage and $4,000.00 (as the fair market value) on his 1977 Chevrolet. He owes no taxes. His unsecured debts total $8,136.00 of which $5,161.00 is owed to general creditors, and $3,136.00 is owed to a credit union on a debt cosigned by a friend.
The value of his assets and equities is less than the general exemption allowed him by the Code, and his estate, if it were liquidated under Chapter 7, would distribute nothing to his unsecured creditors. His Plan offers secured creditors payment in full and offers his general unsecured creditors 5% in full settlement. In addition, his Plan classifies his unsecured creditors, and provides that the unsecured creditor whose claim is cosigned will receive an additional 95% through the Plan.
KOVICH
Daniel and Karen Kovich are husband and wife, and have filed a joint petition. Daniel is employed at Harvey Cadillac, and earns $167.00 per week net; Karen is employed at Ward Midwest, and earns $118.00 per week net. Their combined net earnings are $285.00 per week, or approximately $1,235.00 per month. They have no children. Their living expenses are approximately $962.00 leaving approximately $273.00 per month to be paid to their creditors.
They owe $2,650.00 to secured creditors, including $2,500.00 (as the fair market value) on their 1975 Cordoba and $150.00 on some tools. They owe no taxes. Their unsecured debt totals $4,854.00 of which *405 $4,119.00 is owed to general creditors, and $735.00 is owed to their landlord for back rent.
The value of their assets and equities is less than the general exemption allowed them by the Code, and their joint estate, if it were liquidated under Chapter 7, would distribute nothing to unsecured creditors.
Their Plan offers their secured creditors payment in full and offers their unsecured creditors 10% in full settlement. In addition, their Plan classifies their unsecured debts, and provides that the landlord will receive an additional 90% through the Plan."
The sole issue before the Court is whether the plans must fail because of separate classifications accorded the obligations involving a codebtor and landlord which would result in full payment while other unsecured creditors are paid only a portion of their debts. The debtors have reserved the right to amend their plans to increase the percentage payable to unsecured creditors generally. Therefore, if I decide that the classification is not fatal, I shall not determine whether these plans should be confirmed as filed.
Section 1301 (11 U.S.C. § 1301) of the Bankruptcy Code provides for a stay of actions against a codebtor. However, as set forth in subsection (c), the stay shall be lifted upon request of the creditor if provision is not made in the plan to pay the claim in full.
One of the five basic defects of Chapter XIII under the old Act was lack of protection accorded accommodation codebtors who were usually inexperienced friends or relatives of the debtor.
S.Rep.No.95-989, 95th Cong., 2d Sess. (1978) p. 13, and H.R.Rep.No.95-595, 95th Cong., 1st Sess. (1977) pp. 121-123, U.S. Code Cong. & Admin.News 1978, p. 5787.
Section 1301 was enacted to correct this problem.
Section 646, (11 U.S.C. § 1046), of the Bankruptcy Act of 1898 required that all unsecured creditors be accorded equal treatment.
The provisions of the Code dealing with classification of claims in a Chapter 13 plan are:
"§ 1322. Contents of Plan
(a) The Plan shall . . .
. . . . .
(3) if the plan classifies claims, provide the same treatment for each claim within a particular class.
(b) Subject to subsections (a) and (c) of this section the plan may
(1) designate a class or classes of unsecured claims, as provided in section 1122 of this title, but may not discriminate unfairly against any class so designated;
. . ."
"§ 1122. Classification of claims or interests.
(a) Except as provided in subsection (b) of this section a plan may place a claim or an interest in a particular class only if such claim or interest is substantially similar to the other claims or interests of such class.
(b) A plan may designate a separate class of claims consisting only of every unsecured claim that is less than or reduced to an amount that the court approves as reasonable and necessary for administrative convenience.
. . ."
Several points should be made at this time. The classification of unsecured claims under Chapter 13 is permissive. However, if there is classification, it must be "as provided in Section 1122." 11 U.S.C. § 1322(b)(1). A class can only contain claims which are "substantially similar." 11 U.S.C. § 1122(a). There is no requirement that all claims which are "substantially similar" be placed in the same class. Collier on Bankruptcy, 15th Ed. Vol. 5, pp. 1122-4. The phrase "substantially similar" means similar in legal character or effect as a claim against the debtor's assets. Id. A plan "may not discriminate unfairly" against any designated class of unsecured claims. 11 U.S.C. § 1322(b)(1).
*406 There is no question that the plans by paying a class consisting of one creditor in full and a class of all other unsecured creditors a percentage of their claims are discriminatory. But is the discrimination unfair?
I have found two cases in which bankruptcy courts have permitted separate classes and treatment for unsecured debts. In re Sutherland, 3 B.R. 420, 6 B.C.D. 13 (Bkcy.Ct.W.D.Ark.1980) and In re Curtis, 2 B.R. 43, 1 C.B.C.2d 314 (Bkcy.Ct.W.D.Mo. 1979). The Sutherland court held the debtor could pay something to some unsecured creditors for medical and trade debts and nothing to other unsecured creditors because under the liquidation test of 11 U.S.C. § 1325(a)(4) unsecured creditors would receive nothing under Chapter 7, and consequently, there was no unfair discrimination. In Curtis the court held that a 100% payment on child support arrearage and 10% to other unsecured creditors was "fair" because child support was a nondischargeable debt.
Collier also supports the proposition that payment of different percentages to unsecured creditors is not necessarily unfair discrimination:
"No class of claims may be unfairly discriminated against. It remains to be seen how the courts will construe the prohibition against unfair discrimination. A chapter 13 plan proposing to pay less to the holder of any unsecured claim than would be received in the event of liquidation may not be confirmed. Unfair discrimination against a class of claims would therefore seem to have reference either to the order of distribution or the percentage to be paid the particular class. If the courts were to construe as unfair discrimination a proposal to pay a particular class of claims a greater percentage than some other class, section 1322(b)(1) would be deprived of most of its meaning. On the other hand, a proposal to defer distribution on the claims of one class of general unsecured claims until after the completion of payments to another class might very well be considered unfair discrimination against the deferred class, depending on the circumstances of the case." Collier on Bankruptcy, supra, p. 1322-7. (Emphasis Supplied)
Other bankruptcy courts have held that separate classifications of unsecured claims constitute unfair discrimination in situations similar to the one before this Court.
In re Fizer, 1 B.R. 400, (Bkcy.Ct.S.D.Ohio 1979), Judge Sidman held that no basis was advanced for the payment of a partially secured creditor in full while other unsecured creditors were to receive nothing and, therefore, the plan was unfair.
In In re Blevins, 1 B.R. 442, C.B.C.2d 185, (Bkcy.Ct.S.D.Ohio 1979), Judge Sidman again held a plan unfair which proposed that a partially secured creditor receive 100% and unsecured creditors 30%.
In In re Cooper, 3 B.R. 246, 6 B.C.D. 81, (Bkcy.Ct.S.D.Cal. 1980), the Court held that a plan cannot be confirmed because full payment of an unsecured claim of a secured creditor discriminates unfairly against unsecured creditors receiving only 70% payment, and another secured creditor receiving only 70% on its unsecured claim. No justification for the discrimination was shown.
In In re Gay, 3 B.R. 336, 6 B.C.D. 149 (Bkcy.Ct.D.Colo. 1980), the plan established two classes of unsecured claims, one of claims of creditors to whom the debtor had issued bad checks and the other of all other unsecured claims. The debtor proposed to pay the first class in full and to pay second class at 2% dividend. The Court held that the possibility of criminal proceedings by creditors holding bad checks did not justify discriminatory treatment.
I was able to find three cases which dealt with the question of separate classification for codebtor obligations. In re Fonnest, 5 B.C.D. 1236 (Bkcy.Ct.N.D.Cal.1980); In re Iacovoni, 2 B.R. 256, 5 B.C.D. 1270 (Bkcy.Ct. D.Utah 1980) and In re McKenzie, 4 B.R. 88, 6 B.C.D. 19 (Bkcy.Ct.W.D.N.Y.1980).
The Fonnest case held there is no reason existing for differentiating a codebtor note. In Iacovoni and McKenzie the courts held *407 that all unsecured creditors have the same rights against the debtor's property, even though that property is future income, and Section 1122 does not permit a separate classification based upon the presence of a codebtor.
Bankruptcy Judge Joe Lee in his excellent article on Chapter 13 also states that a separate class cannot be provided for codebtor obligations. Lee Chapter 13 nee Chapter XIII, 53 Am.Bankr.L.J., pp. 303, 313 (1979).
Section 1122(a) requires that a class may contain only substantially similar claims. As indicated above there is no requirement that all substantially similar claims be placed in the same class. Therefore, separate classifications for obligations involving a codebtor and landlord are not forbidden by the Code.
Pursuant to Section 1322(b)(1) such classification must not "discriminate unfairly". The fact that these creditors receive more than other unsecured creditors, certainly is a form of discrimination. But it is not necessarily unfair. It may be that in order for a debtor to avail himself of a Chapter 13 instead of Chapter 7 liquidation, he will have to make special arrangements in the plan for an obligation that a friend or relative cosigned. If he proposes to pay only a percentage of that debt, the creditor can obtain a lift of stay and proceed against the codebtor under Section 1301(c). Likewise, because of a debtor's financial and family situation and the availability of other housing, it may be necessary to make a special provision for past due rent. Such classifications may not be unfair to other unsecured creditors because if they are not permitted the debtor may be forced to file under Chapter 7 and they may receive nothing. Therefore, the classifications are not ipso facto unfair discrimination.
Each case must be decided on its own merits. Is there a reasonable basis for the classification? Is the debtor able to perform a plan without the classification? Has the debtor acted in good faith in the proposed classifications? Certainly the debtor should not be permitted to pay a creditor less because of ill will. Another consideration must be the treatment of the class discriminated against. Are they receiving a meaningful payment or is the plan just a sham? Inasmuch as the percentage payments to the other unsecured creditors are not in issue here, I shall not comment on the proposed payments of 5% and 10%.
I am mindful that this decision may induce creditors to demand a cosigner. However, as pointed out in debtors' brief, certain provisions of the Code, particularly, Section 522(f) (11 U.S.C. § 522(f)), which permits the debtor to avoid certain nonpossessory, nonpurchase-money security interest may have already had that effect.
These cases may be reset for confirmation hearings. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1538931/ | IN RE: SEMCRUDE, L.P., et al., Chapter 11, Debtors.
LUKE OIL COMPANY, et al., Plaintiffs,
v.
SEMCRUDE, L.P., et al., Defendants.
Case No. 08-11525-BLS, Adv. Pro. No. 08-51407-BLS, Misc. Act. No. 08-221-JJF, Jointly Administered.
United States Bankruptcy Court, D. Delaware.
June 25, 2009.
Hartley B. Martyn, Esquire of MARTYN & ASSOCIATES, Cleveland, Ohio.
Duane D. Werb, Esquire of WERB & SULLIVAN, Wilmington, Delaware, Attorneys for Plaintiffs.
Michael Kessler, Esquire and Peter Gruenberger, Esquire of WEIL, GOTSHAL & MANGES LLP, New York, New York.
Martin Sosland, Esquire and Silvia Mayer, Esquire of WEIL, GOTSHAL & MANGES LLP, Dallas, Texas.
Mark D. Collins, Esquire; John H. Knight, Esquire; L. Katherine Good, Esquire and Maris J. Finnegan, Esquire of RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware, Attorneys for Defendants, the Debtors and Debtors-In-Possession.
MEMORANDUM OPINION
FARNAN, District Judge
Pending before the Court is a Motion For Leave To Appeal (D.I. 1) filed by Plaintiffs, Luke Oil Company, C&S Oil/Cross Properties, Inc., Wayne Thomas Oil and Gas and William R. Earnhardt Co. For the reasons discussed, the Court will deny the Motion.
I. Parties' Contentions
By their Motion, Plaintiffs seek leave to appeal the September 18, 2008 Order of the United States Bankruptcy Court for the District of Delaware establishing global procedures for resolving the rights and priorities of producers of oil and gas products, operators of oil and gas wells, and interest owners in the oil and gas wells (collectively, the "Producers") asserting lien rights and/or statutory trust claims with respect to the Debtors' assets (the "Procedures Order"). Specifically, the Procedures Order provides for all interested parties to participate in an adversary proceeding for the purpose of litigating common threshold questions. According to the Procedures Order separate adversary proceedings (the "Declaratory Judgment Actions") are to be filed for the Producers in each of eight oil and gas producing states. The Declaratory Judgment Actions are "the sole procedure . . . by and through which the [Bankruptcy] Court will determine the Threshold Questions of Law that will govern the legal rights of all Producers, Debtors, their creditors, and all other parties in interest, with respect to the Statutory Lien Claims and/or Statutory Trust Claims." Although no Producer is required to join the Declaratory Judgment Actions to preserve their rights, the Procedures Order provides that all "decisions, rulings and determination made in the Declaratory Judgment Actions will be binding on Debtors, all Producers, the Pre-Petition secured Parties, and all other creditors and parties in interest, regardless of their participation or lack thereof in the Declaratory Judgment Actions." All other Adversary Proceedings are stayed pending resolution of the eight Declaratory Judgment Actions contemplated by the Procedures Order. After final judgment in those Declaratory Judgment Actions, the Bankruptcy Court intends to establish further procedures to litigate individual claims.
According to Plaintiffs, the Procedures Order has permanently stayed their Adversary Proceeding, and therefore, resolution of this appeal will materially advance their claims by either extinguishing their Adversary Complaints or allowing them to proceed. Plaintiffs also contend that the Procedures Order presents several controlling questions of law for which there are substantial grounds for a difference of opinion. Specifically, Plaintiffs contend that the Procedures Order (1) deprives interest owners of their ability to litigate their claims separately in violation of the Third Circuit's decision in In re Janica Mansarav-Ruffin, 530 F.3d 230, 234 (3d Cir. 2008), (2) divests interest owners of their appellate rights as aggrieved persons in contravention of In re Jean E. Fryer, 235 Fed. Appx. 951, 954 (3d Cir. 2007) by requiring them to join the Declaration Judgment Action, (3) provides no notice to the affected interest owners, because there is no requirement within the Procedures Order that it be served on all affected persons, and (4) provides for improper "virtual representation" of interest owners contrary to the Supreme Court's decision in Taylor v. Sturgell, 12 8 S. Ct. 2161 (2008).
Alternatively, Plaintiffs contend that the Procedures Order is immediately appealable under 28 U.S.C. § 1292(a), because it has the practical effect of denying a preliminary injunction motion. In this regard, Plaintiffs point out that they moved for injunctive relief requiring the Debtors to segregate trust funds pursuant to Okla. Stat. § 570.10, but the Bankruptcy Court refused to hear Plaintiffs' request for injunctive relief. Because this refusal to hear the motion operates as a denial of their motion, Plaintiffs contend that the Procedures Order is immediately appealable.
The Debtors have objected to Plaintiffs' Motion contending that the Procedures Order sets forth a well-coordinated method for presenting the Bankruptcy Court with the numerous legal issues related to the Producers' claims. The Debtors contend that the Procedures Order does not harm or prejudice Plaintiffs, and that Plaintiffs cannot establish grounds for an interlocutory or immediate appeal.
The Official Committee of Unsecured Creditors has joined in the Debtors' Objection to Plaintiffs' Motion. In addition, Bank of America, N.A., in its capacity as administrative agent for itself and other pre-petition and post-petition secured lenders, has filed an Opposition to Plaintiffs' Motion.
II. Discussion
A. Whether Plaintiff's Are Entitled To An Immediate Appeal Under 28 U.S.C. S 1292(a)(1)
In pertinent part, 28 U.S.C. § 1292(a)(1) provides an appellate court with jurisdiction over interlocutory orders granting, continuing, modifying, refusing or dissolving injunctions. An order that has the practical effect of denying an injunction may also be appealed under this provision. This includes the circumstance in which a court declines to make a formal ruling on a preliminary injunction motion. However, such an order may only be appealed under Section 1292(a)(1) if it has a "serious, perhaps irreparable consequence" and the order can only be effectively challenged by an immediate appeal. Carson v. American Brands, Inc., 450 U.S. 79, 83 (1981); Rolo v. General Dev. Corp., 949 F.2d 695 (3d Cir. 1991).
In this case, the Bankruptcy Court indicated to Plaintiffs' counsel that Plaintiffs were "stayed" from requesting to proceed on their motion seeking injunctive relief as a result of the Procedures Order. Plaintiffs contend that this operates as a refusal to address their motion. However, as the Debtors point out, the basis for Plaintiffs' motion for injunctive relief, which was to protect the alleged res of the trust, was essentially mooted by the Debtors agreement to suspend the tracing requirement as of the Petition Date, which eliminated the risk of dissipation of the trust's res. In these circumstances, the Court cannot conclude that the Bankruptcy Court's refusal to consider their injunction motion has serious, perhaps irreparable consequences. Accordingly, the Court concludes that Plaintiffs are not entitled to an immediate appeal of the Procedures Order based on the Bankruptcy Court's decision to forgo ruling on their injunction motion.
B. Whether Plaintiffs Should Be Permitted To Pursue An Interlocutory Appeal Under 28 U.S.C. § 1292(b)
The decision of whether to grant leave to file an interlocutory appeal is informed by the criteria set forth in 28 U.S.C. § 1292(b), which governs interlocutory appeals from the district courts to the courts of appeal. See In Re Magic Restaurants, Inc., 202 B.R. 24, 25 (D. Del.1996). Leave to file an interlocutory appeal may be granted when the order at issue (1) involves a controlling question of law upon which there is (2) substantial grounds for difference of opinion as to its correctness, and (3) if appealed immediately, may materially advance the ultimate termination of the litigation. Katz v. Carte Blanche Corporation, 496 F.2d 747, 754 (3d Cir. 1974). However, these three criteria do not limit the Court's discretion to grant or deny an interlocutory appeal. Leave to file an interlocutory appeal may be denied for reasons apart from this specified criteria, including such matters as the appellate docket or the desire to have a full record before considering the disputed legal issue. Id. Because an interlocutory appeal represents a deviation from the basic judicial policy of deferring review until the entry of a final judgement, the party seeking leave to appeal an interlocutory order must also demonstrate that exceptional circumstances exist. Magic Restaurants, 202 B.R. at 26 (citations omitted).
Reviewing the circumstances of this case, in light of the applicable legal principles, the Court cannot conclude that an interlocutory appeal of the Procedures Order is warranted. Plaintiffs raise concerns about the lack of notice provided in the Procedures Order; however, it is apparent to the Court that the issue of notice is being addressed by the Bankruptcy Court through its Reconsideration Order. As for Plaintiffs' argument that the omnibus complaint fails to assert certain claims that they wish to pursue, the Court notes that the Bankruptcy Court expressly recognized that those claims were not precluded, but would only be deferred until a later date. (Tr. 10/30/08 at 14:21-25).
As for Plaintiffs' arguments concerning their right to appeal under In re Jean Fryer, 235 Fed. Appx. 951, 954 (3d Cir. 2007) and the alleged use of "virtual representation" in violation of the Supreme Court's decision in Taylor v. Sturgell, 128 S. Ct. 2161 (2008), the Court expresses no comment as to the validity of those arguments. Rather, the Court concludes only that the issues Plaintiffs raise are not appropriate for interlocutory adjudication. Plaintiffs' separate adversary proceeding has been stayed, not dismissed. Moreover, the issue of whether Plaintiffs will ultimately be bound by the Declaratory Judgment Actions need not be determined at this juncture. There are parties willing to participate in the omnibus Declaratory Judgment Actions, and those plaintiffs are currently before the Bankruptcy Court waiting to move forward. Thus, it is unclear to the Court how an immediate appeal will "materially advance" the ultimate termination of the bankruptcy proceedings, as those claimants will require resolution of their claims, regardless of whether Plaintiffs will ultimately be bound by the Procedures Order. Indeed, re-litigation of the claims will not be required for those Producers who have already joined in the Declaratory Actions, and therefore, the Court cannot conclude that Plaintiffs' proposed interlocutory appeal will avoid the waste of the parties or the Court's resources. Further, the Court is not persuaded that Plaintiffs will be unduly prejudiced if the Declaratory Judgment Actions move forward, because the question of whether they will, in fact, be bound by their outcome can be litigated at a later date. In these circumstances, the Court cannot conclude that Plaintiffs have satisfied the criteria for interlocutory appeal, and therefore, the Court will deny their Motion For Leave To Appeal.
III. CONCLUSION
For the reasons discussed, the Court will deny Plaintiffs Motion For Leave To Appeal.
An appropriate Order will be entered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539045/ | 135 Pa. Commonwealth Ct. 162 (1990)
580 A.2d 452
Nicholas PAZ, Petitioner,
v.
COMMONWEALTH of Pennsylvania, DEPARTMENT OF CORRECTIONS, Pennsylvania Board of Probation and Parole, et al., Respondents.
Commonwealth Court of Pennsylvania.
Submitted on Briefs March 2, 1990.
Decided September 13, 1990.
*164 Nicholas Paz, pro se.
Arthur R. Thomas, Asst. Chief Counsel, with him, Robert A. Greevy, Chief Counsel, for respondents.
Before CRAIG and COLINS, JJ., and NARICK, Senior Judge.
COLINS, Judge.
Before the Court are the Pennsylvania Board of Probation and Parole's (Board) preliminary objections to a Petition *165 for Writ of Habeas Corpus filed by Nicholas Paz (petitioner), proceeding pro se, on May 10, 1989.[1]
Petitioner is a prisoner at the State Correctional Institution at Graterford. The following is a synopsis of the facts as he alleges them in his petition. Petitioner was paroled in the summer of 1985, after having served three years of a one to five year sentence imposed by the Philadelphia County Court of Common Pleas. He was arrested in January, 1986, by the Montgomery County authorities and charged with burglary, robbery and criminal conspiracy. In February of 1986, he was arrested by the Philadelphia County authorities and charged with burglary, robbery and criminal conspiracy. He received new sentences from both authorities on January 8, 1987 and was assigned a different inmate number from the one he had been assigned while serving the previous sentence. Approximately one year later, in early 1988, petitioner was informed by prison officials that he was being reassigned his old number. Petitioner submits that this action resulted in his sentence being increased five and one-half years.
Petitioner alleges that the Commonwealth of Pennsylvania, Pennsylvania Department of Corrections, Pennsylvania Board of Probation and Parole, the District Attorney of Montgomery County, and the District Attorney of Philadelphia County, acted unlawfully in reassigning him to his previous inmate number, and thereby imposing a longer sentence upon him. He argues that this action without notice or hearing denied him his due process and liberty interest protections guaranteed by the Pennsylvania Constitution and the United States Constitution.
The Board filed preliminary objections raising improper service. This Court responded by issuing a per curiam order June 26, 1989, directing petitioner "to serve all respondents by certified mail and file a certificate of service" *166 with this Court within 20 days evidencing same. Service was made in accordance with Pa.R.A.P. 1514 by certified mail.
Pursuant to preliminary objections filed by the Philadelphia County District Attorney's office, this Court issued a per curiam order November 6, 1989, sustaining the preliminary objections and dismissing the petition as to both the Montgomery County and Philadelphia County District Attorneys' offices for failure to state a cause of action against those respondents. Subsequently, by per curiam order dated January 29, 1990, this Court sustained the preliminary objections of respondent, Department of Corrections, and dismissed the petition as to the Department on the basis of improper service. Only the Board remains as a respondent.
On December 5, 1989, the Board filed the subject preliminary objections in the nature of a demurrer, raising sovereign immunity and the statute of limitations; in the nature of a motion for a more specific pleading; and also raising the issue of defective service as to any Board official. Petitioner then filed objections, which this Court elected to treat as an answer to the Board's preliminary objections. Both parties were directed to submit briefs and this matter is now before us for disposition.
Initially, we note that immunity from suit and statutes of limitations may not be raised by demurrer in preliminary objections,[2] but are affirmative defenses which must be pleaded under new matter in the answer.[3] We also note, however, that petitioner failed to challenge the propriety of the Board's raising the statute of limitations and immunity in its objections. Therefore, we can properly rule on the preliminary objections. See Farinacci v. Beaver County Industrial Development Authority, 510 Pa. 589, 511 A.2d 757 (1986).
In reviewing the Board's preliminary objections, we must assume that the facts as pleaded by petitioner are true. *167 Further, we will sustain the objections only if clear and free of doubt. Globe Disposal Company v. Department of Environmental Resources, 105 Pa.Commonwealth Ct. 599, 525 A.2d 437 (1987).
DEMURRER
Sovereign Immunity
The Board first contends that it enjoys sovereign immunity under the PA. CONST. art. I, § 11 and 1 Pa.C.S. § 2310 (Act 152) and, therefore, that it must be dropped as a party from this suit. Article I, Section 11 of the Pennsylvania Constitution states:
All courts shall be open; and every man for an injury done him in his lands, goods, person or reputation shall have remedy by due course of law, and right and justice administered without sale, denial or delay. Suits may be brought against the Commonwealth in such manner, in such courts and in such cases as the Legislature may by law direct. (Emphasis added.)
The Pennsylvania Supreme Court traditionally construed this language as immunizing the Commonwealth from suit in the absence of legislative provision. See Freach v. Commonwealth, 471 Pa. 558, 370 A.2d 1163 (1977); Sweigard v. Pennsylvania Department of Transportation, 454 Pa. 32, 309 A.2d 374 (1973). The court in Mayle v. Pennsylvania Department of Highways, 479 Pa. 384, 388 A.2d 709 (1978), however, reasoned that the history of Article I, Section 11 "indicates that the Framers of 1790 intended to allow the Legislature, if it desired, to choose cases in which the Commonwealth should be immune, but did not intend to grant constitutional immunity to the Commonwealth." Id., 479 Pa. at 400, 388 A.2d at 717. Concluding that it was within the power of the court to alter the doctrine of sovereign immunity and that the doctrine was no longer consistent with the times, the court in Mayle abolished sovereign immunity as a defense.
*168 In direct response to the Mayle decision, the General Assembly enacted Act 152 to reaffirm sovereign immunity and to prescribe limitations on the court's decision to abolish the doctrine. Act 152 states:
Pursuant to section 11 of Article I of the Constitution of Pennsylvania, it is hereby declared to be the intent of the General Assembly that the Commonwealth, and its officials and employees acting within the scope of their duties, shall continue to enjoy sovereign and official immunity and remain immune from suit except as the General Assembly shall specifically waive the immunity. When the General Assembly specifically waives sovereign immunity, a claim against the Commonwealth and its officials and employees shall be brought only in such manner and in such courts and in such cases as directed by the provisions of Title 42 (relating to judiciary and judicial procedure) unless otherwise specifically authorized by statute.
1 Pa.C.S. § 2310. We believe that Act 152 does not stand in a vacuum and cannot be read alone but must be read in conjunction with Sections 8521-8528 of the Judicial Code (Code).[4]
The language of the Code clearly speaks to actions sounding in tort against the Commonwealth by parties seeking damages.[5] Furthermore, the Pennsylvania Supreme Court held that sovereign immunity was not a bar where the petitioners were not seeking to compel affirmative action on the part of state officials, or to recover property or obtain money damages from the Commonwealth, but were merely seeking declaratory relief. Philadelphia Life Insurance Company v. Commonwealth, 410 Pa. 571, 190 A.2d 111 (1963). See also Fawber v. Cohen, 516 Pa. 352, 532 A.2d 429 (1987) (an action seeking injunctive and declaratory relief to restrain the Secretary of the Department of Public Welfare from enforcing allegedly invalid regulations).
*169 This Court held in Shovel Transfer & Storage, Inc. v. Simpson, 112 Pa.Commonwealth Ct. 129, 535 A.2d 251 (1987), rev'd on other grounds, 523 Pa. 235, 565 A.2d 1153 (1989), that sovereign immunity was not available as a defense where the relief sought against state officials was nothing more than to compel them to perform a ministerial duty. The case involved a contract action by a private party seeking to compel the comptroller of the Liquor Control Board and the Secretary for Budget and Administration for the Commonwealth to sign a contract it had entered into with the Liquor Control Board. Further, the Commonwealth has unquestionably waived its immunity to actions against it arising out of contract.[6]
Similarly, in McGriff v. Pennsylvania Board of Probation and Parole, 127 Pa.Commonwealth Ct. 167, 561 A.2d 78 (1989), this Court held that where the relief sought against the Commonwealth is to compel it to perform a duty imposed by law, then the doctrine of sovereign immunity is not applicable. Therein, a parolee filed a mandamus petition seeking to compel the Board of Probation and Parole to vacate its order recommitting parolee after his original sentence had been vacated.
Herein, petitioner alleges that his reassignment to his previous inmate number resulted in his sentence being erroneously increased and seeks to have his remaining sentence properly computed. He alleges no adjudicatory action but what appears to be an internal action by "prison officials."[7] We conclude that the petition is in the nature of an equity action. Petitioner clearly is not seeking damages. Although this is not a mandamus action, the relief petitioner seeks is analogous to the relief sought in McGriff. This Court has determined that mandamus is similar to remedies governed by equitable principles, stating that "although [an] action in mandamus lies on the law side of the Court, equitable principles guide the Court in deciding *170 whether or not the writ should be issued." Keith v. Pennsylvania Board of Probation and Parole, 76 Pa.Commonwealth Ct. 544, 547-48, 464 A.2d 659, 661 (1983). Therefore, we conclude the defense of sovereign immunity is not available to the Board in this action.
Statute of Limitations
The Board next asserts that this action is barred because the six months statute of limitations under 42 Pa.C.S. § 5522(b)(1) had expired when petitioner brought suit on May 10, 1989. That section provides that "[a]n action against any officer of any government unit for anything done in the execution of his office, except an action subject to another limitation specified in this sub-chapter" must be commenced within six months. There are no officers of any government units named in this action. Therefore, we hold this action is not governed by 42 Pa.C.S. § 5522(b)(1).
Motion for a More Specific Pleading
The Board requests that this Court order petitioner to amend the petition to specifically state the time and place of the alleged official misconduct, as mandated by Pa.R.C.P. No. 1019(f). Additionally, the Board asks that the amended petition identify the specific officials of the Board involved, and describe the conduct complained of, citing Pa.R.C.P. No. 1095. First, we note that Rule 1095 governs the procedure to be followed in mandamus actions and is not relevant to the matter sub judice.
Preliminary objections in the nature of a motion for a more specific pleading provided for under Pa.R.C.P. No. 1017(b)(3) raise the sole question of whether the pleading is sufficiently clear to enable the defendant to prepare his defense. Goodrich-Amram 2d Section 1017(b):9. In other words, does the failure of petitioner to address more specifically the matters complained of by the Board render the petition so vague and uncertain that it must be amended so as to enable the Board to prepare its defense. We think *171 not. "A more specific pleading should not be required as to matters about which the objecting party has, or should have, as much or better knowledge than the pleader." Hock v. L.B. Smith, Inc., 69 D. & C.2d 420 (1974); Good-rich-Amram 2d § 1017(b):9. Clearly, the Board has or should have knowledge of the petitioner's having been reassigned his old inmate number and of any recomputation of his sentencing term. This Court is of the opinion that the petition is sufficiently specific to enable the Board to obtain the necessary information to adequately prepare its defense. Therefore, we decline to grant the motion.
Defective Service
Finally, the Board objects, raising due process[8] concerns, on the basis that no individual members of the Board have been served or notified, to the extent the petitioner is suing any such members of the Board. Petitioner has neither named any individual Board member nor indicated that he is suing any individual Board members. We direct the Board's attention to Pa.R.A.P. 1513, which petitioner has properly followed. See McGriff. Therefore, service is not defective.
In light of the foregoing, we must overrule the preliminary objections raised by the Board; and the Board is directed to file an answer to the petition within thirty days of the date of this opinion and order.
ORDER
AND NOW, this 13th day of September, 1990, the preliminary objections filed by the Pennsylvania Board of Probation and Parole in the above-captioned matter are overruled. The Board is hereby directed to file an answer to the petition within thirty days of the date of this order.
NOTES
[1] By per curiam order dated June 12, 1989, this Court designated the petition as a petition for review addressed to this Court's original jurisdiction. We conclude the petition is not truly a Petition for Writ of Habeas Corpus, over which we would not have original jurisdiction. See 42 Pa.C.S. § 761(a)(1)(i), Pa.R.A.P. 1502.
[2] See Pa.R.C.P. No. 1017(b)(4).
[3] See Pa.R.C.P. No. 1030.
[4] 42 Pa.C.S. §§ 8521-8528.
[5] See 42 Pa.C.S. §§ 8522, 8526 and 8528.
[6] See the Act of May 20, 1937, P.L. 728, as amended, 72 P.S. §§ 4651-1 4651-10.
[7] We are assuming that there is no adequate remedy at law.
[8] U.S. CONST. amend. XIV. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539258/ | 231 Md. 504 (1963)
191 A.2d 240
SUGARMAN
v.
MAYOR AND CITY COUNCIL OF BALTIMORE ET AL.
[No. 246, September Term, 1962.]
Court of Appeals of Maryland.
Decided May 24, 1963.
The cause was argued before BRUNE, C.J., and HENDERSON, PRESCOTT, HORNEY and SYBERT, JJ.
The Court declined to hear argument for the appellees.
Robert L. Sullivan, Jr., with whom were William J. Pittler and Sklar & Sullivan on the brief, for appellant.
Frank, Bernstein, Gutberlet & Conaway, Frank A. Kaufman and Lawrence F. Rodowsky on the brief for Jane G. Levy, et al., part of appellees.
No brief and no appearance for Mayor and City Council of Baltimore, other appellee.
*505 BRUNE, C.J., delivered the opinion of the Court.
This suit began as a condemnation proceeding brought by the City of Baltimore (the City), one of the appellees, against the executors and trustees under the will of Milton E. Gundersheimer, deceased (collectively referred to below as the "landlords"), also appellees, against George B. Sugarman (referred to below as the "tenant"), the appellant, and against the mortgagee of the property to be taken. (The mortgagee has taken no part in the controversy here presented.) The tenant claims that he is entitled to share in the amount payable by the City, and the landlords deny it. The tenant appeals from an order upholding the landlords' contentions.
The property in question consists of three lots and the improvements thereon known as 21-23 West Baltimore Street, and its acquisition was sought by the City as a part of the Charles Center urban renewal and redevelopment project. The first floor and basement had been leased by the decedent to the tenant under a lease dated December 30, 1952, expiring on August 31, 1960. On July 15, 1957, the decedent and the tenant entered into a new lease to commence on September 1, 1960, for a term of five years ending August 31, 1965, with an option to the tenant to renew the lease for another five years upon terms stated. This lease is comprehensive and includes a specific paragraph dealing with a taking by condemnation, reading as follows:
"Twenty-Third: In the event that condemnation proceedings are instituted against the premises hereby demised, and title taken by any Federal, State or Municipal body, then this Lease shall become null and void, and the Tenant shall not be entitled to receive any part of the award which may be received by the Landlord."
It seems evident that there were some negotiations between the City and the landlords preceding the institution of these proceedings and that an understanding was reached that there would be no controversy over a valuation of $174,000.00 for the property in fee. The tenant stated in his brief that he refused *506 to join in a voluntary conveyance to the City. It seems immaterial whether he was (as the landlords state) or was not (as the tenant states) offered some compensation for joining in such a conveyance. He evidently considered himself entitled to something, or to more than he was offered, and he refused to join in a conveyance. These proceedings ensued.
The petition for condemnation was filed on June 5, 1962. The landlords filed a petition to have certain issues determined in advance of trial (under Maryland Rule 502), and a hearing was held thereon on June 26, 1962. The issues were in brief: (1) whether the tenant had any interest in any award which might be rendered in view of Paragraph Twenty-Third of the lease, above quoted; and (2) whether this Paragraph applied where the City and the landlords submitted an agreed valuation upon which an inquisition was to be based. Chief Judge Niles held that the answer to the first issue was "No," and to the second, "Yes."
After Judge Niles' rulings had been made a stipulation signed by counsel for all parties was filed, which provided: (1) that a jury trial was waived; (2) that the award of the court should have the same effect as that of a jury and thus might be made after the submission of an agreed valuation of the fee simple, with the same legal effect as if such valuation had been submitted to a jury as the basis for an inquisition; and (3) that the stipulation was without prejudice to any contentions which any party might assert, including those concerning the validity or applicability, or both, of the special issues determined orally on June 26 and by order on June 28, 1962. On July 18, the case was tried before Judge Harris. An agreed stipulation as to value in the amount of $174,000.00 was filed, the petition for condemnation was granted, and judgment absolute in favor of the defendants for $174,000.00 was entered.
The appellant contends that the purchase of the premises by the condemning body under a private agreement between it and the lessors will not terminate the lease under a taking-by-condemnation clause so as to divest the tenant of his interest in the property. This argument assumes a premise which is not supported by the record. It is doubtless true that the landlords were willing to part with the property for a consideration of *507 $174,000.00, out of which the remaining mortgage indebtedness would have to be paid. It is also evident that they were unwilling to part with the property at such a price if the tenant were entitled to share in the proceeds (at least to any substantial extent). We think that Judge Niles' conclusion that no binding contract of sale has been entered into, no written contract having been offered in evidence or claimed to exist, was well warranted.
In this connection we may add that the tenant's argument seems to be predicated upon some theory that the absence of an actual, written contract was a means or subterfuge to defeat his right to receive compensation for the termination of his lease. We find, however, no trace of any fiduciary or confidential relationship, or of any obligation, contractual or otherwise, which would have required the landlords, in the face of prospective condemnation proceedings, to seek to make a private sale of the premises to the prospective condemnor, rather than to submit to condemnation (whether on a stipulated or a contested valuation). The only effect of a private sale as against condemnation would have been to benefit the tenant at the expense of the beneficiaries of the estate of the original landlord, the decedent. The amount that the City would voluntarily pay was fixed. Of course, some modest payment from that sum to the tenant to induce him to join in a voluntary conveyance might well have been justified as a business matter to avoid the delay and expense of condemnation, but the fiduciary duties of the landlords (whether as executors or trustees) clearly ran to the beneficiaries of the estate of the deceased original lessor and not to the tenant, and they could not properly have been expected or called upon to sacrifice them. This consideration should have, and doubtless did, deter the landlords from making a voluntary sale when the tenant refused (as his brief says he refused) to "execute the documents which would vest title in the [City]."
Since the City needed the property for the Charles Center project, it instituted these condemnation proceedings.
The condemnation clause here involved differs materially from that considered by this Court in Belmont Clothes, Inc. v. Pleet, 229 Md. 462, 184 A.2d 731. The clause there involved *508 related to the property being condemned and thereby rendered untenantable by the exercise of the police power relating to health or safety matters, but was held not applicable to a taking by eminent domain. In the instant case, there is no room for an interpretation of the condemnation clause that would not explicitly cover a taking by eminent domain. The exact terms of that clause have been met. Condemnation proceedings have been instituted against the demised premises by a municipal body and title has been taken by it upon payment of the purchase price fixed in the condemnation proceedings.[1] Accordingly, under its terms, the lease has become null and void, and the tenant is not entitled to receive any part of the award. By his contract, he has cut off the right which he might otherwise have had (see Belmont Clothes, Inc. v. Pleet, supra, 229 Md. at 467, and cases therein cited) to receive compensation for loss due to the termination of his lease. Here, under Paragraph Twenty-Third of the lease he is not entitled to any part of the award to the landlords. United States v. Petty Motor Co., 327 U.S. 372; United States v. 21, 815 Sq. Ft. of Land, 155 F.2d 898 (C.C.A., 2d); United States v. 8286 Sq. Ft. of Space, 61 F. Supp. 737 (D.C., Md., Chesnut, J.); In re Widening Third St., 228 N.W. 162 (Minn.); Capitol Monument Co. v. State Capitol Grounds Comm., 251 S.W.2d 473 (Ark.); Territory of Hawaii v. Arneson, 354 P.2d 981 (Hawaii); State of Oregon v. Oregon Investment Co., 361 P.2d 71 (Ore.); 2 Nicholas, Eminent Domain, § 5.23 (2), pp. 41-42. There is also a clear indication in Belmont Clothes, Inc. v. Pleet, supra, 229 Md. at 466-67, that under a clause such as we have here, the tenant has no right to any part of the condemnation award.
Judgment affirmed; costs to be paid by the appellant.
NOTES
[1] The claims of the mortgagee under the two mortgages which it held are not in controversy and appear to have been paid by the City directly to the mortgagee. The balance of the purchase price was first paid into the registry of the court per court order, and by a subsequent order was paid over to the trustee landlords for investment in savings bank deposits and Government bonds pending this appeal, to be held subject to the further order of the court. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539112/ | 118 B.R. 143 (1990)
In re PADULA CONSTRUCTION COMPANY, INC., Debtor.
NATIONAL FIRE AND INSURANCE COMPANY OF HARTFORD, et al., Plaintiffs,
v.
PADULA CONSTRUCTION COMPANY, INC., et al., Defendants.
Bankruptcy No. 88-00337-BKC-AJC, Adv. No. 88-0419-BKC-AJC-A.
United States Bankruptcy Court, S.D. Florida.
July 31, 1990.
Ronald G. Neiwirth, Miami, Fla., for CNA.
AMENDED ORDER RE: DIP'S MOTION FOR JUDGEMENT ON THE PLEADINGS
A. JAY CRISTOL, Bankruptcy Judge.
THIS MATTER came before the court on the 18th day of December, 1989, on the motion of the Debtor-In-Possession (DIP) for judgment on the pleadings against CNA, its sureties. On May 24, 1990 the court entered an order denying judgment on the pleadings, docketed at CP 136. On June 5, 1990 the DIP filed a Motion to Amend Orders or Motion for Rehearing on Order on DIP's Motion for Summary Judgment, and Order on DIP's Motion for Judgment on the Pleadings. The court notes the DIP's allegation that the order was not received until May 31, 1990, and accepts the DIP's motions as timely filed.
The gravamen of the DIP's motion for amendment or rehearing is that the court ignored the legal issues presented by the DIP's motion for judgment on the pleadings, and that the court made findings that were not supported by the material before the court.
The only legal issue before the court on the defendant's motion for judgment on the pleadings is whether the plaintiff has pled facts which will entitle recovery under any theory. DIP makes much of the allegation *144 that plaintiff CNA did not mention equitable subrogation in its pleadings. Many years before this court was founded, the federal courts went to a system of fact pleading. No longer is a plaintiff required to name his theory of recovery in the initial pleading or find himself barred. The court finds that even if equitable subrogation is not mentioned by name in CNA's complaints, the facts pled fairly raise the issue.
DIP's second allegation is of more substance. The court will vacate the order docketed at CP 136 and enter this order in its stead.
Essentially, the DIP is claiming that, because it rejected their indemnity agreements, CNA is no longer in prime position to be reimbursed out of job proceeds from construction projects upon which the Debtor defaulted pre-petition. The DIP is thus asking this court to reject the concept of equitable subrogation of sureties who must perform a debtor's obligations after a prepetition default on a construction contract.
This case is a consolidation of two adversary proceedings. In this case, CNA sued Padula. In the consolidated case, adversary case number 88-0212-BKG-AJC, Padula sued CNA. Although not strictly accurate, it is convenient for the purposes of this order to consider the pleadings of 88-0212 as a counter-claim and answer to a counter-claim in this case. In its amended counter-claim, the DIP acknowledged CNA to be its surety for three public construction projects owned by the School Board of Palm Beach County (School Board), and simply asked this court to determine the validity, extent and priority of CNA's claim. In CNA's answer to the first amended counter-claim, CNA asserted its rights of subrogation.
Meanwhile, in this adversary proceeding, CNA named both the DIP and the School Board (as owner) as defendants. In its original complaint, CNA had claimed that one project (Portables) had been completed, while two more School Board projects (Jefferson Davis and Howell Watkins) were not. It also alleged that the School Board was withholding funds that should be turned over; CNA asserted that it had a right to those funds, as against the School Board and the DIP, by virtue of its having made payments on behalf of the Debtor to complete its obligations.
By the time of its amended complaint, CNA claimed that all three projects were completed. CNA asserted that as a surety, it had undertaken to perform the Debtor's obligation including, inter alia, payment of subcontractors and materialmen.
The DIP responded with an affirmative defense that CNA had paid various of its obligations on the jobs without proper verification as to validity and amount.
The School Board answered and crossclaimed collectively to the DIP and to CNA, stating that the jobs had not been completed, and that there were setoffs and counterclaims, and the sums sought were not due.
Finally, several other potential creditors responded to the DIP's complaint with various allegations of amounts due to them from the job proceeds.
Subsequently, the DIP moved in the main case to reject CNA's indemnity agreements as executory contracts. CNA objected, but an order was entered granting rejection under 11 U.S.C. § 365. The DIP's most recently-filed response sets forth six affirmative defenses; four of them relate to the property of settlement payments made by CNA upon claims pertaining to the three projects; one asserts that CNA has no right to the funds in the hands of the School Board, since all the payments it had made were post-petition; the last asserts that CNA has no right of subrogation, since its indemnity agreements, which provided for contractual subrogation, had been rejected.
Although the DIP's complaint sounds in terms of settling claims issue determining the validity, priority and extent of claims the heart of the matter is a determination of property rights. Are the contract proceeds retained by the School Board property of the DIP, or of CNA? Resolution of property rights must necessarily turn on state law. In re: Livingston, 804 F.2d 1219 (11th Cir.1986); In re: International *145 Gold Bullion Exchange, 53 B.R. 660 (Bankr.S.D.Fla.1985). Normally, a motion for judgement on the pleadings by a plaintiff raises a question of whether the defendant has pleaded a legal or equitable defense at all. When a defendant moves for judgement on the pleadings, the inquiry is whether the plaintiff has stated a cause of action. A defendant's own allegation in answer to the complaint cannot be used to support his motion. Here, due to the consolidation of the two adversary proceedings, the DIP is both a defendant, and in effect, a counter-plaintiff. Thus, judgement on the pleadings is not appropriate so long as the pleadings raise justiciable issues. Those issues must be measured against the applicable state law regarding contractors, their sureties, and subrogation; not merely against federal law regarding validity of claims.
The court concludes that the pleadings clearly raise justiciable issues of law and fact. Collectively read, the pleadings show the classic three way dispute among an owner, a surety, and a contractor. The School Board and CNA allege that the DIP breached its contracts prepetition and that CNA was required to step in and fulfill the Debtor's obligations; CNA's complaint alleges subrogation, as does its answer to the DIP's amended complaint. CNA initially alleged that two of the jobs were incomplete; in a subsequent amendment, it alleged that they had been completed. The DIP did not finish them. On the other hand, the School Board alleged that the projects were not finished, or in the alternative that while they may have been completed, that the School Board had suffered damages by reason of the DIP's alleged default.
A factual matter to be determined is whether the DIP has defaulted under its contracts, causing CNA to step in to fulfill the Debtor's obligations under its payment and performance bonds. If the default is valid and CNA did fulfill the duties as surety, then we must look to the controlling state law in order to determine who is entitled to the School Board proceeds.
In Transamerica Insurance Company v. Barnett Bank of Marion County, 540 So.2d 113 (Fla.1989), the Florida Supreme Court reviewed the case in order to resolve a conflict with prior cases. In Transamerica, the bank, which held a perfected security interest against receivables of a contractor, won a partial summary judgement as to priority in certain contract proceeds, as against the surety. The Fifth District Court of Appeals affirmed. (524 So.2d 439 (Fla.App.1988); rev'd 540 So.2d 113 (Fla.1989)). The Florida Supreme Court quashed and remanded, holding that:
The initial question is whether a surety's equity subrogation rights are limited to rights it obtains by standing in the shoes of the defaulting contractor. On this point we agreed with the court in National Shawmut Bank v. New Amsterdam Casualty Co., 411 F.2d 843, 844-45 (1st Cir.1969):
[T]here is confusion because the tendency is to think of the Surety on Miller Act payment and performance bonds as standing in the shoes only of the entity it "insures" the contractor. So long as this one-dimensional concept prevails, logic compels the Surety to be assessed as merely one of the contractor's creditors, and to be subject to the system of priorities rationalized by the Uniform Commercial Code. But the Surety in cases like this undertakes duties which entitle it to step into three sets of shoes. When, on default of the contractor, it pays all the bills of the job to date and completes the job, it stands in the shoes of the contractor insofar as there are receivables due it; in the shoes of laborers and material men who have been paid by the Surety who may have had liens; and not least, in the shoes of the government, for whom the job was completed. Transamerica, at 116.
In short, CNA (as the surety) is subrogated as a matter of law not only to the rights of the subcontractors and materialmen whom it has paid, but also to the rights of the DIP (the contractor), and even to those of the School Board (the owner). This is true whether CNA is entitled to contractual subrogation or not.
Federal cases are in accord with state law. They uniformly demonstrate *146 that when a surety pays claims or completes a job or both, its rights to the contract proceeds are superior to the owner's right of offset, even where the owner may have independent claims against the contractor arising from other circumstances; e.g., the United States, as owner may not offset an independent claim for unpaid taxes from job proceeds. See Aetna Casualty and Surety Co. v. United States, 435 F.2d 1082 (5th Cir.1970); Trinity Universal Insurance Co. v. United States, 382 F.2d 317 (5th Cir.1967).
The DIP's reliance on In re: Levitz Electric, Inc., 100 B.R. 602 (Bankr.S.D.Fla. 1989) in support of its position is misplaced. First, at the time of the hearing in Levitz, the Florida Supreme Court's decision in Transamerica was not published. Second, Levitz's procedural posture was different from the case at bar. Third, Levitz involved earned contract sums which had already been sued for and collected by the DIP, and the surety's efforts to procure the return of those funds. Here, the parties are battling over funds still held by the owner as retainage. Such sums are not due and payable until the job is complete, and all subcontractors and materialmen paid. (See 540 So.2d 113, 115). Finally, Levitz did not deal with a debtor who had been in default prior to its bankruptcy filing; in Levitz, the debtor filed for protection first and then rejected its construction contract. Here, in contrast, the Debtor is alleged to have been in default on all three projects pre-petition. While one of the projects was completed (Portables), the Debtor failed to pay its subcontractors and materialmen. The other two school projects were not completed, and the allegation was that the Debtor had defaulted not only in its failure to pay, but in its failure to finish the jobs. CNA provided the wherewithal to finish, thus enabling payment of the retainage. Levitz stands for the proposition that the surety is not entitled to a higher priority than the creditor that he paid. (100 B.R. 602, 604). It does not appear to the court that that result is inconsistent with the relief sought here.
In short, if the DIP is in default pre-petition as alleged, then CNA is an equitable subrogee, notwithstanding the DIP's rejection of its indemnity agreement. The pleadings accurately reflect a dispute over completion of the projects, the amounts due thereon, and that of CNA's claim to be a subrogee, either contractual or otherwise. Florida law clearly provides that a surety is entitled to equitable subrogation not only to the position of subcontractors and materialmen, but also to the positions of the DIP and the School Board. Accordingly, the DIP cannot relegate CNA, its surety, to the status of a mere unsecured creditor.
The court being otherwise fully advised in the premises, it is:
ORDERED and ADJUDGED:
that the ORDER RE: DIP'S MOTION FOR JUDGMENT ON THE PLEADINGS dated the 24 day of May, 1990 is hereby VACATED.
IT IS FURTHER ORDERED:
that the motion of the DIP for judgement on the pleadings be, and the same is hereby, DENIED.
DONE and ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541001/ | 155 B.R. 601 (1993)
In re John T. TRODGLEN, Debtor.
John T. TRODGLEN, Plaintiff,
v.
Linda HASTINGS and Carol Henley, Defendant.
Bankruptcy No. 91-33361-BKC-RAM, Adv. No. 92-0583-BKC-RAM-A.
United States Bankruptcy Court, S.D. Florida.
June 16, 1993.
*602 Allen R. Tomlinson, Jones, Foster, Johnston & Stubbs, P.A., West Palm Beach, FL, John A. Barley, John Barley & Associates, Tallahassee, FL, for Judgment Creditors.
Brad Culverhouse, Ft. Pierce, FL, Kevin Gleason, Kinsey & Gleason, P.A., Boca Raton, FL, for debtor.
Robert C. Furr, Trustee, Furr & Cohen, P.A., Boca Raton, FL.
MEMORANDUM OPINION AND ORDER DENYING DEFENDANTS' MOTION TO DISMISS ADVERSARY COMPLAINT
ROBERT A. MARK, Bankruptcy Judge.
The Debtor filed this adversary proceeding to determine whether the Defendants, Linda Hastings and Carol Henley (the "Judgment Creditors") hold a claim in this bankruptcy case secured by the stock in Trodglen Paving, Inc. The stock is 100% owned by the Debtor and is thus property of this estate.
The Judgment Creditors filed a motion to dismiss. They argue that their judgment lien was perfected by docketing and recording a writ of execution with the Sheriff of Indian River County, Florida prior to the commencement of Debtor's bankruptcy case. The Court conducted a hearing on August 18, 1992 and the parties have filed memoranda of law. After consideration of the arguments presented in Court and in the memoranda submitted by the parties, upon review of the relevant case authority, and review of the applicable statutes, the Court announced its ruling on February 9, 1993 denying the motion to dismiss. The Court found that despite their diligent efforts to levy on the stock, the Debtor's bankruptcy petition was filed before the stock was physically seized. As such, the Trustee's hypothetical lien on the filing date has priority over the Judgment Creditors' unperfected lien against the stock. This memorandum opinion incorporates and supplements the Court's February 9, 1993 oral ruling.
BACKGROUND FACTS
On November 7, 1989, the Leon County Circuit Court entered final judgment against the Debtor, John T. Trodglen ("Trodglen" or "Debtor") in the amount of $146,621.25 and authorized the Judgment Creditors to proceed with execution. On November 20, 1989, a certified copy of the final judgment was filed with the Florida Secretary of State's office. On May 1, 1990, a writ of execution on the final judgment was issued by the Leon County Circuit Court. On May 3, 1990, the Sheriff of Indian River County acknowledged receipt, docketing and recordation of the writ of execution.
In the course of discovery in aid of execution, the Judgment Creditors found that Trodglen was holding all of the authorized and issued shares of stock in Trodglen Paving, Inc. The Judgment Creditors then sought to levy on the shares of stock owned and held by Trodglen. The Sheriff was instructed to levy upon such stock at the business address of Trodglen Paving, Inc.
The Sheriff attempted to levy on the stock but was advised by the secretary at Trodglen Paving, Inc., that the stock could not be found and thus, the levy was returned *603 unexecuted. The Judgment Creditors then filed a motion to compel Trodglen to turn over all of the corporate stock which he owned. The state court entered an order on November 13, 1991, granting the motion and compelling Trodglen to turn over the stock no later than 4:30 p.m., on November 15, 1991. On November 15, 1991, just hours before the deadline, Trodglen filed a Chapter 13 Petition which stayed the state court proceedings.
Initially, the Debtor did not challenge the Judgment Creditors' lien on the stock. Instead, he filed a Chapter 13 plan which contemplated a "strip down." Under the plan, the Debtor sought to value the stock and then treat the judgment as a secured claim to the extent of the stock's value and the balance of the judgment as an unsecured claim.
After the parties had engaged in substantial discovery and burdened the Court with discovery disputes in preparation for a § 506 valuation hearing, the Debtor, after further research by his counsel, shifted theories and filed this adversary in June, 1992 asserting for the first time that the Judgment Creditors had no lien at all and were simply unsecured creditors.
During this entire period, the Court had under advisement the Judgment Creditors' motion to dismiss the bankruptcy case as a bad faith filing.
The underlying bankruptcy case veered to still another course when the Debtor voluntarily converted his Chapter 13 case to a Chapter 7 case in September, 1992. Prior to the conversion, on September 4, 1992, the Debtor filed a Chapter 11 petition for his corporation, Trodglen Paving, Case No. 92-32996.
Upon conversion, the decision to continue both the Trodglen Paving Chapter 11 and the prosecution of this adversary vested in the Chapter 7 Trustee. The Trustee has filed a pleading supplemented by statements in Court supporting the prosecution of this adversary. Although he has not yet formally intervened, the Court finds it appropriate to analyze the legal issue triggered by the motion to dismiss as if the Trustee had already been substituted as the plaintiff prosecuting the adversary for the benefit of the Chapter 7 estate.
DISCUSSION
The Court's decision turns on the interplay between two Florida statutes, Chapter 56 which generally perfects a judgment lien on personal property upon the docketing of a writ of execution with the Sheriff; and § 678.317(1) which requires actual seizure of securities to perfect a judgment lien against corporate stock. In determining whether the Judgment Creditors' lien was perfected on the bankruptcy filing date, their rights must be compared to the rights of a hypothetical judgment lien creditor on that date since, under § 544 of the Bankruptcy Code, the Trustee is granted the status and rights of such a creditor. Thus the issue is frameddid the Judgment Creditors have a lien on the stock as of the filing date enforceable against another judgment lien creditor in existence on that date?
On May 3, 1990, prior to the filing date, the Judgment Creditors docketed a writ of execution with the Sheriff of Indian River County, Florida. At this point, the final judgment became a lien upon personal property owned by Trodglen including the stock in Trodglen Paving, Inc. See Chapter 56, Florida Statutes; Goodyear Tire & Rubber Co. v. Daniell, 72 Fla. 489, 73 So. 592 (1916); Love v. Williams, 4 Fla. 126 (1851); Flagship State Bank of Jacksonville v. Carantzas, 352 So. 2d 1259, 1261 (Fla. 1st DCA 1977). A levy is not required to perfect the lien once it is delivered to the Sheriff for execution. See In re Cone, 11 B.R. 925 (Bankr.M.D.Fla.1981); In re Vero Cooling & Heating, Inc., 11 B.R. 359 (Bankr.S.D.Fla.1981). Thus, the Judgment Creditors argue that their lien was perfected on the stock on the date the writ was docketed even though the Sheriff had not yet levied on the stock.
The Debtor and Trustee disagree. They argue that the Judgment Creditors' failure to properly perfect their interest in the stock as required by § 678.317(1) is fatal to their attempt to attach a lien on the stock. *604 § 678.317(1), Florida Statutes, provides in relevant part:
Subject to the exceptions in subsection (3) and (4), no attachment or levy upon a certificated security or any share or other interest represented thereby which is outstanding is valid until the security is actually seized by the office making the attachment or levy.
The underlying policy of the statute requires manually seizing securities for purposes of effecting a valid attachment, thereby eliminating the possibility of a security finding its way into a transferee's hands after an attachment attempt has been made. See Neifeld v. Steinberg, 438 F.2d 423 (3rd Cir.1972) (interpreting comparable Pennsylvania statute incorporating § 9-317 of the Uniform Commercial Code).
The Court finds that the provisions of § 678.317(1) which specifically govern execution against corporate stock control over the provisions in Chapter 56 which generally apply to judgment liens on personal property. Despite their diligent efforts and a state court order compelling turnover, neither the Judgment Creditors nor the Sheriff had possession of the stock on the filing date of this bankruptcy case. Since the statute specifically provides that the attachment is not "valid until the security is actually seized," the Judgment Creditors did not have a perfected lien on the stock on the filing date. § 678.317(1), Florida Statutes (emphasis added).
Prior to the conversion of the Debtor's case to a case under Chapter 7, the Judgment Creditors possessed a colorable argument that the Debtor did not have standing to challenge perfection under § 678.317, citing Knapp v. McFarland, 462 F.2d 935, 942 (2d Cir.1972). The Court does not reach this issue since, without question, the Trustee has standing as a hypothetical judgment creditor to invoke the rights and protections of the statute.
The Court is concerned about the time and expense incurred by the Judgment Creditors in defending the Debtor's prior efforts to value the stock as part of a now abandoned Chapter 13 plan. Those issues have been addressed in a separate order arising out of the February 9, 1993 hearing which requires the Debtor to pay certain fees and expenses as a condition to denying the Judgment Creditors' motion to dismiss the main case as a bad faith filing. Moreover, these equitable concerns cannot prevent the Chapter 7 Trustee from asserting the rights of the other creditors of this estate by invoking applicable Florida law to invalidate the Judgment Creditors' alleged lien on an asset of the estate.
The parties agree and the Court finds that there are no factual issues requiring a trial. Therefore, upon appropriate motion, the Court will enter final judgment declaring that the Judgment Creditors do not have a lien on the stock.
For the foregoing reasons, it is
ORDERED as follows:
1. Defendants' motion to dismiss is denied.
2. The Trustee shall promptly file a motion to substitute as party plaintiff and a motion for entry of final judgment.
DONE AND ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541041/ | 155 B.R. 625 (1993)
In re CHATEAUGAY CORPORATION, Reomar, Inc. The LTV Corporation, et al., Debtors.
Bankruptcy Nos. 86 B 11270 through 86 B 11334, 86 B 11402 and 86 B 11464.
United States Bankruptcy Court, S.D. New York.
May 28, 1993.
*626 M.J. Crames, E.M. Emrich, and S.W. Milo, Kaye, Scholer, Fierman, Hays & Handler, and M.W. Munno, Seward & Kissel, New York City, for Chateaugay Corp., Reomar, Inc., and The LTV Corp., et al. (collectively, debtors).
M.A. Speiser, Stroock & Stroock & Lavan, New York City, for The Official Committee of Unsecured Creditors of LTV Steel Co., Inc.
W.E. Taylor, III, Blank, Rome, Comisky & McCauley, Philadelphia, PA, for The Official Committee of Unsecured Creditors of the LTV Corp.
G.E. Brunstad, Jr., H.S. Horwich, L.M. Weil, and L.G. Ciabarra, Hebb & Gitlin, Hartford, CT, for The Aetna Cas. and Sur. Co. (Aetna).
*627 AMENDED MEMORANDUM OF DECISION ON SEPARATE CLASSIFICATION OF CLAIMS
FRANCIS G. CONRAD, Bankruptcy Judge (Sitting by Special Designation).
The issues presented[1] relate to Debtors' Second Amended Joint Plan of Reorganization (Plan). These issues are (1) whether workers' compensation claims asserted by Debtors' injured employees may be classified separately from and accorded different treatment than the workers' compensation claims asserted by the surety who acquired its claims by subrogation when it paid the underlying workers' compensation claims; and (2) whether it is required that Debtors establish a claims reserve for the full amount of the surety's claims.
We hold that the workers' compensation claims asserted by the workers themselves may be separately classified from those asserted by the surety who acquired those claims by subrogation.
We further hold that Debtors are not required to reserve in full for the surety's general unsecured claim.
FACTS
Debtors filed petitions for reorganization under chapter 11 of title 11 of the United States Code, 11 U.S.C. § 101 et seq. on July 17, 1986.
Adverse market conditions forced Debtors to scale down business. Debtors ceased business in some states.
Workers' compensation coverage must be provided by an employer in every state. This coverage is usually provided by one or more of the following methods: purchase of commercial insurance; payment into a state-sponsored fund; or by qualifying as a self-insurer.
States allow employers to become self-insurers if they demonstrate that they have the financial ability to make workers' compensation payments and can administer the claims. The employers must also provide security in case of default. The employer usually provides security by either posting a security bond or depositing cash in a trust fund. Backup security is provided through state-sponsored funds, which employers support through assessments.
LTV Steel found that in states where it had substantial operations, it was beneficial to self-insure rather than purchase commercial insurance.
Prior to the petition date, Aetna issued various surety bonds on behalf of Debtors to assure payment of Debtors' workers' compensation obligations.
On the Filing Date, LTV Steel ceased payment of self-insured claims in all states. The Bankruptcy Court issued an order on that same date, authorizing and empowering Debtors to pay certain pre-petition wages and salaries, reimbursement expenses, and employee benefits (the "July 17 Order").
The last paragraph of the July 17 Order states:
ORDERED, that the Debtors be, and they hereby are authorized and empowered to pay all employees' workers' compensation, "black lung" and related benefits and claims which arose or accrued prior to the Filing Date.
Later, LTV Steel reinstated payment of workers' compensation benefits in Illinois, Indiana, and Ohio. These are the states that Debtors expect to be the core of the restructured company. LTV Steel calculated that maintenance of self-insured status in these states would result in a ten-year cash savings of $136 million when compared to the costs of commercial or state-sponsored insurance programs.
LTV Steel did not reinstate the self-insured payments in other states because it determined that abandoning these payments would have a beneficial effect on *628 LTV Steel, resulting in $108 million in savings over ten years.
LTV Steel noted that the impact of this default on individual workers' compensation claimants was minimized because most of these payment obligations were picked up by surety companies or state-sponsored funds. Upon Debtors' default, Aetna paid approximately $41,947,561.76 of workers' compensation claims under the bonds it issued and has asserted claims against Debtors through subrogation to the claims of the disabled and injured employees whose claims Aetna paid.
Debtors' Plan includes the resumption of payment in full of post-confirmation workers' compensation payments to employees or former employees, but not to any person whose claim is derived from an employee. Thus, the workers' compensation claims of sureties are excluded.
In an earlier proceeding, the State of Michigan, who was required to pay the workers' compensation claims of its residents when Debtors defaulted, moved for an order clarifying the last paragraph of the July 17 Order and interpreting it as a mandatory obligation that Debtors pay pre-petition benefits in all states. Judge Lifland instead ruled that the paragraph authorizing payment of workers' compensation claims that arose pre-petition was permissive and did not require LTV Steel to pay all pre-petition workers' compensation claims.
Judge Lifland concluded "that LTV Steel's state-by-state treatment of workers' compensation claims is based upon sound business judgment, constitutes a reasonable exercise of the discretion conferred upon it by the Order and is consistent with [LTV Steel's] fiduciary duty to preserve and maximize the value of its estate for the benefit of all creditors." Findings of Fact and Conclusions of Law and Order Denying Motion of State of Michigan, dated November 18, 1986 (November 18 Clarification) at 11. The State of Michigan appealed the November 18 Clarification and contended that the pre-petition payments of some pre-petition claims, but not all, constituted a distribution that violates the classification rules of 11 U.S.C. § 1122. In re Chateaugay Corp., 80 B.R. 279, 280 (S.D.N.Y.1987) (Lasker, J). Judge Lasker found the November 18 Clarification to be interlocutory and not appealable. The court also noted that § 1122 did not apply to the pre-plan stages of a bankruptcy proceeding because it would limit the flexibility of the court and debtor and be inconsistent with the purposes of the bankruptcy laws. Id. at 288.
Under Debtors' proposed Plan, the workers' compensation claims of individual workers are unimpaired and will be paid in full. Aetna's claims, derived from the workers' compensation claims, are impaired and will receive a pro rata distribution of securities. The value of this pro rata distribution will be a dividend of about 18 to 22% of the allowed claim.
Aetna asserts that because Plan confirmation is imminent, the Court must address Aetna's request that its claims for reimbursement, owed by Debtors to Aetna for workers' compensation benefits paid by Aetna during the course of the bankruptcy proceeding to LTV Steel workers relating to pre-petition injuries, be classified and treated in the same manner as the workers' compensation claims of individual workers.
Debtors argue that separate classification and different treatment of the workers' compensation claims and Aetna's surety claims under its Plan are appropriate because of legitimate and compelling business reasons. Debtors maintain that, unlike Aetna, the individual employees will play a significant role in Debtors' reorganization effort.
DISCUSSION
Workers' compensation claims arising out of pre-petition injuries are ordinarily entitled to general unsecured status. St. Paul Fire & Marine Ins. Co. v. Rea Express, Inc. (In re REA Express Inc.), 442 F. Supp. 71, 74 (S.D.N.Y.1977). Aetna, however, argues that if Debtors provide more favorable treatment to the individual workers' claims and elevate them to an unimpaired status, then there is no legal justification for treating the workers' compensation *629 claims held by Aetna, through subrogation, differently.
Aetna urges that the initial decision to allow disparate treatment of workers' compensation claims in the pre-plan stages of the bankruptcy proceeding must now be reassessed in view of the fact that a plan of reorganization is imminent.
The individual workers have continued to receive workers' compensation benefits based on pre-petition injuries. The payments have been made from surety bonds or state workers' compensation funds or, in states where Debtors reinstated self-insurance workers' compensation plans, from the Debtors. Thus, individual workers in all the states are receiving the same treatment and inasmuch as, under the plan, LTV Steel will resume payments to individual workers, they will continue to receive the same treatment and receive payment in full.
Aetna notes that 11 U.S.C. § 1122[2] relates to placing substantially similar claims in the same class and 11 U.S.C. § 1123(a)(4)[3] provides that claims and interests in the same class must receive the same treatment. Relying on § 1122 and the equality of treatment requirement of § 1123(a)(4), Aetna maintains that its claim for reimbursement of workers' compensation benefits it paid to workers should receive the same treatment as claims of individual workers' compensation beneficiaries. Aetna asserts that when it paid the workers' compensation benefits to the workers, it became subrogated to their rights. Therefore, Aetna argues that it should be placed in the same class and receive the same treatment as the individual workers' compensation recipients.
The issue of whether similar claims may be separately classified has been addressed by various courts with differing results. Some courts find that all similar unsecured claims must be placed in the same class. See, e.g., Granada Wines, Inc. v. New England Teamsters and Trucking Industry Pension Fund, 748 F.2d 42, 46-47 (1st Cir.1984). Other courts take a "more flexible and pragmatic approach" and allow separate classification of similar claims. In re AG Consultants Grain Division, Inc., 77 B.R. 665, 671 (Bkrtcy.N.D.Ind.1987); Teamsters National Freight Industry Negotiating Committee v. U.S. Truck Co., Inc. (In re U.S. Truck Co., Inc.), 800 F.2d 581, 587 (6th Cir.1986); In re Drexel Burnham Lambert Group Inc., 138 B.R. 723, 757-758 (Bkrtcy.S.D.N.Y.1992).
Courts that allow the separate classification of similar claims maintain that while "the express language of [§ 1122(a)] explicitly forbids a plan from placing dissimilar claims in the same class, [§ 1122(a)] does not, though, address the presence of similar claims in different classes." In the Matter of Jersey City Medical Center, 817 F.2d 1055, 1060 (3rd Cir.1987).
In agreeing with the theory of grouping similar claims in different classes, the Jersey court noted that "Congress intended to afford bankruptcy judges broad discretion to decide the propriety of plans in light of the facts of each case." Id. at 1060-1061.
Some courts, calling for a narrow interpretation of § 1122(a), assert that while the section may not totally prohibit the separate classification of similar claims, there must be some constraint on a debtor's ability to separately classify claims. Phoenix Mutual Life Insurance Co. v. Greystone III Joint Venture (In re Greystone III Joint Venture), 948 F.2d 134, 139 (5th Cir. 1991); In re Pine Lake Village Apartment Co., 19 B.R. 819, 830 (Bkrtcy.S.D.N.Y. *630 1982). According to these courts, this interpretation is supported by § 1122(b), which authorizes the formation of a class of smaller unsecured claims. These courts maintain that a broad interpretation of § 1122(a), allowing for the unfettered classification of claims, would render § 1122(b), which allows for a separate class of administrative convenience claims, superfluous. Greystone III, supra, 948 F.2d at 138-139. This, the courts reason, would be contrary to statutory construction principles. Id.
This explanation has led one commentator, who disagrees with a narrow interpretation on the ability of courts to classify claims, to suggest that the inclusion of § 1122(b) may have a different interpretation. According to this commentator, § 1122(b) may be "an exception to the one requirement actually stated in section 1122(a), that only substantially similar claims be placed together. That is, section 1122(b) could be read as authorizing a class of de minimis claims even if the claims are not substantially similar to each other." Rusch, Gerrymandering the Classification Issue in Chapter Eleven Reorganizations, 63 U.Colo.L.Rev. 163, 182 n. 95 (1992).
The AG Consultants court discerned the following intent from the statutory language of § 1122(a): "Some differences in the treatment of unsecured claims must have been contemplated by Congress, or the provision for classifying claims under 11 U.S.C. § 1122 would be superfluous and purposeless." AG Consultants, supra, 77 B.R. at 671.
The AG Consultants court held that:
a plan proponent under § 1122
1) may have the flexibility to place claims of a similar nature in different classes; and
2) may not place claims of a dissimilar nature in the same class.
Id. at 676.
AG Consultants recognized the subtle distinction between classification and discrimination often missed in classification cases.
Most courts that permit separate classification of claims have found that a plan proponent's discretion to classify claims and interests in accordance with the facts and circumstances of the particular case is nevertheless limited. Travelers Insurance Co. v. Bryson Properties, XVIII (In re Bryson Properties XVIII), 961 F.2d 496, 502 (4th Cir.1992). "[T]here must be some limit on the debtor's power to classify creditors.... The potential for abuse would be significant otherwise." U.S. Truck, supra, 800 F.2d at 586. "If the plan unfairly creates too many or too few classes, if the classifications are designed to manipulate class voting, or if the classification scheme violates basic priority rights, the plan cannot be confirmed." Bryson, supra, 961 F.2d at 502, citing, In re Holywell Corp., 913 F.2d 873, 880 (11th Cir.1990).
The classification issue is often presented in the context of a plan proponent's attempt to separately classify a secured creditor's deficiency claim[4] from that of other general unsecured claims. When it is clear that the holder of a large deficiency claim will vote to reject the plan and its vote predominates the unsecured claims, the plan proponent separately classifies the dissenting deficiency creditor's claim from the claims of other unsecured creditors who will vote in favor of the plan. This ensures that an impaired class of creditors will vote in favor of the plan, thereby invoking § 1129(b)(1),[5] the cram down provision of the Code. This permits a debtor to *631 obtain confirmation of a plan despite the dissent of a deficiency claimant. We make no holding today whether we would permit this type of classification in a so-called "single asset" case.
Courts have refused to permit debtors to separately classify similar claims in order to gerrymander the votes on a reorganization plan to gain acceptance of the plan. Greystone III, supra, 948 F.2d at 139. When "[t]he classification is clearly for the purpose of manipulating voting[,] ... it may not stand." Bryson, supra, 961 F.2d at 502. "[A]lthough the debtor retains some flexibility in the classification of substantially similar claims," it may not separately classify claims only for the purpose of forming an impaired class. In re 500 Fifth Ave. Associates, 148 B.R. 1010, 1019 (Bkrtcy.S.D.N.Y.1993).
In 500 Fifth Ave., while the court refused to allow the separate classification of Code-created recourse claims,[6] finding that in the context of a chapter 11 case, the claims were not different than contract-based recourse claims or unsecured claims, the court nevertheless noted the flexibility afforded a debtor and acknowledged that separate classification would be allowed if the debtor offered a reason for the classification independent of the purpose of forming an impaired class. Id.
Inasmuch as courts have applied a "narrow rather than totally permissive construction of § 1122," Greystone III, supra, 948 F.2d at 139, plan proponents usually attempt to provide other justification for separately classifying similar claims.
One of the reasons for separate classification proffered by the Greystone III debtor, when it proposed to separately classify a secured creditor's deficiency claim from trade creditors' claims, was that there were "good business reasons" for the separate classification. Greystone III, supra, 948 F.2d at 140-141. The reasoning was that because of the "realities of business," the debtor was dependent on the maintenance of goodwill with trade creditors to obtain trade's future services. Id. at 141.
The Greystone III court rejected the "realities of business" argument because, although the deficiency creditor and the trade creditors were classified separately, they received similar treatment. Id. In dicta, the court declared that "separate classification of the trade claims might be valid if the trade creditors were to receive different treatment from [the deficiency claimant]." Id. This is a remarkable recognition of the classification/discrimination dichotomy that is completely ignored in Greystone III.
Nevertheless, the Greystone III court found that, under the facts and record of that case, the trade creditors did not qualify for different classification or treatment than the deficiency claimant because there was no showing of a limited market in the area for trade goods and services. Nor was there a showing that the debtor would be unable to obtain trade services if the trade creditors were deprived of preferential treatment under the plan. Id. The court declared that the record did not support a finding that good business reasons existed for separate classification. Id.
By contrast, in the case sub judice, Debtors provide different treatment to the workers' compensation claims of the injured and disabled employees from the workers' compensation claims to which Aetna was subrogated. Debtors maintain that there are compelling business reasons to separately classify the claims and favor the workers' claims which do not apply to Aetna. Debtors urge that the favored treatment afforded workers is an acknowledgement of the vital role the employees play in Debtors' reorganization effort, while Aetna has no role in the reorganization. The cooperation of the workers is viewed as an absolute requisite for the viability of the restructured company.
Debtors offer evidence of the serious consequences that ensued when they tampered *632 with employee benefits in the past. In the early stages of the bankruptcy proceeding, Debtors ceased paying retiree medical benefits, resulting in union-led disruptions of Debtors' business and economic loss. Debtors urge that full payment of employee claims will elevate employee morale and preserve good labor-management relations. Any perceived labor-management discord would lead to Debtors' inability to secure favorable sales contracts. In addition, implementation of the recently negotiated collective-bargaining agreement depends upon workers' compensation beneficiaries receiving full payment on their claims. Debtors maintain that these business imperatives require that Debtors' Plan offer favorable treatment for the workers' compensation claims of individual workers. They maintain that the justification for favorable treatment, however, does not apply to Aetna's workers' compensation claims.
In most reorganization cases, creditors of the same rank will be placed in the same class but under appropriate circumstances, separate classification may be warranted. AG Consultants, supra, 77 B.R. at 674. Classification of similar claims is permissible if the classification scheme of the claims or interests is reasonable. Jersey, supra, 817 F.2d at 1061.
Section 1123(a)(4) requires that each claim or interest of a particular class receive the same treatment; however, it "only requires equality of treatment of claims or interests placed in the same class." Id.
Thus, it may be appropriate in some circumstances to separate the individual workers' compensation claims from that of other unsecured creditors and to treat them differently, if the interests of the other unsecured creditors are distinct from and "in a different posture" than the interests of the individual workers. U.S. Truck, supra, 800 F.2d at 587.
Aetna correctly notes that the Code refers to the classification of claims rather than claimants. Courts, however, routinely look to the interests of the holders of the claims in determining whether to permit their claims to be separately classified. In permitting a separate classification for a union's claim based on the rejection of a collective bargaining agreement, the court in U.S. Truck, supra, 800 F.2d at 587, found that the union's interest differed from other creditors' interests and that the union had "a different stake in the viability of the reorganized company." Id. The court also found that the "union employees have a `virtually unique interest'." Id. The court held that the difference in the interest of the holder of the claim put the "claim in a different posture" than other unsecured claims. Id. In AG Consultants, we had no objection to separately classifying agricultural producers' unsecured claims when it was demonstrated that they were the only group continuing to do business with the debtor. AG Consultants, supra, 77 B.R. at 670, 676.
"Classification is rooted not merely in statute, but is predicated on the basic need for a reasonable and fair method of maximizing reorganization prospects." AG Consultants, supra, 77 B.R. at 671. Debtors offer strong evidence that the claims of the individual workers should be paid in full.
Aetna argues that their claims are not only similar to the individual workers' compensation claims, they are the workers' compensation claims by virtue of Aetna's subrogation to the workers' claims under 11 U.S.C. § 509(a).[7] Aetna maintains that it is subrogated to the rights of those workers' compensation beneficiaries whose claims it paid.
The argument that Aetna's claims are identical to the individual workers' claims fails to consider the express terms of § 509. Section 509(a), which provides that an entity who pays a claim of a creditor is subrogated to the rights of that creditor, *633 begins with the phrase "Except as provided in subsection (b) or (c) of this section." Section 509(c)[8] subordinates the subrogation claim of an entity that pays a creditor to the claim of that creditor "until such creditor's claim is paid in full." Section 509(c) provides a basis to distinguish the claims of the individual workers from the workers' compensation claims held by Aetna because Aetna's entitlement to receive payment on its claims is subject to a condition not applicable to the individual workers, i.e., Aetna's claims and rights are subordinate to the claims and rights of each employee until that employee is paid in full on its claim.
Thus, the Code itself recognizes a distinction between Aetna's claims and the claims of the individual workers. This provides the legal distinction between these claims and, in conjunction with the business justification which results from the symbiotic relationship between Debtors and the employees, the basis for separately classifying the claims.
This Code-recognized distinction and the business justification are sufficient to render all individual workers' compensation claims distinct from and in a different posture than the workers' compensation claims held by Aetna.
We agree with Aetna that a surety is subrogated to the rights of the creditor when it pays the claim for its principal on a bond. Pearlman v. Reliance Ins. Co., 371 U.S. 132, 136, 83 S. Ct. 232, 235, 9 L. Ed. 2d 190 (1962). The surety, through subrogation, may assert all of the creditor's rights. Pearlman, supra, 371 U.S. at 136-137, 83 S.Ct. at 235. Aetna correctly notes that the character of debts are fixed when incurred, and these rights remain with the claim when transferred. Shropshire, Woodliff, & Co. v. Bush, 204 U.S. 186, 189, 27 S. Ct. 178, 179, 51 L. Ed. 436 (1907). The rights to which a creditor becomes subrogated, on payment after the petition, are fixed at the petition. United States v. Marxen, 307 U.S. 200, 207-208, 59 S. Ct. 811, 815, 83 L. Ed. 1222 (1939).
As of the petition date, however, the workers' compensation beneficiaries' rights were those of general unsecured creditors. Aetna succeeded to the rights of the workers' compensation beneficiaries at the petition date, which rights were to be general unsecured claimants.
Finally, Aetna argues that under § 509(a) and § 1124,[9] Aetna was subrogated *634 to all the rights and remedies of the employees, including any rights of "cure" received by employees under Debtors' Plan. In support, Aetna relies on In re Wingspread, Corp., 145 B.R. 784 (S.D.N.Y. 1992), aff'd 992 F.2d 319 (2d Cir.1993), where a debtor assumed certain leases. Prior to its assumption of the leases, a guarantor had satisfied the debt owed by the debtor on one of the leases. After assuming the leases, the debtor attempted to cure the defaults on the remaining leases, under § 365(b)(1),[10] which would give rise to a § 507(a)(2) administrative expense priority. Id. at 787. The debtor, however, did not offer a cure to the guarantor who had satisfied the other lessor's claim. The court found that when the guarantor satisfied the lessor's claim, it was subrogated to the rights of the lessor and was "entitled to assert any priority or special right of the [lessor]." Id. at 791. The guarantor who had satisfied the debt owed to the lessor was entitled to assert the same administrative expense priority under § 507(a)(2) as the lessor would have asserted if the guarantor had not paid its claim.
The Wingspread court noted that the debtor's other creditors were not harmed by the guarantor's assertion of the lessor's right to priority when the guarantor was allowed to "step into the shoes of priority creditors and ahead of other creditors," Id. at 791, because the other creditors retained the same position they would have had if the guarantor had not paid the claim. If the creditor had not been paid by the guarantor, the creditor would have been entitled to a cure of defaults under the lease. Id.
Debtors respond that Wingspread is not relevant to this case because there is no right to cure involved to which Aetna would be subrogated. Debtors maintain that the workers' claims are unimpaired based on § 1124(1), not on § 1124(2), the section relating to cure of defaults upon which Aetna bases its argument. Debtors assert that individual workers have received and under its Plan will continue to receive the "legal, equitable, and contractual rights to which they are entitled" and are unimpaired under § 1124(1).
We agree with Debtors that Wingspread is not relevant to the matter before us because there is no right to cure; however, we reach this result for a different reason than that advanced by Debtors. In Wingspread, a debtor elected to assume leases. Under § 365(b)(1), the assumption of a lease triggers a debtor's obligation to "cure" or provide adequate assurance of a prompt cure of any defaults under the lease. Concomitantly, it triggers the lessor's or creditor's right to receive this cure.
On the other hand, the formation of a class does not trigger a right to cure. Section 1124 is not a section that provides a right to cure. It merely provides a method to analyze whether an already formed class may be considered unimpaired under a plan of reorganization. No "rights" are involved to which a surety or transferee may be subrogated.
Even if Debtors have defaulted in their obligation to pay certain workers, and Debtors decide, under their Plan, to pay these past due benefits, this cure is an elective action on Debtors' part, not required by any section of the Code. No rights are involved to which a surety or transferee may be subrogated. The individual workers did not have a "right" to this cure. Inasmuch as "one cannot acquire by subrogation what another whose rights he claims did not have," United States v. Munsey Trust Co., 332 U.S. 234, 242, 67 S. Ct. 1599, 1603, 91 L. Ed. 2022 (1947), a transferee of the individual workers' claims does not acquire a right to cure.
As we noted earlier, the equality of treatment requirement of § 1123(a)(4) only relates *635 to "claims or interests placed in the same class." Jersey, supra, 817 F.2d at 1061. Thus, Aetna's workers' compensation claims are not entitled to this cure even if it is provided to render the separately classified individual workers' claims unimpaired.
Aetna argues that permitting the individual workers' compensation claims to be classified separately from Aetna's claims in order to offer the individual workers favorable treatment and then justifying the disparate treatment given Aetna on the grounds that the individual workers' claims are separately classified is a circular argument.
The individual workers' claims, however, are classified separately, not merely to provide favorable treatment but because there are valid business reasons to provide this disparate treatment, namely, to ensure the workers' continued cooperation and a successful reorganization. The justification to pay claims held by the individual workers in full does not apply to Aetna. The business reasons for appeasing the workers form the basis for permitting the separate classification of their claims. Thus, because the claims are separately classified based on legitimate business reasons, § 1123(a)(4) is not relevant and it is not required that the same treatment be conferred on Aetna's separately classified claims.
Finally, as part of a separate class which receives disparate treatment from the individual workers' claims, Aetna may only block confirmation of Debtors' Plan under § 1129(b) if it votes against Debtors' Plan, and proves that Debtors' Plan discriminates unfairly against its class or is not fair and equitable with respect to its class.[11]
At the hearing on classification held on May 5, 1993, with respect to Aetna's request that Debtors be required to establish a full claims reserve for Aetna's disputed claims, we indicated that if Debtors were permitted to classify the individual workers' claims separately from Aetna's claims, then Debtors only needed to reserve for Aetna's claims that amount which Debtors were required to pay to Aetna under Debtors' Plan. In accordance with our determination that the separate classification and treatment of the individual workers' compensation claims from Aetna's workers' compensation claims is reasonable and appropriate, we hold that a claims reserve in the amount Debtors are required to pay Aetna under Debtors' Plan is appropriate.
CONCLUSION
The individual workers' compensation claims may be separately classified from Aetna's subrogation claims. The separate classification is required to ensure Debtors' successful reorganization. The proposed disparate treatment of the classes is reasonable in view of the vital role played by the individual workers, and not by Aetna, in Debtors' reorganization effort.
The appropriate claims reserve to establish pending a determination of the disputes related to Aetna's claims is an amount sufficient to make a distribution to Aetna based on a general unsecured claim.
Counsel for Debtors to settle the order.
NOTES
[1] Our subject matter jurisdiction over this controversy arises under 28 U.S.C. § 1334(b) and the "Standing Order of Referral of Cases to Bankruptcy Judges" of the United States District Court for the Southern District of New York, dated July 10, 1984 (Ward, Acting C.J.). This is a core matter under 28 U.S.C. §§ 157(b)(2)(A) and (B). This Memorandum of Decision constitutes findings of fact and conclusions of law under F.R.Civ.P. 52 as made applicable by F.R.Bkrtcy.P. 7052.
[2] Section 1122 relating to Classification of claims or interests provides:
(a) Except as provided in subsection (b) of this section, a plan may place a claim or an interest in a particular class only if such claim or interest is substantially similar to the other claims or interest of such class.
(b) A plan may designate a separate class of claims consisting only of every unsecured claim that is less than or reduced to an amount that the court approves as reasonable and necessary for administrative convenience.
[3] Section 1123(a)(4) provides in relevant part:
(a) Notwithstanding any otherwise applicable nonbankruptcy law, a plan shall
(4) provide the same treatment for each claim or interest of a particular class, unless the holder of a particular claim or interest agrees to a less favorable treatment of such particular claim or interest.
[4] When a creditor has an allowed claim secured by a lien on collateral but the value of the collateral is less than the amount of the claim, the claim is bifurcated into a secured claim that equals the value of the collateral and an unsecured claim for the deficiency under § 506(a).
[5] Section 1129(b)(1) provides in relevant part:
Notwithstanding section 510(a) of this title, if all of the applicable requirements of subsection (a) of this section other than paragraph (8) [requiring that all classes either accept the plan or not be impaired under the plan] are met with respect to a plan, the court, on request of the proponent of the plan, shall confirm the plan notwithstanding the requirements of such paragraph if the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interest that is impaired under, and has not accepted, the plan.
[6] Under certain conditions, § 1111(b)(1)(A) converts a creditor's § 506(a) deficiency claim into a recourse claim, whether or not the creditor had recourse outside of bankruptcy. We note that 500 Fifth Avenue, like many other opinions discussing the issue, fails to explore fully the economic and financial interstices of the claim from the lender's perspective.
[7] 11 U.S.C. § 509(a) provides is relevant part:
(a) Except as provided in subsection (b) or (c) of this section, an entity that is liable with the debtor on, or that has secured, a claim of a creditor against the debtor, and that pays such claim, is subrogated to the rights of such creditor to the extent of such payment.
[8] 11 U.S.C. § 509(c) provides:
The court shall subordinate to the claim of a creditor and for the benefit of such creditor an allowed claim, by way of subrogation under this section, or for reimbursement or contribution of an entity that is liable with the debtor on, or that has secured, such creditor's claim, until such creditor's claim is paid in full, either through payments under this title or otherwise.
[9] Section 1124 provides:
Except as provided in section 1123(a)(4) of this title, a class of claims or interests is impaired under a plan unless, with respect to each claim or interest of such class, the plan
(1) leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder of such claim or interest;
(2) notwithstanding any contractual provision or applicable law that entitles the holder of such claim or interest to demand or receive accelerated payment of such claim or interest after the occurrence of a default
(A) cures any such default that occurred before or after the commencement of the case under this title, other than a default of a kind specified in section 365(b)(2) of this title;
(B) reinstates the maturity of such claim or interest as such maturity existed before such default;
(C) compensates the holder of such claim or interest for any damages incurred as a result of any reasonable reliance by such holder on such contractual provision or such applicable law; and
(D) does not otherwise alter the legal, equitable, or contractual rights to which such claim or interest entitles the holder of such claim or interest; or
(3) provides that, on the effective date of the plan, the holder of such claim or interest receives, on account of such claim or interest, cash equal to
(A) with respect to a claim, the allowed amount of such claim; or
(B) with respect to an interest, if applicable, the greater of
(i) any fixed liquidation preference to which the terms of any security representing such interest entitle the holder of such interest; or
(ii) any fixed price at which the debtor, under the terms of such security, may redeem such security from such holder.
[10] Section 365(b)(1) provides in relevant part:
(b)(1) If there has been a default in an executory contract or unexpired lease of the debtor, the trustee may not assume such contract or lease unless, at the time of assumption of such contract or lease, the trustee
(A) cures, or provides adequate assurance that the trustee will promptly cure, such default.
[11] This issue is not presently before us. We note, however, that Debtors have put forth a valid rationale for the disparate treatment of the individual workers' claims that does not apply to Aetna's claims and it is unlikely that Aetna can prove that the disparate treatment afforded the individual workers discriminates unfairly against Aetna. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539122/ | 118 B.R. 103 (1990)
In re Ralph H. IMHOLTE and Judith L. Imholte, Debtors.
Ralph H. IMHOLTE and Judith L. Imholte, Plaintiffs,
v.
UNITED STATES of America, INTERNAL REVENUE SERVICE, Defendant.
Adv. No. A89-00644-001.
United States Bankruptcy Court, D. Alaska.
August 21, 1990.
*104 John McGee, Larry L. Caudle & Associates, Anchorage, Alaska, for plaintiffs.
Robert J. Branman, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, D.C., for defendant.
ORDER
DONALD MacDONALD IV, Bankruptcy Judge.
I. Introduction.
The Plaintiffs Ralph H. Imholte and Judith L. Imholte (Imholtes) filed a Chapter 7 petition on June 6, 1989, and subsequently filed this adversary proceeding against the Internal Revenue Service on July 10, 1989, seeking a determination of the validity of 940 and 941 employee withholding taxes assessed against them for the years 1984, 1985 and 1986 by the Defendant Internal Revenue Service (IRS). Imholtes contend that they did not have any employees in those years and that all workers in their shop were independent contractors. As such, no taxes were due. The IRS contends that all workers were employees of Imholtes.
II. Facts.[1]
The Plaintiffs started an auto body shop in approximately 1979 called the Ford Body Shop. They later expanded the business to include a parts business called Peninsula Auto Recovery Terminal and Services. Ralph Imholte and Kevin Fulton initially decided to start the business. Fulton and Imholte had prior work experience in auto body repair and were good friends. However, Fulton did not want to take the risk of starting up the business, so Imholte started the business and was owner; Fulton was Imholte's employee (and was paid as such) from 1979 through 1983.
In late 1983 or early 1984, Imholte decided to change the relationship that he had with his workers at the body shop. He decided to do this because work was sporadic and he was having a hard time keeping employees busy for a full 40-hour week. Imholte inquired with his accountant regarding changing the relationship with his workers from employees to independent contractors. Imholte also read an IRS publication which discussed employment taxes and gave a general review of the distinction between employees and independent contractors. Imholte testified that he made the switch from employee to independent contractor at a time when Kevin Fulton had ceased to work for him as an employee. Fulton left to work as a fisherman, but subsequently returned to work for Imholte under the new arrangement. After Imholte made the decision to hire independent contractors rather than employees, he had most of his workers sign a contract regarding their working relationship. These contracts were very similar with the exception of certain blank spaces which were filled in at the time they were signed by the individual. The contracts stated:
This contract will confirm our discussions and agreements and to clarify the agreement to provide labor on an individual basis between Ralph Imholte doing business as The Ford Body Shop and Peninsula Auto Recycling Terminal and Services here after known as the contractor, and (name) here after known as the sub contractor.
The contractor or his representitive (sic) will contract with individual companys (sic), corporations and government agencys (sic) to repair damage to motor vehicles and equipment and the sale of new and used parts of motor vehicles and equipment.
The contractor will provide a facility, utilities, parts, materials and equipment normaly (sic) considered to be shop *105 equipment of the recycling and repair trades.
The contractor will purchase from individual companys (sic), corporations and government agencys (sic) motor vehicles with damage to be repaired and sold or dismantled and sold as parts.
Subcontractors will provide all hand tools necessary to perform their trade. They will be responsible for keeping their work area clean.
All work performed will be done in a craftsman like manor (sic) to factory standards or better.
The subcontractor agrees to provide labor at (percent) unless mutualy (sic) agreed between the contractor and subcontractor.
Subcontractors will submit an itemized statement to the contractor on the first and the fifteenth of every month. Statement will be paid upon receipt and approval.
Having agreed to the foresaid we hereby put this agreement into effect on (date). If the agreement is operating to the satisfaction of both partys (sic) it shall be continued for an indefinite period but can be cancelled by either party upon written notice.
Imholte hired three categories of workers during the years in question. He hired auto body workers, who were allegedly paid 50% of the estimated repair ticket for each job.[2] He hired workers to pull parts, who were paid an hourly rate. He also paid one individual, Ed Moss, by the week, for his services in starting up and running a parts business, where spare parts were pulled from junk cars which Imholte purchased. Invoices for services were made out by the workers on a biweekly basis. These invoices reflect that at least some of the workers, on occasion, took advances or draws against their earnings for a particular period.
The contracts introduced into evidence at trial reflect that Imholte retained the following workers on the following dates:
Date Worker Rate
Nov. 15, 1983 Rhys Burger $5.00 per hour
Jan. 1, 1984 Jerry Huff 50% of shop rate
Feb. 1, 1984 Kevin Fulton 50%
Apr. 20, 1984 Jearl Smith 50% of estimate
Oct. 1, 1984 Edward Moss $200.00 per week
Jul. 1, 1984 Bryce Burger $5.00 per hour
Jan. 15, 1985 Dan Smith 50% of estimate
Feb. 15, 1985 Scott Misner $5.25 per hour
Testimony revealed that Imholte had other workers as well, for whom contracts were not produced.
With the exception of an air compressor, a frame rack, and a painting booth, which were provided by Imholte, the body shop workers and the parts men provided their own tools for their jobs. Imholte provided a place to work and paid the utilities. The body shop workers provided tools valued between $5,000-15,000, in connection with their work. The parts men's tools were worth as much as $2,000-3,000. Each worker kept his tools either at the shop or in his own vehicle. Both the body shop men and the parts men could refuse to do certain jobs, and kept their own hours, although they were mostly at work during regular business hours. Some of the body shop men, on occasion, hired their own helpers, who they paid rather than Imholte. At least one of the body men worked at other body shops during the same time period that he was working for Imholte. If any of the workers turned down jobs because they had other jobs or simply didn't want the work, Imholte would have to either find someone else to do the work or do it himself. Imholte could not compel them *106 to do the work. One of the body men also did custom painting, and he would sometimes take some of his jobs out of Imholte's shop.
On occasion, Imholte would leave one of the body men in charge of the body shop while he worked as a boilermaker. Imholte would perform work as a boilermaker for approximately 6 to 8 weeks each year so that he could accrue enough hours to maintain his union pension benefits. When a particular body man was left in charge on these occasions, he would be paid a weekly salary for managing the shop.
Parts pullers were paid $5.00 an hour. Their skills were relatively minor. They simply took parts off of wrecked vehicles. They used their own tools, but such tools did not have to be extensive. They could come and go as they pleased but generally stayed during business hours. Scott Misner, a parts puller, also did work on Imholtes' house.
Ed Moss was paid on a weekly basis for his services in setting up and running the parts business. Moss started at $200 per week and his pay gradually increased as the parts business picked up. Moss, an amputee, did not pull parts from vehicles. Moss was paid regardless of whether he was at the shop or occasionally working at another business located across the street from Imholte's shop. Imholte testified that he hired the other parts men on the basis of Moss's recommendations, although the contracts reflect that he hired one parts man, Rhys Burger, before Moss signed his contract with Imholte.
III. Legal Analysis.
Employee is defined, in 26 U.S.C. § 3121(d)(2) as:
any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee.
Factors to be considered, in making the determination, according to the Supreme Court, are the industry's right to control how work shall be done, opportunities for profit or loss, investment in facilities, permanency of relation and skill required in the claimed independent operation. No one factor is controlling, "nor is the list complete." United States v. Silk, 331 U.S. 704, 716, 67 S.Ct. 1463, 1469-70, 91 L.Ed. 1757 (1947). The court also pointed out "[I]t is quite impossible to extract from the statute a rule of thumb to define the limits of the employer-employee relationship." Id. at 716, 67 S.Ct. at 1469.
Other courts have considered several factors in determining whether such a relationship exists, including:
(1) the right to control the details of the work; (2) furnishing of tools and the work place; (3) withholding of taxes, workmen's compensation and unemployment insurance funds; (4) right to discharge; and (5) permanency of the relationship.
Professional & Executive Leasing, Inc. v. C.I.R., 862 F.2d 751, 753 (9th Cir.1988).
A 1975 Wisconsin district court case gave an excellent summary of the many possible factors a jury should consider in determining whether or not a body repairman was an employee or an independent contractor. Paraphrasing the court in E & W Auto, Inc. v. U.S., 35 A.F.T.R.2d 75-794, 75-795, 796 (E.D.Wi.1975), they are:
(1) right to control the details and manner of performance;
(2) manner of payment by the job or by the hour;
(3) right to discharge without cause;
(4) furnishing of tools, equipment and a place to work;
(5) permanency of the relationship and length of time of employment;
(6) intention of the parties and their belief as to the relationship;
(7) skill required;
(8) offering of services to general public rather than to one individual;
(9) investment required and opportunity for profit;
(10) is the undertaking part of the business of the Plaintiff;
(11) were auto body repairmen individually carrying on an independent business or whether they worked in the course of *107 Plaintiff's general business and were an integral part thereof;
(12) did alleged contractor hire employees;
(13) did Plaintiff have the right to assign work, assign a place for work, or assign the work to others;
(14) carrying of Workers' Compensation Insurance or other insurance.
Despite the fact that no one factor is controlling, "employer control over the manner in which the work is performed, . . . is the basic test." General Investment Corp. v. U.S., 823 F.2d 337, 341 (9th Cir. 1987).
The test for determining employer control is set out in a Treasury regulation as follows:
Generally, such relationship exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he has the right to do so.
Professional & Executive Leasing, Inc., supra at 753, citing Treas.Reg. § 31.3121(d)-(1)(c)(2) (1980).
There are only two reported decisions directly dealing with body repairmen as employees. Entner v. United States, 67 F.Supp. 684 (S.D.Ohio 1946) was a non-jury case. Entner owned an automobile dealership. He rented a portion of the real property to John Hall. Hall painted cars and repaired fenders. Hall paid Entner 30% of his gross receipts for rent and assistance in billing. Entner had no control of Hall's work. Hall had a sign of his own which stated "John Hall, Repair of Automobiles" and frequently hired employees. The court found Hall to be an independent contractor.
The only other decision dealing with auto body repairmen is the jury decision found in E & W Auto, Inc. A jury applied the previously listed factors to an auto body repair business located in Milwaukee. The jury found for the employer. Auto body repairmen were found to be independent contractors. E & W Auto, Inc., 35 A.F.T.R.2d 75-794.
With two exceptions, I find the auto body repair workers in this case to be independent contractors. Imholte was only able to control the end result of their work, and not the manner in which the work was performed. The body workers had some degree of control over their earning capacity, as their salary (the 50% share of the estimated ticket) could be increased if they worked faster than estimated and performed more jobs in a day. The body workers had discretion over how the job would be performed, and could refuse to do jobs. The body workers sometimes provided estimates for jobs independently of Imholte. They were skilled workers earning as much as five times minimum wage. Their relationship with Imholte was "at will", and either party could terminate it without cause. The tools provided by the body workers were significant and essential to their work. The workers hired and paid for their own assistants, if needed.
I do not find body man Jerry Huff to be an independent contractor, however. He ran the shop when Imholte was away. He was not paid by the job. The records reveal payment of a consistent salary based on a monthly or hourly rate (Government Exhibit "D"). I find Imholte had the right to exercise control over the manner of Huff's performance. He exercised management functions on occasion and was not an independent contractor.
The second exception arises when other auto body repairmen ran the shop for Imholte. Employment was for a specified period of time for a specified purpose and for a specified salary. Further, Imholte had the right, even if he may not have exercised it, to direct the body worker as to how his management functions were to be performed. Accordingly, to the extent that *108 any of the body shop men worked as manager of the shop in Imholte's absence, they were employees rather than independent contractors for the period of time that they managed the shop, and only to the extent of the salary they received for their managerial functions.
The parts pullers were employees of Imholte. The circumstances of the parts men in this case are not unlike those of the coal unloaders in U.S. v. Silk, 331 U.S. 704, 67 S.Ct. 1463, 91 L.Ed. 1757 (1947). In Silk, the unloaders worked as they wished, often intermittently, and provided their own tools. Here the parts workers could not control their earning capacity in the way that the body workers could, and did not have the same degree of responsibility in performing a particular job that the body workers did. Further, although they too provided tools on the job, the tools were much simpler, and their investment in the tools smaller, than in the case of the body workers. The fact that the parts pullers may have kept irregular hours, or could have refused to pull a part on occasion, is irrelevant. They were paid by the hour to perform a task which does not require much professional discretion and, thus, were employees of Imholte rather than independent contractors.
Ed Moss, the parts manager, was also an employee. Because Imholte had little knowledge of the parts business, he hired a manager who did. Moss was not an auto body repairman. He did not possess special skills in any one profession. He managed the parts business in exchange for a salary which increased with the success of the business. As the owner of that business, Imholte had the right to control the parts operation. The fact that he claims not to have exercised that right is immaterial. Moss provided no tools. He had no investment in a business for profit. He hired no independent employees. Ed Moss was an employee.
Therefore, IT IS HEREBY ORDERED:
1. The 940 and 941 Employee withholding taxes assessed for the years 1984, 1985 and 1986 are invalid only to the extent that they represent taxes for auto body repairmen other than Jerry Huff when such body repairmen were not acting in a management capacity;
2. Any tax assessments inconsistent with the provisions of paragraph 1 hereof are to be set aside and expunged from the tax records of the Plaintiffs.
3. Each party shall bear their own costs and attorney's fees.
NOTES
[1] The record in this case is woefully sparse. It consists almost entirely of the testimony of Plaintiff Ralph Imholte and some documents. None of the alleged "employees" testified in court for either party. Very few invoices for wages paid were produced by the Plaintiffs. The Defendant Internal Revenue Service produced but one witness, an Agent whose testimony was of little value. Against this barren background, the court must make its findings.
[2] The evidence on this point is sharply conflicting. While Imholte alleges payment based on 50% of the shop rate, the pay records of Jerry Huff indicate a monthly salary or hourly wage for a substantial period of time. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539127/ | 397 Pa. Superior Ct. 387 (1990)
580 A.2d 352
COMMONWEALTH of Pennsylvania
v.
Kendall PITTS, Appellant.
Supreme Court of Pennsylvania.
Submitted June 25, 1990.
Filed August 30, 1990.
*388 H. David Rothman, Pittsburgh, for appellant.
Claire C. Capristo and Maria V. Copetas, Asst. Dist. Attys., Pittsburgh, for Com.
Before CIRILLO, President Judge, and POPOVICH and HESTER, JJ.
HESTER, Judge:
This is an appeal from the February 15, 1990 order denying appellant relief without a hearing under the Post-Conviction Relief Act. Since we conclude there there is no dispute that the issues raised in this appeal are not cognizable under the PCRA, we affirm.
Resolution of the issues raised in this appeal requires a comprehensive review of the evidence introduced at the trial of appellant, Kendall Pitts. Appellant was convicted by a *389 jury on June 5, 1987, of carrying an unlicensed gun and of first degree murder in connection with the shooting death of nineteen-year-old Derrick Mahaffey on June 22, 1986, in a public housing development in Pittsburgh known as the Garfield Projects. Appellant shot Derrick from the automobile that appellant was driving. Five eyewitnesses testified at trial, including the two passengers in appellant's car.
Sylvia Johnson, one eyewitness to the shooting, testified as follows. She lives across from the apartment of the victim's grandmother and was the victim's best friend. She had dinner with Derrick and his grandmother on the evening of June 22, 1986. After dinner, she, the victim, Sylvia's sister, and Sylvia's niece went outside to sit on lawn chairs and talk. Approximately five minutes later, she noticed an automobile drive past and then back up. The car was a small, blue station wagon, and one of the occupants whom Sylvia could not see asked Derrick his name and accused him of "making faces" at him. Notes of Testimony, 6/2-5/87, at 47. The victim denied that he had made faces and stood up from his chair. Sylvia said that Derrick was shot immediately. She heard three shots, in quick succession. Sylvia panicked, grabbed her young niece, and ran.
Sylvia was firm that she heard three shots and that all three were fired immediately after the victim stood up. Although she ran as soon as she heard the first shot, Sylvia soon turned to look at the victim. She saw the victim walk toward the car, lean on it, and then place his hands inside the driver's window. The car drove away slowly. Sylvia stated that no further shots were fired either while the victim was approaching the car or while he was at the car. After Sylvia saw the car drive away, she returned to the victim, who collapsed in her arms.
Sharee Johnson, Sylvia's sister, was thirteen when the shooting occurred. At trial, she acknowledged that she was more concerned with her own well-being than observing the events of the shooting and that she ran as soon as the first shot was fired. Although she confirmed her sister's version *390 of events prior to the shooting, her testimony was that one shot was fired at the victim when he stood up and that two shots were fired while he was leaning against the car.
A third eyewitness, Charles Woodward, who also lived in the Garfield Projects, observed the shooting from across the street. He did not hear the verbal exchange between the victim and the driver of the car, but he did not flee or turn his head when the shots were fired. He testified that three shots were fired in rapid succession as soon as the victim stood up from his chair. He stated that the victim did not lean against the light blue station wagon, which had driven away, but instead, leaned against a car parked along the street. Woodward's unshaken testimony was that Derrick was shot three times immediately after he stood up and before he started to walk toward the car. Woodward did not see the occupants of the blue station wagon, which drove away after the shooting.
Derrick Webb testified as follows. He was one of the two passengers in the car and is on friendly terms with both the other passenger, Todd Blackman, and appellant. Webb was sitting next to appellant and observed him shoot Derrick. Webb also was with appellant during the evening hours prior to the shooting when he and appellant had been driving around and drinking a moderate amount of beer. They picked up Blackman later in the evening, just prior to the shooting. Webb noted that appellant did not mention the victim's name or indicate that he was angry with anyone at any point during the evening.
When the three men started driving through the Garfield Projects, they drove past the victim and his friends. Webb heard someone "scream out," and appellant backed up his car, stopping in front of the victim. Id. at 162. Webb said that appellant then asked the victim, "What's Up?" several times. Id. The victim stood up and started to walk toward the car, and appellant shot him three times. The victim kept walking toward the car, which drove away. Webb testified that the victim never had his hands inside appellant's car. When asked by the Commonwealth whether *391 there was a motive for the shooting, Webb responded that he observed absolutely no reason for appellant to shoot Derrick. Id. at 171.
Todd Blackman also testified for the Commonwealth. He is appellant's first cousin and was raised as his brother. Blackman also knew the victim and Sylvia Johnson. Blackman confirmed that he, appellant, and Webb were driving through the Garfield Projects and drove past Derrick. He also heard the gun fired three times which he described as occurring when Derrick was "coming toward the car." Id. at 230.
Aletta Curry was appellant's girlfriend, and she testified that approximately two weeks after the shooting, appellant told her that he shot Derrick because the "guy was talking stuff on him; and he didn't like what he was saying, so he shot him. . . ." Id. at 263.
Both Sylvia Johnson and Derrick Webb testified that there was no weapon in Derrick Mahaffey's hands at any point during the exchange between appellant and Mahaffey. It also was established at trial that appellant was not licensed to carry a gun at the time of the shooting and that he owned a light blue station wagon. Derrick died of one gunshot wound which penetrated his heart.
We summarize the evidence as follows. All of the eye-witnesses agreed that the first shot was fired as soon as the victim stood up and started to walk toward the car, which had backed up to come parallel to the victim. Four witnesses, including appellant's cousin, said all three were fired as soon as the victim stood up. Only the young witness, who admittedly was not paying attention, said that the other two shots were fired when the victim was leaning against a car. There was a conflict about which car the victim leaned against, but the two witnesses who did not turn away agreed that it was not appellant's car. The victim was unarmed, and the motive, established by appellant's own admission as well as eyewitness testimony, was that the victim called appellant names. The fact that appellant pulled the trigger is established by Webb and by appellant's *392 statements to his girlfriend. Although appellant's cousin did not say that appellant pulled the trigger, the cousin admitted all of the other relevant facts and did not state that either Webb or he shot the gun. Succinctly, the evidence offered by five eyewitnesses, including appellant's cousin, refutes any inference that the appellant acted in self-defense.
The jury returned a verdict of guilty of first degree murder. Appellant was sentenced to life imprisonment on August 28, 1987. He filed a direct appeal, alleging that trial counsel was ineffective for failing to impeach Webb with a prior conviction and for failing to object to the trial court's instructions. Appellant was represented by privately-retained counsel during trial and by the public defender's officer during his direct appeal. On appeal, we remanded for a determination as to whether Webb was impeachable as alleged and rejected appellant's allegation that jury instructions were improper. Following a hearing, the trial court determined that Webb was not impeachable with the prior conviction since the conviction was not for a crime involving crimen falsi.
On May 5, 1989, appellant filed a petition for relief under the PCRA, which was denied without a hearing. This appeal followed. Appellant contends that he is entitled to a hearing on his PCRA petition which contains allegations that trial counsel was ineffective for failing 1) to call him to testify on his own behalf since he was the only witness who could have established that the victim was the aggressor in the episode; 2) to investigate and present the defense of voluntary intoxication and drug ingestion to negate the specific intent to kill; and 3) seek a severance with respect to the charge of carrying an unlicensed weapon.
This is appellant's first PCRA petition, and he strenuously argues that prior appellate counsel was ineffective for failing to raise these issues during direct appeal and that the decision not to pursue the issues was not a tactical decision. We therefore conclude that the issues are not waived. See Commonwealth v. Hanes, 397 Pa.Super. 38, *393 579 A.2d 920 (1990); Commonwealth v. Ryan, 394 Pa.Super. 373, 575 A.2d 949 (1990); Commonwealth v. Velasquez, 387 Pa.Super. 238, 563 A.2d 1273 (1989). See also Commonwealth v. Weinder, 395 Pa.Super. 608, 613 n. 2, 577 A.2d 1364, 1367 n. 2 (1990). However, we also conclude that the issues are not cognizable under the PCRA as a matter of law. Ineffective assistance of counsel is cognizable under the PCRA only where it undermined the truth-determining process so that no reliable adjudication of guilt could have taken place. 42 Pa.C.S. § 9543(a)(2)(ii); Commonwealth v. Thomas, 396 Pa.Super. 92, 578 A.2d 422 (1990).
As to counsel's failure to seek severance, this allegation is not cognizable as stated. This follows because severance of two charges to which the defendant obviously is guilty where both charges stem from the same criminal incident does not implicate the reliability of the truth-determining process. Accordingly, this allegation is not cognizable on its face.
Turning to the other two allegations of trial counsel's ineffectiveness, we conclude that under the facts, the allegations of ineffectiveness raised in this appeal did not undermine reliability of the truth-determining process as a matter of law. Appellant's guilt of first degree murder is established conclusively by the record, which demonstrates the falsehood of the two issues allegedly foregone by counsel.
As to appellant's claim that he would have testified that the victim was the aggressor, we note the following. There were five eyewitnesses to this crime, and no one's testimony contains a scintilla of support for the position that the victim was the aggressor. Appellant himself admitted his motive for shooting the young man was that he called appellant a name, which motive was confirmed by Webb and Sylvia Johnson. In addition, all eyewitness testimony agreed as to two key facts: appellant had to back up his car to come parallel with the victim and the first shot *394 was fired before the unarmed victim stepped toward the car in which appellant easily could have driven away in order to avoid any conflict.
Since the record establishes conclusively that the victim was not the aggressor, trial counsel's alleged ineffectiveness in failing to allow appellant to testify to the contrary did not undermine the reliability of the truth-determining process at appellant's trial. This follows because such testimony would have been a fabrication. See Commonwealth v. Perdue, 387 Pa.Super. 473, 564 A.2d 489 (1989) (improper cross-examination did not undermine truth-determining process); Commonwealth v. Blackwell, 384 Pa.Super. 251, 558 A.2d 107 (1989) (while some pretrial identification procedures may undermine truth-determining process, procedure at issue did not). Compare Commonwealth v. Thomas, supra (trial counsel was ineffective for failing to preserve objection to patently inadmissible hearsay and this implicated reliability of truth-determining process in that hearsay is inherently unreliable and hearsay at issue was a key piece of evidence establishing defendant's guilt); Commonwealth v. Weinder, supra (where alibi evidence was strong and where alibi instructions were incorrect, reliability of truth-determining process was implicated by improper instructions).
The record also establishes that appellant did not have a defense of voluntary intoxication. He confessed to his girlfriend that he shot the victim because the victim called him a name (not because he was intoxicated and did not mean to shoot him). Further, Derrick Webb was with appellant the entire evening prior to the shooting and testified about the level of appellant's consumption of alcohol. It was not sufficient to negate specific intent to kill.
In conclusion, the PCRA does not provide relief on the basis of allegations that trial counsel was ineffective for failing to present defenses which the record establishes are false. Appellant does not level an attack on the reliability of the evidence presented against him or the fairness of his trial. Instead, he contends that trial counsel should have *395 taken actions which are offensive to the truth-determining process. Since the purpose of the PCRA is to prevent a fundamentally unfair conviction, Commonwealth v. Weinder, supra; Commonwealth v. Velasquez, supra, and since appellant's allegations do not raise the inference that his conviction is unfair, we conclude that appellant's allegations are not cognizable. In the present case, there are no genuine issues of material fact that appellant is not entitled to relief under the PCRA. Accordingly, we conclude that the PCRA court correctly dismissed the petition without a hearing. See Pa.R.Crim.P. 1507(a), Commonwealth v. Ryan, supra.
Order affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539162/ | 121 N.J. 378 (1990)
580 A.2d 262
IN THE MATTER OF GEORGE SPINA, AN ATTORNEY AT LAW.
The Supreme Court of New Jersey.
Argued September 26, 1989.
Decided September 21, 1990.
Richard J. Engelhardt, Assistant Ethics Counsel, argued the cause on behalf of the Office of Attorney Ethics.
*379 Stephen R. Knox argued the cause for respondent.
PER CURIAM.
Respondent, George C. Spina, pleaded guilty in 1984 to one count of a two-count information filed by the U.S. Attorney's office in Washington, D.C. The second count, the subject of the plea, charged respondent with taking property without right (a lesser-included offense of petty larceny commonly referred to as "unauthorized borrowing"), in violation of D.C. Code § 22-1211. The offense is equivalent to a disorderly-persons offense under New Jersey law. The Office of Attorney Ethics (OAE) moved before the Disciplinary Review Board (DRB) for final discipline based on a criminal conviction. See Rule 1:20-6(b)(2)(i). After a hearing, a five-member majority of the DRB recommended disbarment, with four members voting for a three-year suspension.
After completion of proceedings in this Court, we remanded to the DRB to prepare Supplemental Findings of Fact and Conclusions, affording both the OAE and respondent the opportunity to comment on those findings. Thereafter the DRB submitted its supplemental report, and again five members voted to disbar and four to suspend for three years. Our independent review of the entire record leads us to accept the recommendation of the majority of the DRB, calling for disbarment.
I
Shortly after being admitted to the New Jersey bar in 1977, respondent began his association with the International Law Institute (ILI), which was then an independently-chartered entity of Georgetown University, made part of the Georgetown University Law Center for administrative convenience. The Law Center handled routine administrative matters for the ILI but did not exercise overall direction or policy control over its activities. The ILI became a separate entity on July 1, 1983, *380 and is no longer controlled by the University. Although Spina was admitted to practice in the District of Columbia in 1979, he has never practiced law either in New Jersey or in the District.
At various times respondent held the positions of Director of Research, Director of Administration, Executive Director, and Acting Director of the ILI. His responsibilities required him to function as teacher, administrator, and fund-raiser. He was frequently called on to travel throughout the United States and abroad to conduct ILI-sponsored conferences and programs, in addition to which he spent considerable time, effort, and money entertaining important members of the international legal community. He devoted himself almost completely to the affairs of the ILI, so that, according to his attorney, "it virtually became his whole life."
Respondent's efforts were successful in that under his direction the ILI flourished and prospered, but those efforts were not without cost. Respondent's salary started at $16,000 and never exceeded $30,000 a year, an amount insufficient to fund the various activities that Spina thought necessary to advance the interests of ILI. He therefore began to spend significant amounts of his own money on ILI-related matters, but quickly became impatient with the inefficiency of the University's cumbersome reimbursement process. As a result Spina began to intermingle ILI money with his own by frequently depositing ILI funds in his personal account, taking the position that he was spending ILI funds on ILI business. The liberties he took with ILI's money, however, exceeded any recognized bounds of propriety.
For example, on March 6, 1979, August 7, 1979, and February 12, 1980, Spina deposited in his personal checking account three checks representing contributions to ILI, totalling about $17,000. Also during 1980 he submitted reimbursement claims for about $1600 for three first-class tickets covering air travel for business trips, when in fact Georgetown University Law Center had originally purchased those tickets. Respondent's unorthodox *381 and improper accounting procedures came to the attention of Georgetown University officials when, in 1981, the Bechtel Corporation inquired about a $15,000 contribution it had made to ILI by check in December 1980 a check that Spina had deposited in his personal checking account on December 20. Unable to locate the money, University officials opened an investigation. Respondent, apparently unaware of the probe, continued his errant behavior by depositing into his personal account, in April 1981, traveler's checks and currency received by the Law Center as tuition payments. Finally the assistant dean of the Law Center confronted Spina in May 1981 with the Bechtel-check problem. Instead of acknowledging the error of his ways, respondent invented a series of wholly-implausible explanations about the missing check.
Remarkably, respondent's awareness of the investigation produced no change in his handling of other people's money: he continued to deposit ILI funds in his personal account, including checks and currency received by the Law Center as tuition payments. Equally remarkably, in September 1981 he sought reimbursement of about $400, the cost of a limousine service, which he told the Law Center had been for a business trip with Senator Charles Matthias of Maryland and the Attorney General of Australia. In fact, it had been for respondent's personal use to attend a wedding.
The Bechtel Corporation's missing check continued to baffle the Law Center investigators. In addition to constructing five different versions of what had happened to those funds, respondent attempted to alter a copy of the check and submitted forged invoices. In November 1981, however, Spina finally acknowledged that he had converted the Bechtel check to his own use. When pressed about conversions of other ILI funds, however, he insisted that there had been no other instances of conversion. Respondent was dismissed from his position with ILI in November 1981. Ten days thereafter he made restitution of the $15,000 plus interest.
*382 Thereafter the United States Attorney for the District of Columbia continued the investigation, culminating in the issuance in June 1984 of the two-count information. By that time respondent had made full restitution of all amounts ultimately found due the University. Although the record is not entirely clear on the precise amounts in question, we accept respondent's summary, as follows:
Total original amount claimed to be
mishandled under [U.S. Attorney's]
investigation $46,499.66
Amount restored by Spina before
commencement of the investigation ($19,900.00)
Adjusted total amount remaining
during investigation 26,599.66
Total offset of business-related
expenditures, as allowed by ILI
Trustees 18,368.85
Less amounts not reimbursable
under GULC policy 4,067.94
Less miscellaneous bookkeeping
adjustments 641.87
____________
Net offset credit allowed under
GULC policy $13,659.04
Amount repaid by Spina $12,940.62
On June 24, 1984, Spina pleaded guilty to the misdemeanor of taking property, the Bechtel $15,000 check, without right. As part of the plea agreement Spina admitted converting an additional $32,000. The transcript of the proceedings reads:
THE COURT: As part of the plea agreement, you also have agreed to admit to converting amounts listed in Count One, paragraphs 9 through 12 [of the information].
Paragraph 9 of Count One alleges that you took or converted funds and checks totalling $32,000 as follows:
On March 6th, 1979, $2,000; August 7, 1979, $5,000; February 12th, 1980, $10,000; December 20, 1980, $15,000; that you used for your own personal purposes.
*383 That Count Ten indicates that you converted on April 1, 1981 and June 17, 1981 in the form of traveler's checks and currency of $11,500; that further that during 1980 that you requested reimbursement and received a reimbursement for an airline ticket having the total value of $1592.26.
And finally, in paragraph 12, September 14th or thereabouts, 1981, you submitted a claim for a reimbursement for limousine services of $407.40 knowing the limousine services were for your personal use.
As part of the plea agreement the Government indicated you would admit to converting those amounts on or about the date set forth in paragraphs 9 through 12 that I've just reviewed.
Did you so convert those funds as alleged in paragraphs 9 through 12 DEFENDANT SPINA: Yes, I did.
When asked to tell the court in his own words what he had done, respondent said:
During the course of my employment with the University and the Institute, various times I converted I commingled their moneys and my own. When I first went to work I was spending some of my own money on them and towards the end of my employment I was spending some of their money on me.
* * * * * * * *
While I knew what I was doing and I knew it was wrong, and I know it's wrong now and I regret it, I've never denied doing it. It was stupid and foolish but nevertheless.
In August 1984 the court sentenced respondent to six-months confinement and fined him $100, the maximum permitted under the law. The court had no doubt that "[Spina] did convert the money without right, that that very likely constitutes an offense for which disbarment could be ordered * * *." It then suspended execution of the custodial term and put respondent on probation for three years with several special conditions, all of which he has satisfactorily fulfilled.
In August 1985 the District of Columbia ethics authorities suspended respondent from the practice of law for medical reasons. The District has not addressed the merits of the ethics matter. The OAE commenced these proceedings in July 1986.
The DRB concluded that "[r]espondent's conviction establishes that he engaged in dishonesty, fraud, deceit and misrepresentation that adversely reflects on his fitness to practice law, in violation of DR 1-102(A)(3)(4)." Turning to the appropriate *384 discipline, the DRB observed that the fact that respondent's misconduct did not arise from a lawyer-client relationship or that respondent did not commit his offense in a professional capacity is immaterial, although the absence of a lawyer-client relationship rendered respondent's misuse of ILI's funds not technically a violation of DR 9-102, which would automatically mandate disbarment, citing In re Suchanoff, 93 N.J. 226, 460 A.2d 642 (1983). Addressing the mitigating factors, including respondent's remorse, his contention that everything he did was intended to benefit and to enhance the prestige of ILI, and his apparently otherwise unblemished career, the DRB found them insufficient to overcome the force of his "purloin[ing]" of the Bechtel check and his "admissions to many more instances of conversions * * *." The Board, characterizing respondent as "a calculating thief," said:
Respondent's avarice overwhelmed him. Unlike the attorney's actions in [In re Rutledge, 101 N.J. 493, 502 A.2d 569 (1986)], where he diverted travel agency commissions to his own personal use, and the lawyer's actions in In re Franklin, [71 N.J. 425, 365 A.2d 1361 (1976)], where his business expenses were exaggerated, respondent engaged in a systematic and continuous misuse of his employer's money to sustain an outward lifestyle that can only be characterized as opulent. In so doing, respondent forged endorsements on checks, stole currency and submitted fraudulent expense vouchers. Respondent's assertions that he believed the money to be his for use for ILI business is simply not credible.
The DRB rejected as well respondent's argument that his psychological problems excused his misconduct. It underscored respondent's awareness of the wrongfulness of his conduct, surely by May 1981 when the Law Center's assistant dean first questioned respondent. The DRB concluded that Spina's fabrication of five different explanations for the check's disappearance demonstrated his moral awareness of misconduct, despite which he continued to divert money to his own account.
Believing that there is a need to guarantee to the public that one who cannot conform to the standards of the profession will never again be licensed, a majority of the DRB concluded that "respondent's misconduct `constitutes irrefutable evidence of a profound lack of professional good character and fitness'" *385 (quoting In re Templeton, 99 N.J. 365, 367, 492 A.2d 1001 (1985)). Dissenting from the five-member majority's recommendation for disbarment, four members of the DRB, feeling "bound by respondent's plea to a crime [that] would constitute a disorderly persons offense in New Jersey," and believing that the facts underlying the conviction for conversion of the $15,000 Bechtel check would not justify disbarment, recommended a three-year suspension.
After hearing argument, this Court remanded to the DRB for a statement of any facts, in addition to the conviction itself, that the DRB concluded were relevant on the question of appropriate discipline, based on the written record, the transcript of the plea proceedings, the plea agreement, and "any documents that the Board finds respondent to have conceded as accurate, including the pre-sentence report and governmental sentencing memorandum * * *."
Thereafter the DRB submitted its supplemental findings of fact and conclusions, studded with references to documents that the sentencing court, without objection from respondent, had made part of the record, namely, the United States government's memorandum in aid of sentencing, respondent's memorandum in aid of sentencing, and the presentence report. Both parties had referred to those documents in their submissions to the DRB and this Court. The DRB's supplemental report makes clear that the DRB extended its review beyond the plea to what would be a disorderly-persons offense in this state, "to consider both the intent and knowledge of the respondent." The DRB again concluded that the respondent had "engaged in a systematic and continuous misuse of his employer's money to sustain an outwardly lavish lifestyle," with a reference to the presentence report's observation that Spina "substantially exceeded his legitimate income," and that "he travelled in an expensive manner, shopped at exclusive stores and demonstrated extravagance in his social undertakings."
*386 In addition, the DRB referred to the government's memorandum in aid of sentencing, which points out that among respondent's expenditures was a $2300 Cartier's wrist watch for himself and $2580 worth of jewelry for his sister. Particularly telling is the government's analysis in that document of each of the conversions to which respondent admitted as part of the plea agreement. It reads:
3/6/79 $2,000 Before Spina deposited this check into
his account, the account balance was
$2,164.01. The money was consumed
within three or four weeks by reason of
his having paid his Diners, American
Express and Carte Blanche bills
totalling $2,913.16. In addition, he
paid off $1,400 toward the remainder of
a loan from his sister.
8/7/79 $5,000 Before Spina deposited this amount into
his checking account, his balance was
$638.06.
2/12/80 $10,000 At the time Spina deposited this check
into his checking account, its balance
was $770.91. Some of his uses for this
money was to contribute $100 to Seton
Hall University, to repay a loan from
his sister in the amount of $4,500, to
pay an art gallery $550, to pay Brooks
Brothers $418.80 and then in another
payment $658.99, and pay $1,579 toward
his next season's opera tickets. By
May 21, 1980, his checking account
balance was down to $210.69.
6/80 (airplane-) During this time period, whereas Spina
12/80 (ticket ) had always been exceedingly prompt in
(scam ) paying all of his credit card bills, he
(totalling) fell more than a month behind in almost
($2,592.26) all of his credit card payments while
he borrowed $2,000 from his mother on
July 1, $1,543.05 from his sister on
*387
September 23, and another $3,000 from
his mother on October 6.
12/29/80 $15,000 Before Spina deposited this check into
his account, its balance was $414.29.
The Bechtel check was written on
December 17, 1980, and Spina did not
deposit it into his account until
December 29, 1980. During that
interval, during which Spina was still
over a month behind on his credit
cards, Spina purchased a Christmas
present for himself on December 24,
1980, a $2,300 Cartier wristwatch which
he charged on his American Express
Card. Some of the uses to which Spina
put this $15,000 were payments to the
following people or entities: his
mother $50; Diners Club $461.45,
American Express $1,233.01, Carte
Blanche $143, the Air Force
Association (Life Membership) $200,
Metropolitan Opera $375, Columbia
University $1,000, Republican
National Committee $50, Seton Hall
University $100, repayment of a loan
to his mother $5,000, repayment of
loans from his sister $3,448.05,
payment to his mother $500, payment
to Brooks Brothers $498.29, and
another payment to the Metropolitan
Opera $345.
On March 4, 1981, Spina received a long
overdue expense reimbursement of some
$5,300 (which included his airplane
ticket overbilling of $1,494) and it
was from this money that he paid an
American Express bill totalling
$4,805.19, including the cost of his
watch.
4/1/81 $6,600 Before Spina deposited this check, his
checking account balance was
*388
$526.37. ON THE VERY NEXT DAY, APRIL 1,
1981, HE PAID THE METROPOLITAN OPERA
$4,144, INCLUDING $3,844 FOR HIS NEXT
YEAR'S SEASON TICKETS AND A $300
CONTRIBUTION. Other uses for this money
were payments to Paul Stuart in New
York of $129.60 and $105.22 (for
leather goods), payments to Diners Club
of $532.77, and to American Express of
$1,026.84, and payment of his personal
federal and local income taxes of
$877.18.
6/17/81 $4,900 Before depositing this check into his
account, Spina's balance was $143.74.
Uses for this money were Paul Stuart
$346.87, Tiffanys $356.40,
Carte Blanche $234.33, Brooks
Brothers $740.50, American Ballet
Theatre $100, American Express
$983.50, Diners Club $293.52, Brooks
Brothers $271.36, The Mayflower
50-year Fund $100, U.S. Historical
Society $199, and a pipe organ
service (for his hometown church)
$1,175.
On July 27, 1981, he borrowed $15,000
from his mother. One of the uses of
this money was to pay an American
Express bill of $3,542.49 which
included a $2,580 cost for jewelry
which he had given to his sister.
A five-member majority of the DRB again recommended disbarment, with the four-member minority adhering to its previous position that respondent's plea could justify no more than a three-year suspension.
*389 II
Before this Court respondent argues that the DRB erred in going beyond the four corners of his plea of guilty to a misdemeanor. More particularly, he claims that the statute he admits having violating is a "general intent" statute that requires only a showing of an intention to commit the proscribed act and does not require a showing of a specific intent to steal. Therefore, because respondent has been convicted only of unauthorized borrowing, the DRB's conclusion that he was "a calculating thief" was based on unproven allegations.
Respondent's argument suffers from sterility. When, as here, the proceedings are initiated by a motion for final discipline based on a criminal conviction, the ethics authorities and this Court may be required to review any transcripts of a trial or plea and sentencing proceeding, pre-sentence report, and any other relevant documents in order to obtain the "full picture." This Court has held that it is appropriate to consider "evidence [that] does not dispute the crime but shows mitigating circumstances [relevant to] the issue of whether the nature of the conviction merits discipline and if so, the extent thereof." In re Mischlich, 60 N.J. 590, 593, 292 A.2d 23 (1972). That principle suggests that it is appropriate as well to examine the totality of circumstances, including the details of the offense, the background of respondent, and the pre-sentence report in reaching an appropriate decision that gives due consideration to the interests of the attorney involved and to the protection of the public.
In this case we do no violence to the procedures that govern our disciplinary function nor to notions of due process when we take into consideration respondent's acknowledged misuse of funds, in addition to the Bechtel check, belonging to ILI. Respondent's acknowledgement of his conversion of many other checks and cash beyond the Bechtel $15,000 check was part of his plea agreement, and the various documents that put flesh on the bare bones of respondent's conversions were all made *390 part of the sentencing court's record and were referred to in these disciplinary proceedings. The sentencing court pointed out that respondent's admitted guilt established that he had engaged in a "pattern of activity" including forging checks, stealing cash, and submitting false reimbursement claims. Respondent does not dispute that he concocted five different stories in order to avoid responsibility for the Bechtel-check conversion, or that he lied about other conversions after finally admitting the Bechtel transgression.
Respondent offers in mitigation the report of a treating psychiatrist, who concluded that respondent suffered from a "Narcissistic personality disorder," which did not prevent him from knowing right from wrong but did lead "to the performance of the alleged acts." In the psychiatrist's view, however, those acts were not based on a specific intent to commit a crime but rather resulted from a "difficulty * * * similar to a person misperceiving or not perceiving an object in front of him because of a blind spot in [the] vision. Thus, it can be seen as a handicap rather than representing a conscious and deliberate act."
The quirk of mind that bedevils respondent, however, did not, by his own admission, prevent him from a full realization that his misuse of ILI's money was wrong. So flagrant were the ethical violations that we would not hesitate to disbar had the misconduct arisen out of a lawyer-client relationship. Nor do we believe that we should hesitate here, where the relationship was fiduciary in nature.
There is no escaping the fact that Spina knowingly misused substantial amounts of his employer's funds over a two-and-one-half-year period, taking quantities of money when his personal checking account ran low, and then lied when confronted by his employer. No discipline short of disbarment can be justified.
*391 Respondent is disbarred. He is to reimburse the Ethics Financial Committee for appropriate administrative costs.
So ordered.
For Disbarment Chief Justice WILENTZ and Justices CLIFFORD, HANDLER, POLLOCK, O'HERN, GARIBALDI, and STEIN-7.
OPPOSED-NONE.
ORDER
It is ORDERED that GEORGE C. SPINA of MAPLEWOOD, who was admitted to the bar of this State in 1977, be disbarred and that his name be stricken from the roll of attorneys of this State, effective immediately; and it is further
ORDERED that GEORGE C. SPINA be and hereby is permanently restrained and enjoined from practicing law; and it is further
ORDERED that GEORGE C. SPINA comply with Administrative Guideline No. 23 of the Office of Attorney Ethics dealing with disbarred attorneys; and it is further
ORDERED that GEORGE C. SPINA reimburse the Ethics Financial Committee for appropriate administrative costs.
WITNESS, the Honorable Robert N. Wilentz, Chief Justice, at Trenton, this 21st day of September, 1990. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539164/ | 118 B.R. 741 (1990)
In re SHEPHERD OIL, INC., an Arizona corporation, Debtor.
UNITED STATES of America and United States Department of Energy, Plaintiffs,
v.
SHEPHERD OIL, INCORPORATED, Defendant.
In re SHEPHERD OIL, INCORPORATED, an Arizona corporation, Debtor.
UNITED STATES of America and United States Department of Energy, Plaintiffs,
v.
SHEPHERD OIL, INCORPORATED and Scott H. Phillips, Trustee of Shepherd Oil, Incorporated, Defendants.
Bankruptcy Nos. B-84-2015-PHX-SSC, B-88-1378-PHX-SSC, Adv. Nos. 88-621, 88-622.
United States Bankruptcy Court, D. Arizona.
July 11, 1990.
Richard G. Patrick, Asst. U.S. Atty., Phoenix, Ariz. and Diane Polinger, U.S. Dept. of Energy, Washington, D.C., for the U.S. Dept. of Energy.
Brian W. Hendrickson, Tempe, Ariz., for trustee Scott H. Phillips.
Scott H. Phillips, Houston, Tex., trustee.
P. Wyman Shepherd, Lafayette, La., William Novotny, Mariscal, Weeks, McIntyre & Friedlander, and Richard M. Lorenzen, O'Connor, Cavanagh, Anderson, Westover, *742 Killingsworth & Beshears, Phoenix, Ariz., for Niro Atomizer, Inc.
Elizabeth Magner, Lemle & Keleher, New Orleans, La., and Thomas J. Salerno, Streich, Lang, Weeks & Cardon, Phoenix, Ariz., for Citibank, N.A.
Stanford E. Lerch, Kennedy, Wilson & Lerch, Phoenix, Ariz., for petitioning creditors.
MEMORANDUM DECISION AND ORDER
SARAH SHARER CURLEY, Bankruptcy Judge.
PRELIMINARY STATEMENT
This matter comes before the Court on the request of the Trustee, as Defendant, that he be granted summary judgment on the remaining claims in this adversary proceeding.
The United States of America and the United States Department of Energy ("D.O.E.") commenced these adversary proceedings on September 22, 1988.
The Trustee previously agreed that a judgment could be entered against him on Claim V, which alleged a claim for breach of contract damages as a result of the admitted default of Shepherd Oil, Incorporated, the Debtor herein, pursuant to the Confirmed Plan of Reorganization and/or the Amended Compromise Agreement entered into between the Debtor and the D.O.E.
In Claim VI of the Complaint, the D.O.E. requested that the priority of its lien on the assets of the Debtor's bankruptcy estate be determined by this Court. However, since a separate adversary proceeding had already been commenced by the Trustee to determine the priority of all liens against the Debtor's assets, and hence there was a serious question of law as to whether the D.O.E. had joined all necessary parties in its adversary proceeding, the D.O.E. withdrew Claim VI, without prejudice to asserting such a lien claim, if any, in the lien-ranking adversary proceeding only. An Order was entered by this Court dismissing said Claim VI without prejudice on November 8, 1989.
The Trustee filed his Motion for Summary Judgment on April 20, 1989. The Trustee also simultaneously filed his Statement of Facts.
On September 3, 1989, the Trustee and the D.O.E. stipulated to certain facts for purposes of the Trustee's Motion for Summary Judgment.
On October 10, 1989, the D.O.E. filed a Response to the Motion for Summary Judgment addressing substantively the issues raised by the Trustee, and a separate Statement of Facts.[1]
On October 13, 1989, the Trustee filed his Reply and a pleading entitled "Trustee's Rule 11 Response to Plaintiffs' Statement of Facts and Defendants' Supplemental Statement of Facts."
The aforesaid documents were followed in quick succession by:
1. Trustee's Revision to Defendants' Supplemental Statement of Facts, filed October 24, 1989;
2. D.O.E.'s Motion to file its Opposition to the Trustee's Response under Local Rule 11 to Plaintiffs' Statement of Facts and Defendants' Supplemental Statement of Facts, filed October 25, 1989; and
3. Defendants' Opposition to Plaintiffs' Motion to File Opposition to Trustee's Response under Rule 11 to Plaintiffs' Statement of Facts and Defendants' Supplemental Statement of Facts and Motion to Strike, filed October 25, 1989.
On October 13, 1989, the Trustee filed a Motion to Strike the D.O.E.'s Affidavit of Innokenty Tolmachoff. This Motion was *743 granted by the Court on December 6, 1989 at oral argument on the Trustee's Motion for Summary Judgment.
On October 20, 1989, the Trustee filed a Motion to Strike the Affidavit of Richard D. Dodd. This Motion was denied at oral argument on the Trustee's Motion for Summary Judgment.
At the oral argument on October 26, 1989, on the Trustee's Motion for Summary Judgment, it became clear to this Court that the material issues of fact for this Court to determine the Motion for Summary Judgment were not in dispute. There remained factual disputes between the parties, but these disputes were not relevant to the current issues before this Court.
The D.O.E. filed its pleadings on behalf of itself and the United States of America. The Trustee filed its pleadings on behalf of himself and the Debtor. Although the Trustee stipulated to certain facts for the purposes of his Motion, counsel for the Trustee stated at oral argument that the Debtor might wish to contest all or a portion of the facts in another proceeding.
This Court has jurisdiction over this matter, and this is a core proceeding. 28 U.S.C. §§ 1334 and 157(b)(2)(A), (E), (K), and (O). This Memorandum Decision and Order shall constitute findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052.
FACTS
On August 6, 1984, Shepherd Oil Incorporated, an Arizona corporation, filed a petition under Chapter 11 of the United States Bankruptcy Code. This Chapter 11 proceeding was assigned Case No. B-84-2015-PHX-LO (now Case No. B-84-2015-PHX-SSC). This Chapter 11 proceeding shall be referred to as S.O.I.-I.
The Debtor proceeded toward confirmation. On October 3, 1985, in S.O.I.-I, the Judge executed an Order confirming the Debtor's "Second Amended Plan of Reorganization Dated January 31, 1985, As Modified on May 17 and 28 and October 3, 1985" ("S.O.I.-I Plan").
The S.O.I.-I Order of Confirmation provided, in pertinent part:
A. The Modified Plan is confirmed and is made a part of this Order.
The D.O.E. was a claimant in Class 19 under the S.O.I.-I Plan. Members of Class 19 were to be paid, on the effective date of the Plan, the pro rata portion of their respective claims. (Article VII, Paragraph A. of the S.O.I.-I Plan, Page 15.)
The provisions regarding the distributions to Class 19 Claimants and the relevant provisions of the S.O.I.-I Plan granting the Class 19 Claimants a lien on the Debtor's assets are set forth in the following pertinent portions of the S.O.I.-I Plan:
The allowed claims in Classes 19, 20, and 22 shall be combined and treated on a pro rata basis as follows, except as otherwise specifically provided:
1. The claims shall bear interest at the Unsecured Creditor Rate from January 1, 1985, until paid in full.
2. The holders of the claims shall receive pro rata payments of the following percentages of the Net Cash Flow of Shepherd Oil (as defined below), which payments shall be determined semi-annually on December 31 and June 30 of each year, beginning December 31, 1985; the payments shall be made on or before March 31 and September 30 of each year, respectively; the calculation of Net Cash Flow as of December 31, 1985, shall be based on the period from January 1, 1985 through December 31, 1985,[2] while all subsequent calculations of Net Cash Flow shall be based on each succeeding six-month period;
(a) Forty Percent (40%), from January 1, 1985 through June 30, 1986;
(b) Forty-Five Percent (45%), from July 1, 1986 through June 30, 1987; and,
(c) Fifty Percent (50%), from July 1, 1987 until paid in full.
3. The Net Cash Flow payments shall first be applied to accrued interest and then to the allowed claim as of May 1, 1985.
*744 4. "Net Cash Flow" for Shepherd Oil for each period shall be calculated as follows and shall equal:
(a) Gross cash receipts received by Shepherd Oil (not including capital contributions or proceeds of loans); less (except for those items set forth in Paragraph 5 below),
(b) Ordinary operating and administrative expenses, including, but not limited to, purchases of molasses, chemicals, gasoline, and other raw materials, utility costs, transportation expenses, taxes, and compensation for employees other than officers; and,
(c) Officers' salaries not to exceed, for any fiscal year, $120,000 for President, $70,000 for Vice-President, and $45,000 for Secretary; and,[3]
(d) Repair, maintenance, and capital improvements not to exceed $1,500,000 for any fiscal year; and,
(e) Payments for debt service and to all classes of creditors and to priority creditors pursuant to the Plan or Order of the Bankruptcy Court; and,
(f) Payments for all administrative expenses incurred during or in relation to the Chapter 11 proceedings of Shepherd Oil, including those paid to professional persons such as attorneys, accountants, and appraisers.[4]
....
9. At a minimum, and whether or not there is positive Net Cash Flow, Shepherd Oil shall make payments to the claimants equalling the allowed claims as if they were being paid in equal semi-annual installments, including interest on the allowed amount of the claims at the Unsecured Creditor Rate (amortized), the first semi-annual payment being deemed due on June 30, 1986 and all subsequent payments thereafter being deemed due on each succeeding December 31st and June 30th until and including June 30, 1993 ("Minimum Payments"); payments from Net Cash Flow and the Initial Payment shall be credited and applied toward compliance with the Minimum Payments, and such payments in excess of the Minimum Payments in any period shall accumulate and be applied toward subsequently-required Minimum Payments.
10. The amount due the claimants shall be secured by a pro rata blanket lien in all of the Debtor's property wherever located, both real and personal; the blanket lien shall be evidenced by a formal separate order of the Court in recordable form, which shall be recorded in Maricopa County, Arizona, Jefferson Davis Parish, Louisiana, and wherever property of Shepherd Oil is located; the blanket lien shall be wholly subordinate to the liens of all holders of claims in Classes 1 through 17 and to any replacement or other secured financing not to exceed in total $15,000,000.00....[5]
11. The payments to holders of claims in Classes 19, 20, and 22 and their security interests granted hereby shall be supervised by a special trustee who shall be kept informed by the Debtor of all pertinent facts concerning the Debtor, including the payments to creditors and status of assets of the Debtor. Said special trustee shall be the Chairman of the Unsecured Creditors' Committee or any other individual designated by a majority vote of said Committee.[6]
....
N. If Shepherd Oil fails to comply with the terms of the Plan, the holders of claims in any class may proceed against Shepherd Oil and its property in order to enforce the Plan and collect the obligations of Shepherd Oil hereunder by bringing or taking any appropriate action under Federal or State law, in Bankruptcy Court or other court of competent jurisdiction, and, in the case of a secured claimant, in accordance with any applicable and existing mortgage, deed of trust, *745 security agreement, or other instrument evidencing a lien or encumbrance.[7] ...
At any time during the term of this Plan, Shepherd Oil may obtain additional or replacement secured loans which loans shall be entitled to a first and prior lien and encumbrance in and to certain of Shepherd Oil's property and assets located at or near Jennings, Louisiana, which shall result in the subordination of the liens, encumbrances, rights, and privileges of the following classes of creditors under the Plan who have a right, title, claim, or interest in such property and assets and who are described below. The proceeds of said loans shall be applied toward payment of the indebtedness owed to the claimants in the following classes until said proceeds are exhausted:
Creditor Level Class
One 1
Two 4 and 5
Three 14
Four 2
Five 3
Six 6
Seven 7
Eight 19, 20, and 22[8]
Any creditor in any Creditor Level not paid in full by the loan proceeds shall be fully subordinated to the liens of the new lender(s). Any Creditor Level involving multi-claimants or multiple classes shall be subordinated and paid loan proceeds on a pro rata basis within each Creditor Level. The Debtor will make its best effort to obtain financing which will not require the subordination of any Creditor Level.[9]
The Trustee and the D.O.E. agreed that the Class 19 Claimants were to be paid a pro rata portion of their claims based upon specified percentages of the Debtor's Net Cash Flow, commencing March 31, 1986.
On March 8, 1985, the D.O.E. filed a Proof of Claim for $9,943,328.00 for alleged violations by the Debtor of the D.O.E.'s Mandatory Petroleum Price and Allocation Regulations for the underreporting of price-controlled crude oil receipts.
On December 20, 1985, the Debtor filed an Objection to the D.O.E.'s Claim.
Article IX of the S.O.I.-I Plan provided that pending a resolution of any objection to a claim, the payments on the claim that were otherwise due were to
be reserved in interest-bearing accounts and set aside sufficient to satisfy the claim as filed by the claimant or as scheduled by the Debtor. Said accounts shall be located at the Allied Bank of Texas and shall be segregated, fully-insured, and not subject to set-off by Allied Bank of Texas.[10]
The Debtor proceeded with its operations postconfirmation. These operations included a modification or conversion of its facilities in Jennings, Louisiana to that of a corn/ethanol plant. The Debtor also owned a ranch in Arizona.
The postconfirmation operations of the Debtor permitted it to pay fifty percent of all claims in Class 19, except the claim of the D.O.E.
For a period of time, the Debtor reserved the sum of $341,486.000 for the D.O.E. in a certificate of deposit at Great Western Bank & Trust (now Citibank, N.A.) in Phoenix, Arizona; in April of 1987, the Debtor withdrew the money from that account.
The Trustee has stipulated for purposes of his Motion that the vast majority of the D.O.E.'s pro rata share, including but not limited to the sum of $341,486.00, was used to build the Debtor's corn/ethanol plant or to otherwise enhance the Debtor's refinery.
The Debtor was required to deposit the full amount of the D.O.E.'s pro rata claim in an interest-bearing segregated account pending resolution of the objection to the claim.
The D.O.E. commenced settlement negotiations with the Debtor in September of 1986 to resolve the Debtor's Objection to the D.O.E.'s claim.
*746 In proceedings before this Court, commencing in March of 1987, the Debtor conceded it was in default to its creditors concerning the remaining payments under the S.O.I.-I Plan.
Although the S.O.I.-I Plan granted a lien to the Class 19 claimants on the Debtor's facility in Louisiana, the Official Unsecured Creditor's Committee did not present an Order to this Court specifically granting such a lien until June 23, 1987. Article VII, Paragraph G of the S.O.I.-I Plan had required the submission of such a "formal separate order." (See supra note 6 and accompanying text.) The Order was not recorded in Arizona or Louisiana until after that date. Therefore, the Debtor had proceeded with its operations for a substantial period of time postconfirmation, including the granting of liens or encumbrances to certain creditors, prior to the recordation of the lien of the D.O.E. and other Class 19 claimants.
Irrespective of the payment defaults by the Debtor, the D.O.E. negotiated a second settlement agreement with the Debtor. (The first agreement was never approved by this Court.) A Hearing was scheduled on the approval of this second agreement for December 7, 1987. At the Hearing, counsel for the Debtor withdrew the agreement. The Debtor's counsel stated that the parties were negotiating a third agreement. However, the Debtor paid the D.O.E. the sum of $150,000 pursuant to this agreement. The Debtor did not otherwise perform pursuant to the agreement.
On January 20, 1988, the Debtor and the D.O.E. entered into an Amended Compromise Agreement ("Amended Compromise Agreement"), which this Court approved on June 15, 1988. The Amended Compromise Agreement revised and lowered the D.O.E.'s $9,943,328.00 claim for alleged oil-pricing violations by the Debtor to the sum of $4,050,000.00, plus the payment of interest per annum commencing January 1, 1988. The sum of $150,000.00 previously paid to the D.O.E. was deemed to be accrued interest owed to the D.O.E. by the Debtor prior to January 1, 1988.
Because of the Debtor's ongoing payment defaults under the S.O.I.-I Plan, several creditors filed an involuntary Chapter 11 proceeding against the Debtor on February 23, 1988, which was assigned Case No. B-88-1378-PHX-SSC (S.O.I.-II).
For purposes of this Motion for Summary Judgment and irrespective of the Debtor's payment defaults, the Trustee and the D.O.E. agreed that by March 2, 1988, the Debtor had substantially consummated the S.O.I.-I Plan.
On March 2, 1988, Scott H. Phillips was appointed as interim Trustee of the assets of S.O.I.-II. On March 9, 1988, the Debtor consented to an Order for Relief under Chapter 11 being entered against it. On April 5, 1988, Mr. Phillips was appointed, on a permanent basis, the Trustee of S.O.I.-II.
On May 27, 1988, the D.O.E. filed a claim in S.O.I.-II in the amount of $4,050,000, plus accrued interest, because of the Court approval of the Amended Compromise Agreement.
Based upon the payments made to other Class 19 Claimants, the D.O.E. is now seeking the sum of $2,025,000, plus accrued interest, representing 50 percent of its claim, as amended.
For purposes of this Motion for Summary Judgment, the Trustee stipulates with the D.O.E. that prior to the appointment of the Trustee, the Debtor (through its employees and officers) defrauded the D.O.E. of its pro rata share of its Class 19 Claim, "with the intent to so defraud and permanently deprive the D.O.E. of said funds." (Stipulated Facts of Trustee and D.O.E. filed on September 3, 1989, as revised by the Trustee on October 24, 1989.)
The D.O.E. apparently never requested that the Chairman of the Unsecured Creditors' Committee, the "special trustee" under the S.O.I.-I Plan, or its counsel, take any action on its behalf.
Pursuant to the S.O.I.-I Plan, this special trustee was contemplated to ensure the Debtor's compliance with the Plan as to the Class 19 claimants. (See supra text accompanying note 6.)
*747 LEGAL ISSUES
(I.) Whether an individual creditor in a bankruptcy proceeding may assert a claim in a subsequently filed bankruptcy proceeding to impress a constructive trust or equitable lien on the assets of the subsequently filed bankruptcy proceeding.
(II.) Whether the Debtor's Plan of Reorganization in the original Chapter 11 proceedings has created an express trust for the benefit of an individual creditor as to the assets that are a part of the subsequently filed Chapter 11 proceedings.
DISCUSSION
A Motion for Summary Judgment may be granted if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). As to the claims to be decided by this Court, the parties have stipulated to the relevant facts. Any factual issues which remain between these parties are not relevant to this Court's decision. The issue before this Court is solely which party is entitled to judgment based upon the stipulated facts.
I
The legal issues presented are complicated by the two pending Chapter 11 proceedings before this Court. Although it is most unusual for the debtor to have two such pending Chapter 11 proceedings, such a scenario is not without precedent. In re Jartran, Inc., 886 F.2d 859 (7th Cir.1989) (serial Chapter 11 filings permissible if filed in good faith).
The Debtor's efforts to reorganize by operating its plant in Jennings, Louisiana failed. However, the Debtor was able to make substantial payments to its creditors pursuant to the confirmed plan of reorganization, as amended. The parties in this matter have stipulated at oral argument that the S.O.I.-I Plan was substantially consummated.
The sale of the Debtor's facility in Jennings, Louisiana was approved by this Court in S.O.I.-II. The liquidation (not operation) of this facility, and all other assets of the Debtor, now serve as the basis for payment to the claimants of the S.O.I.-II estate.
As previously stated, S.O.I.-II was commenced by certain creditors filing an involuntary Chapter 11 petition against the Debtor. Although most creditors pursue the remedy of conversion or dismissal of the original Chapter 11 proceedings under 11 U.S.C. § 1112, the creditors of this Debtor elected to file a separate involuntary Chapter 11 petition when the Debtor was unable to continue with the payments as required under the S.O.I.-I Plan. The Debtor subsequently consented to the entry of an Order for Relief in the involuntary proceedings.
The propriety of these serial Chapter 11 filings is not currently an issue before this Court.
Therefore, in analyzing this matter this Court must distinguish between the treatment of the D.O.E. claim under the confirmed plan of reorganization, as amended, in the S.O.I.-I proceedings and the treatment of the D.O.E. claim in the S.O.I.-II proceedings.
The priority that a creditor may have in the initial Chapter 11 proceedings does not necessarily carry over in the subsequently filed Chapter 11 proceedings if the debtor has engaged in serial filings of Chapter 11 petitions. Jartran, supra. (Administrative claim in previously filed Chapter 11 proceedings is an unsecured claim in a subsequently filed Chapter 11 proceedings.) As a result, the rights and remedies of a creditor may be substantially altered or impacted upon in subsequently filed Chapter 11 proceedings.
In S.O.I.-II, after notice and hearing, various Judges of this Court entered Orders granting Citibank, N.A. a lien on the Debtor's assets with priority over all other secured and unsecured claims. This lien resulted from Citibank, N.A. providing critical financing to the Trustee in S.O.I.-II. The Trustee was operating the Debtor's facility on a limited basis to prepare and preserve it for sale.
*748 Although no plan of reorganization has yet been proposed in S.O.I.-II, this type of claim of Citibank, N.A., as well as the claims of secured creditors in S.O.I.-II and the claims of secured creditors in S.O.I.-I, may have priority over the D.O.E. in the S.O.I.-II proceedings.
The Trustee readily concedes that the D.O.E. has a breach of contract claim in the S.O.I.-II bankruptcy proceedings. This claim results from the Debtor's breach of the S.O.I.-I Plan and the Debtor's breach of the Amended Compromise Agreement entered into with the D.O.E. and approved by this Court at a Hearing on February 12, 1988.[11] The liquidated amount of these damages is the sum of $4,050,000 as set forth in the Amended Compromise Agreement.
Because of the numerous secured claims now being asserted against the proceeds received from the sale of the Debtor's assets, it is unlikely that the breach of contract claim of the D.O.E. in the S.O.I.-II proceedings or the Class 19 Lien claim of the D.O.E. from the S.O.I.-I proceedings will be paid. Therefore, the D.O.E., by asserting a constructive trust or equitable lien claim, is attempting to assert a priority over all other secured and unsecured creditors to the assets held in the S.O.I.-II proceedings.
The decisions of In re North American Coin & Currency, Ltd., 767 F.2d 1573 (9th Cir.1985), modified 774 F.2d 1390 (9th Cir. 1985), cert. denied sub nom. Torres v. Eastlick, 475 U.S. 1083, 106 S.Ct. 1462, 89 L.Ed.2d 719 (1986), and In re Tleel, 876 F.2d 769 (9th Cir.1989) clearly dictate a contrary result.
In North American Coin,[12] the debtor, an Arizona corporation whose operations involved the buying and selling of precious metals, experienced cash flow problems prior to filing a bankruptcy petition. Under an emergency plan, the principals of the Debtor created a bank account denominated a "Special Trust Account" into which they placed the funds of customers who had entered into new buy/sell transactions with the debtor. The express purpose of this account was "to protect new . . . customers in case the company did not survive." Id. at 1575. Moreover, at the time of the filing of the bankruptcy petition, the funds in the "Special Trust Account" remained intact. The customers asserted that the North American Coin trustee held the funds in constructive trust for them.
Although the Ninth Circuit stated that property which is "truly in trust" is not property of the estate under 11 U.S.C. § 541(d), the Court believed that between excepting the funds from the estate under a constructive trust theory or providing the funds for all creditors, the stronger policy under the Bankruptcy Code was the ratable distribution to all creditors requiring the funds to be treated as property of the estate. Thus, the debtor's placing of funds in an account labeled a "Special Trust Account" and the prepetition creation of a constructive trust could not defeat the rights of all creditors to have the funds in the Account turned over to the trustee for distribution to all creditors.
The funds reserved for the D.O.E. under the S.O.I.-I Plan were not placed in an account labeled "trust"; they were simply placed in a certificate of deposit, which later matured. The funds were later used to improve the Debtor's facility in Jennings, Louisiana.
Even if this Court ruled that the fraud perpetrated upon the D.O.E. created a constructive trust under some theory of law, this Court would be required to direct the turnover of any funds or assets for the benefit of all creditors in the S.O.I.-II proceedings. As previously stated by this *749 Court, the Jartran decisions[13] indicate that a creditor in the first Chapter 11 proceedings may very well have a claim of a lower priority in the subsequently filed Chapter 11 proceedings. The creditor in Jartran-I saw its administrative expense claim reduced to the lower priority unsecured claim in Jartran-II.
The strong policy concerns stated in North American Coin dictate that the claim of the D.O.E. in S.O.I.-I be reduced in priority in S.O.I.-II. Under a Jartran theory, those creditors which provided secured funding to the Trustee at a time when the Debtor's facility in Jennings, Louisiana was being prepared for sale or those creditors which perfected their secured claims against the Jennings, Louisiana facility prior to 1987 when the Class 19 claimants (which included the D.O.E.) finally acted should naturally have a priority in payment over the D.O.E. to any funds received from the sale of the Debtor's facility. In this case, the Debtor may have defrauded the D.O.E., but the Debtor no longer has an interest in any of the property. As a result of the S.O.I.-II proceedings and the appointment of a Trustee therein, the Trustee is vested with all right, title, and interest in the Debtor's property. The Trustee must now act as a fiduciary to protect the rights of all creditors to the assets of S.O.I.-II.
In Tleel,[14] Chbat, the debtors and two other parties purchased certain property in August of 1978. The debtors then acquired the interests of the other co-owners. The debtors then sold the property to a third party on a land sale contract. Two years later, Chbat filed a complaint in State Court alleging that the debtors entered into an oral partnership agreement concerning the property. This oral agreement supposedly entitled Chbat to place a constructive trust on any proceeds received by the debtors from the real property. The debtors then filed a bankruptcy petition in December of 1984. Chbat filed a similar proceeding concerning a constructive trust in the Bankruptcy Court. In July of 1985, a trustee was appointed in the debtor's bankruptcy proceedings. Finally, the property was sold on June 20, 1986 for the sum of $465,000, with the debtors' equity equal to $225,000.
One of the issues to be determined by the Court was whether the trustee's strong arm power under Section 544(a)(3)[15] could defeat the rights of Chbat under a constructive trust theory. The Court cited with approval its decision in North American Coin, but stated that it need not even reach the issue again of whether a party was entitled to a constructive trust under applicable State law and whether the entitlement to such a constructive trust was consistent with the policies under the Bankruptcy Code. The Court determined that since the trustee acquired the rights and remedies of a bona fide purchaser under State law pursuant to Section 544(a)(3), the trustee had no actual or constructive notice of Chbat's interest, and the trustee could avoid the interest of Chbat in the property.
As in Tleel, the D.O.E. has only requested that this Court impose a constructive trust on the Debtor's assets. No constructive trust has actually been imposed. A constructive trust is a flexible, equitable remedy; it is more tenuous than a resulting trust. Tleel, supra, 876 F.2d at 772, n. 7. As set forth hereinafter, this Court believes there are other remedies that the D.O.E. should be pursuing rather than requesting this Court to impose an *750 equitable remedy that will only be detrimental to all other creditors of S.O.I.-II, none of said creditors, having been shown at this time to have participated with the Debtor in the perpetration of a fraud on the D.O.E.
If this Court were to conclude that somehow a constructive trust were created prior to the filing of S.O.I.-II, then the D.O.E.'s argument must necessarily fail because of the Trustee's strong arm powers under Section 544(a)(3) in S.O.I.-II and the reasoning of Tleel.
Moreover, the Trustee's strong arm powers under Section 544(a)(3) are superior to any rights that the D.O.E. may claim under section 541(d).[16] The D.O.E. urges that if a constructive trust were created prepetition, that is, as a result of the S.O.I.-I Plan and the provisions thereunder, or the reservation of funds by the Debtor at least for a period of time, then the assets that may be traced by the D.O.E. are somehow excepted as assets of the estate under Section 541(d). However, Tleel stated that Sections 544(a)(3) and 541(d) must be read in conjunction. Clearly all beneficial or equitable interests in property cannot be excepted under Section 541(d) from a debtor's estate in all circumstances. Tleel, supra, 876 F.2d at 773. The D.O.E.'s reliance on the S.O.I.-I Plan and the recordation of the Class 19 lien in Arizona and Louisiana in 1987 is certainly not the oral partnership arrangement, really the "secret deals" or "inchoate claims", with which the Tleel Court was concerned. Nevertheless, the D.O.E. is requesting that it succeed to a priority over all secured creditors that, for instance, assisted with the financing of the facility in S.O.I.-II when the Trustee was attempting to preserve the assets of the estate, were accorded a higher priority and properly perfected their liens prior to the D.O.E. pursuant to the same S.O.I.-I Plan that the D.O.E. relies on, or provided financing to the Debtor between the S.O.I.-I and S.O.I.-II proceedings and obtained a lien prior in time to that of the D.O.E. as a Class 19 claimant. These creditors have not at this time been shown to have participated in any fraud upon the D.O.E. Under the factual circumstances herein, this Court finds that the better policy is to protect the rights of these other creditors by permitting Section 544(a)(3) to dictate that the assets become a part of the S.O.I.-II estate not subject to any constructive trust of the D.O.E.
The facts involved in this proceeding do not support a finding that one creditor should be entitled, as a matter of law, to a constructive trust or equitable lien on any assets of this bankruptcy estate. The reliance of the D.O.E. on the decision of In re Kaiser, (Salomon v. Kaiser, 722 F.2d 1574 (2d Cir.1983) is misplaced. Such case law as In re Kaiser and McMerty v. Herzog, 661 F.2d 1184 (8th Cir.1981), cert. denied sub nom. Herzog v. Endeco, Inc., 455 U.S. 943, 102 S.Ct. 1439, 71 L.Ed.2d 655 (1982), consider the sequestration of assets by a debtor, and a wrongful diversion of bankruptcy estate assets by a trustee-in-bankruptcy, respectively. However, the party which asserts the right or remedy of a constructive trust is the trustee or successor trustee only. The D.O.E. has been unable to cite this Court to any case law which supports the proposition that an individual creditor in a subsequently filed Chapter 11 proceeding for which a trustee has been appointed has the standing to assert that a constructive trust should be impressed on funds that may have been wrongfully diverted to construct or improve the Debtor's facilities in Jennings, Louisiana.
II
An alternative theory advanced by the D.O.E. is that the S.O.I.-I Plan creates *751 an express trust in favor of the D.O.E., which must be specifically enforced in the S.O.I.-II proceedings. If such a theory were followed, the D.O.E. would presumably seek to rely on Section 541(d) to except out a portion of the assets in the S.O.I.-II proceedings as the res for the trust.
The D.O.E.'s reliance on an express trust theory naturally flows from many of the terms used in bankruptcy proceedings as to a debtor in possession or a trustee. Case law from the Ninth Circuit has referred to the role of a debtor in possession as a "trustee" when the principals of the debtor have been engaged in self-dealing. The Ninth Circuit stated in one case that
Once a debtor files a bankruptcy petition, the property it then possesses, as well as funds acquired thereafter, become the property of the estate. 11 U.S.C. § 541(a). The debtor-in-possession is not free to deal with this property as it chooses, but rather holds it in trust for the benefit of creditors, just as would a trustee. [Citations omitted.]
In re Technical Knockout Graphics, Inc., 833 F.2d 797, 802 (9th Cir.1987) (Debtor designated preconfirmation payments to satisfy Debtor corporation's trust fund liabilities, thus protecting Debtor's responsible persons from personal liability).
In the decision of In re Rigden, 795 F.2d 727, 730 (9th Cir.1986), the majority opinion recognized the duties of a trustee to be similar to those imposed on a trustee under applicable State law; that is, "that measure of care and diligence that an ordinary prudent person would exercise under similar circumstances." This standard would be applicable to a debtor in a Chapter 11 pursuant to 11 U.S.C. § 1107(a).[17]
However, the use of the term "trustee" is to indicate that the debtor must conduct itself as a fiduciary to maximize the distribution to all creditors. In re Technical Knockout Graphics, 833 F.2d 797, 802-03 (9th Cir.1987); In re Benny, 29 B.R. 754, 760 (N.D.Cal.1983).
Black's Law Dictionary, (5th ed. 1983), defines a fiduciary as
. . . a person holding the character of a trustee, or a character analogous to that of a trustee, in respect to the trust and the confidence involved in it and the scrupulous good faith and candor which it requires.
Therefore, although the standard of conduct may be the same for a fiduciary or a debtor in possession, that is, the utmost good faith in dealing with the property of others, the debtor or the trustee does not create an express trust when it proposes and confirms a plan of reorganization in a Chapter 11 proceeding. Certainly a plan of reorganization is a binding contract. However, the Trustee concedes that the D.O.E. is entitled to a breach of contract claim, and damages therefor, as a result of the inappropriate distribution to the D.O.E. under the S.O.I.-I Plan.
In determining whether an express trust has been created, the Court notes that the S.O.I.-I Plan was confirmed pursuant to the Bankruptcy Code and Rules. Therefore, there is a certain awkwardness in attempting to graft applicable State law concepts of trust law on documents that are creatures of Federal law. Moreover, the fundamental purposes of the Bankruptcy Code and Rules are not served by declaring the S.O.I.-I Plan to be an express trust.
Certainly the Bankruptcy Court is frequently required to review and apply the applicable State law in determining the interests of parties in property that is part of the bankruptcy estate. Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1978); In re North American Coin & Currency, Ltd., 767 F.2d 1573 (9th Cir.1985), modified 774 F.2d 1390 (9th Cir. 1985), cert. denied sub nom. Torres v. *752 Eastlick, 475 U.S. 1083, 106 S.Ct. 1462, 89 L.Ed.2d 719 (1986); In re American Continental Corp. 105 B.R. 564 (Bankr.D.Az. 1989). The purpose is to prevent forum shopping, and to provide a consistent body of law in the State and Federal Courts. The happenstance of being in Federal Court should not dictate the result. However, an exception to this rule necessarily arises if the application of the applicable State law is in contravention of Federal law. One of the most fundamental purposes of the Bankruptcy Code and Rules is to accord an equal distribution to creditors within the same class. 11 U.S.C. §§ 522, 544, 545, 547, 548, 549, 506(d), 551, 553(b), 724(a), 726, 1122, 1123, 1124, and 1129; North American Coin, supra. The relative priority of a particular class of creditors in the overall distribution scheme is another fundamental purpose. (For instance, 11 U.S.C. §§ 503, 507, 726, and 1129.) One Court has even stated that the Bankruptcy Code creates a "statutorily imposed trust". In re Weber, 99 B.R. 1001, 1009-10 (Bankr.D.Utah 1989). Although this Court need not decide the issue today of whether the Bankruptcy Code creates a statutorily imposed trust, the Court in Weber notes that the status of a debtor acting as a "statutory fiduciary" is insufficient to transform into an express trust a stipulation entered into in the debtor's Chapter 11 proceedings. Id. at 1010.
The D.O.E. and the Trustee refer to State law in an effort to determine whether the S.O.I.-I Plan is an express trust. This is wholly unnecessary. The S.O.I.-I Plan was proposed and confirmed pursuant to Federal lawspecifically, Chapter 11 of the Bankruptcy Code. The S.O.I.-I Plan refers to its own priorities of distribution. The Bankruptcy Court would normally apply this distribution scheme but for the fact that intervening creditors have acquired claims between the confirmation of the S.O.I.-I Plan and the filing of the S.O.I.-II proceedings, and creditors have advanced funds, and acquired a priority as a result thereof, pursuant to Court Orders entered in the S.O.I.-II proceedings. How the creditors of S.O.I.-I and S.O.I.-II are ultimately to be treated has yet to be determined.
To apply underlying common law or statutory provisions concerning trusts of either Arizona or Louisiana to determine whether the S.O.I.-I Plan is an express trust would frustrate the fundamental purposes of the Bankruptcy Code of equality of distribution to creditors in the same class and the relative priorities of creditors as designated under the S.O.I.-I Plan and Bankruptcy Court Orders.
Therefore, because of the paramount importance of Federal law, this Court cannot consider the S.O.I.-I Plan to be an express trust.
This Court need not determine whether the law of Arizona or Louisiana would independently preclude the S.O.I.-I Plan from being interpreted as an express trust.[18]
*753 The D.O.E. is not left without a remedy. As this Court stated at oral argument, to the extent that the Debtor made a distribution to all but one of the Class 19 claimants that was excessive given the limited relative value of the assets now held by the Trustee because of the extensive secured claims in S.O.I.-I and S.O.I.-II, the Trustee should request said Class 19 claimants to return a portion of the funds received by them to be turned over to the D.O.E. to effectuate a pro rata distribution amongst all members of the Class. If the claimants do not voluntarily comply, the Trustee may commence proceedings in this Court to require such a turnover of funds. In re Frontier Enterprises, Inc., 70 B.R. 356 (Bankr.C.D.Ill.1987).
Both the Trustee and the D.O.E. agree that the S.O.I.-I Plan has been substantially consummated. Although the Trustee indicates that some assets of the Debtor in the S.O.I.-II proceedings may be free of any encumbrances or liens of secured creditors and hence available potentially for future distribution to the D.O.E. to correct the inequitable distribution to the D.O.E. under the S.O.I.-I Plan, a future distribution is a mere expectancy at this time. Therefore, the Trustee should move expeditiously against the other Class 19 claimants to correct the inequitable distribution to the D.O.E.
To the extent that one or more creditors participated in the fraud with the Debtor against the D.O.E., the Court notes that the D.O.E. may commence an adversary proceeding seeking an equitable subordination of said creditor(s)' claims pursuant to 11 U.S.C. § 510.
The D.O.E. is also free to pursue claims against the Debtor's principals or other appropriate parties to the extent that said parties intentionally or negligently breached a duty owed to the D.O.E. In re Rigden, 795 F.2d 727, 730-33 (9th Cir.1986). These issues may be determined at a later date.
Based upon the foregoing,
IT IS ORDERED granting the Trustee's Motion for Summary Judgment on the remaining claims. The Trustee is to lodge an appropriate form of judgment with this Court, and serve said form of judgment on five (5) days' notice to the Department of Energy. If no objection is filed to the form of judgment, this Court shall sign it.
NOTES
[1] Initially, the D.O.E. requested certain discovery before responding to the Trustee's Motion for Summary Judgment. The Court granted the D.O.E.'s Motion in part under Federal Rule of Civ.P. 56(f) (Bankruptcy Rule 7056) concerning additional discovery on August 31, 1989. The D.O.E. did substantively respond to the Motion for Summary Judgment. The Court executed an Order on October 16, 1989 which set forth the final briefing schedule on the Trustee's Motion for Summary Judgment.
[2] Article VII, Paragraph G of the S.O.I.-I Plan, Page 17.
[3] Article VII, Paragraph G of the S.O.I.-I Plan, Page 18.
[4] Article VII, Paragraph G of the S.O.I.-I Plan, Page 19.
[5] Article VII, Paragraph G of the S.O.I.-I Plan, Page 20.
[6] Article VII, Paragraph G of the S.O.I.-I Plan, Page 21.
[7] Article VIII, Paragraph N of the S.O.I.-I Plan, Page 25.
[8] Article X, S.O.I.-I Plan, Page 27.
[9] Article X, S.O.I.-1 Plan, Page 28.
[10] Article IX, S.O.I.-1 Plan, Page 26.
[11] The Court Order approving the Amended Compromise Agreement, however, was not approved by the Court until June 15, 1988, because of the appointment of a Trustee in the S.O.I.-II proceedings.
[12] 767 F.2d 1573 (9th Cir.1985), modified 774 F.2d 1390 (9th Cir.1985), cert. denied sub nom. Torres v. Eastlick, 475 U.S. 1083, 106 S.Ct. 1462, 89 L.Ed.2d 719 (1986).
[13] In re Jartran, Inc., 886 F.2d 859 (7th Cir. 1989), aff'g, 87 B.R. 525 (N.D.Ill.1988), aff'g. 71 B.R. 938 (Bankr.N.D.Ill.1987).
[14] 876 F.2d 769 (9th Cir.1989).
[15] 11 U.S.C. § 544(a)(3) provides that:
(a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by. . . .
(3) a bona fide purchaser of real property, other than fixtures, from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists. . . .
[16] 11 U.S.C. § 541(d) provides that:
Property in which the debtor holds, as of the commencement of the case, only legal title and not an equitable interest, such as a mortgage secured by real property, or an interest in such a mortgage, sold by the debtor but as to which the debtor retains legal title to service or supervise the servicing of such mortgage or interest, becomes property of the estate under subsection (a)(1) or (2) of this section only to the extent of the debtor's legal title to such property, but not to the extent of any equitable interest in such property that the debtor does not hold.
[17] 11 U.S.C. § 1107(a) provides that:
(a) Subject to any limitations on a trustee serving in a case under this chapter, and to such limitations or conditions as the court prescribes, a debtor in possession shall have all the rights, other than the right to compensation under section 330 of this title, and powers, and shall perform all the functions and duties, except the duties specified in sections 1106(a)(2), (3), and (4) of this title, of a trustee serving in a case under this chapter.
[18] The Trustee's arguments on this issue are certainly the most persuasive. The S.O.I.-I Plan refers to payment of creditors claims and to a segregation of assets concerning those claims as to which an objection has been interposed. However, the language of the S.O.I.-I Plan (see supra notes 2-10 and accompanying text) does not set forth the requisite intent to create a trust under either Louisiana or Arizona law. Brooks v. Valley National Bank, 113 Ariz. 169, 548 P.2d 1166 (1976); Carrillo v. Taylor, 81 Ariz. 14, 27, 299 P.2d 188 (1956). La.Rev.Stat.Ann. §§ 9:1731, 9:1761 and 9:1781 (1964). Arizona follows the Restatement of the Law in the absence of contrary authority. Bank of America v. J & S Auto Repairs, 143 Ariz. 416, 694 P.2d 246 (1985). Under the Restatement of the Law, the requisite intent has not been shown. Restatement (Second) of Trusts (1959) ("Restatement") §§ 2, 3 (elements of a trust), 16A and comment a (recognizes the existence of a fiduciary relationship without the creation of an express trust), and 23, 24 (how the manifestation of an intent to create a trust is exhibited). There is arguably under the S.O.I.-I Plan no specifically enforceable duties of the debtor as "trustee" to perform. Restatement § 25 and comment b. Finally, even if a lien is created under some theory of Arizona trust law in favor of the D.O.E., it would not have priority over, nor vitiate, the liens obtained on the property by third parties. Restatement § 273 and comments a, b, and c (interest of third party with security interest or lien in real property is to be protected even if breach of fiduciary duty by trustee [interest protected if value given and no notice that trustee was committing breach] or if no breach of duty by trustee). Articles VII, VIII and X of the S.O.I.-I Plan make it clear that a debtor-creditor relationship was to continue, with the Class 19 claimants and others obtaining a lien on the Debtor's assets. Although the Debtor was to segregate funds for the payments of claims to which objections had been interposed, the Net Cash Flow from the Debtor's operations determined the actual amount to be segregated. Depending on the Debtor's operations, it was possible that little would be so segregated. The intent of the parties to create a lien on certain assets does not create an express trust. In re Foam Systems Co., 92 B.R. 406 (Bankr. 9th Cir.1988). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539165/ | 397 Pa. Superior Ct. 453 (1990)
580 A.2d 386
COMMONWEALTH of Pennsylvania
v.
Michael KEYS, Appellant.
Supreme Court of Pennsylvania.
Submitted February 5, 1990.
Filed September 28, 1990.
*454 Norris E. Gelman, Philadelphia, for appellant.
Donna G. Zucker, Asst. Dist. Atty., Philadelphia, for Com., appellee.
Before KELLY, POPOVICH and CERCONE, JJ.
*455 KELLY, Judge:
In this case, we hold that when counsel of record fails to formally and properly withdraw as counsel after sentence but before the expiration of the time for filing of notice of appeal, yet counsel nonetheless ceases active representation, then quashal of an appeal as the result of a defect in a pro se notice of appeal will be deemed the procedural default of counsel of record. Such was the case here; consequently, we grant appellant the right to appeal nunc pro tunc.
The relevant facts and procedural history may be summarized as follows. Appellant was charged, tried and convicted of murder, conspiracy and various weapons offenses. Appellant was actively represented by privately retained counsel through sentencing. After sentencing and before the time expired for filing notice of appeal, counsel informed appellant that he would no longer represent appellant. However, counsel neither sought nor received leave to court to withdraw as counsel of record.
Appellant attempted to perfect a direct appeal by filing a timely pro se notice of appeal. Unfortunately, the notice contained incorrect bill of information numbers. A panel of this Court exercised its discretion to quash appellant's pro se direct appeal on the basis of that defect. See Commonwealth v. Keys, 313 Pa.Super. 410, 460 A.2d 253 (1983). But see Commonwealth v. Brown, 264 Pa.Super. 127, 127 n. 1, 399 A.2d 699, 699 n. 1 (1979) (this Court may treat such an error as merely typographical and decline to quash on the basis of such a defect).
Under Pa.R.Crim.P. 302(b):
Rule 302. Attorneys-Appearances and Withdrawals
(b) Counsel for a defendant may not withdraw his appearance except by leave of court. Such leave shall be granted only upon motion made and served on the attorney for the Commonwealth and the client, unless the interests of justice otherwise require.
*456 The Official Comment to the rule further explains, "Representation as used in this rule is intended to cover court appearances or the filing of formal applications." Pa.R. C.P. 302, comment. Careful review of the record reveals that private counsel received no leave of court to withdraw as counsel of record after sentencing.
The importance of the express requirement of formal allowance of withdrawal is well illustrated here. By informally withdrawing, counsel left appellant to seek new private counsel, assignment of court appointed counsel, or to pursue direct appeal pro se during the critical 30 day period during which appellant was required to perfect or waive a direct appeal. Had counsel sought allowance of the court to formally withdraw as counsel, the trial court could have taken steps necessary to prevent the procedural default which occurred in this case by having counsel file notice of appeal before withdrawing, by assigning court appointed counsel, or by ensuring that appellant's notice of appeal would be effectual.
We in no way suggest that counsel was required to continue as counsel in this matter in perpetuity. For a variety of reasons, from ethical reasons to financial concerns, counsel properly may seek to withdraw from representing a client. See e.g. Commonwealth v. Turner, 518 Pa. 491, 544 A.2d 927 (1988) (withdrawal on frivolity grounds); Commonwealth v. Roman, 379 Pa.Super. 331, 333-37, 549 A.2d 1320, 1320-23 (1988) (withdrawal based on non-payment of agreed fees). Regardless of the legitimacy of counsel's grounds for withdrawal as counsel, formal leave of court is nonetheless clearly and unequivocally required before counsel may be deemed to have withdrawn as counsel. Pa.R.Crim.P. 302(b).[1] We find, therefore, *457 that the procedural default must be deemed to be that of prior counsel, rather than that of appellant.
In Commonwealth v. Quier, 366 Pa.Super. 275, 279-82, 531 A.2d 8, 10-11 (1987), this Court held that when counsel's procedural default denies a defendant the right to a direct appeal, the appropriate remedy is to grant allowance of appeal nunc pro tunc. Similar reasoning was employed to permit post-verdict motions nunc pro tunc in Commonwealth v. Ciotto, 382 Pa.Super. 458, 461, 555 A.2d 930, 931 (1989). See also Commonwealth v. Miranda, 296 Pa.Super. 441, 442 A.2d 1133 (1982) (en banc).
We conclude that appellant, here, was denied his right to a direct appeal by prior counsel's procedural default. Consequently, we reverse the order of the trial court, reinstate appellant's right to a direct current appeal nunc pro tunc, and direct counsel to file a proper notice of appeal within 30 days of the filing of this opinion.[2]
Order Reversed. Appellant's right to a direct appeal Reinstated.
NOTES
[1] We note that this is not a case where an appellant waived right to counsel and elected to proceed pro se; rather, our abandoned appellant proceeded pro se of necessity. Compare Commonwealth v. Davis, 393 Pa.Super. 88, 101, 573 A.2d 1101, 1105-08 & nn. 5-7 (1990) (appellant knowingly waived direct appeal after electing self-representation at trial).
[2] Since appellant's direct appellate rights are being reinstated nunc pro tunc, the remainder of the issues raised in this appeal are rendered moot. See Commonwealth v. Miranda, supra, 442 A.2d at 1140. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539166/ | 118 B.R. 407 (1990)
In re George Willie LEVERETTE & Wendy Brown Leverette, Debtors.
George Willie LEVERETTE & Wendy Brown Leverette, Plaintiffs,
v.
NCNB SOUTH CAROLINA, Defendant.
Bankruptcy No. 89-01764, Adv. No. 89-8091.
United States Bankruptcy Court, D. South Carolina.
January 17, 1990.
*408 Lee Ringler, Augusta, Ga., for plaintiffs.
Donald E. Rothwell, Columbia, S.C., for defendant.
ORDER
WILLIAM THURMOND BISHOP, Bankruptcy Judge.
Before the court is an adversary proceeding brought by George Willie Leverette and Wendy Brown Leverette ("the debtors") against NCNB South Carolina seeking the turnover of debtors' repossessed automobile from the defendant pursuant to 11 U.S.C. § 542(a)[1], [2]. The debtors also seek a finding of contempt and an award of attorney fees.
NCNB South Carolina asserts that the automobile was not property of the estate on the date of filing pursuant to § 541 but if so, it nevertheless is not subject to a § 542 motion for turnover because the automobile is of inconsequential value or benefit to the estate.
FINDINGS OF FACT
George Willie Leverette entered into an Installment Loan Agreement with NCNB South Carolina on July 22, 1988, in which the Defendant retained a security interest in a 1984 Buick Automobile. This debtor defaulted on the Installment Loan Agreement and NCNB South Carolina repossessed the automobile on April 28, 1989.
On May 3, 1989, NCNB South Carolina sent this debtor a Notification of Private Sale of Repossessed Collateral, which informed the debtor that he had ten days from the date of the letter to redeem the property by payment in full of the outstanding balance on the loan. The notice further stated that if payment in full was not received by May 13, 1989, the collateral would thereafter be sold by private sale with the proceeds from the sale distributed according to law, and the debtor liable for any deficiency thereon. This debtor did *409 not tender payment in full or state any intention to do so.
On May 15, 1989, the debtors filed a Chapter 13 petition for relief and the automatic stay of § 362 prevented any possible sale of the automobile.
The attorney for the debtors sent NCNB South Carolina a letter dated May 15, 1989, which informed the defendant of the filing of the petition for relief and requested that the automobile be returned to the chapter 13 trustee or to the debtors. The defendant retained possession of this repossessed automobile.
A hearing was held on October 17, 1989, to determine whether or not the automobile: (1) was of inconsequential value or benefit to the estate, (2) was property of the estate. The hearing was also to determine if a finding of contempt and an award of attorney fees were appropriate.
At the hearing, this court found that the property did not have consequential value but did have consequential benefit to the estate, and, therefore, should be returned to the debtors in accordance with § 542, if determined that the automobile falls within the meaning of "property of the estate" pursuant to § 541. This issue, along with the request for contempt and attorney fees, are the only issues now to be determined.
CONCLUSIONS OF LAW
Section 541 states that property of the estate "(a) . . . is comprised of all the following property, wherever located and by whomever held: (1) . . . all legal or equitable interests of the debtor in property as of the commencement of the case."
"Property of the estate" encompasses more than just property in the debtor's possession at the time of filing the debtor's bankruptcy petition. United States v. Whiting Pools, 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983); In re DeWeese, 47 B.R. 251 (Bankr.D.N.C.1985).
Section 541 brings into the estate all legal or equitable interests of the debtor in property except as defined in § 541(b) and § 541(c)(2), which sections are inapplicable to the instant case. See, McLean v. Central States, Southeast and Southwest Areas Pension Fund (In re McLean), 762 F.2d 1204 (4th Cir.1985).
South Carolina Code Ann. § 36-9-506 provides that:
[a]t any time before the secured party has disposed of collateral or entered into a contract for its disposition under Section 36-9-504 or before the obligation has been discharged under Section 36-9-505(2) the debtor or any other secured party may unless otherwise agreed in writing after default redeem the collateral by tendering fulfillment of all obligations secured by the collateral as well as the expenses reasonably incurred by the secured party in retaking, holding, and preparing the collateral for disposition, in arranging for the sale, and to the extent provided in the agreement and not prohibited by law, his reasonable attorney's fees and legal expenses.
The debtor has the right of redemption if the automobile has not been sold by the creditor at the time of the filing of the petition for relief. Such an interest in property is sufficient to bring the property within the meaning of "property of the estate". In re Wallace, 102 B.R. 114 (Bankr.S.D. Ohio 1989).
The automobile was repossessed on April 28, 1989, and the debtors filed their petition for relief on May 15, 1989, prior to the sale or contract for sale of the debtors' automobile. This court finds the automobile to be property of the estate.
There has been no showing of malice or bad faith on the part of the defendant, nor has the defendant acted wilfully in refusing to return the automobile, and contempt is not warranted.
This court has previously held in In re Smith, Case No. 87-02792, C-88-0015 (Bankr.D.S.C. 8-5-88) that:
"As a general policy, federal courts follow the `American Rule' which does not allow the award of attorney fees or costs to successful litigants absent a statutory basis for such an award or unless by *410 specifically recognized exceptions such as bad faith litigation.
See, Mailers Unlimited, Inc. v. World Wide Direct Marketing, 6 B.R. 238 (Bankr.E.D.Pa.1980), citing Alyeska Pipeline Co. v. Wilderness Society, 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975), Daly v. Hill, 790 F.2d 1071 (4th Cir.1986), In re Jessee 77 B.R. 59 (Bankr. W.D.Va.1987), In re Ratmansky, 2 B.R. 527 (Bankr.E.D.Pa.1980); 9 Collier on Bankruptcy ¶ 7054.07 (15th ed.).
Congress has not
. . . extended any roving authority to the Judiciary to allow counsel fees as costs or otherwise whenever the courts might deem them warranted. What Congress has done, however, while fully recognizing and accepting the general rule, is to make specific and explicit provisions for the allowance of attorney fees under selected statutes granting or protecting various federal rights.
Alyeska Pipeline Co., 421 U.S. at 260 [95 S.Ct. at 1623]."
Since there is no statutory basis for an award of attorney fees and costs in bringing an adversary proceeding for turnover, the general "American Rule" against awarding attorney fees and costs to the successful litigants would appear to prevail. This court indicated that it would address at a subsequent hearing the allowance of attorney fees and the amount, if awarded. Notwithstanding the above, if plaintiffs' attorney still contends he is entitled to fees, he shall have the right to request a hearing on this issue within 10 days from receipt of this order. If no such hearing is requested, attorney fees will be denied.
Therefore, it is ORDERED, ADJUDGED, AND DECREED,
FIRST: the automobile is deemed and determined to be property of the estate and should be returned immediately to the debtors in accordance with § 542 as it has consequential benefit to the estate.
SECOND: the request for contempt is denied.
THIRD: attorney fees are denied unless within 10 days from the date of this order, plaintiffs' attorney requests a hearing on this issue.
NOTES
[1] Further references to the Bankruptcy Code (11 U.S.C. §§ 101 et seq.) shall be by section number only.
[2] Section 542(a) states in pertinent part:
. . . an entity . . . in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under section 363 of this title, . . . shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539167/ | 398 Pa. Superior Ct. 76 (1990)
580 A.2d 848
COMMONWEALTH of Pennsylvania
v.
Heriberto PIRELA, Appellant.
Supreme Court of Pennsylvania.
Submitted May 21, 1990.
Filed September 26, 1990.
*79 James S. Bruno, Philadelphia, for appellant.
Donna G. Zucker, Asst. Dist. Atty., Philadelphia, for Com.
Before CIRILLO, President Judge, and HOFFMAN and BROSKY, JJ.
HOFFMAN, Judge:
This appeal is from the judgment of sentence for second degree murder, robbery, and criminal conspiracy. Appellant contends that: (1) trial counsel was ineffective; (2) there was insufficient evidence to convict him; and (3) the trial court erred in denying a motion for a mistrial after the prosecutor told a witness he would be jailed if he failed to testify.[1] For the following reasons, we affirm.
*80 On July 6, 1983, appellant was arrested and charged in connection with the August 15, 1982 shooting of Ignacio Slafman during the robbery of a pizzeria. After a bench trial with a co-defendant on March 19, 1984, appellant was found guilty of the above-mentioned crimes. On March 21, 1984, post-verdict motions were filed in which appellant reserved the right to file additional reasons to support his claims when the notes of testimony were made available. On March 27, 1985, supplemental post-verdict motions were filed. After denying appellant's motions, the trial judge sentenced appellant to life imprisonment for murder, and five to ten years imprisonment for criminal conspiracy, those sentences to run consecutively.[2] Although a timely appeal was filed, counsel failed to timely file a brief, and the appeal was dismissed. Subsequently, appellant filed a petition under the Post Conviction Hearing Act[3] and a pro se petition to appoint new counsel. Present counsel was appointed, and, thereafter, appellant sought leave to appeal from the judgment of sentence, nunc pro tunc. The trial court granted the request, and this timely appeal followed.
Appellant contends that trial counsel was ineffective for (1) failing to request permission to file supplemental post-verdict motions; and (2) failing to object to the admission into evidence of co-defendant's statement, or alternatively, request a severance. We shall address these claims, seriatim.
On appellate review, counsel is presumed to be effective, Commonwealth v. Pierce, 515 Pa. 153, 159, 527 A.2d 973, 975 (1987), and the burden rests with appellant to overcome that presumption. Commonwealth v. Jones, 298 *81 Pa.Super 199, 205, 444 A.2d 729, 732 (1982). To prevail on a claim of ineffectiveness, appellant must show that his contention has arguable merit, that trial counsel's course of action had no reasonable basis designed to serve his interests, and that counsel's conduct prejudiced him. Commonwealth v. Pierce, supra; see also Commonwealth v. Davis, 518 Pa. 77, 83, 541 A.2d 315, 318 (1988).
Appellant first argues that trial counsel's failure to request permission on the record to file supplemental post-verdict motions rendered his assistance ineffective. We disagree.
If trial counsel fails to request permission on the record to file supplemental post-verdict motions,[4] but the trial court, nonetheless, addresses the issues on the merits, then the issues are not waived. See Commonwealth v. Hewett, 380 Pa.Super. 334, 338, 551 A.2d 1080, 1082 (1988) (characterizing Commonwealth v. Sheaff, 518 Pa. 655, 544 A.2d 1342 (Table) (1988) (per curiam)), appeal denied, 522 Pa. 583, 559 A.2d 526 (1988). Therefore, issues in untimely filed post-verdict motions that were not treated as waived by the trial court will not be considered waived for purposes of appeal. See Commonwealth v. McBride, 391 Pa.Super. 113, 117-19, 570 A.2d 539, 541 (1990); Commonwealth v. Hewett, supra.
Here, there is no reason for us to conclude that the trial court considered any of appellant's issues waived. The trial court opinion addressed issues contained in the supplemental post-verdict motions. See Trial Court Opinion at 2. Although the trial court did not write on each claim contained *82 in the supplemental post-verdict motions specifically, the court did consider and deny each issue. Because the trial court addressed the merits of the issues in the supplemental post-verdict motions, the issues are preserved for appeal. Accordingly, appellant's claim that counsel was ineffective for failing to request permission on the record to file supplemental post-verdict motions lacks arguable merit.
Appellant next contends that trial counsel was ineffective for failing to object to the admission of his co-defendant's redacted statement or, alternatively, to request a severance. Although appellant's argument is somewhat confusing, he apparently relies on the United States and Pennsylvania Constitutions to argue that absent a face-to-face confrontation, the use of a co-defendant's statement, regardless of the sufficiency of redaction, should be precluded. See Appellant's Brief at 19. We disagree.
As appellant himself acknowledges, a co-defendant's statement may be sufficiently redacted so as to be admissible. See Commonwealth v. Rawls, 276 Pa.Super. 89, 419 A.2d 109 (1980). Indeed, it is well-established that a co-defendant's edited statement is admissible if it retains its narrative integrity and yet in no way implicates the defendant. Commonwealth v. Johnson, 474 Pa. 410, 378 A.2d 859 (1977); Commonwealth v. McQuaid, 273 Pa.Super. 600, 417 A.2d 1210 (1980); Commonwealth v. Rawls, supra.
Here, appellant argues that the statement was not properly redacted even though no reference was made to him.[5]See N.T. March 19, 1984 at 7-9. The statement, as read, referred to, and implicated, several people by name, including the co-defendant. The statement also referred to one person as "X". As the Commonwealth aptly notes, the statement never identified or inculpated appellant. Furthermore, we find no evidence that the statement was introduced against appellant. On this record, we are satisfied that the trial judge, sitting as fact-finder, considered *83 this statement against co-defendant only, and that it could not have worked to prejudice appellant. Therefore, we find no ineffectiveness in trial counsel's failure to object to the introduction into evidence of co-defendant's statement.
Appellant next argues that trial counsel was ineffective for not requesting a severance. This claim is meritless. The decision of whether to grant a severance is within the discretion of the trial court, and the trial court's decision in this regard will not be reversed absent an abuse of discretion. Commonwealth v. Patterson, 519 Pa. 190, 197, 546 A.2d 596, 599 (1988); see also Commonwealth v. Morales, 508 Pa. 51, 61, 494 A.2d 367, 372 (1985). Furthermore, without a showing of real potential for prejudice our general policy is to encourage joinder of offenses. Commonwealth v. Patterson, supra.
In the case at bar, the statement was adequately redacted and admitted against co-defendant, and there is no reason for us to believe that the trial court considered it for an improper purpose. As noted above, the possibility of prejudice to appellant under these circumstances is minimal. Thus, this claim lacks arguable merit, and we find no ineffectiveness by trial counsel for his failure to request a severance.
Appellant's next contention is that the evidence was insufficient to support his convictions. However, because appellant simply challenges the credibility of a witness, Heriberto Colon, see Appellant's Brief at 6-8, and does not explain which elements of which offenses were insufficiently supported by evidence, his claim is more properly characterized as a weight of the evidence challenge. We will address it as such.[6]
In reviewing a weight of the evidence claim we look to see if the "verdict was so contrary to the evidence as to shock one's sense of justice and make the award of a *84 new trial imperative." Commonwealth v. Hunter, 381 Pa.Super. 606, 617, 554 A.2d 550, 555 (1989) (citations omitted).[7] The decision whether to grant a new trial is within the trial court's discretion, and we review that decision based upon an abuse of discretion standard. Id. Furthermore, since issues of credibility are left to the trier of fact, the trial court, sitting as fact finder, was free to accept all, part, or none of a witness's testimony. See Commonwealth v. Farquharson, 467 Pa. 50, 59, 354 A.2d 545, 550 (1976).
In this case, appellant claims that Heriberto Colon's testimony was "inconsistent" and "unreliable." See Appellant's Brief at 7. However, the court's verdict reflects that it chose to credit Mr. Colon's testimony. In addition, we note that the Commonwealth presented other witnesses who also implicated appellant and corroborated, in part, Mr. Colon's testimony on direct examination. See N.T. March 13, 1984 at 4-5, 29-32, 59. Therefore, the trial court's determination here is not so contrary to the evidence as to shock our sense of justice.
Appellant's final contention is that the trial court erred in denying a motion for a mistrial when the prosecution told a Commonwealth witness, Miguel Bones, that the court would jail him for refusing to testify.[8] We disagree.
The decision of the trial court to deny a motion for mistrial will not be disturbed absent an abuse of discretion. Commonwealth v. Al Hamilton Contracting Co., *85 383 Pa.Super. 429, 434, 557 A.2d 15, 18 (1989) (citation omitted), allocatur denied 523 Pa. 640, 565 A.2d 1165 (1989); see also Commonwealth v. Potts, 314 Pa.Super. 256, 274, 460 A.2d 1127, 1136 (1983). If we deem that the prosecutor's remarks worked to prejudice appellant, i.e. had an adverse effect upon the outcome of the proceedings, we must find an abuse of discretion. See Commonwealth v. Al Hamilton Contracting Co., supra; see also Commonwealth v. Davis, 518 Pa. 77, 83, 541 A.2d 315, 318 (1988) (citations omitted).
The record reveals that Mr. Bones refused to answer or acknowledge several of the Commonwealth's questions when he was first called to testify. See N.T. March 8, 1984 at 63-64. After the Commonwealth attempted to refresh Mr. Bones's memory, the court called a recess. See id. at 68-69, 72. Five days later the questioning resumed. Mr. Bones then testified that, after speaking with the prosecutor over the weekend, his memory was refreshed. See N.T. March 13, 1984 at 9. Mr. Bones further testified that during the conversation the district attorney told him that the judge would put him in jail if he did not talk. See id. at 12. Appellant's trial counsel later requested a mistrial. See id. at 23. The judge denied the motion saying that he would have put Mr. Bones in jail if he did not testify. See id.
It is well-settled that a witness's unprivileged refusal to testify is plainly contempt. Commonwealth v. Tirado, 487 Pa. 362, 369, 409 A.2d 392, 395 (1979); Commonwealth v. McDermott, 377 Pa.Super. 623, 641, 547 A.2d 1236, 1245 (1988). The court's power to punish for contempt includes the infliction of summary punishment, Commonwealth v. Marcone, 487 Pa. 572, 579, 410 A.2d 759, 763 (1980), a term of imprisonment, or a fixed fine. Grubb v. Grubb, 326 Pa.Super. 218, 223, 473 A.2d 1060, 1062 (1984) (citing In re Martorano, 464 Pa. 66, 346 A.2d 22 (1975)).
As the trial court stated on the record, the prosecutor's statement to Mr. Bones was true. Because the court *86 could, and apparently, would have jailed Mr. Bones for his refusal to testify, the district attorney's statement to Mr. Bones does not constitute threatening or intimidating behavior. Nor was the statement unfairly prejudicial to appellant. There is no evidence that the prosecutor attempted to coerce Mr. Bones into giving any particular testimony. Indeed, we have found no evidence on the record that the prosecutor's statement to Mr. Bones coerced the witness into changing his testimony in any way. The trial court, therefore, did not abuse its discretion in this regard, and appellant is not entitled to relief on this claim.
For the foregoing reasons, we affirm the judgment of sentence.
Judgment of sentence affirmed.
NOTES
[1] Appellant also contends that the district attorney engaged in prosecutorial misconduct by violating a sequestration order when he met outside of court with one of the Commonwealth witnesses in the presence of a defense witness. See Appellant's Brief at 10. Upon violation of a sequestration order, it is within the trial court's discretion to fashion a remedy. Commonwealth v. Smith, 464 Pa. 314, 320, 346 A.2d 757, 760 (1975); see also Commonwealth v. Mokluk, 298 Pa.Super. 360, 363, 444 A.2d 1214, 1216 (1982) (Hoffman, J., concurring). After carefully reviewing the record and the parties' briefs, we conclude that the trial court has properly addressed and disposed of this issue in its opinion. As the court noted, if a violation of the sequestration order occurred at all, it "had little or no impact on the witnesses or on the trial and was not serious." Accordingly, we need not address the issue further.
[2] The robbery charge merged with the murder charge for sentencing purposes.
[3] The Post Conviction Hearing Act (PCHA) has since been modified in part, repealed in part, and renamed the Post Conviction Relief Act (PCRA). See 42 Pa.C.S.A. § 9541-9546.
[4] See Pa.R.Crim.P. 1123, which, in relevant part, provides:
Post-Verdict Motions
(a) Within ten (10) days after a finding of guilt, the defendant shall have the right to file written motions for a new trial and in arrest of judgment. Only those grounds may be considered which were raised in pre-trial proceedings or at trial, unless the trial judge, upon cause shown, allows otherwise. Argument, a hearing, or both shall be scheduled and heard promptly after such motions are filed, and only those issues raised and the grounds relied upon in the motions that are stated specifically and with particularity may be argued or heard. . . .
[5] The record reveals that the co-defendant in this case gave statements to police on two occasions, September 30, 1982, and July 7, 1983. See N.T. March 19, 1984 at 7-9, 13-16.
[6] Appellant's separate weight of the evidence claim was raised in boilerplate fashion in post-trial motions, and, therefore, it is waived on appeal. See Commonwealth v. Holmes, 315 Pa.Super 256, 461 A.2d 1268 (1983) (en banc).
[7] We note that a question exists regarding whether appellate courts in this Commonwealth are still able to review a verdict to determine if it is against the weight of the evidence. See Commonwealth v. Nelson, 514 Pa. 262, 271-72 n. 3, 523 A.2d 728, 733 n. 3 (1987); see also Commonwealth v. Wallace, 522 Pa. 297, 315, 561 A.2d 719, 728 (1989). But see Commonwealth v. Jenkins, 396 Pa.Super. 395, 400, 578 A.2d 960, 963 (1990), ("the passing statements of our Supreme Court in Wallace and Nelson have not resulted in a prohibition of weight of the evidence claims in our appellate courts" and, thus, "an examination of these matters by appellate tribunals still exists.").
[8] This claim as argued in appellant's brief is different from what is raised in appellant's Statement of Questions. Compare Appellant's Brief at 2, 12-13. Although this claim technically should, therefore, be waived, in the interest of judicial economy, we will address it. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539168/ | 118 B.R. 170 (1990)
In re Ira P. and Sharon L. MASON.
Bankruptcy No. 89-12724-HAL.
United States Bankruptcy Court, D. Massachusetts.
September 6, 1990.
*171 FINDINGS AND RULINGS ON RESPONSIBLE PERSON LIABILITY
HAROLD LAVIEN, Bankruptcy Judge.
The Mason brothers, Ira and Norman, operated two drug stores, one, Mason Bros., Inc., the other, Union Pharmacy, Inc. They each owned 50% of the stock and each had originally invested $25,000. Ira was president of both, and Norman was treasurer of both pharmacies. The brothers both had check writing authority and each spent approximately fifty percent of his time in each of the locations. The bookkeeper worked primarily at Mason Bros., Inc. and the business records were kept at that address. Norman handled most of the financial affairs; he signed the tax returns and most of the checks, although the evidence showed that Ira did sign checks for trade creditors who required payments, especially during 1989 when the financial position of the businesses had so far deteriorated that their suppliers stopped extending credit and insisted upon payment on delivery.
Both brothers received their weekly pay checks of $975. throughout 1989, 1988, and part of 1987. Some of these paychecks were signed by Ira, however, most were signed by Norman because, at some point in 1989, Ira had apparently become so concerned with the financial status of the pharmacies, that he refused to sign any checks. Nonetheless, Ira took no steps to see that trust fund taxes were being paid; he continued to receive his full pay check and was perfectly willing to have his brother pay over $50,000 in bills for the month of August alone, despite the fact that trust fund taxes of Mason Bros., Inc. for the first quarter 1987, in the amount of $9,257.94 and second quarter of 1989 in the amount of $7,774.53, as well as the trust fund taxes of Union Pharmacy for the second and third quarters of 1989 in the amounts of $5,863.37 and $5538.99, were not paid.
While the evidence was disputed, this Court finds that Ira knew, from the accountant's fiscal 1987 and 1988 financial statements, that the first quarter 1987 trust fund tax had not been paid, and that, although Norman claimed to have paid the tax, Ira knew that the check had been returned due to insufficient funds. It was also clear from the financial statements *172 that paying the trust fund taxes would become increasingly difficult. From conversations with Norman, Ira knew that the second quarter and third quarter 1989 trust fund Form 1041 Return had been filed without a payment. He knew about the nonpayment of the second quarter tax by the end of July or the first week in August of 1989; yet, Ira continued to draw his full salary. In addition, he took no steps to prevent the payment of over $50,000. to other creditors during the month of August. In fact, there was some evidence that after Ira knew of this non-payment, he took to cashing four figure third-party accounts receivable checks for his own purposes, rather than route the funds to the taxing authorities. His defense, ably presented by counsel, was in essence: "I knew no evil, I saw no evil, I did no evil. My brother didn't tell me what he was doing. I just wanted to keep the business going so I could get my pay and I didn't want to know how my brother was doing it." Ira Mason's brother's shoulders are not that broad. Norman declined the hero's role and testified that their financial problems had been a constant topic of their discussion. It is clear that Norman Mason was Ira's designated agent in the deliberate nonpayment of trust fund taxes, as both brothers hoped business would improve so that they could repay this forced loan from the Internal Revenue Service.
26 U.S.C. section 6672 provides:
Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.
"Person" is defined in 26 U.S.C. section 6671 as follows:
The term `person', as used in this subchapter, includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee or member is under a duty to perform the act in respect of which the violation occurs.
This Court must first determine whether Ira Mason was a "responsible person" for purposes of the statute. It was argued for Ira Mason that he did not "as a practical matter" have control over what creditors were paid and when, and that he merely engaged in "day-to-day retail operations, filling prescriptions and dealing with customers." In an attempt to disavow responsibility, Ira Mason's finger was quick to point at his brother Norman.
The burden of persuasion to prove lack of control is on the person who challenges a section 6672 assessment. See United States v. Rexach, 482 F.2d 10, 16-17 (1st Cir.), cert. denied, 414 U.S. 1039, 94 S.Ct. 540, 38 L.Ed.2d 330 (1973); United States v. Pompanio, 635 F.2d 293, 296 (4th Cir.1980). Ira Mason has not met this burden. Although the evidence showed that Norman Mason did sign the majority of company checks, it showed that Ira, too, had such authority and that he did in fact do so when it suited his purposes.
Furthermore, as it was noted by Senior Circuit Judge Rosenn "Courts have explicitly given the word `responsible' a broad interpretation," Caterino v. United States, 794 F.2d 1, 5 (1st Cir.1986), citing Commonwealth National Bank of Dallas v. United States, 665 F.2d 743, 757 (5th Cir. 1982). The First Circuit Court analyzed precedent:
They have fashioned an elastic definition predicated upon the function of an individual in the employer's business, not the level of the office held: whether the person had the power to determine whether the taxes should be remitted or paid or had "the final word as to what bills should or should not be paid and when." Adams v. United States, 504 F.2d 73, 75 (7th Cir.1974) cert. denied sub nom. Estate of Klein v. Commissioner, 421 U.S. 991, 95 S.Ct. 1998 [44 L.Ed.2d 482] (1975). In the context of this case, "the word `final' means significant rather than exclusive control over the disbursement *173 of funds." Neckles v. United States, 579 F.2d 938, 940 (5th Cir.1978); Emshwiller v. United States, 565 F.2d 1042, 1045 (8th Cir.1977); Adams, 504 F.2d at 75.
The evidence showed that Ira Mason did have the ability to significantly determine the business disbursements during all time periods in question. Although Ira chose to leave much of this work to his brother, it did not undermine his authority to pay creditors when he saw fit to do so. "Delegation will not relieve one of responsibility; liability attaches to all those under the duty set forth in the statute." Harrington v. United States, 504 F.2d 1306, 1311 (1st Cir.1974). Under section 6672, liability extends to "any person required to collect, truthfully account for, and pay over" withholding taxes, "any `responsible person' in tax jargon is not just the employer and not just the most responsible person." Wright v. United States, 809 F.2d 425 (7th Cir. 1987), citing Howard v. United States, 711 F.2d 729, 737 (5th Cir.1983). This Court finds that Ira Mason was a "responsible person" for purposes of section 6672.
This Court must next determine whether Ira Mason acted "willfully" under section 6672. It was argued for Ira Mason that all of the IRS's arguments concerning "willfulness" were predicated on Ira's actual knowledge that taxes had not been paid for the relevant periods, but that the evidence would show that Ira Mason had no actual knowledge that this was the case.
This Court finds that Ira Mason had such actual knowledge that withholding taxes had not been paid at such time as Ira saw fit to pay himself and other creditors of the pharmacies. Ira Mason suggested in testimony that his brother Norman effectively and deliberately misled him with regard to tax payment. This Court does not find such a scheme to be credible. Norman Mason did testify that he had represented to Ira and to others that a certain tax payment had been made, when, in fact it had not. Norman explained that he made these representations at a time when he himself thought this to be true. The check, however, was subsequently returned for insufficient funds, a fact of which, according to Norman, Ira was aware. Ira also had access to the financial statements of the accountant. Ira testified that he looked at these reports and had, in fact, discussed them with the accountant.
The First Circuit, in Caterino, 794 F.2d at 6 reasoned that: "[a]ny responsible person who knows the taxes are not paid and allows the business to pay other creditors acts willfully," citations omitted. That Court did not, however, hold that actual knowledge was necessary to find a person liable. The Court also stated that "mere knowledge, or reckless disregard for known risks is sufficient," citing Monday v. United States, 421 F.2d 1210, 1216 (7th Cir.1970).
The Court finds on the evidence that Ira Mason had "actual knowledge," however, this Court also finds that Ira Mason exercised a reckless disregard toward the risk of nonpayment of taxes in light of the companies' tenuous financial positions. It is undisputed that Ira knew they were in trouble. He admitted to paying vendors himself after business deliveries had been placed on a C.O.D. only basis, and there is evidence that he took account receivable checks and cashed them for his own purposes.
The Seventh Circuit has, in some detail, examined the standard of "recklessness" in this context:
The cases are not clear on just where section 6672 cuts the spectrum [of "recklessness" in law]. But bearing in mind that if a high degree of recklessness were required the purpose of the statute would be thwarted, just by compartmentalizing responsibilities within a business (however small) and adopting a "hear no evil see no evil" policy, we think gross negligence is enough to establish reckless disregard. Wright, 809 F.2d at 427 (7th Cir.1987).
In the Wright case, the Court found that the "responsible person" is liable if he:
(1) clearly ought to have known that (2) there was a grave risk that withholding taxes were not being paid and if (3) he *174 was in a position to find out for certain very easily.
The conduct of Ira Mason, as previously outlined in this opinion, clearly fits within these parameters. Ira Mason was a responsible person who acted willfully for purposes of 26 U.S.C. section 6672.
The United States' claim for 100% penalty taxes against the debtor, Ira Mason is, hereby, sustained. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539188/ | 135 Pa. Commonwealth Ct. 265 (1990)
580 A.2d 905
Lisabeth MIHOK, Petitioner,
v.
DEPARTMENT OF PUBLIC WELFARE, Respondent.
Commonwealth Court of Pennsylvania.
Argued June 15, 1990.
Decided September 25, 1990.
*267 Saul Davis, Pittsburgh, for petitioner.
Jason W. Manne, Asst. Counsel, Pittsburgh, for respondent.
Before CRAIG, President Judge, SMITH, J., and NARICK, Senior Judge.
SMITH, Judge.
Before this Court is the petition for review filed by Lisabeth Mihok (Mihok) from the final order of the Secretary *268 of the Pennsylvania Department of Welfare (DPW) affirming DPW's termination of Mihok's disability benefits pursuant to the Act of December 8, 1959, P.L. 1718, as amended, 61 P.S. § 951 (Act 534). The final order of DPW is reversed in part and affirmed in part.
Mihok, a psychiatric aide at Woodville State Hospital, began receiving Act 534 disability benefits following injury to the toes of her right foot when a patient trod upon them in July, 1974.[1] Mihok underwent three operations on her toes in 1979, 1981, and 1984 and was placed on either disability leave or light work duty from the date of injury until July, 1984 when she returned to her regular position. On May 26, 1986, however, Mihok's right foot was reinjured while she attempted to restrain a patient, causing Mihok to go out on disability leave until August, 1986. Mihok returned to light duty at that time until January, 1988 when she resumed her regular duties. In March, 1988, Mihok was again placed on light duty; and on June 28, 1988, she called in sick for an indefinite period because of her claimed disability.
Pursuant to the hospital's request, Mihok was examined by Bruce Tetalman, M.D. on September 26 and October 7, 1988. Following his examination, Dr. Tetalman determined that Mihok had recovered from her work-related injury and was able to return to work as a psychiatric aide without restriction or limitation. Armed with this information, the director of personnel at the hospital held a "return to work *269 conference" with Mihok on November 7, 1988 and ordered her to return to her regular duties. Referee's Adjudication, p. 3. Mihok did not return to work and exhausted all earned leave as of November 9, 1988. Effective November 10, 1988, Mihok was placed on leave without pay and her Act 534 benefits were terminated. Mihok appealed this action and a hearing was held before a referee who recommended that Mihok's appeal be denied. DPW's Office of Hearings and Appeals (OHA) entered an order adopting the recommendation of the referee in its entirety.
On appeal to this Court, Mihok raises the following issues: (1) Whether it was improper or unconstitutional for DPW to terminate Mihok's Act 534 disability benefits without a prior hearing; (2) Whether DPW proved that Mihok's work-related disability had ceased; and (3) Whether Mihok's Act 534 disability benefits should be retroactively restored. This Court's scope of review is to determine whether the appellant's constitutional rights were violated, an error of law was committed, or a necessary finding of fact is not supported by substantial evidence. Murphy v. Department of Public Welfare, 85 Pa.Commonwealth Ct. 23, 480 A.2d 382 (1984). An adjudication by DPW must be sustained if it is in accordance with the law and supported by substantial evidence. D'Eletto v. Department of Public Welfare, 76 Pa.Commonwealth Ct. 224, 463 A.2d 1214 (1983).
Mihok first argues that her due process rights were violated when her Act 534 disability benefits were terminated without a prior hearing. In Hardiman v. Department of Public Welfare, 121 Pa.Commonwealth Ct. 120, 550 A.2d 590 (1988), this Court, rejecting DPW's argument that a decision by the Workmen's Compensation Appeal Board favorable to a claimant is a prerequisite for an award of Act 534 disability benefits, inferred that either a termination or denial of Act 534 benefits without prior hearing and adjudication by DPW was improper: "By either description [termination or denial], DPW made an adjudication of the claimant's rights without a hearing. Accordingly, we shall remand this matter to DPW with instructions to provide *270 [the claimant] with a hearing and then to adjudicate his claim for Act 534 benefits." Id., 121 Pa.Commonwealth Ct. at 134, 550 A.2d at 596.
The requirement that a claimant must be afforded a prior hearing before Act 534 disability benefits are terminated finds further and perhaps more concrete support in Pennsylvania Supreme Court decisions construing the Act of June 28, 1935, P.L. 477, as amended, 53 P.S. § 637 (Heart and Lung Act). In Camaione v. Borough of Latrobe, 523 Pa. 363, 567 A.2d 638 (1989), the Supreme Court held that once a claimant qualifies for benefits under the Heart and Lung Act, his disability status cannot be changed without a due process hearing. See also Callahan v. Pennsylvania State Police, 494 Pa. 461, 431 A.2d 946 (1981). This Court has recognized the similarities between Act 534 and the Heart and Lung Act and the appropriateness of adopting analyses of one for construction of the other. See, e.g., Tuggle v. Department of Public Welfare, 133 Pa.Commonwealth Ct. 227, 575 A.2d 664 (1990). Aside from the similarity of the language of the two acts,[2] the recognized legislative purposes behind Act 534 and the Heart and Lung Act share common considerations. With regard to the Heart and Lung Act, the Supreme Court has stated:
When we have had occasion to review the provisions of the Heart and Lung Act, we have emphasized that this remedial legislation provides compensation for police who suffer temporary incapacity or disability in the performance of their work. The guarantee of uninterrupted income during periods of temporary disability has been cited as an attraction for service in the police force and one that assures a reasonably speedy return to full active duty. *271 Camaione, 523 Pa. at 366-367, 567 A.2d at 640 (emphasis added). With regard to Act 534, this Court has stated:
As for the overall intent of the legislature in enacting Act 534, this court has commented previously that `Act 534 was designed to assure those who undertake employment in certain state institutions that they would be fully compensated in the event they were disabled as a result of an act of a patient.' (Citation omitted.) . . . [W]e may conclude from the nature of the institutions covered by Act 534 (state mental hospitals and youth development centers) as well as from the nature of the institutions originally covered under Act 632 [the antecedent to Act 534] (state penal and correctional institutions) that the reason for providing such assurance was that the legislature regarded working in those places as being more dangerous than most other forms of state employment. By making assurances of continued payment of `full salary' by the Commonwealth during periods of disability caused by the act of a patient or inmate the source of the unique hazard associated with the work the state can more readily attract employees to keep them in these essential but dangerous jobs.
Hardiman, 121 Pa.Commonwealth Ct. at 130-131, 550 A.2d at 595 (emphasis added). Hardiman thereupon drew a distinction between the different protections the legislature afforded workers in state institutions and those workers who in general suffer work-related injuries and who may be covered only by workers' compensation.[3]
Due process requires an opportunity to be heard at a meaningful time and in a meaningful manner. Mathews v. Eldridge, 424 U.S. 319, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976); East Rockhill Township v. Pennsylvania Public Utility Commission, 115 Pa.Commonwealth Ct. 228, 540 A.2d 600 (1988). The Pennsylvania Supreme Court has determined in *272 Callahan and Camaione that a hearing where each party has an opportunity to know of the claims of his opponent, hear evidence introduced against him, cross-examine witnesses, introduce evidence on his own behalf, and make argument must be convened prior to a change in a claimant's disability status under the Heart and Lung Act. There is no reason to draw a distinction for those claimants collecting disability benefits under the similarly drawn and similarly purposed Act 534. Accordingly, DPW committed an error of law in terminating Mihok's Act 534 disability benefits without a prior due process hearing.[4] In order to arrive at a full resolution of the issues, however, this Court will address Mihok's remaining arguments before discussing the appropriate remedy for DPW's failure to provide a due process hearing prior to making the decision to terminate benefits.
Mihok next argues that at the hearing subsequently convened following the termination of her benefits, DPW failed to carry its burden of showing that her work-related injury had ceased or abated. Mihok further argues that the referee capriciously disregarded competent evidence in arriving at her findings. In making these arguments, however, Mihok has misconstrued this Court's standard of review. Where the party with the burden of proof (in this case, DPW) has prevailed below, this Court's scope of review is to determine whether constitutional rights were violated, an error of law was committed, or necessary findings of fact are not supported by substantial evidence. Murphy. This Court shall consider whether a hearing examiner capriciously disregarded competent evidence only when the burdened party failed below and was the only party to present evidence. See Russell v. Workmen's Compensation Appeal Board (Volkswagen of America), 121 Pa.Commonwealth Ct. 436, 550 A.2d 1364 (1988). Accordingly, *273 this Court must determine whether DPW's finding that Mihok's disability has ceased is supported by substantial evidence.
At the hearing, DPW presented the testimony of Dr. Tetalman, a physician who examined Mihok and found no medical basis for her complaints. Dr. Tetalman also found a number of inconsistencies between Mihok's medical complaints and physical abilities and her performance on tests he administered to her. While Mihok introduced medical reports which indicated a continuing disability, the referee found Dr. Tetalman's testimony to be more persuasive. Further, the referee found Mihok's testimony concerning her own condition not to be credible.
Questions of credibility and the choice between conflicting testimony are for the hearing examiner, not this Court. Feldbauer v. Department of Public Welfare, 106 Pa.Commonwealth Ct. 87, 525 A.2d 837 (1987). The hearing examiner may therefore resolve conflicts in the evidence and choose to attach greater weight to certain evidence. If the evidence accepted constitutes substantial evidence, this Court is precluded from disturbing findings made, despite the existence of evidence to the contrary. See American Refrigerator Equipment Co. v. Workmen's Compensation Appeal Board, 31 Pa.Commonwealth Ct. 590, 377 A.2d 1007 (1977). "Substantial evidence" has long been defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. Murphy. In light of the above, it is clear that substantial evidence exists to support the referee's findings.
Because, however, Mihok was not afforded a due process hearing prior to the termination of her Act 534 benefits, her Act 534 disability benefits should be restored from the date of termination, November 10, 1988, to the date OHA entered its order disposing of Mihok's appeal following her hearing before the referee, November 7, 1989. See Penn Window & Office Cleaning Co. v. Workmen's Compensation Appeal Board (Pearsall), 121 Pa.Commonwealth *274 Ct. 248, 550 A.2d 610 (1988), appeal denied, 522 Pa. 607, 562 A.2d 829 (1989) (workers' compensation benefits will be reinstated in absence of a valid supersedeas order terminating same).
ORDER
AND NOW, this 25th day of September, 1990, for the reasons set forth in the attached opinion, the final order of the Secretary of the Pennsylvania Department of Public Welfare is hereby reversed in part and affirmed in part. Act 534 disability benefits shall be restored to Lisabeth Mihok for the period beginning on the date of their initial termination, November 10, 1988, to the date of the order of the Office of Hearings and Appeals addressing same, November 7, 1989. In all other respects, the final order of the Secretary is affirmed.
NOTES
[1] Act 534 provides in pertinent part:
Any employe . . . of a State mental hospital . . . under the Department of Public Welfare, who is injured during the course of his employment by an act of . . . any person confined in such institution. . . shall be paid, by the Commonwealth of Pennsylvania, his full salary, until the disability arising therefrom no longer prevents his return as an employe of such . . . institution at a salary equal to that earned by him at the time of his injury.
All medical and hospital expenses incurred in connection with any such injury shall be paid by the Commonwealth of Pennsylvania until the disability arising from such injury no longer prevents his return as an employe of such . . . institution at a salary equal to that earned by him at the time of his injury.
61 P.S. § 951.
[2] Section 1 of the Heart and Lung Act, 53 P.S. § 637, reads in pertinent part:
Any member of the State Police Force . . . or any policeman, fireman, or park guard of any county, city, borough, town or township, who is injured in the performance of his duties . . . and. . . is temporarily incapacitated from performing his duties, shall be paid . . . his full rate of salary . . . until the disability arising therefrom has ceased.
[3] A claimant under Act 534 may also collect benefits under The Pennsylvania Workmen's Compensation Act, Act of June 2, 1915, P.L. 736, as amended, 77 P.S. §§ 1-1031, though Act 534 provides the Commonwealth with subrogation rights for workers' compensation benefits received by a claimant. 61 P.S. § 951; Hardiman.
[4] DPW argues that Mihok failed to establish a record in support of her contentions that DPW's procedures are constitutionally improper. The record is clear, however, that Mihok was not afforded a due process hearing, as required under Callahan and Camaione, until she appeared before the referee, following her termination of benefits. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1539710/ | 974 A.2d 240 (2009)
Ricardo CUNNINGHAM, Appellant,
v.
UNITED STATES, Appellee.
No. 06-CF-595.
District of Columbia Court of Appeals.
Argued March 17, 2008.
Decided June 25, 2009.
*241 James E. Drew appointed by the court for appellant.
Anne Y. Park, Assistant United States Attorney, with whom Jeffrey A. Taylor, United States Attorney at the time the brief was filed, Roy W. McLeese III and Lisa H. Schertler, Assistant United States Attorneys, were on the brief, for appellee.
Before KRAMER, FISHER, and BLACKBURNE-RIGSBY, Associate Judges.
BLACKBURNE-RIGSBY, Associate Judge:
After a bench trial, Appellant Ricardo Cunningham was convicted of one count of possession of marijuana in violation of D.C.Code § 48-904.01 (2001). On appeal, he contends that (1) the evidence was insufficient to convict him; and (2) the trial judge erred by denying his right to cross-examine, as to bias, the key government witness, a police officer, regarding the officer's motive to curry favor by testifying because he was under investigation for the alleged use of excessive force. We conclude that the evidence was sufficient to support the conviction; however, we remand for further inquiry by the trial court to determine whether the officer was aware of the pending investigation against him. Such knowledge arguably would provide a motive for him to curry favor with the government.
I.
Mr. Cunningham was observed by three undercover police officers in the driver's seat of a grey, older model Ford conversion van parked in a parking lot of an apartment complex. Metropolitan Police Department ("MPD") Officer Angelo Battle saw Mr. Cunningham in the driver's *242 seat wearing a black jacket, a black shirt, and black pants. Officer Battle saw another passenger in the front seat of the vehicle rolling what appeared to be "a blunt or marijuana cigarette." The officer contacted members of the arrest team[1] and issued a lookout.
As the arrest team entered the parking lot and approached the van, Mr. Cunningham exited the vehicle and began to run through the parking lot. Officer Whaley saw him "make this kind of motion, lean down to the center console[,] and then open the door, jump out [of] the vehicle[,] and run, fleeing from the vehicle."[2] Officer Whaley believed that Mr. Cunningham was "[t]aking off a jacket and moving something around the center console area or dropping something." Officer Mason, along with other officers, chased down Mr. Cunningham on foot and brought him back to the van. When he was returned to the van, he was wearing a black shirt and black pants.
While other officers were chasing Mr. Cunningham, Officer Whaley approached the van and blocked the passenger-side door, preventing other occupants of the van from exiting. He noticed a jacket on the driver's seat. Officer Mason also saw a jacket on the driver's seat that looked "like somebody took it off and laid it right there on the driver's seat." The officers searched the jacket and recovered three bags containing a green weed-like substance and empty ziplock bags from the jacket pockets. Officer Mason also observed that there were other items of clothing strewn throughout the van, including another coat on the right rear passenger seat and a pair of pants on the front passenger seat. Officer Whaley kept "his eye on the [jacket] in which the drugs were found" and "he did not see anyone else [in the van] touch the jacket."
Moments before Officer Whaley testified at trial, the government alerted the court and defense counsel to a Lewis[3] issue relating to the officer. Officer Whaley was being investigated for the use of excessive force in an incident that occurred in March 2006. The government explained to the trial court that the officer believed that the subject of the investigation was "someone else in his chain of command," and he was merely "on the witness list" and had in fact testified against someone else also under investigation. The government asserted that Officer Whaley "ha[d] no idea that the United States ("U.S.") Attorney's Office [was] investigating him" and requested that "no inquiry be made of the officer" concerning the investigation, so as not to alert Officer Whaley of the ongoing investigation against him.
Mr. Cunningham's trial counsel countered, "It seems like we should be able to *243 cross-examine the witness about something that would go to bias, and bias is pretty liberally construed when it comes to corruption and things like that." The court asked counsel what the officer's incentive to curry favor would be if he had no knowledge that he was under investigation. Appellant's trial counsel replied:
Well, he is aware that there is an investigation going on, and that he is involved in it because he's been a witness in the investigation. And if there is an allegation by someone that he participated in excessive force then he would have every reason to try to curry favor of the U.S. Attorney's Office. ...
The trial court ruled that the officer did not know about the investigation and had no reason to curry favor. Therefore, the trial court allowed him to testify and instructed that "[w]e don't need to ask the officer about the investigation because he doesn't know anything about it. ..."
After closing arguments, the trial court issued its oral findings and credited the testimony of each officer. The court found that Mr. Cunningham's flight and removal of his jacket evinced consciousness of guilt that he possessed illegal controlled substances in his jacket. The court then sentenced him to sixty days' imprisonment.
II.
Mr. Cunningham contends that the evidence was insufficient to convict him of possession of marijuana. He asserts that the trial judge misstated the testimony that Police Officer Whaley saw him taking off a jacket and then relied on the misstatement when concluding that he possessed the jacket with the drugs in it. It is undisputed that Officer Whaley never saw Mr. Cunningham take off the jacket, but believed based upon Mr. Cunningham's movements in the van that he was taking off a jacket right before exiting the vehicle. While Mr. Cunningham concedes that, based on Officer Whaley's observation, the court could have inferred that he took a jacket off, appellant asserts that there is no indication in the record to show the court made such an inference.
The standard of review for a challenge to the sufficiency of the evidence in a criminal case is well established. Our decision in Smith v. United States, 809 A.2d 1216 (D.C.2002), clearly sets out the standard and deference we afford trial judges when reviewing a claim for insufficiency of the evidence:
Our standard of review for claims of evidentiary insufficiency requires that the evidence be viewed in the light most favorable to the government. In applying that standard, we recognize that it is the province of the trier of fact to determine the credibility of the witnesses and to make reasonable inferences from the evidence presented. All reasonable inferences must be drawn in favor of the government, and deference must be given to the [trier of fact's] right to determine credibility and weigh evidence. We continue to adhere to the proposition that the government is not required to negate every possible inference [of innocence] before an accused may be found guilty of an offense beyond a reasonable doubt. It is only where the government has produced no evidence from which a reasonable mind might fairly infer guilt beyond a reasonable doubt that this court can reverse a conviction.
Id. at 1221 (alterations in original) (internal quotation marks and citations omitted).
To establish possession of a controlled substance, "the government [must] prove beyond a reasonable doubt that the accused: (1) possessed a controlled substance; and (2) that he did so knowingly and intentionally." Id. (citing D.C.Code *244 § 33-541(d) (1998 Repl.)) (other citation omitted); see also Olafisoye v. United States, 857 A.2d 1078, 1087 (D.C.2004). "Proof of possession can be established by either direct or circumstantial evidence." Smith, supra, 809 A.2d at 1222 (quoting United States v. Hubbard, 429 A.2d 1334, 1338 (D.C.1981)). When reviewing a claim for insufficiency of the evidence, "we make no distinction between direct and circumstantial evidence, and `[c]ircumstantial evidence is not intrinsically inferior to direct evidence.'" Id. (quoting Bernard v. United States, 575 A.2d 1191, 1193 (D.C.1990)).
We conclude that the direct and circumstantial evidence was sufficient to support the conviction for possession of marijuana. Mr. Cunningham does not challenge that the green weed-like substance found in the black jacket was marijuana. We are therefore left to determine whether there was sufficient evidence to conclude that he knowingly and intentionally possessed it by possessing the black jacket in which the marijuana was found. Although the trial court, in its oral findings of fact, inaccurately stated that Officer Whaley testified that he saw Mr. Cunningham taking off a jacket, the circumstantial evidence supported a finding that Mr. Cunningham had taken his jacket off and left it on the driver's seat the same jacket in which the marijuana was found. Officer Battle observed Mr. Cunningham wearing a black jacket and black shirt, but when he fled the vehicle he was only wearing a black shirt. Prior to Mr. Cunningham leaving the van, Officer Whaley witnessed what he believed to be Mr. Cunningham "[t]aking off a jacket and moving something around the center console area or dropping something." Officer Whaley and Officer Mason testified that the jacket was draped over the driver's side seat as if someone had taken the jacket off and laid it there. In addition, the court made a finding, which Mr. Cunningham did not challenge, that fleeing from the van evinced consciousness of guilt that he possessed illegal controlled substances in his jacket. The evidence when viewed as a whole, in addition to the reasonable inferences to be drawn, is sufficient to support the verdict. See Smith, supra, 809 A.2d at 1222; see also Lewis v. United States, 767 A.2d 219, 222 (D.C. 2001) ("[A] conviction will be overturned only where there has been no evidence produced from which guilt may reasonably be inferred.").
III.
Mr. Cunningham next contends that his conviction should be reversed on the grounds that the trial court violated his Sixth Amendment rights by precluding a line of questioning intended to show Officer Whaley was biased against him. See Brown v. United States, 683 A.2d 118, 124 (D.C.1996) (noting that the opportunity to cross-examine adverse witnesses is an inherent component of the defendant's Sixth Amendment right to confront witnesses against him). Bias is a broad concept and may be proven by showing that a witness has a motive to curry favor with one side or the other. See Blunt v. United States, 863 A.2d 828, 834 (D.C.2004). Concluding that the present record is insufficient to resolve this issue, we remand for further inquiry.
After notifying the court of the investigation against Officer Whaley, the government insisted that Officer Whaley believed he was merely a witness in that investigation and did not know he was actually under investigation. When Mr. Cunningham's trial counsel argued that this created bias, the court asked Mr. Cunningham's trial counsel why Officer Whaley would seek to curry favor with the government when he did not know he was under investigation. Appellant's trial counsel responded *245 that "bias is pretty liberally construed when it comes to corruption and things like that. ..." He further stated that the officer
is aware that there is an investigation going on, and that he is involved in it because he's been a witness in the investigation. And if there is an allegation by someone that he participated in excessive force then he would have every reason to try to curry favor of the U.S. Attorney's Office. ...
More artfully, on appeal, Mr. Cunningham contends that "[g]iven the prevalence of leaks and rumors (both accurate and inaccurate rumors), etc., arising from ongoing investigations, only the witness himself would know if he was unaware or unsuspecting that he was a target of the investigation[,][and] the prosecutor has no way of knowing what Officer Whaley did or did not know or suspect." See Randolph v. United States, 882 A.2d 210, 217-18 (D.C. 2005) ("[I]f we are dealing with an argument rather than a claim, it may properly be asserted for the first time on appeal.") (citing West v. United States, 710 A.2d 866, 868 n. 3 (D.C.1998)).
We have recognized that bias is always a proper subject of cross examination, and the refusal to allow questioning about facts indicative of bias from which the jury could reasonably draw adverse inferences of reliability is an error of constitutional dimension, violating the defendant's rights secured by the Confrontation Clause. See Coles v. United States, 808 A.2d 485, 489 (D.C.2002); see also Brown, supra, 683 A.2d at 124 (citing Ford v. United States, 549 A.2d 1124, 1126 (D.C.1988)). "Moreover, cross-examination seeking to ferret out bias takes on enhanced significance where the credibility of the key government witness is in issue." Id. (quoting Jenkins v. United States, 617 A.2d 529, 531 (D.C.1992) (internal quotation marks omitted)). There is no doubt that Officer Whaley was a key witness here.
"On the other hand, the right to cross-examination is subject to reasonable limits imposed at the discretion of the trial judge, and the extent of cross-examination [of a witness] with respect to an appropriate subject of inquiry is within the sound discretion of the trial court." Brown, supra, 683 A.2d at 124 (internal quotation marks and citations omitted) (alteration in original). "[T]he trial court may restrict cross-examination within reasonable limits to avoid such problems as harassment, prejudice, confusion of the issues, the witness' safety, or interrogation that is repetitive or only marginally relevant." Id. (internal quotation marks omitted). The trial court may also exercise its discretion to preclude cross-examination where the probative value is outweighed by the prejudicial effect. Id.
In addition, before pursuing a line of questioning suggesting that a witness is biased, a defendant must lay a foundation sufficient to permit the trial judge to evaluate whether the proposed question is probative of bias. Brown, supra, 683 A.2d at 124. "In the absence of such a factual foundation, the questioner must articulate a `well reasoned suspicion' rather than `an improbable flight of fancy' to support the proposed cross-examination." Id. at 125 (quoting Scull v. United States, 564 A.2d 1161, 1164 (D.C.1989) (footnote and citations omitted)). Since "an important purpose of cross-examination is exploration, [] the trial court must give counsel some leeway to probe for information that she cannot prove before commencing cross-examination." Id. (internal quotation marks and citation omitted).
In this case, appellant sought to cross-examine Officer Whaley about his potential bias because he was under investigation *246 for use of excessive force in the line of duty. The court precluded this line of inquiry based on the government's representation that Officer Whaley did not know he was under investigation and therefore could not be motivated to curry favor by testifying favorably for the government. The government's legal theory was sound. We have held that a trial court did not abuse its discretion by precluding cross-examination of a key government witness where it was established that the witness did not know the underlying facts which arguably would create bias. Ifelowo v. United States, 778 A.2d 285, 295 n. 13 (D.C.2001) ("Impeachment evidence is not material if the witness does not have knowledge of the underlying fact.") (quoting Williams v. Scott, 35 F.3d 159, 162 (5th Cir.1994) (internal quotation marks and citations omitted)). The more difficult question here is whether the government's theory was based on a solid factual premise.
The proffer of Mr. Cunningham's trial counsel lacked a specific factual foundation to suggest that Officer Whaley knew he was a subject of the ongoing investigation. Nevertheless, as the prosecutor disclosed, Officer Whaley was in fact under investigation. Because Officer Whaley was indeed the subject of the investigation (and not merely a witness), it was not unreasonable to conclude that he might have knowledge of the investigation and might be attempting to curry favor by testifying favorably for the government. See Blunt, supra, 863 A.2d at 835 (noting that it is the witness's subjective belief that controls). Although the government believed Officer Whaley was not aware of his true status as the subject of the investigation, appellant's counsel appropriately points out that the effectiveness of government attempts to preserve secrecy is frequently overrated, and information sometimes leaks out.
The trial court should have been more skeptical of the government's proffer, asking for more information to support the conclusion that Officer Whaley did not know he was under investigation. It should also have allowed a few carefully-phrased questions to explore whether Officer Whaley was aware of his status, thereby attempting to preserve the secrecy of the government's investigation, without needlessly tipping him off that he was a suspect. Depending on the answers received, and the content of any further information the government provided, further inquiry might or might not have been appropriate.
This court confronted a similar situation in McCloud v. United States, 781 A.2d 744 (D.C.2001). There, the adult sons of the government's key witness were accused of sexually abusing the same children the appellant had been accused of abusing. Id. at 747-48. The government informed the trial court of the allegations ex parte and argued that disclosure to the defense was not required because, among other things, they did not know if the witness was aware of the allegations against her sons. Id. at 753. We recognized that the allegations were "potentially highly relevant," id. at 752, to the issue of bias, holding "that if the witness knew of the charges against her sons, appellant was denied his right of confrontation." Id. at 747. Nevertheless, quoting the same passage from Ifelowo that appears above, we decided that it was necessary to remand so that the trial court could "promptly conduct an inquiry as to whether [the witness] was aware at the time of her trial testimony of the allegations of sexual abuse against her sons or the acts underlying those allegations."[4]Id. at 754.
*247 Here the type of bias for which appellant sought to cross-examine Officer Whaley was potentially relevant.[5] Of further importance is the fact that Officer Whaley was a key government witness. See McCloud, supra, 781 A.2d at 752 ("[C]ross-examination seeking to ferret out bias takes on enhanced significance where the credibility of the key government witness is in issue.") (quoting Jenkins v. United States, 617 A.2d 529, 531 (D.C.1992) (internal quotation marks omitted) (alteration in original)). However, we cannot discern whether this was an error that infringed on Mr. Cunningham's constitutional rights without remanding for an inquiry into whether, at the time of trial, Officer Whaley was aware of the investigation against him. See McCloud, supra, 781 A.2d at 752-54 (noting that harmlessness beyond a reasonable doubt could not be determined without remanding to determine what the witness knew at the time of her testimony). If after cross-examination and other inquiry on remand, the trial court determines that Officer Whaley did not know he was under investigation, then it would be difficult to conclude that the trial court committed error by disallowing cross-examination regarding Officer Whaley's potential bias. See note 4, supra. However, if Officer Whaley was aware of the investigation against him, we would need to revisit the issue of whether appellant's constitutional rights were infringed upon, and whether any such infringement was harmless beyond a reasonable doubt.
At this juncture, we see no point in attempting to script an inquiry that would balance the competing interests identified above. Nearly three years after the trial, the investigation should be over and the trial court or counsel may ask the questions directly. In the unlikely event that the investigation is not yet over, the issuance of this opinion will obviate the previous concerns about secrecy.
This matter is remanded to the trial court for further proceedings consistent with this opinion.[6]
So ordered.
NOTES
[1] The arrest team consisted of MPD Officers Kevin Whaley, Tony Mason and Jonathan Branch. All three were in an unmarked police car, had their badges out, and were wearing black vests with the word "police" written on the front and back of the vests.
[2] The government described the motion demonstrated by Officer Whaley for the record: "[T]here was a rolling of one's shoulders from side to side and then leaning down towards the console area."
[3] The "Lewis list" is a computerized list, maintained by the Office of the United States Attorney for the District of Columbia, preserving information that might be used to impeach police officers if they testify. Among other things, it identifies officers who are under investigation. See United States v. Bowie, 198 F.3d 905, 907-08 (D.C.Cir.1999) (citing Lewis v. United States, 393 A.2d 109 (D.C. 1978), aff'd, 408 A.2d 303 (D.C. 1979) (where this court held that impeachable convictions and/or delinquency adjudications of witnesses are Brady material, and the government is required to disclose such information within its knowledge)).
[4] Before remanding in McCloud, we paused to consider "whether the error can be deemed harmless beyond a reasonable doubt ...," 781 A.2d at 753, and decided that it could not be on the record then before us. Id. at 754. As several passages in the opinion make clear, however, we did not conclude that constitutional error had in fact occurred. See, e.g., 781 A.2d at 747 ("The court holds that if the witness knew of the charges against her sons, appellant was denied his right of confrontation."); id. at 752 (the investigation of sexual abuse by the brothers "was potentially highly relevant to Mary Ishmell's bias."); id. at 753 (referring to "our holding that appellant's Sixth Amendment right of confrontation may have been violated ....") (emphasis added in each instance). In context, the harmlessness inquiry was an attempt to determine whether, assuming error, a remand could be avoided. In the end, it could not be avoided, and the purpose of the remand was to determine whether any error occurred at all.
[5] Although Mr. Cunningham's trial counsel, as distinguished from McCloud, attempted to make a proffer, the proffer lacked any specific factual foundation to indicate that Officer Whaley knew he was the subject of the investigation, and this proffer was too speculative as to the key fact that went to potential bias.
[6] We reject appellant's argument, raised for the first time on appeal, that the trial court should have permitted cross-examination on the theory that the details of the excessive-force allegations would have shown that Officer Whaley was so hostile to drug dealers that he would commit illegal acts to cause them harm. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/527153/ | 881 F.2d 1035
58 USLW 2162, 1989 Copr.L.Dec. P 26,463,12 U.S.P.Q.2d 1071
Arthur R. BORDEN, Jr., Plaintiff-Appellee,v.Anita KATZMAN, Defendant-Appellant.
No. 87-3351.
United States Court of Appeals,Eleventh Circuit.
Aug. 29, 1989.
Mark Louis Katzman, Sarasota, Fla., and Andrew J. Goodman, on brief, New York City, for defendant-appellant.
Stefan V. Stein, Stein, Reese & Prescott, Tampa, Fla., for plaintiff-appellee.
Appeal from the United States District Court for the Middle District of Florida.
Before HILL and EDMONDSON, Circuit Judges, and GARZA*, Senior Circuit Judge.
GARZA, Senior Circuit Judge:
1
In this case appellant asserts that the district court erroneously exercised jurisdiction of appellee's declaratory judgment action, which was brought under the Copyright Act of 1976. We are convinced that the only issues before the district court presented questions of state law requiring neither determination of a claim for infringement nor construction of the Copyright Act. Therefore, we reverse the decision of the district court, vacate the order issued pursuant thereto and remand for dismissal of the cause for lack of subject matter jurisdiction.
Background
2
Appellee Dr. Arthur R. Borden is a professor emeritus of English at New College of the University of South Florida. Appellant Anita Katzman is the author of a published work of fiction entitled, My Name is Mary. In January of 1974, appellant travelled to Tahiti where she learned of the existence of a nineteenth-century Tahitian ruler named Queen Pomare IV. She resolved to write a book concerning the life and times of the Queen entitled, A Reason to Tarry. She has conducted considerable research for this book since May of 1975. During the course of this research she discovered a book that was written contemporaneous with the life of Queen Pomare IV by a man named A.J. Moerenhout. The title of this book is Voyages aux Iles au Grand Ocean (the Moerenhout book). The right to publish an English translation of the Moerenhout book constitutes the gravamen of this lawsuit.
3
Prior to 1975, Ms. Katzman and Dr. Borden had come to know each other at New College. When appellant told appellee that she was looking for a student to translate some published materials from French to English, appellee offered his services. At Dr. Borden's suggestion, appellant contributed $500 to the New College music festival in return for his translation. Thereafter, Dr. Borden translated several other works for Ms. Katzman. He was paid for these translations. He also assisted appellant in the preparation and organization of research materials for A Reason to Tarry.
4
In 1976, Ms. Katzman reviewed the Moerenhout book at the Library of Congress. She then travelled to Tahiti to purchase a copy. Finding this copy was, apparently, no small feat because the work had been out of print for a number of years. In 1982, Dr. Borden translated several portions of the Moerenhout book for Ms. Katzman and she paid him for the requested translations. Later, he translated the rest of the book and delivered a rough draft of this latest translation to appellant. Subsequently, and approximately one month after filing this declaratory judgment action, he obtained a United States Certificate of Registration from the Copyright Office for his translation.
5
Dr. Borden contracted with University Press to publish his translation of the Moerenhout book. Ms. Katzman, however, has succeeded in holding up publication by threatening University Press with litigation. She claims that she gave Dr. Borden a copy of the Moerenhout book in confidence and that his attempt to publish it constitutes a breach of fiduciary duty. She believes that publication of the Moerenhout translation would pre-empt sales of her book about the life of Queen Pomare IV. Appellee believes that his translation would have a positive impact upon the sales of A Reason to Tarry, which is not yet ready for publication.
6
Dr. Borden filed suit on October 25, 1985, seeking entry of a judgment declaring that Ms. Katzman is without right to threaten suit against him or his publisher for alleged infringement or theft of copyright. As a preliminary matter, Ms. Katzman claimed that the court was without subject matter jurisdiction because the case involved a breach of fiduciary duty and did not arise under the copyright laws. In addition, she counterclaimed, asking that appellee be permanently enjoined from publishing his translation of the Moerenhout book.
7
The district court entered judgment in favor of Dr. Borden on May 1, 1987. The court found that the issue in controversy concerned whether or not Ms. Katzman has the right to prevent Dr. Borden from publishing his translation of the Moerenhout book. The case was, therefore, according to the court, one that involved publication rights, which are governed exclusively by the Copyright Act of 1976. The court granted appellee's request for declaratory judgment and denied appellant's counterclaim. In addition, the court awarded Dr. Borden attorneys' fees and costs, as a prevailing party in a copyright suit, in the amount of $21,757.90. From this judgment, appellant brings this appeal.
Discussion
8
In one of the leading cases on the question of when an action "arises under" the copyright laws, the late Judge Friendly of the Second Circuit observed that "[a] layman would doubtless be surprised to learn that an action wherein the purported sole owner of a copyright alleged that persons claiming partial ownership had recorded their claim in the Copyright Office and had warned his licensees against disregarding their interests was not one arising under any Act of Congress relating to ... copyrights." T.B. Harms Company v. Eliscu, 339 F.2d 823, 824 (2nd Cir.1964), cert. denied, 381 U.S. 915, 85 S. Ct. 1534, 14 L. Ed. 2d 435 (1965). The same layman might well shake his head in wonder upon the revelation that an action in which the undisputed owner of a copyright is prevented, through the threat of litigation, from exercising one of the exclusive privileges granted by such ownership is likewise not one arising under the copyright laws. "Yet precedents going back for more than a century" lead us to that inescapable conclusion. Id.
9
As a preliminary matter, we note that appellee has brought this action under the Declaratory Judgment Act, which does not, of itself, confer jurisdiction upon the federal courts; a suit brought under the Act must state some independent source of jurisdiction, such as the existence of diversity or the presentation of a federal question. Skelly Oil Co. v. Phillips Co., 339 U.S. 667, 70 S. Ct. 876, 94 L. Ed. 1194 (1950). Dr. Borden asserts that jurisdiction exists under the Copyright Act of 1976, which confers exclusive jurisdiction upon the federal courts for resolution of copyright disputes. 28 U.S.C. Sec. 1338(a), (b) (Supp.1988). He argues that Ms. Katzman claims a right to publish an English translation of the Moerenhout book. And since the right to publish a particular work resides exclusively with the owner of the copyright to that work, Ms. Katzman's effective destruction of that right, according to appellee, violates the copyright laws.
10
Appellant Katzman vigorously denies the assertion that she claims a right to publish a translation of the Moerenhout book and she disavows any intention of ever pressing such a claim. There is, however, evidence in the record to the contrary, most notably in the parties' Stipulation of Facts, where appellant claims the right to publish, and to prevent others from publishing, a translation of the book. This stipulation directly contradicts her answers to appellee's Amended Complaint, wherein she explicitly denies ownership of the copyright to the translation or a right to publish it. In any event, for the reasons stated below, our decision in this case does not turn upon whether Ms. Katzman asserts a right to publish the Moerenhout translation.
11
Federal jurisdiction may obtain under the appellee's (and the district court's) view of this case only if appellee's suit presents a claim for infringement or requires construction of the Copyright Act. T.B. Harms, 339 F.2d at 828. However, the bare claim of a right to publish, without more, does not give rise to an infringement action. In the absence of copying or reproducing a copyrighted work, there can be no infringement under the copyright laws. Mazer v. Stein, 347 U.S. 201, 218, 74 S. Ct. 460, 98 L. Ed. 630 (1954). Once again in the words of Judge Friendly, "Infringement, as used in the copyright law, does not include everything that may impair the value of the copyright; it is doing one or more of those things which ... [the Copyright Act] reserves exclusively to the copyright owner." T.B. Harms, 339 F.2d at 825 [emphasis added].
12
There appears no allegation that Ms. Katzman has ever attempted to publish her own version of the Moerenhout translation or to license, copy or duplicate Dr. Borden's version. Neither does she claim a right to statutory royalties for Dr. Borden's book. She conceeds that he is the true owner of the copyright to the translation. To date, she has not actually done anything which the Copyright Act reserves exclusively to Dr. Borden as the owner of the copyright. Rather, she has attempted to prevent Dr. Borden from enjoying the rights vested in him by virtue of his copyright ownership. However, "[t]he general interest that copyrights, like all other forms of property, should be enjoyed by their true owner is not enough" to invoke federal jurisdiction. Id. at 828. Thus, if the district court properly exercised jurisdiction here, it must be because resolution of the dispute required a construction of the Copyright Act.
13
Section 106 of the Copyright Act confers upon a copyright holder the exclusive right, inter alia, to reproduce, distribute and publicly display the copyrighted work. The Act also gives a copyright owner the right to sell, vend, or in any other way, to transfer ownership of a copyright or of any of the exclusive rights comprised in a copyright. See 17 U.S.C. Sec. 101 (1976) (defining "transfer of copyright ownership"); Shapiro, Bernstein & Co. v. Bleeker, 224 F. Supp. 595 (D.C.Cal.1963). It is clear, as the T.B. Harms case counsels, that a dispute over the terms or the enforcibility of a contract to transfer the exclusive rights comprised in a copyright is wholly a state law matter. Contract questions that depend upon common law or equitable principles belong in state court even if they involve copyrights. Dolch v. United CA. Bank, 702 F.2d 178 (9th Cir.1983).
14
The dispute between the parties here is over the ability of Dr. Borden to exercise and enjoy the rights granted to him as the owner of a copyright. Appellee sought and obtained a declaration that he may publish his translation of the Moerenhout book. Appellant claims that, because of the way in which he learned about the Moerenhout book and because of his understanding of the relationship between that book and A Reason to Tarry, Dr. Borden, in effect, entered an implied agreement of confidentiality with Ms. Katzman, an agreement which he breached when he attempted to publish his translation. We need not--indeed, we may not--comment upon the merits of appellant's claim. Whether or not Dr. Borden did, in fact, enter into a confidential relationship with Ms. Katzman, such that the exercise of his publication rights would breach a fiduciary duty created thereby, is a question that raises only state law issues which do not in any way require a construction of the Copyright Act.
15
For the foregoing reasons, the district court lacked subject matter jurisdiction to determine the dispute in this case. Moreover, since this action is not one "arising under" the Copyright Act of 1976, the district court's award of attorneys' fees pursuant to the provisions of the Act was improper. Accordingly, we REVERSE the decision of the district court, we VACATE the order granting appellee's declaratory judgment and award of attorneys' fees and we REMAND for dismissal of the cause for want of subject matter jurisdiction.
*
Honorable Reynaldo G. Garza, Senior U.S. Circuit Judge for the Fifth Circuit, sitting by designation | 01-03-2023 | 08-23-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/2336788/ | 183 A.2d 393 (1962)
Charles W. CARRAS, Appellant,
v.
DISTRICT OF COLUMBIA, Appellee.
No. 2977.
Municipal Court of Appeals for the District of Columbia.
Argued May 7, 1962.
Decided July 20, 1962.
*394 Walter M. Nicholson, Jr., Washington, D. C., for appellant.
Hubert B. Pair, Asst. Corp. Counsel, with whom Chester H. Gray, Corp. Counsel, Milton D. Korman, Principal Asst. Corp. Counsel, and H. Thomas Sisk, Asst. Corp. Counsel, were on the brief, for appellee.
Before HOOD, Chief Judge, and QUINN and MYERS, Associate Judges.
HOOD, Chief Judge.
Appellant was arrested for an indecent exposure in a local bus terminal. He pleaded guilty to the charge, and on a showing to the court that appellant had twice before been committed to St. Elizabeths Hospital for similar offenses and that he had been released from that institution only two months before the latest offense, proceedings were had under our sexual psychopath statute.[1] After a hearing he was found to be a sexual psychopath and committed to St. Elizabeths Hospital. On this appeal appellant's chief argument is that the evidence did not sustain the finding that he was a sexual psychopath within the statutory definition, which reads as follows:
"The term `sexual psychopath' means a person, not insane, who by a course of repeated misconduct in sexual matters has evidenced such lack of power to control his sexual impulses as to be dangerous to other persons because he is likely to attack or otherwise inflict injury, loss, pain, or other evil on the objects of his desire." Code 1961, § 22-3503(1).[2]
The basis for this argument is the preliminary report of the two psychiatrists who examined appellant and the testimony of one of those psychiatrists at the hearing. In the preliminary report the psychiatrists concluded that appellant was a sexual psychopath within the definition of the statute, but added: "Mr. Carras is not dangerous to others in spite of offensive inclinations. It is our recommendation *395 that he receive ambulatory treatment (psychotherapy) for his condition."[3]
The psychiatrist who testified at the hearing stated that appellant was of sound mind but had a compulsion to expose himself which he could not resist. He further said he did not believe appellant was dangerous in that he would physically attack anyone in any manner. He conceded there could be possible psychological damage to a minor child or sensitive adult should such a person observe an indecent exposure, but he repeated that appellant would not physically harm other persons and would be helped by ambulatory treatment.
The gist of appellant's argument is that in order to come within the statutory definition of sexual psychopath, one must be dangerous to others, and that this means likely to inflict physical injury to another; and that, absent the likelihood of physical danger to others, one cannot be classified under the statute as a sexual psychopath, no matter how disgusting and offensive his conduct may be to others.
It is our opinion that the words of the statute, "likely to attack or otherwise inflict injury, loss, pain, or other evil," are not to be restricted to physical injury alone. In the common understanding of the words, injury includes injury to the feelings, and pain includes mental suffering.[4] The psychiatrists conceded, and without that concession we would hold as a matter of common sense, an exhibition of the sort here described might result in a painful reaction on the part of the observer and might produce a psychological injury. Much, of course, would depend upon the age, sex, sensitivity and experience of the observer, but the statute requires only a likelihood and not a certainty. It is our conclusion that the evidence sustained the conviction.
Appellant next contends that the court should have explored various means of treatment short of commitment, especially in view of the psychiatrists' recommendation that he receive ambulatory psychotherapy. Under the statute the court had no choice but was required to order commitment to St. Elizabeths.[5]
Finally, appellant complains of the action of the trial court respecting bond on appeal. Appellant's motion for bond pending appeal was denied on the ground that, having adjudged appellant to be a sexual psychopath, the court had no alternative under the statute but to order immediate commitment. We think this was error. The statute gave appellant the right of appeal as in other cases,[6] and we find no language in the statute explicitly denying the right to bail on appeal. Though this is a civil proceeding, and not a criminal one, and though appellant was committed for treatment as a patient, we think the court has the power to grant bond pending appeal. We do not mean to say that bond should have been allowed in this case, but we do hold that in a sexual psychopath proceeding the trial court has the power, on a proper showing, to permit the one adjudged to remain at liberty on bond pending appeal. However, the question of appellant's right to bail is now moot. His case is here and ready for disposition on the merits and no practical relief can be given him with respect to bail.[7]
We hold that the evidence justified the trial court in finding appellant to be a sexual psychopath and in ordering his commitment.
Affirmed.
NOTES
[1] Code 1961, § 22-3503 et seq.
[2] The constitutionality of our statute was upheld in Miller v. Overholser, 92 U.S. App.D.C. 110, 206 F.2d 415.
[3] Presumably "ambulatory treatment" means treatment, without confinement, at the hospital.
[4] Webster's New International Dictionary (2d ed.).
[5] Code 1961, § 22-3508.
[6] Code 1961, § 22-3508.
[7] Starr v. District of Columbia, D.C.Mun. App., 176 A.2d 878. | 01-03-2023 | 10-30-2013 |
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