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https://www.courtlistener.com/api/rest/v3/opinions/1540085/ | 974 A.2d 466 (2009)
408 N.J. Super. 252
NEW JERSEY DIVISION OF YOUTH AND FAMILY SERVICES, Plaintiff-Respondent,
v.
A.P., Defendant-Appellant, and
F.H., Defendant.
In the Matter of S.H., a minor.
No. A-3564-07T4.
Superior Court of New Jersey, Appellate Division.
Argued May 19, 2009.
Decided July 17, 2009.
*467 Beatrix W. Shear, Deputy Public Defender, and Ronald C. Appleby, Designated Counsel, argued the cause for appellant (Yvonne Smith Segars, Public Defender, attorney; Ms. Shear and Mr. Appleby, on the brief).
Lauren Carlton, Assistant Attorney General, argued the cause for respondent (Anne Milgram, Attorney General, attorney; Lewis A. Scheindlin and Melissa H. Raksa, Assistant Attorneys General, of counsel; Jennifer Jaremback, Deputy Attorney General, on the briefs).
Melissa R. Vance, Assistant Deputy Public Defender, argued the cause for minor S.H. (Yvonne Smith Segars, Public Defender, Law Guardian, attorney; Ms. Vance, on the brief).
Before Judges SKILLMAN, GRAVES and GRALL.
The opinion of the court was delivered by
SKILLMAN, P.J.A.D.
The dispositive issue presented by this appeal is whether a parent's appeal of an order that dismisses a Title 9 action brought by the Division of Youth and Family Services (DYFS) before there has been an adjudication of abuse or neglect and entry of a final order of disposition is mooted by DYFS' filing of a Title 30 action for the termination of parental rights. We conclude that DYFS' filing of a Title 30 action and the entry in that action of an order regarding custody and related matters such as visitation, which supersedes any orders entered in the Title 9 action, moots the parent's appeal from the dismissal of the Title 9 action before an adjudication of abuse or neglect.
On December 18, 2002, DYFS filed this action under Title 9, which alleged that defendants A.P. and a paramour, J.B., had abused or neglected their child, K.B., who was born on April 18, 2002. On December 18, 2002, the trial court placed K.B. under the care, custody and supervision of DYFS.
On August 25, 2005, DYFS filed an amended complaint, which alleged that defendants A.P. and her husband, F.H., had abused or neglected their child, S.H., who was born on June 23, 2004, and sought custody of that child. The basis for this amended complaint was an incident of domestic violence between A.P. and F.H. that occurred on August 22, 2005, which resulted in the arrest of both parents. The amended complaint incorporated by reference the original complaint relating to K.B., who was still under DYFS' care, custody and supervision. On August 25, 2005, the trial court entered an order that also placed S.H. under the care, custody and supervision of DYFS, and DYFS *468 placed S.H. in the physical custody of his paternal grandmother.
On September 15, 2005, the trial court entered another order continuing the placement of both K.B. and S.H. in DYFS' care, custody and supervision, with S.H. continuing in the physical custody of his paternal grandmother. This order provided that both parents would be entitled to supervised visitation and various services, including anger management and parenting skills training.
Compliance review hearings were conducted on November 10, 2005, February 16, 2006, April 27, 2006, September 5, 2006, December 7, 2006, January 30, 2007, March 27, 2007, and June 19, 2007, which resulted in the continuation of S.H.'s placement under DYFS' care, custody and supervision and physical custody remaining with his paternal grandmother.
On January 23, 2006, DYFS brought a guardianship action under Title 30 seeking the termination of A.P.'s and J.B.'s parental rights with respect to K.B. When that guardianship action was filed, DYFS' original complaint against A.P. and J.B., which alleged that they had abused or neglected K.B., was dismissed. A.P. and J.B. both failed to appear for the trial of the guardianship action, which resulted in a default being entered, and on September 18, 2006, a judgment was entered terminating their parental rights with respect to K.B. No appeal was taken from this judgment.
On September 19, 2007, the trial court conducted a permanency hearing in DYFS' Title 9 action against A.P. and F.H. regarding their alleged abuse or neglect of S.H. A DYFS manager and A.P. both testified. F.H. did not appear. Following the hearing, the trial court entered an order, which found that it was "appropriate and acceptable" for DYFS to file a complaint for the termination of A.P.'s and F.H.'s parental rights.
On January 14, 2008, DYFS filed a complaint under Title 30 seeking the termination of A.P.'s and F.H.'s parental rights with respect to S.H. The complaint asserted that "it would be in [S.H.'s] best interest ... if he was placed under the guardianship of [DYFS] for all purposes, including adoption." The complaint also asserted that A.P. "had abandoned S.H. to the care of others and had substantially failed to perform the regular and expected functions of his care and support."
On January 29, 2008, the trial court entered an order dismissing DYFS' Title 9 abuse or neglect action. This order stated: "This litigation is terminated as the guardianship complaint was filed in this matter on January 14, 2008 .... The return date is February 22, 2008." Although the January 29, 2008 order dismissed the Title 9 action, it also provided that S.H.'s "legal custody" was "continued with DYFS" and his "physical custody" was "continued with paternal grandmother."
On March 19, 2008, A.P. filed a notice of appeal from the January 29, 2008 order dismissing the Title 9 action against her.
On February 22, 2008, the return date referred to in the order dismissing the Title 9 action, the trial court in the Title 30 guardianship action entered an order which provided, among other things, that S.H. "shall remain a ward of the court and remain in the care, custody and supervision of [DYFS]." On March 31, 2008, June 2, 2008, November 10, 2008, and December 22, 2008, the court entered further orders continuing this provision. In addition, on August 25, 2008, the trial court in the guardianship action entered a permanency order, which concluded that DYFS' "permanent plan for the ... termination of parental rights [as to S.H.] followed by adoption [is] appropriate and acceptable." This order found that "[A.P.'s] where-abouts *469 are unknown" and that "[S.H.] has been in out-of-home placement for 3 years and is in need of permanency."
On December 22, 2008, the trial court in the guardianship action entered an order, apparently on its own motion, staying that action pending this court's disposition of the present appeal.
On her appeal from the order dismissing the Title 9 action, A.P. argued that the trial court deprived her of due process by dismissing the Title 9 action without affording her an opportunity to appear. A.P. also presented a series of arguments that rest on the underlying premise that DYFS was required to prove its case in the Title 9 abuse or neglect action before it could file a Title 30 guardianship action. She argued that the court violated the governing statutory provisions by allowing DYFS to file a Title 30 action without first finding that she had abused or neglected S.H., that the termination of her parental rights rather than reunification was the appropriate plan for S.H., or that the proposed adoptive parents were approved and interested in adoption.
Upon an initial review of this appeal, we questioned whether the January 29, 2008 order dismissing the Title 9 action was appealable or, alternatively, whether the appeal was moot, in light of DYFS' filing of the Title 30 action. Therefore, we directed the parties to file supplemental briefs addressed to this issue.
A.P. argues in her supplemental brief that this appeal is not moot because DYFS' proof of abuse or neglect in an action brought under Title 9 is a prerequisite for bringing a guardianship action under Title 30. DYFS and the Law Guardian argue that this appeal is moot because the Title 9 action was dismissed before trial and DYFS may bring a Title 30 guardianship action without proving child abuse or neglect in an action brought under Title 9.
I.
In addressing the mootness issue, we first consider whether DYFS is required to prevail in a Title 9 abuse or neglect action before initiating an action under Title 30 for the termination of parental rights. Title 30 sets forth five separate and independent grounds for filing a guardianship petition. N.J.S.A. 30:4C-15 provides in pertinent part that "a petition to terminate parental rights shall be filed" by DYFS:
[w]henever
(a) it appears that a court wherein a complaint has been proffered as provided in chapter 6 of Title 9 ... has entered a conviction against the parent or parents ... because of abuse, abandonment, neglect of or cruelty to such child; or
....[1]
(c) it appears that the best interests of any child under the care or custody of [DYFS] require that he be placed under guardianship; or
(d) it appears that a parent ... following the acceptance of such child by [DYFS] pursuant to [N.J.S.A. 30:4C-11 or -12] ... has failed for a period of one year to remove the circumstances or conditions that led to the removal or placement of the child, although physically and financially able to do so, notwith-standing [DYFS'] reasonable efforts to assist the parent ... in remedying the conditions; or
(e) the parent has abandoned the child; or
*470 (f) the parent of a child has been found by a criminal court of competent jurisdiction to have committed [any one of a series of enumerated violent criminal offenses against] the child or another child of the parent ... or the parent has committed a similarly serious act which resulted, or could have resulted, in the death or significant bodily injury to the child or another child of the parent....
It is thus clear on the face of N.J.S.A. 30:4C-15 that a finding of abuse or neglect in an action under Title 9 is only one of five statutory grounds for the termination of parental rights. Indeed, we take judicial notice of the fact that most termination of parental rights cases appealed to this court are based on N.J.S.A. 30:4C-15(c), which provides for termination where "the best interests of any child ... require that he be placed under guardianship." See also N.J.S.A. 30:4C-15.1(a) (setting forth the four statutory tests for determining whether termination is in the "best interests of the child"). Therefore, except for a guardianship action under N.J.S.A. 30:4C-15(a) based on a finding of abuse or neglect under Title 9,[2] DYFS may bring an action for the termination of parental rights under any of the other subsections of N.J.S.A. 30:4C-15 without first bringing an action under Title 9.
If there could be any doubt about the correctness of this conclusion, it was resolved by N.J. Div. of Youth and Family Servs. v. K.M., 136 N.J. 546, 556, 643 A.2d 987 (1994), which expressly held that "termination proceedings, which are brought pursuant to N.J.S.A. 30:4C-15, do not require a prior determination of abuse or neglect." See also N.J. Div. of Youth & Family Servs. v. M.M., 189 N.J. 261, 292, 914 A.2d 1265 (2007) (noting that "[i]t is well settled that, unlike Title 9 inquiries, a parent's fitness is not the touchstone under the best-interests standard" for termination of parental rights set forth in N.J.S.A. 30:4C-15.1(a)).
Moreover, DYFS may obtain custody of a child in need of care and supervision in a proceeding brought under Title 30 without any prior action under Title 9. N.J.S.A. 30:4C-12 provides that
[i]f ... it appears that [a] child requires care and supervision by [DYFS] or other action to ensure the health and safety of the child, [DYFS] may apply to the Family Part of the Chancery Division of the Superior Court ... for an order making the child a ward of the court and placing the child under the care and supervision or custody of [DYFS].
See N.J. Div. of Youth & Family Servs. v. J.Y., 352 N.J.Super. 245, 258-61, 800 A.2d 132 (App.Div.2002) (discussing "separate" authority provided by Title 9 and Title 30 for DYFS' removal of child from parent's custody). In fact, DYFS may obtain an order for custody of a child under the "best-interests standard" of N.J.S.A. 30:4-12 even if DYFS failed to show abuse or neglect in an action brought under Title 9. M.M., supra, 189 N.J. at 292-93, 914 A.2d 1265.
*471 Although DYFS may bring an action under Title 30 for the termination of parental rights without first establishing a parent's abuse or neglect of the child in a Title 9 action, we recognize that DYFS generally does bring a Title 9 action before initiating a Title 30 action, at least in cases where there is a realistic possibility that a child removed from the parents' home because of alleged abuse or neglect may return to the home with the assistance of DYFS' remedial services. We also recognize that such a Title 9 action is generally tried to conclusion before the Title 30 action is filed. In fact, K.M. is an example of such a case.
However, K.M. holds that DYFS is not required to try a Title 9 action to conclusion before bringing a Title 30 action for the termination of parental rights. 136 N.J. at 556, 643 A.2d 987. In reaching this conclusion, the Court observed that "[i]f DYFS cannot bring a termination proceeding until an abuse or neglect action finally winds its way through the courts, the Legislature's goal of achieving permanency in the placement of children will be frustrated and the child will suffer." Id. at 559, 643 A.2d 987.
Although K.M. involved a Title 9 action that was pending on appeal when DYFS filed a Title 30 action for the termination of parental rights, id. at 549, 643 A.2d 987, its rationale is equally applicable to a case such as this, in which DYFS filed a Title 30 action for the termination of parental rights while the prior Title 9 action was still pending before the trial court. Therefore, DYFS was not required to try this Title 9 action to conclusion before filing a Title 30 action for the termination of parental rights.
Furthermore, because DYFS may bring a Title 30 action without first filing a Title 9 action, K.M., supra, 136 N.J. at 556, 643 A.2d 987, and the Title 30 action may "proceed independently" of the Title 9 action, id. at 558, 643 A.2d 987, DYFS had the authority to dismiss the pending Title 9 action when it decided to bring the Title 30 action. Once the Title 30 action was filed, any appropriate interim remedial measures regarding A.P. or S.H., including provisions for custody and visitation, could be entered in that action. See, e.g., N.J.S.A. 30:4C-11.1; N.J.S.A. 30:4C-11.3(c). Consequently, there was no longer any need for the continued maintenance of the Title 9 action after the Title 30 action was filed.
II.
The further question presented by this appeal, to which the parties' supplemental briefs were addressed, is whether A.P.'s appeal from the dismissal of the Title 9 action was mooted by DYFS' filing of the Title 30 action.
"An issue is `moot' when the decision sought in a matter, when rendered, can have no practical effect on the existing controversy." Greenfield v. N.J. Dep't of Corrs., 382 N.J.Super. 254, 257-58, 888 A.2d 507 (App.Div.2006) (citation omitted). Consequently, if a party "still suffers from the adverse consequences to her caused by [a] proceeding," an appeal from an order in that proceeding is not moot. Div. of Youth & Family Servs. v. G.M., 398 N.J.Super. 21, 51, 939 A.2d 239 (App. Div.2008), aff'd as modified on other grounds, 198 N.J. 382, 387, 968 A.2d 698 (2009).
In determining whether this appeal is moot, it is important to distinguish between the January 29, 2008 order dismissing DYFS' Title 9 action against A.P. without any adjudication of abuse or neglect and a final order of disposition entered under N.J.S.A. 9:6-8.50 through N.J.S.A. 9:6-8.58, which adjudicates a complaint of abuse or neglect and provides an appropriate *472 disposition in light of that adjudication. See G.M., supra, 198 N.J. at 389-93, 968 A.2d 698. The Legislature has expressly provided for a right of appeal from the latter type of order. N.J.S.A. 9:6-8.70; see N.J. Div. of Youth & Family Servs. v. L.A., 357 N.J.Super. 155, 164, 814 A.2d 656 (App.Div.2003). Moreover, a final order entered under N.J.S.A. 9:6-8.50 through N.J.S.A. 9:6-8.58 may have continuing "adverse consequences" for a parent who has been found to have abused or neglected his or her child, including the child's placement in the custody of DYFS, a relative or other suitable person, N.J.S.A. 9:6-8.54(a), and the inclusion of the parent's name in the DYFS Central Registry, see N.J.S.A. 9:6-8.11, which may prevent the parent from obtaining certain types of employment and have other adverse effects. See N.J. Div. of Youth & Family Servs. v. D.F., 377 N.J.Super. 59, 66-67, 871 A.2d 699 (App.Div.2005). In addition, a finding in an action under Title 9 that a parent has abused or neglected his child may be admissible in an action under Title 30 for the termination of parental rights. See 2 McCormick on Evidence (Brown ed., 6th ed. 2006). Therefore, we do not question a parent's right to pursue an appeal from a final order of disposition after an adjudication of abuse or neglect in an action brought under Title 9.
However, DYFS' dismissal of a Title 9 action without an adjudication that the parent has abused or neglected his or her child has none of the adverse consequences of a final order of disposition based on a finding of abuse or neglect. Such a disposition, like the dismissal of any other action by a plaintiff under Rule 4:37-1, "adjudicates nothing," Malhame v. Borough of Demarest, 174 N.J.Super. 28, 30, 415 A.2d 358 (App.Div.1980) (quoting Christiansen v. Christiansen, 46 N.J.Super. 101, 109, 134 A.2d 14 (App.Div.), certif. denied, 25 N.J. 56, 134 A.2d 833 (1957)), and thus cannot provide a predicate for relief against the defendant. Moreover, the voluntary dismissal of an action "leaves the situation so far as procedures therein are concerned the same as though the suit had never been brought, thus vitiating and annulling all prior proceedings and orders in the case." A.B. Dick Co. v. Marr, 197 F.2d 498, 502 (2d Cir.), cert. denied, 344 U.S. 878, 73 S.Ct. 169, 97 L.Ed. 680 (1952); accord Nat'l R.R. Passenger Corp. v. Int'l Ass'n of Machinists & Aerospace Workers, 915 F.2d 43, 48 (1st Cir.1990).
We recognize that the January 29, 2008 order dismissing the Title 9 action did not simply dismiss that action, but also provided for the continuation of legal custody of S.H. with DYFS and physical custody with his paternal grandmother. In this respect, it was not a true order of dismissal. The trial court undoubtedly included this provision in the January 29, 2008 order because the court in the Title 30 action had not yet exercised jurisdiction regarding custody and related matters such as visitation. In our view, the preferable procedure would have been for the court to defer dismissal of the Title 9 action until the court exercised jurisdiction over custody and related matters in the Title 30 action, which would have left the prior custody orders in the Title 9 action in effect during this short interim period.
In any event, the trial court entered an order regarding custody in the Title 30 action on February 22, 2008, which superseded the parts of the January 29, 2008 order dealing with custody. Consequently, the sole operative effect of the January 29, 2008 order since the entry of the February 22, 2008 order in the Title 30 action is the dismissal of the Title 9 action and the resulting annulment of the interlocutory orders entered in that action. Therefore, those orders "can have no practical effect on the existing [Title 30 action]" against *473 A.P., which renders this appeal moot. Greenfield, supra, 382 N.J.Super. at 257-58, 888 A.2d 507.
In concluding that this appeal is moot because the orders entered in the Title 9 action have no continuing adverse consequences, we emphasize that A.P.'s due process rights will be fully protected by the trial of the Title 30 action, which will afford her the opportunity, under the criteria set forth in N.J.S.A. 30:4C-15.1(a), to contest the charges of abuse or neglect or other harm to the child caused by the parental relationship, A.P.'s willingness and ability to address the causes of that harm, the adequacy of the remedial services DYFS provided A.P., and whether the termination of A.P.'s parental rights to S.H. would do more harm than good. Moreover, DYFS will bear the burden of establishing the standards for the termination of parental rights by "clear-and-convincing-evidence" rather than the lesser burden of proof by a "preponderance of the evidence" that would apply in an action under Title 9. See K.M., supra, 136 N.J. at 557, 643 A.2d 987.
III.
There are several additional matters that warrant brief comment.
First, A.P.'s counsel suggested in response to our questions at oral argument that DYFS was required to secure the permission of the trial court in the Title 9 action before filing a Title 30 action for termination of parental rights. We find nothing in Title 9 or Title 30 to support the existence of such a requirement. To the contrary, we read N.J.S.A. 30:4C-15 to confer sole authority upon DYFS to determine whether a Title 30 action should be filed.[3] In fact, subject to certain limited exceptions, see N.J.S.A. 30:4C-15.3, N.J.S.A. 30:4C-15 requires DYFS to file a petition for the termination of parental rights "no later than when the child has been in placement for 15 of the most recent 22 months."
Second, the Supreme Court has taken note of the "unnecessary complexity ... introduced into the disposition of ... child-welfare cases by the parallel but not congruent tracks of Title 9 and Title 30 proceedings" and suggested that the Legislature consider "combin[ing] both avenues of child advocacy under a single title." In re Guardianship of G.S., III, 137 N.J. 168, 179, 644 A.2d 1088 (1994). The convoluted procedural history of this case provides another illustration of the desirability of legislative attention to the relationship between Titles 9 and 30 and consideration of enactment of a single unified statute to govern such proceedings.[4]
Third, N.J.S.A. 30:4C-15.2 requires "[a] final hearing for guardianship [to be] held within three months from the date the petition is filed." There is no exception for a case in which a related Title 9 action is pending before a trial or appellate court. Strict enforcement of this mandate "furthers the important [legislative] policy preference for the permanent placement of children." K.M., supra, 136 N.J. at 558, 643 A.2d 987. Therefore, absent unusual *474 circumstances, a Title 30 action should be promptly tried to conclusion without regard to the pendency of a related Title 9 action even if that action was not mooted by the filing of the Title 30 action. Indeed, were it not for the improvident grant of a stay of the Title 30 action for the termination of A.P.'s parental rights as to S.H., the trial of that action undoubtedly would have been completed many months ago.
For the foregoing reasons, the appeal is dismissed as moot.
NOTES
[1] The former N.J.S.A. 30:4C-15(b) was repealed by L. 1991, c. 275.
[2] We note that N.J.S.A. 30:4C-15(a) uses the term "conviction" of a parent for abuse, abandonment, neglect or cruelty, which ordinarily would be understood to refer to a criminal conviction rather than a judgment in a civil action, such as an action by DYFS that results in entry of a final order of disposition. However, our Supreme Court has suggested, without expressly holding, that such a civil order provides the requisite foundation for a guardianship action under N.J.S.A. 30:4C-15(a). See In re Guardianship of J.N.H., 172 N.J. 440, 452, 462-63, 799 A.2d 518 (2002). Because no final order of disposition was entered in this action and DYFS is not proceeding under N.J.S.A. 30:4C-15(a) in the guardianship action, there is no need for us to address the issue.
[3] We have no occasion to consider the circumstances under which a defendant in a Title 30 action may move for dismissal on the ground that the filing of that action violated an order entered in the Title 9 action, such as an order requiring the return of the child to the parent, because no such order was entered in this case.
[4] We note that the New Jersey Law Revision Commission has recently proposed amendments to Title 9 that seem to be partially directed to this goal. See N.J. Law Revision Comm'n, Title 9 Draft Tentative Report 1 (Nov. 10, 2008), http://www.lawrev.state.nj.us/ children/childrenDTR111008.pdf (last visited July 2, 2009). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540087/ | 974 A.2d 1173 (2009)
ANDREW
v.
CUNA BROKERAGE.
No. 1623 MDA 2007.
Superior Court of Pennsylvania.
April 6, 2009.
Remanded. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2583795/ | 222 P.3d 1091 (2009)
347 Or. 365
STATE
v.
BELLA.
(S057058).
Supreme Court of Oregon.
December 9, 2009.
Petition for review denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540376/ | 213 B.R. 152 (1997)
In re James D. LUSH, Sr., Linda L. Lush, Debtors.
Bankruptcy No. 96-73179.
United States Bankruptcy Court, C.D. Illinois.
April 21, 1997.
Andrew W. Covey, Peoria, IL, for Debtors.
John H. Germeraad, Petersburg, IL, Trustee.
OPINION
LARRY L. LESSEN, Bankruptcy Judge.
Before the Court is Trustee's Objection to Claimed Exemptions and Debtors' Response thereto.
Debtors filed their Chapter 13 petition on November 29, 1996. On their Schedule C (Property Claimed As Exempt), Debtors listed a worker's compensation claim against Conrad Sheet Metal and claimed its entire *153 value as exempt. Debtors' Chapter 13 plan did not propose to apply any of the anticipated worker's compensation award or settlement proceeds to the Debtors' Chapter 13 plan. Trustee objected to the claimed exemption based upon the fact that "(a)lthough a worker's compensation claim . . . would be exempt if this were a Chapter 7 case, as the money would constitute disposable income of the debtor, there should be no claimed exemption in this worker's compensation case or award." Objection at p. 1.
820 ILCS 305/21 provides in part as follows:
No payment, claim, award or decision under this Act shall be assignable or subject to any lien, attachment or garnishment, or be held liable in any way for any lien, debt, penalty or damages . . .
It is not actually disputed that the worker's compensation claim which is the subject matter of these proceedings is "exempt property" as defined by 820 ILCS 305/21 and 11 U.S.C. § 522. The actual issue is whether the property, exempt or otherwise, must be applied to Debtors' Chapter 13 plan.
Section 1325(b)(1)(B) of the Bankruptcy Code states as follows:
(b)(1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan
(B) the plan provides that all of the debtor's projected disposable income to be received in the three-year period beginning on the date that the first payment is due under the plan will be applied to make payments under the plan.
Section 1325(b)(2)(A) of the Bankruptcy Code defines "disposable income" as "income which is received by the debtor and which is not reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor(.)"
Debtors' schedules indicate that the proceeds from the subject worker's compensation claim would not be necessary for the maintenance and support of Debtors' or their family. Debtors assert, however, that, under § 522(c) of the Bankruptcy Code, exempt property cannot be ordered paid to any pre-petition creditors and, therefore, need not be applied to Debtors' Chapter 13 plan payments. As they have claimed the worker's compensation claim as exempt in its entirety, they need not devote any proceeds derived therefrom to their Chapter 13 plan. In support of their proposition, Debtors cite In re Kerr, 199 B.R. 370 (Bankr.N.D.Ill.1996), which suggests that the line of cases which hold that "exempt property" which happens also to constitute "disposable income" as defined by § 1325(b)(2)(A) must be paid into the Chapter 13 plan is wrong because they ignore the proscription of § 522(c).
The leading case in this area which indeed held that "exempt property" which is also "disposable income" must be paid into the Chapter 13 plan is In re Schnabel, 153 B.R. 809 (Bankr.N.D.Ill.1993). The issue in Schnabel was whether the debtor had to apply all of his exempt social security and pension income which also constituted "disposable income" to his Chapter 13 plan. Debtor argued that any contribution to the Chapter 13 plan from exempt property was purely voluntary; the Court disagreed:
While assets may be claimed exempt, there is superimposed an entirely new floor, below which a confirmable plan may not fall the § 1325(b) test of total "disposable income."
Schnabel, supra at 815.
The Schnabel court found that the exempt status of the debtor's property was immaterial to its confirmation decision. Id. Since the debtor's plan neither provided for payment in full to holders of allowed unsecured claims, nor applied all of the debtor's disposable income to payments under the plan, confirmation was denied. Id. Of particular relevance is the following analysis:
The Debtor's reliance on the exemption statutes is misplaced in the context of Chapter 13 plan confirmation proceedings. The Court does not dispute the Debtor's contention that exemptions apply in both Chapter 7 and Chapter 13. See 11 U.S.C. § 103(a). However, their significance is greatly diminished in a Chapter 13, where the fresh start is protected by the debtor's *154 retention of non-disposable income rather than by exempt assets. (citation omitted). Legislative history indicates that in a liquidation exemptions are meant to "protect a debtor from his creditors, to provide him with the basic necessities of life so that even if his creditors levy on all of his nonexempt property, the debtor will not be left destitute and a public charge." (citations omitted). A Chapter 13 debtor, on the other hand, may keep all its assets, exempt or not, in return for repayment of creditors out of future income. Where the Debtor is assured of an income sufficient to meet his basic needs, his fresh start is not imperiled by requiring him to make payments to creditors out of his social security and pension benefits, especially where, as here, it is those benefits that he proposes to use to fund his plan.
Allowing the Debtor to use his exempt income to attain Chapter 13's broad discharge without the corollary requirement to use it to pay creditors as much as he is able, would contravene the express purpose of the statute namely, that the debtor make payments under a plan.
Schnabel, supra at 817.
This rationale has been applied by other courts to other types of exempt property in determining whether the same must be applied to a debtor's Chapter 13 plan in order to satisfy the "disposable income test" of § 1325(b). See Watters v. McRoberts, 167 B.R. 146 (S.D.Ill.1994) (personal injury recovery); In re Minor, 177 B.R. 576 (Bankr. Tenn.1995) (lump-sum worker's compensation award), In re Jackson, 173 B.R. 168 (Bankr.E.D.Mo.1994) (worker's compensation settlement).
Debtors rely heavily upon Judge DeGunther's decision in In re Kerr, 199 B.R. 370 (Bankr.N.D.Ill.1996), as support for their proposition that Bankruptcy Code § 522(c) protects exempt property in any form and under all chapters of the Bankruptcy Code, from pre-petition debts, and that a Court should not ignore this express limitation when defining "disposable income" under § 1325(b)(2).
In Kerr, the debtors filed a Chapter 13 case, subsequently sold their residence and received several thousand dollars net sale proceeds from that sale. It was undisputed that the sale proceeds were exempt; however, the issue arose as to whether the proceeds, which met the definition of "disposable income", were to be included in performing the disposable income calculation under § 1325(b)(2). In its holding, the Kerr court agreed with the debtors' assertion that Schnabel and its progeny have ignored the impact of § 522(c), "which by way of § 103(a) (footnote omitted), provides an express limitation to § 1325(b)(2)." Kerr, supra at 373.
Section 522(c) states in part as follows:
Unless the case is dismissed, property exempted under this section is not liable during or after the case for any debt of the debtor that arose, or that is determined under section 502 of this title as if such debt had arisen, before the commencement of the case(.)
Based upon that statutory provision, Judge DeGunther held as follows:
Thus, the clear language of Section 522(c) protects exempt property, regardless of form, from prepetition debts. The Court cannot ignore this express limitation for the purposes of defining disposable income under Section 1325(b)(2). To include exempt property within the confines of Section 1325(b)(2) directly conflicts with Section 522(c).
Kerr, supra at p. 374.
Although Judge DeGunther distinguishes Kerr from Schnabel on several factual bases, it is this Court's opinion that the holding in Schnabel is not reconcilable with the holding in Kerr on the question of whether property which is both "exempt" under § 522 and "disposable income" under § 1325(b)(2) must be devoted to a debtor's Chapter 13 plan. It further appears that no cases have been reported after Kerr which address Judge DeGunther's analysis of the impact of § 522(c) on the "disposable income" calculation or the apparent conflict between Kerr and Schnabel.
This Court has previously cited Schnabel with approval and held that the § 1325(b)(2) definition of "disposable income" includes property which is exempt under the Illinois *155 law. See In re Larkin, slip op., No. 94-70918, 1997 WL 929079 (Aug. 30, 1994, Lessen, J.) (exempt personal injury settlement proceeds must be applied to Chapter 13 plan). Although the Kerr opinion is well-written and its analysis regarding the effect of § 522(c) on the disposable income provisions of § 1325 has some superficial appeal, this Court will continue to follow Schnabel and consider it to be the better view for several reasons.
First and most important, this Court does not read Section 522(c)'s protection of "property exempted under this section" to be at odds with the holding of Schnabel and its progeny that property defined as exempt which is also a source of disposable income must be applied to a Chapter 13 plan. Section 522(c) refers to "exempted" property, not "exempt" property, and the distinction is significant. Clearly, property is characterized as either "exempt" or "not exempt" based upon statutory definition. However, in spite of its characterization, a debtor is never required to assert an exemption, and debtors often waive their right to claim particular exemptions in certain types of security agreements and mortgages. Hence, although property may be "exempt" by statutory definition, a debtor may choose to decline to assert an exemption against his creditors. Section 522(c)'s use of the participle "exempted" rather than the adjective "exempt" suggests that the protection provided by § 522(c) extends only to exempt property in which a debtor also chooses to assert his exemption. Accordingly, § 522(c) protection would not extend to property which is "exempt" by statutory definition, but in which the debtor has elected not to assert his right to claim an exemption. In view of this distinction, this Court reads Schnabel to hold that, where "exempt property" is also a source of "disposable income", a Chapter 13 debtor must decline to assert the exemption to which he would otherwise be entitled, and apply the income to his Chapter 13 plan, in order for the debtor to pass the "disposable income test" of § 1325(b)(1)(B). This is not prohibited by § 522(c) and is required by § 1325(b)(1)(B). In view of this interpretation of the distinction between "exempt property" and "property exempted", the holding in Schnabel is logically sound, equitably justifiable, and in no way at odds with § 522(c) or the spirit of the Bankruptcy Code.
Second, even assuming the above analysis is incorrect, there is no mention of exemptions in the definition of disposable income in § 1325(b)(2). Without an express or implied limitation in the defining statute, the Court should not impose such a limitation. Schnabel, supra at p. 815; Minor, supra at p. 582. Kerr argues that the limitation is contained in § 522(c); however, it is more likely that if Congress had intended to apply the limitation in Chapter 13, it would not have been quite so subtle.
Third, from a purely equitable standpoint, the Kerr holding makes Chapter 13 too easy on debtors at the expense of creditors. In exchange for being allowed to keep all of her assets (not to mention receiving a Chapter 13 super-discharge upon completion of the plan), a Chapter 13 debtor is expected to repay her creditors, in full or in part, from future income. As the debtor is assured income sufficient to meet the basic needs of herself and her family, it is hardly unfair to require her to utilize all of her disposable income, exempt or otherwise, to fund the plan. It is more unfair to allow the debtor to retain exempt property which is also disposable income and, by definition, unnecessary for the debtor's family's support, at the expense of her creditors, all the while reaping the other benefits available to a Chapter 13 debtor.
Fourth, the purpose of the Illinois exemption laws is to secure the debtor and the debtor's family the necessary shelter and personal property required for their welfare in times of difficult economic circumstances. State Bank of Antioch v. Nelson, 132 Ill. App. 3d 120, 87 Ill. Dec. 476, 478, 477 N.E.2d 77, 79 (1985). See, In re Flygstad, 56 B.R. 884 (Bankr.N.D.Iowa 1986). Property which is exempt under Illinois law is not intended to be a windfall for the debtor. The Illinois legislature intended and the Court expects a debtor to use any exempt assets for the shelter, maintenance, and support of the debtor and the debtor's family. Once the necessary living expenses of the debtor and the debtor's family are met through the use *156 of exempt assets, either alone or in combination with other assets, any additional funds constitute disposable income. Thus, exempt assets are clearly part of the disposable income equation.
For the reasons set forth above, the Court finds that the proceeds of Debtors' worker's compensation claim, though exempt under state law, must be applied to Debtors' Chapter 13 plan in order for Debtors' Chapter 13 plan to satisfy the "disposable income test" of § 1325(b).
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
See written Order.
ORDER
For the reasons set forth in an Opinion entered this day,
IT IS THEREFORE ORDERED that Debtors' worker's compensation claim be and is hereby exempt property; however, any proceeds from said claim constitute "disposable income" which must be applied to Debtors' Chapter 13 plan. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2857819/ | IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,
AT AUSTIN
NO. 3-92-144-CR
EX PARTE: CHRISTOPHER LAMAR BOX,
APPELLANT
FROM THE DISTRICT COURT OF BELL COUNTY, 27TH JUDICIAL DISTRICT
NO. 41,033, HONORABLE RICK MORRIS, JUDGE PRESIDING
PER CURIAM
This is an appeal from an order of the district court, rendered following a hearing
on appellant's writ of habeas corpus, remanding appellant to custody for extradition to
Mississippi.
At the hearing below, the State offered in evidence the governor's warrant and
supporting documents, which includes a certified copy of an indictment charging appellant with
"bad checks" presented to the Circuit Court, First Judicial District, Hinds County, Mississippi.
The indictment alleges that appellant fraudulently issued a check to a named business for the
purpose of obtaining merchandise having a value of $574, knowing at the time he issued the check
that he did not have sufficient funds on deposit with the bank on which the check was drawn.
At the hearing below, appellant did not contest his identity as the person whose
extradition was requested. Instead, he contended that the indictment does not accuse him of an
offense. Relying on the general proposition that the law of the demanding state is presumed to
be the same as in the asylum state, appellant argued that no crime exists in Texas comparable to
the one alleged in the indictment. Appellant further argued that when there is no comparable
offense in the asylum state, the supporting documents must include a certified copy of the penal
statute of the demanding state in order to establish that the person sought is charged with an
offense.
The State responded to this argument by presenting to the court a photocopy of
Mississippi Code § 97-19-55, defining the offense of "bad checks," and § 97-19-67, authorizing
a term of imprisonment of no more than three years if the check was for an amount in excess of
$100. The district court stated that it would take judicial notice of these statutes. Appellant
contends that it was error for the court to take judicial notice because the State did not supply it
with "sufficient information." Tex. R. Crim. Evid. Ann. 202 (Pamph. 1992).
Appellant's arguments are based on a false premise: that, assuming the law of
Mississippi is the same as that of Texas, the indictment does not accuse him of an offense. In the
opinion of this Court, the indictment substantially alleges the offenses of theft by check and
issuance of a bad check. Tex. Penal Code Ann. §§ 31.03, 31.06, 32.41 (1989 & Supp. 1992);
see Ex parte Carroll, 351 S.W.2d 228 (Tex. Crim. App. 1961). Therefore, proof of the law of
Mississippi was unnecessary.
Appellant's arguments are without merit in any event. The list of documents that
must accompany the governor's warrant does not include a copy of the demanding state's penal
statute. Tex. Code Crim. Proc. Ann. art. 51.13, § 3 (1979). A court may take judicial notice
of the statutes of another state on its own motion. Tex. R. Crim. Evid. Ann. 202 (Pamph. 1992).
The district court had before it sufficient proof that the indictment alleged an offense under the
laws of Mississippi.
The order of the district court is affirmed.
[Before Chief Justice Carroll, Justices Aboussie and B. A. Smith]
Affirmed
Filed: June 17, 1992
[Do Not Publish] | 01-03-2023 | 09-05-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/2857838/ | IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,
AT AUSTIN
NO. 3-91-201-CR
AND
NO. 3-91-202-CR
THE STATE OF TEXAS,
APPELLANT
vs.
MARK ANTHONY DIAZ,
APPELLEE
FROM THE COUNTY COURT AT LAW NO. 1 OF HAYS COUNTY
NOS. 33,923 & 33,924, HONORABLE HOWARD S. WARNER, II, JUDGE
The State appeals from orders of the county court at law dismissing two causes.
Tex. Code Crim. Proc. Ann. art. 44.01(a)(1) (Supp. 1992). Appellee entered pleas in the justice
court of no contest to the offenses of speeding, Tex. Rev. Civ. Stat. Ann. art. 6701d, § 169B
(1977), and minor in possession of alcoholic beverages, Tex. Alco. Bev. Code Ann. § 106.05
(1978). The justice court assessed fines of $47.50 and $74.50. Appellee perfected his appeals (1)
to the county court at law by filing appeal bonds pursuant to Tex. Code Crim. Proc. Ann. art.
44.19 (1979).
Appellee moved to dismiss the causes in the county court at law on the grounds that
the judgments in the justice court did not meet the requirements of Tex. Code Crim. Proc. Ann.
arts. 42.01 (Supp. 1992) (requisites of a judgment) and 45.01 (Supp. 1992) (requisites of a
complaint), and that the justice court transcripts did not bear the certificates required by Tex.
Code Crim. Proc. Ann. art. 44.18 (1979). The court granted appellee's motions to dismiss with
prejudice to refiling same. By granting the motions, the county court at law terminated the
criminal actions and discharged appellee from further prosecution. State v. Eaves, 800 S.W.2d
220, 224 (Tex. Crim. App. 1990). We reverse the trial court's orders.
In appeals to a county court (county court at law and county criminal court) from
justice courts, "the trial shall be de novo in the trial in county court, the same as if the prosecution
had originally commenced in that court." Tex. Code Crim. Proc. Ann. art. 44.17 (Supp. 1992).
In Ex parte Jones, 81 S.W.2d 706 (Tex. Crim. App. 1935), the court stated:
The giving and approval of a proper bond for appeal in such case from the justice
court to the county court frees the case from any aspect of review by the court to
which the case is appealed other than to ascertain the sufficiency of the bond, and
puts the accused before the county court to stand or fall, after his appearance there,
upon the case made by the plea entered by him in the county court and the
testimony there heard and the trial had, unaffected by what might have been the
evidence heard or the plea entered in the justice court. We cannot conceive any
possible application of a rule under our Constitution and statutes other than as we
have above outlined.
Id. at 207 (emphasis added).
In a recent opinion, this Court in State v. Campbell, 820 S.W.2d 44, 45 (Tex. App.
1991, pet. ref'd), stated that by giving notice of appeal from the justice court judgment, the
defendant invoked the right to a trial de novo before the county court and deprived the justice
court judgment of any finality. The court held that the county court at law erred in granting the
motion to dismiss on the ground that the judgment did not satisfy all the statutory requirements.
Id. at 46. In the instant causes, the county court at law on acquiring jurisdiction was precluded
from reviewing any statutory defects in the justice court judgments.
Turning to the matter of the lack of proper certificates on the justice court
transcripts, Tex. Code Crim. Proc. Ann. art. 44.18 (1979) provides for the delivery of the
original papers, appeal bond and certified transcript of the proceedings to the court to which the
appeal is taken from the justice court. However, "no appeal shall be dismissed . . . on account
of any defect in the transcript." Tex. Code Crim. Proc. Ann. art. 44.14 (1979). The absence of
statutory certificates on the justice court transcripts does not constitute a basis for dismissal of the
causes pending in the county court at law in the instant causes.
It is undisputed that the appeals from the justice court to the county court at law
were perfected in the instant causes. Having acquired jurisdiction, the trials on the causes pending
in the county court at law began on a clean slate. To conclude that the county court at law could
review the judgments of the justice court or the lack of proper certificates on the transcripts would
be contrary to the trial de novo process.
We conclude that the county court at law erred in granting appellee's motions to
dismiss. The county court at law has jurisdiction for the purpose of trials de novo in both causes.
The orders dismissing the causes are reversed, and the causes are remanded to the county court
at law for further proceedings.
Tom G. Davis, Justice
[Before Justices Aboussie, B. A. Smith and Davis*]
Reversed and Remanded on Both Causes
Filed: June 3, 1992
[Do Not Publish]
* Before Tom G. Davis, Judge (retired), Court of Criminal Appeals, sitting by assignment.
See Tex. Gov't Code Ann. § 74.003(b) (1988).
1. Since the county court at law did not impose any fines in these causes, the limitations on the
appellate jurisdiction of courts of appeals imposed by Tex. Code of Crim. Proc. art. 4.03 (Supp.
1992), to cases where the fines in county courts at law exceed $100 in any case appealed from
inferior courts is not applicable. See State v. McKinney, 803 S.W.2d 374, 376 (Tex. App. 1990,
no pet.). | 01-03-2023 | 09-05-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/2857873/ | Granger v. State
IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,
AT AUSTIN
NO. 3-91-494-CR
JOHN W. GRANGER,
APPELLANT
vs.
THE STATE OF TEXAS,
APPELLEE
FROM THE DISTRICT COURT OF BELL COUNTY, 27TH JUDICIAL DISTRICT
NO. 40,385, HONORABLE JOE CARROLL, JUDGE
PER CURIAM
A jury found appellant guilty of unauthorized use of a motor vehicle. Tex. Penal
Code Ann. § 31.07 (1989). After finding that appellant had been previously convicted of four
felony offenses, the jury assessed punishment at incarceration for seventy-five years. We will
affirm the conviction.
The complainant, Gary Lohman, worked selling cars at a Chevrolet dealership in
Temple. On May 11, 1991, appellant and a woman drove into the dealership in a Ford Bronco.
Appellant inquired about buying a Chevrolet pickup truck. Appellant wanted Lohman to estimate
the trade-in value of his Bronco while he test-drove the truck. Because appellant was unfamiliar
with the area, Lohman gave him directions for driving around the block. He gave appellant the
truck keys and watched appellant, accompanied by the woman, drive away in the truck. Lohman
testified that when he gave appellant the keys, he did not give appellant permission to take the
truck for more than a test-drive. Appellant never returned with the truck.
In points of error one through four, appellant argues that the trial court erroneously
allowed the State to present an opening statement and evidence that revealed an extraneous
offense. In point five, appellant argues that the court erroneously refused to grant a mistrial when
the State argued based on the same evidence. The matters of which appellant complains show that
three days before this offense, appellant and a woman drove into a car dealership in Palestine,
asked to test-drive a Ford Bronco, and drove the Bronco away without returning it. Appellant
drove this Bronco to the Chevrolet dealership in Temple; he left the Bronco there when he drove
away in the dealership's pickup truck.
Events do not occur in a vacuum, and the jury may have the offense placed in its
proper setting so that it can realistically evaluate the evidence. Mann v. State, 718 S.W.2d 741
(Tex. Crim. App. 1986); Albrecht v. State, 486 S.W.2d 97 (Tex. Crim. App. 1972). Also
admissible, even though it shows an extraneous offense, is evidence that shows a continuing
course of conduct or a common plan or scheme. Tex. R. Crim. Evid. Ann. 404(b) (Pamph.
1992); Etchieson v. State, 574 S.W.2d 753 (Tex. Crim. App. 1978); Collins v. State, 548 S.W.2d
368 (Tex. Crim. App. 1976). Evidence in this case that appellant drove the Bronco from the
Palestine dealership and left it at the Temple dealership places the offense in context and shows
that the offense was part of a continuing scheme or plan. Because the probative value of this
evidence outweighs the danger of prejudice, the trial court properly admitted it. Tex. R. Crim.
Evid. Ann. 403 (Pamph. 1992). Therefore, the trial court did not err in allowing the State to
make an opening statement based on the evidence. Any impropriety in the State's argument that
the Bronco was not appellant's car was cured by the court's instruction to disregard. We overrule
points one through five.
In point of error six, appellant complains of the trial court's refusal to give his
requested charge on mistake of fact. To convict appellant of unauthorized use of a motor vehicle,
the State had to prove that appellant knew he did not have Lohman's effective consent to operate
the truck. Tex. Penal Code Ann. § 31.07 (1989); Gardner v. State, 780 S.W.2d 259 (Tex. Crim.
App. 1989). If appellant through mistake reasonably believed that Lohman had consented to his
use of the truck, he was entitled to an instruction on mistake of fact. Tex. Penal Code Ann. §
8.02 (1974); Gardner, 780 S.W.2d at 263.
Lohman testified that appellant wanted to test-drive the pickup truck around the
block while he estimated the trade-in value of the Bronco. Because the dealership was on a one-way street, Lohman explained how to drive around the block in either direction. Although
Lohman did not give appellant a specific time within which to return the truck, he communicated
to appellant that he should go for a short ride and be right back. Lohman understood the
arrangement between him and appellant to be that he was giving appellant the keys only to drive
the truck around the block. Lohman's testimony does not constitute any evidence that appellant
reasonably believed Lohman consented to his taking the truck for more than a test-drive. We
overrule point six.
In point of error seven, appellant contends that the trial court erred in refusing to
grant a mistrial after allegedly improper jury argument. During her argument to the jury the
prosecutor stated: "So please Ladies and Gentlemen, look at the common sense approach. Don't
get in that mud and that cragmire [sic] and that swamp over there [defense counsel] has created --
." The trial court sustained appellant's objection that the comment struck at appellant over
counsel's shoulder and instructed the jury to disregard.
The context of the prosecutor's argument shows that she was asking the jury to
consider only the evidence relating to the elements of the offense. Appellant's counsel had
previously argued that the State had not proven that the pickup truck recovered in Sulphur Springs
was the same truck that appellant had driven from the Temple dealership. We believe the
prosecutor made the statement in answer to appellant's argument. Gorman v. State, 480 S.W.2d
188 (Tex. Crim. App. 1972). Any improper argument was cured by the trial court's instruction
that the jury disregard it. We overrule point seven.
The judgment of conviction is affirmed.
[Before Chief Justice Carroll, Justices Aboussie and B. A. Smith; Chief Justice Carroll
Not Participating]
Affirmed
Filed: May 6, 1992
[Do Not Publish] | 01-03-2023 | 09-05-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1540393/ | 213 B.R. 799 (1997)
In re ERIE MARINE ENTERPRISES, INC., Debtor.
ERIE MARINE ENTERPRISES, INC., Plaintiff,
v.
ALGOMA CENTRAL MARINE, Defendant.
Bankruptcy No. 95-10597, Adversary No. 96-1073.
United States Bankruptcy Court, W.D. Pennsylvania.
October 10, 1997.
*800 Lawrence C. Bolla, Erie, PA, for Debtor.
David B. Salzman, Pittsburgh, PA, for U.S. Trustee.
OPINION
WARREN W. BENTZ, Bankruptcy Judge.
Introduction
Erie Marine Enterprises, Inc. ("Debtor") filed its voluntary Petition under Chapter 11 *801 of the Bankruptcy Code on July 20, 1995. On October 2, 1996, Debtor filed the within Complaint against Algoma Central Marine ("Algoma") to compel turnover of property of the estate pursuant to 11 U.S.C. § 542, or, in the alternative, to avoid certain fraudulent transfers pursuant to 11 U.S.C. § 548 and/or the Pennsylvania Uniform Fraudulent Transfer Act, 12 Pa.C.S.A. § 5101-5110. Presently before the Court is Algoma's Motion for Summary Judgment. The Debtor opposes the Motion.
Algoma initially raised an issue of deficiency of service of process which it has withdrawn having been satisfied that service was proper. Algoma also raises the issue of lack of personal jurisdiction, alleging that it does not have sufficient minimum contacts with the State of Pennsylvania to warrant personal jurisdiction. We find that we have personal jurisdiction over Algoma and that the Motion for Summary Judgment must be granted.
Personal Jurisdiction
It is clear that Algoma has sufficient minimum contacts with Pennsylvania to warrant the exercise of personal jurisdiction. Prior to commencement of the business relationship between the Debtor and Algoma, representatives of Algoma visited the Debtor's facility in Erie. Following the visit, Algoma delivered two ships to Erie for repair in the summer of 1994. Two additional ships were delivered to Erie for repair during the winter of 1994-95. Representatives of Algoma made periodic visits to Erie while the work was ongoing. Donald Larkin, a naval architect employed by Algoma made numerous trips to Erie to observe the Debtor's performance and to monitor the progress of the work which the Debtor had contracted to perform for Algoma.
In response to an interrogatory asking Algoma to identify in detail any contacts or dealings in Pennsylvania during the last ten years, Algoma responded that "on occasion, prior to 1992, Defendant (Algoma) believes that it may have delivered Canadian salt, sand and stone into the Port of Erie."
We find that there are sufficient minimum contacts with Pennsylvania[1] to warrant the exercise of personal jurisdiction over Algoma for the purpose of this litigation.
Undisputed Facts
Algoma operates shipping vessels which it charters to carriers of bulk freight. Debtor operated a dry dock in Erie, Pennsylvania to service and repair shipping vessels. In the winter of 1994-95, Algoma sent two ships to the Debtor for service and repair, the Algosteel and the John B. Aird.
No dispute exists between the parties as to the work performed or payment for the work on the Algosteel. This action relates to payment for services provided by the Debtor on the John B. Aird.
Upon completion of the work on the John B. Aird, Debtor sent invoices dated April 25, 1995 to Algoma which totalled $1,682,687. Algoma disputed the amount of the invoices and a meeting was held between representatives of both Algoma and the Debtor in an attempt to resolve the dispute.
After the meeting, Debtor provided revised invoices (also dated April 25, 1995) to Algoma in the amount of $1,113,723 reflecting a reduction of $569,144 from the original invoices. The revised invoices were accompanied by a cover letter dated April 27, 1995 from the Debtor's General Manager to Algoma which provides:
As a result of our meeting this week, enclosed are the revised invoices for the M/V John B. Aird. These are not final invoices as there are three issues that remain unresolved. The first issue which we do not seem to be able to meet on common ground is the inner bottom repairs which were based on time and material rates. The other two issues are the services in support of tank repairs and the overtime *802 premium. Both of these items were specifically identified in our bid as additional charges not included in the quote. . . .
Upon receipt of the revised invoices and cover letter, Algoma sent a letter dated May 1, 1995 which indicated that it would pay the full amount of $1,113,723 only as a final payment and if that was not acceptable to the Debtor, it would only pay $1,033,273 and hold back $80,450 pending final resolution of all outstanding issues.
Thereafter, the Vice President of Algoma was contacted by the President of the Debtor who agreed to accept the amount of the revised invoices as final payment.[2]
Once Debtor's President agreed to accept the amounts shown on the revised invoices as payment in full, Algoma tendered payment in the amount of $1,113,723 which was accepted by the Debtor.
Issues
1. Whether the actions of the Debtor and Algoma formed a binding accord and satisfaction.
2. Whether an accord and satisfaction is a defense to a fraudulent transfer action.
3. Whether Debtor, in making the settlement, received reasonably equivalent value for the release of its claims, and whether the settlement was concluded with an intent to hinder, delay, and defraud Debtor's creditors.
Discussion
Accord and Satisfaction
Debtor agrees that Algoma has accurately set forth Pennsylvania law with regard to the elements of an accord and satisfaction as follows:
The elements of an accord and satisfaction are (i) a disputed debt, (ii) a clear and unequivocal offer of payment in full satisfaction of the debt, and acceptance and retention of payment by the offeree. Goodway Marketing, Inc. v. Faulkner Advertising Associates, Inc., 545 F. Supp. 263, 266 (E.D.Pa.1982). The Pennsylvania Supreme Court has held that when a claim is subject to a dispute over the amount due an offer to pay any portion of the claim as payment in full for the whole disputed claim is valid consideration. See Cohen v. Sabin, 452 Pa. 447, 307 A.2d 845 (1973); Williston on Contracts § 7:35 (4th ed.1992). The debtor's offer of a settlement amount in full and final settlement and the creditor's acceptance of that amount constitute the offer and acceptance of an accord and satisfaction. The consideration is the resolution of an unliquidated or disputed claim. Occidental Chemical Corporation v. Environmental Liners, Inc., 859 F. Supp. 791 (E.D.Pa.1994); Hayden v. Coddington, 169 Pa.Super. 174, 82 A.2d 285 (1951).
All of the necessary elements are present. There was a valid dispute over the cost of the repairs to the John B. Aird. After the work was completed, Debtor invoiced Algoma for $1,682,687. A meeting between Algoma and the Debtor took place in an attempt to resolve the dispute. Following the meeting, Debtor issued revised invoices in a reduced amount while it indicated that it wanted to reserve three issues for further discussion.
Upon receipt of the revised invoices, Algoma made a clear and unequivocal offer that it would pay the full amount of the revised invoices only if the Debtor would agree to accept that amount as final payment. In response, Debtor's President agreed that the amount of the revised invoices would be acceptable *803 as full payment. Based on that agreement, Algoma paid and the Debtor accepted the amount of $1,113,723.
Accordingly, we find that the elements of an accord and satisfaction have been met.
Accord and Satisfaction as a Defense to Fraudulent Conveyance Action
The Debtor asserts that even if there was an accord and satisfaction, we must ultimately decide whether the write-off was undertaken with fraudulent intent and/or was for less than reasonably equivalent value for the purposes of the within action and that an accord and satisfaction is not a defense to a fraudulent transfer action. We agree.
11 U.S.C. § 548(a)(2)(A) provides that a fraudulent conveyance has occurred (assuming other elements are present) if the Debtor makes a transfer and "received less than a reasonably equivalent value in exchange." Pennsylvania law has a similar provision at 12 Pa.C.S.A. § 5104.
The Debtor asserts that the extra money received by the Debtor in the settlement is so disproportionate to the claims which the Debtor thereby released, that the money cannot stand as a "reasonably equivalent value," so that the settlement must be avoided as a fraudulent conveyance.
We have a duty to analyze the settlement between the parties to ensure that reasonably equivalent value exchanged. In re FBN Food Services, Inc., 175 B.R. 671, 689 (Bankr.N.D.Ill.1994). A transferee of a fraudulent conveyance cannot hide behind an agreement which in fact defrauds creditors. Id. at 682. The existence of a fair exchange must be determined from the perspective of creditors rather than from the vantage point of the debtor. Mellon Bank, NA. v. Metro Communications, Inc., 945 F.2d 635, 646 (3d Cir.1991); Interpool Ltd. v. Patterson, 890 F. Supp. 259 (S.D.N.Y.1995).
We conclude that even though there was an accord and satisfaction, we must examine the settlement to determine whether the $80,450 the Debtor received constituted reasonably equivalent value for the claims which it released and whether the write-off was taken with fraudulent intent.
Reasonably Equivalent Value
While we must necessarily look at the underlying settlement to ensure that it was equitable, and thus that reasonably equivalent value or fair consideration was exchanged by each side to the settlement, we need not look in great detail to determine its worth. As stated in In re Pinto Trucking Serv., Inc., 93 B.R. 379 (Bankr.E.D.Pa.1988):
There is no question that the compromise of a dispute can supply the element of consideration in a contract. See e.g., North American Properties, Ltd. v. Pocono Farms Lot Owners Ass'n., 489 F. Supp. 452, 458-59 (M.D.Pa.1980); Shipley v. Pittsburgh & L.E.R. Co., 83 F. Supp. 722, 762 (W.D.Pa.1949); Cohen v. Sabin, 452 Pa. 447, 453-54, 307 A.2d 845, 849 (1973); and Hensel v. Cahill, 179 Pa.Super. 114, 118-19, 116 A.2d 99, 101 (1955). While it is true that a totally groundless claim or a non-dispute may not constitute consideration, Lombardo v. Gasparini Excavating Co., 385 Pa. 388, 391-92, 123 A.2d 663, 665 (1956); and Warren Tank Car Co. v. Dodson, 330 Pa. 281, 285, 199 A. 139, 141 (1938), the courts will not look at the underlying merits of a compromise very critically to determine its worth. "The sufficiency of the consideration for a compromise is not to be determined by the soundness of the original claim of either party. The very object of compromise is to avoid the risk or trouble of that question." Shipley, supra, 83 F.Supp. at 762.
Id. at 389.
We need only determine whether the settlement was in the range of a reasonable measure of the value of the Debtor's services. In re Shapiro, 124 B.R. 974 (Bankr.E.D.Pa. 1991).
The within matter involved substantial disputes on both sides.
Debtor's quote for work on the John B. Arid states that overtime is not included. Debtor's initial invoices included substantial amounts for overtime services. Algoma alleged that it never authorized overtime and therefore in accordance with industry standards, charges to it for overtime are inappropriate. *804 Debtor asserted that Algoma was aware of the overtime and did not object and at one point near completion of the job, recommended that overtime continue. Algoma's response was that it understood that the Debtor was working overtime to make up for inefficiencies in its performance, but Algoma never authorized and was not aware that it would be charged for the overtime hours.
Algoma also disputed the invoice amounts on the basis that they were at variance with the quotation and that there were overcharges for additional work performed. Algoma alleged discrepancies in per pound charges for steel and that the Debtor's lack of skilled workers resulted in mistakes and unsatisfactory workmanship and excessive time being spent on individual tasks. Debtor acknowledges that some reduction was appropriate due to lack of productivity. Debtor had a difficult time getting enough workers to complete the job, and the workers it did get were temporary, inexperienced and had to climb the learning curve which resulted in low efficiency.
Debtor alleged that the quote did not include mud removal, temporary services and inner-bottom repairs. In response, Algoma asserted that additional charges had to be approved prior to completion of the work.
Algoma alleged that Debtor charged for excessive lay days and that completion of the work was some 25 days late due to Debtor's inefficiencies. Debtor alleged that lateness was due to the expanded scope of the work.
The parties entered into an arm's-length negotiation which resulted in a settlement.
The claim of $1,682,827 was settled for $1,113,723, a difference of $569,104. Algoma essentially admitted liability for $1,033,273 (Letter of May 1, 1995, Algoma per Jack D. Kinnear to Steve Miley of Erie Marine). By that letter, Kinnear would recommend payment of $1,033,273 if the disputed items were left open, or he would recommend payment of $1,113,723 to settle all matters. Algoma was paying $80,450 to settle the $569,104 in disputed items. While Algoma's payment of $80,450 is only 14% of the disputed portion of the claim, the payment was substantial; it cannot be said to be insubstantial, frivolous or meaningless. The settlement agreement was therefore complete and binding. The fact, if it were proven, that it was a poor settlement would not change the result. Nor would the result change if it were shown that the Debtor's chief executive officer was, at the moment of agreement on the settlement, motivated more by a desire for immediate cash than the long term benefit of the Debtor. Debtor could have accepted Algoma's offer of $1,033,273 in cash, while leaving open the disputed items. Debtor chose the extra cash in hand of $80,450.
This result is not only in accord with Pennsylvania law, but is an example of its theory and practical application. When a party gives up hard cash, which he can never get back, in consummating a settlement of a disputed claim, the settlement is binding and ought not be upset in the absence of compelling circumstances. Settlement of the numerous issues was the product of arm's-length bargaining and not of fraud or collusion. Algoma felt it paid the Debtor more than it was entitled to for the number of lay days and for bulk head work, while Debtor felt it was underpaid for mud removal, overtime, and temporary service charges.
Having apprised ourselves of the underlying facts, we find that the compromise was supported by sufficient consideration to make it binding, and that the Debtor received reasonably equivalent value for the release of its contested claims.
Intentional Fraud
Debtor pleads in its Complaint that the writing off and/or reduction of the balance due and owing by Algoma for repair work was made with actual intent to hinder, delay or defraud the Debtor's then existing and future creditors. The record lacks any facts which would support a claim that there was any intent to perpetrate a fraudulent conveyance.
Conclusion
The Motion for Summary Judgment filed by Algoma will be granted and the within Complaint dismissed.
NOTES
[1] Some courts hold that when dealing with a Federal Bankruptcy question, it is appropriate to look at the defendant's contacts with the United States rather than the forum state in which the court is sitting. In re Schwinn Bicycle Co., 192 B.R. 461 (Bankr.N.D.Ill.1996) (and cases cited therein). We need not decide that issue as we find that Algoma has sufficient minimum contacts with the Commonwealth of Pennsylvania.
[2] This fact is set forth in the Affidavit of Timothy Dool and the deposition of Jack Kinnear. While the Debtor has not agreed that the Debtor's President agreed to accept $1,113,723 as payment in full, its response has not indicated anything to the contrary. Once a motion for summary judgment is supported by a prima facie showing that the moving party is entitled to judgment as a matter of law, the party opposing the motion may not rest upon the mere allegation or denials in its pleadings. Rather, its response must show that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). The Debtor has come forward with no evidence which would even tend to indicate that the Debtor's President did not make such an agreement. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2857893/ | IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,
AT AUSTIN
NO. 3-91-222-CR
GILFRET HUNT,
APPELLANT
vs.
THE STATE OF TEXAS,
APPELLEE
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 299TH JUDICIAL DISTRICT
NO. 104,056, HONORABLE JON N. WISSER, JUDGE
PER CURIAM
A jury found appellant guilty of aggravated sexual assault. Tex. Penal Code Ann.
§ 22.021 (1989). The jury assessed punishment, enhanced by two previous felony convictions,
at imprisonment for life.
Appellant's court-appointed attorney filed a brief in which he concludes that the
appeal is frivolous and without merit. The brief meets the requirements of Anders v. California,
386 U.S. 738 (1967), by presenting a professional evaluation of the record demonstrating why
there are no arguable grounds to be advanced. See also Penson v. Ohio, 488 U.S. 75 (1988);
Gainous v. State, 436 S.W.2d 137 (Tex. Crim. App. 1969); Jackson v. State, 485 S.W.2d 553
(Tex. Crim. App. 1972); Currie v. State, 516 S.W.2d 684 (Tex. Crim. App. 1974); High v.
State, 573 S.W.2d 807 (Tex. Crim. App. 1978). A copy of counsel's brief was delivered to
appellant, and appellant was advised of his right to examine the appellate record and to file a pro
se brief. Appellant availed himself of that right.
In four pro se points of error, appellant argues that the judgment of conviction must
be reversed because of errors or omissions in the appellate record. In point one, appellant urges
that a portion of the testimony by the physician who examined the victim is missing. We have
carefully examined the statement of facts. The material to which we understand appellant to refer
was contained in the medical report prepared by the doctor and used by defense counsel during
cross-examination. This report was not offered in evidence. No reversible error is presented.
In point two, appellant complains that the statement of facts does not contain a
pretrial hearing held November 2, 1990. At this hearing, the court considered appellant's motion
for discovery and inspection. The record reflects that this motion was granted in full, with two
exceptions. Appellant does not contend that either of the court's unfavorable rulings at this
hearing were error. Neither counsel nor appellant requested a transcription of the court reporter's
notes from this hearing. Again, no reversible error is presented.
In his third point of error, appellant notes that the docket sheet reflects that the
State waived portions of the indictment, but that no formal waiver motion appears in the record.
In point four, appellant states that the attorney questioning a witness is misidentified. Neither of
these points presents reversible error.
The judgment of conviction is affirmed.
[Before Justices Powers, Jones and Kidd]
Affirmed
Filed: April 22, 1992
[Do Not Publish] | 01-03-2023 | 09-05-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1540180/ | 95 B.R. 560 (1989)
In re C. Jere ALBRIGHT, Debtor.
Nos. 87 B 08510, 88 C 10144.
United States District Court, N.D. Illinois, E.D.
January 25, 1989.
*561 Joel Schechter, Grossman, Mitzenmacher & Schechter, Chicago, Ill., for trustee.
Keith J. Shapiro, J. Michael Williams, and Ira Gould, Holleb & Coff, Chicago, Ill., for Alan Neuman Productions, Inc.
Rufus Cook, Barbara J. Revak, and Steven O. Ross, Cook Partners Law Offices, Chicago, Ill., for debtor.
MEMORANDUM OPINION AND ORDER
PLUNKETT, District Judge.
Debtor-Appellant C. Jere Albright ("debtor") appeals an order of the bankruptcy court disqualifying his counsel, Cook Partners Law Offices, Limited. For the reasons stated below, we affirm the bankruptcy court's order.
Jurisdiction
Title 28 U.S.C. § 158(a) provides: "The district courts of the United States shall have jurisdiction to hear appeals from final judgments, orders, and decrees." Since the bankruptcy court's order of disqualification is final, fully resolves the discrete issue of the debtor's right to be represented by Cook Partners Law Offices, seriously affects the debtor's right to counsel of his choice, and could cause irreparable harm, it is appealable as a final order. See In re Technical Knockout Graphics, Inc., 833 F.2d 797, 800 (9th Cir.1987). We therefore have jurisdiction under 28 U.S.C. § 158(a).
Facts
Debtor, C. Jere Albright, filed an individual Chapter 11 bankruptcy petition on June 9, 1987. At that time, he was president and sole shareholder of Midata Management *562 Corporation ("Midata"). Midata has no employees, office facilities or apparent assets other than contractual rights and causes of action. In connection with the bankruptcy petition, debtor filed a schedule of assets listing his one hundred percent interest in Midata as having a value of $10,000,000.
On or about August 24, 1987, the debtor sought and received bankruptcy court approval to retain Rufus Cook and his firm, Cook Partners Law Offices, Ltd. ("Cook"), as his attorneys. See 11 U.S.C. § 327. Cook filed a statement indicating that no compensation had been paid or agreed to be paid to it, as required by 11 U.S.C. § 329(a).
On November 2, 1987, an amended Chapter 11 petition was filed, along with amended schedules which stated that the debtor's interest in Midata was worth only $500,000. By order of the bankruptcy court, the case was converted to a case under Chapter 7 on or about January 15, 1988.
On January 11, 1988, during a discussion in chambers with the bankruptcy judge, Cook first admitted the existence of an agreement between itself and Midata providing for Cook's compensation by Midata for services to Midata and to C. Jere Albright, Midata's president, in his bankruptcy proceedings. The agreement, evidenced by a letter dated January 14, 1988, was reached on or about July 28, 1987. The letter stated the terms of the July 28 agreement as follows:
(1) that Midata consisted of three assets: a note for $7,150,000, shares of stock in another corporation, and causes of action, primarily for breach of contract;
(2) that these assets required legal action or negotiated settlements to be realized;
(3) that Midata had no funds, no offices or personnel, and had been dissolved by the state in which it was incorporated;
(4) that debtor's individual bankruptcy case was pending and:
Midata's ability to realize on its own assets can enable you, as its sole shareholder, to deal with your Chapter 11 problems, as to which you also need legal representation
. . . .
[W]e have agreed that Cook Partners will undertake Midata's representation generally, and your representation in the bankruptcy court, on the following terms:
. . . 5. . . . Cook Partners or its nominee will be entitled to receive 50,000 shares of Midata stock, representing 50 percent of its total shares then outstanding. . . .
6. We both understand that the first objective of our combining forces is to resolve your bankruptcy problem by full payment of all valid claims and expenses associated with it. All shares . . . will neither earn nor be entitled to receive profits until the Chapter 11 case has been resolved as agreed.
Letter of January 14, 1988, from Rufus Cook to C. Jere Albright.
The bankruptcy court granted the United States Trustee's motion to convert the case to one under Chapter 7, finding that the agreement described above showed, at a minimum, a serious lack of judgment on the part of the debtor. The Trustee then applied to disqualify the debtor's counsel.
Ruling of the Bankruptcy Court
The bankruptcy court made the following findings of fact:
(1) that Midata was one of the principal assets of the debtor's estate;
(2) that the debtor had been the sole owner of Midata at the time the original bankruptcy petition was filed;
(3) that creditors of the debtor had alleged throughout the bankruptcy proceeding that Midata was the alter ego of the debtor;
(4) that debtor's counsel, Cook, had filed with the bankruptcy court on August 17, 1987, a statement that no compensation had been paid or had been agreed to be paid by the debtor to Cook, and the court had then approved Cook's appointment as counsel to the debtor on August 24, 1987;
*563 (5) that in July, 1987 Cook had entered into an agreement to represent Midata and the debtor in his Chapter 11 case;
(6) that the terms of this agreement were not revealed to the bankruptcy court until January 11, 1988, at which time Cook had disclosed that it owned 50 percent of the stock of Midata;
(7) that the written version of the agreement dated January 14, 1988, which stated that Cook would advance funds to the debtor and would receive 50 percent of the shares of Midata, showed that the agreement was intended to provide compensation to Cook for representing Midata and for representing the debtor in its bankruptcy case;
(8) that the debtor and Cook had failed to disclose to the bankruptcy court or to any party the existence and terms of this agreement at and prior to the time the bankruptcy court authorized Cook's employment;
(9) that throughout the bankruptcy proceeding, the creditors had sought to determine the ownership of Midata, the composition of Midata's board of directors, and the conduct of Midata's business affairs, and the debtor and Cook had vigorously resisted these efforts; and
(10) that Cook had failed to disclose its interest in Midata.
Memorandum Opinion and Order, No. 87 B 8510, Oct. 24, 1988 ("Opinion") at 1-6.
The bankruptcy court then held that Cook had violated 11 U.S.C. § 329, which requires disclosure of all of an attorney's connections with the debtor before the approval of his employment. Opinion at 10. The court further held that Cook was not a disinterested person, as required under 11 U.S.C. § 327(a), at the time its employment was approved by the court. It found that Cook's undisclosed interest in Midata created, at a minimum, an appearance of impropriety, since the debtor had sought to prevent discovery concerning Midata and since creditors had alleged Midata was the alter ego of the debtor throughout the bankruptcy proceedings. It further found that the undisclosed arrangement between the debtor and Cook denied creditors an opportunity to propose alternative means to resolve their claims by making creditors shareholders in Midata. Id. at 7-8.
The court therefore held that Cook held an interest adverse to creditors which created at least a potential conflict and an appearance of impropriety. Therefore, Cook was not entitled to be employed by the debtor and was disqualified as counsel. Id.
Standard of Review
We may reverse the ruling of the bankruptcy court only if its findings of fact are clearly erroneous or unsubstantiated by evidence on the record or if the ruling is based upon an error of law. In re Ebbler Furniture and Appliances, Inc., 804 F.2d 87, 89 (7th Cir.1986).
Analysis
We find that the bankruptcy court's findings of fact are not clearly erroneous and must be upheld. The only factual determination that the debtor contests is whether the agreement between the debtor and Cook provided Cook with compensation for aiding the debtor in its bankruptcy proceedings. We find that the terms of the agreement, as set forth in the January 14, 1988 letter, were reasonably construed by the bankruptcy court as evidence that the agreement did compensate Cook for representing the debtor. We find no error here.
Debtor also claims that the bankruptcy court made errors of law. We disagree. First, it is abundantly clear that Cook violated 11 U.S.C. § 329(a), which provides:
Any attorney representing a debtor . . . whether or not such attorney applies for compensation under this title, shall file with the court a statement of the compensation paid or agreed to be paid . . . for services rendered or to be rendered in contemplation of or in connection with the case by such attorney, and the source of such compensation.
Counsel failed to state the terms of its agreement with Midata, a company of *564 which debtor was the sole shareholder and president. Since the agreement provided that counsel would receive stock in Midata making it a 50 percent shareholder and that counsel would provide legal services to the debtor in his bankruptcy proceedings, it is clear that the arrangement was required to be disclosed to the bankruptcy court at the time Cook sought employment as debtor's counsel. See In re Kero-Sun, Inc., 58 B.R. 770, 777-78 (Bankr.D.Conn.1986). The failure to disclose the arrangement at that time clearly created an appearance of impropriety and served to hinder and delay the debtor's creditors and the bankruptcy proceedings.
Further, 11 U.S.C. §§ 327(a) and 1107(a) provide that the debtor (or trustee) may, with the court's approval, employ attorney(s) "that do not hold or represent an interest adverse to the estate, and that are disinterested persons." 11 U.S.C. § 101(13) provides that a "disinterested person" is one who is not a creditor or an equity security holder or an insider, and "does not have an interest materially adverse to the interest of the estate or of any class of creditors or equity security holders, by reason of any direct or indirect relationship to, connection with, or interest in, the debtor. . . ." 11 U.S.C. § 101(13)(E). We think it clear that Cook, by virtue of its 50 percent interest in Midata and the timing of its obtaining such interest, held an interest adverse to the interest of the estate and of other creditors.
Cook's interest is adverse because (1) Cook and the debtor have hindered and delayed the creditors' efforts to obtain information concerning debtor's principal asset, Midata; (2) the other creditors allege Midata and the debtor are alter egos and hence, the corporate veil of Midata may ultimately be pierced and its assets, of which Cook is now 50 percent owner, made part of the debtor's bankruptcy estate; and (3) the transaction by which Cook obtained its interest in Midata occurred during the pendency of the bankruptcy, without court approval, and may have diluted the assets of the estate. Further, Cook may be disqualified as debtor's counsel because he breached his fiduciary duties to the bankruptcy court and creditors by failing to disclose his compensation agreement with Midata and the debtor. We think it clear that Cook had an interest materially adverse to the interests of the estate and creditors, and uphold the bankruptcy court's ruling.
Conclusion
The decision of the bankruptcy court is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540186/ | 974 A.2d 1110 (2009)
408 N.J. Super. 304
STATE of New Jersey in the Interest of R.M., Juvenile-Appellant.
DOCKET NO. A-0105-07T4
Superior Court of New Jersey, Appellate Division.
Submitted February 10, 2009.
Decided July 20, 2009.
*1111 Yvonne Smith Segars, Public Defender, attorney for appellant R.M. (Abby P. Schwartz, Assistant Deputy Public Defender, of counsel and on the brief).
Luis A. Valentin, Monmouth County Prosecutor, attorney for respondent State of New Jersey (Mary R. Juliano, Assistant Prosecutor, of counsel and on the brief).
Before Judges SKILLMAN, GRAVES and GRALL.
The opinion of the court was delivered by
SKILLMAN, P.J.A.D.
R.M., a juvenile, was found guilty of an act of delinquency which, if committed by an adult, would constitute receiving stolen property, in violation of N.J.S.A. 2C:20-7(a). The trial court sentenced the juvenile to a one-year term of probation and imposed the statutorily mandated penalties. On appeal, the juvenile's only argument is that the stop and search that revealed the stolen property, a wallet, violated his rights under the Fourth Amendment and Article I, paragraph 7, of the New Jersey Constitution. We reject this argument and therefore affirm the denial of the juvenile's motion to suppress and the adjudication of an act of delinquency.
The stop and search that revealed the stolen wallet in the juvenile's possession occurred in Hazlet around 2 a.m. on November 10, 2006, which was three hours after an 11 p.m. curfew for juveniles established by municipal ordinance. Patrolman *1112 Kevin Geoghan was driving a marked police car when he observed R.M. and another juvenile run across the street in front of a car, which caused the driver to brake. Officer Geoghan stopped his car and approached the two juveniles. Because they appeared to be young, he asked them how old they were, and they responded sixteen. Geoghan asked the juveniles whether they had any identification on them, and they said no.
While Geoghan was questioning the juveniles, he noticed that R.M. was carrying a backpack with an outer mesh pocket. When Geoghan first asked R.M. about the backpack, he said it belonged to him.
Geoghan then noticed that there was a brown wallet visible through the mesh in the outer pocket of the backpack. Since the juveniles had said that they did not have any identification and most persons carry some form of identification in their wallet, Geoghan told the juveniles he needed to examine the wallet to determine whether it contained any identification. At this point, R.M. said the backpack did not belong to him but rather to his brother, and that he did not know who the wallet belonged to. Geoghan told R.M. that he needed to examine the wallet and removed it from the backpack. Geoghan's examination of the contents of the wallet disclosed that it contained the identification of a person named Mazza. When Geoghan questioned the juveniles about this identification, they both stated that they did not know Mazza.
Geoghan next examined the inside of the backpack, which contained a cell phone, sweatshirt and a zip-lock bag containing photographs. R.M. told Geoghan those items all belonged to him.
After discovering Mazza's wallet inside the backpack, Geoghan brought both juveniles to police headquarters "to be processed for the curfew violation, and so that [he] could further investigate the wallet and its contents." Geoghan conducted a computer check at headquarters, which disclosed that Mazza had reported two days before that his wallet had been stolen. Geoghan then arrested R.M. for a violation of the municipal curfew ordinance and receiving stolen property.
The trial court concluded that Officer Geoghan's observations of the juveniles' jaywalking, their admission when he first approached them that they were under the age that subjected them to the 11 p.m. municipal curfew, and R.M.'s conflicting answers regarding ownership of the backpack, gave Officer Geoghan the reasonable and articulable suspicion that the juveniles were engaged in unlawful conduct required for a Terry investigative stop. The court also concluded that the seizure of the wallet in the backpack was valid because the juveniles relinquished any "reasonable expectation of privacy" with respect to the wallet when they both disclaimed any property interest in it. In addition, the court concluded that the juveniles' actions and responses to Officer Geoghan's questions provided probable cause to arrest them for the curfew violation.
On appeal, defendant does not present any argument regarding Officer Geoghan's investigative stop of the juveniles. In any event, we are satisfied, substantially for the reasons stated by the trial court, that the stop was valid. We therefore turn to defendant's arguments regarding the validity of the seizure of Mazza's wallet from the mesh pocket of R.M.'s backpack.
Defendant argues that the trial court's rationale for upholding the validity of the seizure of Mazza's walletthat the juveniles relinquished any reasonable expectation of privacy in the wallet by disclaiming ownership or other proprietary interest is inconsistent with State v. Johnson, 193 N.J. 528, 551-52, 940 A.2d 1185 (2008), which held that a disclaimer of ownership *1113 of property in response to police questioning does not constitute an abandonment that allows the police to seize the property without probable cause. The State argues that this case is distinguishable from Johnson, and in any event, Johnson should not be applied retroactively. We have no need to consider the State's arguments regarding the applicability of Johnson because we conclude that Officer Geoghan's seizure and subsequent search of Mazza's wallet was valid as a search incident to R.M.'s arrest pending his identification and return to his parents' custody.
One exception to the warrant requirement of the Fourth Amendment and Article I, paragraph 7 of the New Jersey Constitution is for a search incident to an arrest. State v. Dangerfield, 171 N.J. 446, 455-56, 795 A.2d 250 (2002). "The purpose of such a search is (1) to protect the arresting officer from any danger and (2) to prevent the destruction or concealment of evidence." Id. at 461, 795 A.2d 250. Consequently, "[t]he scope of [such a] search is restricted to the person of the arrestee and the area within his or her immediate control." Ibid. Before a search incident to arrest may be conducted, there must be probable cause to arrest the person, which requires a showing of a "well grounded suspicion" that an offense has been or is being committed. Id. at 456, 795 A.2d 250 (quoting State v. Sullivan, 169 N.J. 204, 211, 777 A.2d 60 (2001)).
Both R.M. and his companion admitted to Officer Geoghan when he first approached them that they were under the age that subjects a juvenile to the municipal curfew.[1] Therefore, Officer Geoghan had probable cause to believe that R.M. had violated the curfew ordinance, and the officer's questioning of the juveniles indicated that their presence on the street at 2 a.m. did not fall within any of the exceptions to the ordinance.
R.M. argues, relying upon State v. Hurtado, 113 N.J. 1, 549 A.2d 428 (1988), rev'g on dissent 219 N.J.Super. 12, 23-25, 529 A.2d 1000 (App.Div.1987), that the police had no authority under N.J.S.A. 40A:14-152 to arrest him for a violation of the curfew ordinance because his conduct did not involve a "breach of the peace." However, R.M. is a juvenile. Thus, he could be taken into custody under the authority of N.J.S.A. 2A:4A-31(b)(2), which authorizes a law enforcement officer to take a juvenile into "short-term custody" if he "has reasonable grounds to believe the juvenile has left the home and care of his parents or guardian without the consent of such persons." Since Officer Geoghan found R.M. and his companion wandering the streets three hours after the curfew, and the curfew ordinance makes it unlawful for a parent or guardian to permit a juvenile to violate the curfew, Officer Geoghan had reasonable grounds to conclude that R.M. had left home without his parents' consent. Therefore he was authorized by N.J.S.A. 2A:4A-31(b)(2) to take R.M. into custody.
Moreover, both juveniles told Officer Geoghan that they did not have any identification in their possession. Consequently, even if the juveniles' violation of the curfew ordinance did not provide grounds for their arrest, they could be temporarily detained for the purpose of obtaining verification of their identities, see State v. Lark, 163 N.J. 294, 296-97, 748 A.2d 1103 (2000); Marion v. Borough of Manasquan, 231 N.J.Super. 320, 330-31, 555 A.2d 699 (App. Div.1989); Hurtado, supra, 113 N.J. 1, 549 A.2d 428, rev'g on dissent 219 N.J.Super. at 23, 529 A.2d 1000, and if they failed to produce identification, they could be arrested *1114 and detained at police headquarters until adequate evidence of their identities was obtained. See Illinois v. Lafayette, 462 U.S. 640, 646-47, 103 S.Ct. 2605, 2610, 77 L.Ed.2d 65, 71 (1983); see also R. 3:3-1(c)(5).
Whenever the police arrest a person, they may conduct a search incident to the arrest of the person and the area within his immediate control. State v. Daniels, 393 N.J.Super. 476, 487-91, 924 A.2d 582 (App.Div.2007). One purpose of such a search is protection of the arresting officer in transporting the arrestee to police headquarters. Id. at 487-91, 924 A.2d 582.
Furthermore, the arrest is not required to precede the search. State v. O'Neal, 190 N.J. 601, 614-15, 921 A.2d 1079 (2007). "It is the `right to arrest' rather than the actual arrest that `must pre-exist the search.'" Id. at 614, 921 A.2d 1079 (quoting State v. Doyle, 42 N.J. 334, 342, 200 A.2d 606 (1964)). "As long as the right to arrest pre-existed the search, and the `arrest is valid independently of, and is not made to depend on, the search or its result,' the search will not be invalidated `simply because in precise point of time the arrest does not precede the search.'" Id. at 614-15 (quoting Doyle, supra, 42 N.J. at 343, 200 A.2d 606).
Before Officer Geoghan seized Mazza's wallet from inside the mesh pocket of R.M.'s backpack, he had a right to detain R.M. and bring him to police headquarters in order to verify his identification, issue him a summons for the violation of the curfew ordinance, and return him to his parents' custody. Moreover, it is evident Officer Geoghan intended to detain R.M. for these purposes; there is no basis for concluding that he was simply going to leave R.M. on the streets, in violation of the curfew, without verifying his identity. R.M.'s violation of the curfew ordinance constituted a continuing violation, which Officer Geoghan had a responsibility to terminate by taking him into custody. It is also clear that the wallet was in the area within R.M.'s immediate control because it was contained in a backpack he was carrying on his person.
Furthermore, the seizure of the wallet from R.M.'s backpack and search of its contents was directly related to R.M.'s violation of the curfew ordinance, which was the reason for his arrest, and to Officer Geoghan's discharge of his responsibilities for enforcement of that ordinance. Before Officer Geoghan observed the wallet in plain view in R.M.'s backpack, R.M. and his companion had both asserted that they did not have any identification in their possession. Without reliable evidence of R.M.'s identity, Officer Geoghan was not in a position either to issue him a summons or to return him to his parents' custody. It was reasonable for Officer Geoghan to believe that the wallet in R.M.'s backpack would contain evidence of his identity and address, which would enable Officer Geoghan to complete the performance of his official responsibilities regarding R.M.'s violation of the curfew ordinance. Cf. State v. Pena-Flores, 198 N.J. 6, 31-32, 965 A.2d 114 (2009) (holding that where operator of motor vehicle who has committed traffic violation is unable to produce registration for car, police officer may conduct search of glove compartment and other areas where registration is ordinarily kept). Such identification also could provide corroborative evidence that R.M. was under the age of eighteen and consequently subject to the curfew ordinance. Therefore, the seizure and subsequent search of the wallet constituted a valid search incident to R.M.'s arrest.
Affirmed.
NOTES
[1] We note that N.J.S.A. 40:48-2.52(b)(1) specifically authorizes municipalities to adopt curfew ordinances. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540189/ | 95 B.R. 982 (1989)
In re HANCOCK-NELSON MERCANTILE COMPANY, INC., Debtor.
Michael J. IANNACONE, Trustee of the Bankruptcy Estate of Hancock-Nelson Mercantile Company, Inc., Plaintiff,
v.
FOOTHILL CAPITAL CORPORATION, and Farm House Foods Corporation, Defendants.
Michael J. IANNACONE, Trustee of the Bankruptcy Estate of Hancock-Nelson Mercantile Company, Inc., Plaintiff,
v.
BERISFORD CAPITAL CORPORATION, Defendant.
Bankruptcy No. 3-86-256, Adv. Nos. 3-86-165, 3-86-166.
United States Bankruptcy Court, D. Minnesota, Third Division.
February 13, 1989.
*983 Michael J. Iannacone, St. Paul, Minn., trustee.
William I. Kampf, Sp. Counsel, Fredrikson & Byron, P.A., Minneapolis, Minn., for trustee.
Katherine A. Constantine and Stephen Lucke, Dorsey & Whitney, Minneapolis, Minn., for defendant Foothill Capital Corp.
James A. Rubenstein, O'Connor & Hannan, P.A., Minneapolis, Minn., for defendant Farm House Foods Corp.
Hart Kuller, Winthrop & Weinstine, St. Paul, Minn., for defendant Berisford Capital Corp.
MEMORANDUM TO ORDER APPROVING SETTLEMENT AGREEMENT BETWEEN PLAINTIFF-TRUSTEE AND DEFENDANTS FOOTHILL CAPITAL CORPORATION AND BERISFORD CAPITAL CORPORATION
GREGORY F. KISHEL, Bankruptcy Judge.
On June 15, 1988, this Court entered an order in this Chapter 7 (converted from Chapter 11) case and these adversary proceedings, granting the motion of Debtor's Chapter 7 Trustee for approval of a compromise and settlement of the claims in litigation in these adversary proceedings against Defendants Foothill Capital Corporation ("Foothill") and Berisford Capital Corporation ("Berisford"), and overruling the objection of the remaining defendant, Farm House Foods Corporation ("Farm House"), to the settlement. This memorandum is entered to set forth a more detailed discussion of the factual and legal basis of that order. It supplements the precis of the decision read onto the record on June 13, 1988.
I. PROCEDURAL POSTURE OF PRESENT MOTION.
Before it went into bankruptcy, Debtor was a St. Paul-based grocery wholesaler servicing a large area of Minnesota, Wisconsin, and Michigan. Debtor's Chapter 11 *984 case was commenced when a number of its creditors filed an involuntary Chapter 7 petition against it on January 29, 1986. Debtor voluntarily converted the case to one for reorganization under Chapter 11 later that day. The stormy beginning of the case presaged nearly two years of intense conflict in numerous judicial proceedings involving Debtor, its secured creditors, its Unsecured Creditors Committee, and various shifting alliances among them. Former Chief Judge John J. Connelly was assigned to the case and presided over it until his retirement in late 1986. Foothill and Berisford were Debtor's major pre-petition secured creditors. Debtor scheduled Foothill's claim at $7,760,406.85. Debtor did not initially schedule Berisford's claim, though early in the case Berisford filed a proof of claim evidencing a debt in the amount of $1,800,000.00. Both creditors asserted liens and security interests against all of Debtor's assets, real and personal.[1] The first five months of the case were marked by two ongoing developments, which had a synergistic effect. First, Foothill increasingly resisted and finally refused to consent to Debtor's proposed use of Foothill's and Berisford's cash collateral for large-scale inventory replacement and other operating expenses. Second, Debtor's actual prospects of reorganization as a going concern withered, as a result of the depletion of its inventory, the loss of several major Twin Cities-area customers, and the severe shrinkage of its market share in its three-state arena of operations.
A single event during the unfolding of these matters indelibly altered the complexion of this case, particularly after its later entry into a "liquidation mode." Via a March 11, 1986 order conditioning Debtor's use of cash collateral, Judge Connelly granted to Foothill and Berisford a replacement lien in all of Debtor's post-petition property, specifically including all net recoveries in contemplated adversary proceedings for avoidance of preferential transfers under 11 U.S.C. § 547.[2] As the depletion of Debtor's inventory accelerated in the spring and early summer of 1986, the makeup of Foothill's and Berisford's collateral shifted heavily toward Debtor's accounts and notes receivable, and the intangible causes of action wielded by Debtor only as a result of its status as a petitioner in bankruptcy.
By the time of the hearing conducted by Judge Connelly on July 9, 1986, all parties recognized that Debtor could no longer profitably operate its business. Foothill and Berisford refused to authorize a continuation of Debtor's use of their cash collateral. The three parties finally agreed that Debtor would liquidate its remaining personal property assets. In an August 21, 1986 order, Judge Connelly authorized Debtor's voluntary sale of its remaining personal property assets, accounts and notes receivable, and miscellaneous other property to C.O.M.B., Inc., a liquidator. Debtor's consummation of that order terminated its remaining, small-scale grocery wholesaling operations. The only "business" activity which Debtor thereafter conducted was the piecemeal rental to third parties of various portions of its warehouse facilities. In all other respects, Debtor had been transformed into a mere instrumentality for the advancement of various legal causes of action. On January 8, 1988, this Court entered an order granting the motion *985 of Debtor's Unsecured Creditors Committee to convert this case to one for liquidation under Chapter 7.[3]
Debtor commenced these two adversary proceedings for avoidance of fraudulent transfers and equitable subordination by filing complaints on July 9, 1986. Debtor's original complaint in ADV 3-86-165 named only Foothill as a party defendant.[4]
In its original complaints, Debtor prayed for relief against Foothill and Berisford in the form of an avoidance of those creditors' security interests against Debtor's assets and a subordination of their claims to those of all other creditors. It cited the Minnesota enactment of the Uniform Fraudulent Conveyance Act, former MINN.STAT. §§ 513.20.32, and 11 U.S.C. § 510(c), as authority. In an August 8, 1986 order in ADV 3-86-166, Judge Connelly essentially granted Berisford an indefinite extension of its deadlines for answer and for filing of a motion for withdrawal of reference, subject to termination of the extension at Debtor's option upon a demand for answer. There has been no active litigation in the Berisford proceeding and, but for the negotiations for comprehensive settlement, it has lain dormant.[5]
In an amended complaint in ADV 3-86-165 filed on August 8, 1986, Debtor added several factual allegations and expanded its legal theory to include 11 U.S.C. § 548.[6] In response to the amended complaint, Foothill brought on a motion for summary judgment, basically arguing that Debtor could not possibly prove that Foothill had received less than a reasonably equivalent value (in the form of its substantial pre-petition advance of credit to Debtor) for Debtor's pre-petition grant to Foothill of a blanket lien. Judge Connelly conducted an informal hearing on this motion, in chambers and off the record, on October 6, 1986. The lack of a formal record hampers any precise determination as to the disposition which he made at that time. Participating counsel acknowledge that he denied the motion but ordered Debtor's counsel to file an amended complaint. However, in a written order entered on the motion on October 8, 1986, Judge Connelly rescinded his informally-made denial of Foothill's motion for summary judgment and continued the motion generally, pending re-calendaring by Foothill for a formal hearing.
On October 17, 1986, Debtor's counsel filed a second amended complaint, now joining Farm House as a defendant. Debtor again prayed for avoidance of fraudulent transfers and subordination of both Defendants' claims under the previously-cited statutory authorities, and added a broadly-phrased cause of action against Foothill for "bad faith" and one against Farm House for breach of an asserted corporate shareholder's fiduciary duty to creditors of the corporation. Foothill thereafter renewed *986 its motion for summary judgment before the undersigned. The record on that motion was completed in late December, 1986. The Court deferred decision upon later advice from counsel that Debtor and Foothill were engaged in settlement negotiations.
Those negotiations resulted in a stipulation of settlement as between Debtor and Foothill, which was presented to the Court via motion filed on April 10, 1987. At an April 29, 1987 hearing on the motion, Debtor's Unsecured Creditors Committee and Farm House both strenuously objected to the terms of settlement. The Court deferred decision on that motion pending decision on the Unsecured Creditors Committee's subsequent motion to convert the case. After conversion of the case, Debtor's newly-appointed Chapter 7 Trustee requested an opportunity to review the terms of settlement and to either ratify or reject them. Renewal of settlement negotiations between the Trustee and Foothill has resulted in the stipulation of settlement presented on the motion at bar. Its terms are substantially different from those negotiated one year earlier by Debtor's Chapter 11 counsel. Farm House is not a party to the proposed settlement and has again strongly objected to it. No other party in interest has objected.
II. FACTUAL BACKDROP OF ADVERSARY PROCEEDING AND PROPOSED SETTLEMENT.
Debtor based its complaint against Foothill and Farm House upon a series of transactions and events which took place in 1984-86. These factors surround and involve a "leveraged buyout"[7] of Debtor and several other regional grocery wholesalers, and the corporate restructurings which took place during and after the financial transactions. The parties do not dispute the actual occurrence of certain basic events, as to the changes in the ownership of Debtor and the other companies involved in the leveraged buyouts; changes in the structural relationships of those parties; certain basic exchanges, consisting of Foothill's advances of loaned funds to Debtor and Debtor's corresponding grants of liens to Foothill; and, generally, Debtor's subsequent disposition of those funds. The parties sharply controvert a number of other relevant facts, including the awareness, motivation, and intent of parties to the leveraged buyouts and their related transactions; the fiscal backdrop to the transactions specifically, Debtor's and the related companies' solvency, value, and actual cash flow before and after the transfers; the actual benefit derived from the leveraged buyout and related transactions by Debtor and other related parties; and numerous other factors. It goes without saying that the parties also have monumental disagreements over the legal import of all of the events and transactions.
The basic, uncontroverted events are the following: Prior to January 17, 1985, Farm House was the sole shareholder in four large grocery wholesalers doing business in the upper Midwest: Hancock-Nelson Foods (operating from St. Paul, Minnesota, and serving central and southern Minnesota for over 70 years); Carpenter Cook Company (operating in the Upper Peninsula of Michigan); Roberts Farm House Foods Corporation (operating in western and central Wisconsin); and Farm House Wholesale Corporation (operating in eastern Iowa).[8] In late 1984 Farm House began negotiations for the sale of the capital stock of one or more of the four Farm House subsidiaries to Syncom Corporation, a holding company based in Miami Lakes, Florida, whose principals were Martin Panich and Kenneth Thenen. As of January *987 17, 1985, Syncom owned all of the stock in Coordinated Foods Companies, Inc. ("Coordinated"). Coordinated was the ultimate named purchaser of the stock of the Farm House subsidiaries, apparently as an assignee of Syncom's rights of purchase.
On January 17, 1985, Farm House, Syncom, and Coordinated entered a stock purchase agreement for all four of the Farm House subsidiaries. Pursuant to the agreement, the buyer and purchaser(s) conducted two sale closings in early 1985, one on January 17 and the other on April 19. In the first closing, Debtor entered a loan agreement with Foothill, under which Foothill advanced $7,000,000.00 to Coordinated and, in return, received security interests and liens against all of the assets of Hancock-Nelson Foods. As part of the first closing, Farm House transferred its stock in Hancock-Nelson Foods to Syncom. Syncom then assigned its rights in the purchase to Coordinated. There is no probative evidence before the Court as to the specific immediate disposition of the loan proceeds, though there is no dispute that Hancock-Nelson Foods received little or none of them. Farm House was of course the ultimate recipient of the funds loaned, or at least of the benefit of the purchase price.
At the second closing, a total of approximately $8,600,000.00 passed hands for Farm House's sale of the stock of the three remaining Farm House subsidiaries, of which Foothill nominally furnished approximately $6,600,000.00[9] and Berisford advanced $2,000,000.00. The additional advance was evidenced by an amendment of the original loan documents. Foothill paid a substantial portion of the purchase price directly to Farm House. Liens and security interests in all of the assets of the other three Farm House subsidiaries were granted to Foothill and Berisford to secure repayment of the loans. Farm House transferred its shares in the other three Farm House subsidiaries to Coordinated. Then or shortly thereafter, Coordinated caused a merger of the other three companies into Hancock-Nelson Foods, where they became "operating divisions" of the main enterprise which continued to be headquartered in St. Paul. This merged company was the one which later filed for Chapter 11 relief.
Within several months after the second closing, Debtor began to experience substantial cash-flow difficulties. At some point soon after the loan/sale closings, Foothill demanded that Debtor turn over all proceeds of the collection of its accounts receivable as Debtor received them. Debtor acquiesced. Foothill then undertook to advance additional sums to Debtor for operating capital, using a "lending formula" premised upon the amount of current collections.
The grocery wholesaling business as it is currently conducted is a so-called "high-volume, low-margin" operation, relying on rapid payment of invoices at both retailer-wholesaler and wholesaler-trade supplier stages. Increasing numbers of Debtor's trade suppliers put it onto a "C.O.D." basis in the later fall or 1985, probably as a result of persisting and increasing delays in its payment to them. Numerous unpaid trade-supplier accounts accruing during this period survived to become unsecured claims scheduled by Debtor in its bankruptcy case; the claims exceeded 1,800 in number. By applying its "lending formula," Foothill obtained a reduction of Debtor's debt to it in the amount of more than $9,000,000.00 from November, 1985 until the commencement of this case.
III. SUMMARY OF PLAINTIFF'S SECOND AMENDED COMPLAINT.
Plaintiff's second amended complaint contains 42 separate factual allegations, some of which are summarized supra as undisputed basic facts and the remainder of which are actually or potentially disputed. It also contains seven different counts, each of which incorporates the factual allegations as a basis for a different type of legal relief under fraudulent conveyance, *988 equitable subordination, and general equitable theories.
Plaintiff premises its legal theories and requests for relief on the injury to Debtor and its general creditors which it alleges occurred during two different sequences of events and transactions. The first sequence consisted of the negotiation, structuring, and consummation of the leveraged buyout by Farm House, Foothill, Berisford, and other non-joined parties. The second sequence consisted of Foothill's enforcement of its secured rights, between the consummation of the leveraged buyout and the date on which Debtor's bankruptcy case was commenced.
Plaintiff sought relief against both Farm House and the secured lenders under fraudulent conveyance theories. In Counts I, II, and III, it broadly alleged that the "transfers" of Debtor's assets occurring during both the first and second sequences were avoidable fraudulent conveyances under the "constructive fraud" provisions of the Minnesota enactment of the Uniform Fraudulent Conveyances Act, former MINN.STAT. § 513.23.25. Under these counts, Plaintiff claimed that the "transfers were made without fair consideration," and:
I. they either were made while Debtor was insolvent, or made Debtor insolvent by themselves (per former MINN.STAT. § 513.23);
II. they were made with knowledge that they left Debtor with an unreasonably small amount of capital with which to engage in business (per former MINN.STAT. § 513.24); and
III. they were made with knowledge that the debts incurred would be beyond Debtor's ability to repay as they matured (per former MINN. STAT. § 513.25).
None of the relevant statutory provisions require Plaintiff to prove that any participant in the two sequences acted with actual intent to defraud Debtor's other creditors.
In Count IV, Plaintiff requested the same relief under 11 U.S.C. § 548, the Bankruptcy Code's fraudulent-conveyance provision, asserting a theory parallel to the state-law theory of Count I.
In Count V, Plaintiff requested that both Farm House's and Foothill's claims be subordinated to those of all of Debtor's other creditors, on the basis of both sequences of events, and pursuant to 11 U.S.C. § 510(c) and general equitable principles.
In Count VI, Plaintiff requested an award of damages in the sum of $17,000,000.00 as against Foothill alone, apparently on the basis of both sequences of events and under a generalized legal theory of "bad faith" and "reckless disregard towards the health of the business and the rights of other creditors."
In Count VII, Plaintiff requested an award of damages in the same sum as against Farm House alone, apparently as a result of the first sequence alone, and under the theory that Farm House had breached a controlling shareholder's fiduciary duty to the corporation and its general creditors.
IV. TERMS OF PROPOSED SETTLEMENT.
The proposed settlement now before the Court provides for the following:
1. Acknowledgment by all parties that Debtor's Chapter 7 estate consists solely of the following:
a. One Million Sixty-Four Thousand Eight Hundred Eighty-one Dollars 74/100 ($1,064,881.74) in cash on deposit;
b. Debtor's St. Paul warehouse and office facility;[10]
c. Causes of action for avoidance of preferential transfers against approximately 290 entities.
d. Cause of action in ADV 3-86-165 against Farm House;
*989 e. Other, undescribed "miscellaneous legal causes of action and real property."
2. Acknowledgment that Foothill and Berisford held fully-secured claims against all of the assets presently in the estate as of January 1, 1987.
3. Retention by Foothill and Berisford of their liens and security interests against all of the assets of the estate until their claims are paid in full.
4. Allocation and payment of cash estate assets on hand, and all cash assets or proceeds garnered into the estate in the future, as follows:
Incremental Amount Recipient
First $250,000.00 Escrow account for
Chapter 7 Estate's
payment of allowed
administrative-expense
claims.
Then, by increments:
$1,000,000.00 Foothill/Berisford
$1,000,000.00 (less Chapter 7 Estate
balance of administrative-expense
fund
as of closing of estate)
$1,100,000.00 Chapter 7 Estate (50
percent) and Foothill/Berisford
(50
percent)
$3,900,000.00 Chapter 7 Estate (40
percent) and Foothill/Berisford
(60
percent)
All further monies Chapter 7 Estate (60
recovered. percent) and Foothill/Berisford
(40
percent)
5. Full release of Foothill and Berisford from liability to the estate arising out of all transactions between Debtor and Foothill and Berisford prior to May 25, 1988, and full satisfaction of the fraction of the total amount of damages suffered by Debtor and/or the estate which was occasioned by the causal fault of, or which was the responsibility of, Foothill and Berisford.
6. Indemnification of Foothill and Berisford by the Trustee from any claims for contribution and/or indemnity by any other persons or entities adjudged jointly and/or severally liable with them for damages to Debtor and/or the estate, with the same effect as a "Pierringer release."
7. Reservation to the estate of all other causes of action which the estate has or may have against all other persons or entities, specifically against Farm House "for having caused, directed or aided the actions of" Foothill and Berisford.
8. Withdrawal of all allegations or assertions of fraud against Foothill and/or Berisford.
9. Obligation of the Trustee to "diligently pursue" the estate's claims against Farm House, and obligation of Foothill and Berisford to provide non-privileged information and non-privileged deposition testimony for this action without necessity of subpoena to the Trustee, at the estate's expense.
10. Voiding and nullification of the first settlement agreement and release presented to the Court.
Not surprisingly, Farm House strenuously objects to the settlement agreement. In support of its objection, it makes one procedural argument and three substantive arguments. Procedurally, it argues that the proponents of the settlement have not made an adequate record upon which this Court can evaluate the propriety of its terms, and cannot do so. Substantively, it argues that the terms of the stipulation are "inequitable and . . . not in the best interests of the estate"; that the stipulation inappropriately embodies the form and conceptual basis of a "Pierringer release" and purports to produce its effects, in a dispute which does not involve principles of comparative negligence; and that its indemnification provisions and its obligation to diligently pursue the surviving counts of these adversary proceedings impermissibly limit and hamper the Trustee's discretionary authority to administer assets of the bankruptcy estate. Farm House's objections are impressively and articulately presented but, ultimately, unavailing.
V. DISCUSSION.
A. STANDARD FOR REVIEW OF COMPROMISE OR SETTLEMENT.
In considering pursuant to BANKR.R. 9019 a proposed compromise or settlement *990 of a controversy to which a bankruptcy estate is a party, the Bankruptcy Court must consider several factors, and weigh them against one another. The factors are:
1. The probability of success in the litigation;
2. The difficulties in collection of any litigated judgment;
3. The complexity of the litigation and the expense, inconvenience, and delay necessarily attending it;
4. The paramount interests of creditors; and (in appropriate cases)
5. Whether conclusion of the litigation promotes the integrity of the judicial system.
Drexel v. Loomis, 35 F.2d 800, 806 (8th Cir.1929); In re Lakeland Dev. Corp., 48 B.R. 85, 89-90 (Bankr.D.Minn.1985); In re Hanson Industries, Inc., 88 B.R. 942, 946 (Bankr.D.Minn.1988). The paramount (though not ultimately controlling) consideration is the interests of creditors of the estate. In re Flight Transportation Corp. Securities Litigation, 730 F.2d 1128, 1135 (8th Cir.1984).
Approval or disapproval of a proposed settlement involving a bankruptcy estate is committed to the discretion of the trial court. In re Flight Transportation Corp. Securities Litigation, 730 F.2d at 1135; Van Horn v. Trickey, 840 F.2d 604, 607 (8th Cir.1988) (applying abuse-of-discretion standard on appeal).[11]See also In re Woodson, 839 F.2d 610, 620 (9th Cir.1988); In re American Reserve Co., 841 F.2d 159, 162 (7th Cir.1987). In exercising that discretion, however, the Bankruptcy Court must make an "informed, independent judgment." Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424, 88 S.Ct. 1157, 1163, 20 L.Ed.2d 1 (1968), reh. denied, 391 U.S. 909, 88 S.Ct. 1649, 20 L.Ed.2d 425 (1969). ("TMT Trailer Ferry") [citing National Surety Co. v. Coriell, 289 U.S. 426, 436, 53 S.Ct. 678, 681, 77 L.Ed. 1300 (1933)]. The Supreme Court has cautioned:
There can be no informed and independent judgment as to whether a proposed compromise is fair and equitable until the bankruptcy judge has apprised himself of all facts necessary for an intelligent and objective opinion of the probabilities of ultimate success should the claim be litigated. Further, the judge should form an educated estimate of the complexity, expense, and likely duration of such litigation, the possible difficulties of collecting on any judgment which might be obtained, and all other factors relevant to a full and fair assessment of the wisdom of the proposed compromise. Basic to this process in every instance, of course, is the need to compare the terms of the compromise with the likely rewards of litigation.
TMT Trailer Ferry, 390 U.S. at 424-25, 88 S.Ct. at 1163. If it approves a controversial settlement, the Bankruptcy Court must justify its actions on the basis of "well-reasoned conclusions arrived at after a comprehensive consideration of all relevant factors." TMT Trailer Ferry, 390 U.S. at 434, 88 S.Ct. at 1168. It cannot make a "mere boilerplate approval phrased in appropriate language but unsupported by evaluation of the facts or analysis of the law." Id.
Farm House has framed its four objections to the proposed settlement using the substantive and procedural dictates of these authorities.
B. FARM HOUSE'S FIRST OBJECTION: ADEQUACY OF RECORD SUPPORTING SETTLEMENT.
While Farm House's counsel did not separately enumerate it in brief and argument, Farm House makes an initial objection to the proposed settlement which does not go to its merits, but rather to the procedural and evidentiary basis on which the settling parties present it to the Court. Basically, Farm House argues that the *991 Court lacks a sufficiently-developed record of evidence upon which it may determine whether the proposed settlement is in the best interests of creditors and the estate. It then argues that, as a result, any approval by this Court will not be founded upon the extended analytic process required by TMT Trailer Ferry.
In support of this argument, Farm House summarily asserts that "the entire record points to the greater liability of Foothill [in Debtor's downfall] rather than Farm House." However, to support this assertion, it presents only a smattering of scattered documents gleaned from discovery responses. Many of these documents do not even go to the relevant transactions, but only to similar transactions with entities not joined in these lawsuits, in which Foothill concurrently engaged. Counsel advise the Court that the initial round of Plaintiff's document discovery generated approximately 100,000 individual items. The parties have (perhaps mercifully) not filed or submitted any of the fruits of this or any other discovery, other than the few presented by Farm House. The Court is left with a record consisting of the filed pleadings, relevant pleadings and orders in Debtor's main bankruptcy case file, and the record made at the hearing on the matter at bar. The lack of formal evidence does indeed prohibit any conjecture as to which party's version of the facts is closer to "the truth." The Court is not able to determine with any precision whether either side will be able to adequately support its legal arguments with probative evidence.
This acknowledgment need not stymie the evaluation of the proposed settlement, however. The unique posture of the bankruptcy estate and the parties allow this Court to fully evaluate the benefit of the proposed settlement to the bankruptcy estate, and to approve it, without engaging in a thoroughgoing analysis of the weight of any prospective evidence. This conclusion springs from the recognition of two undeniable characteristics of the parties' present posture.
1. The Practical Need for the Estate to Deal With Foothill and Berisford.
At the present time Foothill and Berisford have a lien against all of the assets of this bankruptcy estate, with the possible exclusion of the causes of action in these adversary proceedings. Plaintiff has advised the Court that the anticipated value of all estate assets other than these causes of action does not exceed the sum of $2,250,000.00. The unsatisfied portion of Foothill's and Berisford's claims exceeds that sum by a considerable margin, possibly as much as $4,750,000.00.[12] Plaintiff does not hold or control any unencumbered assets from which he could pay the expenses of administration of the estate including the costs, expenses, and attorney fees incurred in the litigation of these adversary proceedings. Since Plaintiff sued them, Foothill and Berisford have repeatedly and tenaciously objected to the use of their collateral to finance an attack on their own secured position. While this case was under Chapter 11, the Court did authorize Debtor to use proceeds of that collateral to pay Debtor's attorney fees incurred in these adversary proceedings. However, it did so on a finding that the secured creditors had impliedly consented to that action at an earlier stage in the case. See Memorandum to Orders of July 14 and 15, 1987, at 17-20, BKY 3-86-256 (filed August 4, 1987); Orders on Interim Fee Applications of Fredrikson & Byron, P.A., and Wagner, Johnston & Falconer, BKY 3-86-256 (both November 14, 1986). Now that this case is pending under Chapter 7, and a party explicitly and solely charged with the liquidation of the assets of a defunct corporation is the party-plaintiff in these adversary proceedings, it is no longer defensible to infer that continuing consent.
Plaintiff thus is now faced with three stark realities of his power to administer *992 this estate. First, he cannot pay the necessary expenses of the liquidation of the present causes of action or of any other asset of this estate without the secured creditors' consent, or without an avoidance of their liens by this Court. Second, the secured creditors have stated unequivocally that they will not give that consent, with no strings attached. Third, the only way by which Plaintiff may obtain an avoidance of the liens on the estate is through months or years of complex litigation against implacable and well-funded opponents without having monies to fund his own end of the litigation.
Plaintiff thus had only two alternatives: to abandon all of the assets in the estate to the secured creditors, forgoing any prospect of distribution to unsecured claimants; or to deal with the secured creditors to arrive at a working arrangement which would both benefit the estate and advance the secured creditors' interests. He has done the latter. While Farm House has characterized the resultant bargain as something tantamount to a Faustian "deal with the devil," that characterization is only arguable if one views this adversary proceeding in a vacuum. Against the backdrop of the estate's overall position, the proposed settlement is revealed as something more in the nature of a necessary evil, the inevitable product of early post-petition developments now beyond the possibility of alteration, whose ultimate substantive merit must be measured by its internal characteristics.
2. The Estate's Necessary Assessment of Litigation Risks on Its Various Causes of Action.
Farm House does not acknowledge that Plaintiff's claims against the defendants in these adversary proceedings spring from two different matrices of legal theory, as a necessary result of the different relationships which each defendant had with the Farm House subsidiaries and Debtor before, during, and after the leveraged buyout.
Ultimately, Plaintiff's cause of action against Farm House is founded on the state-law equitable principle that the shareholders of a corporation are deemed to hold their interests in trust for the benefit of bona fide creditors of the corporation, and that shareholders' claims to the value of the corporation are subordinate to those of the corporation's creditors. See, e.g., Erickson-Hellekson-Vye Co. v. A. Wells Co., 217 Minn. 361, 374, 15 N.W.2d 162, 170 (1944); First Nat'l Bank v. Gustin Minerva Mining Co., 42 Minn. 327, 332, 44 N.W. 198, 200 (1890); Honn v. Coin & Stamp Gallery, Inc., 407 N.W.2d 419, 422 (Minn. App.1987); B & S Rigging & Erection, Inc. v. Wydella, 353 N.W.2d 163, 168 (Minn. App.1984). See also MINN.STAT. c. 302A.753. This theory is more well-defined and somewhat simpler under the current state of corporate- and debtor-creditor law.
On the other hand, Plaintiff's cause of action against Foothill and Berisford arises out of the secured creditors' participation in the allegedly predatory leveraged buyout, and from their alleged subsequent manipulation of Debtor and its assets to obtain a rapid pre-petition reduction in Debtor's debt to them. These causes of action are in part based upon the so-called "Gleneagles" cases, which first held that a lender financing a leveraged buyout of a subsequently-failing company may be determined to have been the recipient of a fraudulent conveyance at the expense of the company's general creditors. See substantive discussion of Gleneagles cases infra at 993-95.
One can safely say that these cases, and the implications of their theory, are at the frontiers of current debtor-creditor and bankruptcy law. The general scope of the Gleneagles rationale is by no means clear, and its applicability in various factual contexts (including the present one, which has some differences from that in Gleneagles) is wholly uncertain. To date, the Eighth Circuit has not been called upon to consider the Gleneagles holding, and it cannot be said to be binding precedent in this Court. By contrast with the theory asserted against Farm House, Plaintiff's cause of action against Foothill and Berisford is subject to a much greater litigation risk because it presents questions which are *993 either of first impression or which invoke a legal theory still in the very early stages of its evolution. This circumstance is significant enough that it, too, militates in favor of considering the merits of the proposed settlement without an exhaustive review of probative evidence which may be elicited at trial.
Thus, this Court can address the propriety of the proposed settlement based upon the utility of the settlement to the bankruptcy estate, and the risks which the estate would otherwise incur in litigating under the theories advanced against the settling defendants. More directly stated, the more a controversy in litigation by a bankruptcy estate involves complex facts and novel theories of law, the less thoroughgoing a factual record is required before a Bankruptcy Court may approve a stipulation which appears on its face to substantially benefit the estate.
The settlement has obvious immediate utility to the bankruptcy estate (by freeing assets for the payment of administrative expenses for this and other proceedings) as well as long-term utility (by finally resolving the troublesome status of Foothill's and Berisford's pre- and post-petition liens against the estate's assets, and the effect of those liens on other creditors' claims and the ongoing administration of the estate). The record presented is sufficient to permit the Court to weigh the internal merits of the settlement, and to conclude that the settlement is in the best interests of the estate from these administrative and tactical perspectives. Whether the proposed settlement is advisable in light of the balancing analysis between the chance of success on the merits and the present value of the settlement is appropriately considered under Farm House's first substantive objection.
C. FARM HOUSE'S SECOND OBJECTION: BENEFIT TO BANKRUPTCY ESTATE FROM PROPOSED SETTLEMENT.
In its first and major substantive objection, Farm House argues that application of the Drexel v. Loomis factors mandates a conclusion that the proposed settlement is not in the best interests of the bankruptcy estate. Farm House asserts that the settlement relinquishes a valuable asset of the estate, without producing any discernible benefit in the form of savings in the expense of litigation, a net payment to the estate in settlement, or anything else. Farm House also argues that Plaintiff has not adequately explained why the estate is now settling its litigation against Foothill and Berisford, when (prior to conversion of the case) Debtor repeatedly, loudly, and vigorously asserted the merit of the lawsuits.
As a preliminary step, some discussion of Plaintiff's theories of action against the secured lenders is appropriate. In the second amended complaint, Plaintiff describes the events and transactions summarized in Part II of this memorandum, and asserts that none of the Farm House subsidiaries ever received any of the proceeds of the loans from Foothill; that the loan proceeds were passed through the subsidiaries to Coordinated and Syncom; and that Foothill and Syncom used the passed-through funds to pay Syncom's and other Syncom subsidiaries' debts to Foothill and other creditors. Plaintiff also charges that for ten months before the commencement of Debtor's Chapter 11 case, "Foothill had absolute control of [Debtor's] money," "determined how [Debtor] paid its suppliers," and knowingly manipulated Debtor through use of its "lending formula" to obtain repayment of its own debt while aware of the "likely consequence on [Debtor's] future." When read together, these factual allegations and Counts I through IV of the second amended complaint essentially characterize as fraudulent conveyances both the initial creation of Foothill's and Berisford's all-encumbering liens, and Foothill's later application of Debtor's cash flow to the satisfaction of its debt.
The proposition that a lender financing a leveraged buyout could be held culpable as the recipient of a fraudulent conveyance was first established in the groundbreaking case of United States v. Gleneagles Investment Co., Inc, 565 F.Supp. 556 (M.D.Pa. *994 1983) (commonly referred to as "Gleneagles I"), aff'd sub nom. United States v. Tabor Court Realty Corp., 803 F.2d 1288 (3d Cir.1986).[13]Gleneagles I and Tabor Court arose out of the failed 1973 leveraged buyout of the then-largest producer of anthracite coal in the United States. The form of the transactions in Gleneagles I had many similarities to that involved here, though there were some significant differences in both the form and end-product of the leveraged buyout. The Internal Revenue Service and the trustee in bankruptcy of two of the operating subsidiaries of the failed debtor joined forces to challenge specific aspects of the leveraged buyout as conveyances which were fraudulent upon the pre-buyout trade, tax, and regulatory creditors of the failed company. They focused upon the failed company's grant of the mortgages which secured the financing for the leveraged buyout, and the receipt of the proceeds of the sale by the former shareholders, as the specific injuries to the third-party creditors. They invoked the Pennsylvania enactment of the Uniform Fraudulent Conveyances Act ("UFCA") as authority.
After weeks of trial, and on the basis of lengthy and detailed findings of fact, the United States District Court for the Middle District of Pennsylvania concluded that the transactions under which the secured lender structured the leveraged buyout, took its all-encumbering liens, and later enforced those liens did constitute an avoidable conveyance under both the "actual fraud" and "constructive fraud" provisions of the UFCA. Gleneagles I, 565 F.Supp. at 577 and 580, and 582-3. On the appeal by a successor-in-interest to the original secured lender, the Third Circuit affirmed. Tabor Court, 803 F.2d at 1295-7.
These decisions have been extremely controversial calling into question, as they do, the validity and legality of a corporate financing tool which has been widely used in the tumultuous economy of the 1980's. The rationale of the decisions has been adopted and applied as persuasive authority,[14] judicially criticized,[15] and extensively discussed at continuing legal education seminars and in the scholarly literature.[16] At least one commentator has suggested that the conclusion in Gleneagles I and Tabor Court was fact- and even party-specific to the lawsuit which spawned the opinions. See Murdoch, infra at n. 16, 43 BUS. LAWYER at 19-20. Another pair of prominent academics have suggested that fraudulent conveyance law is almost invariably inapplicable to the complicated string of transactions encompassed in the modern leveraged buyout. Baird & Jackson, Fraudulent Conveyance Law and Its Proper Domain, 38 VAND.L.REV. 829 (1975). To the extent that any conclusion can be drawn about the viability of the Gleneagles holding in the present instance, it must simply be to characterize the Gleneagles holding as being on the very frontiers of present debtor-creditor and bankruptcy law. Its contours, extensions, and applicability are unclear at this early stage in the development of the theory. There *995 are no published decisions from either the District of Minnesota or the Eighth Circuit addressing the merits of the Gleneagles rule.
Recognizing, then, that the law governing Foothill's and Berisford's potential liability to fraudulent-conveyance attack is little-developed and quite unsettled, and that the estate's fraudulent-conveyance claims against the secured lenders would require major factual and legal development to present them for adjudication, the Court will address the Drexel v. Loomis factors.
1. Probability of success in the Litigation.
Consideration of the first Drexel v. Loomis factor principally requires the Court to balance the strength of the plaintiff's case on the merits against the amount offered in settlement. Pfizer Inc. v. Lord, 456 F.2d 532, 543 (8th Cir.1972) [ultimately quoting from TMT Trailer Ferry, 390 U.S. at 424-25, 88 S.Ct. at 1163-64]. Farm House's argument here is twofold.
First, it notes that Plaintiff previously asserted, in response to Foothill's motions for summary judgment, that the great strength of its causes of action against Foothill and Berisford mandated the full litigation of those claims to judgment. It argues that Plaintiff has not justified the estate's reversal of position in its election to settle with the secured lenders. The implication of the argument is that the estate should somehow be held to its earlier tendentious position, and should be forced to carry out its earlier threats.
Second, it claims that it has discovered substantial evidence that the estate's causes of action against Foothill and Berisford are meritorious, that Plaintiff would have a high probability of success against them were the claims fully litigated, and that successful litigation would recoup "the millions of dollars paid pursuant to [the secured lenders'] security interests, as well as other damages," to the estate.
These arguments cannot prevail, for two reasons. First, they ignore the estate's inability to fund the litigation absent this settlement a circumstance which looms over the consideration of any substantive aspect of the settlement. Second, they inappropriately presuppose a certainty of proof, and this Court's ultimate adoption of the Gleneagles rationale.
The assertions made in this adversary proceeding by Debtor's Chapter 11 counsel before the conversion of this case were made in an entirely different phase of the administration of the estate and the development of this adversary proceeding. The estate was in a much more unstable, precarious, and uncertain position. To a certain extent, the assertions can be forgiven as lawyerly posturing, understandable under the pressures of pitched major litigation. Were all litigants in civil disputes to be held to their counsel's early diatribes, maledictions, and threats, civil lawsuits might never settle. The courts' dockets would be impossibly burdened, the practice of law would be wholly unmanageable, and the national wealth would be drained for the financing of intractable disputes.
Farm House suggests that that estate must now admit that its cause of action against the secured lenders was so without merit that it should never have put it into suit. The suggestion would make some sense, were the proposed settlement an abject surrender to Foothill and Berisford.[17] It is not. The proposed settlement immediately frees a fixed and substantial portion of the funds otherwise subject to the secured lenders' liens, for distribution to unsecured creditors. As such, it presupposes a certain outcome, were the various requests for relief fully litigated against the various defendants. Obviously, the Court cannot determine on the present state of the record whether a full-dress trial would inevitably result in the configuration of relief reflected by the settlement. However, TMT Trailer Ferry does not impose upon this Court the obligation to compel the full trial record, or the burden of *996 reviewing that record or even the duty to conduct a "mini-trial." In re American Reserve Corp., 841 F.2d at 163. All that is necessary is that the Court require the production of sufficient facts which would permit a reasoned judgment that a controversy should be settled under the terms proposed. TMT Trailer Ferry, 390 U.S. at 441, 88 S.Ct. at 1171. The bankruptcy judge "need only apprise himself of the relevant facts and law so that he can make an informed and intelligent decision, and set out the reasons for his decision." In re American Reserve Corp., 841 F.2d at 163.
Plaintiff and his counsel have produced enough evidence going to the relevant facts supporting this settlement in the unusual circumstances presented here. In settling, they have deliberately but defensibly chosen to forgo the litigation risk of pursuing a cause of action which would require a difficult and extended process of proof, and would hinge on success in convincing the Court to adopt a legal theory as yet untested in this Circuit.
The proposed settlement does not embody "the virtual abandonment of all claims against Foothill and Berisford," as Farm House argues. Rather, it embodies a structured apportionment of relief to both Plaintiff and the secured lenders. The terms of settlement are based upon a hard-headed assessment of the relative strengths of the estate's positions against the secured lenders which suggested the reasonable likelihood of a particular outcome of the litigation. On the present record, one cannot conclude that the estate either would invariably win all of its claims against Foothill and Berisford, or that it would invariably lose all of them, were the litigation to proceed to judgment.
Solely on a consideration of the factual complexity and legal uncertainties of the litigation, one can readily conclude that the settlement embodies a position somewhere in the middle ground between the settling parties' respective positions. It essentially reaches the same result in estate distribution as if Plaintiff were to prevail against Foothill and Berisford on its fraudulent-conveyance claims, and to lose on its equitable subordination claims whether one presupposes victory against Farm House or not. This result is a satisfactory mid-point between a total win and a total loss, taking the estate's significant litigation risk into account. The first Drexel v. Loomis factor augurs in favor of the proposed settlement.
2. Difficulties in Collection of Judgment.
Farm House acknowledges that the second Drexel v. Loomis factor has little relevance. The stipulation does not address whether Foothill and Berisford would be unable to satisfy a full grant of monetary relief to Plaintiff. One or more affidavits filed for the purposes of early motions in Debtor's Chapter 11 case would support a finding that Foothill had substantial assets and net worth in 1986. There is no evidence going to the secured lenders' present solvency. The parties apparently acknowledge that Foothill and Berisford could substantially or fully satisfy any judgment against them. This apparently is not a case where the application of the "bird-in-the-hand" principle would augur in favor of or against settlement.
3. The Complexity and Cost of Litigation.
Farm House bases its objection on the third Drexel v. Loomis factor on two aspects of the litigation. It notes that it has filed a cross-claim against Foothill for contribution and indemnity. The sixth aspect of the stipulation (noted at p. 989 supra) requires the Trustee to indemnify Foothill and Berisford from any such claims. Farm House accordingly argues that the settlement will not reduce the complexity of factual and legal issues to be joined, because it says the Trustee will have to defend its cross-claims. It asserts that the settlement will not reduce the anticipated delay and expense to the estate in obtaining final judgment.
This argument directly applies only as to one of the two sequences of events involved in Plaintiff's fraudulent-conveyance causes of action. Plaintiff asserts that Foothill and Farm House are both responsible for any fraudulent conveyance which took place upon the consummation of the *997 leveraged buyout, and thus are jointly and severally liable for any resultant damages. Plaintiff also seeks to hold Foothill solely liable for a fraudulent conveyance which occurred when it applied its "lending formula" to reduce the amount of Debtor's debt to it. The settlement releases both of these causes of action as to Foothill, and as to Berisford. Farm House cannot assert a right to contribution and indemnity from its co-defendants as to any cause of action arising out of the second sequence of events, as Plaintiff does not seek to hold Farm House liable for any injury arising out of it. Plaintiff's settlement of all causes of action arising out of the second sequence thus does reduce the complexity, delay, and expense of the direct litigation by some significant fraction; the estate will not have to develop evidence going to these factors as part of its case-in-chief, and may not have to address them at all.[18]
The same conclusion obtains as to the remaining claims on which Plaintiff sought to hold Foothill and Farm House jointly and severally liable. By releasing all causes of action against Foothill and Berisford arising from their direct role in the leveraged buyout and its consequences, the estate will be freed from the burden of developing an evidentiary and legal basis for these claims as part of its case in chief. The nature of the settlement as a Pierringer release will require that these claims be presented at trial.[19] However, the settlement shifts the burden of litigation on these issues to Farm House, which maintains that the secured lenders had a causative role in Debtor's downfall that either was exclusive, or was greater than its own. The estate must address and develop evidence on these matters, but it need do so only in a defensive posture. It thus may benefit from an initial framing of the issues by Farm House, and from the fact that Farm House will have to bear the initial financial burden of much of the discovery. The estate will save at least some time and expense as a result.
Farm House's whole argument on this point is something of a red herring. Were the argument credited, no bankruptcy court could approve a Pierringer-structured settlement of routine personal injury litigation to which a bankruptcy estate was a party. Neither the Supreme Court nor the Eighth Circuit reasonably could have intended such a result under the principles enunciated in TMT Trailer Ferry, Drexel v. Loomis, and Flight Transportation. In sum, the proposed settlement will result in a sufficient savings to the estate of the burdens of litigation so as to support its approval.
4. The Paramount Interests of Creditors.
Under the final relevant Drexel v. Loomis factor,[20] Farm House cloaks itself in the guise of a righteous creditor[21] to *998 argue that the proposed settlement is not in the best interests of it and the 1,500-odd other claimants against the estate. It (not unreasonably) notes that maximizing the bankruptcy estate's collection of assets is always in the best interests of unsecured creditors, and then points to the fact that the proposed settlement does not provide for any direct cash payment by Foothill or Berisford into the estate. It also asserts that it is "wholly inequitable" for Foothill and Berisford to retain their liens against the estate's assets, and that Foothill's retention of funds it previously received and the secured creditors' contemplated receipt of a substantial portion of the estate's remaining assets "is grossly unfair to all other creditors."
This argument is all very noble, but it elides one crucial aspect of the settlement: its immediate functional utility to the estate. Months before the commencement of this adversary proceeding, Judge Connelly imposed liens for the benefit of Foothill and Berisford onto every post-petition asset which now remains in the bankruptcy estate. The stacking of the post- and pre-petition liens, and the severe shrinkage of the estate during the final frenzied months of Debtor's business operation, combined to give Foothill and Berisford a throttle-hold over the estate and, ultimately, this litigation. Exercising hindsight, one may question the wisdom of the contribution to that advantage which resulted from the adequate protection order. However, everyone now involved in this litigation must deal with it, the Court included. Foothill's and Berisford's liens are valid and enforceable until avoided by this Court. The only vehicle for avoidance of those liens is the present litigation. The estate has no otherwise-unencumbered assets with which to fund this litigation. In essence, the estate is to a sizeable extent hamstrung.[22]
This is where the functional utility of the settlement becomes apparent. Simply stated, it gives the estate lifeblood which it would lack otherwise. In freeing up an administrative-expense fund for use in this litigation, it restores Plaintiff to a degree of independence in pursuing the litigation against the surviving defendants. In objecting, Farm House is obviously and cannily aware of the estate's inability to even function over Foothill's and Berisford's resistance. Its objection to this settlement seeks to play these parties off against one another, diverting Plaintiff's attentions and hoping that the resultant paralysis will either inure to Farm House's benefit in settlement negotiations or, in the most extreme scenario, lead to the abandonment of all causes of action that are in litigation here. If for no reason other than the fact that it is manifestly and overwhelmingly self-serving, Farm House's objection on the fourth Drexel v. Loomis ground must be overruled.
Beyond its immediate effect, the settlement is still in the interests of Debtor's other creditors. The estate has already collected sufficient assets from the preference litigation to satisfy the first incremental payment owing to the secured lenders, and is well into the first increment which has been freed from their liens for distribution to unsecured creditors. Had Plaintiff not achieved this settlement, unsecured creditors would have waited until the successful completion of this litigation to receive a distribution, and even then would have received a distribution only if the net, post-collection recovery from the defendants exceeded the debt secured by encumbrances against the recovery. This litigation *999 may yet consume years. Unsecured creditors' realization on their claims would have been delayed to an uncertain future date, and made subject to major litigation risks. Under the settlement, creditors will receive a small but nonetheless certain distribution on their claims before this litigation is finalized. While a few creditors (inveterate gamblers, all) might prefer to risk the possibility of no distribution against the prospect of a larger one, the Court is satisfied that grocery trade suppliers the large majority of claimants against this estate would apply the "bird-in-the-hand" principle here, and would favor this settlement. The alternatives complete abandonment by the Trustee of these lawsuits, or the deferring of any distribution until a full victory over all of the defendants simply do not offer the certainty which the proposed settlement does. Thus, from any perspective the fourth Drexel v. Loomis factor also militates in favor of the settlement.
D. FARMHOUSE'S THIRD OBJECTION: PROPRIETY OF USE OF ASPECTS OF "PIERRINGER" RELEASE.
Farm House's second substantive objection to the proposed settlement focuses on the fifth and sixth aspects of the stipulation (described at p. 989 supra). Under these terms, the bankruptcy estate fully releases Foothill and Berisford from all liability to the estate arising out of all transactions between them, and fully satisfies any fractional damage claim which Debtor might otherwise recover against the secured lenders as a result of any finding of their fault in, or responsibility for, Debtor's downfall. The estate also promises to indemnify Foothill and Berisford from all claims for contribution or indemnity which Farm House or any other potential co-defendant may bring. The settling parties expressly intend these provisions to have the same effect as a Pierringer release.[23]
Farm House argues that a Pierringer release is inapplicable to fraudulent conveyance litigation because such a cause of action is not founded upon the same principles of liability as the negligence cause of action which spawned the release, and which necessarily structure the content and result of this form of settlement. It points out that fraudulent conveyance litigation is essentially a suit for damages for intentional wrongdoing, and notes that the Minnesota Supreme Court rejected the application of comparative-fault principles to actions for intentional fraud in Florenzano v. Olson, 387 N.W.2d 168 (Minn.1986). The argument is attractive on its surface. However, Farm House does not support the argument with a citation to any on-point authority from the Minnesota appellate courts and a review of the relevant case-law leads to the conclusion that the Minnesota Supreme Court would not disapprove of the use of a Pierringer release in this setting.
As originally conceived, the Pierringer release "was designed to operate in a jurisdiction which has comparative negligence to apportion liability between defendants, uses the special verdict form, and allows contribution between joint tortfeasors." Simonett, Rease of Joint Tortfeasors: Use of the Pierringer Release in Minnesota, 3 WM. MITCHELL L.REV. 1, 11 (1977). In its simplest form, the Pierringer release:
1. releases the settling defendant from the lawsuit and discharges that part of the plaintiff's cause of action equal to that part attributable to the settling tortfeasor's causal negligence;
2. reserves "the balance of the whole cause of action" against the nonsettling joint tortfeasors; and
3. contains an agreement under which the plaintiff indemnifies the settling defendant from any claims on contribution made by the nonsettling parties, and agrees to satisfy any judgment he obtains from the nonsettling joint tortfeasors to the extent the settling tortfeasor has been released. *1000 Frey v. Snelgrove, 269 N.W.2d 918, 920-1 n. 1 (Minn.1978); Pierringer v. Hoger, 124 N.W.2d at 108. "The Pierringer release is based on the formula that each joint tort-feasor including the nonsettling defendant is liable only for that part of the award which is his percentage of causal negligence." Frey v. Snelgrove, 269 N.W.2d at 922. Upon consummation of the settlement, the settling defendants usually should be dismissed out of the litigation, but the factual question of the degree of their fault should nonetheless be submitted for determination at trial. Id.
The plaintiff settling via a Pierringer release has the advantage of receiving at least a partial recovery without trial, and of being able to concentrate his litigation efforts against the nonsettling defendant. In deciding whether to enter a Pierringer-structured settlement, the plaintiff must weigh the possibility that the fact-finder will find that the nonsettling defendant either was not at fault, or was less at fault than the settling defendant. The risk, of course, is that the plaintiff's aggregate recovery may be diminished by submitting fewer than all of the original claims for adjudication and enforcement.
The settling defendant has the advantage of a complete release from the litigation, including a release and dismissal of the cross-claims brought against him by all nonsettling defendants who may be judged jointly and/or severally liable with him.
Obviously, litigants in forms of litigation to which the Pierringer release is more traditionally applied weigh these factors in determining whether to enter into a Pierringer-structured settlement, and in fixing the terms of that settlement.
The tactical utility of a Pierringer-structured partial settlement in civil litigation involving multiple defendants has led to its use in other contexts. Barr/Nelson, Inc. v. Tonto's, Inc., 336 N.W.2d 46 (Minn.1983), involved tandem actions for breach of construction and insurance contracts and for an insurer's alleged bad faith in carrying out its obligation under a construction performance bond. The nonsettling defendant, the insurer under the bond, argued that the use of a Pierringer settlement by the plaintiff and the various construction contractor-defendants was "collusive and [had] the effect of juxtaposing the parties." The Minnesota Supreme Court rejected the argument and specifically approved the use of a Pierringer-structured release as a tool of settlement in construction contract disputes.
In Barr/Nelson, the plaintiff and the contractor/defendants settled their claims for breach of the construction contracts and agreed that all cross-claims arising out of those contracts were barred. The release specifically preserved the plaintiff's separate "bad faith" cause of action against the insurer. The contractors moved for summary judgment on the basis of the release, requesting that all but one of the insurer's cross-claims be dismissed as a matter of law. The insurer appealed from the grant of that motion. See 336 N.W.2d at 49. On appeal, the Minnesota Supreme Court almost summarily affirmed on this issue. It did not speak directly to the propriety of dismissing the insurer's cross-claims based upon the construction-contract relationship though, in denying the award of damages attributable to the plaintiff's loss stemming from the failure to timely complete construction, the court concluded that the plaintiff had waived those claims in entering the Pierringer release with the contactors and could not seek reimbursement for those damages from the insurer. See 336 N.W.2d at 53. Because the insurer was successful in affirmatively asserting the Pierringer release in its favor on these damage issues as against the plaintiff, it never had to argue the issue of whether its cross-claims were properly barred by the approval of the Pierringer release. However, the Minnesota Supreme Court fully enforced the indemnity provisions of the release on the issue presented to it so it can safely be said that it gave its imprimatur to the dismissal of the counterclaims, even if sub silentio.
To be sure, Barr/Nelson is not on all fours with the present case. There, all of the contractor-defendants as to the common breach-of-contract claim settled with *1001 the plaintiff, leaving the plaintiff to pursue a very different claim actionable only as against the insurer. While the defendants likely divided up their responsibility for the settlement payment to the plaintiff privately among themselves, the principles of contract law would not have provided for any such division of "fault," responsibility, and liability for the plaintiff's aggregate damages had the matter been tried to judgment. The initial mystery of the Barr/Nelson opinion is whether its general approval of the use of the Pierringer release "in construction contract disputes as a tool of settlement" would extend to the situation where less than the full number of contractor-defendants entered a Pierringer-structured settlement which provided for an assessment of the relative degree of accountability for the breach as among all of the contractor-defendants when the matter was tried. The Minnesota Supreme Court could not have failed to recognize the possibility that this question would arise in future litigation, however. Its broad grant of approval to the use of the release in multi-party contract litigation bespeaks an assumption that future cases would lead to the development of standards by which the courts could use in assessing such accountability.
The Minnesota Supreme Court's ready (almost perfunctory) adoption of a Pierringer-structured release in non-tort civil litigation involving multiple defendants demonstrates that court's preference for the use of innovative vehicles for settlement, and strongly suggests that it would approve its use in business litigation like the matters at bar. Plaintiff's fraudulent-conveyance causes of action all sound under the "constructive fraud" provisions of the Uniform Fraudulent Conveyance Act and 11 U.S.C. § 548. While the fraudulent-conveyance laws are designed to address conduct which is to some extent socially blameworthy, the actions at bar are not brought under the "actual fraud" provisions of those laws. The litigation will not directly join the factual question of whether the participants in the leveraged buyout actually had a fraudulent or predatory state of mind. While Plaintiff seeks to redress what he characterizes as a concerted, grievous inflection of harm on Debtor's creditors, this litigation is more akin to antitrust, securities, or class-action litigation than it is to a case of assault and battery, or the individualized consumer-fraud action which spawned Florenzano v. Olson. The punitive and deterrent goals of intentional-tort law therefore should not be the controlling principle which bars apportionment of fault and division of liability for damages as among the defendants to this litigation.[24] The causal connections between the secured creditors' and Farm House's respective participations in the leveraged buyout and Debtor's ultimate downfall may be established by evidentiary development. It is not clear whether the law will permit an apportionment of fault and liability among all of the defendants, on the "causal-fault" basis contemplated by the release. This legal question, however, may be joined and developed later by the remaining parties. The issue may boil down to one of fact; the parties may be able to establish by testimony of expert witnesses that each of the participants in the leveraged buyout should be found partially culpable for the injury to Debtor and its estate, or possibly that that injury would have naturally and directly resulted from the conduct of any one of the participants without the involvement of the others.[25] If such apportionment is permissible *1002 legally, Farm House will be adjudged liable for damages in an amount no more than that corresponding to the degree of its "causal fault." To the extent that such an apportionment is impermissible legally, or that factual development may not support it, the settlement will operate to impose full liability for any award of damages on Farm House, less any satisfaction from the other settling parties directly traceable to the consummated settlement of the fraudulent-conveyance cause of action.
There is nothing in the nature of a Pierringer release, any of its relevant aspects, or its theoretical underpinnings, which would prohibit its use in the context of fraudulent-conveyance litigation stemming from a complex leveraged buyout. To the contrary, as noted above, the use of this form of release will have the effect of narrowing and clarifying factual and legal issues, fixing burdens of production, and lightening the procedural and administrative burden of this litigation on the estate.
At oral argument, counsel for Farm House made one further objection to the use of a Pierringer-structured release which was specific to the facts of this adversary proceeding. Farm House objected that the retention by the secured creditors of their liens was inconsistent with the basic concept of a Pierringer release. The argument is a red herring, for two reasons. First, though the secured creditors are retaining liens until their debts are satisfied in full, the provision for a present incremental release of estate assets from the encumbrance of those liens clearly provides a quid pro quo for the estate's release of its causes of action against the secured lenders. Second, the fact that Foothill and Berisford are not surrendering all of their secured rights at present is entirely beside the point. Compromise almost inevitably involves the forgoing of some claims and asserted rights, and the retention of others. It is almost fatuous to base an argument against a proposed settlement on the asserted merit of an expectation that a settling defendant would give a plaintiff the full benefit of its prayers for relief, without any concession.
E. FARM HOUSE'S FOURTH OBJECTION: DANGER OF INFRINGEMENT ON TRUSTEE'S ADMINISTRATIVE DISCRETION
As finally cast at oral argument, Farm House's third substantive objection to the proposed settlement stems from its ninth aspect (noted on p. 989 supra).[26] Under the stipulation, the trustee is obligated to "diligently pursue" this lawsuit against Farm House. (As a partially-reciprocal duty, Foothill and Berisford are obligated to cooperate in the prosecution of this litigation by providing non-privileged evidence to the trustee.)
A trustee in bankruptcy is charged with the fiduciary obligation of administering assets of the bankruptcy estate for the benefit of claimants against the estate. Under the fundamental division of administrative and judicial functions under the Bankruptcy Reform Act of 1978, the Chapter 7 Trustee is appointed and supervised by the United States Trustee, an official of the Department of Justice. The trustee appears before the Court as only one of many parties in interest to a bankruptcy case. The trustee is not responsible to any *1003 individual creditor, claimant, or party-in-interest; rather, his obligation is to the creditors of each estate generally.
The administration of bankruptcy estates has twin goals of maximization of realization on creditors' claims and of prompt and efficient administration of the estate. To carry out his fiduciary duty to meet these goals, the trustee has a generally-recognized discretionary authority to take the actions that are necessary to accomplish them. In many instances, the exercise of that discretion is subject to review by the U.S. Trustee and to the Court's approval. In deciding whether to grant that approval, the Court reviews the circumstances and applies various legal tests involving appropriate factors.[27] The overlay of U.S. Trustee review, and the intertwining of administrative action with judicial approval after notice to interested parties, afford ample procedural and substantive safeguards against the possible abuse of discretion by the trustee.
The term of the proposed settlement requiring Plaintiff to "diligently pursue" the surviving counts of this litigation does nothing more or less than recognize Plaintiff's pre-existing duty to maximize the garnering of assets into this estate. It does not prohibit Plaintiff from "diligently pursuing" discovery, and then deciding to either settle or abandon the case against Farm House. Plaintiff has those options absent the settlement, and the wording of the stipulation does not expressly or impliedly prohibit him from electing one of them. If he were to elect either of these alternatives, his action would be contingent on court approval. 11 U.S.C. § 554(a); BANKR.R. 9010. Foothill, Berisford, and any other party interested in this case have the right under BANKR.R. 9019 and 2001(i) to receive notice of any such proposed action, and to have an opportunity to object to its merits. The stipulation does not and could not deprive them of those rights. Foothill and Berisford have prudently elected to rely upon those rights, rather than insisting upon the questionable provision of the tentative stipulation which could indeed be construed as giving them a veto power over any proposed settlement with Farm House. Farm House's objection to this provision is without merit.
VI. CONCLUSION
These adversary proceedings involve complex factual disputes, and join difficult and often novel issues of law. They are among the most significant and far-reaching adversary proceedings brought in this Court since the enactment of the Bankruptcy Reform Act of 1978. The litigation promised to last for several years or more, and to consume large amounts of time, expense and effort. Plaintiff and two of the named defendants have now settled those causes of action which involve some of the most difficult and abstruse issues in the litigation. They have done so under terms which are fair and equitable to the bankruptcy estate.
The settlement does not deprive Farm House of the right to fully litigate any of its claimed defenses; nor does it materially prejudice it in any other way. It will at least initially narrow the issues and simplify the process of discovery; it will also fix various burdens of coming forward on the most salient issues.
It will have the welcome side-effect of finally resolving the issue of the bankruptcy estate's right to use Foothill's and Berisford's collateral to finance this and its other administrative activities, a troublesome question which was raised at virtually every hearing from May, 1986 until the conversion of Debtor's Chapter 11 case. (This effect is not completely coincidental; however, it is not the reason why the Court has approved the settlement.)
The Court has examined and treated the merits of all of Farm Houses objections to the proposed settlement, to comply with the procedural mandates of TMT Trailer Ferry. The length of this memorandum should evidence that the Court has not merely "rubber-stamped" its approval of Plaintiff's action, but has made a reasoned *1004 decision on the merits of the proposed settlement on the basis of all relevant factors.
NOTES
[1] Both creditors now note, and the Trustee stipulates, that they were fully secured when this case was commenced. Judge Connelly previously had concluded this as a matter of law. See Memorandum to Order denying motion of Foothill and Unsecured Creditors' Committee for relief from stay and vacation of cash collateral order, BKY 3-86-256, at 10 (filed May 22, 1986).
[2] Foothill, Berisford, and the Unsecured Creditors' Committee all appealed this Order. On appeal, the District Court (Alsop, C.J.) determined that further analysis was required under In re Briggs Transportation Co., 780 F.2d 1339 (8th Cir.1985) and In re Martin, 761 F.2d 472 (8th Cir.1985), and remanded the matter for further proceedings. In re Hancock-Nelson Mercantile Co., Inc., 3-86-CIV 238 (D.Minn. June 3, 1986). Judge Alsop noted that Judge Connelly's March 11, 1986 order had only authorized use of cash collateral through June 30, 1986. At a June 25, 1986 hearing on the remand, Judge Connelly addressed the proferred issues and authorized Debtor's use of cash collateral until a hearing set for July 9, 1986.
[3] All references to "Plaintiff" in any discussion of the procedure or substance of this adversary proceeding shall signify Debtor as a Chapter 11 debtor in possession wielding the powers of a trustee under 11 U.S.C. § 1107(a) for all dates on or prior to January 8, 1988, and shall signify Michael J. Iannacone, in his status as Chapter 7 Trustee, for all dates after January 9, 1988.
[4] Debtor's Chapter 11 counsel now alleges that he and his firm framed the allegations and prayers for relief in the original complaints somewhat hastily, and that that haste was occasioned by a tactical decision to quickly commence this litigation in response to an anticipated "showdown" over cash collateral issues at the scheduled July 9, 1986 hearing. He avers that all parties to these adversary proceedings and all major parties in interest to the Chapter 11 case were fully aware from the very beginning of the case that Debtor would prosecute major fraudulent-conveyance litigation against several creditors and other entities including Farm House. Other counsel do not contest this statement. It bears much facial credibility, when considered against the backdrop of this case and the events leading up to it.
[5] As a result, all references to specific pleadings and proceedings in this memorandum shall be to those in ADV 3-86-165.
[6] Berisford suddenly appeared as a co-plaintiff in the caption and body of this first amended complaint, for the first and, thus far, only time. It has not appeared as a complainant against any party defendant in ADV 3-86-165, via pleading or court proceeding, since then. The later filing of a second amended complaint deleting it and its claims as co-plaintiff would otherwise leave matters in ambiguity, so the Court concludes that Berisford has abandoned the causes of action asserted in the first amended complaint.
[7] "A leveraged buyout is not a legal term of art. It is a shorthand expression describing a business practice wherein a company is sold to a small number of investors, typically including members of the company's management, under financial arrangements in which there is a minimum amount of equity and a maximum amount of debt. The financing typically provides for a substantial return of investment capital by means of mortgages or high risk bonds, popularly known as `junk bonds.'" United States v. Tabor Court Realty Corp, 803 F.2d 1288, 1292 (3d Cir.1986).
[8] Collectively "the Farm House subsidiaries," though this reference shall be to the four companies prior to their ultimate merger into the entity that was the debtor in this case.
[9] This entire sum apparently was derived from a participation by Maryland National Industrial Finance Company, and not from Foothill's own funds.
[10] On June 8, 1988, the Court entered an order approving the sale of this overencumbered asset, in a transaction which will not directly or indirectly provide funds to the estate unless the Court grants a pending motion for avoidance of a mortgage securing a $260,000.00 debt alleged to be the result of an impermissible post-petition transaction.
[11] Van Horn v. Trickey was a civil class-action suit, not a proceeding in a bankruptcy case. The Eighth Circuit cited Flight Transportation in the Van Horn opinion for this proposition, obviously analogizing the role and duty of a named class-action plaintiff with that of a trustee in bankruptcy. The analogy is apt, given the similar configuration of parties to the litigation.
[12] The settling parties have stipulated that as of January 1, 1987, Foothill's and Berisford's claims were fully secured. No new assets have come into the estate since then. From before that date until the approval of this settlement, Foothill and Berisford received no distribution from the estate on account of their secured claims.
[13] The litigation spawning these two opinions generated two other trial court opinions which are not directly applicable here: United States v. Gleneagles Investment Co., Inc., 571 F.Supp. 935 (M.D.Pa.1983) (again commonly referred to as "Gleneagles II") and United States v. Gleneagles Investment Co., Inc., 584 F.Supp. 671 (M.D.Pa. 1984) ("Gleneagles III"). The major proposition of these cases has already become known in bankruptcy parlance as "the Gleneagles holding." For the purposes of this memorandum, "Gleneagles" shall refer to the trial court opinion in Gleneagles I; "Tabor Court" shall refer to the Circuit Court opinion cited in the text above.
[14] In re Ohio Corrugating, Inc., 70 B.R. 920 (Bankr.N.D.Ohio 1987); In re Anderson Industries, 55 B.R. 922 (Bankr.W.D.Mich.1985). See also Telefest, Inc. v. VU-TV, Inc., 591 F.Supp. 1368 (D.N.J.1984).
[15] Credit Managers Ass'n of Southern Calif. v. The Federal Co., 629 F.Supp. 175 (C.D.Calif. 1985); Kupetz v. Cont'l Ill. Bank & Trust Co., 77 B.R. 754 (C.D.Calif.1987).
[16] See, e.g., Murdoch, et al, Leveraged Buyouts and Fraudulent Transfers: Life after Gleneagles, 43 BUS.LAWYER 1 (1987); Kirby, et al, Fraudulent Conveyance Concerns in Leveraged Buyout Lending, 43 BUS.LAWYER 27 (1987); Carlson, Leveraged Buyouts in Bankruptcy, 20 GA.L.REV. 73 (1985); Carl, Fraudulent Transfer Attacks on Guaranties in Bankruptcy, 60 AM.BANKR.L.J. 109 (1986).
[17] The proposed settlement in TMT Trailer Ferry seems to have been such a surrender. See 390 U.S. at 425, 88 S.Ct. at 1163. This may have influenced the strength with which the Supreme Court phrased its legal conclusions. See also In re Woodson, 839 F.2d 610, 620-21 (9th Cir.1988).
[18] If Farm House interposes any injury resulting from the second sequence of events as an affirmative defense in the nature of a "supervening cause," the estate will still have to develop evidence on these events but from the more advantageous stance of a defensive posture.
[19] See more extended discussion at 999-1004 infra.
[20] Farm House also raises a fifth factor whether the settlement will promote the integrity of the judicial system against the proposed settlement. The applicability of this factor in appropriate cases was suggested by Judge Robert J. Kressel of this Court in In re Lakeland Development Corp., 48 B.R. at 90 and 92-3. While Farm House argues that the credibility of this Court and the federal system would be besmirched by the approbation of this settlement, the Court disagrees. This is an arms-length, hard-won settlement of claims which are not as unbeatable as Farm House alleges from its partisan position.
[21] While Farm House alleges that the estate owes it money for certain post-petition obligations incurred during Debtor's Chapter 11 case, it has cannily attempted to avoid any action which could be characterized as an assertion of the status of "creditor" of or "claimant" against the estate. It has gone so far as to successfully move this Court for an order extending the deadline by which it must file a proof of claim. This exercise is prompted by a desire not to subject itself in this adversary proceeding to the "jurisdiction-by-ambush" provision of 28 U.S.C. §§ 157(b)(1) and 157(b)(2)(C), as it has brought on a motion for transfer of this litigation to the U.S. District Court based in part on the assertion that a bankruptcy judge lacks constitutional authority to hear and finally determine a fraudulent conveyance action brought by a trustee. While the settling parties argue with some weight that Farm House accordingly lacks standing to object to the proposed settlement, the Court has decided to err in favor of ignoring the standing issue and of addressing Farm House's objections on their merits.
[22] The estate was not completely hamstrung, as there is some question as to whether the secured creditors would have had standing to ultimately realize on their liens against the estate's preference claims, suing in their own right as lienholders. See Saline State Bank v. Mahloch, 834 F.2d 690 (8th Cir.1987), and Nebraska State Bank v. Jones, 846 F.2d 477 (8th Cir.1988) (both holding that individual creditor does not have standing to wield lien-avoidance powers under 11 U.S.C. § 544). This circumstance almost certainly played a part in the estate's improvement in position between the first and second proposed settlements.
[23] This form of release takes its name from Pierringer v. Hoger, 21 Wis.2d 182, 124 N.W.2d 106 (1963), the first state Supreme Court case in which the use of such a settlement vehicle was approved.
[24] A closer reading of Florenzano v. Olson reveals that Farm House's counsel has mis-cited it. In dicta, the Minnesota Supreme Court rejected the application of principles of comparative negligence to an intentional tort. 387 N.W.2d at 175-76. The case before it, however, involved the apportionment of fault as between a plaintiff and the defendants. See 387 N.W.2d at 176 n. 7. The court was not asked to apportion fault as between jointly-liable defendants.
[25] For instance, Plaintiff may adduce evidence that the imposition of the debt burden resulting from the leveraged buyout would have made Debtor's continued operations impossible, even had Foothill not allegedly manipulated its secured position sap Debtor's vitality. Farm House could adduce evidence that Debtor could have indefinitely sustained operations under its post-leveraged buyout structure, had Foothill not used its "lending formula" to rapidly reduce its debt. Finally, it would be open to Farm House to take the position of assuming some responsibility for debilitating Debtor, but also to adduce evidence demonstrating that the secured lenders were "more at fault" for the eventual collapse, as a basis for the reduction of its liability for damages. The last possibility would be the most problematic of proof and of legal theory, but the Court is sure that Farm House's able counsel have already envisioned this line of defense and will be able to meet the challenge of convincingly preparing it.
[26] In the memorandum originally submitted with its objection, Farm House alleged that the settlement prohibited the trustee from settling or abandoning the estate's claims against Farm House without the consent of Foothill and Berisford. With some justification, Farm House argued that this provision severely restricted the trustee's decision-making power and invaded his administrative discretion. Farm House and its counsel drew this conclusion from the face of Plaintiff's settlement, which summarized the terms of a tentative stipulation. The stipulation as finally executed and filed deleted this provision, in favor of the one which was the subject of Farm House's objection at hearing.
[27] As, for instance, in the approval of a settlement or compromise like the matter at bar. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540195/ | 974 A.2d 876 (2009)
Lynne SCHOONOVER, M.D., Appellant,
v.
Beverly Bass CHAVOUS, Guardian Ad Litem for Alante Maybin, a Minor, et al., Appellees.
No. 06-CV-213.
District of Columbia Court of Appeals.
Argued May 20, 2008.
Decided July 2, 2009.
*877 Alfred F. Belcuore, Washington, DC, for appellant.
Marc Fiedler, with whom William P. Lightfoot, Paulette E. Chapman, and Kelly J. Fisher, Washington, DC, were on the brief, for appellees.
Before REID, FISHER, and BLACKBURNE-RIGSBY, Associate Judges.
FISHER, Associate Judge:
A jury found Dr. Lynne Schoonover liable in the amount of $3,050,000 for medical *878 malpractice. Thereafter, the trial court determined that The George Washington University ("GWU"), which had settled with the plaintiffs prior to trial, was a joint tortfeasor responsible for the concurrent negligence of its nurses. The court concluded that Dr. Schoonover was entitled to pro rata credit and entered judgment against her in the amount of $1,525,000, representing one-half of the jury's verdict.
Dr. Schoonover no longer asks for a new trial, but she seeks to reduce the amount of the judgment against her. The doctor asserts that the Superior Court should have allowed her to withdraw her cross-claim for contribution against GWU. Absent the court's finding on the cross-claim that GWU was a joint tortfeasor, Dr. Schoonover would have been entitled to pro tanto credit for the full amount of GWU's settlement ($2.1 million), thus reducing her liability by $575,000.[1] Finding no abuse of discretion by the trial court, we affirm.
I. The Factual Background
In January 2000, Sherri Maybin and her son Alante Maybin were participants in the GWU Health Plan ("Health Plan") and Alante Maybin was a patient of GWU Pediatrics, which provided a call service for patients to speak with nurses and doctors outside clinic hours. Dr. Schoonover was not employed by GWU, but she and the physicians in GWU's Pediatric Division had entered into an agreement whereby they took turns answering after-hours calls for each other. During the early morning hours of January 18, 2000, Dr. Schoonover was on call.
On the evening of January 17, Alante Maybin, who was six years old at the time, had been ill for several days; he was acting sleepy and had a headache, a sore throat, and stomach pains. Ms. Maybin called the GWU Pediatrics advice line and spoke with Bernadette Deely, a nurse at GWU, who said Alante probably had a virus and advised Ms. Maybin to make sure her son drank plenty of fluids. Ms. Maybin called the advice line again the next morning because her son was getting worse. When Dr. Schoonover returned the call, Ms. Maybin explained that Alante had diarrhea, red eyes, a fever of 103 to 104 degrees, white spots on his tongue, and stomach pains. He was vomiting and sleepy, and he was not urinating. Dr. Schoonover told Ms. Maybin to call the pediatric practice clinic and tell them to give her a morning appointment to see the first available doctor. When Ms. Maybin placed that call, she spoke with Emily Campbell, a nurse at GWU Pediatrics, who also told Ms. Maybin to take Alante to the clinic.
While Ms. Maybin was making arrangements for transportation, Alante collapsed. Ms. Maybin called 911 and an ambulance rushed her son to Children's Hospital. Alante was diagnosed with an invasive Group A strep infection and toxic shock. His blood circulation was compromised when many of his organ systems shut *879 down, and both of his legs had to be amputated below the knee.
Plaintiffs presented expert testimony to support their theory that the standard of care required the nurses and the doctor to follow up with Ms. Maybin and advise her to take her son directly to the nearest emergency room. Dr. Schoonover, Nurse Deely, and Nurse Campbell had all spoken with Ms. Maybin about Alante's condition, but none of them told Ms. Maybin that the situation was an emergency or advised her to immediately take her son to the nearest emergency room. According to expert testimony presented at trial, in cases of sepsis "minutes can make a significant difference," and if Alante had been taken to the emergency room immediately after any of the three phone calls Ms. Maybin made to the after hours line, the emergency treatment would have prevented most of the complications Alante experienced.
II. The Procedural Background
As amended, the complaint filed by Sherri Maybin, individually and on behalf of her minor son, Alante Maybin, alleged that both GWU and Dr. Schoonover were liable for medical malpractice. (In an order dated July 6, 2005, Beverly Bass Chavous was appointed Guardian Ad Litem and was added as plaintiff.) On December 17, 2004, the plaintiffs agreed to settle their claims against GWU; that agreement was memorialized on August 4, 2005, and the court approved it.
In the meantime, Dr. Schoonover requested leave to file a cross-claim against GWU. Both the plaintiffs and GWU opposed, but the court granted leave on March 10, 2005. In her cross-claim, Dr. Schoonover alleged that GWU "is or may be liable to [her] by reason of indemnity and/or contribution...."
The claims against Dr. Schoonover proceeded to trial before a jury on November 7, 2005. During that trial (on November 10 and 16), Dr. Schoonover presented evidence to the court, outside the presence of the jury, regarding GWU's negligence and the causal link between that negligence and Alante Maybin's injuries. On November 16, the court took the cross-claim under advisement. The jury returned its verdict on November 17, 2005. A few days later, the court entered partial judgment against Dr. Schoonover in the amount of $3,050,000, with interest, "subject to amendment once the cross-claim of Defendant, Lynne Schoonover, M.D., against the settling Defendant, The George Washington University[,] is resolved by the Court."
Following the verdict, Dr. Schoonover sought credit against the judgment. We describe her motion in more detail below, but it included a request that her cross-claim for contribution be dismissed and that she be given a pro tanto credit of $2.1 million (the amount of GWU's settlement).[2] Such credit would have reduced the judgment against her to $950,000.
On January 24, 2006, the trial court denied Dr. Schoonover's motion to dismiss her cross-claim for contribution (and her request for a pro tanto credit). That same day, the court issued findings of fact and conclusions of law, ruling that GWU was a joint tortfeasor responsible for the negligence of Nurses Deely and Campbell. Accordingly, the court entered a final judgment against Dr. Schoonover in the amount of $1,525,000, reflecting a pro rata credit for GWU's liability as a joint tortfeasor.
III. Rule 41 and Our Standard of Review
Civil Rule 41(a) governs the voluntary dismissal of actions and applies as well "to *880 the dismissal of any counterclaim, cross-claim, or 3rd-party claim." Super. Ct. Civ. R. 41(c). A plaintiff may dismiss an action without leave of court if he does so before an adverse party has filed an answer or a motion for summary judgment ("whichever first occurs"), or "by filing a stipulation of dismissal signed by all parties who have appeared in the action." Super. Ct. Civ. R. 41(a)(1). Because Dr. Schoonover waited too long to dismiss her cross-claim as a matter of right, and did not have a stipulation of dismissal signed by all parties, her request was governed by Rule 41(a)(2), which provides that "an action shall not be dismissed at the plaintiff's instance save upon order of the Court and upon such terms and conditions as the Court deems proper." Super. Ct. Civ. R. 41(a)(2).
Although this portion of Rule 41 is awkwardly worded, the trial court has discretion "not only as to the terms and conditions imposable upon the grant of the motion, but also upon the question whether the dismissal shall be permitted." Raney v. District of Columbia Transit System, Inc., 166 A.2d 261, 262 (D.C.1960). Accord, Grivas v. Parmelee Transportation Co., 207 F.2d 334, 336-38 (7th Cir.1953) (overruling prior precedent and joining other federal circuits to hold that "whether the dismissal should be allowed and, if so, the terms and conditions to be imposed, are matters within the sound judicial discretion of the District Court."); 9 CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE & PROCEDURE: CIVIL 3d § 2364, at 458 (3d ed. 2008) ("The grant or denial of a dismissal on motion under Rule 41(a)(2) is within the sound discretion of the trial court....").[3]
"The requirement of judicial approval and the provision for court-imposed conditions [in Rule 41(a)(2)] were intended to curb the abuses at common law (and in federal practice) of automatically granting voluntary dismissals anytime before verdict was rendered." Conafay v. Wyeth Laboratories, 253 U.S.App. D.C. 279, 280 n. 1, 793 F.2d 350, 351 n. 1 (1986); see also Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 397-98, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990) (discussing "the policy and purpose of Rule 41(a)(1), which was designed to limit a plaintiff's ability to dismiss an action"). Thus, when Rule 41(a)(2) applies, "[a] voluntary dismissal is no longer a matter of right." Raney, 166 A.2d at 262; accord, Grivas, 207 F.2d at 336 (agreeing with other courts and textbook writers that "the allowance of a motion to dismiss under Rule 41(a)(2) is not a matter of absolute right").
"The trial court's decision to permit [or deny] a voluntary dismissal pursuant to Rule 41(a)(2) is discretionary, and we must uphold its decision unless we find an abuse of discretion." Thoubboron v. Ford Motor Co., 809 A.2d 1204, 1211 n. 8 (D.C.2002) ("Thoubboron III"). As we have often stated, "The concept of `exercise of discretion' is a review-restraining one. The appellate court role in reviewing `the exercise of discretion' is supervisory in nature and deferential in attitude." Johnson v. United States, 398 A.2d 354, 362 (D.C.1979); see id. at 361 ("Discretion signifies choice.").
Nevertheless, the court's "discretion must ... be exercised in conformity with correct legal principles," Thoubboron v. Ford Motor Co., 624 A.2d 1210, 1213 *881 (D.C.1993) ("Thoubboron I"), which we and other courts have articulated. "In order to facilitate judicial review and to ensure that the trial court's discretion has been judiciously exercised, a trial judge who denies a motion for voluntary dismissal may be called upon to explicate his or her reasons for doing so, at least where the consequence of that denial is likely to be a definitive resolution of the action against the movant." Id. at 1214.
IV. Legal Analysis
We first consider the nature of appellant's motion, and the circumstances in which it was filed. After all the evidence had been presented on the issue of contribution, and after the trial court had taken her cross-claim against GWU under advisement, Dr. Schoonover filed a "Motion for Application of Credit Resulting From Settlement Between Plaintiff and Co-Defendant." In this motion, appellant presented alternative requests, seeming to acknowledge that there were valid options from which the trial court could choose. "[W]ithout relinquishing her crossclaim against GWU for indemnity, Dr. Schoonover respectfully request[ed] that [the trial court] modify and reduce the judgment on the verdict against her to $950,000 ($3.05 million less a $2.1 million credit) and dismiss her crossclaim for contribution only." (underlining in original). (This would have been a pro tanto credit and clearly was her preference.) "[I]n the alternative (and without relinquishing her crossclaim against GWU for indemnity), Dr. Schoonover... request[ed] that [the trial court] find in favor of her on her crossclaim for contribution and modify and reduce the judgment against her to the amount of $1,525,000 ($3.05 million less a $1,525,000 [pro rata] credit)." (underlining in original). Thus, Dr. Schoonover wished to proceed with her cross-claim for indemnification, but not her claim for contribution. In her motion, Dr. Schoonover acknowledged that neither plaintiffs nor GWU had opposed or contested her cross-claim for contribution. In other words, the evidence of GWU's negligence was "uncontroverted."
The trial court carefully articulated its reasons for denying the motion, noting that the parties did not dispute the law governing awards of pro rata and pro tanto credit. Application of this law depended on whether the settling defendant had been found to be (or had been stipulated to be) a joint tortfeasor.[4] The court recognized that it was called upon to exercise discretion: "[T]he central and determinative issue is whether dismissing Dr. Schoonover's cross-claim is appropriate under the given circumstances." (emphasis added).
A. Did the Plaintiffs Have Standing to Object?
The court first determined that the plaintiffs had standing to oppose the motion. Because the plaintiffs were bound by their settlement agreement "to defend, indemnify and hold harmless GWU from and against Dr. Schoonover's cross-claims for contribution and indemnity," they effectively stood in GWU's shoes with respect to that cross-claim. Moreover, the plaintiffs were not asserting a generalized grievance, but were opposing a threatened financial injury particular to them. "[I]f Dr. Schoonover's Motion is granted and a pro tanto credit is applied, the Plaintiff's final judgment will be $575,000 less than a judgment after a pro rata credit is applied."
To be sure, the plaintiffs would recover the full amount of the verdict even if a pro tanto credit were applied. Nevertheless, as we discuss below, this court has allowed plaintiffs, in comparable circumstances, to recover more than the full amount awarded *882 by the jury. See note 9, infra. Therefore, a very large sum was at stake, and the plaintiffs had a real and substantial interest in the trial court's ruling. Under these circumstances, the trial court properly accorded the plaintiffs standing to oppose Dr. Schoonover's motion to dismiss her cross-claim.
Relying on two cases from Maryland, Dr. Schoonover asserts that the trial court should not have considered the plaintiffs' opposition to dismissal because they were not parties to the cross-claim. Given the difference in circumstances, we do not find the broad language in those decisions to be persuasive, and they are not binding upon us in any event.[5]
In Murphy v. Board of County Commissioners, 13 Md.App. 497, 284 A.2d 261 (Ct.Spec.App.1971), "each defendant moved to dismiss its crossclaim with prejudice [after all evidence was closed], and each consented to the other's dismissal." Id. at 267. "Counsel for [the plaintiff] objected, stating that he deemed it wise as a matter of strategy that they stay in." Id. After the trial court granted the motions to dismiss, the plaintiff asked for an instruction informing the jury that the cross-claims would not be considered because they had been dismissed. Id. On appeal, the plaintiff claimed that denial of this instruction was error, but the Court of Special Appeals affirmed. Although the appellate court stated that it knew "of no principle or rule that a plaintiff has any rights arising from crossclaims among defendants[,]" id. at 268, this dictum does not control our decision here, and the court was not considering comparable factual circumstances. Most importantly, both defendants remained in the case and were "equally exposed to a jury determination of the liability or non-liability of each." Id. at 268. As it happened, the jury returned a verdict in favor of the defendants, so the court was not faced with issues of pro rata or pro tanto credit. Id. at 264.
In Garlock, Inc. v. Gallagher, 149 Md. App. 189, 814 A.2d 1007 (Ct. Spec.App.2003), the same court held "the trial court erred in ruling that [a] stipulated dismissal was a nullity," concluding that "[o]nce the actual parties to the cross-claim stipulated a dismissal, the Gallagher plaintiffsand the trial courthad no voice to contest it." Id. at 1018. Acknowledging that plaintiffs have an interest in determining the number of joint tort-feasors and the amount each owes, the court stated that "[t]hat interest does not empower them, however, to force a defendant to prosecute a claim that may benefit plaintiffs." Id.
Our case does not involve a stipulation of dismissal, nor did the trial court require Dr. Schoonover to undertake any future prosecution. Although GWU did not file an opposition to Dr. Schoonover's motion, neither did it sign a stipulation of dismissal. And such a stipulation might not have been effective in these circumstances. Given the terms of the settlement agreement, the plaintiffs stood in GWU's shoes. We do not find Murphy and Garlock sufficiently compelling that we should overturn the trial court's decision to consider the interests of the plaintiffs.[6]
*883 B. The Court's Exercise of Discretion
The trial court suggested at the outset that Dr. Schoonover was acting in bad faith, but we cannot agree with this portion of its reasoning. This court has obliged defendants to file cross-claims for contribution at an early stage of litigation, often when it is not clear whether pro tanto or pro rata credit will be more advantageous to the client. See generally George Washington University v. Bier, 946 A.2d 372 (D.C.2008). It is only natural that counsel would reassess that decision when more information becomes available, and the size of the jury's verdict in relation to the amount of the settlement is a key piece of data. Indeed, a legally-trained observer justifiably might criticize Dr. Schoonover's counsel if he had not sought to withdraw the cross-claim under these circumstances.
Nevertheless, the court articulated independent grounds for denying the motion ("even if such a tactical move constitutes good faith"), and the fact that it had become more advantageous for her to drop the cross-claim does not mean that Dr. Schoonover was entitled to do so. A party is not necessarily allowed to revisit this decision after she has collected the optimal amount of information. At this point in the litigation, as we have demonstrated, Rule 41(a)(2) placed the decision to dismiss beyond counsel's control and within the discretion of the trial court.
In ruling on a motion for voluntary dismissal, the trial court examines "whether the defendant will be subjected to legal prejudice if the court grants the motion." Washington Metropolitan Area Transit Authority v. Reid, 666 A.2d 41, 45 (D.C.1995) (citations and punctuation omitted). Stating that "[a]ctual prejudice at a given point in time does not necessarily translate into legal prejudice[,]" id. at 46, we have characterized legal prejudice as "a real and substantial detriment." See Thoubboron I, 624 A.2d at 1213 ("To compel a favorable ruling the defendant must show a real and substantial detriment.") (citations omitted); Brown v. Carr, 503 A.2d 1241, 1248 (D.C.1986). Although this is not a well-defined concept,[7] it would ignore reality to say that reducing the amount of recovery by $575,000 would not constitute a real and substantial detriment to the plaintiffs. This threat of legal prejudice to the plaintiffs called for an exercise of the trial court's discretion.
When assessing prejudice in this case, the court relied particularly on factors outlined in County of Santa Fe v. Public Service Co. of New Mexico, 311 F.3d 1031 (10th Cir.2002),[8] noting that the list was *884 not exclusive "and factors that are unique to the context of the case must also be considered." Id. at 1048 (internal quotation marks omitted). The court emphasized that Dr. Schoonover had "presented her evidence against GWU and otherwise fully tried her cross-action to the trial's conclusion." She "ha[d] made her motion to dismiss at the very final stage of this litigation, where all that remains is the Court's determination of GWU's negligence." The only apparent change in circumstances had been the return of the jury's verdict, and the court concluded that plaintiffs "would suffer legal prejudice as a result of dismissal." "Under such circumstances, Dr. Schoonover ha[d] failed to demonstrate that dismissal would be appropriate."
We have said that "the court must exercise its broad equitable discretion under Rule 41(a)(2) to weigh the relevant equities and do justice between the parties in each case...." Thoubboron III, 809 A.2d at 1214 (citation and internal quotation marks omitted). As able counsel have demonstrated, there are equities on both sides of this case. For example, it is unusual for plaintiffs to recover more than the full amount awarded by the jury. Nevertheless, we have approved that outcome in comparable circumstances.[9] And it would be anomalous to apply a pro tanto credit when Dr. Schoonover had already demonstrated without contradiction that GWU was a joint tortfeasor. All that remained was the court's ruling.[10]
At the end of the day, well-established and undisputed legal rules were applied to a fully litigated assessment of all the circumstances. There was no abuse of discretion here, and the judgment of the Superior Court is hereby
Affirmed.
NOTES
[1] See Washington v. Washington Hospital Center, 579 A.2d 177, 185 n. 10 (D.C.1990) ("As used here and in our decisions, pro tanto refers to a dollar-for-dollar credit against the jury verdict in the amount of the settlement. Pro rata refers to a proportional credit, based on the number of settling defendants versus non-settling defendants."); see also District of Columbia v. Shannon, 696 A.2d 1359, 1367 (D.C. 1997) (explaining that for a defendant to receive a pro rata credit, "the liability of the settling defendants must be established either by adjudication, or by stipulation between the plaintiff and the settling defendant.") (citation omitted); Berg v. Footer, 673 A.2d 1244, 1248-49 (D.C. 1996) ("When the plaintiff has settled with a party whose culpability has not been determined, or with a party whom the finder of fact has found not liable, the court awards the nonsettling defendant a credit against the verdict in the amount of the settlement, dollar-for-dollar (pro tanto).").
[2] Dr. Schoonover pursued her claim for indemnification, which the court denied in an order issued on January 17, 2006. She does not contest that ruling on appeal.
[3] "Superior Court Rule 41 is `substantially identical' to the corresponding federal rule and is `to be construed in light of the meaning of that federal rule.'" Dorchester House Associates Limited Partnership v. District of Columbia Rental Housing Commission, 913 A.2d 1260, 1265 (D.C.2006) (citing Waters v. Castillo, 755 A.2d 478, 481 (D.C.2000), and Taylor v. Washington Hosp. Ctr., 407 A.2d 585, 590 n. 4 (D.C.1979)).
[4] See note 1, supra.
[5] Although "[w]e ordinarily turn to the common law of Maryland for guidance when there is no District of Columbia precedent on an issue," George Washington University v. Scott, 711 A.2d 1257, 1260 n. 5 (D.C. 1998) (citing Napoleon v. Heard, 455 A.2d 901, 903 (D.C. 1983)), we are not obliged to do so, and here we find the Maryland cases cited by appellant to be distinguishable and unpersuasive.
[6] Counsel for appellees has suggested that the persuasive value of Murphy and Garlock may also be affected by differences between our case law governing contribution and the Maryland Uniform Contribution Among Joint Tort-feasors Act, MD.CODE ANN., CTS. & JUD. PROC. § 3-1401 through 3-1409 (2009). Fortunately, we do not find it necessary to enter this analytical thicket.
[7] The mere prospect of facing a second lawsuit does not meet that test. See Thoubboron I, 624 A.2d at 1213-14 ("It is not enough [to establish legal prejudice] that [the defendant] may be forced to suffer the incidental annoyance of a second suit in another forum.") (citations omitted). Moreover, the court often may impose terms and conditions that compensate a defendant for the wasted expenditure of funds. See Super. Ct. Civ. R. 41(a)(2) ("an action shall not be dismissed at the plaintiff's instance save upon ... such terms and conditions as the Court deems proper"); Thoubboron I, 624 A.2d at 1216 n. 12 (The trial court "may of course impose reasonable conditions, e.g., that the plaintiffs ... shall compensate the defendant for its costs and counsel fees incurred in defending against what has turned out to be the plaintiffs' improvident foray into the courts of this jurisdiction.").
[8] In County of Sante Fe, the Tenth Circuit stated that among the factors to be considered by a trial court in determining whether to grant a motion for voluntary dismissal are: "the opposing party's effort and expense in preparing for trial; excessive delay and lack of diligence on the part of the movant; insufficient explanation of the need for a dismissal; and the present stage of litigation." 311 F.3d at 1048 (citations and punctuation omitted). In light of the discussion above, we do not consider appellant to be guilty of excessive delay or a lack of diligence. Rather, "the present stage of litigation" is the most important consideration in our case.
[9] See Berg v. Footer, 673 A.2d 1244, 1255-57 (D.C. 1996); id. at 1256 ("It seems to us that a plaintiff's good fortune in striking a favorable bargain with one defendant gives other defendants no claim to pay less than their proportionate share of the total loss.") (citation omitted); Chidel v. Hubbard, 840 A.2d 689, 699 n. 11 (D.C.2004) (noting that a pro rata credit should be applied when the settling defendant is a joint tortfeasor, even where that credit "when added to [the] amount recovered in settlement, will result in a recovery to the plaintiff that exceeds the jury verdict").
[10] We need not opine as to whether it would have been appropriate for the trial court to have granted Dr. Schoonover's motion to dismiss if her cross-claim had not already been fully tried and taken under advisement. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540196/ | 95 B.R. 360 (1989)
In re Leonard J. MASSETTI a/k/a Massetti, Leonard and Malamut, Steven, Co-Partners, also trading as Grandaddy's and Massetti and Malamut, a Partnership, Debtors.
Bankruptcy No. 82-02608F.
United States Bankruptcy Court, E.D. Pennsylvania.
February 1, 1989.
*361 Howard Gershman, Alan E. Boroff, Boroff, Harris & Heller, P.C., Plymouth Meeting, Pa., for applicants/debtors, Leonard J. Massetti and Steven Malamut.
Paul D. Keenan, Mary F. Walrath, Clark, Ladner, Fortenbaugh & Young, Philadelphia, Pa., for Frank Tambone, objector.
Eric M. Hocky, Rubin Quinn Moss & Heaney, Philadelphia, Pa., for Trustee, Fred Zimmerman.
OPINION
BRUCE I. FOX, Bankruptcy Judge:
Leonard J. Massetti and Steven Malamut have filed an application for "reimbursement of expenses" to which the chapter 7 trustee objects and also "counterclaims." This dispute is made triangular by the position of Frank A. Tambone, a judgment creditor of Messrs. Massetti and Malamut who has filed a writ of garnishment against the trustee. In essence, the respective positions are these: the applicants assert an administrative expense claim; the trustee challenges the existence of any claim; alternatively, the trustee maintains that he has a claim against the applicants pursuant to 11 U.S.C. § 723 which should be set-off against any claim possessed by the applicants; and the garnishor contends that the applicants have a valid claim to which the trustee is not entitled to set-off. This contention takes shape through the following factual scenario, to which all parties have stipulated.
I.
On June 7, 1982, the debtors, two partnerships, filed a voluntary petition in bankruptcy under chapter 11. On February 28, 1984 the chapter 11 case was converted to chapter 7. The applicants, Massetti and Malamut, are the general partners of the partnership debtors. Among the assets of the partnerships' estate was real property located at 1715 Easton Road, Doylestown, Pennsylvania. In November, 1982, prior to conversion, various mortgage holders sought relief from the automatic stay to foreclose upon the property. A stipulation was then reached and approved by the court which allowed, inter alia, the partnership debtors' a finite time to sell the property. While seeking a buyer, the debtors were obligated to make payments to the mortgagees. If the property were not sold within the specified time, or if the requisite payments were not made, the mortgagees were granted relief from the stay to resume foreclosure.
In fact, the property was timely sold and, after payment of all liens, the estate received proceeds in the amount of $56,504.47. This dispute arises because the applicants, during the period of time covered by the stipulation, paid $8,000.00 to the mortgagees, $5,240.63 in property insurance, and $108.48 in utility charges connected with the property. No prior notice was given to any party in interest that the applicants were planning to make these payments, nor did the then chapter 11 debtors provide creditors with any notice or opportunity for a hearing regarding the payment of these sums by the applicants. In addition, there was no court approval given for these payments.
Shortly after the above-mentioned stipulation was approved, Tambone obtained a state court judgment against both Massetti and Malamut as individuals in the amount of $22,230.30. In August 1984, Tambone followed Pennsylvania procedure, Pa.R.Civ. P. 3101 et seq., and began garnishment *362 proceedings against the chapter 7 trustee. These proceedings have not yet resulted in a judgment against the garnishee trustee. Pa.R.Civ.P. 3146.
The parties agree that total claims against the debtor-partnerships are $116,335.24. Total assets, though, are only $65,221.42, leaving a shortfall of $51,113.82. Moreover, counsel to the trustee expects to assert an administrative claim in excess of $5,000.00. Mr. Malamut filed his own chapter 7 bankruptcy petition in June 1986 and received his discharge in April 1987. Mr. Massetti, though, has not filed any bankruptcy petition. As a result, the trustee only asserts his counterclaim for the deficiency against Mr. Massetti. 11 U.S.C. § 723(b). The trustee has also agreed as follows:
The sums expended by Applicants constituted actual, necessary costs and expenses of preserving the estate, which would, if authorized, be allowable under Sections 503(b)(1) and 507(a)(1).
[Stipulation of Facts ¶ 7].
II.
A.
The first issue which should be addressed is whether the general partners hold an allowable administrative expense claim[1] against the partnership estate for payments they made to the mortgagees, along with insurance and utility payments. If not, then Mr. Tambone has no garnishment claim against the trustee, and the question of set-off of the trustee's claim against the partners' claim does not arise.
Both the general partners (as well as the garnishor) contend that the approximately $13,000.00 in payments they made yielded a tangible benefit to the partnership estate: viz, $56,504.47 in proceeds from the sale of the partnership realty. Without such payments, they argue, the mortgagees would have foreclosed and the estate would never have received any proceeds from the sale of this asset. As a result, they assert that the plain language of 11 U.S.C. § 503(b)(1), along with basic principles of equity and fairness, support their application for allowance of a priority claim.
The trustee acknowledges that the partners' payments represent "actual, necessary costs and expenses of preserving the estate." (Stipulation ¶ 7).[2]Accord, e.g., In re Gamma Fishing Co., 70 B.R. 949 (Bankr.S.D.Cal. 1987) (insurance coverage categorized an administrative expense). Nonetheless, he argues that the partners' failure to comply with 11 U.S.C. § 364(b) deprives them of any administrative claim.
11 U.S.C. § 364(b) states:
(b) The court, after notice and a hearing, may authorize the trustee to obtain unsecured credit or to incur unsecured debt other than under subsection (a) of this section, allowable under section 503(b)(1) of this title as an administrative expense.
Thus, one who extends unsecured credit to a debtor, postpetition, may have a valid claim for recovery on a priority basis. See, e.g., In re Hartley, 39 B.R. 273 (Bankr.N. D.Ohio 1984).
This subsection, though, requires that a postpetition loan to the debtor be preceded by bankruptcy court approval, after notice, and an opportunity for a hearing, to parties in interest, when the extension of credit is not in the ordinary course of the debtor's business. See In re John Deskins Pic Pac, Inc., 59 B.R. 809 (Bankr. W.D.Va. 1986). As no notice was given to creditors or bankruptcy court approval obtained in connection with the payments made by these general partners, the trustee contends that no priority under § 503(b)(1) may be allowed. Accord, e.g., Matter of London, Inc., 70 B.R. 63 (Bankr. E.D.Wisc.1987); In re Glover, Inc., 43 B.R. 322 (Bankr.D.N.M.1984); Matter of Alafia *363 Land Dev. Corp., 40 B.R. 1 (Bankr.M.D. Fla.1984).
Although not clearly expressed, the partners here offer three alternative responses to the trustee's argument. First, they contend that the loan was made in the ordinary course of the debtor's business and so 11 U.S.C. § 364(a) rather than § 364(b) applies. Section 364(a) permits the extension of credit in the ordinary course of business to be undertaken without notice or court approval. See generally In re John Deskins Pic Pac, Inc.
The partners assert (although the record is silent on the issue) that the partnership was in the real estate business and therefore payments of mortgage, insurance, and utility expenses were in the ordinary course of the partnership's business. Assuming this to be true,[3] this response misconstrues the question. The issue is not whether the payment of expenses was in the ordinary course of business but whether the credit extension was. See generally In re Dant & Russell, Inc., 853 F.2d 700 (9th Cir.1988); In re Clinton Centrifuge, Inc., 85 B.R. 980, 986-87 (Bankr.E. D.Pa.1988); In re Johns-Manville Corp., 60 B.R. 612 (Bankr.S.D.N.Y.1986). There is nothing in the record before me to demonstrate that real estate partnerships in general, or this one in particular, typically borrow funds from their general partners (or other lenders) to pay their operating expenses. As it is the partners who seek the allowance of priority status, it is they who have the burden of proof on this issue. See Matter of Patch Graphics, 58 B.R. 743, 745 (Bankr.W.D.Wis.1986). Thus, I cannot conclude that § 364(a) is applicable.
B.
The partners also suggest that section 364 should be ignored and only the language of 11 U.S.C. § 503(b)(1) be considered. To do so would overlook the clear language of a specific code provision as well as the purpose behind § 503(b)(1).
Section 503(b)(1) represents congressional recognition that, in chapter 11, the best opportunity for a business to reorganize occurs when postpetition suppliers of goods and services do not demand immediate payment. Such suppliers are highly unlikely to extend credit to an entity in bankruptcy unless they are granted priority of payment over prepetition unsecured creditors. See Matter of Jartran, 732 F.2d 584, 586 (7th Cir.1984); In re Mammoth Mart, Inc., 536 F.2d 950, 954 (1st Cir.1976). Generally speaking, then, an administrative claim arises from a transaction with the debtor-in-possession which is beneficial to the continued operation of the debtor's business. In re Mammoth Mart, Inc. Accord, e.g., In re White Motor Corp., 831 F.2d 106, 110 (6th Cir. 1987). Since the allowance of priority claims reduces the amount of the estate available to prepetition creditors, what constitutes an administrative expense is narrowly construed. See, e.g., Matter of Jartran; In re Great Northeastern Lumber & Milwork Corp., 64 B.R. 426, 427 (Bankr.E.D.Pa. 1986). Courts have allowed administrative claims only to those suppliers who were "induced" by the debtor-in-possession to provide goods and services. See In re White Motor Corp.; In re Jartran; In re SMB Holdings, Inc., 77 B.R. 29, 32 (Bankr.W.D. Pa. 1987); In re Glover, Inc., 43 B.R. at 325.
The dispute sub judice involves a loan of funds from the general partners to their partnership rather than the provision of goods and services. Thus, I cannot conclude that § 503(b)(1) rather than § 364(b) is the applicable statutory provision. See, e.g., In re Gloria Mfg. Corp., 47 B.R. 370 (E.D.Va.1984); Matter of London, Inc., 70 B.R. at 66; Matter of Alafia Land Development Corp. Moreover, it is difficult to envision that one who guarantees a loan made to the debtor[4] is later induced by the *364 debtor-in-possession, as opposed to acting voluntarily in his own self-interest, to provide postpetition funds to repay that loan when the debtor-in-possession fails to do so. Matter of London, Inc., 70 B.R. at 66. Therefore, I reject the partners' assertion that § 503(b)(1) as opposed to § 364(b) applies to their postpetition loan.
III.
It is the partners last contention that reaches the crux of the dispute. They argue that it would be inequitable to disallow their request for administrative claim status given the undisputed benefit which the partnership estate derived from their postpetition payments. Insofar as the partners implicitly suggest that courts have the discretion to allow, under certain circumstances, priority status to those who have extended postpetition credit to the debtor-in-possession without complying with the notice and approval requirements of § 364(b), I acknowledge decisions so holding. See, e.g., In re Gloria Mfg. Corp., 65 B.R. 341 (E.D.Va.1985); In re Gloria Mfg. Corp., 47 B.R. 370.
Approval of priority status after credit has been extended is tantamount to retroactive notice and approval. In order to receive such retroactive approval the equities must be "compelling." In re Allen Carpet Shops, Inc., 27 B.R. 354, 358 (Bankr.E.D.N.Y.1983). See, e.g., In re Gloria Mfg. Corp.; In re SMB Holdings, Inc. The authority most often cited in support of court power to exercise such discretion is In re American Cooler Co., 125 F.2d 496, 497 (2d Cir.1942):
We think that the judge should not retroactively validate the loan unless he is confident that he would have authorized it if a timely application had been made, and unless, in addition, he is reasonably persuaded that the creditors have not been harmed by a continuation of the business made possible by the loan. He should also take into account, as bearing on the good faith of the debtor and lender, whether or not they honestly believed that they had authority to enter into the transaction. Of necessity, each case must stand on its own facts and these criteria cannot be mechanically applied; they should, however, materially facilitate the preparation of an intelligent record. We should emphasize that this equitable power must be cautiously exercised, and that only a foolhardy lender will attempt to make it serve as a substitute for proper authorization.
Accord, Matter of Alafia Land Dev. Corp.
Whether the relatively broad approach enunciated by American Cooler is applicable in this circuit, in light of recent instructions given by the Third Circuit Court of Appeals that nunc pro tunc relief may only be granted in "exceptional circumstances," see In re F/S Airlease II, Inc., 844 F.2d 99 (3d Cir.1988) cert. denied, ___ U.S. ___, 109 S.Ct. 137, 102 L.Ed.2d 110 (1988); In re Arkansas Co., 798 F.2d 645 (3d Cir.1986), I need not decide. Assuming that I have the broad discretion[5] to grant retroactive relief to unsecured lenders,[6] I decline to exercise such power in the instant matter. In fact, I conclude that it would be inequitable to grant the partners the relief they seek.
A.
General partners are not viewed as creditors of the debtor partnership. In re Riverside-Linden Inv. Co., 85 B.R. 107 (Bankr.S.D.Cal. 1988). In fact, it has long been held that any payments received by the general partners from the partnership's estate should only come after all partnership creditors have been paid in full. See In re Rice, 164 F. 509 (E.D.Pa.1908); In re N.S. Garrott & Sons, 48 B.R. 13 (Bankr.E. D.Ark.1984); In re Bell & Beckwith, 44 B.R. 664 (Bankr.N.D.Ohio 1984). Therefore, unless the partnership debtor is solvent, the general partner receives no distribution.
*365 11 U.S.C. § 723 takes this principle one step further. As the trustee asserts, and as the partners ruefully acknowledge, § 723(a) holds the general partners responsible for all unpaid debtor partnership claims for which they were personally liable prepetition.[7] In other words, to the extent that partnership claims exceed partnership assets, "each general partner . . . is liable to the partnership's trustee for any deficiency. . . ." H.R.Rep. No. 95-595, 95th Cong. 1st Sess. 381 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6337. See, e.g., In re Riverside-Linden Inv. Co.; In re Comark, 53 B.R. 945, 947 (Bankr.C.D. Cal.1985); In re I-37 Gulf Ltd. Partnership, 48 B.R. 647 (Bankr.S.D.Tex.1985); In re Pine Lake Village Apartment Co., 19 B.R. 819 (Bankr.S.D.N.Y.1982).
Here, it is conceded that the partnership was insolvent. Debts exceed assets by a considerable margin. See 11 U.S.C. § 101(31). This should result in the liability of the general partners to the estate, rather than an allowance of a priority claim against the estate. Nonetheless, the partners argue that to disallow their application for an administrative claim would "inequitab[ly] deprive them of the benefit that they bestowed upon their creditors and would essentially be compelling them to pay twice for the same obligations to the other creditors." (Applicants' Memorandum, at 3.) Actually, the reverse is true: to allow this application would doubly compensate these partners. This can be easily illustrated by a simple example.
Assume that a debtor partnership estate consists only of one asset: real estate with a fair market value of $100,000.00. There also is only one secured creditor holding a $100,000.00 secured claim, and unsecured claims total $25,000.00. In a chapter 7 proceeding, the trustee would liquidate the sole asset, pay the secured creditors, see 11 U.S.C. §§ 725, 726 and assert a $25,000.00 deficiency claim against the general partner, pursuant to § 723(a). Assume, though, that the general partner, during the course of the chapter 7 case, paid $10,000.00 to the secured creditor, thereby reducing the secured claim to $90,000.00. Again, if the property were then sold and its full value achieved, the allowed secured claim would be paid in full, $10,000.00 would remain estate property after sale, and the deficiency would be only $15,000.00. Thus, without allowance of any general partner claim, that partner has received full credit for his payment to the mortgagee. To also allow him a priority of $10,000.00 which would either be paid directly to him or which would be set-off against his § 723(a) liability would reduce the partner's liability to $5,000.00. If one accepts the partners' position, a general partner could easily reduce a $25,000.00 obligation to $5,000.00 simply by paying $10,000.00.
In essence, then, the partners here seek double recovery for their payments made on behalf of the partnership on debts for which they were personally liable. Such attempts at double recovery have been denied by other courts, which have disallowed claims by individuals for payments made to reduce debts on which they were jointly liable or guarantors. See Matter of London, Inc. (payments made by debtor shareholders on mortgages which they had guaranteed disallowed as priority claim); Matter of Unclaimed Freight, Inc., 64 B.R. 435 (Bankr.M.D.Fla.1986) (payments made by debtor's shareholder on lease for which he was guarantor was not entitled to priority status). See also In re Keegan Utility Contractors, Inc., 70 B.R. 87 (Bankr.W.D. N.Y.1987) (officer of debtor corporation who was sued on theory of joint liability for the debtor's unpaid pension contributions *366 may not assert priority claim for the expenses incurred in defending against the lawsuit).
By preserving the partnership asset for sale, the general partners acted in their own self-interest, reduced debts for which they were jointly liable along with the partnership, and greatly reduced the amount of any deficiency claim which could be asserted by the trustee. They have already been compensated.[8] Thus, their application for reimbursement of expenses must be denied.[9]
IV.
In sum, the application of Messrs. Massetti and Malamut for allowance of an administrative expense claim will be denied. The trustee, though, has asserted, and Mr. Massetti does not contest, a "counterclaim"[10] for $56,113.92 representing the deficiency, inclusive of administrative expenses incurred by the trustee, between assets and liabilities. As the deficiency has been clearly established, this counterclaim will be granted. See In re Black & White Cattle Co., 30 B.R. 508 (9th Cir.B.A.P. 1983); In re I-37 Gulf Ltd. Partnership.
An appropriate order shall be entered.
NOTES
[1] Although not asserted by the general partners, the garnishor suggests in his posttrial memorandum that these partners hold a secured claim by virtue of the subrogation section, 11 U.S.C. § 509. This issue will be discussed below.
[2] Because of this concession, I need not decide whether all three aspects of the payments (i.e. mortgage, insurance, and utilities) fall within the scope of § 503(b)(1).
[3] The trustee challenges the assumption by arguing that the partnership conducted no business after the chapter 11 was filed. See In re Hartley, 39 B.R. at 278. The stipulated record is also silent as to this factual assertion.
[4] As will be discussed below, the partners concede that they were personally liable to the mortgagees.
[5] The bankruptcy court in In re Glover, 43 B.R. at 324, interprets decisions such as American Cooler somewhat narrowly.
[6] The exercise of any such discretion must also take into account the policy of construing priorities narrowly so as to protect the estate.
[7] Section 476 of the 1984 Bankruptcy Amendments and Federal Judgeship Act, Pub.L. 98-353, added the requirement that the general partner is responsible for a deficiency only of those unpaid claims for which he was personally liable. As general partners are usually liable, under state law, for partnership debts, see, e.g., In re Malone, 74 B.R. 315, 319 (Bankr.E.D.Pa. 1987), this amendment simply made clear that subsection 723(a) did not create obligations of a general partner not otherwise found in nonbankruptcy law. Cf. Matter of Barton & Ludwig, 37 B.R. 377 (Bankr.N.D.Ga.1984) (a general partner has no liability under § 723(a) to the extent that a creditor has released the general partner prepetition). There is no dispute that the general partners here were personally liable on the mortgage agreements.
[8] Similarly, the garnishor's assertion that the partners are entitled to be subrogated to the secured status of the mortgagees, to the extent the claim of the mortgagees were reduced by postpetition payments, 11 U.S.C. § 509, must be rejected. Assuming the § 509 argument was appropriately raised, it has been recently noted that:
Subrogation is an equitable remedy. It is not an absolute right but one which depends on the equities and attending facts and circumstances of each case.
. . . .
The prerequisites of equitable subrogation. . . . are:
(1) Payment must have been made by the subrogee to protect his own interest.
(2) The subrogee must not have acted as a volunteer.
(3) The debt paid must be one for which the subrogee was not primarily liable.
(4) The entire debt must have been paid.
(5) Subrogation must not work any injustice to the rights of others.
In re Flick, 75 B.R. 204, 206 (Bankr.S.D.Cal. 1987).
The Flick court recognized that general partners normally will not be subrogated when paying partnership debts since, in essence, they are repaying their own debts. Id. Moreover, for the reasons stated above, it would be inequitable to allow subrogation here as that would countenance double compensation to these general partners.
[9] In their posttrial memorandum, the partners acknowledge that any claim which they possess against the estate due to their postpetition payments may be offset against their liability under § 723(a). Despite that position, the only basis they cite for the allowance of a claim is § 503(b)(1). Of course, once they concede the trustee's right to set-off, an administrative claim is no more valuable to them than a general unsecured claim.
The initial application filed is unclear and the memorandum of law offers no hint that the partners assert a general unsecured claim. Assuming that issue has not been waived, I note at least one decision which concludes, in essence, that court discretion to retroactively approve postpetition credit pursuant to 11 U.S.C. § 364(b) includes the power to grant that lender a general unsecured claim, even if the equities do not allow the grant of a first priority claim. Matter of Alafia Land Dev. Corp., 40 B.R. at 5-6. Here, though, I would decline to exercise such discretion because of the resulting double recovery for these partners.
[10] As no objection has been raised, I do not pass upon the procedural validity of asserting a claim under § 723(a) by way of a response to an application by a general partner for payment of an administrative claim. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540318/ | 228 N.J. Super. 463 (1988)
550 A.2d 168
MARY TYLER, RAYMOND TYLER, SR., RAYMOND TYLER, JR., AND MARK TYLER, PLAINTIFFS-RESPONDENTS,
v.
NEW JERSEY AUTOMOBILE FULL INSURANCE UNDERWRITING ASSOCIATION, DEFENDANT-APPELLANT, AND RICHARD B. MATT AND LIBERTY MUTUAL INSURANCE COMPANY, DEFENDANTS.
Superior Court of New Jersey, Appellate Division.
Submitted September 14, 1988.
Decided October 31, 1988.
*464 Before Judges GAULKIN, BILDER and R.S. COHEN.
Martin, Crawshaw & Mayfield, attorneys for appellant (John R. Riordan, on the brief).
Gerald F. Miksis, attorney for respondents.
The opinion of the court was delivered by COHEN, R.S., J.A.D.
This case involves the nature and extent of the protection provided to the Tyler family by the underinsured motorist *465 provisions of an automobile insurance policy issued to plaintiff Mary Tyler.[1]
This is what happened. Plaintiffs, four members of the Tyler family, were injured in a collision with the auto of Russell Boggs. Boggs' insurance policy had a per-accident liability limit of $50,000. His carrier offered the entire policy in settlement. The Tylers accepted, dividing the available proceeds $19,000 to one, $16,500 to another, $9,500 to a third and $5,000 to the fourth injured plaintiff.
The Tylers' policy had uninsured and underinsured motorist coverage with limits of $15,000 per person and $30,000 per accident. The Tylers brought this action against Liberty Mutual and its agent, only one aspect of which is involved in this appeal. It is the claim by the two Tylers who settled with Boggs for $9,500 and $5,000 that, because Boggs had insufficient insurance to pay all of their damages, their policy provided $15,000 underinsured motorist protection for each of them against Boggs' negligence less the amounts they received from him in settlement. The trial court ruled that the policy provided such coverage. Defendant appealed, and we now reverse.
N.J.S.A. 17:28-1.1a requires all motor vehicle liability policies issued in New Jersey to include bodily injury coverage with limits of $15,000/$30,000 for injury to the insured by a uninsured motorist. See also N.J.S.A. 39:6A-14. In addition, carriers must offer as an option underinsured motorist coverage and further uninsured motorist coverage up to the policy's liability limits, but not more than $500,000 per accident. N.J.S.A. 17:28-1.1b.
A vehicle is underinsured when
*466 the sum of the limits of liability under all bodily injury and property damage liability bonds and insurance policies available to a person against whom recovery is sought for bodily injury or property damage is, at the time of the accident, less than the applicable limits for underinsured motorist coverage afforded under the motor vehicle insurance policy held by the person seeking that recovery. A motor vehicle shall not be considered an underinsured motor vehicle under this section unless the limits of all bodily injury liability insurance or bonds applicable at the time of the accident have been exhausted by payment of settlement or judgment. The limits of underinsured motorist coverage available to an injured person shall be reduced by the amount he has recovered under all bodily injury liability insurance bonds. [N.J.S.A. 17:28-1.1e].
The plain meaning of the statute is that underinsured motorist benefits are available if (and to the extent that) the tortfeasor's liability limits are lower than the limits of the underinsured motorist coverage contained in the plaintiff's policy. Here, the tortfeasor's liability limits were $25/50,000 while plaintiffs' underinsured motorist limits were $15/30,000. For that reason, plaintiffs' underinsured motorist coverage did not apply.
The statute produces the same result if there is one injured claimant or many, or if the amount of damages exceed the tortfeasor's liability limits, or even if multiple claims against one tortfeasor are, because of his liability limits, settled for amounts which are individually less than the underinsured motorist coverage available from the claimants' policy. A tortfeasor is not underinsured relative to plaintiffs' damages, or relative to the judgment or judgments against him, but rather relative to the limits of the underinsured motorist coverage purchased by or for the person seeking recovery.
Our decision is consistent with Longworth v. Van Houten, 223 N.J. Super. 174 (App.Div. 1988), where this court ruled that a claimant may recover under his own underinsured motorist coverage, less the full amount of the tortfeasor's liability limits, even if the claimant settled with the tortfeasor's carrier for less. There, plaintiff's underinsured motorist coverage was higher than the tortfeasor's liability coverage. A necessary corollary of the ruling, however, is that there is no recovery at all from the underinsured motorist coverage unless it has *467 higher limits than the liability coverage. See also Wert v. Picciano, 189 N.J. Super. 178 (Law Div. 1982).
Our decision is also consistent with Lick v. Dairyland Ins. Co., 258 N.W.2d 791 (Minn. 1977);[2]Thiry v. Horace Mann Mut. Ins. Co., 269 N.W.2d 66 (Minn. 1978); Connolly v. Royal Globe Insurance Co., 455 A.2d 932 (Me. 1983). See also Hoffman v. United States Auto Ass'n., 309 Md. 167, 522 A.2d 1320 (1987); Dewberry v. Auto-Owners Ins. Co., 363 So.2d 1077 (Fla. 1978); Vigneault v. Travelers Ins. Co., 118 N.H. 75, 382 A.2d 910 (1978); Rutherford v. Tennessee Farmers Mut. Ins. Co., 608 S.W.2d 843 (Tenn. 1980).
One further matter. Plaintiffs' motion for judgment was not orally argued. On the return day, the motion judge's law clerk wrote to counsel that the motion was granted on the moving papers and without opposition. The law clerk also noted that defendant had filed late opposing papers and:
Although recognizing the validity of some of the points raised by defendant, the court will not consider them due to the late submission. The original order will stand, however the rulings therein may be considered to be without prejudice.
When defendant moved for reconsideration, the law clerk wrote that there was no such procedure and said that the court had therefore denied the motion. The order entered by the court was not "without prejudice."[3]
The interpretation of the statute here involved was of consequence to the parties. To the extent that the ruling might have influenced later rulings of the Law Division, it was of consequence *468 also to the motoring public and the insurance industry. Such decisions should be made where possible on the merits. It is a mistaken exercise of judgment to close the courtroom doors to a litigant whose opposition papers are late but are in the court's hands before the return day for a motion which determines the meritorious outcome of a consequential lawsuit. "Swift justice demands more than just swiftness." Henderson v. Bannan, 256 F.2d 363, 390 (Potter Stewart, J., dissenting) (6 Cir.1958). Late filings of motion papers can be met with a variety of judicial responses afforded by existing court rules. Among them are sanctions designed to discourage late filings without determining the outcome of a case. See Audubon Volunteer Fire v. Church Const. Co., 206 N.J. Super. 405, 407 (App.Div. 1986); Automatic Washer Serv. v. Brunswick Burl., Inc., 153 N.J. Super. 343 (App.Div. 1977).
Reversed and remanded for the entry of judgment in favor of defendant.
NOTES
[1] Liberty Mutual Insurance Company was originally named defendant as issuer of the insurance policy. Late in the game, the parties agreed that the proper defendant was the New Jersey Automobile Full Insurance Underwriting Association, and not Liberty Mutual. The Association was therefore added as a defendant and the claim against Liberty Mutual was dismissed. The difference is of no consequence to our determination.
[2] The Minnesota statute was later amended. See Holman v. All Nation Ins. Co., 288 N.W.2d 244, 250-251 (Minn. 1980).
[3] Three things need saying about these communications. First, the law clerk was wrong in saying there was no procedure for trial court reconsideration. R. 1:7-4; 4:49-2. Second, we wonder at the concept of a decision made "without prejudice" which nevertheless determines the outcome of a case and is not subject to reconsideration. Third, we again call attention to our disapproval of the practice of delegating the announcing and explaining of judicial decisions to law clerks. Hungerford v. Greate Bay Casino Corp., 213 N.J. Super. 398, 402 (App.Div. 1986). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540210/ | 974 A.2d 1194 (2009)
COM.
v.
WATSON.
No. 1825 EDA 2008.
Superior Court of Pennsylvania.
March 30, 2009.
Affirmed and Vacated. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540213/ | 95 B.R. 527 (1989)
In re Donald L. ZURFACE, Sr., Mildred L. Zurface, Debtors.
In re Donald L. ZURFACE, Jr., Marguerite Zurface, Debtors.
Bankruptcy Nos. 2-87-05799, 2-87-05800.
United States Bankruptcy Court, S.D. Ohio, E.D.
January 11, 1989.
*528 Charles W. Ewing, Charles W. Ewing Co., L.P.A., Columbus, Ohio, for debtors.
William B. Logan, Jr., Luper, Wolinetz, Sheriff & Neidenthal, Columbus, Ohio, for Farm Credit Bank of Louisville.
Frank M. Pees, Worthington, Ohio, Chapter 12 trustee.
Michelle Sutter, Baker & Hostetler, Columbus, Ohio, for Chapter 12 trustee.
Charles M. Caldwell, Office of the U.S. Trustee, Columbus, Ohio, Asst. U.S. Trustee.
OPINION AND ORDER
R. GUY COLE, Jr., Bankruptcy Judge.
This matter is before the Court following a hearing to consider confirmation of the plans proposed under Chapter 12 of the Bankruptcy Code by debtors Donald L. Zurface, Sr., Mildred L. Zurface, Donald L. Zurface, Jr. and Marguerite Zurface. Confirmation of the plans was opposed by The Farm Credit Bank of Louisville and Frank M. Pees, the Chapter 12 trustee, in hearings held on August 17-19, and September 1 and 9, 1988. The matter was deemed submitted for decision upon the filing of post-hearing briefs on December 5, 1988.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this judicial district. This is a core proceeding which this Court may hear and determine. 28 U.S.C. § 157(b)(1) and (b)(2)(L). The following opinion and order shall constitute the Court's findings of fact and conclusions of law in accordance with Bankruptcy Rule 7052.
Preliminary Statement
Following the hearing on confirmation the parties submitted proposed findings of fact. The proposed findings submitted by The Farm Credit Bank of Louisville, formerly known as Federal Land Bank ("FLB"), and by Frank M. Pees, the Chapter 12 trustee ("Pees"), are comprehensive. The findings proposed by the debtors are incredibly sparse, containing only six specific references to a transcript whose length exceeds 1,000 pages. FLB and Pees have attempted, in their findings, to set out a detailed account of the tangled web of transactions woven by these debtors. However, the lack of any legitimate business purpose for many of the transactions described herein, compounded by the paucity of meaningful documentation, makes it difficult to set forth facts which adequately explain the motives and reasons for the various transactions about which FLB and Pees complain.
Findings of Fact
1. The debtors in these two related cases are Donald L. Zurface, Sr. and his wife, Mildred L. Zurface, and their son, Donald L. Zurface, Jr. and his wife, Marguerite (collectively referred to as "Debtors" or "the Zurfaces").
2. By stipulation of the parties, the testimony of Donald Zurface, Jr. binds each of the Debtors in the two bankruptcy cases. Donald Zurface, Sr. did not testify due to serious medical problems. Likewise, neither Mildred nor Marguerite Zurface was called as a witness in this contested matter.
3. Debtors' bankruptcy cases were commenced by the filing on December 31, 1987, of voluntary petitions under Chapter 12 of the United States Bankruptcy Code ("Code").
4. The Debtors once operated a farming operation in Fayette County, Ohio (Transcript [hereinafter "Tr."] 33 and FLB Ex. 34). Debtors never treated their farming operation as a partnership for tax purposes (FLB Exs. 14, 25, 40, 41, 43 & 44); instead, they treated it as an informal partnership (Tr. 33), starting in approximately 1976 through the date of filing of their respective Chapter 12 petitions.
5. Donald Zurface, Jr. was awarded a bachelor's degree in Agriculture in 1975 from the Ohio State University and commenced working on the family farm immediately thereafter (Tr. 32, 701).
*529 6. In order to refinance existing obligations to FLB and Production Credit Association ("PCA"), Debtors executed a promissory note ("Note") on or about April 26, 1982, made payable to FLB in the principal amount of $675,000. The Note required annual payments in the amount of $87,372.61, commencing on April 1, 1983, and continuing until April 1, 2017 (FLB Ex. 33). FLB and Debtors jointly executed a document captioned "Change of Installment Maturity Dates," changing all installment maturity dates from April 1 to December 1 (FLB Ex. 58; Tr. 385). In order to secure payments under the Note, Debtors granted FLB a first mortgage interest in all of their real property (FLB Ex. 34). Debtors were unable to make the payment due on December 1, 1984, until July 16, 1985. The payment due on December 1, 1985, has never been made. The July 16, 1985, payment is the last payment made by the Debtors to FLB (Tr. 190-91, 387). Farmers Home Administration ("FmHA") refinanced Debtors' note with PCA on February 2, 1984, thereby eliminating PCA as a creditor of these Debtors.
7. In December, 1985, and early 1986, the Debtors and FLB representatives attempted to restructure the Note and its accompanying obligations (Tr. 387-398). Debtors and FLB explored several alternatives, including complete and partial liquidation of the farming operation. A liquidation of the farming operation may have posed unfavorable tax consequences for the Debtors (Tr. 282, 611).
8. On December 10, 1985, Donald Zurface, Sr. and Donald Zurface, Jr. executed and delivered to FLB a balance sheet dated December 10, 1985, disclosing the assets and liabilities of their combined farming operation (FLB Ex. 16). The balance sheet valued machinery, equipment, and trucks (collectively, the "Equipment") at $130,000. However, the Equipment was worth only $49,502 in December, 1985 (FLB Ex. 28; FLB Compilation No. 1; Tr. 49, 53, 54, 63, 64). The balance sheet valued breeding sows, boars and feeder hogs ("Livestock") at $48,110. Crops were valued between $102,910 and $111,550. The balance sheet valued Debtors' real property, consisting of approximately 555 acres, at $850,000; however, Donald Zurface, Jr. conceded that $695,000 was a more accurate appraisal for the Debtors' real property in December, 1985 (Tr. 54, 55).
9. On April 7, 1986, the Debtors formed an Ohio corporation known as Hillary-Dawn, Inc. ("H-D") (FLB Ex. 1, Tr. 36). The sole shareholder of H-D was, and still is, "Sharon Rood-Trustee" (Tr. 42, 43; FLB Ex. 2). Sharon Rood ("Rood"), as trustee, holds all 50 of the outstanding shares of H-D. H-D's capitalization of $500 was provided by Donald Zurface, Sr. and Donald Zurface, Jr. This capitalization has never been increased (Tr. 37, FLB Ex. 1). H-D paid back the $500 to Donald Zurface, Sr. and Donald Zurface, Jr. after the corporation was formed (Tr. 774).
10. Rood is Marguerite Zurface's sister (Tr. 36). In April 1986, Rood was appointed by Donald Zurface, Jr. and his wife as trustee under a trust arrangement for the benefit of the Zurfaces' only child, Hillary Dawn. A second child, Amanda Zurface, has been born since that time. Rood has continued to serve as trustee, at least nominally, for the Zurfaces' two children under the aforementioned trust arrangement (Tr. 43, 44).
11. Rood has performed no discernible functions as trustee since her appointment. Rood understood that her duty as trustee was primarily to assure the well-being of Donald and Marguerite's children in the event of the parents' disability or death (Tr. 296, 718). Although Donald Zurface, Jr. initially testified that he and his wife executed a written trust agreement appointing Rood as trustee, no written agreement of trust or any copy thereof has been located and he now doubts that one was ever executed (Tr. 45, 56, 717).
12. FLB Exhibit 24, a typed but unsigned trust agreement, was prepared at Debtors' direction subsequent to the filing of their Chapter 12 cases. According to Donald Zurface, Jr., this unexecuted trust agreement was intended to serve as a replacement to the missing April 1986 agreement and incorporates its terms (Tr. 47-49). *530 Donald Zurface, Jr. now believes that because the initial trust agreement was probably never reduced to writing, the trust might have been an oral trust (Tr. 814-815). The Court finds that there was no written trust agreement executed by Debtors in April, 1986, or at any other time.
13. According to Donald Zurface, Jr., the typed, but unexecuted trust agreement FLB Exhibit 24 contains one paragraph which he did not intend to include in the April, 1986, trust agreement, had it been reduced to writing. That paragraph, Article Two, Paragraph A.1., provides as follows:
During the lifetime of Grantors the Trustee shall distribute to or for the benefit of either Grantor, so much of the net income and, if the income is insufficient therefor, of the principal of the share held for the benefit of Grantors, as the Trustee, in her sole discretion deems necessary or proper to provide for either Grantors' maintenance, support, health, comfort and education (including college, graduate or professional school, or any other type of education), to travel, to purchase transportation, to purchase life or health insurance on the life of either Grantors or for such other similar specific purposes or general needs until both shall die.
14. H-D's Board of Directors is composed of Donald Zurface, Sr., Donald Zurface, Jr. and Marguerite Zurface (Tr. 38) and has remained unchanged since its formation. H-D's officers also have remained the same. They are Rood, President; Marguerite Zurface, Secretary; and Donald Zurface, Jr., Treasurer (Tr. 38, 39).
15. Rood had never been personally involved in a farming operation prior to her association with H-D (Tr. 292, 769-771). Rood never managed a business (Tr. 331). She exhibited virtually no knowledge of, nor exercised any control over, any of H-D's affairs (Tr. 300, 319-321). Rood did not possess or maintain the corporate books or records. Rood never signed a corporate tax return and was unaware that she had authority to sign corporate checks.
16. On April 8, 1986, the Debtors and H-D executed a series of documents, including two purchase agreements (FLB Exs. 3, 12 & 13; Tr. 59, 60, 66-68), which resulted in the transfer of the following assets from the Zurfaces to H-D:
A. All Equipment of the Zurfaces for the purchase price of $36,930 (FLB Ex. 12; Tr. 49, 50, 53, 67) (the "Equipment Purchase"); and
B. All of the Debtors' Livestock for the purchase price of $24,561 (FLB Ex. 13; Tr. 50, 51, 67, 68) (the "Livestock Purchase").
17. As a result of the conveyance of the Equipment and Livestock, Debtors own no personalty, i.e., equipment, machinery or livestock, with which to conduct a farming operation.
18. H-D executed a series of notes evidencing obligations owed by H-D to Donald Zurface, Sr. and Donald Zurface, Jr. arising out of the transfer of the Equipment and Livestock. Rood, on behalf of H-D, executed two sets of notes evidencing the same obligations, one group hand-written (FLB Exs. 4, 6, 8 & 10 and Tr. 86, 87) and the other group type-written (FLB Exs. 5, 7, 9 & 11; Tr. 86, 87). The hand-written notes were executed in April, 1986. These notes were in the possession of Donald Zurface, Jr., either individually or in his capacity as an officer of H-D, at all times (Tr. 89). The type-written notes were not executed until an unspecified later date (Tr. 140). The type-written notes were executed because Debtors believed that they provided a more formal record of the transactions (Tr. 92).
19. The obligation for the Equipment Purchase was evidenced by two sets of notes, in the respective sums of $18,400 and $18,530 (FLB Exs. 4, 5, 6 & 7; Tr. 87, 88, 91-95). A major difference in the two sets of notes is that the obligation evidenced by Exhibits 4 and 5 was to be repaid on or before December 8, 1986, and the obligation evidenced by Exhibits 6 and 7 was to be repaid on or before December 8, 1987 (Tr. 94, 95). However, Donald Zurface, Jr. could not remember why the notes were drafted in this manner or how the *531 maturity dates were determined (Tr. 84, 85, 94, 95). The primary reason for setting the maturity dates in this manner was to ensure that H-D had sufficient cash after the fall harvest to make the payments called for by these notes on or before the stated maturity dates (Tr. 104-05; Tr. 304).
20. The obligation for the Livestock Purchase was evidenced by two sets of notes, in the respective sums of $15,861 and $8,700 (FLB Exs. 8-11, Tr. 96). The first obligation, concerning the feeder livestock, had a maturity date of October 8, 1986. The second obligation, for the breeding livestock, had a maturity date of October 8, 1987 (Tr. 96, 97).
21. H-D authorized the granting of a security interest in the Equipment and Livestock by H-D in favor of Donald Zurface, Sr. and Donald Zurface, Jr. pursuant to corporate minutes dated April 8, 1986 (FLB Ex. 3). Security agreements were prepared and executed (FLB Exs. 20-23, and Tr. 116). UCC financing statements were never prepared or filed with the appropriate governmental authorities (FLB Exs. 35-37; Tr. 118-19). Donald Zurface, Jr. believed that the purpose of a security interest in the Equipment and Livestock was to protect himself and his father in the event that H-D failed to make the payments required under the terms of the various notes (Tr. 119-123). Donald Zurface, Jr. could not recall specific discussions with his attorneys about the security agreement or its effects, but believes he questioned someone about them. Donald Zurface, Jr. indicated that if he had discussed the implications of the security agreement with anybody, it would have been with his attorney (Tr. 767-68).
22. Debtors did not transfer any of their real property to H-D. Instead, they executed a lease with H-D whereunder an annual rental payment of $29,740 was to be made by H-D. The obligation for the first year's rent was evidenced by a promissory note (FLB Ex. 18; Tr. 111-113). The lease had a two-year term and was to "continue in effect from year to year thereafter until written notice of termination is given by either party to the other at least 3 months before expiration of this lease or any renewal." Donald Zurface, Jr. does not believe that formal or informal notice of termination was ever given by either party (Tr. 786).
23. On April 25, 1986, as part of the ongoing negotiations between the Zurfaces and FLB, Donald Zurface, Jr. offered to pay $20,200 to FLB, over 24 months, representing his opinion as to the equity in the Livestock. By that time, and unbeknownst to FLB, the Livestock had already been transferred to H-D (Defendant's Exhibit CC; Tr. 757-58). FLB made a counter-offer of approximately $40,000.
24. From April 1986 through June 1986, Debtors were represented by attorneys identified only as Mr. Bains and Mr. Rainsberger of Mt. Sterling, Ohio (Tr. 46, 686-87, 695, 767-68). On or about June 3, 1986, the Debtors retained Charles W. Ewing as their attorney (Tr. 188-89). Ewing has represented the Zurfaces continuously from June 3 to the present and serves as Debtors' Chapter 12 counsel.
25. On June 20, 1986, the Zurfaces transferred the sum of $21,000 in cash to H-D as operating funds (Tr. 109-10, 117). H-D executed a promissory note to Donald Zurface, Jr. and Marguerite Zurface, payable "within 10 years," at 9% interest, but with no other specified repayment terms (FLB Ex. 17, Tr. 106-07).
26. Over the period commencing on April 8, 1986, through the date of filing of the bankruptcy petitions, H-D made a series of cash payments to the Zurfaces. All obligations evidenced by the notes and by the lease have been paid in full through these cash transactions (Tr. 97, 101, 110, 113, 114; FLB Exs. 31, 32). During such period the Zurfaces received the sum of $141,971 from H-D, as described below in detail, in purported satisfaction of the obligations evidenced by the notes and lease. The total of all the obligations is summarized as follows:
Transfer Amount
Equipment $ 18,400.00
Equipment $ 18,530.00
Livestock $ 15,861.00
Livestock $ 8,700.00
Cash $ 21,000.00
*532
1986 Lease $ 29,740.00
1987 Lease $ 29,740.00
___________
Total $141,971.00
27. After completion of the payments to Debtors, none of the notes was ever cancelled or destroyed (Tr. 104). H-D was substantially late in making rental payments under the lease for 1986, but was unaware of its delinquency because of the unclear payment schedule (Tr. 115-16). The 1986 rent payments, which were due on December 15, 1986, did not commence until February, 1987, and were paid through June 9, 1987. In contrast, the 1987 rent payments, which would have been due on December 15, 1987, commenced in late August, 1987, and actually were paid down to the balance due of approximately $2,600 as of December 15, 1987 (FLB Ex. 32).
28. FLB representatives performed four searches of Fayette County courthouse records with respect to the Debtors. The searches occurred on November 26, 1985; May 15, 1986; and June 23, 1986; and April 27, 1988; and were conducted to determine the existence of any unusual transfers of property or security interests with respect to the Zurfaces (Tr. 399). No unusual transactions were discovered because the types of transfers undertaken by the Debtors did not require notation in the public record in order to be effective (Tr. 399, 400). Richard Poe, the FLB representative assigned to the Zurface account for most of the time period prior to the bankruptcy filing, did not learn about the existence of H-D, or of the transfer of the Equipment and Livestock from the Debtors to H-D, until well after the filing of the bankruptcy cases (Tr. 399-401). Paul Lensman, the FLB representative assigned to the Zurface account during the pendency of the bankruptcy cases, discovered the existence of H-D and of the transfer of Debtors' assets to H-D only after reviewing the Zurfaces' bankruptcy schedules. Further investigation led to the discovery of an insurance notification which apparently was mailed by the insurance carrier in November or December, 1987, and received by the FLB office some time thereafter (Tr. 654-657). The insurance notification form listed the insured party as H-D. However, that name was not familiar to FLB personnel. H-D's relationship to the Zurfaces was uncovered by an FLB employee who recognized the address of H-D as being the address of one of the Zurface families. Donald Zurface, Jr. acknowledged that he never informed any FLB personnel of the existence of H-D or of the transfer of Zurface assets to H-D (Tr. 401, 725).
29. None of the Debtors received any compensation for their services to H-D, from the time it was organized through the date of the filing of the bankruptcy petitions (Tr. 40, 69, 246, 252; FLB Exs. 14, 25, 30, 39, 40, 41, 43, 44 & 55). Yet, Donald Zurface, Jr. considered H-D to be an important "source of income" for the Zurfaces (Tr. 69). The Zurfaces, and more specifically Donald Zurface, Jr., maintained total control over the affairs of H-D as well as the relationship between the Zurfaces and H-D. Donald Zurface, Jr.'s testimony (Tr. 769-70) illustrates his recognition that he dominated and controlled H-D. Significantly, all testimony of any substance concerning the affairs of H-D, both operational and financial, came only from Donald Zurface, Jr; Rood was unable to provide any meaningful or significant information about the business affairs of H-D. Donald Zurface, Jr.'s dominance of the corporate affairs of H-D from the date of H-D's incorporation until the present time was established by the record.
30. From July 16, 1985, through the present time, Debtors have made no payments on their obligations to FLB or FmHA. Both of these debts were secured by a mortgage against Debtors' real property.
31. Neither Debtors nor H-D maintained any contemporaneous records showing the application of note payments from H-D to Debtors. Following the filing of the bankruptcy petitions, Mr. John Bowen, an accountant for Debtors and H-D, prepared hand-written schedules showing the application of payments made by H-D to Debtors with respect to the various promissory *533 notes made payable to the Debtors and/or Donald Zurface, Sr. and Donald Zurface, Jr. (FLB Exs. 29, 31 & 32; Tr. 98, 99; 254, 257). Debtors provided Mr. Bowen with the order in which payments were to be applied to the various obligations, and based upon such direction Mr. Bowen prepared two schedules marked as FLB Exhibits 31 and 32 (Tr. 258, 263-64). Such schedules reflect an application of payments first to interest-bearing obligations and secondly to non-interest bearing obligations (Tr. 263-265). Mr. Bowen was not fully informed of the facts concerning the transfers from Debtors to H-D or of the existence of the trust until after the filing of the bankruptcy proceedings, resulting in the necessity to amend Debtors' and H-D's 1986 tax returns (Tr. 227-232, 269-270; FLB Exs. 14, 25, 30, 39, 40 & 41.
32. Donald Zurface, Jr., had not seen FLB Exhibits 31 and 32 the schedules listing H-D's payments to Donald Zurface, Jr. and his father until his deposition was taken on August 1, 1988 (Tr. 98, 99). He was unable to provide information regarding the application of H-D's payments to him or to his father at his first deposition taken on March 30, 1988 (Tr. 102).
33. Mr. Bowen testified that he had not seen the promissory note in the principal amount of $21,000 (FLB Ex. 17) until he was presented with a copy during his testimony at the confirmation hearing (Tr. 259, 260). According to Mr. Bowen the $21,000 note was an interest-bearing obligation and, therefore, was improperly contained in the list of non-interest bearing obligations which he prepared (Tr. 260, 261; FLB Ex. 32). As a result, Exhibit 32 was incorrect, and the amount due to Debtors from H-D on December 31, 1987, was higher than the stated amount of $32.78 (Tr. 266). Donald Zurface, Jr. testified that inclusion of this note on Exhibit 32 was a mistake which he did not notice until he was cross-examined at the hearing on confirmation (Tr. 111). Because of the failure to include this obligation in the list of interest-bearing obligations (FLB Ex. 31), Debtors' and H-D's tax returns will again require amendment in order to reflect the correct tax treatment of the various payments (Tr. 266).
34. The Equipment and Livestock could have been transferred to H-D as a tax-free exchange under 26 U.S.C. § 351 of the Internal Revenue Code (Tr. 227-29; 267-69). In order to qualify for such a tax-free exchange, Debtors would have had to retain at least fifty percent (50%) control over H-D (Tr. 267-69).
35. Debtors' failure to report the transfer of the Equipment and Livestock to H-D in a proper manner resulted in H-D paying increased taxes upon amendment of the 1986 income tax return. Debtors also incurred an additional tax liability for the 1986 tax year and lost a net operating loss carry-forward (Tr. 232, 248-251, 253).
36. One of the reasons for the formation of H-D was that the Debtors had been "feuding" with FLB prior to the transfer (Tr. 76-79). The Debtors were interested in protecting their assets so that H-D could operate without interference from creditors, including, of course, FLB (Tr. 70).
37. Debtors did not believe nor were they advised that there were any tax benefits associated with forming H-D. The only possible tax benefit perceived by Debtors was a saving of self-employment taxes (Tr. 72, 74-75). Donald Zurface, Jr. did not understand that the total F.I.C.A. taxes due, once H-D was incorporated, would have exceeded the self-employment tax assessed an individual (Tr. 75). Thus, there was no F.I.C.A. or self-employment tax benefit in incorporating H-D.
38. H-D was not incorporated for estate-planning reasons (Tr. 73). Donald Zurface, Jr. provided no testimony with respect to any estate-planning benefits or motivations in forming H-D.
39. There were no crops grown nor livestock raised by either of the Zurface families in 1987 (FLB Ex. 27; Tr. 172, 173). All of the farming in 1987 was accomplished by H-D.
40. The Debtors did not attach IRS Schedule F to their 1987 income tax returns. Schedule F is designed to reflect farm income and expenses (Tr. 147; Exs. 43 & 44).
*534 41. Between April 6, 1986, and the present, Debtors have failed to pay the real estate taxes due and owing against the real property upon which FLB holds a mortgage. There is presently due as and for delinquent real estate taxes the approximate sum of $10,000.
42. The value of H-D as of December 31, 1987, approximated $172,864.06, which includes the monies on deposit in an account at Huntington National Bank and in Ewing's law firm trust account. It further includes the value of the Equipment and Livestock, as well as the amounts due H-D from Rood and Brian Zurface, Donald Zurface, Jr.'s brother.
43. As of December 31, 1987, Brian Zurface owed H-D the sum of $9,300 pursuant to two notes executed by him in favor of H-D (Tr. 156-58, 162-63). Also, Rood owed H-D the sum of $2,409 pursuant to a note executed by her in favor of H-D (Tr. 158-62). Various "loans" made by H-D to Zurface family members appear to be gifts; to the extent they were loans they were not made at arm's length and no effort was made to document them properly or to ensure their legal enforceability.
44. The parties have stipulated that during the pendency of any plans confirmed by this Court payment of the FLB debt shall carry interest at a rate of 11.15% per annum.
45. The Chapter 12 plan proposed by Donald and Mildred Zurface, Sr. was filed on March 30, 1988. A separate, but similar, Chapter 12 plan was filed by Donald and Marguerite Zurface, Jr. on the same date.
46. Donald and Mildred Zurface, Sr. propose to fund their plan, in part, through income derived from Mrs. Zurface, Sr.'s off-farm income. At the time of the hearing on confirmation of her plan, Mrs. Zurface, Sr. was not employed and it was not known when, or if, she would be able to secure employment. The Court finds that the monies attributable to Mrs. Zurface, Sr.'s off-farm income are too speculative to use in calculating the feasibility of her plan (Tr. 198-99).
47. Donald and Marguerite Zurface, Jr. propose to fund their plan, in part, through income derived from Mrs. Zurface, Jr.'s substitute teaching. At the time of the hearing on confirmation of the plan, she had not commenced teaching on a substitute basis nor was there any offer of such employment (Tr. 199, 206). Accordingly, there was no foundation to support a determination regarding the amount of income Mrs. Zurface, Jr. would likely receive from substitute teaching.
48. The budgets proposed by Debtors do not include a monthly set-aside of money so that sufficient funds will be available on an annual basis to pay FLB in accordance with the terms of the plans.
49. The budgets do not provide for payment of Debtors' federal, state or local income taxes.
50. As of December 31, 1987, H-D had few outstanding obligations. Although not totally clear, such obligations were between $5,000 and $10,000 (Tr. 163-69).
51. All fees, charges or amounts required under chapter 123 of title 28 have been paid.
52. Postpetition books of account and a checking account have been opened by Debtors.
53. Rood's husband became ill with congestive heart failure (Tr. 323) and he, therefore, has been unable to assist in H-D's farming operations as he originally intended.
54. The Debtors' plans propose to pay a three percent (3%) dividend to holders of allowed unsecured claims. FLB holds secured and unsecured claims.
Discussion
Confirmation of Debtors' Chapter 12 plans has been sharply contested by FLB and Pees. The hearing on confirmation consumed a week of the Court's calendar and was concluded by closing arguments lasting a full day. The record is extensive and includes voluminous documentary evidence. Realizing that "justice delayed is justice denied," the Court's opinion treats the numerous legal arguments advanced by *535 the parties as extensively as permitted in light of a very busy docket.
Preliminarily speaking, the record leads this Court to the inescapable conclusion that the Debtors have not proposed their plans in good faith. Moreover, they have plainly fallen far short of the mark in satisfying the other criteria imposed by the Code for confirmation of a Chapter 12 plan. It is even doubtful that they are family farmers as that term is defined in the Bankruptcy Code. Most importantly, perhaps, is the Court's conclusion that the Debtors' actions with respect to their creditors, from April 7, 1988 when H-D was formed to the present, were intended to hinder, delay and defraud those creditors. There was no legitimate business purpose for forming H-D; it was formed, quite obviously, as the principal component of an overall scheme to place assets out of the reach of FLB and other creditors. Although the testimony of Donald Zurface, Jr. and Rood was offered in support of confirmation, it was utterly lacking in credibility and supported the allegations made by Pees and FLB.
The Good Faith Standard
A bankruptcy court shall confirm a Chapter 12 plan if the plan has been proposed in good faith or not by any means forbidden by law. See, 11 U.S.C. § 1225(a)(3); In re Euerle Farms, Inc., 861 F.2d 1089 (8th Cir.1988). Chapter 12 is emergency legislation enacted by Congress to deal with a crisis in family farming and, in many respects, is modeled after Chapter 13. Matter of Culbreth, 87 B.R. 225, 227 (Bankr.M. D.Ga.1988). The requirements for confirmation of a Chapter 12 plan set forth in 11 U.S.C. § 1225 are substantially the same as those applicable to Chapter 13 plans (See, 11 U.S.C. § 1325), and analogy may be made to Chapter 13 precedents in interpreting § 1225. See, 5 Collier on Bankruptcy ¶ 1225.01 (15th ed. 1987), In re Janssen Charolais Ranch, Inc., 73 B.R. 125 (Bankr. D.Mont.1987); In re Willingham, 83 B.R. 552, 17 B.C.D. 432 (Bankr.S.D.Ill.1988).
The Sixth Circuit, noting that good faith is an amorphous notion largely defined by factual inquiry, has held that the bankruptcy court must ultimately determine whether the debtor's plan, given his or her individual circumstances, satisfies the purposes undergirding Chapter 13; that is, whether it is a sincerely-intended repayment of pre-petition debt consistent with the debtor's available resources. Metro Employees Credit Union v. Okoreeh-Baah (In re Okoreeh-Baah), 836 F.2d 1030, 1033 (6th Cir.1988). The decision should be left simply to the bankruptcy court's common sense and judgment. Id. Because a determination of good faith is not susceptible to a mechanical equation, there are specific factors which the court may find meaningful and assistive in making its determination. The Sixth Circuit set forth the following nonexhaustive list of factors:
(1) the amount of the proposed payments and the amount of the debtor's surplus;
(2) the debtor's employment history, ability to earn and likelihood of future increases in income;
(3) the probable or expected duration of the plan;
(4) the accuracy of the plan's statements of the debts, expenses and percentage repayment of unsecured debt and whether any inaccuracies are an attempt to mislead the court;
(5) the extent of preferential treatment between classes of creditors;
(6) the extent to which secured claims are modified;
(7) the type of debt sought to be discharged and whether any such debt is nondischargeable in Chapter 7;
(8) the existence of special circumstances such as inordinate medical expenses;
(9) the frequency with which the debtor has sought relief under the Bankruptcy Reform Act;
(10) the motivation and sincerity of the debtor in seeking Chapter 13 relief;
(11) the burden which the plan's administration would place upon the trustee; and,
*536 (12) whether the debtor is attempting "to abuse the spirit of the Bankruptcy Code," is a legitimate factor to consider,. . . .
Hardin v. Caldwell (In re Caldwell), 851 F.2d 852, 859 (6th Cir.1988) (quoting with approval from In re Estus, 695 F.2d 311, 317 (8th Cir.1982)).
The test established by the Sixth Circuit calls for a broad judicial inquiry into the conduct and state of mind of the debtor with respect to the proposal of a plan. Such inquiry properly enters into all aspects of fair dealing relevant to the plan, including the lawfulness of the debtor's conduct and his good faith in dealing with creditors and their claims. See, Matter of Yavarkovsky, 23 B.R. 756, 759 (S.D.N.Y. 1982). In the instant case, the Debtors' plans do not satisfy the good faith criterion. The record clearly demonstrates the perpetration of a fraud, beginning no later than April 7, 1986, and continuing to the present with respect to the claims of FLB and the general creditor body.
The facts show that in late 1985 or early 1986 the Debtors, apparently with the assistance of counsel, hatched a plot to thwart FLB from foreclosing upon their property. In March and April 1986, when it became apparent to the Debtors that their Note and other obligations to FLB could not be restructured to their satisfaction and that FLB was poised to take necessary legal action to reduce its claim to judgment, the Debtors decided to place their assets beyond the reach of FLB and their other creditors. On April 7, 1986, the Debtors, while continuing negotiations with FLB regarding a possible restructuring of their debt, formed H-D and transferred all of their valuable assets to that corporation. They made no effort to advise FLB of H-D's incorporation or the transfer of their Assets; to the contrary, they continued their discussions with FLB without the slightest hint that the subject transfer had been effected. They made no mention to FLB of the extraordinary transactions between H-D and themselves at a time when such transactions were obviously of critical importance to the claims of FLB and other creditors.
The Equipment Purchase and Hog Purchase were made for inadequate consideration: the value paid by H-D was significantly below the property's fair market value. Debtors advanced some supposed business, tax and family planning reasons for incorporating H-D and transferring all their assets to H-D; however, the pathetic parade of justifications offered strain credulity and defy common sense. It is not surprising, then, that even the Debtors were unable to articulate any legitimate basis for forming H-D. Their constant, plaintive looks to their counsel for some assistance in trying to attach some sound business reason for incorporating H-D did not escape the Court's detection.
Simply put, there were no federal, state or local tax benefits planned or obtained from forming H-D. Likewise, the claimed estate-planning benefits were nonexistent and may really result in additional liabilities. Further, the formation of H-D offered no appreciable protection from personal liability for Rood or her husband. In sum, H-D was created for the sole purpose of placing assets beyond the reach of FLB and with the intent of hindering, delaying and defrauding FLB and other creditors.
The totality of the circumstances involved in the formation of H-D and proposal of Debtors' plans further evidences their bad faith. Debtors continued to negotiate with FLB in April 1986 and thereafter regarding their liability to FLB and possible liquidation of their Equipment and Livestock while contemporaneously divesting themselves of as much of their property as possible without calling attention to their scheme. They wisely avoided perfecting security interests in the Equipment and Livestock or of transferring real property because a review of the county's public records would have exposed their plot. After transferring most of their property to H-D, the Debtors, through H-D, "paid" themselves and other family in excess of $150,000 in cash, loans and gifts. Many of the liquid assets transferred from H-D to Debtors and other Zurface family members *537 have been dissipated and cannot be accounted for.
Having examined the record in light of the factors outlined in Caldwell, and after observing the conduct and demeanor of the Debtors and Rood, the Court is absolutely convinced that the Debtors' plans represent an attempted abuse of the spirit of the Code. The Court further concludes that Debtors lack the honesty of intention which is an essential prerequisite to obtaining relief in this Court. See, In re Johnson, 708 F.2d 865 (2d Cir.1983). Further, Debtors' pre-filing conduct was plainly dishonest. See, Yavarkovsky, supra (finding bad faith where debtor's transfer of his only substantial asset to a family member was a contrivance designed to convert his assets into an unreachable form to the prejudice of his creditors). Accordingly, the Debtors' plans are not proposed in good faith and cannot be confirmed by this Court.
The Court finds further that the Debtors' transfer of their assets to H-D in April 1986 constituted a fraudulent conveyance because the transfer was made with an intent to defraud, hinder or delay creditors. First National Bank of Chicago v. F.C. Trebein Company, 59 Ohio St. 316, 52 N.E. 834 (1898). Ohio Revised Code § 1336.07 provides that:
Every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay or defraud either present or future creditors, is fraudulent as to both present or future creditors.
Debtors' fraudulent transfer of their assets to H-D is an additional ground for denial of confirmation under 11 U.S.C. § 1225(a)(3).
In determining whether a conveyance is made with actual intent to hinder, delay, or defraud a creditor, direct evidence of fraudulent intent is not essential and, indeed, in most circumstances is not likely to be available. Consequently, certain traditionally designated "badges" or indicia of fraud circumstances which usually or frequently attend a conveyance designed to hinder, delay, or defraud creditors in concert with other suspicious circumstances, have generally been held to be sufficient to show fraud and invalidate the transfer of property. Toledo Trust Company v. Poole (In re Poole), 15 B.R. 422, 431-32 (Bankr. N.D. Ohio 1981). Common badges of fraud include:
(1) litigation pending or anticipated at the time of conveyance;
(2) transfer of all assets of the debtor for inadequate consideration;
(3) failure to record the instrument of conveyance;
(4) sale on credit to an unworthy purchaser or on flimsy credit terms;
(5) parties to the transfer are related by blood or marriage;
(6) reservation of the benefit to the transferor or his family;
(7) transfer of all or a part of property by the transferor by gift where there is no provision for payment of the debts; and
(8) the retention of control and domination of the corporation to which assets are transferred.
See generally, Hadar Leasing International Co., Inc. v. D.H. Overmyer Telecasting Co., Inc. (In re D.H. Overmyer Telecasting Co., Inc.), 23 B.R. 823 (Bankr. N.D. Ohio 1982) (a common badge of fraud is retention of possession by a debtor after he purports to transfer it). When a transfer has been made to a close family member, suspicion of inadequacy of consideration is heightened. National Bank of Pittsburg v. Butler (In re Butler), 38 B.R. 884 (Bankr.D.Kan.1984); Gilbert v. Maston (Matter of Maston), 44 B.R. 880 (Bankr. S.D.Ohio 1984); Tapper v. Herbst (In re Herbst), 76 B.R. 882 (Bankr.D.Mass.1987); Cates-Harman v. Reininger-Bone (Matter of Reininger-Bone), 79 B.R. 53 (Bankr. M.D.Fla.1987); Hall v. Kuhlman (In re Steele), 79 B.R. 503 (Bankr. M.D.Fla.1987); Zoltanski v. Akst (In re Zyndorf), 80 B.R. 876 (Bankr. N.D.Ohio 1987).
In the instant case, a sufficient, if not overwhelming, number of these badges of fraud exist. The Debtors never relinquished possession of the transferred property; to the contrary, they continued to use *538 the same real and personal property to conduct their farming operation. Thus, while ownership of most of their property has been transferred to H-D, Debtors have remained in constant possession of that property and have controlled its use. Likewise, Donald Zurface, Jr. dominated and controlled the affairs of H-D, both before and after conveyance of the property was made to H-D.
The purported formation of H-D for the benefit of the minor children of Donald Zurface, Jr. was a ruse. Rood, the trustee of a claimed oral trust, had virtually no involvement in or knowledge of the management of H-D. Her testimony exhibited surprisingly little knowledge of H-D's operations other than to affirm that Donald Zurface, Jr. ran the company. The minor children, both of whom are quite young, obviously had no direct involvement in the farm operation. It is obvious that the so-called oral trust and H-D itself were integral pieces in the general scheme to hinder, delay and defraud FLB and other creditors.
Debtors' assets were transferred for less-than-adequate consideration. Clearly, the value of the Equipment Purchase ($36,930) and Hog Purchase ($24,561) did not constitute adequate or fair consideration when compared to the true value of the Equipment ($49,502) and Livestock ($48,110). Similarly, Debtors never requested nor obtained salary or other compensation from H-D during the approximately 20 months of H-D's prepetition existence. Viewing the transaction as a whole, the Court must conclude that it was not at arm's length nor was fair consideration exacted.
Another telling badge of fraud was the Debtors' transfer of their entire estate. All unencumbered assets owned by Debtors were conveyed to H-D at a time when FLB was close to foreclosing upon Debtors' defaulted obligations, repossessing secured collateral, and attaching unsecured collateral to satisfy its claim. The undisclosed, in fact clandestine, formation of H-D under those circumstances is a strong indicator of fraud. See, Gilbert v. Maston (Matter of Maston), supra; Squire v. Cramer, 64 Ohio App. 169, 17 Ohio Op. 499, 28 N.E.2d 516 (1940). It is likewise obvious from the record that the Debtors were insolvent when the transfers were made in April, 1986, and that litigation against them was anticipated.
Thus, the record is replete with badges of fraud. The record further supports the Court's finding of an overall fraudulent scheme. The general demeanor and conduct of the Debtors and their witnesses, combined with their actual testimony, further established the existence of a plan, concocted by Debtors with the apparent assistance of their counsel, to defraud FLB and the other creditors. Having heard the testimony and reviewed the evidence all of which vividly highlights Debtors' fraud the Court remains surprised that the Debtors actually believed that their fraudulent scheme somehow would withstand the Court's scrutiny.
The Best-Interest-of-Creditors Test
Having found that the Debtors fraudulently transferred their property to H-D, the plans clearly do not satisfy 11 U.S.C. § 1225(a)(4). Pursuant to § 1225(a)(4), the Court may confirm a plan if the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under Chapter 7 on such date. Section 1225(a)(4), known as the "best interest of creditors" test, requires that unsecured creditors receive at least as much under a Chapter 12 plan as they would in a Chapter 7 liquidation. In re Willingham, supra; In re Hansen, 77 B.R. 722 (Bankr. N.D.1987); cf. In re Chapman, 51 B.R. 663, 668 (Bankr. D.C.1985); In re Fauth, 79 B.R. 490 (Bankr.D.Mont.1987). Debtors proposal to pay unsecured claims a 3% dividend does not meet this standard considering the likely recovery of the property fraudulently transferred to H-D. See, In re Toy & Sports Warehouse, Inc., 37 B.R. 141, 150 (Bankr. S.D.N.Y.1984); In re Future Energy *539 Corp., 83 B.R. 470, 489 n. 3 (Bankr.S.D. Ohio 1988).
The Feasibility Standard
The Court also must determine whether the Debtors will be able to make all payments under and comply with the plan. See, 11 U.S.C. § 1225(a)(6). The Court must scrutinize the plan carefully to determine whether it offers a reasonable prospect of success and is workable. In re Monnier Brothers, 755 F.2d 1336, 1341 (8th Cir.1985). Even a cursory examination of the record discloses that the Debtors' plan is not feasible.
The key to the determination of feasibility relates to "the probability of actual performance of provisions of the Plan." In re Crowley, 85 B.R. 76, 78 (D.W.D.Wis. 1988) (quoting In re Konzak, 78 B.R. 990 (D.N.D.1987)). More specifically, a plan will be found feasible if "it appears reasonably probable that the farmer can pay the restructured secured debt over a reasonable period of time, at a reasonable rate of interest, in light of farm programs as of the date of confirmation." Id. (citations omitted). The burden of proof is on the Debtors. In re Olp, 29 B.R. 932, 936 (Bankr. E.D.Wis.1983); In re Hogue, 78 B.R. 867, 872 (Bankr.S.D.Ohio 1988).
Here, the Debtors have failed to convince the Court that there will be sufficient monies available to make the annual payment of $57,800 proposed to be made to FLB or to pay other creditors. Given the approximately $72,000 which will be available to maintain the two Zurface households and satisfy plan obligations, it is obvious that the Debtors cannot pay FLB, their administrative and general claimants in this case, and maintain sufficient funds with which to live. It is also readily apparent that Debtors possess insufficient funds under any circumstances to make plan payments in the amounts required in 1989. Furthermore, there are no budgeted amounts for the payment of federal, state and local income taxes. Thus Pees' assertion that the plans do not comply with 11 U.S.C. § 1225(a)(6) is well-taken.
Dismissal/Conversion
Having found that the Debtors have committed fraud in connection with their Chapter 12 cases, the Court may dismiss the cases or convert them to cases under Chapter 7 pursuant to 11 U.S.C. § 1208(d). Section 1208(d) provides as follows:
On request of a party in interest, and after notice and a hearing, the court may dismiss a case under this chapter or convert a case under this chapter to a case under chapter 7 of this title upon a showing that the debtor has committed fraud in connection with the case.
Section 1208(d) is unique there is no analogous provision dealing with conversion of cases filed under Chapters 7, 11 or 13 of the Code. Further, there appear to be no reported decisions construing § 1208(d). Hence, the legislative history, as sparse as it is, serves as the sole source of interpretative guidance for the Court. It provides:
If fraud is found, the case will be dismissed or converted to Chapter 7. This encourages good faith, [sic] and honest dealing by the debtor throughout the case. (132 Cong.Rec. S15076 (Oct. 3, 1986).)
The Sixth Circuit's standards are in consonance with the legislative history: relief under Chapter 12 is available only to the honest debtor who is making a sincere effort to repay creditors. Given the Court's finding that the Debtors have engaged in a scheme to defraud their creditors and have continued this scheme through the presentation of exceedingly unbelievable testimony regarding their true motives, conversion certainly appears appropriate.
Conversion to Chapter 7 will permit an appointed trustee to seek return of all assets fraudulently transferred to H-D. See, 11 U.S.C. §§ 544, 548. Recovery of those assets will benefit all creditors and the estate. Dismissal of the case would benefit Debtors alone, who would be permitted to further delay payment of their just debts and dissipate, quite possibly, assets which would be available for distribution to creditors. Accordingly, these related cases are hereby converted to cases under Chapter *540 7. A trustee shall be appointed in each case immediately. In the interest of economy and efficiency, it is presumed that the United States Trustee will appoint the same trustee in each of these two cases. Having ordered these cases converted to cases under Chapter 7 of the Code, it is unnecessary to decide whether Debtors are family farmers as that term is defined in the Code.
Confirmation of Debtors' plans is, therefore, DENIED and these related cases are hereby converted to cases under Chapter 7. The Court further orders that H-D shall file with this Court a written, monthly accounting of its assets and liabilities and that it make no transfers of property out of the ordinary course of business with respect to any property, or proceeds thereof, transferred to it by Debtors absent Court approval.
IT IS SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540216/ | 95 B.R. 665 (1988)
In the Matter of Marvin W. DAVISON and Betty Suzanne Davison, Debtors.
Bankruptcy No. 83-00699-SW-3.
United States Bankruptcy Court, W.D. Missouri, Southwestern Division.
August 5, 1988.
Motion to Reconsider August 30, 1988.
Richard Knight, Olathe, Kan., for debtors.
Elizabeth Sauer, Campbell, Morgan & Gibson, P.C., Kansas City, Mo., for movants.
*666 ORDER OF DISTRIBUTION OF FUNDS OF ESTATE
DENNIS J. STEWART, Chief Judge.
Formerly, on June 28, 1988, this court issued its order directing the creditors, or any of them, to show cause in writing within 25 days why distribution of the within estate should not take place in accordance with the calculations contained therein and according to the legal principles there contained. In response to that order, two objections to the proposed distribution have been filed. They are considered in the paragraphs which follow.
The objection of Campbell, Morgan & Gibson, P.C.
It was the proposal in the show cause order of June 28, 1988, that all of the attorney's fees of Campbell, Morgan & Gibson, P.C., which were claimed by them at that time should be paid from the estate, but according to a priority which would relegate most of their fees to a second priority partial distribution. To this, objection has been made to the effect that such relegation is not appropriate. But "Code section 726(b) expressly limits the super-priority status to those administrative expenses incurred solely under the Chapter 7 case after its conversion. Hence, the applicants (for attorneys' fees) are compelled to look beyond this estate for the source of any compensation with respect to their legal services performed during the Chapter 11 period." In re Codesco, Inc., 18 B.R. 225, 228 (Bkrtcy.S.D.N.Y.1982). "(S)uperceding chapter 7 expenses are entitled to be paid in full before priorities of the next rank administrative expenses incurred in the superceded chapter 11 case are paid in full or in part." In re Energy Co-op, Inc., 55 B.R. 957, 968 (Bkrtcy.E.D. Ill.1985).
It is next suggested that it is inappropriate to subtract the amount of the retainer from the total fees which may otherwise be payable from the estate. It is well established, however, that the court has a duty to refund to an estate or a debtor any excess of a retainer which is not justified by the value of services rendered in the course of the bankruptcy proceedings. See Rule 2017 of the Rules of Bankruptcy Procedure; In re Porter, 253 F. 552, 553 (7th Cir.1918) (A retainer is paid "by the bankrupt out of his estate in contemplation of bankruptcy, and (is) for services rendered or to be rendered such bankrupt in the matter of his bankruptcy proceedings.") This contention must therefore be rejected.
It is finally asserted that, if the law firm were granted all its fees which it applied for, not only those which would be granted under the prior orders of the court, the total sum due would be $31,702.00 as a second priority expense of administration. See page 2 of "response to order to show cause entered June 27, 1988 and request for stay order pending appeal." According to the above authorities, if this contention is granted, the $15,000 retainer, which does not have a significance independent of legal services rendered in the estate, must be set off against the amount awarded. So, the correct second priority amount is $16,702.00, if the contentions of the objecting law firm are correct. This amount proposes to be granted because of the minimal impact on the estate.
The objecting law firm further objects that this court cannot distribute the funds of the estate unless and until an appeal from this court's prior orders denying some of their attorney's fees is determined. But the effect of the within order of distribution is to grant all the contentions of the applicant law firm. If the applicant firm wishes the court to withhold some part of the sum due them, the court will do so on application made by them. But, in order to promote early distribution of the estate, and because of the minimal impact which the attorney's fees have on the estate, the court proposes to grant the above contentions of the law firm as respects the amount due them as a second priority expense. Thus, the prior awards remain unaffected and the court is well within its power in making distribution according to the priorities of the estate. See, e.g., In re India Wharf Brewery, 96 F.2d *667 710, 712 (2d Cir.1938), to the following effect:
"Relying upon the principle that one judge may not overrule the decision of another judge of co-ordinate jurisdiction made in the same case, the appellant argues that Judge Abruzzo had no power to reduce the receiver's commissions as fixed by the order of Judge Campbell. This principle has no application to the facts at bar for two reasons. The first is that Judge Abruzzo did not re-examine the amount of the receiver's commissions as previously determined; his order accepted this amount but directed payment of a pro rata dividend thereon, as upon other expenses of administration, because the estate was insufficient to pay all in full. A second, and more fundamental, reason is that an allowance of compensation is merely an administrative order and as such is always open to reexamination by the bankruptcy court until the estate is closed."
Therefore, the court will direct that the law firm of Campbell, Morgan and Gibson receive $16,702.00 as a second priority expense of administration.
The objection of Heuer-Williams, Inc.
The objection of Heuer-Williams, Inc., is to the effect that the postconfirmation debts incurred without specific authorization of court should not be paid at all in consonance with the reasoning of Matter of Alafia Land Development Corp., 40 B.R. 1 (Bkrtcy.M.D.Fla.1984) ("(O)ne who lends money to a debtor in possession without prior approval of the Court is not even entitled to the status of a general unsecured claim.") As this court has made clear in its prior orders, however, including that of June 28, 1988, the postconfirmation indebtedness was authorized by reason of the order of confirmation expressly providing that an estate remained in existence, thus granting the authority to the debtor to incur indebtedness in the name of the estate. As this court stated in its prior order of June 28, 1988,
"in this case, as previously pointed out, the order of confirmation purports to keep an estate in existence. And, otherwise, as is pointed out in In re Tri-L Corporation, 15 C.B.C.2d 1029, 1033 [65 B.R. 774] (Bkrtcy.D.Utah 1986), section 348(d) of the Bankruptcy Code, which otherwise relegates postconfirmation claims to prepetition status, expressly excepts administrative expense claims."
The court therefore rejects the objection of Heuer-Williams, Inc.
Order of Distribution
Therefore, in accordance with the foregoing principles, and those contained in the court's other prior relevant orders, it is hereby
ORDERED that within 25 days of the date of filing of this order or within such additional time as the court may grant for good cause shown in writing within the same 25 days the trustee make distribution of the following amounts to the following recipients:
Internal Revenue Service .................... $156,330.43
State tax claims ............................ 13,282.47
trustee's attorney's fees
(reserved for later justification) ........ 40,000.00
wage claims ................................. 29,174.48
salary claims of principals ................. 55,129.25
Miscellaneous postconversion
supplies .................................. 32,823.53
court costs for copying
and mailing of order of
March 18, 1988 ............................ 15,065.00
Judgment to be paid to the
Farmers and Merchants
Bank pursuant to show
cause order which was
not objected to ........................... 6,000.00
postconversion fees of
Campbell, Morgan and
Gibson, P.C. .............................. 6,335.50
second priority fees of
Campbell, Morgan and
Gibson, P.C. .............................. 16,702.00
other second priority expense
of administration
creditors according to
the attached schedule ..................... 59,991.95
ORDER SETTING HEARING ON "MOTION (OF CAMPBELL, MORGAN AND GIBSON, P.C.) TO RECONSIDER ORDER OF DISTRIBUTION OF FUNDS OF ESTATE ENTERED AUGUST 5, 1988"
This court formerly entered its "order of distribution" of the within chapter 7 estate *668 on August 5, 1988. The law firm of Campbell, Morgan & Gibson, P.C., has filed a motion for reconsideration of that order, in which the following points are raised.
Taxes
Movants contend that the superpriority classification accorded to federal and state taxes incurred during the chapter 11 reorganization proceedings is erroneous; that the taxes thus incurred should be entitled only to "first priority" status; and that case authority "fails to disclose any court's willingness to grant post/petition/preconversion tax liability the super-priority status granted in the present case." The action which was proposed by this court in its prior orders, however, was based upon the decision in In re Allen, 67 B.R. 46, 49 (Bkrtcy.W.D.N.Y.1986), in which it was held that "all postpetition pre-conversion taxes and penalties incurred by the estate are deemed to be of the type enunciated in section 503(b) and will receive a first priority status." This "first priority status" was to be accorded in the chapter 13 proceedings which were the successor to the chapter 11 proceedings in which the tax liability was incurred. Thus, by analogy, this court held that unpaid withholding tax obligations, which were incurred during the chapter 11 proceedings were allowable as administrative expenses in a chapter 7 proceeding which succeeded the chapter 11 proceeding.
Even more persuasive authority supporting the according of "superpriority" status to these tax obligations is a case now adverted to in the movants' motion for reconsideration, In re Patco Photo Corp., 82 B.R. 192, 195 (Bkrtcy.E.D.N.Y.1988). In that case, in determining that the Government was entitled to interest on a withholding tax obligation, the court stated as follows:
"An order was signed by the court in the infancy of this case, as is done shortly after the commencement of very Chapter 11 case in this court, directing the debtor-in-possession to segregate and deposit all federal tax liabilities as they become due. Patco did not comply with this directive. Breach of this order is a further reason to allow the taxing authorities interest for the debtor's noncompliance. "To disallow interest as an administrative expense would be contrary to the desired public policy. The effect of such a holding would be to grant the debtors an interest-free loan at the expense of both the government and the judicial process . . . Debtors who fail timely to pay their taxes during their Chapter 11 cases should not be relieved of paying interest on their arrearages as required of all other taxpayers. In fact, the integrity of the bankruptcy system demands that Chapter 11 debtors-in-possession pay their taxes on time. To treat the debtor otherwise would encourage debtors to delay paying their taxes and use the unpaid amounts to fund plans of reorganization. Allowing interest to accrue on post-petition taxes might encourage debtors to propose and confirm plans in a more expeditious manner. Therefore, this court finds that interest on post-petition tax arrearages should be given priority status."
In accordance with that reasoning, the Internal Revenue Service has a right to expect that the judicial process will see that the tax obligations which are incurred during the chapter 11 process will be fully paid. This is especially so when, at the time of the inception of this case, the court required by virtue of local rule 13 that:
"In all cases where the trustee or debtor is permitted to operate, he must immediately deposit in one of the depositories permitted by the Code all monies then held or thereafter received or collected for and on behalf of the United States, the State of Missouri or any political subdivision thereof for excise, entertainment, withholding, social security or unemployment taxes or contributions. The deposit must be made in a separate account designated `Tax Account.'"
Now to hold that the unpaid withholding tax obligations are relegated to an inferior priority which would mean less than their full payment would be to frustrate the operation and effect of the above local rule and to permit the United States to be victimized *669 in a manner which is not consistent with the provisions of the Bankruptcy Code. These same principles apply to the tax obligations of the State of Missouri. It is appropriate for the tax authorities to be granted a "super-super-priority claim" by reason of "the extreme equities." In re American Intern. Airways, Inc., 77 B.R. 490, 495 (Bkrtcy.E.D.Pa.1987). And this is, for the foregoing reasons, such a case. Accordingly, this court rejects the contention that the tax obligations should not receive "superpriority" treatment.
Wages and Salary Claims of Principals
Movants next object that the wages and the salary claims of principals cannot be treated as the equivalent of severance pay within the meaning of Straus-Duparquet, Inc. v. Local No. 3 International Brotherhood of Electrical Workers, 386 F.2d 649, 650 (2d Cir.1967). In that case, it was held that "(s)everance pay was properly held to be an expense of administration" and "severance pay" was defined as:
"a form of compensation for the termination of the employment relation, for reasons other than the displaced employees' misconduct, primarily to alleviate the consequent need for economic read-justment but also to recompense him for certain losses attributable to the dismissal."
Further, in Matter of Pacific Far East Line, Inc., 713 F.2d 476, 478 (9th Cir.1983), it was observed that the Straus-Duparquet rule was to the effect that "severance pay constitutes compensation for the employee's post-filing termination (and accordingly that the court) has allowed all such claims priority as post-filing administrative expense." According to this reasoning, because it appeared that termination of the employees and principals was after the inception of the chapter 7 proceedings, the compensation could be regarded as payment for their termination and could be accounted as postconversion administrative expenses entitled to the superpriority treatment under section 726(b) of the Bankruptcy Code. But it certainly is an issue of fact, to be established by the respective claimants, as to whether the payment can be regarded as the equivalent of severance pay, i.e., payment on account of termination as opposed to earned past wages or salary. Accordingly, the court will set a hearing at which the claimants will be granted an opportunity to make such a demonstration to the court.
Computation
Finally, the movant law firm points out that this court, in the order of distribution now under challenge, inadvertently subtracted the $15,000 retainer twice from the amount which they would otherwise have received under that order of distribution.[1] The court, in any forthcoming order of distribution, to be entered after the hearing above adverted to, assuming that the wage and salary claims will be relegated to a lower classification (without so holding at this time) proposes to figure the distribution to Campbell, Morgan and Gibson as follows:
Superpriority claim for services
rendered after the date of
conversion "in aid of administration"
of the estate ...................................... $6,335.50
Priority claim for services
rendered in the course of the
chapter 11 proceedings ........................... $126,522.61[2]
Percentage to be paid to chapter
11 expenses of administration
derived by determining
ratio of outstanding claims to
monies remaining after superpriority
expenses of administration
have been paid[3] ................................... 19.9%
*670
19.9% times $126,522.61 ............................ $24,381.99
Total amount of distribution
($24,381.99 plus $6335.50) .......................... 30,717.49
subtraction of $15,000 retainer
received ............................................ 15,717.49[4]
Accordingly, it is hereby
ORDERED that a hearing be held on the pending motion with respect to the wage and salary claims of principals on September 13, 1988, at 2:00 p.m. in Room 945, United States Courthouse, 811 Grand Avenue, Kansas City, Missouri.
NOTES
[1] This contention cannot be sustained. The court subtracted the $15,000 from the total distribution which the applicant law firm had arrived at as the amount of the correct distribution. In so doing, the applicant law firm had purported to subtract the sum of $15,000 as "retainer received," but they had also included that sum in the previous subtotal as though it had an independent significance and need not be justified by services provided.
[2] This sum is taken from the penultimate response to the show cause orders which have previously been issued by the court.
[3] If the wage claims and the salary claims of principals are not to be included in the "superpriority" category, the amount of second priority claims will be $805,053.71. The amount available for distribution to those claims will be $160,172.26. The percentage to be distributed will therefore be 19.9%
[4] See note 1, supra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540613/ | 433 Pa. Superior Ct. 246 (1994)
640 A.2d 904
COMMONWEALTH of Pennsylvania, Appellee,
v.
John Kenneth FRANK, Appellant.
Superior Court of Pennsylvania.
Submitted December 6, 1993.
Filed March 18, 1994.
Reargument Denied May 24, 1994.
*248 Todd J. O'Malley, Scranton, for appellant.
John T. Robinson, Dist. Atty., Selinsgrove, for Commonwealth, appellee.
Before KELLY, POPOVICH and BROSKY, JJ.
POPOVICH, Judge.
This is an appeal from the order of the Court of Common Pleas of Snyder County which denied appellant's request for relief under the Post Conviction Relief Act, 42 Pa.C.S.A. § 9541 et seq. Appellant was convicted of rape and involuntary deviate sexual intercourse involving an eleven year old boy who was seeking counseling from appellant in 1982 and 1983. On direct appeal, his convictions were affirmed. Commonwealth v. Frank, 395 Pa.Super. 412, 577 A.2d 609 (1990), allocatur denied, 526 Pa. 629, 584 A.2d 312 (1990). Upon review of the present PCRA appeal, we affirm.
Herein, appellant contends that trial counsel was ineffective for failing to raise the defense of statute of limitations where *249 the Commonwealth did not plead or prove the tolling provisions. He also contends that counsel was ineffective for failing to review the files of Snyder County Children & Youth Services for information concerning a "unfounded" charge of sexual abuse made by the victim almost two years after appellant had ceased contact with him. Finally, appellant contends that no single sexual act should be permitted to support convictions for both rape and involuntary deviate sexual intercourse charges.
First, we will address appellant's allegation that his trial counsel was ineffective for failing to raise the defense of the statute of limitation where the Commonwealth failed to provide notice of its intention to toll the statute of limitation and failed to prove facts sufficient to sustain the tolling. Pursuant to the statute of limitation, 42 Pa.C.S.A. § 5552(b), the Commonwealth's prosecution of appellant on the charges of rape and involuntary deviate sexual intercourse had to occur within five years of the date the criminal acts were committed. However, pursuant to 42 Pa.C.S.A. § 5554(1), the period of limitation does not run during any time when "the accused is continuously absent from this Commonwealth or has no reasonably ascertainable place of abode or work within this Commonwealth".
Unfortunately for appellant, he fails to present a cognizable PCRA claim. To be eligible for relief, appellant's conviction must have resulted from ineffectiveness which so undermined the truth-determining process that no reliable adjudication of guilt or innocence could have transpired. 42 Pa.C.S.A. § 9543. Appellant does not allege facts to show that the truth determining process was adversely affected by the Commonwealth's alleged failure to provide notice and prove that the tolling statute was applicable. In other words, appellant has not specifically alleged that during the time period in question, he was a resident of Pennsylvania, and not one of Minnesota. Cf., Commonwealth v. Laskaris, 407 Pa.Super. 440, 444, 595 A.2d 1229, 1231 (1991) (appellant not eligible for PCRA relief where he alleges counsel was ineffective for failing to preserve issue that the Commonwealth did not notify him of its intent *250 to toll the statute of limitation, but appellant failed to allege facts which demonstrate that the truth-determining process was compromised).
In his brief, appellant contends that there is no evidence of record to support Judge Bromfield's statement that appellant was a resident of Minnesota. Appellant states that he "may have worked in Minnesota" but nothing supports the inference that his residence was any where but in Pennsylvania. Appellant's Brief, p. 17. However, appellant's allegation that the record does not establish that he was a resident of Minnesota is not tantamount to a declaration that he was a resident of Pennsylvania throughout the tolled period. We are mindful that appellant is before us on a petition for post-conviction collateral relief where he bears the burden of proving that the "truth-determining" process was undermined. Cf., Commonwealth v. Franklin, 306 Pa.Super. 382, 452 A.2d 777 (1982) (case decided under repealed Post Conviction Hearing Act).
Moreover, there is ample evidence that appellant was a resident of Minnesota during the period in question. The Criminal Complaint listed appellant's address as Rt. 5, Box 3-E, Austin, Minnesota. The arraigning magistrate's notes (for bail purposes) reveal that appellant was a resident of Minnesota for three years. Appellant admitted that he "went" to Austin, Minnesota to become the Executive Director of Girard Treatment Center, a residential, psychiatric treatment center. After leaving that position, he became a management consultant for an Iowa trucking company, and he obtained his Minnesota real estate license. See, N.T., May 24, 1989, pp. 93, 149-150. In addition, the pastor of appellant's Minnesota church testified that appellant was well known in the Austin community from November of 1985 until May of 1988. N.T., 5/25/89, pp. 14-15.
Appellant has not established that he was a resident of Pennsylvania during the limitation period. Thus, he has not proven that the truth-determining process was undermined and he is not entitled to PCRA relief. Nevertheless, were we to review appellant's claim, we would conclude it was *251 meritless. The law of Pennsylvania requires the Commonwealth to inform the accused of its intention to demonstrate that the statute of limitation was tolled within a reasonable time prior to trial. Commonwealth v. Bethlehem, 391 Pa.Super. 162, 564, 570 A.2d 563, 565 (1989), allocatur denied, 525 Pa. 610, 577 A.2d 542 (1990);[1]Commonwealth v. Eackles, 286 Pa.Super. 146, 428 A.2d 614 (1981); Laskaris, 595 A.2d at 1232. Herein, appellant was informed of the Commonwealth's intent to apply the tolling provision of 42 Pa.C.S.A. § 5554(1), if appellant planned to pursue the defense of the statute of limitation. Although the notice was not in writing, the record nevertheless indicates that appellant received actual notice of the Commonwealth's intentions prior to trial. The lower court specifically recalled a pre-trial discussion between the court, the prosecution and defense counsel concerning the issue. N.T., 2/19/93, p. 8. Appellant's own testimony indicates his counsel considered the limitation defense to be meritless. N.T., 2/19/93, p. 16. Counsel cannot be held ineffective for failing to raise a meritless claim. Commonwealth v. Williams, 532 Pa. 265, 615 A.2d 716 (1992). Further, notice of the tolling provisions may be waived where there is no prejudice to the defendant. Laskaris, 595 A.2d at 1232, citing, Commonwealth v. Stockard, 489 Pa. 209, 217-218, 413 A.2d 1088, 1092 (1980). Since appellant has not established that he was a resident of Pennsylvania throughout the appropriate time frame, we could find no prejudice, even if the Commonwealth had never provided him with notice.
Next, appellant contends his trial counsel was ineffective for failing to review the files of Snyder County Children & Youth Services for information concerning an "unfounded" charge of sexual abuse made by the victim almost two years after appellant had ceased contact with him. Appellant herein contends that the letter could have been used by counsel to attack the credibility of the victim. However, we find that this issue has been waived.
*252 "[W]here an issue is raised in a post-conviction petition, but is not pursued at a hearing, it is deemed to be waived unless the failure to pursue the issue was not knowing and understanding." Commonwealth v. Shaffer, 390 Pa.Super. 610, 615, 569 A.2d 360, 363 (1990), allocatur denied, 525 Pa. 617, 577 A.2d 889, (1990) citing, Commonwealth v. Payton, 440 Pa. 184, 269 A.2d 667 (1970). In his amended PCRA petition, he contends that counsel was ineffective for failing to challenge appellant's "right to a prompt complaint." At the PCRA hearing, appellant offered the letter in question into evidence and argued that counsel was ineffective for failing to request a jury charge concerning "prompt complaint". N.T., 2/19/93, p. 31. Prior to this appeal, appellant has never alleged that counsel was ineffective for failing to attack the victim's credibility with the letter. While the two issues are similar, they are not the same. Further, appellant failed to brief either the issue he now argues or the prompt complaint issue for the lower court, and the lower court has not been afforded an opportunity to address either issue. Thus, we find that appellant either has abandoned the issue by his failure to brief the issue for the court below (assuming arguendo that the issues are one and the same) or has waived the issue by is failure to raise the issue below.[2]
*253 Finally, appellant contends that no single sexual act should be permitted to sustain convictions for both rape and involuntary deviate sexual intercourse, i.e., merger is required. This argument fails for two reasons: First, the evidence revealed that appellant engaged in both oral and anal sexual intercourse with the victim. Thus, the two convictions rested upon two separate acts. Cf., Commonwealth v. Hitchcock, 523 Pa. 248, 565 A.2d 1159 (1989) (rape and involuntary deviate sexual intercourse do not merge where there are separate penetrations); Commonwealth v. Vanderlin, 398 Pa.Super. 21, 580 A.2d 820 (1990) (attempted rape did not merge with attempted involuntary deviate sexual intercourse where factual basis was different for crimes, despite both charges arising from a single sexual attack).
Second, except for lesser included offenses, the doctrine of merger based upon whether the Commonwealth has an interest in prosecuting a criminal defendant for more than one crime has been abrogated and abolished. Commonwealth v. Williams, 521 Pa. 556, 563, 559 A.2d 25, 29 (1989). Herein, appellant was convicted of rape, defined as "sexual intercourse with another person not his spouse . . . by threat of forcible compulsion that would prevent resistance by a person of reasonable resolution". 18 Pa.C.S.A. § 3121(2). In Hitchcock, 523 Pa. 250, 565 A.2d at 1160, our Supreme Court clearly stated that "anal penetration by a male of another person, not his spouse, is rape." Appellant was also convicted of involuntary deviate sexual intercourse, defined as "deviate sexual intercourse with another person . . . who is less than 16 years of age." (Emphasis added.) Consequently, the two crimes are not lesser included offenses of one another, and merger is not appropriate (even if appellant had been convicted of only engaging in anal intercourse with the victim).
*254 Appellant also states that prior counsel was ineffective for failing to argue that a male cannot "rape" another male, and, thus, his rape conviction should be vacated. Although traditionally rape has been considered a crime perpetrated by males against females, see Hitchcock, supra (Concurring and dissenting opinion by Nix, C.J.), the rape statute is gender neutral in regards to the victim of the sexual assault, and we see no reason why it should not also encompass sexual assaults committed by males against males. In fact, the majority in Hitchcock, supra, intimated just such a result, when it stated: "[A]nal penetration by a male of another person, not his spouse is rape"; and when it questioned: "Where the victim [of rape] is male. . . ." Id., 565 A.2d at 1160, 1161. More direct, in his concurring and dissenting opinion in Hitchcock, supra, Justice Zappala specifically stated, "a male can rape another male. . . ." Id., 565 A.2d at 1162; Cf., Commonwealth v. Fouse, 417 Pa.Super. 534, 612 A.2d 1067 (1992) (anal penetration by father upon son is sexual intercourse as defined in the Crimes Code). Since the issue underlying appellant's assertion of error is meritless, counsel cannot be found ineffective. Commonwealth v. Fierst, 423 Pa.Super. 232, 620 A.2d 1196, 1200-1201 (1993).
PCRA order affirmed.
NOTES
[1] Bethlehem, 391 Pa.Super. 166, 570 A.2d at 565, indicates that the notice may be actual or constructive.
[2] Were we to reach this issue, we would find that appellant is not entitled to PCRA relief since appellant has failed to establish that counsel's ineffectiveness undermined the truth-determining process. 42 Pa.C.S.A. § 9543(a)(2)(ii). Even if we assume arguendo that counsel was ineffective for failing to make use of the letter authored by Snyder County Children & Youth Services to attack the victim's credibility, it is clear from a review of the record that counsel did question the victim's credibility sufficiently to insure a reliable adjudication of guilt. Counsel specifically attacked the victim's credibility by extensively cross-examining him about, inter alia, his delay in reporting of appellant's sexual molestation and about the victim's contemporaneous sexual relationship with his adoptive brother.
More to the point, counsel was not ineffective for failing to use the document on cross-examination since appellant has presented no evidence that counsel ever knew about the document or could have discovered the same. Contrary to appellant's representations, counsel performed exhaustive pre-trial discovery, including an attempt to subpoena the records of the Snyder County Children & Youth Services. An in camera review of the file was performed by the lower court in compliance with Pennsylvania v. Ritchie, 480 U.S. 39, 107 S.Ct. 989, 94 L.Ed.2d 40 (1987), after which various documents were released to counsel. It appears that the letter was not one of the documents released. However, it is clear that appellant himself possessed a copy of the letter in question, and, yet, he could not recall whether he provided counsel with a copy of the letter. N.T., 2/19/93, pp. 32-33. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540247/ | 95 B.R. 5 (1989)
In re Emil J. WHITFORD and Priscilla R. Whitford, d/b/a Omega Company, Debtors.
Thelma E. FUGERE and Harvey T. Fugere, Plaintiffs,
v.
Emil J. WHITFORD and Priscilla R. Whitford, d/b/a Omega Company, Defendants.
Bankruptcy No. 8800183, Adv. No. 880014.
United States Bankruptcy Court, D. Rhode Island.
January 17, 1989.
Patrick L. McKinney, Wakefield, R.I., for debtors.
Thomas J. Grady, Lenihan, Moone, Gallogly & Comolli, Westerly, R.I., for Thelma E. and Harvey T. Fugere.
*6 DECISION
ARTHUR N. VOTOLATO, Jr., Bankruptcy Judge.
Heard on September 20 and October 13, 1988, on the complaint of Thelma and Harvey Fugere to declare nondischargeable, pursuant to 11 U.S.C. § 523(a)(2)(A), a debt of the defendants, Emil and Priscilla Whitford.[1] We note initially that the pleadings filed in this adversary proceeding are very confusing. The Complaint and Answer address the issue of the dischargeability of a state court punitive damage judgment, whereas the Joint Pretrial Order and the evidence presented at trial dealt with a claim for recovery of a deposit paid to the debtors, which the plaintiffs allege was procured by fraud. We will decide this matter based on the statements contained in the Joint Pretrial Order, and the evidence introduced, and, in accordance with Fed.R.Civ.P. 15(b), order that the pleadings be amended to conform to the evidence. In addition, because the plaintiffs failed to present evidence relative to punitive damages, that part of their claim is deemed waived.
The dispute herein arises out of a contract entered into on June 26, 1986, between the plaintiffs and defendant/debtor Emil Whitford, in which Whitford agreed to construct a garage and deck on the Fugere's property, and to replace a patio door,[2] all for the price of $12,306. On this same date, at the defendant's request, Mrs. Fugere gave Mr. Whitford a check for $9,570, which Whitford described as the initial deposit for the job. The primary issue for determination is whether, at the time the deposit was given, Mr. Whitford represented to Mrs. Fugere that this sum (which was 77% of the total contract price) was to be used for the purchase of the building materials needed for the job, and whether, when Whitford took the deposit money, he actually intended to use it for that purpose. Mrs. Fugere stated that the defendant told her he needed two-thirds of the contract price as an initial deposit in order to purchase the materials, and that the entire job would then only take two or three weeks to complete. She also stated that she gave him such a large deposit only because of this representation, which she relied on. Although defendants' Exhibit B, the signed contract, includes an initial deposit provision which provides: "Materials $7,855.64 + tax $471.33, Labor $3,979.95, Initial deposit $9570," Mrs. Fugere testified, and her husband similarly attested that they did not remember the deposit provision being filled in when they signed the contract. Whitford initially mailed the contract to the Fugeres, who both signed it prior to the defendant signing, with the space indicating the deposit amount being blank. When Mr. Whitford came to the Fugeres' house to pick up the deposit check, he also took back the contract and promised to mail the Fugeres a copy, which he never did. The Fugeres both testified that they did not see this document again until just before the trial, and at that time first saw the deposit breakdown filled in. The defendant disputes this assertion, and argues that the breakdown provision had to have been on the contract originally in order to enable him to arrive at the initial deposit amount.
The defendant did not contact the Fugeres again until October, 1986, some four months after the signing of the contract and the taking of their deposit money. At that time, Whitford went to the Fugeres' home, did not bring any materials for the construction of the garage nor give an explanation for his delay, but simply started to install the patio doors. After this brief visit, Whitford never returned to the Fugeres' house, even though he hadn't even finished the patio door job, which still required putting in insulation and drywall. During this unexplained period of inaction, Mr. Fugere called the defendant on numerous *7 occasions but always got his answering machine and never received a return call. On December 26, 1986, Whitford sent the Fugeres a letter "to forestall any concern you may have about the delay in construction of your garage." (Defendants' Exhibit C.) Whitford said that his inability to get an excavator on the site was caused by the fact that they were all busy on other jobs. The defendant testified that he initially contacted Howard Richmond, who he had previously used often, to do the excavation work, but was informed that Richmond was busy on a big condominium job in Narragansett which was going to take a while. This testimony was contradicted by Mr. Richmond who stated that he had done only one previous excavation job for the defendant, for which he received only half payment. Richmond, who was credible in our view, explained that Mr. Whitford did call him once, asking for an estimate for the Fugere project. However, Whitford never called him back to do the job. Richmond volunteered that he would have refused anyway, since he didn't receive full payment on the previous job.
Whitford also asserts that he started calling around to other excavators, but was unable to get anyone to do the Fugere job. Consequently, he put the project on hold until he could get an excavator, but stated that he always believed he would complete the job. In the meantime, the deposit money given by the Fugeres was deposited in Mr. Whitford's business account and was being drawn on, over time, to satisfy Whitford's ongoing cash flow problems. The use of this money for purposes unrelated to the Fugeres' project was never authorized by, or even made known to, the Fugeres. The only money of the Fugeres which was used for their job was for the materials purchased to do the patio door, which amount has not been made known to the Court. We are asked by the defendant to believe that for an entire year he could not get an excavator to do the job, and by then the deposit money was all used up and the business fell apart.
The debtor's explanations for his failure to timely order the materials for the job and his inability to complete the job are not credible, particularly in light of the contradictory testimony of Mr. and Mrs. Fugere and Mr. Richmond, all of whom we find are credible witnesses. If the defendant's version were to be believed, he should have purchased the necessary materials[3] while waiting for the excavator, in addition to keeping the Fugeres informed as to the problem he was supposedly encountering. The following actions by Whitford: requiring a 77% deposit, drawing on these funds for other purposes, the conflicting testimony regarding the insertion of the deposit provision in the contract, falsely representing that he needed the deposit to purchase materials, unreasonably delaying commencement of the project, all together reflect a clear intention to defraud the Fugeres when they signed the construction contract and gave the deposit. Furthermore, in support of our conclusions, the schedules filed by Whitford in his bankruptcy case indicate that he was financially in trouble from 1985 onward. Whitford's representation, at the time of accepting the deposit, that he intended to use this money to purchase materials for the Fugere job constitutes a material representation, on which the Fugeres reasonably relied when they gave defendant their check for $9,570.
Mr. Beaumier, a job superintendant and estimator for C & L Builders, Inc. (a Rhode Island remodeling specialist company), testified as an expert witness for the plaintiffs. He also prepared a report of the cost of materials required for this job, based on Whitford's own specifications. (Plaintiffs' Exhibit No. 4.) Although this report had to be adjusted at trial for items not included (Beaumier originally estimated only for items I and II on Whitford's specs, not item III, see Plaintiffs' Exhibit No. 3), his final *8 figure for the cost of materials to do the entire job was:
$4,383.87 (Items I and II)
257.00 (Item III)
395.00 (Additional costs including
gravel & electrical materials)
_________
$5,035.87 Total materials
Based on the entire record, we are satisfied that the specific[4] deposit money taken by Whitford ($9,570) was not intended by him to be used for the purchase of materials on the Fugere job.
Under 11 U.S.C. § 523(a)(2),[5] a debt may be determined nondischargeable based on fraud where the creditor proves that:
(1) the debtor made the representations;
(2) at the time 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;
(5) the creditor sustained the alleged loss and damage as the proximate result of the representation having been made.
Seiders v. Fenninger (In re Fenninger), 49 B.R. 307, 309 (Bankr.E.D.Pa.1985) (other citations omitted).
The burden of proof of a fraudulent misrepresentation is on the party objecting to the discharge. In re Fenninger, supra; Mick v. Hosking (In re Hosking), 19 B.R. 891, 895 (Bankr.W.D.Wis.1982). A "totality of the circumstances" approach is used to determine whether the debtor intended to defraud the creditors at the time he made the false representation. In re Hosking, supra, at 895; In re Fenninger, supra, at 310. "The existence of fraud may be inferred if the totality of the circumstances present a picture of deceptive conduct by the debtor which indicates that he intended to deceive and cheat the creditor." In re Fenninger, supra (citing Century Bank of Pinellas County v. Clark (In re Clark), 1 B.R. 614, 617 (Bankr.M.D.Fla. 1979)). As previously found, the evidence establishes that Whitford took the Fugeres' deposit money with the intention of using it for purposes other than as represented. The Fugeres reasonably relied on this material misrepresentation and therefore are entitled, under § 523(a)(2), to the amount of their deposit, less the value of the work performed on the patio door, which amounts to $8,570, plus interest.[6]
Enter Judgment accordingly.
NOTES
[1] There is no evidence that Mrs. Whitford was in any way involved in the contract negotiations with the Fugeres, and in fact she was not a party to the contract, therefore she is removed as a defendant in this action.
[2] This opinion constitutes our findings of fact and conclusions of law. See Bankruptcy Rule 7052 and Fed.R.Civ.P. 52.
[3] We reject the defendant's contention that the reason he didn't purchase the materials was because they would have to be stored outside, since these materials were for the construction of a garage, which is always exposed to the elements.
[4] It is much more likely that Whitford's real intention was to get his hands on the plaintiffs' money to pay other more pressing bills, and later on to repeat the same process in order to catch up on the Fugere job. In the instant game of financial musical chairs, when the music stopped (bankruptcy), the plaintiffs were left with no funds, and the defendant with no customers from whom he could extract cash to do the Fugere job.
[5] 11 U.S.C. § 523(a) provides in relevant part:
§ 523. Exceptions to discharge
a) A discharge under section 727, 1141, 1228(a), 1228(b), 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;
(B) use of a statement in writing
(i) that is materially false;
(ii) respecting the debtor's or an insider's financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive;
[6] Beaumier testified that the value of the labor and materials used in replacing the patio door was $1,000. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540251/ | 95 B.R. 681 (1988)
In the Matter of WOODLANDS INVESTMENT ASSOCIATES, Debtor.
In the Matter of Michael B. MEAD, Debtor.
LORANCE CONTRACTING COMPANY, INC., and Doherty Ornamental Iron, Inc., Plaintiffs,
v.
Michael B. MEAD, Woodlands Investment Associates, Ltd., and First Continental Bank and Trust Company, and Paul E. Berman, trustee, Defendants.
Bankruptcy Nos. 87-04018-3-11, 88-01353-3, Adv. No. 88-0518-3.
United States Bankruptcy Court, W.D. Missouri, W.D.
December 21, 1988.
Richard W. Hird, Smithyman & Zakoura, Overland Park, Kan., for plaintiffs.
Robert M. Modeer, Hoskins, King, McGannon & Hahn, Kansas City, Mo., for Mead and Woodlands.
Thomas M. Franklin, Polsinelli, White, Vardeman & Shalton, Kansas City, Mo., for First Continental Bank & Trust Co.
FINDINGS OF FACT, CONCLUSIONS OF LAW AND FINAL JUDGMENT CONDITIONALLY DENYING COMPLAINT OBJECTING TO DISCHARGE
DENNIS J. STEWART, Chief Judge.
Plaintiffs seek the denial of the debtor Michael B. Mead's discharge in bankruptcy on several grounds, including chiefly concealment of assets and failure to schedule *682 assets. See §§ 727(a)(3) and (a)(4)(A) of the Bankruptcy Code. The action came on before the court for hearing of its merits on September 16, 1988. The plaintiffs then appeared by counsel, Richard Hurd, Esquire, and Joanne Stultz, Esquire, and the defendant appeared personally and by counsel, Robert Modeer, Esquire. The evidence which was adduced warrants the following findings of fact.
Findings of Fact
The defendant received a baccalaureate degree in history and economics in 1953; is a longtime businessman; as a director of the Centerre Bank; is president, treasurer and member of the Board of Directors of Mead & Sons, Inc.; and has served as Police Commissioner for 2 years. He failed to schedule certain assets in his petition for voluntary bankruptcy, including the following:
(1) an Individual Retirement Account having a balance of $14,790.61;
(2) a credit union account having a balance of $3,971.00;
(3) a profit sharing account having a balance of $172,511.21;
(4) several life insurance policies owned by him having a cash value approaching $30,000;
(5) checking and savings accounts having a balance of some $5,024.00;
(6) household goods and furnishings worth approximately $50,000.00
The defendant also, according to the evidence which was adduced in the hearing of September 13, 1988, mentioned that he had failed to mention these matters because he had simply forgotten them.
The facts which have thus been demonstrated by the evidence to exist bring into question whether the debtor's discharge should be denied for making a false oath or account in connection with these bankruptcy proceedings within the meaning of § 727(a)(4) of the Bankruptcy Code and concealment or transfer of assets within the meaning of § 727(a)(2). There can be little question, on the basis of the facts found above, that the schedules executed and filed by the debtor were false, and materially so. They omitted to mention a very great amount of property which should have been scheduled as property of the estate. The cumulative value of the property omitted from the schedules is in fact so substantial that it exceeds the amounts which the courts have repeatedly held must be accounted for if a discharge is to be granted. On the other hand, the debtor has now disclosed the existence of the items which he omitted from the schedules. Further, he states that all the omissions were unintentional. His testimony in this respect is of critical significance, for, in order to warrant the denial of discharge under § 727(a)(2) or (4), supra, the omissions from the schedules must not only be material; they must also have been intentional. And there are some circumstances which appear to support the debtor's disclaimers of intention: some of the property omitted was of a type which does not easily come to mind when one initially surveys his or her readily disposable property; and the debtor, further, was, at the time of filing, possessed of an unusually wide range of property, much of which was in fact disclosed in the schedules.
Yet, the quantum of the property is large, and virtually all of it, it appears, subject to some qualification, should be brought into the bankruptcy estate. This court had held on prior occasion that, when the evidence on intentional failure to schedule property is inconclusive, the court may test the debtor's good faith by making the grant of a discharge dependent upon turnover of the property to the estate. See, e.g., Matter of Yackley, 37 B.R. 253, 257 (W.D.Mo.1983) ("[T]his court hopes to effect the substance of justice, as opposed to its form, by requiring, as a precondition of discharge," the turnover of property which constituted the subject matter of the complaint for denial of discharge.) In this regard, the court is aware that the defendant has, in briefs which his counsel have filed on the issue of grant or denial of discharge, contended that certain of the property not scheduled cannot be property of the estate, either by reason of its being entirety property or exempt property, or property which *683 may have been transferred to another entity at a time prior to the filing of these bankruptcy proceedings. But it is insufficient to keep property out of a bankruptcy estate simply to classify it as property held by the debtor and his spouse by the entirety. See In re Townsend, 72 B.R. 960 (W.D. Mo.1987), overruling in this respect the prior decision of this court in Matter of Anderson, 12 B.R. 483 (W.D.Mo.1981). And more of the property which supplies the predicate for the within objection to discharge has yet been shown to be claimable as exempt property. If so, the defendant can, in response to this order, demonstrate his good faith by, inter alia, demonstrating in writing which portions of which property must be set off as exempt and supplying the legal authority therefor and showing that the value, including that of previously-claimed exemptions, does not exceed the statutorily imposed maximums.
Further, with respect to the alleged transfer of property to Kirk Bond within the year next preceding bankruptcy, the alleged transfers of money to the debtor's wife, and the alleged prebankruptcy resistance to creditors' attempts to ascertain the existence and location of the debtor's assets, the debtor must present the trustee in bankruptcy with sufficient information to bring actions to recover these transfers or else to decline to bring such actions and the trustee must so notify the court within 30 days.
If the debtor does not perform the conditions which are imposed by this order, which conditions are designed to ensure that the bankruptcy estate receives all that it is entitled to receive under the laws of bankruptcy and that the trustee receives all material information on the existence and location of debtor's assets, including those held in entirety with his wife, the court must necessarily consider anew the issue of denial of discharge. The potential magnitude of property which should be in the bankruptcy estate is too great to permit any other result. But it is the recognized office and power of the bankruptcy court to grant discharge even when a ground for denial of discharge exists. Matter of Borron, 29 B.R. 122 (W.D.Mo. 1983) ("It is commonly said that even when grounds for the denial of discharge exist, it is still within the discretion of the bankruptcy court as to whether discharge should actually be denied."), followed in In re Suttles, 819 F.2d 764, 766 (7th Cir.1987). In balancing the considerations attendant in this case and thereby attempting to effect a result whereby the goals of bankruptcy are achieved both with respect to the debtor and his creditors, the court will issue its decree in accordance with the foregoing equitable considerations. Accordingly, it is hereby
ORDERED, ADJUDGED AND DECREED that plaintiffs' objection to the discharge of the defendant Michael B. Mead be, and it is hereby, denied on condition that, within 30 days of the date of entry of this order or in such additional time as the court may grant for good cause demonstrated in writing within the same 30 days, the defendant Michael B. Mead (1) turn over to the trustee in bankruptcy all of the articles which form the predicate for the within complaint objecting to discharge and certify in a writing filed with the court that such property has been turned over, or else claim an exemption in the form and manner above described and (2) provide the trustee with all information concerning transferred property so that he is able to determine whether to pursue actions to recover such property and file a written statement of the trustee that he has been satisfactorily apprised of the existence and location of the debtors' assets. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540258/ | 121 Pa. Commw. 266 (1988)
550 A.2d 1023
George R. Hoffmaster, II
v.
County of Allegheny.
George R. Hoffmaster, II
v.
Township of Crescent.
George R. Hoffmaster, II. Appellant.
Township of Crescent, Appellant
v.
George R. Hoffmaster, II, Appellee.
Nos. 382 C.D. 1987 and 422 C.D. 1987.
Commonwealth Court of Pennsylvania.
Argued March 25, 1988.
November 23, 1988.
*267 Argued March 25, 1988, before Judges BARRY and SMITH, and Senior Judge NARICK, sitting as a panel of three.
*268 Ronald P. Koerner, Gatz, Cohen, Segal and Koerner, P.C., for appellant/appellee, George R. Hoffmaster, II.
Louis C. Long, with him, Richard J. Mills and Gregory F. Buckley, Meyer, Darragh, Buckler, Bebenek & Eck, for appellee/appellant, Township of Crescent.
OPINION BY JUDGE BARRY, November 23, 1988:
George R. Hoffmaster, II (plaintiff) and Crescent Township (Township) have filed cross appeals from an order of the Court of Common Pleas of Allegheny County denying the Township's motion for judgment n.o.v. but granting its motion for new trial.
Plaintiff sustained injuries when shortly after 6:00 a.m. on March 13, 1981, the car he was driving slid on a patch of ice and collided with a Port Authority Transit of Allegheny County bus travelling in the opposite direction. The accident occurred at a bend on Spring Run Road, an Allegheny County (County) highway. A year or *269 two before this accident, the Township had an informal, unwritten agreement with the County concerning the responsibility for removal of snow and ice from Spring Run Road. By a letter dated October 30, 1980, from Thelma A. Stucke, the Secretary and Manager of the Township, to Paul Ostrowski, Chief Engineer in the County's Maintenance Department, this informal agreement was confirmed in writing. This letter read:
As per our conversation, please be advised that the Township of Crescent is willing to continue snow and ice removal on Spring Run Road for the coming winter 1980-81. As in the past. Mr. Wagner [a district supervisor for the county] will supply the township with salt and cinder mix as needed for this road.
As a result of the motor vehicle accident of March 13, 1981, plaintiff brought an action for damages against the County. When discovery revealed the existence of the agreement between the County and the Township, plaintiff brought a separate action against the Township. These actions were consolidated for jury trial. Before trial, the County settled with the plaintiffs and received a joint tortfeasors' release. The County remained on the record throughout the trial, however. The case was submitted to the jury on written interrogatories. The jury returned a verdict in favor of Mr. Hoffmaster, finding no contributory negligence on his part and apportioning 30% of causal negligence to the County and 70% to the Township.
The Township filed a timely motion for post trial relief seeking judgment n.o.v. or a new trial. The trial court, acting upon this motion, granted a new trial on the basis of insufficiencies it saw in its charge to the jury. It denied, however, the Township's motion for judgment n.o.v. These cross appeals followed.
The Township appeals from the denial of its motion for judgment n.o.v. This court's scope of review when *270 considering an appeal from an order denying a motion for judgment n.o.v. is very narrow; we are concerned only with determining whether there was sufficient competent evidence to sustain the verdict, granting the verdict winner the benefit of every reasonable inference reasonably to be drawn from the evidence and rejecting all unfavorable testimony and inferences. Cabell v. City of Hazleton, 96 Pa. Commw. 129, 506 A.2d 1001 (1986).
The Township contends that it had no duty to correct an artificial condition that makes ice formation on Spring Run Road in dry weather possible, or a duty to post warnings of such a phenomenon, since it is a county highway. Therefore, according to it, judgment n.o.v. should have been entered in its favor. We note, however, that the trial court agreed with the Township's contention that it did not have a duty to either correct an artificial condition making ice formation on the county road in dry weather possible or to post warning signs of such a phenomenon and rejected the plaintiff's argument that the Township had such duties. The trial court, however, refused to enter judgment n.o.v. because it found that:
The jury might have found that the Township, having had actual or constructive notice of the hazard of ice produced at the bend in the road by the artificial condition, should routinely have sent its road crew out there to check for ice whenever weather conditions existing on the morning of plaintiff's accident prevailed, and that its failure to do so was negligence.
Hoffmaster v. County of Allegheny, (Nos. G.D. 82-09306 and G.D. 82-22747, filed February 2, 1987), slip op. at 14.
The Township, at one point in its brief to this Court, asserts that it did not even have the duty of removing snow and ice from Spring Run Road.
*271 In its decision in Clark v. Allegheny County, 260 Pa. 199, 103 A. 552 (1918), the Supreme Court held that the Act of June 26, 1895, P.L. 336-specifically, Section 16 thereof and the Act of May 11, 1911, P.L. 244-specifically, Section 1 thereof relieved townships of the responsibility of repairing and maintaining township roads which had been taken over by the county and imposed such responsibilities upon the county. Therefore, the county became liable for injuries resulting from the failure to properly repair and/or maintain those roads, even though neither act expressly imposed liability upon a county for such negligence. 260 Pa. at 203-04, 103 A. at 553. The Act of August 9, 1955, P.L. 323-specifically, Sections 2702 and 2705 thereof, 16 P.S. §§2702, 2705 like its above mentioned predecessors, relieves townships of all duty for the repair and maintenance of township roads taken over by counties and imposes upon the counties this duty. Spring Run Road was declared to be a county road by the Court of Quarter Sessions of Allegheny County on October 5, 1911. As a result, the duty of repairing and maintaining that road, and the accompanying liability for failure to carry out that duty, thereafter fell on the County.
Nevertheless, we note that the Township, pursuant to an agreement with the County, assumed the County's responsibility for removing snow and ice from Spring Run Road. That being the case, the County can be liable for its negligence, Restatement (Second) of Torts §324(a)[1], and cannot rely upon the effect of the statutory provisions mentioned above as a shield from such liability.
*272 The Township, in arguing that it could not be held responsible for removing ice from Spring Run Road, relies upon the decision in McCormick v. Allegheny County, 263 Pa. 146, 106 A. 203 (1919); another case in which it was recognized that the Act of June 26, 1895, P.L. 336 and the Act of May 11, 1911, P.L. 244, imposed liability for failure to repair or maintain county highways on the county and not on the local municipality. In that case, the appellee was injured while walking on a sidewalk along a township road taken over by the county. There was evidence showing that Union Township had constructed the sidewalk under a contract with Allegheny County, that the county contributed part of the money for this project, and that the county had agreed to an indemnity clause in the contract. After noting these facts, the Supreme Court stated:
[T]he county could not, by such an agreement, shift its statutory responsiblity to another party. Hence Union Township could not construct and maintain a boardwalk along the road. If it did so, with the consent of the county officials, it was simply acting as the agent of the county, and the latter was not thereby relieved of liability to a stranger.
263 Pa. at 149, 106 A. at 204. The Township argues that, in making the above statement, the Supreme Court had held that a municipality which assumes responsibility for the repair and maintenance of a road taken over by the county could not be held liable for injuries sustained by a third party as a result of its failure. We do not, however, construe the above statement *273 to stand for that principle. Rather, we believe that what the Supreme Court meant was that the county could be held liable to the injured party, as could the township.
The Township next argues that, even if it had a duty to remove snow and ice from Spring Run Road, judgment n.o.v. should have been granted because there was no evidence that it had actual or constructive notice of the dangerous condition of Spring Run Road at a proper time prior to the accident to have taken adequate protective measures.[2] More specifically, it contends that there was no evidence that it had actual notice of the icy condition and no admissible evidence to show that it had constructive notice of such a condition. Judgment n.o.v. does not, however, lie for correction of errors in admission or exclusion of evidence. Such errors are properly the subject of a motion for new trial. Stewart v. Chernicky, 439 Pa. 43, 266 A.2d 259 (1970). Therefore, we need not, in the context of our discussion of whether denial of the Township motion for judgment n.o.v. was error, consider whether evidence offered by the plaintiff to show that the Township had actual or constructive notice of the dangerous condition of Spring Run Road was improperly admitted into evidence.
Plaintiff asserts that the testimony of Lewis Falkman, an individual who had been living at the bend in Spring Run Road where the accident had occurred since 1972, constitutes evidence that the Township had notice of the icy condition of that bend in Spring Run Road where plaintiff's accident occurred at a sufficient time prior to the plaintiff's accident to have taken measures to protect against it. This witness testified that, in the nine years prior to plaintiff's accident, water from an *274 unknown source would seep down the hill on which the stretch of Spring Run Road in question was located, along the side of the road, and, once it reached the bend in the road where the accident occurred, it would then seep onto and across the road. These seepages would not occur with any regularity and one would not know when to expect them. In the wintertime, particularly in the month of March when the wind blew through the valley, the water that had seeped onto the road would then freeze resulting in the formation of a patch of ice on the road. According to the witness, there would be numerous occasions when a patch of ice would be present on the bend in question while the remainder of Spring Run Road would be clear. The witness did admit that he never reported this condition to the Township.[3]
Mr. Falkman also testified, over the objection of the Township's counsel, that there had been another motor vehicle accident at the site of the plaintiff's accident. While he could not recall the specific date on which this accident occurred, he did state that it had occurred two to three weeks prior to the date of the plaintiff's accident and that, like the plaintiff's accident, it had occurred between 6:00 a.m. and 6:30 a.m. Furthermore, while he could not state whether it was raining or snowing or whether the sun was shining at the time of the prior accident, he did state that there was ice on the *275 road at the time this other accident occurred. The witness was, however, unable to state whether the accident was reported to any Township personnel.
Plaintiff would also have us find that the letter of March 31, 1980 from Florence Herrle and Carl Herrle, who resided on Spring Run Road to Joseph Moses, the Director of Allegheny County, constitutes evidence that tends to show that the Township had actual or constructive notice of the icy condition of the bend in Spring Run Road where plaintiff's accident occurred at a sufficient time prior to the event to have taken measures to protect against it. That letter was introduced by plaintiff's counsel, over the objection of the Township's counsel, during the examination of Thelma A. Stucke, the secretary and manager of the Township. A copy of it had been sent to Ms. Stucke. In the letter, the authors voiced various complaints regarding the maintenance of Spring Run Road, including the following complaint, "During the winter, Spring Run Road has wet areas which ice up and create a safety hazard." The letter did not identify with any specificity the location of these "wet areas." Spring Run Road is, however, only 1.5 miles long.
It is the conclusion of this Court that the evidence that has been mentioned was legally sufficient to establish that the Township had actual or constructive notice of the icy condition of the bend in Spring Run Road where plaintiff's accident occurred. Accordingly, the order of the court denying the Township's motion for judgment notwithstanding the verdict is affirmed. We now address the question of whether the evidence that has been mentioned was properly admitted.
When reviewing a trial court's decision to exclude or admit evidence, it must be kept in mind that such decisions are within the sound discretion of the trial judge and are not to be reversed in the absence of a clear *276 abuse of discretion on the part of the trial judge. McCrery v. Scioli, 336 Pa. Super. 455, 485 A.2d 1170 (1984). Here, the Township argues that Mr. Falkman's testimony about the prior accident should not have been admitted into evidence. The Township argues that Mr. Falkman's testimony about the prior accident was irrelevant because (1) the witness was unable to state the specific date on which it occurred and, therefore, may have been testifying about an accident that occurred subsequent to the plaintiff's accident and (2) the witness was unable to recall whether, at the time of the prior accident, it was raining or snowing or whether the sun was shining and failed to give testimony indicating that the patch of ice on the road at the time of the prior accident had remained on the road up to the time of the plaintiff's accident, thereby failing to establish that the prior accident occurred at substantially the same place, and under the same or similar circumstances, as plaintiff's accident.
"In certain circumstances `evidence of similar accidents occurring at substantially the same place and under the same or similar circumstances may, in the sound discretion of the trial Judge, be admissible to prove constructive notice of a defective or dangerous condition and the likelihood of injury.'" Whitman v. Riddell, 324 Pa. Super. 177, 180-81, 471 A.2d 521, 523 (1984) quoting Stormer v. Alberts Construction Co., 401 Pa. 461, 466, 165 A.2d 87, 89 (1960) (emphasis in original). "Such evidence will be permitted `for the purpose of establishing the character of the place where [the accidents] occurred, their cause, and the imputation of notice, constructive at least, to the proprietors of the establishment, of the defect and the likelihood of injury.'" Whitman, id. quoting Yoffee v. Pennsylvania Power and Light Co., 385 Pa. 520, 542, 123 A.2d 636, 648-49 (1956). However, evidence of other accidents that occur *277 subsequent to that upon which the litigation is brought is not admissible to show knowledge of a condition prior to an accident. Such evidence is not relevant to the issue of whether the defendant knew, at the time of the accident, that the accident could occur and serves to prejudice the jury by informing them that the defendant was careless not only once but several times. Crance v. Sohanic, 344 Pa. Super. 526, 496 A.2d 1230 (1985).
Here, on direct examination, Mr. Falkman initially testified that two other motor vehicle accidents had occurred between 6:00 a.m. and 6:30 a.m. on the same bend in Spring Run Road where plaintiff's accident had occurred while there was ice on the road. Later, on cross-examination by the Township's counsel, Mr. Falkman stated that he did not know whether the two accidents he had mentioned occurred before or after the plaintiff's accident. Finally, after the trial judge had given the plaintiff's counsel an opportunity to straighten out his testimony on this point, Mr. Falkman, on redirect examination, stated that one accident had occurred two to three weeks prior to the plaintiff's accident and that the second had occurred subsequent to the plaintiff's accident. At the close of Mr. Falkman's testimony, the trial court instructed the jury to disregard any reference it found the witness to have made to accidents that occurred subsequent to the date of the plaintiff's accident.
The trial judge, in responding to the Township's argument that, under the above circumstances, the admission of Mr. Falkman's testimony about the prior accident was error, states in his opinion that, since Mr. Falkman was able to state on redirect examination that one accident had occurred before the plaintiff's accident more specifically, two to three weeks before the plaintiff's accident and since the jury had been instructed *278 to disregard any reference that it determined Mr. Falkman to have made to an accident that may have occurred subsequent to plaintiff's accident, the Township had not, as a result of Mr. Falkman's testimony, suffered prejudice that would require the granting of post-trial relief. He also states that in proving that the prior accident had occurred at the same time of day as the present accident, at the same bend of Spring Run Road, and while there was ice on the road, the plaintiff had established that the prior accident had occurred at substantially the same place and under the same or similar circumstances. This court is unable to state that the trial judge, in admitting Mr. Falkman's testimony about the prior accident clearly committed an abuse of discretion.
We reach the same conclusion concerning the trial court's decision to admit into evidence the letter of March 31, 1980 from Mr. & Mrs. Herrle to Mr. Moses. The Township contends that the admission of that letter was error because (1) it constituted inadmissible hearsay and (2) it "has no bearing on the subject matter of the lawsuit, contains nothing of value tending to determine the matter in dispute among the parties to the litigation, and relates to happenings too remote in time to be considered as credible, relevant or material evidence of constructive notice to Crescent Township of a dangerous condition existent at the particular place on Spring Run Road where the Hoffmaster accident occurred."[4] The Herrles' letter was not, however, offered to establish *279 the truth of the matter asserted; i.e., that, in fact, there were wet areas on Spring Run Road which, during the winter time, turned into patches of ice and created a safety hazard. Instead it was, as observed by the trial court, offered to prove that the Township had notice of the icy condition of Spring Run Road.[5] Evidence in the form of an utterance of writing introduced to show that a party has been put on notice of a condition rather than to show the truth of matters asserted therein is not hearsay. Cleary, McCormick on Evidence, 733-34 (3rd ed. 1984). As to the Township's contention of irrelevancy the trial court noted that Spring Run Road was a "relatively short road", and reasoned that a jury should be left to determine whether, under the circumstances, the letter constituted notice to the Township of the existence of icy conditions of the bend in Spring Run Road where plaintiff's accident occurred.
We now turn to the issues raised by the plaintiff in his cross appeal from the trial court's decision to grant the Township's motion for new trial. The standard for review of a trial court's grant of a motion for new trial generally is whether the trial court palpably and clearly abused its discretion or committed an error of law which controlled the outcome of the case. Westinghouse Elevator Co. v. Herron, 514 Pa. 252, 523 A.2d 723 (1987). When the trial court gives a single reason for the grant of a new trial, however, its discretion is not at issue. Instead, what is at issue is the validity of its legal justification for granting the new trial. The one reason set forth by the trial court here was that its charge was deficient. The court concluded that its instructions to *280 the jury regarding the extent of the Township's duty to the plaintiff were deficient in two respects: (1) it left the jury free to find that the Township undertook not only to remove ice from the road but also to correct the artificial condition that was alleged to have made possible the formation of ice on Spring Run Road in dry weather and (2) it did not make clear to the jury that, in the absence of an undertaking to perform general maintenance, a municipality does not have a duty to make repairs or post warnings on state and county roads within its borders and did not even have a duty to notify the Commonwealth or county of the existence of a dangerous condition. The trial court believed that, because of these deficiencies, the jury might have returned its verdict against the Township based on a finding that it negligently failed to correct an artificial condition that made ice formation on Spring Run Road in dry weather possible or post warning signs of such a phenomenon.
Initially we note that, if the jury indeed had found that the Township had a duty to the plaintiff and was negligent in either failing to correct the artificial condition that was alleged or post warnings of such a phenomenon, then it acted improperly. As we have stated above, responsibility for repair and maintenance of Spring Run Road lay with the County since it was a county highway. The Township could have only been subjected to liability to the plaintiff if it assumed the County's responsibility for repairing and/or maintaining Spring Run Road. While we find evidence that would support a finding that the Township assumed responsibility for removing snow and ice from Spring Run Road, we find no evidence showing that the Township assumed responsibility for the correction of the artificial condition that was alleged to have made possible the formation of ice on Spring Run Road in dry weather or to post warnings of such a phenomenon. The letter of *281 October 30, 1980 from Ms. Stucke to Mr. Moses does not indicate that the Township ever agreed to assume such responsibilities.
Furthermore, Section 6109(a) of the Vehicle Code, 75 Pa. C. S. §6109(a) does not impose a duty upon the Township to post signs warning of the potential icy condition. That section merely recognized that the Township retains power to regulate traffic on roads that pass through it in the various ways enumerated therein. A failure on the part of the Township to post signs warning of the potential icy condition that one may encounter on the bend of a road does not constitute a failure to regulate traffic in one of the ways enumerated in Section 6109(a). Furthermore, even if it can be said that this case does involve a failure on the part of the Township to regulate traffic on Spring Run Road in one of the ways enumerated in Section 6109(a), it cannot be said that that statutory provision imposes any duties to take such action. It merely recognizes that it has the power to take such action. The Township cannot be held liable for failure to exercise a power it has.
In charging the jury on the law involved in the case, the trial court instructed the jury on the issue of the Township's duties as follows:
In Pennsylvania a municipality is required to construct and maintain its roads in such a manner as to protect travelers from dangers which by the exercise of normal foresight, careful construction, and reasonable inspection, can be anticipated and avoided. The type of precautions that are to be taken by a municipality in the construction and maintenance of a safe highway is to be ascertained by examining the nature of the traffic which uses the particular roadway. A municipality's duty is not confined to making the bed of the road in a solid and safe condition, or in keeping it clear from obstructions, but it extends *282 also to the erection of barriers or other devices and markings and guard against unsafe and dangerous places on or along the road.
As you must be aware members of the jury, in Pennsylvania, we have state highways, we have county roads, we have city roads, we have borough roads, we have township roads. It is not unusual in Pennsylvania that a given community, such as Crescent or a county, such as Allegheny, would have in it state roads and would have in it county roads, in the case of Crescent, plus their local roads here in Allegheny County we have state roads and county roads and we have a turnpike. It is not part of the state highway. It is a separate, independent commission; therefore, in a given community you may have a road to which other governmental agencies have title. Now that was true of Spring Run Road. That was a county road. I believe there was testimony that that road was rebuilt in 1979. Being a county road, the county of course, would have responsibility for its maintenance. Also by agreement that was assumed by somebody else as in this case that it was assumed by Crescent Township.
Now Spring Run Road is a county road. There was testimony that for some time the county would remove the snow and ice and then some oral arrangement or informal arrangement was made whereby Crescent Township assumed either part or all of that responsibility. However, at a given point in time there was a writing, Exhibit 6, from the secretary of Crescent Township which and this is for you to determine spelled out the relationships in regard to Spring Run Road as between the county and the township.
*283 The county says that it is very clear on that writing, which is in evidence, that Crescent was to remove snow and ice on Spring Run Road, that was their responsibility. In exchange, the county would provide them with cinders, ash and salt.
The testimony on the part of the township seemed to indicate that it was some sort of shared responsibility. Examine the exhibit. Review the testimony of those witnesses who addressed themselves to it and determine what the relationship was.
Now a municipality has the duty of keeping its streets in a reasonably safe condition so that travelers may use the street in safety.
In this particular case, a first class township such as Crescent, has the power and authority to take all necessary means to secure the safety of persons and property within the township and to remove any dangerous dangers or obstructions on the streets or highways within the township. A municipality can be liable in damages for failing to keep its streets reasonably safe for travel, whether or not the dangerous condition of the street was created by the municipality. That simply means that it is not necessary that the municipality itself create the condition. That can come from other sources or other persons or other incidents. However, if it has the responsibility for the maintenance of those streets, then its responsibility is to remedy the dangerous condition, to treat it in some way, to remove it to avoid an unsafe condition.
A municipality has the duty to do what is practicable and what is reasonable to render its highways safe for travel.
(R.R. 967a-971a.)
*284 The plaintiff asserts that, given the portion of the charge which has been underlined above, the jury surely would have understood that the extent of the Township's duties to him were determined by the agreement reflected in the letter of October 1980 from Ms. Stucke to Mr. Moses. He asserts furthermore that it is difficult to conceive that the jury found the Township liable to him for failure to correct the storm drainage problem or to post signs warning of the potential icy condition, when none of the witnesses ever testified, and none of the documentary evidence that was presented indicated, that the Township had such duties. The evidence, as pointed out by him, was presented to show only whether the Township had assumed sole or shared responsibility for the removal of ice and snow from Spring Run Road.
Here, however, the plaintiff's counsel made the following statement in his opening statement to the jury:
It is our position there were two parties who were negligent in allowing this condition [where run-off water would flow onto the road and freeze up] to exist and not warning the public about it. It is the County of Allegheny and Crescent Township.
Actually we feel Crescent Township bears more responsibility because the Crescent Township municipal building is located at the bottom of Spring Run Road. It is a distance of one or two miles below the accident scene, but their police station, their road maintenance crew is right at the base of this road.
It is a major road in Crescent Township.
As to Allegheny County, it has hundreds of roads that they have to be responsible for. We feel very strongly Crescent and the county should have taken steps to prevent it.
*285 The county is responsible because that was and still is a county road.
Crescent Township is because they have entered into an agreement with the county before the accident, I think the winter before, that they would take over the job of snow and ice removal. They accepted that responsibility.
They failed to perform it properly.
They even failed to at least post some sort of warning on that bend so that someone coming down there could see a sign `watch for ice', some indication to be on the alert for this dangerous condition. . . .
(R.R. 341a-42a.) (Emphasis added.) In his closing statement to the jury, plaintiff's counsel argued:
We also know without any question that neither defendant, particularly did anything about this [dangerous condition where run-off water would flow onto this bend in Spring Run Road and then freeze thereon]. We know as a fact from the testimony that you have heard that they didn't do one thing before March 13, 1981, to avoid, prevent this condition. Nothing at all was done.
(R.R. 929a.)
. . .
In concluding on liability, I just want to say that the township knew or should have known about this dangerous condition. They knew enough to take some action to prevent it. They could have put up signs. They could have alerted their crews to be there to watch out for this, they could have put boxes with sand or salt at the bend, they could have made arrangements with someone who lived there to come out when this condition existed and themselves to put this stuff on the road. They could have done so many *286 things. They did absolutely nothing. That's where their negligence lies.
(R.R. 941a.)
It was the trial judge's concern that these latter statements may have led the jury to believe that the Township's duty went beyond removing snow and ice from Spring Run Road and that his instructions to the jury were insufficient to dispel any such belief that led him to grant the Township's motion for new trial. We are unable to say that the trial court's concern was unwarranted.
A new trial has been held to be appropriate where the trial court's instructions to the jury, although perhaps not erroneously stating the law, have misled or confused the jury. Hawthorne v. Dravo Corporation, Keystone Division, 352 Pa. Super. 359, 508 A.2d 298 (1986). We do not believe that the trial court erred when it concluded that its instructions on the nature and scope of the Township's duty were capable of misleading the jury so that it could have affected the outcome of this case.
Therefore, we will affirm the trial court's decision to grant a new trial on this matter.[6]
ORDER
NOW, November 23, 1988, the orders of the Court of Common Pleas of Allegheny County dated February 2, 1987, at Docket No. G.D. 82-09306 and G.D. 82-22747, are hereby affirmed.
Judge MacPHAIL did not participate in the decision in this case.
NOTES
[1] This section of the Restatement (Second) of Torts provides in pertinent part:
One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of a third person or his things is subject to liability to the third person for physical harm resulting from his failure to exercise reasonable care to protect his undertaking if. . . .
(b) he has undertaken to perform a duty owed by the other to the third person.
[2] Under Section 8542(b) of the Judicial Code, 42 Pa. C. S. §8542(b), such a showing must be made before liability can be imposed on the Township.
[3] Patsy Lombardo, another individual who resided in the vicinity of the bend in Spring Run Road where the accident occurred and had done so since 1971 or 1972, gave similar testimony. He testified that, "way before the wreck", he would observe water coming down Spring Run Road, from his neighbor's property above his own, and then seeping onto and across that bend where it would then freeze. The witness's testimony indicates that he had observed this water freezing on the bend, at the earliest, during the winter prior to that in which the accident had occurred.
[4] The Township's objection to the Herrles' letter on the grounds of irrelevancy was not couched in such broad language in its motion for post-trial relief. There, the Township simply contended that the Herrles' letter was irrelevant because it related to problems at a particular area having no relationship to the accident, an assertion which it made at the time plaintiff's counsel attempted to have the letter introduced during the examination of Ms. Stucke.
[5] See R.R. 465a.
Mr. Koerner: In response to the objection of hearsay [as to the Herrles' letter], it is being offered to show what type of notice the township had of the condition of Spring Run Road. It is a notice. It is certainly an exception to the hearsay rule.
[6] Because we affirm the granting of the new trial on the basis of deficiencies in the trial judge's charge to the jury, we need not address the Township's contention that it is entitled to a new trial because plaintiff's counsel, in his opening and closing statements, expressed personal opinions about whether the Township was liable. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540274/ | 95 B.R. 904 (1989)
GARRETT ROAD SUPERMARKET, INC.
v.
WETTERAU FINANCE CO.
Misc. No. 88-655.
United States District Court, E.D. Pennsylvania.
January 20, 1989.
Steven R. Fischer, Gary A. Rosen, Hangley Connolly Epstein Chicco Foxman & Ewing, Philadelphia, Pa., for debtor.
Pace Reich, H. Thomas Hunt, Pincus, Bressler, Hahn, Reich & Weinberg, Philadelphia, Pa., for defendant.
MEMORANDUM
LOUIS H. POLLAK, District Judge.
Defendant Wetterau Finance Co. ("Wetterau") has moved for this court to withdraw, pursuant to 28 U.S.C. § 157(d), reference of Adversary Action No. 88-2168. Wetterau claims that it is entitled to a jury trial of this action, and, therefore, that the interest of judicial economy justifies withdrawal of reference from the bankruptcy court.
Plaintiff Garrett Road Supermarket, Inc. ("Garrett Road") has filed a Chapter 11 petition with the bankruptcy court. Bankruptcy No. 88-11524. The present adversary action, No. 88-2168, arises from Garrett Road's acquisition of certain equipment from Wetterau in October 1986. Garrett Road contends in count I that this transaction was fraudulent pursuant to state law and may therefore be set aside. 39 P.S.A. §§ 354, 359.[1] Garrett Road seeks "an order avoiding the above-described security interest and obligation and for such other and further relief as the Court deems just and proper, including the refund of monies paid in excess of the actual value of the equipment...." Complaint ¶ 13. Wetterau has filed a Proof of Claim in the Chapter 11 action indicating that Garrett Road's remaining obligation on the equipment agreement is $255,283.35.[2] Debtor's memorandum, Exhibit B. In a second count, Garrett Road seeks to void and recover *905 the amount of nine post-petition payments made on the equipment payments were allegedly "not authorized under [the bankruptcy] title or by the court." 11 U.S.C. § 549(a). In this count, Garrett Road prays "for judgment against Wetterau in the amount of $9,958.14, together with interest, and for such other and further relief as the court deems just and proper." Complaint ¶ 17.
The law governing the right to a jury trial in matters before the bankruptcy court is in considerable disarray. See R. Aaron, Bankruptcy Law Fundamentals § 3.02[5] (1987) (history of jury trials and effect of 1984 amendments). A number of courts have ruled that there is no right to a jury trial of any "core proceeding" and it is undenied that Garrett Road's claims of a fraudulent conveyance and avoidable post-petition transfer are core proceedings under 28 U.S.C. § 157(b)(2). See, e.g., In re Harbour, 840 F.2d 1165 (4th Cir.1988) (preference actions as equitable), cert filed sub nom. Perkinson v. Huffman, No. 87-1760 (April 25, 1988); In re Chase & Sanborn Corp., 835 F.2d 1341 (11th Cir.), review granted sub nom. Granfinanciera v. Nordberg, ___ U.S. ___, 108 S. Ct. 2818, 100 L. Ed. 2d 920 (1988). In Granfinanciera, the Supreme Court will review the Ninth Circuit's conclusions that an action to avoid a fraudulent transfer is, as a core proceeding, inherently equitable in nature, and that a request solely for monetary relief does not transform the action into a legal matter entitling parties to a jury trial.
In contrast, courts of this district have held that classification of an adversary proceeding as a core proceeding does not foreclose a litigant's Seventh Amendment right to a jury trial of "suits at common law." In re Kenval Marketing Corp., 65 B.R. 548 (E.D.Pa.1986); In re Globe Parcel Service, Inc., 75 B.R. 381 (E.D.Pa.1987). Rather, the right to a jury trial is to be determined on a case-by-case analysis of whether the cause of action and relief sought lie in equity or can be brought in law. Kenval Marketing, 65 B.R. 552-53. See also American Universal Insurance Co. v. Pugh, 821 F.2d 1352, 1355 (9th Cir. 1987) (adopting the "law/equity test" to determine right to jury trial). With respect to avoidance of fraudulent conveyances, Judge McGlynn in Kenval Marketing concluded that such actions are not necessarily equitable, but "if the requested relief is primarily equitable in nature, an additional or alternative claim for money damages will not convert the action into one at law." Kenval Marketing, 65 B.R. at 554. See also Whitlock v. Hause, 694 F.2d 861, 863-66 (1st Cir.1982) (distinguishing fraudulent conveyance claim made under bankruptcy statute from other mixed actions of law and equity addressed by Dairy Queen, Inc. v. Wood, 369 U.S. 469, 82 S. Ct. 894, 8 L. Ed. 2d 44 (1962)). Cf. Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 79 S. Ct. 948, 3 L. Ed. 2d 988 (1959) (right to jury trial of legal issues raised by counterclaim).
The primary relief sought by Garrett Road's first count is to avoid a substantial security interest and obligation resulting from a conveyance an equitable claim. Unlike the cases relied on by Wetterau, In re Huey, 23 B.R. 804 (Bankr. 9th Cir.1982); Kenval Marketing, 65 B.R. 548, this is not a case in which a "fraudulent conveyance action seeks only money damages." Id. at 553-54. Nor do I find that Garrett Road's use of a catchall prayer for "other relief that the court deems just and proper" transforms this count from an equitable to a legal claim, even though the alternative is elaborated to include an estimated dollar amount of a possible refund. Judge Huyett drew a similar conclusion that a complaint based on a similar equipment contract with Wetterau, and employing an identical prayer for relief as Garrett Road's first count, sought relief that was "primarily equitable in nature." Darby Supermarket, Inc. v. Wetterau Finance Co., Misc. No. 88-656, slip op. at 3, (E.D.Pa. Jan. 5, 1989) (finding no right to jury trial).
Garrett Road, unlike Darby Supermarket, Inc., also seeks monetary relief under a second count alleging unauthorized post-petition payments. Although it involves the same contract that is the subject of the first count, count II seeks relief solely on the basis of the Bankruptcy Code's provision for avoiding post-petition transfers *906 that were not authorized by the code or court. 11 U.S.C. § 549(a)(1) & (2)(B). The remedy of this section, allowing a trustee to "avoid a transfer of property of the estate," did not exist at common law. Unlike a common-law action for fraudulent conveyance, this claim asserts a power directly conferred solely by the Bankruptcy Act, and thus raises no Seventh Amendment issue. Cf. Witlock, 694 F.2d at 864 ("the trustee's avoidance powers do not further some underlying legal claim, but rather are ancillary to a determination which was itself equitable, not legal, in character").
I conclude that Garrett Road's complaint arises in equity and seeks a primarily equitable remedy. Therefore, I find that Wetterau has no right to a trial by jury and has presented no persuasive cause to withdraw the reference to the bankruptcy court.[3]
An appropriate order follows.
ORDER
For the reasons stated in the accompanying memorandum, it is hereby ORDERED and DIRECTED that defendant Wetterau's motion to withdraw reference is DENIED.
NOTES
[1] 39 P.C.A. § 354 provides: "Every conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent, is fraudulent as to creditors, without regard to his actual intent, if the conveyance is made or the obligation is incurred without a fair consideration."
[2] Contrary to Garrett Road, Wetterau claims that the October 1986 transaction was an "equipment lease." The Bankruptcy Court has ruled that the transaction was an installment sale and security agreement. See Order of August 25, 1988, In re Garrett Road Supermarket, Inc., Bankr. No. 88-11524 (Bankr.E.D.Pa.) (Scholl, J.), appeal filed, No. 88-7439, (E.D.Pa. Sept. 27, 1988).
[3] I note that, even were Wetterau entitled to a jury trial of part or all of this claim, its unsupported assertion that the bankruptcy court lacks space, staff and personnel to conduct a jury trial was directly denied in In re Jackson, 90 B.R. 126, 135 (Bankr.E.D.Pa.1988) ("facilities to conduct such a [jury] trial will be made available to us if needed"). In addition, as the bankruptcy court has already set this matter for trial on February 8, 1989, is acquainted with the context of this action, and will examine a similar transaction in Darby Supermarket, Inc. v. Wetterau Finance Co., Bankr. No. 88-10863, trial by the bankruptcy court would best serve judicial economy. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540276/ | 95 B.R. 639 (1989)
In re Robert W. GYURCI, a/k/a Bob W. Gyurci, Debtor.
Bankruptcy No. 4-88-2411.
United States Bankruptcy Court, D. Minnesota.
January 20, 1989.
Richard Pearson, New Brighton, Minn., for debtor.
Michael Fadlovich, for U.S. trustee.
MEMORANDUM OPINION
NANCY C. DREHER, Bankruptcy Judge.
The above-entitled case came on for hearing before the undersigned on a motion by the United States Trustee to dismiss this case under 11 U.S.C. section 707(b). Michael Fadlovich appeared for the United States Trustee; Richard Pearson appeared for debtor. The court has jurisdiction to hear and determine the issues pursuant to 28 U.S.C. sections 157 and 1334 and Local Rule 103(b). This is a core proceeding under 28 U.S.C. section 157(b)(2)(O).
Based on the papers submitted, the evidence taken and the files, records and proceedings herein, I determine the following:
FACTS
Debtor is an attorney licensed to practice in this state. Since 1974 he has been an Assistant Hennepin County Attorney specializing *640 in welfare fraud and drug forfeitures. His job is secure. He grosses $67,200.00 per year. There is evidence that he has reached his maximum level of advancement with his current employer and that he knew this several years ago. He has high blood pressure and secondary diabetes, but there is no evidence that either of these two ailments has substantially impaired his earning capacity.
Debtor's wife, who has chosen not to file bankruptcy because she views debtor's problems to be of his own making, has been steadily employed during all relevant periods of time. In her current position she grosses $16,588.00 per year. She has chronic back problems which have, in the past, caused her to miss substantial periods of time from work. She was hospitalized for over three months in 1985. The record is devoid of evidence, however, that her back problems have ever affected her ability to earn or otherwise substantially impaired her income.
Debtor and his wife have three children, two of whom are well beyond the age of emancipation, being 23 and 25. Both of them have finished college, as debtor candidly admitted, using funds derived from credit cards. Neither of them is currently receiving support from their parents. Their third child is 18 and a senior in high school. By choice, debtor and his wife have placed that child in an exclusive private high school. Neither the parents nor their son has funds saved to send the boy to college. His father states that he expects to fund the son's college education upon graduation from high school this coming spring, just as the mother has worked to fund the boy's high school private education.
This family of three, soon to be two, thus has a combined gross income of $83,788.00. They own a home valued at $115,000.00, in which they have $57,500.00 in equity, and on which there is a first and second mortgage totalling $57,500.00. The family owns and maintains five vehicles: a 1987 Toyota, a 1983 Toyota Tercel, a 1982 Chevrolet Chevette, a 1981 Volkswagen, and a 1968 Mercury Station Wagon.[1] The two older children were college educated on their father's borrowed money. Their third child is, as indicated, in private school and expects parents' aid to fund his upcoming college education.
At inception of this case debtor held 17 credit cards that had been issued to him. His wife holds at least five more, apparently in her own name. Debtor began acquiring his credit cards in 1981. Credit card debt over the years between 1981 and 1987 was as follows:
Year Average Balances Interest Paid
1981 $ 833.00 $ 150.00
1982 $11,150.00 $ 2,000.00
1983 $17,916.00 $ 3,225.00
1984 $22,277.00 $ 4,010.00
1985 $30,033.00 $ 5,406.00
1986 $41,727.00 $ 7,511.00
1987 $70,416.00 $12,675.00
Debtor used his credit cards in large part as a bank for obtaining cash advances. He began with a few and accumulated more and more over the years. Almost all cards came unsolicited in the mail. He regularly paid the minimum balances. The funds were used for living expenses, including the payment of college costs for the children, plus paying off the minimum balances.
The average interest rates on the cards was 18-21%. Debtor's credit card indebtedness, however, increased at a rate greater than that, indicating that some significant portion of the funds borrowed were used for family expenses.
Debtor and his wife's combined net incomes, after withholding, total $4,233.00 per month. Against this, the family claims the following monthly expenses:
1. 1st & 2nd Mortgage $ 810.36
Payments
2. Utilities & Insurance
and Costs on the
home as follows:
a. Insurance $25.13
*641
b. Sewer & Water $20.00
c. Garbage $12.00
d. Home Maintenance $65.00
e. Electricity $61.00
f. Phone $41.00
g. Cable TV $25.00
h. Gas $71.00
_______
$ 320.13
3. Automobile Expenses
Gas $100.00
Maintenance $ 50.00
Parking (presumably
in down-town
Minneapolis) $ 75.00
Licenses $ 25.00
Insurance $228.00
Car Payment for
debtor (presumably
on the Toyota
Camry) $327.37
Wife's car $165.25
_______
$ 970.62
4. Food and supplies $ 350.00
5. Clothing $ 145.00
6. Uninsured dental and $ 85.00
optometrist costs
7. Insurance
Lifedebtor $259.00[2]
Medicaldebtor $ 20.00
Wife's medical &
life $ 21.00
_______
$ 300.00
8. Son's Private School $ 395.00
Tuition & School Expenses
9. Wife's separate indebtednesses
Loan $125.00
5 credit cards $211.00
_______
$ 336.00
10. Miscellaneous
CLE and attorney's
license $ 25.00
Debtor's work expenses $ 60.00
Church $100.00
Postage $ 6.00
Newspaper $ 15.00
Music lessons $ 18.00
Cleaning service $ 50.00
_______
$ 274.00
_________
TOTAL $3,986.11
Thus, according to debtor, at most there is $246.89 in disposable income each month with which to pay creditors.
Debtor lists in his Schedule B-2, personal property as follows: household goods, supplies and furnishings $1,250.00; wearing apparel and personal possessions $1,250.00; four of the five motor vehicles referred to above, plus a 1984 Honda motor scooter $13,900.00; tangible personal property $275.00; life insurance surrender value $4,087.00; deferred compensation and PERA funds in an unknown amount. Virtually all of the foregoing were claimed as exempt.
In the bankruptcy schedules debtor further lists secured debt of $65,588.00 which is attributable to the mortgages on his home, debt on his 1987 Toyota Camry, and a modest secured debt to bankruptcy counsel. Unsecured debts amount to $75,563.00. Virtually all of this debt is owed to credit card companies or consumer credit establishments such as Daytons, Target and Gabberts. There is also a debt for a student loan in the insignificant sum of $221.00.
DISCUSSION
This motion by the United States Trustee for dismissal for substantial abuse is based on 11 U.S.C. section 707(b), which provides as follows:
After notice and a hearing, the court, on its own motion or on a motion by the United States Trustee, but not at the request or suggestion of any party in interest, may dismiss a case filed by any individual debtor under this chapter whose debts are primarily consumer debts if it finds that the granting of relief would be a substantial abuse of the provisions of this chapter. There shall be a presumption in favor of granting the relief requested by the debtor.
Id. This section of the Code was part of the so-called consumer credit amendments added to the Bankruptcy Code by the Bankruptcy *642 Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, 98 Stat. 355 (the 1984 Act). It has been widely interpreted since its enactment.
The debtor clearly seeks to discharge debts which are primarily consumer debts as that term is used in section 707(b). Section 101(7) of the Bankruptcy Code defines consumer debt as "debt incurred by an individual principally for a personal family or household purpose". 11 U.S.C. section 101(7). See also In re Kelly, 841 F.2d 908, 912 (9th Cir.1988) (consumer debt may be secured by real property). All of the secured and virtually all of the unsecured debts of this debtor relate to indebtedness incurred in maintaining that home and other personal and family expenses attendant with the lifestyle to which he and his family have become accustomed. The next issue, then, is whether the filing of the petition constitutes "substantial abuse". In this case, I conclude that it does.
As previously noted, section 707(b) has received wide interpretation since its insertion into the Bankruptcy Code in 1984. The courts have differed with respect to its interpretation. One line of cases, typified by the Ninth Circuit's recent decision in In re Kelly, 841 F.2d 908 (9th Cir.1988), takes an expansive view of substantial abuse. These courts find substantial abuse in any case where it is established that the debtor has the ability to pay a significant portion of his debts without undue hardship. See id. at 914-15; In re Walton, 69 B.R. 150, 154 (E.D.Mo.1986); In re Hudson, 56 B.R. 415, 419 (Bktcy.N.D.Ohio 1985) (ability to pay is all that need be shown); In re Edwards, 50 B.R. 933, 936-37 (Bktcy.S.D.N.Y. 1985) (evidence of ability to pay is per se proof of substantial abuse).
A second line of cases is typified by Chief Judge Kressel's recent opinion in In re Wegner, 91 B.R. 854 (Bktcy.D.Minn. 1988). In Wegner, Judge Kressel took a more narrow and restrictive view of the boundaries of section 707(b), parting company with Kelly and others above mentioned. Judge Kressel held that ability to pay creditors was not in and of itself sufficient to establish substantial abuse. Rather, he viewed the totality of circumstances and concluded that substantial abuse requires proof of something more, including "misconduct, impropriety, or lack of good faith." Wegner, 91 B.R. at 858. Wegner was a particularly compelling case for denying the motion to dismiss because debtors had incurred such heavy credit card debt that they were ineligible for relief under chapter 13, and by reason of the Eighth Circuit's decision in Wamsganz v. Boatmen's Bank of DeSoto, 804 F.2d 503 (8th Cir.1986), ineligible for relief under chapter 11. Id. at 505. Had the situation been otherwise, Judge Kressel opined that he would have found substantial abuse based on the debtors' substantial credit card debt and the manner in which it was incurred, coupled with the ability to pay a significant portion of their debt to their creditors. Wegner, 91 B.R. at 859, n. 12.
Wegner thus takes the view that one must look to the totality of circumstances, rather than to a single indicia of ability to pay. Under the totality of circumstances test, a number of courts have held that the following factors should be reviewed in determining whether there is substantial abuse:
1. Whether the debtors have a likelihood of sufficient future income to fund a chapter 13 plan which would pay a substantial portion of unsecured claims.
2. Whether the debtor's petition was filed as a consequence of illness, disability, unemployment or some other calamity.
3. Whether the schedules suggest the debtors incurred cash advancements and consumer purchases in excess of their ability to repay them.
4. Whether the debtor's proposed family budget is excessive or extravagant, and
5. Whether the debtor's Statement of Income and Expenses is representative of their true financial condition.
E.g., In re Grant, 51 B.R. 385, 392 (Bktcy. N.D.Ohio 1985); In re Bryant, 47 B.R. 21, 24 (Bktcy.W.D.N.C.1984).
In this case, dismissal is appropriate because debtor meets both the more restrictive *643 test espoused in Wegner and similar and the much more expansive reading set forth in Kelly and its line of cases.
First, debtor has the ability to pay a significant portion of his outstanding debt. If debtor's income and expenses are realistically aligned and his belt and that of his family tightened a bit, and if debtor has the fervent desire to repay his creditors, as he testified at this hearing, there is little doubt that he could repay his creditors a significant portion of the outstanding unsecured debt without hardship. By debtor's own calculations, he has approximately $250.00 in monthly disposable income. Developing additional disposable income would not take much effort, although it would, perhaps, require a slightly adjusted lifestyle. Perhaps debtor's son's schooling, his orthodontist, the church, and the parking ramps in Minneapolis would suffer. Perhaps the housekeeper could be dispensed with or his child could give up the scooter. Maybe debtor and his family would conclude that the cable TV is a luxury, or they could stand with fewer or less comfortable vehicles. Perhaps the son, like other children of parents of modest or even not so modest means, could find some way to fund a college education other than at the expense of his father's creditors. As a Judge, with my own very personal views of how and where money is wasted in family economics, I will not tell debtor where to cut. I do find and conclude, however, that with even a modest amount of rethinking lifestyle and expenses, debtor and his family could reduce the claimed expenses by at least $500.00 and perhaps $800.00 per month.[3] If that were done, as I believe it could reasonably be without hardship, debtor would be able to pay his creditors between 40 to 50% of outstanding debt over a three year period in chapter 13; under a five year plan, they could, of course, do more.[4]
Second, there has been abuse in the obtaining, retention and use of the multiplicity of credit cards obtained by this debtor. I believe these cards were consciously used over a period of more than five years for at least one principal purpose; to put debtor's children through college. Loans for that purpose at interest rates much lower than 21% were surely available. Those loans, however, except in unusual and extraordinary circumstances, would likely not have been dischargeable. 11 U.S.C. section 523(a)(8). Furthermore, the credit card limits were run up in support of a lifestyle which many would find extravagant, based on the income levels being generated, at a time when debtor's salary level had topped off, suggesting that they were not incurred with an expectation that they could be paid. Moreover, debtor's wife still maintains several credit cards and has not filed bankruptcy. *644 She could easily continue to incur excessive credit card debt for the benefit of the family, later discharging that debt in her own separate bankruptcy. I am not persuaded at all by debtor's argument that he took the cards and used them because they were freely made available to him unsolicited in the mail. It is clear that the rates of indebtedness were ever-increasing, much faster than the interest was accumulating and being paid. There is no evidence of serious catastrophe or family tragedy intruding into the life of this family since 1981, at least insofar as it might have impacted on income. Rather, debtor and his family have lived a good life at the expense of a series of creditors. Under the circumstances, debtor had an option to, as a popular slogan goes, "Just Say No." Not having done so, the least he can do, because he is able, is to use some other if less palatable available route to make peace with his creditors.
In conclusion, the totality of circumstances demonstrates an instance of substantial abuse. Debtor and his wife have substantial income. While not perfectly healthy, they are by no means disabled. The petition was not precipitated by calamity, loss of job or otherwise. Debtor has the ability to pay creditors a significant amount of the debt which is owed to them. That debt was incurred by accumulating a multiplicity of credit card debts under circumstances which are highly questionable and suggest complete disregard for an eventual ability to pay, or worse, a design to incur dischargeable debt while avoiding nondischargeable debt. I conclude that debtor's petition should be dismissed for substantial abuse under section 707(b).[5]
While, as Judge Kressel ably noted in Wegner, substantial abuse may be difficult to define, I conclude, as Justice Stewart did with respect to hard-core pornography, as follows:
"I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description; and perhaps I could never succeed in intelligibly doing so. But I know it when I see it. . . . "
Jacobellis v. State of Ohio, 378 U.S. 184, 197, 84 S. Ct. 1676, 1683, 12 L. Ed. 2d 793 (1964).[6]
For the foregoing reasons,
IT IS HEREBY ORDERED that the motion of the United States Trustee to dismiss this case for substantial abuse under 11 U.S.C. section 707(b) is granted. This order shall not become effective if, within 20 days of the date of this order, debtor voluntarily converts his case to one under chapter 13, pursuant to 11 U.S.C. section 706(a).
NOTES
[1] There was some evidence that one of the sons actually paid for and pays the maintenance on the 1982 Chevette. It is unclear from the evidence presented whether this is the son who left home or the younger son who still lives with his parents. Debtor does hold title to the vehicle and claimed it as exempt on his schedules.
[2] This amount is not excessive. Debtor's diabetes and blood pressure reflect the significant premium.
[3] Deciding whether private schools or five cars or downtown parking or cable TV are reasonable necessities or luxuries necessarily involves judging lifestyles.
An inquiry into debtor's `reasonably necessary' expenses is inherent in the examination of debtor's petition for relief. Judgment values of lifestyles have to be made by the court and close questions emerge.
Proia, The Interpretation and Application of Section 707(b) of the Bankruptcy Code, 93 Com.L.J. 367, 379 (1988).
In some substantial abuse cases, courts have been called upon to decide whether debtors should stop smoking, eliminate large church contributions, or, in a case quite similar to that at hand, stop sending their children to private schools. See Sinkow v. Latimer (In re Latimer), 82 B.R. 354, 363 (Bktcy.E.D.Pa.1988) (although ultimately denying motion to dismiss, court questioned the expense of private schooling); In re Peluso, 72 B.R. 732, 734 (Bktcy.N.D.N.Y.1987) (nearly $100 monthly expenditure on cigarettes excessive); In re Gaukler, 63 B.R. 224, 225-26 (Bktcy.D.N.D.1986) (court would not inflict its personal views of religious responsibility); In re Edwards, 50 B.R. 933, 940 (Bktcy.S.D.N.Y.1985) ($100 monthly religious contribution was a possible luxury). The wisdom of affording such wide latitude to the judiciary in making lifestyle judgments has been questioned. See Proia, at 381-82. However, Congress chose not to define substantial abuse but rather to leave it to the development of court-made law.
[4] The court cannot help but comment that in an even brief tenure on the bench, she has seen numerous instances of young families with few resources and several children, leading a meager lifestyle and struggling to pay creditors in chapter 13. They come to this court, in many instances, intent in their belief that they should and they will do what they can, even if it is on a modest basis, to pay off at least some of their debt. The contrast between these types of cases and the instant case is very dramatic, indeed.
[5] There are a number of decisions in which courts have dismissed for substantial abuse based on quite similar facts. See, e.g., In re Day, 77 B.R. 225 (Bktcy.D.N.D.1987) (ability to pay 100% of unsecured debt, therefore case dismissed for substantial abuse); In re Webb, 75 B.R. 264 (Bktcy.W.D.Mo.1986) (purpose of debtor rehabilitation is disserved if bankruptcy courts must be used in order to afford debtors basis for making their creditors pay for their luxuries); In re Kress, 57 B.R. 874 (Bktcy.D.N.D. 1985) (debtor had ability to pay back his unsecured creditors 100% in just over three years); In re Bryant, 47 B.R. 21 (Bktcy.W.D.N.C.1984) (conscious disregard of bankruptcy provisions and bad faith efforts to avoid paying creditors amounted to substantial abuse).
[6] I cannot help but note that this case illustrates Judge Kressel's newly coined axiom in Wegner, "pigs go on a diet, but hogs go free." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540277/ | 95 B.R. 240 (1989)
In re Jamie Lee BUSBIN, Debtor.
Bankruptcy No. G87-20514-MHM.
United States Bankruptcy Court, N.D. Georgia.
January 5, 1989.
*241 Harry M. Moseley, Cumming, Ga., for debtor.
Robert L. Coley, Atlanta, Ga., U.S. trustee.
Neil C. Gordon, Atlanta, Ga., for Bank South.
ORDER
MARGARET H. MURPHY, Bankruptcy Judge.
This matter is before the court on a motion filed November 25, 1987, by the United States Trustee to dismiss this case pursuant to 11 U.S.C. § 707(b). Following notice mailed February 15, 1988, to Debtor, Debtor's attorney, Trustee, Bank South, attorney for Bank South and the United States Trustee, hearing was held February 29, 1988. The court permitted the parties to file letter briefs following the hearing. On March 9, 1988, attorney for Bank South filed a letter brief in support of the United States Trustee's motion to dismiss.[1] On March 17, 1988, the United States Trustee informed the court by letter that it would join in the brief of Bank South. On March 21, 1988, Debtor's attorney filed a letter brief in opposition to the motion to dismiss. On July 18, 1988, Bank South filed a supplemental letter brief.
STATEMENT OF FACTS
This case commenced October 1, 1987. Debtor's schedules list Bank South as its sole creditor with a debt in the amount of $1,450. Bank South's claim is based on a deficiency judgment obtained by default against Debtor following repossession and sale of Debtor's 1979 Ford LTD automobile. Debtor shows his monthly net income as $1,150 and his monthly expenses as $970, thus leaving Debtor a disposable income of $130 per month.
Prior to the filing of Debtor's petition, Bank South instituted wage garnishment based on its judgment obtained against Debtor. Pursuant to that garnishment, Bank South collected approximately $896.46.[2] The balance unpaid to Bank South is $526.69.
The United States Trustee filed a motion to dismiss Debtor's case pursuant to 11 U.S.C. § 707(b), alleging that Debtor has a present ability to pay his outstanding debts, and that granting a discharge to Debtor would be a substantial abuse of the provisions of Chapter 7. Debtor opposes dismissal on two grounds: (1) that the United States Trustee's motion was filed and is being prosecuted at the instigation of Bank South who is without standing to file such a motion; and (2) Debtor's petition does not constitute a substantial abuse of the provisions of Chapter 7.
*242 CONCLUSIONS OF LAW
Debtor argues the United States Trustee's motion to dismiss should be denied because it was brought and is being prosecuted at the instigation of Bank South. Section 707(b) specifically provides that a motion to dismiss for substantial abuse may not be brought at the "request or suggestion of any party in interest". Debtor argues that because the motion to dismiss was brought at the instigation of Bank South and is being prosecuted by Bank South, the motion should fail. If it were held, however, that neither the court nor the United States Trustee could pursue a motion to dismiss pursuant to § 707(b) if the grounds for such a motion were brought to its attention by a party in interest, parties who would otherwise make such information available would be deterred from doing so. Additionally, the court would be prevented from acting in cases where an abuse is most likely to occur. In re Hudson, 56 B.R. 415 (Bankr. N.D.Oh.1985). Both the court and the U.S. Trustee have a duty to independently evaluate any information which may be brought to light by a party in interest. Such a screening process will prevent the abuse of § 707(b) by creditors seeking to use it as a means of harassing or intimidating debtors. Therefore, Debtors' first argument is without merit.
Debtor also argues his petition does not constitute a substantial abuse pursuant to 11 U.S.C. § 707(b). Section 707 provides:
(a) The court may dismiss a case under this Chapter only after notice and a hearing and only for cause, including
(1) Unreasonable delay by the debtor that is prejudicial to creditors;
(2) Nonpayment of any fees and charges required under Chapter 123 of Title 28; and
(3) Failure of the debtor in a voluntary case to file, within 15 days or such additional time as the court may allow after the filing of the petition commencing such case, the information required by ¶ (1) of § 521, but only on motion by the United States Trustee.
(b) After notice a hearing, the court, on its own motion or on a motion by the United States Trustee, but not at the request or suggestion of any party in interest, may dismiss a case filed by an individual debtor under this Chapter whose debts are primarily consumer debts if it finds that the granting of relief would be a substantial abuse of the provisions of this Chapter. There shall be a presumption in favor of granting the relief requested by the debtor.[3]
Section 707(b) was enacted as a part of the Bankruptcy Amendments and Federal Judgeship Act of 1984 (hereinafter "1984 Amendments"), in response to criticisms leveled at the Bankruptcy Reform Act of 1978 (hereinafter "Bankruptcy Code") by the consumer credit industry.[4] The legislative history of § 707(b) indicates its enactment was the result of perceived abuses by Chapter 7 and Chapter 13 debtors which resulted from the liberal provisions of the Bankruptcy Code.[5] The provisions of the Bankruptcy Code which were blamed for such abuses were the expansive automatic stay, the overly generous exemption standards, the broadened scope of discharge protection, the Debtor's unfettered choice to elect a no-asset Chapter 7 liquidation, and the lack of any meaningful payment requirement as the condition to confirmation *243 of Chapter 13 plans. Breitowitz, New Developments in Consumer Bankruptcy: Chapter 7 Dismissal on the Basis of "Substantial Abuse", 59 Amer.Bankr.L.J. 327 (1985).[6] As a result of the increase in the number of bankruptcies which followed the enactment of the Bankruptcy Code, the consumer credit industry alleged it suffered significant losses. Id. A study conducted by the Credit Research Center affiliated with the Krannert School of Management of Purdue University concluded that a significant percentage of the number of persons filing for relief under Chapter 7 would be able to pay most or all of their debts from their excess disposable income without undue hardship. Id. Those debtors were, however, filing Chapter 7 petitions under which creditors received nothing on their claims. The proposals made to Congress, including proposals which would limit access to Chapter 7 based on a debtor's ability to pay his debts under Chapter 13, failed to gain sufficient support for enactment prior to 1984. Id. Then, amidst the frenetic legislating in 1984 to amend the Bankruptcy Code to overcome the constitutional defect identified in Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S. Ct. 2858, 73 L. Ed. 2d 598 (1982), Congress passed the Consumer Credit Amendments, including the enactment of § 707(b). No definition of the term "substantial abuse" is contained in § 707(b) or elsewhere in the Bankruptcy Code. The Senate Report which accompanied the enactment of § 707(b), however, sheds some light on Congressional intent behind the passage of § 707(b):
This provision represents a balancing of two interests. It preserves the fundamental concept embodied in our bankruptcy laws that debtors who cannot meet debts as they come due should be able to relinquish non-exempt property in exchange for a fresh start. At the same time, however, it upholds creditors' interests in obtaining repayment where such repayment would not be a burden. Crushing debt burdens and severe financial problems place enormous strains on borrowers and their families. Family life, personal emotional health, or work productivity often suffers. By enabling individuals who cannot meet their debts to start a new life, unburdened with debts they cannot pay, the bankruptcy laws allow troubled borrowers to become productive members of their communities. Nothing in this bill denies such borrowers with unaffordable debt burdens bankruptcy relief under Chapter 7. However, if a debtor can meet his debts without difficulty as they become due, use of Chapter 7 would represent a substantial abuse.
S.Rep. No. 98-65 to accompany S. 445, 98 Cong., 1st Sess. (1983) p. 43. Thus, it appears that the primary purpose for the enactment of § 707(b) was to provide for dismissal of the Chapter 7 cases of debtors who can pay their debts from their excess disposable income.
Bank South contends the recent decision of the Ninth Circuit in Zolg v. Kelly, 841 F.2d 908 (9th Cir.1988), is the last of a long line of cases which uniformly hold that a debtor's ability to pay his debts defines substantial abuse. In the Kelly case, the debtors filed a Chapter 7 bankruptcy petition primarily to discharge a judgment debt of approximately $25,000. Before filing bankruptcy, the Kellys paid off all their unsecured creditors, consolidating some of their debt into their secured line of credit. Mr. Kelly sold his one-third interest in his law firm for the nominal sum of $100. The Kellys listed $181,350 in assets and $147,000 in debts secured by mortgages against their home. The debtors claimed a $50,000 homestead exemption. The debtors also listed an excess monthly income of $441. Their actual excess monthly income was substantially more because certain of their monthly expenses were found by the bankruptcy court to be excessive. In re Kelly, 57 B.R. 536 (Bankr.Ariz.1986).
The Ninth Circuit examined most of the cases which had been decided under *244 § 707(b) and concluded those cases were unanimous in holding "that the principal factor to be considered in determining substantial abuse is the debtor's ability to pay the debts for which a discharge is sought." Kelly, 841 F.2d at 913. The Ninth Circuit, however, went one step further by concluding that "a finding that a debtor is able to pay his debts, standing alone, supports a conclusion of substantial abuse." Id. at 914.
In the instant case, Debtor's excess disposable income would allow him to pay off the entire remaining balance due to Bank South in less than five months. Debtor could pay the entire debt of $1,450 in less than twelve months. Therefore, if this court employed the analysis of the Ninth Circuit in Kelly, Debtor's ability to pay would, "standing alone", support a finding of substantial abuse.
The analysis set forth in Kelly, however, is not without criticism by other courts and by legal scholars. In the case of In re Keniston, 85 B.R. 202 (Bankr.D.New Hamp.1988), the court adopted a narrow construction of § 707(b) espoused in a University of Pennsylvania law review article by Karen Gross, Preserving a Fresh Start for the Individual Debtor: The Case for Narrow Construction of the Consumer Credit Amendments, 135 Univ.Penn.L. Rev. 59 (1986). The Keniston court concluded:
"[T]he dismissal power under § 707(b) is not essentially different from the established power of a bankruptcy court to dismiss a petition under any chapter of the Bankruptcy Code that is filed with a lack of good faith or as an abuse of process under §§ 105(a) and 707(a) of the Code.
Both the law review article and the Keniston Court engage in an extensive analysis of the Bankruptcy Code to conclude that the focus of § 707(b) should be on whether the debtor is an "honest" debtor as distinguished from a "dishonest" debtor rather than focusing on the single rigid standard of whether a debtor can repay creditors out of future income. Keniston, 85 B.R. at 222. An honest debtor is one who has "unfortunately" incurred debts he cannot repay; a dishonest debtor is one who has "systematically defrauded" his creditors. Gross, 135 U.Pa.L.Rev. at 101.
An analysis of the cases cited by both Keniston and Kelly, however, show that while courts have focused on the debtor's ability to pay as the principal factor in determining substantial abuse, the courts have by no means focused on ability to pay as the sole factor for determining substantial abuse.[7] In the case of In re Edwards, 50 B.R. 933 (Bankr.S.D.N.Y.1985), the debtors' monthly net income was $2,550. They listed $184 monthly surplus income, which would have enabled them to pay 100% of their unsecured debt over a three-year period. The court noted the difficulty in determining substantial abuse based on objective data alone. The court also noted that it should accord great weight to the debtors' own assessment of their financial condition. After conducting a hearing in that case, the court concluded a dismissal for substantial abuse would be improper because facts and circumstances not apparent in the debtors' schedules indicated the debtors' petition was not a substantial abuse of the provisions of Chapter 7. Specifically, the debtors had three children and were expecting a fourth. As a result, the wife's income would be lost while expenses due to pregnancy and child care would increase. In addition, prior to filing the bankruptcy petition, the debtors sought assistance from a credit counseling service but were unable to maintain the payments devised by that service. The credit counseling service recommended that the debtors file bankruptcy. Thus, the Edwards court concluded the Edwards were "honest" debtors *245 entitled to seek relief under Chapter 7.[8]
In the case of In re Kress, 57 B.R. 874 (Bankr.D.N.Dak.1985), the debtor's yearly income was $90,000 and total unsecured debts were $38,000. The debtor overstated his expenses by $1,000 per month. In dismissing the case, the court relied not solely on the debtor's ability to pay but on the totality of the circumstances, including the debtor's earning potential and his extravagant monthly expense statement.
In the case of In re Hudson, 56 B.R. 415 (Bankr.N.D. of Oh.1985), the court listed several factors to be considered in determining substantial abuse. Among these were the aggregate amount of the debtor's income, the ratio between monthly income and monthly expenses, the percentage that could be paid to unsecured creditors, the hardship imposed under Chapter 13, the number of unsecured creditors, the amount of unsecured debt, the nature of the unsecured debt, the motivation for filing under Chapter 7, whether the debtor exhibited good faith in the prosecution of the case, and whether the debtor fully and accurately disclosed his monthly income and expenses. The court allowed the debtors a final opportunity to amend their schedule of current income and current expenditures to accurately reflect their financial status, finding discrepancies and inconsistencies rendered the evidence before the court unreliable for a determination of the § 707(b) issue.
In the case of In re Bell, 56 B.R. 637 (Bankr.E.D.Mich.1986), the debtor showed an income in excess of $3,000 per month with $127,000 in general unsecured debt and $5,500 in taxes owed. The court noted that fraud and other means of abuse not involving a debtor's ability to pay was dealt with elsewhere in the Bankruptcy Code, specifically in §§ 523, 727, and 707(a). The court also noted that in determining whether to dismiss a case for substantial abuse, the court should consider the effect of dismissal on the debtors versus the effect of the discharge on the creditors. In Bell, the court characterized the debtor's statement of expenses as extravagant. For example, the debtor listed $608 per month in transportation expenses which included the lease of a luxury car, and food expenses for one person of $480 per month which included frequent meals at restaurants. In dismissing the case, the court concluded:
[I]t is unfair and inequitable for the debtor to request that this Court discharge his debts while he accumulates substantial disposable income over the next several years while living a relatively high life style.
In the case of In re Struggs, 71 B.R. 96 (Bankr.E.D.Mich.1987), the court's analysis appeared to focus only on the debtor's ability to pay. The debtor's monthly income was $4,900 with expenses of approximately $3,800 and an excess of approximately $1,100 per month. The court noted debtor had incurred a $16,000 secured debt for a Cadillac automobile and a $16,000 secured debt for a motor home. Although not specifically stated, it was clear the court considered the totality of the circumstances, including the nature of the debtor's secured debts in addition to the debtor's ability to pay his unsecured debt from excess monthly income in determining that the case should be dismissed pursuant to § 707(b).
In the case of In re Gaskins, 85 B.R. 846 (Bankr.C.D.Cal.1988), the debtors' income was over $70,000 per year. The debtors' excess annual income was over $6,000 per year. The debtors' unsecured debt was approximately $30,000, most of which was credit card debt. The debtors had recently received an income tax refund of $8,300 which they had used to buy their third new car. The court noted that the use of the tax refund to buy a new car indicated an unwillingness on the part of the debtors to pay their debts. The court also noted that *246 a three-year Chapter 13 plan would pay 54% of the unsecured debt. The case was dismissed under § 707(b).
In the case of In re Krohn, 87 B.R. 926 (N.D.Oh.1988), the district court affirmed the bankruptcy court's dismissal of the case under § 707(b). The court stated the bankruptcy court had properly based its decision to dismiss on the evaluation of the debtor's ability to pay, the debtor's bad faith in filing his petition as exhibited by "eve of bankruptcy purchases", and that the debtor had suffered no unforeseen calamity and was merely using Chapter 7 provisions to gain relief from past excesses.
In the case of In re Strong, 84 B.R. 541 (Bankr.N.D.Ind.1988), the court found the presumption contained in § 707(b) in favor of granting relief to the debtor can be overcome by the debtor's substantial disposable income. In the Strong case, the debtor had surplus monthly income of over $1,000 and unsecured debt of approximately $11,000. The court noted it was appropriate to consider the factors set forth in Kress, and its progeny (discussed supra).
In a recent case, In re Wegner, 91 B.R. 854 (Bankr.D.Minn.1988), the court concluded that "the fact that the debtors have substantial net disposable income is, in and of itself, insufficient to establish substantial abuse." The court in Wegner also refrained from adopting a list of factors to consider in determining substantial abuse. The court held a finding of substantial abuse must be supported by some evidence of the debtor's "misconduct, impropriety, or lack of good faith." An ability to pay the debt from net disposable income is merely evidence of such misconduct, impropriety or lack of good faith.
In Wegner, the debtors had amassed over $100,000 in credit card debt. The debtors had a net monthly disposable income of over $1,500. Debtors were ineligible for relief under Chapter 13 or Chapter 11. The court found that, until the stock market crash in October, 1987, the debtors had an honest belief, however naive and unreasonable it may have been, that they would be able to pay their credit card debt. The court also noted little evidence that the debtors used the cash advances from the credit cards to purchase luxury items and that more than one family crisis had contributed to the debtors' financial burden while diverting their attention from their financial affairs. Additionally, the court analyzed the allegations concerning debtors' ability to pay their debts. Because the debtors were ineligible for relief under Chapter 13 or Chapter 11, interest would continue to accrue on their debts. The monthly interest alone on their credit card debt constituted more than their net monthly disposable income. The court concluded that financial irresponsibility alone is insufficient cause to deny relief under Chapter 7.
In the instant case, Debtor is attempting to use the provisions of Chapter 7 of the Bankruptcy Code to obtain a discharge of a single debt of $1,450, of which the creditor has received through garnishment $896.46. Debtor shows an excess monthly income of $130. Debtor's schedules also show an anticipated income tax refund of $500. While it does not appear Debtor's statement of his monthly expenses is excessive, it likewise does not appear to be understated. Debtor has offered no evidence of any recent calamity which would affect his ability to pay. Although Debtor has stated the deficiency judgment was taken by default and that he has a good defense to the judgment, e.g., that the sale was not conducted in a manner reasonably calculated to obtain the highest value for the car, Debtor has offered no facts in support of this contention. Thus, it does not appear that Debtor is inflicted with "crushing debt burdens and severe financial problems" or even with debts he cannot pay. It is apparent Debtor filed his Chapter 7 petition for the sole purpose of discharging a single debt which he does not wish to pay. Accordingly, it is hereby
ORDERED that, pursuant to 11 U.S.C. § 707(b), the above-styled case is DISMISSED.
IT IS SO ORDERED.
NOTES
[1] In that letter brief, Bank South alleged it did not receive notice of the hearing and, thus, was not present at the hearing.
[2] Debtor's schedules indicate his intention to file a complaint to recover the amounts Bank South collected pursuant to that garnishment. On February 19, 1988, Debtor filed a motion to avoid judicial lien pursuant to 11 U.S.C. § 522(f). That motion was denied without prejudice by this court on October 10, 1988, pending disposition of the instant motion to dismiss.
[3] The provision in § 707(b) allowing a motion pursuant to that section to be filed by the United States Trustee was added with the amendments to the Bankruptcy Code in 1986 which instituted the United States Trustee program nationwide.
[4] See, 130 Cong.Rec.H. 1808 et seq. (daily ed. March 21, 1984). See also the discussion of the legislative history of § 707(b) in the case of In re Grant, 51 B.R. 385 (Bankr.N.D.Ohio 1985).
[5] The 1984 Amendments also added § 1325(b) which mandates that the debtor utilize all his disposable income to make payments under the plan unless unsecured creditors can be paid in full through a smaller distribution. In addition, the 1984 amendments provided through § 1329(a) that the plan may be modified at the request of an unsecured creditor, presumably modified upward if debtor's economic situation improves.
[6] See also, Andrea M. Proia, The Interpretation and Application of Section 707(b) of the Bankruptcy Code, 93 Comm.L.J. 367 (1988).
[7] Even in the Kelly case, although the court concluded ability to pay could be the sole factor for determining substantial abuse, the facts of the Kelly case show that the debtors, in addition to having the ability to pay, were also abusing the provisions of Chapter 7 by attempting to manipulate the chapter's provisions to discharge a single, unsecured judgment debt. The judgment debt which the Kelly debtors sought to discharge consisted primarily of attorney fees which had been awarded against them for abusive litigation.
[8] Of interest is an example given by the Edwards court of circumstances, similar to those in the instant case, which that court found would constitute substantial abuse. The example was a Chapter 7 debtor with a single debt of several thousand dollars for a student loan. The debtor's stated income and expenses revealed no reason why the debt could not be paid in full in less than a year. That case was dismissed pursuant to § 707(b). Edwards, 50 B.R. at 941. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540290/ | 95 B.R. 954 (1988)
In re VICTORIA HARDWOOD LUMBER COMPANY, INC., Debtor.
VICTORIA HARDWOOD LUMBER COMPANY, Plaintiff,
v.
CECIL I. WALKER MACHINERY CO., Defendant.
Bankruptcy No. 2-88-02190, Adv. No. 2-88-0175.
United States Bankruptcy Court, S.D. Ohio, E.D.
November 7, 1988.
Richard T. Ricketts, Wesp, Osterkamp & Stratton, Columbus, Ohio, for Plaintiff, Victoria Hardwood Lumber Co., Inc.
Richard M. Francis, Bowles, McDavid, Graff & Love, Charleston, W.Va., and James H. Prior, Porter, Wright, Morris & Arthur, Columbus, Ohio, for defendant, Cecil I. Walker Machinery Co.
James H. Gordon, Columbus, Ohio, for Holt-Refakis Equipment Co.
OPINION AND ORDER ON COUNTS I & II OF COMPLAINT AND ON MOTIONS TO COMPEL ASSUMPTION OR REJECTION OF LEASE AND RENTAL AGREEMENTS
BARBARA J. SELLERS, Bankruptcy Judge.
This matter is before the Court after trial of Counts I and II of this Complaint, combined with hearing of the related portions of two Motions to Compel Assumption or Rejection of Lease and Rental Agreements *955 (the "Motions"). Cecil I. Walker Machinery Co. ("Walker") is the defendant in this adversary and the movant of the Motions, filed in the related Chapter 11 bankruptcy case of Victoria Hardwood Lumber Company, Inc. ("Victoria"). Victoria is the plaintiff in this adversary and a debtor-in-possession before this Court. Although these matters were consolidated for hearing and purposes of trial with similar matters affecting another creditor of Victoria, this opinion is issued separately for reasons of clarity.
The Court has jurisdiction under 28 U.S.C. § 1334(b) and the General Order of Reference entered in this district. Both the Motions and the Complaint, for which Counts I and II seek a judgment declaring the nature of certain transactions between Victoria and Walker, are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(K) & (M) in which this bankruptcy judge may enter final orders.
I. FINDINGS OF FACT
A. The Transactions
1. Order # 1.
On or about August 19, 1987 Victoria, through its president Ervin Tackett, entered into a purchase order contract with Walker involving a new Caterpillar D4H tractor, (serial number 8PBO1337), a new Caterpillar # 4P Bulldozer, and a new Carco 50 APS winch (serial number 8700911) ("Order #1"). The total negotiated price of $73,412 for all three items with attachments, if the machinery were financed for purchase, appeared on the form as the "insurance value". That amount is also the value for which Victoria was obligated to insure the equipment. Initially, Victoria was to make six monthly rental payments of $3200 each. Upon the end of the rental periods, those payments were to be applied in full against the purchase price if Victoria determined to purchase the equipment. If additional rental periods were required, the payments would increase to $4,950 each month for the second six-month period and to $6,600 for the third such period.
About one week thereafter, the equipment in Order # 1 was delivered to a site in West Virginia where Victoria was engaged in a logging operation. On September 14 and 16, 1987, Victoria and Walker, respectively, executed a Rental Agreement ("Lease # 1"), setting forth the payments required over the term of the lease. Other terms required Victoria to maintain, repair and insure the equipment, to pay any applicable taxes, and to indemnify Walker for any loss or damage to the equipment. Apparently UCC-1 financing statements were also obtained and were filed with the Secretaries of State for Ohio and West Virginia and with the County Recorders of Pike County, Ohio and Kanawha County, West Virginia.
Because Victoria was considered a marginal credit risk, rental charges were invoiced in advance of the period of usage and the first payment was made at the time the purchase order was executed. Victoria made all six payments under Lease # 1. Walker had the equipment for Order # 1 in its existing inventory and had paid its supplier, Caterpillar, Inc., for the machinery prior to its shipment to Victoria.
2. Order # 2.
Also on or about August 19, 1987, Victoria entered into another purchase order contract with Walker involving a new Caterpillar # 518 skidder (serial number 94UO1733) ("Order # 2"). The negotiated price or insurance value for that equipment was $71,606. Again, the arrangement was for an initial lease of at least six months' duration with payments of $3,300 each month, to be paid in advance of usage. If additional rental periods were required, the payments would increase to $4,950 each month for the second six-month period and to $6,600 each month for the third such period. The first payment was made at the time Order # 2 was executed.
The skidder and its specified attachments were shipped to Victoria's job site in West Virginia on or about August 24, 1987. Again a rental agreement was executed by Victoria and Walker on September 14 and September 16, 1987, respectively ("Lease *956 # 2"). Except for the payment amounts, the terms of Order # 1 and Order # 2 were identical. Victoria made six payments under Lease # 2. Curiously, although the first lease payment for the skidder was made at the time Order # 2 was signed and the next installment was invoiced to Victoria on September 21, 1987, the manufacturer's statement of origin for that equipment did not certify a transfer from Caterpillar, Inc. to Walker until October 22, 1987. UCC-1 financing statements were obtained and were filed with the Secretaries of State for Ohio and West Virginia and the County Recorders of Pike County, Ohio and Kanawha County, West Virginia.
3. Order # 3.
On or about February 10, 1988, Victoria entered into a third purchase order with Walker for a new Caterpillar Skidder # 518 (serial number 94U1839) ("Order # 3"). This equipment had a negotiated price or insurance value of $73,925. Again, the equipment initially was to be rented for a period of six months and payments were invoiced in advance each month in the amount of $3,300. If additional rental periods were required, the payments would increase to $4,400 each month for the second six-month period and to $6,600 for the third such period. The first payment was made at the time Order # 3 was executed. The skidder and its specified attachments were shipped from Walker's existing inventory to Victoria's job site in West Virginia within several days of the execution of Order # 3.
Victoria and Walker executed a lease for the equipment on Order # 3 on February 24, 1988 ("Lease # 3"). The first installment of rent was paid when Order # 3 was executed and the next installment was invoiced to Victoria on March 10, 1988. UCC-1 financing statements were filed with the Secretaries of State for Ohio and West Virginia and the County Recorders of Pike County, Ohio and Kanawha County, West Virginia. This skidder had been transferred from Caterpillar, Inc. to Walker on December 22, 1987, and Walker had paid Caterpillar for the equipment prior to its delivery to Victoria. It is disputed whether this equipment was available on six-month interest-free conversion terms.
4. Order # 4.
The final transaction between Victoria and Walker involved a purchase order, dated March 8, 1988, pursuant to which Victoria apparently contracted for a used Caterpillar D4B tractor, a used Caterpillar 4P bulldozer, and a used Caterpillar 53 winch ("Order # 4"). Testimony about this transaction was confusing and the equipment may have been a temporary replacement for other machinery for the West Virginia job which was in repair. No invoices were ever sent for Order # 4 and no rental agreements were produced. For purposes of this action, the Court is not ruling on issues relating to Order # 4.
B. Facts Related to the Transactions Generally
Walker is a West Virginia corporation which sells, leases and services equipment primarily for use in mining or industrial applications. Walker is a Caterpillar dealer, although it also sells machinery of other manufacturers. At any given time Walker has between $5,000,000 and $20,000,000 or 30-130 units in its "rental" inventory. About 50% of Walker's transactions are rentals; that percentage is higher in the logging industry. Although most of Walker's rentals convert to sales transactions, the percentage of such conversions is lower in the logging industry.
Victoria, through Tackett, first approached Walker in August, 1987 with a request about the availability of certain equipment for use in connection with a job Victoria had in Tanner, West Virginia. Although Victoria asked about the 12-month "interest-free" rental it had gotten previously from another Caterpillar dealer, Walker did not have such an option available. However, Walker offered Victoria a six-month rental option which provided for application of all rental payments to any subsequent purchase. Some of Tackett's conversations in connection with these transactions were with Walker's field sales *957 representative and some were with personnel at Walker's offices in West Virginia.
Sometime in January or February, 1988 Tackett, on behalf of Victoria, again visited Walker's offices. The primary purpose for that visit was to make payments on the equipment then under lease from Walker. At that time Tackett indicated to Walker's representative that Victoria wanted to purchase all the equipment then being rented from Walker. Tackett discussed converting the leases of equipment to financed purchases and simultaneously trading in a used John Deere machine to decrease the take-out balances. Tackett brought Victoria's financial statement to Walker's representative in support of that objective. There were several liens against the John Deere equipment, however, and Walker never approved any financing for Victoria to purchase its equipment. Although the parties agree that Victoria could have purchased the equipment at the end of the rental period, no formal purchase option appears on the documents.
Testimony established that depreciation of the types of logging equipment involved in these transactions may be approximately 25%-30% of the original price over the first year or 15%-18% over the first six months of usage. Although those figures contemplate depreciation from list price, as a practical matter the residual value after the period of depreciation has to be related to the market or discounted price. Therefore it is fair to assume that an owner or dealer would expect to sell the equipment after six months of usage at approximately a 20%-25% reduction from its original price. The structure of the payments under the lease agreements were such that 26%-27.5% of the negotiated price was paid over the first six months. Had Victoria purchased the equipment on Orders # 1, # 2 and # 3 at the conclusion of the six-month rental term, the take-out balances would be the negotiated prices minus the six rental payments on each order. Those amounts are approximately $52,000 $54,000. Those remaining balances are not determined by the fair market value of the equipment at the time the purchase options are exercised, but by the formula as stated. It appears that Walker receives approximately a 30% discount from list price in its purchases from Caterpillar and the negotiated price to Victoria represents a passing on of about two-thirds of that discount.
C. The Inventory Management Assistance Plan
To assist its dealers in selling equipment, Caterpillar, Inc. ("Caterpillar") instituted an Inventory Management Assistance Plan ("IMAP"). Under the 1987 version of IMAP, as it existed at the time Victoria entered into Orders # 1 and # 2, a dealer was permitted to offer its customers initial rental periods up to 12 months with all rental payments applied directly against the purchase price of the equipment upon exercise of the accompanying purchase option. Alternatively a dealer could offer subsidized lower interest rates for a sale financed through Caterpillar's financing entity. Under either such arrangement the dealer's obligation to pay Caterpillar for the equipment arises only upon the earlier of ten days subsequent to the customer's exercise of the purchase option, six months from the first "rental" or nine months from the date of invoice from Caterpillar to the dealer. Only a certain portion of a dealer's inventory, determined by a formula from Caterpillar, is eligible for inclusion in the IMAP program.
The IMAP program benefits the customer by permitting a financing of the down payment through an initial rental period, which, in essence, becomes a period without interest if the sale proceeds to conclusion. IMAP also benefits the dealer by permitting it to defer its remittance to Caterpillar.
Changes occurred in the structure of the IMAP program between 1987 and 1988. According to Victoria, Caterpillar's internal communications to its dealers indicated the most significant changes were responses by Caterpillar to certain "false rental" abuses by its dealers. Those changes required a dealer to declare a transaction to be a "sale", thus commencing the dealer's obligation to remit payment to Caterpillar within ten days, where the customer's intent *958 was clearly to purchase the equipment. This directive is applied not only to initial sales evidenced by installment sales contracts, but also applied to "full payout finance leases" evidenced by initial rental periods with options to purchase. If the rental provisions were used, subsidized financing for the take-out period of the subsequent loan to complete the purchase was not available, as only one form of subsidy was available to a customer for a given transaction.
II. ISSUES OF LAW
By agreement of the parties the issues before the Court at this time are limited as follows:
A. Whether the transactions in question between Walker and Victoria are "true leases" or financing (security) arrangements;
B. If the Court determines that the transactions are "true leases", then the Court shall consider those issues set forth in Count Two of the Adversary Proceeding, which seeks a finding that such leases automatically converted to a financing arrangement at the end of the rental period; and
C. If the Court determines that the transactions are "true leases", then the Court shall consider those issues raised by the Motions with respect to the timing of Victoria's assumption or rejection of such leases.
III. CONCLUSIONS OF LAW
A. True Leases or Financing (Security) Arrangements
Victoria asserts that its transactions with Walker were not true leases, but were financing arrangements for the purchase of the equipment described in Orders # 1, # 2 and # 3. Victoria argues that the initial form used by Walker was a purchase order form, all or most of the burdens of ownership were upon Victoria, the so-called rentals were just a method of financing the required down payments and the remaining price to be paid if the purchase options were exercised, when compared with the depreciated value with the equipment, is such that it would be economically unrealistic not to finance that remainder. Victoria further asserts that Walker's representative knew Victoria's intent was to purchase the equipment and that such intent is further evidenced by Victoria's accounting of the transactions on its books as capitalized purchases of equipment. Finally, Victoria challenges any characterization of Caterpillar's IMAP program, in which Walker participated, as other than a financing device.
In response Walker contends that it never agreed to sell Victoria the equipment and, in fact, refused to finance any purchases for Victoria. Walker further asserts that the same purchase order form was used for most or all of its transactions with customers and the duties placed upon Victoria by the lease agreements are normal and consistent in rentals of commercial equipment. Walker further maintains that the rental payments it received are equal only to depreciation of the equipment plus approximately 20% profit for its risk. Therefore, according to Walker, the remaining price which must be paid if the purchase options were exercised, is not such that Victoria is economically compelled to purchase the equipment. Walker argues the IMAP program is irrelevant to these transactions as none of the equipment leased to Victoria served to delay Walker's remittances to Caterpillar because the equipment came from existing inventory. Finally, Walker indicates that Victoria's initial contact with it was for leasing only, although possible conversion to purchase was discussed at a later time. Walker's books showed Victoria's payments only as rental income.
The Bankruptcy Code, while it provides for the assumption and rejection of a lease, does not define the term "lease." Section 101(45) of Title 11, United States Code defines a "security interest" as a lien created by an agreement. The legislative history of this section indicates that state or local law should be applied in determining whether a lease constitutes a security interest under the Bankruptcy Code. H.R. *959 No. 95-595, 95th Cong., 1st Sess. at 314 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6271.
Relevant state law is not specified in the agreements between Walker and Victoria. Whether Ohio or West Virginia law controls, the statutory language is the same and the tests set forth by case law in both states are similar. The relevant statutory language is as follows:
Whether a lease is intended as security is to be determined by the facts of each case; however, (a) the inclusion of an option to purchase does not of itself make the lease one intended for security, and (b) an agreement that upon compliance with the terms of the lease the lessee shall become or has the option to become the owner of the property for no additional consideration or for a nominal consideration does make the lease one intended for security.
W.Va.Code § 46-1-201(37) (Michie Supp. 1988); Ohio Rev.Code § 1301.01(KK) (Anderson Supp.1987).
Although various lists of facts have been set forth by different courts, this Court agrees with the opinion in Sight and Sound of Ohio, Inc. v. Wright (In re Wright), that:
The appropriate course to follow is to analyze all the relevant factors surrounding the lease agreement and relationships created therein, in determining if the parties in fact intended to create a security interest. The court finds this approach preferable to adoption of a rigid test or set of criteria because of the fact sensitive nature of the inquiry and the need for a flexible analytical framework that enables the court to analyze the totality of the facts presented.
36 B.R. 885, 890 (S.D.Ohio 1983).
The statute requires the Court to discuss the intent of the parties at the time the agreement was entered into. That issue is primarily factual. In re Puckett, 60 B.R. 223, 235 (Bankr.M.D.Tenn.1986), aff'd., 838 F.2d 470 (6th Cir.1988). The intent is to be objectively determined from the facts of the particular case. Leasing Service Corp. v. Eastern Equipment Co. (In re Eastern Equipment Co.), 11 B.R. 732, 736 (Bankr.S.D.W.Va.1981), vacated on other grounds, 27 B.R. 980 (S.D.W.Va. 1983). If such intent is not clear from testimony of the factual circumstances surrounding the transactions, documentary evidence, or the parties' subsequent treatment of the relationship, such intent can be inferred or presumed from an evaluation of the "lessee's" rights at the end of the lease term. Analysis of that important factor considers whether the "lessee" is compelled, either under the terms of the lease or by economic practicality, to accept and pay for the property, or whether the lessee may just as plausibly return it to the lessor. Jahn v. M.W. Kellogg Co., Inc. (In re Celeryvale Transport, Inc.), 822 F.2d 16 (6th Cir.1987); Alzfan v. Bowers, 175 Ohio St. 349, 194 N.E.2d 852 (1963).
In this matter the Court finds that the intent of the parties at the onset of the transactions was to create a lease for the initial term with a purchase option which might be exercised after six months. Testimony clearly established that Victoria was under no compulsion or duty to purchase the machinery. Further, the price to be paid if the purchase option were exercised, while somewhat less than the depreciated fair market value of the equipment at that time, is not so disparate that Victoria was "economically compelled" to invoke the purchase option. Celeryvale Transport, 822 F.2d at 18. In addition, the term of the lease is reasonably short when compared to the useful life of the equipment. Some "equity" existed in favor of Victoria at the end of the lease period because the depreciated value of the equipment was approximately 10% higher than the price remaining to be paid. That degree of difference, without the presence of other significant facts, however, does not establish economic compulsion. Although the IMAP program meant that Walker could offer Victoria an incentive to purchase the equipment by the subsidized interest rate given through the initial rentals, it is clear that at least two of these transactions did not directly benefit Walker under the IMAP program except perhaps to add to the base *960 inventory. The evidence is not sufficiently strong for this Court to find either that the parties intended from the onset that these transactions would be sales or that Victoria had no feasible or sensible economic option other than to purchase the equipment at the end of the six-month term. Without stronger evidence, the transactions will not be recharacterized in a manner which differs from that established by the documentation.
The Court believes Victoria needed equipment for a job in West Virginia and hoped to convert the rentals to purchases if the equipment were still needed at the end of the rental term and Victoria had the means to exercise those purchase options. On balance, the facts surrounding the transactions with Walker do not establish that the parties intended to enter into sales transactions from the outset or that the substance of the transactions were sales with retained security interests.
Based on the foregoing, the Court determines that the agreements between Victoria and Walker relating to Orders # 1, # 2, and # 3 are true leases.
B. Automatic Conversion to Financing Arrangements
Victoria also asks, if the transactions are determined to be true leases, that the Court find that such leases automatically converted to financing arrangements at the end of the corresponding rental periods. However, the evidence did not establish that such automatic conversions occurred or that Victoria could have forced such conversions.
Uncontroverted testimony from Walker's credit manager established that Walker considered Victoria's expressed interest in converting Leases # 1, # 2, and # 3 into purchase agreements. Walker then determined that it would not finance such purchases. That decision resulted from Walker's inability to get a clear title to the equipment proposed as a trade-in by Victoria and Walker's evaluation of Victoria's marginal credit rating. Having made that determination, Walker had no further obligation to Victoria relating to the equipment except to accept the full remaining purchase prices, if tendered, or perhaps, to renew the lease terms at higher rates. No tender of the purchase price has been made.
C. Assumption or Rejection of the Leases by Victoria
Walker seeks an order from this Court forcing Victoria to decide immediately whether it should assume or reject the leases of equipment owned by Walker. On the other hand, Victoria desires to postpone its decision until the time of confirmation of any proposed plan of reorganization.
The Court notes that Victoria's Chapter 11 case was filed on April 27, 1988. Accordingly, Victoria has had approximately six months to determine its need for Walker's equipment and to evaluate its ability to cure any defaults in payments to Walker and provide adequate assurance of future performance. Other than insurance coverage ordered by the Court, the Court is not aware that any adequate protection payments have been made or offered to Walker.
The Court finds that the type of personal property involved in these leases, the possibility that some of the leases are no longer existent, and the length of time which has passed without compensation to Walker for the depreciation of its equipment require that Victoria decide, within forty-five (45) days of the entry of this order, whether it will assume or reject each of its three leases with Walker. Absent some other resolution agreed to by the parties, such determination must be made formally within that time.
IT IS SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540332/ | 121 Pa. Commw. 436 (1988)
550 A.2d 1364
David Russell, Petitioner
v.
Workmen's Compensation Appeal Board (Volkswagen of America), Respondents.
No. 2159 C.D. 1986.
Commonwealth Court of Pennsylvania.
Submitted on briefs February 4, 1988.
December 2, 1988.
Submitted on briefs February 4, 1988, to Judges BARRY and SMITH, and Senior Judge NARICK, sitting as a panel of three.
*437 William Jon McCormick, for petitioner.
Raymond F. Keisling, Will, Keisling, Ganassi & McCloskey, for respondent, Volkswagen of America.
OPINION BY JUDGE SMITH, December 2, 1988:
David Russell (Claimant) appeals from a decision of the Workmen's Compensation Appeal Board (Board) which affirmed the referee's decision dismissing Claimant's petition for reinstatement of compensation under The Pennsylvania Workmen's Compensation Act (Act).[1] Issues raised for review are whether the referee's alleged misinterpretation of the medical report submitted on Claimant's behalf constitutes a capricious disregard of competent evidence, and whether the referee enjoys complete, unfettered discretion to reject unrebutted medical opinion. The Board's decision is vacated and remanded.
The record indicates that Claimant suffered a work-related injury in March of 1983 which aggravated a pre-existing condition of his right hip, diagnosed as asceptic necrosis. Claimant received compensation for his work-related injury from March 7, 1983 to March 14, 1983 and again from June 3, 1983 to February 6, 1984. On April 29, 1985, Claimant filed a reinstatement petition alleging a recurrence of the March 1983 injury which necessitated surgery and resulted in work loss. The referee, after hearings held June 13, 1985 and September 5, 1985, found that Claimant's present hip disability and medical treatment were unrelated to the aggravation injury of March 1983, and accordingly, denied Claimant's *438 reinstatement petition. Claimant was the only party to present evidence before the referee. Claimant appealed to the Board, which affirmed the referee's decision, whereupon Claimant petitioned this Court for review.
Initially, the appropriate scope of review to be applied to the matter sub judice must be determined in light of Pennsylvania Supreme Court decisions in Farquhar v. Workmen's Compensation Appeal Board (Corning Glass Works), 515 Pa. 315, 528 A.2d 580 (1987); Odgers v. Unemployment Compensation Board of Review, 514 Pa. 378, 525 A.2d 359 (1987); and Estate of McGovern v. State Employees' Retirement Board, 512 Pa. 377, 517 A.2d 523 (1986) as well as this Court's decision in Kirkwood v. Unemployment Compensation Board of Review, 106 Pa. Commw. 92, 525 A.2d 841 (1987). The standard of review enunciated in McGovern to be applied in administrative agency appeals is set forth in Section 704 of the Administrative Agency Law, 2 Pa. C.S. §704, which provides that:
After hearing, the court shall affirm the adjudication unless it shall find that the adjudication is in violation of the constitutional rights of the appellant, or is not in accordance with law, or that the provisions of Subchapter A of Chapter 5 (relating to practice and procedure of Commonwealth agencies) have been violated in the proceedings before the agency, or that any finding of fact made by the agency and necessary to support its adjudication is not supported by substantial evidence. (Emphasis added.)
As noted in Kirkwood, this standard unquestionably applies to proceedings in which both parties present evidence as demonstrated in McGovern.
However, where the burdened party is the only party to present evidence and does not prevail before the agency, the "substantial evidence" test falters. If no evidence *439 was presented to support the prevailing party, there is no evidence upon which to apply the "substantial evidence" test; i.e., it is impossible to find substantial evidence to support a position for which no evidence was introduced. In such cases, therefore, the appropriate scope of review, as set forth in Farquhar and Odgers, is whether the agency erred as a matter of law or capriciously disregarded competent evidence.[2] In Farquhar, the Supreme Court granted appellant's petition for allowance of appeal because the record failed to support a critical finding by the referee; the referee and Board capriciously disregarded uncontradicted medical testimony and evidence; and the lower tribunals committed an error of law. Upon review, the Supreme Court reversed this Court and ordered the Board to reinstate compensation to appellant. In addressing the appropriate standards of appellate review, Justice LARSEN in quoting from Jasper v. Workmen's Compensation Appeal Board, 498 Pa. 263, 266, 445 A.2d 1212, 1213 (1982), reiterated that:
Previous cases have set forth the scope of review where, as here, the fact finder's decision is against the party having the burden of proof in *440 terms such as `capricious disregard of competent evidence', Barrett v. Otis Elevator Co., 431 Pa. 446, 246 A.2d 668 (1968), `willful disbelief of otherwise credible evidence', Bullock v. Building Maintenance Inc., 6 Pa. Commw. 539, 297 A.2d 520 (1972) or internal inconsistency in the findings of fact and conclusions of law. Halaski v. Hilton Hotel, 487 Pa. 313, 409 A.2d 367 (1979). . . . At the very least the findings and conclusions of the fact finder must have a rational basis in the evidence of record and demonstrate an appreciation and correct application of underlying principles of substantive law to that evidence.
Moreover, in affirming this Court's decision that the affected school district employees were entitled to unemployment compensation in Odgers, the Supreme Court held that:
The standard of review any appellate court must apply, when the party with the burden of proof lost before the Board, is whether the Board erred as a matter of law or capriciously disregarded competent evidence.
Id. at 390, 525 A.2d at 365.[3] Accordingly, the "capricious disregard" test is the appropriate standard to apply *441 to the factual scenario presented in the matter sub judice as well as to other administrative agency adjudications where the burdened party is the only party to present evidence and does not prevail before the agency. In all matters, however, where both parties present evidence, the agency's determination will be reviewed under the "substantial evidence" test as indicated in McGovern.
Claimant initially contends that the referee's misinterpretation of a report by Claimant's treating physician, Dr. Jack D. Smith, constitutes capricious disregard of competent evidence.[4] Dr. Smith's report, dated June 29, 1984, stated that Claimant sustained an injury to his right hip in March 1983 and underwent hip biopsy and core-drilling for what appeared to be an asceptic necrosis. Dr. Smith further stated that Claimant's asceptic necrosis likely antedated his March 1983 injury, but that the injury significantly aggravated the preexisting asceptic necrosis. Dr. Smith stated as well that although Claimant returned to work, his worsening pain necessitated hip arthroplasty and that Claimant's present hip disability continues as a reflection of the previous condition in his hip. Certified Record, Claimant's Exhibit No. 1.
*442 The referee, based upon Dr. Smith's report, found that:
1. The Claimant, David Russell, filed a Reinstatement Petition under the provisions of the Pennsylvania Workmen's Compensation Act, against the Defendant, Volkswagen of America, for compensation for the alleged recurrence of his right hip injury of March 4, 1983.
3. A previous decision circulated on August 29, 1984, of this Referee set forth that on March 6, 1983, while walking backwards, the Claimant fell backwards in an open pit and as a result of his fall his asceptic necrosis of his right hip was aggravated, according to Dr. Jack D. Smith, a board certified doctor, Claimant's treating doctor.
6. Dr. Jack D. Smith set forth in his report of July 29, 1984, that the present disability in the hip was a reflection of the previous condition in his hip. The previous condition set forth in the previous testimony was an asceptic necrosis. This condition pre-existed the injury of March 3, 1984.
7. Your referee finds as a fact that the present disability and medical treatment is related not to the aggravation of March 3, 1984, but the preexisting [sic] of asceptic necrosis that pre-existed the injury of March 1983. (Emphasis added.)
Findings of Fact Nos. 1, 3, 6, 7. The findings of fact above noted are ambiguous and contradictory due to various discrepancies. First, three different dates of injury are listed by the referee. Whether the discrepancies represent typographical errors or indicate that the referee found another injury which occurred between Claimant's aggravation injury and his present disability is unclear. Secondly, the referee's recitation of Claimant's *443 medical testimony together with the findings and conclusions based thereon leave doubt as to whether reference was being made to Claimant's asceptic necrosis per se or to the aggravation thereof. Moreover, the referee may have misinterpreted the medical meaning of "reflection".
Before application of the standard of review enunciated herein, this Court finds it necessary to vacate and remand for clarification consistent with this opinion. See Newton v. Workmen's Compensation Appeal Board (Department of Labor and Industry), 82 Pa. Commw. 534, 475 A.2d 1353 (1984).
ORDER
AND NOW, this 2nd day of December, 1988, the order of the Workmen's Compensation Appeal Board dated June 6, 1986 is vacated and this case is remanded for clarification consistent with this opinion.
Jurisdiction relinquished.
Judge BARRY dissents.
Judge MacPHAIL did not participate in the decision in this case.
NOTES
[1] Act of June 2, 1915, P.L. 736, as amended, 77 P.S. §§1-1031.
[2] See also Kirkwood where this Court questioned the applicability of the "substantial evidence" test when the party with the burden of proof is the only party to present evidence and does not prevail before the agency. Under these circumstances, this Court concluded that the record must first be examined to determine whether that party, as a matter of law, has met his/her burden; and, if not, the agency decision is to be affirmed. However, when that party presents sufficient evidence as a matter of law, this Court reasoned that it must examine the basis for the adverse ruling and determine whether it stemmed from a credibility determination expressed by the factfinder against the burdened party or an error of law. Lastly, this Court held that a matter is to be remanded to the agency in cases where it is unclear whether a credibility determination has been made.
[3] See Barrett v. Otis Elevator Co., 431 Pa. 446, 450, 246 A.2d 668, 670 (1968), a seminal case which applied the "capricious disregard" test in a workmen's compensation action. The Supreme Court in Barrett stated that: "[O]n appeal from a decision of the Board by the party having the burden of proof, the Board's findings of fact must be sustained unless they capriciously disregard competent evidence or unless they are inconsistent with each other or with either the Board's conclusions of law or its order."
See also Yuhas v. Workmen's Compensation Appeal Board (City of Pittsburgh), 82 Pa. Commw. 390, 476 A.2d 1377 (1984); Dennis v. Unemployment Compensation Board of Review, 55 Pa. Commw. 215, 423 A.2d 458 (1980).
[4] A claimant seeking reinstatement benefits must establish a causal connection between his/her current condition and the prior work-related injury. D.P. "Herk" Zimmerman, Jr., Inc. v. Workmen's Compensation Appeal Board (Himes), 103 Pa. Commw. 68, 519 A.2d 1077 (1987). To meet this burden, Claimant must show that there has been an increase or recurrence of the disability after the date of the prior award and that Claimant's condition has actually changed in some manner. Section 413 of the Act, 77 P.S. §772; Memorial Osteopathic Hospital v. Workmen's Compensation Appeal Board (Brandon), 77 Pa. Commw. 518, 466 A.2d 741 (1983). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540816/ | 259 B.R. 907 (2001)
In re Janet E. McCORMICK, Debtor.
Janet E. McCormick, Plaintiff/Appellant,
v.
Diversified Collection Services, Inc., Claim of: United States Department of Education,[1] Defendant/Appellee.
No. 00-6062EM.
United States Bankruptcy Appellate Panel for the Eighth Circuit.
Submitted: February 5, 2001.
Filed: March 23, 2001.
*908 Janet E. McCormick, St. Louis, MO, pro se.
Wesley Dennis Wedemeyer, St. Louis, MO, for appellee.
Before KOGER, Chief Judge, KRESSEL and SCOTT, Bankruptcy Judges.
KRESSEL, Bankruptcy Judge.
The plaintiff and debtor, Janet E. McCormick, appeals from the judgment of the bankruptcy court[2] in which the bankruptcy court determined that McCormick's debt to the United States was excepted from her discharge and entered judgment in favor of the United States and against McCormick in the amount of the outstanding debt. We affirm.
BACKGROUND
McCormick filed a petition under chapter 7 of the Bankruptcy Code on December 2, 1998. The case was closed on March 22, 1999, but on request of McCormick, the case was reopened on February 11, 2000. On February 14, 2000, McCormick filed an adversary proceeding asking that her student loans owed to the United States Department of Education be determined to be discharged by reason of 11 U.S.C. § 523(a)(8). After trial, the bankruptcy court found that McCormick had not demonstrated that failure to discharge her student loans would have been an undue hardship and entered a judgment in favor of the Department of Education in the amount of $6,070.37. McCormick filed a timely appeal.
DISCUSSION
The dischargeability of student loans is governed by 11 U.S.C. § 523(a)(8) which provides:
A discharge under section 727 . . . does not discharge an individual debtor from any debt
. . . . .
(8) for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents.
11 U.S.C. § 523(a)(8).
Earlier versions of § 523(a)(8) had provided for the discharge of student loans if a certain time had elapsed. The last version of such provision provided for the discharge of student loans that first became due more than seven years before the date of the filing of the petition. Johnson v. Missouri Baptist College, 218 B.R. 449, 454 (8th Cir. BAP 1998). However, as part of the Higher Education Amendments of 1998, Public Law No. 105-244, 112-1581, § 523(a)(8) was amended by deleting subparagraph (a) which provided for the discharge of student loans based on their age. Those amendments were effective for cases filed on or after October 7, 1998, the effective date of the act. Unfortunately for McCormick, she filed her case two months later and thus this exception to discharge of her student loans is unavailable to her.
*909 Thus, to have her student loan debt excepted from her discharge, she must demonstrate that failure to discharge them would result in an undue hardship for her and her dependents. Such a determination is made based on the totality of the circumstances with a particular analysis of (1) the debtor's past, present, and reasonably reliable future financial resources; (2) calculation of the debtor's and her dependants' reasonable, necessary living expenses; and (3) any other relevant facts and circumstances surrounding a particular case. Andrews v. South Dakota Student Loan Assistance Corp. (In re Andrews), 661 F.2d 702, 704 (8th Cir.1981), Andresen v. Nebraska Student Loan Program, Inc. (In re Andresen), 232 B.R. 127, 139 (8th Cir. BAP 1999). McCormick bears the burden, both in terms of production of evidence and of persuasion, of proving undue hardship by a preponderance of the evidence. We can reverse a bankruptcy court's finding on this issue only if it is clearly erroneous. Andresen, 232 B.R. at 128, Cline v. Illinois Student Loan Assistance Assoc., 248 B.R. 347, 348 (8th Cir. BAP 2000).
Our review of the bankruptcy court's finding in this regard is severely hamstrung by McCormick's failure to provide us with a transcript of the trial. In the absence of such a transcript, we are in no position to review the evidence to determine whether or not the bankruptcy court was clearly erroneous in its determination. Thus, we have no alternative but to conclude that the bankruptcy court's findings of fact were not clearly erroneous. Rush v. Rush (In re Rush), 237 B.R. 473, 475-76 (8th Cir. BAP 1999). Bergman v. Webb (In re Webb), 212 B.R. 320, 322, n. 1 (8th Cir. BAP 1997).
To the extent that McCormick has presented us with evidence that was not submitted to the bankruptcy court, we do not consider it. Wendover Fin. Servs. v. Hervey (In re Hervey), 252 B.R. 763 (8th Cir. BAP 2000).
McCormick also complains that when her case was first called for trial, the defendant's attorney was not present and the court took up other matters and waited for the attorney to appear. Waiting a short time for the Assistant United States Attorney to appear certainly was not an abuse of discretion on the part of the bankruptcy court and, in any case, we cannot see how it would have changed the outcome of the trial. Other arguments made by McCormick regarding Sanford-Brown Business College's decision to admit her are irrelevant to the inquiry at hand.
CONCLUSION
Because McCormick failed to provide us with a transcript of the trial, we affirm the bankruptcy court's finding that failure to discharge her student loan debt would not constitute an undue hardship on her and her dependants. We therefore affirm the judgment of the bankruptcy court.
NOTES
[1] The true creditor and appropriate defendant here is the United States Department of Education. The plaintiff probably sued Diversified Collection Services because it was servicing the loan, but it is the United States which has appeared and defended this adversary proceeding and the ensuing appeal.
[2] The Honorable Barry S. Schermer, United States Bankruptcy Judge for the Eastern District of Missouri. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540550/ | 135 N.J. 394 (1994)
640 A.2d 811
1530 OWNERS CORP., PLAINTIFF-APPELLANT,
v.
BOROUGH OF FORT LEE, DEFENDANT-RESPONDENT.
The Supreme Court of New Jersey.
Argued February 28, 1994.
Decided May 11, 1994.
*395 Carl G. Weisenfeld, argued the cause for appellant (Hannoch Weisman, attorneys; Mr. Weisenfeld and Robert H. Solomon, on the briefs).
George G. Frino, argued the cause for respondent Borough of Fort Lee.
Julian F. Gorelli, Deputy Attorney General, argued the cause for respondent Director, Division of Taxation (Deborah T. Poritz, Attorney General of New Jersey, attorney; Joseph L. Yannotti, Assistant Attorney General, of counsel).
The opinion of the Court was delivered by HANDLER, J.
In this local property tax matter, the owner of a multi-unit high-rise cooperative building challenges the 1987 tax assessment on its property as discriminatory. Under current standards governing real-property taxation, if the ratio of assessed value to market value of an individual property exceeds the "average ratio" for the taxing district by more than fifteen percent, the tax on the *396 property must be adjusted by reducing the assessed value through the application of the average ratio.
The Director of the Division of Taxation promulgates the average ratio, pursuant to N.J.S.A. 54:1-35a, also generally referred to as the "chapter 123" ratio, using the sales of real property in the respective taxing district as an indicator of the market value of property. The property owner in this case contends that the chapter 123 ratio applicable to the taxing district was invalid because it included sales that were "nonusable" under the Director's regulation, and hence the taxing district could not use the ratio to fix the assessment of its property.
The Tax Court rejected taxpayer's argument that the challenged sales relied upon in promulgating the chapter 123 ratio were "nonusable." The Appellate Division affirmed that judgment, 263 N.J. Super. 382, 622 A.2d 1350 (1993). We granted certification, 134 N.J. 478, 634 A.2d 525 (1993).
The issue on appeal is narrow. It is whether, when challenging the inclusion of sales in the chapter 123 ratio, a taxpayer may succeed by making a prima facie showing that the challenged transactions fall within a "nonusable" category without the Director having "fully investigated" those sales to determine their includability.
I
Plaintiff, 1530 Owners Corporation ("plaintiff" or "taxpayer"), is the owner of a 483-unit high-rise cooperative apartment building in the Borough of Fort Lee (the "Borough"). In 1985, the property was converted from an income-producing apartment building to a cooperative-apartment building causing the Borough to increase its assessment of the property. Plaintiff brought an action before the Tax Court claiming that the assessment of the subject property for the tax year 1987 was discriminatory.
The Tax Court equated the property's value with the total value of the cooperative's shares, using as comparable sales the prices *397 for which shares were sold to outsiders within about a year before and after the assessment date. After allowing discounts for senior-citizen tenants and for tenants protected by the antieviction statute, the court found the value of the property to be $121,799,169. Based on that value, the $78,000,000 assessment levied by the Borough exceeded the common level range, which is defined by a limit of fifteen percent above the average ratio. The court therefore applied the chapter 123 ratio established by the Director and arrived at a total assessment of $61,508,600.
The Tax Court rejected taxpayer's argument that certain challenged sales should have been excluded because the Director had failed to make a full investigation regarding whether the sales reflected market value. That court also determined that taxpayer's evidence was insufficient to show that the challenged sales did not reflect market value.
On appeal, the Appellate Division ruled that taxpayer had failed to fulfill its burden of proof to invalidate the chapter 123 ratio applicable to the taxing district, and the court sustained the determination of the Tax Court. 263 N.J. Super. at 386-88, 622 A.2d 1350.
II
Claims of property-tax discrimination are resolved through application of the chapter 123 ratio, which establishes the average ratio of assessed value to true value for all taxable properties within a taxing district. In order to address the claim of the taxpayer in this case, a basic understanding of the methodology for formulating the chapter 123 ratio is essential.
N.J.S.A. 54:51A-6 directs the Tax Court to use the chapter 123 ratio as promulgated by the Director in providing relief against discrimination in tax appeals. The chapter 123 ratio is determined under N.J.S.A. 54:1-35a. That statute establishes that the chapter 123 ratio is the same ratio as the ratio in the Director's annual sales-ratio study known as the Table of Equalized Valuations, pursuant to N.J.S.A. 54:1-35.1. The State devised the Table of *398 Equalized Valuations to allocate school aid among municipalities. It is also generally used by county boards of taxation to satisfy their obligation to promulgate an equalization table for purposes of allocating the county tax burden among all taxing districts within each county. Kearny v. Division of Tax Appeals, 35 N.J. 299, 303, 173 A.2d 8 (1961).
The chapter 123 ratio, derived from the Table of Equalized Valuations, is thus computed according to an established formula and is based on a study of sales recorded during a one-year sampling period. Ibid. The Director screens and investigates the various sales of real property to determine which of those sales to use in the study. The standards applied in determining usability are reflected in N.J.A.C. 18:12-1.1. Generally, sales are usable if they constitute an arms-length transaction that reflects the market value of the property. The regulation identifies twenty-seven categories of sales that "should generally be excluded [when establishing a chapter 123 ratio]." N.J.A.C. 18:12-1.1(b). The regulation further provides, however, that a transaction in one of those categories "may be used if after full investigation it clearly appears that the transaction was a sale between a willing buyer, not compelled to buy, and a willing seller, not compelled to sell, and that it meets all other requisites of a usable sale." N.J.A.C. 18:12-1.1(b).
The Court in Kearny described how the Director calculates the Table of Equalized Valuations: "An overall average ratio is calculated ... which, by application to the total assessed value of real property in the municipality under study, as reported by its assessor, produces the aggregate equalized (hypothetically the true) value of such property." 35 N.J. at 303, 173 A.2d 8. It noted, however, "No one suggests that the aggregate true value of real property ratables reached by such means actually or accurately represents the market value." Ibid.
This pragmatic perception of the functions and limitations of equalized-valuation studies carries over to their use through chapter 123 as a substantive measure to identify discrimination in the *399 assessment of individual properties and as a remedial device to rectify such discrimination. Thus, chapter 123 provides for a mechanism to determine a range of acceptable assessments. A taxpayer with an assessment that falls out of that range is entitled to appropriate relief. As the Court explained in Murnick v. Ashbury Park, 95 N.J. 452, 456-57, 471 A.2d 1196 (1984):
Under the statute [chapter 123], the test is whether the ratio of assessed to true value of the property in question exceeds by 15% the average ratio for the district. When a taxpayer is entitled to relief, the assessment is adjusted by applying the district average ratio to the true value of the property.
Except in those rare cases of egregious discrimination in which a taxpayer is entitled to constitutional relief, chapter 123 establishes both the right to and measure of relief. "If the assessment ratio applied to a parcel substantially exceeds the assessment ratio applied generally in a taxing district, the taxpayer has a right to relief." Id. at 458, 471 A.2d 1196.
The Court in Murnick also concluded that a taxpayer has the right to show that the Director should have excluded certain sales from the data used in calculating the average ratio. "If the Director has included incorrect information that substantially skews the ratio, a taxpayer has a right to bring a timely application to correct the deviation." Id. at 464, 471 A.2d 1196.
III
Plaintiff argued to the Tax Court that the computation of the chapter 123 ratio, as promulgated by the Director, was erroneous. Relying on the Director's regulation, N.J.A.C. 18:12-1.1, it challenged the inclusion of certain transactions in the computation. Taxpayer presented what it contends was sufficient evidence to establish that the challenged transactions fall within the nonusable categories of the Director's regulation and that the exclusion of those sales would substantially affect the chapter 123 ratio for the Borough. According to the evidence, if the challenged sales were excluded, the chapter 123 ratio would have decreased from 50.50% to 44.91%. Applying the lower ratio to the Borough's initially discriminatory assessment, would have reduced the initial $78,000,000 *400 assessment to $54,700,000 rather than to $61,508,600. Plaintiff claims further that in the absence of a "full investigation" of those sales by the Director to demonstrate that they reflected market value, its evidence was sufficient to warrant their exclusion from the chapter 123 ratio.
Specifically, taxpayer disputed the use of two sales that the Director alleged were "[s]ales between a corporation and its stockholder, its subsidiary, its affiliate or another corporation whose stock is in the same ownership." N.J.A.C. 18:12-1.1(a)(3). Plaintiff also challenged the use of fifty-three sales in a condominium conversion because they allegedly constituted so-called insider sales. Plaintiff relied on a catch-all category of nonusable sales defined in N.J.A.C. 18:12-1.1(a)(26) as follows: "Sales which for some reason other than specified in the enumerated categories are not deemed to be a transaction between a willing buyer, not compelled to buy, and a willing seller, not compelled to sell."
In contesting the use of the respective sales, taxpayer presented the testimony of an expert qualified as a real-estate appraiser (but not qualified as an expert on the Director's sales-ratio studies) who testified concerning what he had learned from various parties involved in the disputed sales.
At the taxpayer's request the Tax Court also admitted the deposition transcripts of two representatives of the Division of Taxation: John Raney, superintendent of the Local Property Branch of the Division of Taxation (responsible for the sales-ratio section, which determines the use of sales for the chapter 123 ratio), and David Taylor, senior field representative in the sales-ratio section of the Division of Taxation (responsible for evaluating the SR-1A forms, which are generally furnished by local tax assessors and provide information about sales transactions that are potentially includable in the chapter 123 ratio and indicate whether an investigation occurred). The court also admitted into evidence four SR-1A forms and the listing of the usable sales included in the chapter 123 ratio.
*401 The first of the related-parties sales was from Cadmus Enterprises to Westgate Condominiums Corp. Cadmus was a joint venture, 50% of which consisted of two limited partnerships, Alcestis Land Corp. and Admetus Ltd., controlled by Arthur Imperatore, who thus controlled 50% of Cadmus. The remaining 50% of Cadmus was controlled by Ray Development, Ltd., which was 100% owned by Charles and Frank Raimondo. The Raimondo brothers also owned 50% of Westgate Condominiums Corp. Thus the Raimondos owned 50% of Westgate and 50% of Cadmus. The SR-1A form indicated that an investigation occurred and that the sale was deemed "usable." The SR-1A form also indicated that the field investigator had communicated with Mr. Hoskins, an attorney who had prepared the Cadmus deed.
The second alleged related-parties transaction was from Raimondo Realty Corp. to Westgate Condominiums Corp. Raimondo Realty Corp. was 100% owned by the Raimondo brothers. Thus, in the second sale, the Raimondos owned 100% of the seller and 50% of the buyer. The SR-1A form indicates that no investigation was made.
Taxpayer also challenged fifty-three sales of condominium units as nonusable on the grounds that such sales consisted of "insider" purchases. State law gives existing tenants certain rights in a conversion to a condominium form of ownership. To attract such tenants as purchasers, the sponsor generally gives them discounted prices, and they are referred to as "insiders."
The listing of sales included in the chapter 123 ratio and the SR-1A forms indicated that two of the fifty-three sales had been sent for investigation. No investigation was ordered for the remaining fifty-one sales. David Taylor testified that the sale of condominium units from the sponsor of the condominiums to a tenant are normally subject to a full field investigation.
The Tax Court concluded that taxpayer's only evidence was the hearsay testimony of its appraiser based on "what he had learned from various parties." The Tax Court further noted the absence of any testimony by parties, real estate brokers, or attorneys *402 involved in the challenged sales. In addition, no evidence indicated that the sales involved "consideration that was arbitrarily set or reflected additional items beyond the sales of the real property in question," as required by N.J.A.C. 18:12-1.1(b). The Appellate Division affirmed the determination that the evidence was insufficient to require the sales to be removed from the chapter 123 ratio, also noting that the Borough's expert testified that participants in both sales had told him that the "selling prices were the result of arms-length negotiations." 263 N.J. Super. at 385, 622 A.2d 1350.
With respect to the alleged insider sales, plaintiff presented evidence that the sales price of the units was the same as the price offered to tenants in the Public Offering Statement. Plaintiff did not present evidence that the included sales had actually been made to tenants. The Tax Court rejected the challenge because "there is nothing in the record which shows that those 53 sales were sales to insiders." The Appellate Division sustained that determination, 263 N.J. Super. at 386, 622 A.2d 1350, indicating that plaintiff had failed to meet its burden of establishing prima facie non-usability.
Arguably, plaintiff's evidence, at least at the administrative level, might have been sufficient to indicate that the challenged sales were prima facie nonusable. Because the Director did not "fully investigate" those sales the issue remains whether they therefore should have been excluded from the chapter 123 ratio determination. That issue requires a determination with respect to allocation of the burden of proof.
On that issue we agree with the analysis and holding of the Appellate Division. That court rejected the position that to exclude challenged sales a taxpayer need show only that the Division of Taxation did not undertake an investigation as required by its own regulations for sales falling within suspect categories. The Appellate Division ruled that because assessments are presumed valid, a taxpayer's burden is not met until it proves that the investigation would have led to the Director's *403 exclusion of the sale. Id. at 387, 622 A.2d 1350. It held that "even if the Director used a sale that by his regulations is suspect, the taxpayer has the burden of proving that in fact the sale price was less than market value and that its use by the Director produced an invalid assessment." Ibid.
The regulation enumerating the twenty-seven nonusable sales categories is intended as a guide to aid the Director in accomplishing the complex and onerous task of tax equalization. The nonusable categories were created to inform the broad administrative discretion that must be brought to bear in the tax-equalization process. The Director must exercise the administrative authority to equalize taxes not only with expertise but also with extraordinary efficiency. The Court, in Kearny, supra, acknowledged that the "Director's task is a heavy one. In a limited time he must examine and evaluate expeditiously, and in the light of his 27 nonusable sales categories, many thousands of property transactions. His operation represents a salutary endeavor in an otherwise blurred assessment procedure." 35 N.J. at 310, 173 A.2d 8. Thus, "the entire equalization process does not and should not lend itself to rigid technicality and formalism." Id. at 311, 173 A.2d 8. Rather, the "legislative and judicial purpose is to secure as far as possible ... equal distribution." Ibid.
The governmental task in equalizing tax valuations to achieve the goals of distributing school aid, allocating tax burdens, and remedying discrimination is gargantuan. The categories of nonusable sales are designed to facilitate that task. They serve as a short-hand indicator of those sales that are unlikely to have involved arms-length bargaining and therefore are unlikely to have been made at fair market value. The ultimate objective, however, is to determine not whether a sale fits into one of the nonusable categories but rather whether the sale was an arms-length transaction, reflective of the fair market value of the underlying property. Thus, for a taxpayer to prove that a sale should not have been included, it must demonstrate not simply that the challenged sale appears to fall within the nonusable *404 category and that the Director did not make a full investigation before using it. Rather, the taxpayer must show that inclusion of the sale in determining the ratio was in fact improper because the sale price was not made at fair market value.
We have recognized with respect to property tax assessments that even though the assessment methodology used by a municipal tax assessor was incorrect, the assessment should be upheld because it approximated the fair value of the property in question and did not manifest arbitrary disregard of the assessor's responsibilities. Pantasote v. City of Passaic, 100 N.J. 408, 495 A.2d 1308 (1985). Thus, "a municipality's original tax assessment is entitled to a presumption of validity," id. at 412, 495 A.2d 1308, that "attaches to the quantum of the tax assessment." Id. at 413, 495 A.2d 1308.
We further noted in Pantasote
that the presumption is not simply an evidentiary presumption serving only as a mechanism to allocate the burden of proof. It is, rather, a construct that expresses the view that in tax matters it is to be presumed that governmental authority has been exercised correctly and in accordance with law.
[Ibid.]
Clearly a taxpayer has to do more than demonstrate a procedural irregularity to challenge an assessment successfully. To overcome the presumption of validity of an assessment, a taxpayer must present evidence that is "`definite, positive and certain in quality and quantity to overcome the presumption.'" Ibid. (quoting Aetna Life Ins. Co. v. Newark, 10 N.J. 99, 105, 89 A.2d 385 (1952)).
In the context of this case, the promulgation of the chapter 123 ratio by the Director without undertaking a full investigation implicates a procedural irregularity that does not alone impugn the presumptive validity of the ratio. The taxpayer must demonstrate that the tax determination, i.e., the ratio itself, is actually flawed. That would require probative evidence that the sale price of an included transaction did not reflect market value. To impose on the taxpayer, who stands to benefit from a successful *405 challenge, the burden of presenting such evidence is not unreasonable.
Accordingly, because taxpayer failed to meet that burden, we sustain the determination of the court below that taxpayer's evidence did not invalidate the Director's sale study and determination of the chapter 123 ratio applicable to the taxing district.
IV
We note that in the course of this litigation taxpayer has insisted that it met its burden to overcome any presumption of validity that attends the Director's chapter 123 ratio simply by showing that the Director did not undertake a full investigation of a sale with respect to which there were some indications that it was nonusable. Consistent with that position, taxpayer has resisted the offer to present additional evidence that would demonstrate that such a sale is nonusable because it does not reflect market value.
Because we have now determined that taxpayer must meet that burden of proof, we conclude that the issue of whether the challenged sales should have been included in the chapter 123 ratio can best be addressed by a remand to the Tax Court. The Tax Court shall grant leave to taxpayer to seek to have that court reconsider its determination in light of our opinion. If that court reopens the matter on such application, taxpayer will have the burden of proving that the challenged sales were not at fair market value. If in fact the challenged sales did not reflect market value, taxpayer must then demonstrate that the aggregate aberration resulting from their inclusion in the sales study "substantially skews the ratio" under chapter 123. Murnick, supra, 95 N.J. at 464, 471 A.2d 1196.
*406 Accordingly, the judgment of the Appellate Division is modified and the matter is remanded to the Tax Court for further proceedings in accordance with this opinion.
For Modification and remandment Justices CLIFFORD, HANDLER, POLLOCK, O'HERN, GARIBALDI and STEIN 6.
Opposed none. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540558/ | 272 N.J. Super. 606 (1994)
640 A.2d 1161
MILTON FINEMAN, PLAINTIFF-RESPONDENT, CROSS-APPELLANT,
v.
NEW JERSEY DEPARTMENT OF HUMAN SERVICES, NEW JERSEY MEMORIAL HOME FOR DISABLED SOLDIERS, SAILORS, MARINES AND THEIR WIVES AND WIDOWS, JOSEPH M. CAGNO AND ROBERT J. BREZO, DEFENDANTS-APPELLANTS, CROSS-RESPONDENTS.
Superior Court of New Jersey, Appellate Division.
Argued November 17, 1993.
Decided April 29, 1994.
*608 Before Judges SHEBELL, LONG and LANDAU.
Brian P. Ballard, Deputy Attorney General, argued the cause for appellants, cross-respondents New Jersey Department of Human Services, New Jersey Memorial Home of Disabled Soldiers, Sailors, Marines & their Wives and Widows (Deborah T. Poritz, Attorney General, attorney; Joseph L. Yannotti, Assistant Attorney General, of counsel, and Mr. Ballard, on the brief).
John P. Morris argued the cause for respondent, cross-appellant.
The opinion of the court was delivered by LANDAU, J.A.D.
In this appeal by the defendants, New Jersey Department of Human Services (DHS) and the New Jersey Memorial Home for Disabled Soldiers, Sailors, Marines and their Wives and Widows (Home), and the cross appeal by plaintiff, Dr. Milton Fineman (plaintiff), we focus upon N.J.S.A. 34:19-3c(1) and (3), portions of the Conscientious Employee Protection Act (CEPA), N.J.S.A. *609 34:19-1 to 19-8. No less than its common law precursors, CEPA requires judicial resolution of threshold legal issues respecting existence of a statutory, regulatory or other clear mandate of public policy before the trier of fact determines whether an employee has been retaliated against for acting upon an objectively reasonable belief of the existence of such clear mandate by objecting to or refusing to perform acts in violation of the mandate. This opinion reverses a Law Division judgment, entered under CEPA following jury trial, in favor of plaintiff, a "Physician Specialist", who was terminated from his at-will employment after refusing to provide temporary medical care to residents of the Home other than those to whom he had been initially assigned. We affirm the judgment of dismissal entered in favor of defendant Joseph Cagno.
Procedural Setting
Following termination of his at-will employment, plaintiff filed a CEPA complaint in the Law Division against DHS; the Home; Joseph Cagno, its Chief Executive Officer; and Robert J. Brezo, the Assistant Chief Executive Officer. He demanded a jury trial, asserting that his termination constituted unlawful retaliatory action under N.J.S.A. 34:19-3c(1) and 3c(3).[1] Prior to submission to the jury, the complaint was dismissed as to defendants Brezo and Cagno. Also dismissed were plaintiff's demand for punitive damages, and allegations respecting retaliation for his refusal to *610 perform certain medication review certifications. The cross appeal challenges some of the dismissals.
Essentially, the jury was asked to determine whether plaintiff was terminated for a refusal to see or treat certain patients in excess of his originally assigned work load or for objecting thereto; and whether such refusal or objection was based upon reasonable belief that the temporary assignment evidenced a general policy or practice of patient care which violated a law or regulation (N.J.S.A. 34:19-3c(1)) or was incompatible with a clear mandate of public policy (N.J.S.A. 34:19-3c(3)), inclusive of applicable Department of Health regulations, the Hippocratic Oath, and the American Medical Association Principles of Medical Ethics.
On motion at the conclusion of plaintiff's case and again after all evidence was presented, the trial judge considered the threshold legal determinations required by Pierce v. Ortho Pharmaceutical Corp., 84 N.J. 58, 417 A.2d 505 (1980), which predated and furnished the underlay for legislative adoption of CEPA, as well as our opinion in Warthen v. Toms River Comm. Mem. Hosp., 199 N.J. Super. 18, 488 A.2d 229 (App.Div.) certif. denied, 101 N.J. 255, 501 A.2d 926 (1985). The judge concluded, as a matter of law, that the physicians' Hippocratic Oath and American Medical Association Code of Ethics, read in conjunction with N.J.A.C. 8:39-23.1, et seq. (mandatory medical services standards for long-term nursing care facilities) could be found to constitute, for CEPA purposes, a regulation (N.J.S.A. 34:19-3c(1)) or "clear mandate of public policy" (N.J.S.A. 34:19-3c(3)) which plaintiff could reasonably[2] have *611 believed would be violated were he to provide temporary medical coverage in excess of the one hundred resident caseload to which he was specifically assigned. He then submitted these questions to the jury:
1. Did plaintiff Milton Fineman reasonably believe that the Memorial Home's activity, policy or practice respecting a physician's patient responsibilities was: (A) In violation of a law, rule or regulation promulgated pursuant to law? (B) Incompatible with a clear mandate of public policy governing the public health, safety or welfare?
If you have answered "yes" to either # 1A or # 1B, or both, go to Question # 2.
If you have answered "no" to both # 1A and # 1B, return to the courtroom.
2. Did the plaintiff Milton Fineman object to, either in writing or orally, to the Memorial Home's activity policy or practice, or did the Plaintiff Milton Fineman refuse to participate in the defendant's policy or practice respecting patient care?
3. Was a determinative factor in the defendant's decision to discharge the plaintiff the result of the action taken by the plaintiff, as described in Question # 2 above, and thus, in retaliation for the action taken by the plaintiff as found in Question # 2?
If the answer to Question # 3 is "yes," you have rendered a verdict in favor of the plaintiff and you shall return to the courtroom.
If the answer to Question # 3 is "no," you have rendered a verdict in favor of the defendant and you shall return to the courtroom.
The jury answered "yes" to each question. The trial judge then entered judgment ordering plaintiff's reinstatement, a $1,000 fine for violation of N.J.S.A. 34:19-5g payable by the Home; and damages in the amount of $273,546 together with pre-judgment interest in the amount of $36,389.
Facts
The Home is a long-term care facility (nursing home) for disabled or elderly soldiers, sailors, marines, and their wives and widows. It is not a hospital. It receives federal subsidies as a state veteran's facility which is supervised by DHS, but is also inspected by the Veteran's Administration and the New Jersey Department of Health.
*612 On May 1, 1987, plaintiff was hired as a physician specialist at the Home. The medical director, Dr. Zubeda Rajput, provided plaintiff with information outlining his duties and responsibilities, which included covering for other staff physicians when they were absent or on vacation. Plaintiff was assigned as primary care physician for Units One-A and One-B, containing one hundred residents. He was also to provide on-call duties during certain evenings and weekends. Plaintiff's duties and responsibilities were described in the following fashion at time of hire:
Subject: Duties and/or Responsibilities are as follows but are not limited to:
Assigned to Units 1A and 1B. Responsible for total medical care in that unit.
Workdays are 8:30 A.M. to 4:30 P.M.
Share on duty calls with other staff physician. Presently will be every 3rd week.
To make rounds daily on your assigned unit.
To visit all nursing stations on weekends and/or holidays, when on call.
Responsible to complete all patient's medical records in the assigned unit and provide coverage for the facility.
To accept the responsibilities and duties of other staff physicians when they are on vacation, etc.
Directly responsible to the Medical Director and Assistant Chief Executive Officer.
Patient's medical records include:
1. Admission History, Physical, Medical Orders and Care Plans.
2. Medical Care Plan review every six (6) months or as needed.
3. Monthly pharmacy review sheets.
4. Aims every three (3) months.
5. Monthly progress notes.
6. Annual lab work on members.
7. All verbal orders to be signed the next work day or within 48 hours.
All patient visits must be documented each time.
To attend all Monday morning meetings, and all other required meetings, committees, etc.
To attend case conference on your assigned patients.
[(emphasis in original)].
When plaintiff was hired, Dr. Alan Kulick was assigned as primary care physician in Unit Two and Dr. Rajput was to be the primary care physician for Unit Three. The Home had a total of approximately three hundred residents, divided equally among the three units.
*613 Plaintiff testified that he read a prior memo from Cagno stating that there should always be two physicians attending the institution. He also said he received similar information from Dr. Rajput. The record makes clear that when "on-call", or when on the rotating weekend/holiday duty, a staff physician would ordinarily have temporary responsibility for all three hundred residents, subject to back-up provided by local hospitals and physicians.
Prior to his hire in May, plaintiff was given to understand that a salary adjustment request would be made to raise his starting salary by approximately $9,000 per year. That request had not been acted upon as of the end of July, 1987, when the events leading to plaintiff's termination came to a head.
After plaintiff was hired, Dr. Kulick took a vacation from May 26 to June 3. Dr. Rajput was granted sick leave from June 2 to June 21, so that for part of June 2 and all day June 3, plaintiff was the only full-time physician present. The Home also regularly utilized local physicians and hospitals as necessary.
Shortly after Dr. Rajput returned on June 21, she was granted a six-month leave of absence, leaving two full-time physicians at the Home, but no formal vacancy in the three-physician complement. Cagno promised to try to get another physician on a full-time or part-time basis, but left for reserve military service in early July without completing that effort.
Plaintiff points out, and we note, that in the course of seeking to achieve a higher level of compensation for staff physicians to facilitate the attraction of candidates such as plaintiff, defendants had previously called to the attention of superiors in DHS the serious condition presented by having only two full-time physicians. We find nothing in the record to suggest that any defendant attempted to prevent plaintiff from seeking additional medical coverage or indeed the additional compensation he repeatedly requested for his higher-than-expected work load. To the contrary, although plaintiff was evidently dissatisfied with the vigor and competence of their efforts, the uncontroverted record suggests *614 that defendants were actively engaged in trying to achieve the same goals as plaintiff.
In early July, plaintiff and Dr. Kulick met with Cagno and Assistant CEO Brezo to discuss securing an additional physician, and additional compensation because of their added workload. Their concerns were brought to the attention of the Department's chief medical officer, Dr. Epstein. In fact, both Kulick and plaintiff were encouraged to contact Dr. Epstein directly to discuss additional compensation, as well as possible alternatives to the two-doctor situation. Additionally, it was agreed that plaintiff's complaints of negligence would be investigated and an administrative review conducted. In the meantime, Cagno was meeting with some success in arranging for part-time physician coverage, although plaintiff may not have been aware of this. Plaintiff was instructed to provide coverage for the residents.
Dr. Kulick had asked for a vacation week. He was told that he could go only if plaintiff would give written assurance that he would cover for him. Plaintiff declined to do so because that would leave him as the only staff physician for the three hundred residents. Nonetheless, Dr. Kulick simply departed for a one-week vacation on July 30 without authorization, and plaintiff was involuntarily faced with being the only full-time physician at the Home for the week. On July 30, plaintiff wrote to Cagno detailing the increase in his medical responsibilities. He concluded by stating:
As a month has now gone by without adequate indication that some adjustment of conditions or rewards are to accrue I wish to advise you that starting Monday, August 3, 1987, I will resume my contract obligations ONLY as outlined above. (Referring to the duties initially outlined.)
At a meeting on July 31, plaintiff told Cagno, Brezo, and Executive Assistant Pikolicky that additional physician coverage should be provided. On August 4, he advised Director of Nurses Barbara Davis that he would not be available for coverage of Units Two and Three except for emergent or life threatening situations. Commencing on August 3, Marva Tiller, a nurse, reported that plaintiff refused to treat anyone outside of Unit One. On August *615 5, Director of Nurses Davis notified Brezo of plaintiff's refusal to see three residents in need of immediate medical attention. On August 6, she listed eleven other residents who plaintiff declined to see, even though they required medical attention. Patients in distress were referred to nearby hospitals or seen by "physicians who agreed to be on call".
Plaintiff had also written that he would be away "without beeper" for the weekend of August 7-9.
By August 4, Cagno was able to secure physicians to serve on-call for the evenings and weekends. Cagno then recommended that plaintiff be terminated for failure to treat patients at the Home. Other people were consulted, including Brezo, Pikolicky, Division Director Leon Cheesman, and individuals in the Department of Personnel, who concluded plaintiff should be fired. Cagno contacted Dr. Epstein, Medical Consultant for the Department, who agreed with the recommendation, and passed it on to the Department's Office of Employee Relations. On August 10, Cagno told plaintiff he was fired effective August 7. He received a letter of termination signed by Cagno dated August 7.
Plaintiff testified that caring for three hundred patients was a violation of his ethical responsibilities based on the Hippocratic Oath, the American Medical Association ("AMA") Principles of Medical Ethics[3], and regulations governing nursing homes. Plaintiff did not know and could not say what specific regulation or statute would be violated.
The trial judge recognized and relied upon N.J.A.C. 8:39-23.1 and 23.2 identified by plaintiff's counsel during the trial. These regulations provide:
8:39-23.1 Mandatory structural organization for medical services
(a) Each facility with more than 60 beds shall have a medical director who is currently licensed to practice medicine by the New Jersey State Board of Medical Examiners.
*616 1. The medical director shall coordinate medical care and direct the administrative aspects of medical care in the facility.
2. The medical director shall approve all medical care policies and procedures. These policies and procedures shall be followed.
3. The medical director shall participate in the facility's quality assurance program through meetings, interviews, and/or preparation or review of reports.
4. The medical director shall be an active participant on the facility's infection control committee, pharmacy and therapeutics committee, and a committee that is responsible for developing policies and procedures for patient care.
(b) A physician shall visit each patient at least every 30 days unless the medical record contains an explicit justification for not doing so.
8:39-23.2 Mandatory policies and procedures for medical services
(a) The medical director shall ensure that for each patient there is a designated primary and an alternate physician who can be contacted when necessary.
(b) Each physician order shall be properly entered into the patient's medical record.
(c) Each patient's medical director or attending physician shall review the patient's medical record on a scheduled basis to ensure that care plans and medical orders are properly followed.
(d) The medical director shall review all incident reports.
(e) The medical director, or physicians designated by the medical director, shall respond quickly and effectively to medical emergencies which are not handled by another attending physician.
We take notice that the rules adopted by the Department of Health for licensed nursing homes include these much more detailed provisions concerning mandatory nurse staffing, evidently reflecting the principal mission of long term care facilities as distinct from hospitals:
8:39-25. Mandatory policies and procedures for nurse staffing
(a) There shall be a full-time director of nursing or nursing administrator who is a registered professional nurse licensed in the State of New Jersey, who has at least two years of supervisory experience in providing care to long-term care patients, and who supervises all nursing personnel.
(b) When the director of nursing is not present, there shall be a registered professional nurse or a licensed practical nurse on duty who shall be designated in writing as an alternate to the director of nursing, temporarily responsible for supervising all nursing personnel.
8:39-25.2 Mandatory nurse staffing amounts and availability
(a) The facility shall provide nursing services and licensed nursing personnel at all times.
(b) Operative July 1, 1989, registered professional nurses, licensed practical nurses, and nurse aides shall spend the following amounts of time on professional *617 duties (the hours of the director of nursing are not included in this computation except for the direct care hours of the director of nursing in facilities with fewer than 150 beds):
1. Total number of patients multiplied by 2.5 hours/day; plus
2. Total number of patients receiving each service listed below, multiplied by the corresponding number of hours per day:
Tracheostomy 1.25 hours/day
Use of respirator 1.25 hours/day
Head trauma stimulation/advanced neuromuscular/orthopedic
care 1.50 hours/day
Intravenous therapy 1.50 hours/day
Wound care 0.75 hour/day
Oxygen therapy 0.75 hour/day
Nasogastric tube feedings and/or gastrostomy 1.00 hour/day
3. Prior to July 1, 1989, nurse staffing shall be provided pursuant to N.J.A.C. 8:39-43.3(a).
(c) In facilities with 150 licensed beds or more, there shall be an assistant director of nursing who is a registered professional nurse.
(d) There shall be visual observation by a member of the patient care staff of each patient at least once per hour. These observations need not be documented.
(e) A registered professional nurse shall be on duty at all times in facilities with more than 150 licensed beds and in facilities with specialized units that have been approved as such by the New Jersey State Department of Health.
(f) At least 20 percent of the hours of care required by (b) above shall be provided by individuals who are either registered professional nurses or licensed practical nurses.
(g) Medications shall be administered by authorized personnel in accordance with State and Federal laws and regulations.
(h) The nurse aide component of the facility's total hourly nurse staffing requirement, as specified in (b) above, shall be met by nurse aides who have completed a nurse aide training course approved by the New Jersey State Department of Health and have passed the New Jersey Aide Certification Examination.
Motions and Applicable Law
CEPA implemented the Supreme Court's opinion in Pierce v. Ortho Pharmaceutical Corp., 84 N.J. 58, 72, 417 A.2d 505 (1980) which recognized that an employee-at-will may have a cause of action for wrongful discharge when the discharge is contrary to a "clear mandate" of public policy. The sources of public policy include legislation; administrative rules, regulations or decisions; *618 judicial decisions; and, in some instances a professional code of ethics. Ibid.
Pierce, supra, discussed the need to balance the interests of the employee, the employer and the public. Id. 84 N.J. at 71, 417 A.2d 505. The Court considered the special problems of employees who are professionals owing a special duty to abide, not only by federal and state law, but also by the recognized codes of ethics of their professions which may oblige them to decline to perform acts required by their employers. Ibid. Appreciating that professional codes of ethics, and indeed legislative, administrative and judicial pronouncements do not always "express a clear mandate of public policy", the Court laid down the rule that "absent legislation, the judiciary must define the cause of action in case-by-case determinations." Id. at 72, 417 A.2d 505. "An employer's right to discharge an employee at will carries a correlative duty not to discharge an employee who declines to perform an act that would require a violation of a clear mandate of public policy. However, unless an employee at will identifies a specific expression of public policy, he may be discharged with or without cause." Ibid.
In Pierce, supra, the employer, Ortho Pharmaceutical, was engaged in human testing of drugs within a regulatory framework which involved supervision and approval by the Federal Food and Drug Administration. Id. 84 N.J. at 62-63, 417 A.2d 505. The Supreme Court concluded that "[r]esearch on new drugs may involve questions of safety, but courts should not preempt determination of debatable questions unless the research involves a violation of a clear mandate of public policy." Id. at 76, 417 A.2d 505. Thus, absent the employee's ability to point to such a clear mandate of public policy and its contravention, the extent and methods of the employer's research are to be governed by government regulation, liability in tort, and corporate responsibility. Ibid.
Later cases have continued to place the burden upon the professional employee in an at-will setting to identify "a specific *619 expression" or a "clear mandate" of public policy which would bar his or her dismissal. See e.g., Warthen v. Toms River Comm. Hosp., 199 N.J. Super. 18, 24, 488 A.2d 229 (App.Div.), certif. denied, 101 N.J. 255, 501 A.2d 926 (1985). We have held that CEPA was not intended to provide relief from an employer's response to objection by sabotage, Haworth v. Deborah Heart and Lung Center, 271 N.J. Super. 502, 638 A.2d 1354 (App.Div. 1994); nor from an employer's response to a refusal to treat based upon the employee's personal professional objections to a recognized medical procedure. Warthen, supra. In reviewing at-will employee terminations in a regulated setting, courts should give consideration to whether the regulatory scheme contains effective alternate means for the employee to voice concern about a perceived policy violation. See Citizens State Bk. of N.J. v. Libertelli, 215 N.J. Super. 190, 196, 521 A.2d 867 (App.Div. 1987) (cited with approval in Hennessey v. Coastal Eagle Point Oil Co., 129 N.J. 81, 91, 609 A.2d 11 (1992)).
As the Supreme Court said in Hennessey, supra, "[a] `clear mandate of public policy' must be one that on balance is beneficial to the public." Id., 129 N.J. at 100, 609 A.2d 11. "Determining public policy is a matter of weighing competing interests." Id. at 99, 609 A.2d 11. This often involves considering "the competing interests of society, the employee and the employer." Id. at 100, 609 A.2d 11 (quoting Burk v. K-Mart Corp., 770 P.2d 24, 28 (Okla. 1989)). To this we add, in the present case, the need to consider the interests of all Home residents. The balance must take account of the residents' need for adequate medical and nursing attention, and recognition that membership in a profession may often require an especially high order of commitment and self-sacrifice. This is particularly true in the health professions.
Although the legislature has amended CEPA to permit trial by jury, N.J.S.A. 34:19-5, it continues to remain the function of the trial court to identify the mandate of public policy in each case as a question of law, a function analogous to interpreting a statute or defining a duty in a negligence case. See Warthen, supra, 199 *620 N.J. Super. at 24-25, 488 A.2d 229. More recently, in D'Agostino v. Johnson & Johnson, Inc., 133 N.J. 516, 531-532, 628 A.2d 305 (1993), the Supreme Court again recognized the requirement that the trial court determine initially the existence of a clear mandate of public policy and, in doing so, engage in the balancing of competing interests recognized in Hennessey, supra. Frequently, a summary judgment motion would be useful in this respect. Here, motions brought by defendants at the conclusion of plaintiff's case, and at the conclusion of all the evidence, afforded to the trial judge opportunity to consider whether the plaintiff satisfied his burden to establish existence of a specific law, regulation, or other clear mandate of public policy.
Where, as here, action is brought under N.J.S.A. 34:19-3c(1) and (3), the judge must first find and enunciate the specific terms of a statute or regulation, or the clear expression of public policy, which would be violated if the facts as alleged are true. When the judge has, as a matter of law, identified such a statute, regulation, or other clear source of expression of public policy, the matter may then go to the jury for determination of any disputed questions of fact, and for a finding as to whether there has been a retaliatory action against the at-will employee for either objecting to or refusing to participate in activity reasonably and objectively believed (1) to violate a statute or regulation or, (2) to be incompatible with a "clear mandate of public policy".
Here, the judge found that the "clear mandated public policy is providing generally for the health and welfare of patients within public facilities generally." He concluded that there was enough evidence to go to the jury, although reserving formal decision on the motion until after the jury verdict. At that time, the judge again rejected the argument that plaintiff had failed to establish what law, regulation or clear mandate of public policy was being violated.
In ruling on the motions for dismissal, the trial judge construed N.J.A.C. 8:39-23.1 and -23.2 to preclude the Home's medical director from utilizing doctors "in consultation with the facility or *621 with doctors on the staff of other facilities, geographically situate." The judge reasoned that, "it is the doctors' designated as attending doctors or primary doctors on this staff." This reasoning constituted an interpretation of the State regulation which would have required not merely designation of a primary and alternate physician, but that each alternate physician must also have his or her own back-up staff physician when filling in as the alternate.
We note, however, that the initial description of plaintiff's duties referenced above recognized that, when on call or when on rotating weekend/holiday duty, a staff physician would regularly have temporary responsibility for all 300 residents, subject to back-up provided by local hospitals and physicians. Moreover, N.J.A.C. 8:39-23.2 specifically contemplates that outside physicians may be designated by the medical director to respond to medical emergencies which are not handled by another attending physician.
Unlike the regulations governing mandatory nurse staffing, the mandatory medical services subchapter does not set forth staffing levels which correspond to the total number of patients. It is required, for example, that a registered professional nurse shall be on duty at all times in long term nursing home facilities with more than 150 licensed beds, but no comparable provision is made for physicians. Further, plaintiff's duty description specifically required that he "accept the responsibility and duties of other staff physicians when they are on vacation, etc."
Nonetheless, the judge concluded that:
[E]very patient has to have a primary physician and every doctor must perform services which in accordance with the Hippocratic Oath will be within a regiment [sic] which is good ... it may be totally reasonable, both from an objective and subjective standard, for a doctor to conceive who is employed to provide services for 100 patients regularly and to provide on-call services and night call services when needed pursuant to a rotating schedule, that to provide full-time services for 300 patients would interfere with the primary responsibility of providing care for the patients [for] which he has [been] designated as the primary physician ... and... a public policy of providing primary care with a designated doctor was being violated by the nursing home temporary policy ... albeit on a temporary basis....
Based on this reasoning, the judge ruled that "the plaintiff's case must go to the jury, and the jury must determine whether the *622 doctor was fired in retaliation for expressing that opinion that the Home was not providing services in accordance with State law." Accordingly, based upon public policy assertedly established by N.J.A.C. 8:39-23, the Hippocratic Oath, and the American Medical Association Principles of Medical Ethics, he declined to dismiss the plaintiff's case.
In amplifying his reasons for denial of the Home's motion, the judge made it clear that he found that plaintiff was "entitled to all the inferences which can flow, that as a matter of public policy there is a definitive public policy to which he has pinpointed and he's shown through his evidence that he had a reasonable belief that his continued providing services to 300 patients as requested was violative of that policy and, therefore, he had a right to object and, therefore the jury should determine whether or not he was retaliatory [sic] fired because he voiced those objections." Thus, the reasons expressed by the judge dealt with the case only as retaliation for expressing objections to policy, although the jury was also questioned as to retaliation for refusal to violate law or policy. In this case, plaintiff's asserted refusal to violate law or public policy took the form of refusing to see or treat residents other than those in Unit One at a time when no other staff physician was on the scene. Defendants say it was this conduct which led to plaintiff's termination.
Discussion
The State urges that the judgment below must be overturned because the Home was in compliance with applicable regulatory requirements, and because the court improperly relied upon N.J.A.C. 8:39-23.1 and 23.2, together with plaintiff's "reasonable" interpretation of a physician's obligations under the Hippocratic Oath and the American Medical Association's Principles of Medical Ethics, in concluding that there was a clear mandate of public policy sufficient for the jury to address.
Plaintiff responds that the trial judge correctly held that the regulations, coupled with Plaintiff's reasonable conscientious belief *623 that his actions were warranted by the Hippocratic Oath and Principles of Medical Ethics, constituted the requisite clear mandate. Plaintiff also reminds us that defendants made no objection to the jury charge or jury interrogatories on the issues considered herein.
CEPA is an important expression of legislative policy designed, as its title suggests, to afford protection to conscientious employees. We view the legislation as harmonious with the common law mandate provided in Pierce, supra. In particular, the necessity for judicial evaluation on a case by case basis of the existence of a "clear mandate", after balancing conflicting interests, remains critical in CEPA cases. See D'Agostino, supra, 133 N.J. at 531-32, 628 A.2d 305; Hennessey, supra, 129 N.J. at 99, 609 A.2d 11. Our attention to this requirement makes consideration of the litigant's arguments somewhat more complex than the briefs suggest.
The discrete analysis required by law must, in this case, involve separate consideration of the clear mandate of public policy question in connection with: a) plaintiff's objections to his temporary assignment and to the alleged consequences of inadequate staffing policy at the Home, and b) plaintiff's refusal to participate in the policy, expressed by his openly declining to see any patients other than those to whom he was primarily assigned.
When a professional employee merely raises an objection, the consequences, and therefore the necessary weighing of competing interests, are apt to differ materially from those produced when the objection is expressed by overt acts such as refusal to give medical assistance. In the present case, Dr. Kulick's unauthorized one week vacation and Dr. Rajput's six month leave of absence undoubtedly resulted in a large increase in plaintiff's medical work load. Nonetheless, undisputed proofs showed that a number of patients for whom plaintiff was the alternate physician were refused treatment by him. We cannot determine whether all or none of these were emergent, life-threatening situations, although it appears that in at least several cases residents were in severe *624 medical distress. Given the advanced age of most residents, it can reasonably be assumed that plaintiff's refusal to see or treat residents whose needs were brought to his attention by the nursing staff, could itself raise competing questions of medical ethics and responsibility.
In making their decision to terminate, plaintiff's refusal to see or treat Unit Two and Three patients was appropriately considered by the defendants in light of his assignment "to accept the responsibilities and duties of other staff physicians when they are on vacation, etc." and his professional obligation as the designated alternate physician. Thus, on the issue of retaliation for plaintiff's refusal to perform professional duties, the judge's balance should have taken into account not merely a single dimension of the public policy mandate asserted by plaintiff, but the existence of other applicable policies bearing upon clarity of the mandate, and whether it is beneficial to the public. See D'Agostino, supra, 133 N.J. at 531, 628 A.2d 305; Hennessey, supra, 129 N.J. at 100, 609 A.2d 11.
In our view, a balancing of interests test could not here support an objectively reasonable determination that there was a clear ethical and legal mandate of public policy requiring a physician to refuse to treat patients in distress. It was plain error requiring our attention in the interest of justice,[4] for the judge to have submitted to the jury questions respecting the reasonableness of plaintiff's belief that the Home's policies were incompatible with a clear policy mandate in connection with his refusal (as distinct from his mere objection) and respecting "retaliation" for such refusal.
Members of professions, whether employees or self-employed, are often required to push the limits of endurance in order to fulfill professional responsibilities. School classes may be oversized; crime areas under-patrolled; social care centers overworked; *625 needs of disabled persons inadequately addressed; to name only a few instances where legitimate professional frustration may be engendered because of inadequate commitment of public resources or for other reasons. We think it would be a rare case indeed where the intention of the Legislature in enacting N.J.S.A. 34:19-3c could be read by a court to find that one aspect of public policy was so clear as to override a physician's professional obligation to render medical treatment to the best of one's ability in difficult circumstances. When applied to plaintiff's refusal to see patients in Units Two and Three, this consideration alone was sufficient to render unclear the presence of any mandate of public policy. As to the refusal prong, the issue should have been resolved by granting defendants' motion.
In this limited context, we partially resolve the issue reserved in Abbamont v. Piscataway Tp., 269 N.J. Super. 11, 23 n. 5, 634 A.2d 538 (App.Div. 1993) respecting scope of the "reasonable belief" language when there is no actual violation. A terminated physician who seeks relief under this statute from consequences of refusing to treat patients, must be right about existence of a statutory, regulatory or clear mandate violation.[5] An extreme example might be refusal of an order to transfuse a patient with blood discovered to have been secured from a known hepatitis- or AIDS-infected donor, while safe alternative sources were readily available.
We turn briefly to a problem created by literal use of the disjunctive statutory language in submitting questions to the jury in this case. N.J.S.A. 34:19-3c prohibits retaliation because an employee "objects to, or refuses to participate in any activity, policy or practice which the employee reasonably believes ... etc." No distinction is drawn between a mere objection (including *626 complaints) and the possible consequences of a refusal to participate (e.g., a refusal to carry out a professional responsibility).[6] In ruling on the motions, the trial judge's denial was hinged only upon the reasonableness of a belief of violation of a law or regulation, or incompatibility with clear mandate of public policy, sufficient to render unlawful retaliation for making objection to the activity, policy or practice. Nonetheless, the form of the questions presented to the jury technically followed the statutory language but did not permit the jury to distinguish between a mere objection and a refusal to render professional services to more than a given number of patients.
Given the evidence, it is quite possible, indeed we find it probable, that the jury found plaintiff was terminated because he refused his assignment to see patients outside of Unit One, and not because of his objections. We held above that termination of an at-will physician employee for refusing to treat would not constitute a violation of N.J.S.A. 34:19-3c(1) or (3) on these facts. However, the effect of jury question number three, supra, was to enable the jury to so find. Because jury question two asked whether plaintiff objected to or refused to participate in defendant's practice of patient care, either could evoke a yes answer to question number three. If the jury found that the termination was occasioned by plaintiff's refusal to treat Unit Two and Three patients, the judgment clearly requires reversal.
To the extent the jury might have found that it was plaintiff's objections which triggered termination, however, we must decide whether a remand on this issue is appropriate.[7] This requires us *627 to consider: (1) the "objects to" aspect of N.J.S.A. 34:19-3c and sufficiency of basis for a reasonable objective belief of a legal or clear policy mandate violation; and, (2) whether the evidence was sufficient to support a jury verdict that plaintiff was terminated in retaliation for making objection, as distinct from refusing to treat.
We recognize that where an employee harbors an objectively reasonable professional belief that legally and medically requisite levels of physician staffing have been violated, the legislature probably would have wished to protect an employee's right to make objection, without fear of reprisal, even if it were later found by a court that there was no actual violation. It is likely that recognition of such probable legislative intent motivated the trial judge's rulings here.
Upon review of the regulations and ethical obligations relied upon by plaintiff, in light of this record, we conclude that the regulations do not establish minimum physician staffing levels keyed to the number of residents in long term facilities. As to the impact of the codes of medical ethics upon nursing homes medical staffing, these require highly subjective evaluations, which must vary widely with the nature of each facility, the type of disorders being treated, degrees of exigency, and countless other medical factors. In this case, only plaintiff's opinion was submitted in support of his ethical evaluation. Thus, the existence of a clear mandate, even by application of the lesser balancing measure we would apply to the "objection" prong of the statute, is anything but clear to us.
Nonetheless, we note that a conscientious physician might reasonably and objectively conclude that the Home required more staff physician assistance, not only during vacation periods, but throughout the year. Indeed, defendants themselves sought to avoid continued reliance upon a two-physician staff which they believed might result in future "problems" with supervisory agencies *628 such as the Department of Health and Veterans' Administration. The record makes clear defendants' efforts in this regard, including the hiring of plaintiff in May as a third physician. When Dr. Rajput took an extended six-month leave, physician staffing problems were rekindled.
In our view, it was not error to hold that plaintiff could reasonably and objectively believe that legal and ethical duties to provide competent medical care to residents of the Home were being inadequately served, and so make this view known. Retaliation against a physician-employee solely for making such objections known would be redressable under CEPA.[8]
We turn, then, to our second inquiry on the "objects to" prong sufficiency of evidence. Defendants' motions for judgment N.O.V. and for new trial were denied below.
Upon careful review of the record, we conclude that the jury could not reasonably have determined that defendants terminated plaintiff solely because he objected orally and in writing, either to his temporary workload or to the general problem created by inadequate physician staffing. The evidence, much of it plaintiff's, overwhelmingly suggests that defendants were in agreement with plaintiff's complaints, were endeavoring to improve conditions, and actively encouraged his efforts to bring about both greater medical staffing and greater "rewards" for the medical staff. We find little but speculation to support a jury finding that the termination was not, as defendants have consistently stated, attributable to plaintiff's refusal to render service to the Unit Two and Three residents during the crisis created by Dr. Kulick's unauthorized vacation.
*629 Conclusion
We have found that no statute, regulation or clear mandate of public policy supported an objectively reasonable belief that plaintiff's refusal to treat patients was warranted. Termination for that refusal did not offend N.J.S.A. 34:19-3c(1) or (3). Although application of a balancing of interests tests to the plaintiff's medical objections to defendants' practices might have supported a reasonable objective belief that a clear policy mandate was violated, there was insufficient evidence to support a jury verdict that plaintiff's termination was attributable to retaliation for such objections. It is therefore unnecessary to remand.
These conclusions render moot other issues posed on appeal and cross appeal. The judgment for plaintiff is reversed. Judgment dismissing the complaint on the merits is awarded to defendants.
NOTES
[1] N.J.S.A. 34:19-3 provides in pertinent part:
An employer shall not take any retaliatory action against an employee because the employee does any of the following:
* * * * * * * *
c. Objects to, or refuses to participate in any activity, policy or practice which the employee reasonably believes:
(1) is in violation of a law, or a rule or regulation promulgated pursuant to law,
(2) is fraudulent or criminal; or
(3) is incompatible with a clear mandate of public policy concerning the public health, safety or welfare or protection of the environment.
[2] On the motions, at points in colloquy, and in the jury charge, the trial judge appeared to recognize the necessity that plaintiff's belief be objectively reasonable. At other points, the concept of objective or subjective beliefs was interposed. The questions put to the jury omitted any requirement that plaintiff's belief be objectively reasonable. In Abbamont v. Piscataway Tp., 269 N.J. Super. 11, 23, 634 A.2d 538 (App.Div. 1993), a case involving a claimed retaliation for making complaints about health and safety violations in a school industrial arts shop, we held that a plaintiff's belief must be objectively reasonable. We noted, however, that Abbamont's proofs included an official safety guide publication which contained specific air supply and exhaust requirements, violations of which were the subject of expert testimony, and that plaintiff "did nothing more than assert his and his students' rights to a safe shop." Id. at 25, 634 A.2d 538.
[3] The Hippocratic Oath and AMA Principles are annexed at Appendices A and B.
[4] See R. 2:10-2. We recognize that defendants did not raise this issue below.
[5] It remains the law of this state that at-will employees "may be fired for any reason, be it good cause, no cause, or even morally-wrong cause, but not when the discharge is contrary to a clear mandate of public policy." D'Agostino v. Johnson & Johnson, Inc., 133 N.J. 516, 527, 628 A.2d 305 (1993).
[6] The complaint did not allege violation of N.J.S.A. 34:19-3a which prohibits retaliatory action against an employee who "Discloses, or threatens to disclose to a supervisor or to a public body an activity, policy or practice of the employer that the employee reasonably believes is in violation of a law, or a rule or regulation promulgated pursuant to law;".
[7] As we earlier noted, the jury questions were not phrased in terms of plaintiff's objectively reasonable belief. Were our analysis otherwise to sustain the basis for a jury finding for plaintiff respecting the refusal to treat or the making of objection, this formulation would have constituted plain error requiring reversal.
[8] The call here is close. We have held in a pre-CEPA case that mere voicing of opposition internally within an organization is not grounds for a Pierce claim. House v. Carter-Wallace, Inc., 232 N.J. Super. 42, 49, 556 A.2d 353 (App.Div.) certif. denied, 117 N.J. 154, 564 A.2d 874 (1989). However, we reserved the question whether such conduct might provide a basis for action under the objection language contained in N.J.S.A. 34:19-3c. Id. at 51 n. 2, 556 A.2d 353. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/413340/ | 698 F.2d 308
12 Fed. R. Evid. Serv. 411
UNITED STATES of America, Plaintiff-Appellee,v.Robert S. CHAPPELL, Defendant-Appellant.
No. 82-1382.
United States Court of Appeals,Seventh Circuit.
Argued Oct. 25, 1982.Decided Jan. 14, 1983.Rehearing Denied Feb. 10, 1983.
Richard J. Darko, Indianapolis, Ind., for defendant-appellant.
Roger L. Duncan and Thomas W. Turner, Asst. U.S. Attys., Indianapolis, Ind., for plaintiff-appellee.
Before CUMMINGS, Chief Judge, WOOD, Circuit Judge, and MAROVITZ, Senior District Judge.*
MAROVITZ, Senior District Judge.
Appellant, Robert S. Chappell, appeals a two count conviction for mail fraud, 18 U.S.C. Sec. 1341.1 Chappell allegedly devised and carried out a scheme to defraud investors in his company, General Oil, Inc., by making certain specific misrepresentations concerning the use of the funds invested and potential returns. Count I of the indictment set forth the alleged scheme to defraud which was then incorporated by reference into each of the remaining ten counts.2 Each count pertained to a different investor and each count alleged a specific mailing.
A jury convicted Chappell on Count 10 which concerned a letter from Chappell addressed to Gene and Lloyd Sellers, and on Count 11 which concerned a letter from Chappell to Andrew Hasenour. Both letters were dated April 14, 1977. On appeal, Chappell contends: 1) that insufficient evidence was presented at the trial to convict him of the crime of mail fraud; and 2) that the trial judge erred in admitting into evidence certain documents purporting to be the books and records of Chappell's corporation, and in permitting the District Attorney to read to the jury portions of a transcript of an interview with a deceased former employee of the corporation. After a full review of the record, we find Chappell's arguments to be without merit and therefore affirm his conviction.
Facts
In March 1975, Chappell formed General Oil, Inc., under the laws of the State of Indiana. Shortly thereafter, he purchased the oil and gas rights to a 150 acre tract of land located in Warren County, Pennsylvania from Maurice Dickey. There were regularly producing oil wells located all around the tract of land and it was regarded as a likely location for the production of oil. Chappell then filed a Schedule D offering with the Securities and Exchange Commission (the "SEC") concerning the first oil well to be drilled. Basically, a Schedule D is a question and answer form intended to provide information to potential investors in regard to the project. After the SEC approved the Schedule D, Chappell began to sell interests in the future oil wells. Each investor received a copy of the Schedule D and signed a copy of the Operating Agreement, which is the agreement between General Oil and each individual investor. Under the terms of the Schedule D and the Operating Agreement, investors bought only an investment in the oil wells, and did not become a shareholder in General Oil or entitled to any of the profits of the corporation.
The tract of land was large enough for thirty wells and investors were told that thirty wells would be drilled. Only ten wells were ever drilled. Nine of the wells produced oil, but only in very small quantities.
In March 1976, the SEC began an investigation of General Oil and Chappell, and eventually insisted that a separate Schedule D be filed for each well drilled. The SEC later began a civil action in the Southern District of Indiana, and in July 1976 Chappell and General Oil agreed to the entry of a consent decree whereby no new investors would be sought for the project.
There is no question that corporate funds were used to purchase commercial real estate in Indiana for the purpose of opening a business to sell fine art. Chappell also transferred to General Oil a motel located in Little Rock, Arkansas which he had purchased prior to starting the corporation. The motel was carried on the books and records of the corporation and corporate funds were expended on it. Chappell also wrote checks on the corporate checking account for personal and family expenses including support payments to his wife. The books and records of General Oil apparently accurately reflected these expenditures which were charged to Chappell personally.
In April 1977, the SEC renewed its investigation of Chappell. On April 21, 1977, representatives of the SEC took Chappell's testimony, and at that time he indicated that certain books and records of the corporation were in the possession of Anthony Ricci, who was located in Florida.
On May 2, 1977 representatives of the SEC's Florida office took testimony from Ricci. They also received the books and records of the corporation that were in his possession. At Chappell's trial, these books and records were received into evidence, over objection, as Government Exhibits 16A-K. Portions of Ricci's testimony as given to the SEC were read to the jury, but the transcript itself (Government Exhibit 16L) was not admitted as evidence. Ricci had died over a year before trial.
Sufficiency of the Evidence
Chappell first contends that the evidence pertaining to the counts on which he was acquitted may not form the basis for inferences against him on Counts 10 and 11. He claims that the convictions on Counts 10 and 11 must stand or fall on their own weight and that there was insufficient evidence presented on those counts to support a conviction. Basically, Chappell claims that the mailings alleged in Counts 1 through 9 covered a time span up to and including April 12, 1977, and that his acquittal on those counts shows that the jury felt that there was no scheme to defraud up to that period in time. Therefore, Chappell argues that it is logically inconsistent for the jury to convict him on Counts 10 and 11 since the mailings alleged in those counts occurred just two days later on April 14, 1977. Chappell offers no support for this theory and in fact this precise argument was rejected in United States v. Reicin, 497 F.2d 563 (7th Cir.1974).
As the Reicin court so aptly stated, "[t]his assault by defendant on his conviction stems primarily from his narrow view of a mail fraud charge...." Id. at 567. Chappell has not viewed the evidence as a whole or in the light most favorable to the Government and has generally ignored the function of the jury in a criminal trial. The evidence presented concerning the various investors overlaps and cannot be viewed in a vacuum. See United States v. Hutul, 416 F.2d 607, 617 (7th Cir.1969), cert. denied, 396 U.S. 1012, 90 S.Ct. 573, 24 L.Ed.2d 504 (1970). The fact that the jury acquitted Chappell on nine of the eleven counts does not mandate the conclusion that the jury determined that there was no overall scheme to defraud investors. In analyzing the verdict, Chappell has failed to take into account the possibility that the jury might have been exercising "its historic power of lenity." United States v. Carbone, 378 F.2d 420, 423 (2nd Cir.1967), cert. denied, 389 U.S. 914, 88 S.Ct. 242, 19 L.Ed.2d 262 (1967). As pointed out in United States v. Fox, 433 F.2d 1235, 1238 (D.C.Cir.1970), "juries frequently convict on some counts but acquit on others, not because they are unconvinced of guilt, but simply because of compassion or compromise." Chappell has invited us to speculate as to why the jury acquitted him on the first nine counts and yet convicted him on the remaining two counts. We decline to do so, for such speculation cannot overturn a verdict. Dunn v. United States, 284 U.S. 390, 394, 52 S.Ct. 189, 191, 76 L.Ed. 356 (1932).
Chappell also contends that the mailings alleged in Counts 10 and 11 were mailed after any alleged scheme reached fruition and therefore they were not mailed for the purpose of executing a scheme to defraud as required by the statute. Chappell argues that the letters were mailed after he received the money from the investors involved, and therefore the scheme to defraud had already been completed at the time of the mailing.
This argument is wholly without merit. The April 14, 1977 letters gave the investors a status report on the production of oil over the winter, and also stated that any action to sell the oil lease was being postponed due to the prospect of an increase in the price of oil. Precedent has established that the use of the mails to "lull" victims into a false sense of security may be "for the purpose of executing" a scheme to defraud, even though the mailings were made after the money had been fraudulently obtained. United States v. Shelton, 669 F.2d 446 (7th Cir.1982); United States v. Wrehe, 628 F.2d 1079 (8th Cir.1980). After viewing the documents and the circumstances surrounding their mailing, we are satisfied that sufficient evidence was presented for a jury to construe them as "lull" letters designed to mislead the investors into a false sense of security.
Alleged Trial Errors
Chappell maintains that the trial judge erred in admitting the books and records of General Oil into evidence and in permitting the Government to read to the jury portions of Ricci's testimony to the SEC. Specifically, Chappell claims that both the documents and the testimony constituted inadmissible hearsay and that their admission violated the Confrontation Clause of the Sixth Amendment.
At trial, the Government argued that the books and records were admissible under the Federal Rules of Evidence ("FRE") 804(b)(5) and 803(24) which are the catch-all exceptions to the hearsay rule, and under 803(6) which is the exception allowing the introduction of business records. The trial court, after a lengthy hearing, admitted the documents under FRE 803(6), 804(b)(5), and 801(d)(2)(D) which defines admissions by a party-opponent through an agent as not hearsay. Ricci's testimony to the SEC was also admitted under Rule 801(d)(2)(D). At oral argument, counsel for the Government relied on Rule 803(6) as the basis for the admissibility of the documents and therefore we will limit our discussion to that rule.
FRE 803(6) classifies business records as admissible hearsay if they are kept in the course of a regularly conducted business activity, and if it was the regular practice of that business activity to make the records, as shown by the testimony of the custodian or other qualified witness. The records are not to be admitted however, if the source of information or the method or circumstances of preparation indicate a lack of trustworthiness. Fed.R.Evid. 803(6).
Chappell argues that the records were not admissible under Rule 803(6) because there was no showing that they were reliable or trustworthy. Actually, Chappell does not dispute the reliability of the records, only the Government's ability to lay a proper foundation for them since Ricci, the custodian, had died prior to the trial.
To support the reliability of the records, the Government offered the testimony of two former employees of General Oil who both stated that Ricci was the bookkeeper for the company. SEC agent Paul testified that Chappell told him that Ricci was maintaining the books of General Oil. Paul also testified that he was a licensed Certified Public Accountant and that he examined the books and records obtained from Ricci and that they appeared to be records made in the ordinary course of business. He further testified that he corroborated the information contained in the books and records with checks, bank statements and other records and found that all the entries appeared accurate. Finally, and most importantly, the Government offered portions of Ricci's testimony as given to the SEC in May 1977. In that testimony Ricci stated that he was the accountant for General Oil and that he maintained the books and records. He also identified each of the exhibits and described how he posted entries and prepared schedules. This testimony was clearly admissible under FRE 801(d)(2)(D). That rule defines as not hearsay any admission by a party-opponent through his agent concerning a matter within the scope of the agency, if made during the existence of the relationship. While it is true, as Chappell asserts, that Ricci was no longer on the General Oil payroll at the time that he gave testimony to the SEC, he was nonetheless still acting as General Oil's bookkeeper. Only twelve days prior to Ricci's testimony, Chappell himself told the SEC that Ricci was still acting as General Oil's accountant and that the books and records were still in Ricci's possession. Ricci's testimony, properly admitted as an admission by a party-opponent, laid the foundation for the admission of the General Oil books and records. Chappell's allegations of error regarding the admission of the documents and the testimony are therefore without merit.
Chappell's final argument is that regardless as to whether the records and testimony were admissible under various exceptions to the hearsay rule, their admission violated his Sixth Amendment right to confrontation.
In Ohio v. Roberts, 448 U.S. 56, 100 S.Ct. 2531, 65 L.Ed.2d 597 (1980), the Supreme Court reviewed the overlapping character of the hearsay exceptions and the Confrontation Clause. The Court noted that the Confrontation Clause countenances only hearsay testimony which is marked with trustworthiness. As summarized by Justice Blackmun,
1
when a hearsay declarant is not present for cross-examination at trial, the Confrontation Clause normally requires a showing that [the declarant] is unavailable. Even then, [the declarant's] statement is admissible only if it bears adequate "indicia of reliability." Reliability can be inferred without more in a case where the evidence falls within a firmly rooted hearsay exception. In other cases, the evidence must be excluded at least absent a showing of particularized guarantees of trustworthiness.
2
448 U.S. at 66, 100 S.Ct. at 2534 (footnote omitted).
3
In view of Ricci's death prior to the trial, there can be no question as to the unavailability of the hearsay declarant. The books and records clearly fell within a firmly rooted hearsay exception and reliability can be inferred as to them. Ricci's testimony, as a party admission, does not fall into a hearsay exception but rather is defined as not hearsay. Fed.R.Evid. 801(d)(2)(D). The exclusion of party admissions from the definition of hearsay, unlike most hearsay exceptions, is not grounded on a probability of trustworthiness but rather on the idea that a party cannot object to his failure to cross-examine himself. See 4 Weinstein and Berger, Weinstein's Evidence p 801(d)(2) (1981). Therefore, in the case of an admission by an agent, a separate Confrontation Clause analysis would appear to be necessary. This Court has repeatedly held however, that extrajudicial statements properly admissible under FRE 801(d)(2)(E) (admissions by coconspirators) do not violate a defendant's Sixth Amendment rights. United States v. Papia, 560 F.2d 827, 836 n. 3 (7th Cir.1977). The similarities between coconspirators and agents are readily apparent, and we see no reason to differentiate between them for Confrontation Clause analysis purposes. In any event, there clearly were adequate indicia of reliability surrounding Ricci's testimony. He gave his statement under oath, and it was recorded by a qualified court reporter. Although the reporter did not certify the transcript, the SEC attorney who questioned Ricci testified at the trial as to the reliability of the transcript. And while it is also true, as Chappell asserts, that Ricci was not subject to cross-examination, there is absolutely no reason to suspect that Ricci did not tell the truth. Chappell cannot point to any prejudice that resulted from the admission of Ricci's testimony, and has never questioned the accuracy of the books and records. Indeed, Chappell has steadfastly maintained that the records accurately reflect his personal transactions. Under these circumstances, we cannot conclude that Chappell's Sixth Amendment rights have been violated.
Conclusion
4
Although Chappell has presented resourceful arguments, he has been unable to convince us that there was insufficient evidence to convict him or that inadmissible evidence was allowed to reach the jury. Accordingly, the conviction is affirmed.
5
AFFIRMED.
*
The Honorable Abraham Lincoln Marovitz, Senior District Judge of the Northern District of Illinois, is sitting by designation
1
18 U.S.C. Sec. 1341 provides:
"Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations or promises, ... for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Post Office Department, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be fined not more than $1,000 or imprisoned not more than five years, or both."
2
The original indictment charged 12 counts of mail fraud and 3 counts of inducing persons to travel in interstate commerce in execution of a scheme or artifice to defraud. 18 U.S.C. Sec. 2314. Prior to trial 4 counts were dismissed, leaving 10 counts charging mail fraud and 1 count charging the inducement of persons to travel in interstate commerce | 01-03-2023 | 08-23-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/2719956/ | Filed 8/21/14 P. v. Wilson CA6
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
THE PEOPLE, H040313
(Santa Clara County
Plaintiff and Respondent, Super. Ct. No. C1362290)
v.
GRANT WILSON, JR.,
Defendant and Appellant.
I. INTRODUCTION
After his motion to suppress evidence was denied, defendant Grant Wilson, Jr.,
pleaded no contest to possession of methamphetamine (Health & Saf. Code, § 11377,
subd. (a)) and possession of narcotics paraphernalia (Health & Saf. Code, § 11364.1), and
he was placed on Proposition 36 probation for two years. One of his probation conditions
provided: “You shall not possess or consume any alcohol or illegal drugs including
marijuana, . . . nor shall you knowingly go to places where those items are being offered
for sale or being consumed.”
On appeal, defendant contends the trial court erred by denying his motion to
suppress evidence, claiming he was subjected to an unlawful pat search. Defendant also
contends the probation condition concerning alcohol and drugs is unconstitutionally
vague because it lacks an express knowledge requirement. The Attorney General
concedes that an express knowledge requirement should be included in the probation
condition. We will modify the probation condition and affirm the judgment as modified.
II. BACKGROUND
A. Defendant’s Detention
On July 30, 2013, at about 3:25 a.m., San Jose Police Officer Joseph Carrott saw
defendant in the area of First Street and Edwards Avenue, which is a high crime,
commercial area with a lot of abandoned buildings.
Defendant was riding a bicycle without a forward-facing light, in violation of
Vehicle Code section 21201, subdivision (d)(1).1 Officer Carrott initiated a stop by using
his patrol car’s spotlight.
When stopped, defendant “appeared very nervous.” “He began looking around
behind him and [in] different directions up and down the street. And then he began
crying.” Based on defendant’s behavior, Officer Carrott believed defendant was either
“looking for a way to run or weighing his options of whether to run or fight [the officer].”
Officer Carrott was concerned for his safety, particularly because he was close to
defendant and because defendant was “wearing very bulky clothing,” which might have
concealed a “weapon, knife, gun.” Specifically, defendant was wearing two jackets and
cargo pants.
Officer Carrott instructed defendant to “step away from his bicycle,” and he
performed a “pat-frisk search of him,” looking for weapons. In defendant’s pocket,
Officer Carrott felt a methamphetamine pipe. After defendant admitted it was a
1
Vehicle Code section 21201 (d) provides in pertinent part: “A bicycle operated
during darkness upon a highway, a sidewalk where bicycle operation is not prohibited by
the local jurisdiction, or a bikeway, as defined in Section 890.4 of the Streets and
Highways Code, shall be equipped with all of the following: [¶] (1) A lamp emitting a
white light that, while the bicycle is in motion, illuminates the highway, sidewalk, or
bikeway in front of the bicyclist and is visible from a distance of 300 feet in front and
from the sides of the bicycle.”
2
methamphetamine pipe, Officer Carrott arrested him. Incident to the arrest, Officer
Carrott further searched defendant and found a baggie containing a “crystalline
substance.” The substance later tested presumptive positive for methamphetamine.
After being arrested, defendant gave the name “Robert Wilson” when asked to
identify himself, but his driver’s license reflected that his true name was Grant
Christopher Wilson II. Defendant also supplied a false date of birth.
B. Charges, Suppression Motion, Pleas, and Sentence
Defendant was charged with possession of methamphetamine (Health & Saf.
Code, § 11377, subd. (a); count 1), possession of narcotics paraphernalia (Health & Saf.
Code, § 11364.1; count 2), and providing a false name to a peace officer (Pen. Code,
§ 148.9; count 3).
Defendant subsequently filed a motion to suppress evidence. (See Pen. Code,
§ 1538.5.) He alleged that he was detained and searched without a warrant, and that the
prosecution was obligated to justify the warrantless detention and search. (See People v.
Williams (1999) 20 Cal.4th 119, 130.) In response to defendant’s motion to suppress, the
prosecution argued that the detention was justified by defendant’s violation of Vehicle
Code section 21201, subdivision (d)(1) and that the pat search was justified by the
officer’s safety concerns.
The trial court heard and denied defendant’s motion to suppress on October 9,
2013.
On October 16, 2013, defendant pleaded no contest to count 1 (possession of
methamphetamine) and count 2 (possession of narcotics paraphernalia). Also on that
date, the trial court placed defendant on Proposition 36 probation for two years. One of
his probation conditions provided: “You shall not possess or consume any alcohol or
illegal drugs including marijuana, . . . nor shall you knowingly go to places where those
items are being offered for sale or being consumed.”
3
III. DISCUSSION
A. Denial of Motion to Suppress
Defendant contends the trial court erred by denying his motion to suppress. He
argues that Officer Carrott did not have a reasonable suspicion that defendant was armed
and dangerous.
1. Proceedings Below
In denying defendant’s motion to suppress, the trial court found that the pat search
was justified. The trial court first noted that it “found the officer’s testimony to be
credible.” The court found that defendant’s behavior “went far beyond nervousness,”
explaining, “An officer confronted with a person who essentially immediately bursts into
tears and is looking around in a nervous fashion, in a fight or flight, that’s a – to me, a
much more risky situation than simply a person who’s acting nervous in response to
being stopped by the police.” The trial court listed all the factors supporting its ruling:
“the time of night, alone – the officer was alone, the [defendant’s] response, and the
baggy clothing where a weapon could easily have been stored.”
2. Standard of Review
“In ruling on a motion to suppress, the trial court must find the historical facts,
select the rule of law, and apply it to the facts in order to determine whether the law as
applied has been violated. [Citation.] We review the court’s resolution of the factual
inquiry under the deferential substantial evidence standard. The ruling on whether the
applicable law applies to the facts is a mixed question of law and fact that is subject to
independent review. [Citation.]” (People v. Ramos (2004) 34 Cal.4th 494, 505.)
3. Analysis
In Terry v. Ohio (1968) 392 U.S. 1 (Terry), the United States Supreme Court held
that the Constitution permits “a reasonable search for weapons for the protection of the
police officer, where he [or she] has reason to believe that he [or she] is dealing with an
armed and dangerous individual.” (Id. at p. 27.) A pat search for weapons is justified if
4
“a reasonably prudent [officer] in the circumstances would be warranted in the belief that
his [or her] safety or that of others was in danger.” (Ibid.) “[T]he police officer must be
able to point to specific and articulable facts which, taken together with rational
inferences from those facts, reasonably warrant” the search. (Id. at p. 21.)
“The judiciary should not lightly second-guess a police officer’s decision to
perform a patdown search for officer safety. The lives and safety of police officers weigh
heavily in the balance of competing Fourth Amendment considerations. [Citations.]”
(People v. Dickey (1994) 21 Cal.App.4th 952, 957 (Dickey).)
Below and on appeal, the parties cited and discussed a number of cases involving
pat searches where the defendant exhibited nervousness and/or wore baggy clothing.
Defendant contends that these two factors did not justify the search here. The Attorney
General contends that the pat search was reasonable in light of “the totality of the
circumstances.”
Nervousness and signs of being under the influence did not justify a pat search for
weapons during a daytime traffic stop in People v. Adam (1969) 1 Cal.App.3d 486
(Adam). In that case, two officers stopped the defendant’s vehicle. (Id. at p. 487.) The
officers asked the defendant to step out of the car upon noticing that his pupils were
dilated and his speech was slurred. One officer then performed a pat search. The trial
court found the pat search was not justified, and the appellate court agreed there were no
facts to support a finding that the searching officer reasonably thought he was in danger:
“We have a daylight encounter, between a young man, possibly under the influence of
something, alone and apparently cooperative, with two police officers who were
presumably armed.” (Id. at p. 492.)
A pat search was also not justified where a defendant failed to provide
identification, refused to allow a search of his vehicle, was nervous and sweating, and
possessed baking powder or soda along with a toothbrush. (Dickey, supra, 21
Cal.App.4th at p. 956.) In Dickey, the encounter between the defendant and two officers
5
occurred during the daytime. The officers had seen the defendant’s car parked in the
middle of a rural road, and they had seen the defendant moving around in his car. The
officers asked the defendant and his passenger to exit the car, obtained consent to search
a backpack, then pat searched them after finding baking powder or soda in the backpack.
Although “[t]he deputy testified that he performed the patdown search for ‘officer
safety,’ ” there were no specific and articulable facts showing that the defendant might
have been armed and dangerous. (Ibid.)
A midnight vehicle stop in a “ ‘high-gang location’ ” did not justify the pat search
in People v. Medina (2003) 110 Cal.App.4th 171 at page 175 (Medina). There, two
officers stopped the defendant’s vehicle after noticing it had a broken taillight. Although
“there ‘wasn’t anything specific’ ” leading the officers to believe the defendant was
armed, one performed a pat search. (Ibid.) The appellate court rejected the People’s
argument “that the time of day and location may in combination be sufficient by
themselves to justify a Terry stop and frisk.” (Id. at p. 177.) Thus, the pat search was
unlawful. (Id. at p. 178.)
Baggy clothing and “the presence of drugs” justified a pat search in People v.
Collier (2008) 166 Cal.App.4th 1374 at page 1378. In that case, two officers initiated a
daytime traffic stop of a vehicle in which the defendant was a passenger. (Id. at p. 1376.)
The officers smelled marijuana and one officer asked the defendant to step out of the car.
The defendant, who was taller than the officer, “wore baggy shorts that hung down to his
ankles and an untucked shirt that extended to his midlegs.” (Ibid.) Based on the baggy
clothing, an officer believed the defendant “might be concealing an otherwise bulging
item, perhaps a weapon,” and therefore conducted a pat search. (Ibid.) In affirming the
denial of the defendant’s motion to suppress, the appellate court noted that “ ‘guns often
accompany drugs’ ” and that the officers were about to search the car. (Id. at p. 1378.) It
was a “common sense” conclusion that the officer had reasonable concerns for his safety
6
under the circumstances, particularly in light of the defendant’s size and his baggy
clothing. (Ibid.)
In the instant case, the trial court identified the relevant factors as: (1) the time of
night—it was about 3:25 a.m.; (2) the fact that the officer was alone; (3) defendant’s
behavior—his crying and looking around as if deciding whether to flee or fight; (4) and
defendant’s “baggy clothing where a weapon could easily have been stored.” The trial
court also explicitly found the officer, who testified that he was concerned for his safety,
to be credible.
Under the cases discussed above, the trial court did not err by denying defendant’s
motion to suppress. Here, a single officer detained defendant very late at night in a high-
crime area; these facts help distinguish the instant case from Adam and Dickey, both of
which concerned daytime encounters with more than one officer. Although a late night
detention in a high-crime neighborhood does not alone supply reasonable suspicion for a
pat search (Medina, supra, 110 Cal.App.4th at p. 177), here there were additional
relevant facts. Defendant wore “very bulky clothing,” and both his jackets and pants had
pockets in which a weapon could have been concealed. (See Collier, supra, 166
Cal.App.4th at p. 1378.) During the encounter, defendant appeared nervous, and he
looked around in different directions as if contemplating escape routes. “Nervous,
evasive behavior is a pertinent factor in determining reasonable suspicion. [Citation.]”
(In re H.M. (2008) 167 Cal.App.4th 136, 144.)
Thus, the officer’s testimony in this case pointed to a number of “specific and
articulable facts which, taken together with rational inferences from those facts,
reasonably warrant[ed]” the search. (See Terry, supra, 392 U.S. at p. 21.) Under the
circumstances, the officer reasonably believed his safety was in danger and performed a
pat search to make sure he was not dealing with an armed subject during the detention.
(Id. at p. 27.)
7
B. Probation Condition
One of defendant’s probation conditions provided: “You shall not possess or
consume any alcohol or illegal drugs including marijuana, and even if you have a medical
marijuana card – nor shall you knowingly go to places where those items are being
offered for sale or being consumed.” When defendant indicated that he did have a
medical marijuana card, the trial court noted that defendant was set to appear in front of
another judge the following week and that the other judge could modify that aspect of the
probation condition.
Defendant contends the above probation condition is unconstitutionally vague
because it does not require him to know that he is in possession of alcohol or illegal
drugs. He argues he could “unwittingly violate probation” if, for instance, he held
someone’s backpack without knowing it contained the prohibited items, or if someone
left the prohibited items at his home or in his car, without his knowledge.
The Attorney General acknowledges that in People v. Rodriguez (2013) 222
Cal.App.4th 578, this court agreed that a knowledge element should be added to a similar
condition. This court noted that to the extent the probation condition reinforced the
defendant’s “obligations under California’s Uniform Controlled Substances Act, the same
knowledge element which has been found to be implicit in those statutes is reasonably
implicit in the condition” (id. at p. 593), but that because the condition was “not limited
to substances regulated by statute, but extend[s] to alcohol,” an express knowledge
requirement would “eliminate any potential for vagueness or overbreadth in applying the
condition” (id. at p. 594). The Attorney General therefore concedes that the condition
should be modified in this case.
IV. DISPOSITION
The probation condition that provides “You shall not possess or consume any
alcohol or illegal drugs including marijuana, and even if you have a medical marijuana
8
card – nor shall you knowingly go to places where those items are being offered for sale
or being consumed” is modified to provide:
“You shall not knowingly possess or consume any alcohol or illegal drugs
including marijuana, even if you have a medical marijuana card, nor shall you knowingly
go to places where those items are being offered for sale or being consumed.”
As modified, the judgment is affirmed.
9
___________________________________________
BAMATTRE-MANOUKIAN, ACTING P.J.
WE CONCUR:
__________________________
MÁRQUEZ, J.
__________________________
GROVER, J. | 01-03-2023 | 08-21-2014 |
https://www.courtlistener.com/api/rest/v3/opinions/1540615/ | 433 Pa. Superior Ct. 411 (1994)
640 A.2d 1326
COMMONWEALTH of Pennsylvania,
v.
David Todd JACOBS, Appellant.
Superior Court of Pennsylvania.
Argued February 8, 1994.
Filed April 20, 1994.
*413 Michael Bangs, Lemoyne, for appellant.
Alison Taylor, Asst. Dist. Atty., Carlisle, for Com., appellee.
Before WIEAND, McEWEN and SAYLOR, JJ.
WIEAND, Judge:
In this "drunk driving" case, the district justice, following a preliminary hearing, dismissed a charge of violating 75 Pa.C.S. § 3731(a)(4) and returned to court for trial a charge of violating 75 Pa.C.S. § 3731(a)(1). The district attorney thereafter prepared an information charging violations of both subsections of the statute, and the jury which heard the evidence found the defendant guilty of violating 75 Pa.C.S. § 3731(a)(4). On appeal, the defendant argues that he should not have been tried for violating 75 Pa.C.S. § 3731(a)(4) without being rearrested and given another preliminary hearing. This argument, although interesting, does not entitle the defendant to post-trial relief.
David Todd Jacobs was arrested on May 25, 1991, and charged with driving while under the influence of alcohol pursuant to 75 Pa.C.S. § 3731(a)(1) and (a)(4).[1] A preliminary *414 hearing was held on July 10, 1991, at which the district justice determined that the Commonwealth had presented prima facie evidence that Jacobs had violated subsection (a)(1) of the drunk driving statute, but had failed to establish a prima facie case under subsection (a)(4). Therefore, only the charge under subsection (a)(1) was bound over for court; and the district justice dismissed the charge under subsection (a)(4). Subsequently, the district attorney filed a criminal information charging Jacobs with violating both subsections (a)(1) and (a)(4) of 75 Pa.C.S. § 3731. Jacobs filed a pre-trial motion to quash the information on grounds that the charge under subsection (a)(4) had been dismissed at his preliminary hearing. When this motion was denied, Jacobs proceeded to trial before a jury, which found him guilty of violating 75 Pa.C.S. § 3731(a)(4).[2] Jacobs then filed a post-trial motion in arrest of judgment, which was denied following argument before a court en banc. Jacobs was sentenced to serve a term of imprisonment for not less than forty-eight (48) hours nor more than twenty-three (23) months and to pay a fine and the costs of prosecution. This appeal followed.
On appeal, Jacobs argues that, because the charge of drunk driving under subsection (a)(4) was dismissed at his preliminary hearing for lack of prima facie evidence, the Commonwealth, if it desired to pursue a charge under subsection (a)(4), was required to refile the charge before a district justice to determine whether prima facie evidence existed sufficient to compel him to stand trial thereon. Because no finding of a prima facie case to support the charge under subsection (a)(4) had ever been made, appellant asserts, judgment *415 on his conviction for that charge should be arrested and he should be discharged with prejudice. For its part, the Commonwealth takes the position that, because the charges of drunk driving under subsections (a)(1) and (a)(4) involved cognate offenses, Pa.R.Crim.P. 225(b)(5) permitted the inclusion in the criminal information of a charge under subsection (a)(4). We will consider these arguments carefully in order to determine whether appellant should have been afforded a second preliminary hearing on the charge under 75 Pa.C.S. § 3731(a)(4).
"There is no constitutional right, federal or state, to a preliminary hearing." Commonwealth v. Ruza, 511 Pa. 59, 64, 511 A.2d 808, 810 (1986). See also: Commonwealth ex rel. Buchanan v. Verbonitz, 525 Pa. 413, 419, 581 A.2d 172, 175 (1990) (Flaherty, J., concurring), cert. denied, 499 U.S. 907, 111 S.Ct. 1108, 113 L.Ed.2d 217 (1991); Commonwealth v. Mayberry, 459 Pa. 91, 103, 327 A.2d 86, 92 (1974). Rather, a defendant's right to a preliminary hearing is conferred by the Rules of Criminal Procedure. See: Pa.R.Crim.P. 141. See also: Commonwealth ex rel. Fitzpatrick v. Mirarchi, 481 Pa. 385, 392-393, 392 A.2d 1346, 1349 (1978); Commonwealth v. Jennings, 405 Pa.Super. 590, 594, 592 A.2d 1370, 1372 (1991) (en banc). The purpose of a preliminary hearing has been described by the Supreme Court in the following manner:
The preliminary hearing is not a trial. The principal function of a preliminary hearing is to protect an individual's right against an unlawful arrest and detention. Commonwealth v. Mullen, 460 Pa. 336, 333 A.2d 755 (1975). At this hearing the Commonwealth bears the burden of establishing at least a prima facie case that a crime has been committed and that the accused is probably the one who committed it. Commonwealth v. Prado, 481 Pa. 485, 393 A.2d 8 (1978); Pa.R.Crim.P. 141(d). It is not necessary for the Commonwealth to establish at this stage the accused's guilt beyond a reasonable doubt. Commonwealth v. Rick, 244 Pa.Super. 33, 366 A.2d 302 (1976). In order to meet its burden at the preliminary hearing, the Commonwealth is required to present evidence with regard to each of the material elements of *416 the charge and to establish sufficient probable cause to warrant the belief that the accused committed the offense. Commonwealth v. Wojdak, 502 Pa. 359, 466 A.2d 991 (1983).
Commonwealth v. McBride, 528 Pa. 153, 157-158, 595 A.2d 589, 591 (1991). See also: Commonwealth v. Rogers, 416 Pa.Super. 59, 63, 610 A.2d 970, 972 (1992); Commonwealth v. Nacrelli, 280 Pa.Super. 338, 342, 421 A.2d 752, 754 (1980).
"A finding by a committing magistrate that the Commonwealth has failed to establish a prima facie case is not a final determination, such as an acquittal, and only entitles the accused to his liberty for the present, leaving him subject to rearrest." Commonwealth v. Hetherington, 460 Pa. 17, 22, 331 A.2d 205, 208 (1975). See also: Commonwealth v. Genovese, 493 Pa. 65, 69 n. 7, 425 A.2d 367, 369 n. 7 (1981); Commonwealth v. Cartagena, 482 Pa. 6, 14-15, 393 A.2d 350, 354 (1978); Commonwealth v. Chermansky, 381 Pa.Super. 129, 131, 552 A.2d 1128, 1129 (1989). In this regard, the Supreme Court "has acknowledged that re-arrest is the appropriate procedure and the Commonwealth's only recourse where charges are dismissed and the defendant discharged upon a finding of a lack of a prima facie case since such a determination is interlocutory in nature and, therefore, not appealable." Commonwealth ex rel. Fitzpatrick v. Mirarchi, supra, 481 Pa.Super. at 390, 392 A.2d at 1348. See: Commonwealth v. Hetherington, supra; Riggins Case, 435 Pa. 321, 254 A.2d 616 (1969). Pursuant thereto "[t]he prosecution may bring the matter again before any other officer empowered to hold a preliminary hearing." Commonwealth v. Prado, 481 Pa. 485, 487, 393 A.2d 8, 9 (1978). See also: Liciaga v. Court of Common Pleas of Lehigh County, 523 Pa. 258, 266-267, 566 A.2d 246, 249-250 (1989); Commonwealth v. Jones, 429 Pa.Super. 601, 605-608, 633 A.2d 185, 187-188 (1993); Commonwealth v. Shoop, 420 Pa.Super. 606, 609, 617 A.2d 351, 353 (1992).
In the instant case, however, the Commonwealth proceeded, pursuant to Pa.R.Crim.P. 225(b)(5), by adding the charge of drunk driving under 75 Pa.C.S. § 3731(a)(4) to the *417 information, which also charged a violation of 75 Pa.C.S. § 3731(a)(1). It did so on grounds that, since the offenses were cognate, both could be charged in the information based upon the finding that prima facie evidence existed to prosecute appellant generally for driving while under the influence of alcohol.
Pa.R.Crim.P. 225(b)(5) provides:
(b) The information shall be signed by the attorney for the Commonwealth and shall be valid and sufficient in law if it contains:
. . . .
(5) a plain and concise statement of the essential elements of the offense substantially the same as or cognate to the offense alleged in the complaint.
"Rule 225(b)(5) does not require that the crime charged in the Information be identical to that charged in the Complaint as long as the charge is cognate to the one laid in the Complaint." Commonwealth v. Donaldson, 339 Pa.Super. 237, 239, 488 A.2d 639, 640 (1985). See also: Commonwealth v. Wilkinson, 278 Pa.Super. 490, 500, 420 A.2d 647, 652 (1980); Commonwealth v. El, 273 Pa.Super. 1, 9, 416 A.2d 1058, 1062 (1979). This is so because "[a] defendant cannot be required to answer a charge different from or unrelated to the one for which he was arrested and held to bail." Commonwealth v. Taylor, 324 Pa.Super. 420, 429, 471 A.2d 1228, 1232 (1984). See also: Commonwealth v. Musto, 348 Pa. 300, 302-303, 35 A.2d 307, 309 (1944); Commonwealth v. Wilkinson, supra at 497-498, 420 A.2d at 650-651.
In Commonwealth v. Slingerland, 358 Pa.Super. 531, 518 A.2d 266 (1986), the defendant was charged with drunk driving under subsection (a)(1). A preliminary hearing was held and the charge was held over for court. Thereafter, the Commonwealth filed an information charging the defendant with drunk driving under both subsections (a)(1) and (a)(4). The defendant was tried and found guilty of violating subsection (a)(4), but acquitted by the jury on the charge that he had violated subsection (a)(1). On appeal, the Superior Court held that the *418 drunk driving offenses set forth in subsections (a)(1) and (a)(4) were cognate and that, therefore, the district attorney could properly add the charge under subsection (a)(4) to the information, even though the offense had not been charged in the complaint.
A majority of the trial court in this case found Slingerland to be dispositive. Appellant argues, however, that Slingerland is not controlling because, in that case, the charge of drunk driving under subsection (a)(4) had not been presented at the preliminary hearing and had not been found to be lacking in evidentiary support. In rejecting appellant's argument, the trial court reasoned as follows:
An offense is either cognate to another offense at the time the criminal conduct takes place or it is not. Since the Superior Court has held that subsection (a)(1) and (a)(4) offenses are cognate, then the fact that the District Justice dismissed the subsection (a)(4) charge, in contrast to where that charge was not originally filed in Slingerland, is a distinction of no legal significance. The cognate offense never had to be filed in the first place as long as the subsection (a)(1) offense was bound over by the District Justice. Since it was bound over, the District Attorney legally added a subsection (a)(4) offense to the information exactly as in Slingerland. Accordingly, our pretrial order refusing to quash the information on the subsection (a)(4) violation was properly entered, and defendant is not now entitled to an arrest of judgment of his conviction on that charge.
Commonwealth v. Jacobs, 42 Cumb.L.J. 342, 346 (Cumberland Co., 1993) (en banc) (footnotes omitted).
After careful review, we agree with the trial court. The Commonwealth was not required to re-arrest appellant on the charge of violating 75 Pa.C.S. § 3731(a)(4) and again take that charge before a district justice for a determination of the existence of prima facie evidence. Pursuant to Pa.R.Crim.P. 225(b)(5), the Commonwealth could properly include the charge under subsection (a)(4) in the same criminal information in which appellant was charged with the cognate offense *419 of drunk driving in violation of subsection (a)(1) of 75 Pa.C.S. § 3731. After the Commonwealth had established a prima facie case under subsection (a)(1), it could thereafter include a charge for the cognate offense of violating subsection (a)(4) in the same criminal information, even though it had been unable to establish a prima facie case for that charge at appellant's preliminary hearing.
We are guided by the decision of the Superior Court in Commonwealth v. Epps, 260 Pa.Super. 57, 393 A.2d 1010 (1978), where the Court rejected a claim that the defendant's due process rights had been violated when he was indicted by a grand jury for robbery after the magistrate at his preliminary hearing had dismissed the robbery charge and substituted a charge of attempted robbery. The defendant argued that the magistrate's dismissal of the robbery charge for lack of prima facie evidence had precluded the Commonwealth from presenting the same charge to a grand jury for indictment and required that he be re-arrested and given a new preliminary hearing on the robbery charge. In rejecting this argument, the Superior Court reasoned as follows:
Appellant's reliance on cases such as Commonwealth v. Nelson, 230 Pa.Super. 89, 326 A.2d 598 (1974), and Riggins Case, 435 Pa. 321, 254 A.2d 616 (1969), is misplaced. In Riggins, the suspect was charged with murder but subsequently discharged at the preliminary hearing on the failure of the Commonwealth to establish a prima facie case. Our supreme court ruled that the only alternative for the Commonwealth, when it believes a defendant has been improperly discharged by the committing magistrate, is to have the defendant re-arrested and taken before another magistrate. This, however, is necessary only when all charges have been dismissed and no prima facie case established. It does not encompass situations, such as the instant case, in which a prima facie case has been established and a cognate crime is substituted in the indictment.
Commonwealth v. Epps, supra, 260 Pa.Super. at 61, 393 A.2d at 1012.
Similarly in the instant case, all of the charges against appellant were not dismissed at his preliminary hearing. Instead, *420 the Commonwealth established a prima facie case that appellant had violated 75 Pa.C.S. § 3731(a)(1) by driving while under the influence of alcohol. Under these circumstances, even though the Commonwealth failed to establish a prima facie case under 75 Pa.C.S. § 3731(a)(4), the district justice's dismissal of that charge did not preclude the inclusion of the charge in the criminal information which also charged appellant with violation of 75 Pa.C.S. § 3731(a)(1).
Even if we were to hold that the Commonwealth was required to re-arrest appellant for drunk driving under 75 Pa.C.S. § 3731(a)(4) and afford him a new preliminary hearing on that charge, it does not follow that, after being tried by a jury and found guilty beyond a reasonable doubt of violating 75 Pa.C.S. § 3731(a)(4), appellant is now entitled to have his conviction set aside. It is well settled that "once a defendant has gone to trial and been found guilty of a crime, any defect in the preliminary hearing is rendered immaterial." Commonwealth v. Worrall, 415 Pa.Super. 478, 479, 609 A.2d 851, 852 (1992). See also: Commonwealth v. McCullough, 501 Pa. 423, 427, 461 A.2d 1229, 1231 (1983); Commonwealth v. Tyler, 402 Pa.Super. 429, 433, 587 A.2d 326, 328 (1991); Commonwealth v. Troop, 391 Pa.Super. 613, 620, 571 A.2d 1084, 1088 (1990). Where, as in the instant case, "it is determined at trial that the evidence of the Commonwealth is sufficient to be submitted to the jury, then any deficiency in the presentation before the district justice would have been harmless." Commonwealth v. Hess, 489 Pa. 580, 590, 414 A.2d 1043, 1048 (1980). See also: Commonwealth v. Cassidy, 423 Pa.Super. 1, 5-6, 620 A.2d 9, 11 (1993); Commonwealth v. Taylor, 408 Pa.Super. 121, 126-127, 596 A.2d 222, 224-225 (1991); Commonwealth v. Lyons, 390 Pa.Super. 464, 468, 568 A.2d 1266, 1268 (1989).
The judgment of sentence is affirmed.
NOTES
[1] Section 3731 of the Vehicle Code provides, in pertinent part:
(a) Offense defined. A person shall not drive, operate or be in actual physical control of the movement of any vehicle:
(1) while under the influence of alcohol to a degree which renders the person incapable of safe driving; [or]
. . . .
(4) while the amount of alcohol by weight in the blood of the person is 0.10% or greater.
75 Pa.C.S. § 3731(a)(1) and (a)(4).
[2] On the charge that Jacobs had violated 75 Pa.C.S. § 3731(a)(1), the jury was unable to reach a verdict; and, therefore, a mistrial was declared with respect to that charge. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540617/ | 640 A.2d 718 (1994)
WEST END TENANTS ASSOCIATION, et al., Intervenor-Appellants,
v.
GEORGE WASHINGTON UNIVERSITY, et al., Appellees.
DISTRICT OF COLUMBIA, Appellant,
v.
GEORGE WASHINGTON UNIVERSITY, et al., Appellees.
Nos. 91-CV-667, 91-CV-706.
District of Columbia Court of Appeals.
Argued February 3, 1993.
Decided April 21, 1994.
*720 Richard C. Eisen, Washington, DC, for intervenor-appellants West End Tenants Ass'n, et al.
Lutz Alexander Prager, Asst. Deputy Corp. Counsel, with whom John Payton, Corp. Counsel at the time the brief was filed, and Charles L. Reischel, Deputy Corp. Counsel, Washington, DC, were on the brief for appellant District of Columbia.
Vincent C. Burke, III, with whom Thomas D. Quinn, Jr., and Jack M. H. Frazier, Washington, DC, were on the brief for appellee George Washington University.
Eric Von Salzen, Washington, DC, with whom Lee E. Berner, McLean, VA, was on the brief for appellees Thomas A. Bradford, et al.
*721 Before STEADMAN[*] and SULLIVAN, Associate Judges, and BELSON, Senior Judge.
BELSON, Senior Judge:
Appellants, District of Columbia (the "District") and intervenor, the West End Tenants Association ("Tenants"),[1] appeal from summary judgment entered in favor of the George Washington University ("GWU") and the owners of the West End Building (the "Owners").
The District and Tenants sought declaratory and injunctive relief against GWU and the Owners of the West End, an 86-unit apartment building located at 2124 I Street, N.W. (the "West End") and GWU, pursuant to the Rental Housing Conversion and Sale Act of 1980 (the "Sale Act"),[2] as amended by the Tenant Opportunity to Purchase Clarification Amendment Emergency Act of 1989,[3] (the "Clarification Act") and pursuant to the George Washington University Higher Education Facilities Revenue Bond Act of 1981 (the "Bond Act").[4] In particular, they sought a declaration that Tenants had been deprived of their rights under the Sale Act as a result of a lease agreement between GWU and the Owners, dated August 1, 1988, (the "Master Lease"), and also sought an injunction requiring that those rights be effectuated. They further sought a declaration that the Master Lease violated the Bond Act agreement and an injunction barring its enforcement. Finally, they asked that the court order "the owners to give the tenants their opportunity to purchase and/or their right of first refusal with respect to the purchase" of the accommodation.
In granting appellees' motion for summary judgment, the trial court ruled that the retroactive application of the Clarification Act would be unconstitutional because, inter alia, it would violate the Contract Clause of the Constitution.[5] The trial court was unpersuaded that GWU violated the Bond Act. It rejected the argument that the Master Lease was equivalent to a "sale" under the Sale Act of 1980, and ruled that when the Owners and GWU entered into the Master Lease agreement in 1988, they were not required to afford the Tenants notice and an opportunity to purchase. We affirm.
I.
We set forth in some detail the facts that bear upon the issues (1) whether the trial court erred in ruling that the Master Lease did not effect a "sale" for the purpose of triggering certain statutory rights of Tenants under the Sale Act, and (2) whether the Clarification Act had the effect of clarifying or redefining the terms of the Sale Act in such fashion as to make a "sale" of the lease transaction entered into by GWU and the Owners.
*722 1. The Bond Act
GWU made certain promises regarding tenants' rights in order to secure passage of the Bond Act. On July 27, 1981, in response to efforts by GWU, the Bond Act was referred to the Committee on Finance and Revenue of the Council of the District of Columbia. The Bond Act "authorize[d] the District of Columbia to issue up to $30 million in revenue bonds for the purpose of providing funds [to GWU] for the construction of an `academic cluster' and the improvement of several existing buildings to provide greater fire safety and access" for persons with disabilities. COMMITTEE ON FINANCE AND REVIEW, REPORT ON BILL 4-303, THE GEORGE WASHINGTON UNIVERSITY HIGHER EDUCATION FACILITIES REVENUE BOND ACT OF 1981 (1981).
During the course of public hearings on the bill, residents of the Foggy Bottom area voiced concern that "passage of the act would make it possible for the University to acquire two multi-family rental housing buildings located within the campus plan area of the University." Of particular concern was the future of the West End Apartments at 2124 I Street, N.W., and the Schenley Apartments at 2121 H Street, N.W.
Responding to these concerns, GWU, on September 24, 1981, submitted a "Statement regarding the University's intentions concerning the West End and Schenley Apartments" to the Committee on Finance and Revenue. It provided, in pertinent part:
1. The University will not initiate negotiations with the owners of the West End Apartments or the Schenley Apartments for the purpose of purchasing either of these buildings.
2. In the event that the owners of the West End and Schenley Apartments offer the buildings for sale, the University will not offer or enter into a contract for the purchase of these buildings, except in conjunction with the tenants' exercise of their rights to purchase the property under prevailing laws of the District of Columbia.
3. If after compliance with points 1 and 2 above, the University acquires through purchase the West End and/or Schenley apartment buildings, the University will maintain the buildings as rental housing under the provisions of the prevailing laws of the District of Columbia.
* * * * * *
The University would have the right to use any voluntarily vacated units for student tenancy.
This agreement will remain in effect for a period of ten years.
See id. at 23.
With these assurances, the Council passed the Revenue Bond Act. It became law on December 23, 1981, D.C.Law 4-58, 28 D.C.Reg. 4758 (1981).[6]
2. 1988 Master Lease Agreement
A review of the events that led up to the signing of the Master Lease Agreement and of the provisions of that agreement will aid our consideration of whether the agreement violates the Sale Act or other applicable statutes.
In 1982, Thomas Bradford, Jr., one of the owners, spoke with then university Assistant Treasurer Maurice K. Heartfield, Jr. and inquired whether the university was interested in purchasing the West End. Mr. Bradford also expressed his interest in exploring the mutual advantages to both the Owners and GWU of a renovation and long-term lease. GWU responded by providing Mr. Bradford with a copy of the assurances it had given the Council in connection with the Bond Act. All negotiations then ceased for some five years, until May 4, 1987, when Mr. *723 Bradford again inquired as to whether the university was interested in the premises. The negotiations which followed led to several proposals culminating in the transmittal to Mr. Bradford on May 12, 1989, of an initial draft of the Master Lease.
At about this time, the university's counsel, Vincent C. Burke, III, had a telephone conversation with Mr. Byron Hallstead of the District of Columbia Consumer and Regulatory Affairs Conversion and Sale Office regarding the lease agreement.[7] Without revealing the parties involved, Mr. Burke presented Mr. Hallstead with a hypothetical situation based on the facts of the Master Lease. Mr. Hallstead stated that such an agreement would not violate the Sale Act as the agreement (1) constituted a lease and not a sale, and (2) recognized the rights of the tenants to purchase before any purchase by the university.
Prior to signing the lease, GWU Vice-President and Treasurer Charles E. Diehl called Councilmember John Wilson to inquire if Mr. Wilson believed that such a lease was in accordance with the University's Bond Act assurances. Mr. Wilson, according to Mr. Diehl, responded orally that, given the Master Lease's explicit recognition of the tenants' right to purchase, it was his opinion that it did not violate the Bond Act assurances.[8]
On August 1, 1988, the university entered into a lease agreement (the "Master Lease") with the owners of the West End Apartments for a period of ten years at a rate of $25,000 monthly, or $300,000 each year. The university was granted the "exclusive right to purchase" the apartment building at the end of the ten-year period (on July 31, 1998) for $6 million, minus a $100,000 credit per rental year, for a net amount of $5 million. This option was made "expressly subject and subordinate to the tenants' rights pursuant to the District of Columbia Rental Housing Conversion and Sale Act...." It recognized that GWU must "comply with the District of Columbia Rental Housing Conversion and Sale Act and any successor or similar act in existence at the time a contract of sale is entered into, and provide the notices required by the Act relating to said sale and to the exercise of tenants' statutory rights of purchase under said Act."[9]
*724 The Master Lease, in addition to giving GWU control over all equipment on the premises, supplies, and transferable permits, as well as the right to challenge any real estate assessments, obligated the university to pay all real property taxes and utilities, to perform all maintenance and repairs, and to obtain all non-transferable permits and purchase liability insurance. The owners, besides holding record title, reserved the right to prevent the university from making any alterations, improvements, or additions to the apartment, to reenter the premises in the event of noncompliance with the lease provisions, and to veto any assignment of rights by the university under the lease.
3. Passage of The Clarification Act
In December 1988, the District of Columbia filed in Superior Court its initial complaint against GWU and the Owners. The West End Tenants Association ("Tenants") and individual tenants subsequently moved to intervene in the action and were granted intervenor status on July 14, 1989. In the interim, following protests from neighborhood groups and the Tenants, the Council Committee on Consumer and Regulatory Affairs proposed amending the Sale Act. As a result of a committee-sponsored roundtable conference, the Chairman of the Committee on Consumer and Regulatory Affairs introduced Bill 8-188, the Tenant Opportunity to Purchase Clarification Amendment Act of 1989 on February 28, 1989. That bill was approved on August 1, 1989, and became law on October 19, 1989. See 36 D.C.Reg. 5790-92 (1989).[10]
The Clarification Act, in D.C.Code § 45-1631(b) (1990 Repl.), defines "sale" in a manner that unmistakably mirrored the Master Lease involved in this litigation which was then pending before the trial court, i.e., to "include" all agreements by which an owner relinquishes control of property, gives the party in control an option to purchase with interim payments to be applied to the purchase price; obligates the controlling party to pay taxes and insurance coverage; and allows the controlling party to purchase ownership interests in the property. At the specific request of counsel for appellants, the amendment provided that it would apply retroactively "to the sale of a rental housing accommodation" occurring after June 23, 1988. See Section 3 of 36 D.C.Reg. 5791 (1989) (slightly more than one month before the Master Lease was executed).[11]
*725 On September 1, 1989, GWU and the Owners filed a motion for preliminary injunction to bar the District of Columbia from enforcing the Clarification Act with respect to the Lease Agreement. GWU and the Owners subsequently withdrew this motion on October 2, 1989, upon the representation by the District of Columbia that no criminal penalties would be pursued outside this litigation. The parties on the same date stipulated that the District of Columbia could file an amended complaint to include a count under the Housing Conversion and Sale Act of 1980, as amended, D.C.Code § 45-1601 et seq. as amended in turn by the "clarifying" amendments of 1989, and that the appellees could file a counterclaim to that count. Those pleadings were subsequently filed. In June, 1990, all parties filed summary judgment motions. The trial court granted summary judgment in favor of GWU and the Owners and denied the motions of the District of Columbia and the Tenants.
II.
1. Standard of Review Summary Judgment
In reviewing the trial court's grant of summary judgment, we consider the evidence in the light most favorable to the nonmoving party, and make a de novo determination (1) whether any genuine issue of material fact exists, and (2) whether appellees are entitled to judgment as a matter of law. Dodek v. CF 16 Corp., 537 A.2d 1086, 1092 (D.C.1988); Holland v. Hannan, 456 A.2d 807, 814 (D.C.1983); see Super.Ct.Civ.R. 56(c) (1993). In doing so, we must conduct an independent review of the record, Scrimgeour v. Magazine, 429 A.2d 187, 188 (D.C.1981), to determine whether there are any material factual issues. McCoy v. Quadrangle Dev. Corp., 470 A.2d 1256, 1259 (D.C. 1983). Where there is doubt as to whether a genuine issue of fact has been raised, summary judgment is precluded. International Underwriters, Inc. v. Boyle, 365 A.2d 779, 782-83 (D.C.1976). However, summary judgment can not be avoided merely by demonstrating a disputed factual issue. Nader v. de Toledano, 408 A.2d 31, 42 (D.C.1979), cert. denied, 444 U.S. 1078, 100 S.Ct. 1028, 62 L.Ed.2d 761 (1980). Rather, the opposing party must show that the fact is material and "that there is sufficient evidence supporting the claimed factual dispute to require a jury or judge to resolve the parties' differing versions of the truth at trial." Id. (citation and internal quotation omitted). Like the trial judge, we are satisfied that there are no genuine issues as to material facts. Thus, we are faced only with issues of law.
2. Sale Act of 1980
We first examine whether the Master Lease Agreement would constitute a sale under the terms of the Sale Act of 1980 absent consideration of the later Clarification Act of 1989. The Sale Act of 1980 "is the culmination of a long history of restrictions on conversion" of rental housing which have been enacted since 1974. Hornstein v. Barry, 560 A.2d 530, 532 (D.C.1989) (en banc). See District of Columbia v. Washington Home Ownership Council, Inc., 415 A.2d 1349, 1360-64 (D.C.1980) (en banc); Silverman v. Barry, 269 U.S.App.D.C. 327, 330-32, 845 F.2d 1072, 1075-77, cert. denied, 488 U.S. 956, 109 S.Ct. 394, 102 L.Ed.2d 383 (1988). In enacting the Sale Act of 1980, the Council made several findings:
1. There exists a continuing housing crisis in this city, with a severe shortage of rental housing and a low vacancy rate, particularly in relation to units which lower income tenants can afford. See D.C.Code § 45-1601(2) (1990 Repl. & 1993 Supp.).
2. The conversion of rental units to condominiums or cooperatives depletes the rental housing stock. See D.C.Code § 45-1601(3) (1990 Repl. & 1993 Supp.).
*726 3. Lower income tenants are affected most severely for post-conversion costs are usually beyond their means, a condition which results in forced displacement, serious overcrowding, and disproportionately high housing costs. See D.C.Code § 45-1601(4) (1990 Repl. & 1993 Supp.).
4. Experience with prior conversion controls has demonstrated that such restrictions have not been sufficiently effective, and tenants who are most directly affected by conversion should be given a voice in the determination whether their rental housing should be converted. See D.C.Code § 45-1601(7) (1990 Repl. & 1993 Supp.).[12]
The Sale Act provides, in relevant part, that "[b]efore an owner of a housing accommodation may sell the accommodation, or issue a notice of intent to recover possession, or notice to vacate, for purposes of demolition or discontinuance of housing use, the owner shall give the tenant an opportunity to purchase the accommodation at a price and terms which represent a bona fide offer of sale." D.C.Code § 46-1631(a) (1990 Repl.).[13] Moreover, "[i]n addition to any and all other rights specified in this subchapter, a tenant or tenant organization shall also have the right of first refusal during the 15 days after the tenant or tenant organization has received from the owner a valid sales contract to purchase by a 3rd party." D.C.Code § 45-1637 (1990 Repl.).
Here, the trial court found that "the [Master] Lease [does not] violate the Sale Act.... Under the Lease, GWU is not obligated to purchase the buildings; to the contrary, GWU has the option not to purchase as well."
a. Construing the Sale Act
It is clear that "the starting point for interpreting a statute is the language of the statute itself," and that, "[a]bsent a clearly expressed legislative intention to the contrary, that language must ordinarily be regarded as conclusive." Consumer Product Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S.Ct. 2051, 2056, 64 L.Ed.2d 766 (1980). Moreover, "if the words are clear and unambiguous, we must give effect to [the statute's] plain meaning," James Parreco & Son v. District of Columbia Rental Hous. Comm'n, 567 A.2d 43, 45 (D.C.1989) (citations omitted), keeping in mind that the intent of the legislature is to be found in the language which it has used, id. at 46 (citing United States v. Goldenberg, 168 U.S. 95, 102-03, 18 S.Ct. 3, 4, 42 L.Ed. 394 (1897)); Peoples Drug Stores, Inc. v. District of Columbia, 470 A.2d 751, 753 (D.C. 1983) (en banc), and words should be construed according to the meaning commonly attributed to them. United States v. Thompson, 347 A.2d 581, 583 (D.C.1975). In sum, "`[t]he words used, even in their literal sense, are the primary and ordinarily the most reliable source of interpreting the meaning of any writing.'" Parreco, supra, 567 A.2d at 46 (quoting Cabell v. Markham, 148 F.2d 737, 739 (2d Cir.), aff'd, 326 U.S. 404, 66 S.Ct. 193, 90 L.Ed. 165 (1945)).[14]
*727 In Parreco, supra, 567 A.2d at 45, landlord petitioner sought to overturn the Rental Housing Commission's ruling that "equity" and "interest payments" refer only to "those mortgages or encumbrances of which the proceeds have been reinvested in the housing accommodation." In finding in favor of landlord, we applied the plain language of the statute,[15] noting both the rent stabilization program's need "[t]o protect low and moderate income tenants from the erosion of their incomes from increased housing costs[,]" D.C.Code § 45-1502(1) (1986 Repl.), and the "sometimes competing goal ... to provide landlords and developers with a reasonable rate of return on their investments." Parreco, supra, 567 A.2d at 44 (citation and internal quotation omitted).
Similarly, the tenant-appellant in Gibson v. Johnson, 492 A.2d 574 (D.C.1985), maintained that a father who transferred title in a rental building to his son was still the "owner" of the premises under the Rental Housing Act's rent-control provisions, arguing that "given a liberal definition of the term, [appellee] should not be able to evade rent control provisions by conveying the property to one who qualifies for the exemption." Id. at 577 (footnote omitted). Acknowledging that "[t]his court, of course, will not look beyond the plain meaning of a statute when the language is unambiguous and does not produce an absurd result," id. (citation omitted), we held that
[a]n examination of the record reveals that [appellee] may have had as one motive in conveying the property to his son the evasion of rent control. And as appellant suggests, this result may not have been desired. Yet, the statute is not ambiguous. It clearly exempts from rent control rental housing of four units or less which is owned by not more than four persons provided the owner(s) has no interest, either directly or indirectly, in any other rental property in the District of Columbia and provided a claim of exemption statement is properly filed with the Rental Accommodations Office. In our view, these criteria have been satisfied.
Id. (internal footnotes omitted).
The rationale underlying our decision in Gibson is persuasive here.[16] Although at the time the Master Lease was entered into the Council failed to define the word "sale,"[17] as a leading commentator states, "[w]here the legislature has not defined words used in the act, the court must then determine the meaning of the language in accordance with the legislative intent and common understanding to prevent absurdities and to advance justice." 1A NORMAN J. SINGER, SUTHERLAND STATUTORY CONSTRUCTION § 20.08 (5th ed. 1993). Moreover, "[i]f a word that should be defined in a statute is not, then its commonly accepted meaning is applied...." 2A SINGER, SUTHERLAND STATUTORY CONSTRUCTION § 47.07 (5th ed. 1992). The use of dictionary definitions is appropriate in interpreting undefined statutory terms. Id.
There appears to be an almost universal consensus that, in the context of real property transactions, the word "sale" signifies an absolute transfer of property. BLACK'S LAW DICTIONARY 1337 (6th ed. 1990) defines sale, inter alia, as
A contract whereby property is transferred from one person to another for a consideration of value, implying the passing of the general and absolute title, as *728 distinguished from a special interest falling short of complete ownership.
(emphasis supplied). "An option contract and a contract of sale are in fact two separate and distinct contracts, namely, an option contract, and the agreement to sell. An option, originally, is neither a sale nor an agreement to sell." 77 AM.JUR.2D. Vendor and Purchaser § 28 (1975) (footnotes omitted); see also 91 C.J.S. Vendor and Purchaser § 5 (1955).[18]
Here, by the terms of the Master Lease, (1) GWU must pay a monthly rental for a ten-year period, after which it must vacate the premises (unless it purchases); (2) GWU is restricted from leasing any units for a term running past the expiration date of the Master Lease; (3) GWU must have approval of the Owners prior to commencing with any alterations or renovations; (4) GWU may not assign its rights without the Owners' consent; and (5) the Owners reserve the right to reenter the premises in the event of noncompliance with the lease provisions. The Owners retain record title to the premises.
It is true that the lease affords GWU a large measure of control over the premises, including control over equipment, supplies and transferable permits but obligates GWU to pay for such permits. It also obligates GWU to pay real property tax and insurance premiums as well as expenses for utilities and maintenance. But such allocations of rights and obligations are common in a so-called "triple-net lease," a standard arrangement employed in connection with the use of real property by tenants who are not in any sense purchasers of the real property from which they operate their business.[19] GWU's answers to interrogatories stated, without contradiction, that the lease agreement in question "is a standard triple-net lease which in this metropolitan area is a standard commercial lease dictated by the marketplace."[20]
In light of the foregoing considerations, it is clear that the Owners have not conveyed their entire interest and title in the West End and, applying the above definitions, we conclude that the Master Lease does not effect the absolute transfer of the West End to GWU and, accordingly, is not a sale under the Sale Act as it was enacted in 1980.
The Master Lease is not transformed into a sale by virtue of the included option to purchase. An option to purchase is a contract whereby a property owner, in exchange for valuable consideration, agrees with another person that the latter shall have the privilege of buying property within a specific time on terms and conditions expressed in the option. 1 SAMUEL WILLISTON, A TREATISE ON THE LAW OF CONTRACTS § 5:16 (4th ed. 1990).
The commentators clearly distinguish an option from a sale. See 8A GEORGE W. THOMPSON, COMMENTARIES ON THE MODERN LAW OF REAL PROPERTY § 4443, at 257 (1963 Repl.) ("The option is not a sale. It is not even an agreement for a sale. At best, it is but a right of election in the party securing the same to exercise a privilege, and only when that privilege has been exercised by acceptance does it become a contract to sell"); BLACK'S LAW DICTIONARY 1094 (6th ed. 1990) ("An option to purchase ... is not a contract to purchase ..., as optionee has the right to accept or to reject the offer, in accordance with its terms, and is not bound").[21]
*729 Notwithstanding the clarity of the statutory language and the Master Lease, appellants argue that we should adopt the rationale of certain courts of other jurisdictions in the few decisions which have construed an option contract to trigger the refusal rights of tenants. In particular, appellants cite Quigley v. Capolongo, 53 A.D.2d 714, 383 N.Y.S.2d 935 (1976), aff'd sub nom., Quigley v. Ithaca College, 43 N.Y.2d 748, 401 N.Y.S.2d 1009, 372 N.E.2d 797 (1977) for the proposition that, despite the denomination given by the parties, an option to purchase is a "sale" and triggers tenants' rights to purchase. We disagree.
In Quigley, Ithaca College entered into a contract to purchase a certain property. Upon discovering that a third party had a previous right of first refusal in the same property, the college withdrew from the contract. The college then entered into a lease with an option to purchase which was to run until after the third party's right of first refusal expired. For this option, the college paid over 20% of the ultimate purchase price at the outset and a "rental of only $1,000 annually, clearly a nominal sum for a lease of nine acres." Quigley, supra, 383 N.Y.S.2d at 937. After observing that "it is inconceivable that the college would pay such a large sum in relation to the total purchase price if the parties did not contemplate from the outset that a purchase would be consummated," id., the court concluded "that in the circumstances of this case it formalized defendant-owners' intention to sell the premises in response to the offer by defendant Ithaca College, thus activating plaintiffs' right of first refusal." Id.
Although superficially similar, Quigley is essentially inapposite to the instant action. Whereas Quigley was concerned with a contractual first right of refusal which the parties could circumvent by waiting until it expired, the tenants' right of refusal here is statutorily based and explicitly recognized by the Master Lease as applicable in the event that GWU should opt to exercise its option to purchase. Moreover, unlike the arrangement in Quigley, GWU pays the Owners $300,000 yearly, $200,000 of which is denominated as rental payments while the additional $100,000 pays for the option. The net purchase price at the end of the ten-year term if the option is exercised is $5 million.[22]*730 Appellant has not suggested, nor do we conclude, that either the rental payments or the final asking price are "nominal" or fail to comport with fair-market value.[23]
Ten years after Quigley, the Supreme Court of New York, Appellate Division, held that where the language of the first refusal agreement stated that "[l]andlord agrees to give `first refusal' on sale," a net lease with an option to purchase was "not a conveyance amounting to a `sale' of property so as to activate plaintiffs right of first refusal, absent a showing that the net lease was a `sham' or otherwise entered into in bad faith for the purpose of defeating plaintiff's rights." Kings Antiques Corp. v. Varsity Properties, Inc., 121 A.D.2d 885, 503 N.Y.S.2d 575, 576-77 (1986) (emphasis supplied) (citing Quigley, supra).[24] The court there held:
The option contained in the net lease does not violate plaintiff's preemptive right. The right of first refusal on sale does not mature until such time as the net lessees exercise their option to purchase.... Since the plaintiff's lease particularly specified a right of first refusal on sale, the grant of a mere option does not violate the plaintiff's right.
Id. 503 N.Y.S.2d at 577 (citation and internal quotation omitted).[25] We are satisfied that the clear import of the Sale Act as it was enacted in 1980 is that the option to purchase in the Master Lease did not trigger Tenants' right of first refusal, and that the trial court was correct in so ruling.
3. Clarification Act
Having established that the plain meaning of the Sale Act of 1980 does not bring the Master Lease within its reach, we must next examine whether the same result still obtains in light of a subsequent "clearly expressed legislative intention to the contrary." Consumer Product Safety Comm'n, supra, 447 U.S. at 108, 100 S.Ct. at 2056. Nowhere in the extensive legislative history of the Sale Act prior to its consideration of the Clarification Act did the Council suggest that entering *731 into an arrangement such as the Master Lease would trigger a tenant's right of first refusal. Nonetheless, in the Report of the Committee on Consumer and Regulatory Affairs regarding the Clarification Act, the Committee stated that Bill 8-188 merely clarifies the original intention of the Council when it passed the Rental Housing Conversion and Sale Act of 1980. Accordingly, the report states that "the Committee feels that the use of any agreement which transfers rights that are associated with ownership would make any transfer of tenant-occupied property subject to review. And the Council is only seeking to clarify its original intent." COMMITTEE ON CONSUMER AND REGULATORY AFFAIRS, REPORT ON THE TENANT OPPORTUNITY TO PURCHASE CLARIFICATION AMENDMENT ACT OF 1989, at 7 (1989) (emphasis supplied). As explained above in Part I, section 3, of this opinion, the Act went on to redefine the term "sale" in a manner that plainly mirrored the terms of the Master Lease involved in this case. We must now consider what weight to give to this retroactive expression of intent, an expression set forth not merely in the legislative history of the Clarification Act, but in the statutory language itself.
"Subsequent legislation which declares the intent of an earlier law is not, of course, conclusive in determining what the previous Congress meant." Federal Hous. Admin. v. Darlington, Inc., 358 U.S. 84, 90, 79 S.Ct. 141, 145, 3 L.Ed.2d 132 (1958). However, "the later law is entitled to weight when it comes to the problem of construction." Id.[26]See also United States v. Price, 361 U.S. 304, 313, 80 S.Ct. 326, 331-32, 4 L.Ed.2d 334 (1960) ("the views of a subsequent Congress form a hazardous basis for inferring the intent of an earlier one"); Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825, 839, 108 S.Ct. 2182, 2190-91, 100 L.Ed.2d 836 (1988) (opinion of "later Congress as to the meaning of a law enacted 10 years earlier does not control the issue"); United Air Lines, Inc. v. McMann, 434 U.S. 192, 200 n. 7, 98 S.Ct. 444, 449 n. 7, 54 L.Ed.2d 402 (1977) ("Legislative observations 10 years after passage of the Act are in no sense part of the legislative history"); Bridgestone/Firestone, Inc. v. Pension Benefit Guaranty Corp., 282 U.S.App.D.C. 89, 94 n. 5, 892 F.2d 105, 110 n. 5 (1989) ("[T]he pronouncements of a subsequent Congress, here 13 years after the passage of ERISA, are notoriously unreliable indicators of the intent of Congress at the time of passage, and we give very little weight to such revisionist legislative history"). We deem not to the contrary Red Lion Broadcasting Co. v. F.C.C., 395 U.S. 367, 89 S.Ct. 1794, 23 L.Ed.2d 371 (1969), where the Supreme Court upheld Congressional legislation which codified a thirty-year agency interpretation of the statutory term "public interest." There, the Court spoke of the "venerable principle that the construction of a statute by those charged with its execution should be followed unless there are compelling indications that it is wrong." Id. at 381, 89 S.Ct. at 1802. Here, however, the Clarification Act's retroactive definition of the word "sale" is at variance with both the common usage of the term "sale" and the understanding of the meaning of the Sale Act of those charged with its administration. Accordingly, the retroactive interpretation in question here does not deserve the same deferential treatment accorded in Red Lion.
*732 Moreover, it is appropriate to take note of the views of the Director of the Department of Consumer and Regulatory Affairs ("DCRA"), the agency charged with enforcing the Sale Act, who testified concerning the Clarification Act that:
This proposed legislation would define certain transactions as sales for the purpose of the Rental Housing and Conversion and Sale Act. These transactions, involving leases and purchase options, transfer many of the benefits of ownership but are currently not defined as sales and therefore do not trigger the tenants' opportunity to purchase provisions of the Conversion and Sale Act. If passed, the amendment would expand the current definition of "sale" to include.... [specifying features of lease which would make it a "sale"].
Executive testimony of Donald G. Murray before the Committee on Consumer and Regulatory Affairs, April 27, 1989 (emphasis supplied).[27] We have already concluded that the Sale Act, as it read before the adoption of the Clarification Act, simply did not apply to an agreement such as the Master Lease.
It is also entirely clear from our discussion above of the Bond Act that, so long as the Master Lease did not trigger the Sale Act of 1980, the conduct of GWU was consistent with the assurances the university had given in connection with the enactment of the Bond Act.[28] For the reasons we have stated in this section, we find unavailing the retroactive indication of legislative intent expressed in the Clarification Act with respect to the meaning of the term "sale." At the time the Master Lease was entered into by appellees, it did not constitute a sale. Thus, appellants can prevail here only if the Clarification Act had the effect of retroactively changing the definition of the term "sale" so as to convert the 1988 Master Lease from a lease into a sale. We turn therefore to consider the retroactive effect, if any, of the Clarification Act upon the Master Lease, consideration which implicates the Contracts Clause of the United States Constitution.
III.
Contracts Clause
As we have seen, the Clarification Act undertook to define, retroactively, the meaning of the word "sale" in such fashion as to make the Master Lease in this case a sale rather than a lease. The trial court ruled that, as applied to the Master Lease, the Clarification Act violated the Contracts Clause of the United States Constitution.
Article I, Section 10, Clause 1 of the Constitution provides that "[n]o State shall... pass any ... Law impairing the Obligation of Contracts...." U.S. CONST. art. I, § 10, cl. 1.[29] Despite its absolute language, *733 the Clause does not act as a complete bar to legislative alterations of existing contractual obligations because "its prohibition must be accommodated to the inherent police power of the State `to safeguard the vital interests of its people.'" Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 410, 103 S.Ct. 697, 704, 74 L.Ed.2d 569 (1983) (quoting Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398, 434, 54 S.Ct. 231, 238, 78 L.Ed. 413 (1934)).
The Supreme Court has outlined the scope of the Clause and proposed a three-part inquiry to guide in its interpretation. Parties seeking relief must demonstrate (1) that there has been a substantial impairment of a contractual relationship; (2) that the impairment is not justified by a "significant and legitimate public purpose;" or if so justified, (3) that the impairment is not based upon reasonable conditions or "`of a character appropriate to the public purpose justifying [the legislation's] adoption.'" Energy Reserves, supra, 459 U.S. at 411-12, 103 S.Ct. at 705 (quoting United States Trust Co. v. New Jersey, 431 U.S. 1, 22 (1977)).
Accordingly, appellees must initially demonstrate that the 1989 Act substantially impairs the Master Lease Agreement between them. To demonstrate such an impairment, a contracting party need not prove a complete cancellation of his rights. Rather, it is the degree of contractual interference which becomes critically significant. United States Trust Co., supra, 431 U.S. at 27, 97 S.Ct. at 1520. Whereas "[m]inimal alteration of contractual obligations may end the inquiry at its first stage[,] [s]evere impairment, on the other hand, will push the inquiry to a careful examination of the nature and purpose of the state legislation." Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 245, 98 S.Ct. 2716, 2723, 57 L.Ed.2d 727 (1978).
In measuring an impairment's substantiality, the Supreme Court has accorded significance to whether the state has restricted contracting parties "to gains [they] reasonably expect[] from the contract." Energy Reserves, supra, 459 U.S. at 411, 103 S.Ct. at 704. Here, by making the 1989 Act retroactive, the Council modified the law in such fashion that appellees' actions in entering into the Master Lease without offering the tenants a first right of refusal, would be transformed into a violation of the Sale Act. Not only did this legislation expose appellees to a fine not to exceed $50,000 for willful violation, D.C.Code § 45-1660 (1990 Repl.), but it effectively deprived the Owners of a contract yielding $300,000 annually, and might deny GWU whatever potential benefit might have accrued from the agreement. Indeed, the District of Columbia and Tenants contend that the entry by the contracting parties into the lease, as distinguished from the university's eventual exercise of its right to purchase, brought about the immediate requirement that the property be offered to Tenants for purchase, or for the exercise of a right of first refusal.[30] It is obvious that the parties to the contract did not contemplate that the Sale Act might be triggered by their merely entering into the lease.
As a measure of contractual expectations, one factor to be considered in determining the extent of the impairment is "whether the industry the complaining party has entered has been regulated in the past." Energy Reserves, supra, 459 U.S. at 411, 103 S.Ct. at 704; see Veix v. Sixth Ward Bldg. & Loan *734 Ass'n, 310 U.S. 32, 38, 60 S.Ct. 792, 794-95, 84 L.Ed. 1061 (1940). The Court in Veix, supra, 310 U.S. at 38, 60 S.Ct. at 794-95, held that "[w]hen [a party] purchased into an enterprise already regulated in the particular to which he now objects, he purchased subject to further legislation upon the same topic." The history of the Rental Housing Act and the Sale Act indicates that rights of first refusal have long been accorded tenants under certain circumstances. Such rights have arisen, however, in connection with sales (or demolition or discontinuance of housing use) rather than with leases with or without options to purchase. It is significant that the language quoted from Veix refers to an enterprise already regulated in the particular which is now being regulated on the same topic (in Veix, the requirements for withdrawal of shares in a building and loan association). We must consider whether the extension of rights of refusal from sales to leases should be viewed as an extension to a new "particular" or "topic" which the parties would not reasonably be expected to anticipate.
In Allied Structural Steel, supra, 438 U.S. at 250, 98 S.Ct. at 2725, the Supreme Court held that a Minnesota statute retroactively requiring certain employers to increase substantially their contributions to private pension plans "did not operate in an area already subject to state regulation at the time the company's contractual obligations were originally undertaken, but invaded an area never before subject to regulation by the State." The unregulated area was the administration of pension plans. Although the State had previously engaged in regulating other aspects of employee compensation, such as wages and disability benefits, the Court held that the Minnesota Legislature had "[e]nter[ed] a field it had never before sought to regulate" with its pension statute. Id. at 249, 98 S.Ct. at 2725. The "field" was therefore defined, not as the broad area of employee compensation, but as the more restricted subject of pension plans.
Conversely, in Energy Reserves Group v. Kansas Power & Light Co., 459 U.S. 400, 103 S.Ct. 697, 74 L.Ed.2d 569 (1983), the Court found no substantial impairment resulting from Kansas' imposition of certain price controls on natural gas in light of the state's already "extensive and intrusive" supervision of the industry, id. at 414, 103 S.Ct. at 706, noting that Kansas "in the past has regulated the wellhead price of natural gas." Id. at 413 n. 17, 103 S.Ct. at 706 n. 17 (citation omitted). The Court attached significance to the fact that the price escalator clauses at issue were designed to guarantee price increases consistent with anticipated increases in the value of the seller's gas, and to the fact that the parties' anticipations contemplated regulated rather than deregulated prices. The Court also stated that the contracts could be interpreted to contemplate state regulation.
From the holdings in Energy Reserves and Allied Structural Steel, we are instructed that, to preclude a subsequent finding of substantial impairment, earlier regulation must share more with the challenged legislation than simply the identity of the broad industry in which it operates, or even a broad phase of that industry's activity. While the Court in Energy Reserves confronted a regulation within a particular industry that shared a primary feature, control of price, of legislation enacted by the state and previously enacted by the federal government,[31] in contrast it dealt in Allied Structural Steel with legislation on a specific topic never before reached by state regulation.
Applying these authorities to this case, we note that although the Council had repeatedly acted in the broad area of tenants' rights, and had created a right of first refusal when there was a contract to sell the property, there had never been any move prior to the Clarification Act to include leases with options to purchase within the term "sale." To return to the question posed in Veix, supra, 310 U.S. at 38, 60 S.Ct. at 794-95, whether a party purchased into an enterprise already regulated in the "particular" or "topic" which the party now objects, we acknowledge that previous legislation in the District has enhanced tenants' opportunities to purchase or to exercise rights of first refusal regarding *735 rental property that is to be sold, demolished, or taken off the market. But the legislation reaches into a new "particular" or "topic" when it undertakes to give such rights when the contracting parties have only entered into a lease of the type involved here. In entering the contract the parties obviously did not contemplate this departure, nor would it be fair to say that they should have anticipated it. Thus, although reasonable arguments may be made for the opposite view, on balance we deem this case to be more analogous to Allied Structural Steel than to Energy Reserves.
Based on the foregoing, and considering especially the extent to which the Clarification Act could negate the parties' reasonable expectations of the contract, we are satisfied that the Clarification Act does substantially impair appellees' contractual arrangement. Accordingly, for appellants to prevail, the 1989 Act must be shown to be justified by a significant and legitimate public purpose "such as the remedying of a broad and general social or economic problem." Energy Reserves, supra, 459 U.S. at 411-12, 103 S.Ct. at 704 (citations omitted). In analyzing the legitimate public purpose of a legislative act, "[t]he severity of the impairment measures the height of the hurdle the state legislation must clear.... Severe impairment... will push the inquiry to a careful examination of the nature and purpose of the state legislation." Allied Structural Steel, supra, 438 U.S. at 245, 98 S.Ct. at 2723.
In determining the significance and legitimacy of a public purpose, our initial inquiry is whether "the State is exercising its police power, rather than providing a benefit to special interests." Energy Reserves, supra, 459 U.S. at 412, 103 S.Ct. at 705.[32] For example, in Troy, Ltd. v. Renna, 727 F.2d 287 (3d Cir.1984), the Third Circuit upheld legislation which extended the residential leases of elderly citizens for the "broad remedial purpose [of] protecting the mental and physical health of citizens who could suffer greatly by evictions. The legislative findings expressly report[ed] that the relocation of elderly and disabled persons is disruptive, costly for themselves and for the state in general, and particularly injurious for these persons who are often limited to fixed incomes." Id. at 298.
Here, there was no such broad purpose. It is evident that the sole thrust behind the Clarification Act was to reach the Master Lease Agreement between GWU and the Owners.[33] It is equally evident that prior to the Clarification Act, (1) there had been no ruling by the Rental Housing Commission [("RHC")] on any matter "where the facts led one to believe that leases or informal or formal ownership agreements have been used to transfer ownership/control of a building to circumvent the tenants' right of refusal in a manner comparable to the facts surrounding the GWU/West End lease;"[34] (2) there had been no complaints before the RHC whereby "colleges or universities have *736 attempted to circumvent the Rental Housing Act by leasing units to students only;" and (3) the DCRA has "received no complaints from tenants or tenant organizations about the use of master lease agreements."[35]
Addressing as it does a situation of "first impression," the Clarification Act appears in spirit, in language,[36] and in its explicit retroactive application to be directed only to the benefit of the "special interests" of the West End tenants, rather than to any broad societal interests. Accordingly, we agree with the trial court's conclusion that the Clarification Act serves no broad public purpose and, as applied to the Master Lease, is unconstitutional as violative of the Contracts Clause.[37]
Accordingly, the trial court's entry of summary judgment in favor of appellees GWU and the Owners is hereby affirmed.
So ordered.
NOTES
[*] Former Chief Judge Rogers was a member of the division that heard oral argument in this case. After her departure from the court, Associate Judge Steadman was selected by lot to replace her.
[1] The Tenants Association was joined in intervention by several individually-named tenants. The appeals of these individual-tenant appellants will be dismissed for lack of standing. D.C.Code § 45-1640 (1990 Repl.) specifies the manner in which negotiations must be conducted when a housing accommodation having five or more units is being sold. As a preliminary step to entering into a valid contract of sale with an owner, the tenants of such an accommodation must form a tenant organization registered with the Mayor. "Upon registration, the organization constitutes the sole representative of the tenants, and the [owner's] prior offer of sale is deemed an offer to the organization." D.C.Code § 45-1640(1) (1990 Repl.). D.C.Code § 45-1638 (1990 Repl.), which prescribes the statutory method of affording tenants the right to purchase, does not give the individual tenant an opportunity to negotiate with the owner or to purchase in the tenant's own right. Accordingly, "if the conduct of an owner gives rise to any basis for a civil action against the owner under § 45-1653, it is only the tenant organization that is `aggrieved' as that term is used in § 45-1653 and, therefore, it is only the tenant organization that can bring a civil action against the owner under the statute." Stanton v. Gerstenfeld, 582 A.2d 242, 245 (D.C.1990).
[2] D.C.Code § 45-1601 et seq. (1990 Repl. & 1993 Supp.).
[3] D.C.Code § 45-1631(b) (1990 Repl.).
[4] 28 D.C.Reg. 4758 (1981); see also D.C.Code § 47-334 (1990 Repl.).
[5] U.S. CONST. art. I, § 10, cl. 1.
[6] Apparently, at least one citizens association, the Foggy Bottom Association, changed its vote and supported passage of the Bond Act. In a letter dated September 29, 1991, Maureen K. Holscher, Vice-President of the Foggy Bottom Association noted that "[t]his voting change is a result of the discussions between John Wilson and the University over the concerns of the Foggy Bottom area. Housing has been a major concern of ours for some time, particularly the West End Apartments and the Schenley Apartments that are located within the boundaries of the George Washington University Master Plan. It is encouraging to see that the university is willing to cooperate with the ANC [Advisory Neighborhood Commission] and Foggy Bottom Association."
[7] Defendants' Joint Answers to Interrogatories, No. 10 (Supplemental Record on Appeal).
[8] On August 11, 1988, a meeting was held between the Tenants and university representatives, the purpose of which was to apprise the Tenants of the Master Lease. Councilmembers John Wilson and William P. Lightfoot (not then a Council member) were in attendance.
[9] Specifically, paragraph 18 of the Master Lease accommodated the possibility that Tenants might exercise their right to purchase by providing, in part:
The cash payment called for above shall be made at closing which shall take place within ninety (90) days of the date of execution and delivery of the contract but in no event later than July 31, 1998, subject to the rights of any residential tenants to purchase the Leased Premises, if any, under existing law at the date of the contract (hereinafter "Closing Date"). In the event of any such rights, closing shall occur within ninety (90) days after expiration of any said tenants' rights to purchase the Leased Premises, provided, that in such event, the terms of this Lease shall be automatically extended until the date of such closing but not later than July 31, 2000, upon the same terms and conditions set forth herein ..., and the parties agree to negotiate in good faith regarding any further extension thereof in the event the tenants' rights have not expired....
Landlord warrants and represents that it shall comply with the District of Columbia Rental Housing Conversion and Sale Act and any successor or similar act in existence at the time said contract of sale is entered into, and provide the notices required by the Act relating to said sale and to the exercise of tenants' statutory rights of purchase under said Act.
* * * * * *
This option to purchase shall be expressly subject and subordinate to the tenants' rights pursuant to the District of Columbia Rental Housing Conversion and Sale Act of the University's tenants of the Leased Premises. The University shall be solely responsible for any settlements or other consideration it agrees to pay to the tenants in connection with the aforementioned rights.
* * * * * *
In addition, paragraph 18(f) of the Master Lease provides:
If at any time after the execution of the Lease Agreement and prior to August 31, 1990, individual(s) who make up the Landlord desire(s) to sell interests aggregating no more than 49 percent of Landlord's ownership interest as tenants in common in the Leased Premises ..., the University agrees to purchase Seller's interest(s).....
* * * * * *
Any interests purchased by the University pursuant to this Paragraph 18(f) shall be held as a tenant in common, and no partnership or joint-venture relationship between the University and Landlord shall be created by any such purchase ...
* * * * * *
The University's counsel [will] receive[] oral clearance from an appropriate official of the District of Columbia Department of Consumer and Regulatory Affairs that such sales do not trigger any tenants' rights and may be made without violating said rights. (The University hereby represents to Landlord that the University's counsel has recently received an oral opinion from Mr. Byron Hallstead of the District of Columbia Department of Consumer and Regulatory Affairs that the sale contemplated by the paragraph 18(f) would not trigger any tenants' rights to purchase the Leased Premises under District of Columbia law and could be made without violating said rights).
(Emphasis added).
[10] On July 27, 1989, the District of Columbia Council enacted the Tenant Opportunity to Purchase Clarification Amendment Emergency Act of 1989, 36 D.C.Reg. 5767-68 (1989), which became law immediately upon its enactment for a period of ninety days.
[11] Counsel for Tenants testified before the Committee:
The effect of the bill as introduced is to clarify the term "sell" to include "any agreement that assigns, leases or encumbers property" and pursuant to which the owner meets six identified conditions. The term sell, as clarified, would unquestionably encompass the GWU Master Lease at the West End.
It is my position that the term "sell" pursuant to the Act as it was in effect as of the date of the Master Lease, August 1, 1988, already included this master lease agreement [sic] that is the basis of the tenants' claim in the litigation. Of course, it would be very helpful for the Council to clarify, through this bill, that it assumed all along that such an arrangement was covered by the Act.
I am very concerned, however, that if this bill is not made explicitly retroactive, the Court could conclude that at the time GWU entered into its master lease, a master lease was not a violation of the Act. This conclusion could be based on the assumption that legislation is prospective in effect unless it is made explicitly retroactive and that there would be no need for legislation if the master lease violated the Act when it was executed. Therefore, it is critical that this Committee make explicit that the clarification of the term "sell" is retroactive, so that the GWU Master Lease is clearly covered by the bill.
Testimony of Richard C. Eisen, pp. 3-4, Committee on Consumer and Regulatory Affairs, Public Hearing on Bill 8-188, the "Tenant Opportunity to Purchase Clarification Amendment Act of 1989."
[12] In the Rental Housing and Sale Act of 1980 Amendments and Extension Act of 1983 (the "Extension Act"), in effect when the Master Lease was signed, the Council made similar findings.
[13] Both tenant and owner are expected to bargain in "good faith." While no definition of "good faith" is offered, its absence is evident where: (1) the owner fails to present the tenant with a price or term as favorable as that offered to a third party; (2) the owner fails to contract with the tenant on the same price/terms within a reasonable time period; (3) the owner or tenant intentionally fails to comply with the statute. See D.C.Code § 45-1634(a)(1)-(3) (1990 Repl.). See Columbia Plaza Tenants Ass'n, Inc. v. Antonelli, 462 A.2d 433, 437 (D.C.1983) ("Although this statute is in derogation of the common law and therefore must be strictly construed, good faith on the part of the Owners must be deemed to be implied lest the statute become illusory").
[14] In addition, we must inquire whether our interpretation is "plainly at variance with the policy of the legislation as a whole" requiring that we remain faithful more to the purpose than the word. United States v. American Trucking Ass'ns, Inc., 310 U.S. 534, 543, 60 S.Ct. 1059, 1063-64, 84 L.Ed. 1345 (1940) (internal quotation and footnote omitted). See United States v. Brown, 333 U.S. 18, 27, 68 S.Ct. 376, 380-81, 92 L.Ed. 442 (1948) (courts do not wallow in literalism where the plain language of a statute would lead to absurd consequences which the legislature could not have intended).
[15] The term "interest payment" is defined in D.C.Code § 45-1503(11) (1981) as "the amount of interest paid during a reporting period on a mortgage or deed of trust on a housing accommodation." The term "equity" is defined in D.C.Code § 45-1503(7) (1981) as "the portion of the assessed value of a housing accommodation that exceeds the total value of all encumbrances on the housing accommodation."
[16] Appellants stress that D.C.Code § 45-1661 provides that "[t]he purposes of this chapter favor resolution of ambiguity by the hearing officer or a court toward the end of strengthening the legal rights of tenants or tenant organizations to the maximum extent permissible under law." As we find no ambiguity, this provision does not come into play.
[17] Cf. 14 DCMR § 4711.8 (1991) which provides that "[u]nder Title IV of the Act, the terms `sale' or `sell' include the exchange or trade of properties, but shall include the transfer of title through a will or intestate succession and the transfer of property without consideration between husband and wife or from parent to child."
[18] In this case, the option was more limited than most, in that it was not a continuing offer to sell until a time certain, but an offer to sell at the end of a ten-year period.
[19] The term "triple-net" is used to refer to leases pursuant to which the rent paid to the landlord is, as here, net of property taxes, net of insurance, and net of expenses for utilities and maintenance. See, e.g., Doctors Bldg. Partners v. Grimes Bridge Assocs., 199 Ga.App. 216, 404 S.E.2d 582, 583 (1991).
[20] It is, of course, true that the Master Lease Agreement contained not only typical triple-net lease terms but also GWU's option to purchase and the Owners' option to sell a minority interest under specified conditions.
[21] Relevant case law recognizes the distinction. In Dodek, supra, 537 A.2d at 1095, appellant argued that "because [a contract for the purchase of real property] did not obligate the purchasers to pay the full purchase price unless they elected to go to settlement, the contract should be treated as an option contract," and not as a sales contract. In agreeing with appellant, we adopted the holding in Green Manor Corp. v. Tomares, 266 Md. 472, 295 A.2d 212 (1972), where the Maryland Court of Appeals concluded that a contract which "give[s] the purchaser the option and privilege to choose between consummating the purchase on the agreed upon terms or of walking away, for any reason or no reason, with no obligation or liability whatever save the loss of his [or her] deposit[,]" is an option, and not a purchase-and-sale agreement. Id. 295 A.2d at 214 (internal quotations omitted). See also Biggins v. Shore, 365 Pa.Super. 237, 529 A.2d 487 (1987), aff'd, 523 Pa. 148, 565 A.2d 737 (1989) (an option is an offer which, when accepted, is a valid and binding contract); Fried v. Barad, 175 Ill.App.3d 382, 125 Ill.Dec. 175, 181, 530 N.E.2d 93, 99 (1988) ("an option is not a sale or a contract of sale and conveys no legal title.... Before acceptance, an optionee has no land or interest in land") (citations omitted) (emphasis supplied); Estate of Saemann v. Tucker Realty, 529 N.E.2d 126, 129 (Ind.Ct.App.1988) ("An option to purchase is not a sale or an agreement to sell, but merely a right of election to exercise a privilege. It becomes a contract to sell only upon its exercise") (emphasis supplied) (citing Coons v. Baird, 148 Ind.App. 250, 265 N.E.2d 727, 731 (1970)); Pollard v. City of Bozeman, 228 Mont. 176, 741 P.2d 776, 779 (1987) ("An option to buy involves a contract wherein the owner agreed to give another the exclusive right to buy property at a fixed price within a specified time.[] The option is not a sale. It is not even an agreement for a sale. At best, it is but `a right of election in the party securing the same to exercise a privilege,' and only when that privilege has been exercised by acceptance does it become a contract to sell") (emphasis supplied) (citation omitted); Tate v. Wood, 169 W.Va. 584, 289 S.E.2d 432, 434 (1982) ("An option to purchase is not a sale nor an agreement to sell: it becomes an executory contract only when properly accepted within the stipulated time") (emphasis supplied); Hueschen v. Stalie, 98 N.M. 696, 652 P.2d 246, 248 (1982) ("A lease with an option to purchase real estate creates no estate in the lessee beyond his leasehold interest"); Detwiler v. Capone, 357 Pa. 495, 55 A.2d 380 (1947) (when a lessee of real property exercises an option to purchase contained in the lease, it is then that the landlord and tenant relationship between the parties ceases to exist and the lease is converted into a contract of sale); Ottman v. Albert Co., 327 Pa. 49, 192 A. 897, 899-900 (1937) (lease, not sale occurs when use and possession pass, but not title).
[22] We find hollow the District's argument that there is something suspicious about the lease provision in paragraph 18, see note 9, supra, which states that the terms of the lease will be automatically extended and closing on the sale will not occur until ninety days after the expiration of any tenants' right to purchase. Such a provision was obviously necessary in order to afford tenants their statutory first right of refusal.
[23] The other cases relied on by Tenants are easily distinguished, and do not support a result different from that reached here. See, e.g., E-Z Livin' Mobile Sales, Inc. v. Van Zanen, 26 Ariz. App. 363, 548 P.2d 1175, 1177 (1976) (where the appellees (1) had originally desired to purchase a house trailer and lot from appellant, (2) paid a substantial "down payment," (2) made smaller payments for ten years, and (3) were given the "option to purchase" the trailer and lot for the de minimis final payment of $10 ("an amount that is not indicative of the value of the property"), the Arizona Court of Appeals found an installment sale which was void as "a clear attempt to subvert the public policy against forfeitures"); Aldrich v. Forbes, 237 Or. 559, 391 P.2d 748, 750 (1964) (en banc) (In distinguishing a sale from a lease, the court held that "if the condition that the purchaser secure necessary financing is interpreted as leaving performance optional with the purchaser, a contract for the sale of the land does not arise. But if the agreement is interpreted to mean that the purchaser is obligated to make a reasonable effort to obtain financing that provision is not a condition precedent to the creation of a contract to purchase") (citations omitted); Marine Midland Trust Co. v. Village of Waverly, 42 Misc.2d 704, 248 N.Y.S.2d 729, 731 (N.Y.Sup.Ct.1963) (where instrument contained parcels to be "leased" for a period of twenty years with an option to purchase for $1.00, the court held that "[t]he inescapable conclusion reached is that the consideration of $1.00 stated therein is no reflection of the reasonable value of the property.... This entire arrangement was nothing more than a means of financing the purchase of the premises by paying monthly instalments [sic] for twenty years"), aff'd, 21 A.D.2d 753, 251 N.Y.S.2d 937 (1964); Bolling v. Hawthorne Coal & Coke Co., 197 Va. 554, 90 S.E.2d 159, 168 (1955) (instruments of conveyance, pursuant to which appellee paid $24,000 in cash at the time of execution; expended more than $60,000 on permanent structures and fixtures; and agreed to pay twice the fair-market rental of the premises, "show[s] a studied attempt to give the transaction the form and appearance of a lease; but the obvious purpose and the natural effect were to consummate a contract of conditional sale").
[24] Cf. Hasty v. Health Serv. Centers, Inc., 258 Ga. 625, 373 S.E.2d 356, 358 (1988), where a first-refusal agreement providing that lessor must be given notice "prior to any sale," "require[d] a conclusion that the preemptive right of first refusal was triggered by the granting of the option."
[25] Accord K.C.S., Ltd. v. East Main St. Land Dev. Corp., 40 Md.App. 196, 388 A.2d 181 (1978), where the court held that a transfer of corporate stock from a seller to a buyer did not trigger the "right of first refusal" as "[t]enant still possesse[d] all the rights and privileges conferred on it by the lease, including the `right of first refusal' to purchase the property demised to the Tenant." Id. 388 A.2d at 183.
[26] In his concurring opinion in Winters v. Ridley, 596 A.2d 569 (D.C.1991) (there was no opinion for the court), Judge Ferren expressed for himself a guarded view of the value of a legislative resolution adopted three years after the enactment of a statute and declaring the intent with which the legislature had enacted that statute. He wrote:
I believe a post-enactment declaration of legislative intent, clearly intended to affect pending litigation, is inherently suspect. Even if the declaration truly reflects earlier legislative intent, (which may or may not reflect the intent of the Mayor in signing, and the Congress in not vetoing the legislation), it appears to be intended to affect judicial review.... It is not difficult, however, to imagine that a legislative body on some other occasionconfronted by a public outcry against a trial court decision interpreting ambiguous legislation to create a very unpopular rightcould conveniently, and retroactively, find an intent that had never been thought of, let alone declared, at the time of enactment....
Id. at 580.
As we explained above, the Clarification Act was adopted in 1989 to affect litigation brought by the District in 1988 by "clarifying" legislation enacted in 1980.
[27] Similarly, on September 20, 1988, in his statement before the Roundtable of the Council, Mr. Murray said:
[I]t is clear that the transfer of interests pursuant to a lease does not give rise to the tenants' opportunity to purchase.... The inclusion in the lease agreement of a future option to purchase is also not sufficient to require that the owner make an offer to the tenant at this time. The mere creation of a future option to purchase is not a sale. The opportunity to purchase must be given at some time prior to the exercise of the option, not at the time the option is negotiated.
These views are similar to those expressed by Mr. Hallstead of the same Department. See page 6, supra.
[28] We are persuaded, in any event, that GWU adhered to all the specific requirements of the agreement GWU made prior to adoption of the Bond Act. The District's brief, in support of its argument that GWU violated its 1981 agreement, makes brief mention of the feature of the Master Lease Agreement (paragraph 18(f)) that gave the owners the right to require GWU to purchase a minority ownership interest of up to 49% in the property in question under certain conditions. The District acknowledges that the provision was never triggered because none of the individual Bradford-group owners chose to compel purchase. More to the point, the District acknowledges that this contract provision could not be used by owners if it triggered such rights, i.e., was a sale. In our view, this conditional option to require purchase of a minority interest did not make the underlying agreement a sale, and did not violate the Bond Act.
[29] D.C.Code § 1-204 (1990 Repl.) provides, in part:
[T]he legislative power of the District shall extend to all rightful subjects of legislation within the District consistent with the Constitution of the United States and the provisions of this Act subject to all the restrictions and limitations imposed upon the states by the 10th section of the 1st article of the Constitution of the United States.
[30] In light of our holding that "if the [tenants] right to purchase under the [Sale] Act is to have any meaning, the third party contract must be very close, in its terms and substance, to that which the sellers are willing to accept from the [tenants]," Columbia Plaza Tenants Ass'n, supra note 13, 462 A.2d at 438, it is curious that the Tenants should argue that they should be permitted to purchase rather than lease the West End under the same terms and with similar responsibilities as those accorded GWU. A court ruling that Tenants are entitled to enter a Master Lease with substantially the same terms as those accorded GWU, which appears to be essentially what tenants can reasonably seek under the Sale Act, might well be a meaningless victory for Tenants. The ruling would give Tenants the right to lease under substantially the same terms as GWU and then to consider whether to exercise their option to purchase after the ten-year period of the lease had expired. Presumably, if the owners exercised their option under paragraph 18(f) of the Master Lease, see note 9, supra, to require the lessee to purchase up to a 49% ownership interest in the property, Tenants would be required to purchase it. The passage of time may have mooted this second aspect of the Master Lease.
[31] "Price regulation existed and was foreseeable as the type of law that would alter contract obligations." Energy Reserves, supra, 459 U.S. at 416, 103 S.Ct. at 707.
[32] "Whether the legislation is wise or unwise as a matter of policy is a question with which we are not concerned." Home Bldg. & Loan, supra, 290 U.S. at 447-48, 54 S.Ct. at 243.
[33] A meeting with representatives of the Tenants and the Owners
led the Committee to begin an investigation of the agreement between the owners and the university, and a public roundtable on this matter was held September 20, 1988. During the September 20th roundtable, the Committee attempted to ascertain whether the lease agreement violated the tenant purchase provisions of the [Sale Act]. Questions were asked about whether tenants presently could elect to purchase their apartments if the owners chose to sell the building. While no definitive response was provided by the GWU, all responses indicated that tenants could not elect to purchase their apartments until the master lease agreement expired.
Based upon the above information and other information received as a result of the roundtable, Councilmember Ray introduced Bill 8-188, the "Tenant Opportunity to Purchase Clarification Amendment Act of 1989", to clarify the original intent of the act and to ensure that this type of arrangement is covered by section 401 of the Rental Housing Conversion and Sale Act of 1980.
COMMITTEE ON CONSUMER AND REGULATORY AFFAIRS, REPORT ON BILL 8-188, TENANT OPPORTUNITY TO PURCHASE CLARIFICATION ACT OF 1989, at 4 (1989) (emphasis supplied).
[34] November 30, 1988 letter from Donald G. Murray, DCRA Director, in response to Councilmember Ray's October 25, 1988 inquiry regarding the George Washington University/West End Apartments.
[35] Id. This is not to imply that it was at all inappropriate for tenants to take their complaints to the Council, but only to underscore that the Rental Housing Commission had encountered no complaints concerning type of agreement involved here.
[36] The trial court found, and we agree, that "the Act define[s] a sale to include the very provisions included in the lease entered into between GWU and the Bradfords."
[37] Kraebel v. Department of Hous. Preservation and Dev., 959 F.2d 395 (2d Cir.), cert. denied, ___ U.S. ___, 113 S.Ct. 326, 121 L.Ed.2d 245 (1992), is not to the contrary. The Second Circuit there rejected a New York City landlord's Contract Clause challenge to a provision of law affording additional rent control benefits to senior citizens, for which the landlord was to be compensated eventually by a tax abatement or a cash repayment that would be obtained through administrative procedures. In doing so, the Second Circuit panel held that the landlord could not claim surprise at this additional feature of New York City's already heavy regulation of residential rental property (which included regulation in the particular involved, rent control), and that the impairment was not in fact substantial because the city eventually reimburses the landlord to the extent the regulations reduce rent payments. The court also noted the presence of the legitimate public purpose of protecting senior citizens from rent increases. The Contracts Clause violation claim in this case is stronger than Kraebel's with respect to both the nature of previous governmental regulations and the degree of impairment of the agreement of the parties. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540827/ | 259 Pa. Super. 404 (1978)
393 A.2d 889
COMMONWEALTH of Pennsylvania
v.
Daniel SHORE, Appellant.
Superior Court of Pennsylvania.
Argued June 19, 1978.
Decided October 20, 1978.
*405 Robert F. Pappano, Chester, for appellant.
Robert M. DiOrio, Assistant District Attorney, Media, submitted a brief for Commonwealth, appellee.
Before JACOBS, President Judge, and HOFFMAN, CERCONE, PRICE, VAN der VOORT, SPAETH and HESTER, JJ.
PER CURIAM:
This is an appeal from the judgment of sentence of the Court of Common Pleas of Delaware County by the defendant-appellant, Daniel Shore, after conviction in a non-jury trial of the charge of altering or obliterating marks of identification on a firearm. 18 Pa.C.S.A. § 6117. The defendant was fined $100 and sentenced to a term of 11 and ½ to 23 months in prison as the result of the conviction.
The defendant challenges the sufficiency of the evidence. On November 24, 1976, the defendant was arrested in a shop in Marcus Hook, Pennsylvania. The police had gone to the shop with an arrest warrant for the defendant on an unrelated charge. When they arrived the defendant was talking on the telephone. When he saw the police he handed a pistol to another person who was behind the counter. Upon *406 examination of the weapon, it was discovered that the serial numbers had been altered or obliterated.
The Pennsylvania Crimes Code, 18 Pa.C.S.A. § 6117, provides:
"(a) Offense defined. No person shall change, alter, remove, or obliterate the name of the maker, model, manufacturer's number, or other mark of identification on any firearm.
"(b) Presumption. Possession of any firearm, upon which any such mark shall have been changed, altered, removed, or obliterated, shall be prima facie evidence that the possessor had changed, altered, removed, or obliterated the same." 1972, Dec. 6, P.L. 1482, No. 334, § 1, eff. June 6, 1973.
The defendant argues that the Crimes Code makes it a crime to "alter, remove, etc." such a number but does not make it a crime to possess such a weapon and therefore the Commonwealth did not prove its case when it presented the above testimony. He argues that the Commonwealth should have had to prove that the defendant was the one who altered the serial number by eyewitness testimony to that effect. With this we cannot agree.
In People v. Cannon, 18 Ill.App.3d 781, 310 N.E.2d 673 (1974), the Illinois court upheld defendant's conviction on a charge of altering or obliterating a gun's serial number purely on the basis of defendant's possession of a firearm with the marks of identification obliterated. In that case the court relied on the presumption that the possessor of the firearm was also the maker of the alteration.
In the instant case, the court below in its verdict indicated that it did not rely on the presumption but relied upon the fact that the defendant had possession of the altered weapon and attempted to get rid of it when he saw the approaching police, so indicating by inference the guilty knowledge of its altered condition. This reasoning leads to a logical conclusion but it is strengthened by the addition of the presumption provided in the act itself. We find that the defendant's possession of the altered weapon, his attempt to get rid of it *407 when he saw the police and the presumption justify the inference that the defendant altered the identification marks on the weapon. There was sufficient evidence to support the verdict.
Judgment of sentence affirmed.
SPAETH, J., concurs in the result.
HOFFMAN, J., did not participate in the consideration or decision of this case. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540842/ | 259 Pa. Super. 565 (1978)
393 A.2d 970
COMMONWEALTH of Pennsylvania
v.
Samuel Franklin FOX, Appellant.
COMMONWEALTH of Pennsylvania
v.
Robert Ernest MILLER, Appellant.
Superior Court of Pennsylvania.
Submitted June 13, 1978.
Decided October 27, 1978.
*566 John A. Mihalik, Bloomsburg, for appellants.
Richard C. Brittain, District Attorney, Washingtonville, for Commonwealth, appellee.
Before JACOBS, President Judge, and HOFFMAN, CERCONE, PRICE, VAN der VOORT, SPAETH and HESTER, JJ.
PER CURIAM:
This is an appeal from the judgment of sentence of the Court of Common Pleas of Montour County by the defendants-appellants, Samuel Franklin Fox and Robert Ernest Miller, after conviction in a non-jury trial of receiving stolen goods; and from the refusal of the court below to grant appellants' motion in arrest of judgment.
The facts are as follows: On August 12, 1976 at about 3:30 A.M., Stella E. Folk, observed a dark station wagon with a shiny chrome rack on top, pull into an alley near the Econo-Wash Laundromat, not far from her home in Danville, Penna. She observed two men who were dressed in dark pants and white tee shirts walk up an alley toward the laundromat. She heard the car leave approximately five *567 minutes later. She could not describe the men except that they were on the thin side. She could not determine the type of the vehicle. She was unable to identify the persons although they had walked under a street light, and she heard no other unusual noise except the starting and stopping of the vehicle. The men had nothing in their hands according to her observation.
Officer Hendricks of the Danville Police Department stopped by the laundromat at approximately 3:15 A.M. for a pack of cigarettes and saw nothing unusual. He went back for a routine check at about 4:15 to 4:30 A.M. and found the door to a soda vending machine ajar. He observed three pry marks on a money changing machine and observed marks on the outside of a soap machine. Hendricks reported the matter by radio communication and notified the owner. After the owner arrived it was discovered that a newspaper vending machine was missing.
The owner and Hendricks estimated that approximately $100.00 in quarters was taken from the soda machine. No fingerprints were found. The owner testified that the soda machine is emptied daily. The man who filled the newspaper machine testified that he filled the machine with twenty papers on August 11, 1976 which sold for $.15 apiece. The machine was missing.
At about 4:00 A.M., two young men, the appellants, wearing white tee shirts and dark trousers were observed by an officer of the Danville Police Department at a service station in Danville. He watched them and they fled. A chase ensued and the vehicle was identified as a green Ford Station Wagon with a chrome luggage rack. The vehicle was stopped by Bloomsburg Police and when Officer Taylor arrived he observed a large amount of coins in a bag hanging on the right passenger door. Two Dollars and Fifty cents ($2.50) in coins were taken from the appellant Miller and Nine Dollars ($9.00) in quarters, Four Dollars and Five cents ($4.05) in nickles, Six Dollars and Thirty cents ($6.30) in dimes and Four cents ($.04) in pennies for a total of $19.39 were taken from appellant Fox. According to the witnesses the sum of more than $100.00 was missing.
*568 The officer also uncovered a lug wrench which had paint on one end, a screwdriver and a small wrench. The paint on the lug wrench was not compared to the paint on the machines in the laundromat but there was testimony that it was similar. The appellants were arrested and charged with theft, criminal conspiracy and receiving stolen goods.
When the Commonwealth rested, the appellants demurred to the evidence and the trial court granted the motion as to theft and criminal conspiracy but found the appellants guilty of receiving stolen goods.
It seems from the chronological statement of the facts that there was sufficient circumstantial evidence to support the verdict.
However, in Commonwealth v. Justice, 230 Pa.Super. 537, 326 A.2d 564 (1974), we held in dealing with the old Crimes Code that a defendant who is the sole participant in a crime is acquitted of larceny then there must necessarily follow an acquittal of the charge of receiving stolen goods. In Commonwealth v. Justice, supra, there was an eye-witness to the theft while in the instant case convictions could only be sustained by inferences supported by circumstantial evidence.
As Judge Hoffman pointed out in Commonwealth v. Justice, 230 Pa.Super. at page 541, 326 A.2d at page 565:
"It is likewise settle(d) that the Commonwealth has the burden of proving three distinct elements of the crime of receiving stolen goods; `(a) that the goods are stolen; (b) that the defendant received such goods; and (c) that he received them knowing, or having reasonable cause to know, that they were stolen.' Commonwealth v. Davis, 444 Pa. 11, 15, 280 A.2d 119 (1971).
"Where, as here, the defendant is the sole participant in the alleged crime, an acquittal on the charge of larceny necessitates an acquittal on the charge of receiving stolen goods."
Appellants argue that because the trial judge granted their demurrer to the charges of conspiracy and theft that he could not find them guilty of receiving stolen goods and *569 that their demurrer to this charge should also have been sustained. Defendants cite Commonwealth v. Justice, supra in support of their position. In that case a defendant was charged with larceny and receiving stolen goods and was tried non-jury. The instant case was also non-jury. The evidence adduced at trial indicated that defendant had removed price tags from a jacket in a clothing store, and wore the jacket down to the first floor of the store where he was apprehended. Defendant's story was that he intended to arrange for credit to purchase the jacket on the first floor. The trial judge acquitted the defendant of larceny but convicted him of receiving. On appeal a majority of this Court reversed his receiving conviction stating that, "it is difficult for this Court to envision the factual or legal basis for a conviction on the charge of receiving stolen goods". This was because the three elements aforementioned are necessary in order to sustain a conviction for receiving stolen goods. Commonwealth v. Davis, 444 Pa. 11, 280 A.2d 119 (1971). If the defendant, the sole participant in the activity, did not steal the jacket (and we must presume this since he was acquitted of the larceny charge) then the goods (jacket) were not stolen merchandise and elements (a) of the receiving charge is absent. Therefore, he could not be convicted of receiving. This is so because it was clear under the facts of Justice, supra, that there was no other participant in the activity, and if there was a taking (theft) the defendant was the taker, as well as the receiver. If the defendant was not the thief then no larceny occurred since no one else was, or could have been, involved because it was defendant and defendant alone who had been seen removing the jacket and wearing it down to the first floor of the store.
In our case defendants were acquitted of larceny also. This means that it was not defendants who removed the coins from the Laundromat. However, there was ample evidence presented at trial to sustain a finding that a larceny had occurred (missing money, pry marks on machines, machine door ajar) sometime between 3:15 A.M. and 4:15 A.M. on August 12, 1976. Unlike the situation in Justice, supra, where a larceny could not have occurred *570 unless defendant was the thief it is possible in our case that defendants were not the thieves but were the receivers. We do not believe that the holding in Justice to the effect was that a defendant who is acquitted of larceny cannot be convicted of receiving either where the charges are tried together. We hold that Justice is confined to its specific facts in that there the defendant was conclusively proven to be the sole participant in the act and if he was not the thief he could not be the receiver either because there was nothing stolen. Here someone other than the defendants could have been thieves and the defendants the receivers.
The question then is whether there was sufficient evidence adduced at trial to permit a finding that goods were stolen, that defendants received the stolen goods, and did so knowing, or having reason to know that they were stolen. Commonwealth v. Justice, supra. In making this determination we recognize that we must accept as true all of the Commonwealth evidence including all reasonable inferences arising therefrom. Commonwealth v. Burton, 450 Pa. 532, 301 A.2d 599 (1973). As already discussed there was sufficient evidence adduced at trial to prove that a larceny had occurred and that coins had been stolen. The evidence also indicated that defendants were seen shortly after the commission of the crime at a service station near the scene of the crime (in Danville) and that they fled when they saw the police. All of this occurred at an unusual time of the evening (3:15 to 4:00 A.M.) and when finally apprehended by police after a high-speed chase relatively large amounts of coins were found in both defendants' possession. All of this evidence is circumstantial but circumstantial evidence alone is sufficient to prove that property is stolen. Commonwealth v. Houmis, 227 Pa.Super. 573, 307 A.2d 339 (1923).
The charge of illegal taking and illegal receiving raises an inconsistency. A jury has the power to render an inconsistent verdict. Commonwealth v. Carter, 444 Pa. 405, 282 A.2d 375 (1971). We held in Commonwealth v. Harris, 239 Pa.Super. 603, 360 A.2d 728 (1976) that a decision by a judge without a jury has the same efficacy as a jury that in non-jury cases inconsistent verdicts may be rendered.
*571 We hold that the circumstantial evidence of the theft and defendants' high-speed flight from the police coupled with their proximity in time and place to the theft were sufficient facts from which a finder of fact could infer that the coins defendants had in their possession were part of the booty from the Laundromat and that defendants knew the coins to be stolen property. Here, recent possession of stolen goods is bolstered by the surrounding circumstances and the evidence of flight to provide the guilty knowledge. See Commonwealth v. Williams, 468 Pa. 357, 362 A.2d 244 (1976) (flight from police can be evidence of guilty knowledge) for a recent discussion of the inferences which can be drawn from the conduct of the accused relative to the receiving charges. See also the discussion in Commonwealth v. Simmons, 233 Pa.Super. 547, 560, 336 A.2d 624 (1975).
Judgment of sentence affirmed.
CERCONE, J., concurs in the result.
HESTER, J., notes his dissent.
HOFFMAN, J., did not participate in the consideration or decision of this case. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540869/ | 155 B.R. 750 (1993)
In the Matter of William Daniel PEDERSEN and Gayle Larae Pedersen, Debtors.
C.R. HANNAN, Trustee, Plaintiff,
v.
PUBLIC EMPLOYEES BENEFIT SERVICES CORPORATION, PLAN ADMINISTRATOR FOR THE DEFERRED COMPENSATION PLAN FOR the CITY OF COUNCIL BLUFFS, IOWA, Defendant.
Bankruptcy No. 90-99-W H, Adv. No. 91-91194.
United States Bankruptcy Court, S.D. Iowa.
June 16, 1993.
*751 Deborah L. Petersen, Council Bluffs, IA, for plaintiff.
Steven H. Krohn, Council Bluffs, IA, for defendant.
ORDERMOTIONS FOR SUMMARY JUDGMENT
RUSSELL J. HILL, Bankruptcy Judge.
Defendant's and Plaintiff's motions for summary judgment were taken under advisement June 11, 1992 and exhibits were received. This court has jurisdiction of this adversary proceeding pursuant to 28 U.S.C. § 1334; and this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(E). Upon review of the pleadings, arguments and *752 exhibits, findings of fact and conclusions of law are now entered pursuant to Fed. R.Bankr.P. 7052.
FINDINGS OF FACT
1. Debtors filed their Chapter 7 bankruptcy on January 17, 1990. The Plaintiff is the duly-appointed, qualified, and acting Trustee herein.
2. While Debtors claimed no present interest in, nor any ability to withdraw any monies therefrom, they claimed as exempt property a Deferred Compensation Program Account. By stipulated order dated July 2, 1990 the Trustee's objection to that claim of exemption was sustained.
3. On September 23, 1991 the Trustee filed this Complaint for Turnover of Property. In his Complaint the Trustee alleges in pertinent part as follows:
6. The Trustee has made demand on the Debtors for the turn over of the property and the Debtors have failed and refused to comply, stating that the Defendant, Public Employees Benefit Services Corporation, Plan Administrator for the Deferred Compensation Plan for the City of Council Bluffs, Iowa, will not allow compliance.
7. Although requested to do so, Defendant, Public Employees Benefit Services corporation, Plan Administrator for the Deferred Compensation Plan for the City of Council Bluffs, Iowa, has failed to turn over the funds.
8. The Trustee is entitled to these funds pursuant to the Court's Order of July 2, 1990.
WHEREFORE, Plaintiff prays that the Court enter an order requiring the Defendant, Public Employees Benefit Services Corporation, Plan Administrator for the Deferred compensation Plan for the City of Council Bluffs, Iowa, to turn over the retirement plan belonging to Debtors, and for such other and further relief as the Court deems just and equitable in the premises.
4. Defendant, Public Employees Benefit Services Corporation (PEBSCO) filed its Answer to the Complaint on November 1, 1991. In response to paragraphs 6-8 of the Complaint, PEBSCO stated as follows:
6. Defendant denies having sufficient knowledge or information to form a belief as to the allegations contained in paragraph 6 of the Complaint and, therefore, denies the same.
7. The allegations of paragraph 7 are denied.
8. The allegations of paragraph 8 are denied.
WHEREFORE, defendant demands that the Court enter judgment dismissing the Complaint, that the Defendant be awarded costs incurred herein and that the defendant be awarded such other and further relief as the Court may deem just.
5. The Stipulated Scheduling Order filed December 18, 1991 listed under "FACT IN DISPUTE" as follows:
That demand was made upon the Debtors for the turn over of this property and the Debtors have failed and refused to comply for the reason that the Defendant herein will not allow compliance. That Defendant has failed to turn over the funds contained in the Deferred Compensation Plan for the City of Council Bluffs, Iowa.
6. On May 1, 1992 PEBSCO filed its motion for summary judgment pursuant to Federal Rule of Civil Procedure 56(b). The motion was made on the ground that there is no genuine issue of material fact and that the defendant is entitled to judgment as a matter of law.
7. In its brief in support of motion for summary judgment, PEBSCO makes three arguments
a. that summary judgment is proper as there is no genuine issue of material fact and defendant is entitled to summary judgment as a matter of law;
b. that all property relating to the Deferred Compensation Plan is the sole property of Council Bluffs and the Trustee has no rights in and to any property as there is no property relating to the Plan that is property of the estate; and,
c. that PEBSCO is not in possession or control of any property for which a turnover *753 order is sought and, therefore, this Court has no jurisdiction to order the turnover of any such assets by PEBSCO.
8. On May 4, 1992 the Plaintiff-Trustee filed a motion for summary judgment. Paragraph 2 of the motion states as follows:
2. The Defendant has filed an Answer in this matter which denies all of the allegations of the Plaintiff's Complaint except for the allegation that the Plaintiff is the duly appointed Trustee. There is no dispute of fact as to the Defendant being in possession, custody, or control, during the Debtor's case, of property that the Trustee may use, sell, or lease under section 363 of this title, or that the debtor may exempt under section 522 of this title. [emphasis added.]
9. On May 18, 1992 Plaintiff-Trustee filed a Resistance to Motion for Summary Judgment.
10. On May 22, 1992 the parties filed and this Court approved a Stipulated Final Pre-Trial Order. Under the heading "B. STATEMENT OF DISPUTED FACTS," this Order states "Whether the Defendant is in possession or control of any of the finds sought to be recovered by the Trustee."
In the Order the parties stipulate to the admission of the following exhibits:
a. The Plan Document for the Deferred Compensation Plan adopted by the City of Council Bluffs.
b. The Administrative Service Agreement dated November 8, 1982, between City of Council Bluffs and Nationwide Life Insurance Company and Public Employees Benefit Services Corporation.
c. Contract between Nationwide Life Insurance Company and the City of Council Bluffs, Iowa, dated November 8, 1982.
These exhibits have been filed with the Court.
11. On May 26, 1992, PEBSCO filed its Resistance to Motion for Summary Judgment.
12. The City of Council Bluffs, Iowa, has previously adopted a deferred compensation plan under Internal Revenue Code § 457.
13. The Defendant, Public Employees Benefit Services Corporation (hereinafter PEBSCO), acts as administrator of the Council Bluffs' Deferred Compensation Plan pursuant to a written Administrative Service Agreement dated November 8, 1982, between the City of Council Bluffs, Nationwide Life Insurance Company (hereinafter NLIC) and PEBSCO.
14. Employees of the City of Council Bluffs may elect to participate in the Deferred Compensation Plan (hereinafter the Plan). Under the Plan, amounts withheld from compensation of employees of the City of Council Bluffs are forwarded by the City of Council Bluffs through a depository to NLIC pursuant to a contract between NLIC and the City of Council Bluffs.
15. Pursuant to participation elections filed by the Debtor, the Debtor has previously elected that certain amounts be withheld from his compensation.
16. The deferrals from the Debtor, along with other deferrals from other participants of the City of Council Bluffs are invested in contracts with NLIC, which are owned by the City of Council Bluffs.
17. The Debtor currently is, and at the time of all deferrals was, an employee of the City of Council Bluffs, Iowa.
18. Article IV of the Plan provides that if a Participant terminates employment with the Employer and accepts employment with another employer, which maintains an eligible plan, then the Participant may be able to transfer his account balance from the Plan to a plan maintained by the new employer.
19. Article VI of the Plan provides that the Plan Administrator, here PEBSCO, shall maintain an account with respect to each Participant, with written status reports to be furnished annually to the Participant. All reports to the Participant shall be based on fair market value.
20. Article VII Section 7.04 of the Plan provides as follows:
All assets of the Plan, including all deferred amounts, property and rights purchased *754 with deferred amounts, and all income attributable to such deferred amounts, property or rights, shall remain (until made available to the PARTICIPANT or Beneficiary) solely the property and rights of the EMPLOYER (without being restricted to the provision of benefits under the Plan), subject only to the claims of creditors of the EMPLOYER. Contracts and other evidences of the investments of all assets under this Plan shall be registered in the name of the EMPLOYER which shall be the owner and beneficiary thereof. The rights of the PARTICIPANT created by this Plan shall be those of a general creditor of the EMPLOYER, and in an amount equal to the fair market value of the deferred account maintained with respect to the PARTICIPANT. The PARTICIPANT acknowledges that his rights are no greater than those of a general creditor of the EMPLOYER and that in any suit for an accounting, to impose a constructive trust, or to recover any sum under this Plan, the PARTICIPANT'S rights are limited to those of a general creditor of the EMPLOYER. The EMPLOYER acknowledges that the Administrator is the agent of the EMPLOYER.
21. Article VIII Section 8.01 Commencement of Distributions provides:
The PARTICIPANT may elect the time at which distributions under the Plan are to commence by designating the month and year during which the first distribution is made. The earliest distribution commencement date that may be elected by the PARTICIPANT shall be the earlier of:
(a) The date on which the PARTICIPANT separates from service; or
(b) The date on which the PARTICIPANT attains age 70½ or terminates deferrals under this Plan, whichever is later.
22. Article VIII Section 8.04. Unforeseeable Emergency provides:
Notwithstanding any other provisions herein, in the event of an Unforeseeable Emergency, a PARTICIPANT may request that benefits be paid to him immediately; provided, however, that payment of any such benefits after the Elected or Mandatory Commencement date shall be subject to any limitations specified by an investment carrier. Such request shall be filed in accordance with procedures established pursuant to this Plan. If the application for payment is approved by the EMPLOYER or its designee, payments shall be effected within 45 days of such approval. Benefits to be paid shall be limited strictly to the amount necessary to meet the Unforeseeable Emergency constituting financial hardship to the extent such Unforeseeable Emergency is not relieved:
(a) through reimbursement or compensation by insurance or otherwise;
(b) by liquidation of the PARTICIPANT'S assets, to the extent the liquidation of such assets would not itself cause financial hardship; or
(c) by cessation of deferrals under the Plan.
Foreseeable personal expenditures normally budgetable, such as down payment on a home, the purchase of an automobile, college or other educational expense, etc., will not constitute an Unforeseeable Emergency. The decision of the EMPLOYER or its designee concerning the payment of benefits under this Section shall be final.
Unforeseeable Emergency is defined in Article I as a severe financial hardship to the participant resulting from a sudden and unexpected illness or accident of the participant or a dependent, loss of property due to casualty, or other similar or extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant.
23. Article IX Section 9.04 provides that the "EMPLOYER and the Administrator do not represent or guarantee that any particular Federal or State income, payroll, personal property, or other tax consequence will occur because of the PARTICIPANT'S participation in this Plan." Section 9.08 provides that "[t]he rights of the PARTICIPANT under this plan shall not be subject to the rights of creditors of the *755 PARTICIPANT or any Beneficiary, and shall be exempt from execution, attachment, prior assignment, or any other judicial relief or order for the benefit of creditors or other third persons." Section 9.09 provides that the plan participant shall have no right "to commute, sell, assign, pledge, encumber, transfer, or otherwise convey the right to receive any payments hereunder which payments and right thereto are expressly declared to be nonassignable and nontransferable."
DISCUSSION
Trustee has filed a complaint praying that, pursuant to 11 U.S.C. § 542, the court enter an order requiring PEBSCO to turn over the retirement plan belonging to Debtors. PEBSCO has moved for summary judgment against the Trustee as a matter of law. Trustee agrees there are no material disputed facts; but moves for summary judgment against PEBSCO arguing that Trustee is entitled to the Plan funds as a matter of law. While the parties agree there are no material disputed facts, the Court concludes there is a genuine dispute about whether PEBSCO is in possession, custody, or control of the property at issue such that summary judgment may not be granted. The Court will, however, address the issues that can be disposed of as a matter of law and restate the issue that will be set for trial.
SUMMARY JUDGMENT
Rule 56 of the Federal Rules of Civil Procedure provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R.Civ.P. 56(c). To preclude the entry of summary judgment, the nonmovant must make a sufficient showing on every essential element of its case for which it has the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986); Continental Grain Co. v. Frank Seitzinger Storage, Inc., 837 F.2d 836, 838 (8th Cir. 1988). Rule 56(e) requires the nonmoving party to go beyond the pleadings and by affidavits, or by the "depositions, answers to interrogatories, and admissions on file," designate "specific facts showing that there is a genuine issue for trial." Fed. R.Civ.P. 56(e); Celotex, 477 U.S. at 324, 106 S.Ct. at 2552; Johnson v. Schopf, 669 F. Supp. 291, 295 (D.Minn.1987). The proof that the nonmoving party must produce is not precisely measurable, but it must be "enough evidence so that a reasonable jury could return a verdict for the nonmovant." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986); Johnson, 669 F.Supp. at 295-96. On a motion for summary judgment, the court views all the facts in the light most favorable to the nonmoving party, and gives that party the benefit of all reasonable inferences that can be drawn from the facts. United States v. City of Columbia, Mo., 914 F.2d 151, 153 (8th Cir. 1990); Woodsmith Publishing Co. v. Meredith Corp., 904 F.2d 1244, 1247 (8th Cir. 1990).
While the parties have both agreed that no material facts are in dispute, PEBSCO alleges (in its brief in support of motion for summary judgment) that it is not in possession or control of any property for which a turnover order is sought. While Trustee alleges in his motion for summary judgment that there is no dispute of fact as to the Defendant being in possession, custody, or control of property that the Trustee may use, sell or lease, Trustee's Complaint does not in fact allege that PEBSCO has possession, custody or control over the property Trustee seeks. The Stipulated Final Pre-Trial Order filed May 22, 1992 does list as a disputed fact whether the Defendant is in possession or control of any of the funds sought to be recovered by the Trustee. In its resistance to the Trustee's motion for summary judgment, PEBSCO again states that it is not in possession or control of any funds that the Trustee seeks. These are the only points in the file in which either party makes mention of whether PEBSCO has possession, custody, or control of the Debtor's interest in the Plan.
*756 Examination of the exhibits submitted reveals that any one of the three entities involved in setting up the deferred compensation programthe City of Council Bluffs, PEBSCO or NLICmight be said to have possession, custody or control over the Plan property. Under the Plan, the City of Council Bluffs holds all assets of the Plan as property of the City of Council Bluffs. PEBSCO has been appointed by the City of Council Bluffs to administer the Plan. (Exhibit 2, Administrative Service Agreement). PEBSCO's duties include instructing the depository agent to transmit amounts deferred to NLIC for investment credit, enrolling participants, and answering employees' questions about the deferred compensation program. NLIC's duties include accepting contributions under the Plan, maintaining individual accounts, providing annual statements to Plan participants and disbursing contract benefits. (Exhibit 2, Administrative Service Agreement).
While the parties stipulate that there is no material fact in dispute, it appears that whether PEBSCO is in possession, custody, or control of the property at issue is, indeed, a factual matter in dispute. Proving possession, custody, or control is an essential element of a turnover action brought pursuant to 11 U.S.C. § 542. Because the Court cannot determine from the pleadings, admissions on file, and stipulated exhibits admitted whether PEBSCO is in possession, custody, or control of the Debtor's interest in the Plan, summary judgment will not be granted. Accordingly, the issue of whether Defendant is in possession, custody or control will be set for trial.
PROPERTY OF THE ESTATE
Patterson v. Shumate, ___ U.S. ___, 112 S. Ct. 2242, 119 L. Ed. 2d 519 (1992) held that the plain language of the phrase "applicable non-bankruptcy law" used in 11 U.S.C. § 541(c)(2) means both federal and state law. Thus, due to the anti-alienation provisions of 29 U.S.C. § 1056(d)(1) (ERISA § 206(d)(1)) and the coordinate section of the Internal Revenue Code, 26 U.S.C. § 401(a)(13), an ERISA-qualified plan is excluded from the bankruptcy estate pursuant to 11 U.S.C. § 541(c)(2).
Patterson v. Shumate did not decide how retirement plans not subject to the ERISA anti-alienation provisions should be treated. At issue here is whether a governmental deferred compensation plan established pursuant to 26 U.S.C. § 457 should be excluded from the bankruptcy estate under 11 U.S.C. § 541(c)(2). Since Patterson v. Shumate, one published case has addressed whether a deferred compensation plan established pursuant to 26 U.S.C. § 457 is excluded from the bankruptcy estate pursuant to § 541(c)(2). See In re Wheat, 149 B.R. 1003 (Bankr.S.D.Fla. 1992) (Wheat plan provisions appear to be identical to the case sub judice). The Supreme Court recently vacated and remanded in light of Patterson v. Shumate an Ohio case upholding a decision that an employee deferred compensation plan established pursuant to 26 U.S.C. § 457 was included in the debtor's bankruptcy estate. Ohio Public Employees Deferred Compensation Program v. Sicherman, ___ U.S. ___, 112 S. Ct. 2987, 120 L. Ed. 2d 865 (1992), vacating and remanding for reconsideration In re Leadbetter, 946 F.2d 895 (6th Cir.1991) (table), aff'g 111 B.R. 640 (Bankr.N.D.Ohio 1990).
Debtor's Plan is established pursuant to 26 U.S.C. § 457, which provides:
For purposes of this section, the term "eligible deferred compensation plan" means a plan established and maintained by an eligible employer . . .
(6) which provides that
(A) all amounts of compensation deferred under the plan,
(B) all property and rights purchased with such amounts, and
(C) all income attributable to such amounts, property or rights,
shall remain (until made available to the participant or other beneficiary) solely the property and rights of the employer (without being restricted to the provision of benefits under the plan), subject only to the claims of the employer's general creditors.
*757 26 U.S.C. § 457(b)(6) (emphasis added). Section 7.04 of the Debtor's Plan contains language taken directly from 26 U.S.C. § 457(b)(6). Wheat decided that under Patterson v. Shumate this language is enforceable, applicable federal law within the meaning of 11 U.S.C. § 541(c)(2) and that a debtor's interest in such a plan is not property of the estate. Wheat, 149 B.R. at 1007. This Court respectfully disagrees with the reasoning of In re Wheat.
11 U.S.C. § 541(c) provides:
(c)(1) Except as provided in paragraph (2) of this subsection an interest of the debtor in property becomes property of the estate under subsection (a)(1), (a)(2), or (a)(5) of this section notwithstanding any provision in an agreement, transfer instrument, or applicable nonbankruptcy law
(A) that restricts or conditions transfer of such interest by the debtor; or
(B) that is conditioned on the insolvency or financial condition of the debtor, on the commencement of a case under this title, or on the appointment of or taking possession by a trustee in a case under this title or a custodian before such commencement, and that effects or gives an option to effect a forfeiture, modification, or termination of the debtor's interest in property.
(2) A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title.
Section 541(a)(1) is a broad provision that encompasses all apparent interests of the debtor. In re Peterson, 897 F.2d 935, 936 (8th Cir.1990). Neither possession nor constructive possession by the debtor is required. In re Hawkeye Chem. Co., 71 B.R. 315, 319 (Bankr.S.D.Iowa 1987). See generally 4 Lawrence P. King, Collier On Bankruptcy § 541.06 (15th ed. 1993).
Debtor's Plan is property of the estate under § 541(a)(1). Though the Plan states that all assets of the Plan are "solely" the property of the employer, the Debtor does have rights to the assets as a general creditor of the employer. (Plan Article VII, Section 7.04). It is undeniable that Debtor has an expectancy of a return of investment at some future date as a result of subscribing to this Plan. See In re Hansen, 111 B.R. 647, 649 (Bankr. N.D.Ohio 1990). Given the breadth of § 541(a)(1), it is clear that Debtor's rights as a general creditor are property of the estate. Nothing in 26 U.S.C. § 457 appears to prevent such a conclusion. See also Scott v. Council (In re Council), 122 B.R. 64, 66-67 (Bankr.S.D.Ohio 1990); Luring v. Ohio Pub. Employees Deferred Compensation Program (In re Petrey), 116 B.R. 95, 98-99 (Bankr.S.D.Ohio 1990); Gilbert v. Osburn (In re Osburn), 56 B.R. 867, 871-74 (Bankr.S.D.Ohio 1986) (all finding that Ohio plan assets are property of the estate).
Nothing about 26 U.S.C. § 457 creates a restriction on the Debtor's interest that would cause the Plan to fall within the 11 U.S.C. § 541(c)(2) exception and the reasoning of Patterson v. Shumate. Section 541(c)(2) requires that a property interest sought to be excluded be "a beneficial interest . . . in a trust." 11 U.S.C. § 541(c)(2) (emphasis added). Plan Section 7.04 expressly states that the rights of the Debtor shall be those of a general creditor and that in any suit to impose a constructive trust, the Debtor's rights are limited to those of a general creditor of the employer. Furthermore, Section 7.04 provides that the deferred compensation remains the property of the employer, subject only to general creditor claims. By definition, a trust exists only when one party, the trustee, holds equitable title to the corpus, while another party, the beneficiary, holds legal title in the corpus. See George T. Bogert, Trusts § 1 (6th ed. 1987). In addition, under 26 U.S.C. § 457, a requirement for deferential tax status is that a plan not be a trust. See Foil v. Commissioner, 920 F.2d 1196, 1209 (5th Cir.1990); see also 936 CCH para. 21,536.21 (quoting I.R.S. Notice 87-13, 1987-1 C.B. 432: "[C]ompliance with the exclusive purpose, trust, funding and certain other rules [of ERISA] will cause the *758 plan to fail to satisfy section 457(b)(6)."). Thus, it is clear (and PEBSCO does not argue to the contrary) that the Plan is not a trust.
11 U.S.C. § 541(c)(2) unambiguously addresses the exclusion of trusts from property of the estate; therefore it is inapplicable to Debtor's Plan. Thus, Debtor's interest in his deferred compensation plan is property of the estate under 11 U.S.C. § 541(a)(1).
PEBSCO might have argued that the Debtor could claim his interest in the Plan as exempt property. In this case the Court has already sustained the trustee's objection to claim of exemptions as it pertains to the deferred compensation plan. See Order of July 2, 1990. Since that July 2, 1990 order, the State of Iowa has amended its exemption statute regarding pension plans. See Iowa Code § 627.6(8)(e) (1993) (exemption of pension, annuity or similar plans or contracts). On its face, the amendment to Iowa Code § 627.6(8)(e) results in Debtor's deferred compensation plan qualifying as exempt property; but because this case was filed prior to the amendment, the Plan does not qualify as exempt property. 11 U.S.C. § 522(b)(2)(A) allows exemption of property exempted by state law "applicable on the date of the filing of the petition." The Debtors' case was filed January 17, 1990, prior to the enactment of the amendment. Therefore, the amendment has no effect on Debtors' exemption rights in this case.
ORDER
IT IS ACCORDINGLY ORDERED that both Plaintiff's and Defendant's motions for summary judgment are denied and the issue of whether Defendant is in possession, custody, or control of the property at issue shall be set for hearing forthwith. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540864/ | 155 B.R. 666 (1993)
In re LEASE-A-FLEET, INC., Debtor.
MORSE OPERATIONS, INC. d/b/a Lauderhill Leasing and University Cadillac, Inc. on behalf of Lease-A-Fleet, Inc., Plaintiffs,
v.
GOODWAY GRAPHICS OF VIRGINIA, INC., Defendants.
MORSE OPERATIONS, INC. d/b/a Lauderhill Leasing and University Cadillac, Inc. on behalf of Lease-A-Fleet, Inc., Plaintiffs,
v.
GOODWAY GRAPHICS OF MASSACHUSETTS, INC., Defendant.
MORSE OPERATIONS, INC. d/b/a Lauderhill Leasing and University Cadillac, Inc. on behalf of Lease-A-Fleet, Inc., Plaintiffs,
v.
Donald WOLK and Beryl Wolk t/a GGM Co., Defendants.
Bankruptcy No. 91-12996S, Adv. Nos. 92-1071S, 92-1072S, 92-1103S.
United States Bankruptcy Court, E.D. Pennsylvania.
June 17, 1993.
*667 *668 *669 Karen Lee Turner, Philadelphia, PA, for Morse Operations, Inc. d/b/a Lauderhill Leasing and University Cadillac, Inc. on behalf of Lease-A-Fleet, Inc.
David Braverman, Fellheimer & Eichen, P.C., Philadelphia, PA, for defendants Goodway Graphics of Virginia, Inc., Goodway Graphics of Massachusetts, Inc., and Donald Wolk and Beryl Wolk t/a GGM Co.
Patrick J. Stapleton, III, Philadelphia, PA, for debtor.
Michael R. Needle, Philadelphia, PA, Special Counsel for debtor.
Robert Sayre, Patterson & Weir, Philadelphia, PA, for Meridian Bank.
Frederic Baker, Asst. U.S. Trustee, Philadelphia, PA.
OPINION
DAVID A. SCHOLL, Bankruptcy Judge.
I. INTRODUCTION
Before this court for resolution after trial are three adversary proceedings commenced by MORSE OPERATIONS, INC. d/b/a LAUDERHILL LEASING ("Lauderhill"), easily the largest unsecured creditor of LEASE-A-FLEET, INC. ("the Debtor"), and UNIVERSITY CADILLAC, INC. ("UCI"), an entity related to Lauderhill which is the assignee of United Valley Bank, the Debtor's largest remaining secured creditor[1] (collectively Lauderhill and UCI are referred to as "U & L"), on behalf of the Debtor, seeking to recover almost $3.3 million dollars from three affiliates of the Debtor, GOODWAY GRAPHICS OF VIRGINIA, INC. ("G-V"); GOODWAY GRAPHICS OF MASSACHUSETTS, INC. ("G-M") (collectively G-V and G-M are referenced as "the Goodways"); and DONALD WOLK ("Donald") and BERYL ("Beryl") WOLK t/a GGM CO. ("GGM") (collectively G-V, G-M, and GGM are referenced as "the Affiliates"). U & L allege that certain payments to the Affiliates by the Debtor represent fraudulent conveyances and/or preferential transfers made by the Debtor to the Goodways and preferential transfers to GGM.[2]
The instant proceeding is in some ways a reversal of the roles of the parties in In re Lease-A-Fleet, Inc., 141 B.R. 853 (Bankr. E.D.Pa.1992) (referenced hereinafter as "LAF I"), a preference action against Lauderhill arising out of this same bankruptcy case in which the Debtor was awarded $850,055.33. Here, U & L, standing in the shoes of the Debtor, seek to recover preferences and/or fraudulent conveyances against entities controlled by the family which owns the Debtor. In conformity with notions of fair play, as well as "the law of the case," we are very strongly inclined to apply factual findings and legal conclusions rendered in LAF I to the instant controversy. We also note that several issues which arose in LAF II reappear here, and we have tried to treat these issues consistently with our treatment there as well.
Our decisions in the instant matters require the resolution of several issues. Firstly, we must determine whether the transfers to the Goodways are avoidable because the Debtor, in making them, committed actual fraud upon its creditors. Secondly, if we find that these transfers did not occur as a result of actual fraud, this court must decide whether the transactions between the Debtor and the Goodways constituted constructive fraudulent conveyances. Deciding the instant constructive fraud claims requires this court to determine whether (1) the transfers are separate and distinct transactions viewed in isolation or must be considered as part of a series of occurrences which must be combined with related transactions in determining whether adequate consideration passed hands; and (2) the Debtor was insolvent, was left with unreasonably small capital, or incurred debt it believed was beyond its ability to repay at the time of the transfers *670 in issue, some of which precede the Debtor's bankruptcy filing by more than a year. Thirdly, the court must decide whether the payments to any of the Affiliates were avoidable as preferential transfers, considering the elements of such transfers set forth in 11 U.S.C. § 547(b) and the affirmative defenses set forth in 11 U.S.C. § 547(c) applicable thereto.
We find that the fraudulent conveyance claims against the Goodways cannot be sustained, since U & L failed to prove that LAF committed actual fraud under the requisite "clear and convincing evidence" standard or to prove constructive fraud, because they were unable to establish that the Debtor actually transferred its assets without consideration. U & L also cannot recover upon its preference claims against the Goodways, nor can it recover on most of its preference claims against GGM because the Debtor received new value following these transfers. However, utilizing the new value analysis put forth in LAF I, U & L is entitled to recover, on the Debtor's behalf, a preference claim against GGM in the amount of $173,000.
II. FACTUAL AND PROCEDURAL HISTORY
The underlying voluntary Chapter 11 bankruptcy case was filed by the Debtor on May 30, 1991. Since its initiation, this matter has been marred by intense litigation, mostly between the Debtor, formerly an intermediate lessor of automobiles to small retail motor vehicle rental agencies, and its former supplier-lessor of vehicles, Lauderhill. These disputes have resulted in numerous published decisions of this court, as well as several from the district court in litigation the reference of which to this court was withdrawn. A summary of all of the five reported decisions prior thereto appears in In re Lease-A-Fleet, Inc., 151 B.R. 341, 343-44 (Bankr.E.D.Pa.1993), and will not be repeated here, except to add a reference to the immediately subsequent Opinion in In re Lease-A-Fleet, Inc., 152 B.R. 431 (Bankr.E.D.Pa.1993), in which we determined that UCI and Meridian had valid security interests in the Debtor's post-petition proceeds from its lessees, and the decision in LAF II noted herein.
The conception of these particular actions can be traced to a motion filed by Lauderhill in the Debtor's main bankruptcy case on June 22, 1992, in which it requested permission to sue Meridian and Robins LeCocq Corp. ("Robins"), the parent of the Goodways,[3] as well as the Affiliates to recover preferences and fraudulent conveyances. See LAF II, slip op. at *2-*3.[4]
Lauderhill's above-referenced motion, ultimately joined by UCI, was granted in an Order of September 10, 1992. The instant proceedings were filed against the Goodways on October 23, 1992, and against GGM on November 6, 1992. The initial trial dates were all continued until January 6, 1993. After hearings on certain discovery disputes on December 23, 1992, the matters were, by agreement, listed together for a consolidated trial on an must-be-tried basis on March 25, 1993.
U & L also filed two "motions in limine" in connection with these proceedings, seeking pre-trial determinations as to (1) the appropriate statute of limitations on its state-law causes of action; (2) whether it or the Defendants bore the burden of proof regarding insolvency if it proved lack of fair consideration, similar to motions filed in the suit against Meridian. See LAF II, slip op. at *3. Prior to the trial of the lawsuit considered in LAF II, we entered an Order of January 19, 1993, on the limitations issue, barring any claims which accrued prior to May 30, 1989. This decision was based upon the reasoning expressed in In re Shields, 148 B.R. 783, 786-87 (Bankr. E.D.Pa.1993). Since they were aware of this ruling, the parties to the matters proceeded within its parameters.
*671 U & L ultimately contended that, among a larger number of transfers originally challenged as avoidable in their Complaints filed against the Affiliates, the Debtor made fraudulent conveyances or preferential transfers of the following amounts on the following respective dates to the Goodways:
G-V
Date of
Transfer Amount
11/30/89 $ 100,000
12/23/89 230,000
3/22/90 90,000
5/25/90 125,000
5/25/90 15,000
5/29/90 60,000
3/13/91 80,000
4/29/91 20,000
___________
TOTAL $ 720,000
G-M
11/28/89 $ 240,509
12/28/89 396,513
5/25/90 50,000
5/25/90 50,000
11/09/90 100,000
12/08/90 352,750
12/20/90 300,000
__________
TOTAL $1,289,772
Similarly, U & L's Complaint against GGM alleges that the Debtor made the following preferential payments to GGM:
Date Amount
1. 6/6/90 $ 200,000
2. 6/12/90 200,000
3. 8/3/90 35,000
4. 9/5/90 118,000
5. 9/6/90 38,000
6. 9/14/90 44,000
7. 11/30/90 100,000
8. 12/4/90 50,000
9. 12/11/90 55,000
10. 1/4/91 25,000
11. 1/14/91 20,000
12. 1/17/91 25,000
13. 1/24/91 20,000
14. 2/1/91 20,000
15. 2/4/91 110,000
16. 2/7/91 25,000
17. 2/8/91 20,000
18. 2/21/91 30,000
19. 2/22/91 60,000
20. 3/5/91 60,000
21. 3/19/91 220,000
___________
TOTAL $1,383,000
A consolidated trial, marked by considerable unnecessary rancor, most of which emanated from the Affiliates' lead counsel, was conducted by this court over a period of approximately sixteen (16) hours on March 25, 29, 30 and 31, 1993.
U & L's first witness was accountant George Miller, reiterating much of his testimony noted in LAF II, slip op. at *4, *5, *9. Miller opined that, at the time of all of the transfers at issue, the Debtor was insolvent. In support of his conclusion, Miller submitted to the court documents which his firm prepared which purported to set forth accurately the financial condition of the Debtor based upon reconstructed balance sheets which his firm had prepared for each month of the time period between May, 1989, and May, 1991. Miller testified that the documents which his firm prepared, unlike those of the Debtor which had reflected its solvency at the time of a majority of the transfers, accurately reflected the financial condition of the Debtor on the dates at issue. Miller indicated that the main differences between his and the Debtor's balance sheets were attributable to the fact that his firm complied with generally accepted accounting practices ("GAAP") and included all contingent liabilities in their calculations.
The most significant witnesses for the defense were (1) Steven Wolk, the Debtor's owner ("Steven"); (2) Donald, Steven's father, the owner of the Goodways and, with his brother Beryl, one of two partners of GGM; and (3) David Mallenbaum, Esquire, Steven's brother-in-law who serves as house counsel for many if not all of the Wolk-owned entities. Steven testified that he was not involved with the specifics regarding the transfers at issue. He did note that the Debtor often borrowed money from his father and his father's companies on a short-term basis in order that the Debtor could pay its bills, notably the Debtor's monthly leasing bill to Lauderhill.
Also testifying which reluctance due to the purported inability of the Affiliates to compensate him, was William H. Tennant, *672 Jr., an accountant called by Meridian as its expert witness in the trial referenced in LAF II. Tennant testified that, at the request of Meridian, he had conducted an analysis of the Debtor's balance sheets. After getting data from a review of the Debtor's records, Tennant stated that he adjusted the balance sheets on a non-GAAP basis to derive the net realizable sale value of the Debtor at several points in time. His testimony from the LAF II hearing, wherein he concluded that the Debtor was solvent until at least the end of 1990, was submitted into the record.
Mallenbaum testified that he had analyzed the transfers at issue and that, following his review of the records of the Debtor, the Goodways, and Robins, concluded that most of the transfers to the Goodways were characterized as "circles of cash" in which the same or nearly the same amount of funds flowed from the Debtor to the Goodways, the Goodways to Robins, and from Robins back to the Debtor again in a period of a few days, the purpose of which were to provide the Debtor with cash despite its obligations to Robins. In support of his conclusions, Mallenbaum prepared and submitted to the court documents illustrating these "circles of cash."
Donald testified that the Debtor was formed by himself and his brother Beryl as a successor to Goodway Automotive Systems, Inc. ("GAS"), a lessor of reconditioned vehicles to small companies which leased vehicles to the general public, and which was subsequently sold to Steven in January, 1990. Prior to the sale to Steven, Donald testified that the Debtor, as do the Goodways at present, had compensated Donald and Beryl through payment of management fees to Robins. As part of this sale of the Debtor to Steven, Donald stated that it was agreed that Donald and Beryl would be compensated for the sales commission associated with the account of Lindo's Rental Car Co. ("Lindo"), the Debtor's largest customer, and for a reduced level of continuing management services provided to the Debtor. Donald further stated that recordation of these payments was the driving force behind the transfers at issue. He claims that, in order to aid the Debtor in payment of its debts, but to avoid local "millage taxes" payable by Robins, as a local entity, and not by the Goodways, whose places of business were elsewhere, the monies in question were circulated from the Debtor to the Goodways, from the Goodways to Robins, and from Robins back to the Debtor in the manner described by Mallenbaum.
U & L presented rebuttal testimony from Daniel Coffey, an accountant employed by Miller's firm, to counter the Affiliates' claim that the transfers of monies had no negative impact upon the Debtor. Coffey stated that the ultimate effect of these transfers upon the Debtor was a loss in its net equity in excess of $1 million.
At the conclusion of the trial the parties were afforded an opportunity to file post-trial briefs by April 21, 1993 (U & L) and May 12, 1993 (the Affiliates). A timely brief was filed by U & L. However, the date for the Affiliates' filing was extended at its request on two occasions, ultimately until May 21, 1993.
On April 16, 1993, U & L filed a motion, granted on April 29, 1993, without opposition, requesting permission to supplement the trial record with a Memorandum and Order of the District Court of April 12, 1993, in the matters of which it had withdrawn the reference. The aforesaid District Court decision denied Lauderhill's motions for judgments n.o.v., but granted its motions for a new trial on all of the claims as to which the Debtor and the Wolks had been successful against Lauderhill in obtaining jury verdicts which totalled an approximate amount of $3.1 million. On June 2, 1993, U & L filed a motion to strike certain statements and an exhibit attached to the Affiliates' brief. We have not considered the exhibit or the disputed statements in rendering our decision and therefore will deny this Motion as moot.
C. DISCUSSION
1. APPLICABLE STATUTORY PROVISIONS FOR FRAUDULENT CONVEYANCES.
It has long been recognized that debtors often attempt to evade the payment of *673 legitimate debts by concealing or transferring property. See, e.g., L. Verner, Transfers in Fraud of Creditors Under the Uniform Acts and the Bankruptcy Code, 92 COMMERCIAL L.J. 219 (1985). Legislative attempts to rectify such actions include the provisions set forth at 11 U.S.C. § 548 of the Bankruptcy Code and the Uniform Fraudulent Conveyances Act, which has been adopted by several states, including Pennsylvania, at 39 P.S. §§ 351 et seq. ("the UFCA"). Both of these statutory provisions provide remedies for both actual and constructive fraudulent conveyances.
In the instant matter, U & L seeks to avoid transfers made by the Debtor to the Goodways under both actual fraud and constructive fraud theories. U & L relies upon the following provisions of the Code and the UFCA in making these claims:
11 U.S.C. § 548
(a) The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily
(1) made such transfer or incurred such obligation with actual intent to hinder, delay or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted; or
(2)(A) received less than a reasonably equivalent value in exchange for such transfer or obligation; and
(B)(i) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation;
(ii) was engaged in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital; or
(iii) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor's ability to pay as such debts matured.
UFCA, 39 P.S.
§ 354. Conveyances by insolvent.
Every conveyance and every obligation incurred by a person who is or will thereby without regard to his actual intent, if the conveyance is made or the obligation is incurred without fair consideration.
§ 355. Conveyances by persons in business
Every conveyance made without fair consideration, when the person making it is engaged, or is about to engage, in a business or transaction for which the property remaining in his hands after the conveyance is an unreasonably small capital, is fraudulent as to creditors, and as to other persons who become creditors during the continuance of such business or transaction, without regard to his actual intent.
§ 356. Conveyances by a person about to incur debts
Every conveyance made and every obligation incurred without fair consideration, when the person making the conveyance or entering into the obligation intends or believes that he will incur debts beyond his ability to pay as they mature is fraudulent as to both present and future creditors.
§ 357. Conveyance made with intent to defraud
Every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors.
2. THE TRANSFERS TO THE GOODWAYS CANNOT BE AVOIDED ON THE GROUND OF ACTUAL FRAUD BECAUSE U & L HAS NOT PRESENTED "CLEAR AND CONVINCING" EVIDENCE THAT THE DEBTOR COMMITTED SAME.
In order to prevail on their claim of actual fraud under either the Code or the UFCA, U & L were obliged to prove that the Debtor had an "actual intent" to "hinder, *674 delay or defraud" its creditors in making the instant transfers to the Goodways. Moreover, the standard of proof for U & L as to each necessary element of such claims of fraud was the demanding standard of proving same by "clear and convincing evidence." See Tunis Bros. v. Ford Motor Co., 952 F.2d 715, 731 (3rd Cir.1991), cert. denied, ___ U.S. ___, 112 S. Ct. 3034, 120 L. Ed. 2d 903 (1992); Ratay v. Lincoln Nat'l Life Ins. Co., 378 F.2d 209, 212 (3rd Cir.), cert. denied, 389 U.S. 973, 88 S. Ct. 472, 19 L. Ed. 2d 465 (1967); and In re Pinto Trucking Service, Inc., 93 B.R. 379, 386 (Bankr.E.D.Pa.1988).
Much of U & L's Brief in support of these claims consists of argumentative epithets directed against the alleged perfidy of the Wolks. Unfortunately, these colorful characterizations are not supported by any hard evidence. In those portions of these arguments devoted to the law, U & L relies upon the following "badges of fraud" set forth by this court in In re Cohen, 142 B.R. 720, 728 (Bankr.E.D.Pa.1992):
(1) lack or inadequacy of consideration;
(2) the family, friendship or close associate relationship between the parties;
(3) the retention of possession, benefit or use of the property in question, although title exists in another entity;
(4) the financial condition of the party sought to be charged both before and after the transaction in question;
(5) conveyance of all of the debtor's property;
(6) secrecy of the conveyance;
(7) existence of a trust or trust relationship between the debtor and the person to whom the property was conveyed;
(8) the existence or cumulative effect of a pattern of series of transactions or a course of conduct after the incurring debt, onset of financial difficulties, or pendency or threat of suit by creditors;
(9) the instrument affecting the transfer suspiciously states it is in fact bona fide;
(10) the debtor makes a voluntary gift to a family member; and
(11) the general chronology of events and transactions under inquiry.
Cf. In re Pinto Trucking Service, supra, 93 B.R. at 386, quoting the Uniform Fraudulent Transfers Act, 7A UNIFORM LAWS ANNOT. 653 (1965) (similar listing).
Specifically, U & L contends that the following "badges of fraud" exist in the present matter:
1) Lack of adequate consideration. The Goodways admittedly provided no services to the Debtor in exchange for the payments;
2) A close associate relationship between the parties. The Goodways were owned by the Donald and Beryl, the former owners of the Debtor and the father and uncle, respectively, of the Debtor's present owner;
3) The Debtor retained control of the money. Since the monies involved were transferred from the Debtor to the Goodways to Robins and back to the Debtor, the Debtor allegedly retained control of the money.
4) The Debtor's financial condition both before and after transfers. The Debtor was allegedly insolvent both before and after all the transfers at issue because its assets were less than its liabilities.
6) The transfers were concealed by the Debtor. The Debtor hid the transfers by concealing their true nature and characterizing them as printing expenses when no such expenses were incurred.
In addition to the Cohen factors, U & L urge a finding of actual fraud because the Debtor allegedly committed tax fraud against the federal government by treating the payments as deductible tax expenses and against the local taxing authorities by avoiding the millage taxes otherwise payable by Robins.
We find that only the second and possibly the sixth "badge of fraud" were proven with any degree of evidence approaching *675 the applicable "clear and convincing" standard. The evidence does not suggest a lack of consideration because, while money flowed out of the Debtor to the Goodways for no apparent consideration, each transfer triggered a transfer from Robins to the Debtor which was equally lacking in consideration from the Debtor. The net result is that money passed through the Debtor with no gain and no loss in the Debtor's ability to pay its creditors. The evidence does not support the Debtor's "control of assets" transferred by it to the Goodways. Rather, the transfers were triggered by Robins and ended with a transfer by Robins to the Debtor. Each transfer was, as Mallenbaum stated, fairly characterized as a "circle of cash" from which the Debtor had no power to withdraw its participation. There is no evidence that the instant transfers caused the Debtor to devolve from a solvent state to an insolvent state, as is the thrust of the fourth "badge." Each circle of transfers did not appear to have any real effect on the Debtor's solvency. Even Miller's testimony would not support this conclusion, because he believed that the Debtor was insolvent both before and after each of the transfers in issue.
The existence of the remaining two "badges" (the second and sixth) are, in and of themselves, not worth very much. These "badges," plus a few more including the spectre of actual transfers of assets (which we do not find here) were present in Cohen, supra, 142 B.R. at 729. However, finding that the transfers in issue there did not and were not reasonably intended to hinder or delay creditors, no fraudulent conveyance was found. Id. at 729-30.
Instead of suggesting a grand scheme to defraud creditors, the evidence suggests that the Goodways and the Debtor were sister entities that were controlled by the profitable, parent-entity of the Goodways (Robins), which provided financial assistance to the Debtor when it was needed. That the means for providing this financial assistance, while somewhat convoluted for probably some as yet undefined tax benefit, constituted an actual intent by the Debtor to commit fraud upon its creditors is not supported by the record. Specifically, with regard to the claim of tax fraud, we observe that a taxpayer's arranging its affairs in such a manner as to minimize its tax liability, as appears to be the case here, is not the equivalent of tax fraud. Consequently, on the record before this court, we cannot find or even come close to finding the requisite "clear and convincing evidence" that the Debtor committed actual fraud upon its creditors in the course of the instant transfers.
3. THE TRANSFERS TO THE GOODWAYS CANNOT BE AVOIDED UNDER THE CONSTRUCTIVE FRAUD PROVISIONS OF THE BANKRUPTCY CODE OR THE UFCA BECAUSE U & L FAILED TO PROVE THAT THE DEBTOR RECEIVED INADEQUATE CONSIDERATION IN THE TRANSFERS.
U & L contends, though with considerably less effort and vigor, that the transfers in issue are avoidable under the constructive fraud provisions of the Bankruptcy Code and the UFCA as well. Under both of these statutes, quoted at pages 672-73 supra, U & L is required to meet basically the same two-prong test. It must prove that the Debtor both (1) received inadequate consideration for the transfers; and (2) was insolvent at the time of the transfers or became insolvent as a result of them; was left with unreasonably small capital after the transfers; or was aware that it was unable to pay future debts as they became due as a result of these transfers.
In support of its argument that the Debtor received inadequate consideration for these transfers, U & L relies upon several factors. Firstly, they assert that the trial and deposition testimony of Donald from the District Court litigation, coupled with his testimony in the present trial that the Goodways provided little if any printing services to the Debtor, clearly proves that the Debtor did not receive a fair exchange or adequate consideration for *676 the payments at issue. Secondly, U & L argue that the Debtor's different descriptions of the transactions in the Debtor's journals and ledgers from the characterizations at trial of the transfers as "circles" of monies flowing among Robins, the Goodways, and the Debtor is an attempt by the Affiliates to re-characterize the transactions simply to meet the adequate consideration requirement. Thirdly, U & L claim that the conflicting descriptions of the payments (printing services, management fees, and Lindo commissions) demonstrate that the transfers were not made in good faith, and that therefore they are able to meet the inadequate consideration requirement for constructive fraud.
U & L submitted the testimony of Miller to attempt to establish that the Debtor was insolvent or became insolvent at the time of the transfers at issue. Miller's testimony and the monthly balance sheets he prepared were also relied upon by U & L as proof that the Debtor was undercapitalized and unable to pay its debts as they become due. See pages 679-81 for an evaluation of the Debtor's solvency.
Our review of the testimony and evidence presented by U & L at the time of trial reveals that it failed to meet the first prong of the dual constructive fraud requirements. We find that, looking at the transactions among Robins, the Goodways, and the Debtor as a whole, U & L has failed to prove that the Debtor received inadequate consideration in exchange for the transfers at issue.
Support for the propriety of collapsing the transactions among all three of the entities in issue and viewing them as a whole is drawn from the reasoning of United States v. Tabor Court Realty Corp., 803 F.2d 1288 (3rd Cir.1986), cert. denied sub nom. McClellan Realty Corp. v. United States, 483 U.S. 1005, 107 S. Ct. 3229, 97 L. Ed. 2d 735 (1987). In Tabor Court, upholding the district court's finding that a leveraged buy-out constituted a fraudulent conveyance for lack of adequate consideration, the Court stated, id. at 1302, that
[a]dmittedly, in the course of its determination that the ITT-Raymond group transaction was without fair consideration under section 353(a), the court looked beyond the exchange of funds between ITT and the Raymond Group. But there was reason for this. The two exchanges were part of one integrated transaction. As the court concluded: "[t]he $4,085,000 in ITT in loan proceeds which were lent immediately by the borrowing companies to Great American were merely passed through the borrowers to Great American and ultimately to the selling stockholders and cannot be deemed consideration received by the borrowing companies." . . . (emphasis added).
Like the transfers at issue in Tabor Court, the transfers at issue in the Goodways cases cannot be viewed in isolation. The transfers from the Debtor to the Goodways were not isolated, but were driven by transfers from Robins to the Debtor and were accompanied by transfers from the Goodways to Robins. Each of the circular financial transactions between the parties in issue must therefore be "collapsed" into one transaction to appreciate their impact upon the Debtor. When each circle of cash is viewed as a single transaction, it is clear that the same monies simply passed through from Robins to the Debtor to the Goodways and back to Robins.
Unlike the debtors in Tabor Court, the instant Debtor did not pledge or surrender any assets in the course of these transactions. Instead, the effect of the transfers was a change in the character of the Debtor's indebtednesses to Robins from debts owed for commissions and management fees to debts to Robins for loans. This change is basically a distinction without a difference, except that the Debtor thereby received "expenses" which could be deducted from its tax liabilities. These gains in liabilities, like the tax benefits arising from the transfers themselves, appear to have added to, rather than detracting from, the assets of the Debtor.
A second conclusion which arises when these circular transactions are viewed as units is that the monies involved were not diverted from their availability to pay the *677 Debtor's other creditors. One of the primary purposes of § 548 of the Bankruptcy Code and § 357 of the UFCA is to prevent a debtor from transferring assets to certain specific creditors which should be available for all creditors. In the instant matter, it is unclear what assets, if any, the Debtor actually transferred. The evidence established that the monies involved originated from Robins.
Thus, while U & L argue that this court should view the transfers in issue in such a manner as to allow form to prevail over substance, it is precisely from such a viewpoint that this court regards each of the circular transactions as a whole. Accordingly, we find that the conveyances at issue are more properly analyzed when viewed as a series of events constituting single transfers than individual occurrences viewed in isolation. When viewed as such, they do not support the conclusion that the Debtor received inadequate consideration for its role in the transactions in issue.
Furthermore, since the transactions did not tend to deplete the Debtor's assets at all, it is impossible to conclude, on the basis of same, that these transactions, in themselves, contributed to the Debtor's insolvency, left the Debtor with unreasonably small capital, or rendered it unable to pay future debts as they fell due.
Since U & L failed to meet the second prong of the necessary elements for proving constructive fraud, we need not address the issue of insolvency or undercapitalization to determine that the transfers to the Goodways cannot be avoided as constructive frauds. We do observe, as we did in LAF II, supra, slip op. at *9, that the evidence of insolvency is equivocal. See also pages 679-81 infra. The change in this conclusion as a result of the Intervening District Court Order vacating the jury verdict in favor of the Debtor against Lauderhill does not, as Lauderhill suggests, wipe these claims from the face of the earth or significantly change our analysis in LAF II. These claims will be, if not resolved, retried, and a new jury could reach a decision even less palatable to Lauderhill than the prior verdict.
As we ruled in Pinto Trucking Service, supra, 93 B.R. at 388, whatever lack of clarity exists regarding the burden of proof as to insolvency once inadequate consideration for a transfer is proven, it is clear that U & L bore the burden of proving that the Debtor failed to receive adequate consideration in the challenged transfer transactions by the preponderance of the evidence. Since U & L have failed to prove this necessary element, their fraudulent conveyance claims against the Goodways must be dismissed.
4. APPLICABLE STATUTORY PROVISIONS FOR PREFERENTIAL TRANSFERS.
In addition to the claim that the monies paid by the Debtor to the Goodways were fraudulent conveyances, U & L allege that these transfers may also be avoided as preferential transfers pursuant to 11 U.S.C. § 547. This same provision of the Code serves as the sole basis for U & L's claims against GGM. In order to determine whether U & L is entitled to avoid the transfers made by the Debtor to any of the Affiliates, it is necessary to review the following applicable portions of 11 U.S.C. § 547:
(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made
(A) on or within 90 days before the date of the filing of the petition or
(B) between ninety days and one year before the date of filing of the petition, if such creditor at the time of such transfer was insider; and
(5) that enables such creditor to receive more than such creditor would receive if
*678 (A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
(c) The trustee may not avoid under this section a transfer
(1) to the extent that such transfer was
(A) intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debtor; and
(B) in fact a substantially contemporaneous exchange;
(2) to the extent that such transfer was
(A) in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee;
(B) made in the ordinary course of business or financial affairs of the debtor and the transferee; and
(C) made according to ordinary business terms;
. . . . . .
(4) to or for the benefit of a creditor, to the extent that, after such transfer, such creditor gave new value to or for the benefit of the debtor
(A) not secured by an otherwise unavoidable security interest; and
(B) on account of which new value the debtor did not make an otherwise unavoidable transfer to or for the benefit of such creditor; . . .
Consequently, as stated in LAF I, supra, 141 B.R. at 859, resolution of a proceeding seeking to avoid a preference
requires a two-step analysis. First, each payment must be reviewed individually and a determination made whether it fulfills all of the requirements set forth in § 547(b). The court may determine a payment voidable only if every requirement set forth in § 547(b) is met. Second, if a payment is deemed to be preference, then any defenses . . . articulated under 11 U.S.C. § 547(c) to the payment must be addressed.
5. U & L HAS MET ITS BURDEN OF PROVING THAT THE REQUIREMENTS OF §§ 547(b)(3) and (b)(5) ARE SATISFIED, AND THE AFFILIATES' § 547(c)(2) DEFENSE CAN BE READILY REJECTED.
As stated above, U & L must establish all of the elements set forth in § 547(b) in order to prevail in its preference claims against the Affiliates. A review of the parties' post-trial briefs indicate that the elements of § 547(b) which appears to be in dispute are those set forth at pages 677-78 supra, i.e., § 547(b)(2), (b)(3), (b)(5); and, as to the Goodways only, the element in the preamble to § 547(b) requiring that transfer "of an interest of the debtor in property" must be made. We will discuss the common §§ 547(b)(3) and (b)(5) issues at this time and leave the discussion of the other, more particularized § 547(b) issues to a later discussion of the defenses at pages 682 and 682-84 infra.
In an about-face of the positions from the parties from those taken in LAF I, supra, 141 B.R. at 860-61, U & L now claim, contrary to Lauderhill's position in LAF I, that the Debtor was insolvent not only within the 90-day non-insider-preference period, but for the duration of the one-year insider-preference period. Contrary to the testimony of witnesses under their control in LAF I, the Affiliates now contend that the Debtor was solvent at the time of at least some of the transfers in issue. In support of their argument, the Affiliates rely upon the documents and testimony of Tennant, which supports the position that LAF was solvent at the time of at least the earlier of the challenged transfers. In addition, they dispute Miller's assertion that the Debtor was, at all times within the one-year period and considerably prior thereto, insolvent, and they contend that Miller's opinion was based upon inaccurate information.
*679 The Affiliates fail in their argument that LAF was solvent during the one-year insider preference period. We begin by noting that this court has previously addressed the issue of the Debtor's solvency during the 90-day time period preceding its bankruptcy in LAF I, supra, 141 B.R. at 860-61. Contrary to Lauderhill's position at that time, we concluded that "it is clear that the Debtor was in fact insolvent at all pertinent times." As we noted at page 669 supra, we are extremely disinclined to alter any determinations which we made in LAF I, especially now that the positions of the parties as to these issues has reversed. Consequently, we easily conclude that U & L have met their burden of proving that the Debtor was insolvent in connection with any of the alleged preferential transfers which occurred in the 90 days preceding LAF's bankruptcy filing.
Secondly, the Affiliates failed to present any convincing evidence to counter U & L's proof that the Debtor was insolvent during the remaining time periods at issue. While the Affiliates were not obliged to rebut any presumption of insolvency outside of the 90-day general preference period, see In re Old World Cone Company, 119 B.R. 473, 476-77 (Bankr. E.D.Pa.1990), logic dictates that they were required to offer at least some evidence of a change in circumstances between the beginning of the one-year period and the commencement of the 90-day period. However, we note that Tennant, the Affiliates' own expert witness, as well as Miller, did not vigorously dispute the assertion that the Debtor was insolvent from at least the end of 1990. As we noted at page 671 supra, Miller advocated the use of a strict GAAP approach in rendering his insolvency analysis. Tennant, meanwhile, utilized the "net realizable value" approach, i.e., measuring the Debtor's assets by estimating their sale value at a given point in time.
Courts are not required to rely upon GAAP standards when determining the issue of insolvency. See In re Sierra Steel, Inc., 96 B.R. 275, 278 (Bankr. 9th Cir.1989) (although GAAP principles are relevant, they are not controlling in making a bankruptcy insolvency determination); In re Richmond Produce Co., Inc., 151 B.R. 1012, 1019 (Bankr.N.D.Cal.1993) (GAAP principles do not control the determination of insolvency). See also Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 544, 99 S. Ct. 773, 787, 58 L. Ed. 2d 785 (1979) (GAAP principles themselves tolerate a range of treatment of certain transactions, leaving a choice of alternatives approaches).
In the instant matter, the court is therefore not bound to accept the computations based largely on GAAP principles offered by Miller. We also note that, in In re Joshua Slocum, Ltd., 103 B.R. 610, 621-22 (Bankr.E.D.Pa.), aff'd, 121 B.R. 442 (E.D.Pa.1989), this court utilized an approach very close to that advocated by Tennant, i.e., we engaged in a "balance sheet" analysis of the debtor's financial status based, in part, upon the value of the debtor's assets.
We therefore conclude that Tennant's general analytical approach is preferable than that of Miller. However, we do not agree with all of Tennant's assumptions in applying his approach to the facts in issue here.
Our review of the instant Debtor's financial condition begins with its own monthly balance sheets for the disputed period in issue, i.e., from May 30, 1990, through the end of 1990. These reports indicate that the Debtor's assets exceeded its liabilities and hence that it was solvent during the pertinent period. However, both Miller and Tennant agree that the Debtor's records failed to include certain items which affect its solvency, and the balance sheets must be adjusted accordingly. Weighing the testimony of both Miller and Tennant, we believe that the following adjustments are appropriate:
(1) Accounts receivable should be reduced by ten (10%) percent to reflect uncollectible accounts;
(2) Cars & equipment should be reduced by ten (10%) percent to reflect depreciation in value;
(3) Accounts payable should be increased to reflect the amounts the Debtor was *680 billed and admitted it owed to Lauderhill. However, these amounts should be reduced by about twenty-five (25%) percent to account for the Debtor's disputes of the amounts owed which are currently being litigated in the district court; and
(4) The debt owed by the Debtor to GAS should be eliminated, since that company no longer exists.
When making these adjustments to the Debtor's balance sheets, we conclude that the Debtor was insolvent for the entire period between June, 1990, and November, 1990.[5]
The Affiliates also fail in their argument that U & L did not prove the § 547(b)(5) element that the Affiliates received more monies from the Debtor than they would have received under a Chapter 7 liquidation. *681 The Affiliates assert that, in such a liquidation, they would receive as much as they did as a result of their payments because the Debtor's assets will be swelled by the jury findings in the District Court trial against Lauderhill and the $850,055.33 judgment entered in the Debtor's favor against Lauderhill by this court in LAF I.
These arguments of the Affiliates are totally unpersuasive. They ignore the fact that the jury findings in the District Court litigation in favor of the Debtor were subsequently set aside by the district court, rendering their positive effect upon the Debtor's solvency questionable.
We note that similar arguments (that potential recoveries should be considered in the insolvency analysis) were advanced by Lauderhill and rejected by this court in LAF I, supra, 141 B.R. at 860. In response, we stated therein: "It is only if and when the debtor-in-possession recovers property . . . that property becomes property of the Debtor's estate." Id.
We already found that the § 547(b)(5) element was proven in LAF I, 141 B.R. at 860-61. Since we find that the Debtor was insolvent at all pertinent times, it is clear that it would not have been able to pay all of its creditors in full if this case had been filed under Chapter 7. Therefore, that requirement is rather easily found evident on this record.
The only elements of § 547(c)(2) which are in issue, are, again, those set forth at page 678 supra, i.e., those set forth in §§ 547(c)(1), (c)(2), and (c)(4). Again, initially considering the issues common to all of the Affiliates, we first address futile defenses under 11 U.S.C. § 547(c)(2) argued by the Affiliates. In this regard, the Affiliates contend that (1) the series of transactions where monies were paid by the Debtor to the Goodways *682 and Robins, in turn, paid over the same or approximately the same sum to the Debtor; and (2) the series of payments back and forth between the Debtor and GGM, can both be characterized as having been made in the ordinary course of business between these parties. While the Affiliates may have proven that this course of conduct was common between the respective parties, they failed to prove or even allege the presence of one of the other necessary elements of a § 547(c)(2) defense: that such transactions are ordinary in the car-rental industry in general. See, e.g., In re Fred Hawes Organization, Inc., 957 F.2d 239 (6th Cir.1992); In re Molded Acoustical Products, Inc., 150 B.R. 608, 615 (E.D.Pa.1993); and LAF I, supra, 141 B.R. at 863-64. Such rather obviously extraordinary transactions seem improbable candidates for being deemed common in any industry. Therefore, patently, no viable § 547(c)(2) defenses have been established by any of the Affiliates.
6. THE GOODWAYS HAVE SEVERAL VALID DEFENSES TO THE PREFERENCE CLAIMS AGAINST THEM IN LIGHT OF THE FACT THAT NO ACTUAL "TRANSFERS" FROM THEM TOOK PLACE.
Our discussion and findings regarding the unsuccessful constructive fraudulent conveyance claims of U & L against the Goodways portends the valid defenses which these parties do have to the preference claims against them. Therein, at pages 675-77 supra, we indicated our acceptance of the Goodways' argument that each of the transfers must be viewed as a part of a series of transactions in which the sums transferred to the Goodways came back to the Debtor again via payments from Robins.
On several theoretical bases, such transactions do not constitute avoidable preferential transfers. Firstly, it does not appear that these transactions were transfers at all. The Debtor, by arrangement with the Goodways and Robins, simply received back from Robins exactly what it gave to the Goodways.
Secondly, if these transactions could be classified as transfers, it is impossible to classify them as "transfers of an interest of the debtor in property." The Debtor lost no interest in property in these transactions. It received back from Robins, by design of the parties, exactly what it paid out to the Goodways. The reason why such transactions are not preferences is similar to the reasoning supporting the so-called "earmarking doctrine," see New York City Shoes, Inc. v. Best Shoe Corp., 106 B.R. 58, 60 (E.D.Pa.1989); In re Kelton Motors, Inc., 153 B.R. 417, 423, 24 B.C.D. 190, 193-96 (Bankr.D.Vt.1993); and M. Pappone & T. Orson, The Logicand the Limitsof the Earmarking Defense, 2 FAULKNER & GRAY'S BANKR.L.REV. 27, 28-29 (Spring 1990), i.e., the transfer goes directly from a third party to the creditor on behalf of the Debtor and hence the Debtor's estate is not diminished by the transfer. In the instant scenarios, the "transfers" went directly from the Debtor to the transferee, from the transferee to a third party, and then back to the Debtor again. Consequently, the Debtor's estate was in no sense diminished by these "transfers."
The instant facts lend themselves to an affirmative defense to avoidance of these transactions as preferential transfers as well. Under 11 U.S.C. § 547(c)(1), a transfer is not avoidable to the extent that it was intended to be made in exchange for a contemporaneous exchange of new value and was in fact a contemporaneous exchange. See In re Spada, 903 F.2d 971, 975 (3rd Cir.1990); and In re Samar Fashions, Inc., 109 B.R. 136, 139 (Bankr. E.D.Pa.1990). In the instant scenarios, the Debtor made the "transfers" to the Goodways with the intention of receiving payments from Robins in the same or nearly the same amounts within a short time thereafter. Payments were in fact received by the Debtor from Robins within a very short timespan after the Debtor's initial transfers. Assuming arguendo that the Debtor made transfers to the Goodways at all, such "transfers" are subject to § 547(c)(1) defenses.
*683 Therefore, we conclude that the payments which the Debtor made to the Goodways are not avoidable, either as fraudulent conveyances or as preferential transfers.
7. THE DEBTOR'S PAYMENTS TO GGM ARE PARTIALLY SUBJECT TO §§ 547(c)(1) (AS TO ONE TRANSFER) AND (c)(4) DEFENSES (EXCEPT AS TO $173,000 OF THE SUMS TRANSFERRED).
GGM presents an array of defenses to the claims of preferential transfers raised against it by U & L. Some of these are, to at least some degree, meritorious. In addition to the defenses that the elements of §§ 547(b)(3), (b)(5) were not proven and that it has proven the element of § 547(c)(2), which we unqualifiedly rejected at pages 678-82 supra, GGM argues that (1) U & L failed to prove the element of § 547(b)(2) as to all of the transfers to it; (2) § 547(c)(1) establishes a defense as to the transfer of June 6, 1990, which represented a repayment of a $200,000 loan which GGM allowed it to make on GGM's own account with National Westminster Bank ("Nat West") and repay immediately to Nat West; and (3) new value provided to the Debtor by GGM nearly equals the payments made to GGM by the Debtor.
With respect to § 547(b)(2), GGM argues, in its Brief, that the failure of Miller to testify as to this element is fatal to U & L's preference claim. However, it is not clear why Miller would be expected to testify as to such matters. The scope of his testimony was focused on establishing the Debtor's insolvency at the critical times of the transfers in issue. Therefore, this contention of GGM is puzzling and appears meritless.
U & L point out, in their post-trial submission, that GGM presented an Exhibit (D-13) which is captioned "GGM Co. Loans to LAF," which strongly suggests an acknowledgement by the Debtor that GGM and the Debtor had a creditor-debtor relationship. Also, U & L point out that, in responses to pre-trial Interrogatories admitted into the record as Exhibit L-73, GGM stated that it "believes at this time that the debts paid [to GGM] were antecedent debts."
The payments made by the Debtor to GGM were clearly not like the "circle of cash" payments to the Goodways. Payments by the Debtor to GGM were not followed by remittances by either GGM or any other party back to the Debtor in equal or almost equal amounts. All indicators, including the testimony of both Steven and Donald, were to the effect that the Debtor and GGM had a conventional debtor-creditor relationship. The Debtor borrowed from GGM in times of need, particularly when monthly lease payments were due from the Debtor to Lauderhill, and the Debtor repaid GGM when and if it could. Every indication supports the conclusion that the Debtor's payments to GGM were on account of antecedent debts owed to GGM.
GGM also appears to contend that an argument that the element provided in § 547(b)(2) is lacking arises from its contention that certain of the sums paid to it by the Debtor were not on account of an antecedent debt because the Debtor had no debt to GGM at the time of these payments. Specifically, GGM asserts that if the monies paid to GGM by the Debtor are reduced by monies subsequently paid to the Debtor by GGM, then a portion of the Debtor's transfer to GGM on February 22, 1991, and the payments on March 5, 1991, and March 27, 1991, were not payments on antecedent debts, since payments by the Debtor to GGM exceed the amount of monies that GGM had loaned to the Debtor at that time.
However, we find that GGM is incorrect in its claim that the sums paid to it on the three dates listed above were not on account of antecedent debts. The calculations relied upon by GGM arise in connection with its new value (§ 547(c)(4)) defense. A review of the court's calculation at pages 685-87 infra, indicates that, when the Debtor made each of the payments to GGM, they were preceded by antecedent debts.
*684 We therefore conclude that the Debtor has admitted, in the aforementioned exhibits, the presence of the element set forth in § 547(b)(2). Even if it had not made that admission, we believe that our calculations support the conclusion that the § 547(b)(2) element was present.
The next Code section which we must consider is § 547(c)(1), the pertinent aspects of which we previously discussed at pages 682-83 supra.
GGM argues that the single payment made by the Debtor to Nat West on behalf of GGM on June 6, 1990, may be defended on this basis. The unrebutted evidence presented by GGM indeed shows that the Debtor, GGM, and Nat West all intended that this transaction constitute a loan in which the sums were advanced to the Debtor by Nat West, GGM's bank, on a short term basis, with the Debtor to tender almost immediate repayment to Nat West. The Debtor did in fact make the re-payment to Nat West on the next day. These facts establish that this particular transfer fulfills the "contemporaneous exchange" requirement of § 547(c)(1). Consequently, this payment may not be avoided by U & L.
Finally, GGM asserts a defense to most, if not all, of the preferential payments in issue based upon § 547(c)(4), the "new value" defense. As was stated by this court in LAF I, supra, 141 B.R. at 864, quoting In re New York City Shoes, Inc., 880 F.2d 679, 680 (3rd Cir.1989),
"[t]he three requirements of section 547(c)(4) are well established. First, the creditor must have received a transfer that is otherwise voidable as a preference under § 547(b). Second, after, receiving the preferential transfer, the preferred creditor must advance `new value' to the debtor on an unsecured basis. Third, the debtor must not have fully compensated the creditor for the `new value' as of the date that it filed its bankruptcy petition."
The evidence indicates that, after receiving the alleged preferential transfers in issue, GGM provided additional monetary advances to the Debtor. In fact, U & L, in the modest portion of its lengthy Brief devoted to their claims against GGM, concedes that the net preference received could not be more than half of the Debtor's advances of over $1.3 million to GGM during the one-year insider preference period.
While GGM is therefore clearly entitled to assert a new value defense as to some of the payments which it received from the Debtor, we find that it cannot successfully assert this defense, as it argues, as to the funds which GGM paid to the Debtor post-petition, nor as to the payments made by Donald under the letter of credit drawn against the Debtor by Meridian. Firstly, GGM cannot, as a matter of law, utilize post-petition advances to the Debtor to offset pre-petition preferential transfers. See In re Bellanca Aircraft Corp., 850 F.2d 1275, 1284-85 (8th Cir. 1988) (subsequent advances of new value are only those given pre-petition because any post-petition advances are given to the debtor's estate, not to the debtor). Accord, In re American Int'l Airways, Inc., 68 B.R. 326, 337 (Bankr.E.D.Pa.1986), aff'd, C.A. No. 87-1287, 1987 WL 54484 (E.D.Pa. May 12, 1987).
Secondly, the position advanced by GGM regarding the application of the sums remitted on the calling of Meridian's letter of credit is contrary to the position taken by Donald and the Debtor, and the court's determination, in LAF I, 141 B.R. at 865-67. In the context of LAF I, Donald testified that the letter of credit was the sole obligation and debt of the Debtor, and that his only involvement was to allow the use of his name to facilitate the issuance of the letter of credit. Based upon this and other factors, we concluded that the payment on the letter of credit was properly included as a payment of the Debtor to Lauderhill in the calculations of the Debtor's claims to recovery of preferential transfers from Lauderhill. Donald now contends that the advance on the letter of credit was his personal obligation on behalf of the Debtor, and should be deducted from the payments to the Debtor to GGM, of which he is a copartner, as "new value" advanced by GGM. Putting aside the issues of whether either *685 GGM, as a partnership entity, or Beryl as a co-partner of it, could assert Donald's personal payment as new value, we conclude that our decision-making process in LAF I precludes our considering the payment on the letter of credit as anything but a payment by the Debtor. Hence, the letter of credit payments will not be deducted from the transfers to the Debtor to GGM as an aspect of a "new value" defense.
8. CALCULATION OF THE AMOUNT OF THE PREFERENTIAL PAYMENTS RECOVERABLE FROM GGM.
We therefore conclude that the Goodways are not liable to the Debtor on either fraudulent conveyance or preferential transfer claims against it. However, as to GGM, despite its success in asserting a § 547(c)(1) defense as to the Nat West payment and a § 547(c)(4) defense as to a substantial portion of the other payments made by the Debtor on GGM's behalf, some avoidable preferential payments remain.
In calculating the avoidability and amount of the transfers at issue, particularly in a series of payments as to which a § 547(c)(4) defense is asserted, this court, again in the interests of fair play and consistency to parties on both sides, will utilize the same approach that it employed in LAF I, 141 B.R. at 867-68. We will determine the total of the payments made, including each particular allegedly preferential payment, from the date of that payment through the date of the bankruptcy filing on May 30, 1991. We will then subtract from the total of payments made, from that date forward, the total new value supplied, from the date of each particular transfer through May 30, 1991. The resulting calculations are as follows:
1. $200,000 (June 6, 1990) (Nat West payment) (§ 547(c)(1) defense eliminates from
consideration)
2. $200,000 (June 12, 1990)
Payments $1,275,000
New Value 1,102,000
__________
Net Preference $ 173,000
Amount Voidable $ 173,000
3. $ 35,000 (August 3, 1990)
Payments $1,075,000
New Value 1,102,000
__________
Net Preference ($ 27,000)
Amount Voidable $ -0-
4. $118,000 (September 5, 1990)
Payments $1,040,000
New Value 867,000
___________
Net Preference $ 173,000
Amount Voidable $ 118,000
5. $ 38,000 (September 6, 1990)
Payments $ 922,000
New Value 867,000
__________
Net Preference $ 55,000
Amount Voidable $ 38,000
6. $ 44,000 (September 14, 1990)
Payments $ 884,000
New Value 867,000
_________
Net Preference $ 17,000
Amount Voidable $ 17,000
7. $100,000 (November 30, 1990)
Payments $ 840,000
New Value 717,000
_________
Net Preference $ 123,000
Amount Voidable $ 100,000
*686
8. $ 50,000 (December 4, 1990)
Payments $ 740,000
New Value 717,000
_________
Net Preference $ 23,000
Amount Voidable $ 23,000
9. $ 55,000 (December 11, 1990)
Payments $ 690,000
New Value 687,000
_________
Net Preference $ 3,000
Amount Voidable $ 3,000
10. $ 25,000 (January 4, 1991)
Payments $ 635,000
New Value 600,000
__________
Net Preference $ 35,000
Amount Voidable $ 25,000
11. $ 20,000 (January 14, 1991)
Payments $ 610,000
New Value 380,000
__________
Net Preference $ 230,000
Amount Voidable $ 20,000
12. $ 20,000 (January 17, 1991)
Payments $ 590,000
New Value 380,000
__________
Net Preference $210,000
Amount Voidable $ 20,000
13. $ 25,000 (January 24, 1991)
Payments $ 570,000
New Value 380,000
_________
Net Preference $ 190,000
Amount Voidable $ 25,000
14. $ 20,000 (February 1, 1991)
Payments $ 545,000
New Value 380,000
_________
Net Preference $ 165,000
Amount Voidable $ 20,000
15. $110,000 (February 4, 1991)
Payments $ 525,000
New Value 380,000
_________
Net Preference $ 145,000
Amount Voidable $ 110,000
16. $ 25,000 (February 7, 1991)
Payments $ 415,000
New Value 380,000
_________
Net Preference $ 35,000
Amount Voidable $ 25,000
17. $ 20,000 (February 8, 1991)
Payments $ 390,000
New Value 380,000
_________
Net Preference $ 10,000
Amount Voidable $ 10,000
18. $ 30,000 (February 21, 1991)
Payments $ 370,000
New Value 380,000
_________
Net Preference ($ 10,000)
Amount Voidable $ -0-
19. $ 60,000 (February 22, 1991)
Payments $ 340,000
New Value 380,000
_________
Net Preference ($ 40,000)
Amount Voidable $ -0-
*687
20. $ 60,000 (March 5, 1991)
Payments $ 280,000
New Value 380,000
_________
Net Preference ($ 100,000)
Amount Voidable $ -0-
21. $220,000 (March 19, 1991)
Payments $ 220,000
New Value 380,000
__________
Net Preference (160,000)
Amount Voidable $ -0-
We will establish the amount due as a result of these calculations by applying, once again, our following reasoning set forth in LAF I, 141 B.R. at 868:
The Debtor's counsel agreed that the debtor was not entitled to recover the cumulative effect of all of the preferential payments. We agree that it would be grossly inequitable, counterintuitive, and contrary to the purposes served by § 547(c)(4) to so rule. If all of the transfers could be avoided, the result would be that, despite having received new value of $4,325,826.25 over the entire pertinent post-transfer period from Lauderhill and having paid only $5,269,748.97 during this period, the Debtor would recover the sum of the amounts avoidable in all nine transactions, which would equal almost $3.7 million.
Rather, we believe that we must assume that, if a judgment is entered against Lauderhill as to any particular transfer, this sum would be paid to the Debtor. Lauderhill should then receive credit for payment of that amount against any other avoidable transfer in this series. Consequently, we conclude that the Debtor should rightfully recover a judgment for only the largest of the avoidable transfers.
Applying the above reasoning, we readily observe that the largest amount recoverable as a result of our analysis of the avoidable transfers in issue is $173,000, resulting from the calculations pertinent to the second transfer from the Debtor to GGM on June 12, 1990. We will enter a judgment in favor of U & L in this amount.
D. CONCLUSION
An Order entering judgment in favor of U & L, on behalf of the Debtor, in the amount of $173,000 from GGM will be entered in this proceeding. All other claims of U & L against any of the Affiliates will be dismissed.
ORDER
AND NOW, this 17th day of June, 1993, upon consideration of the record made at the consolidated trial of the above proceedings on March 25, 1993, March 29, 1993, March 30, 1993, and March 31, 1993, and of the post-trial Briefs submitted by the parties, it is hereby ORDERED AND DECREED as follows:
1. In Adv. Nos. 92-1071 and 92-1072, judgment is entered in favor of the respective Defendants, GOODWAY GRAPHICS OF VIRGINIA, INC. and GOODWAY GRAPHICS OF MASSACHUSETTS, INC., and against the Plaintiffs, MORSE OPERATIONS, INC. d/b/a LAUDERHILL LEASING and UNIVERSITY CADILLAC, INC., on behalf of LEASE-A-FLEET, INC. The Complaints in these proceedings are therefore DISMISSED.
2. In Adv. No. 92-1103, judgment is entered in favor of the Plaintiffs, MORSE OPERATIONS, INC. d/b/a LAUDERHILL and UNIVERSITY CADILLAC, INC. on behalf of LEASE-A-FLEET, INC., and against the Defendants, DONALD WOLK and BERYL WOLK t/a GGM Co., in the amount of $173,000. The Defendants are directed to pay this sum to the Debtor, LEASE-A-FLEET, INC.
*688 3. The Motion of the Plaintiffs to strike certain portions of the Defendants' Brief is DENIED as moot, since this court was not inclined to consider the disputed materials in rendering this decision in any event.
NOTES
[1] This assertion assumes that the Debtor's global settlement with the Debtor's former largest secured creditor, Meridian Bank ("Meridian"), approved by this court in In re Lease-A-Fleet, Inc., 1993 WL 102041 (Bankr.E.D.Pa. March 19, 1993) (referenced hereafter as "LAF II"), withstands U & L's appeal.
[2] There is no evidence of record to support the Affiliates' assertion, in its post-trial Brief, that U & L have sought to amend their Complaint to add fraudulent conveyance claims against GGM thereto.
[3] In one of its most imaginative and least-successful sallies against the Wolks and their various entities, Lauderhill attempted to "substantively consolidate" the affairs of Robins with those of the Debtor in the underlying main bankruptcy case. See In re Lease-A-Fleet, Inc., 141 B.R. 869 (Bankr.E.D.Pa.1992).
[4] The recitation therein that U & L had initiated litigation against Robins which was scheduled for trial on March 25, 1993, was erroneous. The third defendant in the instant consolidated proceedings was of course GGM, not Robins.
[5] Our precise calculations for June, 1990, and November, 1990, are as follows. No changes in the Debtor's insolvency status during this period are suggested.
JUNE, 1990
ASSETS
HISTORICAL COURT ASSESSED
COST ADJUSTMENT VALUE
Cash $ (69,356) -- $ (69,356)
Accounts Receivable 2,386,826
10% reduction ($238,862) 2,148,144
Car & Equipment 482,761
10% Adjustment ($ 48,276) 434,485
Due from Goodway 243,600 ($243,600) -0-
Other Assets 24,250 -- 24,250
__________ __________ __________
TOTAL ASSETS $3,068,081 ($530,558) $2,537,523
LIABILITIES
Lines of Credit $1,100,000 -- $1,100,000
Notes Payable 366,167 -- 366,167
Accounts Payable 163,528
Adjustments for unreported Accounts Payable
to Lauderhill 234,611 398,149
25% Reduction ( 99,537) ( 99,537)
Accrued Expenses 122,122 -- 122, 122
Other Liabilities 139,334 -- 139, 334
Due to Affiliates 1,153,168 -- 1,153,168
Management Fees -- 0 0
Lindo's Commission 0 0
___________ ___________ __________
Total Liabilities $3,044,329 $ 134,074 $3,179,403
SUMMARY
TOTAL ASSETS $2,537,523
TOTAL LIABILITIES 3,179,403
__________
NET EQUITY (DEFICIT) ($ 641,880)
NOVEMBER, 1990
ASSETS
HISTORICAL COURT ASSESSED
COST ADJUSTMENT VALUE
Cash $ 88,445 -- R 88,445
Accounts Receivable 3,042,889
10% Reduction ($304,289) 2,738,600
Cars & Equipment 466,699
10% Adjustment ($ 46,670) 420,029
Due from Goodway 243,600 ($243,600) --
Other Assets 24,600 -- 24,600
__________ ___________ __________
TOTAL ASSETS $3,866,233 ($594,557) $3,271,676
LIABILITIES
Lines of Credit $1,060,000 -- $1,060,000
Notes Payable 366,167 -- 366,167
Accounts Payable 878,538
Adjustments for unreported Accounts Payable
to Lauderhill 105,105 983,643
25% Reduction (245,910) (245, 910)
Accrued Expenses 150,173 -- 150,173
Other Liabilities 115,108 -- 115,100
Due to Affiliates 1,225,344 -- 1,225,344
Total Liabilities $3,795,330 ($ 78,024) $3,653,974
SUMMARY
TOTAL ASSETS $3,271,674
TOTAL LIABILITIES 3,653,974
___________
NET EQUITY (DEFICIT) ($ 832,300) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2857868/ | IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,
AT AUSTIN
NO. 3-91-010-CR
BARRY SHELNUTT,
APPELLANT
vs.
THE STATE OF TEXAS,
APPELLEE
FROM THE COUNTY COURT AT LAW NO. 2 OF TRAVIS COUNTY,
NO. 339,053, HONORABLE STEVE RUSSELL, JUDGE
Appellant was convicted in a bench trial of assault with bodily injury. The court
assessed appellant's punishment at confinement in the county jail for one year and a fine of two
thousand dollars. The imposition of the sentence was suspended and the appellant was placed on
probation subject to certain conditions for a term of two years.
In a sole point of error, appellant complains that the "trial court erred in admitting
into evidence verbal statements made by the appellant." It appears from the argument set forth
in appellant's brief that he limits his contention to the on-the-scene conversation with the police
officer who responded to a call concerning a disturbance. Appellant urges that his verbal
statements to the officer resulted from a "custodial interrogation" and were inadmissible over his
timely objection. See Miranda v. Arizona, 384 U.S. 436 (1966); Tex. Code Crim. Proc. Ann.
art. 38.22 (1979 and Supp. 1992).
Austin Police Officer Timothy Smith testified that on the night of April 27, 1990,
he responded to a disturbance call. First, he went to the home of Walter Driver, the complaining
witness. He observed that Driver appeared to have a broken nose which had been bleeding.
Officer Smith interviewed Driver and got the information he needed for his report. He then went
next door where he observed appellant standing in his driveway. Officer Smith had a conversation
with the appellant on the sidewalk by the street. He related that he got from the appellant the
information he needed for his report. When he informed appellant that Driver intended to file a
complaint, he reported that appellant responded, "That's no big deal."
At this point, appellant's counsel conducted a voir dire examination of Officer
Smith. It was established that Driver had reported to Officer Smith that appellant, a next door
neighbor, had assaulted him; that Driver intended to file a complaint, and that Officer Smith's
purpose in going next door was to question the appellant about his participation in the offense and
"to make my probable cause and for my report." The voir dire examination of Officer Smith then
reflects:
Q: Excuse me. Probable cause to do what?
A: For the investigator, probable cause as to what led up to this incident.
Q: So you were -- your purpose was to obtain information from Mr. Shelnutt
[appellant] to assist the investigator in preparing this case?
A: That is what I do; yes, sir.
Q: Okay. Prior to asking Mr. Shelnutt these questions, or interrogating him,
did you advise him of his rights?
A: I did not interrogate him. I asked him simple questions; his name, address,
phone number.
Q: Before you asked him questions?
A: No, I did not.
Mr. Palmer [defense counsel]: Your Honor, I am going to object to any
statements made by Mr. Shelnutt to this officer. Mr. Shelnutt was
clearly -- this was clearly an interrogation situation. Mr. Shelnutt was
the target of an ongoing criminal investigation and the officer testified
the purpose of the interrogatories -- asking of questions -- the purpose
of it was to provide information to the police in assist them in
prosecuting. It is inadmissible and I object to it.
The trial court overruled the objection. The direct examination of Officer Smith
continued without further objection. Officer Smith related that, in addition to the basic
identification questions, he asked appellant what had "led up to the incident." Appellant replied
that he was upset about a planter box being thrown over into his yard; that he had hit Driver in
the nose; and that "it was only $37.50 for an assault and that he would be right back out of jail.
It was no problem, that he would do it again."
On re-direct examination, Officer Smith testified that appellant told him: "Yes, I
hit him and I would not mind doing it again." Officer Smith related that in his opinion appellant
was intoxicated and their conversation was "getting out of hand." Officer Smith then advised
appellant's wife that if appellant did not want to end up in jail for public intoxication she should
take him inside the house. Appellant's wife complied with the request. Appellant was not
arrested on the instant assault charge until May 8, 1990.
Conceding there was no formal arrest, appellant urges that the statements made to
Officer Smith resulted from custodial interrogation prior to which no warnings had been given.
Appellant argues that the statements were inadmissible and the trial court erred in permitting their
introduction into evidence.
The requirements of Miranda and article 38.22 apply only to statements made as
the result of custodial interrogation. (1) Holland v. State, 777 S.W.2d 56, 58 (Tex. App. 1989),
aff'd 802 S.W.2d 696 (Tex. Crim. App. 1991). A non-custodial, voluntary, oral statement is
admissible at trial. Tex. Code Crim. Proc. Ann. art. 38.22, § 5 (1979); Gauldin v. State, 683
S.W.2d 411, 413 (Tex. Crim. App. 1984); Sewell v. State, 79 S.W.2d 376, 379 (Tex. App. 1990,
no pet.). Any statement given freely and voluntarily without any compelling influences is, of
course, admissible into evidence. Miranda, 384 U.S. at 478; see also Shiflet v. State, 732 S.W.2d
622, 623 (Tex. Crim. App. 1985). Further, questioning merely to establish identification
constitutes a minimal intrusion and is not "custodial." Decloutte v. State, 699 S.W.2d 341, 344
(Tex. App. 1985, pet. ref'd) citing Florida v. Royer, 460 U.S. 191 (1983). Miranda does not
apply during the brief stopping of a suspect for investigation as authorized under Terry v. Ohio,
392 U.S. 1 (1968). Decloutte, 699 S.W.2d at 344; 1 Wayne La Fave & Jerald Israel, Criminal
Procedure § 6.6(e) at 497 (1984) (hereinafter La Fave). And, there is no requirement that officers
give Miranda warnings prior to questioning citizens during a justified investigative stop or during
questioning that does not amount to detention. Garcia v. State, 704 S.W.2d 512, 517 (Tex. App.
1986, pet. ref'd); see also Wicker v. State, 740 S.W.2d 779, 786 (Tex. Crim. App. 1987), cert.
denied, 485 U.S. 938 (1988).
The Supreme Court declared that:
General on-the-scene questioning as to facts surrounding a crime or other general
questioning of citizens [not under restraint] in the fact-finding process is not
affected by our holding. . . . In such situations the compelling atmosphere
inherent in the process of in-custody interrogation is not necessarily present.
Miranda, 484 U.S. at 477-78; see also Stewart v. State, 587 S.W.2d 148, 151-52 (Tex. Crim.
App. 1979). (2)
The Supreme Court has cautioned that a non-custodial situation is not converted
into one in which Miranda applies in absence of a formal arrest or restraint on freedom of
movement merely because an appellate court concludes the questioning occurred in a "coercive
environment." Oregon v. Mathiason, 429 U.S. 492, 495 (1977); Wicker, 740 S.W.2d at 785,
787. Moreover, the "focus" of an investigation upon an individual, at least alone, is not
necessarily equivalent to custody. Beckwith v. United States, 425 U.S. 341 (1976); Wicker, 740
S.W.2d at 785.
We are aware of the four factors to be examined to ascertain whether a person is
"in custody" so as to invoke the protection of Miranda and article 38.22. (3) Wicker, 740 S.W.2d
at 786; Meek v. State, 790 S.W.2d 618, 621 (Tex. Crim. App. 1990). These factors, however,
have been subject to criticism. See 1 La Fave, § 6.6(c) at 491-94. Keeping these factors in mind,
however, we conclude that, under the circumstances, appellant was not in custody at the time of
his statements to Officer Smith. Cf. Mathiason, 429 U.S. at 492. In Mathiason, the issue was
whether the defendant was in custody when he made an incriminating confession without having
first been warned of his Miranda rights. Even though the defendant was a parolee and the
interview took place in a policeman's office behind closed doors at the invitation of the policeman,
the Supreme Court held that the defendant had not been in custody because he came to the police
officer voluntarily and was allowed to leave, having been told that his case would be referred to
the prosecutor for evaluation. Id. at 495; see also Meek, 790 S.W.2d at 621; Brown v. State, 475
S.W.2d 938, 951 (Tex. Crim. App. 1971). We conclude that no custodial interrogation occurred
in the instant case.
Even if it can be argued otherwise, we observe that the appellant took the witness
stand and testified to the same incriminating statements made to Officer Smith and then some.
His testimony was a judicial confession. Appellant also offered his wife as a witness. She
testified that appellant told her he hit Driver. Any error in the admission of evidence is waived
by the defendant's introduction of the same evidence. Campos v. State, 709 S.W.2d 300, 303
(Tex. App. 1986, no pet.); see also Rogers v. State, 774 S.W.2d 247, 263 (Tex. Crim. App.),
cert.denied, 493 U.S. 984 (1989); Tribble v. State, 792 S.W.2d 280 (Tex. App. 1990, no pet.).
The instant case does not involve a situation where the defendant takes the witness stand only to
meet, explain, and destroy the testimony previously objected to by the defendant. See Thomas
v. State, 572 S.W.2d 507, 513 (Tex. Crim. App. 1978). If there was error in the admission of
the complained of testimony, appellant waived it. See Baity v. State, 455 S.W.2d 305, 309 (Tex.
Crim. App. 1970). The admission of the evidence did not affect a substantial right of the
appellant. Tex. R. Crim. Evid. Ann. 103(a)(1) (Pamph. 1992). The sole point of error is
overruled.
The judgment is affirmed.
John F. Onion, Jr., Justice
[Before Justices Powers, Kidd and Onion*]
Affirmed
Filed: May 13, 1992
[Do Not Publish]
* Before John F. Onion, Jr., Presiding Judge (retired), Court of Criminal Appeals, sitting by
assignment. See Tex. Gov't Code Ann. § 74.003(b) (1988).
1. "Custodial interrogation" means questioning initiated by law enforcement officers after a
person has been taken into custody or otherwise deprived of his freedom of action in any
significant way, Miranda, 384 U.S. at 444, and includes not only express questioning but also
words or actions on part of the police. Rhode Island v. Innis, 446 U.S. 291, 301-02 (1980); see
also Cannon v. State, 691 S.W.2d 664, 671 (Tex. Crim. App. 1985), cert. denied, 474 U.S. 1110
(1986).
2. The view that on-the-scene and at-home questioning is noncustodial is strengthened when
the suspect's family members or friends are present at the time. See United States v. Gregory,
891 F.2d 732, 735 (9th Cir. 1989); United States v. Hall, 421 F.2d 540, 542 (2nd Cir. 1969),
cert. denied, 397 U.S. 990 (1970).
3. These factors as relevant to the inquiry are probable cause to arrest, subjective intent of
police, focus of the investigation, and subjective belief of defendant. Meek, 790 S.W.2d at 621;
Wicker, 740 S.W.2d at 786. | 01-03-2023 | 09-05-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/2857894/ | IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS
AT AUSTIN
NO. 3-90-295-CR
GEORGE JACKSON,
APPELLANT
vs.
STATE OF TEXAS,
APPELLEE
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 147TH JUDICIAL DISTRICT
NO. 104,884, HONORABLE MACE B. THURMAN, JR., JUDGE PRESIDING
Over a plea of not guilty, the jury found George Jackson guilty of aggravated
sexual assault of a child. See Tex. Penal Code Ann. § 22.021(a)(1)(B) (1989). The jury fixed
punishment, enhanced, at life imprisonment. Jackson appeals. We will affirm the judgment.
THE CONTROVERSY
Jackson first met the victim in 1988 when his friend Sanford Hood began dating
the victim's mother. In the summer of 1989, Jackson went to the mother's house and picked up
the victim, who was twelve years old, and her two sisters, aged eleven and four. The victim's
mother had apparently entrusted Jackson with the care of the children that evening. They drove
to Hood's house, where the two younger sisters began watching television. The victim locked
herself in a bedroom to change clothes. While she was in the bedroom, Jackson unlocked the
door, entered the room and assaulted her.
Several months later, after learning that the victim had made an early-morning
phone call to Hood, her grandmother began questioning her about a possible relationship with
Hood. The victim admitted that Hood had been having sex with her for almost two years. The
grandmother reported this to the Manor police. In response to police questioning, the victim said
that Jackson had also sexually assaulted her once. Jackson was arrested and convicted for the
sexual assault of the victim. He appeals.
IMPROPER PROSECUTORIAL ARGUMENT
In his first and third points of error, Jackson contends he is entitled to a new trial
because in closing arguments the prosecutor (1) commented on Jackson's failure to testify, and
(2) said he thought Jackson was "a dirty, lowdown son-of-a-bitch." Jackson concedes that his trial
counsel made no objection, motion for instruction to disregard, or motion for mistrial in response
to the allegedly improper comments. See Tex. R. App. P. Ann. 52(a) (Pamph. 1992) (stating that
to preserve a complaint for appellate review, a party must make a timely objection and obtain a
ruling thereon). He argues, nevertheless, that this Court should consider the points of error
because the comments were so damaging that instructions to disregard would not have cured the
harm.
As a rule, a defendant waives any impropriety in prosecutorial argument by failing
to make a proper and timely objection. Romo v. State, 631 S.W.2d 504, 505 (Tex. Crim. App.
1982). This rule applies even when the defendant asserts a violation of his constitutional or
statutory rights. Borgen v. State, 672 S.W.2d 456, 460 (Tex. Crim. App. 1984). An exception
exists, however, when the prosecutor's argument is so prejudicial that an instruction to disregard
will not cure the harm. Briddle v. State, 742 S.W.2d 379, 389 (Tex. Crim. App. 1987), cert.
denied, 488 U.S. 986 (1988). We will examine each instance of alleged error to determine
whether it was so prejudicial that an objection and motion to disregard would have been
ineffective.
Comment on Failure to Testify
In his first point of error, Jackson complains the prosecutor improperly commented
on his failure to testify, thereby violating his rights under the federal and state constitutions and
article 38.08 of the Code of Criminal Procedure. See Tex. Code Crim. Proc. Ann. art. 38.08
(1979); Bird v. State, 527 S.W.2d 891, 893 (Tex. Crim. App. 1975). The prosecutor argued as
follows in his closing argument:
The bottom line is, you heard the testimony of the child. That's basically
it. Because the medical testimony, you can explain away. You can blame that on
Sanford. You can blame the trichomoniasis on Sanford. You can blame the
enlarged opening in the hymen on Sanford. You can explain the remnant of a
hymen on Sanford. You can blame all that on Sanford. But the thing is, you're
either going to believe [the victim] and convict that man or you don't believe [the
victim] and you let him walk.
When you go back there, I want you to consider that the criminal picks the
time and place of the crime. He picks the time and the place of the crime. That's
what we talked about on voir dire, that if you have one witness, even if it's a child,
and if you believe that child beyond a reasonable doubt, the law says you must
convict. So I don't want anyone back there saying, well, it's only her. We did
bring you [the victim's] sister. She corroborates that they went out there. Beyond
those closed doors, beyond that locked door, the only people that know are [the
victim] and George. And [the victim] has told you what happened. We're asking
you to believe it. The testimony of [the victim] is there.
(Emphasis added).
Jackson argues that the emphasized portion of the argument constituted a direct
comment on his failure to testify. In support of his contention, he cites McDaniel v. State, 524
S.W.2d 68 (Tex. Crim. App. 1975) (1) and Pollard v. State, 552 S.W.2d 475 (Tex. Crim. App.
1977). (2) In each of those cases, however, defense counsel objected to the prosecutor's argument;
therefore, we cannot directly compare the erroneous argument in those cases and the challenged
argument in this case. In fact, we have found no case in which a prosecutor's comment on the
failure of the defendant to testify constituted reversible error in the absence of an objection. Nor
do we believe this case presents such an error.
For an argument or comment to violate the rule that a prosecutor may not comment
on a defendant's failure to testify, the prosecutor's implication must be a necessary one as viewed
by the jury. Davis v. State, 645 S.W.2d 817, 818 (Tex. Crim. App. 1983). It is not sufficient
that the language might be construed as an implied allusion to the defendant's failure to testify.
Todd v. State, 598 S.W.2d 286, 294 (Tex. Crim. App. 1980); McDaniel, 524 S.W.2d at 70.
Such an argument constitutes error only if the prosecutor's language was manifestly intended to
be or was of such a character that the jury would naturally and necessarily take it to be a comment
on the defendant's failure to testify. Bird v. State, 527 S.W.2d at 894; Lopez v. State, 793
S.W.2d 738 (Tex. App. 1990), pet. dism'd, 810 S.W.2d 401 (Tex. Crim. App. 1991); see also
Montoya v. State, 744 S.W.2d 15, 35 (Tex. Crim. App. 1987) (stating that the facts and
circumstances of each case determine the character of the language used by the prosecutor), cert.
denied, 487 U.S. 1227 (1988).
Other than hearsay statements of what the victim told others, the State's case rested
largely on the weight and credibility of the victim's testimony. She was only thirteen years old
at the time of trial. The medical and psychological evidence indicating that the victim had been
sexually active could be explained by the repeated assaults by Sanford Hood. The victim's two
sisters were present in the house at the time of the alleged assault, but neither could corroborate
the victim's story. In argument, Jackson's trial counsel repeatedly remarked on inconsistencies
in the testimony of the State's witnesses, particularly the victim's testimony. (3)
Because of the dearth of corroborating evidence and the defense counsel's attack
on the victim's credibility in argument, we conclude the jury could have viewed the challenged
language as a plea for them to believe the victim's testimony; therefore, we do not believe the jury
would necessarily take it as a comment on Jackson's failure to testify.
We overrule the first point of error.
Prejudicial Language
In his third point of error, Jackson contends the prosecutor committed reversible
error by using inflammatory and prejudicial language to describe Jackson. At the beginning of
his closing argument, the prosecutor said:
Now, the defense attorney has talked about rabbit trails and that maybe if you
follow some of those rabbit trails, you might find the rabbit. I don't know about
rabbits, but like Jean Jones said, I think you will find a dirty, lowdown son-of-a-bitch. I'm talking about George Jackson.
Jackson argues that the prosecutor's characterization of him as "a dirty, lowdown son-of-a-bitch"
and the insertion of the prosecutor's personal opinion of Jackson served no purpose other than to
inflame and prejudice the jury against him. Jackson's attorney, however, did not object to the
prosecutor's argument.
The four permissible areas of jury argument are: (1) summation of the evidence;
(2) reasonable deductions from the evidence; (3) answer to argument of opposing counsel; and (4)
pleas for law enforcement. Alejandro v. State, 493 S.W.2d 230, 231 (Tex. Crim. App. 1973).
Even when an argument exceeds the permissible bounds of the four areas, however, a defendant
must show that, in light of the record as a whole, the argument is extreme or manifestly improper,
is violative of a mandatory statute, or injects new and harmful facts into the trial proceeding.
Todd, 598 S.W.2d at 297.
The State argues that the prosecutor's comment was a summation of the evidence.
During cross-examination of the victim, Jackson's counsel asked what the victim's grandmother,
Jean Jones, said upon learning of the assault. The victim replied, "Well, she called him a
lowdown, dirty son-of-a-bitch." The State argues the prosecutor simply quoted trial testimony,
so he did not inject new facts harmful to the accused or violate any court order.
We disagree with the State's characterization of the prosecutor's challenged
statement as a summation of the evidence. The victim's recollection that her grandmother called
Jackson "a lowdown, dirty son-of-a-bitch" was not evidence bearing on Jackson's guilt. Instead,
the prosecutor's statement was simply his repetition of a derogatory opinion about the defendant.
Despite the prosecutor's apparent attempt to inflame the minds of the jurors,
Jackson must show that an instruction to disregard would not have cured the prejudice. Briddle,
742 S.W.2d at 389; Romo, 631 S.W.2d at 505. From our review of cases in which prosecutors
made derogatory remarks about defendants, we conclude that an instruction to disregard would
have cured the prejudice in this case. See, e.g., Howard v. State, 453 S.W.2d 153, 154 (Tex.
Crim. App. 1970) (instruction to disregard cured prosecutor's characterization of defendant as a
"mad dog"); Galloway v. State, 716 S.W.2d 556, 557 (Tex. App. 1986, pet. ref'd) (instruction
to disregard cured prosecutor's reference to "pedophiles" and "sick animals"); Cammon v. State,
672 S.W.2d 845, 850 (Tex. App. 1984, no pet.) (instruction to disregard cured characterization
of defendant as an "animal"); see also Johnson v. State, 698 S.W.2d 154, 167 (Tex. Crim. App.
1985) (instruction to disregard cured prosecutor's injection of his personal opinion of defendant's
guilt), cert. denied, 479 U.S. 871 (1986).
Jackson relies upon a line of cases in which the reviewing court found reversible
error in the prosecutor's remarks during trial. See, e.g., Boyde v. State, 513 S.W.2d 588, 591
(Tex. Crim. App. 1974); Stein v. State, 492 S.W.2d 548, 552 (Tex. Crim App. 1973). Those
cases are distinguishable from the instant case because in each of the cited cases (1) the defendant
objected to the prosecutor's conduct; (2) the prosecutor violated an express court order; and (3)
the prosecutorial misconduct was so blatant as to border on being contumacious. See Landry v.
State, 706 S.W.2d 105, 111 (Tex. Crim. App. 1985), cert. denied, 479 U.S. 871 (1986). Those
factors are absent in the present case.
We overrule Jackson's third point of error.
INEFFECTIVE ASSISTANCE OF COUNSEL
In his second, fourth and fifth points of error, Jackson contends he should receive
a new trial because his trial counsel rendered ineffective assistance. In various portions of his
brief Jackson identifies five instances in which he asserts his trial counsel fell below the level of
competence demanded of reasonably competent attorneys. He complains specifically of his
counsel's failure to (1) object to the prosecutor's alleged comment on Jackson's failure to testify;
(2) object to the prosecutor's characterization of Jackson as "a dirty, lowdown son-of-a-bitch";
(3) object to the testimony of the victim's therapist about the effects of sexual assault on the
victim; (4) cross-examine the therapist about the effects on the victim of Hood's repeated assaults;
and (5) object to hearsay statements contained in medical records offered by the State. Jackson
maintains the cumulative effect of these omissions rendered his trial counsel's performance so
deficient as to undermine confidence in the outcome of the trial.
To establish ineffective assistance of counsel, a defendant must show (1) that his
trial counsel's performance was deficient, and (2) that the deficient performance prejudiced the
defense so as to deprive the defendant of a fair trial. Black v. State, 816 S.W.2d 350, 356 (Tex.
Crim. App. 1991) (citing Strickland v. Washington, 466 U.S. 668, 694 (1984)); see Washington
v. State, 771 S.W.2d 537, 545 (Tex. Crim. App.), cert. denied, 492 U.S. 912 (1989). The
defendant carries the burden of showing that omissions or other mistakes made by his trial counsel
amounted to professional errors of a magnitude sufficient to raise a reasonable probability that the
outcome of the trial would have been different but for the errors. Ex parte Welborn, 785 S.W.2d
391, 393 (Tex. Crim. App. 1990).
A defendant is not entitled, however, to errorless or perfect counsel. Isolated
instances in the record reflecting errors of commission or omission do not constitute ineffective
assistance of counsel, nor can the defendant establish ineffective assistance of counsel by isolating
or separating out for examination only certain aspects of the trial counsel's performance. Bridge
v. State, 726 S.W.2d 558, 571 (Tex. Crim. App. 1986). To determine whether the defendant has
been deprived of effective assistance of counsel, we must look at the totality of the representation
as of the time of trial, and not through hindsight. Id. Moreover, our scrutiny of the defense
counsel's performance must be highly deferential. Welborn, 785 S.W.2d at 393; see also Haynes
v. State, 790 S.W.2d 824, 826 (Tex. App. 1990, no pet.) (stating that a strong presumption exists
that trial counsel rendered adequate assistance and made all significant decisions in the exercise
of reasonable professional judgment).
Looking at the totality of the circumstances, we cannot agree that the defense
counsel's omissions were of a magnitude sufficient to raise a reasonable probability that the
outcome of the trial would have been different but for the errors. We held above that the
prosecutor's argument was not necessarily an allusion to Jackson's failure to testify. In the
context of the entire argument, the jury could construe the prosecutor's remarks as a plea for the
jury to believe the victim's testimony. Jackson's trial counsel may have chosen not to object to
the argument because an instruction to disregard would only have emphasized Jackson's failure
to testify. This effect would have occurred regardless of whether the trial counsel approached the
bench to voice his objection outside the presence of the jury. See Solis v. State, 792 S.W.2d 95,
100 (Tex. Crim. App. 1990) (stating that a reviewing court should not use hindsight to second
guess a tactical decision made by trial counsel when that decision does not fall below the objective
standard of reasonableness).
With regard to the lack of an objection to the prosecutor's stated opinion that
Jackson was "a dirty, lowdown son-of-a-bitch," we agree that the trial counsel's omission was
outside the range of professionally competent assistance. See Howard, 453 S.W.2d at 153 (a
prosecutor's derogatory reference to the defendant is improper); Johnson, 698 S.W.2d at 167 (it
is improper for a prosecutor to inject personal opinions in statements to the jury). We can
conceive of no strategic reason for defense counsel to sit silently while the prosecutor says he
believes the defendant is "a dirty, lowdown son-of-a-bitch."
We conclude, however, that this omission was not so prejudicial as to deprive
Jackson of a fair trial. The State adduced evidence that the victim had been sexually active, and
the victim testified unequivocally that Jackson assaulted her. Although we believe the
prosecutor's remark was meant to inflame the minds of the jurors, in light of the evidence
presented we cannot say that Jackson has carried his burden of showing the remark was so
prejudicial as to undermine our confidence in the verdict.
Jackson next complains that his trial counsel was deficient for not objecting to the
testimony of the victim's therapist, Nancy Jo Bergeron, who testified about the effects of sexual
abuse on the victim. Jackson contends that none of Bergeron's testimony was relevant to the issue
of his guilt because any effects the victim suffered could be attributed to the abuse inflicted by
Sanford Hood. We disagree.
"Relevant evidence" means evidence having any tendency to make the existence of
any fact that is of consequence to the determination of the action more probable or less probable
than it would be without the evidence. Tex. R. Crim. Evid. Ann. 401 (Pamph. 1992). To obtain
a conviction under section 22.021, the State carries the burden of showing (1) there was a
penetration of the female sexual organ of a child, and (2) the accused intentionally or knowingly
caused that penetration. Tex. Penal Code Ann. § 22.021(a)(1)(B) (1989). Bergeron's testimony
that the victim related stories of sexual abuse, and suffered detrimental effects because of that
abuse, was of some consequence to the determination whether the assault actually took place.
Moreover, Bergeron testified that the victim claimed to have been assaulted by more than one
person. This testimony tends to make Jackson's guilt more probable than it would be without the
testimony. We do not believe Jackson's trial counsel was deficient for failing to object to
Bergeron's testimony on relevance grounds. (4)
Jackson also argues that his trial counsel should have cross-examined Bergeron
regarding the effects of sexual abuse by Hood. He contends this would have shown that Jackson,
even if guilty, was not solely responsible for the victim's suffering. Jackson argues as well that
a vigorous cross-examination of Bergeron would have dispelled the notion that because the victim
suffered from sexual abuse, Jackson must be guilty of that abuse. In his cross-examination of
Bergeron, defense counsel asked her:
Q. Would you say that [the victim's] problems have stemmed from abuse she
received from one person or several persons?
A. Several people, I believe.
Q. Would you say that was all the -- including her family or other people or
what?
A. Another person.
Jackson maintains that although Bergeron mentioned the possibility of abuse by others, his trial
counsel was deficient for failing to develop the topic further.
We believe the passage quoted above was sufficient to inform the jury that Jackson
was not responsible for all the victim's problems stemming from sexual abuse. Furthermore, the
victim testified explicitly that Hood had assaulted her weekly for almost two years, and in closing
argument the prosecutor referred repeatedly to Hood's assaults on the victim. Even if Jackson's
trial counsel was deficient in failing to develop the topic of Hood's assaults on the victim, we
cannot agree this error was so prejudicial that it deprived Jackson of a fair trial.
Finally, Jackson complains that his trial counsel rendered ineffective assistance by
failing to object to hearsay statements in the victim's medical records. The State's Exhibit No.
1 contained the following statements under the heading "Counselor's Comments": "Patient has
been sexually active for one year. Male is 45-year-old family member and his friend, male."
Roberta Braun, a gynecologist who had treated the victim, read the statement to the jury at the
prosecutor's request.
The State laid the proper predicate to establish the medical records themselves as
records of regularly conducted activity. See Tex. R. Crim. Evid. Ann. 803(6) (Pamph. 1992).
The State contends the hearsay statements contained within the records fall within the "medical
diagnosis or treatment" exception of Rule 803(4). See Tex. R. Crim. Evid. Ann. 803(4) (Pamph.
1992). (5) We agree. Several courts have held that a child's statement made to a medical-care
provider concerning abuse falls within the Rule 803(4) exception to the hearsay rule as a statement
made for the purpose of medical diagnosis or treatment. See, e.g., Fleming v. State, 819 S.W.2d
237, 247 (Tex. App. 1991, pet. ref'd); Reyna v. State, 797 S.W.2d 189, 193-94 (Tex. App. 1990,
no pet.); Macias v. State, 776 S.W.2d 255, 259 (Tex. App. 1989, pet. ref'd); see also Tissier v.
State, 792 S.W.2d 120, 125 (Tex. App. 1990, pet. ref'd); In the Interest of L.S., 748 S.W.2d
571, 577 (Tex. App. 1988, no writ). We do not believe Jackson's trial counsel was deficient for
failing to object to the statement contained in the records. Even if the trial counsel's failure to
object was outside the range of professional competent assistance, we conclude there is no
reasonable probability that the result of this trial would have been different had trial counsel
objected to the hearsay statements in the medical records.
The right to effective counsel is not the right to error-free counsel. Hernandez v.
State, 726 S.W.2d 53, 58 (Tex. Crim. App. 1986). Viewing the trial counsel's representation as
a whole and assessing the cumulative effect of all of the trial counsel's errors, we cannot find that
the result of the trial would have been any different absent the errors. See Solis, 792 S.W.2d at
100. We overrule Jackson's second, fourth and fifth points of error.
Finding no reversible error, we affirm the trial-court judgment.
John Powers, Justice
[Before Justices Powers, Jones and Kidd]
Affirmed
Filed: April 22, 1992
[Do Not Publish]
1. In McDaniel the defendant was accused of injuring a child. In argument, the prosecutor
stated:
Now, I told you why the circumstantial evidence charge was there; there
were no eye witnesses. We know that. There were three people there that
could tell you what happened, possibly tell you, and Y__ and P__ are too
young. They are not legally competent to testify so we have to go with what we
have got.
The court of criminal appeals considered this a comment on the defendant's failure to testify
and reversed the judgment of conviction. McDaniel, 524 S.W.2d at 70.
2. The prosecutor in Pollard argued:
There has been a little talk about whether or not Mrs. S__ remembered the tire
tool the first time she was questioned or thereafter. The point is simple enough.
The defendant got out of his car with the tire tool behind his back. Ten or
fifteen seconds later he is upon her. She sees him. No one contradicts her.
She says she saw it.
The court of criminal appeals held this argument to be reversible error as a comment on the
defendant's failure to testify. Pollard, 552 S.W.2d at 477.
3. In his argument, defense counsel attempted to diminish the weight of the victim's
testimony by (1) emphasizing her inability to remember when the assault occurred; (2)
remarking on the instability of her home life; (3) pointing out certain inconsistencies between
her testimony and her grandmother's testimony; (4) pointing out inconsistencies between the
victim's testimony and her sister's testimony; and (5) emphasizing inconsistencies in the
information the victim provided to Planned Parenthood employees. Jackson's trial counsel
also implied that the victim was coaxed into accusing Jackson of the assault and that she was
fabricating evidence to support her accusation.
4. On appeal, Jackson argues only that his trial counsel should have challenged Bergeron's
testimony on relevance grounds. He does not complain that his attorney failed to object to the
hearsay statements related by Bergeron. Consequently, we need not decide whether the
attorney's performance was deficient in that respect.
5. Texas Rule of Criminal Evidence 803(4) excludes from the hearsay rule "[s]tatements
made for purposes of medical diagnosis or treatment and describing medical history, or past or
present symptoms, pain, or sensations, or the inception or general character of the cause or
external source thereof insofar as reasonably pertinent to diagnosis or treatment." Tex. R.
Crim. Evid. Ann. 803(4) (Pamph. 1992). | 01-03-2023 | 09-05-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1540577/ | 213 B.R. 1016 (1997)
In re GROUND SYSTEMS, INC., dba Airport Coach, Debtor.
GROUND SYSTEMS, INC., dba Airport Coach, Appellant,
v.
Theodor C. ALBERT, Chapter 11 Trustee and Plan Agent, and Airport Service, Inc., Appellees.
BAP No. CC-97-1030-SHMe, Bankruptcy No. SA 90-01359 JR.
United States Bankruptcy Appellate Panel of the Ninth Circuit.
Argued and Submitted July 22, 1997.
Decided September 30, 1997.
Mohammed K. Ghods, Ghods & Stahr, Santa Ana, CA, for Ground Systems, Inc.
Mary H. Rose, Proskauer, Rose, Goetz & Mendelson, Los Angeles, CA, for Airport Service, Inc.
Before: SNYDER,[1] HAGAN, and MEYERS, Bankruptcy Judges.
OPINION
SNYDER, Bankruptcy Judge.
OVERVIEW
A Chapter 11 debtor requested that a final decree be entered in the case. The bankruptcy court interpreted the plan to require that the final decree be entered only after all of the plan payments were made and denied the debtor's request. The debtor appeals.
BACKGROUND
On February 27, 1990, Ground Systems, Inc. (GSI), a corporation that provides ground transportation to airports in Los Angeles and Orange County, filed a voluntary petition for relief under Chapter 11.[2] On January 23, 1992, Theodor Albert (Albert) was appointed trustee. In February 1993, the bankruptcy court confirmed the chapter 11 trustee's second amended plan of reorganization. The confirmed plan required the appointment of a plan agent. The plan agent would appoint the initial and successor members of the board of directors, meet weekly with management and the board, and assume responsibility for distributions under the plan. Albert was appointed as plan agent. The plan invested management of the debtor in the plan agent for the first six months and "[a]fter that six months, and until a Final Decree is entered on the Docket, all powers of management shall be delegated to the Interim Board by the Plan Agent." The plan further provided that shareholders would retain their shares and that
[a]s of the Final Payment Date, the Plan Agent will file a request for a Final Decree and, upon entry of a Final Decree, the Plan Agent and any Interim Board will resign. Thereafter, shareholders with allowed interest may elect new management *1018 as the articles and bylaws of the Debtor allow.
The plan defines "Final Payment Date" as "that date when all allowed claims, plus interest as provided under the Plan, are paid in full. Under the Plan, this is the date of the last installment due on account of Class 4 [penalties and fines]."
On November 27, 1996, GSI filed a motion for an order granting a final decree in the case in response to a request from the bankruptcy court's clerk. Airport Service, Inc. (ASI), who held an allowed class 2 (general unsecured) claim under the plan, opposed the motion. ASI argued that, under the provisions discussed above,
the Plan Agent retains ultimate control of the reorganized debtor until both the completion of payments under the Plan and the entry of a final decree, events which were expressly contemplated to occur simultaneously. . . . [S]hareholders have no authority to elect a Board of Directors until all Plan payments have been made.
GSI responded to the objection, arguing, first, that closing the case was proper under 11 U.S.C. § 350(a)[3] and Fed. R. Bankr.P. 3022[4] and, second, that the bankruptcy court did not have jurisdiction to keep the case open once the plan had been substantially consummated.
At a December 19, 1996 hearing on the motion, that focused principally on interpreting the plan, the bankruptcy court accepted ASI's contention that issuing a final decree would violate the plan, and denied GSI's motion to close the case:
I'm going to deny the motion. I did ask that this be brought. I was not aware that the plan required this case to stay open until it was fully consummated. If we'd picked up on that earlier, I would not have allowed that to have been a condition of this plan. It's not an acceptable provision, and frankly, is in conflict with the [Bankruptcy Code] and it never should have gotten through. But it did, so we're bound to carry out the specific provisions of the plan. . . .
GSI filed this timely appeal.
ISSUE
Whether the bankruptcy court erred when it denied GSI's request for a final decree.
STANDARD OF REVIEW
The issue presented raises purely legal issues and is therefore reviewed de novo. In re Commercial Western Fin. Corp., 761 F.2d 1329, 1333 (9th Cir.1985).
DISCUSSION
Plan Does Not Violate the Bankruptcy Code
The bankruptcy court indicated that the confirmed plan's requirement that the case remain open until all payments under the plan had been made violated 11 U.S.C. § 350(a) and Fed. R. Bankr.P. 3022. The Bankruptcy Code and Federal Rules of Bankruptcy Procedure direct a court to close a Chapter 11 case once the debtor's estate is "fully administered." 11 U.S.C. § 350(a); Fed. R. Bankr.P. 3022. However, neither the Bankruptcy Code nor the Federal Rules of Bankruptcy Procedure define the term "fully administered."
On appeal, GSI argues that we may determine whether a case has been "fully administered" by referring to cases that have construed the term "substantial consummation." The term "substantial consummation" is used to determine when a plan may no longer be modified. See 11 U.S.C. § 1127(b). Although GSI acknowledges that the terms are used in different contexts, it argues that they are equivalent, citing In re BankEast Corp., 132 B.R. 665, 668 n. 3 (Bankr.D.N.H. 1991). Therefore, according to GSI, because payments under the plan had commenced, the plan had been substantially consummated and a final decree should have been issued. *1019 See 11 U.S.C. § 1101(2); In re Antiquities of Nev., Inc., 173 B.R. 926, 930 (9th Cir.BAP 1994).
We do not agree with the BankEast court that the terms "fully administered" and "substantial consummation" are interchangeable. "[T]he use of different language by Congress creates a presumption that it intended the terms to have different meanings." Legacy Emanuel Hosp. and Health Ctr. v. Shalala, 97 F.3d 1261, 1265 (9th Cir. 1996) (citing Washington Hosp. Ctr. v. Bowen, 795 F.2d 139, 146 (D.C.Cir.1986)). Therefore, we cannot look only to interpretations of the term "substantial consummation" to determine when a case should be closed and a final decree entered.
In the alternative, GSI points to the 1991 Amendments to Federal Rules of Bankruptcy Procedure 3022 advisory committee note (the Committee Notes), to support the argument that a plan may be closed as soon as payments commence under the plan.
Entry of a final decree closing a chapter 11 case should not be delayed solely because the payments required by the plan have not been completed. Factors that the court should consider in determining whether the estate has been fully administered include (1) whether the order confirming the plan has become final, (2) whether deposits required by the plan have been distributed, (3) whether the property proposed by the plan to be transferred has been transferred, (4) whether the debtor or the successor of the debtor under the plan has assumed the business or the management of the property dealt with by the plan, (5) whether payments under the plan have commenced, and (6) whether all motions, contested matters, and adversary proceedings have been finally resolved.
The court should not keep the case open only because of the possibility that the court's jurisdiction may be invoked in the future. A final decree closing the case after the estate is fully administered does not deprive the court of jurisdiction to enforce or interpret its own orders and does not prevent the court from reopening the case for cause pursuant to § 350(b) of the Code. For example, on motion of a party in interest, the court may reopen the case to revoke an order of confirmation procured by fraud under § 1144 of the Code. If the plan or confirmation order provides that the case shall remain open until a certain date or event because of the likelihood that the court's jurisdiction may be required for specific purposes prior thereto, the case should remain open until that date or event.
Fed. R. Bankr.P. 3022 advisory committee's note (1991). GSI acknowledges that although the plan may require the case to remain open, such a requirement is only proper where there is a likelihood that the bankruptcy court's jurisdiction may be required for a specific purpose. GSI argues the plan requires the estate to remain open for reasons other than the potential intervention of the bankruptcy court.
We do not read Federal Rules of Bankruptcy Procedure 3022 so narrowly. The plan required the estate to remain open while the plan agent performed his duties. Although the dismissal of the plan agent and return of corporate control to the shareholders could have been tied to an event other than the entry of a final decree, we do not believe that such a requirement runs afoul of the Bankruptcy Code. Further, the Committee Notes specifically provide that a case may remain open until a certain date or event specified in the plan.
Even if we agreed with the bankruptcy court that the plan violated the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure, we agree with ASI that it was proper for the bankruptcy court to give res judicata effect to the plan's terms.
Order of Confirmation Was Not Appealed; Terms of the Confirmed Plan is Res Judicata
ASI argues that the terms of a confirmed plan are res judicata even if those terms conflict with the Bankruptcy Code. In Trulis v. Barton, 107 F.3d 685, 691 (9th Cir.1995), a creditor challenged provisions in a confirmed plan which released consenting creditors' claims against the debtor's principals. The *1020 creditors argued that the release provisions were unenforceable under state law. The Ninth Circuit Court of Appeals rejected this argument. "Since the plaintiffs never appealed the bankruptcy court's confirmation order, the order is a final judgment and plaintiffs cannot challenge the bankruptcy court's jurisdiction over the subject matter." Trulis, 107 F.3d at 691. The Ninth Circuit further stated that
"[c]reditors who do not wish to release third party debtors pursuant to the principal debtor's plan of reorganization should object to confirmation of the plan on the ground that such a plan provision is violative of section 524 and not within the power, even jurisdiction, of the bankruptcy court. . . . The point is that only a direct attack is available and collateral attack is unavailable"
Trulis, 107 F.3d at 691 (quoting 5 COLLIER ON BANKRUPTCY ¶ 1141.01[1] n. 17a (Lawrence P. King, 15th ed.1995)).
The Fifth Circuit Court of Appeals has reached the same conclusion. In Republic Supply Co. v. Shoaf, 815 F.2d 1046, 1049-50 (5th Cir.1987), the Fifth Circuit determined that a plan containing a guarantor's release was res judicata as to the parties:
Regardless of whether that provision is inconsistent with the bankruptcy laws . . ., it is nonetheless included in the Plan, which was confirmed by the bankruptcy court without objection and was not appealed. [The appellant], in effect, is now seeking to appeal the confirmed Plan and asking us to review it on its merits. Questions of the propriety or legality of the bankruptcy court confirmation order are indeed properly addressable on direct appeal. [The appellant], however, is now foreclosed from that avenue of review because it chose not to pursue it. . . .
Republic Supply Co., 815 F.2d at 1050. See also Bowen v. United States (In re Bowen), 174 B.R. 840, 847-48 (Bankr.S.D.Ga.1994) ("the contents of a plan of reorganization may not be challenged on the grounds that the plan's provisions are contrary to applicable law absent an appeal"). Thus, we agree with ASI that the plan's requirement that the case remain open is effective regardless of whether or not it would otherwise violate the Bankruptcy Code.
GSI also argues that by refusing to close the case, the bankruptcy court has improperly retained jurisdiction over the case. As discussed above, even if the plan improperly gives the bankruptcy court postconfirmation jurisdiction, such an objection should have been raised at confirmation.
CONCLUSION
In appropriate circumstances a plan may remain open until all payments under the plan have been made. Substantial consummation of a plan in accordance with 11 U.S.C. § 1127(b) does not necessarily prevent a plan from remaining open. Further, if a confirmation order is not appealed, the plan terms are res judicata. We affirm the bankruptcy court's order denying entry of a final decree.
NOTES
[1] Honorable Paul B. Snyder, Bankruptcy Judge for the Western District of Washington, sitting by designation.
[2] Unless otherwise indicated, all references to "chapter" or "section" are to the Bankruptcy Code, 11 U.S.C. §§ 101-1330; references to "rule" or "Fed. R. Bankr.P." are to the Federal Rules of Bankruptcy Procedure XXXX-XXXX, which make applicable certain Federal Rules of Civil Procedure (Fed.R.Civ.P.).
[3] 11 U.S.C. § 350(a) provides that "[a]fter an estate is fully administered and the court has discharged the trustee, the court shall close the case."
[4] Fed. R. Bankr.P. 3022 provides that "[a]fter an estate is fully administered in a chapter 11 reorganization case, the court, on its own motion or on motion of a party in interest, shall enter a final decree closing the case." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540579/ | 213 B.R. 725 (1997)
In re THOMPSON DESIGNS, INC., d/b/a Pinnacle Homes, Debtor.
THOMPSON DESIGNS, INC., d/b/a Pinnacle Homes, Plaintiff,
v.
TREASURER OF HAMILTON COUNTY, Landmark Savings Bank, FSB, Pierce Drywall Plastering, Inc., Robert Glass & Services, Inc., Trimmasters, Inc., Greg Spindell, Williams Comfort Air, Inc., Goshert's Insulation Co., Canac Cabinetry Kitchen & Home Design Center by Charles Maranto, Savvy Decor by Linda Mordoh, Mees Tile & Marble, Bei, Inc., Sanders Building & Constructing Co., Inc., Matt Grubar, Inc., West Roofing & Supply Co., Dr. Michael Bennett & Marcha Bennett, MacDonald Tile, Kenton and Andrea Yokey, Blakely Wholesale Corp. d/b/a Tile Works, Inc., Defendants.
Bankruptcy No. 97-02707-V-V-11, Adversary No. 97-162.
United States Bankruptcy Court, S.D. Indiana.
October 10, 1997.
*726 Timothy Black, Hostetler & Kowalik, Indianapolis, IN, for Debtor/Plaintiff.
David J. Jurkiewicz, Fiewell & Hannoy, Indianapolis, IN, for Landmark Savings Bank and Angles & Lines.
John E. Bator, Cohen & Mald, Indianapolis, IN, for Pierce Drywall, Greg Spidell, Canac Cabinetry & Home Design, Savvy Decor by Linda Mordoh.
Robert G. Barker, Indianapolis, IN, for Robert Glass & Services.
Wendy Ponander, Baker & Dainiels, Indianapolis, IN, for Goshert's Insulation Company.
Michael J. Andreoli, Zionsville, IN, for Sanders Building & Constructing.
Michael J. Hebenstreit, Kroger Gardis & Regis, Indianapolis, IN, for Matt Grubar, Inc.
John Graub, II, Rubin & Levin, Indianapolis, IN, for West Roofing & Supply.
Jay P. Kennedy, Kroger Gardis & Regis, Indianapolis, IN, for Dr. Michael Bennett & Marcha Bennett.
John Merlau, New Palestine, IN, for MacDonald Tile.
David J. Theising, Christopher & Taylor, Indianapolis, IN, for Blakely Wholesale Corp.
Raymond M. Adler, Noblesville, IN, for Schuler Plumbing, Inc.
Mark E. Need, William Hewitt & Robbins, Greenwood, IN, for Kenton Yokey & Andrea Yokey.
Linda Corbett, Louisville, KY, for Mees Tile & Marble.
Brian Weiss, Indianapolis, IN, for Williams Comfort Air.
OPINION
LARRY L. LESSEN, Bankruptcy Judge.
The issue before the Court is the relative priority of the lien of Kenton and Andrea Yohey ("the Yoheys") created pursuant to 11 U.S.C. § 365(j) against the sale proceeds of a home which the Yoheys had a contract to purchase from Thompson Designs, Inc. ("DIP").
On or about April 4, 1996, DIP, by its authorized agent, entered into a contract with the Yoheys to build a home and to sell them the home and real estate situated at 11056 Windermere Boulevard, Fishers, Indiana. The original purchase price was $558,000; the price was subsequently adjusted to $558,550, then ultimately reduced to $519,000. The Yoheys paid DIP an initial downpayment of $50,000. On or about July 4, 1996, an authorized agent of DIP contacted Mr. Yohey and requested an additional payment, pursuant to which the Yoheys paid an additional $10,000.
At some point during the construction process, DIP and Yoheys had a dispute and DIP *727 refused to transfer the home to the Yoheys for the balance of the amount owed and in the condition required by the contract. DIP also refused to refund to the Yoheys the $60,000 previously paid. The Yoheys brought a breach of contract action in state court; before that case was adjudicated, DIP filed bankruptcy.
DIP filed its voluntary Chapter 11 petition in bankruptcy on March 13, 1997. The house was sold by the Court to a third party at auction on May 8, 1997, for $430,000. At issue is the relative priority of the Yoheys' claim in the net sale proceeds vis à vis the perfected mortgage lien of Landmark Savings Bank, FSB ("Landmark") and the holders of the mechanic's liens against the property.
The Yoheys assert that their claim is secured by a lien against the net sale proceeds pursuant to 11 U.S.C. § 365(j), which states as follows:
[A] party whose executory contract to purchase real estate from the debtor is rejected and under which such party is not in possession has a lien on the interest of the debtor in such property for the recovery of any portion of the purchase price that such purchaser or party has paid.
The Yoheys acknowledge that the language of § 365 gives little or no guidance as to the effective date of the lien; however, they assert that, by inference, under certain Indiana cases, they are entitled to pro rata payment along with the mechanic's lienholders and Landmark. Under these cases, the Yoheys assert, even a subsequent mortgagee may achieve parity with mechanic's lienholders in certain cases. Because the Yoheys' money was used to pay subcontractors, Yoheys infer, this sets up the precise equitable situation contemplated by the Indiana cases:
The Yoheys made a substantial downpayment toward the purchase of the home. The initial downpayment was used to pay subcontractors for work upon the home. When funds began to run short for payment to subcontractors, the debtor's plea for further funds resulted in additional payment from the Yoheys for payment to the subcontractors. A tremendous inequity could now result, if the subcontractors now recover "ahead" of the lien claim of a party whose funds have already paid the subcontractors in part. (emphasis in original)
In seeking equity one must do equity; as Landmark had notice of the use of its loan funds to pay subcontractors, so did the subcontractors have notice of the use of Yoheys' downpayment funds to pay subcontractors. As stated in the Indiana cases, the Yoheys' money paid amounts that otherwise would have been claimable as mechanic's liens. Accordingly, the Yoheys' lien should have equal priority to other mechanic's lienholders.
Yohey Brief at pp. 6-7.
In response, Landmark asserts that, by its own definition, an executory contract is not breached prior to the filing of the bankruptcy petition but is only breached once the contract has been rejected. Accordingly, any lien created in favor of Yoheys under § 365(j) arose pursuant to the terms of § 502(g) immediately prior to the filing of DIP's petition. Therefore, the Yohey's lien arose later in time and thus was inferior to the mortgage lien of Landmark and the mechanic's liens of the contractors and suppliers. Even if the Court were to determine that the § 365(j) lien had attached at some earlier point in time, Yoheys' lien is still subordinate to those of Landmark and the mechanic's lienholders because § 365(j), by its very terms, creates the lien only in the "debtor's interest" in property. As there was never a time when DIP's interest in the realty and improvements exceeded the consensual and statutory liens upon them, Landmark argues, DIP never had an interest in the property to which the Yoheys' lien could attach.
The Yoheys cite Aetna Bank v. Dvorak, 176 B.R. 160 (N.D.Ill.1994) for the proposition that it is unclear when the law would deem the § 365(j) lien to have arisen. Because there are intervening equitable principles in this case, they argue, the Court should deem that the Yoheys' lien be treated in parity with those of Landmark and the mechanic's lienholders.
Landmark asserts that the Yoheys' essential premise, that the § 365(j) lien does not *728 arise at a time fixed by statute and therefore should be deemed to arise at a time chosen by the Court to be most beneficial to the Yoheys, is incorrect.
The Dvorak case involved facts somewhat similar to those present in this case. In 1990, the debtor, McDonald Creek, entered into a plan to develop certain real estate. The purchase of the land was financed through Aetna Bank ("Aetna") and a mortgage was properly recorded on September 6, 1990. In early June, 1991, the Dvoraks signed a contract with McDonald Creek to purchase a home and lot. The Dvoraks had paid McDonald Creek over $100,000 by November, 1991, at which point progress on the construction ceased. On March 20, 1992, McDonald Creek filed its Chapter 11 petition. The Dvoraks asserted a § 365(j) lien against the sale proceeds. Aetna did not dispute the existence of the lien, however the parties disagreed on the issue of the priority of the lien. Aetna moved for summary judgment in the bankruptcy court, arguing that its prior recorded mortgage lien had a higher priority than the Dvoraks' § 365(j) lien. The bankruptcy court granted the motion, and the Dvoraks appealed to the district court, arguing that their lien deserved priority over Aetna's.
The district court affirmed the bankruptcy court's decision that Aetna's lien was superior to the Dvorak's lien, rejecting the Dvoraks' claim that § 365(j) created a lien with special priority. The court analyzed the statute utilizing a "plain language" approach and stated that § 365(j) does not specify what priority the lien should receive. The court found that the absence of any reference to lien priority was evidence that Congress did not intend to give holders of § 365(j) liens any special treatment other than to create the lien in the first place. Because the mortgage lien of Aetna was admittedly perfected prior to the creation of the contract between McDonald Creek and the Dvoraks, the Court found Aetna's lien to be superior to the § 365(j) lien of the Dvorak's.
The Yoheys assert that the outcome of the Dvorak case was tied to the undisputed fact that Aetna's lien was created and perfected before the contract between McDonald and the Dvoraks was ever signed. Under those facts, the Yoheys admit, a § 365(j) lien would be subordinate to a perfected mortgage lien. However, in the case at bar, the Yoheys' § 365(j) lien may supersede the claims of other lienholders depending upon when the Court determines the § 365(j) lien to have arisen. The Yoheys offer Footnote # 2 as support for their claim that the holding in Dvorak is dependent upon the fact that Aetna's lien was admittedly prior to that of the Dvoraks:
FN2. It is not clear when the law would deem the Dvoraks' claim to have arisen. Reasonable arguments could be made that the lien was effective as of the day the debtor filed for bankruptcy, the time the Dvoraks made their payment, or the time McDonald Creek rejected its land sale contract with Dvoraks. It is also possible that Congress intended § 365(j) liens to have the very lowest priority of all secured interests in the bankruptcy estate; after all, the statute gives the claimant "a lien on the interest of the debtor in [the] property," 11 U.S.C. § 365(j), and the debtor's interest is subordinate to those of all the other secured creditors. The facts of this case do not require us to determine which of these approaches is correct.
The Yoheys correctly point out in their brief that the facts of the case at bar do require this Court to determine which approach is correct. If the § 365(j) lien arose at the time the Yoheys made their downpayments, their lien may be superior to some or all of the mechanic's liens and perhaps the mortgage lien of Landmark (the record does not reflect the date of the creation or perfection of the mortgage lien) whereas, if the lien arose at the time DIP filed for bankruptcy, the Yoheys' lien would be subordinate to those of Landmark and the mechanic's lienholders (absent some equitable subordination).
All statutory interpretation begins with the language of the statute itself, and where "the statute's language is plain, `the sole function of the courts is to enforce it according to its terms.'" United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241, 109 S. Ct. 1026, 1030, 103 L. Ed. 2d 290 *729 (1989) quoting Caminetti v. United States, 242 U.S. 470, 485, 37 S. Ct. 192, 194, 61 L. Ed. 442 (1917).
Section 365(j) of the Bankruptcy Code grants a lien to a party whose executory contract to purchase real property from the debtor is rejected, and that lien attaches to "the interest of the debtor in such property". 11 U.S.C. § 365(j). As a debtor's interest is subordinate to those of all other secured creditors, it is clear that Congress intended § 365(j) liens to have the very lowest priority of all secured interests in the bankruptcy estate. The fact that the statute is silent as to the priority of the lien leaves this conclusion unrefuted. Based upon this plain reading, the Court agrees with Judge Moran's statement in Dvorak, supra, that "(t)he absence of any reference to lien priority in the plain language is our first clue that Congress did not intend to give holders of § 365(j) liens any special treatment other than to create the lien in the first place." 176 B.R. at 163.
The Dvorak opinion correctly points out that there is nothing in either the Senate Report or the House of Representatives Report on the statute which would support a contrary conclusion. See S.Rep. No. 95-989, 95th Cong., 2d Sess. 60 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5846; H.R.Rep. No. 95-595, 95th Cong., 2d Sess. 350 (1978), reprinted in 1978 U.S.C.C.A.N. 5963, 6306. Rather, it seems more likely that the purpose of enacting the statute was to elevate the purchaser's claim for the return of his downpayment above the claims of general unsecured creditors. Certainly if Congress had intended to interfere with the relative rights of consensual and state statutorily created secured claims, it would have done so much more specifically:
Section 365(j) is intended to give a limited form of protection to the non-debtor vendee upon rejection of the [land sale] contract. That protection is restricted to a lien covering only the debtor's interest in the property forming the subject of the rejected contract . . . If Congress had intended that the disappointed vendee be given an administrative priority or other forms of adequate protection in addition to or in lieu of the lien granted by Section 365(j), it surely could have done so but it did not. In effect the lien is the "adequate protection" Congress has chosen to protect the debt owed to such a vendee. No amount of alchemy can transform that congressionally mandated protection into something greater than it is, a lien against the property and nothing more.
Dvorak, supra at p. 164 citing Delta Energy Resources, Inc. v. Damson Oil Corp., 72 B.R. 7, 12 (W.D.La.1985).
Finally, the Court rejects the Yoheys' equitable argument that their claim should be treated in parity with the claims of the mechanic's lienholders. The Indiana cases cited by the Yoheys involve the relative rights of mortgagees, mechanic's lienholders, and judgment lienholders in a non-bankruptcy context and are, therefore, irrelevant to the issue before this Court.
For the reasons set forth above, the Court finds that the Yoheys' § 365(j) lien is subordinate to those of Landmark and the mechanic's lienholders.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540597/ | 163 Pa. Commw. 178 (1994)
640 A.2d 490
William A. SNYDER, Appellant,
v.
COMMONWEALTH of Pennsylvania, Appellee.
Commonwealth Court of Pennsylvania.
Submitted March 2, 1994.
Decided April 5, 1994.
*179 Kim Wm. Riester, for appellant.
David R. White, Asst. Counsel, Appellate Section, for appellee.
Before CRAIG, President Judge, and COLINS, McGINLEY, PELLEGRINI, FRIEDMAN, KELLEY and NEWMAN, JJ.
FRIEDMAN, Judge.
William Snyder appeals an order of the Court of Common Pleas of Allegheny County which dismissed Snyder's appeal and affirmed a one year suspension of his operator's privileges by the Department of Transportation (DOT) based upon 75 Pa.C.S. § 1547(b)(1) because of Snyder's refusal to submit to chemical testing. We reverse.
DOT notified Snyder by official notice of September 3, 1991, that his operator's privileges were being suspended because of his refusal to submit to chemical testing. Snyder filed an appeal and the matter was heard de novo by the Court of Common Pleas of Allegheny County on December 11, 1991. *180 At that hearing, Snyder stipulated that he had been placed under arrest for driving while intoxicated, that he had been asked to submit to chemical testing, that he had been warned of the consequences of refusing to submit to the test and that he had refused to submit to the test. Snyder, through counsel, made clear before any testimony was taken, that he was arguing (1) that the arresting officer did not have reasonable cause to believe that Snyder had been driving while intoxicated, (2) that any testimony concerning the arrest would violate a court order which expunged all criminal records about the incident and (3) that the Carnegie Mellon University (CMU) policeman who arrested Snyder was not a "police officer" as that term is defined in the Vehicle Code. 75 Pa.C.S. §§ 101 9910.
Following Snyder's stipulation, DOT called Paul Helffrich, who identified himself as a campus police officer employed by CMU. He testified that in the early morning hours of July 19, 1991, he received a call about a disturbance behind a fraternity house on campus. Helffrich arrived at the scene and saw two individuals in a car pulling away from a parking spot. Snyder was operating the vehicle. When Helffrich approached the vehicle, he noticed a strong smell of alcohol emanating from the car. Snyder "was swaying in the seat and . . . was evasive and combative in answers to the questions that were asked of him." (Notes of testimony, 12/11/91, p. 13.) Helffrich asked Snyder to perform two field sobriety tests, which he failed. Helffrich then placed Snyder under arrest and turned Snyder over to the custody of a City of Pittsburgh police officer who was at the scene; that officer transported Snyder to the local City police station for the chemical testing.
Snyder makes the same three arguments on appeal that he made before the trial court.[1] We believe Snyder's argument, i.e., that Helffrich was not a "police officer" as defined by the *181 Vehicle Code, is meritorious and warrants a reversal of the trial court's order.[2]
The Legislature has provided:
(a) General rule. Any person who drives, operates or is in actual physical control of the movement of a motor vehicle in this Commonwealth shall be deemed to have given consent to one or more chemical tests . . . if a police officer has reasonable grounds to believe the person to have been driving, operating or in actual physical control of the movement of a motor vehicle:
(1) while under the influence of alcohol or a controlled substance or both. . . .
75 Pa.C.S. § 1547 (emphasis added). The Vehicle Code defines "police officer" as "[a] natural person authorized by law to make arrests for violations of law." 75 Pa.C.S. § 102. Thus, a plain reading of section 1547(a) evidences the legislative intent to trigger the provisions of the Implied Consent Law only when a person with legal authority to make an arrest has reasonable cause to believe a motorist has been driving a motor vehicle while intoxicated.
Generally, DOT may meet its burden of proving that a suspension under section 1547 is proper by proving that a motorist:
(1) was arrested for driving under the influence of alcohol; (2) was asked to submit to a chemical test; (3) refused to do so; and (4) was specifically warned that a refusal would result in a license suspension.
Department of Transportation, Bureau of Driver Licensing v. Holsten, 150 Pa. Commw. 1, 5, 615 A.2d 113, 114 (1992). Snyder, however, challenges Helffrich's authority to arrest generally and asserts that where such a challenge is made, DOT bears the burden of proving that Helffrich does have legal authority to make arrests. On this question of first impression under section 1547, we must agree with Snyder.
*182 DOT argues that Helffrich, as a CMU campus policeman, has the authority to make arrests under two separate statutes. DOT first asserts that Helffrich is a private policeman as envisioned in 22 Pa.C.S. § 501. That section provides:
Any nonprofit corporation, as defined in 15 Pa.C.S. Pt. II Subpt. C (relating to nonprofit corporations) maintaining a cemetery or any buildings or grounds open to the public . . . may apply to the court of common pleas of the county of the registered office of the corporation for the appointment of such persons as the corporation may designate to act as policemen for the corporation. The court, upon such application, may by order appoint such persons, or as many of them as it may deem proper and necessary, to be such policemen.
22 Pa.C.S. § 501(a). Subsection (c) of section 501 makes clear that private policemen so appointed have, inter alia, the power to make arrests.
DOT argues that Helffrich falls within the statute because CMU is a nonprofit corporation which has buildings open to the public. Even if the court were able to take judicial notice of these facts, DOT could not prevail on this theory. Only those persons appointed by court order are private police as envisioned by this section; if the CMU campus police were such private policemen, DOT could have easily met its section 1547 burden of proving so by introducing a copy of the court order making the appointment. DOT however introduced no such evidence.[3]
DOT next claims that the CMU police have the authority to make arrests under section 2416 of the Administrative Code of 1929, Act of April 9, 1929, P.L. 177, as amended, 71 P.S. § 646. That section clearly gives arrest powers to "[t]he Capitol Police, Commonwealth Property Police and the Security or Campus Police of all State colleges and universities, *183 State aided or related colleges and universities and community colleges. . . ." DOT states that the Legislature appropriated money for CMU in the fiscal years July 1990-June 1991 and July 1991-June 1992, referring to the Commonwealth's budget for each of those respective years. We do not believe, however, that proving that money was appropriated to CMU established that it is a "state aided" university.
The regulations of the Commonwealth's Department of Education offer the following definition of "state-aided status:" "Classification of a nonprofit institution which is legally authorized to grant degrees; offers needed, specified higher education services in the public interest of the Commonwealth; and receives a direct Commonwealth appropriation." 22 Pa. Code § 31.2. Those regulations go on to provide:
ELIGIBILITY FOR STATE-AIDED STATUS
§ 40.31. Mission.
The institution shall adopt a statement of mission consistent with policies of the [State] Board [of Education]. This shall include academic programs and services which meet the public need, as determined by the Department and by the Board.
§ 40.32. Programmatic information.
(a) The institution shall provide the Department with descriptions of programs which serve the public interest and a need not presently being met by State-supported institutions.
(b) The institution shall demonstrate the measures that have been taken to cooperate with other institutions in the elimination of unnecessarily duplicative programs and shall agree to follow principles and policies of the Board aimed at avoiding unnecessary and wasteful duplication of programs before additional programs are undertaken.
§ 40.33. Agreements.
An institution shall sign articles of agreement with the Department to include:
*184 (1) Acceptance of Board policies and regulations to reflect State-aided status and obligations as specified in applicable provisions of Chapter 31 . . . and this chapter.
(2) Disclosure of sources of income and expenditures as specified in § 31.14(c). . . .
(3) Provisions for equal educational opportunity as specified in § 40.2. (Emphasis added.)
These regulations show that before any university can qualify as a "state-aided" university, it must, inter alia, sign an agreement with the Department of Education. Yet, DOT introduced nothing at the hearing in this case concerning CMU's status as a "state-aided" university. In fact, the only thing resembling "proof"[4] of this fact is the following statement in DOT's brief to this court:
Moreover, the state budgets appropriations for CMU for the fiscal year of July 1990 to July 1991 was $400,000. See Section 209 of 1990 Pennsylvania Law 7a. Similarly, the appropriation to CMU for the fiscal year from July 1, 1991 to July 1, 1992 was $800,000. See Section 209 of the 1991 Pennsylvania laws. Therefore, CMU qualifies as a state aided university. . . .
(DOT's brief, p. 27.) As regarding appropriations to CMU, section 209 of Act 7a of 1990 indicates only that $400,000 was appropriated to CMU through the Department of Commerce for an engineering research center. In 1991, another $400,000 was appropriated through the Department of Commerce for the same reason along with an additional $400,000, again through the Department of Commerce, for a light microscope imaging research center. Given the Department of Education's regulations concerning "state-aided" universities, DOT would have failed to prove to the trial court that CMU was "state-aided" with this information alone. Because DOT has failed to prove that CMU is a "state-aided" university, it has failed to prove that Helffrich had authority to make arrests. Helffrich's authority to make arrests is not apparent from the *185 face of this record. Because we believe DOT was required to offer proof of such authority, and because DOT offered no evidence in this regard, it failed to show that a "police officer" had reasonable cause to believe that Snyder was operating his motor vehicle under the influence of alcohol. Accordingly, we are compelled to reverse Snyder's one year suspension.
ORDER
AND NOW, this 5th day of April, 1994, the December 11, 1991 order of the Court of Common Pleas of Allegheny at No. SA 2524 of 1991 is reversed.
NOTES
[1] Our scope of review is limited to determining if the trial court committed an error of law or abused its discretion and making certain that all necessary findings of fact are supported by competent evidence. Commonwealth v. Danforth, 530 Pa. 327, 608 A.2d 1044 (1992).
[2] Interestingly, the trial court never discussed this argument.
[3] Snyder's attorney made clear at the beginning of the trial in this case that he was challenging the authority of Helffrich to make arrests; thus DOT does not claim surprise in this regard. Had DOT needed additional time, it should have requested a continuance to allow it to obtain the necessary evidence to meet its burden of proving that CMU campus police had the authority to make arrests.
[4] When a party wishes to prove a necessary fact by judicial notice, such an offer must be made before the factfinder. A party may not offer "proof" by judicial notice for the first time on appeal. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/396559/ | 663 F.2d 654
81-2 USTC P 9820
Louis J. CAPOZZOLI, Jr. and Laura B. Capozzoli, Plaintiffs-Appellants,v.W. J. TRACEY, Jr., et al., Defendants-Appellees.
No. 81-3017.
United States Court of Appeals,Fifth Circuit.
Dec. 11, 1981.
Terrence C. McRea, Baton Rouge, La., for plaintiffs-appellants.
Donald L. Beckner, U. S. Atty., Richard S. Thomas, Asst. U. S. Atty., Baton Rouge, La., for defendants-appellees.
Appeal from the United States District Court for the Middle District of Louisiana.
Before CHARLES CLARK, Chief Judge, GOLDBERG and WILLIAMS, Circuit Judges.
GOLDBERG, Circuit Judge:
1
Louis and Laura Capozzoli brought this suit under the Federal Tort Claims Act, 28 U.S.C. § 2671 et seq. ("FTCA"), for damages based on the allegedly tortious conduct of an agent of the Internal Revenue Service ("IRS"). The District Court dismissed the action on the grounds that it was barred by 28 U.S.C. § 2680(c), an exception to the FTCA which retains the government's sovereign immunity for "(a)ny claims arising in respect of the assessment or collection of any tax...." We affirm.
PRELUDE
2
In 1979, William Tracey was employed by the IRS as an Engineer Revenue Agent. His job as an Engineer Revenue Agent was to make physical inspections of property in order to determine the extent of damage claimed by taxpayers as casualty losses.
3
In April, 1979, Tracey was assigned to investigate a casualty loss claimed by the Capozzolis. The claim pertained to flood damage on an undeveloped tract of land located on the south side of Bayou Manchac, in Louisiana. The Capozzolis allege that Agent Tracey entered this south tract of land without prior notice or permission. They further allege that although the casualty loss in question did not involve their home, Tracey proceeded to photograph the Capozzoli residence, which is located on the north side of Bayou Manchac directly across from the undeveloped tract of land to the south.
4
Mrs. Capozzoli claims that, at the time of this incident, she was alone in the house, clad only in her nightclothes. The sight of Agent Tracey "prowling about" her property and taking photographs allegedly caused Mrs. Capozzoli "extreme embarrassment, humiliation and mental distress."
5
The Capozzolis brought this action under the FTCA in the United States District Court for the Middle District of Louisiana against Agent Tracey and the United States Government, seeking damages for trespass and invasion of privacy. The United States moved to dismiss on the grounds that the claim was barred by Section 2680(c) of the FTCA, which retains the Government's sovereign immunity for claims arising in respect to the assessment or collection of any tax.
6
Judge Parker found that plaintiffs' claims against the United States were barred by Section 2680(c) and that the FTCA did not confer jurisdiction over Mr. Tracey, an individual federal employee.1 Accordingly, Judge Parker entered summary judgment against the Capozzolis.2 The sole issue on appeal is whether plaintiffs' claim against the United States is foreclosed by Section 2680(c).
PLAINTIFFS' THREE-PART INVENTION
7
Plaintiffs contend that their claim is not foreclosed by 28 U.S.C. § 2680(c) because Agent Tracey's investigatory activities constituted neither "assessment" nor "collection" of taxes as those terms are used in the Internal Revenue Code, 26 U.S.C. § 1, et seq. According to plaintiffs, the activities of the IRS fall into three distinct categories: "determination," "assessment" and "collection" of taxes. Plaintiffs contend that Agent Tracey's activities were limited to "determining" the Capozzolis' taxes, and that his job involved neither "assessment" nor "collection." We do not agree.
8
Plaintiffs cannot point to any provision of the Code which would support their tripartite division of the IRS's functions. While it is true that the words "determine" and "determination" appear in various sections of the Code and its related Regulations, in none of these references is there any suggestion that the "determination" of taxes is separate from or unrelated to the overall process of assessing and collecting taxes. We therefore reject plaintiffs' suggested Balkanization of the Code, for we do not see any natural borders or lines of demarcation to be drawn between the IRS' "determination" activities and its "assessment" or "collection" activities.
9
Even if we were to accept the view that the Code, like Gaul,3 is divided into three distinct parts, plaintiffs offer nothing to show that the language of Section 2680(c) was intended by Congress to track, incorporate or refer to the Code's supposed tripartite division. On the contrary, we find that, in enacting Section 2680(c) of the FTCA, Congress intended to insulate the IRS from tort liability stemming from any of its revenue-raising activities.
10
The language of 28 U.S.C. § 2680(c) is identical to that of another U.S.Code provision, 26 U.S.C. § 7421(a), which prohibits any "suit for the purpose of restraining the assessment or collection of any tax" (emphasis added). See Am. Assn. of Commodity Traders v. Dept. of Treasury, 598 F.2d 1233, 1235 (1st Cir. 1979). In construing Section 7421(a), the Supreme Court in Bob Jones University v. Simon, 416 U.S. 740, 94 S. Ct. 2038, 40 L. Ed. 2d 496 (1974) interpreted the phrase "assessment and collection of taxes" broadly to preclude judicial interference with any phase of IRS activities. We believe that both 26 U.S.C. § 7421(a) and 28 U.S.C. § 2680(c) reflect the government's strong interest in protecting the administration of its tax system from the burden of constant litigation. This interest would be completely frustrated if we were to read Section 2680(c) as providing an immunity for only certain narrowly defined activities of the IRS.
11
AGENT TRACEY'S ALLEGED OFF-THE-BEAT IMPROVISATION
12
The Capozzolis contend that even if Agent Tracey's inspection of the non-residential property south of Bayou Manchac is considered to be "in respect of the assessment or collection" of taxes, other activities of Agent Tracey went so far beyond anything necessary to determining the Capozzolis' taxes as to be outside the scope of 28 U.S.C. § 2680(c). Specifically, it is alleged that Agent Tracey's investigation pertained only to the property south of Bayou Manchac, yet Tracey nevertheless photographed the Capozzolis' home north of Bayou Manchac, which had not been the subject of any casualty loss claim by the Capozzolis. Therefore, Agent Tracey's photography of the Capozzolis' home constituted a tortious invasion of privacy unrelated to his official duties of assessing or collecting taxes.
13
Again, we cannot subscribe to plaintiffs' narrow construction of 28 U.S.C. § 2680(c). Congress retained the United States' sovereign immunity for any claim in respect of the assessment or collection of taxes. This language is broad enough to encompass any activities of an IRS agent even remotely related to his or her official duties.
14
Plaintiffs seem to argue that since an IRS employee is not authorized to commit torts, any tortious or wrongful conduct by an agent cannot, by definition, be in respect of his official duties of assessing or collecting taxes. However, this construction, which would render Section 2680(c) meaningless, has been consistently rejected. Section 2680(c) has been interpreted broadly by the courts to preclude suits for damages arising out of the allegedly tortious activities of IRS agents when those activities were in any way related to the agents' official duties. See, e. g., Morris v. United States, 521 F.2d 872, 874 (9th Cir. 1975); Broadway Open Air Theatre v. United States, 208 F.2d 257, 259 (4th Cir. 1953); Pugh v. I.R.S., 472 F. Supp. 350, 352-353 (E.D.Pa.1979); Paige v. Dillon, 217 F. Supp. 18, 20 (S.D.N.Y.1963).
15
For example, the plaintiffs in Morris v. United States, supra, alleged that IRS agents intentionally and illegally intimidated and harassed them, seized their property, and destroyed their business by telling creditors that plaintiff would be insolvent as a result of tax liability. Clearly, such conduct on the part of IRS agents, if true, would be unauthorized. Nevertheless, the Court held plaintiffs' claims were barred by Section 2680(c), stating,
16
Even assuming arguendo that the Internal Revenue agents' collection activity was beyond the normal scope of authority and amounted to tortious conduct, we find that the claim falls squarely within the exempted group of tort claims arising out of tax collection efforts.
17
Id. at 874.
18
We find that the construction of Section 2680(c) set forth in the above-cited cases is correct. Accordingly, we hold that even if Agent Tracey was not authorized to photograph the Capozzolis' residence in connection with his investigation of plaintiffs' casualty loss claim, and even if taking pictures of the residence was a tortious invasion of plaintiffs' privacy, any claim against the United States arising out of this incident is foreclosed by 28 U.S.C. § 2680(c).
FINALE
19
In holding that the Capozzolis' claim is one for which the United States has retained its sovereign immunity under 28 U.S.C. § 2680(c), we do not intend to suggest that the government is insulated from tort liability for any and all transgressions committed by IRS employees. Section 2680(c) does not so state. Where an IRS employee commits a tort wholly unrelated to his or her official duties of assessing or collecting taxes, the sovereign immunity retained under 28 U.S.C. § 2680(c) would not apply. Of course, a tort committed under circumstances wholly unrelated to an IRS agent's official duties may also be so far beyond the agent's scope of employment as to preclude vicarious liability on the part of the United States. See, e. g., Bettis v. United States, 635 F.2d 1144, 1146-1147 (5th Cir. 1981) (State laws of respondeat superior define the United States' liability under the FTCA for torts of its employees.). However, it is conceivable that an IRS agent could engage in tortious conduct sufficiently removed from the agent's official duties of assessing or collecting taxes as to be beyond the scope of Section 2680(c), and at the same time sufficiently within the scope of his employment as to give rise to an action against the United States. All we hold today is that, on the facts alleged by these plaintiffs, Agent Tracey's activities do not fall within this spectrum of tortious conduct actionable under the FTCA.
20
AFFIRMED.
1
Judge Parker correctly noted that dismissal of plaintiffs' claim against the United States was without prejudice to any action the Capozzolis might bring against Tracey in his individual capacity for violation of the Capozzolis' Fourth Amendment rights. See Bivens v. Six Unknown Named Agents of the Federal Bureau of Investigation, 403 U.S. 388, 99 S. Ct. 1999, 29 L. Ed. 2d 619 (1971)
2
The District Court thought that the government's motion to dismiss was based on plaintiffs' failure to state a cause of action, Fed.R.Civ.P., Rule 12(b)(6). After soliciting affidavits from the parties, he treated the motion as one for summary judgment, Rule 56. Although it does not affect the result in this case, we note that the District Court should have dismissed plaintiffs' claim for lack of subject matter jurisdiction pursuant to Rule 12(b)(1). See Stanley v. Central Intelligence Agency, 639 F.2d 1146, 1156-1160 (5th Cir. 1981)
3
Gallia est omnis divisa in partes tres. Julius Caesar, De Bello Gallico | 01-03-2023 | 08-23-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/234385/ | 214 F.2d 160
LANDONv.GINZTON et al.
Patent Appeal No. 6006.
United States Court of Customs and Patent Appeals.
June 24, 1954.
Conder C. Henry, Washington, D. C. (James L. Whittaker, Princeton, N. J., and Milton S. Winters, of counsel), for appellant.
Thomas M. Ferrill, Jr., for appellees.
Before GARRETT, Chief Judge, and O'CONNELL, JOHNSON, WORLEY, and JACKSON (retired), Judges.
O'CONNELL, Judge.
1
Landon, the junior party, has appealed here from the decision of the Board of Interference Examiners of the United States Patent Office awarding to appellees, Ginzton and Salisbury, the senior party, priority of the invention defined by the two counts in issue.
2
The interference involved appellees' application No. 102,276, filed June 30, 1949, as a division of their parent application No. 474,016 previously filed January 29, 1943, which date stands in the interference as appellees' date of record effective for conception and reduction to practice.
3
Appellees' parent application matured into patent No. 2,503,256 and is not reproduced in the record.
4
Appellant Landon was involved in the interference on the basis of his application No. 512,149 filed November 29, 1943, which matured into his patent No. 2,243,506, granted July 8, 1947. This patent embodied claims for "a new and useful Improvement in Wavemeter for Centimeter Waves," and "more particularly to wavemeters for measuring centimeter waves in waveguide transmission systems."
5
The subject matter of the counts originated as claims 1 and 2 of Landon's patent. They were copied and asserted for purposes of interference as claims 1 and 2 in appellees' divisional application hereinbefore described. Count 1 is representative and reads as follows:
6
"1. A microwave wavemeter for a waveguide transmission system including a cavity resonator comprising two hollow conductive elements disposed in adjustable telescopic relation, means for introducing microwave energy from said waveguide into said resonator, means for adjusting said telescopic relation of said elements to establish standing microwaves in said resonator in response to said microwave energy, means including a concentric line loosely coupled to said resonator to induce in said line signal currents in response to said standing waves, a detector connected in said line to rectify said signal currents to provide signal demodulation currents, and indicator means coupled to said line and responsive to said demodulation currents for indicating resonance of said cavity resonator to said microwave energy."
7
The real parties in interest are the Radio Corporation of America, assignee of appellant, and the Gyroscope Corporation, appellees' assignee. Both parties took testimony, filed briefs, and appeared at the final hearing. The junior party was under the burden of proving priority through actual reduction to practice by a preponderance of the evidence, Pines v. McAllister, 188 F.2d 388, 38 C.C.P.A., Patents, 981, 983. On that point the board held appellant had not met his burden of proof.
8
The question here is whether certain described uses and tests which were made of and with appellant's device prior to appellees' date of record constituted an actual reduction to practice of the invention defined by the counts. That device was generally described by the board as "a wavemeter of the type employing a resonant cavity which is tunable by a relative movement of interfitting parts to adjust the physical dimensions of the cavity. Means is provided to electrically couple the interior of the cavity to a waveguide which may be carrying electric wave energy, and another means is provided to couple the interior of the cavity to a sensitive detector and indicator. The movable parts which determine the physical demensions of the cavity are provided with a graduated scale, or scales, and an index. For use, the device is compared with a primary frequency standard through the range of the scale to be used, and a graph or chart showing correspondence between the reading of the index and frequency is prepared."
9
The board cited the patent to Southworth No. 2,106,771 from Landon's file history for a disclosure that the use of an adjustable cylinder resonant cavity as a wavemeter was prior art of record. Southworth's invention "relates to the transmission of ultra-high frequency electromagnetic waves and more especially, but not exclusively, to methods and apparatus for the generation and utilization of high frequency electromagnetic waves in dielectric guides."
10
Referring to the subject matter of the counts, to the drawings accompanying the patent to Southworth, and to the invention defined in his specification, appellees make these pertinent and emphasized statements which are supported by the disclosures of record:
11
"A generally similar prior cavity wavemeter [to that of Landon] had been provided with a disc piston with friction contact arrangements in the high-current region directly at its periphery. * * * The improvement over said prior microwave cavity wavemeter as defined in counts 1 and 2 related to special resonator configurations with hollow pistons for avoidance of direct friction contact in the high-current regions. This is the sole distinction of count 1 over Southworth. Count 2 further specifies the feature of the mating threads of the piston and outer body of the wavemeter, through which the micrometer-type adjustment action and vernier scale features are obtainable, for minute adjustments and precise readings of piston position. These improved wavemeters were to provide very high Q (for sharp, highpeaked tuning response) and reliable repeatability of their positions of resonance, with freedom from the erratic performance which results if there are spurious modes of response.
12
* * * * * *
13
"* * * Count 1 of this interference reads squarely on said Southworth wavemeter, element for element, except for the lack of the recited hollowness of the piston, Southworth's piston 2 being a disc arranged for friction contact directly at the periphery of the disc face. The recited feature of Count 1 that both the cylinder and the piston be hollow — the sole distinction over Southworth — is the feature that relates the count back to the recitation of features in the Landon specification * * *. Note also the recitations of objects relating to Q and to freedom from undesired mode responses * * *. The stated objectives of Ginzton et al. are to like general effect."
14
The board also described the chief differences between appellees' device and that disclosed by appellant and, among other things, pointed out that in the combination defined by the specifications of the respective parties, the modes of connecting the waveguide and the detector to the resonating cavity are different in detail but perform the same function.
15
Appellant concurs in the following finding made by the board and relies thereon as the basic ground for the reversal of the involved decision:
16
"The applicant Landon was, at the time of the alleged inventive acts referred to in the testimony, employed by Radio Corporation of America in its research laboratory. He was working with several other engineers, two of whom testified as corroborating witnesses. There is no question but that there was produced by this group a piece of apparatus which substantially corresponded to that shown in the drawing of the Landon application at a date not long prior to September 7, 1942, and that this piece of apparatus was used principally by the witnesses Kihn and Keizer during an investigation having for its purpose the design of a `mixer' and a signal generator to operate on 3 centimeter waves."
17
Appellant insists that the foregoing excerpt from the decision of the board embodies an unalterable finding of fact that the invention defined by the counts had been exclusively used by appellant as a physical object or apparatus in the practical measurement of the 3-centimeter microwaves in accordance with the object for which such device was designed; and that appellant's wavemeter was thus reduced to practice under actual working conditions, in the successful performance of a government contract, at least as early as September 7, 1942, which date was earlier by four months than January 23, 1943, the date claimed by appellees for conception and reduction to practice.
18
Appellant's counsel referring to the findings of the board hereinbefore described vigorously urge:
19
"Inasmuch as we concur in this finding, detailed discussion of the evidence supporting it appears uncalled for.
20
"Such findings coupled with a showing that the counts read literally on the patent drawing — which point is amply proven and is not in question — should conclude the case. * * *
21
* * * * * *
22
"The counts of the interference do not include all of the structure illustrated by the appellant's patent drawing. It was the illustrated structure which the Board admitted had been used in service. * * * Reliance is had on this device for reduction to practice, on which the counts undeniably read. The appellant, therefore, proved more than was necessary to establish his case."
23
The difficulty with appellant's position is that the holding upon which he places his sole reliance was not the final and effective rejection by the board, namely:
24
"* * * It is insufficient, according to our view of the law, that a wavemeter was constructed which contains the features recited by the counts, and was expediently used, where * * * the qualities relied upon to import invention were not particularly required for that use, and the manner of use was not such as to reveal and demonstrate those qualities. If the invention was present at the time it was hidden; it requires conscious recognition by actual observation to complete the actual inventive act."
25
The board in the course of its decision had also previously expressed various observations which it regarded, collectively, as having a controlling influence with respect to the ultimate issue in the case at bar. For example:
26
"The patent application may reveal a number of purposes for the same invention. The inventor need prove only one practical use; only one useful result or effect. But the applicant who must establish priority [by actual reduction to practice] over another who is otherwise entitled to the patent on the invention must jump that hurdle cleanly. * *
27
* * * * * *
28
"It is elemental that an invention must be shown to be of practical utility for its intended purpose, and unless the device and its use be very simple or obvious, it is necessary that the practibility be demonstrated by actually building and testing the device embodying the invention under the conditions it would be expected to encounter in such use. The testing of a device asserted to embody the invention but with no actual test of the features upon which the invention depends, does not constitute a reduction to practice. * * It appears, therefore, that the rule requires not merely that a device which embodies a combination, substantially found to be patentable, has utility for some purpose, but that the inventive combination itself is shown to function according to its intended purpose. In other words, it must be apparent from the test that the invention is functioning as such and is not merely a superfluity carried along by another operating combination in which it is embedded." (Italics supplied.)
29
The board in support of its position cited, among other authorities, the doctrine expressed in the case of Coffin v. Ogden, 18 Wall. 120, 124, 85 U.S. 120, 124, 21 L. Ed. 821. That case was a suit for infringement on a door lock and involved by way of defense, among other things, the question of priority by reason of actual reduction to practice. The board and the appellant have both relied upon the case to support their conflicting conclusions of law. The board held in accordance with its rules of construction hereinbefore described that appellant had not met the burden of proving prior reduction to practice, namely:
30
"The statements in the report of Landon and others, Landon Exhibit 2, sheet 5, cannot be accepted in lieu of actual observations as establishing that the wavemeter referred to had high Q and freedom from undesired modes of oscillation. Under the circumstances, the statements in the report appear to contain, or might contain considerable engineering conjecture. The courts have ruled, over and over again, from Coffin v. Ogden, supra, to Pines v. McAllister, supra, that in the reduction to practice of an invention certainty is required rather than conjecture; even though the conjecture may have some plausible scientific basis to rest upon."
31
The reasoning whereby the Board of Interference Examiners made its findings of fact and derived its conclusions of law in the case at bar is definitely supported by the recent decisions of this court in the cases of Triplett v. Steinmayer, 129 F.2d 869, 29 C.C.P.A., Patents, 1243; and Applegarth v. Wilson, 156 F.2d 373, 33 C.C.P.A., Patents, 1268. On that point, appellees properly observe in their brief:
32
"Just as in the case of Triplett v. Steinmayer, supra, this Court held in Applegarth v. Wilson [156 F.2d 373], 33 C.C.P.A. (Patents) 1268, 70 U.S.P.Q. 449 that the conceded proof of successful operability of the entire system including an alleged improvement did not of itself prove the beneficial effect of the improvement feature. In Applegarth v. Wilson, the desired effect of the added feature was itself recited in the illustrative count, whereas in Triplett v. Steinmayer, in Count 9, the filing of the `arc extinguishing material' was specified in the count without any further recitation as to any functions or effects to be accomplished thereby."
33
The law is also clear on the point that it is proper for the board in an interference not only to take into consideration all of the elements recited in the counts but also the statements in the specification which shed light upon the purpose and intentions as to the structures defined by the counts. Bowers v. Valley and Ernest, 149 F.2d 284, 32 C.C. P.A., Patents, 1039, 1046; Huelster v. Reiter, 168 F.2d 542, 35 C.C.P.A., Patents 1212, 1215; Balogh v. Crot, 176 F.2d 923, 37 C.C.P.A., Patents, 707. Moreover, the propriety of taking into consideration the disclosure of the patent to Southworth in this case is directly sanctioned by the final provision of Rule 258 of the Rules of Practice of the United States Patent Office, 35 U.S.C.A.Appendix:
34
"At final hearing between an application and a patent the prior art of record in the patent file may be referred to for the purpose of construing the issue."
35
We agree with the conclusion of the Board of Interference Examiners that appellant failed to meet the requirements for proof of reduction to practice of an improvement feature such as the hollow piston arrangement for avoidance of high-current friction contacts.
36
In view of that conclusion, it is deemed unnecessary to discuss additional arguments and authorities cited by appellant, and the decision of the Board of Interference Examiners is affirmed.
37
Affirmed.
38
JACKSON, Judge, sat for COLE, Judge.
39
GARRETT, Chief Judge, because of illness, did not participate in the decision. | 01-03-2023 | 08-23-2011 |
https://www.courtlistener.com/api/rest/v3/opinions/1541108/ | 155 B.R. 730 (1993)
In re Charles Russell HALE, Sarah Alice Hale, Debtors.
NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Plaintiff,
v.
Charles Russell HALE, Defendant.
Bankruptcy No. 3-92-01785, Adv. No. 3-92-0245.
United States Bankruptcy Court, S.D. Ohio, W.D.
June 1, 1993.
*731 *732 Charles and Sarah Alice Hale, Lebanon, OH, debtors.
John E. Sharts, Springboro, OH, for Charles Russell Hale.
Patrick K. Dunphy, Dayton, OH, for Nationwide Mut. Fire Ins. Co.
DECISION ON ORDER GRANTING JUDGMENT AGAINST CHARLES RUSSELL HALE
THOMAS F. WALDRON, Bankruptcy Judge.
This proceeding, which arises under 28 U.S.C. § 1334(b) in a case referred to this court by the Standing Order of Reference entered in this district on July 30, 1984, is determined to be a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I)determinations as to the dischargeability of particular debts. Atassi v. McLaren (In re McLaren), 990 F.2d 850 (6th Cir.1993).
Presently pending before the court is a motion for summary judgment filed by the plaintiff, Nationwide Mutual Fire Insurance Company ("Nationwide") (Doc. 10-1). Nationwide asserts that it is entitled to summary judgment under the doctrine of issue preclusion or, alternatively, under summary judgment principles.
The court finds that the filings in this proceeding establish the following uncontroverted facts.
1. Nationwide issued an insurance policy to Donald and Joyce Bishop upon a 1990 5610 Ford tractor they owned. (Doc. 10-1, Ex. B, Tr. at 4). In July of 1990, the Bishops reported to their insurance carrier that the tractor had been stolen. (Doc. 10-1, Ex. B, Tr. at 4). Pursuant to the insurance contract, Nationwide paid the Bishops $14,000 for their loss. (Doc. 10-1, Ex. B, Tr. at 4-5). Nationwide received subrogation rights under this contract. (Doc. 10-1, Ex. B, Tr. at 5).
2. Thereafter, the tractor was recovered by the Kenton County, Kentucky Sheriff's Department. (Doc. 10-1, Ex. B, Tr. at 5). Nationwide hired the defendant, Charles Russell Hale ("Hale"), to recover the tractor from the sheriff's department and receive bids from potential buyers of the tractor. (Doc. 10-1, Ex. B, Tr. at 5-6). Nationwide was to pay Hale $100 for this service. (Doc. 10-1, Ex. B, Tr. at 6).
3. Hale submitted a bid for the tractor in the amount of $12,050. (Doc. 10-1, Ex. B, Tr. at 6). Nationwide informed Hale that he had submitted the highest bid. (Doc. 10-1, Ex. B, Tr. at 6-7). Nationwide then made a demand for payment upon Hale in the amount of $12,050 less the $100 owed Hale for his services and less $50 Hale paid in advance towing charges from the sheriff's department. (Doc. 10-1, Ex. B, Tr. at 7). Hale failed to pay Nationwide for the tractor. (Doc. 10-1, Ex. B, Tr. at 7).
4. Nationwide made several attempts to contact Hale to obtain payment for the tractor. (Doc. 10-1, Ex. B, Tr. at 7). Although Hale stated that payment was forthcoming, he did not pay for the tractor. (Doc. 10-1, Ex. B, Tr. at 7). Eventually, Hale informed Nationwide that he did not have the money to pay for the tractor. (Doc. 10-1, Ex. B, Tr. at 8).
5. Nationwide requested that Hale return the tractor. (Doc. 10-1, Ex. B, Tr. at 8). At this time, Hale told Nationwide that he did not have the tractor because he had sold it. (Doc. 10-1, Ex. B, Tr. at 8). Nationwide never received payment for the tractor from Hale. (Doc. 10-1, Ex. B, Tr. at 8).
*733 6. Nationwide filed an action against Hale in the Common Pleas Court of Warren County, Ohio on July 23, 1991, alleging causes of action for breach of contract, breach of fiduciary duty, unjust enrichment, and conversion. (Doc. 1-1, Ex. A). Nationwide alleged in the complaint that Hale "wilfully, maliciously, and unlawfully converted the property of Nationwide for his own use and benefit." (Doc. 1-1, Ex. A, para. 27).
7. On February 27, 1992, Nationwide filed a Motion for Default Judgment in the Common Pleas Court of Warren County, Ohio. (Doc. 10-1, Ex. A).
8. A default hearing was held on March 11, 1992. (Doc. 10-1, Ex. B). After hearing evidence, including the testimony of a claims representative for Nationwide, the state court awarded damages in the amount of $11,900, constituting the $12,050 bid price less the $150 that Hale had paid, and found that there was a "wrongful conversion" and awarded punitive damages in the amount of $2,000, together with interest at the legal rate from December 1, 1990 and costs. In accordance with this holding, an Entry Granting Default Judgment was filed in the Common Pleas Court of Warren County. (Doc. 10-1, Ex. C).
9. On April 10, 1992, Hale filed for relief under chapter 7 of the Bankruptcy Code.
10. Nationwide commenced an adversary proceeding in this court alleging that the entire state court judgment is a nondischargeable debt under 11 U.S.C. § 523(a). Subsequently, Nationwide filed a Motion Of Plaintiff Nationwide Mutual Fire Insurance Company For Summary Judgment (Doc. 10-1) asserting that the default judgment is nondischargeable pursuant to 11 U.S.C. § 523(a)(6).[1] (Doc. 10-1). Nationwide attached a certified copy of the Motion For Default Judgment And Notice Of Hearing, a certified transcript of the default hearing held in the Court of Common Pleas for Warren County, and a certified copy of an Entry Granting Default Judgment. (Doc. 10-1, Exs. A-C).
11. Hale filed a Motion Of Defendant Contra (Doc. 12-1) in response.
12. Subsequently, this court entered an order (Doc. 13-1, 13-2) which granted the parties an opportunity to address the following issues:
1. If the state court judgment at issue in this proceeding is not granted preclusive effect by the bankruptcy court, is the plaintiff, nevertheless, entitled to summary judgment pursuant to 11 U.S.C. § 523(a)(6)?
2. If the plaintiff is entitled to summary judgment pursuant to 11 U.S.C. § 523(a)(6), is the plaintiff entitled to an award of punitive damages as a part of the total damage award?
3. In the absence of a written waiver by the plaintiff of any claim for punitive damages, if the bankruptcy court would award punitive damages, is an evidentiary hearing required in order to fix the amount of the punitive damages?
In response to this order Hale filed a Memorandum Of Defendants (Doc. 14-1) and a Supplemental Memorandum Of Defendant, Charles Russell Hale (Doc. 16-1). Nationwide filed a Memorandum Of Plaintiff Nationwide Mutual Fire Insurance Company In Response To Court's Order Of 3/16/93 (Doc. 15-1).
DISCUSSION
Summary judgment is governed by Federal Rule of Bankruptcy Procedure 7056 which incorporates Rule 56 of the Federal Rules of Civil Procedure. Rule 7056(c), in relevant part, provides:
The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the *734 moving party is entitled to a judgment as a matter of law.
"[T]his standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986) (emphasis in original). The party seeking summary judgment bears the initial burden of establishing the absence of a genuine issue of material fact. The burden of demonstrating the existence of a genuine issue of material fact lies, however, with the non-moving party. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986).
When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts.... In the language of the Rule, the nonmoving party must come forward with "specific facts showing that there is a genuine issue for trial."
Matsushita Elec. Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 1355-56 (1986).
No genuine issues of material fact exist; therefore, this proceeding is appropriate for summary judgment.
The determination of this proceeding requires an examination of preclusion concepts, particularly the doctrine of issue preclusion (collateral estoppel). The question may be framed: "Is an Ohio state court default judgment entitled to preclusive effect in the context of dischargeability determinations under 11 U.S.C. § 523(c)."[2] If the default judgment is not entitled to preclusive effect, an additional question is whether Nationwide, based upon the pleadings, is entitled to summary judgment.
Under the Constitution's Full Faith and Credit Clause[3] implemented by the full faith and credit statute, 28 U.S.C. § 1738, federal courts must give state court judgments the same preclusive effect as the state which rendered the judgment. Section 1738 provides that state judicial proceedings "shall have the same full faith and credit in every court within the United States and its Territories and Possessions they have by law or usage in the courts of such State, Territory or Possession from which they are taken." 28 U.S.C. § 1738. See Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 378-80, 105 S.Ct. 1327, 1331, 84 L.Ed.2d 274 (1985); Migra v. Warren City School Dist. Bd. Of Ed., 465 U.S. 75, 80, 104 S.Ct. 892, 895-96, 79 L.Ed.2d 56 (1984); Osborn v. Ashland Cty. Bd. Alcohol, Drug Addiction and Mental Health Services, 979 F.2d 1131, 1133 (6th Cir.1992).
The full faith and credit statute mandates that a federal court initially refer to the law of the State in which the judgment was rendered to determine its preclusive effect. Marrese, 470 U.S. at 380-82, 105 S.Ct. at 1332. If state law would deny preclusive effect, then the analysis ends; however, if state law would accord the judgment preclusive effect, it must then be determined whether an exception to § 1738 applies. Id. 470 U.S. at 382-83, 105 S.Ct. at 1333.
Relevant Ohio law provides:
A point of law or a fact which was actually and directly in issue in the former *735 action, and was there passed upon and determined by a court of competent jurisdiction, may not be drawn in question in a subsequent action between the same parties or their privies. The prior judgment estops a party, or a person in privity with him, from subsequently relitigating the identical issue raised in the prior action.
Trautwein v. Sorgenfrei, 58 Ohio St.2d 493, 391 N.E.2d 326, 327 (1979) (citation omitted); see also Goodson v. McDonough Power Equipment, Inc., 2 Ohio St.3d 193, 443 N.E.2d 978, 979 (1983). This principle has been applied to default judgments. See Corydon Palmer Dental Society v. Johnson, Johnson & Assocs., No. 87 CA 121, 1988 WL 21334, 1988 Ohio App. LEXIS 554 (Ct. of Appeals of Ohio, Feb. 16, 1988) (citing 63 O.Jur.3d, Judgments § 443 at 235).
Since Ohio law accords default judgments preclusive effect, this court must determine whether there is an exception to 28 U.S.C. § 1738 with respect to a state court default judgment in the context of dischargeability determinations under 11 U.S.C. § 523(c). In making this determination the Supreme Court stated:
[The] [Q]uestion is whether the concerns underlying a particular grant of exclusive jurisdiction justify a finding of an implied partial repeal of § 1738. Resolution of this question will depend on the particular federal statute as well as the nature of the claim or issue involved in the subsequent federal action. Our previous decisions indicate that the primary consideration must be the intent of Congress.
Marrese, 470 U.S. at 386, 105 S.Ct. at 1335. In Marrese, the Supreme Court cited Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979) as an example in which the Court found congressional intent that state judgments would not have claim preclusive effect (res judicata) on dischargeability determinations in bankruptcy. Marrese, 470 U.S. at 386-87, 105 S.Ct. at 1335.
In Brown v. Felsen, there was a settlement of a state court collection suit in which Felsen stipulated that Brown would receive a judgment against Felsen. Neither the stipulation nor the judgment stated the cause of action upon which Felsen's liability to Brown was based. Thereafter, Felsen filed a bankruptcy petition and sought to have this debt to Brown discharged. In the bankruptcy court, Brown sought to establish that Felsen's debt was not dischargeable, alleging that the debt was the product of Felsen's fraud, deceit, and malicious conversion thereby coming within §§ 17a(2) and 17a(4), provisions contained in the former Bankruptcy Act. Felsen stated that the prior state court proceeding did not result in a finding of fraud and contended that claim preclusion barred relitigation of the nature of Felsen's debt to Brown even though the application of § 17 had not been in issue in the prior proceeding.
The Supreme Court found that Congress' primary purpose in committing § 17 dischargeability issues to the jurisdiction of the bankruptcy court was to eliminate "postbankruptcy state-court collection suits as a means of resolving certain § 17 dischargeability questions," and because "[i]n those suits creditors had taken advantage of debtors who were unable to retain counsel because bankruptcy had stripped them of their assets." Brown at 2211. A secondary purpose "was to take these § 17 claims away from state courts that seldom dealt with the federal bankruptcy laws and to give those claims to the bankruptcy court so that it could develop expertise in handling them." Id. (footnote omitted).
The Supreme Court noted that a policy requiring dischargeability issues to be raised in state court could "undercut a statutory policy in favor of resolving § 17 questions in bankruptcy court, and would force state courts to decide these questions at a stage when they are not directly in issue and neither party has a full incentive to litigate them." Id. Further:
When § 17 issues are not identical to those arising under state law, the parties have little incentive to litigate them. In the collection suit, the debtor's bankruptcy is still hypothetical. The rule proposed *736 by respondent [Felsen] would force an otherwise unwilling party to try § 17 questions to the hilt in order to protect himself against the mere possibility that a debtor might take bankruptcy in the future. In many cases, such litigation would prove, in the end, to have been entirely unnecessary, and it is not surprising that at least one state court has expressly refused to embroil itself in an advisory adjudication of this kind. And absent trial on the merits, there is no particular reason to favor extraneous facts thrown into a record for § 17 purposes over facts adduced before the bankruptcy court.
If a state court should expressly rule on § 17 questions, then giving finality to those rulings would undercut Congress' intention to commit § 17 issues to the jurisdiction of the bankruptcy court.
Id. (citation omitted). See also Spilman v. Harley, 656 F.2d 224, 226 (6th Cir.1981) ("Congress intended to take the determinations governed by 11 U.S.C. § 523(c) away from state courts and grant exclusive jurisdiction in the bankruptcy courts.").
Unlike the doctrine of claim preclusion, which was at issue in Brown, the doctrine of issue preclusion may be applicable in dischargeability actions in the bankruptcy court. See Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991); Brown, 442 U.S. at 139 n. 10, 99 S.Ct. at 2213 n. 10; Wheeler v. Laudani, 783 F.2d 610 (6th Cir.1986); Spilman, 656 F.2d at 227-28. In determining the applicability of the doctrine of issue preclusion to a dischargeability action, the Sixth Circuit has stated that the bankruptcy court must consider the following factors: 1) whether the precise issues raised in the prior proceeding are the same issues for which preclusion is sought, 2) whether the issues were actually litigated, 3) whether the determination was necessary to the outcome, and 4) whether the prior determination resulted in a valid and final judgment. Spilman, 656 F.2d at 228; see also Jones v. Walters (In re Walters), 142 B.R. 229, 231-32 (Bankr.S.D.Ohio 1992). To make this determination, the bankruptcy court must examine the entire record of the state proceeding, not just the judgment. Spilman, 656 F.2d at 228; see also Walters, 142 B.R. at 232.
Additionally, the doctrine of issue preclusion mandates that the evidentiary standard applied in the prior adjudication not be less stringent than the standard required in the dischargeability action. Walters, 142 B.R. at 232. The obstacles created by this requirement have been alleviated as a result of the Supreme Court's recent decision in Grogan v. Garner, 498 U.S. at 283-85, 111 S.Ct. at 658; see also BancBoston Mortg. Corp. v. Ledford (In re Ledford), 970 F.2d 1556, 1558 n. 1 (6th Cir.1992); Walters, 142 B.R. at 232. In Grogan, the Court held that the burden of proof applicable in dischargeability proceedings is preponderance of the evidence. 498 U.S. at 287-89, 111 S.Ct. at 660. The factors considered for determining the applicability of the doctrine of issue preclusion to a dischargeability action are essentially identical to those considered under state law; however, an important disparity exists. With respect to the second factor enunciated in Spilman, the court stated, "[i]f the important issues were not actually litigated in the prior proceeding, as is the case with a default judgment, then collateral estoppel does not bar relitigation in the bankruptcy court." 656 F.2d at 228 (emphasis added).
The rationale underlying Brown for denying claim preclusion to state court determinations in bankruptcy dischargeability proceedings is equally applicable in denying issue preclusion effect to a state court default judgment. Ferguson v. Hall (In re Hall), 95 B.R. 553, 556 (Bankr.E.D.Tenn. 1989). See also Pizza Palace, Inc. v. Stiles (In re Stiles), 118 B.R. 81, 85 (Bankr. W.D.Tenn.1990). As the court in Hall stated:
The problem with giving collateral estoppel effect to a default judgment is that it has the effect of forcing a defendant to litigate in the state court not to disprove the plaintiff's claim on the merits but specifically to preserve the question of dischargeability in bankruptcy.
*737 The problem is equivalent to the problem in Brown v. Felsen. The creditor, rather than the debtor, is arguing for giving effect to prebankruptcy judgments in such a way that debtors are required to litigate before bankruptcy in order to preserve the question of dischargeability of the alleged debt. Requiring either the debtor or the creditor to litigate before bankruptcy in order to preserve the question of dischargeability of the alleged debt is contrary to the policy of the bankruptcy laws as pointed out in Brown v. Felsen.
95 B.R. at 557-58 (emphasis in original). Additionally, it has been noted:
It is certainly true that preclusion of an otherwise just result by the conclusive effect of collateral estoppel is more difficult to justify when the preclusion could not reasonably have been foreseen by the concluded party than when it could have been. Justice, then, is probably better served if the principle of collateral estoppel does not apply to unlitigated issues underlying default or consent judgments, or to issues determined by the parties, unless it can be said that the parties could reasonably have foreseen the conclusive effect of their actions.
J. Moore, 1B Moore's Federal Practice, para. 0.444[1] at 794 (footnotes omitted). See also Brill v. Dvorak (In re Dvorak), 118 B.R. 619, 625 (Bankr.N.D.Ill.1990).
Based upon the explicit language in Spilman and the rationale in the Brown decision, this court concludes that in the Sixth Circuit the "actually litigated" factor is not satisfied in the context of dischargeability determinations under § 523(c) if the state court judgments were entered as a result of default.[4] Accordingly, this court concludes that an Ohio state court default judgment cannot be accorded either claim or issue preclusion in a subsequent bankruptcy proceeding alleging causes of action committed to the exclusive jurisdiction of the bankruptcy court under 11 U.S.C. § 523(c).
Turning to the issue of summary judgment, based upon the facts established in the transcript of the default hearing,[5] which remain uncontroverted,[6] this court concludes that the pleadings establish that Nationwide is entitled to summary judgment under 11 U.S.C. § 523(a)(6).
Section 523(a)(6), in relevant part, provides:
*738 (a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt
....
(6) for willful and malicious injury by the debtor to another entity or to the property of another entity[.]
In interpreting § 523(a)(6), the Sixth Circuit has stated:
An injury to an entity or property may be a malicious injury within this provision if it was wrongful and without just cause or excessive, even in the absence of personal hatred, spite, or ill-will. The word "willful" means "deliberate or intentional," a deliberate and intentional act which necessarily leads to injury. Therefore, a wrongful act done intentionally, which necessarily produces harm and is without just cause or excuse, may constitute a willful and malicious injury.
Perkins v. Scharffe, 817 F.2d 392, 394 (6th Cir.1987), cert. denied, 484 U.S. 853, 108 S.Ct. 156, 98 L.Ed.2d 112 (1987). The Sixth Circuit rejected the stricter standard that "willful" and "malicious" requires an act with intent to cause injury. Vulcan Coals, Inc. v. Howard, 946 F.2d 1226, 1229 (6th Cir.1991).
It remains uncontradicted that Hale retained the funds from his sale of the tractor which belonged to Nationwide. Hale's actions were willful; his conduct was deliberate and intentional. Additionally, by failing to remit payment to Nationwide, Hale's conduct was wrongful and without just cause and caused injury to Nationwide; thus, Hale's conduct was malicious. Hale's conduct caused a willful and malicious injury to Nationwide.
Hale does not dispute that Nationwide is entitled to summary judgment with respect to the actual damage portion of the judgment awarded Nationwide.[7] Hale does dispute, however, that Nationwide is entitled to summary judgment with respect to the punitive damage portion award of the state court judgment.
In determining whether punitive damages are nondischargeable under § 523(a)(6), courts are directed by "the fundamental canon that statutory interpretation begins with the language of the statute itself." Pennsylvania Dept. of Public Welfare v. Davenport, 495 U.S. 552, 557-58, 110 S.Ct. 2126, 2130, 109 L.Ed.2d 588 (1990). Section 101(12) defines "debt" as a "liability on a claim." Section 101(5), in relevant part, defines "claim" as 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[.]" 11 U.S.C. § 101(5)(A). The Supreme Court has stated:
As is apparent, Congress chose expansive language in both definitions [the Code's definitions of "claim" and "debt"] relevant to this case. For example, to the extent the phrase "right to payment" is modified in the statute, the modifying language ("whether or not such right is ...") reflects Congress' broad rather than restrictive view of the class of obligations that qualify as a "claim" giving rise to a "debt." See also H.R.Rep. No. 95-595, supra, at 309, U.S.Code Cong. & Admin.News 1978, p. 6266 (describing definition of "claim" as "broadest possible" and noting that Code "contemplates that all legal obligations of the debtor ... will be able to be dealt with in the bankruptcy case"); accord S.Rep. No. 95-989, supra, at 22, U.S.Code Cong. & Admin.News 1978, p. 5808.
Davenport, 495 U.S. at 558, 110 S.Ct. at 2130. See also Britton v. Price (In re Britton), 950 F.2d 602, 606 (9th Cir.1991); *739 Placer U.S., Inc. v. Dahlstrom (In re Dahlstrom), 129 B.R. 240 (Bankr.D.Utah 1991).
Considering the broad definition of "debt" and the plain meaning of the language contained in § 523(a)(6), this court concludes that a "debt" held to be nondischargeable under § 523(a)(6) includes punitive damage awards.[8]Dahlstrom, 129 B.R. at 242. "The exception [to discharge contained in § 523(a)(6)] is measured by the nature of the act, i.e., whether it was one which caused willful and malicious injuries. All liabilities resulting therefrom are nondischargeable." Moraes v. Adams (In re Adams), 761 F.2d 1422, 1428 (emphasis added in Adams; quoting Coen v. Zick, 458 F.2d 326, 329-30 (9th Cir.1972)). See also Britton, 950 F.2d at 606; Johnson v. Miera (In re Miera), 926 F.2d 741, 745 (8th Cir.1991) ("this section does not distinguish between debts which are compensatory in nature and those which are punitive. The language of section 523(a)(6) is directed at the nature of the conduct which gives rise to the debt, rather than the nature of the debt"); Stokes v. Ferris, 150 B.R. 388 (W.D.Tex.1992) (under § 523(a)(6) "all debts including statutory damages and legal fees, which flow from the debtor's willful and malicious conduct are nondischargeable."). 150 B.R. at 393.
In the instant case the award of punitive damages and interest are a component of the state court determined liabilities which resulted from the willful and malicious nature of the defendant's conduct. Therefore, this award is nondischargeable. The transcript of the state court hearing, which contains testimony that remains uncontradicted, provides a sufficient basis, pursuant to the summary judgment rule (see fn. 5), for this court to determine, without the need for an evidentiary hearing, that the amount of punitive damages equals the sum of two thousand dollars ($2,000).
Accordingly, the Motion Of Plaintiff Nationwide Mutual Fire Insurance Company For Summary Judgment (Doc. 10-1) is GRANTED and the nondischargeable debt is determined to be the amount of the bid price of twelve thousand fifty dollars ($12,050), less Hale's expenses of one hundred fifty dollars ($150), plus two thousand dollars ($2,000) in punitive damages for a total of thirteen thousand nine hundred dollars ($13,900) plus interest and costs set forth in the state court judgment.
An order in accordance with this decision is simultaneously entered.
SO ORDERED.
NOTES
[1] In its complaint Nationwide alleged that the debt owed it by Hale is nondischargeable pursuant to § 523(a) "because such debt was incurred as the result of fraud of the debtor, Charles Russell Hale, now acting in a fiduciary capacity." (Doc. 1-1). This court concludes that this debt is nondischargeable under § 523(a)(6) and, therefore, finds it unnecessary to address other causes of action alleged under § 523(a)(2) or (4).
[2] This proceeding is brought specifically under 11 U.S.C. § 523(a)(6); however, the rationale for determining the issues in this proceeding is equally applicable under § 523(a)(2) and § 523(a)(4) because these sections, 523(a)(2), 523(a)(4), and 523(a)(6), are committed to the exclusive jurisdiction of the bankruptcy court pursuant to 11 U.S.C. § 523(c). Section 523(c), in relevant part, provides:
(1) Except as provided in subsection (a)(3)(B) of this section, the debtor shall be discharged from a debt of a kind specified in paragraph (2), (4), or (6) of subsection (a) of this section, unless, on request of the creditor to whom such debt is owed, and after notice and a hearing, the court determines such debt to be excepted from discharge under paragraph (2), (4), or (6), as the case may be, of subsection (a) of this section.
[3] U.S. Const., art. IV, § 1.
[4] Contra Bend v. Eadie (In re Eadie), 51 B.R. 890, 891-93 (Bankr.E.D.Mich.1985); Harris v. Byard (In re Byard), 47 B.R. 700, 704-08 (Bankr. M.D.Tenn.1985). Courts in other circuits, however, give issue preclusive effect to state court default judgments. See e.g., Kelleran v. Andrijevic, 825 F.2d 692 (2d Cir.1987) (bankruptcy court could not disregard preclusive effect of state court default judgment which fixed the liability of the debtor to one of his creditors); Seay v. Greene (In re Greene), 150 B.R. 282 (Bankr.S.D.Fla.1993); Fairway Golfview Homes, Inc. v. Kecskes (In re Kecskes), 136 B.R. 578 (Bankr.S.D.Fla.1992); Perino v. Cohen (In re Cohen), 92 B.R. 54 (Bankr.S.D.N.Y.1988).
[5] Courts are not restricted to considering "depositions, answers to interrogatories, and admissions" as set forth in the summary judgment rule. Testimony elicited at a prior hearing may be utilized in determining motions for summary judgment. See Cash Inn of Dade, Inc. v. Metro. Dade County, 938 F.2d 1239, 1243 (11th Cir. 1991); In re Dooley, 116 B.R. 573, 576-77 (Bankr.S.D.Ohio 1990); Pillsbury Co. v. FCX, Inc. (In re FCX, Inc.), 62 B.R. 315, 320 (Bankr. E.D.N.C.1986); J. Moore, 6 Moore's Federal Practice, para. 56.11[8] at 56-156 n. 12.
[6] In his response to Nationwide's motion for summary judgment, Hale stated that he "largely agrees with plaintiff's recitation of the chronology in the within case, but represents that his agency as a bailee for hire terminated when he had transported plaintiff's insured's tractor from the Kenton County, Kentucky, Sheriff's Department to his place of business, probably during September, October, or early November, 1990. Although the tractor remained at defendant's place of business, defendant was not, in fact, plaintiff's agent in securing bids for the tractor for plaintiff, as evidenced by the fact that defendant himself submitted a blind bid to plaintiff. There is no suggestion the bidding was rigged, or that defendant was aware of the amounts of competing submitted bids." (Doc. 12-1).
Hale's statements are insufficient to place any material facts in dispute under summary judgment standards. Hale did not submit any opposing affidavits, depositions, or any documents in opposition to Nationwide's motion for summary judgment.
[7] Hale stated that he "was suffering massive cash flow problems, but the record is totally devoid of any suggestion that defendant had seized upon a scheme of criminal or civil fraud for his own personal gain, at plaintiff's expense. Rather, by the time plaintiff demanded payment, defendant was unable to tender. The failure to tender may be attributable to stupidity and negligence, but is not attributable to artifice, scheme, and design." (Doc. 12-1). Hale, however, in a Supplemental Memorandum Of Defendant, Charles Russell Hale (Doc. 16-1) stated, "Plaintiff [Nationwide] is undisputably entitled to summary judgment on the amount of its contractual sales price, or $12,050.00 less partial payment received by extension of defendants' [sic] services and advancements of $150.00, or a net sum of $11,900.00."
[8] This court notes that it recently held that punitive damages are not nondischargeable under § 523(a)(2). Star Bank v. Reveal (In re Reveal), 148 B.R. 288, 293 (Bankr.S.D.Ohio 1992). As determined in Reveal, the language contained in § 523(a)(2) limits nondischargeability by restricting the expansive definition of "debt" to include only the portion of a debt "to the extent obtained by" false pretenses, a false representation, or actual fraud. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540906/ | 155 B.R. 782 (1993)
In re Michael VETRI, Joanne Vetri, Debtors.
MEADOWBROOK MALL COMPANY, Plaintiff,
v.
Michael VETRI and Joanne Vetri, Defendants.
Bankruptcy No. 91-15985-8P7, Adv. No. 92-200.
United States Bankruptcy Court, M.D. Florida, Tampa Division.
May 18, 1993.
*783 Robert C. Hill, Fort Myers, FL, for plaintiff.
Daniel A. Medeiros, Sarasota, FL, for defendants.
FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Chief Judge.
This is a Chapter 7 case and the matter under consideration is the Amended Complaint filed by Meadowbrook Mall Company (Meadowbrook). Meadowbrook's claim is set forth in its Amended Complaint, which contains one count based upon 11 U.S.C. 727(a)(3). Meadowbrook alleges that Michael and Joanne Vetri (Debtors) failed to keep or preserve books and records from which their business transactions could be ascertained, and therefore, they are not entitled to a discharge. The facts relevant to a resolution of the matter as established at the Final Evidentiary Hearing are as follows.
The Debtors filed their Voluntary Petition for Relief under Chapter 7 of the Bankruptcy Code on December 12, 1991. Mr. Vetri, a high school graduate, had not taken any accounting or business courses since graduating high school. The Debtors' Statement of Financial Affairs indicates that Mr. Vetri was, at the times relevant, involved as a principal in nine different corporations. These corporations were formed by Mr. Vetri to own and operate restaurants operating under the fictitious name "Italian Delights" located in shopping malls throughout the United States. Mr. Vetri owned a stock interest in at least five of the corporations, although it is unclear from the record whether he held the controlling ownership interest in all of these corporations. Not all of the corporations actually ever opened and operated restaurants. Some were formed only in anticipation of acquiring a restaurant. All *784 but one of the corporations ceased all business activities by 1988, and the last corporation ceased operations in 1990.
It is without dispute from the record that Mr. Vetri served as President of each of the nine corporations and was in charge of business records for some of the operating corporations. No evidence in this record indicates that Mrs. Vetri was involved in these corporations either as an owner or as an officer.
Mr. Vetri is unable to identify the location of the business records of the corporations and claims that these records may either be at his parents' house in Pennsylvania, or in his parents' house in Sarasota, Florida, or the records may have been lost when his home was burglarized and vandalized in 1987. In any event, Mr. Vetri failed to produce any of the corporate records.
The Debtors did maintain and produce records of their banking transactions consisting mainly of bank statements and canceled checks from their various bank accounts. These bank statements showed significant deposits and, more importantly, significant withdrawals. The Debtors' deposits and withdrawals for the years following 1987 correspond with the income tax records maintained for those respective years are as follows:
1987 deposits: $251,660.00
1987 withdrawals: $165,259.00
These withdrawals are documented by withdrawal slips and from bank statements indicating the use of automatic teller machines. It is impossible to determine the source of the deposits and the use of the monies withdrawn.
The Debtors have not filed personal income tax returns since 1986 although Mr. Vetri produced W-2 and 1099 forms for both he and his wife for the periods including 1988 through 1990. However, the Debtors failed to provide any records relevant to their income for the year 1987, the period during which the bulk of the large deposits and withdrawals occurred. The Debtors' assert that some of their personal records were also lost when their home was burglarized and vandalized.
Based on these facts, the Plaintiff contends that the Debtors' discharge should be denied pursuant to 11 U.S.C. § 727(a)(3). This subsection of 727 provides as follows:
11 U.S.C. § 727 DISCHARGE
(a) The Court shall grant the debtor a discharge unless . . .
(3) The debtor has concealed, destroyed, mutilated, falsified or failed to keep or preserve any recorded information, including books, documents, records and papers, from which the debtor's financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all the circumstances of the case;
The party objecting to the Debtor's discharge has the burden of proving by a mere preponderance of the evidence that the debtor's discharge should be denied. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). Once a party objecting to the discharge has met the initial burden of proving the objection by producing evidence establishing the basis for objection, the ultimate burden of persuasion is placed on the debtor. In re Goblick, 93 B.R. 771 (Bankr.M.D.Fla.1988); In re Chalik, 748 F.2d 616 (11th Cir.1984).
It should be noted at the outset what is and what is not involved in this adversary proceeding. The Debtors' right to receive a general discharge is not challenged pursuant to 11 U.S.C. § 727(a)(5), that is, Debtors' failure to explain satisfactorily his loss of assets, or deficiency of assets to meet their liabilities. Neither does this adversary proceeding involve a claim of transfer or concealment of assets. What is involved is nothing more or nothing less than the claim that the Debtors failed to keep appropriate books and records, from which their personal and business financial conditions and transactions might be ascertained in accordance with 11 U.S.C. § 727(a)(3).
The Plaintiff's claim is based in part upon the Debtors' inability to produce or account for the books and records of the now defunct "Italian Delights" corporations *785 which Mr. Vetri formed and was an officer and a shareholder. However, in a § 727(a)(3) proceeding against an individual debtor, it is not the lack of books and records of a corporation that is relevant, rather it is the lack of books and records of the individual debtor. In re More, 138 B.R. 102 (Bankr.M.D.Fla.1992); In re Nguyen, 100 B.R. 581 (Bankr.M.D.Fla.1989); Matter of Hyers, 70 B.R. 764 (Bankr.M.D.Fla. 1987). The requirement of the Code to keep and maintain personal financial records is not absolute, however the failure to keep books and records must be justified and reasonable under the circumstances. In re More, supra; In re Nguyen, supra; In the Matter of Underhill, 82 F.2d 258 (2d Cir.1936).
The only personal records the Debtors produced in this case consisted of bank statements, canceled checks, and federal income tax forms W-2 and 1099 for years 1988 through 1990. The Debtors did not produce income tax returns because the debtor has not filed an income tax return since 1986.
The record in this case indicates that in 1987 deposits and withdrawals were made in the amount of $251,660.00 and $165,259.00 respectively, yet neither income records were produced to show the sources of the deposits, nor receipts produced to show the disposition of the withdrawals. Although the Debtors have explained that some of their financial records may have been lost when their home was burglarized and vandalized, income records produced for the following years, 1988 through 1990, showed total cumulative net income to be only $53,740.00. There is no evidence in the record to suggest that the Debtors' income was unusually large in 1987 or unusually small in the years 1988 through 1990.
Viewing the facts as established in this case, this Court is satisfied that the Debtors' failed to keep adequate books and records from which their financial condition can be ascertained, and their failure to do so is not justified under the circumstances.
Based on the foregoing, this Court is satisfied that the Plaintiff has established with the requisite degree of proof all of the operating elements of § 723(a)(3), and therefore the Debtors' should be denied their bankruptcy discharge. A separate Final Judgement will be entered in accordance with the foregoing. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540910/ | 155 B.R. 241 (1992)
In re SELMA APPAREL CORPORATION, Debtor.
Joseph J. BURTON, Jr., Trustee for the Estate of Selma Apparel Corporation, and The Peoples Bank and Trust Company of Selma, Alabama, Plaintiffs,
v.
UNITED STATES of America, Defendant.
Bankruptcy No. 87-0929, Adv. P. No. 88-0182.
United States Bankruptcy Court, S.D. Alabama.
December 31, 1992.
*242 Eugene A. Seidel, Asst. U.S. Atty., Mobile, AL, and Stephen J. Segreto, Trial Atty., Washington, DC, for the U.S. Dept. of Justice.
Travis M. Bedsole, Jr., Bankruptcy Administrator.
Joseph J. Burton, Jr., Trustee, for Selma Apparel Corp.
James W. Dilz, Atlanta, GA, for the Trustee.
MEMORANDUM OPINION
ARTHUR B. BRISKMAN, Bankruptcy Judge.
This matter came before the Court on the motion of the United States of America to allow setoff. Appearing before the Court were Eugene A. Seidel, Assistant U.S. Attorney, and Stephen J. Segreto, Trial Attorney for the United States Department of Justice; Travis M. Bedsole, Jr., Bankruptcy Administrator; Joseph J. Burton, Jr., Trustee for Selma Apparel Corporation, and James W. Dilz, attorney for the Trustee. After hearing arguments of counsel, the Court makes the following findings of fact and conclusions of law based upon the stipulation of facts by the parties filed with the Court on August 26, 1992.
FINDINGS OF FACT
On June 16, 1987, an involuntary chapter 7 bankruptcy petition was filed against the debtor, Selma Apparel Corporation ("Selma Apparel"). On July 22, 1987, Selma Apparel converted the case to a voluntary proceeding under chapter 11 of title 11, United States Code ("the Bankruptcy Code"). Joseph J. Burton, Jr. was appointed trustee.
Selma Apparel was formerly engaged in the manufacture and sale of clothing and textile items. Selma Apparel frequently made and sold its goods to the Defense Personnel Support Center ("DPSC"). The DPSC is affiliated with the United States Department of Defense. In November 1988, the trustee filed a complaint based on various prepetition contracts between the DPSC and Selma Apparel. After the trustee's complaint was amended, the Court severed several counts of the complaint.[1]
*243 On November 8, 1991, the United States of America ("United States") filed an amended informal proof of claim. The claim alleged Selma Apparel's indebtedness to the United States was at least $4,004,286.28. The United States' claim is based on the prepetition contracts between the DPSC and Selma Apparel. The claim also includes amounts for prepetition fines and payroll taxes. On December 10, 1991, the United States filed a motion for relief from the automatic stay imposed by 11 U.S.C. § 362(a), to assert its right to setoff amounts allegedly due the United States against amounts claimed by the trustee. On January 8, 1992, the Court granted the motion for relief from the automatic stay.
On April 7, 1992 the Court entered an order allowing the United States to file an amended informal proof of claim; however, the Court preserved the trustee's right to object to the claim. Although the trustee objected to the filing of the amended informal proof of claim, the schedules accompanying Selma Apparel's bankruptcy petition acknowledge indebtedness to the United States for delinquent taxes and unliquidated progress payments on the prepetition contracts between Selma Apparel and the DPSC.
The parties stipulated to the amounts of their respective claims. The United States agreed that the amount of the trustee's claim against the United States is $872,500.000, plus interest as allowed by law. The trustee stipulated that the claims of the United States against Selma Apparel total $4,004,286.28, plus interest as allowed by law.
The indebtedness owing between Selma Apparel and the United States arose prepetition, are mutual obligations and are held in the same capacity.
CONCLUSIONS OF LAW
The Bankruptcy Code does not create a right of setoff. The right of setoff must be established either by state or federal nonbankruptcy law. Once the right is established, 11 U.S.C. § 553 governs questions of setoff. In re Dillard Ford, Inc., 940 F.2d 1507, 1512 (11th Cir.1991). In pertinent part, 11 U.S.C. § 553(a) provides:
Except as otherwise provided in this section and sections 362 and 363 of this title, this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case except to the extent that
(1) the claim of such creditor against the debtor is disallowed other than under section 502(b)(3) of this title; . . .
11 U.S.C. § 553(a)(1) (emphasis added). To setoff obligations, a creditor must establish that its debt to the debtor and the debtor's indebtedness to the creditor arose prior to bankruptcy, the debts are mutual and that no exception applies. In re Dillard Ford, Inc., 940 F.2d at 1512.
The Bankruptcy Code does not define the term "mutual." However, mutuality has been found where both obligations are held by the same parties, in the same capacity. In re Patterson, 125 B.R. 40, 47-48 (Bankr.N.D.Ala.1990); Matter of Frederick 58 B.R. 56, 57 (Bankr.N.D.Ala. 1986); King v. Porter, 230 Ala. 112, 160 So. 101, 104 (1935); First National Bank of Abbeville v. Capps, 208 Ala. 207, 94 So. 109 (1922). Debts need not arise from the same transaction to be mutual. Braniff Airways v. Exxon Co., U.S.A., 814 F.2d 1030, 1035 (5th Cir.1987).
The debts between Selma Apparel and the United States are both prepetition debts. Selma Apparel's claim stems from actions based on the contracts between Selma Apparel and the DPSC that occurred before Selma Apparel entered bankruptcy. The United States' claim is also based on the contracts between Selma Apparel and the DPSC and delinquent payroll taxes due prior to the filing of Selma Apparel's bankruptcy petition. The debts between Selma Apparel and the United States are mutual: Selma Apparel is a creditor of the United *244 States and the United States is a creditor of Selma Apparel.
Setoff is a favored remedy. In re Blanton, 105 B.R. 321, 337 (Bankr.E.D.Va. 1989). Section 553 clearly provides "[e]xcept as provided in this section and in sections 362 and 363 of this title, this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case . . ." As the court in In re Dillard Ford, 940 F.2d 1507, 1512 (11th Cir.1991) observed, the creditor must establish its right to setoff exists under 11 U.S.C. § 553(a) and the applicable state law. The filing of a proof of claim is not a prerequisite to setoff. In re Davidovich, 901 F.2d 1533, 1539 (10th Cir.1990); In re G.S. Omni, 835 F.2d 1317 (10th Cir.1987).
Where, as here, the mutual debts existed prior to the intervention of the debtor's bankruptcy and no applicable exception applies, the bankruptcy does not affect the creditor's ability to setoff the debts. Notwithstanding 11 U.S.C. § 362(a)(7), Congress intended that the right to setoff, provided it existed prior to the debtor's bankruptcy, would remain inviolate despite the filing of a bankruptcy petition.[2] Section 362(a)(7) precludes a creditor from self-help and requires the Court to make a simple determination into the enforceability of the corresponding obligations. This determination protects the interests of the debtor, the estates' creditors and the creditor seeking to setoff. Given the Congressional preference of permitting setoff, the Court will adhere to this long-recognized favored practice.[3]
The trustee suggests that because setoff is equitable in nature,[4] the Court should exercise its discretion to deny the motion to setoff because the equities of the case favor the trustee. Selma Apparel's bankruptcy petition listed the United States as a creditor on the Schedule of All Liabilities, and listed the indebtedness to which the trustee has stipulated is due the United States. After acknowledging the indebtedness from the commencement of the case, the trustee now argues that equity compels that setoff be denied because the United States' claim was unseasonably filed.
The Court respectfully disagrees. Unless inconsistent with the bankruptcy laws as a whole, setoff should be permitted. Permitting the United States to setoff its claim against Selma Apparel with Selma Apparel's claim against the United States is consistent with the underlying purpose of the Bankruptcy Code. Accordingly, the United States motion to setoff is due to be granted.
NOTES
[1] This proceeding concerns counts for damages in connection with the prepetition contracts between Selma Apparel and the DPSC. The counts include damages for delay for defective government merchandise, acceleration of contract and overruns on contracts.
[2] In Cumberland Glass Manufacturing Co. v. De Witt, 237 U.S. 447, 35 S.Ct. 636, 59 L.Ed. 1042 (1915) the Supreme Court discussed the role of § 68 of the Bankruptcy Act of 1898, ch. 541, § 68, 30 Stat. 544, (1898). The Court observed:
`This section was not intended to enlarge the doctrine of set-off or to enable a party to make a set-off in cases where the principles of legal or equitable set-off did not previously authorize it.' (quoting Sawyer v. Hoag, 84 U.S. (17 Wall.) 610, 21 L.Ed. 731 (1873) (construing predecessor to § 68)). While the operation of this privilege of set-off has the effect to pay one creditor more than another, it is a provision based upon the generally recognized right of mutual debtors, which has been enacted as a part of the bankruptcy act, and when relied upon should be enforced by the court. (citation omitted).
Cumberland Glass Manufacturing, 237 U.S. 447, 455, 35 S.Ct. 636, 639, 59 L.Ed. 1042. In enacting 11 U.S.C. § 553, Congress incorporated § 68 of the Bankruptcy Act of 1898 and the equitable principles embodied therein. See H.R.Rep. No. 95-595, 95th Cong. 1st.Sess. 377, reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5963, 6333.
[3] See In re Applied Logic, 576 F.2d 952, 957 (2nd Cir.1978) ("The rule allowing setoff, both before and after bankruptcy, is not one that courts are free to ignore when they think application would be `unjust.' It is a rule that has been embodied in every bankruptcy act the nation has had . . .") (footnote omitted).
[4] See, e.g., Matter of Bevill, Bressler & Schulman Asset Management, 896 F.2d 54, 57 (3rd Cir. 1990) ("[Section 553] is permissive rather than mandatory, and cannot be invoked in a case where the general principles of setoff would not justify it."); In re Southern Industrial Banking Corp., 809 F.2d 329, 332 (6th Cir.1987). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540912/ | 155 B.R. 55 (1993)
In re LEE ROAD PARTNERS, LTD., Debtor.
Bankruptcy No. 192-19210-260.
United States Bankruptcy Court, E.D. New York.
June 9, 1993.
*56 Marks & Murase, New York City by Eric S. Brown, for debtor.
Cascone, Cole & Savage, New York City by Denise L. Savage, for F.W. Woolworth Co.
Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. West Palm Beach, FL, by Robert N. Gilbert, for Ross Stores.
Drinker, Biddle & Reath, Philadelphia, PA, by Andrew C. Kassner, for Penn Ins. and Annuity Co.
DECISION
CONRAD B. DUBERSTEIN, Chief Judge.
This matter is before the Court upon the motion of the Debtor, Lee Road Partners, Ltd. (the "Debtor"), which seeks an order pursuant to § 365(a) allowing it to reject a lease with F.W. Woolworth Co. ("Woolworth"), *57 wherein the Debtor is the lessor and Woolworth the lessee.
FACTS
The Debtor is the owner and operator of the Lee Road Shopping Center located in Orlando, Florida. The Debtor acquired the subject property in the Fall of 1984.
On May 21, 1971, the Debtor's predecessor in interest, as lessor, leased 100,000 sq. ft. to Woolworth, as lessee (the "Overlease"). Thereafter, from 1971-1982, a Woolco store, operated by Woolworth, occupied the leased premises.
In 1983, the Woolco store was closed and the premises were subleased by Woolworth as follows:
a. On May 2, 1983, Woolworth, as sublessor, leased space to J. Byrons which subsequently assigned its interest in this sublease to Ross Stores, Inc. ("Ross"). This sublease is scheduled to expire on January 30, 1994; however, it provides for five successive options to extend the sublease for five years per option.
b. On August 9, 1983, Woolworth, as sublessor, leased space to J.J. Whispers ("Whispers"). This sublease is scheduled to expire on January 30, 1994; however, it provides for two successive options to extend the sublease for five years per option.
c. On August 12, 1983, Woolworth, as sublessor, leased space to First Thompson Joint Venture ("First Thompson"). The sublease is scheduled to expire on January 30, 1994; however, it provides for five successive options to extend the sublease for five years per option.
On November 30, 1984, subsequent to the Debtor becoming owner of the subject property, First Thompson assigned its interest in its sublease to the Debtor creating a unique situation in which the Debtor was (1) the owner/lessor of the entire premises with Woolworth as lessee and (2) the sublessee of the subleased area with Woolworth as sublessor (the "Underlease"). According to the Debtor, Woolworth is reaping a windfall inasmuch as it collects approximately $1.00 more per sq. ft. ($100,000 per annum) under its subleases than it pays to the Debtor under the Overlease.
On February 18, 1992, Penn Insurance and Annuity Company ("PIA") commenced foreclosure proceedings in the Circuit Court in Orange County, Florida, against the Debtor in accordance with a mortgage it holds affecting the subject property.[1] The Court's attention has been called to the fact that the Overlease existed prior to PIA obtaining its mortgage on the premises. Woolworth's Supplemental App. at 8 n. 4. This action was pending as of the filing date.
On June 23, 1992, Woolworth, as sublessor, started an eviction action under the Underlease against the Debtor, as sublessee, in the Circuit Court of Orange County, Florida, because the Debtor was in substantial arrears.[2] This action was also pending as of the filing date.
On October 30, 1992, the Debtor filed its petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the Eastern District of New York.
On February 8, 1993, Woolworth filed a motion seeking to dismiss the Debtor's Chapter 11 case, or in the alternative, to transfer venue to the Middle District of Florida.[3] Thereafter, on March 17, 1993, the Debtor made the within motion to reject the Overlease with Woolworth.[4] Both *58 Woolworth and Ross filed papers in opposition to this motion.[5]
A. Rejection of Overlease
The Debtor seeks to reject the Overlease pursuant to § 365(a)[6] on the grounds that it is in the best interest of the estate. Following rejection of the Overlease, the Debtor plans to negotiate new leases with the existing tenants which would require them to bear their share of real property taxes, etc. By so doing, the Debtor would be able to capture for itself "Woolworth's windfall" and thereby increase its revenues by approximately $100,000 per annum.[7]
Central to the Debtor's argument is its contention that following rejection of the Overlease, Woolworth and its sublessees will no longer be entitled to possession of the premises. Although § 365(h) allows a lessee to remain in possession of the lease-hold following rejection of the lease,[8] the Debtor argues that the term "remain in possession" is limited to tenants in physical possession of the property. Since Woolworth is functioning as a landlord and not physically possessing the property, the Debtor concludes that Woolworth is therefore ineligible for protection under § 365(h).[9]
The Debtor contends that its view is in accord with the legislative intent behind the enactment of the statute. In support of this position, the Debtor notes that In re Stable Mews Assocs., 35 B.R. 603 (Bankr. S.D.N.Y.1983) and In re Upland/Euclid, Ltd., 56 B.R. 250 (Bankr. 9th Cir.1985), which addressed the issue of altering or amending the terms of a lease following rejection by a debtor-lessor, concerned tenants who were in physical possession of the property. More importantly, the Debtor relies on In re Marina Enter., Inc., 14 B.R. 327 (Bankr.S.D.Fla.1981), for the proposition that physical possession is necessary for protection under § 365(h).
In opposition, Woolworth and Ross claim that terminating the Overlease would not be in the best interest of the estate and would actually hinder the Debtor's ability to effectuate a successful plan of reorganization. Additionally, they contend that both § 365(h) and Florida law prevent either Woolworth or the subtenants from being ousted from possession of the lease-hold in the event the Debtor is allowed to reject the Overlease.
DISCUSSION
From the outset, the Court notes that "[p]roblems concerning the rejection of unexpired leases of real property when the debtor is the lessor rather than the lessee are infrequently litigated. . . ." 2 Lawrence P. King et al., Collier on Bankruptcy, ¶ 365.09, at 365-57 (15th ed. 1992). See 1 D. Epstein, S. Nickles & J. White, Bankruptcy 452 (1992) (very few reported cases involving rejection of leases by lessors).
Under § 365(a), the trustee or debtor-in-possession may reject an unexpired lease subject to the court's approval. 11 U.S.C. § 365(a); In re Airport Executive Ctr., Ltd., 138 B.R. 628, 629 (Bankr. M.D.Fla.1992). Although the Bankruptcy Code contains no instructions or standards for properly reviewing such decisions, the business judgment test is considered the proper method to evaluate such actions. In re Minges, 602 F.2d 38 (2d Cir.1979); In re Child World, Inc., 142 B.R. 87 (Bankr. S.D.N.Y.1992); In re Hooker Invs., Inc., *59 131 B.R. 922 (Bankr.S.D.N.Y.1991); In re Leibinger-Roberts, Inc., 105 B.R. 208 (Bankr.E.D.N.Y.1989); In re Stable Mews Assocs., Inc., 41 B.R. 594 (Bankr.S.D.N.Y. 1984); In re Shangri-La Nursing Ctr., Inc., 31 B.R. 367 (Bankr.E.D.N.Y.1983). This test requires that the trustee or debtor-in-possession demonstrate that rejection of the executory contract will benefit the estate. Id.
The Debtor maintains that rejecting the lease will benefit the estate. However, the Debtor's analysis of the benefits is predicated upon its ability to oust Woolworth and negotiate new leases with the existing tenants. In order to determine whether the Debtor's assertions are correct, it is necessary to determine Woolworth's rights under § 365(h).
A. Statutory Construction
Section 365(h)(1) states in relevant part as follows:
If the trustee rejects an unexpired lease of real property of the debtor under which the debtor is the lessor, . . . the lessee . . . may remain in possession of the leasehold . . . under any lease . . . the term of which has commenced for the balance of such term and for any renewal or extension of such term that is enforceable by such lessee . . . under applicable nonbankruptcy law.
11 U.S.C. § 365(h)(1).
To properly interpret § 365(h), the Court's inquiry begins with the plain language of the statute. United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 1030, 103 L.Ed.2d 290 (1989). The Supreme Court, in discussing the Bankruptcy Code, has stated:
[i]n such a substantial overhaul of the system, it is not appropriate or realistic to expect Congress to have explained with particularity each step it took. Rather, as long as the statutory scheme is coherent and consistent, there generally is no need for a court to inquire beyond the plain language of the statute.
Id. at 240-41, 109 S.Ct. at 1030. See also In re Chateaugay Corp., 920 F.2d 183, 184 (2d Cir.1990).
Since the word "possession" is not defined within the statute, it is to be interpreted according to its ordinary, contemporary, common meaning. In re Pioneer Inv. Servs., ___ U.S. ___, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993); Perrin v. United States, 444 U.S. 37, 42, 100 S.Ct. 311, 314, 62 L.Ed.2d 199 (1979). Webster's Seventh New Collegiate Dictionary (1965) defines "possession" as:
1a: the act of having or taking into control
b: control or occupancy of property without regard to ownership
c: ownership
According to Black's Law Dictionary, possession is "[t]he detention and control . . . of anything which may be the subject of property, for one's use and enjoyment, either as owner or as the proprietor of a qualified right in it, and either held personally or by another who exercises it in one's place and name." Black's Law Dictionary 1047 (5th ed. 1979) (emphasis added).
Although the Debtor argues that the scope of § 365(h) is limited to those in physical possession of the premises, proper statutory interpretation demonstrates otherwise. On its face, § 365(h) makes no reference whatsoever to any requirement of physical possession. As shown, the ordinary definition of possession is not limited to mere physical possession.[10] In analogous circumstances, the Supreme Court has refused to construe a statute in such a limiting fashion. Hurtado v. United States, 410 U.S. 578, 93 S.Ct. 1157, 35 L.Ed.2d 508 (1973).
In Hurtado, the petitioners asserted that 28 U.S.C. § 1821, which required the government to pay to a "witness attending in any court . . . $20 for each day's attendance," should be interpreted as requiring physical attendance by a witness in a courtroom. Id. at 580, 93 S.Ct. at 1159. However, the Supreme Court held that such stipends *60 should be paid even to those witnesses detained in custody pending their testimony. In construing the statute, the Court stated, "§ 1821 does not speak in terms of `physical' or `actual' attendance and we decline to engraft such a restriction upon the statute." 410 U.S. at 584, 93 S.Ct. at 1162.
B. Legislative History
Having concluded that the plain language of § 365(h) is not limited to physical possession, it is to be noted that "[t]he plain meaning of legislation should be conclusive, except in the `rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.'" Ron Pair, 489 U.S. at 242, 109 S.Ct. at 1031 (quoting Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571, 102 S.Ct. 3245, 3250, 73 L.Ed.2d 973 (1982)). Inasmuch as the Debtor claims that allowing the reach of § 365(h) to extend beyond tenants in physical possession would thwart the legislative intent behind the statute, the Court will briefly examine into its legislative history.
Section 70(b) of the Bankruptcy Act, the predecessor to § 365(h), provided that "[u]nless a lease of real property expressly otherwise provides, a rejection of the lease or of any covenant therein by the trustee of the lessor does not deprive the lessee of his estate." According to Colliers on Bankruptcy, section 70(b) was "really only declaratory of the prevailing view that a rejection of a lease does not of itself terminate the lease, but was regarded by the drafters as desirable in clarifying situations not often litigated and in protecting the innocent lessee who had based his affairs on the term provided in the lease." 2 Lawrence P. King et al., Collier on Bankruptcy, ¶ 365.09, at 365-58 (15th ed. 1992); See In re New York Investors Mut. Group Inc., 153 F.Supp. 772 (S.D.N.Y.1957), aff'd sub nom. Cohen v. East Netherland Holding Co., 258 F.2d 14 (2d Cir.1958) (equity receiver may refuse to provide heat, electricity, etc., but the lessee is still entitled to possess the premises).
In enacting § 365(h), Congress sought to "codify a delicate balance between the rights of a debtor-lessor and the rights of its tenants," Stable Mews, 41 B.R. at 594, by preserving certain expectations of parties to real estate transactions. Upland/Euclid, 56 B.R. at 253. Specifically, Congress concluded that rejection of a lease by a debtor-lessor should not deprive a tenant of his estate for the term for which he bargained. H.R.Rep. No. 595, 95th Cong., 1st Sess. 349-350 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 60 (1978), U.S.Code Cong. & Admin.News 1978, p. 5787. See also Weintraub & Resnick, Bankruptcy Law Manual ¶ 7.10[10] at 7-73 (1986).
Furthermore, courts construing § 365(h) have concluded that the statute was designed to preserve a lessee's possessory interests in its leasehold while allowing a debtor-lessor to escape the burden of providing continuing services to a tenant. See, e.g., Upland/Euclid, 56 B.R. at 252, 255; In re Wood Comm Fund I, Inc., 116 B.R. 817, 818 (Bankr.N.D.Okla.1990); In re Legg, 51 B.R. 444, 446 (Bankr.D.Va.1985); Stable Mews, 41 B.R. at 599; Acme Precision Bldg., Ltd. v. Dayton Forging & Heat Treating, Inc. (In re Acme Precision Bldg.), 23 B.R. 79 (Bankr.S.D.Ohio 1982); In re LHD Realty Corp., 20 B.R. 717, 719 (Bankr.S.D.Ind.1982); In re Belize Airways, Ltd., 12 B.R. 387, 390 (Bankr. S.D.Fla.1981); In re 1438 Meridian Place, N.W., Inc., 11 B.R. 352 (Bankr.D.C.1981). Thus, rejection by a debtor-lessor does not terminate the lease so completely as to divest the lessee of his estate in property. Id. See Winfield, Rejection of Nonresidential Leases of Real Property in Bankruptcy: What Happens to the Mortgagee's Security Interest?, 17 Pepperdine L.Rev. 429 (1990) (it is well-established that rejection of a lease by a lessor-debtor under § 365 does not affect the lessee's interest in the lease).
Following rejection, the lessee is entitled to retain the "essential elements of a leasepossession, term and rent." In re Arden and Howe Assocs., Ltd., 152 B.R. 971, 975 (Bankr.E.D.Cal.1993). In accordance with the Code's intent that a tenant not be deprived of his estate for the term *61 for which he bargained, Solon Automated Servs., Inc. v. Georgetown of Kettering, Ltd. (In re Solon Automated Servs.), 22 B.R. 312, 318 (Bankr.S.D.Ohio 1982), the lessee's leasehold estate cannot be diminished, changed or modified due to bankruptcy's intervention. Wood Comm Fund I, Inc., 116 B.R. at 818.
In short, § 365(h) seeks to prevent forcible evictions whenever possible. In re Carlton Restaurant, Inc., 151 B.R. 353, 356 (Bankr.E.D.Pa.1993). For example, the reference to "time share interests" in § 365(h) results from Congress's aversion to the result in In re Sombrero Reef Club, Inc., 18 B.R. 612 (Bankr.S.D.Fla.1982). In Sombrero, the court interpreted a prior version of § 365(h) as excluding time-share owners from coming within the statute's protection.[11]Sombrero, 18 B.R. at 618. In amending the statute to include such interests, the Senate Report characterized the legislation as "urgently needed." S.Rep. No. 65, 98th Cong., 1st Sess. 77 (1983). See Weintraub & Resnick, Bankruptcy Law Manual § 7.10[10] at 7-74 (Congress enacted the 1984 amendments to § 365(h) in response to Sombrero Reef Club, 18 B.R. at 618); 2 Lawrence P. King et al., Collier on Bankruptcy, ¶ 365.09, at 365-61 (15th ed. 1992) (same). Given that such owners may physically possess the premises for only a few days per year, if at all,[12] it is clear that Congress did not intend "possession" to include only physical possession.[13]
C. Florida Law
Having determined that neither the plain language nor the legislative history behind § 365(h) evince any requirement of physical possession, the Court's analysis now turns to state law. It is to be noted that the property is located in Florida and all the leases affecting the same, including the Woolworth lease, were executed in the state of Florida. As the Supreme Court stated in Butner v. United States:
Property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding. Uniform treatment of property interests by both state and federal courts within a State serves to reduce uncertainty, to discourage forum shopping, and to prevent a party from receiving `a windfall merely by reason of the happenstance of bankruptcy.' (citation omitted). The justifications for application of state law are not limited to ownership interests. . . .
440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979). More recently, the Supreme Court noted that absent a controlling federal rule, the determination of property rights is to be analyzed under state law. Nobelman v. Am. Savings Bank (In re Nobelman), ___ U.S. ___, ___, 113 S.Ct. 2106, 2110, 124 L.Ed.2d 228 (1993).
It is important to note that § 365(h) refers to "possession of a leasehold" rather than a more limited phrase such as premises. Under Florida's Uniform Commercial Code, a "leasehold interest" is defined as "the interest of the lessor or the lessee under a lease contract." Fla. Stat. § 680.1031(1)(m) (1993). Inherent in a leasehold interest is the right to possession. In re Belize Airways, 12 B.R. 387, 388 (Bankr.S.D.Fla.1981). Moreover, in Florida, the granting of a leasehold estate is, for all practical purposes, equivalent to absolute ownership. Gray v. Callahan, 143 Fla. 673, 679, 197 So. 396, 398 (Fla.1940); Baker v. Clifford-Mathew Inv. Co., 99 Fla. 1229, 1232, 128 So. 827, 829 (1930); Rogers v. Martin, 87 Fla. 204, 99 So. 551, 552 (1924); Dade County v. Transportes Aereos *62 Nacionales, S.A., 298 So.2d 570, 573 (Fla.Dist.Ct.App.), cert. denied, 305 So.2d 206 (Fla.1974).
Accordingly, a tenant under a lease in Florida need not be in possession of the premises in order to sublet it to others. See Weinhardt v. M & M Builders, 28 Fla.Supp. 156, 157 (Fla.Cir.Ct.1967). See also 34 Fla.Jur.2d Landlord and Tenant § 92 (1992). Further, once sublet, the estate of the sublessee cannot be defeated by either the surrender of the leasehold by the lessee, or the foreclosure of a mortgage on a master lease. Bobo v. Vanguard Bank and Trust Co., 512 So.2d 246, 247 (Fla. Dist.Ct.App.1987);[14]Brunswick Corp. v. Berlo Vending Co., 196 So.2d 497, 498 (Fla.Dist.Ct.App.1967). See also 34 Fla. Jur.2d Landlord and Tenant § 95 (1992); 49 Am.Jur.2d Landlord and Tenant § 512 (1993).
Pursuant to Florida law, possession of property is either actual or constructive. 42 Fla.Jur.2d Property § 16 (1992). Unlike actual possession which refers to an actual and continuous occupancy or exercise of full dominion, constructive possession is that which the law annexes to the title. Id. In order to have constructive possession of property, one must knowingly have both the power and intention at a given time to exercise dominion or control over the property. See Klein v. Unidentified, Wrecked & Abandoned Sailing Vessel, 568 F.Supp. 1562, 1566 (S.D.Fla.1983); In re M & B Printing Equip. Corp., 18 B.R. 411, 413 (Bankr.S.D.Fla.1981). See also 42 Fla.Jur.2d Property § 16 (1992). Relevant factors to consider include whether the possessor is making an ordinary use and taking the ordinary profits of the land, e.g., 42 Fla.Jur.2d Property § 16 (1992), and whether the possessor is paying rent and/or any portion of the taxes or mortgage payments which may be attributable to the property. See Marina, 14 B.R. at 334.
Based on the foregoing, it is clear that under Florida law, both constructive and actual possession fall within the scope of § 365(h).[15] This conclusion is bolstered by Marina, 14 B.R. at 327, the very case which the Debtor relies on for limiting § 365(h) to physical possession.[16] The Marina court, in discussing possession under § 365(h), stated that it "recognize[d] the principle of constructive possession of unimproved real estate. . . ." Marina, 14 B.R. at 334. Similarly, in Sombrero, the court noted that the concept of constructive possession and possession by agents might be encompassed in § 365. Sombrero, 18 B.R. at 618.
In the present case, it is apparent that Woolworth is in possession of the leasehold and has at least constructive possession of the premises. Unlike the tenant *63 in Marina, 14 B.R. at 327, Woolworth did take possession of the premises. Further, it has continuously utilized the premises via its own store or by subletting to others, a customary business practice. According to the attorney for the Debtor, Woolworth has continuously paid all rent and taxes required under the lease. Additionally, Woolworth has performed significant amounts of maintenance on the premises.
Although at first blush, it may appear that this decision conflicts with the recent decision in In re Harborview Dev. 1986 Ltd. Partnership, 152 B.R. 897 (Bankr. D.S.C.1993), close scrutiny demonstrates otherwise. In Harborview, the Debtor leased space to Carroll's Foods, Inc. ("CFI") whose owner was the 99% general partner of the debtor. CFI, in turn, subleased the space to a restaurant company. Under its sublease, CFI realized $6,000 more per month than it paid to Harborview.
After filing for relief under Chapter 11 of the bankruptcy Code, the court appointed a trustee to pursue allegations of "fraud, dishonesty, preferences, gross mismanagement and insider-related activities." Id. at 900. The trustee thereupon moved to reject and terminate the lease. The trustee was joined in this motion by a mortgagee who specifically argued that the CFI sublease was set up by insiders of the debtor to divert monies from the estate. The bankruptcy court granted the motion and subsequently refused to issue a stay pending appeal. Thereafter, the trustee negotiated a new lease with the restaurant.
On appeal, the district court affirmed the bankruptcy court's decision. In discussing possession under § 365(h), the court examined both actual and legal possession. It concluded that CFI lacked actual possession in light of the sublease and furthermore that it lacked legal possession under South Carolina law.[17] The court then held that the bankruptcy court's decision to terminate the lease was not "clearly erroneous" in light of the equities of the situation, CFI's lack of possession, and its insider nature vis-a-vis the debtor.
Although the trustee in Harborview and the Debtor in this case sought similar objectives, i.e., to gain the higher rent going to a lessee, the parallel between the two cases ends there. Unlike Harborview, which was decided according to the laws of South Carolina, the instant matter is governed by Florida law. As shown, Florida law differs markedly from that of South Carolina.
Additionally, in Harborview, it was alleged that the lessee was receiving a higher rent based on a deliberate misuse of its inside relationship to the debtor. Unlike the lessee in Harborview, Woolworth negotiated its subleases at arm's length for the legitimate purpose of running a business. While § 365(h)'s policy against forcible evictions is not contravened by evicting an insider whose lease is bottomed on bad faith, the very essence of the statute would dissipate were this Court to allow Woolworth, a legitimate lessee, to be ousted from the premises.[18]
D. Business Judgment Test
As noted previously, the business judgment test requires that the trustee or debtor-in-possession demonstrate that *64 rejection of the executory contract will benefit the estate. Minges, 602 F.2d at 42-43; Child World, 142 B.R. at 89; Leibinger-Roberts, 105 B.R. at 212. Since the lessee's leasehold interest remains intact under § 365(h), rejection of the lease does not appear to be in the best interests of the estate. In re Friarton Estates Corp., 65 B.R. 586, 594 (Bankr.S.D.N.Y.1986).
In Friarton, the debtor-lessor sought to reject leases of rent-controlled apartments and re-let the apartments at market rates. Friarton, 65 B.R. at 593. There, as here:
The leases were negotiated at arm's length; if they are less attractive now than they might be, the difference is attributable solely to changes in the economic climate and not to the debtor's financial reverses. The bankruptcy laws are intended as a shield, not as a sword. Their purpose is to minimize a fiscal chaos and disruption, not to aggravate it.
Friarton, 65 B.R. at 594 (quoting In re Penn Cent. Transp. Co., 458 F.Supp. 1346 (E.D.Pa.1978)). Although rejection allows a debtor-lessor to reduce services to its lessee, it can not be used to raise the rent to market value. See Upland/Euclid, 56 B.R. at 254-55; See also Stable Mews, 41 B.R. at 598-99 (bankruptcy should not be used to confer competitive advantage to an ongoing business). Here, the Debtor has failed to set forth any burdens associated with the lease except for the fact that it is burdened by not receiving the rents directly from the subtenants. It is plain to the Court that rejection is simply a tool with which the Debtor hopes to oust Woolworth from the premises and gain for itself the higher rents Woolworth charged to Ross and its other sublessees.
CONCLUSION
1. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(a) and it is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A) and (O).
2. Woolworth is in possession of the leasehold and has at least constructive possession of the premises.
3. Woolworth is entitled to the protection of § 365(h) so as to remain in possession of the leasehold for the term of the lease and any renewal options contained therein.
4. The Debtor's motion to reject the Overlease is denied.
SUBMIT AN ORDER CONSISTENT WITH THIS OPINION.
NOTES
[1] The Debtor had defaulted on repaying $5.2 million in loans made by PIA which are secured by a first mortgage on the shopping center.
[2] Woolworth contends that as of the filing date, rental and tax arrears under the Underlease were approximately $60,000. However, the Debtor disputes that any tax arrears have occurred and instead asserts that only $25,000 is in arrears for defaults in January, February and March of 1992.
[3] The Court has reserved decision on this motion pending this decision.
[4] Although the Debtor did make a motion to extend the time to assume or reject the Underlease, this motion has been withdrawn pending this decision.
[5] On March 24, 1993, this Court reserved decision on the motion. It also denied the Debtor's motion to approve a stipulation between it and PIA which, among other things, allowed PIA to exclusively review the Debtor's reorganization plan.
[6] Section 365(a) allows the debtor in possession, subject to court approval, to assume or reject any executory contract or unexpired lease.
[7] Although terminating the lease could give rise to a damage claim by Woolworth, the Debtor asserts that such a claim would not hinder its chances for a successful reorganization.
[8] Pursuant to § 365(h), following the rejection of an unexpired lease of real property by the debtor-lessor, the lessee has the option of remaining in possession of the leasehold.
[9] The Debtor claims that Woolworth will most likely never have possession of the premises as its subleases with Ross and Whispers expire on the same date as the Overlease and contain identical renewal options.
[10] In discussing possession, Black's notes that in general, the law recognizes two kinds: actual and constructive. Black's Law Dictionary 1047 (5th ed. 1979).
[11] This version of § 365(h) made no reference to time-share interests.
[12] Many timeshare owners choose not to assert their possessory rights and instead "bank" their time for use at some other site at some other date.
[13] Although a holder of an interest in a timeshare plan can hardly be said to be "in possession" of the premises, all that is required under § 365(h) is that the holder remain in possession of an interest under the timeshare. Similarly, all that is required for a lessee is that he/she remain in possession of the leasehold.
[14] The Court notes that Florida law apparently differs from the law in this Circuit. In In re Hotel Governor Clinton, 96 F.2d 50 (2d Cir. 1938), the court terminated a lease which, by its terms, was subordinate to a first mortgage. The court reasoned that since the undersecured mortgagee could foreclose and wipe out a junior mortgage or subsequent encumbrance, it could also wipe out the subordinate lease. However, under Florida law, the foreclosing mortgagee takes possession of the premises subject to the outstanding lease especially where, as here, the lease is not specifically subordinated to the mortgage. See Bobo, 512 So.2d at 247.
[15] Although the Debtor claims that giving effect to the Florida cases violates the Supremacy Clause of the United States Constitution, the Court finds this argument unpersuasive in light of Butner, 440 U.S. 48, 99 S.Ct. 914, Nobelman, ___ U.S. at ___, 113 S.Ct. at 2109, and the statute's clear language allowing possession to the extent available under applicable nonbankruptcy law. See also In re Riverside Village, Inc., 102 B.R. 858 (Bankr.M.D.Fla.1989) (interplay between § 365(h) and Florida's Mobile Home laws); In re Riverside Village, Inc., 94 B.R. 750 (Bankr.M.D.Fla.1988) (same).
[16] In Marina, the court examined whether a lessee had the type of possession contemplated by § 365(h) where the lease did not commence until the lessor constructed a hotel/casino. The court noted that: (1) the property was vacant and unimproved; (2) there had been no physical use of the property since the original lease had been made; and (3) no rent had ever been paid by the lessee nor had the lessee made any mortgage or tax payments. Since the lessee had no obligations to make such payments until the building was substantially completed, the court found that the lessee was not in the kind of possession which would give it any rights under § 365(h)(1).
[17] South Carolina law considers the landlord to be in possession of the leasehold. S.C.Code Ann. § 27-35-70 (Law.Co-op.1976 as amended).
[18] This conclusion is to be distinguished from that of Carlton Restaurant, 151 B.R. at 353. In Carlton, a restaurant operator remained in possession of its leasehold pursuant to § 365(h) as its landlord had rejected the lease during its (the landlord's) bankruptcy. Subsequently, the tenant closed its restaurant and filed its own bankruptcy petition. Since the lessee had closed its doors and did not intend to use the leasehold, the court reasoned that the policy against forcible evictions vanished. Thus, the court refused to allow the tenant to assume and assign the sublease. Unlike Carlton, where the tenant-debtor sought to assign a lease which it no longer needed, Woolworth is a lessee seeking to stay in possession and continue to avail itself of the benefits, if any, of its subleases which have existed for over nine years. Inasmuch as Woolworth finds the leases profitable, it cannot be said that Woolworth no longer needs them. Moreover, if the Debtor were allowed to terminate Woolworth's lease, it would possess the power to evict the sub-tenants unless they reach a new accord with the Debtor. Thus, the policy against forcible evictions does not vanish but remains in full force. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540916/ | 155 B.R. 552 (1992)
In re Fred L. SHOEMAKER, Debtor.
Bankruptcy No. 92-01048.
United States Bankruptcy Court, N.D. Alabama, S.D.
December 21, 1992.
*553 Bruce A. Burttram, Burttram & Henderson, Birmingham, AL, for debtor.
Marvin E. Franklin, Najjar, Doneburg, Birmingham, AL, for trustee.
John W. Self, for Fred L. Shoemaker.
John P. Burbach, for Tennessee River, Inc.
MEMORANDUM OPINION
TAMARA O. MITCHELL, Bankruptcy Judge.
This matter is before the Court on a Joint Motion for Approval of Compromise filed by the Trustee, Andre M. Toffel, Tennessee River, Inc. (TRI), and Jeannette Hennessee, and the objection thereto filed by the Debtor, Fred L. Shoemaker, and also the Motion for Intervention filed by John W. Self, the Debtor's attorney in an action filed in the Circuit Court of Lauderdale County, Alabama. Appearing at the December 2, 1992, hearing on these matters were the Trustee, Marvin E. Franklin, attorney for the Trustee, the Debtor, Self, and Bruce A. Bruttram, attorney for the Debtor in his bankruptcy case. This Court has jurisdiction. 28 U.S.C. § 1334(a). This is a core proceeding. 28 U.S.C. § 157(b)(2)(A). The Court has considered the testimony and documentary evidence adduced at trial, and concludes that the Joint Motion For Approval of Compromise is due to be granted, and the Debtor's objection thereto is due to be overruled. Further, the Motion for Intervention and Motion to Deny filed by Self are due to be denied.[1]
The resolution of these matters involves the following issues:
I. Whether the Trustee's failure to object to the Debtor's claim of exemption in the amount of $1,000.00 in the proceeds from a pending lawsuit allows the Debtor to retain all the proceeds from the lawsuit, even if an award of damages exceeds $1,000.00.
If the answer to this issue is yes, then the Motion for Intervention should be granted, because the Trustee would have no claim to the proceeds in excess of $1,000.00 and Self would be entitled to assert his statutory lien against the proceeds of the lawsuit. If the answer to this issue is no, then the Trustee would retain the proceeds in excess of $1,000.00 for the benefit of the Debtor's bankruptcy estate, and Self would be left with an unsecured claim against the estate in the amount allowed by his contract with the Debtor.
II. Whether the Trustee should be allowed to settle a pending lawsuit in an amount that the Debtor claims is far less than the lawsuit's value.
FINDINGS OF FACT
The Debtor filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code on February 11, 1992. Listed on the Debtor's Schedule B-2, Personal Property, filed with the petition was a pending lawsuit in the Circuit Court of Lauderdale County, Alabama. The lawsuit was filed against TRI and was an attempt by the Debtor to recover commissions he claimed were owed to him under several sales he had performed for TRI. The Debtor listed the value of the lawsuit as $1,000.00. On the Debtor's Schedule B-4, Property Claimed as Exempt, he listed a personal exemption of $3,000.00,[2] which included all the items of personal property listed in Schedule B-2.
By an order of the Circuit Court of Lauderdale County, Alabama, dated August 7, 1992, the Trustee was substituted as Plaintiff in the aforementioned lawsuit. The Trustee, TRI, and Hennessee filed a Joint Motion for Approval of Compromise on October 9, 1992. Under the terms of the compromise, the Trustee is to receive $25,000.00 *554 for the Debtor's bankruptcy estate. The Trustee will also dismiss the pending lawsuit. Self filed, on behalf of himself, a Motion for Intervention and Motion to Deny on October 16, 1992. The Debtor filed an Objection to Compromise on November 13, 1992.[3]
At the hearing on these matters, Bob Wiley, executive vice-president for TRI, a clothing distributor, testified that the Debtor was an independent sales agent for TRI from 1985 through 1987. The Debtor did not operate under a written contract, though Wiley testified this was not unusual. Pursuant to the terms of the agreement between the Debtor and TRI, the Debtor was to receive a three to seven percent commission on his sales. The basis of the Debtor's lawsuit against TRI is two contracts, one with Dollar General stores and the other with Wal-Mart stores.
On the Dollar General transaction, the Debtor requested that he be paid $10,000.00 in cash and receive $30,000.00 worth of merchandise. Wiley said this was an abnormal arrangement, but that the Debtor said he needed money quickly. Wiley testified that because of the Debtor's mistake in ordering the merchandise, the shipment did not conform to what Dollar General had requested. Dollar General accepted some goods, but returned others. Wiley testified that TRI suffered losses of $130,000.00 because of the Debtor's mistake.
In the Wal-Mart transaction, the Debtor and TRI agreed to a certain price, and the Debtor subsequently quoted a higher price to Wal-Mart. Wal-Mart accepted the inflated price, and the Debtor asked that his commission on the sale consist of the difference between the price TRI quoted him and the price he received from Wal-Mart. TRI agreed to this, subject to a three percent reduction, labeled a "factoring cost." The Debtor refused to accept the reduction. TRI paid the commission minus the three percent reduction.
Wiley testified that TRI owes the Debtor $30,495.38, and TRI's Exhibits 1 and 2 support this figure. Wiley also testified that the Debtor's claim against TRI is offset by TRI's counterclaim of $130,000.00 based on the Debtor's mistake in the Dollar General order.
The Trustee testified that he did not object to the claim of exemption in the proceeds of the lawsuit in the amount of $1,000.00 because it did not exceed the $3,000.00 personal exemption allowed by Alabama law. However, at the meeting of creditors held pursuant to Bankruptcy Code Section 341, the Debtor told the Trustee that the lawsuit was seeking recovery of $30,000.00 in commissions. Subsequently, the Trustee, Hennessee, and TRI reached a settlement, to which the Debtor and Self objected.
The Trustee testified that one of the factors he considered in deciding to agree to the settlement was the conduct of the Debtor and Self in a prior lawsuit. The Trustee contacted Richard Vincent, a Birmingham attorney who had previously been involved as an attorney for a party in a lawsuit against the Debtor. The Trustee testified that he received a disfavorable report of Self's abilities as a litigator. Further, the Trustee testified that he was informed that the Debtor's reputation for candor was lacking. Based on this information, along with the merits of the Debtor's claims against TRI and TRI's defenses, the Trustee decided that a settlement would be in the best interests of the bankruptcy estate.
CONCLUSIONS OF LAW
Property of a debtor's bankruptcy estate includes "all legal or equitable interests of the debtor as of the commencement of the case." 11 U.S.C. § 541(a)(1). A trustee under the Bankruptcy Code is the representative of the estate. 11 U.S.C. § 323(a). Therefore, the trustee succeeds to all causes of action held by the debtor at the time the bankruptcy petition is filed. Jones v. Harrell, 858 F.2d 667 (11th Cir. 1988); Miller v. Shallowford Community Hosp., Inc., 767 F.2d 1556 (11th Cir.1985).
*555 Although the concept of property of the estate is broad, Congress allows a debtor to choose certain property that will be exempt from inclusion as property of the estate. 11 U.S.C. § 522. Under Alabama law[4] a debtor is allowed to claim a $3,000.00 exemption in personal property. In his Schedule B-4, Property Claimed as Exempt, the Debtor took the full exemption allowed by Alabama law, and this included "All items listed in schedule B-2." Trustee's Exhibit 1, at 9. In Schedule B-2, the Debtor listed the value of the lawsuit against TRI at $1,000.00. Trustee's Exhibit 1, at 8.
Under the Code, property claimed as exempt is exempt unless a party in interest objects. 11 U.S.C. § 552(l). The Debtor and Self claim that because the Trustee did not object to the Debtor's claim of exemption in the amount of $1,000.00 in this lawsuit, the entire proceeds of the lawsuit are exempt. The Debtor and Self rely exclusively on Taylor v. Freeland & Kronz, ___ U.S. ___, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992), for the proposition that the Trustee's failure to object to the Debtor's claim of exemption in $1,000.00 of the proceeds of the lawsuit entitles the Debtor to claim all the proceeds of the lawsuit exempt. This position is without justification, for Taylor cannot be read in such a broad fashion. In that case, the debtor listed as "unknown" the potential proceeds from a pending employment discrimination lawsuit. 112 S.Ct. at 1646. The trustee failed to object, and the Supreme Court ruled that his failure timely to do so prevented him from objecting after the time for objections had expired under Federal Rule of Bankruptcy Procedure 4003. Id. ___ U.S. at ___ _ ___, 112 S.Ct. at 1647-48. Taylor, however, is distinguishable.
First, the debtor in Taylor listed the value of the lawsuit as "unknown" on both her Schedule B-2 and B-4. Listing "unknown" as the value of the claimed exemption was tantamount to waving a red flag in the trustee's face, as if to say, "It may be worth more than the law allows, but I'm claiming it anyway." In this case, however, precise dollar amounts were attached to the Debtor's claim of exemption. The Debtor claimed his full personal property exemption allowed by Alabama law, and then incorporated by reference into that amount a claimed value of $1,000.00 in the pending lawsuit. The Debtor thereby limited his exemption to $1,000.00 in the proceeds of the lawsuit.
Unlike the debtor in Taylor, the Debtor in this case did not claim the full amount of the lawsuit exempt, but rather only a small portion. It is that much, and that much only, that is exempt from property of his bankruptcy estate. All proceeds of the lawsuit above his $1,000.00 claim of exemption belong to the Trustee and may be used for the benefit of the Debtor's creditors.
Based on the foregoing, the Court concludes that the answer to Issue I, as set out above, is no. Therefore, all proceeds of the lawsuit in excess of the Debtor's claim of exemption belong to the bankruptcy estate. Self claims a statutory lien in these proceeds pursuant to his contract of employment as the attorney in the circuit court action. Notwithstanding that the Trustee may be able to avoid this lien under Bankruptcy Code Section 544, no evidence of the Debtor's contract with the attorney in the circuit court action is in evidence,[5] either directly or indirectly. Further, no evidence regarding any services, either pre- or post-petition, rendered by Self on behalf of the Debtor or the Debtor's estate was offered. Therefore, the Motion for Intervention filed by Self must be denied.
As for the resolution of Issue II, this Court must consider, in determining whether the proposed settlement is in the best interests of the Debtor's bankruptcy estate, the probability of success in the litigation, the difficulties that will be encountered in the matter of collection, the *556 complexity of the litigation and the expense, inconvenience, and delay attending thereto, and the interests of creditors with a deference to their reasonable views. In re Justice Oaks II, Ltd., 898 F.2d 1544 (11th Cir.), cert. denied, 498 U.S. 959, 111 S.Ct. 387, 112 L.Ed.2d 398 (1990).
In this case, the Trustee has proposed to settle the litigation for approximately $5,000.00 less than what is admittedly owed to the Debtor. This, however, does not dip below the lower bounds of reasonableness, and strikes the Court as fair, especially when the savings of the costs of litigation are considered. Moreover, it appears to the Court that TRI may have a valid counterclaim in the amount of $130,000.00 against the Debtor. So, even if the Debtor's probability of success in the litigation may be high, the probability of a successful counterclaim that will reduce the benefit to the estate and in fact burden the estate with yet another unsecured claim is likewise high. A further question as to the probability of success was raised by the Trustee's testimony that he was not confident in Self's ability as a litigator or the Debtor's reputation for veracity. Therefore, TRI's willingness to relinquish this claim and pay $25,000.00 to the bankruptcy estate, it appears, leaves the Trustee with a bargain.
Collecting a judgment that may result from this litigation may not be difficult, because TRI admits the debt is owed. However, collection will be impossible if TRI asserts and proves its counterclaim for $130,000.00.
Although the complexity of this case is minimal, the attendant expenditures of time and other resources for a jury trial necessarily burden the Debtor's estate. This will always be the case, however, where litigation is involved. Therefore, the expense of pursuit must be weighed directly against the most likely recovery, which in this case is approximately $30,000.00. This is too small a sum to justify a complete trial of this matter, and collecting now will better preserve the Debtor's estate. Further, the delay involved continues to threaten prejudice to the other creditors. One of the goals of the bankruptcy laws is to provide a prompt and efficient adjustment of the debtor-creditor relationship. This goal is not furthered by protracted litigation.
Finally, the interests of the other creditors justifies the settlement of this matter. They receive the benefit of the immediate nature of the settlement, and are not threatened with the appearance of another unsecured creditor in their midst. Finally, the failure of any creditor to object to this proposed compromise indicates to the Court that the creditors feel this settlement is reasonable and fair.
Based on the foregoing, the Joint Motion for Approval of Compromise is due to be granted, and the Motion for Intervention and Motion to Deny filed by Self is due to be denied, as is the Objection to Compromise filed by the Debtor. An appropriate order shall be entered.
NOTES
[1] This Memorandum Opinion constitutes findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.
[2] Pursuant to Bankruptcy Code Section 522(b)(2)(A), Alabama has chosen its own exemption scheme rather than the federal exemptions allowed by Bankruptcy Code Section 522(d). Ala.Code § 6-10-11 (Supp.1992). Alabama law allows each debtor a $3,000.00 exemption in personal property. Ala.Code § 6-10-6 (Supp.1992).
[3] Because the resolution of each objection to the compromise involves the same issues, the Court will treat them singularly in this Memorandum Opinion.
[4] See, footnote 2, supra.
[5] A contract was attached to Self's Motion for Intervention and Motion to Deny. Neither the contract nor any testimony relating to it were offered at the hearing. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540932/ | 118 N.H. 739 (1978)
THE STATE OF NEW HAMPSHIRE
v.
RONALD AUBERT
No. 78-189.
Supreme Court of New Hampshire.
October 30, 1978.
Thomas D. Rath, attorney general (Peter W. Heed, assistant attorney general, by brief and orally), for the State.
Cathy J. Green, of Manchester, by brief and orally, for the defendant.
*740 GRIMES, J.
The issue in this violation of probation proceeding is whether the trial justice who heard the matter was disqualified by reason of having presided when the defendant entered a plea of guilty, which was later withdrawn, and by reason of certain statements made by the justice during the proceeding. We hold that on the facts of this case there was no disqualification.
Defendant pleaded guilty in 1976 to selling a controlled drug, and was sentenced to twelve months in the house of correction. Sentence was suspended, and defendant was placed on probation for two years. In 1977, he pleaded guilty to burglary, was sentenced to twelve months in the house of correction, one month suspended, and placed on probation for two years upon release from confinement. He was released and put back on probation in September 1977. In December 1977, a violation of probation report was filed on the 1976 conviction alleging that defendant had absconded, that his whereabouts were unknown, and that he had failed to report, failed to be employed, and failed to pay his fine. Defendant pleaded guilty to the violation on January 11, 1978, and was ordered to serve 120 days of the original suspended sentence, probation to be continued upon his release. In March 1978, defendant was released. A second violation report was filed against him in July 1978, this one alleging a failure to report, a failure to be employed, and abscondence. The ensuing violation of probation proceeding gave rise to the dispute now before us.
Defendant entered a guilty plea to this violation in accordance with a negotiated agreement that he be ordered to serve three months and that probation be terminated. The judge, however, refused to accept the agreement and the plea was withdrawn with the court's permission. At that time, the judge stated "we'll have a hearing on the violations and I'll impose a sentence that I feel is appropriate, but I'm not going to accept the recommendation...." When the matter came on for a hearing a few days later, defendant moved that the judge recuse himself because he had heard the plea of guilty as well as defense counsel's acknowledgment of the violation during argument concerning the State's recommendation. The motion was denied, a hearing was held, the defendant was found guilty of the violation and was ordered to serve the nine-month balance remaining on his sentence. Defendant's exceptions were transferred by Goode, J.
The defendant asserts that he was denied his constitutional right to a fair hearing. In Gagnon v. Scarpelli, 411 U.S. 778 (1973), the Supreme Court announced the minima of due process requirements for probation revocation proceedings where sentence has already *741 been imposed. The defendant, however, would have us adopt, in addition to those requirements, a per se rule of disqualification. We need not decide in this case the exact parameters of defendant's due process rights, but hold that there has been no denial in this case in any event and that a per se rule is not required.
[1, 2] The State properly concedes that defendant has at least the right to an impartial tribunal in determining whether he violated his probation. In some situations the probability of unfairness is so great that a per se rule of disqualification is required. Thus, for example, such a rule applies when the trier has a pecuniary interest in the outcome, Gibson v. Berryhill, 411 U.S. 564 (1973), or when he has become personally embroiled in criticism from the party before him, Taylor v. Hayes, 418 U.S. 488 (1974), or when he has heard evidence in secret at a prior proceeding, In re Murchison, 349 U.S. 133 (1955), or when he is related to a party, Sanborn v. Fellows, 22 N.H. 473 (1851). See also Withrow v. Larkin, 421 U.S. 35 (1975).
[3] The circumstances presented by this case do not call for the imposition of a per se rule. The fact that a judge presided when a plea of guilty was entered as part of a plea negotiation does not raise such a "probability of unfairness" as to require automatic disqualification. Judges are quite able to put aside information gained at the time of a plea and to decide the case solely on the evidence presented at the subsequent hearings. Even judges and jurors who have in fact formed opinions prior to trial are not disqualified if they can set aside their opinions and decide the case on the evidence before them. See State v. Stewart, 116 N.H. 585, 364 A.2d 621 (1976); State v. Laaman, 114 N.H. 794, 331 A.2d 354 (1974), cert. denied, 423 U.S. 854 (1975); Irvin v. Dowd, 366 U.S. 717, 723 (1961).
Defendant cites In re Murchison, 349 U.S. 133 (1955), in support of his argument for per se disqualification. The basis for disqualification in that case is absent in the present case. There, the judge, who had acted as a one-man grand jury, heard evidence in secret and then charged and tried the accused in open court for contempt based upon an alleged perjured statement during the secret session. The adjudicator thus became the accuser possessed of information gained in secret; in those circumstances, effective cross-examination was impossible. The Supreme Court held that the judge was disqualified from presiding over the contempt proceedings.
[4] No such situation existed in this case. The events complained of occurred at the time of the plea in open court in the presence of defendant and defense counsel. The judge was not the accuser; nor *742 was he relying on personal knowledge. We cannot say that in these circumstances a per se rule of disqualification is justified. Cf. Withrow v. Larkin, 421 U.S. 35 (1975).
[5] The defendant also claims actual bias because of the judge's statement that he would have a hearing and then sentence the defendant. Defendant argues that this language indicates a predetermination of guilt and that the judge should therefore be disqualified. Although the court's language was susceptible of misunderstanding, any apprehension that justice would not be done was laid to rest by his statement at the subsequent hearing.
The question of bias was argued at the hearing on the motion for recusal, and the trial court, by denying the motion, impliedly ruled that there was no prejudice. Despite the judge's earlier statement, he made it clear that the object of the hearing was to determine "whether or not [the defendant] has violated the conditions under which a suspended sentence was imposed." The transcript as a whole indicates the trial justice would determine the violation issue on the basis of the evidence alone. In our opinion the judge's statement, when taken in the context of the entire record, does not compel disqualification.
Moreover, we note that the transcript discloses that the violation was essentially conceded at the hearing. The probation officer testified as to the defendant's failure to report and to be gainfully employed, as well as to the probation officer's inability to find him, and no evidence to the contrary was introduced. Considering the record as a whole, we cannot say that the presumption of our trial judges' honesty and integrity has been overcome or that there was any bias that influenced the decision in the case.
Exceptions overruled.
All concurred. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540956/ | 259 Pa. Superior Ct. 467 (1978)
393 A.2d 921
COMMONWEALTH of Pennsylvania
v.
Lamont BULLOCK, Appellant.
Superior Court of Pennsylvania.
Submitted December 6, 1977.
Decided October 27, 1978.
*469 Eugene H. Clarke, Jr., Philadelphia, for appellant.
Eric B. Henson, Assistant District Attorney, and F. Emmett Fitzpatrick, District Attorney, Philadelphia, for appellee.
Before WATKINS, President Judge, and JACOBS, HOFFMAN, CERCONE, PRICE, VAN der VOORT and SPAETH, JJ.
CERCONE, Judge:
The instant appeal arises from appellant's conviction for robbery, attempted rape and two counts of aggravated assault. On appeal appellant argues: (1) The court erred in failing to suppress identification testimony as well as physical evidence linking appellant to the crime; (2) The court erred in refusing to dismiss the case under Rule 1100; and (3) The evidence was insufficient to sustain the convictions on attempted rape and aggravated assault. We disagree and will affirm.
At approximately 5:30 A.M. on August 31, 1976, Joan Kirby alighted from a trolley at Broad Street and Allegheny Avenue in Philadelphia, having completed one leg of her journey to work. Ordinarily Miss Kirby would catch the "C-bus" northbound on Broad Street to work, but this day she was behind schedule and thought she had missed the bus, so she decided to take the subway. She noticed as she *470 deboarded the trolley that two black males got on, while a third black male, subsequently identified as appellant, did not go with them. A few moments later as Miss Kirby waited for the train on the subway platform, appellant came down the steps and stood on the illuminated platform some distance from Miss Kirby. Soon he approached her and asked her for a match, which she gave him. As he lit a cigarette the lighted match further illuminated his face. He then departed up the steps. Seconds later he ran down the steps and shouted that there was a "C-bus" coming. When Miss Kirby asked if the bus were traveling northbound, and appellant responded affirmatively, Miss Kirby began to run up the steps to Broad Street. She only reached the first landing when appellant grabbed her from behind, covered her mouth and told her to keep quiet or he would kill her with a knife he was carrying.[1] He took her purse and emptied the contents onto the steps. Dissatisfied with the small amount of change he found, he asked for more money and punched Miss Kirby in the face. Indeed, every time Miss Kirby uttered a sound appellant punched her in the face. Eventually Miss Kirby gave appellant nine dollars from her pants' pocket, but appellant still was not satisfied. Appellant then tore Miss Kirby's shirt and pulled down her bra exposing her breasts. As he began to unbuckle her pants, she broke free and he began to choke her. Once again she broke free only to be caught again by appellant. By then however, bleeding profusely, she had managed to reach Broad Street, although appellant still had her by the neck. Fortunately, a police officer patrolling the area heard her screams and saw her in appellant's clutches. At the same moment appellant saw the patrol car and took flight. While radioing for help the patrolman pursued appellant to a nearby alley, and the block was surrounded by police responding to the call. The alley was searched and appellant was found hiding in a yard. A violent struggle ensued *471 during which one police officer received a broken wrist when appellant, attempting to escape, pushed him off a wall.
In the meantime Miss Kirby had been taken to Temple Hospital, and had been in the emergency room for ten minutes when the police arrived with appellant, whom she immediately identified as her assailant. Furthermore, appellant fit the description she had earlier given the police, including the clothing he was wearing. A search of appellant revealed nine dollars in cash precisely in the denominations Miss Kirby had been carrying.
Appellant first contends that the one-on-one confrontation with Miss Kirby at the hospital was illegal, and that Miss Kirby's identifying him there as well as at trial should have been suppressed. We are not persuaded by appellant's argument, however. As appellant maintains, it is certainly true that identification evidence is inadmissible if it is obtained as the result of a procedure so unnecessarily suggestive and conducive to irreparable mistaken identification as to deny due process of law. Stovall v. Denno, 388 U.S. 293, 87 S.Ct. 1967, 18 L.Ed.2d 1199 (1967); United States v. Wade, 388 U.S. 218, 87 S.Ct. 1926, 18 L.Ed.2d 1149 (1967); Commonwealth v. Jenkins, 232 Pa.Super. 523, 335 A.2d 463 (1975). On the other hand the courts also recognize that confrontations between victim and suspect shortly after the occurrence of a crime may be desirable from the standpoint of the suspect as well as from that of law enforcement authorities. Commonwealth v. Jenkins, supra; United States v. Davis, 399 F.2d 948 (2d Cir. 1968), cert. denied, 393 U.S. 987, 89 S.Ct. 465, 21 L.Ed.2d 449 (1968); Russell v. United States, 133 U.S.App.D.C. 77, 408 F.2d 1280 (1969), cert. denied, 395 U.S. 928, 89 S.Ct. 1786, 23 L.Ed.2d 245 (1969). Hence, while one-on-one confrontations are generally condemned, those which occur soon after the commission of a crime are permissible if, indeed, not favored. In the instant case, the confrontation between appellant and Miss Kirby occurred less than one-half hour after the robbery and attempted rape, and only minutes after her arrival at the *472 hospital. Hence, the identification testimony was admissible.[2]
Appellant's second contention, that he was denied his right to a speedy trial pursuant to Pa.R.Crim.P. Rule 1100 has been waived. Appellant's petition to dismiss the charges as required by Rule 1100(f) was not filed until after appellant was tried and convicted. Rule 1100(f) expressly requires the filing of a written motion "before trial" in order to raise a Rule 1100 claim, and we have held that failure to comply with this requirement is a waiver of the claim. Commonwealth v. Matt, 248 Pa.Super. 538, 375 A.2d 371 (1977); Commonwealth v. Downie, 247 Pa.Super. 19, 371 A.2d 1016 (1977). Hence, we may not consider appellant's Rule 1100 claim on appeal.
Appellant's final contention, that the evidence was insufficient to sustain the charges of attempted rape and two counts of aggravated assault is not meritorious. With regard to attempted rape, appellant contends that ripping Miss Kirby's shirt, pulling down her bra, and attempting to remove her pants was not so substantial a step toward rape to fulfill the requirement of an attempt. Crimes Code, 18 Pa.C.S. § 901(a) (1973). It should be noted that appellant had already committed the sexual offense of indecent assault under the Crimes Code, 18 Pa.C.S. § 3126(1) when he tore open Miss Kirby's shirt and ripped down her bra. Especially given the awesome violence of appellant's attack on Miss Kirby, and because he went further and attempted to remove Miss Kirby's pants, it was reasonable for the fact-finder to conclude that appellant had taken a substantial *473 step toward rape. Cf. Commonwealth v. White, 232 Pa.Super. 176, 181, 335 A.2d 436 (1975). Indeed, it would appear that the only other reasonable inference which could arise from appellant's conduct was that he intended to commit involuntary deviate sexual intercourse, also a felony of the first degree. Crimes Code, 18 Pa.C.S. § 3123. Since orthodox intercourse is the more common act, rape was the more natural inference.
Concerning the aggravated assaults on Miss Kirby and on one of the arresting police officers, appellant's argument is frivolous. By all accounts, when Miss Kirby was rescued she was bleeding profusely from the face and had suffered a fractured cheekbone. As a result of the assault Miss Kirby received several months of medical attention and was contemplating plastic surgery at the time of trial. Coupled with appellant's attempts to strangle her and his threat to kill her, this assault was clearly aggravated within the meaning of the Crimes Code, 18 Pa.C.S. §§ 2702 and 2301. Compare Commonwealth v. Alexander, 477 Pa. 190, 383 A.2d 887 (1978). With regard to the police officer whose wrist was broken when appellant pushed him from a four feet high retaining wall during the making of a lawful arrest, appellant's conduct clearly fell within the proscriptions of aggravated assault as set forth in the Crimes Code, 18 Pa.C.S. § 2702(a)(2) & (3). Since appellant certainly caused bodily injury to the officer, there is no question that appellant committed a misdemeanor of the first degree under Section 2702(a)(3) for which he properly received a sentence of five years probation. Crimes Code, 18 Pa.C.S. § 1104.
For the foregoing reasons, the judgments of sentence are affirmed.
WATKINS, former President Judge, and HOFFMAN, J., did not participate in the consideration or decision of this case.
NOTES
[1] Actually Miss Kirby never saw a knife, and appellant was not carrying one when he was arrested.
[2] In any event, it should be noted that the hearing court's findings of fact establish that Miss Kirby's opportunity to observe appellant was such that her in-court identification had a basis independent of the hospital confrontation. Appellant's attack on Miss Kirby lasted nearly ten minutes, and much of the time she and appellant were face to face, especially when he was choking her. See United States v. Wade, supra; Commonwealth v. Taylor, 472 Pa. 1, 370 A.2d 1197 (1977). Thus, any error in admitting the out of court identification was harmless beyond a reasonable doubt given the overwhelming evidence of appellant's guilt. Commonwealth v. Futch, 447 Pa. 389, 397 n. 8, 290 A.2d 417 (1972). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540606/ | 536 Pa. 609 (1994)
640 A.2d 1247
In re NOMINATION PETITION OF Dennis WESLEY, Candidate for United States Congress in the 1st Congressional District at the May 10, 1994 Democratic Primary Election.
Dennis Wesley, Appellant.
Supreme Court of Pennsylvania.
Submitted April 8, 1994.
Decided April 21, 1994.
*610 Scott E. Miller, Paoli, for D. Wesley.
Julian F. Senter, Robert T. Vance, Jr., Philadelphia, for H. Clark.
Before NIX, C.J., and FLAHERTY, ZAPPALA, PAPADAKOS, CAPPY and MONTEMURO, JJ.
OPINION
NIX, Chief Justice.
Appellant, Dennis Wesley ("Wesley"), appeals from the Order of the Commonwealth Court which set aside his Nomination Petition as a candidate for the United States Congress in the 1st congressional district at the May 10, 1994, Democratic primary election. This Court has exclusive jurisdiction of this matter pursuant to 42 Pa.C.S. § 723(a) which provides for a direct appeal from a final order of the Commonwealth Court in any matter commenced in that court.
On March 1, 1994, Wesley filed a Nomination Petition with the Secretary of the Commonwealth which allegedly contained 1,491 valid signatures of registered and enrolled electors of the Democratic party residing in the 1st United States congressional *611 district.[1] Harvey E. Clark ("Clark"), a competing candidate for the office of United States Congressman in the 1st congressional district, filed objections to Wesley's petition contending that 626 of the signatures contained in the petition were invalid.[2] The focus of Clark's objections were directed toward the voter registration status of Salim Azim (a/k/a Dennis Hinton), one of the circulators of Wesley's Nomination Petition. Clark alleged that Azim, who collected 626 signatures, was not a registered and enrolled member of the Democratic party nor a resident of the 1st congressional district, as required by 25 P.S. § 2869, at the time he executed the circulator's affidavits on February 28, 1994. Clark therefore argued that Wesley should not be certified as a candidate because his Nomination Petition did not contain the one thousand valid signatures required by the Election Code.
A hearing on this matter was held on March 21, 1994, in the Commonwealth Court. Following the hearing, the court concluded that Salim Azim was not a qualified elector and therefore the 626 signatures contained in the petitions circulated by Azim were not valid. In Re: Nomination Petition of Dennis Wesley, No. 106 M.D.1994, slip op. at 4 (Commw.Ct. filed March 22, 1994). Accordingly, an Order was issued which set aside the Nomination Petition of Dennis Wesley because it contained only 865 signatures, 135 short of the one thousand signatures needed.[3]
In determining that Azim was not a qualified elector, the court first observed that Salim Azim was the name taken by Dennis Hinton for religious reasons. Id. at 2. The court noted that when Salim Azim used the name Dennis Hinton in *612 1991, he was registered to vote at 600 Church Lane, Apartment 8-D. Id. Although Azim claimed to have voted under that registration, the court found that the official voting card had no evidence that he ever voted under that registration. Id. The court additionally found that Salim Azim registered to vote as a "new voter" on March 2, 1994. Id.
At the hearing below, Clark argued to the Commonwealth Court that the petitions circulated under the name Salim Azim were invalid because Azim was not registered to vote on February 28, 1994, the date when Wesley's Nomination Petition was filed. Wesley responded by asserting that the petitions circulated by Azim were valid because Azim was registered to vote under his previous name, Dennis Hinton. Clark countered by contending that, even if Azim was registered under the name Hinton, the petitions were circulated under the name Azim, not the registered name, Hinton. Thus, the Commonwealth Court was left to resolve two issues concerning the validity of Wesley's Nomination Petition.
The first issue addressed by the Commonwealth Court was whether a person registered under one name could circulate a nomination petition under a different name. The court looked to the language of the Election Code which provides, in pertinent part:
Each sheet [of the nomination petition] shall have appended thereto the affidavit of the circulator of each sheet, setting forth (a) that he or she is a qualified elector duly registered and enrolled as a member of the designated party of the State, or of the political district, as the case may be, referred to in said petition. . . .
25 P.S. § 2869 (emphasis added). The court noted that when Azim filed his registration in 1991, he held himself out to the election authorities as Dennis Hinton. In Re: Nomination Petition of Dennis Wesley, slip op. at 4. Therefore, the Commonwealth Court determined that all matters pertaining to the Election Code had to be done in the name Dennis Hinton prior to the time that Azim informed the Election Department of his new name. Id. Accordingly, the court concluded that, even if he was a qualified elector under the *613 name Dennis Hinton, Azim was required to certify the petition he circulated under the name for which he was registered as an elector. Id. As a result, the petition circulated by Azim was declared invalid by the Commonwealth Court thereby leaving Wesley's Nomination Petition 135 signatures short of the one thousand required by the Election Code. Id.
The second issue considered by the Commonwealth Court was whether Azim was registered as Dennis Hinton when he circulated the Nomination Petition. The court observed that, notwithstanding the fact that the circulator of the petitions was registered under a different name, there was no valid registration for either Dennis Hinton or Salim Azim on February 28, 1994, the date that the petition was filed. Id. at 5. Because only registered members of the relevant electorial district can be circulators of nominating petitions, the court concluded that Azim, under either name, was not a registered voter and therefore the petitions circulated by him were invalid. Id.
On appeal to this Court, Wesley again submits that Azim was a qualified elector who meets the requirements set forth in the Election Code at the time that his Nomination Petition was filed. In support of this position, Wesley points to portions of the record where Azim testified that he completed a voter registration in September, 1991, and another in February, 1994. Wesley further argues that fraud on the part of the circulator was neither alleged nor shown in connection with Azim's name change. We find these assertions to be without merit.
We note that in reviewing an election matter, we are mindful of our holding in Ross Nomination Petition, 411 Pa. 45, 190 A.2d 719 (1963), which mandates that the Election Code be liberally construed so as not to deprive an individual of his right to run for office or the voters of their right to elect the candidate of their choice. In this case, we must decide whether the Commonwealth Court correctly determined that Salim Azim did not meet the criteria necessary to be the circulator of a nomination petition as required by 25 P.S. § 2869.
*614 Our examination of the record satisfies us that there is substantial evidence to support the finding of the lower court that Salim Azim was not registered to vote at the time that he filed Wesley's Nomination Petition. The record indicates that Azim's voter registration was received by the Philadelphia City Commissioners' Office on March 2, 1994.[4] Record at 88a. It further shows that Azim himself marked on the registration that this was a "new registration." Record at 85a, 87a. Moreover, testimony was given at the hearing below by Mark Menkevich, an election registration clerk employed by the City Commissioners' Office in Philadelphia County, who confirmed by his records that Azim registered to vote on March 2, 1994. Record at 25a. Clearly, there is ample evidence to support the finding of the Commonwealth Court that "Salim Azim," the name that appeared as circulator, was not registered to vote until three days after he certified the petitions he circulated.
In addition, the finding that "Dennis Hinton" was not a registered voter is equally supported by the record. The record shows that Dennis Hinton registered to vote on October 7, 1991. Record at 86a. The address listed for that registration was 600 E. Church Lane, Apt 8-D. Id. Azim testified that he lived at 600 E. Church Lane, Apt 8-D, when he completed that registration under the name Dennis Hinton. Record at 43a-44a. He further testified that he lived at, and registered under, the address 5230 Pulaski when he submitted his February, 1994, voter registration.[5] Record at 54a. Azim also stated that he moved from 600 East Church Lane to 5230 Pulaski approximately one and one-half to two years ago. Record at 54a-55a.
*615 At the time that a person registers as an elector, he must specifically set forth, under penalty of perjury, information pertaining to his place of residence. The registration process requires that the applicant indicate the street and number of his residence; the location or number of the room, apartment, flat, or floor that he occupies if his residence is a portion only of the house; and the length of his residence in the State or district. 25 P.S. § 623-20(c)(4)-(6); see also 25 P.S. § 623-20.3(b)(4)-(7). Moreover, the Election Code provides that the registration commission shall send inspectors to conduct street canvasses in order to verify the residence of those registered. 25 P.S. § 623-20.4(f). Clearly, this inspection is intended to maintain the integrity of the election process by insuring that the qualified elector actually resides at the address listed on his voter registration. Absent extraordinary circumstances, a removal notice is required to be filed whenever a qualified elector changes his residence so that his new address comports with the sworn information maintained by the registration commission. See 25 P.S. §§ 623-21, -24, -28, -29. Accordingly, the Commonwealth Court correctly concluded that Azim's voter registration terminated as a result of his failure to file a removal notice indicating his change of residence.
A circulator of a nomination petition must be a duly registered member of the relevant political district. 25 P.S. § 2869; In re: Nomination Petition of McDermott, 60 Pa. Commw. 486, 431 A.2d 1180 (1981). Furthermore, the failure of a circulator to be a qualified elector is a fatal defect to those petitions filed by that circulator. Id. We therefore conclude that the Commonwealth Court correctly set aside the Nomination Petition of Dennis Wesley.
The Order of the Commonwealth Court is affirmed.
Mr. Justice CASTILLE did not participate in the consideration or decision of this case.
Mr. Justice MONTEMURO is sitting by designation as Senior Justice pursuant to Judicial Assignment Docket No. 94 *616 R1800, due to the unavailability of Mr. Justice LARSEN, see No. 127 Judicial Administration Docket No. 1, filed October 28, 1993.
NOTES
[1] In order to be eligible as a candidate in a congressional primary, a nominee must submit a petition that contains one thousand valid signatures of registered and enrolled members of the proper party. 25 P.S. § 2872.1(12).
[2] Clark also separately alleged that an additional 286 signatures were invalid because the signers resided outside the 1st congressional district. However, due to a procedural defect, the Commonwealth Court ruled that portion of Clark's objections stricken. Because the validity of the Commonwealth Court's ruling on those 286 signatures has not been raised on appeal, we will not address that issue.
[3] See footnote 1, supra.
[4] At the hearing below, Azim testified that he sent two voter registration forms in the name "Salim Azim." Record at 45a, 52a. One was allegedly sent prior to the time that he began circulating Wesley's Nomination Petition and the other during the time that he circulated the petitions in question. Id. He further testified that he never received any indication from the registration commission that his first registration form was ever received or processed. Record at 46a, 52a. No further evidence was introduced concerning this first registration.
[5] This is the registration form received by the Philadelphia City Commissioners' Office on March 2, 1994. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2751118/ | In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 13-2020
ORLANDO BROWN,
Plaintiff-Appellant,
v.
CITY OF CHICAGO, et al.,
Defendants-Appellees.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 12 C 2921 — Sharon Johnson Coleman, Judge.
____________________
ARGUED OCTOBER 8, 2014 — DECIDED NOVEMBER 13, 2014
____________________
Before POSNER, FLAUM, and SYKES, Circuit Judges.
POSNER, Circuit Judge. The plaintiff, a former Chicago po-
lice officer, is black; claiming to have been discriminated
against by his white supervisor, he filed suit against the City
of Chicago in state court, charging racially motivated har-
assment, and retaliation for complaining about the harass-
ment, all in violation of the Illinois Human Rights Act. While
that suit was pending, the Chicago Police Board fired him—
in retaliation, he alleges, for the internal complaints about
2 No. 13-2020
harassment that he had made before he filed suit. Rather
than amend his state court complaint to add a charge that
his firing had constituted harassment and retaliation, he
filed the present suit in federal district court, alleging that
the City and the Police Board (and members of the Board,
whom we can ignore) had fired him on racial grounds
(Count I) and also in retaliation for his earlier complaining
about discrimination (Count II), all in violation of 42 U.S.C.
§ 1981. The complaint also contains (in Count III) a state-law
claim against the Police Board under the Illinois Code of
Civil Procedure, Administrative Review, 735 ILCS 5/3-101 et
seq., challenging the Board’s decision to fire him, and a fed-
eral due process claim.
The district judge stayed the federal suit while the state
court suit was pending. That court had already dismissed
Brown’s claim of harassment, leaving the claim of retaliation
pending. Brown moved the state court to dismiss that claim
as well, thus terminating his state court suit, but asked that
the dismissal be without prejudice. The court obliged. The
docket sheet terms the dismissal a “Voluntary Dismissal
W[ith] Leave to Refile-Allowed.”
With the state court suit dismissed, the district judge lift-
ed the stay of Brown’s federal suit. The judge then dismissed
Count III on the ground that there was no federal subject-
matter jurisdiction because it was purely a state-law claim
(she seems to have overlooked the federal due process claim
that was also alleged in the count). The dismissal was with
prejudice. It should not have been. The judge was not decid-
ing the merits of the claim or finding that it had been filed in
bad faith and therefore that Brown should be forbidden to
refile it in any court.
No. 13-2020 3
Later the judge dismissed Brown’s other two claims—
retaliation and racial discrimination (the latter claim Brown
had called harassment in his state court suit, but the factual
allegations were the same)—on the merits, as barred by res
judicata. But in the same order she amended her earlier or-
der dismissing the state-law Administrative Review claim to
say that if perchance she had supplemental jurisdiction over
that claim (rather than lacking subject-matter jurisdiction, as
she had ruled), she was relinquishing jurisdiction to the state
courts pursuant to 28 U.S.C. § 1367(c)(3), which would be a
dismissal without prejudice.
Whether the dismissal of the retaliation and discrimina-
tion claims by the state court is res judicata in Brown’s fed-
eral suit is an issue of Illinois state law. 28 U.S.C. § 1738. He
argues that under that law a voluntary dismissal is not res
judicata because it is not a judgment on the merits and only
judgments on the merits are res judicata. That is indeed the
general rule, in Illinois as elsewhere. Rein v. David A. Noyes &
Co., 665 N.E.2d 1199, 1204 (Ill. 1996). But there is an excep-
tion for cases in which the dismissal follows the rejection of
all or some of the plaintiff’s claims on the merits, as hap-
pened in this case (recall that Brown’s state-law harassment
claim had been dismissed by the state court with prejudice).
The basis of the exception is that “plaintiffs generally are
not permitted to split their causes of action. The rule against
claim-splitting, which is an aspect of the law of preclusion,
prohibits a plaintiff from suing for part of a claim in one ac-
tion and then suing for the remainder in another action.” Id.
at 1206; see also Hudson v. City of Chicago, 889 N.E.2d 210, 216
(Ill. 2008). Brown’s harassment and retaliation claims were
not identical, but arising as they did from the alleged racially
4 No. 13-2020
motivated discrimination against him by his white supervi-
sor, they were similar enough to constitute a single claim for
purposes of res judicata. See, e.g., River Park, Inc. v. City of
Highland Park, 703 N.E.2d 883, 893 (Ill. 1998) (“separate
claims will be considered the same cause of action for pur-
poses of res judicata if they arise from a single group of op-
erative facts, regardless of whether they assert different the-
ories of relief.”).
But there are exceptions to the exception, one being if
“the court in the first action expressly reserved the plaintiff's
right to maintain the second action.” Rein v. David A. Noyes
& Co., supra, 665 N.E.2d at 1207. Brown argues that the nota-
tion on the docket sheet “Voluntary Dismissal W[ith] Leave
to Refile-Allowed” was such an express reservation. The Su-
preme Court of Illinois has held, however, that to be deemed
“express” the reservation must identify what exactly is being
reserved. In Robinson v. Toyota Motor Credit Corp., 775 N.E.2d
951, 958 (Ill. 2002), the court first noted our ruling in D & K
Properties Crystal Lake v. Mutual Life Ins. Co. of New York, 112
F.3d 257, 261 (7th Cir. 1997), that the reservation must be
“both express, as in writing, and express, as in specifically
identified,” and then said that “in general, we [that is, the
Supreme Court of Illinois] agree that to avoid the preclusive
effect of res judicata any reservation of a cause of action
must be expressly reserved by the parties.” The court did not
explain what qualifications it was thinking of when it said
“in general,” but we don’t see any reason to recognize an ex-
ception to the exception to the exception in this case. The
docket notation did not specify what claims were being re-
served: whether it was just the retaliation claim, or that plus
other claims that Brown might want to present in a refiled
suit.
No. 13-2020 5
It’s not even clear that the docket notation should be con-
sidered an authentic reservation of anything. It’s not clear
whether the judge was the author of the notation, or instead
a court clerk was, who noticing that the dismissal was with-
out prejudice erroneously thought that this meant the suit
could be refiled, and noted his erroneous belief on the dock-
et. He may have been unaware of the first exception (a vol-
untary dismissal is res judicata if other claims in the dis-
missed suit had been dismissed on the merits). So, for that
matter, may have been the judge.
A number of decisions by Illinois’s intermediate appel-
late court hold that the language (or a near variant of it) of
the reservation in this case is insufficient to comply with the
“express reservation” exception. See, e.g., Matejczyk v. City of
Chicago, 922 N.E.2d 24 (Ill. App. 2009). Brown cites other Illi-
nois’s intermediate appellate court cases, however, that he
claims go the other way. In Severino v. Freedom Woods, Inc.,
941 N.E.2d 180 (Ill. App. 2010), for example, the docket entry
was similar or identical to the one in this case and in cases
like Matejczyk, but there was other evidence of the judge’s
intentions in dismissing the case—namely the judge’s
handwritten statement on the order of dismissal that costs
were to be paid “upon the refiling of the complaint by the
plaintiff.” Id. at 183. In this case there is a similar indication
that the judge intended that the case could be refiled, besides
the docket notation (why Brown places such emphasis on
the docket notation puzzles us): the order of dismissal,
signed by the judge, states that it’s without prejudice and
that the City of Chicago is “reserv[ing] the right to refile its
Combined Motion to Reconsider and To Dismiss Plaintiff’s
Lawsuit if Plaintiff refiles this case” (emphasis added)—
implying that Brown is permitted to refile it.
6 No. 13-2020
But Severino and like cases are in tension with the state
supreme court’s insistence on strict compliance with the re-
quirement not only of an intended but also of a “specifically
identified” reservation of the right to refile a voluntarily
dismissed claim if another claim has been dismissed with
prejudice. That insistence is necessary to prevent, or at least
to minimize the likelihood of, judge shopping and forum
shopping. If, as may have happened in this case, the dis-
missal of one claim (the state court’s dismissal of the har-
assment claim) signals that the judge, or perhaps the court
system (in this case, the Illinois court system), does not look
with favor on the plaintiff’s case, the plaintiff may decide to
dismiss his suit voluntarily and refile it before a different
judge, maybe in a different court system (in this case, the
federal court system), and press the claims that the first
judge, or the first court system, has not yet dismissed. A vol-
untary dismissal of those claims and a refiling of them else-
where is a gimmick that the doctrine of res judicata, as inter-
preted by the Supreme Court of Illinois in cases in which
voluntary dismissal follows the dismissal of another claim
with prejudice, aims to prevent.
So the retaliation and discrimination claims in Brown’s
federal suit are barred. As for Count III, which the district
court dismissed both as beyond its subject-matter jurisdic-
tion and (if within it) as being a claim of supplemental juris-
diction that a district judge can, and this district judge want-
ed to, dismiss without prejudice, we agree with Brown that
the judge had subject-matter jurisdiction. Here are the key
allegations of Count III: “The Police Board’s guilty findings
and discharge were erroneous … . The proceedings before
the Police Board were fundamentally unfair and violated
Plaintiff’s due process rights because of [Brown’s supervi-
No. 13-2020 7
sor’s] illegitimate and retaliatory motive in bringing charges
… against Plaintiff.” There thus are two claims. The first sen-
tence claims just errors in the Police Board’s administrative
proceeding. The second advances a federal claim. The first
claim is within the district court’s supplemental jurisdiction,
because it is a claim that is so closely related to claims that
are within original federal jurisdiction that it “form[s] part of
the same case or controversy under Article III.” 28 U.S.C.
§ 1367(a). The second claim, however, is a garden-variety
federal-law claim, and it is therefore within the original ju-
risdiction of the district court under 28 U.S.C. § 1331. The
judge was free to relinquish jurisdiction over the supplemen-
tal claim, the challenge to the Police Board’s findings, but
not over the original-jurisdiction claim, based on the due
process clause of the Fourteenth Amendment. For elabora-
tion of the distinction, see City of Chicago v. International Col-
lege of Surgeons, 522 U.S. 156, 164 (1997).
We acknowledge the possibility that the due process
claim, which alleges that the white supervisor’s motives
were “illegitimate” and “retaliatory” is so similar to the
state-law claims of harassment and retaliation as to be
barred by res judicata. But that is an issue best left for the
district court to decide in the first instance.
The judgment of the district court is therefore modified
to place dismissal of the first claim in Count III on the dis-
trict court’s supplemental state-law jurisdiction, but reversed
with respect to the dismissal of the due process claim in that
count. In all other respects the judgment is affirmed. | 01-03-2023 | 11-13-2014 |
https://www.courtlistener.com/api/rest/v3/opinions/1541227/ | 481 Pa. 557 (1978)
393 A.2d 302
Ella Mae LEHNIG, Executrix of the Estate of Alfred H. Lehnig, Deceased, and Glasgow, Inc., Appellants,
v.
Howard FELTON, C.E. Karns, Jr., Albert Santucci, Van Harris, Peter Sweady, Bruno Spotti, and Paul Martin.
Supreme Court of Pennsylvania.
Submitted January 18, 1978.
Decided October 5, 1978.
*558 William D. Phillips, Washington, John F. Ploeger, Truel & Ploeger, Pittsburgh, for appellants.
Richard J. Mills, Meyer, Darragh, Buckler, Bebenek & Eck, Pittsburgh, for appellees.
Before EAGEN, C.J., and O'BRIEN, ROBERTS, POMEROY, NIX, MANDERINO and LARSEN, JJ.
OPINION OF THE COURT
ROBERTS, Justice.
Appellants, Ella Mae Lehnig, administratrix of the estate of Alfred H. Lehnig, and Glasgow, Inc., decedent's employer, brought an action in trespass against appellees, seven employees of the Pennsylvania Department of Transportation. Decedent, a truckdriver, was killed and his employer's truck destroyed when the truck struck a deteriorated portion of a public highway. Decedent lost control of the truck and it plunged through a guardrail and down an embankment. Appellants allege that the road had been dangerously deteriorated for a substantial period of time, that inspection would have revealed the fact, and that the accident was caused by appellees' negligent failure to inspect and repair the road, or to warn the public of its dangerous condition.
The Court of Common Pleas of Washington County dismissed the complaint on the ground that appellees, as public employees, are immune from liability for ordinary negligence in the performance of their official functions. The Superior Court affirmed and we granted allocatur.[*]
In DuBree v. Commonwealth of Pennsylvania, 481 Pa. 540, 393 A.2d 293 (1978), this Court concluded that the liability of officials of the Pennsylvania Department of Transportation "should not have been analyzed solely on the basis of their status as employees of the Commonwealth." *559 481 Pa. at 544, 393 A.2d at 294. Rather, "an examination is required of whether the considerations underlying `official immunity' are effectively advanced." Id. Accordingly, in DuBree, this Court stated: "Where, but for the defendant's status, a right of action would lie under analogous rules of law, and no public policy would be promoted in shielding a defendant from liability, and the plaintiff has not failed to pursue existing remedies, denial of the possibility of recovery is unjustified." Id., 481 Pa. at 546, 393 A.2d at 296. We vacate the order of the Superior Court and remand to the Court of Common Pleas of Washington County for consideration in light of all the principles enunciated in DuBree.
Order of the Superior Court vacated and case remanded for proceedings consistent with this opinion.
EAGEN, C.J., dissents.
NIX, J., filed a dissenting opinion.
NIX, Justice, dissenting.
I dissent for the reasons set forth in my dissenting opinion in DuBree v. Commonwealth, 481 Pa. 540, 393 A.2d 293 (1978), (Nix, J., dissenting).
NOTES
[*] We hear this appeal pursuant to the Appellate Court Jurisdiction Act of 1970, Act of July 31, 1970, P.L. 673, art. II, § 204, 17 P.S. § 211.204 (Supp. 1978). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541229/ | 482 Pa. 274 (1978)
393 A.2d 660
COMMONWEALTH of Pennsylvania
v.
James CARTER, Appellant.
COMMONWEALTH of Pennsylvania
v.
Charles BOZARTH, Appellant.
COMMONWEALTH of Pennsylvania
v.
Robert DULANEY, Appellant.
Supreme Court of Pennsylvania.
Argued November 14, 1977.
Decided November 6, 1978.
*275 Defender Assn. of Phila., Benjamin Lerner, Defender, Elaine DeMasse, Asst. Defender, John W. Packel, Chief, Appeals Div., Philadelphia, for appellants.
F. Emmett Fitzpatrick, Dist. Atty., Steven H. Goldblatt, Deputy Dist. Atty. for Law, Michael R. Stiles, Asst. Dist. Atty., Chief, Appeals Div., Gaele McLaughlin Barthold, Philadelphia, for appellee.
*276 Before EAGEN, C.J., and O'BRIEN, ROBERTS, POMEROY, NIX, MANDERINO and PACKEL, JJ.
OPINION OF THE COURT
ROBERTS, Justice.
In unrelated proceedings, each appellant was indicted for multiple offenses, including burglary, but not including criminal trespass.[1] Each was tried before a court sitting without a jury and each was convicted, inter alia, for the unindicted offense of criminal trespass. Only the convictions for criminal trespass were appealed. The Superior Court upheld each conviction.[2] We granted allowances of appeal.[3] On October 5, 1978, this Court reversed the judgments of sentence and noted that opinions would follow. This opinion is in accordance with that order.[4]
The single issue presented is whether criminal trespass, 18 Pa.C.S.A. § 3503(a)(1)(Supp. 1978), is a lesser included offense of burglary, 18 Pa.C.S.A. § 3502(a). We hold that it is not. Therefore, we conclude these convictions deprived appellants of the notice and opportunity to defend which are guaranteed by the Federal and Pennsylvania Constitutions.
*277 Indictment for burglary gives one notice that he is accused of violating the following criminal statute:
"A person is guilty of burglary if he enters a building or occupied structure, or separately secured or occupied portion thereof, with intent to commit a crime therein, unless the premises are at the time open to the public or the actor is licensed or privileged to enter."
18 Pa.C.S.A. § 3502(a). Scienter is not an element of this crime and thus, one defending against a burglary charge would have no reason to establish that (albeit falsely) he believed his presence in a building or occupied structure was privileged or licensed. Yet evidence of such a belief could provide a basis for an acquittal of a charge of criminal trespass. The Crimes Code defines criminal trespass as follows:
"A person commits an offense if, knowing that he is not licensed or privileged to do so, he enters or gains entrance by subterfuge or surreptitiously remains in any building or occupied structure, or separately secured or occupied portion thereof."
18 Pa.C.S.A. § 3503(a)(1). Therefore, we agree with the dissenting opinion of Judge Hoffman in Commonwealth v. Carter that "the crime of criminal trespass has a scienter requirement not necessary to prove the crime of burglary, and thus cannot be categorized as a lesser included offense." 236 Pa.Super. 376, 385, 344 A.2d 899, 903 (1975) (dissenting opinion joined by Jacobs and Spaeth, JJ.).[5] Cf. Cook v. State, 258 Ind. 667, 284 N.E.2d 81, 83 (1972) (malicious trespass not a lesser included offense of second degree burglary).
These convictions for an offense not included in any offense charged and for which there was no indictment *278 violate due process. Hamling v. United States, 418 U.S. 87, 117, 94 S. Ct. 2887, 2907, 41 L. Ed. 2d 590 (1974) ("Our prior cases indicate that an indictment is sufficient if it . . . contains the elements of the offense charged and fairly informs a defendant of the charge against which he must defend . . . ."), Cole v. Arkansas, 333 U.S. 196, 68 S. Ct. 514, 92 L. Ed. 644 (1948). Accord, Pa.Const. art. I, § 9 (right of accused "to demand the nature and cause of the accusation against him."); e.g., People v. Keatts, 54 Mich.App. 618, 221 N.W.2d 455, 457 (1974) (conviction for crime not charged and not included in those charged denies due process).
The Pennsylvania Rules of Criminal Procedure embody the same principle. Rule 213(c) provides: "In all court cases tried on an indictment the issues at trial shall be defined by such indictment." Cf. Commonwealth v. Rosenhoover, 236 Pa.Super. 339, 342-3, 344 A.2d 562, 563 (1975) (Under Pa.R. Crim.P. 213(b)(5), indictment must set forth substantially the language of the applicable statute, to assure notice of the charges.) This principle must control even where, as here, there is some evidence in each record relevant to the additional element of scienter in criminal trespass. We will not permit the accidental presence of some scienter evidence to cure the denial of due process presented here.
Accordingly, orders of the Superior Court affirming the judgments of sentence of criminal trespass reversed and judgments of sentence vacated.
Former Justice Packel did not participate in the decision of this case.
LARSEN, J., did not participate in the consideration or decision of this case.
MANDERINO, J., joins the Opinion of the Court and filed a concurring opinion.
POMEROY, J., filed a dissenting opinion, in which O'BRIEN, J., joins.
*279 MANDERINO, Justice, concurring.
I join in the majority opinion but would further note that one who is indicted for burglary, 18 Pa.C.S.A. § 3502(a) is not aware that a defense may be necessary as to the other elements contained in the crime of criminal trespass, 18 Pa.C.S.A. § 3503(a)(1) which are different than the elements of burglary. Criminal trespass does not involve breaking and entering, instead, it encompasses subterfuge or surreptitious means of remaining on the premises. A person accused of burglary has no reason to prepare a defense to establish that he did not enter by subterfuge or surreptitiously remain. Therefore, a conviction of criminal trespass under these circumstances denies the accused not only of his right of notice but also of his opportunity to defend.
POMEROY, Justice, dissenting.
To those lower courts and practitioners who had supposed that this Court was willing to be guided by Section 1.07(4) of the American Law Institutes' Model Penal Code[1] in solving the problems presented in the area of lesser included offenses, today's decision will come as a surprise. The majority not only does not refer to the Model Code, but it also fails to provide any other formulation of a test for ascertaining when one offense is to be deemed to be included in another. Because I both disagree with the result here reached and believe that the problem involved deserves a more considered treatment, I am obliged to dissent.
The Court holds, upon a comparison of the language of the two sections of the Crimes Code defining burglary and criminal trespass, that the latter is not a lesser offense of the former, and hence that the appellants, not having been charged with criminal trespass, may not be convicted of that crime. The basis of this conclusion is that in the criminal trespass offense there is a requirement of "scienter" i.e., knowledge by the trespasser that an entry of a building is *280 unlicensed or unprivileged an element not present in the offense of burglary.[2]
Appellants' argument seeking the result which the Court reaches is framed in accordance with the Pennsylvania doctrine of merger of offenses, which doctrine has long been used to determine whether one offense includes another.[3] In Commonwealth ex rel. Moszczynski v. Ashe, 343 Pa. 102, 21 A.2d 290 (1941), a case on which appellants heavily rely, this Court reiterated the test for determining when one criminal offense merges into another:
"The true test of whether one criminal offense has merged in another is not (as is sometimes stated) whether the two criminal acts are `successive steps in the same transaction' but it is whether one crime necessarily involves another, as, for example, rape involves fornication, and robbery involves both assault and larceny. . . . When one of two criminal acts committed successively is not a necessary ingredient of the other, there may be a conviction and sentence for both." 343 Pa. at 104-05, 21 A.2d at 921 (emphasis in original).
See also Commonwealth v. Sparrow, 471 Pa. 490, 501-07, 370 A.2d 712 (1977); Commonwealth v. Hill, 453 Pa. 349, 310 *281 A.2d 88 (1973); Commonwealth v. Comber, 374 Pa. 570, 97 A.2d 343 (1953). Without referring to this traditional approach or even citing Moszczynski, the majority has, in effect if not explicitly, added a new test: one crime does not "necessarily involve" another unless the elements of the greater offense are set forth in the statute in precisely the same fashion as are the elements of the lesser offense.
Although the majority opinion sets them forth, the relevant sections of the Crimes Code are for convenience repeated here. Section 3502 of the Crimes Code, 18 Pa.C.S. § 3502 (1973), defines burglary as follows:
"A person is guilty of burglary if he enters a building or occupied structure, or separately secured or occupied portion thereof, with intent to commit a crime therein, unless the premises are at the time open to the public or the actor is licensed or privileged to enter."
Criminal trespass is defined in the next succeeding section of the Code, 18 Pa.C.S. § 3503, in the following terms:
"A person commits an offense if, knowing that he is not licensed or privileged to do so, he enters or gains entrance by subterfuge or surreptitiously remains in any building or occupied structure, or separately secured or occupied portion thereof."
The dissimilar modes of expression of these similar provisions are the focus of the controversy. The burglary statute provides that one is guilty of burglary if one acts as specified in the statute "unless . . . the actor is licensed or privileged to enter." (Emphasis added.) Criminal trespass, however, specifies that one must enter, inter alia, "knowing that he is not licensed or privileged to do so." (Emphasis added.) Thus it appears that, on the one hand, the legislature has made license or privilege to enter a building an affirmative defense to a burglary charge, and if this element of permission is suggested by the evidence the Commonwealth must prove the absence of that element beyond a reasonable doubt. See, e.g., Commonwealth v. Rose, 457 Pa. 380, 321 A.2d 880 (1974); Commonwealth v. Demmitt, 456 Pa. 475, 321 A.2d 627 (1974); Commonwealth v. Cropper, 463 *282 Pa. 529, 345 A.2d 645 (1975). In a prosecution for criminal trespass, on the other hand, the Commonwealth must show knowledge of the absence of license or privilege to enter as part of its case in chief or suffer an acquittal. Thus the differing burdens of producing evidence in the Commonwealth's case in chief, as distinguished from the burden of persuasion once all the evidence is in,[4] seem to be, for the majority's purposes, dispositive against the idea that criminal trespass is a lesser included offense of burglary. While there may be support in some jurisdictions for this theory,[5] it has not, to my knowledge, been adopted as a hard-and-fast rule in this Commonwealth. In particular, I do not believe that the approach which the majority apparently espouses can be reconciled with the approach that this Court has taken in the area of criminal homicide. An examination of two leading cases dealing with the question of lesser included offenses of murder should make this point clear.
In Commonwealth v. Polimeni, 474 Pa. 430, 378 A.2d 1189 (1977) (opinion announcing the judgment of the Court) and Commonwealth v. Garcia, 474 Pa. 449, 378 A.2d 1199 (1977) (plurality opinion), a majority of the Court determined that involuntary manslaughter should be regarded as a lesser included offense of the crime of murder. The lead opinion in Polimeni[6] was not grounded on the lesser included offense doctrine as known to the common law in reaching its conclusion, but noted that such a conceptual basis was "arguable." 474 Pa. at 437-39, 378 A.2d at 1193-94. The *283 lead opinion in Garcia,[7] for its part, was of the view that the question should be resolved primarily in light of Section 1.07(4) of the Model Penal Code. 474 Pa. at 460-61, 378 A.2d at 1205. For present purposes the differing points of emphasis in the two opinions, as well as the points of disagreement,[8] are not particularly important. What is important here is that the five subscribers to the two opinions were prepared to be guided by Section 1.07(4) of the Model Penal Code,[9] and that both opinions recognized that the two *284 offenses, murder and involuntary manslaughter, while differing in their elements, had in common the essential question of the defendant's state of mind.
Section 1.07(4) of the Model Penal Code provides:
"(4) Conviction of Included Offense Permitted. A defendant may be convicted of an offense included in an offense charged in the indictment [or the information]. An offense is so included when:
(a) It is established by proof of the same or less than all the facts required to establish the commission of the offense charged; or
(b) it consists of an attempt or solicitation to commit the offense charged or to commit an offense otherwise included therein; or
(c) it differs from the offense charged only in the respect that a less serious injury or risk of injury to the same person, property or public interest or a lesser kind of culpability suffices to establish its commission."
The draftsmen of the Model Code describe subsection (a) as providing that "a lesser offense is necessarily included in a charge of the greater if the proof necessary to establish the greater will of necessity establish every element of the lesser offense . . . ." Model Penal Code § 1.08(4), commentary at 40-41 (Tentative Draft No. 5, 1956).[10] The *285 opinion in Garcia was of the view that this subsection, which is grounded on trial evidence rather than the allocation of the burdens of production of evidence, lent support to its conclusion that involuntary manslaughter was a lesser included offense of murder.[11] This view was expressed notwithstanding that the commentators to the Model Code were careful to point out that "conceptually it cannot be said that upon proof of an intentional killing . . . all of the elements of a negligent killing have necessarily been established." Id. at 41. See also Commonwealth v. Thomas, 482 Pa. 312, 323-325, 393 A.2d 1122, 1127-1128 (1978) (opinion of POMEROY, J., in support of affirmance).
The majority ignores the importance of the evidentiary question here. It concedes that there was evidence in each of the cases now before us relevant to the scienter element in criminal trespass, but characterizes the presence of this evidence as "accidental." Opinion of the Court, ante at 278.[12] It is my view, however, that the presence of scienter *286 evidence in these cases was anything but accidental; it was, rather, evidence that was essential to enable the Commonwealth to prevail over a demurrer to the burglary charges. Stated another way, I believe that the allocation of the burdens of production in the two offenses is so similar as to make them functionally equivalent, since the Commonwealth is required in burglary prosecutions to establish a volitional entry into a building as well as an intent to commit a crime therein.[13] It is true that the states of mind to be established (volitional entry vis-a-vis entry with knowledge of lack of license or privilege) are not the same, but neither are the states of mind involved in murder and *287 involuntary manslaughter. Yet since in these criminal homicide offenses "the offenses involved were in effect merely degrees of the same principal crime and the same facts proved both." Commonwealth v. Sparrow, supra, 471 Pa. at 503, 370 A.2d at 718, voluntary and involuntary manslaughter have been deemed lesser included offenses of murder.[14] Since an entry into a building cannot be punishable as either burglary or criminal trespass unless the entry is shown to be without legal justification, and since it is specious to contend that one who seeks to avoid a burglary conviction would fail to point out a suggestion in the evidence, from whatever source, of the presence of license or privilege, I conclude that the majority's "elements" test does not provide a distinction between criminal trespass and burglary sufficient to prevent the former from being considered a lesser included offense of the latter.
Subsection (c) of the Model Code formulation also clearly supports a finding that criminal trespass is a lesser included offense of burglary, since it "differs . . . only in that a less serious injury or risk of injury to the same . . . property . . . suffices to establish its commission." It is self-evident that the crime of burglary involves a serious threat to the property and perhaps the persons of others because it involves the possibility, if not the likelihood, of the commission of another and perhaps more heinous crime on the property. Criminal trespass, on the other hand, involves a less serious threat to property and little if any threat to persons. The essence of that crime is simply a *288 knowingly unpermitted intrusion into or surreptitious remaining within a building of another. This difference in the degree of seriousness of the two offenses is reflected in the fact that the legislature has designated burglary as a felony of the first degree, whereas criminal trespass is a felony of the second degree. The plurality opinion in Garcia took a similar view with respect to criminal homicide:
"[W]hen malice is based on the disregard of an extremely high risk of death or serious bodily harm involuntary manslaughter is a lesser included offense of murder in two respects. First, a `less serious . . . risk of injury. . . suffices to establish its commission.' Model Penal Code § 1.07(4). The evidence may persuade the jury that the defendant is guilty of murder in all respects except that the risk disregarded was not extremely high, but that the risk was still unjustified and that therefore the killing constitutes involuntary manslaughter. Second, `a lesser kind of culpability suffices to establish its commission.' Id. The evidence may persuade the jury that the defendant did not commit murder, because the defendant did not perceive the risk to others, but that the defendant should have perceived the risk to others, and therefore committed involuntary manslaughter." 474 Pa. at 464, 378 A.2d at 1207 (citation omitted).
Although I believe that one need not rely on the Model Code's Section 1.07(4)(c) in order to determine that criminal trespass is a lesser included offense of burglary, I make note of it because it is manifest to me that the plurality rationale in Garcia points to a different result than the majority today reaches. In both criminal homicide (Chapter 25 of the Crimes Code) and Chapter 35 of the Crimes Code ("Burglary and Other Criminal Intrusions," in which burglary and criminal trespass are the only offenses), the fundamental question, though phrased in different ways, is the defendant's state of mind. Because I find that the state of mind which must be present in the crime of burglary "necessarily involves"[15]*289 the state of mind encompassed within criminal trespass to an even greater extent than the mental state essential to murder involves that which pertains to involuntary manslaughter, I conclude that the legislature, despite inartful drafting, intended that criminal trespass be regarded as a lesser included offense of burglary.[16]
This conclusion is buttressed by the fact that the legislature expressly stated that it drew in large measure from the Model Penal Code formulations of burglary and criminal trespass in enacting the statutory sections here at issue,[17] which differ substantially from prior law.[18] The drafters of the Model Penal Code, in the commentary to the section of that Code concerning burglary, clearly contemplated that criminal trespass should be treated as a lesser included offense of burglary: "If there is reasonable doubt as to the criminal purpose of the intruder it should be enough to convict him of criminal trespass under Section 211.2." Model *290 Penal Code § 221.1, Commentary at 60 (Tent. Draft No. 11, 1960). Nothing in today's decision persuades me that the General Assembly entertained a different view.[19]
As a strictly practical matter, I suppose that the Court's conclusion that the particular criminal trespass convictions here involved are void[20] does not mean much either to the appellants who are discharged or to the criminal law generally. The General Assembly is free to amend the statutes here involved to meet the majority's objections, and until then prosecutors can easily accommodate the majority's holding by charging for both burglary and criminal trespass if they see fit. My quarrel with today's decision is not so much over the results in these cases as it is over the Court's failure to provide the trial courts and the bar with some consistent guidance in the resolution of these difficult issues. The majority's refusal to distinguish between the apparent basis of today's decision and the basis of our decisions in the criminal homicide field will, I fear, but add further uncertainty to this area of our criminal law. It is this concern that prompts this dissent.
O'BRIEN, J., joins in this dissenting opinion.
NOTES
[1] Appellant James Carter was indicted for burglary, attempted theft, possessing instruments of crime generally and criminal conspiracy. Appellant Charles Bozarth was indicted for criminal conspiracy, recklessly endangering another person, terroristic threats, possessing instruments of crime generally and burglary. Appellant Robert Dulaney was indicted for burglary, theft by unlawful taking or disposition, theft by receiving stolen property and criminal conspiracy.
[2] Commonwealth v. Carter, 236 Pa.Super. 376, 344 A.2d 899 (1975) (plurality opinion, Watkins, P.J., concurred in the result; Hoffman, J., filed a dissenting opinion in which Jacobs and Spaeth, JJ., joined). Commonwealth v. Bozarth, 237 Pa.Super. 702, 352 A.2d 65 (1975) (Jacobs, Hoffman and Spaeth, JJ., dissenting). Commonwealth v. Dulaney, 238 Pa.Super. 739, 356 A.2d 823 (1976) (Jacobs, Hoffman and Spaeth, JJ., dissenting).
[3] We hear this appeal pursuant to the 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. 1978).
[4] This case was reassigned to the writer on September 29, 1978, for the purpose of preparing an opinion expressing the views of a majority of this Court.
[5] We need not, therefore, decide 1) whether under the criminal trespass section of the Crimes Code a second degree felony conviction could stand where one knowingly trespasses, but does not do so by concealment, by subterfuge or other surreptitious entry, and 2) whether, if the indictment were sufficient to support the criminal trespass charge, the case should be remanded for a determination of whether counsel was ineffective for failing to adduce an available defense.
[1] Proposed Official Draft, 1962.
[2] Appellants also contend that another of the elements of criminal trespass is a surreptitious entry or lingering in the building or structure, which also is not present in the definition of burglary. Although the majority does not address this argument, I find it without merit, as did the entire Superior Court, for the reasons stated in the opinions filed in that court. See 236 Pa.Super. at 387, 344 A.2d 899 (plurality opinion); id., 236 Pa.Super. at 383-84, 344 A.2d 899 (dissenting opinion).
[3] The doctrine of merger was adopted by this Court because the double jeopardy clause of the Pennsylvania constitution has traditionally been applied only to capital offenses. E.g., Commonwealth v. Baker, 413 Pa. 105, 196 A.2d 582 (1964). The double jeopardy clause of the United States Constitution, of course, had not yet been applied to the states. Benton v. Maryland, 395 U.S. 794, 89 S. Ct. 2056, 23 L. Ed. 2d 707 (1969). See generally Commonwealth v. Campana, 452 Pa. 233, 243-45, 304 A.2d 432, 436-67 (plurality opinion of Roberts, J.); id., 452 Pa. at 269, 304 A.2d at 446 (Pomeroy, J., dissenting), vacated and remanded, 414 U.S. 808, 94 S. Ct. 73, 38 L. Ed. 2d 44 (1973), on remand, 455 Pa. 622, 314 A.2d 854, cert. denied, 417 U.S. 969, 94 S. Ct. 3172, 41 L. Ed. 2d 1139 (1974).
[4] See generally McCormick on Evidence §§ 336-337 (2d ed. E. Cleary et al. 1972); IX J. Wigmore, Evidence §§ 2485-2489 (3d ed. 1940).
[5] See in general, D. Koenig, The Many-Headed Hydra of Lesser Included Offenses: A Herculean Task for the Michigan Courts, [1975] Detroit College of Law Review 41; B. George, Lesser Included Offenses in Michigan, [1975] Detroit College of Law Review 35; J. Barnett, The Lesser-Included Offense Doctrine: A Present Day Analysis for Practitioners, 5 Conn.L.Rev. 255 (1972); Note, The Doctrine of Lesser Included Offenses in Kansas, 15 Washburn L. Journal 40 (1976).
[6] This opinion, authored by the present writer, was joined by Mr. Chief Justice EAGEN.
[7] This opinion, authored by Mr. Justice ROBERTS, was joined by Mr. Justice O'BRIEN and Mr. Justice MANDERINO.
[8] The lead opinion in Garcia set forth the view that involuntary manslaughter must always be submitted to the jury at the defendant's request in any prosecution for criminal homicide. The opinion in Polimeni reserved this issue, because, as in Garcia, it was not presented by that case. It was there stated that involuntary manslaughter should be submitted to the jury upon request "at least where evidence is presented at . . . trial on which a verdict of that less serious offense could rationally be based." 474 Pa. at 442, 378 A.2d at 1196 (footnote omitted). This question continues to divide the Court. See generally the opinions in Commonwealth v. Thomas, 482 Pa. 292, 393 A.2d 1122 (1978).
[9] The opinion in Polimeni noted that Section 1.07(4) had not been incorporated in our Crimes Code, but did "not, however, consider this a mark of disapprobation of the Model Code formulation of the doctrine of lesser-included offenses." 474 Pa. at 438 n.6, 378 A.2d at 1193 n.6. The opinion in Garcia stated that it was "guided by" Section 1.07(4), 474 Pa. at 460, 378 A.2d at 1205. This apparently reflected the view of Mr. Justice ROBERTS, the author of the Garcia opinion, that the Model Code provision was the best available, a view previously expressed as follows:
"[M]y research has uncovered no Pennsylvania statute, rule, or case3 which propounds a standard for determining when an offense
"3 But cf. Commonwealth ex rel. Moszczynski v. Ashe, 343 Pa. 102, 106, 21 A.2d 920, 922 (1941) (quoting a legal encyclopedia, apparently with approval)."
is included within a greater offense. The best articulation of such a standard, in my view, is found in section 1.07(4) of the American Law Institute's Model Penal Code: . . . I would adopt section 1.07(4) as the law of Pennsylvania.6" Commonwealth
"6 This Court has not hesitated in the past to look for answers to questions not resolved by our law to the codifications prepared by the American Law Institute. See e.g., Gilbert v. Korvette, Inc., 457 Pa. 602, 611-12 & n.25, 327 A.2d 94, 100 & n.25 (1974), and cases cited therein; . . ."
wealth v. Moore, 463 Pa. 317, 324-25, 344 A.2d 850, 854 (1975) (Roberts, J., concurring) (additional footnotes omitted).
[10] In my judgment, both subsections (a) and (b), the latter of which is not in issue here, are in accord with Pennsylvania law. As we stated in Commonwealth v. Sparrow, supra, 471 Pa. at 503, 370 A.2d at 718-19:
"Our decisions on the doctrine of merger are not altogether harmonious. In general, however, the rule has been limited to situations where the offenses involved were in effect merely degrees of the same principal crime and the same facts proved both.. . . An obvious example [of merger] is that of an attempt to commit an offense, and the completed offense; the former merges into the latter. See also Commonwealth ex rel. Russo v. Ashe, 293 Pa. 322, 142 A. 317 [1928] (felonious assault with intent to maim and disfigure, merges into felonious assault with intent to murder); Commonwealth ex rel. Shaddock v. Ashe, 340 Pa. 286, 17 A.2d 190 (1941) (assault and battery with intent to commit rape and aggravated assault and battery merge into rape); Commonwealth v. Nelson, 452 Pa. 275, 305 A.2d 369 (1973) (assault and battery in resisting arrest merges into assault and battery). These cases bear out the formulation of the doctrine in Russo, supra, that `where the distinct crimes set forth [in an indictment] grow out of the same transaction, differing only in degree, only one penalty can be imposed after conviction.' 293 Pa. at 324, 142 A. at 318."
See also, e.g., Commonwealth v. Comber, supra; Commonwealth v. McCusker, 363 Pa. 450, 70 A.2d 273 (1950); Commonwealth ex rel. Moszczynski v. Ashe, supra.
[11] 474 Pa. at 456, 378 A.2d at 1207-08.
[12] Appellants, more candidly, make no argument that the evidence was insufficient to establish presence of scienter beyond a reasonable doubt. A brief review of the evidence in each of these three prosecutions may aid the reader in determining whether the presence of evidence which, if believed, would establish scienter in these cases was "accidental".
The appellant at No. 428, James Carter, was arrested along with a co-defendant inside the sub-cellar of a vacant building in the City of Philadelphia on January 24, 1974. In statements to the police, both Carter and his co-defendant admitted that they entered the building for the purpose of stealing pipes, and the owner of the property testified that neither defendant had permission to enter the building, and that the premises were not, as the defense contended, abandoned.
Charles Bozarth, appellant at No. 501, also was convicted after a non-jury trial of criminal trespass and conspiracy. The evidence at Bozarth's trial established that on the early morning hours of May 19, 1974, Bozarth and a co-defendant, one Michael Myers, entered the locked apartment of one Thomas Quinlan while Quinlan was asleep on the couch. Quinlan awoke, reached for a gun which he kept nearby, and demanded that the intruders, whom he recognized, leave. They refused and Bozarth approached Quinlan with what appeared to Quinlan to be a knife. Quinlan shot Bozarth once in the chest, whereupon the intruders ran from the apartment.
The evidence at the trial of Robert Dulaney (appellant at No. 522) which was also without a jury, established that he was observed by a police officer inside a bar in the City of Philadelphia at approximately 4:10 A.M. on September 19, 1974, well after closing time. The officer observed the appellant climb through an opening in the ceiling of the bar. The officer pursued Dulaney and subsequently arrested him on the roof of a nearby building which was connected with that of the bar.
[13] Section 302(c) of the Crimes Code, 18 Pa.C.S. § 302(c), provides that "[w]hen the culpability sufficient to establish a material element of an offense is not prescribed by law, such element is established if a person acts intentionally, knowingly or recklessly with respect thereto." Thus entry into a building by, for example, one who has been hypnotized cannot be said to constitute burglary, since the actor cannot be said to be "knowingly" entering the building any more than he can be said to be "knowing that he is not licensed or privileged to do so" under the criminal trespass statute. See also Section 301(a) of the Crimes Code, 18 Pa.C.S. § 301(a), which provides that "[a] person is not guilty of an offense unless his liability is based on conduct which includes a voluntary act or the omission to perform an act of which he is physically capable." It may be objected that one could be found guilty of burglary, but not criminal trespass, upon proof of "recklessly" entering a building, but this difficulty is more apparent than real. See 18 Pa.C.S. §§ 302(b)(2), 302(b)(3); Day v. State, 532 S.W.2d 302, 305 n. 1 (Tex.Crim.App. 1975).
[14] Voluntary manslaughter, of course, has long been considered a lesser included offense of murder. As a definitional matter, it requires a showing by the Commonwealth of the presence of "a sudden and intense passion resulting from serious provocation," 18 Pa.C.S. § 2503(a), elements which simply are not present in murder. Similarly, one may search the murder statute in vain for mention of the "unlawful act" or "lawful act," the doing of which is integral to involuntary manslaughter. Compare 18 Pa.C.S. § 2502 with 18 Pa.C.S. § 2504. Since the Commonwealth must show these facts in order to obtain a manslaughter conviction, but need not in order to prove murder, quaere how manslaughter of either variety can be said to be a lesser included offense of murder under the majority's rationale.
[15] Commonwealth ex rel. Moszczynski v. Ashe, supra, 343 Pa. at 104, 21 A.2d at 921 (emphasis deleted).
[16] I would add that I see no inconsistency between an argument based on Section 1.07(4)(c) and my view expressed in Commonwealth v. Thomas, supra, that the Garcia rationale is defective. This is because my disagreement with the Garcia rationale was based on that opinion's view that evidence in a murder prosecution could always be taken by a rational trier of fact to prove nothing more than involuntary manslaughter, an argument that I find quite unpersuasive. See 482 Pa. at 323-325, 393 A.2d at 1127-1128. Two propositions seem to me to be established by the Polimeni and Garcia opinions: (1) that the same evidence may be interpreted by the fact-finder to establish two somewhat different mental states, and (2) that the difference in these mental states is not thought to be controlling for purposes of determining whether involuntary manslaughter is a lesser included offense of murder. If this be so, then the differing mental states accompanying entry of a building in burglary and criminal trespass (viz., volitional entry as opposed to knowledge of the lack of license or privilege in that entry) should not be controlling, either.
[17] See Comments, Joint State Government Commission of the General Assembly, to Crimes Code §§ 3502, 3503 (1967), reprinted in Toll, Pennsylvania Crimes Code Annotated, at 396, 404 (1974). Compare 18 Pa.C.S. § 3502 with Model Penal Code § 221.1 (Proposed Official Draft, 1962), and 18 Pa.C.S. § 3503 with Model Penal Code § 221.2 (Proposed Official Draft, 1962).
[18] See Toll, supra note 17, at 400, 405.
[19] It should be noted that the legislature's modifications of the criminal trespass provisions of the Model Code, see note 17, supra, lend no aid to the majority's theory. If it were otherwise, then the Model Code's guidelines for the determination of lesser included offenses would have no place in the area of criminal homicide, where the legislature did not adopt other significant parts of the Model Code's formulation. See generally Toll, supra note 17, at 308-17; Model Penal Code §§ 210.2-210.5 (Proposed Official Draft, 1962).
[20] Since I believe that criminal trespass is a lesser included offense of burglary, I necessarily reject the majority's argument that the convictions here deprived appellants of due process because they were not informed of this charge in the indictments. It might be mentioned in passing, moreover, that each of the indictments in these cases charged that the defendant "feloniously did enter" a certain building. It thus may be arguable that although they did not spell out scienter, these indictments nonetheless provided appellants with fair notice that they were being charged with something more than mere entry. Cf. Commonwealth v. Pope, 455 Pa. 384, 391, 317 A.2d 889 (1974). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541257/ | 700 A.2d 1203 (1997)
Glenn JACKSON, Petitioner Below-Appellant,
v.
MULTI-PURPOSE CRIMINAL JUSTICE FACILITY, and Laurie Sullivan, Records Supervisor, Respondents Below-Appellees.
No. 379, 1996.
Supreme Court of Delaware.
Submitted: August 19, 1997.
Decided: October 3, 1997.
Glenn Jackson, Wilmington, pro se.
Mary Page Bailey, Deputy Attorney General, Wilmington, for appellees.
Bernard J. O'Donnell, Assistant Public Defender, Wilmington, court-appointed amicus curiae.
Before VEASEY, C.J., WALSH and HARTNETT, JJ.
WALSH, Justice:
The appellant, Glenn Jackson ("Jackson"), filed this appeal from the Superior Court's denial of his petition for a writ of mandamus. The issue presented by this appeal is whether Jackson, who is serving a life sentence with the possibility of parole, is entitled to conditional release by the Department of Correction ("the Department") under 11 Del.C. § 4348 ("Section 4348"). We conclude that Jackson is not entitled to conditional release under Section 4348. Accordingly, we affirm the Superior Court's judgment.
*1204 I.
Jackson was sentenced in 1973 to two concurrent life terms in prison, with the possibility of parole, for first degree kidnaping and first degree rape. He also received additional prison terms for robbery and weapon offenses. After serving less than ten years on these charges, the Board of Parole ("the Board") granted Jackson parole in 1983, in accordance with 11 Del.C. § 4346 ("Section 4346"). In 1992, Jackson was convicted of delivering drugs, criminal trespass, and resisting arrest. His parole was deemed violated and he was returned to custody. Jackson has served his 1992 sentences[1] and currently is incarcerated at the Multi-Purpose Criminal Justice Facility on his 1973 sentences. In 1995, Jackson applied for parole, which the Board denied. Jackson's next parole hearing date is scheduled for December 1997.
After his parole was denied in 1995, Jackson filed a petition for a writ of mandamus in the Superior Court, asserting that the Department was required to set a conditional, or "short-term," release date for him pursuant to Section 4348.[2] The Superior Court denied Jackson's application. This appeal ensued.
II.
In his opening brief on appeal, Jackson contends that he is parole-eligible under Section 4346[3] and that conditional release is a form of parole. Jackson points out that, for purposes of determining his parole eligibility, the Board must treat his life sentence as a fixed term of 45 years. See 11 Del.C. § 4346(c). Jackson argues that the Department also is obliged to treat his life sentence as a fixed term of 45 years in order to calculate a conditional release date for him. Without a conditional release date, Jackson contends that he is excluded from most rehabilitative programs, including work release. Jackson asserts that, even if the Board denies him parole under Section 4346, he still is entitled to conditional release by the Department under Section 4348.
The State, on the other hand, contends that Jackson is not entitled to a writ of mandamus because he has not established that he has a clear legal right to a conditional release date. The State argues that the statutory parole scheme applicable to Jackson is unambiguous. It provides that an inmate in Jackson's position is entitled only to have the Department set a parole eligibility date not a conditional release date. The State asserts that the parole and conditional release programs are two different programs and that, in order to be eligible for conditional release, an inmate, among other things, must be serving a fixed term of imprisonment. Because Jackson is serving a life sentence and not a fixed term, the State contends he is not eligible for conditional release.
*1205 After considering the parties' respective positions, the Court appointed Bernard J. O'Donnell, Esquire to file a brief as amicus curiae in support of Jackson's position.[4] The amicus asserts that conditional release is a form of parole and that the two forms of early release are authorized by statute, are virtually identical, and are not mutually exclusive. Moreover, it is argued, the statutes relating to parole and conditional release must be read in pari materia. The so-called parole statute, Section 4346, provides that a life sentence shall be treated as a fixed term of 45 years for purposes of calculating an inmate's parole eligibility date. Amicus agrees with Jackson's assertion that the 45 year term applied to calculate parole eligibility under Section 4346 also should be applied to calculate a conditional release date under Section 4348. Amicus concludes that under the existing statutory scheme, even if an inmate is denied parole under Section 4346, the inmate, nevertheless, is entitled to conditional release under Section 4348.
III.
In reviewing Jackson's petition for a writ of mandamus, the Superior Court concluded that Section 4348 is ambiguous. Specifically, the Superior Court determined that the phrase "shall, upon release, be deemed as released on parole" to be susceptible to different interpretations. The Superior Court further found that it was unclear, in any event, how Section 4348 "applies to Jackson, an inmate sentenced to life imprisonment." The trial court analyzed the legislative intent behind Section 4348 and concluded that the legislature intended for Section 4348 to be a "conditional release statute" and not a "parole statute." The court further concluded that Jackson was not eligible for conditional release. Thus, it denied Jackson's petition.
A.
In addressing a question of statutory interpretation, our review is de novo to determine whether the Superior Court erred as a matter of law in formulating or applying legal precepts. Zimmerman v. State, Del. Supr., 628 A.2d 62, 66 (1993). Principles of statutory construction require that undefined words in a statute be given their common, ordinary meaning. Id. at 68; Oceanport Indus., Inc. v. Wilmington Stevedores, Inc., Del.Supr., 636 A.2d 892, 900 (1994). A statute is ambiguous only if it "is reasonably susceptible of different conclusions or interpretations." Coastal Barge Corp. v. Coastal Zone Indus. Control Bd., Del.Supr., 492 A.2d 1242, 1246 (1985). A statute also may be found to be ambiguous if a literal interpretation of the words of the statute would lead to unreasonable or absurd results that could not have been intended by the legislature. Di-Stefano v. Watson, Del.Supr., 566 A.2d 1, 4 (1989). Only if a statute is found to be ambiguous may a court then attempt to resolve the ambiguity by reconciling the statutory language with the legislative intent. Id. If there is no reasonable doubt as to the meaning of the words used, the statute is unambiguous, and the Court's role is limited to an application of the literal meaning of the words. Zimmerman v. State, 628 A.2d at 68; State v. Skinner, Del.Supr., 632 A.2d 82, 85 (1993).
In this case, we disagree with the Superior Court's conclusion that Section 4348 is ambiguous and thus subject to interpretation. Instead we find that the plain language of the statute compels the conclusion that Section 4348 does not apply to any inmate serving a life sentence, including those like Jackson who were sentenced to life with the possibility of parole. Consequently, we affirm the result reached by the Superior Court in this case, however, we do so on alternative grounds.
B.
Section 4346, entitled Eligibility for Parole,[5] essentially provides that an inmate becomes *1206 eligible to apply for parole after serving one-third of the sentence imposed by the court, such sentence to be reduced by good behavior and merit credits.[6]Stirparo v. State, Del.Supr., 310 A.2d 632 (1973). Release of an inmate on parole under Section 4346 is clearly a matter within the sound discretion of the Board and may be denied if the Board, in its discretion, determines that release of an inmate on parole would not be in the "best interest of society."[7] 11 Del.C. § 4347(c).
Unlike parole, conditional release[8] is non-discretionary. Thus, if an inmate has accumulated sufficient good behavior and merit credits, then the Department must release the inmate from incarceration when the inmate reaches his short-term release date (i.e. the maximum period of incarceration less accumulated good behavior and merit credits). Conditional release simply does not require any judgment by the Board or the Department that the inmate's release would be in the best interest of society. In that sense, conditional release, unlike parole, operates almost automatically (unless waived by the inmate) and is mandatory.
Despite their obvious differences, however, parole and conditional release do share certain similarities. Both forms of early release permit the diminution of an inmate's time of confinement through earned merit and good behavior credits. See Richmond v. State, Del.Supr., 446 A.2d 1091, 1094 (1982). Furthermore, this Court previously has recognized that once an inmate achieves early release from incarceration, there is little practical difference between the consequences of release on parole under Section 4346 and conditional release under Section 4348. Id. Both the parolee under Section 4346 and the conditional release under Section 4348 remain within the jurisdiction of the Department and subject to the supervision of the Board until the inmate has either served the remaining time on his sentence or is earlier discharged. 11 Del.C. § 4347(i). Accordingly, an inmate's continued release under either program is conditioned upon the inmate's compliance with all of the conditions of supervision associated with his early release from confinement. See Spurlin v. Department of Corrections, Del.Supr., 230 A.2d 276, 277-78 (1967).
In light of the similarities between parole supervision and conditional release supervision, Jackson's characterization of conditional release as "a form of parole" is, to a point, correct. Once release is achieved, the distinctions between parole and conditional release are minimal because both types of releases are treated as being on parole and are subject to the Board's supervision. See Richmond, 446 A.2d at 1094. Therefore, unlike the Superior Court, we find no ambiguity in the phrase "shall, upon release, be deemed as released on parole." 11 Del.C. § 4348 (emphasis added). The phrase simply describes how an inmate will be supervised once released under Section 4348.
Even though we agree with Jackson that conditional release is "a form of parole," that characterization, contrary to Jackson's assertion, does not necessarily mean that Jackson is entitled to conditional release simply because he is eligible for parole. Instead, Jackson's entitlement to conditional release can be determined only by looking at the language of Section 4348. Section 4348 applies to any inmate who has served "that person's term or terms in incarceration." We thus confront the controlling issue *1207 whether a "term" means a fixed term of imprisonment or any sentence, including a life sentence.
Statutes must be "`construed according to the common and approved usage of the English language.'" State v. Demby, Del.Supr., 672 A.2d 59, 61 (1996) (quoting 1 Del.C. § 303). Webster's Dictionary defines "term" as "a limited or definite extent of time." Webster's Third New Int'l Dictionary 2358 (1986). Similarly, Black's Law Dictionary defines "term" as "a fixed or definite period of time." Black's Law Dictionary 622 (pocket ed. 1996). Accordingly, we find from a plain reading of the statute that Section 4348 applies only to those inmates serving a fixed term of imprisonment. Cf. Watson v. Burgan, Del.Supr., 610 A.2d 1364, 1367-68 (1992) (finding that the use of the word "term" in Section 4348 conveyed a "measuring concept").
Moreover, contrary to Jackson's contention, we do not find that Section 4348 incorporates Section 4346(c)'s definition of a life sentence as a fixed term of 45 years. Both Sections were enacted by the General Assembly in 1964, and, in relevant part, have remained virtually unchanged since that time. See 54 Del.Laws c. 349. If the General Assembly had intended to permit those inmates serving life sentences with the possibility of parole to be eligible for conditional release under Section 4348, presumably it would have stated so expressly, as it did in Section 4346. See State v. Skinner, 632 A.2d at 86. The absence of a corresponding provision in Section 4348 evidences a deliberate decision by the General Assembly to exclude those serving life sentences from qualifying for early release under Section 4348. This Court may not engraft upon Section 4348 "language which has been clearly excluded therefrom." Giuricich v. Emtrol Corp., Del. Supr., 449 A.2d 232, 238 (1982). The section is a valid legislative act and its plain language must be adhered to by this Court.
Finally, we find that excluding Jackson from the provisions of Section 4348 would not lead to an absurd or unreasonable result. DiStefano v. Watson, 566 A.2d at 4. As previously stated, an inmate's release on parole is a matter within the sound discretion of the Board, whereas conditional release does not require any judgment by the Board or the Department that the inmate's release would be in society's best interest. We do not find it absurd for the legislature to have precluded inmates sentenced to life in prison, even with the possibility of parole, from obtaining early release through the mandatory, nondiscretionary operation of Section 4348.
IV.
We conclude that Section 4348 is unambiguous on its face. It therefore was unnecessary for the Superior Court to reach the issue of legislative intent. Chrysler Corp. v. State, Del.Supr., 457 A.2d 345, 348 (1983). Instead, "[t]he Superior Court's task was to apply the literal meaning of the words in the statute to the facts which were before it." DiStefano v. Watson, Del.Supr., 566 A.2d 1, 4 (1989). The literal meaning of Section 4348, which applies to inmates serving a fixed term of imprisonment, precludes its application to Jackson, an inmate sentenced to life imprisonment.
Accordingly, the judgment of the Superior Court denying Jackson's petition for a writ of mandamus is hereby AFFIRMED.
NOTES
[1] Jackson was sentenced in 1992 pursuant to the Truth in Sentencing Act of 1989 ("TIS"). See 67 Del.Laws c. 130. Pursuant to that Act, any sentence imposed under TIS is required to be served before a non-TIS sentence. 11 Del.C. § 4216(a).
[2] Section 4348, entitled Release Upon Merit and Good Behavior Credits, provides:
A person having served that person's term or terms in incarceration, less such merit and good behavior credits as have been earned, shall, upon release, be deemed as released on parole until the expiration of the maximum term or terms for which the person is sentenced. A person may waive the right to conditional release, in which case the person shall serve the remainder of the term or terms in prison. Such waiver shall be in writing. Only persons who have been committed for 1 year or more shall be deemed to be released on parole, provided, the Department by general rule may lower said period of time.
11 Del.C. § 4348.
[3] Section 4346 provides in relevant part:
(a) A person confined to any correctional facility administered by the Department may be released on parole by the Board if the person has served 1/3 of the term imposed by the court, such term to be reduced by such merit and good behavior credits as have been earned, or 120 days, whichever is greater. For the purpose of this subchapter, "court" shall include any court committing an offender to the Department
...
(c) The Board shall have authority to act where the maximum term has been commuted by the Governor. For all purposes of this section, a person sentenced to imprisonment for life shall be considered as having been sentenced to a fixed term of 45 years.
11 Del.C. § 4346(a), (c).
[4] The Court gratefully acknowledges the pro bono participation of Mr. O'Donnell as amicus curiae in this case. His service is in the highest tradition of the Delaware bar.
[5] "Parole" is defined as "the release by the Parole Board of an offender from incarceration to the community prior to the expiration of the offender's term, subject to the supervision and guidance of the Department." 11 Del.C. § 4302(11).
[6] Pursuant to the Truth in Sentencing Act of 1989, 67 Del.Laws. c. 130, a sentence to level V incarceration for any crime committed after June 29, 1990 is no longer subject to the parole provisions of Section 4346. See 11 Del.C. §§ 4205(j), 4354.
[7] Section 4347(c) provides, in part:
A parole may be granted when in the opinion of the Board there is reasonable probability that the person can be released without detriment to the community or to person, and where, in the Board's opinion, parole supervision would be in the best interest of society and an aid to rehabilitation of the offender as a law-abiding citizen.
11 Del.C. § 4347(c).
[8] "Conditional release" is defined as "the release of an offender from incarceration to the community by reason of diminution of the period of confinement through merit and good behavior credits." 11 Del.C. § 4302(5). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541266/ | 700 A.2d 760 (1997)
UNITED STATES, Appellant,
v.
Rodney BROWN, Appellee.
No. 96-CO-1247.
District of Columbia Court of Appeals.
Argued March 31, 1997.
Decided September 4, 1997.
*761 Gregg A. Maisel, Assistant United States Attorney, with whom Eric H. Holder, Jr., United States Attorney at the time the brief was filed, and John R. Fisher and Alan M. Boyd, Assistant United States Attorneys, were on the brief, for appellant.
Cynthia Katkish, appointed by the court, Washington, DC, for appellee.
Before FERREN and SCHWELB, Associate Judges, and MACK, Senior Judge.
FERREN, Associate Judge:
The United States appeals from the trial court's decision to suppress showup identifications of Rodney Brown by two police officers.[1] The government argues that the trial court applied the wrong legal standard, improperly determining whether the officers' identification testimony was sufficient, standing alone, to sustain a conviction, rather than deciding whether the identifications were constitutionally admissible under the traditional two-part test that focuses on "undue suggestivity" and "reliability." We agree with the government, reverse the suppression order, and remand for further proceedings.
I.
Officers King Watts and Tommy Miller of the Metropolitan Police Department were stationed at an observation post overlooking the area behind the 800 block of Chesapeake St., S.E. After watching a group of individuals for approximately an hour, they saw the tallest member of the group whom the officers later identified as appellant Rodney Brown reach into the trunk of an Oldsmobile, remove an object, and place that object into the waist of his pants in a motion that both officers described as "consistent with someone placing a firearm in their waistband." According to both officers, this individual was wearing a black leather jacket, a sweatshirt with a hood, and a baseball cap. While neither officer conclusively could identify the object as a gun, Officer Miller noted that the man held the object "as if he was holding the handle of a weapon, with a dark colored object protruding from his hand."
The same man got into another car with the rest of the group and sat in the rear seat behind the driver. The officers issued a lookout for the car, declaring that the tallest individual possessed a suspected firearm. This resulted in a high-speed chase through the District, Maryland, and Virginia. A car from the Bureau of Alcohol, Tobacco, and Firearms joined the chase, and one of the officers in that car saw someone in the pursued vehicle toss a gun out of the right, passenger side; other officers recovered the weapon from the street in the area where it had been seen tossed from the vehicle. The car eventually was stopped, and Brown was removed from the left, rear seat and taken to the police station. Shortly thereafter, in the cellblock, Officers Miller and Watts identified Brown as the tallest individual of the group, the one who had placed the suspected firearm in his waistband before the car sped off.
The trial court granted Brown's motion to suppress the identification testimony of the officers, for reasons we will elaborate below.
II.
A.
To prevail on a motion to suppress a pretrial identification, a defendant must satisfy the oft-repeated, two-part test for such due process claims. First, the defendant must establish that the "`identification procedure was so impermissibly suggestive as to give rise to a very substantial likelihood of misidentification.'" Turner v. United States, 622 A.2d 667, 672 n. 4 (D.C.1993) (quoting Neil v. Biggers, 409 U.S. 188, 198-99, 93 S. Ct. 375, 381, 34 L. Ed. 2d 401 (1972)). Second, if the procedure is found impermissibly suggestive, the government may defeat the motion and save the identification by carrying the burden of producing evidence to show that, under all the circumstances, the identification was reliable nonetheless. See id.
*762 While noting that a two-part test governs the due process identification analysis, the trial court made no finding that the circumstances surrounding the identification were so impermissibly suggestive as to create a very substantial likelihood of misidentification. Instead, the court observed:
[S]ingle defendant show-up identifications, as the Court of Appeals has said, are inherently suggestive. They inherently draw you to the appropriate individual. So it's not a big argument about whether or not this is a suggestive situation.
The court then shifted to the second part of the test and suppressed the identifications for insufficient reliability. The trial court, therefore, took the approach to due process failing to find undue suggestivity but suppressing, nonetheless, for unreliability that we recently held erroneous in United States v. Hunter, 692 A.2d 1370 (D.C.1997).
More specifically, we cannot construe the court's characterization of the showup that it was "inherently suggestive" as a finding that the showup was "unnecessarily"[2] or "impermissibly"[3] or "unduly"[4] suggestive, as required for suppression under due process analysis. The trial court therefore erred in failing to make a required finding, "yes" or "no," as to "undue suggestivity," and further erred in concluding that it could suppress the identification on reliability grounds without a predicate finding of "undue suggestivity." See Hunter, 692 A.2d at 1375-77 (reversing suppression order where trial court found no undue suggestivity but suppressed for lack of sufficient reliability); Scales v. United States, 687 A.2d 927, 937 n. 15 (D.C.1996) ("No reliability determination is required unless the trial court has determined that the eyewitness identification was unduly suggestive."); Greenwood, supra note 4, 659 A.2d at 828 ("[I]f the identification procedures are not unduly suggestive, the details of those procedures are admissible and no reliability finding is necessary"). In short: if no undue suggestivity, no suppression period without regard to reliability.
To the extent that rulings on suggestivity and reliability are factual, we are bound by the trial court's findings if they are supported by the evidence and accord with the law. See Stewart v. United States, 490 A.2d 619, 623 (D.C.1985). On the other hand, because suggestivity and reliability ultimately determine the issue of admissibility a question of law they are both better characterized as mixed questions of fact and law. Cf. Funchess v. United States, 677 A.2d 1019, 1020 (D.C.1996) (holding that probable cause determination presents a mixed question of law and fact). Here, of course, the trial court failed to make an essential finding on suggestivity. Although theoretically the trial court, not this court, should find the subsidiary facts that inform that ultimate determination, we are satisfied that, taking all the identification evidence in the light most favorable to Brown, there can be only one result: no undue suggestivity as a matter of law. In the interests of judicial economy and fairness to the parties, we see no sound reason to prolong the proceeding by remanding for further fact-finding. We, therefore, address the suggestivity inquiry in the required detail, just as we would if the court found the identifications were unduly suggestive.
B.
After reviewing the testimony at the pretrial hearing, we conclude that Brown has shown no facts that would make the officers' identifications so unduly suggestive that a reliability inquiry would be required. The trial court did note some discrepancies in the officers' respective testimonies about the circumstances surrounding the identifications. Specifically, the officers gave conflicting answers to whether any of the other suspects from the automobile were in the cellblock area when the officers identified Brown. The officers also disagreed as to whether Brown was in a cell or in the adjacent processing area when the cellblock identifications *763 took place. These discrepancies, however, do not preclude us from resolving the undue suggestivity issue, for, under any view of the facts, the identifications cannot be suppressed on due process grounds.
We have noted that a "degree of suggestibility is inevitable" in showup identifications, but we also have emphasized that "special elements of unfairness" must exist to justify suppression of a showup identification under due process analysis. Singletary v. United States, supra note 3, 383 A.2d at 1068; accord Hunter, 692 A.2d at 1375; Turner, 622 A.2d at 672. In Turner, we concluded that police custody, as such, at the scene of the crime soon after the incident was not unduly suggestive even though the suspect was handcuffed. See Turner, 622 A.2d at 672. Although Brown's showup identifications occurred at the police station rather than at the crime scene, and took place approximately an hour after the officers had observed Brown, these facts do not alter the analysis, especially since the identifications had to be delayed and moved because of the suspects' conduct in fleeing the scene and leading the police on a chase throughout the entire metropolitan area. See Holt v. United States, 675 A.2d 474, 482-83 (D.C.) (finding no undue suggestivity where officer shot suspect and then identified suspect in hospital where suspect had sought treatment after fleeing officer), cert. denied, ___ U.S. ___, 117 S. Ct. 176, 136 L. Ed. 2d 117 (1996); Garris v. United States, 559 A.2d 323, 327 (D.C.1989) (finding no undue suggestivity from showup where suspect in handcuffs was identified at scene of crime twenty-four hours later). The possibility that the officers identified Brown in one another's presence also does not raise concerns of undue suggestivity. See Hunter, 692 A.2d at 1375 n. 4; Harvey v. United States, 395 A.2d 92, 96 n. 9 (D.C.1978), cert. denied, 441 U.S. 936, 99 S. Ct. 2061, 60 L. Ed. 2d 665 (1979) (no concern of undue suggestivity when three witnesses identified defendant in each others presence after encountering defendant emerging from courthouse elevator). Finally, because police officers made the identifications, their observations of a suspect in custody at the police station, even in a holding cell, would be less vulnerable to a claim of suggestivity than identifications by lay witnesses would be in similar circumstances, since police witnesses probably would be less likely than laypersons to infer suggested guilt simply from a showup on police premises.
In short, Brown has not established the kind of coercion or intolerable suggestivity that would satisfy the first part of the due process inquiry and lead the court to assess reliability. Cf. United States v. Walton, 411 A.2d 333, 336-39 (D.C.1979) (affirming trial court's suppression of identification testimony where officers told witness after his failure to identify anyone previously that he was primary suspect, asked witness to take polygraph examination, and witness provided positive identification of defendant literally on way to polygraph test).
Our due process analysis accordingly ends here. See Hunter, 692 A.2d at 1376 (noting that when "a showup identification procedure has no special elements of unfairness beyond the suggestivity inherent in any showup, the procedure does not offend due process, regardless of the court's views concerning the reliability of the identification" (internal quotation marks omitted)). Due process, therefore, will not preclude admission of the identifications at issue.[5]
III.
As in Hunter, we also must reject Brown's invitation, in the alternative, to affirm the trial court's suppression ruling on evidentiary grounds. First, the identification testimony was clearly relevant. Second, the trial court did not rule that the identifications *764 were so inherently unreliable that they lacked probative value. While we have suggested, in dictum, that a trial court could conclude that a constitutionally admissible identification was, nonetheless, not admissible on standard evidentiary grounds, see Beatty, supra note 5, 544 A.2d at 703 n. 6 (D.C.1988), it would take an exceptional case to take such eyewitness testimony about the circumstances of a criminal offense away from the jury. See Hunter, 692 A.2d at 1376-77. Brown's arguments concerning lighting conditions, the officers' inability to identify the object in Brown's waistband as a gun, the officers' inability to make an identification based on facial features, and the similarities of physique and clothing of all the individuals in the car, go to the weight of the evidence, not to its admissibility. See id.
Our unwillingness to sustain the suppression here, therefore, simply allows the jury, the primary fact-finder, to assess reliability at trial without affecting the trial court's responsibility, in the end, to grant a motion for judgment of acquittal if no reasonable and impartial trier of fact could have found guilt beyond a reasonable doubt based on the identification and other evidence. See, e.g., Beatty supra; Crawley v. United States, 320 A.2d 309 (D.C.1974).
* * * * * *
The trial court applied the wrong legal standard for suggestivity in assessing the constitutionality of the showup identifications; as a matter of law on this record the identifications were not unduly suggestive; and the officers' identifications are not otherwise inadmissible on evidentiary grounds. We therefore reverse for vacation of the suppression order and remand for further proceedings consistent with this opinion.
So ordered.
MACK, Senior Judge, dissenting:
It is fascinating (and somewhat disquieting) to observe how, at the same time, mesmerized deference to legal precedent can defy such precedent. We routinely speak of a "two-part inquiry" that a defendant must satisfy "in order to prevail on a motion to suppress identification." First we say, that a defendant must establish that the identification procedure was "unduly (or impermissibly) suggestive." Second, we say that a defendant cannot prevail if the "totality of the circumstances" shows "that the identification was nevertheless reliable." (Citing Manson v. Brathwaite, 432 U.S. 98, 97 S. Ct. 2243, 53 L. Ed. 2d 140 (1977), and Neil v. Biggers, 409 U.S. 188, 93 S. Ct. 375, 34 L. Ed. 2d 401 (1972)). I do not I could not question the soundness of this precedent as a general proposition, especially when applied to postconviction appeals. I write this "purported" dissent because, in the posture of the instant case, I am disturbed about the conflicting signals that we are giving trial judges with regard to a "sequential" "two-prong test," when today my colleagues broadly declare, "In short: if no undue suggestivity, no suppression period without regard to reliability." See also United States v. Hunter, 692 A.2d 1370 (D.C.1997). Therefore, under the factual pattern of the record before us, I would not reverse, but remand the case to the trial court in order that she might say the magic words, "I find that there was `undue suggestivity' in the identification procedure" (a conclusion which I read the record as supporting), before re-entering her finding of unreliability (which likewise is supported).
Let me restate the posture of this case: this is a pretrial appeal brought by the government to reverse a trial court's suppression of an accused's identification. While the government, unquestionably, has the right to appeal the trial court's suppression of evidence (see D.C.Code § 23-104(a)(1) (1996)), obviously it does not have an automatic right to reversal. Recognizing therefore that we are bound by the trial court's factual findings, see United States v. Walton, 411 A.2d 333, 336 (D.C.1979) (where, in an appeal by the government from the granting of a motion to suppress, we affirmed "although we might have arrived at other conclusions from this evidence than did the trial court"), the government urges that the court applied the wrong legal standard in suppressing the identification. Relying essentially on case law involving post-trial appeals by convicted defendants, the government argues that the trial court must have found first that the police conduct, in establishing identification, *765 was unduly suggestive before it could find (as it did) that the identification was unreliable; therefore, in failing to follow this sequence, the court, in finding unreliability, was usurping the function of a yet-to-be sworn jury in violation of constitutional due process. I have difficulty with this analysis for several reasons.
In the first place, I do not read the record as showing that the trial court did not decide the issue of suggestivity. Rather a knowledgeable trial court was parroting what appellate courts have uniformly recited (i.e., that there is inherently a degree of suggestivity in all single show-ups) before pointing out that the suggestivity here was not "fatal" a latter remark that I construe as indicating her sensitivity to the fact that, even if this suggestivity was beyond the bounds of acceptable police conduct, that did not end the inquiry because "reliability" was the "central question" or "the linchpin" in determining the admissibility of identification testimony.[1]Biggers, supra, 409 U.S. at 199, 93 S.Ct. at 382; Brathwaite, supra, 432 U.S. at 114, 97 S.Ct. at 2253. The court's comments, as well as her questions, were indicative of her assessment that Mr. Brown's identification (as the tallest man in a holding or processing area of a cellblock) was not only unduly suggestive, but likewise unreliable under the circumstances leading to that identification.[2]
Second, while we have held (in a case of first impression) that if a police procedure is not unduly suggestive, a trial court did not abuse its discretion when it delayed (at the government's request, and over the objection of a defendant), the finding of reliability until after a victim testified at trial,[3] we have encouraged trial judges, even when finding no suggestivity, to make explicit reliability findings. Greenwood, supra note 3, 659 A.2d at 828. More recently, in Williams v. United States, we had this to say:
We take this opportunity to reiterate that it is in the best interest of the government and the defense, and also conducive to the efficient administration of justice, that the trial court rule on the reliability of an identification even when it does not find that there was undue suggestivity. We strongly suggest once more that if the identification process is called into question the trial court should rule on both aspects of the inquiry as a matter of course.
Williams v. United States, 696 A.2d 1085, 1086 (D.C.1997) (emphasis added) (citing Greenwood, supra note 3, 659 A.2d at 828, and Henderson v. United States, 527 A.2d 1262, 1269 (D.C.1987)).
In the Williams case, we held (in the post-trial review of the defendant's conviction) that the record supported the trial judge's ruling that neither a photo array nor the line-up was "so impermissibly suggestive as *766 to give rise to a very substantial likelihood of irreparable misidentification." Id. Are we today telling the trial judges that in the absence of a showing of undue suggestivity, they cannot deal with the reliability inquiry unless they are prepared to find reliability (as opposed to unreliability)?
Mr. Brown has not yet gone to trial. He was afforded due process at the pre-trial stage when the government was given the opportunity to prove, that despite police activity which (in view of our differences today as to the record, may or may not have been "unduly suggestive"), was nevertheless reliable on the "totality of circumstances" facts particularly within the knowledge of the government. The government failed to meet that burden.
Nevertheless, I would remand the record to the trial judge to permit her to clear up any ambiguity as to her findings on the issue of undue suggestivity.
NOTES
[1] D.C.Code § 23-104(a)(1) (1996) authorizes the government to bring this interlocutory appeal from a suppression order.
[2] Patterson v. United States, 384 A.2d 663, 665 (D.C.1978).
[3] Singletary v. United States, 383 A.2d 1064, 1068 (D.C.1978).
[4] Greenwood v. United States, 659 A.2d 825, 828 (D.C.), cert. denied, ___ U.S., ___, 116 S.Ct., 326, 133 L. Ed. 2d 227 (1995).
[5] We note in passing that the trial court's error in assessing reliability, for due process purposes, without a required finding of undue suggestivity was compounded by the court's reliance on Beatty v. United States, 544 A.2d 699 (D.C.1988). Beatty was a sufficiency of the evidence case where the court had to decide with respect to the testimony of a single eyewitness "whether a reasonable person could find the identification convincing beyond a reasonable doubt, given the surrounding circumstances." Id. at 701. That is not the test for reliability in due process identification analysis. See, e.g., Patterson, supra note 2, 384 A.2d at 666 n. 4 (citing Manson v. Brathwaite, 432 U.S. 98, 114-15, 97 S. Ct. 2243, 2253, 53 L. Ed. 2d 140 (1977)).
[1] Thus here the trial court explained:
The suggestivity is not fatal under the circumstances of this case. That's why it's a two-prong test because there must be inherent reliability after we go past suggestivity because the identification fails, and what exactly is this court supposed to look at in determining whether or not the identification fails?
The trial court, thereafter, went to the "totality of circumstances," beginning with "the opportunity to view," and the fact that appellant was charged with carrying a pistol that no one ever saw until it was thrown from a speeding automobile from the opposite side of the cramped area where appellant was seated. At this time, the court knew from government representations that the gun did not bear the fingerprints of appellant but those of another tall passenger in the car who was arrested but "no papered" along with the remaining four passengers, none of whom were photographed (as was appellant).
The trial court noted, "The issue is not so much that they can identify [appellant]. The issue is whether they can identify him as the perpetrator the guy with the gun."
[2] Indeed this court has held that even unnecessarily suggestive procedures will not support an automatic bar to in-court testimony. Such testimony is not to be suppressed if the trial court finds that under "the totality of circumstances" the identification was reliable. See Middleton v. United States, 401 A.2d 109, 133 (D.C.1979) (quotations and citations omitted). See also Brathwaite, supra, 432 U.S. at 106, 97 S.Ct. at 2249. Cf. Allen v. United States, 697 A.2d 1 (D.C.1997).
[3] The trial court observed, "If I am not required to make those determinations at the motions hearing, then I obviously retain some discretion to defer when I am going to make them and I am exercising that discretion." Greenwood v. United States, 659 A.2d 825, 828 (D.C.), cert. denied, ___ U.S. ___, 116 S. Ct. 326, 133 L. Ed. 2d 227 (1995). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1238178/ | 821 P.2d 1291 (1991)
Bernice Norskog WORDEN, Appellant (Plaintiff),
v.
VILLAGE HOMES, a partnership, J.B. Hendrix, Donald R. Carroll, William Rawlings, John A. Carroll, and the City of Sheridan, Wyoming, a Municipal Corporation, Appellees (Defendants).
No. 91-25.
Supreme Court of Wyoming.
December 3, 1991.
Micheal K. Shoumaker, argued, Sheridan, for appellant.
Stephenson D. Emery, argued, of Williams, Porter, Day & Neville, Casper, for appellee Village Homes.
Robert W. Brown, argued, of Lonabaugh and Riggs, Sheridan, for City of Sheridan.
Before URBIGKIT, C.J., THOMAS, CARDINE and GOLDEN, JJ., and RAPER, J., Retired.
CARDINE, Justice.
This was an action in which appellant, Bernice Worden, sought to recover claimed damages to her more than ten-year-old dwelling house resulting from a construction defect of appellee, Village Homes, which defect appellee, City of Sheridan Building Inspector, failed to detect and prevent. Summary judgment was entered in favor of appellees based on the statute of repose barring an action against Village Homes and on the immunity of the City.
We affirm.
Worden states the issues as:
*1292 "I. Is Wyoming Statute 1-3-111 unconstitutional?
"II. Is the City of Sheridan immune from suit for its building inspector's negligence under the Governmental Claims Act?"
In 1977, Village Homes constructed the Bernice Worden house in Sheridan, Wyoming. Construction was completed by June 14, 1977, and a warranty deed for the house was issued to the original purchasers on July 8, 1977. Worden purchased the house in September 1986. On June 4, 1988, a water pipe broke in the basement. The cause of the break, according to an engineering report issued on September 6, 1988, was that the soil on which the foundation sits was unsuitable, improperly compacted, and the foundation footings were not below the frost line.
Worden brought suit on April 3, 1990, against Village Homes for negligence and violating an implied warranty of habitability, and against the City of Sheridan for negligently inspecting the foundation. The suit asked for $20,000 in damages.
Village Homes and the City of Sheridan both moved for summary judgment. Village Homes argued that W.S. 1-3-111 barred Worden's action since it was brought more than ten years after the house was substantially completed. See W.S. 1-3-110. Wyoming Statute 1-3-111 states:
"(a) Unless the parties to the contract agree otherwise, no action to recover damages, whether in tort, contract, indemnity or otherwise, shall be brought more than ten (10) years after substantial completion of an improvement to real property, against any person constructing, altering or repairing the improvement, manufacturing or furnishing materials incorporated in the improvement, or performing or furnishing services in the design, planning, surveying, supervision, observation or management of construction, or administration of construction contracts for:
"(i) Any deficiency in the design, planning, supervision, construction, surveying, manufacturing or supplying of materials or observation or management of construction;
"(ii) Injury to any property arising out of any deficiency listed in paragraph (i) of this subsection; or
"(iii) Injury to the person or wrongful death arising out of any deficiency listed in paragraph (i) of this subsection.
"(b) Notwithstanding the provisions of subsection (a) of this section, if an injury to property or person or an injury causing wrongful death occurs during the ninth year after substantial completion of the improvement to real property, an action to recover damages for the injury or wrongful death may be brought within one (1) year after the date on which the injury occurs."
Worden responded by arguing that W.S. 1-3-111 was unconstitutional. We had found a different version of this statute unconstitutional in 1980. Phillips v. ABC Builders, Inc., 611 P.2d 821 (Wyo. 1980).
The City of Sheridan argued that it was immune because Worden's claim was not one of those for which it was liable under the Wyoming Governmental Claims Act, W.S. 1-39-101 through -120. The City maintained that none of the enumerated waivers of immunity covered Worden's claim nor did the City maintain insurance coverage which would extend liability for her claim pursuant to W.S. 1-39-118. Worden responded by contending that the Wyoming Governmental Claims Act waived immunity for her claim under W.S. 1-39-108(a), which provided liability for damages caused
"by the negligence of public employees while acting within the scope of their duties in the operation of public utilities and services, including gas, electricity, water, solid or liquid waste collection or disposal, heating and ground transportation." (emphasis added)
The trial court found that there was no issue of material fact and granted summary judgment in favor of both defendants. The court held that W.S. 1-3-111 applied to the cause of action against Village Homes and that it was constitutional. It also found the City possessed immunity *1293 from this claim under the Wyoming Governmental Claims Act.
A grant of summary judgment is proper only when there are no genuine issues of material fact and the prevailing party is entitled to judgment as a matter of law. W.R.C.P. 56(c). The facts here are not in dispute; and thus, we concern ourselves with the second prong of the test, whether Village Homes and the City of Sheridan were entitled to judgment as a matter of law. Brazelton v. Jackson Drug Co., Inc., 796 P.2d 808, 810 (Wyo. 1990).
THE CLAIM AGAINST VILLAGE HOMES
Worden contends that W.S. 1-3-111 is unconstitutional. She tells us "the core of the question is whether the classification prescribed by the statute has a rational basis." As with anyone denying the constitutionality of a statute, Worden bears the burden to demonstrate that the statute is unconstitutional beyond a reasonable doubt. Meyer v. Kendig, 641 P.2d 1235, 1238 (Wyo. 1982). When confronted with a constitutionally-based challenge to a statute, we start with a presumption of constitutionality and resolve any reasonable doubt in favor of finding the statute constitutional. Thomson v. Wyoming In-Stream Flow Committee, 651 P.2d 778, 790 (Wyo. 1982); Hoem v. State, 756 P.2d 780, 788 (Wyo. 1988) (Cardine, J., dissenting). Worden draws our attention to three sections of the Wyoming Constitution which she argues are violated by this statute. Article 1, § 8 states:
"All courts shall be open and every person for an injury done to person, reputation or property shall have justice administered without sale, denial or delay. Suits may be brought against the state in such manner and in such courts as the legislature may by law direct."
Article 1, § 34 states:
"All laws of a general nature shall have a uniform operation."
Article 3, § 27 states in pertinent part:
"The legislature shall not pass local or special laws in any of the following enumerated cases, that is to say: * * * for limitation of civil actions; * * * granting to any corporation, association or individual * * * any special or exclusive privilege, immunity or franchise whatever * * *. In all other cases where a general law can be made applicable no special law shall be enacted."
In Phillips, 611 P.2d 821, we held that W.S. 1-3-111 as it was then worded was unconstitutional because it granted immunity to a limited class of persons and because it was a special law enacted in a situation where a general law could be made applicable, in violation of Wyo. Const. Art. 1, § 8, and Art. 3, § 27. Id., at 831. The former W.S. 1-3-111 (Dec. 1977 Repl.), in effect when Phillips was decided, provided in part:
"(a) No action to recover damages, whether in tort, contract or otherwise, shall be brought more than ten (10) years after substantial completion of an improvement to real property, against any person performing or furnishing the design, planning, supervision, construction or supervision of construction of the improvement for:
"(i) Any deficiency in the design, planning, supervision, construction or observation of construction;
"(ii) Injury to any property arising out of any such deficiency; or
"(iii) Injury to the person or wrongful death arising out of any such deficiency."
We observed that a general law could be enacted instead of the above special law shielding only architects and contractors. 611 P.2d at 831. Justice Rooney, writing separately, noted that the statute would be constitutional "if it were all inclusive as the class of persons against whom actions may not be brought." Id. at 831 (Rooney, J., specially concurring).
Not long after we issued our Phillips opinion, the legislature adopted the current version of W.S. 1-3-111. 1981 Wyo. Sess. Laws ch. 166. The new version expanded the class against whom suit was barred by the statute of repose to include, in addition to those providing design and construction *1294 services, parties altering or repairing the improvements or manufacturing or furnishing materials, i.e., any party involved in an improvement to real property, excepting only from protection of the statute the person in actual control of the improvement. W.S. 1-3-112 states:
"The limitation prescribed by this act [§§ 1-3-110 through 1-3-113] shall not be asserted by way of defense by any person in actual possession or control, as owner, tenant or otherwise, of the improvement at the time any deficiency in the improvement constitutes the proximate cause of the injury or death for which it is proposed to bring an action."
In phrasing her argument, appellant claims that treating persons in control or possession of the improvement differently from others is a suspect classification. Thus, we must determine whether such a distinction is rationally related to a legitimate state objective. White v. State, 784 P.2d 1313, 1315 (Wyo. 1989). The legislature elaborated on the purpose of W.S. 1-3-111 when the statute was enacted:
"(a) The purpose of this law is to recognize that:
"(i) Subsequent to the completion of construction, persons involved in the planning, design and construction of improvements to real estate lack control over the determination of the need for, the undertaking of and the responsibility for maintenance, and lack control over other forces, uses and intervening causes which create stress, strain, wear and tear to the improvements and usually have no right or opportunity to be aware of or to evaluate the effect of these forces on a particular improvement or to take action to overcome the effect of these forces;
"(ii) It is in the public interest to set a period of time following the substantial completion of the project after which no action may be brought for errors and omissions in the design, planning, supervision, construction, surveying, manufacturing or supplying of materials or observations or management of improvements to real estate, whether or not these errors and omissions have resulted or may result in injury;
"(iii) It is in the public interest to allocate the burden of insuring against injury, property loss and wrongful death after ten (10) years to the owner or possessor of the improvement to real property, who routinely carries insurance against such risks and is in the position to do so most efficiently, upon whom already rests the duty to maintain and inspect the property, and in whom sufficient control over the property is vested to carry out that duty;
"(iv) It is not in the public interest to impose liability in perpetuity upon those providing goods or services necessary to the improvement of real property;
"(v) There does exist a reasonable basis for the protection provided to a broad class of individuals and business entities under this act, and it is the purpose of this act to provide such protection;
"(vi) This legislation is determined to be in the public interest and in the interest of equating the rights of due process between prospective litigants in the area of planning, design, surveying and construction of improvements to real property in an equitable manner." 1981 Wyo. Sess. Laws ch. 166 § 2.
These purposes reflect the legitimate state objective of protecting the economic and social stability of the state. State ex rel. Wyoming Ass'n of Consulting Engineers and Land Surveyors v. Sullivan, 798 P.2d 826, 828 (Wyo. 1990). Owners and occupiers of property and improvements thereon have a different duty of care than other parties having something to do with making a improvement upon the property. E.g., Mostert v. CBL & Assoc., 741 P.2d 1090 (Wyo. 1987). Furthermore, owners and occupiers have control over the premises and are responsible for their repair and maintenance. Sedar v. Knowlton Construction Co., 49 Ohio St.3d 193, 551 N.E.2d 938, 948 (1990). Thus, it is rational for owners and occupiers to be treated differently than those others in this situation. On this basis we find W.S. 1-3-111 not to violate either Wyo. Const.Art. 1, § 34 or Art. 3, § 27.
*1295 We also must examine this statute in light of Art. 1, § 8. The statute is a statute of repose. Richardson Assoc. v. Lincoln-DeVore, Inc., 806 P.2d 790, 801 (Wyo. 1991). We have noted the difference between statutes of limitation and statutes of repose as follows:
"Statutes of repose and statutes of limitations are often confused. They are similar in that both prescribe the time period within which a plaintiff may commence his suit. The distinguishing feature between the two is the time at which the respective periods commence. Generally, * * * if the plaintiff's cause of action accrues and the statutory period commences when the injury occurs or, as is most often the case, when the plaintiff is or should be aware that he has been injured, the statute is properly termed a statute of limitations. If the statutory period commences upon the occurrence of an event, regardless of when the injury occurs, at a time when the plaintiff may or may not be aware of any injury, the statute is properly termed a statute of repose. In the latter case the repose period commences upon the occurrence of an event, such as the negligent act * * *, but the injury caused by this act or omission may be latent and therefore not manifest itself until after the statutory period has elapsed. Consequently, the plaintiff's claim may be barred before he is or should be aware that he has been injured or has a claim." State ex rel. Wyoming Workers' Comp. Div. v. Halstead, 795 P.2d 760, 765 n. 9 (Wyo. 1990).
The triggering event to begin the repose period under W.S. 1-3-111 is "substantial completion of [an] improvement to real property." Ten years after that event no cause of action may accrue. Although Art. 1, § 8 requires courts to be open to all, it does not prohibit setting standards for and limitations upon causes of action. Meyer, 641 P.2d at 1241. We find nothing repugnant to Art. 1, § 8 in requiring that a cause of action accrue within a specified period or never at all.
Much of Worden's argument discusses policy considerations concerning her perceived unfairness of the statute and its bar. Such policy arguments are for the legislature to consider in its enactment of statutory law and generally not for us. We hold that W.S. 1-3-111 is constitutional and the trial court correctly dismissed the claim against Village Homes because it was barred under the statute.
CLAIM AGAINST THE CITY OF SHERIDAN
Worden brought her suit against the City of Sheridan pursuant to the Wyoming Governmental Claims Act. This is a close-end tort claims act. Unless a claim falls within one of the statutory exceptions to governmental immunity, the claim will be barred. Gibson v. State Through Dep't of Revenue and Taxation, 811 P.2d 726, 728 (Wyo. 1991). Worden relies upon W.S. 1-39-108 to argue that a statutory exception exists to the grant of immunity which would allow this cause of action. In Gibson, we held that this statute is clear and unambiguous.
"[W.S. 1-39-108] applies to waive immunity for governmental entities whose public employees operate public utilities and who provide gas service, electric service, and other enumerated services, including ground transportation service." 811 P.2d at 728.
A housing inspection is not one of the enumerated public utility or ground transportation service exceptions to the waiver of immunity. We find no other exception under which Worden's suit could be maintained. The trial court correctly found that Worden's suit was barred because no exception to the Wyoming Governmental Claims Act existed which would have allowed it.
Affirmed.
THOMAS, Justice, concurring specially.
I agree with the disposition of this case in accordance with the opinion of the court. However, I continue to regard Mostert v. CBL & Associates, 741 P.2d 1090 (Wyo. 1987), as a sport in an otherwise well-settled area of the law (like a streaker at the *1296 Academy Awards ceremony). I can find nothing in that opinion to support a legislative determination that there is a difference between those who have owned and occupied property for more than ten years and other owners and occupiers of property or other parties who have worked on the property. I would eliminate that citation as well as any citation to a dissenting opinion as authority. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3339296/ | To the plaintiff's claim based on a promissory note, the named defendant has asserted a defense of infancy, contending that he was born on July 22, 1927; that he executed and delivered the note on May 21, 1947, when he was under the age of twenty-one years; and that all payments on the note up to September 5, 1947, were made at a time when he was under the age of twenty-one. This action was instituted by service completed on October 20, 1948.
The plaintiff's demurrer is predicated on the fact that nowhere in the special defense is it alleged by the defendant that he disaffirmed the contract or note in suit prior to his becoming twenty-one years of age. *Page 367
The general rule appears to be that in the case of every act of an infant which is merely voidable, he must disaffirm it on coming of full age or he will be bound by it, and this must be done in a reasonable time. It has been said that while much depends upon the promptitude with which acts are performed by way of ratification or disaffirmance after attaining his majority, no period of time generally applicable in all cases has been, or in the nature of things can ever be, definitely fixed. The acts and conduct relied on for disaffirmance and the reasonableness of the time must be determined from the facts and circumstances of each particular case, for what may be a reasonable time and what a disaffirmance under some conditions may be unreasonable and insufficient under other conditions. Hobbs v.Hinton Foundry Co., 74 W. Va. 443; Merchants' Credit Bureau
v. Akiyama, 64 Utah 364; Wilcox v. Roath, 12 Conn. 550;Tyler v. Gallop Estate, 68 Mich. 185; Olson v. Veum,197 Wis. 342.
Since the question as to what is a reasonable time for an infant, after becoming of age, to disaffirm contracts made during his minority is a mixed question of law and fact to be determined from the circumstances of the case, the problem must be submitted for trial scrutiny and should not be disposed of by a summary disposition on demurrer.
Under the named defendant's general and broad plea of infancy he may show disaffirmance of the contract or note before attaining majority or within a reasonable time thereafter. I find that he is under no present duty to allege such disaffirmance as a specific incident of his special defense.
Accordingly, the plaintiff's demurrer to the special defense is overruled. | 01-03-2023 | 07-05-2016 |
https://www.courtlistener.com/api/rest/v3/opinions/1540881/ | 482 Pa. 391 (1978)
393 A.2d 1163
Mabel A. EPLER, widow of Franklin M. Epler, Deceased, Appellant,
and
Workmen's Compensation Appeal Board,
v.
NORTH AMERICAN ROCKWELL CORPORATION and Pennsylvania Manufacturers' Association Insurance Company, Appellees.
Supreme Court of Pennsylvania.
Submitted January 13, 1978.
Reargument Denied November 8, 1978.
*392 *393 Albert W. Hankin, Philadelphia, for appellant.
D. Frederick Muth, Reading, for appellees.
Before EAGEN, C.J., and O'BRIEN, ROBERTS, POMEROY, NIX, MANDERINO and LARSEN, JJ.
OPINION OF THE COURT
NIX, Justice.
This case is on appeal from the Order of the Commonwealth Court which reversed the Workmen's Compensation *394 Appeal Board's affirmance of a Referee's award of workmen's compensation benefits to Mabel A. Epler as the result of the death of her husband, Franklin M. Epler.
Decedent, Franklin M. Epler, was employed by North American Rockwell Corporation as a laborer and machine operator in its foundry. On the afternoon of May 19, 1972, decedent parked his car in a lot provided by his employer for employees who drove to work. The municipality in which employer's plant was located had banned on-street parking in the vicinity of the plant, and thereby, required the employer to provide off-street parking facilities for its employees. The employer then established a pecking order in the allocation of off-street parking facilities, allowing managerial and supervisory personnel to park at a site contiguous to the plant while relegating other classes of employees, such as Mr. Epler, to an unpaved lot located across a public street, Park Road, adjoining the employer's plant. The pecking order for the most desirable contiguous parking places was established by the issuance of parking lot permits to limit access to contiguous places to designated employees. Violation of employer's directives as to where to park would result in warnings to the employee and disciplinary action for repeated violations.
Upon the completion of his usual shift, punching in at 3:15 p.m. on May 19, 1972 and punching out at 12:18 a.m. May 20, 1972, Mr. Epler after saying goodnight to the guard at the gate of the plant, proceeded across Park Road heading toward his car where he had parked in the designated lot on the other side of the public thoroughfare. As he was crossing the road, Mr. Epler was struck and killed by one or two automobiles somewhere near the middle of the road at about 12:38 a.m. It was customary for foundry workers to wash up, take a shower, and change clothes after completion of the shift, and the decedent had apparently done this on the day of the accident since his soiled work clothes were found in a bundle in the roadway.
We are called upon to decide whether or not the decedent's death resulted from an "injury arising in the course *395 of his employment" within the meaning of subsection 301(c)(1) of the Workmen's Compensation Act.[1] The operative language of section 301(c)(1) provides:
"The terms `injury' and `personal injury,' as used in this act, shall be construed to mean an injury to an employe, regardless of his previous physical condition, arising in the course of his employment and related thereto, and such disease or infection as naturally results from the injury or is aggravated, reactivated or accelerated by the injury; and wherever death is mentioned as a cause for compensation under this act, it shall mean only death resulting from such injury and its resultant effects, and occurring within three hundred weeks after the injury. The term `injury arising in the course of his employment,' as used in this article, shall not include an injury caused by an act of a third person intended to injure the employe because of reasons personal to him, and not directed against him as an employe or because of his employment; but shall include all other injuries sustained while the employe is actually engaged in the furtherance of the business or affairs of the employer, whether upon the employer's premises or elsewhere, and shall include all injuries caused by the condition of the premises or by the operation of the employer's business or affairs thereon, sustained by the employe, who, though not so engaged, is injured upon the premises occupied by or under the control of the employer, or upon which the employer's business or affairs are being carried on, the employe's presence thereon being required by the nature of his employment."
The first question is whether the decedent was "on the employer's premises" within the intendment of the Workmen's Compensation Act. In construing the phrase "on the employer's premises", Pennsylvania courts have looked to whether the location of the accident was so connected with the defendant's business or operating premises as to form an integral part thereof. Wolsko v. American Bridge Co., 158 *396 Pa.Super. 339, 44 A.2d 873 (1945). Several Pennsylvania cases have recognized that a parking lot can be so related to the carrying on of the employer's business as to constitute an integral part of its operations that accidents occurring thereon are compensable. Vardzel v. Dravo Corporation, 402 Pa. 19, 165 A.2d 622 (1962); Ingersoll-Rand Company v. Workmen's Compensation Appeal Board, 12 Pa.Cmwlth. 502, 316 A.2d 673 (1974); Shaffer v. Somerset Community Hospital, 205 Pa.Super. 419, 211 A.2d 49 (1965); Hesselman v. Somerset Community Hospital, 203 Pa.Super. 313, 201 A.2d 302 (1964).
Furthermore, the result is not affected by the fact that the parking lot was contiguous to the property on which appellant performed his duties. The Commonwealth Court has properly held that the fact that a parking lot is separated from the employer's actual business operations or plant by a public thoroughfare is of no significance in determining whether the lot can be considered the employer's "premises" within the intendment of the Act. Ingersoll-Rand Company v. Workmen's Compensation Appeal Board, et al., supra.
Here there can be no question that the parking lot, on which claimant's vehicle was parked, was an integral part of the employer's business. In Shaffer v. Somerset Community Hospital, supra, the court observed that: "In determining the instant appeal, we may not close our eyes to the needs of present day society. The automobile has become the universal means of transportation. A hospital must of necessity have a parking lot." Although the instant case involves a manufacturing plant and not a hospital, the necessity for the establishment of the parking lot was created not for the mere convenience of the plant's employees, but so that the employer could meet the obligation imposed on it by arrangement with the municipality in which it was located to furnish off-street parking by requiring a special sticker designating the places where employees were to park. Failure to comply with that directive was subject to disciplinary action.
*397 Further, the employee is entitled to compensation even where the accident occurs after the completion of the work assignment for a given day. Under established law of this jurisdiction any injury occurring to an employee up until the time he leaves the premises of the employer, provided that it is reasonably proximate to work hours, is compensable. Pineda v. Oliver B. Cannon & Son, Inc., 172 Pa.Super. 625, 93 A.2d 902 (1953); Barton v. Federal Enameling and Stamping Co., 122 Pa.Super. 587, 186 A. 316 (1936). Pennsylvania courts have denied benefits where the time of injury was not reasonably proximate to the time of work. Sheridan v. Glen Alden Coal Co., 160 Pa.Super. 115, 50 A.2d 540 (1947) (25 minutes before work time); Young v. Hamilton Watch Co., 158 Pa.Super. 448, 45 A.2d 261 (1946) (one hour before work time). Those cases are distinguishable from the case at bar because of the temporal proximity between the time of instant claimant's injury and the time when he left the plant gate. Once it has been established, as in this case, that a parking lot is part of the employer's business premises, injuries occurring to an employee upon the lot are compensable when the employee's presence on the lot is temporally proximate to the hours of work. Ingersoll-Rand Co. v. Workmen's Compensation Appeal Board, supra. Thus it is clear that claimant would have been entitled to recovery under the facts of this case if the fatal accident had occurred while he was on the non-contiguous parking lot preparing to leave for home. Thus the final question left for resolution is whether the fact that the accident occurred upon the public road, which he was required to traverse to reach the parking lot, changes the result.
We find no justification in logic or law which would support the conclusion that compensation should be denied, under the facts of the instant case, solely because the accident occurred while the claimant was crossing a public road. Our cases have consistently recognized that the phrase "course of employment" is to receive a liberal construction. Haas v. Brotherhood of Transportation Workers, *398 158 Pa.Super. 291, 44 A.2d 776 (1945). To employ the distinction between accidents occurring on a public way and a private way. See Kasavage v. State Workmen's Insurance Fund, 109 Pa.Super. 231, 167 A.2d 473 (1933); Dougherty v. Bernstein & Son, 160 Pa.Super. 587, 52 A.2d 370 (1947); Grazer v. Consolidated Vultie Aircraft Co., 161 Pa.Super. 434, 55 A.2d 538 (1947), under the facts of this case would place undue significance upon a fact that should not here be controlling. The real question is whether the site of the accident was an integral part of employer's premises. The actual ownership of the area is not necessarily determinative of the question. We are satisfied that there are circumstances where an area can properly be designated as "on the employer's premises" within the meaning of the Act even though the employer is not the legal owner of that area.
A public roadway was deemed to be "on the employer's premises" written the meaning of the Act, supra, in Meucci v. Gallation Coal Co., 279 Pa. 184, 123 A. 766 (1924). There this Court stated:
The word "premises", as appearing in the Compensation Act, . . ., does embrace [property] used in connection with the actual place of work where the employer carries on the business in which the employee is engaged. (citations omitted)
In that decision we recognized that the critical consideration was not the employer's title to the land but the use of the area in the business operation in which the employee was engaged. In Hesselman v. Somerset Community Hospital, 203 Pa.Super. 313, 201 A.2d 302 (1964) the Superior Court held that a public alley leading to the door of the laundry of the hospital where claimant worked was "on the premises of the employer." In that case the court found that the alley was an integral part of the employer's premises even though it recognized that the general public had the right to use the area.
In Strunk v. E.D. Huffman and Sons, 144 Pa.Super. 429, 19 A.2d 539 (1941), where the decedent was struck by an automobile while crossing a public road, the injury was held *399 compensable on the ground that the nature of the employer's integrated business operations, consisting of a store, a hotel and a gasoline station which were separated by the public highway, made that location a part of employer's premises occupied by the employee while engaged in the employer's business. In Lints v. Delaware Ribbon Manufacturers, 173 Pa.Super. 540, 98 A.2d 643 (1953) the Superior Court stated: "Where an entrance or an exit is provided by the employer for his employes, or where such exit or entrance is available and intended for use, or is the usual means of ingress or egress . . . to the [employer's] place of business; . . . then such entrance or exit, whether located on property under the control of the employer or not, is part of the employer's `premises'." It therefore follows that it should not be significant that a portion of the area designated by the employer for egress or ingress is not located upon land owned by the employer.
The foregoing decisions reflect the view that the critical factor is not the employer's title to or control over the area, but rather the fact that he had caused the area to be used by his employees in performance of their assigned tasks. The basis for the compensation is that the employee was in the area where the injury was sustained directly because of his employment. Since the Workmen's Compensation Act, supra, is not premised upon the wrongdoing or negligence of the employer, but rather is bottomed upon the employment relationship, there is no necessity to require a finding of ownership or control. It is sufficient if the employee is required to be in the area because of the employment.[2]
Order of the Commonwealth Court is vacated and the decision of the Workmen's Compensation Appeal Board awarding compensation is reinstated.
*400 ROBERTS, J., did not participate in the decision of this case.
POMEROY, J., filed a concurring opinion.
POMEROY, Justice, concurring.
As I view what happened in this case, the claimant's husband met his death while crossing a public highway en route from one part of his employer's premises the factory to another part of the premises the parking lot. I agree that in this situation the decedent's death should be compensable.
I concur separately because I believe that the majority states its holding in terms more expansive than warranted by the salutary theory the opinion expounds. The majority is correct that the award of compensation for injuries upon the employer's premises, the so-called "premises rule",[1] is based on the employment relationship, not on the employer's ownership and control over the area where the injury occurred. For an injury to be compensable, however, it is neither legally nor logically "sufficient" merely that "the employee is required to be in the area because of the employment," as stated by the Court, supra at 1167. Rather, the instant case falls within a narrow exception to the "premises rule", viz. travel between two parts of the premises.
The exception to the "premises rule" recognized by the Court today is that an injury in a public street or other off-premises place between plant and parking lots is in the course of employment because it occurs on a necessary route between two portions of the premises. This position represents the majority rule of other jurisdictions, as the cases collected in the margin show.[2] The best explanation for *401 today's short extension of the "premises rule" is that the employer is responsible for creating the necessity of his employees' encountering the particular hazards of the trip between a non-contiguous parking lot and the working plant *402 itself. The extension is not intended to broaden the coverage of compensable injuries beyond those which occur while an employee is traveling between two parts of the employer's premises. See 1 A. Larson, Workmen's Compensation Law §§ 15.10-.15 (1978 and Supp. 1978).
NOTES
[1] Act of June 2, 1915, P.L. 736, as amended, 77 P.S. § 411(1) (Supp. 1978-79).
[2] We expressly reject the restrictive reasoning of the Commonwealth Court in North American Rockwell Corporation v. Workmen's Compensation Appeal Board, 21 Pa.Cmwlth. 437, 346 A.2d 379 (1975).
[1] See subsection 301(c)(1) of The Pennsylvania Workmen's Compensation Act, Act of June 2, 1915, P.L. 736, art. III, § 301(c)(1), as amended, 77 P.S. § 411(1) (Supp. 1978), reprinted in the Majority Opinion, supra at 1164-1165.
[2] Lewis v. WCAB, 15 Cal. 3d 559, 125 Cal. Rptr. 353, 542 P.2d 225 (1975) (compensable injury incurred by county employee during three-block walk from leased parking lot to work premises); State Compensation Ins. Fund v. Walter, 143 Colo. 549, 354 P.2d 591 (1960) (compensable injury occurred on public street separating parking lot from main area); Proctor-Silex Corp. v. DeBrick, 253 Md. 477, 252 A.2d 800 (Md.App. 1969) (successful claimant injured while walking on icy sidewalk adjoining employer's building en route from leased parking lot across the street); Adair v. Metropolitan Bldg. Co., 38 Mich.App. 393, 196 N.W.2d 335 (1972) (resident building superintendent compensated for injury incurred walking from employer's building along driveway owned by another company to employer's parking lot); Lewis v. Walter Scott & Co., 50 N.J.Super. 283, 141 A.2d 807 (1958) (compensable fall on public sidewalk connecting building with employees' parking lot); Gaik v. National Aniline Div., Allied Chem. & Dye Corp., 5 A.D.2d 1039, 173 N.Y.S.2d 409 (1958) (fall on sidewalk outside of plant compensable when employee was coming from employer-owned parking lot located two blocks away); Swanson v. General Paint Co., 361 P.2d 842 (Okl. 1961) (fatal accident while crossing a public highway between the work premise and a parking lot furnished by the employer's landlord was compensable; Willis v. State Acc. Ins. Fund, 3 Or.App. 565, 475 P.2d 986 (1970) (university dean awarded benefits for fall in public area between university parking lot and his office). Cf. Liberty Mutual Ins. Co. v. Bray, 136 Ga.App. 587, 222 S.E.2d 70 (1975) (claimant struck by auto while crossing public highway from place of employment to employer-provided parking lot; injury held not compensable in 5-4 decision because of claimant's willful misconduct in violating statute by jaywalking 300 feet from pedestrian crossing at traffic light). Contra, Maddox v. Heaven Hill Distilleries, Inc., 329 S.W.2d 189 (Ky. App. 1959) (no award to employee struck crossing public street to company lot; Kentucky does not consider parking lots to be "premises"); Osborn v. Industrial Comm'n., 50 Ill. 2d 150, 277 N.E.2d 833 (1972) (injury of claimant struck by auto crossing public street from factory to employer-owned parking lot held noncompensable as normal "going and coming"); Horn v. Sandhill Furniture Co., 245 N.C. 173, 95 S.E.2d 521 (1956) (compensation denied employee struck by car while crossing highway to employer-owned vacant lot where employees parked cars and ate lunch); Smith v. Camel Mfg. Co., 192 Tenn. 670, 241 S.W.2d 771 (1951) (employee fell on icy public sidewalk between employer-controlled parking lot and office building; Tennessee does not consider employer's parking lot to be "premises"); Peters v. Bristol Mfg. Corp., 94 R.I. 255, 179 A.2d 853 (1962) (no compensation for fall in public sidewalk between parking lot and work place); Dickson v. Industrial Comm'n., 261 Wis. 65, 51 N.W.2d 553 (1952) (claimant denied compensation for injury incurred while following path maintained by employer over streetcar tracks to parking lot). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540902/ | 38 Pa. Commw. 187 (1978)
City of Pittsburgh, Appellant
v.
Wilson Rue, City Tank Corp., a corporation and Equipment and Supplies, Inc., a corporation, Appellees.
Wilson Rue
v.
City Tank Corporation and Equipment and Supplies, Inc.
v.
City of Pittsburgh, Appellant.
Nos. 759 and 1201 C.D. 1977.
Commonwealth Court of Pennsylvania.
Argued May 5, 1978.
October 17, 1978.
Argued May 5, 1978, before Judges CRUMLISH, JR., WILKINSON, JR. and BLATT, sitting as a panel of three.
*188 Toni J. Bione, Assistant City Solicitor, with him Mead J. Mulvihill, Jr., City Solicitor, for appellant.
James R. Miller, with him Randall J. McConnell, Jr.; Dickie, McCamey & Chilcote; Robert G. Simasek; and Stein & Winters, for appellees.
OPINION BY JUDGE BLATT, October 17, 1978:
The City of Pittsburgh (City) has appealed from two orders of the Court of Common Pleas of Allegheny County, both of which concerned its right to subrogation pursuant to Section 319 of The Pennsylvania Workmen's Compensation Act[1] (Act), 77 P.S. § 671.[2]
Wilson Rue (Rue) was employed by the City when he sustained injuries due to an alleged malfunction *189 of a City refuse vehicle manufactured by City Tank Corporation (City Tank) and sold by Equipment and Supplies, Inc. (Equipment). Rue brought suit in the court below against City Tank and Equipment to recover damages for the injuries and the City was joined as an additional defendant. In its answer, the City notified all parties of its claim for $12,126.76 in workmen's compensation benefits paid to Rue. After negotiations, Rue entered into a settlement with City Tank and Equipment releasing them from all liability for the consideration of $15,000.00. The agreement contained the provision that liability was neither admitted nor denied by any of the parties, and further provided that City Tank would "indemnify and hold harmless Wilson Rue for any judgment the City of Pittsburgh may recover for its Workmen's Compensation lien paid to Wilson Rue for the injury of June 3, 1970." By order of court, the case was discontinued between Rue and City Tank and between Rue and Equipment, but continued as to the other parties. On May 10, 1977 the Court dismissed the case because the City was "unable to proceed to prove its claim." The City has appealed from this order.
Subsequent to the settlement agreement, the City filed an assumpsit complaint against Rue, City Tank, and Equipment for the amount of compensation paid by the City to Rue. All three defendants filed preliminary objections in the nature of a demurrer and these objections were sustained and the complaint was dismissed. The City has also appealed from the dismissal of its complaint.
We have been asked to determine the subrogation rights of an employer pursuant to Section 319 of the Act, 77 P.S. § 671, which provides, inter alia:
Where the compensable injury is caused in whole or in part by the act or omission of a third party, the employer shall be subrogated *190 to the right of the employe, his personal representative, his estate or his dependents, against such third party to the extent of the compensation payable under this article by the employer. . . .
The City argues that its complaint was improperly dismissed by the lower court because it has an unqualified statutory entitlement to subrogation to the extent of the compensation paid to Rue. We are unable to agree, however, in light of the City's failure to plead that the named defendants' acts "caused in whole or part" the compensable injury. The City's pleadings contain no mention whatsoever of this required causal relationship, and we cannot, therefore, distinguish the case of Travelers Insurance Co. v. Hartford Accident and Indemnity Co., 222 Pa. Super. 546, 294 A.2d 913 (1972). In Travelers, our Superior Court held that the existence of a "consent judgment" does not sufficiently establish negligence. See also Olin Corp. v. Workmen's Compensation Appeal Board, 14 Pa. Commw. 603, 324 A.2d 813 (1974); Broderick v. Great Lakes Casualty Co.,[3] 152 Pa. Super. 449, 33 A.2d 653 (1943). The settlement agreement here specifically did not contain any admission of liability, and the City must, therefore, prove some liability on the part of City Tank or Equipment. The City made no allegation of liability, and we must, therefore, affirm the lower court's action in dismissing its complaint.
Unfortunately, the City also failed to allege liability in its answer to the complaint to join it as a defendant in the action initiated by Rue against City Tank and Equipment. Even if it had been able to proceed to provide its claim, the question of the liability *191 of City Tank and Equipment to Rue was not before the trial court and the City could not have proved its entitlement to the amount of compensation paid. The trial court, therefore, did not err in dismissing the action.
For these reasons, we will affirm both orders of the lower court.
ORDER
AND NOW, this 17th day of October, 1978, the orders of the Court of Common Pleas of Allegheny County are hereby affirmed.
NOTES
[1] Act of June 2, 1915, P.L. 736, as amended, 77 P.S. § 1 et seq.
[2] Although we are of the opinion that we do not have jurisdiction in this case under Section 402(4) of the Appellate Court Jurisdiction Act (ACJA), Act of July 31, 1970, P.L. 673, 17 P.S. § 211.402, now Section 762(4) of the Judicial Code, 42 Pa. C.S. 762(4), on which the appellant relies, we have decided this case under Section 503 of the ACJA, now Section 704 of the Judicial Code, 42 Pa. C.S. 704, in the interest of judicial economy.
[3] Broderick interprets Section 319 of the Act which, at the time contained slightly different language. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540900/ | 393 A.2d 167 (1978)
Roger N. WOODCOCK et al.
v.
Hadley P. ATLASS et al.
Supreme Judicial Court of Maine.
November 3, 1978.
*168 Harry N. Starbranch (orally), Nancy J. Spieczny, Augusta, for plaintiffs.
John M. R. Paterson, Deputy Atty. Gen. (orally), Augusta, for defendants.
Before McKUSICK, C. J., and POMEROY, WERNICK, DELAHANTY, GODFREY and NICHOLS, JJ.
McKUSICK, Chief Justice.
The five plaintiffs,[1] all former "classified professional" employees of the Maine Department of Commerce and Industry (hereinafter "DCI"), appeal from an order of the Superior Court upholding the decision of the State Employees Appeals Board denying plaintiffs' action for reinstatement as employees of the State Development Office (hereinafter "SDO"). In June 1975, following a major statutory reorganization which abolished DCI and created SDO, plaintiffs were laid off. The letters informing them of their dismissal stated:
"We have checked in the Personnel Department and found that you do not have previous experience in any position in the Department [of Commerce and Industry] which is being transferred to another State organization where you could exercise your seniority in lieu of being placed on layoff."
Plaintiffs claim that the same legislation (P.L.1975, ch. 481) which empowered the Governor to refocus the State's development efforts in response to the then "current economic crisis" also mandated their automatic transfer to the SDO, newly created by the same 1975 statute.[2] Both the Appeals Board and the Superior Court rejected plaintiffs' interpretation of P.L.1975, ch. 481. We find no error of law in their decisions.
We deny the appeal.
Public Laws 1975, ch. 481, entitled "An Act to Reassign the Functions of the Department of Commerce and Industry," abolished DCI and transferred most of its functions to the State Planning Office and SDO. Plaintiffs base their claim for automatic reinstatement in SDO[3] on section 6 of that 1975 legislation. Section 6 provides in full:
"Transitional; employees. The classified employees of the Department of Commerce *169 and Industry whose job classifications will be maintained as classified positions in the State Planning Office or the State Development Office shall be transferred to said offices in accordance with this Act, without loss of accrued sick leave or other benefits. Classified professional employees of the Department of Commerce and Industry shall be transferred to jobs consistent with their skills and seniority, either in the State Planning Office or the State Development Office. Notwithstanding the provisions of this Act, classified professional employees so transferred shall retain their classified status unless they voluntarily relinquish it and shall be transferred without loss of accrued sick leave, vacation pay or other benefits. The provisions of this Act relating to professional employees shall apply only to professional employees hired for other positions or to professional employees hired in the future to replace any transferred classified professional employee when he leaves his position." (Emphasis added)[4]
Plaintiffs argue that the second sentence of section 6 directs that classified professional employees, such as they, "shall be transferred" to SDO regardless of whether the new department has any jobs available for which they, by seniority and skill, are qualified. Their argument, in short, is that section 6 guarantees them jobs after the abolition of DCI and the reorganization of the State's development efforts. We cannot agree. The second sentence of section 6 conditions its application on a finding that the skills of the former classified professional employees can be utilized by SDO. It provides that the plaintiffs shall be transferred to jobs "consistent with their skills and seniority." If no such positions exist, no transfer is mandated. This construction of the second sentence of section 6 is buttressed by the third sentence which states that employees "so transferred" may retain their classified status, implying that some classified professional employees may not be transferred.
Indeed, requiring automatic transfer of the plaintiffs would have thwarted the administrative framework specifically designed by the legislature to combat the State's "economic crisis." The legislature passed P.L.1975, ch. 481, which abolished DCI and transferred its functions to the Planning Office and SDO, in response to a perceived urgent need to "formulate emergency and long-range plans and policies for providing new industrial development and additional jobs to meet the needs of the people of Maine." Emergency Preamble to P.L.1975, ch. 481. Recognizing that "the attraction and expansion of industrial development can best be accomplished under the direct supervision of the Governor," ibid., the legislature placed the SDO in the Executive Department and made the new office directly responsible to the Governor. The act vested the Governor with the power to appoint the director of SDO, subject to the approval of the then Executive Council. The director was given a term coterminous with the Governor's, subject to removal for cause by the Governor. P.L.1975, ch. 481, § 3.[5]
Pursuant to this firm legislative mandate, the Governor appointed Hadley P. Atlass as acting director of SDO. Exercising his express authority under the newly enacted 5 M.R.S.A. § 7002(2)(A) to "[a]ppoint and remove the staff of the office and prescribe their duties as may be necessary to implement the purposes" of P.L.1975, ch. 481,[6]*170 Mr. Atlass notified the five plaintiffs that they would not be transferred to the new department. Mr. Atlass testified before the State Employees Appeals Board that the lay-offs reflected budgetary constraints imposed by the legislature and a change in priorities:
"[A]s the statute was written and eventually amended and eventually was passed, it became evident that, A, we could not afford to maintain the kind of Department we had in the past and, B, that certain functions were moved out of our criteria, Research is an example, was taken out of our jurisdiction and put in the State Planning Office. There was not going to be any Promotion. There was not going to be any Publicity. Therefore, that function was dissolved, including the Printing, and all that went with it. It became evident that we would be whittled down to a Department focusing very largely on Industrial Development, with a small overage on Marketing and Foreign Trade."
Three of the plaintiffs, Messrs. Woodcock, Hawkins, and Pray, had been previously involved in the activity of promotion, a function that had been discontinued in the new SDO. Plaintiff Adams had previously acted as a development representative in DCI, a function still served by SDO; but he testified that he had no reason to believe that he had more seniority than the development representatives actually transferred. Plaintiff Parr, also classified as a development representative, did not testify.
In short, the reorganization act vested unprecedented authority in the Governor, acting through the director of SDO, to direct the development efforts of the State within strict budgetary constraints. The acting director, having determined that the SDO budget was far smaller than the previous DCI budget and would support a staff of only 9, not 31 as plaintiffs contend, eliminated the promotion function and laid off employees qualified in promotion and other former employees of DCI who lacked sufficient seniority to retain development jobs. A statutory requirement of the automatic transfer of plaintiffs, regardless of budgetary constraints or the relevance of their skills to the changed priorities of SDO, would have undermined the very improvement of Maine's development efforts that the reorganization was designed to produce. In the absence of clear legislative directive to the contrary, we will not interpret the language of section 6 to support the position urged by the plaintiffs. We must presume that the legislature did not intend inconsistent or unreasonable results. State v. Larrabee, 156 Me. 115, 161 A.2d 855 (1960); Whorff v. Johnson, 143 Me. 198, 58 A.2d 553 (1948); S. D. Warren Co. v. Inhabitants of Town of Gorham, 138 Me. 294, 25 A.2d 471 (1942).
In attempted confirmation of their interpretation of section 6, plaintiffs point to the "Statement of Facts" appended to the amendment which added what became section 6 of chapter 481, in which the Joint Legislative Committee on State Government observed that the amendment "provides for maximum employee protection for those employees wishing to be transferred to this new agency." Committee Amendment "A" to L.D.1456 (1975). Plaintiffs contend that "maximum protection" means a guaranteed job for all former "classified professional" employees of DCI. We cannot agree.
The third sentence of section 6 provides that "classified professional employees so transferred shall retain their classified status unless they voluntarily relinquish it and shall be transferred without loss of accrued sick leave, vacation pay or other benefits." Coupled with the second sentence of section *171 6, which dictates transfers to positions in SDO provided that jobs consistent with their skills and seniority are available, these statutory provisions place former DCI professional classified employees in a favored position in two respects. First, if jobs commensurate with their talents are available in SDO, former DCI employees stand at the head of the employment line. If a need for their skills exists, they are favored against the ranks of other professionals who had not served previously as DCI employees. Second, once transferred to SDO, former DCI employees cannot be demoted in status, have their pay reduced, or have other employment privileges withdrawn. If they are transferred, they are guaranteed conditions of employment at least as favorable as those they previously enjoyed at DCI. The committee's observation that the amendment "provides for maximum employee protection" relates to those benefits, not to guaranteed jobs.
If the legislature had intended to guarantee employment for all classified professional employees in either the State Planning Office or SDO, it could have done so unambiguously. For example, in creating the Department of Business Regulation, the legislature provided for the mandatory retention of existing personnel in the following clear language: "All employees and officials of the departments, bureaus, commissions or boards referred to in this Act are, on the effective date of this Act, transferred to the Department of Business Regulation and shall continue in their employment or office after such effective date, without interruption of state service, unless such employment or office is terminated or abolished." P.L.1973, ch. 585, § 13.
We must conclude that section 6 of chapter 481 mandates transfer of plaintiffs to SDO only if jobs "consistent with their skills and seniority" exist in the newly created office. In denying plaintiffs' action for reinstatement, the State Employees Appeals Board expressly found that "no job classifications were maintained in the State Planning Office or the State Development Office which were consistent with the job skills presented by the grievants. . .."[7] Ample evidence supported the Board's findings of fact, and we do not understand that plaintiffs contest any of those findings on appeal.
The entry must be:
Appeal denied.
Judgment affirmed.
ARCHIBALD, J., did not sit.
NOTES
[1] In addition to Roger N. Woodcock, the plaintiffs in this action are Waldo E. Pray, Robert B. Hawkins, Randall A. Parr, and George P. Adams.
[2] The dispute between these parties has previously been before the Law Court. In July 1975 the plaintiffs sought in the Superior Court a declaratory judgment that their layoff was inconsistent with section 6 of P.L.1975, ch. 481. The Superior Court dismissed the action, and this court affirmed, on the ground that the issue was one that by statute had to be initially submitted to the State Employees Appeals Board. Woodcock v. Atlass, Me., 359 A.2d 69 (1976).
[3] Though paragraph 10 of the plaintiffs' complaint speaks in terms of a right of transfer to either the State Development Office or the State Planning Office, it named as defendants only the director of the State Development Office, Hadley P. Atlass, and the State Employees Appeals Board. The case has been tried on the basis of plaintiffs' claim of entitlement to be transferred to the State Development Office.
[4] This transitional section was later repealed by P.L.1975, ch. 777, § 15, eff. May 3, 1976.
[5] This section was amended to provide that the "director shall hold office during the pleasure of the Governor." P.L.1975, ch. 771, § 92, codified at 5 M.R.S.A. § 7002(1) (Supp.1978).
[6] P.L.1975, ch. 481 considerably expanded the SDO director's authority to hire and fire employees. Whereas the authority of the commissioner of the former DCI to employ "industrial development specialists and such other employees as may be necessary" was expressly made "subject to the Personnel Law," 10 M.R.S.A. § 402 (1964), P.L.1975, ch. 481, which repealed 10 M.R.S.A. § 402 and created the SDO, expressly provides that the positions formerly occupied by classified professional employees subject to the Personnel Law are to be filled by unclassified employees. P.L.1975, ch. 481, § 3, codified as 5 M.R.S.A. § 7002 (Supp. 1978). Thus, P.L.1975, § 481 authorized the director of SDO to make employment decisions regarding employees in positions formerly occupied by classified professional employees relatively unimpeded by externally imposed regulations and strictures. Mandatory, automatic transfer of all DCI professional employees into classified positions in the newly created SDO would run counter to the plain overall personnel objective of P.L.1975, ch. 481, and can be found only if required by clear language of section 6.
[7] The Appeals Board decision refers to the absence of "job classifications." The second sentence of section 6, in contrast, refers to the existence of "jobs." We attach no significance to the Appeals Board's choice of words. From the record it is clear that no jobs were available for which the plaintiffs' skills were required. We read the Appeals Board decision as making reference to that fact. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540899/ | 155 B.R. 856 (1993)
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Plaintiff,
v.
Craig A. BROADHEAD, Defendant.
Bankruptcy No. 92 Civ. 2508.
United States District Court, S.D. New York.
June 28, 1993.
*857 Harvey Barrison, D'Amato & Lynch, New York City, for plaintiff.
Irena M. Goldstein, LeBoeuf, Lamb, Leiby & MacRae, New York City, for defendant.
MEMORANDUM and ORDER
STANTON, District Judge.
Defendant moves for reconsideration of this court's Memorandum Endorsement and Order dated November 12, 1992 which granted summary judgment in favor of plaintiff.
BACKGROUND
In August 1983, Craig A. Broadhead purchased a limited partnership in Logan Realty Limited Partnership. He paid $8,717 in cash and executed six promissory notes (the "notes") in the total principal amount of $142,403. Broadhead and National Union Fire Insurance Company of Pittsburgh ("National Union") entered into an indemnity agreement regarding the notes (the "indemnity agreement"), and National Union issued a bond guaranteeing that Broadhead would pay the notes (the "bond"). The indemnity agreement required Broadhead to reimburse National Union for any payments it made on his behalf under the bond to cure any default by him on the notes, and for interest and expenses incurred in obtaining reimbursement. The bond provided that National Union would "be subrogated to all the Obligee's or Permitted Assignee's rights" against Broadhead. (Affidavit of Val Goldstein sworn to October 21, 1992, Ex. C ¶ 7). Paragraph ten of the indemnity agreement provided that all notices directed to National Union be sent to the following address:
National Union Fire Insurance
Company of Pittsburgh, Pa.
70 Pine Street
New York, New York 10270
Attention: Special Programs Division
(Goldstein Aff., Ex. B ¶ 10).
In February of each of 1986 and 1987, Broadhead failed to make payments due under the notes and National Union paid $53,740 on his behalf. On September 13, 1989, Broadhead filed for bankruptcy protection in the District of Utah. In that action, he included National Union as an unsecured creditor, but in listing its address he did not specify "Attention Special Programs Division" as required by the indemnity agreement. On January 2, 1990, the Utah Bankruptcy Court issued an order discharging Broadhead from his debts. National Union, which denies receiving any notice of the bankruptcy proceeding, commenced this diversity action on April 7, *858 1992 under the indemnity agreement and as subrogee of the notes.
On November 12, 1992, this court granted summary judgment in favor of National Union, finding that its claim was not discharged because it was not given adequate notice of the bankruptcy proceeding.[1] Broadhead did not submit papers in opposition to that motion. He claims now that his failure to respond was due to the excusable neglect of his Utah counsel, and that this court overlooked a controlling line of case law in regard to the dischargeability of the debt.
DISCUSSION
Broadhead moves to vacate the judgment entered pursuant to the November 12th decision. Under Rule 60(b)(1) a party may seek relief from a final judgment for "mistake, inadvertence, surprise, or excusable neglect." Fed.R.Civ.P. 60(b)(1). Three factors guide this court's discretion: (1) whether the failure to respond to the summary judgment motion was willful, (2) whether Broadhead has a meritorious claim or defense to assert, and (3) whether National Union will be prejudiced if relief is granted. See Davis v. Musler, 713 F.2d 907, 915 (2d Cir.1983).
Because it sufficiently appears that Broadhead's neglect to oppose the summary judgment motion in a timely fashion was excusable, and National Union has made no showing of prejudice, this court will follow the traditional preference of federal courts for resolving matters on their merits, and reconsider its November 12, 1992 decision. See Kotlicky v. United States Fidelity & Guaranty Co., 817 F.2d 6, 9 (2d Cir.1987) ("the policy in favor of hearing appellant's claims on the merits is preeminent").
In granting summary judgment in favor of National Union, this court relied principally on National Union Fire Insurance Co. v. Main (In re Main), 111 B.R. 535 (Bankr.W.D.Pa.1990), aff'd, No. 92-360, slip op. (W.D.Pa. September 16, 1992). In Main, the debtor listed National Union's address as 70 Pine Street, but did not specify the "Comprehensive Financial Risk Division" as required by the indemnity agreement between the parties. Concentrating on "the size of National Union and the magnitude and complexity of its operations," the bankruptcy court concluded that the notice was inadequate. Main, 111 B.R. at 539.
Statutory Requirement
In light of other case law, however, not submitted to this court on the unopposed motion for summary judgment, it appears that the notice which National Union was sent sufficiently complied with the Bankruptcy Code.
A letter properly addressed and mailed is presumed to have been delivered to the addressee. In re Horton, 149 B.R. 49, 57 (Bankr.S.D.N.Y.1992). That presumption is strengthened when, as in this case, the notice was never returned to the clerk's office. In re Longardner & Assoc., Inc., 855 F.2d 455, 460 (7th Cir.1988), cert. denied, 489 U.S. 1015, 109 S. Ct. 1130, 103 L. Ed. 2d 191 (1989). National Union has not rebutted the presumption of receipt. See Horton, 149 B.R. at 58 (general denial that creditor received notice is insufficient to rebut presumption).
National Union contends that because Broadhead did not identify the appropriate division, the address was incorrect. There is no statutory requirement, however, that one identify the specific division of a company on a bankruptcy notice. Nor is it required by due process. Once delivered, it is the responsibility of the creditor to *859 distribute the notice to the appropriate party within its organization. In re The Drexel Burnham Lambert Group Inc., 129 B.R. 22, 24 (S.D.N.Y.1991). In Drexel Burnham, the debtors sent notice to the New York and Australia offices of Barclays Bank rather than to its central loan administrative department in London. Id. at 23. The court found the notice adequate as a matter of law: "Barclays bears responsibility for having adequate systems in place to ensure that legal notices and other communication reach the appropriate parts of its business empire." Id. at 24. See also, In re R.E. Lee & Sons, Inc., 95 B.R. 316, 318 (Bankr.M.D.Pa.1989) (debt duly scheduled even though debtor did not include appropriate division of large company); In re American Properties, Inc., 30 B.R. 239, 243 (Bankr.D.Kan.1983) ("Where an addressee is a well-known public entity or business, a more general and less definite address or designation has been required.").
Contractual Requirement
Although the notice complied with due process, it did not comply with the indemnity agreement, which unambiguously required Broadhead to include in the address "Attention Special Programs Division." In vindication of its contract rights, National Union is entitled to the opportunity to demonstrate that it could have affected the outcome of the bankruptcy proceeding to its advantage if it had received the notice for which it contracted.
CONCLUSION
The judgment against Broadhead is vacated, and National Union has thirty days from the date of this Memorandum and Order to submit papers demonstrating that its claim before the bankruptcy court was non-dischargeable or otherwise entitled to more favorable treatment than it received. Broadhead has fifteen days thereafter to reply.
So ordered.
NOTES
[1] In denying a motion by Broadhead to reopen his bankruptcy case on November 6, 1992, the Utah bankruptcy court deferred to this court on the issue of whether National Union received adequate notice. The court stated:
Therefore, the two matters that the debtor is bringing before the court, the first one to have some court determine whether or not there has been sufficient notice, can be handled by the District Court there and is already pending and the concurrent jurisdiction certainly allows that court to proceed. Since (footnote cont'd) I believe the debtor has not acted promptly to bring this matter back before this Court to add a creditor, I'm going to deny the motion to reopen the bankruptcy here.
(Supplemental Affidavit of Bruce L. Dibb sworn to March 10, 1993, Ex. A at 25). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540901/ | 155 B.R. 135 (1993)
In re James H. HARRIS, Debtor.
UNITED STATES FIRE INSURANCE COMPANY, and Urban Service Systems, Inc., Plaintiffs,
v.
James H. HARRIS, Defendant.
Bankruptcy No. 88-00888-AT, Adv. Pro. No. 89-0623-AT.
United States Bankruptcy Court, E.D. Virginia, Alexandria Division.
June 14, 1993.
Bruce A. Levine, Montedonico, Hamilton & Altman, Fairfax, VA, for plaintiffs.
John K. Lally, Springfield, VA, for defendant.
*136 MEMORANDUM OPINION
DOUGLAS O. TICE, Jr., Bankruptcy Judge.
This adversary proceeding comes before the court for a determination of damages incurred by plaintiff. The court previously granted summary judgment in favor of plaintiff on their complaint to determine dischargeability of debt pursuant to 11 U.S.C. § 523(a)(4) & (a)(6), see United States Fire Insurance Company and Urban Service Systems, Inc. v. Harris (In re Harris), Case No. 88-00888-AT, APN 89-0623 (September 10, 1990), and the court's ruling has been affirmed on appeal. See United States Fire Insurance Company and Urban Service Systems, Inc. v. Harris (In re Harris), 952 F.2d 1396 (4th Cir. 1992) (unpublished opinion). The issue here is to determine the amount of damages, if any, and enter judgment accordingly. For the reasons stated from the bench and in this memorandum opinion the court finds that a judgment should be entered in favor of the plaintiff in the amount of $11,620.40.
Facts
The crux of plaintiff's complaint involved a 1985 Mack truck that had been stolen from its premises and damaged. The cost of restoring the vehicle to its previous condition was approximately $18,000.00.
Debtor received the vehicle, altered it, and converted it to his own use. Because of these actions debtor was indicted in the Circuit Court of Fairfax County, Virginia, for the felony of receiving stolen property and eventually pleaded guilty to the offense.
The damage and repair costs can be summarized as follows:
Damage Cost to Repair
(1). Front assembly (i.e., bumper, $7,000.00
grill, lights, hood, radiator,
etc.) was removed and
replaced with 1972-73 assembly.
(2). Rear hydraulic hoist removed, $11,740.00
and a different specialized
hoist was attached.
(3). Truck re-painted green. $940.00
Discussion and Conclusions of Law
The court concludes from the evidence that debtor is responsible for the damage to the rear of the truck and for restoring its original color. However, debtor has already paid plaintiff $1,060.00 to redeem his hoist that he had placed on the truck and will be credited for this payment. Therefore, the court determines the damages excepted from discharge to be $11,620.47.
The only remaining question is whether this court should grant a money judgment for the plaintiff in the same amount. I am aware that a District Court in this district has held that a bankruptcy court does not have jurisdiction to enter a monetary judgment in a § 523 proceeding. See Scialdone v. United Virginia Bank (In re Scialdone), Civ. No. 88-189-N (E.D.Va. June 9, 1988) (unpublished opinion). While the district court's ruling should be given deference, it is not necessarily controlling on this court under the stare decisis doctrine. See In re Shattuc Cable Corp., 138 B.R. 557, 567 (Bankr. N.D.Ill.1992); contra Wright v. Transamerica Financial Services, Inc. (In re Wright), 144 B.R. 943, 949 (Bankr.S.D.Ga. 1992)
Pursuant to 11 U.S.C. § 523(c), the bankruptcy court has exclusive equitable jurisdiction to determine dischargeability *137 of debts under 11 U.S.C. § 523(a)(2), (4) and (6). See 3 Lawrence P. King, Collier on Bankruptcy ¶ 523.13[9] (15th ed. 1993). Moreover, because dischargeability complaints are core proceedings, 28 U.S.C. § 157(b)(2)(I), the bankruptcy court is authorized to enter final orders and decrees in such matters. 28 U.S.C. § 157(b)(1).
It is a well-known maxim that once equitable jurisdiction has been properly invoked it will proceed to render a full and complete disposition of the controversy. Porter v. Warner Holding Co., 328 U.S. 395, 399, 66 S. Ct. 1086, 1089, 90 L. Ed. 1332 (1946); Alexander v. Hillman, 296 U.S. 222, 242, 56 S. Ct. 204, 211, 80 L. Ed. 192 (1935); Snyder v. Devitt (In re Devitt), 126 B.R. 212, 215 (Bankr.D.Md.1991). This obviously prevents duplication of effort, multiplicity of suits, and promotes judicial economy. Moreover, if it is acknowledged as beyond question that a complaint to determine dischargeability of a debt is exclusively within the equitable jurisdiction of the bankruptcy court, then it must follow that the bankruptcy court may also render a money judgment in an amount certain. N.I.S. Corporation and Ozark Life Insurance Company v. Hallahan (Matter of Hallahan), 936 F.2d 1496, 1508 (7th Cir. 1991); Siemens Components, Inc. v. Choi (In re Choi), 135 B.R. 649, 650-51 (Bankr. N.D.Cal.1991); In re Devitt, 126 B.R. at 215; Kinney v. Higher Education Assistance Foundation (Matter of Kinney), 114 B.R. 670, 671 (Bankr.D.Neb.1990);[1]but see In re Hooper, 112 B.R. 1009 (9th Cir.B.A.P. 1990); Scialdone v. United Virginia Bank (In re Scialdone), Civ. No. 88-189-N (E.D.Va. June 9, 1988) (unpublished opinion). This is true not merely because equitable jurisdiction attaches to the entire cause of action but more importantly because it is impractical and unreasonable to separate the determination of the dischargeability function from the function of fixing the amount of the nondischargeable debt. In re Devitt, 126 B.R. at 215.
Every determination by a bankruptcy court of the validity of a claim is in essence a determination of whether a creditor is entitled to monetary damages from the debtor. In re Devitt, 126 B.R. at 216 (citing In re Hallanan, 113 B.R. 975, 982 (C.D.Ill.1990)). In my opinion, the issues of the validity or existence or amount of a claim are inextricably interwoven with the issue of dischargeability and are therefore within the equitable jurisdiction of the bankruptcy court.
Since in my view an independent legal analysis of the issue rather strongly supports the view that bankruptcy courts have jurisdiction to render money judgments in dischargeability cases, I have determined not to follow the district court's ruling to the contrary in In re Scialdone. See Ellenberg v. Henry (In re Henry), 38 B.R. 24, 27-28 (Bankr.N.D.Ga.1983). Accordingly, the court will grant a money judgment in favor of plaintiff in the amount of $11,620.47.
A separate order will be entered.
NOTES
[1] There seems to be no question that bankruptcy courts had the power to enter money judgments in dischargeability suits under the former Bankruptcy Act § 17(c). See e.g., Callaway Bank v. Hickman (Matter of Hickman), 410 F. Supp. 528, 533 (W.D.Mo.1976) ("this statute clearly empowers the Bankruptcy Judge to enter money judgment"). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540964/ | 155 B.R. 193 (1993)
In re QUINCY AIR CARGO, INC. d/b/a Quincy Air Cargo, Inc. d/b/a All Freight Transportation, Debtor.
Kenneth C. MEEKER, United States Trustee, Plaintiff,
v.
John H. GERMERAAD, Dennis W. Gorman, Terrence J. Anastas, Kenneth C. Abbott, Defendants.
Bankruptcy No. 92-70747, Adv. No. 92-7221.
United States Bankruptcy Court, C.D. Illinois.
May 5, 1993.
*194 Sabrina M. Petesch, Peoria, IL, for U.S. Trustee.
Dennis W. Gorman, Jr., Terrence J. Anastas, Quincy, IL, defendants/co-counsel, for Quincy Air Cargo.
John H. Germeraad, Springfield, IL, defendant/co-counsel, for Quincy Air Cargo.
Kenneth C. Abbott, Quincy, IL, defendant/CPA, for Quincy Air Cargo.
OPINION
LARRY L. LESSEN, Chief Judge.
Before the Court is the U.S. Trustee's Motion for Summary Judgment on its Complaint to Avoid Liens. The U.S. Trustee seeks to avoid the Defendants' liens on certain vehicles, which liens were taken as security for their professional services to the Debtor.
On January 29, 1992, the Debtor and the law firm of KEEFE GORMAN & BRENNAN, by its representative Terrence J. Anastas, executed a one-page Employment Contract and Security Agreement in which Anastas agreed to undertake representation of the Debtor in exchange for attorney fees of $95 per hour. In addition, the Debtor agreed to give to Anastas a security interest in two vehicles shown on the face of the Agreement to secure payment of all sums that may become due to Anastas, to a maximum of $15,000.
On March 13, 1992, the Debtor, the law firm of KEEFE GORMAN & BRENNAN, by its representative Dennis W. Gorman, and Attorney John H. Germeraad executed a one-page Employment Contract and Security Agreement in which Gorman and Germeraad agreed to provide legal services to the Debtor in exchange for attorney fees of $110 per hour. In addition, the Debtor agreed to give to Gorman and Germeraad a security interest in five vehicles listed on the face of the Agreement to secure payment of all sums that may become due to Gorman and Germeraad.
On March 30, 1992, the Debtor filed a voluntary Chapter 11 petition in bankruptcy.
On April 14, 1992, the Debtor filed its Application to Employ Attorneys. Attached to the Application were the affidavits of Germeraad and Gorman. Also, both Gorman and Germeraad filed a Disclosure of Compensation on the same date.
The Application did not disclose the terms of the Employment Contract and Security Agreement, nor did Germeraad's affidavit. Gorman's affidavit stated that his law firm "did take a lien on certain vehicles of the debtor corporation to secure payment of fees to both Keefe, Gorman and Brennan and (Germeraad)."
On May 8, 1992, the Court entered an Order authorizing employment of attorneys.
On May 1, 1992, the Debtor filed an Application to Employ Accountant Kenneth Abbott. The Application to Employ Accountant stated that the accountant received a lien on one vehicle as security for his fees. Attached to the application was a copy of the truck title. The employment contract between Abbott and the Debtor was not attached to the application, nor was the value or limit of his security interest disclosed. However, the application *195 states that Abbott's security interest is for post-petition services only.
On June 4, 1992, the Court entered an Order authorizing employment of Abbott.
On September 17, 1992, the case was converted from Chapter 11 to Chapter 7.
Between September 28, 1992, and October 6, 1992, KEEFE GORMAN & BRENNAN, Abbott and Germeraad filed their Applications for Allowance of Fees and Expenses. On October 27, 1992, the Office of the United States Trustee filed objections to the applications.
The U.S. Trustee asserts that the bankruptcy estate will not have sufficient funds after payment of Chapter 7 administrative expenses to pay 100% of the Chapter 11 administrative expenses. Therefore, argues the U.S. Trustee, the liens of the Defendants to secure post-petition attorneys' fees and accountant's fees should be set aside. "To allow the liens to stand would give the defendants, who already enjoy a statutory priority, a super-priority over Chapter 7 administrative claimants and over other Chapter 11 administrative claimants." Complaint at p. 5.
Defendants respond by asserting that, as holders of properly perfected liens, they are secured creditors to the extent of the value of the collateral and, as such, are entitled to be paid in full from the proceeds of their collateral. The Defendants are not administrative claimants to the extent that their security is sufficient to pay their claim.
The U.S. Trustee argues that, with respect to the liens of KEEFE GORMAN & BRENNAN and Germeraad, a second ground for setting aside the liens is the failure on the part of the Defendants to fully disclose their arrangement with the Debtor. "The defendants' applications to be employed and disclosures of compensation as filed with the Court do not fully disclose the terms of their employment agreement. The one-page Employment Contract and Security Agreement on which each of these defendants rely was not included in either the application to be employed or the disclosure of compensation. There was no disclosure of the number of vehicles secured or the values of these vehicles." Complaint at pp. 5-6.
Germeraad responded to the U.S. Trustee's allegations regarding nondisclosure by stating that the arrangement between the Debtor and the attorneys was fully set forth in what was filed with the Court on April 14, 1992:
Those pleadings are the petition to employ the attorneys, the affidavits of attorney and disclosure of compensation attached thereto, and Schedules B and D of the required pleadings which set forth the vehicles, the VIN number, the estimated value and the secured claim of the attorneys to those vehicles. The claim of nondisclosure made by the United States Trustee is not valid. In essence, their only complaint is that the one page employment contract and security agreement covering five vehicles was not attached as an exhibit. However, all the information contained in that document plus additional rates of associate attorneys is set forth in the application, the affidavits, the disclosure and the Schedules.
Memorandum in Opposition to Complaint at p. 5.
In In re Martin, 817 F.2d 175 (1st Cir. 1987), the First Circuit Court of Appeals rejected the proposition that the existence of a security interest in the debtor's property per se disqualifies an attorney from representing a debtor. The court set forth the following as a nonexhaustive list of factors the bankruptcy court should consider in making its determination of whether the attorney's security interest in the estate is an interest adverse to the estate or the creditors:
1. the reasonableness of the arrangement;
2. whether it was negotiated in good faith;
3. whether the security demanded was commensurate with the predictable magnitude and value of the foreseeable services;
*196 4. whether it was a needed means of ensuring the engagement of competent counsel;
5. whether or not there are signs of overreaching;
6. the nature and extent of any conflict of interest;
7. the likelihood that a potential conflict might turn into an actual one;
8. whether or not the potential conflict may influence the attorney's subsequent decision making;
9. the appearance of the arrangement to other parties of interest;
10. whether the existence of the security interest threatens to hinder or delay the effectuation of a plan;
11. whether the security is or could be perceived as an impediment to reorganization; and
12. whether fundamental fairness might be unduly jeopardized.
Martin at 182.
The general position of other courts on the question of permissibility of taking a security interest to secure professional fees to be incurred in bankruptcy proceedings is that each situation must be evaluated on its individual facts. In re Gilmore, 127 B.R. 406, 408-409 (Bankr.M.D.Tenn.1991); In re Automend, Inc., 85 B.R. 173, 176 (Bankr. N.D.Ga.1988). Most courts agree that failure to disclose such an arrangement should be fatal, and that if a professional fails to disclose a security arrangement, "the absence of full disclosure can result in invalidation of liens, disqualification of counsel, or reduction of fees." Automend at 178.
Applying the Martin factors to the facts before it, this Court finds that the security interests of the Defendants in the Debtor's property is not a sufficiently adverse interest to merit setting aside the liens of the Defendants. Contrary to the U.S. Trustee's assertions, the Court finds that there was adequate disclosure on the part of all of the Defendants. The Court would have preferred, and may require in the future, that such security arrangements be clearly spelled out in the Application to Employ; however, the disclosure in this case was satisfactorily made among the various documents enumerated by Germeraad.
The Court finds that the security arrangement was, perhaps, the only means whereby the Debtor in this case could secure competent counsel. Furthermore, the Court sees no signs of overreaching on the part of the professionals; the fees were reasonable, the security taken by the parties was commensurate with the anticipated fees, and fundamental fairness was not unduly jeopardized.
The U.S. Trustee further asserts that even if the security arrangements between the Debtor and the Defendants are proper, the Court should order that the secured property be applied equally toward the payment of all Chapter 11 administrative claims. In support of its position, the U.S. Trustee cites In re Carter, 101 B.R. 563 (Bankr.E.D.Wis.1989), aff'd, 116 B.R. 123.
In Carter, Judge McGarity applied the factors enunciated by the First Circuit in Martin to the facts before her and concluded that the security arrangement was acceptable. The Court determined that the liens were valid, but that "to avoid any conflict with other administrative claimants, the assignment shall be available for payment of all administrative expenses, not solely the attorney for the debtor-in-possession, in accordance with the priorities of 11 U.S.C. § 507." In re Carter, supra, 101 B.R. at 566.
The Court is perplexed by the portion of the Carter opinion which requires that the assignment be made available for payment of all administrative claims. Allowed, unsecured, post-petition professional fees are administrative claims in bankruptcy. The only logical purpose for professionals to take a security interest in the debtor's property to secure their fees is to enhance the priority of their claim to a position superior to that of an administrative claim. By ordering that the secured property be made available and applied equally toward payment of all administrative expenses, Judge McGarity effectively undermines her entire holding, without explaining *197 her rationale other than to state that such is required "to avoid any conflict with other administrative claimants." In re Carter, supra, 101 B.R. at 566.
The Court does not concur in this portion of Judge McGarity's analysis. The Court views the arrangement between the Defendants and the Debtor in this case as legally identical to a cash "security retainer", which consists of a cash retainer which is held by professionals to secure payment of fees for future services that the professionals are expected to render. Such an arrangement is permissible under Illinois law, and conveys to the professional a possessory security interest in money. In re McDonald Bros. Construction, Inc., 114 B.R. 989 (Bankr.N.D.Ill.1990). Rather than accepting a possessory security interest in money, the Defendants before the Court accepted a security interest in property. The Court views this as a distinction without a difference. In either case, such "security retainers" are estate property, which can only be used by the professional upon compliance with the entire fee application process, including court approval. Id.
In the present case, the Defendants took a "security retainer" in property, rather than in cash. The Defendants, having complied with the fee application process, are entitled to be paid from the "retainer" and shall not be required to share their security with other administrative claimants. A contrary decision would have the effect of allowing, but completely emasculating, an otherwise valid lien. The Court, having found the lien valid under the Martin factors, can find no logical justification for undermining the lien.
Under Federal Rule of Civil Procedure 56, made applicable to adversary proceedings in bankruptcy by Federal Rule of Bankruptcy Procedure 7056, summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); Donald v. Polk County, 836 F.2d 376, 378-379 (7th Cir.1988). As there is no genuine issue of material fact here, this Court holds as a matter of law that the subject liens shall not be set aside. Thus, the U.S. Trustee's Motion for Summary Judgment is denied and summary judgment is granted in favor of John H. Germeraad, Dennis Gorman, Terrence J. Anastas and Kenneth C. Abbot.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540957/ | 393 A.2d 533 (1978)
Samuel J. MANDARELLI
v.
Philip M. McGOVERN.
Supreme Judicial Court of Maine.
November 9, 1978.
*534 Wilson, Steinfeld, Murrell, Barton & Lane, Thomas P. Wilson (orally), Henry Steinfeld, Portland, for plaintiff.
Norman & Hanson by David C. Norman (orally), Portland, for defendant.
Before WERNICK, ARCHIBALD, DELAHANTY and GODFREY, JJ., and DUFRESNE, A. R. J.
DUFRESNE, Active Retired Justice.[1]
Samuel J. Mandarelli, the plaintiff-appellant, was injured as a result of a rear-end collision on August 7, 1966. Sued in the Superior Court, Cumberland County, for damages in the amount of $100,000.00 by complaint filed August 3, 1972, the defendant-appellee, Philip M. McGovern, conceded liability for the accident, but contested the case on the issue of damages. Upon trial in May, 1976, the jury returned a verdict in the amount of $10,000.00. Mandarelli appeals from the judgment entered thereon. We deny the appeal.
The appellant's sole contention on appeal is that the jury award is inadequate. We note, however, that this issue of the inadequacy of the damages was not raised at the trial level, but is advanced for the first time in this appeal.
Prior to the adoption of our present rules of civil procedure, the reference issue could be presented directly to the Law Court on general motion for new trial. See Bergeron v. Allard, 152 Me. 297, 128 A.2d 848 (1957)tort action; Winters v. Smith, 148 Me. 273, 91 A.2d 920 (1952)contract *535 action. But in Rule 1 of the Maine Rules of Civil Procedure, effective December 1, 1959, it was provided in pertinent part that "[t]hese rules govern the procedure in the Superior Court .... in all suits of a civil nature whether cognizable as cases at law or in equity, .... also govern the procedure in the Supreme Judicial Court when sitting as a Law Court. They shall be construed to secure the just, speedy and inexpensive determination of every action." In the spirit of such a declaration of overall purpose "to secure the just, speedy and inexpensive determination of every action," the duplicative procedural remedial relief under the former practice of presenting a motion for new trial either to the trial justice or the Law Court, or both, at the option of the litigant, was substituted for the exclusive intervention of the justice before whom an action has been tried who, as specifically provided by Rule 59(a), M.R. Civ.P.,
"may on motion grant a new trial to all or any of the parties and on all or part of the issues for any of the reasons for which new trials have heretofore been granted in actions at law or in suits in equity in the courts of this state."
Furthermore, the Rule invests the trial justice with extensive powers in relation thereto in that it provides:
"A new trial shall not be granted solely on the ground that the damages are excessive until the prevailing party has first been given an opportunity to remit such portion thereof as the court judges to be excessive. A new trial shall not be granted solely on the ground that the damages are inadequate until the defendant has first been given an opportunity to accept an addition to the verdict of such amount as the court judges to be reasonable...." Rule 59(a), M.R.Civ.P.
Also, the Rule empowers the trial justice to grant a new trial on his own:
"Not later than 10 days after entry of judgment the justice before whom the action has been tried of his own initiative may order a new trial for any reason for which he might have granted a new trial on motion of a party. After giving the parties notice and an opportunity to be heard on the matter, the court may grant a motion for a new trial, timely served, for a reason not stated in the motion. In either case the court shall specify in the order the grounds therefor." (Emphasis supplied) Rule 59(d).
By providing in Rule 73(a), M.R.Civ.P., that
"[a]n appeal from a judgment, whenever taken, preserves for review any claim of error in any of the orders specified in the preceding sentence, even if entered on a motion filed after the notice of appeal [such as, e. g. an order denying a motion for a new trial under Rule 59],"
it is obvious that it was the intent of the drafters of the rules that all motions for a new trial, whatever may be the reason, including inadequacy of damages, be first presented to, and acted upon by, the justice before whom the action was tried as a condition precedent to appellate review. See Reporter's Notes, Maine Civil Practice, 2nd Ed., Vol. 2, Field, McKusick and Wroth, page 54.
The policy reasons underlying the requirement that a motion for new trial be submitted to the trial justice for decision in the first instance and not be presented for the first time to the appellate court, especially respecting the issue of excessiveness or inadequacy of damages, is that the justice before whom an action has been tried is in a far better position than an appellate court to know whether in the light of his observations at the trial the damages awarded by the jury were so wholly inconsistent with the proof as to reflect some bias, prejudice or improper influence on the part of the jury or to support the conclusion that the verdict was the result of some mistake of fact or law on their part. Heacock v. Town, 419 P.2d 622 (Alaska 1966). Another reason is that preliminary involvement of the presiding justice with the question of the grant or denial of a new trial may save the litigants time and expense in light of the trial justice's power to condition favorable action upon the acceptance by the *536 party adversely affected of either a remittitur or an additur. Furthermore, the prerequisite first challenge in the trial court of a damage award for inadequacy or excessiveness tends to eliminate from the appellate court an unnecessary burden with issues which can and should be resolved at the trial level. See Schroeder v. Auto Driveaway Company, 11 Cal. 3d 908, 114 Cal. Rptr. 622, 523 P.2d 662 (1974).
This Court, in Chenell v. Westbrook College, Me., 324 A.2d 735 (1974), did state that ordinarily a new trial may not be granted on the ground of inadequacy of damages until the defendant has first been given an opportunity to accept an additur of such amount as the trial court deems to be reasonable. The reasonableness of such additur, or remittitur in the case of a claim of excessive damages, may be better resolved by the justice who presided at the trial than by an appellate court restricted to the ofttime lifeless pages of a record.
We hold that, in line with the mandatory directive to seek the just, speedy and inexpensive determination of every action as provided in Rule 1 of the Maine Rules of Civil Procedure, we must construe Rule 59 relating to the grant of a new trial in the trial court as the exclusive procedural device for such remedial relief, save for exceptional circumstances meeting the "manifest error-serious injustice" standard.
Such a holding is nothing new. It is but the application of a well-settled rule of sound appellate practice of long standing with this Court. The general rule governing proper appellate procedure is that a party who seeks to raise an issue for the first time at the appellate level in his appeal from a judgment entered in the trial court will be denied appellate review, because of his failure to submit the question for decision at the trial level. National Advertising Company v. Inhabitants of Town of York, Me., 345 A.2d 512 (1975); Walsh v. City of Brewer, Me., 315 A.2d 200 (1974); Reville v. Reville, Me., 289 A.2d 695 (1972); Younie v. State, Me., 281 A.2d 446 (1971); Frost v. Lucey, Me., 231 A.2d 441 (1967).
It is true that, after giving recognition to Rule 59, M.R.Civ.P., which required all motions for a new trial to be addressed to the trial court, this Court, in MacLean v. Jack, 160 Me. 93, 198 A.2d 1 (1964), a case involving the issue of the inadequacy of damages, did pass on the merits of the issue, even though it would seem no motion for a new trial was presented to the trial court in relation thereto. It may be that the court viewed in the reference case an "exceptional circumstance" for the reason that the issue of excessiveness or inadequacy of damages was before the Court for the first time since the appellate practice had been changed by new rules of civil procedure. In Younie v. State, supra, at page 448, footnote 4, we similarly explained the deviation from the general rule as appears in Grass v. State, Me., 263 A.2d 63 (1970).
The authorities are unanimous. Absent a ruling by the justice before whom the case was tried upon a motion for a new trial based on the alleged claim of inadequacy or excessiveness of damages, any such issue cannot be raised for the first time on appeal, and, if so tendered, will be denied appellate review, except possibly in the "manifest error-serious injustice" context. See Schroeder v. Auto Driveaway Company, supra; O'Leary v. Watson, 263 So. 2d 643 (Fla.App.1972); Schrib v. Seidenberg, 80 N.M. 573, 458 P.2d 825 (1969); Baker v. Dillon, 389 F.2d 57 (5th Cir. 1968); Dutton v. Peacock, 424 S.W.2d 812 (Ky.1968); Heacock v. Town, supra; Fallaw v. Flowers, 274 Ala. 151, 146 So. 2d 306 (1962); Davis v. Jermstad, 350 Mich. 439, 86 N.W.2d 316 (1957); Lovett Motor Co. v. Walley, 217 Miss. 384, 64 So. 2d 370 (1953); Hughes v. Bandy, 404 Ill. 74, 87 N.E.2d 855 (1949).
A review of the record readily disproves a "manifest error-serious injustice" case. The evidence presented several questionable features which it was the duty of the jury to resolve. Credibility of the plaintiff as to the extent of the injuries proximately caused by the accident was definitely at issue. Symptoms of back trouble prior to the accident confirmed by medical evidence, *537 no hospital confinement following the accident, extended periods between treatments for his back, the suspicious proof of loss due to the hiring of a supervisor in the person of his brother, "unskilled for any trade" in the plaintiff's own estimate, at the rate of $225 per week for a total alleged disbursement of $1575.00, may have served to discredit the plaintiff's case respecting the cause and effect relationship between the plaintiff's stated disabling condition and the accident. We cannot conclude that the jury's award for pain and suffering of little more than $5000.00, over and above the stipulated loss for automobile damage and medical expense, is shockingly low or indicative of jury action under some bias, prejudice or improper influence.
Therefore, the entry will be.
Appeal denied.
Judgment affirmed.
POMEROY, J., did not sit.
NOTES
[1] Mr. Justice Dufresne sat at oral argument and participated in consultation while he was Chief Justice, and, on order of his successor, Mr. Chief Justice McKusick, was empowered and authorized to continue his participation in the case in his capacity of Active Retired Justice. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540966/ | 155 B.R. 225 (1993)
In re John B. LOVE, d/b/a Record Coin Shop, Debtor.
ESTATE OF John B. Love, Plaintiff,
v.
FIRST INTERSTATE BANK OF MONTANA, Defendant.
Bankruptcy No. 91-41556-11, Adv. No. 92/00123.
United States Bankruptcy Court, D. Montana.
June 17, 1993.
*226 *227 Steven E. Cummings, Murphy, Robinson, Heckathorn & Phillips, P.C., Kalispell, MT, for First Interstate Bank of Montana, N.A.
Steven M. Johnson, Esq. Church, Harris, Johnson & Williams, Great Falls, MT, and Ward E. Taleff, Alexander, Baucus & Linnell, P.C., Great Falls, MT, for Unsecured Creditors Committee.
ORDER
JOHN L. PETERSON, Bankruptcy Judge.
In this adversary proceeding, the attorneys for the Unsecured Creditor's Committee (UCC) of the estate of John B. Love, a Chapter 11 Debtor, commenced a preference action against Defendant, First Interstate Bank of Montana (FIB)[1], to recover $175,000 paid by John Love within 90 days of the filing of the Chapter 11 bankruptcy petition. After answer, trial of the cause was held on March 23, 1993. Memoranda have been filed by parties in support of their respective positions and the matter is ripe for decision. Many of the facts have been submitted by a Statement of Agreed Facts. In addition, exhibits have been entered in evidence which support the agreed facts. After examination of the agreed facts, exhibits and oral testimony, I determine the Plaintiff has sustained the burden of proof and is entitled to judgment against the Defendant Bank for the sum of $175,000 as a preference under 11 U.S.C. § 547.
The agreed facts are as follows:
1. John B. Love filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in this Court on or about September 20, 1991.
2. The Debtor's Plan of Reorganization was confirmed by Order of this Court on November 26, 1991. The provisions of the Plan of Reorganization include the authority of the UCC to pursue certain actions, including these adversary proceedings.
3. These proceedings are brought under Rule 7001 et seq., Federal Rules of Bankruptcy Procedure and pursuant to the Plan of Reorganization by the UCC on behalf of the estate.
4. Jurisdiction is vested in this Court by 28 U.S.C. § 1334(b) and 11 U.S.C. §§ 547(b), 548 and 510(c). The case arises under Title 11, United States Code and involves a complaint to set aside certain transfers or to obtain relief from transactions by the Debtor, and to equitably subordinate debt. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (F) and (O).
5. Venue is proper in this Court by reason of 28 U.S.C. § 1409.
6. FIB is a national bank corporation with offices in Cut Bank, Montana.
7. Karla Love (KL) is the spouse of the Debtor and has been at all times relevant to these proceedings.
8. On October 23, 1990, John Love ("Debtor" or "JL") and KL executed and *228 delivered to FIB a promissory note in the principal amount of $600,000. The promissory note was unsecured and had a maturity date of January 15, 1991. A true and correct copy of the promissory note is admitted as Exhibit 1.
9. The note was not paid at maturity. On February 27, 1991, by which date the loan balance had been reduced to $425,000, JL and KL executed and delivered to FIB a Change in Terms Agreement. By the provisions of that document the maturity of the debt was extended to April 1, 1991. A true and correct copy of the Change In Terms Agreement is admitted as Exhibit 2.
10. Neither JL nor KL paid the note at the time of the extended maturity.
11. On June 28, 1991, FIB, JL and KL executed an Agreement And Release Of All Claims ("the Agreement"). A true and correct copy of the Agreement is admitted as Exhibit 3.
12. The sum of $175,000 was paid on June 28, 1991, by Record Coin Shop/John B. Love, check number 1056, dated June 28, 1991, drawn on account number XXXXXXXXX with First Federal Savings Bank of Montana, Cut Bank office, deposited in First Interstate Bank on June 28, 1991. The check cleared the Federal Reserve Bank July 1, 1991. A true and correct copy of the June 28, 1991 check is admitted as Exhibit 4.
13. The sum of $150,000 was paid by Karla Love on or about July 26, 1991, by check number 2841 drawn on the account of Karla Kay Love with the First State Bank of Shelby, account number 54 8300. A true and correct copy of the check is admitted as Exhibit 5.
14. The Agreement and the payments made to FIB under it occurred within 90 days of the date of filing the petition for relief and during the period when the Debtor was presumed to be insolvent.
15. On May 14, 1991, JL borrowed $100,000 from Par Oil Company ("Par Oil"). The obligation is represented by a promissory note of that date, a true and correct copy of which is admitted as Exhibit 6. KL is named as a borrower on Exhibit 6, but only JL executed the note.
16. The Par Oil note was secured by a second mortgage on the residence of JL and KL, as well as a security interest in certain personal property of JL, consisting of motor vehicles. The mortgage was also dated and executed May 14, 1991. It was recorded May 20, 1991, in the office of the Glacier County Clerk and Recorder. A true and correct copy of the mortgage is admitted as Exhibit 7.
17. On May 14, 1991, JL executed and delivered to Par Oil a security agreement granting Par Oil a security interest in a 1986 Chriscraft Inboard boat, a 1988 Cadillac Eldorado, a 1989 Ford Bronco and a 1989 Chevrolet Suburban. A true and correct copy of the security agreement is admitted as Exhibit 8.
18. On May 24, 1991, the lien of Par Oil was noted on the records of the Motor Vehicle Division of the State of Montana as to the Cadillac, the boat and the Suburban, and on June 7, 1991, as to the Bronco. True and correct copies of the Notices of Lien Filing are admitted as Exhibits 9, 10, 11 and 12.
19. In the Debtor's bankruptcy proceedings and in connection with the transaction with FIB, JL did not claim as exempt any portion of his life insurance which had a cash surrender value.
20. On or about July 25, 1991, KL received a money order from Christie's auction of $190,000. The funds represented the proceeds from the sale of a ring.
21. The Par Oil check to John Love was dated May 14, 1991, and was deposited to his Record Coin Shop account with First Federal Savings Bank on June 28, 1991. The proceeds of insurance were deposited to the Record Coin Shop account on June 20, 1991, in deposits of $17,750, and $5,993.46. True and correct copies of the deposit tickets to the account are admitted as Exhibit 13. True and correct copies of the Statement Summary for the Record Coin Shop/John B. Love account at First Federal Savings Bank for the months May, June and July 1991, are admitted as Exhibits 14, 15 and 16.
*229 22. The files of First Interstate contain no reference to a Par Oil Company loan to John Love as part of his settlement with the Bank.
23. First Interstate did not know the source of the funds represented by the $175,000 payment.
24. First Interstate has no correspondence with and did not communicate with Par Oil about a loan or possible loan to John Love.
Additional trial Exhibits admitted into evidence show that as of July 1, 1991, the Debtor had scheduled assets of $1,661,940 against liabilities of $4,057,007. FIB's debt is not scheduled as a liability and a number of obligations are listed as disputed. A bank official noted that "Love is slightly under water even ignoring the disputed debts." The Agreement and Release of All Claims between the Debtor, Karla Love and the Bank was fully satisfied by timely payments to the Bank of $325,000 in full satisfaction of the outstanding Bank debt of over $438,000, which debt was totally unsecured.
The promissory note signed by the Debtor in favor of Par Oil for $100,000 bears a maturity date of May 14, 1996, and contains no other terms and conditions except the interest rate and that the note is secured by a real estate mortgage and security on vehicles. The president of Par Oil testified over objection by the Plaintiff that Par Oil loaned the funds to the Debtor in order to allow the Debtor to pay the proceeds to the Bank. Under these facts, the Bank contends the "earmarking" doctrine provides a defense against the preference claim. The president also stated that the collateral given to secure the Par Oil note was not valued at the time of the transaction. However, the title registration lien filing for each vehicle shows the lien value at $20,000 on each of the four notices of lien filing. In addition, the Debtor's one-half interest in the family residence, according to the post-trial memorandum of FIB, based on the Debtor's bankruptcy Schedules, shows equity by the Debtor of about $30,000. Contrary to FIB's statement, the Debtor's homestead exemption has no effect on the mortgage interest by reason of Mont.Code Ann. Section 70-32-202(3). These values would indicate the Par Oil note was fully secured at the date of the loan.
One of the powers of a Chapter 11 Debtor is the authority under 11 U.S.C. § 547(b) to avoid certain payments made by the Debtor that would enable a creditor to receive payment of a greater percentage of his claim against the Debtor than would have been received if the transfer had not been made and he had participated in the distribution of the assets of the bankruptcy estate under the Bankruptcy Code. In recovering a voidable preference, a Chapter 11 debtor as the bankruptcy trustee, 11 U.S.C. § 1107(a), advances the policy favoring equality of distribution among similarly situated creditors of the estate. Begier v. Internal Revenue Service, 496 U.S. 53, 58, 110 S. Ct. 2258, 2262, 110 L. Ed. 2d 46 (1990). Voidable preferences are brought into the estate and thus made available for pro rata distribution among creditors of equal priority.
Section 547(b) permits a Chapter 11 debtor as the trustee to avoid any transfer of an interest in the debtor's property made within 90 days of the filing of the bankruptcy petition where the transfer is to or for the benefit of a creditor, is for or on account of an antecedent debt, is made while the debtor is insolvent, and enables the creditor to receive more than such creditor would receive in a Chapter 7 liquidation under the Code. In re Bullion Reserve of North America, 836 F.2d 1214, 1216-17 (9th Cir.1988). The relevant inquiry is whether FIB would receive more under the distributive provision of the Code than it would receive absent any transfer. In re Mantelli, 149 B.R. 154, 157 (9th Cir. BAP 1993). Bullion further holds:
The term "property of the debtor" is not defined in the Bankruptcy Code. However, we define the term broadly (citing case). Generally, property belongs to the Debtor for purposes of § 547 if its transfer will deprive the bankruptcy estate of something which would otherwise *230 be used to satisfy the claims of creditors. Id. at 1217.
Since the term "property of the debtor" is undefined, courts look to state law to determine whether property is an asset of the debtor. In re Brass Kettle Restaurant, Inc., 790 F.2d 574, 575 (7th Cir.1986); In re Sierra Steel, Inc., 96 B.R. 271, 273 (9th Cir.BAP 1989). This brings us to one of the central issues in this case raised by FIB as a defense, namely, the "earmarking" doctrine.
The "earmarking" defense is an exception to what would otherwise be a voidable transfer and therefore property of the Debtor's estate. The doctrine provides that if property transferred in payment of a debt was never truly within the control of the debtor or subject to the debtor's direction, then a transfer of such property would not be a preference as such assets are not considered property of the estate under § 541 of the Bankruptcy Code. Official Bondholders' Committee v. Eastern Utilities Associates (In re EUA Power Corporation), 147 B.R. 634, 640 (Bankr. D.N.H.1992); In re Sierra Steel, Inc., 96 B.R. at 274; In re Ludford Fruit Products, Inc., 99 B.R. 18, 21 (Bankr.C.D.Cal. 1989). The earmarking doctrine developed under the 1898 Bankruptcy Act (Act). The doctrine arose to protect third parties, including guarantors and co-makers, who were co-liable for the amount the debtor owed a former creditor. National Bank of Newport v. National Herkimer County Bank, 225 U.S. 178, 185, 32 S. Ct. 633, 635, 56 L.Ed 1042 (1912), where the court held that when a guarantor pays a debtor's obligation directly, the transfer does not involve a transfer of the debtor's property, and therefore does not diminish the debtor's estate. Thus, as stated in Coral Petroleum Inc. v. Banque Paribas-London, 797 F.2d 1351, 1356 (5th Cir.1986), if "all that occurs in a `transfer' is the substitution of one creditor for another, no preference is created because the debtor has not transferred property of his estate; he still owes the same sum to a creditor, only the identity of the creditor has changed." Other circuits and bankruptcy courts have acceded to the same policy. Matter of Smith, 966 F.2d 1527, 1533 (7th Cir.1992) cert. dismissed, ___ U.S. ____, 113 S. Ct. 683, 121 L. Ed. 2d 604, 121 L. Ed. 2d 604 (1992); In re Bohlen Enterprises, 859 F.2d 561, 564-566 (8th Cir.1988); In re Interior Wood Products Company, 986 F.2d 228 (8th Cir.1993); In re Maxwell Newspapers, Inc., 151 B.R. 63, 70 (Bankr.S.D.N.Y.1993); In re Blackoaks, Inc., 137 B.R. 251, 253 (Bankr.N.D.Ohio 1992); New York City Shoes, Inc. v. Best Shoe Corp., 106 B.R. 58, 60-61 (E.D.Pa.1989). It has also been recently concluded that the earmarking doctrine survived the 1978 Bankruptcy Code so that the defense is a viable one under the Code. In re Kelton Motors, Inc., 153 B.R. 417, 427 (Bankr.Vt.1993). The dispositive question is whether the Debtor had direct control of the funds. Maxwell Newspapers, Inc., supra at 70. Thus, if the Debtor had little or no control over the use of the funds or if the transaction involves a complete substitution of a new creditor for a former creditor, the defense is valid. Conversely, if the Debtor maintains some meaningful control over the funds or actual control over the new creditor's funds, then earmarking is not a defense and the funds become property of the estate. In re New York City Shoes, Inc., 98 B.R. 725, 729 (Bankr.E.D.Pa.1989). In re Knapp, 119 B.R. 285, 287 (Bankr. M.D.Fla.1990) states:
"[I]f the debtor determines the disposition of the funds from the third party and designates the creditor to be paid, the funds are available for payment to creditors in general and the funds are assets of the estate." [citations omitted].
Moreover, one bankruptcy court in the Ninth Circuit, noting no controlling authority in this circuit on the earmarking doctrine,[2] and citing In re Bohlen, supra, held *231 in In re Ludford Fruit Products, 99 B.R. at 21:
Courts have since extended the doctrine to include situations in which a third party lends money to the debtor for the agreed purpose of satisfying a specific existing claim of the debtor.
I join with the Bohlen court in questioning this expansion of the earmarking doctrine beyond its original application. When a guarantor pays a primary obligation with the guarantor's own funds, common sense dictates that no property of the debtor is transferred. Common sense is stretched to the breaking point when a court finds that the funds loaned to a debtor, even for the specific purpose of paying an existing creditor, do not become property of the estate.
In this regard, the Plaintiff has raised an issue as to the testimony of the president of Par Oil that the loan of its funds to the Debtor was for the specific purpose of paying on the FIB note. The testimony was admissible because it did not alter or vary the written Par Oil note and mortgage between the parties. The contents are unaltered. See, Perez-Lizano v. Ayers, 215 Mont. 95, 695 P.2d 467, 470 (1985), where the court held the parole evidence rule in Mont.Code Ann. § 28-2-905 excludes evidence which varies the terms of the written note. Here, the evidence was admitted under FIB's theory that the Debtor's disposition of the loan funds from Par Oil supports the application of the earmarking doctrine. The Eighth Circuit Court of Appeals in In re Bohlen, 859 F.2d at 566, states such oral agreement, as a prerequisite to sustain the earmarking doctrine, must be an agreement between the new creditor (Par Oil) and the debtor to pay the specific antecedent debt (FIB), and the transaction must then be performed pursuant to that agreement. Support for this limitation on the earmarking doctrine is also found in In re Kumar Bavishi & Associates, 906 F.2d 942, 944 (3rd Cir. 1990). By reason of the Agreed Statement of Facts, FIB's evidence is admissible to support this specific limitation of the earmarking doctrine because, if the testimony is accepted as true, the agreement was with the new creditor, Par Oil, thus satisfying this element of the earmarking doctrine.
Another limitation on the application of the earmarking doctrine involves precisely the facts of this case, namely, Par Oil's taking of a security interest in assets of the Debtor under a situation where FIB was an unsecured creditor. The courts have unanimously held that when a debtor grants a security interest in its property in exchange for a loan to pay an unsecured debt, the earmarking defense fails. In re Royal Golf Products Corp., 908 F.2d 91, 94 (6th Cir.1990); In re Muncrief, 900 F.2d 1220, 1224, n. 4 (8th Cir.1990); In re Hartley, 825 F.2d 1067, 1072 (6th Cir.1987); In re Belme, 76 B.R. 121, 122 (Bankr.S.D.Ohio 1987); Matter of Van Huffel Tube Corp., 74 B.R. 579, 586 (Bankr.N.D.Ohio 1987). In such case, Royal Golf Products Corp., 908 F.2d at 94, holds the trustee may avoid the transfer because the security interest diminishes the property of the estate, but "only to the extent of the actual value of the collateral given by the debtor to secure the loan." In this case, I find from the exhibits and Debtor's Schedules that the amount of security taken by Par Oil at the time of transfer of the loan funds was equal to the amount of the loan of $100,000, and therefore diminished the Debtor's estate by that sum. The voidable preference is thus equal to amount of the Par Oil loan.
I also conclude from the facts that the earmarking doctrine is not a defense to FIB because the Par Oil funds were deposited, unrestricted, into the Debtor's general operating account, whereby the Debtor had sole control to use the loan funds as Debtor saw fit. Par Oil did not place FIB on its check, nor did Par Oil make payment directly to FIB. Rather, the Debtor received the funds without limitation, commingled *232 the funds in the Debtor's bank account with other business receipts and then wrote a $175,000 check, rather than a $100,000 check. The Debtor thus controlled their disposition. The essential overriding element of control under the earmarking doctrine is missing because the Debtor had absolute control over the Par Oil loan proceeds. See, In re Ludford Fruit Products, Inc., supra. The earmarking defense thus fails.
As to the preference elements, I find a transfer of $175,000 was made to FIB, an unsecured creditor, within 90 days of the bankruptcy petition on account of an antecedent debt due FIB in the amount exceeding $425,000. On the issue of insolvency, the agreed facts concede the Debtor is presumed insolvent, as this is the statutory criteria under § 547(f). The transferee, FIB, must overcome the presumption. Sanyo Elec., Inc. v. Taxel (In re World Financial Serv. Center, Inc.), 78 B.R. 239, 241 (9th Cir.BAP 1987). In addition to the presumption, however, the Debtor's Exhibit B of schedule of assets and liabilities on July 1, 1991, within 2 days of the date of the transfer, is the only evidence sustaining the "balance sheet" test required to prove insolvency. In re Koubourlis, 869 F.2d 1319, 1322 (9th Cir.1989). FIB introduced no "balance sheet" evidence. On these bases, the element of insolvency has been proven.
The final element is whether FIB received more from the $175,000 transfer than it would have received if the transfer had not been made, and the case liquidated under Chapter 7. Under the Debtor's confirmed Plan, of which the Court took judicial notice without objection, FIB would be as a general, unsecured creditor in Class XI. In re Lewis Shurtleff, Inc., 778 F.2d 1416, 1421 (9th Cir.1985) explains the "greater amount" test required under 547(b)(5), citing Palmer Clay Products Co. v. Brown, 297 U.S. 227, 229, 56 S. Ct. 450, 450, 80 L. Ed. 655 (1936).
This analysis requires that in determining the amount that the transfer "enables [the] creditor to receive", 11 U.S.C. § 547(b)(5) (1982), such creditor must be charged with the value of what was transferred plus any additional amount that he would be entitled to receive from a Chapter 7 liquidation. The net result is that, as long as the distribution in bankruptcy is less than one-hundred percent, any payment "on account" to an unsecured creditor during the preference period will enable that creditor to receive more than he would have received in liquidation had the payment not been made (citing cases).
Under the liquidating Plan of Reorganization, based on Debtor's Schedules, the net liquidation of assets was fixed at $482,396. Adding in the $175,000 preferential transfer to FIB, the total net liquidating amount would be $657,396. Total scheduled unsecured creditors is $3,899,406. Assuming FIB's claim at $448,665, as testified to by FIB's officer, with no allowance for administrative expenses, FIB would have received $74,086.55 on its unsecured claim in a Chapter 7 liquidation. FIB in fact received $175,000 under the June 28, 1991, transfer. The "greater amount" test is thus clearly established.
FIB also asserts as a defense that the payment of $175,000 was made in the ordinary course of business under § 547(c)(2). 4 Collier on Bankruptcy, ¶ 547.10, pp 547-48 and 49 (15th Ed.) explains the ordinary course of business exception to the preference rule.
"This section is intended to protect recurring customary credit transactions that are incurred and paid in the ordinary course of business of the debtor and the debtor's transferee."
However, in Union Bank v. Wolas, 502 U.S. ___, 112 S. Ct. 527, 116 L. Ed. 2d 514 (1991), the U.S. Supreme Court resolved a split between circuits holding "that payments on long-term debt, as well as payments on short-term debt, may qualify for the ordinary course of business exception to the trustee's power to avoid preferential transfers." Id., at ___, 112 S.Ct. at 533. The debtor in Wolas, several months after borrowing $7 million from the bank transferee, filed a Chapter 7 bankruptcy petition. Within the 90-day period before *233 bankruptcy, the debtor made two interest payments totalling $100,000 and paid a loan commitment fee of about $2,500. The Court remanded without opinion whether the loan involved in Wolas was incurred in the ordinary course of each parties' business. Id. at ___, 112 S.Ct. at 534. The transferee has the burden of proving the defense under § 547(c)(2). In re Fred Hawes Organization, Inc., 957 F.2d 239, 242, 244 (6th Cir.1992). Hawes further holds that in order to successfully establish the defense, the bank must prove, "that the debt and its payments are ordinary in relation to the standard prevailing in the relevant industry." Id. at 244. The analysis is fact specific, requiring a determination of the "timing, amount and manner a transaction was paid and the circumstances under which the transfer was made." Id. This Court finds FIB has failed in its proof.
John Love was a 20-year customer of FIB and was extended a sizeable line of credit over this period. Such loans to Love were in the ordinary course of business between the parties. The note due October 1, 1991, after being paid down from $600,000 to $425,000 in principal, was extended on two different occasions. An extraordinary settlement was then reached between the parties, whereby the entire obligation of $448,665, principal and interest, would be written down and satisfied for $325,000, with one payment by the Debtor of $175,000, and another payment by the spouse of $150,000. The work-out, for whatever reason, was at FIB's insistence, after the Debtor's request to extend the maturity date was rejected by FIB. FIB had clear knowledge at the work-out time that Love's recent business losses placed the entire unsecured loan in jeopardy. Exhibit 20. Indeed, Exhibit 20 of the Bank lists five non-business sources as possible repayment modes, and the sixth source is to sue a Debtor's employeehardly an ordinary course of business transaction prevalent in the industry. Further, the FIB president described the 20-year loan period as one where the Debtor would ordinarily have made a lump sum payment annually to satisfy the payment schedule. That entire regular practice was disrupted when the Debtor could not pay due to the Debtor's financial condition, and the Bank agreed in writing to a settlement and release by discount of the note. Finally, the settlement agreement, Exhibit 3, states "John B. Love borrowed certain funds from First Interstate for use in the business of Record Coin Shop" and Karla Love was co-signer. Karla Love was to pay the additional $150,000 in cash before August 10, 1991, to satisfy the release. None of these terms were contained in the promissory notes of February 27, 1991, and October 23, 1990. Such terms were in fact out-of-the-ordinary course of business dealings between the parties. The language from In re Energy Cooperative., Inc., 832 F.2d 997, 1004 (7th Cir.1987), concerning a one-time payment to settle a breach of contract claim, is peculiarly applicable to the instant case.
Congress enacted § 547(c)(2) "to leave undisturbed normal financial relations, because it does not detract from the general policy of the preference section to discourage unusual action by either the debtor or creditors during the debtor's slide into bankruptcy." House Report at 373, 1978 U.S.Code Cong. & Ad.News at 6329; see also Senate Report at 88, 1978 U.S.Code Cong. & Ad.News at 5874.
I conclude FIB has failed in its burden to establish the defense under § 547(c)(2), especially where a substantial payment of $150,000 to settle the defaulted note was to come from a non-business source, namely the sale of Karla's ring. The one-time payment on a discounted basis was not in the ordinary course of Debtor's and FIB's business relationship.
Based on the foregoing, the Plaintiff's estate shall recover from the Defendant, FIB, the sum of $175,000 paid as preference under § 547 of the Bankruptcy Code. The debt due FIB must, accordingly, be adjusted since there has been a material default in the terms of the Release Agreement of June 28, 1991. (Exhibit 3). At the date of bankruptcy, FIB would have been owed $448,665, absent the release agreement. After credit of the payment from Karla Love of $150,000, the Bank has a general, unsecured claim against the bankruptcy *234 estate in the amount of $298,665. Accordingly, FIB shall participate in any pro-rata payments to unsecured creditors in that amount.
IT IS ORDERED Judgment shall be entered for the Plaintiff Estate of John B. Love, and against the Defendant, First Interstate Bank of Montana, in the sum of $175,000 pursuant to 11 U.S.C. § 547(b).
IT IS FURTHER ORDERED said Defendant's claim against the estate of John B. Love is fixed in the sum of $298,665 as a general, unsecured claim.
NOTES
[1] Debtor's wife, Karla Love, was also named as a Defendant in this adversary proceeding. By Stipulation filed March 23, 1993, the Plaintiff's claim against Karla Love was settled, and Karla Love was dismissed as a party Defendant. The Defendant Bank's counterclaim against Karla Love is reserved by the Bank and Karla Love for determination in another forum.
[2] Debtor's trial memorandum attached an unpublished case of In re Seaway Express Corporation, 940 F.2d 669 (Table) (9th Cir.1990) in rejection of the earmarking doctrine under the facts of that case. Seaway cites Coral Petroleum, Inc. v. Banque Paribas-London, supra, and In re Bohlen, supra. However, under Ninth Circuit Rule 36-3, the unpublished decision of Seaway cannot be used as precedent and should not be cited except when relevant under the doctrines of law of the case, res judicata or collateral estoppel. Seaway is thus not precedence on the earmarking doctrine. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540967/ | 259 Pa. Super. 37 (1978)
393 A.2d 704
Roger E. BUCHANAN et al.
v.
CENTURY FEDERAL SAVINGS AND LOAN ASSOCIATION et al., Appellants.
Superior Court of Pennsylvania.
Argued November 22, 1977.
Decided October 20, 1978.
*40 Judd N. Poffinberger, Jr., and Gerald S. Lesher, Pittsburgh, for appellants.
Michael P. Malakoff, Pittsburgh, for appellees.
Before WATKINS, President Judge, and JACOBS, HOFFMAN, CERCONE, PRICE, VAN der VOORT and SPAETH, JJ.
PRICE, Judge:
This action was commenced by the filing of a complaint in equity by thirty-six named plaintiffs on behalf of themselves and all similarly situated mortgage borrowers against twenty-nine lending institutions.[1] The plaintiffs sought various relief on claims arising out of the lending institutions' requirement that mortgagors pay, in addition to amounts due *41 for principle and interest each month, an amount equal to one-twelfth of the aggregate annual real estate taxes and hazard insurance premiums, hereinafter termed escrow payments.[2] The lending institutions involved pay no interest on these escrow payments.
Plaintiffs originally alleged four theories in support of their cause of action. Preliminary objections, in the nature of demurrers, filed by most of the named defendants, were sustained by the lower court. On appeal, the supreme court reversed as to three of the counts, holding that plaintiffs had stated causes of action in trust, constructive trust, and implied contract.[3] The court affirmed the grant of the demurrer to the fourth count which charged a violation of the Truth in Lending Act.
On November 6, 1975, an order was entered by the Court of Common Pleas certifying the plaintiff class, establishing subclasses, and approving a proposed form of notice and procedures for service. Basically, the action was certified as a class action on behalf of all persons who had given or assumed mortgages to the various defendants on residential real property situated in the Pittsburgh SMSA[4] under agreements requiring mortgagors to make monthly escrow payments and who, since January 1, 1972, had made the payments but had not received "interest" for earnings derived from the use of the funds.
In December of 1975, the parties agreed to a proposed settlement of the claims. Petitions for the approval of the settlement were presented to the Court of Common Pleas of Allegheny County and to the United States District Court *42 for the Western District of Pennsylvania, where a companion suit had been filed charging a conspiracy to adopt uniform practices in violation of the anti-trust laws.[5] A notice of the "Pendency and Proposed Settlement of Class Action" approved by both courts was mailed to those individuals whose mortgages had not been satisfied prior to January 1, 1972. Notice to individuals whose mortgages were satisfied prior to this date was by publication.[6]
Joint hearings on the reasonableness of the proposed settlement were held before the common pleas and the district courts.[7] Ultimately, the hearing judge in the Court of Common Pleas of Allegheny County disapproved the settlement, redefined the class and imposed on the defendants the cost of notifying the enlarged class.[8]
The first question presented is whether the order disapproving a class settlement is appealable as a final order. We conclude that it is appealable.[9]
In Bell v. Beneficial Consumer Discount Company, 465 Pa. 225, 348 A.2d 734 (1975), our supreme court stated the following:
"With exceptions not relevant here the Appellate Court Jurisdiction Act gives the appellate courts of the Commonwealth jurisdiction over appeals only from `final orders.'. . .
*43 Whether an order is final and appealable cannot necessarily be ascertained from the face of a decree alone, nor simply from the technical effect of the adjudication. The finality of an order is a judicial conclusion which can be reached only after an examination if its ramifications. We follow the reasoning of the United States Supreme Court that a finding of finality must be the result of a practical rather than a technical construction. Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 546, 69 S. Ct. 1221, 1226, 93 L. Ed. 1528 (1949)" 465 Pa. at 227-28, 348 A.2d at 735 (footnotes omitted).
Cohen[10] established what is known as the "collateral order" doctrine. Under this doctrine, an order which does not place the parties out of court may still be appealable where the order disposes of a matter separate from the merits of the case and where the question is "too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated." Cohen, supra, 337 U.S. at 546, 69 S.Ct. at 1226; see also Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 94 S. Ct. 2140, 40 L. Ed. 2d 732 (1974).
By its very nature a settlement does not dispose of the case on the merits. Moreover, "[d]isapproval of the settlement is not a step toward final disposition and it is not in any sense an ingredient of the cause of action. In itself, the. . . [lower court's] order is final on the question of whether the proposed settlement should be given judicial approval." Norman v. McKee, 431 F.2d 769, 773 (9th Cir. 1970). It is obvious that the final resolution of this case will be extremely complicated and time consuming. Already, several years have passed and two appeals have been engendered since the commencement of this litigation. Moreover, if the case proceeded to verdict it is doubtful that an appellate court could review the settlement. Assuming the decision was reviewable at that time, it would be virtually *44 impossible to frame a remedy for an abuse of discretion because the element of uncertainty inherent in a compromise would be eliminated.
As the supreme court stated in Dickinson v. Petroleum Conversion Corp., 338 U.S. 507, 511, 70 S. Ct. 322, 324, 94 L. Ed. 299 (1950), the ultimate determination involves a balancing between "the inconvenience and costs of piecemeal review on the one hand and the danger of denying justice by delay on the other." (Footnote omitted). "Considering again the length of trial in . . . [class action cases, we believe that] the right of the unnamed plaintiffs to fair representation may be infringed by the erroneous disapproval of a settlement." Norman v. McKee, supra at 774. We hold that orders disapproving class action settlements are appealable as final orders.
In substance, the proposed settlement differentiated between those individuals with mortgages outstanding on January 1, 1976, and those individuals who had satisfied mortgages between December 7, 1965, and January 1, 1976. As to the former group, the proposed agreement as amended[11] provided, in section 3.03, as follows:
*45 "Beginning on the date of the final approval of this Agreement, but retroactive to January 1, 1976, the Defendants either:
(a) Shall pay at least two (2) percent interest per annum to their Residential Mortgagors on sums paid to a particular Defendant equal to one-twelfth the annual hazard insurance premiums, annual real estate taxes and/or assessments or other charges;
(b) Shall credit such advance payments against the principle balances on such mortgage loans; or
(c) Shall grant, by writing separate from the mortgage and bond or note, such mortgagors the option either of paying their annual hazard insurance premiums, annual real estate taxes and/or assessments or other charges themselves, or of making such payments equivalent to one-twelfth of such amounts each month to Defendants, in which case, no interest need be paid by Defendants on such payments.
If interest is to be paid by a Defendant under Subsection (a) herein, it shall be calculated in a manner no less favorable to Plaintiffs than 2 percent simple interest, on the average of the month-end escrow balances, paid or credited annually."
For those individuals who satisfied a mortgage prior to January 1, 1976, the agreement provided as follows:
"3.04. If any of the Defendants grant a mortgage loan on residential real estate from one to four families on or before January 1, 1979, to any Plaintiff who has paid off a mortgage with the same Defendant between December 7, 1965 and January 1, 1976, the said Defendant will charge *46 said Plaintiff a loan origination or service fee which is one half of the fee then generally in effect for said Defendant for such types of loans. Defendants agree to use reasonable efforts to determine if applicants for a mortgage loan are entitled to this reduction of fee but Defendants do not warrant that each such applicant will be discovered to be a prior mortgagor."
Additionally, the defendants agreed to pay attorneys fees up to $625,000 plus filing and service costs.
Pa.R.C.P. No. 2230(b), which applies to the instant case,[12] provides that "[a]n action brought on behalf of a class shall not be dismissed, discontinued, or compromised nor shall a voluntary nonsuit be entered therein without the approval of the court in which the action is pending." This rule is designed to protect absent class members "from prejudicial and binding action by their representative." Shapiro v. Magaziner, 418 Pa. 278, 286, 210 A.2d 890, 895 (1965). Prior to approving a class settlement, a lower court must conclude that it is fair and reasonable and adequately protects the members of the class. Although there is no formula for making such a determination, the criteria heretofore employed by the courts include evaluations of (1) the risks of establishing liability and damages, (2) the range of reasonableness of the settlement in light of the best possible recovery, (3) the range of reasonableness of the settlement in light of all the attendant risks of litigation, (4) the complexity, expense and likely duration of the litigation, (5) the stage of the proceedings and the amount of discovery completed, (6) the recommendations of competent counsel, and (7) the reaction of the class to the settlement. See, e.g., Girsh v. Jepson, 521 F.2d 153 (3d Cir. 1975).[13] In effect the *47 court should conclude that the settlement secures an adequate advantage for the class in return for the surrender of litigation rights. As with valuation problems in general, there will usually be a difference of opinion as to the appropriate value of a settlement. For this reason, judges should analyze a settlement in terms of a "range of reasonableness"[14] and should generally refuse to substitute their business judgment for that of the proponents. 3 H. Newberg, Newberg on Class Actions, § 5610b (1977).
The question on appeal from an order approving or disapproving a class settlement is whether the lower court abused its discretion in reaching its decision. Bryan v. Pittsburgh Plate Glass Co., 494 F.2d 799 (3d Cir. 1974). Under Pennsylvania law, generally, an appellate court will find an abuse of discretion if the record shows that, "the law has been overriden or misapplied, or that the judgment exercised by the Court was manifestly unreasonable or motivated by partiality, prejudice, bias or ill-will. . . . " Rosenberg v. Silver, 374 Pa. 74, 77, 97 A.2d 92, 94 (1953).
Turning to the lower court's opinion in the instant case, the following passages set forth its position regarding the risks of establishing the plaintiffs' case.
"The defendants, in their appeal, contend that I `failed to properly evaluate the proposed settlement as amended because I misapprehended the applicability of the substantive law of trust, constructive trust, and implied contract to the facts alleged in the complaint in this action.' In Buchanan v. Brentwood Federal Savings and Loan Association, 457 Pa. 101 [135], 320 A.2d 117 (1974), the Supreme *48 Court explicitly stated that a cause of action was set forth in the complaint on theories of trust, constructive trust and implied contract and reversed the lower court's sustaining of the demurrer of these defendants.
.....
[I]t is very possible that in addition to the law of trusts, constructive trusts and implied contracts, theories of law pertaining to contracts of adhesion and to the concept `of judicial sensitivity towards imposition upon members of the public by persons, who through experience, economic strength or monopolization are able to exercise unfair advantage' will be applied to this case. See Phillips Home Furnishing, Inc. v. Continental Bank, 231 Pa.Super. 174, 331 A.2d 840 (1974). These last two legal theories, which are potentially very important to this case, have not even been considered by the defendants.
In the course of fully and properly evaluating the proposed settlement agreements, I, of course, had to develop an opinion as to the merits of the plaintiffs' case in order to justly evaluate the reasonableness and adequacy of the proposed settlement. Without prejudging this case, I conclude that the plaintiffs have, potentially a good case against the defendants." 125 P.L.J. at 54-56 (footnotes omitted).
First, it should be noted that in count two of their first amended complaint, plaintiffs alleged that because of their inferior bargaining position, they were forced to agree to the escrow provisions and that these terms constituted a contract of adhesion which was against public policy and therefore void. Preliminary objections in the nature of a demurrer were sustained and this theory was not advanced on appeal. The plaintiffs have finally litigated this claim under a theory closely related, if not identical, to law of the case. See generally Blymiller v. Baccanti, 236 Pa.Super. 211, 344 A.2d 680 (1975). This claim was abandoned by competent counsel long before the action was certified as a class action. In their brief, plaintiffs' counsel assert that the "contract of adhesion" theory was thoroughly researched, *49 briefed and argued unsuccessfully before the lower court, see Buchanan v. Brentwood Federal Savings and Loan Association, 121 P.L.J. 247 (1973), and that it was not pursued because plaintiffs do not view it as a viable claim. We conclude that the lower court erred in considering this theory.
In evaluating the likelihood of success, the lower court should not attempt to resolve unsettled issues or legal principles. West Virginia v. Chas. Pfizer and Company, 440 F.2d 1079 (2d Cir.), cert. denied sub nom. Cotler Drugs, Inc. v. Chas. Pfizer and Co., 404 U.S. 871, 92 S. Ct. 81, 30 L. Ed. 2d 115 (1971). The court should, however, attempt to make a reasonable estimate of the probability of success. See Young v. Katz, 447 F.2d 431 (5th Cir. 1971). In most cases, the resolution of this question will present a delicate balancing problem for the lower court. It is obvious, however, that the lower court must proceed further than a mere determination that a cause of action has been stated sufficiently to withstand preliminary objections. It appears from the above quoted passage that the lower court decided that the plaintiffs "have potentially a good cause of action" based on the supreme court's holding in Buchanan I. This was error.
After concluding that plaintiffs had a good cause of action, the lower court analyzed the terms of the settlement in the following way:
"Under the terms of this proposed agreement, the mortgagor-plaintiffs could wind up `receiving' anywhere from zero percent to two percent interest (see § 3.03 a & c) and that interest could be capitalized against their mortgage (cheap capitalization in view of the fact that capitalization under 3.03(b) involves interest rates of up to 9%) or wherein it would stay in the mortgagor's escrow account until the mortgage was paid off delayed benefit plus inflation can reduce this benefit.
The giving of only up to 2% interest for the use of another's money is ridiculous in this day and age. The United States government cannot even get interest rates *50 that low and it has the best credit rating in our country. Further, the defendants co-mingle these escrow accounts with their other deposit monies and invest in items which range from 5½% up to 15% interest for home improvement loans, auto loans, etc." 125 P.L.J. at 56-57 (footnotes omitted).
Our primary point of general disagreement with the analysis employed by the lower court is embodied in the italicized portion of the above quoted passage. It may well be true that two percent interest on a loan is ridiculous in today's market. In the instant case, however, the parties are not involved in the negotiation of a loan; they are involved in very complex litigation where a myriad of factors has emerged. After determining that the plaintiffs' cause of action was potentially meritorious, the lower court never attempted to establish a range of reasonableness in light of the attendant risks of litigation.[15] Actually, by reviewing the case in this manner, the court acted as if it had granted summary judgment for the plaintiffs on the liability issue. This was without question an inappropriate standard of review.
It is now necessary to turn from a general discussion of the court's analysis to a more detailed examination of the case, to determine if, under the facts, the court's decision not to accept the settlement was manifestly unreasonable. Probably the most important factor for consideration involves an assessment of the risks involved in establishing liability or damages. In the instant case there are a number of substantive and procedural questions which could preclude recovery by some or all of the class members. The following portion of the opinion discusses these issues.
From the plaintiffs' perspective, possibly the strongest substantive theory involves the contention that an express trust has been created. In Buchanan I, the supreme court *51 stated, in part, as follows: "The term `trust' is a very broad and comprehensive one. Every deposit is a trust, except possibly general bank deposits; every person who receives money to be paid to another or to be applied to a particular purpose is a trustee. . . ." Buchanan I, supra, 457 Pa. at 144, 320 A.2d at 123, quoting, Vosburgh's Estate, 279 Pa. 329, 332, 123 A. 813, 815 (1924).
It must be remembered, however, that the supreme court was deciding whether, admitting all of the well pleaded facts in the complaint, and all inferences reasonably deducible from the facts, the complaint stated a cause of action. The court noted that on remand, appellants would have to prove all elements of a trust. In support of this proposition, the court cited section 2 of the Restatement (Second) of Trusts (1959).[16] Section 2 clearly states that there must be a manifestation of an intention to create a trust. Under section 12, it is asserted that "a debt is not a trust." The following two statements from Comment b are relevant to the instant case:
"If money is deposited in a bank for a special purpose, the bank is not a trustee or bailee of the money unless it is the clear understanding of the parties that the money is not to be used for its own purposes." (Emphasis added).
"Where the deposit is in escrow, that is where the money is to be paid to a third person on the happening of a designated event and in the meantime the depositer has no right to withdraw the money, it depends upon the manifestation of the intention of the parties whether the bank may use as its own the money deposited or whether the money shall be held in trust. Such a deposit ordinarily indicates an intention that the bank may use the money as its own, the bank undertaking to pay the third person the *52 amount of the deposit on the happening of the designated event." (Emphasis added).
While the plaintiffs' claims are clearly not defeated by the above quoted passages, the language certainly does raise some doubt as to the ultimate strength of the case.[17]
*53 In addition, several of the defendant-lending institutions provide language similar to the following in their mortgage documents: "No amount so paid (escrow payments) shall be deemed to be trust funds but may be comingled with the general funds of Mortgagee, and no interest shall be payable thereon." See mortgage note from Samual J. and Lois K. Blaufeld to Equibank. See also mortgage documents of Stanton Federal Savings and Loan Association, Fidelity Savings Association, and Guaranty Savings and Loan Association. In Richman v. Security Savings and Loan Association, 57 Wis. 2d 358, 204 N.W.2d 511 (1973), strikingly similar language was held to establish, as a matter of law, that there was no intention to create a trust.[18] Certainly at trial, oral or written evidence specifically negating the existence of a trust could be introduced against individual mortgagors or perhaps entire subclasses.
For their second theory of recovery, plaintiffs contend that the escrow payments should be subjected to a constructive trust.
"The question whether a constructive trust is to be imposed on the profit earned by the investment . . . of [plaintiffs'] monthly tax payments can be resolved only by answering the more fundamental question whether `the conscience of equity' would conclude that the mortgagees would be unjustly enriched were they permitted to keep the funds.
It is rare that the existence or absence of justification for imposing an equitable remedy, especially a constructive trust, can be decided as a matter of law. Only after all the facts are before a court, can it in most cases properly determine the issue." Buchanan I, supra, 457 Pa. at 152, 320 A.2d at 127.
*54 At trial, plaintiffs would bear the burden of proving that defendants would be unjustly enriched. See Buchanan I, supra; Metzger v. Metzger, 338 Pa. 564, 14 A.2d 285 (1940). To fulfill the "unjustness" requirement, plaintiffs alleged in their complaint that (1) the mortgagors and mortgagees stood in a confidential relationship, (2) there was a substantial inequality in bargaining position, (3) the mortgagees were agents for the mortgagors and (4) as a matter of public policy, the ends of public justice demand the imposition of a constructive trust.
Although the intent of the parties is not necessarily controlling on the question of whether to impose a constructive trust, it would be curious indeed for a court to adopt the position embodied in Comment B to section 12 of the Restatement and then determine that equity demands the imposition of a constructive trust. For this reason most of the problems expressed with regard to the express trust apply to the constructive trust, particularly to the fourth allegation, albeit for somewhat different reasons. The problems involved in proving these allegations are at least as difficult as those involved in proving an express trust and will in all probability depend in large part on dealings between individual parties. Finally, there is some suggestion that a written agreement precludes the finding of an unjust enrichment necessary for the invocation of the constructive trust doctrine. See Buchanan I, supra (concurring and dissenting opinion of Justice Pomeroy).
Plaintiffs' final theory involves the creation of an implied contract. In addition to issues discussed previously in relation to the other allegations, the implied contract suffers from at least two drawbacks. First, as set forth in the complaint, this count applies only to those plaintiffs who entered a mortgage relationship with a bank that, during the term of the mortgage, switched from capitalizing the payments to escrowing them. The vast majority could not recover under this theory. Moreover, as a matter of law, there is a very real question whether a contract to capitalize could be implied from any of the applicable documents. See Buchanan I, supra.
*55 Assuming that all of the above recounted issues are resolved in the plaintiffs' favor, the defendants assert the following defenses to some or all of the claims: Federal pre-emption, see 12 C.F.R. 545.6-11(c);[19] lack of privity with certain defendants;[20] waiver; estoppel; laches and statute *56 of limitations. Suffice it to say that none of these claims is frivolous.
As to the damage issue, plaintiffs' counsel stated at the hearing that:
"I'd agree . . . in 1971-1972 that I thought the banks or lenders were making a substantial profit. But after four years of litigation and discovery and depositions and interrogatories, we came to the conclusion that there were certain lenders losing money. That there were certain lenders that were making small amounts, and there are certain lenders that might have been making as high as and here it is hard for me to say as high as three and four percent after taking off costs. Which, based on our discovery, found no lender that was making windfall profits." (NT 485-86).[21]
It is obvious that, as in any valuation problem, a determination of the amount of profits will be very complicated. For *57 example, defendants would argue that the profits should be measured on the basis of interest available on short term investments while plaintiffs would contend that the interest rate should be higher since the funds were co-mingled with the general bank funds. Moreover, profits will vary from year to year as well as from bank to bank depending on variable factors such as the interest rate available at that time on short and long term investments and the cost of administering the accounts.
Based on the foregoing, it should be obvious that a large percentage of the plaintiffs' claims suffer substantial barriers. At the very least, counsels' representations are clearly supported by the law and the facts. We, therefore, disagree with the lower court's characterization of the likelihood of success.
As previously noted, the lower court failed to consider the range of reasonableness of the settlement in light of the attendant risks of the litigation.[22] It did hold that under the current settlement "plaintiffs could wind up receiving anywhere from zero percent to two percent interest," and concluded that this was an insubstantial benefit to the class. The first assertion is clearly misleading. Although section 3.03(c) does provide for escrowing without interest, the mortgagor retains the option of paying his own taxes and insurance premiums where they fall due. If a mortgagor chooses to pay his own taxes and insurance he can, in effect, establish a self escrowing procedure and pay *58 one-twelfth of the annual cost in a general savings account each month and receive passbook interest. If the mortgagor decided to escrow the funds with the bank, he presumably has concluded that it is worth the cost. Under the capitalization method, § 3.03(b), a mortgagor effectively receives interest equivalent to the interest rate on the mortgage. The judge below should have considered two percent as the lowest rate of return on the settlement.
With regard to the back claims, the lower court concluded that the benefits to the class are very speculative. While this may be true, it would not invalidate an otherwise reasonable settlement. The federal courts have routinely held "[t]hat . . . [the fact that the benefits] are in futuro does not render them valueless or intangible, nor is it a bar to approval." Trainor v. Berner, 334 F. Supp. 1143, 1149 (S.D.N.Y. 1971); see also Merola v. Atlantic Richfield Co., 493 F.2d 292 (3d Cir. 1974).
Based on the foregoing we conclude that the lower court's decision to refuse the settlement was manifestly unreasonable. We will therefore reverse the lower court and order the acceptance of the amended settlement. We note that in future cases, even where we conclude that a lower court abused its discretion in considering a proposed settlement, we may be required to remand the case for further hearings and consideration. Where, as here, we conclude that the decision to reject the settlement was manifestly unreasonable, we can perceive no valid reason for requiring further delay and expense to the parties.
The order of the lower court is reversed and the case is remanded for compliance with this opinion.
WATKINS, former President Judge, and HOFFMAN, J., did not participate in the consideration or decision of this case.
NOTES
[1] Twenty-six institutions are currently involved.
[2] For a discussion of the history of this procedure, see Buchanan v. Brentwood Federal Savings & Loan Ass'n, 457 Pa. 135, 320 A.2d 117 (1974).
[3] Buchanan v. Brentwood Federal Savings & Loan Ass'n., 457 Pa. 135, 320 A.2d 117 (1974). Subsequent to the supreme court's decision, Brentwood Federal was dismissed from the case and the caption was amended. For a similar case, see Felger v. First Federal Savings & Loan Ass'n, 3 Pa.D. & C.3d 70 (C.P. Lawrence Co. 1975).
[4] The Standard Metropolitan Statistical Area for Pittsburgh consists of the counties of Allegheny, Beaver, Butler and Westmoreland.
[5] The federal action apparently is still pending.
[6] For the purpose of the settlement agreement the class was expanded to include individuals who had satisfied mortgages after December 7, 1965.
[7] Individual notices of the proposed settlement were mailed to 158,428 putative class members. Thirteen written objections were filed and 9,078 class members opted-out of the proposed settlement.
[8] On its own motion, the court expanded the class for trial purposes to include those mortgagors who were covered by the proposed settlement agreement. The class was also expanded geographically to include mortgages on residential real property situated in Pennsylvania. This order has also been appealed. Because of our disposition, we need not address this appeal.
[9] A motion to quash the appeal alleging that the order was not appealable was denied by our order dated July 20, 1977.
[10] Cohen involved a derivative suit in which the defendant moved, in accordance with state law, to require the posting of security for costs. The Supreme Court held that the denial of the motion was appealable.
[11] In his opinion, the hearing judge stated that the settlement which was proposed and heard was never amended. 125 P.L.J. at 54 n. 10. The record demonstrates that in response to certain objections to the settlement, two sets of amendments were filed on May 31, and June 1, 1976. These amendments were properly before the court and the failure to act on them constituted an abuse of discretion.
The second set of amendments made five changes. First, section 3.03(c) was amended to provide for the election to be made in writing after the lender has issued a written commitment to make the loan. Second, section 4.01(a), which permits the cancellation of obligations under the agreement if certain legislation is passed or regulations are adopted, was clarified to specify the applicable regulatory agencies. Section 4.01(b) which permits cancellation if the practice of collecting payments without interest is approved under federal and state law by an appellate court of at least statewide jurisdiction, was amended to provide that this provision could not be invoked for five years. Section 3.08, which is a release, was amended to include a qualifying provision to insure that individuals still have a cause of action against an institution for misapplication of the escrow funds. The final change deleted section 3.09. This section provided for the reduction "of any verdict rendered against the alleged tortfeasors or defendants . . . by the pro-rata share of any Defendant released herein. . . ." "This provision is intended to obviate the necessity and expense of having a Defendant released herein remain a party on the record and obliged to participate at its expense at a trial merely for the purpose of determining if in fact it was a tortfeasor so as to entitle the other tortfeasors to a pro-rata reduction of any verdict."
The first amendment made only one change, the inclusion of the five year period in section 4.01(b) which was incorporated into the second set of amendments. For the purpose of this opinion, we will treat the settlement as incorporating the second set of amendments.
[12] Pa.R.C.P. No. 2230 was rescinded on June 30, 1977, effective September 1, 1977, and was replaced by Rule 1714(a). Both provisions are substantially the same and are based on Federal Rule 23(e).
[13] Although state courts are not necessarily bound by federal precedent, "[w]here we find cases decided under the Federal rule persuasive. . . we may follow them . . . ." McMonagle v. Allstate Insurance Company, 460 Pa. 159, 167, 331 A.2d 467, 471 (1975); quoting, McMonagle v. Allstate Insurance Co., 227 Pa.Super. 205, 237, 324 A.2d 414, 429 (1974) (Spaeth, J., dissenting).
[14] In Newman v. Stein, 464 F.2d 689, 693 (2d Cir. 1972), cert. denied sub nom. Benson v. Newman, 409 U.S. 1039, 93 S. Ct. 521, 34 L. Ed. 2d 488 (1972), the court explained this concept by stating "that in any case there is a range of reasonableness with respect to a settlement a range which recognizes the uncertainties of law and fact in any particular case and the concomitant risks and costs necessarily inherent in taking any litigation to completion and the . . . [order approving a settlement] will not be reversed if the appellate court concludes that the settlement lies within that range.
[15] There is some indication that the court did not even attempt to establish a range of reasonableness in light of the best plausible recovery and that only the best recovery conceivable would have been accepted.
[16] In Thompson Will, 416 Pa. 249, 206 A.2d 21 (1965) also cited by the Buchanan court, it was held that the following elements must coalesce before a trust will be declared, " `sufficient words to create a definite subject, and a certain or ascertained object; and to these requisites may be added another, viz, that the terms of the trust should be sufficiently declared . . . .'" Id., 416 Pa. at 255, 206 A.2d at 25, quoting, Smith's Estate, 144 Pa. 428, 437, 22 A. 916, 917 (1891).
[17] The opinion in Vosburgh's Estate, 279 Pa. 329, 123 A. 813 (1924), contains language directly contrary to the first passage quoted above. The language in that case is imprecise under the theory generally used today. For example, in Vosburgh it is also stated that "[t]he cases of hirer and letter to hire, borrower and lender, pawner and pawnee, principal and agent, are all cases of express trust. . ." Id., 279 Pa. at 332, 123 A. at 815. Although these relationships may have similar characteristics, it is generally held that debt, bailment or agency relationships are not trusts. See 1 A. Scott, The Law of Trusts, §§ 5, 8, 8.1, 12, 12.9 (1967). Moreover, Vosburgh did not involve an escrow with a bank. In that case, the Donoughe Lumber Company purchased a quantity of lumber from Vosburgh and paid with notes. "It was understood between the parties these notes could not always be lifted at maturity, and renewals thereof would be arranged. Donoughe Company, prior to maturity of any note or notes which it was unable to pay, would forward new notes in an amount sufficient to realize enough funds to take care of maturing obligations. These notes were to be discounted by Vosburgh, and the proceeds forwarded to Donoughe Company, so that when the original notes become due, Donoughe Company would have sufficient funds to pay the original notes in full." Id., 279 Pa. at 330, 123 A. at 814. Vosburgh died and funds from the discounting of some of these notes had been deposited in a general bank account. The lower court held that Donoughe Company was not entitled to preference over other creditors because Vosburgh was a debtor rather than a trustee. The supreme court reversed, holding that Vosburgh had been a trustee as to the funds. Vosburgh is distinguishable from the instant case because there the intention to create a trust was evidenced by the fact that the actual proceeds were to be delivered to Vosburgh. Absent circumstances indicating a contrary intent, it is generally agreed that in a case involving a general deposit for a special purpose, the inference should be that the bank is entitled to use the money as its own. 5 A. Scott, The Law of Trusts, § 530 (1967).
In Buchanan I, the supreme court discussed the possibility of a debtor-creditor relationship and held that it could not conclude, as a matter of law, that such a relationship was established. In support of its decision, the court cited Carpenter v. Suffolk Franklin Savings Bank, 362 Mass. 770, 291 N.E.2d 609 (1973), which held under facts similar to Buchanan that a cause of action in trust had been set forth. After a trial on the merits, the lower court held that neither an express nor a constructive trust had been created. This decision was affirmed on appeal. Carpenter v. Suffolk Franklin Savings Bank, 346 N.E.2d 892 (Mass. 1976). Although Carpenter obviously does not control our case, it certainly is relevant to counsels' decision to settle. See also Brooks v. Valley National Bank, 113 Ariz. 169, 548 P.2d 1166 (1976).
[18] Richman was distinguished in Buchanan I because, "[t]here [was] nothing in the pleadings of any of the parties to indicate that any mortgage agreement . . . expressly allowed a mortgagee to commingle the monthly tax payments with its own funds." 457 Pa. at 145-46 n. 11, 320 A.2d at 123-24 n. 11.
[19] This regulation, adopted by the Federal Home Loan Bank Board provides, in part, that:
"A Federal association which makes a loan on or after June 16, 1975 on the security of a single-family dwelling occupied or to be occupied by the borrower . . . shall pay interest on any escrow account . . . (1) if there is in effect a specific statutory provision or provisions of the State in which such dwelling is located by or under which State-chartered savings and loan . . and similar institutions are generally required to pay interest on such escrow accounts, and (2) at not less than the rate required to be paid by such State-chartered institutions but not to exceed the rate being paid by the Federal association on its regular accounts.. . . Except as provided by contract, a Federal association shall have no obligation to pay interest on escrow accounts apart from the duties imposed by this paragraph. (Emphasis added).
There is very strong precedent for the view that earlier regulations implicitly approved the practice of escrowing without interest and that federal regulations have pre-empted state control of this area. In Greenwald v. First Federal Savings & Loan Ass'n., 446 F. Supp. 620 (D.Mass. 1978), it was held, in an action for a declaratory judgment, that a Massachusetts' law requiring interest payments was unconstitutional when applied to federal savings and loan institutions because the statute violated the Supremacy Clause, U.S.Const. Art. VI, Cl. 2. See generally Meyers v. Beverly Hills Federal Savings & Loan Ass'n., 499 F.2d 1145 (9th Cir. 1974); Murphy v. Colonial Federal Savings & Loan Ass'n., 388 F.2d 609 (2d Cir. 1967); California v. Coast Federal Savings & Loan Ass'n., 98 F. Supp. 311 (S.D.Cal. 1951); Kaski v. First Federal Savings & Loan Ass'n., 72 Wis. 2d 132, 240 N.W.2d 367 (1976). Eleven institutions involved in this case are governed by this regulation. None of the above cited authority holds that a federal savings and loan association could not contract to pay interest on escrow payments prior to June 16, 1975. While we express no opinion on whether a savings and loan could agree to pay interest prior to June 16, 1975, we note that such a claim is dubious since it would lead to the highly unusual result of pre-empting the common law of trust and contract. Assuming that the common law remains intact, however, the regulations are still relevant to show that there was no intent to create a trust and also that a constructive trust should not be imposed.
[20] Although the point has not been decided in this state, the majority rule appears to be that a named plaintiff who has had no dealings with a particular defendant may not maintain a class action against that defendant. Haas v. Pittsburgh National Bank, 526 F.2d 1083 (3d Cir. 1975); LaMar v. H & B Novelty & Loan Co., 489 F.2d 461 (9th Cir. 1973); Chevalier v. Baird Savings Association, 66 F.R.D. 105 (E.D.Pa. 1975). In Chevalier, plaintiffs in an escrow suit similar to the instant case were precluded from maintaining an action against any defendant with whom no representative plaintiff had any dealings. Nine institutions would be dismissed if this rule was applied to the instant case. A substantially greater number could be partially excluded if the rule requires a representative plaintiff for each mortgage form used by a bank.
[21] This opinion was based on extensive pre-trial discovery. At least 56 depositions were taken and 16,000 interrogatories answered. Many of the figures presented in this discovery were based on pre-litigation studies. While it is true that a trial judge must guard against collusion between the parties, where as in the instant case there is no hint of collusion and where extensive discovery occurred while the parties were clearly in adversary positions, the recommendations and opinions of counsel are entitled to substantial consideration. "The weight accorded to the recommendation of counsel is dependent on a variety of factors, namely, length of involvement in the litigation, competence, experience in the particular type of litigation, and the amount of discovery undertaken. Usually, a consideration of the criteria involved leads the court to the conclusion that the recommendation of counsel is entitled to great weight." 3 H. Newberg, Newberg on Class Actions, § 5601 d (1977) (footnote omitted); see also International House of Pancakes Franchise Litigation, 1973-2 Trade Cases 74, 616 (W.D.Mo. 1973), aff'd 487 F.2d 303 (8th Cir. 1973); Cannon v. Texas Gulf Sulphur, 55 F.R.D. 308 (S.D.N.Y. 1972).
[22] The court subsequently did approve a settlement with Dollar Savings Bank and Suburban Savings and Loan Association which basically provided for either the payment of interest at a rate of 1¼% below passbook rates (currently this would be approximately 4%) or the capitalization of the tax and insurance payments. These settlements, however, are not particularly helpful in establishing the range of reasonableness because of the method of analysis employed by the court. These settlements are not even particularly useful to determine the settling defendants' perception as to the merits of the case because the agreements contain "most favored nation" clauses which call for a reduction if a more favorable settlement is reached with the other defendants. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541105/ | 38 Pa. Commonwealth Ct. 67 (1978)
James L. Marvel
v.
Thomas G. Dalrymple, Robert J. DiJoseph and James A. Drobile, Comprising the Civil Service Commission of Radnor Township (2 Cases).
Nos. 1105 and 1123 C.D. 1976.
Commonwealth Court of Pennsylvania.
Argued April 3, 1978.
October 11, 1978.
*68 Argued April 3, 1978, before President Judge BOWMAN and Judges MENCER and ROGERS, sitting as a panel of three.
John M. Gallagher, Jr., with him Richard, Brian, DiSanti & Hamilton, for James L. Marvel.
*69 Eugene H. Evans, with him Goldberg and Evans, for Radnor Township Civil Service Commission.
OPINION BY PRESIDENT JUDGE BOWMAN, October 11, 1978:
An order of the Court of Common Pleas of Delaware County directing the Civil Service Commission of Radnor Township (Commission) to make certain records available to appellant, James L. Marvel, is the basis of this appeal.
In March, 1974, Marvel, a Radnor Township police officer, undertook a promotional examination for the rank of sergeant. The examination was a four-part test consisting of (1) a written examination; (2) an oral examination before members of the Commission and a guest; (3) a review of service ratings by superior officers; and (4) a review of appellant's past experience, training and education. Subsequent to the examination, appellant was notified of his score but was not apprised of the passing grade, the number of persons passing the test, or his relative ranking. Because he suspected irregularities in the administration and grading of the examination, appellant petitioned the Commission for permission to review the grades of each examinee in each of the four components of the examination and all papers comprising each component.
Permission was denied ostensibly because that information was deemed to be confidential. Appellant then appealed to the lower court which found that several of the documents sought were indeed "public records" within the meaning of the so-called "Right-To-Know Act"[1] (Act), but that certain of those documents were excepted from the provisions mandating *70 disclosure. The court denied appellant access to rating sheets completed by the Commission, evaluations by superiors prepared during the course of the promotional examination, and physical reports on the fitness of each applicant for promotion, reasoning that those documents were within the category of records which would be intrinsically harmful to the reputation or personal security of the participants in the examination, namely, other applicants, the superior officers and the Commission members. The court concluded by ordering that only the following documents be made available to appellant:
1. A copy of the examination booklet used in the examination.
2. Appellant's own written examination answer paper.
3. The written examination answer papers of all other examinees.
4. Appellant's composite score in the examination.
5. The composite scores of all other examinees.
6. Appellant's numerical scores for each part of the examination.
7. The numerical scores of all other examinees for each part of the examination.
Appellant now comes to us and argues that the lower court's order is underinclusive because its application of the disclosure exceptions afforded by the Act is in error. Reliance on the "reputation exception" is misplaced, argues appellant, because the documents sought to be disclosed are not intrinsically harmful to the reputation of anyone involved with the examination. Likewise, appellant asserts that no investigation was undertaken by the Commission in relation to the examination, and that, therefore, the "investigation exception" provided by the Act does not apply. Lastly, appellant claims a common law right *71 in addition to the alleged statutory right, to inspect the records sought herein.
The Commission answers by claiming that none of the records requested by appellant are "public records" as defined by the Act and argues in the alternative that if such records are indeed "public records," the exceptions provided by the Act do apply and preclude discovery of the items sought on appeal.
Section 1 of the Act, 65 P.S. § 66.1 defines "public record" as including
any minute, order or decision by an agency fixing the personal or property rights, privileges, immunities, duties or obligations of any person or group of persons: Provided, That the term `public records' shall not mean any report, communication or other paper, the publication of which would disclose the institution, progress or result of any investigation undertaken by an agency in the performance of its official duties . . . or which would operate to the prejudice or impairment of a person's reputation or personal security. . . .
Any material so designated a public record is available to any citizen of the Commonwealth for examination and inspection. Section 2 of the Act, 65 P.S. § 66.2.
Undoubtedly, the legislature intended through the medium of [this] statute a clarification of the right of examination and inspection of public records by all citizens, regardless of their interest or the extent or nature thereof. Within the statutory language is embraced all citizens and not simply those citizens who by some courts might be denied the right of examination and inspection because of lack of interest or legitimate purpose.
*72 Wiley v. Woods, 393 Pa. 341, 349-50, 141 A.2d 844, 849 (1958).
As the Commission has structured its argument, the materials sought by appellant cannot be a public record because he cannot assert a personal or property right or privilege in a promotion to the rank of sergeant.
Insofar as the major premise is concerned, this is a proper statement of the law. No right, as such, adheres to promotion. McGrath v. Staisey, 433 Pa. 8, 249 A.2d 280 (1968); Bobick v. Fitzgerald, 416 Pa. 588, 207 A.2d 878 (1965); Eckert v. Buckley, 23 Pa. Commonwealth Ct. 82, 350 A.2d 417 (1976).
Commission's syllogism has not, however, properly framed the inquiry in an action brought under the Right-To-Know Act. As Wiley v. Woods, supra, makes abundantly clear, any citizen may seek examination of any "public record." This right to examine is not dependent upon any other personal or property right, privilege or immunity he may otherwise enjoy but rather whether the documents sought in this case are within the intended framework of any "minute, order or decision . . . fixing the personal or property rights, privileges, immunities, duties or obligations of any person or group of persons." A broad construction adheres, therefore, to an initial determination that a document is a "public record," to be tempered as an opposing party brings into play the enumerated exceptions. See McMullan v. Wohlgemuth, 453 Pa. 147, 308 A.2d 888 (1973).
More pertinently, appellant has not postulated his request in terms of a right to promotion, but rather in terms of a right to be fairly and objectively examined solely in terms of his merit and fitness for the job, these being the criteria for promotion incorporated into Section 642 of the First Class Township *73 Code,[2] and regulations promulgated thereunder, apparently arguing that any decision by the appointing authority to promote some number of individuals certified by the Commission as eligible for appointment could come within the meaning of a decision "fixing personal or property rights, privileges, immunities, duties or obligations . . ." of unpromoted eligibles. See Lamolinara v. Barger, 30 Pa. Commonwealth Ct. 307, 311, 373 A.2d 788, 790 (1977) ("fixing" to be read as "affecting" rather than "creating" rights, privileges, etc.).
The lower court's analysis did not delve into the nature of the right fixed here by the promotion process, relying instead on comparison to documents previously defined by this Court as "public records,"[3] concluding that "examination of the statutory definition of `public record' and appellate interpretations of that definition, together with the Civil Service Commission's statutory duty, convinces us that the records sought by appellant satisfy the definition. . . ." (Footnote omitted.)
Were we to define the requested documents solely by those terms provided in Section 1 of the Act we would have to investigate the particular right or interest propounded by appellant, i.e., ensuring fair testing *74 methods, an issue addressed by neither the parties nor the lower court.
We believe, however, that such investigation is unnecessary when a statutory duty befalls the Commission to keep its examination records open to public inspection. To the extent that the lower court touched on this in the quoted portion of its opinion, we agree.
Section 631 of the First Class Township Code, 53 P.S. § 55631, requires the Commission to keep open to the public all records of its proceedings and official actions, including records of examination.[4] In conjunction therewith, Sections 305 and 516 of the Rules and Regulations of the Civil Service Commission of Radnor Township make available for public inspection all examination papers.[5]
In that these provisions provide public access to the minutes, records and examination papers of the *75 Commission, these documents must be deemed "public records" separate and apart from any inquiry into any rights, privileges, immunities, duties or obligations fixed by them. We so hold because we believe the legislature intended the generic definition of a public record contained within the Right-To-Know Act to incorporate by implication those specific definitions of "public record" contained in statutes allowing for public access to particular documents of particular agencies.
Our holding that the requested documents are public records within the context of the Right-To-Know Act compels consideration of any applicable exclusions.
Appellant has requested all examination papers of all applicants in each of the four areas of examination. The Commission contends that such disclosure would not only reveal the institution, progress or result of an investigation undertaken by the agency, but would also operate to the prejudice of the reputation or personal security of those involved in the examination procedures, i.e., the other applicants, Commission members, and reviewing superior officers.
In our view, the requested documents are not of the sort envisaged by the field investigation exception of the Act. As the ultimate determinators of the decision to promote or not to promote, they have been accumulated for that purpose, as opposed to being independent investigations, the discovery of which would compromise the performance of an official agency action unrelated to the particular interest which has rendered the requested minute, order or *76 decision a public record in the first place. See Wiley v. Woods, supra at 352, 141 A.2d at 850 (field investigation notes prepared in connection with report to individual member of City Council nondiscoverable; actual report and record of Planning Commission's denial of rezoning petition discoverable as being bases for ultimate action by City Council).
With regard to the requested rating sheets completed by members of the Commission and the guest examiner in connection with the oral examination, evaluations by superiors specifically for the promotional examinations and physician's reports on the fitness of each applicant for promotion, we believe these to have been properly excluded from discovery as within a category of records the discovery of which would operate to prejudice or impair the reputation of the other applicants.
The same consideration compels exclusion of the superior officer's promotional evaluation, as we believe the confidentiality of such is required to maintain and promote relations between superiors and applicants. This pertains as well to the evaluation sheets prepared by the Commission in the oral interview. An individual rater's interest in maintaining a reputation for fairness and objectivity is best promoted by ensuring the confidentiality of the rating sheets.
As we believe the lower court properly struck the balance between the appellant's interest in a fair and impartial examination, and the need for confidentiality within certain elements of the evaluation process, the order is affirmed.
ORDER
NOW, October 11, 1978, the order of the Court of Common Pleas of Delaware County is affirmed.
NOTES
[1] See Section 1 of the Act of June 21, 1957, P.L. 390, as amended, 65 P.S. § 66.1 et seq.
[2] Act of June 24, 1931, P.L. 1206, as amended, added by Section 20 of the Act of May 27, 1949, P.L. 1955, as amended, 53 P.S. § 55642.
[3] See Young v. Armstrong School District, 21 Pa. Commonwealth Ct. 203, 344 A.2d 738 (1975) (list of names and addresses of kindergarten children discoverable for purposes of ascertaining where children would attend school); Kanzelmeyer v. Eger, 16 Pa. Commonwealth Ct. 495, 329 A.2d 307 (1974) (payroll and attendance cards discoverable by citizen seeking to ensure school district had not paid employees for unauthorized absences); Friedman v. Fumo, 9 Pa. Commonwealth Ct. 609, 309 A.2d 75 (1973) (list of names of persons who had taken an examination for qualification as certified public accountants a "public record").
[4] This Section provides, specifically:
The commission shall keep minutes of its proceedings and records of examinations and other official actions. All recommendations of applicants for appointment received by the commission shall be kept and preserved for a period of five years and all such records and all written causes of removal filed with the commission shall be subject to reasonable regulation and open to public inspection.
[5] Section 305 provides:
The secretary of the commission shall record in the minutes the time and place of each meeting of the commission and the names of the members present; all proceedings and official acts of the commission, including records of examinations; the votes given by members except when the action is unanimous, and, when requested, a commission member's dissent with his reasons; and such other information as the commission may direct. The secretary shall cause the minutes to be written up forthwith and presented for approval or amendment at the next regular meeting. The minutes, or a true copy thereof, certified by the commission, or by a majority thereof, shall be open with other records of the commission as provided by law.
Section 516 provides:
Examination papers shall be subject to the same legal restrictions as the minutes and other records of the commission, and shall be preserved accordingly. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541203/ | 344 B.R. 696 (2006)
In re Jean Raoul PETIT-LOUIS, Debtor.
No. 05-60335 BKC AJC.
United States Bankruptcy Court, S.D. Florida, Miami Division.
June 23, 2006.
*697 Carolina A. Lombardi, Esq., Legal Services of Greater Miami, Inc., Miami, FL, John W. Kozyak, Esq., Lisa B. Keyfetz, Esq., Kozyak, Tropin & Throckmorton, PA, Coral Gables, FL, Paul M. Uyehara, Esq., Community Legal Services, Inc., Philadelphia, PA, for Debtor.
Steven R. Turner, Esq., Assistant United States Trustee, Miami, FL, U.S. Trustee.
ORDER DENYING U.S. TRUSTEE'S MOTION FOR RECONSIDERATION OF ORDER GRANTING WAIVER OF CREDIT COUNSELING
A. JAY CRISTOL, Chief Judge.
This cause came before the Court for hearing on May 24, 2006 on the United States Trustee's Motion for Reconsideration of the Order granting a waiver of credit counseling required by 11 U.S.C. § 109(h)(1) for Mr. Petit-Louis. The Court granted the waiver because the approved credit counseling agencies in the Southern District of Florida were not reasonably able to provide adequate services to Mr. Petit-Louis, who only speaks and understands Creole.
The U.S. Trustee moved for reconsideration of the Court's waiver order on the *698 basis that the Court lacks authority to permanently waive credit counseling under 11 U.S.C. 109(h)(3) and that Mr. Petit-Louis failed to comply with the requirements for obtaining a waiver under section 109(h)(3). Two days before rehearing, the U.S. Trustee supplemented its motion, and filed supporting affidavits, to argue for the first time that Mr. Petit-Louis was not entitled to a waiver of credit counseling because credit counseling, was available in Creole in the district at the time Mr. Petit-Louis filed his bankruptcy petition. However, the U.S. Trustee did not bring any witnesses to the hearing for cross-examination.
Kozyak, Tropin & Throckmorton, PA and Legal Services of Greater Miami, Inc., on behalf of the Debtor, presented Carolina Lombardi, Esquire as a witness. The Court was uncertain about whether testimony was required to resolve this matter and allowed Attorney Lombardi to testify, subject to a later determination of whether or not testimony was required. As stated on the record, if testimony was required, then a further hearing would be held to allow the presentation of testimony by the U.S. Trustee. As the proceeding developed though, it became clear that testimony was not required, based upon the representations and admissions of both parties. The Court therefore did not consider the testimony of Attorney Lombardi and decided the matter on the pleadings, representations and admissions made in open Court at the hearing.
Because a motion for rehearing is not an opportunity to raise arguments that could have been made, but were not, at the initial hearing, see Lussier v. Dugger, 904 F.2d 661, 667 (11th Cir.1990), the Court will reconsider the waiver order for the limited purpose of addressing whether the Court had authority to waive counseling based on the record as of January 31, 2006. The U.S. Trustee's motion to introduce the affidavits into evidence (made after the U.S. Trustee had rested), is denied and the affidavits will not be considered.
BACKGROUND
Jean Raoul Petit-Louis (the "Debtor") filed a voluntary chapter 7 petition on December 30, 2005 (the "Petition"). Mr. Petit-Louis is fluent in Creole, and has very limited English capability. He filed his petition and it was accepted in forma pauperis as provided by Bankruptcy Rule 1006(c).
At the hearing on January 31, 2006, Mr. Petit-Louis's counsel informed the Court that prior to filing the Petition, she contacted every approved counseling agency on the U.S. Trustee's approved list of agencies for the Southern District of Florida to determine whether the agency could provide credit counseling pursuant to section 109(h)(1) in Creole. In each instance, the agency representative who answered the phone stated that the agency could not provide credit counseling in Creole. It is not disputed that, at the time of the filing, the list maintained by the Office of the U.S. Trustee did not disclose the existence of any agency equipped to provide credit counseling in Creole.
Because he could not obtain the requisite pre-filing counseling in Creole, nor could he afford to hire an interpreter, Mr. Petit-Louis requested that the regional U.S. Trustee do any of the following: waive the credit counseling requirement; provide him with a Creole interpreter; or, decertify the approved counseling agencies for failure to provide Creole speaking counselors. By letter dated January 12, 2006, the U.S. Trustee declined to provide interpreter assistance, refused to waive the requirement and did not dispute the fact that no counseling was available in *699 Creole. A letter addressed to the U.S. Trustee requesting this relief was attached to Mr. Petit-Louis' petition, and, because the Debtor checked the box on Official Form 1 requesting a waiver for exigent circumstances, the letter was docketed as a "Certification of Exigent Circumstances".[1]
On January 31, 2006, the Court heard argument on the Debtor's request for waiver of section 109(h)(1)'s counseling requirement. The U.S. Trustee requested that the case be dismissed on account of Mr. Petit-Louis' failure to comply with section 109(h)(1). Following the hearing, the Court entered an order finding that there was no possibility that Mr. Petit-Louis could obtain counseling under the circumstances and that Mr. Petit-Louis was therefore entitled to a waiver of the counseling requirement because his inability to obtain counseling denied him access to the Bankruptcy Court. The Order is titled "Order on Debtor's Petition of Exigent Circumstances that Merits Waiver of Budget and Credit Counseling" and references section 109(h)(3).
At the time of the entry of the Order, the Court considered section 109(h)(3) as the appropriate section under which the Court had authority to grant a waiver to the Debtor. The Court does not recede from its earlier ruling; however, upon further reflection, the Court believes that it also has ample authority to waive the requirement of prepetition credit counseling for the Debtor under section 109(h)(2) of the Bankruptcy Code. Section 109(h)(2) provides the Court authority to grant the waiver premised upon the unavailability of counseling in Creole.
MEMORANDUM OPINION
Under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), debtors are required to attend a credit counseling course from an agency approved by the Office of the U.S. Trustee prior to filing a petition. See 11 U.S.C. § 109(h)(1). However, pre-filing counseling is not required for:
a debtor who resides in a district for which the United States trustee . . . determines that the approved nonprofit budget and credit counseling agencies for such district are not reasonably able to provide adequate services to the additional individuals who would otherwise seek credit counseling from such agencies by reason of the requirements of [section 109(h)(1)]. . . .
Apparently there is no dispute that section 109(h)(2) provides the Office of the U.S. Trustee with the authority to waive the counseling requirement if the Office of the U.S. Trustee determines that adequate services are not available in a district. The U.S. Trustee's determination of adequacy under section 109(h)(2) is subject to review. See In re Hubbard, 333 B.R. 377, 385 (Bankr.S.D.Tex.2005) ("[o]f course, the United States trustee's determination [regarding adequacy] may be challenged."). Thus, the issue raised by the parties on reconsideration is whether the Bankruptcy Court had authority to waive Mr. Petit-Louis' section 109(h)(1) counseling requirement and whether Mr. Petit-Louis properly invoked the Court's jurisdiction to do so.
The U.S. Trustee contends that the Bankruptcy Court does not have jurisdiction to review the Office of the U.S. Trustee's adequacy determination. The U.S. Trustee asserts that Mr. Petit-Louis can only seek review pursuant to the Administrative Procedures Act (APA). The Court sees no merit in this argument, because *700 even if the APA applies to the Debtor's waiver request, the Bankruptcy Court may review the U.S. Trustee's adequacy determination, as the APA specifically entitles an aggrieved party to judicial review of an agency's decision by "any applicable form of legal action, including actions for declaratory judgments or writs of prohibitory or mandatory injunction . . . in a court of competent jurisdiction" if no specific review proceeding is otherwise provided by statute. 5 U.S.C § 701, et seq. (emphasis added).
The parties did not brief or argue the applicability of the APA to this case and the Court does not make any determinations as to whether the U.S. Trustee's determination under 11 U.S.C. 109(h)(2) is within the scope of the APA. However, the Court notes that the U.S. Trustee's reliance on the APA only strengthens the Debtor's claim that he is entitled to judicial review because it supports the Debtor's contention that he must be afforded a forum within which to seek review of an arbitrary or capricious adequacy determination by the Office of the U.S. Trustee. Proceedings relating to a debtor's qualifications to be a debtor in the bankruptcy court the type of proceeding at issue in this case are clearly within the jurisdiction of the Bankruptcy Court. Therefore the Bankruptcy Court is the logical and proper forum for the Debtor's request of waiver of section 109(h)(1)'s counseling requirement on the basis that the counseling agencies approved by the Office of U.S. Trustee are not reasonably able to provide adequate services.
Further, Mr. Petit-Louis' waiver request sufficiently placed the U.S. Trustee on notice that he intended to challenge the adequacy of counseling. The Debtor sent a letter to the U.S. Trustee and attached same to his petition, which explained the lack of availability of counseling in Creole. At the initial hearing on the Debtor's request for waiver, as was evident from the papers filed, the Debtor argued the lack of availability of counseling in Creole as the basis for asserting his right to waiver. While the Debtor arguably could have filed a motion requesting such waiver with his petition (rather than attaching a copy of the letter to the U.S. Trustee), the Court recognizes that this was a novel procedural issue for the Debtor (as well as for the Court and the U.S. Trustee). The U.S. Trustee was not prejudiced by the procedure invoked by the Debtor because the Debtor's letter provided sufficient notice, and the U.S. Trustee was given sufficient opportunity to respond.
The Court acted within its discretion in determining that counseling services in the Southern District of Florida were inadequate for Mr. Petit-Louis and waiving the counseling requirement on this basis. At the January 31 hearing on the Debtor's request for waiver, the U.S. Trustee did not set forth any argument or proffer any evidence to demonstrate that it complied with its duties when the U.S. Trustee determined that adequate counseling in the Southern District of Florida was reasonably available. The U.S. Trustee could not and did not demonstrate that credit counseling was available to debtors such as Mr. Petit-Louis, who speak and understand only Creole, and cannot afford to hire an interpreter. Instead, the U.S. Trustee contended the Bankruptcy Code does not impose a responsibility on the Office of the U.S. Trustee to ensure that services are available to non-English speaking debtors. The U.S. Trustee's disregard for non-English speaking residents seeking counseling in the Southern District of Florida, a district which the U.S. Trustee admits "presents its own unique set of language issues", evidenced the failure *701 of the Office of the U.S. Trustee to comply with its duties in determining whether counseling services are adequate in this district. If the U.S. Trustee fails to manage the bankruptcy counseling system in a non-discriminatory fashion, the Court has the authority and indeed the responsibility to allow a debtor access to the bankruptcy system by waiving a requirement which, in practice, is inappropriately excluding him on the basis of his lack of English language ability.
The Court acknowledges the U.S. Trustee's argument that the Office of the U.S. Trustee has made an effort to improve access to credit counseling to non-English speaking debtors since Mr. Petit-Louis filed his petition and commends the U.S. Trustee for this effort. The fact that the U.S. Trustee now argues that credit counseling is available in Creole and other languages and that the U.S. Trustee website is being updated almost daily defeats, rather than supports, the U.S. Trustee's initial argument that credit counseling in languages other than English is not required under 11 U.S.C. § 109(h)(2)(A), or under 11 U.S.C. § 111(d)(1)(c) which requires the U.S. Trustee to only approve credit counseling courses "if such course is effective."
The Court also rejects the argument of the U.S. Trustee that the Debtor might have received the counseling in English, using a friend or relative who spoke Creole as an translator. Such a process in no way assures that the translation would be correct, accurate and effective; and in fact, the concept is frivolous. If such a procedure were appropriate and effective, then why are certified translators required in judicial proceedings? A prospective debtor, in serious financial trouble and so destitute that he or she cannot even afford to pay the filing fee, would not be fairly treated by receiving a gratuitous translation of unknown quality from a friend or relative.
One final word about 11 U.S.C. 109(h). The Court fully agrees with the basic concept adopted by Congress in regard to credit counseling. It is a good thing and should be required for and `provided to every high school senior as a prerequisite to graduation. So timed, the counseling would be of immense value to millions and would no doubt have a positive effect in reducing the number of bankruptcy filings of certain types of cases. Unfortunately, the requirement for creditor counseling immediately prior to and as a prerequisite to filing bankruptcy is similar to locking the barn after the horse is gone. The present statutory requirement is the equivalent of requiring a person who has suffered a heart attack to listen to a lecture on exercise, diet and the evils of cholesterol before allowing such person to undergo open heart surgery.
The relevant inquiry under section 109(h)(2) is what counseling was available to the Debtor before he filed. The fact that the U.S. Trustee has now discovered that counseling may have been available information which the U.S. Trustee was not aware of at the initial hearing bears no relevance to the Debtor's waiver request. The available counseling was inadequate for Mr. Petit-Louis at the time that he sought to file his petition, and he was entitled to a waiver of counseling pursuant to section 109(h)(2) on this basis.
Accordingly, it is
ORDERED AND ADJUDGED that the Trustee's Motion for Reconsideration is DENIED.
NOTES
[1] Official Form 1 only provides debtors with the option to request a waiver on account of "exigent circumstances" and not for lack of availability of adequate services. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541131/ | 155 B.R. 15 (1993)
In re Harl Brady GAMMON and Ruby Alline Gammon, husband and wife, Debtors.
Harl Brady GAMMON and Ruby Alline Gammon, husband and wife, Appellants,
v.
CHRYSLER CREDIT CORPORATION, Appellee.
No. CIV-92-1211-L, Bankruptcy No. 89-5130-TS.
United States District Court, W.D. Oklahoma.
May 24, 1993.
*16 Kenneth C. McCoy, Oklahoma City, OK, for debtors/appellants.
Michael L. Loyd, Pat H. Brown, Oklahoma City, OK, for creditor/appellee.
ORDER
LEONARD, District Judge.
This matter comes before the Court on appeal from a Bankruptcy Court's denying Debtors' Motion To Redeem. Upon review of the applicable law in this matter, the Court affirms the Bankruptcy Court's decision.
CASE HISTORY
The Debtors filed a Chapter 13 Bankruptcy Petition on August 18, 1989. The plan was confirmed on October 30, 1990. The confirmed plan called for Chrysler Credit Corporation, Appellee herein, to be paid the full amount of their allowed secured claim in the amount of $8,237.50 at 10% interest. The confirmed plan further provided for repayment of the remainder of Chrysler Credit Corporation's claim with other unsecured creditors through the completion of the plan after all other classes were paid, on a pro rata share with other unsecured creditors.
On January 15, 1992, the Debtors converted their case to a Chapter 7 proceeding. Following conversion, the Debtors filed a motion to redeem their collateral, the 1986 Dodge van, from Chrysler Credit Corporation for the amount of $0.00 which represented the remaining balance due on the allowed secured claim. Following objections by Chrysler Credit Corporation, the Bankruptcy Court issued an order denying Debtors' motion to redeem tangible personal property.
STANDARD OF REVIEW
In reviewing a Bankruptcy Court's decision, the District Court functions as an Appellate Court and is authorized to affirm, reverse or modify the Bankruptcy Court's ruling or to remand the case for further proceedings. Bankruptcy Rule 8013. The Court is bound to accept the Bankruptcy Court's findings of fact unless they are clearly erroneous, and the same rule applies to decisions involving mixed questions of law and fact. Nulf v. International Paper Co., 656 F.2d 553, 558 (10th Cir.1981). The Appellate Court must review the Bankruptcy Court's purely legal determinations de novo. First Bank of Colo. Springs v. Mullet (In re Mullet), 817 F.2d 677, 678-679 (10th Cir.1987).
ISSUE IN THE CASE
The issue before this Court is whether a debtor, after converting from Chapter 13 to Chapter 7, may redeem his collateral pursuant to 11 U.S.C. § 722, qualifying personal property, from the lien of a creditor by paying the remaining balance due on the creditor's Chapter 13 allowed secured claim.
After review of the record below and a careful consideration of the cases cited by the parties, the Court finds that a Debtor may not redeem his collateral in a Chapter 7 proceeding by payment on the "stripped down" lien obtained in a Chapter 13 proceeding.
ANALYSIS
Section 506 of the Bankruptcy Code provides in pertinent part:
*17 (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. . . .
. . . .
(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) such claim was disallowed only under section 502(b)(5) or 502(e) of this title; or
(2) such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title.
Accordingly, the creditor's lien may be bifurcated into a claim which reflects the market value of the collateral, which is the allowed secured claim, and an unsecured claim which may be voided.
In a Chapter 7 proceeding, the Debtor may redeem tangible personal property intended primarily for personal or family use from a lien by paying the holder of the lien the amount of the allowed secured claim.
The authorities cited by the parties in this matter indicate a split of decision at to whether a Debtor may value his allowed secured claim in a Chapter 13 proceeding, convert to Chapter 7, and void the lien securing that claim to the extent that the claim exceeds the underlying value of the security. Debtors cite In re Hargis, 103 B.R. 912, 916 (Bankr.E.D.Tenn.1989); In re Tluscik, 122 B.R. 728, 729 (Bankr.W.D.Mo. 1991), and In re Bunn, 128 B.R. 281 (Bankr.D.Idaho 1991) in support of allowing a Debtor to strip down its lien by the above-described process. Chrysler Credit Corporation relies primarily upon Dewsnup v. Timm, ___ U.S. ___, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992); In re Shrum, 98 B.R. 995 (Bankr.W.D.Okla.1989); and In re Shaffer, 48 B.R. 952 (Bankr.N.D.Ohio 1985) in support of the position that a Debtor may not strip down its lien by converting from Chapter 13 to Chapter 7. The cases cannot be reconciled.
The Bankruptcy Court cited several reasons why it believed that the better result was to not allow the debtor to strip down a creditor's lien in this manner. The Bankruptcy Court stated the following:
There are several reasons why this Court believes the holding in Shaffer is the better result. 48 B.R. at 958. First, the United States Supreme Court, in Dewsnup, held that a secured claim cannot be bifurcated in a Chapter 7 case. ___ U.S. at ___, 112 S.Ct. at 778. In this case, Debtors are attempting to achieve by converting their case to one under Chapter 7 that which they could not have achieved had they originally filed under Chapter 7. Secondly, while Debtors can, under the provisions of § 722, redeem certain collateral in a Chapter 7 case by paying its fair value, such a redemption cannot be made in installments over the objection of the creditor. By filing first under Chapter 13, paying off the allowed secured claim portion of Chrysler's bifurcated claim over a period of time under the Chapter 13 plan and then converting to Chapter 7, Debtors would again be achieving by conversion that which could not be achieved directly in a Chapter 7 proceeding. Thirdly, to so permit Debtors to free their property from the liens of secured creditors by converting from Chapter 13 to Chapter 7 would be to provide Debtors with an incentive to so convert as soon as the allowed amount of a bifurcated secured claim is paid, which in many cases, would be before any payments have been made to unsecured creditors. To permit the expectations of the unsecured creditors to be defeated in this manner would provide a built-in incentive *18 for debtors to abuse the bankruptcy process.
The Court agrees with the Bankruptcy Court's analysis and especially notes that the United States Supreme Court in Dewsnup v. Timm, supra, stated that it was reluctant to accept an argument that would interpret the code to effect a major change in pre-code practice without some discussion and legislative history. The Supreme Court was referring to the practice that liens pass through bankruptcy unaffected. The Supreme Court also noted that congressional history stated that subsection 506(d) permitted liens to pass through the bankruptcy case unaffected. Id. at 779. In light of this indication by the United States Supreme Court and the analysis of the Bankruptcy Court, this Court affirms the Bankruptcy Court's decision.
CONCLUSION
Accordingly, the Bankruptcy Court's decision is AFFIRMED.[1]
It is so ordered.
*19 UNITED STATES BANKRUPTCY APPELLATE PANEL FOR THE
NINTH CIRCUIT
DECISIONS WITHOUT PUBLISHED OPINIONS
Appeal from
Docket and Citation
Title Number Date Disposition (if reported)
In re Drimmel............. MT-92-1884-ARO 6/3/93 REVERSED 143 B.R. 249
NOTES
[1] Chrysler Credit Corporation also filed a Motion to Dismiss Appeal which is mooted by this Order. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541200/ | 259 Pa. Superior Ct. 527 (1978)
393 A.2d 951
COMMONWEALTH of Pennsylvania
v.
Joseph I. WAREHAM, Appellant.
Superior Court of Pennsylvania.
Submitted December 6, 1977.
Decided October 27, 1978.
*530 George B. Ditter and Calvin S. Drayer, Jr., Assistant Public Defenders, Norristown, for appellant.
William T. Nicholas, District Attorney, Norristown, for Commonwealth, appellee.
Before WATKINS, President Judge, and JACOBS, HOFFMAN, CERCONE, PRICE, VAN der VOORT and SPAETH, JJ.
SPAETH, Judge:
On December 9, 1975, appellant was found guilty of simple assault, possession of a weapon, recklessly endangering another, and terroristic threats.[1] On February 18, 1976, appellant was sentenced to consecutive sentences of 1 to 2 years for simple assault and possession of a weapon, these sentences to be served concurrently with consecutive sentences of 2½ to 5 years for recklessly endangering another and terroristic threats. These combined sentences, in effect amounting to a sentence of 5 to 10 years in a state institution, were to be served consecutive to a sentence of 10 to 20 years that appellant was serving on another charge.[2]
Appellant appealed to this court but then filed a petition asking that the case be remanded to the lower court so that he could file a petition for reconsideration of the sentences. We granted this petition. On February 28, 1977, the lower court held a hearing on appellant's petition for reconsideration, and on March 1 entered an order denying the petition. This appeal is from that order. Appellant argues that the *531 sentences are in combination manifestly excessive, assigning as his reasons the nature of the charges, the consecutive aspect of the sentences, and the facts that he was only 21, and a first offender.
Our system of indeterminate sentencing "necessitates the granting of broad discretion to the trial judge, who must determine, among the sentencing alternatives and the range of permissible penalties, the proper sentence to be imposed." Commonwealth v. Martin, 466 Pa. 118, 130, 351 A.2d 650, 656 (1976). Usually the sentence is left undisturbed on appeal because the lower court is in a far better position than an appellate court to weigh the factors involved in determining a proper sentence. Id., 466 Pa. at 131, 351 A.2d at 657. However, in making its determination the lower court must exercise its discretion within certain procedural limits. First: The court must have "sufficient and accurate information." Id., 466 Pa. at 131-32, 351 A.2d at 657. In order to obtain this information the court may order a pre-sentence investigation report, Pa.R.Crim.P. 1403 A(1); in certain cases, in fact, it must order such a report, or state of record why it did not, Pa.R.Crim.P. 1403 A(2). Also, the court must afford the defendant the opportunity to make a statement in his own behalf, and afford counsel, both for the defendant and the Commonwealth, the opportunity to present argument and information relative to the sentence. Pa.R.Crim.P. 1405(a). Second: The court must consider the defendant's individual characteristics and the circumstances of the particular offense, Commonwealth v. Martin, supra, and also the guidelines specified in the Sentencing Code, Commonwealth v. Riggins, 474 Pa. 115, 377 A.2d 140 (1977). And finally: In imposing sentence the court must state on the record its reasons for the sentence, Commonwealth v. Riggins, supra; see also Pa.R.Crim.P. 1405(b) (as amended 5/22/78), and advise the defendant of his right to appeal the sentence, Pa.R.Crim.P. 1405(c). If the court does not state its reasons for the sentence, the sentence will on appeal be vacated and the case remanded to afford the court an opportunity to resentence the defendant and to include a *532 statement of reasons. Commonwealth v. Kostka, 475 Pa. 85, 379 A.2d 884 (1977); Commonwealth v. Riggins, supra; Commonwealth v. Wertz, 252 Pa.Super. 584, 384 A.2d 933 (1978).
In its opinion[3] the lower court gives the following account of the circumstances of the offense:
On January 18, 1975, [appellant] and the victim Edward Wojtowicz, met by chance in Willow Grove at about 8:30 P.M. [Appellant] asked Wojtowicz to get him some beer and the latter refused. Their paths crossed again, this time resulting in a car chase through portions of Abington Township, [appellant's] car pursuing Wojtowicz. [Appellant's] car was stopped by the police for speeding, and Wojtowicz proceeded to a friend's house in Roslyn. [Appellant] found Wojtowicz there at about 11:30, seized him and tried to drag him into a car. Wojtowicz struggled, but was thrown against the head of the car where [appellant] placed a knife at his throat and told him to get into the car or he was going to die. In the course of this, Wojtowicz received a four centimeter superficial cut at the Adam's apple. One of [appellant's] companions told him to let Wojtowicz go, and he did. Slip Opinion at 2-3.
The lower court stated its evaluation of appellant's individual characteristics, and its reasons for the sentence, as follows:
*533 The pre-sentence investigation reveals that [appellant], now age 21, has an extensive juvenile record including two burglaries and the beating and rape of a fifteen year old girl. As an adult, this pattern continued, and he was convicted of rape and involuntary deviate sexual intercourse committed at gun point with another. [Appellant's] history is one of total maladjustment to society, and repeated involvement in violent crime. Although not charged, he committed the crime of escape while awaiting sentence on this and the rape charge. It was this Court's opinion that he will likely be a threat to society during his entire lifetime. Slip Opinion at 3.
It is apparent from this statement that in exercising its discretion to determine what sentence was proper, the lower court acted within the procedural limits imposed upon it.
First: The court had sufficient and accurate information, including a pre-sentence investigation report; the court also had a report of the results of psychiatric observation and examination, see Pa.R.Crim.P. 1403 B. Indeed, appellant does not argue to the contrary; nor does he argue that the court denied him the opportunity to make a statement in his behalf, or denied his counsel the opportunity to present argument and information relative to the sentence.[4]
Second: The court expressly considered appellant's individual characteristics and the circumstances of the particular offense. It is true that the court did not expressly refer to the guidelines specified in the Sentencing Code, but for reasons that will be discussed, we are satisfied that the court did consider, and follow, those guidelines.
Finally: The court stated the reasons for the sentence. It is true that the court's statement may be read as *534 comprising only one sentence, and as giving only one reason ("that [appellant] will likely be a threat to society during his entire lifetime"), but that would be improper for it would amount to taking the statement out of context. It is better practice for the court to include in its statement of reasons for the sentence some reference to the guidelines specified in the Sentencing Code, with some explanation of how consideration of those guidelines affected the determination of sentence. Commonwealth v. Riggins, supra. Still, we should not hold a statement of reasons insufficient, and therefore requiring vacation and remand, when it is apparent that even though the court made no reference to the guidelines, it did consider and apply them.
The Sentencing Code, Act of Dec. 6, 1972, P.L. 1482, No. 334, § 1301, added Dec. 30, 1974, P.L. 1052, No. 345, 18 Pa.C.S.A. § 1301 et seq., provides that the sentence may be one or more of the following alternatives, which may be imposed consecutively or concurrently: (1) an order of probation; (2) a determination of guilt without further penalty; (3) partial confinement; (4) total confinement; and (5) a fine. 18 Pa.C.S.A. § 1321(a). The Code further provides that in selecting from these alternatives,
the court shall follow the general principle that the sentence imposed should call for the minimum amount of confinement that is consistent with the protection with the public, the gravity of the offense, and the rehabilitative needs of the defendant.
When this general principle is applied here, it is apparent that the lower court was warranted in imposing a sentence of total confinement. The offense, while not as grave as many, was nevertheless of considerable gravity; it might, indeed, have resulted in the victim's serious injury or even death. Moreover, appellant's personal history gave the court no reason to suppose that a lesser sentence than total confinement would enable appellant to rehabilitate himself, but to the contrary, suggested that he would commit another violent crime.
*535 The propriety of a sentence of total confinement is further apparent when one considers other guidelines specified in the Code. Thus § 1325 of the Code provides:
The court shall impose a sentence of total confinement if, having regard to the nature and circumstances of the crime and the history, character, and condition of the defendant, it is of the opinion that the total confinement of the defendant is necessary because:
(1) there is undue risk that during a period of probation or partial confinement the defendant will commit another crime;
(2) the defendant is in need of correctional treatment that can be provided most effectively by his commitment to an institution; or
(3) a lesser sentence will depreciate the seriousness of the crime of the defendant.
18 Pa.C.S.A. § 1325.
§ 1322 of the Code is also pertinent. This section itemizes twelve different grounds to be "accorded weight in favor of an order of probation." Upon consulting it, one will see that not one of these grounds suggests that an order of probation would have been proper here, which is simply another way of saying that a sentence of confinement was proper. For example, to cite the first ground: "The criminal conduct of the defendant neither caused nor threatened serious harm." 18 Pa.C.S.A. § 1322(1) Here, appellant's conduct did threaten serious harm.
The only question remaining, therefore, is whether in imposing so long a sentence of total confinement the lower court abused its discretion. Granted, the sentence is long, especially since it is to be served consecutive to another, 10 to 20 year, sentence; it was, nevertheless, not so long as to represent an abuse of discretion. Several reasons support this conclusion. To make the sentence concurrent would in effect have imposed no additional punishment. In imposing additional punishment of, in total, 5 to 10 years, the court did not impose so long a sentence as it might have. The weapons and terroristic threat offenses are misdemeanors of *536 the first degree. Simple assault and recklessly endangering another are misdemeanors of the second degree. The former carries a maximum penalty of five years imprisonment, the latter two years.[5] Therefore the maximum sentence could have been 7 to 14 years. Finally, the record supports the lower court's appraisal of appellant as "likely [to] be a threat to society during his entire lifetime."
Affirmed.
JACOBS, President Judge, and CERCONE and PRICE, JJ., concur in the result.
WATKINS, former President Judge, and HOFFMAN, J., did not participate in the consideration or decision of this case.
NOTES
[1] The Crimes Code, Act of Dec. 6, 1972, P.L. 1482, No. 334, 18 Pa.C.S.A. §§ 2701, 907(b), 2705, 2706, respectively.
[2] Appellant must therefore serve the minimum of the 10 to 20 year sentence before becoming eligible for parole or pre-release on the sentences imposed in this case. Given the lower court's reasons for its sentences, discussed infra, this result was intended.
[3] The opinion was filed on May 3, 1976, after appellant's initial appeal to this court. The lower court also filed a supplemental opinion, after the hearing on appellant's petition for reconsideration, in which it said:
A hearing was held on February 28, 1977, after which the petition for reconsideration was denied. [Appellant] has renewed his appeal. The sole issue is whether the sentence was excessive. This issue has been extensively addressed by the Court in its opinion dated May 3, 1976. It would serve no purpose to reiterate what was said there. The recent hearing produced nothing which, in the opinion of this Court, changes the validity of the views previously expressed.
Supplemental Slip Opinion at 1.
Accordingly, in reviewing the lower court's sentences we shall rely on the reasons stated in its original opinion.
[4] In fact the record clearly shows that the court afforded appellant the opportunity to make a statement in his behalf, N.T. Sentencing, 14, 20-22, and that his counsel had the opportunity to present argument and information relative to the sentence, id., 6, 8-14, 18-20. Further, counsel for the Commonwealth was given an opportunity to comment regarding the sentence. Id., 3, 5-7, 15-18.
[5] The Crimes Code, supra, 18 Pa.C.S.A. § 1104(1) and (2). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541201/ | 260 Pa. Superior Ct. 192 (1978)
393 A.2d 1219
REED SHAW STENHOUSE OF PENNSYLVANIA, INC., formerly known as Insurance Consultants, Inc., Appellee,
v.
J.A. NEISER COMPANY, Allied Craftsmen, Inc. and Julius Neiser, Individually, Appellants.
Superior Court of Pennsylvania.
Argued April 10, 1978.
Decided October 20, 1978.
*193 Joseph A. Steedle, Pittsburgh, for appellants.
Stephen J. Laidhold, Pittsburgh, for appellee.
Before JACOBS, President Judge, and HOFFMAN, CERCONE, PRICE, VAN der VOORT, SPAETH and HESTER, JJ.
PER CURIAM:
This is an appeal from two Orders of the Court of Common Pleas of Allegheny County, Pennsylvania. The first, under date of July 14, 1977[1] dismissed the heretofore issued Rule (dated April 21, 1977) to show cause why the default *194 judgment entered against appellants on April 12, 1977, should not be opened and appellants let into a defense. The second, under date of July 28, 1977,[2] denied appellants' Motion to Strike Judgment.
The facts are as follows: Appellee filed a complaint in assumpsit against appellants on February 28, 1977. Service of process was duly made upon each appellant on March 22, 1977.
On April 12, 1977, the twenty-first day following service, a default judgment was entered upon praecipe against the appellants in the amount of $9,478.00, together with interest and costs.
On April 21, 1977, a rule to show cause issued why the judgment taken by default should not be opened and appellants let into a defense.
On May 23, 1977, the deposition of the individual appellant was taken, the official transcript filed, oral argument followed, and on July 14, 1977, the lower court entered its order dismissing the previously issued rule to show cause. Thereafter this appeal.
A petition to open a judgment taken by default is an appeal to the equitable and discretionary powers of the court. Each such petition must stand on its own peculiar set of operative facts. In order for the court to exercise its discretion and open a judgment taken by default in an assumpsit action, three factors must coalesce: (1) The petition to open must be promptly filed; (2) A meritorious defense must be shown; and (3) The moving party must reasonably explain its failure to timely file a responsive pleading. Moreover, "the ruling of the lower court opening or refusing to open will not be reversed unless an error of law or a clear, manifest abuse of discretion is shown." Nevils v. Chernitsky, 244 Pa.Super. 501, 368 A.2d 1297, 1298 *195 (1976); Williams v. Allegheny Union Plaza, Inc., 231 Pa.Super. 170, 332 A.2d 493 (1974); McCoy v. Public Acceptance Corp., 451 Pa. 495, 305 A.2d 698 (1973); Sprouse v. V.F.W. Post 7155, 237 Pa.Super. 419, 352 A.2d 134 (1975); and a myriad of others.
In the instant case, we find the court below did not abuse its discretion in refusing to make its rule absolute and in refusing to open the default judgment.
Here, as in Nevils v. Chernitsky, supra, appellee took judgment by default for want of a responsive pleading on the twenty-first day following service the first day available for the entry of a default judgment. (Pa.R.C.P. 1037(b) and 1018.1).
The courts of the Commonwealth of Pennsylvania generally view with disfavor the taking of "snap" judgments. Kraynick v. Hertz, 443 Pa. 105, 277 A.2d 144 (1971).
Although this was a "snap" judgment, taken on the twenty-first day after service of the complaint, and such judgments are not generally favored by our courts, even a "snap" judgment will not automatically be opened. A petition to open remains an appeal to the discretion of the court, and all three of the above-mentioned factors must be present before the court will open the judgment. Nevils v. Chernitsky, supra, 244 Pa.Super. 504, 368 A.2d page 1298.
In the instant case, however, appellants have failed to satisfy two of the three essential criteria in order to open a default judgment. At deposition, appellant Julius Neiser, in his three-fold capacity as an individual, as President and major shareholder of appellant J.A. Neiser Company, and as Treasurer and major shareholder of appellant Allied Craftsmen, Inc., failed to demonstrate the existence of a meritorious defense:
Q "Why didn't J.A. Neiser Company pay its insurance policy?"
*196 A "Because we (J.A. Neiser Company) didn't have any money for one thing . . . ." (T. 65a)
Appellants similarly failed to reasonably explain its failure to file a timely responsive pleading:
Q ". . . . Do you plead that you met with your attorney on April 14, 1977 in which an Answer was made? What did you do prior to that date to get an Answer filed or do whatever was necessary to answer this Complaint?"
A "I don't recall anything that was done, mentioned or anything up to that point."
Q "Do you recall talking to me and making an appointment with me?"
A "Yes. After I received the Sheriff's whatever they call it, Assumpsit."
Q "And was there a postponement on that meeting because of something?"
A "I understand that there was for some reason. I don't know." (T. 40a)
Accordingly, appellants' appeal from the lower court's Order of July 14, 1977, refusing to open the default judgment taken against them, is denied.
Further, we find appellants' second appeal this one from the lower court's Order dated July 28, 1977 denying appellants' Motion to Strike Judgment, similarly without merit.
SPAETH, J., files a dissenting statement.
HOFFMAN, J., did not participate in the consideration or decision of this case.
SPAETH, Judge, dissenting.
I would open the judgment as to appellants, Allied Craftsmen, Inc., and Julius Neiser.
NOTES
[1] By the Honorable Ralph H. Smith, Jr.
[2] By the Honorable Silvestri Silvestri. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540962/ | 155 B.R. 921 (1992)
In re Malcolm ANTELL, Debtor.
Bankruptcy No. 91-24656F.
United States Bankruptcy Court, E.D. Pennsylvania.
November 23, 1992.
*922 *923 Jon M. Adelstein, Mitchell B. Gerson, Groen, Laveson, Goldberg & Rubenstone, Bensalem, PA, for debtor.
Gary E. McCafferty, Joseph Goldbeck, Jr., P.C., Philadelphia, PA, for Jefferson Bank.
MEMORANDUM
BRUCE I. FOX, Bankruptcy Judge:
The debtor, Malcolm Antell, filed a motion on July 14, 1992 to vacate this court's order of June 30, 1992 and for the imposition of sanctions against counsel for a secured creditor, Jefferson Bank. The order of June 30, 1992 had granted Jefferson Bank relief from the automatic stay by default. Jefferson Bank opposes the motion to vacate, and for sanctions; the debtor is supported orally in its request by Bank Hapoalim, B.M.
A hearing was held on the debtor's motion, at which time all parties expressly declined to offer any evidence other than the admissions found in the pleadings filed in this particular contested matter. I shall exercise my discretion, though, under F.R.E. 201 (incorporated by Fed.R.Bankr.P. 9017) and take judicial notice of the docket entries in this bankruptcy case. Accordingly, I shall summarize the evidence of record.
I.
The debtor filed a voluntary petition in bankruptcy under chapter 11 on August 30, 1991. On May 29, 1992, Jefferson Bank filed a motion for relief from the automatic stay. The evidence does not disclose the reason this relief was sought, but I would surmise that Jefferson asserted a secured claim and alleged that it had not received postpetition mortgage payments from the debtor. See generally In re Skipworth, 69 B.R. 526 (Bankr.E.D.Pa.1987); In re Wright, Egan & Assocs., 60 B.R. 806 (Bankr.E.D.Pa.1986); In re Keays, 36 B.R. 1016 (Bankr.E.D.Pa.1984). See also In re Shariyf, 68 B.R. 604 (E.D.Pa.1986).
On June 3, 1992, I issued an order requiring an answer to Jefferson Bank's motion for relief, pursuant to Fed.R.Bankr.P. 9014 and Local Bankr.R. 9014.1. See also Local Bankr. Form 9014.1A. This order directed that any answer to the motion for relief be filed with the clerk of court and served upon counsel for the movant, Jefferson Bank. Specifically, the order provided that an answer be filed and served "within 15 days after service of this Order, exclusive of the date of service. If no answer is filed, an order may be entered granting the relief demanded in the motion." Debtor's motion, Ex. A, at ¶ 1. The Order also scheduled a hearing on the motion for relief from the automatic stay for June 29, 1992 at 9:30 A.M.[1]
The parties are in apparent agreement that on June 9, 1992, Jefferson Bank served the motion for relief, notice of hearing *924 and order requiring answer upon the debtor.[2] (There was no evidence presented to show when the debtor received these documents.) The docket entries reflect that on Monday, June 29, 1992, Jefferson Bank filed a certification of no answer and sought judgment by default under Fed. R.Bankr.P. 7055 and 9014. Docketed later on the same date (June 29, 1992) is the debtor's answer in opposition to the motion for relief.
The debtor avers, and Jefferson Bank admits, that counsel for the debtor sent a copy of his answer to the motion for relief to counsel for Jefferson Bank, via facsimile machine, on Friday, June 26, 1992. Counsel for Jefferson Bank avers, however, that he was unaware of that service, as he was not in his office at the time of transmission; moreover, he also contends that he was unaware of service of this answer when he took default.
Counsel for Jefferson Bank admits, though, that on Friday, June 26, 1992 counsel for Bank Hapoalim, B.M. telephoned his office and then was sent via facsimile transmission a copy of Jefferson Bank's motion for relief. From this admission, it may fairly be inferred that it is more likely than not that Bank Hapoalim was not served with the motion or notice of hearing by Jefferson Bank prior to June 26, 1992.[3] This admission becomes relevant because the debtor asserts, although Jefferson Bank denies, that Bank Hapoalim holds a "second mortgage on real estate against which Jefferson Bank seeks to foreclose. . . ." Motion and Answer, ¶ 7. Thus, the debtor and Bank Hapoalim assert that Bank Hapoalim is an interested party upon which service should have been, but was not, properly effected. Local Bankr.R. 9014.1(g)(7).
As noted above, a hearing on Jefferson Bank's motion for relief had been scheduled for Monday, June 29, 1992. Counsel for the debtor appeared in court at the appointed time and date for the hearing, but as the record revealed no response to the motion, and as Jefferson Bank's counsel demanded default, no hearing was conducted. Instead, I granted the movant's request for relief from the stay, by default, by order dated June 30, 1992. See Orange Theatre Corp. v. Rayherstz Amusement Corp., 130 F.2d 185 (3d Cir. 1942) (when the defendant has failed to file a timely responsive pleading, the entry of default under Rule 55 is ministerial).[4]
On July 14, the debtor filed the instant motion ". . . to open the order of June 30, 1992. . . ." The motion was served upon Jefferson Bank and Bank Hapoalim, B.M. on July 21, 1992. (Certificate of service filed by the debtor on August 14, 1992.)
In sum, the debtor presents two arguments from the above facts. First, he contends that Jefferson Bank had no basis to obtain relief by default because a timely *925 answer had been filed. Second, he argues that Jefferson Bank, knowing that it was not entitled to default, wrongfully sought default nonetheless (thus warranting the imposition of sanctions against it). Bank Hapoalim contends that no relief should have been entered without proper notice as to it. For the following reasons, I conclude that the debtor is entitled to have the default set aside by virtue of Fed.R.Bankr.P. 9024 (incorporating Fed.R.Civ.P. 60), but is not entitled to sanctions.[5]
II.
First, I note that the debtor does not state with particular clarity the procedural rule upon which he moves to have this court "open the judgment" of June 30, 1992. I shall therefore analyze the debtor's request for relief in terms of the two procedural means by which it appears the debtor could raise this request.
To the extent the motion could be considered as one made for reconsideration pursuant to Fed.R.Bankr.P. 9023 (incorporating, inter alia, Fed.R.Civ.P. 59(e)), I find that the debtor's motion is untimely. This rule requires that motions to alter or amend the judgment be served within ten days of the entry of an order. This requirement is jurisdictional, and cannot be extended in the discretion of the court. E.g., Smith v. Evans, 853 F.2d 155, 157 (3d Cir.1988). Here, the motion to open the June 30, 1992 order was filed on July 14, 1992 and served on July 21, 1992, well beyond the ten day period allowed by Rule 9023. Therefore, I have no authority to reconsider that order. Compare In re Zawisza, 73 B.R. 929, 931 n. 1 (Bankr.E.D.Pa. 1987) (Scholl, B.J.) (even if answer to motion to dismiss was late, court had discretion to vacate the order entered by default upon a timely request for reconsideration).
The debtor's motion may also be understood, however, as requesting relief pursuant to Fed.R.Bankr.P. 7055 and 9024, which incorporate Fed.R.Civ.P. 55 and 60. As such, I find the motion is presented in a timely manner. Accord, e.g., In re Mapson, 93 B.R. 161, 166 (Bankr.C.D.Ill.1988); 6 Moore's Federal Practice § 55.10[1] at 55-53 (2d ed. 1992). Cf. In re Juil, Inc., 52 B.R. 343 (Bankr.E.D.Pa.1985).
The standard for reopening a default judgment pursuant to Fed.R.Civ.P. 60(b) is generally defined by three factors in this circuit.[6] These factors include whether Jefferson Bank would be substantially prejudiced if the judgment were opened; whether the defaulting party, the debtor, has a "facially meritorious" defense; and whether culpable conduct of the debtor led to the default. E.g., Gross v. Stereo Component Systems, Inc., 700 F.2d 120, 122 (3d Cir.1983); Feliciano v. Reliant Tooling Co., 691 F.2d 653, 656 (3d Cir. 1982); Reid v. Liberty Consumer Discount Co., 484 F. Supp. 435, 438 (E.D.Pa. 1980); In re Brasby, 109 B.R. 113, 125 (Bankr.E.D.Pa.1990). The burden rests upon the debtor as movant to show that all three factors are satisfied. Gross v. Stereo Component Systems, Inc., 700 F.2d at 124.
In this instance, to be afforded relief under most provisions of Rule 60(b) or Rule 55(c), the debtor must demonstrate that it had a facially meritorious defense to the motion for stay relief filed by Jefferson Bank. E.g., Gross v. Stereo Component Systems, Inc.; In re Brasby. At best, the only evidence on this point is found in paragraph 8 of his motion to open, in which the debtor states that he has many good defenses to the Motion [for relief from stay], including but not limited to the following:
A. Debtor's Plan of Arrangement is due to be filed with this Court within two (2) weeks, and Jefferson Bank will not be prejudiced by waiting until the Debtor's Plan of Arrangement is confirmed or denied.
*926 B. Since the Petition in Bankruptcy was filed, Debtor has been paying to Jefferson Bank the sum of One Thousand Dollars ($1,000) per month to be applied to the mortgage. While these payments are less than the monthly amount required thereunder, they are sufficient so that the total debt owing to Jefferson Bank is not materially greater than it was at the time the original Petition for Relief was filed.
This is the only "evidence" offered on issue of the debtor's ability to prevail on the merits, and Jefferson Bank denies these averments as a "conclusion of law." Answer to Motion, ¶ 8. Even if I accept as true the factual allegations made by the debtor in its motion to open, see In re Mapson, 93 B.R. at 166 (that the requisite showing of a meritorious defense may be made by a defaulting party through allegations in its motion), his unsupported conclusions as to adequate protection are insufficient by themselves to establish that the debtor has a meritorious defense to Jefferson Bank's motion to lift the stay. See generally In re Froug, 100 B.R. 966, 968 (Bankr.S.D.Ohio 1989), citing United States v. $55,518.05 in U.S. Currency, 728 F.2d 192, 196 (3d Cir.1984). See 6 Moore's Federal Practice § 55.10[1] at 55-54 and n. 16 (2d ed. 1992).
Courts in this district have held that evidence of a debtor's postpetition default in mortgage payments meets the mortgagee's initial burden of production in establishing "cause" for relief under section 362(d)(1). Accord, e.g., In re Skipworth; In re Wright, Egan & Assocs.; In re Keays. Here, the debtor is conceding that it has not tendered all postpetition payments due Jefferson Bank under its mortgage.
This does not mean that if a debtor fails to tender such postpetition payments to a mortgagee the secured creditor must be granted relief from the stay. Evidence of a postpetition delinquency only means that the debtor must then come forward with evidence demonstrating that the mortgagee's secured interest is adequately protected. E.g., In re Skipworth. That is, the burden then shifts to the debtor, by virtue of section 362(g)(2), to demonstrate that the secured interest of Jefferson Bank is adequately protected. E.g. In re Skipworth.
Such adequate protection may be provided in a variety of ways. 11 U.S.C. § 361. Among them are: the existence of an equity cushion, accord, e.g., Commonwealth of Pennsylvania State Employees' Retirement Fund v. Roane, 14 B.R. 542 (E.D.Pa.1981); a replacement lien on other unencumbered property, 11 U.S.C. § 361(2), see, e.g., In re Ahlers, 794 F.2d 388, 398 (8th Cir.1986), rev'd on other grounds, 485 U.S. 197, 108 S. Ct. 963, 99 L. Ed. 2d 169 (1988); cash payments to the secured creditor, 11 U.S.C. § 361(1), see, e.g., In re McKillips, 81 B.R. 454, 458-59 (Bankr. N.D.Ill.1987); or a viable plan of reorganization which meets the debtor's statutory obligations to the secured creditor. See In re Philadelphia Consumer Discount Co., 37 B.R. 946, 949 n. 9 (E.D.Pa.1984); In re Skipworth.
The debtor suggests in its motion that his proposed plan of reorganization adequately protects the mortgagee's interest. However, he offers no evidence of the terms of the plan or its feasibility; thus, one cannot conclude that it adequately protects any secured creditor interest. (Indeed, just recently, confirmation of that plan was denied.)
Similarly, he implies that postpetition monthly payments of $1,000.00 adequately protects the secured interest of Jefferson Bank under section 361(1). On this record there is no way to determine whether this is correct. For example, the collateral may be depreciating at a rate greater than the monthly payments made; the creditor may be undersecured, and no viable plan of reorganization may be possible; or there may be senior liens (i.e., tax liens) which may arise from the partial postpetition mortgage payments.
Therefore, I am compelled to conclude that the debtor has not met his burden in connection with this motion to "open" the default judgment to show that he had a "facially meritorious" defense. See Reid v. Liberty Consumer Discount Co.; In re *927 Mapson. I make this conclusion with recognition of the judicial policy in favor of deciding cases on their merits, e.g., Hritz v. Woma Corp., 732 F.2d 1178 (3d Cir.1984); In re Owens, 67 B.R. 418 (Bankr.E.D.Pa. 1986); In re Froug. Unfortunately for this debtor, his mere assertion in a motion to reopen judgment that he has provided adequate protection for the secured interest of Jefferson Bank is simply insufficient, by itself, to justify the exercise of my discretion to open the default. Cf. In re Earle Industries, Inc., 67 B.R. 822 (Bankr. E.D.Pa.1986).
III.
This conclusion, though, does not end the inquiry. Even if the debtor does not demonstrate a meritorious defense, he would be entitled to have the default order vacated if the order was "void" within the meaning of Rule 9024 (incorporating Rule 60(b)(4)). E.g., Broadcast Music, Inc. v. M.T.S. Enterprises, Inc., 811 F.2d 278, 280 (5th Cir.1987) ("In the case of a void judgment, Rule 60(b)(4) does not require [defendants] to establish a meritorious defense"); J. Moore, 7 Moore's Federal Practice, ¶ 60.25[2] at 60-224 (2d ed. 1992).
Whether a judgment is void is "narrowly restricted," and generally refers to the valid exercise of jurisdiction over the parties and the subject matter. J. Moore, 7 Moore's Federal Practice, ¶ 60.25[2] at 60-225 (2d ed. 1992). However, in this circuit, the Court of Appeals has recognized that relief under Rule 60(b)(4) is required when the default judgment was not "authorized":
Obviously, if the default judgment was improperly entered, the district court erred as a matter of law in refusing to set it aside.
Gold Kist, Inc. v. Laurinburg Oil Co., Inc., 756 F.2d 14, 19 (3d Cir.1985).
In Gold Kist, a default judgment was set aside, even though no evidence of a meritorious defense was established of record, when "the time for filing an answer had not expired, and because there was no evidence that the complaint was properly served. . . ." Id., at 19.
Without expressly so stating, the debtor focuses his arguments on these two issues, though principally the first. He argues that default was wrongfully entered inasmuch as he had filed a timely answer to the motion for stay relief. He also suggests that service of the motion for relief was improper because another lien creditor, Bank Hapoalim, was not served until just prior to the hearing date.
These two issues are, unfortunately, complicated, and the parties have offered little assistance in their resolution.
A.
The national bankruptcy rules decree that no answer to a motion need by filed unless expressly ordered by the bankruptcy court. Fed.R.Bankr.P. 9014. As noted above, an order requiring answer to Jefferson Bank's motion for relief was issued, which order directed that an answer in opposition be filed and served "within 15 days of service of the order," not counting the day of service. The language of this order has been in use in this district since at least August 1985, and the order's language comports with the local rules of court. Local Bankr. Form 9014.1A.
Since service of the motion for relief and order requiring answer was made by first class mail on June 9, 1992, fifteen days therefrom would be June 24, 1992. Clearly, no answer was filed or served on or before that date. Instead, the debtor's answer was served on June 26, 1992, and filed on June 29, 1992.
Critical to the instant dispute is the debtor's argument (and Jefferson Bank's disputation) that since service of the lift stay motion was effectuated by mail, Fed. R.Bankr.P. 9006(f) requires that three additional days be added to the answer deadline. Three additional days would place the deadline at June 27, 1992. Since June 27th was a Saturday, the provisions of Fed. R.Bankr.P. 9006(a) would extend the answer deadline to the following Monday, June 29, 1992. See, e.g., Frey v. Woodard, 748 F.2d 173 (3d Cir.1984); In re Kaelin Associates Electrical Const., Inc., 70 B.R. 412 (Bankr.E.D.Pa.1987). Therefore, if *928 Rule 9006(f) applies the debtor filed a timely response to Jefferson Bank's lift stay motion and no default should have been entered.
Specifically, Rule 9006(f) states:
Additional Time After Service by Mail. When there is a right or requirement to do some act or undertake some proceedings within a prescribed period after service of a notice or other paper and the notice or paper other than process is served by mail, three days shall be added to the prescribed period.
It is well noted that Bankr.R. 9006(f) has as its analog in the Federal Rules of Civil Procedure the provisions of Rule 6(e); indeed, subsection 9006(f) is essentially an adaptation of Rule 6(e). Advisory Committee Note (1983). See Matter of Robintech, Inc., 863 F.2d 393, 395 (5th Cir.), cert. denied, 493 U.S. 811, 110 S. Ct. 55, 107 L. Ed. 2d 24 (1989); In re Allegheny Intern., Inc., 93 B.R. 910, 912 (Bankr. W.D.Pa.1988); In re Kaelin Associates Electrical Const., Inc.[7]
B.
In considering whether the debtor here was entitled to three additional days from the date of service to respond to the motion for relief, it is important to recognize that Rule 9006(f) does not apply in all instances of service by mail. Some decisions discuss this issue in the context of Fed.R.Civ.P. 6(e). See, e.g., Mosel v. Hills Dept. Store, Inc., 789 F.2d 251 (3d Cir.1986); Youngson v. Lusk, 96 F. Supp. 285 (D.Neb.1951). Others discuss it in the context of Rule 9006(f). See, e.g., Matter of Robintech, Inc.
Courts recognize that the applicability of the three day extension turns upon whether the event which begins the time period within which a party may act is the act of service itself, accomplished by mailing, or whether the deadline commences by operation of some other event. See L. King, 9 Collier on Bankruptcy, ¶ 9006.10 at 9006-26 (15th ed. 1992). Generally, where service is to be accomplished by mail and notice is effective upon service, then the provisions of Rule 6(e) and Rule 9006(f) are employed. See In re Brody, 97 B.R. 158 (Bankr.E.D.N.Y.1989) (deadline for responding to a counterclaim is triggered by mailing of pleading and so is extended three days); In re Southern Indus. Banking Corp., 87 B.R. 518, 522-23 (Bankr. E.D.Tenn.1988) (where prejudgment interest begins upon demand, and demand is made by mail, the three day extension provision applies). However, where the time period for taking some sort of action begins to run from an event other than service, Rule 6(e) is said to not extend the time within which to act. This difference is illustrated by a decision of the Third Circuit Court of Appeals, which addressed the scope and application of Rule 6(e) in Mosel v. Hills Department Store, Inc.
In Mosel, the Court of Appeals was asked to review the district court's dismissal of a lawsuit as having been filed untimely. There, the plaintiff had received a right-to-sue letter from the Equal Opportunity Commission; the relevant legislation mandated the filing of suit within 90 days of receiving such letter, not from the date of mailing of the letter. The plaintiff filed suit 91 days after receiving this letter, and contended that this filing was timely as Rule 6(e) extended the 90 day period.
The court disagreed with the plaintiff's suggested application of this rule. It noted that the time within which a party may file such a complaint is calculated from the time the plaintiff has notice of the EEOC decision; this occurs on the date the party received a right-to-sue letter. Mosel, at 252. Rule 6(e) was inapposite, then, because "[i]t applies only where a time period is measured from the date of service by mail, and allows a party so served additional time to respond, in order to account for the time required for delivery of the mail." Id., at 253.
Where a time period is measured from the occurrence of an event other than service *929 by mail, then, the rule will not serve to extend the time to act. Id. Accord, e.g., Sofarelli Assocs, Inc. v. United States, 716 F.2d 1395 (Fed.Cir.1983) (Rule 6(e) does not apply when the time to act begins with entry of judgment rather than the service of a document); Lashley v. Ford Motor Co., 518 F.2d 749 (5th Cir.1975) (same); In re Quevedo, 35 B.R. 117 (D.P.R.1983) (deadline established by Fed.R.Bankr.P. 8009 is not extended by Rule 9006(f)); Pizzichil v. Motors Ins. Corp., 90 F.R.D. 119 (E.D.Pa.1981) (as time within which to file demand for trial de novo triggered by the filing of arbitrators' award, Rule 6(e) cannot be invoked to extend the time within which party can file); Wiss v. Weinberger, 415 F. Supp. 293 (E.D.Pa.1976); In re Santos, 112 B.R. 1001 (9th Cir.BAP 1990) (deadline for filing nondischargeability complaint set by bankruptcy rule is not extended although notice of the deadline is provided by mail); In re Allegheny Intern., Inc. (as deadline for filing proof of claim was established by order of court, service date of a notice did not trigger the running of a prescribed time period, and Rule 9006(f) not applicable).
Here, the deadline for filing an answer to the lift stay motion was set by my order dated June 3, 1992, which states that an answer must be served upon debtor's counsel and filed within 15 days of service of the order. Where service was admittedly accomplished by mail, thus triggering the deadline for a response, the better construction is to conclude that the provisions of Rule 6(e), incorporated by Fed. R.Bankr.P. 9006(f), serve to grant the debtor an additional three days within which to answer Jefferson Bank's motion for stay relief. Accord In re Stone, 119 B.R. 222, 224 n. 3 (Bankr.E.D.Wash.1990) (answer period to motion to void lien, since served by mail, extended three additional days pursuant to Rule 9006(f)).
This result differs from that reached in In re Barnhart, 134 B.R. 580 (Bankr. W.D.Tex.1991), a case which must be distinguished due to the different controlling case law in that circuit. In Barnhart, the bankruptcy court noted that the court's local rule establishing "negative notice" for a motion for stay relief, in language similar to Local Bankr.R. 9014.1 in this district,[8] "appears to create the very sort of" right or requirement described in Rule 9006(f). Id., at 582. The bankruptcy court held, however, that Rule 9006(f) would not be applied in that situation since the Fifth Circuit has determined that if all parties are served by mail, the mailbox rule, Rule 6(e), will not apply and all responsive pleadings will have to be filed within the prescribed period without the addition of three days. Matter of Robintech, Inc.
Whether the Robintech analysis is correct, and if correct, whether it was properly applied in Barnhart, is not now in issue.[9] A similar construction of Rule 6(e) has not been adopted by the Third Circuit and is not urged by any party to this dispute.
Therefore, since the order requiring an answer to Jefferson Bank's motion for relief established a response deadline not from the date of the order, or from the date of receipt, but from the date of service i.e., mailingthis contested matter falls within the first element established by *930 Rule 9006(f). See Mosel v. Hills Department Store, Inc.
C.
Even though the response deadline to the motion for relief was triggered by the event of service by mail, Bankruptcy Rule 9006(f) does not, by its express terms, extend the time to answer pleadings served by mail which are "process," such as a summons and complaint. GIHLS Properties, Inc. v. United States, 1988 WL 406117, *2, 1988 Bankr.Lexis 1464, *4 (Bankr.M.D.Fla.1988); In re Brody, 97 B.R. at 160. But see In re Johnson, 105 B.R. 806, 807 n. 1 (Bankr.N.D.Tex.1987) ("[t]he Summons is probably a "process" referred to in Rule 9006(f) for which the additional three days is not allowed, but for purposes of this case, the Court will assume that the additional three days is allowed") (emphasis in original); In re Cape Cod Inn, Ltd., 1987 Bankr.Lexis 1798 (Bankr.S.D.Ohio 1987) (without discussing whether a complaint which initiated an adversary proceeding was "process," held that answer to the complaint was allowed an additional three days for filing due to Bankr.R. 9006(f)).
Examples of pleadings whose service amounts to service of process are involuntary bankruptcy petitions, accompanied as they are by a summons, In re Johnson, 105 B.R. at 807 n. 1, and adversary proceedings which, by virtue of Fed. R.Bankr.P. 7004(a), are commenced by service of a complaint and summons. See, e.g., In re Carlton, 72 B.R. 543 (Bankr. E.D.N.Y.1987).
The question then becomes whether service of a bankruptcy contested matter i.e., a motionconstitutes service of "process" within the meaning of this procedural rule. If it constitutes process, Rule 9006(f) would not then apply.
Jefferson Bank implicitly suggests that service of a motion for relief with an order requiring answer and notice of hearing is "process" within the meaning of Rule 9006(f). The debtor implicitly counters to the contrary. On balance, I conclude, for the reasons that follow, that such service does not constitute "process," for purposes of Fed.R.Bankr.P. 9006(f), and that the mailbox provisions of that rule apply to the contested matter sub judice.
"Process" as used in Rule 9006(f) appears to refer to the issuance of summons. When a pleading is not accompanied by a summons and is served by mail, courts generally conclude that the deadline for a response thereto is extended by three days. See generally Hershey v. United States, 1991 WL 80326, *2, 1991 U.S.App. Lexis 10366, *5-6 (9th Cir.1991) (noting that the Federal Rules of Civil Procedure are silent as to the time within which to answer a motion, that by local rule an opposing party "shall have 15 days after service . . . within which to file and serve a memorandum of points and authorities in opposition to the motion," and stating that Fed.R.Civ.P. 6(e) added three days in this case, as the motion was served by mail); In re Brody, 97 B.R. at 160 (service of a counterclaim is not process).
The significance of a summons is derived from the long-standing notion that "process" is the means by which a court initially gains jurisdiction over a person, entity, or specific property. In re Brody, 97 B.R. at 160. See Lessee of Ambrose Walden v. Craig's Heirs, 39 U.S. 147, 154, 10 L. Ed. 393 (1840); Washington v. Norton Mfg., Inc., 588 F.2d 441, 443-44 (5th Cir.), cert. denied, 442 U.S. 942, 99 S. Ct. 2886, 61 L. Ed. 2d 313 (1979). When actions were commenced by original writ (instead of by summons, as at present) the method of compelling the defendant to appear was by what was termed "original process," being founded on the original writ. "Original" process was so denominated so as to distinguish it from "mesne" process, which was any writ or process issued between the commencement of the action and the suing out of execution. See Lehman v. Lycoming County Children's Services, 648 F.2d 135, 149 n. 15 (3d Cir.1981), aff'd, 458 U.S. 502, 102 S. Ct. 3231, 73 L. Ed. 2d 928 (1982) (a writ of habeas corpus "cannot be construed as a mesne process . . . that is utilized solely to facilitate the already-existing jurisdiction *931 of a federal court"); Washington v. Norton Mfg., Inc.
In the context of a bankruptcy case, the debtor is subject to this court's jurisdiction to resolve contested matters (viz., motions under Rule 9014) by virtue of his filing a voluntary petition in bankruptcy. See also In re Lion Country Safari, Inc., 124 B.R. 566, 572 (Bankr.C.D.Cal. 1991) (debtor waives right to trial by jury in bankruptcy court by voluntarily subjecting itself to the court's equity jurisdiction). And the motion for relief from the automatic stay filed against the debtor seeks to act upon property already subject to the court's jurisdiction by virtue of 28 U.S.C. § 1334(d) and to undo an injunction which arose by statute upon the filing of the bankruptcy petition. Further, by virtue of this court's jurisdiction over property, which arose at the time of the commencement of the case, jurisdiction exists over those asserting an interest in the property. See, e.g., Pennoyer v. Neff, 95 U.S. 714, 24 L. Ed. 565 (1878); In re Joint Eastern & Southern Dist. Asbestos Lit., 129 B.R. 710, 798 (E. & S.D.N.Y.1991).
The service of a contested matter, such as a motion for relief from the stay, therefore does not confer personal or subject matter jurisdiction. Rather, a motion for stay relief might be better analogized to a "mesne" process, as it concerns not the obtaining of jurisdiction over the debtor or property of the debtor but rather the determination of the scope of an injunction involving estate property already subject to the court's jurisdiction. Cf. In re Johnson, 756 F.2d 738 (9th Cir.), cert. denied, 474 U.S. 828, 106 S. Ct. 88, 88 L. Ed. 2d 72 (1985) (motion to lift the stay is not an "action on a contract" within the meaning of California law); In re Schwartz, 68 B.R. 376 (Bankr.E.D.Pa.1986) (motion for relief from the automatic stay is not a "foreclosure or other legal action" within the meaning of Pennsylvania law).
Of course, a request for relief from the stay formerly was initiated as an adversary proceeding accompanied by a summons. Former Rule of Bankruptcy Procedure 701. See, e.g., In re Bullock, 11 B.R. 73 (Bankr. E.D.Va.1981); In re Rutter, 9 B.R. 878 (Bankr.E.D.Pa.1981). And Rule 9014 refers to the method of service of a contested matter as identical to the manner of serving a summons and complaint. Thus, one commentator discusses the possibility that service of a motion for relief from the automatic stay might constitute "process," for purposes of Bankr.R. 9006(f):
In proposing the 1991 Amendments, the Advisory Committee rejected efforts to amend Paragraph (f) to clarify or delete the provisions of this Rule. For example, there is some confusion as to the applicability of this Rule to other notice periods under the Rules such as Rule 4001 regarding notice of motions [including motions for relief from stay] and settlement agreements and Rule 2002(b) regarding notice of objections to disclosure statements and plans. Notwithstanding the general view of the Committee that Paragraph (f) should not apply in those situations, the matter was not addressed by the 1991 Amendments.
Lieb, 6 Norton Bankruptcy Law and Practice, Rule 9006, Editor's Comment at 604 (1992). That is, according to this author, Rule 9006(f) is ambiguous as to whether its provisions apply to service by mail of motions for relief from the automatic stay; and, the Advisory Committee "general[ly] view[ed]" that the mailbox provisions would not apply to motions for relief. However, Rule 9006(f) itself does not exclude contested matters from its application and the Advisory Committee has rendered no official comment on the point.
The few bankruptcy courts that have addressed this precise issue have concluded that service of a contested matter by mail under Rule 9014i.e., service of a motionis not service of process and so the three day addition found in Rule 9006(f) applies. See In re Stone, 119 B.R. 222, 224 n. 3 (Bankr.E.D.Wash.1990). See also In re Zawisza (stating the possibility that a contested matter is not process). Furthermore, there is a general principle that the procedural rules relating to computation of time are to be construed liberally so as to permit the parties the broadest opportunity *932 for an adjudication of contested issues on the merits. See generally Anderson v. Stanco Sports Library, Inc., 52 F.R.D. 108 (D.S.C.1971); Wirtz v. Local Union 611, Intern. Hod Carriers' Bldg., 229 F. Supp. 230 (D.Conn.1964).
The phrasing of the local order in this district requiring an answer to a contested matter was probably intended, although not with clarity, to permit the respondent 15 days from receipt of the motion to file an answer thereto, not 15 days from the date of mailing. The three day extension of Rule 6(e) was based upon the assumption that receipt of the mail averages three days. See, e.g., Matter of Robintech, Inc., 863 F.2d at 395; Mosel v. Hills Dept. Store, Inc., 789 F.2d at 253; Kessler Institute for Rehabilitation v. NLRB, 669 F.2d 138, 140-41 (3d Cir.1982).
Accordingly, though not free from doubt, I conclude that the provisions of Rule 9006(f) applied to the Jefferson Bank's service by mail of its motion for relief from the stay. The motion itself was not process and service by mail triggered the deadline for a response. Therefore, the debtor here filed a timely response to Jefferson Bank's lift stay motion and default was taken prematurely.
D.
The next question is whether the failure of Jefferson Bank to serve Bank Hapoalim represents a defect in service. Federal Rule of Bankruptcy Procedure 4001(a) requires, in a chapter 11 case such as this, that service of the motion for relief from the stay must include service upon the authorized agent of any official committee of creditors and, if there be no such committee, the largest unsecured creditors. Here, there is no official creditors committees; and the debtor avers that Bank Hapoalim holds a secured claim. If so, then the provisions of Rule 4001(a) have not been violated.
But Rule 4001(a) also states that service of the motion shall also be made upon "such other entities as the court may direct." Local Bankruptcy Rule 9014.1(c) requires service of all motions upon "all interested persons"; that phrase is defined in local rule 9014.1(g) to include:
(7) Any person whose interest would be directly, materially and adversely affected if the relief requested in the motion were granted and whose interests are not adequately represented by persons on whom service is otherwise required.
Again (as with the issue of "process"), whether this local rule requires service of a motion for relief from the stay filed by a first mortgagee upon a subordinate lienholder is a close question. Under Pennsylvania law, a foreclosure by a first mortgagee divests all subordinate mortgagees of their lien rights. 42 Pa.C.S.A. § 8152. Indeed, the Pennsylvania rules of procedure require that notice of an impending foreclosure sale be served upon all lienholders so that they may protect their interests at the foreclosure sale (by bidding, for example). Pa.R.Civ.P. 3129.1. See, e.g., Beneficial Mut. Sav. Bank v. Murray, 30 Dall. & C.3d 115 (Del.Co.1984).
Thus, the interests of a subordinate mortgagee may be adversely affected by the foreclosure sale process. And such a sale cannot occur after bankruptcy until the automatic stay has been lifted. Accordingly, Bank Hapoalim may be an interested party to the lift stay motion filed by Jefferson Bank.
Conversely, though, such lienholders need not, under state law, be served with the foreclosure complaint, or be made a party to the complaint. Pa.R.Civ.P. 1144. Thus, there may be no adverse interest held by a subordinate mortgagee in the foreclosure process until a sale is to be scheduled. Moreover, the debtoras homeowner heremay adequately protect the interest of other lienholders in opposing the motion within the meaning of local rule 9014.1(g)(7), particularly if there is equity in the property.
Not only is construction of Rules 4001(a) and 9014.1(g)(7) difficult in this context, but other factors may be relevant. For example, did Bank Hapoalim request notice of motions under Fed.R.Bankr.P. 2002? Rather than conclude on this scanty record *933 and without any analysis from the parties that all secured creditors are entitled to be served with motions for relief from the stay in all instances, I will conclude only that when a movant obtains a default judgment on a motion for relief from the stay prior to the expiration of the answer period (without a formal motion for default judgment under Rule 55, as is permitted by our local rules) and the issue of proper service is unclear, then relief under Rule 60(b)(4) is warranted. See Gold Kist, Inc. v. Laurinburg Oil Co., Inc., 756 F.2d at 19.
Accordingly, this court's order of June 30, 1992 will be vacated and a hearing on the motion scheduled. In so ordering I do not now pass upon the implications, if any, of 11 U.S.C. § 362(e). See In re Wedgewood Realty Group, Ltd., 878 F.2d 693 (3d Cir.1989). Jefferson Bank may or may not presently have relief from the stay depending upon whether the conduct of Jefferson Bank constituted an effective waiver of its right to have a hearing on its motion within thirty days of filing. Again, the parties do not address this point at all, and an analysis of the issue is unnecessary to a resolution of the precise motion before me.
IV.
Finally, the debtor asks that I impose sanctions on counsel for Jefferson Bank, pursuant to Fed.R.Bankr.P. 9011, for having filed with the court a certificate of no response to its motion before the time to answer had lapsed. And indeed, I have concluded that the provisions of Bankr.R. 9006(f) are applicable, and that the debtor's answer to Jefferson Bank's motion for relief was filed timely. I therefore also conclude that counsel's certificate of default to his left stay motion was filed prematurely. However, I find that the imposition of sanctions against Jefferson Bank are not warranted.
The touchstone for Rule 11 sanctions is counsel's failure to make a reasonable inquiry into the facts being represented. Business Guides v. Chromatic Comm. Enterprises, 498 U.S. 533, 111 S. Ct. 922, 112 L. Ed. 2d 1140 (1991). Sanctions may be imposed if the party's position was "patently unmeritorious or frivolous." Dura Systems, Inc. v. Rothbury Investments, Ltd., 886 F.2d 551 (3d Cir.1989), cert. denied, 493 U.S. 1046, 110 S. Ct. 844, 107 L. Ed. 2d 838 (1990). See In re Gioioso, 979 F.2d 956 (3d Cir.1992); Landon v. Hunt, 977 F.2d 829 (3d Cir.1992). See also Napier v. Thirty or More Unidentified Federal Agents, 855 F.2d 1080 (3d Cir. 1988). The standard for testing conduct is reasonableness under the circumstances. Gaiardo v. Ethyl Corp., 835 F.2d 479 (3d Cir.1987); Eavenson, Auchmuty & Greenwald v. Holtzman, 775 F.2d 535 (3d Cir. 1985).
I note, and the above discussion illustrates, that Jefferson Bank's position with regard to the debtor's time to respond, although erroneous, was not without support. See Lieb, 6 Norton Bankruptcy Law and Practice, Rule 9006, Editor's Comment at 604 (1992). This factor alone yields the conclusion, given the above standards, that sanctions are unwarranted. Moreover, there is no evidence of record that counsel knew prior to the hearing and his request for default that the debtor sought to oppose the motion. Accordingly, debtor's request for sanctions must be denied.
An appropriate order shall be entered.
ORDER
AND NOW, this 23rd day of November, 1992, for the reasons stated in the accompanying memorandum, it is hereby ordered that:
1. This court's order of June 30, 1992 granting Jefferson Bank relief from the automatic stay by default is vacated pursuant to Fed.R.Bankr.P. 9024;
2. The debtor's motion for sanctions against counsel for Jefferson Bank is denied;
3. A hearing on Jefferson Bank's motion for relief from the stay shall take place in Bankruptcy Courtroom # 1 on December 14, 1992 at 9:30 A.M. Jefferson Bank shall serve all lienholders with a copy *934 of its motion and a copy of this order on or before December 1, 1992.
NOTES
[1] Neither the debtor nor Bank Hapoalim contends that this notice, prepared by Jefferson Bank's attorney, was defective in that it apparently failed to provide the movant's attorney's address to which any answers were to be served. See Local Bankr. Form 9014.1A.
[2] The debtor does not allege in his motion to reopen judgment that counsel for the movant failed to serve a copy of the motion, order requiring answer and notice of hearing within three business days of receipt from the clerk of the completed notice. Local Bankr.R. 9014.1(c)(1). If the clerk mailed a copy of the order requiring answer and notice of hearing to Jefferson Bank's counsel on June 3, 1992, then he likely received it on or after June 4th and June 9th would be within the third business day from his receipt.
[3] The movant's certificate of service, which was docketed as of June 9, 1992, and which would indicate upon whom or what entities service was made, was not offered into evidence by any party.
[4] By virtue of 11 U.S.C. § 362(e), a motion for relief from the automatic stay must be scheduled and heard, at least preliminary, within 30 days of filing unless the movant requests otherwise. See In re Wedgewood Realty Group, Ltd., 878 F.2d 693 (3d Cir.1989). If a respondent to the motion fails to file any timely answer and simply appears at the scheduled hearing, the movant would have no reason to be prepared to present evidence in support of its motion. Thus, to permit a respondent to oppose the motion under those circumstances would almost compel the movant to seek a postponement and thereby waive its right to hearing within thirty days. Accordingly, within the statutory framework of section 362, it is often fairer to enter relief from the stay by default (at least preliminary) and then address any motions for reconsideration or to set aside the default if they arise, such as in this instance.
I also note that the debtor never made any request to treat the June 29th hearing as a preliminary hearing under section 362(e).
[5] Resolution of the instant motion "to open" was delayed by the parties' request that they be permitted time to resolve this dispute consensually. The parties were unable to reach a settlement and have submitted memoranda.
[6] As will be discussed below, these three factors do not apply when considering relief under Rule 60(b)(4).
[7] Thus, cases analyzing Rule 6(e) are informative to the present discussion. In re Allegheny Intern., Inc.
[8] The order at issue in that case directed as follows: "An order will be entered granting the relief requested herein without further hearing unless a written objection and request for hearing is filed with the clerk within twenty (20) days of the date of issuance of this notice." When this language is incorporated into a motion, pursuant to that court's local rules, the "date of issuance" is the date of mailing indicated in the movant's certificate of service. In re Barnhart, 134 B.R. at 582 and n. 2.
[9] The Fifth Circuit in Robintech concluded that the extension provided by Rule 9006(f) does not apply when all parties receive notice of the claims bar date by mail. Here, of course, Jefferson Bank received a mailing from the clerk of court scheduling a hearing with an order requiring an answer; and, as movant it had a duty under our local rules to then serve notice upon all other parties. Local Bankr.R. 9014.1. Although all parties have received some notice by mail, this is not the universal mailing referred to by Robintech.
Instead, the Fifth Circuit was considering a single mailing from the clerk of court to all creditors, advising them of the proof of claim bar date. In such a circumstance, the deadline for acting is very likely to be independent of the date of the mailing. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540992/ | 260 Pa. Super. 211 (1978)
393 A.2d 1228
COMMONWEALTH of Pennsylvania
v.
Franklin PRILLERMAN, Appellant.
Superior Court of Pennsylvania.
Submitted December 31, 1977.
Decided October 20, 1978.
*212 John W. Packel, Assistant Public Defender, and Benjamin Lerner, Defender, Philadelphia, for appellant.
Eric B. Henson, Assistant District Attorney, and F. Emmett Fitzpatrick, District Attorney, Philadelphia, for Commonwealth, appellee.
Before WATKINS, President Judge, and JACOBS, HOFFMAN, CERCONE, PRICE, VAN der VOORT and SPAETH, JJ.
PER CURIAM:
Appellant was arrested and charged with burglary[1] and criminal conspiracy.[2] He was tried and convicted on both charges. Post-verdict motions were denied, and appellant was sentenced to concurrent terms of imprisonment of eleven and one-half to twenty-three months.
*213 Appellant argues on appeal that the lower court erred in denying his motion to dismiss under Pa.R.Crim.P., Rule 1100(f).[3]
The Commonwealth argues that appellant waived any Rule 1100 objection when he requested a continuance on December 10, 1975, which was five days before the mechanical rundate, and agreed to trial on or before February 10, 1976. Commonwealth v. Hickson, 235 Pa.Super. 496, 344 A.2d 617 (1975) is cited in support of this proposition. There is arguable merit in distinguishing the instant case from Hickson in that there is no affirmation on the record that the appellant or counsel agreed to a February 27, 1976 trial date. This language is merely contained in a waiver form signed by appellant. Under the reasoning of Commonwealth v. Coleman, 477 Pa. 400, 383 A.2d 1268 (1978), this should not act as a complete waiver of appellant's right to raise an 1100 violation.
We further find that there has been prejudice to the appellant occasioned by unexplained delays which evidence a violation of Rule 1100. After appellant's waiver of December 10, 1975, trial was rescheduled for January 22, 1976. This trial date was further postponed to April 4, 1976 with no explanation to be found in the record for this delay. Even considering the waiver by appellant until February 10, 1976, the 180 day period had expired as of the April trial date.
Further, a hearing on appellant's petition to dismiss filed on April 15, 1976, was not held until June 2, 1976, almost a month and a half later.
Finally, the Rule 1100 period was extended by the court on June 2, 1976, until June 17, 1976, presumably based on a Commonwealth petition to extend time for trial filed on *214 December 1, 1975, and held in abeyance by Judge Richette. To hold a petition in abeyance for seven months is clearly contrary to this court's reasoning in Commonwealth v. Metzger, 249 Pa.Super. 107, 375 A.2d 781 (1977), and violative of appellant's speedy trial right.
In light of the foregoing, the judgment of the lower court is reversed, and the appellant discharged.
WATKINS, former President Judge, and HOFFMAN, J., did not participate in the consideration or decision of this case.
NOTES
[1] Act of December 6, 1972, P.L. 1482, No. 334, § 1, eff. June 6, 1973; 18 Pa.C.S.A. § 3502.
[2] Act of December 6, 1972, P.L. 1482, No. 334, § 1 eff. June 6, 1973; 18 Pa.C.S.A. § 903.
[3] At any time before trial, the defendant or his attorney may apply to the court for an order dismissing the charges with prejudice on the ground that this Rule has been violated. A copy of such application shall be served upon the attorney for the Commonwealth, who shall also have the right to be heard thereon. Any order granting such application shall dismiss the charges with prejudice and discharge the defendant. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1540990/ | 393 A.2d 119 (1978)
FRANKLIN INVESTMENT CO., INC., Appellant,
v.
John L. HUFFMAN et al., Appellees.
No. 12485.
District of Columbia Court of Appeals.
Argued March 15, 1978.
Decided October 4, 1978.
Rehearing and Rehearing En Banc Denied December 27, 1978.
*120 Bernard D. Lipton, Silver Spring, Md., for appellant.
Gregory M. Murad and Randell H. Norton, Washington, D. C., with whom Stephen D. Keeffe, Washington, D. C., was on brief, for appellees.
Before NEWMAN, Chief Judge, and KERN and HARRIS, Associate Judges.
HARRIS, Associate Judge:
In a jury trial appellee Huffman was awarded $6,000 in damages for the failure of appellant Franklin Investment Company (Franklin) to provide insurance on Huffman's car. The jury found no liability on the part of appellee Motors Insurance Company (Motors), which Franklin had joined as a third party defendant under Super.Ct. Civ.R. 14. Franklin appeals from the jury's verdicts in favor of Huffman and Motors and from the motions judge's granting of summary judgment against Franklin on the issue of liability. We find the granting of summary judgment against Franklin to have been erroneous, and remand the case for a new trial.
I
In March 1975, appellee Huffman purchased an automobile from Lustine Chevrolet on an installment contract. Pursuant to the contract, Huffman was to maintain collision insurance on the automobile. Subsequently, Lustine Chevrolet assigned its rights under the contract to Franklin; Huffman was so notified.
In June 1975, Huffman received notice from his automobile insurance company, Motors, that his policy would be cancelled effective July 4, 1975, unless he paid the amount due on the policy by that date. On June 5, 1975. Franklin informed Huffman by letter that Motors had notified it that the policy was going to be cancelled effective July 4, 1975. It further advised Huffman that it was his obligation under the installment contract to provide collision insurance and that if proof of insurance was not provided by the cancellation date, this would "result in [Franklin's] having to enforce the contract terms."
At this point the facts become uncertain. Franklin alleges that it heard nothing further from Huffman, and that it therefore purchased a policy through Bankers Mutual Insurance Company and charged Huffman's account with the premium cost and a finance charge. Huffman alleges the following. On or about June 6, 1975, he spoke with Franklin concerning obtaining insurance. During this communication, Franklin offered to provide him with collision insurance and add the additional costs to his account. Huffman accepted the offer, and Franklin notified him by letter that pursuant to his request it had provided him with insurance and had charged his account with the premium cost and a finance charge.
The parties agree that on or about July 11, 1975, Franklin received notice from Motors that the premium on Huffman's original policy with it had been paid. Accordingly, believing that Huffman had paid the premium, Franklin cancelled the later-obtained *121 Bankers Mutual policy and credited Huffman's account with the amount it previously had charged him. On October 17, 1975, Huffman was involved in an accident in which approximately $1,000 in damages was sustained by his automobile. He requested that Franklin submit an insurance claim for that damage. Franklin advised him to submit his claim to Motors, not to Bankers Mutual. Huffman then filed a claim with Motors, which rejected it on the ground that, contrary to its prior notice to Franklin (which had been sent erroneously by Motors), the premium on the policy with Motors in fact had not been paid. Motors stated that it would honor a claim from Franklin, but not one from Huffman.
On October 21, 1975, Huffman released the automobile to Franklin so that Franklin could submit a claim to Motors. An official of Franklin advised Huffman that it would file a claim against Motors and that the automobile would be returned to him. Motors had the automobile examined by a claims adjuster, and it was repaired at a price agreed upon by Motors and the repair shop. Franklin filed a lienholder's claim with Motors, but Motors refused to pay it. In December 1975 the repair shop asserted a mechanic's lien. Franklin thereupon paid the repair shop's bill and repossessed the automobile.
Motors informed Franklin that it would honor Franklin's claim if Huffman had no redemption rights on the automobile. Franklin refused to accept this condition. Huffman declined to redeem the car, and Franklin resold it to Lustine Chevrolet pursuant to the terms of the original installment contract. In February 1976, Franklin offered Huffman the opportunity to repurchase the automobile in settlement of any claim he had against it. Huffman declined that offer, and on March 16, 1976, he was notified by Franklin that it had sold the automobile.
On March 18, 1976, Huffman filed suit against Franklin for breach of contract in refusing to pay the cost of repairs and for negligence in failing to notify him that it had cancelled his insurance policy with Bankers Mutual. Franklin joined Motors as a third party defendant, alleging that any damage to Huffman had resulted from the negligent and willful acts of Motors.
At a pretrial motions hearing, Huffman and Motors both moved for summary judgments in their favor. The motions judge granted Huffman's motion as to liability only, and denied Motors' motion. In the subsequent trial the issues for jury resolution thus were (1) the amount of damages incurred by Huffman, (2) the liability velnon of Motors to Franklin, and (3) assuming such liability, the amount of damages experienced by Franklin. The jury returned a verdict of $6,000 against Franklin on Huffman's claim, and found Motors not liable on the third-party claim.
II
Franklin alleges numerous errors in the trial court, including the granting of summary judgment against it on the issue of liability to Huffman. As noted, we conclude that summary judgment as to Franklin's liability to Huffman was granted improperly.
Super.Ct.Civ.R. 56(c) provides that summary judgment shall be rendered only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." See Basch v. George Washington University, D.C.App., 370 A.2d 1364 (1977). Summary judgment is appropriate only where it is clear what the truth is. International Underwriters, Inc. v. Boyles, D.C.App., 365 A.2d 779, 782 (1976). In order to defeat a summary judgment motion, the opposing party need only show that there is "sufficient evidence supporting the claimed factual dispute to require a jury or judge to resolve the parties' differing versions of the truth at trial." Ibid. Therefore, in reviewing rulings on summary judgment motions, "our function is to determine whether any issue of fact pertinent to the ruling exists, and in doing so we are not bound by the findings of the trial court." Owens v. Tiber Island Condominium Association, D.C.App., 373 A.2d 890, 894 (1977) (citation omitted).
*122 In granting summary judgment as to Franklin's liability to Huffman, the trial court necessarily found that there was no genuine issue as to any material fact affecting liability. After thoroughly reviewing the record, we hold that this finding was erroneous.
The trial court's ruling does not specify the ground on which summary judgment was granted. However, it is apparent that a finding of liability in this case properly could be based on a theory of either contractual obligation or negligence, or both. We do not believe that either of these theories could support the granting of summary judgment on this record.
The installment contract provides no basis for imposing liability on Franklin, for it specifically placed the obligation for the procurement of collision insurance on Huffman. On the other hand, the trial court might have found that Huffman and Franklin agreed to a separate contract which required Franklin to procure insurance for Huffman. However, such a conclusion properly would have to be based on a finding that there was mutual assent or a "meeting of the minds" between the parties, manifested by some type of offer by Franklin which was accepted by Huffman. See J. Calamari & J. Perillo, Contracts § 11 (1970); A. Corbin, Contracts §§ 3, 9 (1963); S. Williston, Contracts § 23 (3d ed. 1957). The existence of these elements is contested by Franklin, which claims that it never made such an offer and that the parties never mutually assented to Franklin's assuming an obligation to procure the insurance. Rather, Franklin claims that it acted gratuitously to protect its security in the automobile.
Since Huffman can point to no persuasive countervailing evidence of an initial offer to procure insurance by Franklin or of mutual assent by both parties as to the assumption of such an obligation, we conclude that Franklin has shown that there is sufficient evidence to support its claim of a genuine factual dispute. That dispute therefore should have been reserved for jury resolution. See International Underwriters, Inc. v. Boyle, supra, at 782-83. Thus, the trial court could not properly have granted summary judgment on the ground of a contractual obligation by Franklin.
In order to have ruled properly on a negligence theory in granting summary judgment, the trial court would have had to find, as a matter of law, that Franklin owed Huffman a duty to act according to a particular standard of care, and that that duty was breached. See Prosser, Torts § 30 (4th ed. 1971). In so doing, the trial court would have had to determine that there was no genuine issue of material fact as to those elements of negligence. See Super.Ct. Civ.R. 56(c).
Even though Franklin was under no contractual obligation to provide Huffman with the insurance policy, once it had done so and had so notified Huffman, it was estopped from arguing the absence of an obligation since its conduct subjected it to a new legal obligation under the case law applicable to gratuitous undertakings. As we previously have stated:
One who, by a gratuitous promise or other conduct which he should realize will cause another reasonably to rely upon the performance of definite acts of service by him as the other's agent, causes the other to refrain from having such acts done by other available means is subject to a duty to use care to perform such service or, while other means are available, to give notice that he will not perform. [Dawson v. National Bank & Trust Co., D.C.App., 335 A.2d 259, 261 (1975) (quoting Restatement (Second) of Agency § 378 (1958); See Tauber v. Jacobson, D.C.App., 293 A.2d 861, 865 (1972); S. Williston, Contracts § 138, at 597-98 (3d ed. 1957).]
Thus, assuming arguendo that Huffman's reliance on Franklin's gratuitous promise reasonably caused him to refrain from procuring insurance himself, Franklin was subject to a duty to act with care to protect Huffman's interest. However, Motors mistakenly notified Franklin of a premium payment on the Motors insurance policy and Franklin inferred from this that Huffman had paid the premium. In view of these circumstances, we believe that it was a question of fact for the jury as to what *123 Franklin's duty of care required it to do in this situation. Thus the trial court could not properly have determined as a matter of law that formal notice to Huffman of the cancellation of the Bankers Mutual policy was required of Franklin under its duty of care. Even if we assume again, arguendo, that Franklin's duty of care required it to give notice to Huffman, there exists a question of fact requiring jury resolution as to whether Franklin's crediting of Huffman's account with the Bankers Mutual policy premium amount constituted sufficient notice. Therefore, the trial court could not properly have grounded its grant of summary judgment on a negligence theory.
There being no legal theory upon which the trial court properly could have granted summary judgment against Franklin as to liability, we reverse and remand the case for a new trial on all issues.[*]
Reversed and remanded.
NOTES
[*] Appellant also questions the sufficiency of the trial court's instructions as to damages. While we have serious reservations about the adequacy of the instructions which were given on this issue, we trust that this problem will be remedied in a new trial. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541087/ | 155 B.R. 851 (1993)
In re G. MARINE DIESEL CORP., Debtor.
Bankruptcy No. 891-81973-478.
United States Bankruptcy Court, E.D. New York.
July 16, 1993.
*852 Barry R. Feerst, New York City, for debtor.
Birzon & Sobel, Smithtown, NY, for Anfrank Metal Fabricating Industries, Inc.
DECISION ON DEBTOR'S MOTION TO EXPUNGE CLAIM FILED BY ANFRANK METAL FABRICATING INDUSTRIES, INC.
DOROTHY EISENBERG, Bankruptcy Judge.
This contested matter comes before the Court upon the Debtor's objection to the claim filed by Anfrank Metal Fabricating Industries, Inc. ("Creditor") against the estate for services rendered and materials furnished as subcontractor to the Debtor pursuant to the Debtor's general contract with the U.S. government.
I. JURISDICTION AND PROCEDURE
The Court has jurisdiction over this matter pursuant to 28 U.S.C. 1334. This matter constitutes a core proceeding under 28 U.S.C. 157(b)(2)(A), (B) and (O).
II. FACTS AND BACKGROUND
The Debtor, G. Marine Diesel Corp. ("Debtor"), is engaged in the business of large ship repair. Throughout the Spring and Summer of 1990 the Debtor was acting as general contractor for the repair and refurbishing of several ships of the United States Navy. During that period the Debtor employed the services of the Creditor as a subcontractor for the fabrication and installation of certain ventilation systems on Navy ships.
The Debtor filed a petition for relief under Chapter 11 of the Code on May 8, 1991 and continued operations as a debtor-in-possession. On July 2, 1991 the Creditor filed a claim against the estate in the amount of $298,763.20, Two Hundred-Ninety Eight Thousand, Seven Hundred Sixty Three Dollars and Twenty Cents, for prepetition invoices dated between June 11, 1990 and February 4, 1991 representing unpaid services rendered and materials furnished in connection with the repair of certain Navy ships, the U.S.S. Butte and the U.S.S. Los Alamos.
The original contract price for labor, material and services for the ships in question was paid in full to the Creditor. This claim is for additional labor, material and services required based on change orders, design changes, and acceleration costs. The Debtor filed the instant motion to reduce or expunge the Creditor's claim alleging that a significant portion of the claim represented either work which was not authorized or work which was invoiced at excessive wage rates. On three separate hearing dates the parties presented evidence in the form of numerous documents and the testimony of several witnesses.
For the reasons which follow the Court finds that the Creditor's claim should be reduced to $153,358.67 and allowed as an unsecured claim in that amount.
III. STANDARDS AND AUTHORITIES
A proof of claim properly executed and filed constitutes "prima facie evidence of the validity and amount of the claim." *853 Bankruptcy Rule 3001(f). Such a claim is "deemed allowed" unless a party in interest objects. 11 U.S.C. 502(a). If such an objection is made, the Court, after notice and a hearing, shall determine the amount of the claim.
11 U.S.C. 502(b).
Because a properly executed and filed claim is deemed allowed, the objecting party has the initial burden of producing sufficient evidence to rebut the claimant's prima facie case. Simmons v. J.T. Savell (In re Simmons), 765 F.2d 547, 552 (5th Cir.1985); Global Western Development Corporation v. Northern Orange County Credit Service, Inc., 759 F.2d 724, 727 (9th Cir.1985); In re Gorgeous Blouse Co., Inc., 106 F. Supp. 465 (S.D.N.Y.1952).
If the objecting party sufficiently rebuts the claimant's prima facie case, the burden shifts back to the claimant as it is ultimately "for the claimant to prove his claim, not for the objector to disprove it." 106 F.Supp. at 465; Accord, In re Anchorage Boat Sales, Inc., 29 B.R. 275, 277 (Bankr.E.D.N.Y.1983). Collier succinctly summarizes the procedure as follows:
"In short, once the prima facie effect given the claim is overcome, the burden of ultimate persuasion rests on the claimant to prove that his claim is appropriate for purposes of sharing in the distribution of the debtor's assets. That proof must be by a preponderance of the evidence and it is for the bankruptcy judge to determine whether or not that has been achieved, with due regard being given to the probative value of the proof of claim itself." (emphasis added) (footnote omitted).
Collier on Bankruptcy § 502.02, p. 502-22 502-23.
The Court finds that the proof of claim submitted by the Creditor was properly executed and filed and thus, stands as prima facie evidence of the Creditor's claim. Accordingly, the initial burden belonged to the Debtor to rebut the presumption that the claim is valid. Although the Debtor raised numerous objections, these objections essentially fall into three categories: (1) unwarranted charges for interest on the unpaid debt; (2) unauthorized and unnecessary charges for post-contract re-engineering due to the Creditor's claim of being provided with inaccurate and/or deficient specifications; and (3) an excessive claim for wages paid pursuant to the Navy's demand for acceleration. For the sake of clarity, each category will be considered separately.
A. Interest
First, the Debtor notes that the amount reflected on the Creditor's statement of account exceeds the total of the underlying invoices by approximately $28,277. No explanation is provided on the statement of account. However, as became clear at the hearings, this amount represents a claim for interest on the unpaid invoices. The Debtor argued that no contract existed between the parties which provides for such interest charges. The burden then shifted to the Creditor, who was unable to justify the interest charges. It is clear that the creditor had no contract or agreement with the Debtor for payment of interest. This Court finds that this was a unilateral determination to impose a charge for interest made by the creditor without any evidence to support its claim for the payment of interest. Accordingly, interest charges of $28,277.78 will be deducted from the Creditor's claim.
B. Equitable Adjustments
The remaining objections by the Debtor could not be resolved by mere reference to the Creditor's claim and underlying documentation. These objections had to do with charges on the invoices which exceeded the original bid by the Creditor. However, due to peculiarities in the nature of government contracts, some background is necessary.
It is well settled that in a contractual relationship involving the government and a contractor, the government has the right to order changes in the contractor's work throughout the period of performance. See, Anderson, David G., Recovery of Indirect Costs: Pricing of Equitable Adjustment Terminations for Convenience, *854 ABA Sec. of Public Contract Law at 7 (1989). Such changes constitute cause for equitable adjustments in the contract price which are used as corrective measures to keep a contractor whole. Bruce Construction Corp. v. United States, 163 Ct. Cl. 97, 324 F.2d 516 (1963).
In the instant case the Creditor alleges two causes for such equitable adjustments. First, the Creditor argues that the specifications provided by the government were deficient thus causing a substantial increase in the cost of completing the project by virtue of necessary re-engineering and other changes in materials or labor in order to provide the appropriate manufacture of parts and proper installation. Approximately $160,000 of the Creditor's total claim is attributable to such costs. Second, the Creditor argues that the government's acceleration order caused the Creditor to incur substantial additional costs of approximately $110,000.
Deficient Specifications
Most of the invoices for changes requested by the Creditor were approved by the Government. Some were not transmitted by the contractor to the Government for approval, or if they were, were not responded to as approved or not approved. However, there is no claim that the services and materials were not provided. The issue is whether they are to be paid as appropriate changes, or denied payment because the labor or services were not necessary or were duplicate services for those which were to have been included in the original bid and contract between the parties.
"A contractor attempting to perform to defective specifications may be entitled to costs incurred in attempting to meet the requirements of the original specifications, as well as the costs resulting from the mistakes in the plans." E. Massengale, Fundamentals of Federal Contract Law at 124 (1991).
Based upon the evidence presented at the hearings, this Court is satisfied that the specifications provided by the government were deficient. It is clear that in large part this deficiency was due to the fact that the drawings or blueprints presented to the Creditor were outdated and did not reflect numerous changes to the structures which had been made over the years. The fabrication and installation work performed by the Creditor required precise measurements which in the Court's view could not be performed with the drawings provided. Although the original bid price includes shop drawings based on the plans and specifications provided to the subcontractor by the contractor, it does not include the cost of new or additional drawings required as a result of errors from the original plans provided to the subcontractor creditor.
Mr. Sklaro, the contracting officer for the government for ships in the Brooklyn Navy Yard, testified that one of the ships at issue, the Los Alamos, had had a complete overhaul in 1979-1980 and the ship's original drawings were not corrected to include changes from the overhaul. Therefore, the original drawings provided to the creditor by the Debtor do not reflect the vessel as it existed at the time of the instant contract.
The portion of the Creditor's claim attributable to necessary changes due to defective or erroneous specifications is a total of $161,208.67. Many of the invoices for change orders included sums incurred for necessary engineering changes which should be allowed. However, item no. 512-80-002, Report # 2 Engineering, included a charge for $47,050 representing "re-engineering" charges and $9,496 for fabricated pieces which were unusable as a result of the faulty specifications. It appears that approval for these charges by the government was never obtained, and the Court is not convinced that the charges for "reengineering", which are in dispute, were either necessary or authorized by the Debtor or the Government. These "re-engineering" charges appear to be either duplicated charges or an unnecessary additional charge. Therefore, the claim will be reduced by the sum of $47,050.
C. Acceleration Costs
During performance of the work underlying the instant claim, the government *855 issued an acceleration order which resulted in decreasing the time period for completion of the work from approximately three months to approximately one month. Such an acceleration order entitles a subcontractor to an equitable adjustment in the contract price. Alston, F., Worthington, M., & Goldman, L., Contracting with the Federal Government, at 332 (3rd Ed., 1992). An equitable adjustment in this instance is defined as the difference between what it would have cost to perform the work pursuant to the contract and what it reasonably cost to perform the work as changed. Nash, R., Jr. & Cibinic, J., Jr., Federal Procurement Law, Vol. II at 1364 (3d Ed. 1980), citing Appeal of Modern Foods, Inc., ASBCA 2090, 57-1 BCA 1229, 1957 WL 4960 (1957).
Due to the acceleration order in the instant case the Creditor claims to have incurred total wage costs in the sum of $183,017.00 for the period of May 22, 1990 through June 22, 1990 (the "Accelerated Period"). The Creditor has applied some payments to the wage cost and has included only the sum of $109,276.75 as additional acceleration costs in its proof of claim. The Debtor strongly objects to this figure claiming that the Creditor did not properly distinguish the premium or acceleration costs, for which additional fees are due, and the base costs which remained the responsibility of the Creditor due to the original bid. The Debtor argues that the base costs were improperly included in the acceleration invoices. The Creditor responds that none of the invoices submitted as part of the acceleration claim include base costs which were omitted from the invoices.
After reviewing the evidence in this case, the Court has no doubt that the invoices presented by the Creditor represent actual work performed. However, in the Court's view the Debtor has successfully rebutted the presumption of validity regarding this portion of the Creditor's claim by raising an issue as to how base costs were distinguished from acceleration costs. Therefore, the burden of proof shifted to the Creditor to justify this portion of the claim by a preponderance of the evidence.
While the Court does not accept the view of the Debtor that the vast majority of the invoices represent base costs incorrectly billed as acceleration, or premium, costs, the Debtor's argument does highlight a deficiency in the Creditor's method of bookkeeping. Based upon the testimony of Frank Gardini on behalf of the Creditor, the Creditor's base costs prior to acceleration included at least seven workers at $35.00 per hour for eight hours a day, five days a week. Mr. Gardini further testified that prior to acceleration the remaining work was projected to require approximately three months.
The acceleration required the Creditor to add additional laborers and maintain shifts around the clock in order to perform the necessary work in the shortened period of time. After acceleration, Mr. Gardini claims not to have charged for the base hours due to the pre-acceleration bid, however, there is no indication of how those hours were credited when approximately two months were removed from the anticipated contract period. Put simply, the Creditor should have estimated its anticipated normal cost to complete the work and applied a credit in that amount against the actual costs incurred during acceleration. This would have clearly distinguished base costs, which were the responsibility of the Creditor, from acceleration costs, for which the Creditor could justify additional charges.
If the Creditor was initially obligated to incur costs based on seven workers at eight hours per day, five days per week for twelve weeks, at the rate of $35.00 per hour, the remaining "man-hour" base cost would have been $117,600. When the remaining contract period was shortened from three months to one month, assuming the pre-acceleration crew to have continued working forty hour weeks, two months worth of "man hours" should have been credited against the increased costs incurred during the month of acceleration. Doing so should have resulted in a credit of $78,400 for two months of base "manhours" performed within one month. But, it does not appear that the Creditor did so.
*856 Rather, the Creditor points to the fact that it did not charge for the base workers for the one month acceleration period and reduced its "straight time" fee for the additional laborers employed by ten dollars per hour. Unfortunately, it appears from the invoices that the Creditor's omission of base pay only applied to the first eight hours per day per worker, referred to as "straight time" for one month. Such a credit alone leaves two months of basic "man hours" to be credited, or $78,400 for two months of "man-hours" which was included in the original bid, but not credited. The amount due and allowed for acceleration costs is therefore $39,200.
The Court is cognizant of the fact that some additional sums could easily have been attributable to increased overhead or administrative expenses or even lost profit due to the acceleration.
However, the method employed by the Creditor to calculate the appropriate credit for non-acceleration base charges prevents the Court from allowing this sum requested because there are no records to justify such an allowance. See, Federal Procurement Law at 1385, citing, Appeals of Baifield Industries, Div. of A-T-O, Inc., ASBCA 13418, 77-1 BCA p12, 308, 1976 WL 2080 (1976).
IV. CONCLUSION
Based on the foregoing reasons, the claim against the Debtor's estate by the Creditor herein shall be reduced by $28,277.78 as a result of unauthorized, noncontractual interest charges; shall further be reduced by the amount of $47,050 due to unauthorized and unnecessary "re-engineering charges"; and by the amount of $70,076.75 as a result of the Creditor's miscalculation of, and failure to substantiate, certain acceleration costs, for a total reduction of $145,404.53.
The Creditor's claim shall be reduced to the sum of $153,358.67 which shall be allowed as an unsecured claim and paid pursuant to the distribution authorized by the Debtor's confirmed Plan of Reorganization.
Settle an Order in accordance with this Decision. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541312/ | 344 B.R. 129 (2006)
In re Sharon GEYER and Patrick Geyer, Debtors.
Sharon Geyer, Patrick Geyer, Plaintiffs,
v.
U.S. Department of Education, Direct Loan Servicing Center, Defendants.
Civ. No. 05-0727, Bankruptcy No. 05CV0727-LAB (RBB), Adversary No. 04-90124.
United States District Court, S.D. California.
March 13, 2006.
*130 Sharon Geyer, San Diego, CA, pro se.
Patrick Geyer, San Diego, CA, pro se.
Robert H. Plaxico, San Diego, CA, for Defendants.
ORDER AFFIRMING BANKRUPTCY COURT JUDGMENT
BURNS, District Judge.
Debtors Sharon and Patrick Geyer appeal from the judgment of the United States Bankruptcy Court for the Southern District of California, entered pursuant to order granting summary judgment to the United States Department of Education ("DOE"). For the reasons which follow, the judgment is affirmed.
Debtors filed a Chapter 7 bankruptcy petition and received a general discharge. They discharged approximately $13,000 in general unsecured debt. The only prepetition debt remaining after the general discharge were federal education loan obligations incurred by Mrs. Geyer. (See Record on Appeal ("RA") at 5.) At the *131 time of the bankruptcy court's decision, the loans amounted to $16,312.34, including accrued interest. (RA at 48.)
Student loans are generally presumed to be nondischargeable. Rifino v. United States (In re Rifino), 245 F.3d 1083, 1087 (9th Cir.2001). A debtor who seeks to discharge student loans must file an adversary complaint against the education loan holder, and prove that "excepting such debt from discharge . . . would impose an undue hardship on the debtor and the debtor's dependents." 11 U.S.C. § 523(a)(8). Accordingly, Debtors filed an adversary complaint in bankruptcy court, seeking to discharge the student loans. (See RA at 5.) They claimed they had over the past several years earned insufficient income to pay the loans, and that their financial situation was unlikely to change in the future. (Id. at 5, 260-65.) The DOE filed a motion for summary judgment, which Debtors opposed, and the bankruptcy court granted. (RA at 210-11.) Debtors appeal the bankruptcy court's judgment.
"A bankruptcy court's grant of summary judgment is reviewed de novo." Paulman v. Gateway Venture Partners III (In re Filtercorp, Inc.), 163 F.3d 570, 578 (9th Cir.1998). Viewing the evidence in the light most favorable to the nonmoving party, the reviewing court must determine "whether there are any genuine issues of material fact and whether the [bankruptcy] court correctly applied the relevant substantive law." Id. (quoting Grimmett v. Brown, 75 F.3d 506, 510 (9th Cir.1996)). A bankruptcy court's "application of the legal standard in determining whether a student loan debt is dischargeable as an undue hardship" is also reviewed de novo. See Rifino, 245 F.3d at 1087.
On appeal, Debtors do not dispute the underlying facts. They argue the facts demonstrate it is unreasonable to expect they will have the financial resources to pay the student loan, and that these circumstances pose an undue hardship. They also maintain the bankruptcy court misconstrued the term "undue hardship" when he considered their future ability to pay.
Although the Bankruptcy Code does not define "undue hardship," case law recognizes the adjective "undue" indicates Congress viewed "garden-variety hardship" as insufficient excuse to discharge student loans. Id. A debtor must prove three elements to obtain discharge of a student loan obligation:
(1) that the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living . . . if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.
Id. (internal quotation marks and citation omitted). "[T]he burden of proving undue hardship is on the debtor, and the debtor must prove all three elements before discharge can be granted. If the debtor fails to satisfy any one of these requirements, the bankruptcy court's inquiry must end there, with a finding of no dischargeability." Id. at 1087-88 (internal quotation marks and citations omitted). Accordingly, the bankruptcy court did not err in considering whether Debtors may be able to repay the student loans during their remaining term.
The bankruptcy court granted DOE's summary judgment motion primarily based on the second element whether additional circumstances exist indicating that, if forced to repay the loan, the debtor's inability to maintain a minimal standard *132 of living is likely to persist. (See RA at 211, 265-67.) This element "is intended to effect the clear congressional intent exhibited in section 523(a)(8) to make the discharge of student loans more difficult than that of other nonexcepted debt." Rifino, 245 F.3d at 1088-89 (internal quotation marks and citations omitted).
Viewing the evidence in the light most favorable to Debtors, there are no genuine issues of material fact as to: (1) their ability to maintain a minimal standard of living if the loans are not discharged, and (2) their ability to maintain a minimal standard of living for a significant portion of the remaining repayment period. Accordingly, the bankruptcy court did not err in ruling as a matter of law that Mrs. Geyer's student loans were not dischargeable.
From 1996 through 1998, Mrs. Geyer borrowed $18,400 to attend Arizona State University ("ASU"). Subsequently, she made over $6,000 in payments toward that debt. With the student loan funds, she obtained a B.A. in English Literature in 1998. She worked in a variety of full time and part time positions prior to attending ASU, including bookkeeper, medical transcriptionist, and a secretary. She has working knowledge of three foreign languages: Farsi, Arabic and Hebrew. After graduating from ASU, she held a part-time temporary administrative job for six months, and subsequently took a part-time job together with her husband stocking shelves at West Marine. In the spring of 2001, they both left that job to go on a three-month trip to Israel to volunteer on an archeological project for the antiquities department of the Israeli government. After returning from Israel in the summer of 2001, Mrs. Geyer gave up looking for employment through 2004. While she explains she gave up because she could not find work due to age discrimination, this also enabled her to write and publish two books in 2003 and 2004, respectively. At the time of the adversary action, Mrs. Geyer was working on her third book, and had received $600 in royalties for her first two books. She only recently resumed her efforts to find work, and found part-time work at Cosco, which pays a minimum wage. She also receives Social Security in the amount of $430 per month.
Mr. Geyer[1] received a B.A. in philosophy from Valparaiso University in 1979 and an M.A. in religious studies/archeology from ASU in 1998. Prior to receiving his M.A., he taught science at San Diego and Phoenix parochial schools for several years. His income enabled Debtors to save $10,000 each in IRA accounts in late 1990s. After graduating from ASU, Mr. Geyer worked as a substitute teacher in San Diego, and subsequently as a research associate at University of San Diego ("USD"). His work at USD involves research projects and monitoring construction excavations for potential artifacts for $500 per month. In addition, he is certified as an archeological monitor by the County of San Diego. He is occasionally retained on construction projects, and is paid for that work separately and in addition to his work through USD. Such construction project work has paid as much as $11,800 per project. One of these projects enabled Debtors to travel to Israel in 2001.
Mrs. Geyer is 63 and Mr. Geyer is 52 years old. They are in good health and have no dependents. Mrs. Geyer's student loans are the only debt remaining. She consolidated her student loans and elected *133 to repay them under the Income Contingent Repayment Plan, which sets the payments based on the borrower's income. If the income falls below a certain level, no monthly payment is due. Under this plan, based on Debtor's income, Mrs. Geyer's current monthly payment is zero. A borrower whose monthly payment is zero is considered current, and there is no adverse credit reporting to the credit bureaus. The maximum repayment period under this plan is 25 years. Any portion of the loan at the end of this period is discharged, although the discharged amount may be considered taxable income. (RA at 42-55.)
The foregoing facts to do not raise a genuine issue of material fact regarding undue hardship. Excluding the student loans from discharge does not impose any hardship on Debtors, since, by virtue of the Income Contingent Repayment Plan, they are not required to make any payments at all. Accordingly, they cannot show that they cannot maintain a minimal standard of living if the loans are not discharged. See Rifino, 245 F.3d at 1087. For the same reason, they cannot show that the loans would preclude them from maintaining a minimal standard of living for a significant portion of the remaining repayment period. See id.
In the alternative, assuming arguendo that Debtors had to make loan payments at a level greater than zero, their history and background shows they are capable of earning more than they spend, and that their state of affairs need not persist in the future. For Debtors to prevail, "[t]here must be evidence that [they] will be unable to repay for several years, because of psychiatric problems, lack of useable job skills, severely limited education, physical problems, or any other circumstance which will persistently interfere with [their] ability to repay." Educ. Credit Mgmt. Corp. v. Mason (In re Mason), 315 B.R. 554, 560 (9th Cir. BAP 2004). Debtors' claim they cannot secure better employment due to age discrimination. The record does not support this claim. They were able to earn more in the recent past. For example, they were able to save $20,000 in late 1990s. In 2001, they spent three months in Israel volunteering on an archeological excavation. Not only did they forego earning any income during this time, they used $11,800 of their prior earnings to pay for living expenses. In addition, Mrs. Geyer is actively engaged in her writing career and may earn additional royalties from her books. Increasing Debtors' current level of income is not out of their control. Some of the difficulties in increasing their income can be attributed to their less than complete dedication to retaining employment, by, for example, leaving for three months to volunteer in Israel, and their less than persistent efforts to find new or higher paying employment. Under these circumstances it would not be unconscionable to require them to take steps to earn more. See U.S. Aid Funds, Inc. v. Nascimento (In re Nascimento), 241 B.R. 440, 445 (9th Cir.BAP1999).
For the foregoing reasons the bankruptcy court did not err when it granted the DOE's summary judgment motion. The bankruptcy court judgment is therefore AFFIRMED.
IT IS SO ORDERED.
NOTES
[1] Spouse's income is relevant to the determination of undue hardship. See Greco v. Sallie Mae Servicing Corp. (In re Greco), 251 B.R. 670, 676-77 (Bankr.E.D.Pa.2000); White v. U.S. Dep't of Educ. (In re White), 243 B.R. 498, 508-09 (Bankr.N.D.Ala.1999). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541313/ | 549 Pa. 75 (1997)
700 A.2d 431
Donna M. KING, Appellee,
v.
WORKMEN'S COMPENSATION APPEAL BOARD (K-MART CORPORATION), Appellant.
Supreme Court of Pennsylvania.
Argued October 15, 1996.
Decided September 19, 1997.
*76 Patricia A. Mattern, Philadelphia, Gregory J. Davis, Ft. Washington, Dennis K. Barnes, Philadelphia, for K-Mart Corp.
Kenneth M. Rodgers, Philadelphia, for Donna King.
David S. Hawkins, Sudbury, Ontario, CN, for W.C.A.B.
Daniel K. Bricmont, Pittsburgh, for Amicus-P.T.A. Trial Lawyers.
Before FLAHERTY, C.J., and ZAPPALA, CAPPY, CASTILLE and NIGRO, JJ.
OPINION
ZAPPALA, Justice.
This case involves an employer's petition to terminate workers' compensation benefits due to the claimant's complete recovery, where a previous petition based on the same grounds was denied. Commonwealth Court held that the second petition "must fail by reason of issue preclusion," because the employer failed to demonstrate that the claimant's *77 condition had changed after the denial of the first termination petition. King v. Workmen's Compensation Appeal Board (K-Mart Corporation), 664 A.2d 1087, 1091 (Pa.Cmwlth.1995). We reverse.
Donna King injured her back on January 16, 1980, while working for K-Mart Corporation. Pursuant to a Notice of Compensation Payable, K-Mart began paying benefits for total disability at the rate of $121.00 per week. In July of 1983, K-Mart filed a petition to terminate benefits, asserting that King was no longer disabled. In support of its petition, K-Mart presented the deposition testimony of Dr. John T. Williams, who had examined King on July 14, 1983, and was unable to find any cause or explanation for her complaints of pain. He offered the opinion that King was able to return to her normal work duties. King presented the deposition testimony of Dr. Ronald B. Greene, who had examined her on February 17, 1984. He described King's condition as chronic coccydynia[1] and opined that she was permanently disabled from working. In July of 1987, the referee denied the termination petition based on his finding that Greene's testimony was more persuasive than Williams's.
In February of 1990, K-Mart filed a second petition to terminate. In support of this petition, K-Mart presented the deposition of Dr. Marc Manzione, who had examined King on August 8, 1989, and found no objective physical basis for King's complaints of pain. King presented the deposition of Dr. Andrew Newman, who examined her on May 3, 1990, and the earlier deposition of Dr. Greene. King also testified herself, as did her husband.
On June 18, 1993, the termination petition was granted. The referee found Dr. Newman's testimony less credible than Dr. Manzione's, and therefore accepted Dr. Manzione's conclusions and rejected Dr. Newman's. He found that, "As of the date of Manzione's examination, Ms. King was fully recovered from her work-related injury. Any disability that she suffered from was the result of some other cause and not related to her *78 work injury." The referee rejected King's argument that because of the result of the earlier petition K-Mart was barred by res judicata from bringing this petition.
On appeal, the Workmen's Compensation Appeal Board affirmed. The Board agreed with the referee that this termination petition was not barred by res judicata, and determined that there was substantial competent evidence, in the form of Dr. Manzione's testimony, to support the finding that King's disability from her work-related injury had ceased.
On further appeal, Commonwealth Court reversed. The court's opinion contained a review of the doctrine of res judicata derived from its decision in Hebden v. Workmen's Compensation Appeal Board (Bethenergy Mines), 142 Pa. Cmwlth.176, 597 A.2d 182 (1991). The court acknowledged that this Court had reversed the order in that case, 534 Pa. 327, 632 A.2d 1302 (1993), but explained that our decision, while agreeing with the discussion of res judicata, indicated that an employer, in proceedings to modify or terminate benefits, may not relitigate the original diagnosis. Unfortunately, the remainder of the Commonwealth Court opinion gave no indication of the reason for the citation to Hebden or the part it played in the analysis and decision of this case. It is thus unclear whether the court found our decision in Hebden controlling in this case, or whether the court was merely reiterating the language of its own decision in Hebden with respect to the doctrine of res judicata, finding our decision inapplicable but discussing it simply as the later history of the cited case. We find our Hebden decision entirely inapplicable.
The claimant in Hebden was awarded workers' compensation benefits by a referee upon a finding that he had coal worker's pneumoconiosis. The employer later sought modification. In the course of explaining their opinion that the claimant was not disabled, the employer's medical experts testified that the claimant had bronchial asthma, not pneumoconiosis. One of these doctors conceded on cross-examination that if the claimant did not have pneumoconiosis at the time the doctor examined the claimant, he would not have had it *79 previously. This coincided with the claimant's physician's testimony that pneumoconiosis is irreversible.
Nevertheless, the referee accepted the employer's experts' testimony that the claimant did not have pneumoconiosis and terminated benefits, a decision that was affirmed by the Board and the Commonwealth Court. In reversing, we determined that the unrefuted testimony that pneumoconiosis is irreversible precluded the employer from asserting and the referee from finding that the claimant did not have the disease.
Here, despite Dr. Greene's testimony in the first proceeding that characterized King's injury as "permanent," and Dr. Newman's testimony in the second proceeding that in his own experience he had never had a coccydynia patient get better, there is no basis in this record for characterizing coccydynia as irreversible. The testimony of Dr. Manzione suggested that coccydynia "generally responds to conservative treatment" that protects the area of the coccyx from direct pressure, and that injections and surgery may be employed to relieve the pain. Thus at the very least, K-Mart produced evidence that the condition King had been diagnosed with was changeable.
K-Mart did not argue and its witness did not suggest that King never suffered a work-related back injury. With respect to both the first and second termination petitions, K-Mart argued only that King was no longer disabled on account of that injury. Nor did K-Mart in the second termination proceeding either explicitly or implicitly challenge the referee's conclusion in the first proceeding that King was still disabled in 1983.
Plainly, our decision in Hebden has no bearing on the analysis of this case. Indeed, our opinion in that case recognized that
the Workmen's Compensation Act at Section 413 (77 P.S. § 772) expressly provides that an award may be terminated based upon changes in the employee's disability. But that raises the logical question of whether an employee's disability is changeable in a given case. If it is, an employee's *80 condition may be re-examined at a later time to see if he is still disabled or not. If it is not, an attempt to re-examine the employee's condition is merely a disguised attempt to relitigate what has already been settled. We think the latter is what occurred here.
534 Pa. at 331, 632 A.2d at 1304. (First two emphases in original, latter emphasis added). In contrast, the former is what occurred in this case.
Entirely apart from the confusing references to Hebden, the Commonwealth Court's opinion here can be read to suggest that where an employer has been unsuccessful once in demonstrating a change in the claimant's condition, its burden in a later proceeding is not merely to show that the disability has changed or ceased. Rather, the employer must show that the claimant's condition changed after the earlier proceeding. Such is not the case.
Commonwealth Court observed that, "Like Dr. Williams, Dr. Manzione also opined that Claimant is no longer disabled and that he could find no explanations for her complaints of pain." The court then noted that on cross-examination Dr. Manzione "admitted" that King's medical condition remained unchanged from the time the first termination petition was filed. 664 A.2d at 1090.[2] The court presented in detail the referee's findings with regard to the first petition, then repeated *81 that K-Mart's witness "stated that there was no change in Claimant's condition since the initial termination petition was filed." Id. Finally, the court held that the second termination petition failed due to issue preclusion, once again observing that "Employer failed to demonstrate any change in Claimant's condition after the . . . dismissal of the initial termination petition by the referee." Id. at 1091.
Section 413 of the Workers' Compensation Act, 77 P.S. § 772, provides that a referee
may, at any time, modify, reinstate, suspend, or terminate a notice of compensation payable, an original or supplemental agreement or an award . . . upon proof that the disability of an injured employe has increased, decreased, recurred, or has temporarily or finally ceased. . . . Such modification, reinstatement, suspension, or termination shall be made as of the date upon which it is shown that the disability of the injured employe has increased, decreased, recurred, or has temporarily or finally ceased. . . .
We can find no reason that the nature of the proof in a second or later termination proceeding should differ from that in a first proceeding. The issue in each instance is whether the claimant's disability had changed or ceased as of the time specified in that proceeding. Of necessity, an employer's second termination petition will involve evidence similar to that presented in the first for in each case the employer believes it has marshalled sufficient proof, generally in the form of medical opinion, that the claimant's disability has ceased. A decision that the claimant's condition had not changed as of an earlier time should have no effect on a later attempt to demonstrate that the condition has changed as of a later time.
In this case, the referee observed King during her testimony, reviewed the deposition testimony of Drs. Manzione, Newman, and Greene, and determined that King's disability had ceased as of the time Dr. Manzione examined her in 1989. Because his conclusion is supported by substantial evidence in the record, the Commonwealth Court erred in *82 reversing. Accordingly, the order of the Commonwealth Court is reversed and the order of the Workmen's Compensation Appeal Board is reinstated.
NEWMAN, J., did not participate in the consideration or decision of this case.
CAPPY, J., files a Concurring Opinion in which CASTILLE, J., joins.
CAPPY, Justice, concurring.
I concur in the result reached by the Majority. I write separately to emphasize that, contrary to the Majority's assertions, the Workers' Compensation Act (the "Act") requires that a party seeking to alter benefits, based upon a change in physical disability, must prove that there has been a change in physical condition since the last legal proceeding addressing the nature and extent of the injury. I concur with the Majority because in this case, I believe that this requirement has been satisfied. Further, I write to suggest that the timing of repeat termination petitions should be of critical importance to a determination of whether a party seeking the termination of benefits is proceeding in good faith, and, thus, whether benefits should be terminated.
Prior case law has consistently interpreted the Act as requiring evidence of a change in condition from an earlier determination and sets forth compelling reasons for such a requirement. This court in Kachinski v. Workmen's Compensation Appeal Board (Vepco Construction Co.), 516 Pa. 240, 252, 532 A.2d 374, 380 (1987) made clear that an employer who seeks to modify a claimant's benefits "on the basis that he has recovered some or all of his ability must first produce medical evidence of a change in condition." (Emphasis supplied). This burden of production requires evidence of a change in condition since the last disability determination. See Cerny v. Schrader & Seyfried, 463 Pa. 20, 342 A.2d 384 (1975); Mancini v. Workmens Compensation Appeal Board, 64 Pa.Cmwlth. 484, 440 A.2d 1275 (1982); Airco-Speer Electronics v. Workmen's Compensation Appeal Board, 17 Pa.Cmwlth. 539, 333 *83 A.2d 508 (1975); Banks v. Workmen's Compensation Appeal Board, 15 Pa.Cmwlth. 373, 327 A.2d 404 (1974); E.R. Reed Contractor Co. v. Workmen's Compensation Appeal Board, 7 Pa.Cmwlth. 580, 300 A.2d 847 (1973).
The reason for such a requirement is perhaps best stated by the learned Judge Glenn E. Mencer in Banks v. Workmen's Compensation Appeal Board, 15 Pa.Cmwlth. at 377, 327 A.2d at 406, "[a]bsent the requirement of showing a change in disability, a disgruntled employer (or claimant) could repeatedly attack what he considers an erroneous decision of a referee by filing petitions for modification based on the same evidence as infinitum, in the hope that one referee would finally decide in his favor."
In the case sub justice K-Mart offered a change in condition since the 1983 termination petition proceedings by presenting expert medical testimony of the 1989 examination of Ms. King and the expert's conclusion that Ms. King's subjective complaints of pain, at the time of the second examination, were unfounded. Thus, the Act's requirement of proving a change in condition since the last determination regarding the extent of the claimant's injury was met.
Further, I believe that consideration of the timing of the filing of repeat termination petitions is critical to protect a party from vexatious litigation. While the Act allows a party to seek modification of benefits based upon a change in physical condition at any time, this court noted in Kachinski that, "the viability of this system depends on the good faith of the participants." Kachinski, 516 Pa. at 252, 532 A.2d at 380. Penalty provisions of the Act, such as section 440, 77 P.S. § 996, which allow for the assessment of attorneys fees and costs against an insurer which contests, without a reasonable basis, a compensation claim, are consistent with requiring parties to proceed in good faith. More specifically, prior case law has focused on the time between the filing of petitions as indicia of whether a claim for modification was brought in good faith. Cf Airco-Speer; Banks.
*84 I suggest that a determination of whether a party is proceeding in good faith, and, thus, whether benefits should be terminated, must include as a primary element of consideration, the timing of the filing of repeat termination petitions. I submit that a reasonable period of time must pass between the filing of termination petitions. While what constitutes a "reasonable" period of time will differ with the facts and circumstances of each case, I believe that only in rare cases should a petition to terminate benefits, which is filed within the same year as a previous petition, lead to a termination of a claimant's benefits. This respite would help to prevent vexatious litigation, promote judicial economy, and establish respect for judicial judgments, thus, ensuring the "viability of the system." Kachinski.
In this case K-Mart satisfied its burden of establishing a change in condition since the latest legal proceeding addressing Ms. King's physical disability and filed its second termination petition after a reasonable period of time; therefore, I concur in the result reached by the Majority.
CASTILLE, J., joins in this Concurring Opinion.
NOTES
[1] The coccyx is the end of the spinal column, colloquially referred to as the tailbone. Coccydynia refers to pain in the area around the coccyx.
[2] Commonwealth Court supported this conclusion by reference to a portion of Dr. Manzione's deposition where the following exchange occurred:
Q: [by the claimant's attorney] . . . is it your opinion that there was a change in her medical condition from July 1983 [when the first termination petition was filed] until you saw her August 8, 1989 . . . ?
A: According to this report the patient was having the same complaints then as when I saw her in 1989. So, in that sense I don't think much has changed.
The court did not note that counsel prefaced the question by directing Dr. Manzione's attention to Dr. Williams's report from July of 1983, or that K-Mart's counsel objected to the question for this very reason.
More importantly, the court seems to have ignored the qualification that Dr. Manzione placed on his answer, i.e., that not much had changed in the sense that King had the same complaints of pain in 1989 as she had in 1983. Dr. Manzione's testimony when viewed in its entirety offered no opinion as to King's medical condition in 1983 or at any time other than when he examined her. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541317/ | 700 A.2d 229 (1997)
Darryl N. DAVIS, Appellant,
v.
UNITED STATES, Appellee.
No. 95-CF-1281.
District of Columbia Court of Appeals.
Argued June 16, 1997.
Decided September 4, 1997.
A. Fulani N. Ipyana, Public Defender Service, with whom James Klein and Gretchen Franklin, Public Defender Service, were on the brief, for appellant.
Ronald Machen, Assistant United States Attorney, with whom Eric H. Holder, Jr., United States Attorney, and John R. Fisher, Thomas J. Tourish, Jr. and Shanlon Wu, Assistant United States Attorneys, were on the brief, for appellee.
Before FARRELL, RUIZ, and REID, Associate Judges.
RUIZ, Associate Judge:
Found guilty by a jury of kidnapping and robbery, Darryl Davis raises several issues on appeal, none of which we find warrants reversal. Davis claims that the introduction *230 of a plastic pistol obtained from him at a date seven weeks after the incident for which he was charged wrongfully suggested Davis's criminal predisposition to the jury. He further alleges that the Winters anti-deadlock instruction given to the jury coerced a verdict. We affirm.
Davis was originally charged with armed robbery, kidnapping while armed, and possession of a firearm or imitation firearm during the commission of a crime of violence. The evidence at trial showed that Davis confronted his victim in a parking garage, his hand in his jacket, and threatened that he had a gun. He forced the victim into the car, during which she felt a hard object against her side but did not see a gun. Davis forced his victim to drive to an ATM and withdraw money, at which point she threw the money at her assailant and ran for help. Davis was arrested seven weeks later during a separate incident; a plastic pistol found in his possession at the time of his arrest was entered into evidence at trial. Davis was acquitted of armed robbery, kidnapping while armed and possession of a firearm or imitation firearm during commission of a crime of violence, but convicted of the lesser included offenses of kidnapping and robbery.
I. The Winters Instruction
The trial court gave a Winters[1] instruction when, after approximately seven hours of deliberation, the jury sent a note explaining that "[w]e feel that we are not going to reach a verdict no longer [sic] how long we sit here. There are people on the jury who have stated they are not willing to change their minds no matter what." (Emphasis in original.) The determination of whether coercion exists in a particular case is made by considering the coercive potential of the situation from the jurors' perspective and the effect of the actions of the trial judge in exacerbating or alleviating potential coercion. (Robert) Harris v. United States, 622 A.2d 697, 701-02 (D.C.1993). We are unpersuaded that the trial court abused its discretion either by giving the Winters instruction or by giving a written copy of the instruction to the jurors.
Davis argues that external factors affecting the juryone juror's school attendance and another's job situationwhen coupled with the Winters instruction, created a coercive situation and potentially coerced a verdict. One juror (Juror 296) was concerned with his ability to attend class while another (Juror 844) said he had been fired from his job due to jury service. The jury was not officially made aware of Juror 844's problems, and Juror 844 assured the court on two separate occasions, the second after himself being assured that the circumstances surrounding his firing were being looked into, that he could fairly proceed with the deliberations despite his personal problems.[2] The jury was aware of Juror 296's desire to attend class and the court made accommodations to allow the juror to attend class by allowing a longer lunch period. Juror 296 likewise assured the court that despite scheduling conflicts he could deliberate fairly.
Unlike Morton v. United States, 415 A.2d 800, 802 (D.C.1980), where the court found substantial risk of a coerced verdict after a Winters instruction was given to a jury on which one juror had asked to be excused due to the fact that her brother had died, in the present case neither juror asked to be removed. To the contrary, both were given the opportunity to express their concerns before deliberations began and the alternate jurors were dismissed. Neither juror's problem reached the level of a death of a sibling, and neither was particularly unusual given the nature of jury duty, which presupposes a disturbance of an individual's normal life. To the extent possible, the trial court accommodated the student juror's schedule and investigated the alleged firing of the other juror at issue. Under the circumstances, the Winters charge was not coercive.
Davis further argues that the trial court abused its discretion by not exercising its discretion, adhering instead to its uniform *231 policy of giving the Winters instruction. Johnson v. United States, 398 A.2d 354, 363 (D.C.1979). It is clear from the record, however, that the trial court considered the alternatives presented by both Davis and the government and, based on experience, preferred to give the Winters instruction.[3]
It is within the discretion of the trial court which "anti-deadlock" instruction it chooses to give. Epperson v. United States, 495 A.2d 1170, 1173 (D.C.1985). It is also within the discretion of the trial judge to fashion his or her own anti-deadlock instructions so long as they do not exceed the pressure for a verdict presented by the Winters charge. Id. at 1175.[4] The trial court, after having decided that the "strongly worded note" received from the jury evidenced a deadlocked jury and considering the nature of the case and the time the jury had deliberated, was well within its discretion both to give an anti-deadlock instruction and to refuse the addition of portions of the "Gallagher instruction"[5] suggested by defense counsel.
Davis's third contention is that the trial court committed reversible error when it gave a copy of the Winters instruction to the jury. He contends that giving a copy of the instructions to the jury is tantamount to repeating (or repeatedly giving) the instruction by reading it over and over again. In Epperson, supra, this court held that absent "extenuating circumstances, e.g., if there is confusion and there is a request by the `hung jury' for a repetition of the anti-deadlock instruction ... or there is some exceptional circumstance which makes evident it is not likely to be coercive to reinstruct ..." an anti-deadlock instruction should not be repeated. 495 A.2d at 1175-76. We noted that the decision should not be understood as prohibiting a jury from being reinstructed if it did not understand the first charge or requested guidance, and opined that perhaps other "compelling factual situations" would arise in the future. Id. at 1174 n. 7. The present case presents one such factual situation.
Davis argues that there is a "distinct difference between repeating an instruction that the jury has indicated it does not understand, and repeatedly telling the jury to resolve its impasse" by repeating the instructions. Neither of these alternatives, however, describes the situation presented in this case. While the trial court provided a written copy of the Winters instruction to the jury, it did not repeatedly give the instruction as contemplated by Epperson. Epperson was concerned that a repeated instruction at the instance of the judge, instead of at the request of the jury, served as reproof, rather than instruction. Id. at 1174 (citing United States v. Seawell, 550 F.2d 1159, 1163 (9th Cir.1977)). Epperson makes repetition of an anti-deadlock charge virtually per se coercive, but only when such repetition is at the instance of the trial court rather than the jury. Id. at 1174-76. Here, one juror requested a copy of the Winters instruction and the judge required each member of the jury to agree to the request before providing the requested copy of the instruction to the jury. The element of coercive reproof inherent in repeating the instruction, against which the Epperson guidelines seek to protect, was not present.
II. The Relevance of the Plastic Pistol
Davis raises a serious issue about the relevance, if any, of the plastic pistol introduced at trial, given its tenuous temporal relationship to the crime and the victim's inability to describe the weapon allegedly used during the crime. In order for a weapon to be relevant it must have some connection to both the defendant and the crime. King v. United States, 618 A.2d 727, 728-29 (D.C.1993) (finding relevance established when complainant's description and identification of the gun used at crime matched the *232 gun possessed by defendant two weeks later); Swinson v. United States, 483 A.2d 1160, 1163-64 (D.C.1984) (considering the weapon's connection to both the defendant and the crime in relevancy determination); Lee v. United States, 471 A.2d 683, 685 (D.C. 1984) (same). It is not necessary for us to decide this point, however, because even if we assume that the plastic pistol was irrelevant as a matter of law to the offense charged, its introduction presented no prejudice to Davis sufficient to require reversal.
The trial court instructed the jury to "consider [the plastic pistol] only for the limited purpose of deciding whether an object was used by the person who robbed the complainant, and whether the replica introduced in court was, in fact, the object that was used." The jury is presumed to have followed the trial court's instructions. (Thomas) Harris v. United States, 602 A.2d 154, 165 (D.C.1992); Owens v. United States, 497 A.2d 1086, 1092 n. 7 (D.C.1985). Assuming the jury to have followed the trial court's instructions, the verdict of acquittal on the armed and firearm charges could have been reached by findings that Davis was the perpetrator of the crimes but either 1) did not possess the plastic pistol while committing the crimes; or 2) did possess the plastic pistol admitted into evidence, but it was not an imitation firearm within the definition of the statute, D.C.Code §§ 22-3202, -3204(b) (1996). Either finding would be consistent with the jury verdict following the trial court's instructions and the evidence on record. To accept the argument that admission of the plastic pistol suggested Davis's general criminal propensity would require this court to presume the jury ignored the trial court's instructions and considered the evidence for purposes other than instructed. This court will not upset a verdict by assuming that the jury declined to follow the trial court's instructions. Gray v. United States, 589 A.2d 912, 918 (D.C.1991).
The judgment of the trial court is hereby affirmed.
So ordered.
NOTES
[1] Winters v. United States, 317 A.2d 530, 534 (D.C.1974) (en banc).
[2] When the Jury Office contacted Juror 844's employer, it was told that he was not terminated because of his participation in jury duty, but because of job-related problems.
[3] Although the government had requested that the trial court either give no instruction or give an instruction on returning a partial verdict, it did not object to the giving of the Winters instruction.
[4] The Winters instruction has been approved as a proper charge and it is not within the province of this division to examine the en banc decision. M.A.P. v. Ryan, 285 A.2d 310, 312 (D.C.1971).
[5] The "Gallagher instruction" is the alternative to the Winters instruction suggested by Judge Gallagher in his concurring opinion in Winters, supra, 317 A.2d at 539. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541321/ | 344 B.R. 394 (2006)
In re BUFFALO MOLDED PLASTICS, INC., d/b/a/ Andover Industries, Debtor.
Buffalo Molded Plastics, Inc., d/b/a/ Andover Industries, Plaintiff,
v.
Omega Tool Corp., Defendant.
Bankruptcy No. 04-12782 TPA, Adversary No. 05-01041 TPA.
United States Bankruptcy Court, W.D. Pennsylvania.
June 28, 2006.
*395 *396 Willard E. Hawley, Esq., for Debtor/Plaintiff.
Ryan D. Heilman, sq., for Defendant.
MEMORANDUM OPINION
THOMAS P. AGRESTI, Bankruptcy Judge.
The matters before the Court are Plaintiff Buffalo Molded Plastics, Inc.'s Motion for Summary Judgment and Defendant Omega Tool Corp.'s Motion for Partial Summary Judgment. For the reasons expressed below, both motions for summary judgment shall be denied.[1]
FACTS
Plaintiff Buffalo Molded Plastics, Inc. ("Buffalo Molded") produces production parts for use in automobiles and sells its part directly to automobile manufacturers. Among its customers are General Motors and DaimlerChrysler. Defendant Omega Tool Corp. ("Omega") manufactures plastic injection molds for use in producing the production parts made for the automotive industry. Buffalo Molded contracted with DaimlerChrysler to produce parts for what was known as the ND and NM programs.[2] Buffalo Molded then arranged with Omega to build the molds necessary for the tooling. Omega was to manufacture the tools, which Plaintiff would pay for but the ultimate purchaser of the ND tools was DaimlerChrysler. By October, 2004, Buffalo Molded owed Omega $1,083,370 for the ND Tools. It also continued to owe for the NM Tools. As of October, 2004, a total amount of approximately $3,075,117 was owed or scheduled to become owing to Omega by Buffalo Molded including amounts due for the NM tooling.
Prior to the filing of the Debtor's chapter 11 petition, Omega was in possession of certain tooling regarding the ND program called the "ND Cargo Sill". It also was in possession of two of the tools associated with the NM Program. On October 13, 2004 two wire transfers were made to Omega from Buffalo Molded's account at Comerica Bank. The aggregate amount of the transfers totaled $1,083,370. After receipt of the funds, on or about October 14, 2004, Omega shipped the ND Cargo Sill to Buffalo Molded at its Meadville, PA location., On October 18 and 19, 2004, certain NM Tools were shipped back to the Debtor by Omega. Omega had previously delivered NM tools to Debtor on or about August 30, 2004.
Buffalo Molded filed its voluntary Chapter 11 petition on October 21, 2004. After the filing of the petition, on October 27, 2004, Omega filed a financing statement asserting a lien on the NM Tools pursuant to Ohio RL 1332.32 et. seq. The financing statement was filed with the Pennsylvania Department of State.
On March 7, 2005 Buffalo Molded filed its complaint against Omega seeking avoidance of the wire transfers on the basis that the transfers constitute preferences. (Docket No. 1). The complaint, which was amended on May 18, 2005, ("the Amended Complaint"), seeks avoidance of the transfers as preferences based upon 11 U.S.C. § 547(b) in Count One. (Docket No. 21). Count II seeks recovery of the transfers pursuant to 11 U.S.C. § 550. Id. In Count III, Debtor seeks to disallow the claims pursuant to 11 U.S.C. § 502(d). Declaratory relief is also sought in Count IV that *397 the claims of Omega are unsecured claims. Id.
In its Answer to the Amended Complaint, Omega raises numerous defenses. (Docket No. 22). Those defenses forming the basis for of its motion for summary judgment are: the payments were not transfers of a Debtor's interest in property; the earmarking doctrine bars Debtor's assertions; the payments were made in the ordinary course of business; the transfers were contemporaneous exchanges and new value was provided by Omega; Omega's interests are secured by a lien. Id.
On November 23, 2005, Buffalo Molded filed its Motion for Summary Judgment. On the same date, Omega filed its Motion for Partial Summary Judgment seeking summary judgment regarding Counts I through III of the Amended Complaint.
DISCUSSION
The standard for determining a motion for summary judgment is set forth in Fed. R.Civ.P. 56, which is made applicable to adversary proceedings through Fed. R. Bankr.P. 7056. Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories and admissions that are part of the record, in addition to affidavits, demonstrate the absence of any genuine issue of material fact thereby entitling the moving party to judgment as a matter of law. FedR.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). An issue of material fact is genuine if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Dongelewicz v. First Eastern Bank, 80 F.Supp.2d 339, 343 (M.D.Pa. 1999). Summary judgment is appropriate if no material, factual issue exists and the only issue before the court is a legal issue. EarthData Int'l of N.C., L.L.C. v. STV Inc., 159 F.Supp.2d 844 (E.D.Pa.2001); In re Air Nail Co., Inc. 329 B.R. 512 (Bankr. W.D.Pa.2005). In deciding a motion for summary judgment, the Court must view the facts in a light most favorable to the non-moving party. United States v. Isley, 356 F.Supp.2d 391 (D.N.J.2004). The moving party, moreover, bears the initial responsibility of stating the basis for its motions and identifying those portions of the record which demonstrate the absence of a genuine issue of material fact. Celotex, 477 U.S. at 325, 106 S.Ct. 2548. Once the moving party satisfies its burden of establishing a prima facie case for summary judgment, the nonmoving party must respond with contrary evidence and do more than raise some metaphysical doubt as to material facts, otherwise judgment will be entered in favor of the movant. Boyle v. County of Allegheny, 139 F.3d 386, 393 (3d Cir.1998) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). No issue for trial exists, in fact, unless the non-moving party can adduce sufficient evidence favoring it on the disputed factual issue such that a reasonable jury could only return a verdict in its favor. See Celotex, 477 U.S. at 322, 106 S.Ct. 2548. "It is important to note that, even if a genuine factual dispute is shown to exist, such showing may not necessarily suffice to preclude the entry of a summary judgment. Indeed, the mere existence of some alleged factual dispute will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." In re Allegheny Health, Educ. and Research Foundation, 321 B.R. 776, 789 (Bankr.W.D.Pa.2005).
Buffalo Molded seeks summary judgment on the basis that all of the requirements of preference have been met and Omega's defenses are insufficient or inaplicable.[3]*398 Specifically, as to Omega's defenses, it is argued that the transfers: exceed the amount of new value; were not in the ordinary course; and, were not earmarked. Omega primarily makes three arguments in its motion asserting defenses to the assertion that the transfers were preferential: the ear marking doctrine; the new value defense; and, the contemporaneous exchange defense.
Avoiding Preferential Transfers 11 U.S.C. § 547
Buffalo Molded asserts that there is no material dispute of fact that the transfers to Omega meet the requirements for a preference as set forth in 11 U.S.C. § 547(b). The transfers were to or for the benefit of Omega who was a creditor of the Debtor at the time of the transfers. (11 U.S.C. § 547(b)(1)). Second, the transfers were for or on account of an antecedent debt owed by the Debtor to Omega. At the time of the transfers on October 13, 2004, Buffalo Molded owed Omega in excess of $1.2 million dollars. (11 U.S.C. § 547(b)(2)). Third, the Debtor was insolvent at the time of the transfers. In fact, Buffalo Molded filed its bankruptcy petition only eleven days after the transfers. (11 U.S.C. § 547(b)(3)).[4] Fourth, the transfers were made on October 13, 2004 and the petition was filed on October 21, 2004, within ninety days of the filing. (11 U.S.C. § 546(b)(4)(A)). Finally, the transfers enabled Omega to receive more than it would have if the debtor was in a chapter 7 liquidation proceeding. (11 U.S.C. § 547(b)(5)). No specific evidence was provided on this final element by the Debtor beyond assertions that after payment to secured and priority creditors, general unsecured creditors in this case would receive a pro rata, if any, distribution. Omega does not appear to dispute this particular conclusion. In addition, this Court is generally aware and has been mindful throughout this case of the danger of administrative insolvency. Accordingly, Debtor's conclusion in this regard does not appear to be in dispute.
With the few exceptions noted, Omega does not directly dispute that the elements set forth in subsections (1) through (5) of 11 U.S.C. § 547 have been met. Rather, Omega argues that due to the earmarking doctrine, the wire transfers were not property interests of the Debtor. Therefore, Omega contends that if the transfers to Omega did not involve transfers of the Debtor's interest in property, *399 as required by the language of 11 U.S.C. § 547(b), the initial statutory predicates for a preference have not been met. Thus, for the reasons stated below regarding the application of the earmarking doctrine, a genuine issue of material fact exists as to whether the transfers fall within the statutory elements of 11 U.S.C. § 547(b) making summary judgment on this issue inappropriate. In addition, Omega asserts its other defenses of new value, contemporaneous exchange and ordinary course of business.
Application of the Earmarking Doctrine
The earmarking doctrine is an equitable doctrine that provides that funds are "earmarked" for a creditor where a new lender makes a loan to enable a debtor to pay the specific debt. It is generally considered to be a "judicially-created doctrine said to apply when a new creditor pays a debtor's existing debt to an old creditor." In re Moses, 256 B.R. 641, 645 (10th Cir. BAP 2000). The rationale behind the doctrine is that the funds paid by the new creditor do not become part of debtor's estate where the transfer merely substitutes one creditor for another. Accordingly, the transfer is not a property interest of the debtor. See e.g., In re Lee, 339 B.R. 165 (E.D.Mich.2006); In re Grabill Corp., 135 B.R. 101 (Bankr.N.D.Ill. 1991). The doctrine originally started in the context of guarantor or codebtor cases. It has since been extended to apply in situations beyond that of a guarantor or codebtor providing funds. However, not all courts have been willing to adopt such an extension. See e.g., Moses, 256 B.R. at 646 and cases cited therein. The parties did not present, nor did the Court's research reveal, any case law decided by the United States Court of Appeal for the Third Circuit, regarding extension of the earmarking doctrine beyond guarantor cases. Assuming, without deciding, that the doctrine is appropriate for application in this judicial circuit in this context, we now consider the arguments.
It has been widely adopted that there are three requirements for the applicability of the doctrine:
(1) 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 transfer out to the old creditor) does not result in any diminution of the estate.
In re Bohlen Enterprises, Ltd., 859 F.2d 561, 566 (8th Cir.1988).
To determine whether the loaned funds are property of the estate, courts have looked to whether the debtor had control over the property. Id. at 566. If the assets were never in the debtor's control, payment of the assets in no way diminishes the estate. Coral Petroleum, Inc. v. Banque Paribas-London, 797 F.2d 1351, 1356 (5th Cir.1986) and cases cited therein. For a preference to be voided "it is essential that the debtor have an interest in the property transferred so that the estate is thereby diminished." Id. citing In re Castillo, 39 B.R. 45 (Bankr.D.Colo. 1984).
Existence of an Agreement
Buffalo Molded had a general commercial loan agreement with Comerica Bank. According to the deposition testimony of Robert Stoessel, the general procedure when monies were received by Buffalo Molded in its Comerica account is that the funds would be "swept" against the loan balance. Defendant's Brief in Support of Motion for Partial Summary Judgment, *400 Ex. B, pp. 18, 27. Buffalo Molded would then request a borrowing base, i.e. give Comerica instructions regarding where to transfer funds or request wire transfers. Id. Upon approval of the borrowing request, Comerica would advance monies into the account and wire transfer funds out of the account. Id. Therefore, in order to make payments to creditors, Buffalo Molded submitted a proposed budget wire transfer request to Comerica who would then advance the budgeted amount, as a loan, to Buffalo Molded's account. Cornerica would then initiate the requested and approved wire transfers to the transferees. Id., p. 3.
According to Omega, it's then vice president, David Cecchin, requested that Buffalo Molded make payment for the ND Tools prior to Omega releasing them. Id. Because all funds deposited into Debtor's Comerica account were applied to the Comerica loan, Omega was not certain that funds would be readvanced after Buffalo Molded received payment from Daimler-Chrysler. Id. Accordingly, arrangements were made with DaimlerChrysler to make payment for the ND Tools to the Debtor's account at Comerica, and the funds thereafter made available for payment to Omega for the ND Tools. Id. DaimlerChrysler deposited the funds into Buffalo Molded's account at Comerica. Comerica "swept" the account and applied the funds to Buffalo Molded's prepetition loan. Comerica then readvanced the funds to Buffalo Molded and placed the amount in its account and made the two wire transfers totaling $1,083,370. Id. After receipt of the funds, Omega released and shipped the ND Cargo Sill to the Debtor.
Omega asserts that the way in which it was paid was the very type of arrangement required for the earmarking doctrine. It asserted that the Debtor was required to submit for approval a detailed budget describing the purpose of the advances from Comerica. Def's Br. in Supp. of Mot. for Partial Summ. J., p. 8. In addition to submitting budget and wire transfer requests, Omega asserts that the transfers in this instance were subject to special review and agreement that Comerica would readvance the funds for the express purpose of paying Omega. Id. In support, Omega refers to a letter signed by a Mr. Gregory Wernette stating that "BMP has requested and Bank agrees that the forbearance agreement budget will permit BMP to use the DCX tooling receipt to pay Omega Tool on a pass through basis."[5] Omega contends that Comerica had direct and exclusive control of Debtor's funds at all times. Id. at 9.
Debtor does not dispute the facts of: (1) receipt of funds from DaimlerChrysler; (2) the application of those funds to its loan with Comerica; (3) the subsequent advancement of funds from Comerica; and, (4) the ultimate payment to Omega. What is disputed by Buffalo Molded is the element of control exercised by Comerica over its financial decisions. Buffalo Molded asserts that it retained discretion to direct where and to whom its funds were to be sent. Debtor only had to inquire of Comerica to ascertain if sufficient funds were available to direct payment to a particular creditor. In this instance, Buffalo Molded argued that it was solely responsible for deciding to have the funds wired to Omega and it requested Comerica to do so at the appropriate time. Buffalo Molded claims Comerica did not have the authority to compel payment to a particular party.[6]
*401 The deposition testimony of Robert Stoessel indicates that it was "ordinary" for Buffalo Molded to request that certain advances be made on the line of credit in order to pay suppliers. Def's Br. in Supp. of Mot. for Partial Summ. J., Ex. B, p. 88. In certain situations, such as with the Debtor, Comerica would approve advances which exceeded the value of collateral which secured its interest. Id. at 28. However, when Stoessel was asked about the specific agreement that would allow for money from DaimlerChrysler to pay tooling invoices owed by the Debtor, he did not know specifically what agreement was being referred to. Id. at 30.
In order to determine control, courts consider whether the use of funds was restricted in any way by the new creditor, whether the debtor had the ability to direct who received its funds or whether it had physical control of its funds. Moses, 256 B.R. at 650 and cases cited therein. "If the debtor controls the disposition of the funds and designates the creditor to whom the monies will be paid independent of a third party whose funds are being used in . . . payment of the debt, then the payments made by the debtor to the creditor constitute a preferential transfer." Superior Stamp & Coin Co., Inc., 223 F.3d 1004, 1009 (9th Cir.2000) citing In re. Kemp, 16 F.3d 313, 316 (9th Cir. 1994).
Generally, it would appear from the deposition testimony of Robert Stoessel that Buffalo Molded had the ability to direct payment of its funds to the appropriate recipient. While it had to submit a budget to Comerica and seek approval, it does not appear that Comerica dictated which creditor could be paid. Rather, it appears that Comerica dictated whether a creditor could be paid based on Buffalo Molded's financial status. However, in this instance, the Court does not possess sufficient, specific facts to determine the true nature of the alleged agreement between Buffalo Molded and Comerica as to the control element.
Buffalo Molded contends that it was a matter of availability of funds. Omega asserts that availability was irrelevant and that the situation was one of an overadvance to allow payment to a specific creditor. This difference cannot be reconciled on the basis of the present record. The material presented in support of the issue does not sufficiently resolve the issue. Accordingly, a determination of the applicability of the earmarking doctrine in this instance is not appropriate for summary judgment since a genuine dispute of material fact exists as to the issue of control.
Performance of Agreement
Although it is not entirely clear from the present record how it was determined that the funds from DaimlerChrysler would be received by the Debtor and then used to pay Omega, there is no dispute that Omega received payment as a result of the receivable from DaimlerChrysler to Buffalo Molded. Therefore, any agreement that Omega be paid was in fact performed.
Diminution of the Estate
Generally, the basic concept of the earmarking doctrine is that of unsecured refinancing of unsecured debt, i.e. replacing one unsecured creditor with another. However, where a security interest is given by the debtor to the new creditor in order to receive the funds, more than the mere substitution of unsecured creditors will have occurred. Rather, a secured creditor must replace an unsecured creditor resulting in a diminution to the estate. *402 David Gray Carlson and William H. Widen, The Earmarking Defense to Voidable Preference Liability: A Reconceptualization, 73 Am. Bankr.L.J. 591, 600 (1999). The granting of a security interest creates an exception to the earmarking defense. Earmarking does not apply in situations where secured debt replaces unsecured debt. Moses, 256 B.R. at 651 and cases cited therein.
Omega argues that this "secured" exception is not applicable because Comerica was undersecured. Further, where the secured creditor is undersecured, citing In re Hartley, 825 F.2d 1067 (6th Cir.1987) and Superior Stamp, supra. Omega contends there is no additional collateral obtained and therefore no diminution to the estate occurs. In this instance, after receiving payment, Omega claims the Debtor no longer owed Omega, an unsecured creditor, but instead owed money to Comerica, who retained a security interest in all of Debtor's prepetition assets. The Debtor argued to the contrary, i.e., the transfers diminished its estate. Whether Comerica is an undersecured or oversecured creditor is not clear on the basis of the present record. Absent that fact, the Court is unable to determine whether the transfers diminished the estate. Therefore, a genuine issue of material fact exists regarding the third element of the earmarking doctrine. The existence of this genuine issue of material fact is further reason why summary judgment is not appropriate on the current record.
Application of the New Value Defense
In its Objection to Defendant's Motion for Partial Summary Judgment, pp. 9, 15, and Brief in Support of Motion for Summary Judgment, p. 5, Buffalo Molded agreed that the NM Tools delivered by Omega represent $518,000 in new value. Therefore, this fact is not in dispute. However, Buffalo Molded argued that any new value represented by the NM Tools is exceeded by the amount of the transfers, which figure Buffalo Molded claims totals approximately $544,420. This amount was determined by subtracting the value of the tools from the total transfer. Based on Omega's invoices, the value of the tools delivered to the Debtor was $538,950 (as discussed below, $518,000 plus $20,950 for the ND Tools.) The value of the transfers was $1,083,370. Subtracting the value of the tools, i.e., $538,950, from the transfer of $1,083,370, results in a balance of 8544,420. Br. in Supp. of Pl.'s Mot. for Summ. J., p. 5.
Effect of "contemporaneous exchange" for ND Tools
Buffalo Molded admits that there was a contemporaneous exchange for new value as to the ND Tools. The amount of new value as well as the process to determine that amount differs considerably between the parties. Buffalo Molded asserts that the only new value related to the ND Tools provided by Omega was as a result of engineering changes in the amount of $20,950.00. Those changes were made between October 3rd and 15th, 2004. In support of this, Debtor offers the deposition testimony of Mark Andreozzi, program manager for the ND Program, who verified that the only changes made to the tooling between October 3, 2004 when Omega received the tooling and October 15, 2004 when Omega sent the tooling back to the Debtor was the $20,950. Br. in Supp. of Pl.'s Mot. for Summ. J., Ex. D. Any other value added by Omega occurred at dates prior to the transfers to Omega. Pl.'s Obj. to Def.'s Mot. for Partial Summ. J., p. 10. Buffalo Molded argues that the tooling had previously been delivered to it and subsequently sent back to Omega for design and engineering changes. Those changes, which are evidenced by a separate invoice in the amount of $20,950, *403 made after the tooling was returned to Omega, are what the Debtor claims constitutes new value. Br. in Supp. of Pl.'s Mot. for Summ. J., Ex. D.
Omega asserts that at least as to the value of the ND Tooling known as the ND Cargo Sill, it was delivered to the Debtor in a contemporaneous exchange for the transfers. As such the defense provided by 11 U.S.C. § 547(c)(1) applies to the extent of the value of the ND Cargo Sill, that is, $416,000. Omega argues that there is no dispute that the exchange was intended to be contemporaneous and that it released and delivered the ND Cargo Sill in exchange for payment from the Debtor. Upon receipt of the October 13th payment, the ND Cargo Sill was released and delivered on October 14, 2004. Thus, according to Omega, new value on the entire amount of $416,000 for the ND Cargo Sill was provided.
It is further argued by Omega that in the plastic injection mold industry, unfinished products are routinely shipped back and forth to the customer for purposes of engineering changes, production tests and runs. Production of the ND Cargo Sill began in June 2002 and was shipped back and forth between the parties a number of times during the building process. Defendant's Memorandum Objection and Response to Plaintiff's Motion for Summary Judgment, p. 12. By September, 2004, Buffalo Molded had not accepted the item for final sale. Instead, the ND Cargo Sill was sent back to Omega for further engineering changes. Id. Therefore, Omega either retained ownership of the ND Cargo Sill or ownership reverted back to Omega when Debtor returned the tool for further engineering changes.
Omega relies on 13 Pa.C.S.A. § 2401(4) to support its contention that title reverted in it. The statute provides, in relevant part:
(4) Revesting of title upon rejection of goods or revocation of acceptance. A rejection or other refusal by the buyer to receive or retain the goods, whether or not justified, or a justified revocation of acceptance revests title to the goods in the seller. Such revesting occurs by operation of law and is not a "sale."
The facts of record do not sufficiently support the contention that Buffalo Molded rejected or otherwise refused delivery of the goods. In fact, it appears contradictory to Omega's own assertion that in the plastic mold industry, goods are "routinely shipped to and from the customer for purposes of engineering changes, production tests, and even for actual production runs." Def's Mem. Obj., p. 12; Def's Mot. for Partial Summ. J., Ex. K, Affidavit of David Cecchin, § 4 ("It is typical for mold builders to deliver a single tool multiple times for the purpose of tryouts by the customer with the expectation that the mold would be returned to the tool shop for further changes and modifications.") Alternatively, Omega argues that it retained a possessory lien on the tooling pursuant to Ohio and/or Pennsylvania statutes. OH R.C. § 1333.31, 73 P.S. § 1880.7.
Omega contends that the transfers were made to secure immediate delivery of the ND Cargo Sill and allow production to continue, eliminate exposure to DaimlerChrysler and avoid a legal dispute regarding ownership. It relies upon Lewis v. Diethorn, 893 F.2d 648 (3d Cir.1990), cert. denied, 498 U.S. 950, 111 S.Ct. 369, 112 L.Ed.2d 332 (1990) to assert that the transfers were in return for the "freedom from risk of litigation" and were a contemporaneous exchange. In Lewis v. Diethorn, the United States Court of Appeals for the Third Circuit found that where the debtor made payment in exchange for the *404 termination of a lawsuit filed by the creditor and removal of a lis pendens, the statutory requirement of a preference was not met. The court found that such a payment was not "on account of an antecedent debt" as required by 11 U.S.C. § 547(b)(2). The Lewis decision has not been widely followed and courts not bound to follow it have declined to do so. See e.g. In re Bridge Info. Systems, Inc., 302 B.R. 41 (Bankr.E.D.Mo.2003); Wilcox v. CSX Corp., 70 P.3d 85 (Utah 2003). In any event, its applicability for the proposition asserted by Omega is dubious in this circumstance. At the time of the transfers, no litigation was pending or even threatened of which this Court has been made aware. Further, Omega contends that if the sale was final and Buffalo Molded was seeking only engineering and design changes, that would suggest that Buffalo Molded paid for a product that was not suitable for DaimlerChrysler's needs.
Buffalo Molded contends, conversely, that Omega held the tooling "hostage" and would not release it without payment. This characterization is disputed by Omega who argues that even if true, the exchange was nevertheless contemporaneous. Regarding Omega's argument that state statute provides it with a secured lien, Buffalo Molded argues that the Ohio statute would not be applicable because the tools were not manufactured in or delivered to Ohio. Further, Omega claims the tooling was sent back to it only for engineering changes not because the Debtor was rejecting a final sale or refusing delivery. Therefore, discussion regarding secured liens is not applicable. Moreover, even if the Ohio or Pennsylvania statute were to apply, the statutes require possession as well as certain notice requirements which admittedly were not met. Thus, under Omega's reasoning, even if Omega had met the requirements, it would only be entitled to a lien for work performed while in Omega's possession. Upon delivery of the mold to the Debtor, the lien would be extinguished. Thus, even if a molders' lien were found to exist, the amount of new value regarding the ND tooling would remain at $20,950. This amount, along with new value for the NM Tools in the amount of $544,420 would still result in a net preference claim of $497,050.
The lien statutes require possession and specific notice requirements. Omega relinquished possession upon receipt of the wire transfers. In addition, the record is void of any facts regarding compliance with the notice requirements. The parties involved are sophisticated business entities that would be familiar with and expected to comply with any statutory notice requirement if any lien was to be asserted. There is not sufficient evidence in the record to support this theory, particularly at the summary judgment stage. Therefore, a dispute remains as to when title to the tooling passed. While the passage of title may be a legal dispute rather than a factual one, the Court is unable to make a determination, absent further factual development, as to the basis for sending the tooling back and forth between the parties.
Application of the Ordinary Course of Business Defense
11 U.S.C. § 547(c)(2) provides that a transfer may not be avoided:
(2) to the extent that such transfer was
(A) in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee;
(B) made in the ordinary course of business or financial affairs of the debtor and the transferee; and
(C) made according to ordinary business terms;
*405 Omega pled the "ordinary course defense" in its answer, although, it did not argue that summary judgment should be granted on the basis of this defense. Debtor, however, anticipated the ordinary course defense and asserted that summary judgment should be granted denying Omega's defense of ordinary course.
In determining whether the payments were made in "the ordinary course", the determination of what is "ordinary course of business" is a subjective one. In re J. Allan Steel Co., 321 B.R. 764 (Bankr.W.D.Pa.2005) citing J.P. Fyfe v. Bradco Supply Corp., 891 F.2d 66 (3d Cir.1989). It must be determined whether the transfer was an ordinary one as between the debtor and creditor. Id. at 771; 11 U.S.C. § (c)(2)(B). In addition, pursuant to 11 U.S.C. 547(c)(2)(C), the Court must look to whether the payment was made according to ordinary business terms, i.e. "the broad range of payment terms found in businesses similar in some general way to the creditor." Id. at 772. A greater departure from the range of terms is countenanced the longer the relationship between the debtor and creditor prior to insolvency. Fiber Lite Corp. v. Molded Acoustical Products, 18 F.3d 217 (3d Cir.1994). However, if the parties have not had a long relationship, more emphasis is placed on industry standards. Id. at 225.
When the relationship between the parties is of recent origin, or formed only after or shortly before the debtor sailed into financially troubled seas, the credit terms will have to endure a rigorous comparison to credit terms used generally in a relevant industry. That is because in that class of cases we lack something better to look at to verify that the creditor is not exploiting the debtor's precarious position at the brink of bankruptcy so that it may advantage itself to the detriment of other creditors who continue to extend credit within the letter and spirit of the Code, or at the very least to verify that the creditor is refraining from "unusual" action to collect ordinary debts. In other words, in those situations there is no baseline against which to compare the pre-petition transfer at issue to confirm the parties would have reached the same terms absent the looming bankruptcy.
Id. at 226.
The parties do not have a long history with each other. The first order from Buffalo Molded to Omega was for the ND Tools which are the subject of this preference action. Subsequent to the commencement of work on the ND Tools, the parties did engage in another contract for work on a set of tools referred to as the "Isuzu Tools". Payment for the Isuzu Tools was completed prior to the wire transfers at issue.
Because the parties had such limited dealing with each other, the ordinary course of business between them is minimal at best. In support of its Motion, Buffalo Molded looks to the terms as stated on the invoices. The terms are in the alternative, "Net 30 or within 90 days of PPAP." Br. in Supp. of Pl's Mot. for Summ. J., p. 9, Ex. F. It is the Court's understanding that PPAP refers to "Production Parts Approval Process." The majority of invoices however only included the term "Net 30." Id., Ex. A. The transfers were made more than 60 days after the last invoice issued by Omega to the Debtor. There is no dispute that October 13, 2004 was the date of the transfers. The last invoice from Omega (other than for the NM tools as discussed, below) was dated August 9, 2004. Accordingly, the transfers were not within the term, "Net 30 days."
*406 As to the invoices requiring "PPAP" approval, Buffalo Molded asserts that at the time of the wire transfer, the ND Program had not yet received PPAP approval. Br. in Supp. of Pl.'s Mtn. For Summ. J., p. 9; Ex. G. In support, it provides the testimony of Nicholas Bogdanos.[7] In addition, the testimony of John O'Neill indicates that PPAP had not occurred as of the date of transfer. Id., Ex. J. Omega disputes this and further indicates that the deposition testimony of Nicholas Bogdanos and John O'Neill upon which Debtor is relying likely involves inadmissable hearsay. Def's Mem. Obj. and Resp. to Pl.'s Mtn. for Summ. J., p. 16. To the contrary, Omega contends that Mark Andreozzi, was told by one of Debtor's employees that PPAP approval occurred on Aug. 15, 2004. Id., Ex. 9, p. 3.
In response to Buffalo Molded's Motion, Omega refers to the limited history between the parties as established by the payments on the Isuzu tooling. It asserts that the average amount of time for payment for the Isuzu tooling was thirty (30) to thirty-five (35) weeks after invoice. Def's Mem. Obj. and Resp. to Pl.'s Mtn. for Summ. J., p. 15; Ex. 6. Omega claims the time of payment for the ND Tools was twenty-nine (29) weeks after invoice. Id.
The limited history between the parties provides difficulty assessing what was ordinary between them. The invoice and payment history reflects only four invoices prior to the time of the wire transfers in question. In addition, no information was provided regarding the terms of the prior invoices associated with the Isuzu tooling, such as whether the terms were "Net 30 days or required PPAP approval." Nor does the Court have information as to whether the tooling was sent back and forth between the parties as was the case with the ND Tooling. Accordingly, reference to the invoicing and payment of the Isuzu tooling provides limited assistance. There is also a disputed fact as to whether PPAP approval even occurred at the time of the transfers. Accordingly, as between these two parties, a genuine dispute as to material fact regarding the application of 11 U.S.C. § 547(c)(2)(B) exists on the current record.
The Report of Michael D. Faloon submitted by Omega opines about the industry's ordinary course of business. His opinion paints a rather startling picture of the plastic mold industry. He submits that payment terms are seldom if ever followed and that the industry has a general lack of discipline when it comes to payment and payment terms.
The Industry's general lack of discipline in adherence to written documents with regards to timing, approvals, and payments are widely ignored among and between affected parties such that the agreements as written are meaningless. The Industry's tooling payment process varies widely in most instances and might [be] summarized by the following contemporary quotes; "the squeaky wheel gets the grease . . ." and "you'll get yours when I get mine . . . "
Br. In Supp. Of Def's Mtn. For Partial Summ. J., Ex. L, p. 6.
Further, according to Mr. Faloon, the industry practice typically abrogates written agreements to arbitrary provisions. *407 Id., p. 7. If the opinion of Mr. Faloon is an accurate assessment of the industry, the Court is unclear how the defense of ordinary course of business could ever be a viable one concerning transfers in this industry. Based on this report, in this business it would appear that there simply is no ordinary course. As such, on the current record the Court believes a genuine dispute of material fact exists in regard to proof of the elements of 11 U.S.C. § 647(c)(2) as well.
CONCLUSION
Genuine issues of material fact exist that prevent the Court from deciding the numerous issues raised by the Parties on the basis of summary judgment. Therefore, for the foregoing reasons, the Motion for Summary Judgment filed by Plaintiff Buffalo Molded Plastics, Inc. will be denied and the Motion for Partial Summary Judgment filed by Defendant Omega Tool Corp. will also be denied.
An appropriate Order of Court shall issue.
ORDER OF COURT
AND NOW, this 28th day of June, 2006, for the reasons expressed in the Memorandum Opinion of even date, it is hereby ORDERED, ADJUDGED and DECREED that the Motion for Summary Judgment filed by the Plaintiff Buffalo Molded Plastics, Inc. is DENIED and the Motion for Partial Summary Judgment filed by Defendant Omega Tool Corp. is DENIED and.
NOTES
[1] The Court's jurisdiction was not at issue.
[2] Omega also built molds for Buffalo Molded in connection with a Saab program for General Motors. Through the course of the adversary proceeding, the dispute regarding the Saab Tools was withdrawn.
[3] 11 U.S.C. § 547(b) provides, with certain exceptions not applicable here, that where a transfer of an interest of the debtor in property may be avoided where the transfer was:
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made
(A) on or within 90 days before the date of the filing of the petition or
(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
[4] Further, at the oral argument on the summary judgment motions, counsel for Omega did not dispute insolvency. Although Omega indicates in its Answer to First Amended Complaint that Buffalo Molded was solvent at the time, (Answer, Affirmative Defenses, ¶ 6), Omega has not introduced any filing or evidence that would rebut the presumption of insolvency pursuant to 11 U.S.C. § 547(f).
[5] There is no letterhead on the referenced letter so it is not clear from the face of the letter who Mr. Wernette is employed by or what position he holds.
[6] To support its argument Debtor relies on an Exhibit K which is identified as being portions of a deposition transcript of Robert Streusel. However, it did not appear that Exhibit K was made part of Plaintiff's Motion as stated.
[7] Q: . . . Do you know whether PPAP occurred before or after the ND cargo sill was delivered?
A: I don't even know if the ND is PPAP'd today as we speak. It was never PPAP'd when I left there April 4th.
Q: then for sure when the ND cargo sill was paid for, it wasn't PPAP'd, correct?
A: No, it wasn't.
Id. Ex. G., p. 42. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541322/ | 700 A.2d 787 (1997)
Bobby BROWN, Petitioner,
v.
DISTRICT OF COLUMBIA DEPARTMENT OF EMPLOYMENT SERVICES, Respondent, and
Washington Metropolitan Area Transit Authority, Intervenor.
No. 96-AA-15.
District of Columbia Court of Appeals.
Argued December 10, 1996.
Decided September 25, 1997.
*789 Keith W. Donahoe, Washington, DC, for petitioner.
Charles F.C. Ruff, Corporation Counsel at the time of briefing, and Charles L. Reischel, Deputy Corporation Counsel filed a statement in lieu of brief, for respondent.
Amy P. Epstein, for intervenor.
Before WAGNER, Chief Judge, and FARRELL, Associate Judge, and PRYOR, Senior Judge.
WAGNER, Chief Judge:
Petitioner, Bobby Brown, seeks review of a decision of the District of Columbia Department of Employment Services (DOES) denying him temporary total disability benefits under the Workers' Compensation Act (D.C.Code § 36-301, et seq.) (1981) (Act). He argues that DOES erred in failing to consider employment-related causes for his disability, thereby denying him the benefit of the presumption of compensability. He also contends that the decision is against the weight of the evidence. We conclude that, in denying benefits, DOES did not give adequate consideration to evidence of a work-related injury in 1987 and any recurrence, aggravation or exacerbation of Brown's injury thereafter. The agency also failed to give Brown the benefit of the presumption of compensability under the Act. The determination by the agency that jurisdiction was not in the District was based upon these errors in the proceedings, rendering the jurisdictional determination erroneous. Therefore, we remand the case for further proceedings.
I.
Brown was employed as a bus operator with the intervenor, Washington Metropolitan Area Transit Authority ("WMATA"), from January 29, 1982 until the time of the hearing in this case. While operating a WMATA bus on December 19, 1983, he suffered cervical and lumbosacral strains when the bus ran into a curb and struck a pole. He sustained an injury to his lower back and was unable to work for four months thereafter. He went to the emergency room at Providence Hospital first, and x-rays of his neck and back were taken which were negative. Brown was treated by a Dr. Hartsock, who referred him to Maxwell Hurston, an orthopaedic surgeon. Dr. Hurston's report of February 29, 1984 states that Brown sustained a lumbar strain which was then symptomatic and that he was still disabled for work. He noted that Brown complained of tenderness on pressure in the lumbar muscles and that some degree of mild spasm was present. Dr. Hurston recommended that *790 Brown continue therapy three times a week and do prescribed exercises. On March 19, 1984, Dr. Hurston reported that Brown had recovered fully from the 1983 injury and that he had no medical impairment which would justify a ratable disability. Brown then returned to work. Dr. David Johnson, an orthopaedic surgeon, reported on April 5, 1984 that Brown had no complaints and had no permanent impairment from the work-related injury. Dr. Johnson also concluded that Brown had recovered and could return to work.
On or about August 17, 1987, Brown hit a pothole while operating a bus, as a result of which he said that "the seat just dropped and went down on me." Brown said that he reinjured his back at that time and began to experience numbness in his leg. Initially, he went to Dr. Major Gladden, an orthopaedic surgeon, before seeking treatment at Group Health Association, Inc. (GHA). However, Brown continued to work as a bus operator. Subsequently, Brown consulted various physicians periodically at GHA for low back pain.
According to a report from GHA dated May 17, 1991, prepared by a certified nurse practitioner, Susan Marallo, Brown complained of having low back pain for a year and a half which was becoming worse. However, she reported that he told her that he had an old basketball injury about ten years earlier and suffered low back pain off and on since then. Brown denied that he made such statements. Brown saw Dr. John Cohen, a GHA physician on June 21 and August 21, 1991. According to Dr. Cohen's report, Brown complained of chronic low back pain in the right paraspinal area. Dr. Cohen injected Brown with Celestone and Marcaine at the "trigger point area," the area of maximum tenderness. No mention is made of the earlier bus incidents in Dr. Cohen's reports.
In October 1992, Brown injured his back when he misstepped into a hole while disembarking his assigned bus in Virginia. At that time, Brown's bus route was in Virginia, and the employer's job injury report indicated that he was employed with WMATA's Arlington, Virginia office. An MRI (Magnetic Resonance Imaging) examination was taken of Brown's back at GHA which showed that he had a partially degenerated bulging disc. Brown saw Dr. Raphael Lopez at GHA who noted that there may be an impingement on the right S1 nerve root. In interpreting the results of the MRI, Dr. Lopez' impressions were that Brown had (1) a partially degenerated disc at the L5-S1 which protrudes slightly to the right and (2) mild degenerative changes in the L1-2 and L2-3. Dr. Lopez prescribed anti-inflammatory medication and performed three epidural blocks in January 1993. Brown ceased working between December 8, 1992 and March 14, 1993 upon medical advice. It is this period for which Brown seeks temporary total disability benefits in this case.[1]
An independent medical evaluation was performed by Dr. James E. Callan, also an orthopaedic surgeon. He noted that Brown had injuries on December 19, 1983 and August 17, 1987 which had resolved to the satisfaction of the treating physicians; however, he reported that the patient reported continuing intermittent lower back pain after those accidents. In Dr. Callan's opinion, Brown sustained no measurable permanent partial disability which could be directly attributable to the dates of the three reported accidents. Dr. Callan's opinion was that Brown could return to unrestricted duty status, but he suggested that he stand and stretch periodically and maintain a regular exercise program. In deposition testimony, Dr. Callan stated that Brown suffered from "arthritis of the lumbar spine with chronic strain symptoms." Dr. Callan conceded, however, that driving a bus repetitively over city streets has the potential of aggravating Brown's condition and can lead to the type of degenerative process that Brown experienced.
Following an evidentiary hearing, a hearing examiner issued a compensation order on March 9, 1995 in which she found that Brown sustained a new work-related injury in Virginia *791 in October 1992.[2] She determined that his condition following the initial injury in 1983 had resolved after treatment by April 5, 1984 and that Brown "ha[d] not sustained any subsequent exacerbations, aggravations or recurrences of his December 1983 work injury." The examiner found that the record and reports relied upon by Brown were devoid of any opinion that his most recent injury was the result of a recurrence of his 1983 work injury. Therefore, she concluded that jurisdiction was not in the District, since the new injury occurred in Virginia. The Director of DOES affirmed the hearing examiner's order.
II.
Brown argues that the hearing examiner erred in finding that the 1992 injury in Virginia was a new injury, unrelated to his earlier employment injuries in the District in 1983 and 1987. He contends that the examiner's erroneous finding resulted from the failure to consider all possible employment-related causes for his condition, thereby depriving him of the presumption of compensability available under the Act. See Ferreira v. District of Columbia Dep't of Employment Servs., 531 A.2d 651, 655 (D.C.1987). He contends that he provided sufficient evidence to trigger the statutory presumption of compensability and to shift to WMATA the burden of producing substantial evidence to show that the disability claimed did not arise out of the course of his employment in the District.
In the District of Columbia, there is a presumption of compensability under the Act. D.C.Code § 36-321(1); Ferreira, supra, 531 A.2d at 655. Its purpose is to advance the humanitarian goal of the statute to provide compensation to employees for work-related disabilities reasonably expeditiously, even in arguable cases. Id. at 654-55 (citations omitted). To come within the presumption, a claimant must make an initial showing of some evidence of "a death or disability and a work-related event, activity, or requirement which has the potential of resulting in or contributing to the death or disability." Id. (citation omitted). Once that showing has been made, "[t]he presumption then operates to establish a causal connection between the disability and the work-related event, activity, or requirement." Id. (footnote and citation omitted). The claimant must provide some evidence that the disability is connected with the employment before the burden of production is shifted to the employer. Id. at n. 5. Once shifted, the employer has the burden of producing "substantial evidence" demonstrating that the disability did not arise out of and in the course of employment. Id. at 655.
In this case, petitioner offered sufficient evidence to make the initial showing. The record shows that Brown suffered three work-related injuries, in 1983, 1987 and 1992. Brown claimed, and there is evidence to support, that the second two injuries, as well as the nature of his work, aggravated the first injury, caused him chronic back pain, and resulted in his progressive degenerative back condition. Brown's testimony concerning the occurrences, as corroborated by the various medical examinations and reports of his condition, show that following the second injury, Brown suffered a chronic back problem. Dr. Lopez wrote in a letter in November 1993 that it was his opinion that Brown's back complaints were work-related and "the natural progression of repeated work-related insults to his back beginning with the injury in 1983 and the aggravation of 1987."
Aggravation of a pre-existing condition and repeated trauma which contribute to a disability may constitute a compensable injury under the Act. Ferreira, supra, 531 A.2d at 657; Hensley v. Washington Metro. Area Transit Auth., 210 U.S.App. D.C. 151, 155, 655 F.2d 264, 268 (1981) (interpreting similar provisions of the Longshoremen's and Harbor Workers' Compensation Act, 33 U.S.C. § 901, et seq. (Longshoremen's Act)). DOES has recognized that the Act covers complications flowing from a compensable injury. *792 In re Vaughn v. Hadley Memorial Hosp., H & AS No. 86-204 at p. 7 (July 28, 1986). "The rule is that a subsequent injury, whether an aggravation of the original injury or a new and distinct injury, is compensable if it is the direct and natural result of a compensable primary injury." Id.[3]
While the hearing examiner and the Director recognized that Brown's 1992 injury in Virginia would be compensable if it was a recurrence or aggravation of a prior work-related injury in the District, neither considered the effect of Brown's 1987 injury and its sequelae on Brown's 1992 claim. The hearing examiner made no finding as to whether Brown was injured in a work-related accident in 1987 which resulted in an injury to his back or aggravation of a preexisting condition caused by his earlier accidents or the impact of driving a bus over city streets. The hearing examiner addressed specifically only the injury of December 1983, finding that it resolved after conservative treatment by April 5, 1984 and that Brown sustained no subsequent exacerbations of that injury. Similarly, the Director's decision focuses on the insufficiency of the medical evidence to support that the 1992 injury had a relationship to the 1983 injury only.
The agency is required to make basic findings of fact on all material issues. Dupont Circle Citizens Ass'n v. District of Columbia Zoning Comm'n, 426 A.2d 327, 334 (D.C.1981). Only then can this court determine upon review whether the agency's findings are supported by substantial evidence and whether those findings lead rationally to its conclusions of law. Id.; see also Citizens Assn. of Georgetown v. District of Columbia Zoning Comm'n, 402 A.2d 36, 41-42 (D.C. 1979). Here, Brown's claim was that he had a series of recurrences, including one precipitated by the 1987 accident while on the job, which were impacted by the 1992 accident. These issues are not addressed in the agency's findings; therefore its findings are insufficient to sustain its conclusion that the 1992 injury was a new one, unrelated to these earlier occurrences.
Moreover, it is necessary that the employee show that the injury arose only in part from the employment to be compensable. See Ferreira, supra, 531 A.2d at 657; Hensley, supra, 210 U.S.App. D.C. at 155, 655 F.2d at 268. In this case, because of the jurisdictional problem, that would mean that Brown would have to show that the injury occurred, in part, during the course of his employment in the District. In determining whether the injury arose in part out of, and in the course of, his employment as a bus driver in the District, the agency was required to apply the presumption of compensability. Hensley, supra, 210 U.S.App. D.C. at 156, 655 F.2d at 269. Here, the agency failed to accord Brown the benefit of that presumption. See D.C.Code § 36-321(1). Had it done so, it is unlikely that it could have found that the presumption was overcome by substantial evidence as required. See Ferreira, supra, 531 A.2d at 655. To meet its burden, the employer must show by substantial evidence that the disability did not arise in the course of the employee's employment. Id.
WMATA contends that it offered evidence sufficient to sever any causal connection between the disability and the job-related injury. It points to the absence of medical records of treatment for low back pain between August 1987 and December 1990, the absence from the medical reports of May 17, 1991, June 21, 1991, and August 21, 1991 recordation of references made by Brown to the prior work injuries, and the report of the nurse practitioner of May 17, 1991 in which she stated that Brown reported an old basketball injury. Negative evidence, in some circumstances, may be adequate to inform a factual determination. See Swinton v. J. Frank Kelly, Inc., 180 U.S.App. D.C. 216, 224, 554 F.2d 1075, 1083 (1976). The court in Swinton provided the example that "`[i]f a man has no blood in the *793 sputum, no cough, no weakness, no headache, no elevation of temperature or pulse, no stuffiness or pain in the chest then from all these facts, a doctor can say `with reasonable medical certainty,' or as a matter of probability that this man does not have pneumonia.'" Id. (quoting Wheatley v. Adler, 132 U.S.App. D.C. 177, 183, 407 F.2d 307, 313 (1968)). The evidence relied on by WMATA is not of that nature. Evidence that some of the medical reports of 1990 and 1991 do not contain statements attributed to Brown about the nature of his work or the 1983 and 1987 accidents is not the caliber of evidence required to meet the burden of overcoming the presumption of compensability. "The statutory presumption may be dispelled by circumstantial evidence specific and comprehensive enough to sever the potential connection between a particular injury and a job-related event." Id. In order for the absence of statements in the reports in this case to have evidentiary significance, we must assume not only that Brown had the level of knowledge sufficient to make the association in 1990 and 1991 between his condition and the earlier injuries and was obliged to report it each time he saw a doctor, but also that any such statements, if made, would have been recorded in the reports. Such a leap would require undue speculation. Therefore, we do not view the absence of the statements attributed to Brown in some of the medical reports to rise to the level required to sever the connection between the 1992 injury and Brown's prior injury and disability.[4]
The report of the nurse, disputed by Brown, that Brown associated his condition with an old basketball injury is likewise insufficient to overcome the presumption of compensability in this case. "The fact that other, nonemployment related factors may also have contributed to, or additionally aggravated [the] malady, does not affect [the employee's] right to compensation under the `aggravation rule.'" Hensley, supra, 210 U.S.App. D.C. at 155, 655 F.2d at 268. Therefore, Brown's lay opinion associating the basketball injury with his condition, particularly in light of the medical evidence and his own testimony associating pain and numbness while on the job to his back condition as well, would be insufficient to exclude the work-related insults as a cause for Brown's condition or defeat the presumption of compensability or to show that Brown's disability was not the direct and natural progression of a work-related injury.
WMATA argues that the agency properly accorded little weight to the opinion of Brown's treating physician, Dr. Lopez, that his back complaints were work-related and the "natural progression of repeated work related insults to his back beginning with the injury of 1983 and 1987." The hearing examiner rejected Dr. Lopez' opinion because he had stated in a letter to Brown's attorney that the records at GHA did not reflect a work-related accident on August 17, 1987. Subsequently, Dr. Lopez wrote that based on additional information he received, it was his opinion that Brown's most recent back complaints were the "natural progression" of repeated work-related trauma to his back and the earlier work-related injuries. The hearing examiner viewed the letters as an unexplained inconsistency in the physician's opinion. However, in light of the doctor's explanation that the opinion expressed in the second letter was made based upon additional information, the hearing examiner's rejection of Dr. Lopez' expert opinion on the grounds that it constitutes an inconsistency is inadequately explained, if not clearly erroneous. This perceived inconsistency was not sufficient to defeat Brown's initial showing of compensability or substantial evidence to rebut the presumption of compensability.
WMATA argues that the record reflects that there was only one definite work-related injury prior to October 1992, namely the 1983 occurrence, and that the medical evidence shows that Brown recovered from that injury. These medical reports, however, were made in the context of Brown's ability to *794 work in 1984. Brown does not claim that he had a continuing disability dating back to the 1983 injury. Rather, he claims a series of work-related aggravations of that injury and the injury in 1987 which resulted in progressive degeneration of his lower back and culminated in the disability for the period which is now at issue. The record contains substantial evidence supporting Brown's claim and little evidence to the contrary. While Dr. Callan, a physician engaged by WMATA who saw Brown once, rendered the opinion that Brown "sustained no measurable permanent partial disability that can be directly attributable" to the incidents in 1983, 1987 and 1992, he also conceded that repetitive driving of a bus over city streets, as Mr. Brown did, could aggravate his back condition and lead to the type of degenerative process that he suffered.
Brown's original employment with WMATA was with the Northern garage on 14th Street, within the District's boundaries. While the locus of his employment had shifted to Northern Virginia at the time of the 1992 injury, the events which involved the previous injuries and deterioration of his back were localized within the District. Since Brown's principal place of employment was in Virginia at the time of the 1992 injury there, and the hearing examiner concluded that the injury was not a recurrence of any work-related injuries in the District, the agency determined that jurisdiction was not in the District. See Petrilli v. District of Columbia Dep't of Employment Servs., 509 A.2d 629, 631 (D.C.1986); D.C.Code § 36-303(a).[5] Thus, the agency's jurisdictional evidence was based upon the flawed premise that the District connection with the injury could not be, or had not been, shown. Accordingly, we must overturn the jurisdictional determination.
For the foregoing reasons, the decision of DOES is reversed, and the case is remanded for further proceedings consistent with this opinion.[6]
Reversed and remanded.
NOTES
[1] Brown continued to work as a bus operator and was still working in that capacity on February 14, 1994, when a hearing was held in this case.
[2] The compensation order was issued by Hearings and Appeals Examiner Gail Davis after the examiner who heard the case went on indefinite leave from the staff of DOES. The parties, in response to an order to Show Cause, indicated their consent to the issuance of the order by another hearing examiner.
[3] See also Perchelli v. Utah State Indus. Comm'n, 25 Utah 2d 58, 475 P.2d 835 (1970) (compensation for disc herniation triggered by a sneeze which aggravated a work related injury); Hayward v. Parsons Hosp., 32 A.D.2d 983, 301 N.Y.S.2d 659 (1969)(compensation allowed where claimant's bending while away from the job exacerbated an injury sustained two years earlier).
[4] Dr. Callan notes in his report that Brown related an injury sustained on August 18, 1987 when his bus hit a pothole and that he started going to GHA and saw a general practitioner who injected the lumbar region and followed his progress until August 1991. Brown also testified that he re-injured his back in 1987 when he hit a pot-hole, as well as about the strain he felt in his back from operating the bus.
[5] D.C.Code § 36-303(a)(1) provides that the Act applies if:
[T]he injury or death of an employee that occurs in the District of Columbia if the employee performed work for the employer, at the time of the injury or death, while in the District of Columbia[.]
[6] Such further proceedings may also cover the issues of legal causation, medical causation, and nature and extent of the disability, which the hearing examiner did not address. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541340/ | 75 B.R. 65 (1987)
In the Matter of Oliver D. RINKER, Beverly B. Rinker, Engaged in Farming, Debtors.
Bankruptcy No. 87-85-C.
United States Bankruptcy Court, S.D. Iowa.
May 22, 1987.
R. Fred Dumbaugh, Cedar Rapids, Iowa, for debtors.
Elizabeth A. Nelson, Des Moines, Iowa, Trustee.
Linda R. Reade, Asst. U.S. Atty., Des Moines, Iowa, for U.S.
*66 ORDER ON MOTION TO DISMISS
LEE M. JACKWIG, Bankruptcy Judge.
This case presents the interesting question of whether a debt that arises out of a settlement of a will dispute is also a debt that arises out of a farming operation for purposes of 11 U.S.C. section 101(17)(A). On April 2, 1987, this court conducted a hearing on motions to dismiss brought by the trustee, Jacqueline Souder, the Federal Land Bank of Omaha and the Production Credit Association of the Midlands (movants). Now that the April 17, 1987 briefing deadline has passed, the court considers the matter fully submitted. In summary, the movants argue that only 61% of the debtors' debt arises out of a farming operation since $431,300.00 of the total $1,104,670.00 debt results from the settlement. Thus, the debtors would not meet the 80% requirement of section 101(17)(A). For the reasons set out below, the court finds that the debtors have satisfied the 80% rule of section 101(17)(A).
FACTUAL BACKGROUND
This case concerns the latest skirmish in the intrafamilial warfare among the beneficiaries of the joint will of J. Perry Rinker (Perry) and Daisy Rinker (Daisy). The combatants are the four children of Perry and Daisy: Oliver, who is one of the debtors, Jacqueline Rinker Souder, who is one of the movants, Janice L. Coy and Jeanette C. Smithson.
On February 19, 1959, Perry and Daisy executed a joint will. A codicil added June 29, 1960 provided that upon the death of the survivor of Perry and Daisy, all real property would be given to the four children. The will also provided that if Oliver were farming all or a portion of the real estate, he would be given the option to purchase the property at fair market value.
Perry died on November 3, 1974. On January 5, 1975, Daisy and Oliver executed a contract whereby Daisy sold to Oliver approximately 400 acres. Daisy died on October 3, 1977. Sometime thereafter, Jacqueline Souder brought suit against Oliver and Beverly Rinker in the Iowa District Court for Boone County. She alleged the terms of the contract were grossly unfair and that Daisy's signature on the contract was obtained through the undue influence Oliver had on Daisy by virtue of their confidential relationship. A trial was held on June 10, 1980, and on March 5, 1981 Judge Paul Hellwege found that a confidential relationship indeed existed and that, had it not been for the relationship, the contract would not have been executed. Consequently the contract was nullified, title to the real estate was quieted in the Rinker siblings and the will and codicil were given effect. Oliver and Beverly appealed the decision to the Iowa Supreme Court. Before the appeal was heard, the parties settled. It is this settlement that forms the basis of the motions to dismiss.
The settlement provided that each of the siblings would receive an undivided onefourth interest in the January 2, 1975 contract. Additionally, Jacqueline Souder agreed to sell Oliver and Beverly her interest for $210,000.00 with $73,500.00 required to be paid down and the balance amortized over 10 years at 12% interest. Jacqueline gave Oliver a quit claim deed to her interest in the contract and property. To secure the balance owing on the purchase price, Oliver gave Jacqueline a mortgage to the property. The settlement agreement was executed on July 15, 1981.
On that same date, Oliver and Beverly and Janice Coy and Jeanette Smithson entered into a settlement agreement similar in most respects to the Souder agreement. Janice and Jeanette sold their undivided one-fourth interests to Oliver for $192,500.00 each. Oliver paid $67,375.00 to each as a down payment with the balance amortized over 12 years at 12% interest. Quit claim deeds were executed to Oliver who in turn gave mortgages to secure the outstanding indebtedness to Janice and Jeanette.
The Rinkers filed for protection under Chapter 12 on January 13, 1987. Their schedules indicate that $145,300.00 remains unpaid on the Souder indebtedness and $286,000.00 remains unpaid on the Smithson and Coy indebtedness. Together, the *67 sisters are owed $431,300.00. This amount constitutes approximately 39% of the $1,104,670.00 listed as the total amount owed to all creditors.
At the hearing on the motion to dismiss, the Rinkers adduced uncontroverted evidence that Oliver has been farming the property in question since 1957. Of the Rinkers' 560 acre farm, the 400 acres in question obviously make up a large part of the Rinkers' crop production enterprise. The residence, farm buildings, and storage facilities are located on the property.
DISCUSSION
Only family farmers with regular annual income are eligible for protection under Chapter 12. 11 U.S.C. section 109(f). Family farmers are defined in part as those who:
(1) have aggregate debts that do not exceed $1,500,000.00;
(2) have at the date of filing at least 80% of their aggregate noncontingent, liquidated debts arising out of a farming operation owned or operated by them (excluding a debt for principal residence unless the debt arises out of a farming operation); and
(3) received, during the taxable year preceding the one in which bankruptcy was filed, 50% of their gross income from farming. 11 U.S.C. section 101(17)(A). Only a challenge to the second criterion is before the court.
11 U.S.C. section 101(20) defines "farming operation" as including:
[F]arming, tillage of the soil, dairy farming, ranching, production or raising of crops, poultry, or livestock in an unmanufactured state.[1]
In dictum, the Seventh Circuit has turned to section 101(20) to interpret the "arise out of farming" language found in the 80% rule of section 101(17)(A). Armstrong v. Corn Belt Bank, 812 F.2d 1024 (7th Cir.1987). The primary issue in Armstrong was whether the debtor was a farmer under section 101(19) and thus immune from involuntary bankruptcy under section 303(a).[2] The Armstrong court's analysis of section 101(20) was integral in resolving the section 303(a) issue and the Chapter 12 eligibility question. In finding that the income generated from the sale of machinery in the debtors' effort to downscale his operation was income from a "farming operation", the court stated:
The machinery was purchased to work the acreage that represented [the debtor's] farming operation. Had the farm prospered, the machinery would have stayed in [the debtor's] possession. He bought the machinery so the farm could exist and prosper. But for the machinery, there would be no farm. . . . [Section 101(20)] does not provide a simple all-inclusive list of tasks and activities (i.e., tillage of the soil, dairy farming). Instead, the section starts out in general terms`Farming operation includes farming, tillage of the soil, dairy farming. . . . Implicit in this definition is the inclusion of general activities inherent in farming and, we believe, the means (or in this case the equipment) necessary to perpetuate the farming operation the definition speaks of. When a farmer *68 sells some of his machinery in an effort to scale down his operation (say from 200-100 acres) and save the farm, the money received is inescapably from the 50% of the farming operation dissolved.
Armstrong at 1026.
Clearly, the thrust of the court's analysis was the examination of the nature of the questioned activity and its relation to farming. So too this court must examine the nature of the questioned activity, here the settlements, and their relation to the Rinkers' farming operation. The movants would have this court look only to the fact that the debts in question resulted from a settlement of a lawsuit. However, Armstrong requires a more searching inquiry.
At the heart of the lawsuit and resultant settlement was the land. The land apparently was the major asset of the Perry and Daisy Rinker estate. It was the land over which the litigants fought and it was the land that was the subject of the settlement. Land is also the sine qua non of a crop production enterprise. Tillage of the land fits precisely into the definition of "farming operation" under section 101(20). It is undisputed that the Rinkers' purpose in settling the case was to preserve their farming operation. Without the land, the Rinkers would have no farm. It is this direct link between the basis of the lawsuit and settlement and the farming activity that leads this court to conclude that the debts in question arise out of a "farming operation". The mere fact that a debt arises from a settlement of a lawsuit does not mean the requirements of section 101(20) cannot be met.
Presented with a different set of facts this court might have ruled otherwise. Had the Rinkers' debt arisen from a wrongful death suit stemming from a hunting accident, there would be no doubt the debt was unrelated to a farming operation. Had the Rinkers given a plaintiff a mortgage on their farm to secure settlement payments resulting from a car accident, the resultant debt would not fall within the ambit of section 101(20). The subject of the settlementthe car accidentwould not be related to a farming operation. The instant case is different. The relationship between the subject of the settlement and the "farming operation" within the meaning of section 101(20) is clear and direct.
The conclusion that the requirements of section 101(17)(A) are met in this case is buttressed by the fact that had the January 5, 1975 contract never been executed, Mr. Rinker would have been given the option to purchase the property at fair market value under the June 29, 1960 codicil. Had the option been exercised, debts for the purchase price would have been incurred by Mr. Rinker. Certainly the debts in that situation would have arisen out of a farming operation as the land would have been the basis of the sale and the will proviso calling for the option. Again, whether it be in the context of a sale, a lawsuit, a settlement of a lawsuit, or the effectuation of a will, the focus of the inquiry is on the subject matter of the proceeding in question. To the extent a debt arises out of such a proceeding and the subject matter of the proceeding falls within the definition of farming operation under section 101(20), the section 101(17)(A) criterion will have been satisfied.
CONCLUSION AND ORDER
WHEREFORE, the court finds that the debts owed to Jacqueline Souder, Janice Coy and Jeanette Smithson arise out of a farming operation for purposes of 11 U.S.C. sections 101(17)(A) and 101(20).
THEREFORE, the motions to dismiss are denied.
NOTES
[1] Prior to passage of Chapter 12, the definition of "farming operation" was contained in section 101(18). Upon passage, section 101, paragraphs (17) through (49) have been redesignated as paragraphs (19) through (51) respectively. Bankruptcy Judges, United States Trustees and Farmer Bankruptcy Act of 1986, Pub.L. No. 99-554, section 251, 1986, U.S. CODE CONG. & ADMN. NEWS. Former section 101(18) is now codified at section 101(20). Id. All references to section 101 in this order reflect these changes.
[2] 11 U.S.C. section 101(19) defines a farmer as a "person that received more than 80 percent of such person's gross income during the taxable year of such person immediately preceding the taxable year of such person during which the case under such title concerning such person was commenced from a farming operation owned or operated by such person." This provision construed in tandem with section 101(20) has proven critical in section 303(a) cases. (Section 303 prohibits the commencement of involuntary Chapter 7 or 11 cases against farmers). See e.g., Armstrong v. Corn Belt Bank, 812 F.2d 1024 (7th Cir.1987); In re Dakota Lay'd Eggs, 57 B.R. 648 (Bankr.D.N.D.1986); and In re Blanton Smith Corp., 7 B.R. 410 (Bankr.M.D. Tenn.1980). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541374/ | 75 B.R. 699 (1987)
In re STAUNTON INDUSTRIES, INC., Debtor.
James L. GUY and James L. Mann, Plaintiffs,
v.
G.E. GROGAN, Brad Osgood, Norman Levy Associates, Inc., and Fidelcor Business Credit Corporation, Defendants.
Bankruptcy No. 85-03379-R, Adv. No. 86-1146-R.
United States Bankruptcy Court, E.D. Michigan, S.D.
July 17, 1987.
*700 Louis Burnett, Birmingham, Mich., for plaintiffs.
Robert Handler, Chicago, Ill., for defendants.
SUPPLEMENTAL MEMORANDUM OPINION
STEVEN W. RHODES, Bankruptcy Judge.
I.
This matter is before the Court on an adversary proceeding complaint filed by the debtor's landlords, James L. Guy and James L. Mann (the landlords), against Fidelcor Business Credit Corporation (Fidelcor), which is the secured creditor of the debtor, Staunton Industries, Inc. (Staunton). The landlords seek to charge Fidelcor for the costs and expenses of preserving Fidelcor's collateral. The complaint is brought pursuant to 11 U.S.C. § 506(c).
Specifically, the landlords seek reimbursement of unpaid rent and property taxes totalling approximately $119,000 during the one-year period that Staunton was in Chapter 11, from October 2, 1985 through October 3, 1986. The landlords contend that these expenses were reasonable and necessary, and that Fidelcor was benefited by these expenses to that extent.
Fidelcor, on the other hand, denies that it received any benefit from Staunton's use of the landlords' property while in Chapter 11. Specifically, Fidelcor contends that Staunton's attempt to reorganize in Chapter 11 was not intended to benefit it, and did not result in any benefit to it, because it was well over-secured when the case was filed. Thus, Fidelcor contends that regardless of the bankruptcy, it would have been paid in full. Fidelcor also denies that the costs and expenses, as asserted by the landlords, were reasonable and necessary.
The landlords respond that Fidelcor was under-secured, and that the Chapter 11 attempt to reorganize did benefit Fidelcor by allowing it to recover its full claim. The landlords also contend that Fidelcor was benefited by its continued receipt of interest from Staunton, and by avoiding the costs of liquidation on its collateral, including collection costs, auction costs, attorney fees, and storage fees.
The Court's findings of fact and conclusions of law following trial are set forth in this supplemental memorandum opinion.
II.
Staunton filed its Chapter 11 petition on October 2, 1985. At that time, Staunton occupied two buildings owned by the landlords, upon which it was obligated to pay monthly rent and taxes. There was a substantial pre-petition rent arrearage at the time the case was filed.
*701 In January of 1986, an order permitting Staunton to assume the lease was entered, which set forth the obligations of the debtor to cure the arrearage and to pay continuing rent.
By October 3, 1986, the date the case was converted to Chapter 7, Staunton had accrued the rent arrearage now sought by the landlords from Fidelcor.
Fidelcor first loaned money to Staunton in June of 1984. Fidelcor is an asset based lender which loaned money to the debtor on three different bases. The first basis was an accounts receivable loan pursuant to which Fidelcor loaned money to Staunton upon the receipt by it of an invoice to a customer of Staunton; the loan was 85% of the receivable. Fidelcor collected on this loan when Fidelcor received payment from the customer; the payment went either directly to Fidelcor or through Staunton. In connection with those receipts by Fidelcor, Fidelcor kept a certain percentage and allowed Staunton to retain a certain percentage.
The second type of asset based loan was an inventory loan based on the value of the inventory, with a cap of $100,000 or 25 percent of the value of the inventory, whichever was lower.
Both the accounts receivable loan and the inventory loan were revolving loans.
The third type of loan was a term loan secured by the machinery and equipment. Staunton simply paid a fixed amount each month on this loan.
The parties disagree concerning the total amount of the loan outstanding, as well as the value of the collateral, as of the date of the filing. Fidelcor contends that the outstanding loan amount was approximately $710,000, based on collateral worth approximately $1,300,000 at that time. The landlords contend that the outstanding amount of the loan at the time of filing was $827,000, including a $60,000 advance made by Fidelcor to Staunton immediately after the filing, and that the collateral was then worth approximately $710,000. Thus, the landlords contend that Fidelcor was somewhat undercollateralized in its loan at the time the case was filed.
The Court concludes that the evidence overwhelmingly supports Fidelcor's assertions that it was substantially oversecured when the case was filed, that the value of the collateral did approximate $1.3 million, and that the loan outstanding at the time of filing was approximately $710,000.
During the Chapter 11 proceeding, Fidelcor was paid approximately $500,000 pursuant to the loan formulas in the loan agreements and the cash collateral orders. Upon conversion to Chapter 7 and the subsequent auction sale of Staunton's assets, Fidelcor was paid the balance of its claim in the approximate amount of $266,000, although it has since been ordered to repay $2,500 of that amount.
III.
11 U.S.C. § 506(c) provides:
The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim.
The cases construing Section 506(c) reflect some divergence of opinion as to its proper interpretation. Most particularly, there is a divergence of opinion as to the plaintiff's burden in showing benefit to the secured creditor.
The Court concludes that it is most appropriate to adopt and apply the standard set forth in In re Wyckoff, 52 B.R. 164 (Bankr.W.D.Mich.1985), for several reasons. First, as discussed below, it is based upon a Sixth Circuit decision which this Court is obligated to apply. Second, Wyckoff appears to state the view held by the majority of cases. Finally, the Court is persuaded by the analysis in the Wyckoff case that its holding should be applied in this case.
The Sixth Circuit case upon which Wyckoff relies is In re Louisville Storage Company, 93 F.2d 1008 (6th Cir.1938), aff'g per curiam, 21 F.Supp. 897 (W.D.Ky. 1936). Although that case was decided under the Bankruptcy Act of 1898, it is clear *702 that Section 506(c) was intended only to codify the prior law under the 1898 Act. Accordingly, cases decided under that Act are applicable even under Section 506(c). This point was made clear in the Wyckoff case itself. 52 B.R. at 165.
In In re Louisville Storage Company, the court stated:
. . . [A]djudication in bankruptcy would not affect valid existing liens on the property of the bankrupt at the date of adjudication, and, for the protection of lien holders on the sale of such property in the bankruptcy action, the proceeds arising therefrom should be paid to the lienholder without charging against him any of the expenses of administration solely for the benefit of the general estate.
. . . . .
It has always been the rule inherent in general principles of equity that the lienholder must bear the expense of bankruptcy administration which is solely for his benefit, or to which he consents, or which he causes. [Citations omitted.]
21 F.Supp. at 899.
The court in Wyckoff then discussed three additional cases decided by the various Courts of Appeal, including In re Flagstaff Foodservice Corp., 739 F.2d 73 (2d Cir.1984); Brookfield Production Credit Association v. Borron, 738 F.2d 951 (8th Cir.1984); and In the Matter of Trim-X, Inc. (General Electric Credit Corp. v. Levin & Weintraub), 695 F.2d 296 (7th Cir. 1982). In addition, the court discussed and quoted at length from 3 Collier on Bankruptcy ¶ 506.06 (15th ed. 1985). After reviewing and discussing this authority, the court stated the rule as follows:
It appears, from a review of the relevant authority, that in order for the trustee to recover expenses from the secured creditor, he must establish either that the expenses result in a direct quantifiable benefit to the secured creditor which enabled him to realize as much or more than he would have by enforcing his own security, or that the creditor consented directly or by implication arising from some kind of affirmative conduct.
52 B.R. at 167.
The Court notes that this interpretation is consistent with a subsequent decision by the Court of Appeals for the Second Circuit in In re Flagstaff Foodservice Corp. (General Electric Credit Corp. v. Peltz), 762 F.2d 10 (2d Cir.1985).
IV.
In applying that standard to the present case, the Court concludes that the landlords have not established by a preponderance of the evidence any direct quantifiable benefit to Fidelcor which enabled Fidelcor to receive more as a result of Staunton's use of the landlords' property in its attempt to reorganize under Chapter 11, than it would have received if it had enforced its security interest outside of bankruptcy. Rather, the evidence shows that Fidelcor did not benefit at all from the Chapter 11 attempt to reorganize. Fidelcor could have received the full benefit of its bargain, and could have recovered all expenses of liquidation, if it had so proceeded when the bankruptcy was filed.
Thus, it is clear that Staunton's Chapter 11 attempt to reorganize was for the primary, if not exclusive, benefit of the debtor and its principals, as well as the unsecured creditors. Staunton and its principals benefited by the attempt to reorganize because the attempt provided at least an opportunity to continue in the business. Likewise, unsecured creditors benefited because the attempt provided at least an opportunity to receive an increased repayment on their claims.
The Court concludes that Fidelcor's receipt of interest upon its continuing loans to Staunton during the Chapter 11 is not the kind of direct, quantifiable benefit to the secured creditor which is intended to be addressed in Section 506(c). There is simply no authority in support of that assertion.
Further, the Court finds that Fidelcor did not consent to or cause the expenses. Clearly, there was no explicit consent; the landlords do not contend that there was. *703 Further, there is no evidence that Fidelcor controlled the payment of Staunton's bills or told Staunton which bills to pay or not to pay, or told Staunton to pay the rent or not to pay the rent. In fact, there is no evidence whatsoever that Fidelcor had any knowledge that Staunton was not paying its rent until September of 1986. In these circumstances, the Court concludes that there is no basis to find either consent or cause.
In the final analysis, there is nothing in this case which distinguishes this Chapter 11 administrative rent expense claim from any other Chapter 11 administrative expense claim which might be made in the case, such as on behalf of trade creditors, or employees, or others. Those creditors, as much as these landlords, contributed to Staunton's attempt to reorganize under Chapter 11, and contributed to Staunton's continuing business during this time period. To open the door to claims by all such Chapter 11 administrative claimants against a secured creditor who provides financing during the Chapter 11 case would have the unfortunate result of discouraging secured creditors from providing or continuing financing. Thus, on these policy grounds, the Court concludes that the more stringent standards of benefit set forth in Wyckoff are appropriate.
V.
The landlords rely primarily upon three cases. The first is In re McKeesport Steel Castings Company (Equitable Gas Co. v. Equibank, N.A.), 799 F.2d 91 (3d Cir.1986). That case sustained a Section 506(c) claim by a gas company which had supplied gas to the debtor's premises where the bank's collateral was stored and used during a Chapter 11 proceeding. After reviewing the several different standards that the courts have applied under Section 506(c), the Third Circuit stated:
We choose to follow the broad interpretation of benefit used in Afco Enterprises [35 B.R. 512 (Bankr.D.Utah 1983)]. As the bankruptcy court recognized, preserving McKeesport Steel Castings as a going concern benefited Equibank. The bankruptcy court found that `Equibank three times agreed to the use of cash collateral and the provision of the original order permitting payment of utility bills with same was never modified. Furthermore, almost all of the gas service for which Equitable seeks payment was used in Debtor's manufacturing process. Equibank and Condek agreed to the sale of the Debtor's assets as a going concern and the purchase price included customer lists and work in process. If gas service had been terminated, Equibank's and Condek's recovery would have been significantly less since these assets either would not have existed or would have been worth little, if anything. Equibank particularly would have been affected because its security interests in inventory and accounts receivable were subordinated to certain other claims in paragraphs 4 through 7 of the Third Cash Collateral Order.' Indeed the bankruptcy court held that `[t]he continued gas service in the instant matter benefited both Condek and Equibank in that it preserved the Debtor's business and permitted the sale of the assets as a going concern which provided a greater return to the secured parties than they would have received in other circumstances.' [Citations omitted.]
799 F.2d at 94.
The finding in McKeesport Steel that the continued gas service resulted in a greater return to the secured creditor is directly contrary to the finding in this case (Part IV, above) that Staunton's use of the landlords' premises to attempt reorganization in Chapter 11 did not provide Fidelcor with an opportunity to obtain any greater return than it would have absent bankruptcy. This fact clearly distinguishes the McKeesport Steel case, and therefore, that case provides no authority for the relief sought here by the landlords.
The two other cases relied upon by the landlords more directly involve § 506(c) claims by landlords. One is In re Isaac Cohen Clothing Corp., 39 B.R. 199 (Bankr. S.D.N.Y.1984), a case that would constitute authority for the relief sought by the landlord here. On its facts, the case is essentially *704 identical to the case presently before the Court. Nevertheless, the Court concludes that in light of Wyckoff, that case should not be adopted and accepted. Moreover, In re Isaac Cohen Clothing Corp. does not discuss the benefit issue; it simply states as a conclusory statement that the secured creditor was benefited. Accordingly, the Court rejects the application of In re Isaac Cohen Clothing Corp. in this case.
The final case relied upon by the landlords is In re Atlantic Boat Builders Company, 5 BCD 128 (Bankr.M.D.Fla.1979). Again, this case would be substantial authority for the relief sought by the landlords. But again, for the reason this Court rejected Isaac Cohen, the Court must reject Atlantic Boat Builders Company.
VI.
The Court has been concerned as to how it could happen that Staunton could use the landlords' premises throughout this ill-fated Chapter 11 proceeding without compensation. The answer to this concern, however, must lie in 11 U.S.C. § 365(d), which provides all of the protection that landlords need, if it is properly applied. That section specifically provides that when a lease is assumed, the debtor must give adequate assurance of future performance. Here however, the landlords failed to negotiate with Staunton for any adequate assurance of future performance. Although the order allowing Staunton to assume the lease contains very substantial and detailed provisions regarding Staunton's obligation to cure the arrearage and regarding what rent Staunton was to pay on an ongoing basis, it is devoid of any provisions regarding adequate assurance of future payment of rent. This failure is substantially the cause for the landlords' unfortunate position.
Accordingly, the complaint is dismissed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541377/ | 75 B.R. 441 (1987)
In re Sonya W. BUTCHER, Debtor.
No. CIV-3-86-462.
United States District Court, E.D. Tennessee, N.D.
June 10, 1987.
David L. Buuck, Claiborne, Davis, Buuck & Hurley, Knoxville, Tenn., Ezra H. Cohen, Mary Grace Diehl, Atlanta, Ga., for debtor.
Edwin Walker, Nashville, Tenn., for John C. McLemore, trustee.
MEMORANDUM
EDGAR, District Judge.
This is an appeal by the debtor from a bankruptcy court order, 62 B.R. 162 (Bankr.E.D.Tenn.1986), denying the debtor two exemptions claimed under 11 U.S.C. § 522(b)(2)(A). The debtor sought to exempt from her bankruptcy estate a house in Florida, pursuant to the homestead provision of the Florida Constitution, Fla. Const. art. X, § 4, and the cash surrender value of certain life insurance policies, pursuant to a Florida exemption statute. Fla. Stat. § 222.14. For the following reasons, the judgment of the bankruptcy court will be AFFIRMED. This Court has jurisdiction under 28 U.S.C. § 158.
I.
Denial of the Homestead Exemption
The bankruptcy court below denied the debtor's claim to a homestead exemption for her Florida house based on the court's ruling that, under the Florida homestead exemption in effect at the time the involuntary petition was filed against the debtor, she was not entitled to assert the exemption. 62 B.R. at 168. The debtor maintains that the bankruptcy court erred first by finding that the controlling exemption law *442 was the law in effect at the time of the filing rather than the subsequently amended law in effect at the time of the issuance of the last order for relief in the case. The debtor also argues that the bankruptcy court further erred by concluding that the debtor was not entitled to assert the exemption even under the pre-amendment homestead exemption law.
The chronology of the bankruptcy proceedings is as follows. An involuntary bankruptcy petition was filed under Chapter 7 against the debtor on September 9, 1983. An order for relief was granted by the bankruptcy court in this matter on March 28, 1984. On April 12, 1984, the debtor converted her case to a Chapter 11 case. She was unable to obtain plan confirmation under Chapter 11, and, on August 15, 1985, the debtor's case was converted back to a Chapter 7 case upon a creditor's motion. On December 11, 1985, the debtor received her Chapter 7 discharge.
During the course of these complex bankruptcy proceedings, the relevant Florida homestead exemption law was amended. When the proceedings were commenced, the Florida Constitution provided in relevant part that:
There shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon, except for the payment of taxes and assessments thereon, . . . the following property owned by the head of a family:
(1) A homestead, if located outside a municipality to the extent of 160 acres of contiguous land and improvements thereon, which shall not be reduced without the owner's consent by reason of subsequent inclusion in a municipality; or if located within a municipality, to the extent of one-half acre of contiguous land, upon which the exemption shall be limited to the residence of the owner or his family.
Fla. Const. art. X, § 4(a) (emphasis added). Effective January 1, 1985, the above-quoted provision was amended by the substitution of the words "natural person" for the words "head of a family." The debtor seeks to exclude her home from her bankruptcy estate pursuant to the exemption available to any "natural person" rather than the exemption limited to heads of families.
The Bankruptcy Code, 11 U.S.C. § 522(b), permits debtors to elect either the property exemptions provided by the appropriate state laws or, if authorized by state law under 11 U.S.C. § 522(b)(1), the exemptions provided by Federal law in 11 U.S.C. § 522(d). The debtor in this case chose to assert the homestead exemption afforded by Florida law. 11 U.S.C. § 522(b)(2)(A) limits the use of state homestead exemptions, among other state exemptions, as follows:
An individual debtor may exempt from property of the estate . . . any property that is exempt under . . . state or local law that is applicable on the date of the filing of the petition at the place in which the debtor's domicile has been located for the 180 days immediately preceding the date of the filing of the petition, or for a longer portion of such 180-day period than in any other place.
(emphasis added).
Pursuant to this provision of the Bankruptcy Code, the bankruptcy court below held that the homestead exemption contained in the Florida Constitution in effect on September 9, 1983, the date of the filing of the involuntary petition, controlled the debtor's request to exempt the house at issue.[1] 62 B.R. at 165-66. The Court finds that this ruling by the bankruptcy court is consistent with the plain meaning of the statute. Section 522(b)(2)(A) states that a debtor may exempt property from his or her estate based on the laws applicable "on the date of the filing of the petition." (Emphasis added). The ordinary and usual meaning of the statute's terms will be given effect unless an ambiguity in the statute is shown. Caminetti v. United States, 242 U.S. 470, 485-86, 37 S.Ct. 192, 194-95, 61 L.Ed. 442 (1917); McBarron v. S & T Indus., *443 Inc., 771 F.2d 94, 97 (6th Cir.1985). No such ambiguity has been shown in this case. Accordingly, the bankruptcy court's holding that the date of the filing of the petition determines the applicable state exemption law will be AFFIRMED.
This ruling is consistent with the limited case law on the subject. In a case decided under an earlier exemption provision of the Bankruptcy Code, a provision comparable to § 522(b), the United States Supreme Court ruled that the date on which the bankruptcy petition is filed is the relevant date for determining exemption issues. White v. Stump, 266 U.S. 310, 313, 45 S.Ct. 103, 104, 69 L.Ed. 301 (1924). Similar to § 522, the law at issue in White provided that the bankrupt was allowed the exemptions "prescribed by the state law in force at the time of the filing of the petition." Id. at 312, 45 S.Ct. at 103. White involved a debtor who failed to comply with the terms of the state homestead exemption law in effect at the time of the debtor's bankruptcy filing. Despite later efforts to comply with the law, the Court held that the debtor's homestead exemption could not be allowed. The Court ruled that the Bankruptcy Code exemption provision "makes the state laws existing when the petition is filed the measure of the right to exemptions." Id.
Several more recent decisions made pursuant to § 522 also have held that the date of the filing determines applicable exemption law. In Stinson v. Williamson (In re Williamson), 804 F.2d 1355 (5th Cir.1986), the debtor failed to assert a state homestead exemption to which he was entitled when he initially filed his Chapter 11 petition. The bankruptcy court allowed the debtor, whose case was later converted into a Chapter 7 case, to amend his classifications so as to claim the state homestead exemption. The Williamson court affirmed the bankruptcy court's decision, holding that the date of the debtor's original Chapter 11 filing determined the debtor's exemption eligibility, not the date of the conversion of the debtor's case to a case under Chapter 7, as asserted by the trustee. The court found that the specific language of § 522(b) and § 348(a) controlled. The Williamson court cited with approval the bankruptcy court's ruling that is presently on appeal in this matter. 804 F.2d at 1361-62 n. 9.
The Williamson court severely restricted Armstrong v. Lindberg (In re Lindberg), 735 F.2d 1087 (8th Cir.), cert. denied, 469 U.S. 1073, 105 S.Ct. 566, 83 L.Ed.2d 507 (1984). The debtor in the present appeal relies heavily upon Lindberg. Lindberg, by the Eighth Circuit's own admission, is at considerable tension with the terms of the relevant statutes, § 522 and § 348. Id. at 1089. See also Williamson, 804 F.2d at 1359. The Lindberg court held that the date of the debtors' Chapter 7 conversion, not the date of the debtors' original Chapter 13 filing, determined what exemptions may be claimed. Lindberg, 735 F.2d at 1088. The court in Lindberg allowed the debtors in the case to claim a different homestead at the time of the Chapter 7 conversion than they had claimed at the original Chapter 13 filing. As the Williamson court noted, 804 F.2d at 1359, the holding in Lindberg is based on considerations unique to Chapter 13 cases. As such, it is distinguishable from the present appeal. In addition, Lindberg may be distinguished from the present case in that Lindberg involved a change in property to be exempted, not a change in the state exemption law, as is involved in the instant appeal.
The distinction between changes in law and changes in property subsequent to filing is highlighted in Wilson v. Davis (In re Wilson), 62 B.R. 43 (E.D.Tenn.1985). The debtor in the present appeal has also placed much emphasis on Wilson. Wilson involved a Chapter 7 debtor who sought to protect a house under the Florida homestead exemption. The house was purchased after the filing but before the entry of the order for relief in the case. The district court in Wilson ruled that the correct date for determining which property is exempt under § 522 is the date on which the original order for relief is filed, not the date of the filing of the petition. Id. at 46. The court in Wilson clearly states that the *444 date of conversion is not used to fix the applicable law:
[W]hile Section 522(b)(2)(A) does provide that the debtor may exempt from property of the estate any property that is exempt under federal law or state law that is applicable on the date of the filing of the petition, this section can be read to fix the law controlling the exemptions not to fix the property subject to these exemptions at the time of the filing of the petition.
Id. at 45.
Debtor's reliance on Wilson reveals the debtor's confusion on an important distinction made in the Bankruptcy Code. The debtor asserts that the relevant state exemption law should be determined as of the date of the filing of the order for relief issued when her case was converted from a Chapter 7 to a Chapter 11 case. This assertion overlooks the two distinct types of orders for relief recognized by the Bankruptcy Code. The order for relief in an involuntary bankruptcy case is issued by the bankruptcy court pursuant to 11 U.S.C. § 303(h), generally shortly after the filing of the involuntary bankruptcy petition. Every subsequent conversion of the case, pursuant to 11 U.S.C. § 348, also creates an order for relief. These latter orders for relief, however, only are orders for relief as to that chapter. § 348(a) provides:
Conversion of a case from a case under one chapter of this title to a case under another chapter of this title constitutes an order for relief under the chapter to which the case is converted, but, except as provided in subsections (b) and (c) of this section, does not affect a change in the date of the filing of the petition, the commencement of the case, or the order for relief.
(Emphasis added). The orders for relief issued under the particular chapters with each conversion do not affect the date of the original order for relief. The order for relief in this case was granted on March 28, 1984, before the January 1, 1985 effective date of the amended Florida homestead exemption. According to the debtor, debtors could voluntarily convert their cases to another chapter pursuant to § 348 at anytime in order to take advantage of a change in the applicable law that occurred after the original order for relief was entered. Wilson does not stand for the proposition that the date of an order for relief under a chapter determines applicable exemption law. As stated above, Wilson holds that the date of the original order for relief determines what property may be exempted.
The debtor in this appeal also cites for support In re Stinson, 27 B.R. 18 (Bankr. D.Or.1982). Stinson, however, was reversed by the district court for the district of Oregon on April 26, 1983. Reprinted in appendix of In re Kao, 52 B.R. 452, 454-55 (Bankr.D.Or.1985). Stinson presented the only case cited by the debtor which involved a change in the applicable exemption laws that occurred after the filing of the petition in the case but before the case was converted from a Chapter 13 to a Chapter 7 case. Subsequent to the debtor's conversion of his case to a Chapter 7 case, Oregon changed its bankruptcy laws to take away the availability of the Federal law exemptions provided under § 522(d). Thus, at the time of the conversion only state exemptions under § 522(b)(2) and other limited Federal exemptions were available. The bankruptcy court in Stinson ruled that the debtor had to proceed in his Chapter 7 case with only the more limited exemptions available after Oregon "opted out" of the Federal exemptions. In reversing the bankruptcy court decision, the district court in Stinson held that the bankruptcy judge in the matter had incorrectly analyzed the applicable sections of the Bankruptcy Code:
The bankruptcy court erred when it held that, for the purpose of claiming exemptions in the Chapter 7 cases, the applicable law is the law in effect on the date of the conversion. . . . Rights to exemptions and, correspondingly, identification of non exempt property are fixed as of the date of the filing of the bankruptcy petition. (Cite omitted). In other words, property which was non exempt at the time of the Chapter 13 filing would still be non exempt on the date of conversion.
*445 Id. at 455. See also Hollytex Carpet Mills v. Tedford, 691 F.2d 392 (8th Cir.1982) (holding that the date of filing petition in Chapter 7 case, despite subsequent change in state exemption law, determines law controlling extent of property exemption); In re Lepper, 58 B.R. 896 (Bankr.D.Md.1986) (holding that what constitutes the property of estate is determined at filing of Chapter 13 petition, not at Chapter 7 conversion); Maricle v. Home Federal Savings & Loan Assoc. (In re Maricle), 25 B.R. 36, 38-39 (Bankr.N.D.Tex.1982) ("Normally the date upon which the bankruptcy petition is filed is the relevant date for determination of exemption issues.")
Having ruled that the Florida homestead exemption in effect in 1983 was the law applicable to the debtor's petition, the bankruptcy court below held that the debtor was not entitled to exclude her Florida house from her bankruptcy estate. The pre-amendment Florida homestead exemption is only available to a "head of a family." After an exhaustive exploration of the meaning of this term under Florida law, the bankruptcy court concluded that the debtor could not be characterized as the head of her family on the date of the filing of the involuntary petition. 62 B.R. 166-68. In brief, the bankruptcy court found that the debtor was not supporting her family with her own income. The court found that the debtor's husband, who had provided the significant sum necessary to purchase the house in question, had funded the children's investments which were providing the debtor and her family with the major part of their financial support at the time of the filing. In addition, although the debtor's husband is presently serving a prison sentence for various offenses connected with the failure of his banking enterprises, the bankruptcy court found that in the relevant time period the debtor's husband had not ceased to occupy his position as head of the family.
Under Bankruptcy Rule 8013, "findings of fact shall not be set aside unless clearly erroneous." See Richmond Leasing Co. v. Capital Bank, N.A., 762 F.2d 1303, 1307-08 (5th Cir.1985); Machinery Terminals, Inc. v. Woodward (In re Albert-Harris, Inc.), 313 F.2d 447, 449 (6th Cir.1963). See also Fed.R.Civ.P. 52(a). The United States Supreme Court has recently described the clearly erroneous standard of review:
"[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." This standard plainly does not entitle a reviewing court to reverse the finding of the trier of fact simply because it is convinced that it would have decided the case differently.
Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985) (cites omitted). This Court cannot hold that the bankruptcy judge's findings of fact are clearly erroneous. Accordingly, this aspect of the bankruptcy court's ruling also will be AFFIRMED. An appropriate order will enter.
II.
Denial of Cash Surrender Value of Life Insurance Policies
The debtor sought to exempt from her bankruptcy estate the cash surrender value of certain life insurance policies which insure her husband's life. The debtor is the owner and beneficiary of these policies. The bankruptcy court below denied the debtor this exemption based on the plain meaning of the applicable Florida statute. 62 B.R. at 168-69. That statute provides:
The cash surrender values of life insurance policies issued upon the lives of citizens or residents of the state and the proceeds of annuity contracts issued to citizens or residents of the state, upon whatever form, shall not in any case be liable to attachment, garnishment, or legal process in favor of any creditor of the person whose life is so insured or of any creditor of the person who is the beneficiary of such annuity contract, unless the insurance policy or annuity contract was effected for the benefit of such creditor.
*446 Fla. Stat. § 222.14. By the plain language of the statute, the cash surrender value of life insurance policies are exempted only from the reach of the creditors of the insureds. The statute does not exempt the cash surrender value of life insurance policies from the reach of creditors of the beneficiaries. The debtor has argued without citation that the statute was meant to shield the interests of all owners of insurance policies, not only owners who are also the insureds. The debtor also argues, again without citation, that this broader construction of the statute should be followed because the debtor's creditors are the same creditors that are proceeding against her husband, the insured. The Court does not find these arguments persuasive. See Gould v. Phillips (In re Gould), 457 F.2d 393 (5th Cir.1972) (holding under Texas law that cash surrender value of life insurance policy of which debtor was owner and contingent beneficiary but not named insured was properly part of bankrupt's estate). It is not the role of this Court to rewrite Florida's exemption statute; "the Courts' role is restricted to an interpretation of which exceptions have been enacted and to that extent recognize the debtor's right thereto without a value judgment of whether the state legislature has spoken too liberally or too conservatively." Roemelmeyer v. Gefen (In re Gefen), 35 B.R. 368, 371 (Bankr.S.D.Fla.1984) (Cite omitted). Accordingly, the bankruptcy court's ruling denying the debtor to exempt the cash surrender value of the life insurance policies will be AFFIRMED.
An appropriate order will enter.
NOTES
[1] The trustee in this case did not contest below the debtor's ability to assert her claim to a Florida domicile, under 11 U.S.C. § 522(b)(2)(A). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541379/ | 75 B.R. 560 (1987)
In re The CROUSE GROUP, INC., Related Cases: Aronimink Corporation, Crouse Combustion Systems, Crouse Company, Inc., Crouse-Mitchell Fabricating Company, Inc., Crouse Recovery of Delaware Inc., Crouse of New Jersey, Inc., Y-E-P Industries, Inc., Debtors.
Bankruptcy Nos. 87-00576S to 87-00583S.
United States Bankruptcy Court, E.D. Pennsylvania.
June 26, 1987.
ORDER AND MEMORANDUM
AND NOW, this 26th day of June, 1987, upon consideration of the Debtors' Motion for Reconsideration of our Order of April 3, 1987, a copy of which is attached hereto as Appendix "A," regarding the conditions under which Ronald H. Silverman, P.C., may be employed as special counsel to represent the Crouse Company, Inc. in Litigation involving Turner Construction Co., Inc. and requesting, instead, that the said Mr. Silverman may be employed on a basis which establishes a set fee structure prior to the Court's receiving any Application in accordance with In re Meade Land and Development Co., Inc., 527 F.2d 280 (3d Cir.1975), describing the work accomplished, which requested fee structure includes a set a contingency fee if the recovery exceeds $1,000,000.00, the said Motion is DENIED.
We believe that compensation of all counsel, per 11 U.S.C. § 327(a), should be conditioned on procedural compliance with Meade Land. We should note, however, that we read Meade Land as merely establishing the procedure for describing work accomplished for which compensation is sought, not as establishing the method of compensation. Thus, requiring special counsel to comply with Meade Land does not preclude an award, in an extraordinary situation, on a contingent fee basis, or at a very high hourly rate, or compensation or some sort of other special basis if "a case requiring extraordinary skill and the demonstration of such by extremely competent counsel" is presented. See In re Shaffer-Gordon Associates, Inc., 68 B.R. 344, 350 (Bankr.E.D.Pa.1986). The litigation in question may present a case where a contingent fee or some other special basis of compensation will be appropriate. Such a basis for compensation to special counsel was not precluded by our Order of April 3, 1987.
We do not believe that this ruling will work to the detriment of the Debtor. Rather, it will merely permit the Court to determine what work was accomplished, and its the reasonable value, taking into account all of the elements which Counsel claims justify whatever fee is requested, before we can promise that we will make an award on a certain basis and before the fee is paid from estate funds. We do not consider it proper to abdicate our responsibility to evaluate the work performed by counsel before setting the fee, see Shaffer-Gordon, supra, 68 B.R. at 351, and this is what we believe that we would be doing by locking ourselves into approval of an extraordinary basis for compensation before we can evaluate the work done.
We note that special counsel can effect the withdrawal of representation which is suggested in his letter to us of June 2, 1987, might be forthcoming if we denied this Motion, only if permitted to do so by the district court. See Local Rule of Civil Procedure of the Eastern District of Pennsylvania 18(c). The circumstances in which the Code of Professional Responsibility (hereinafter referred to as "CPR") indicates that withdrawal will be permitted should be considered in this determination. See Ohntrup v. Firearms Center, Inc., 802 F.2d 676, 679 (3d Cir.1986). As further explained by this Order and Memorandum, our Order of April 3, 1987, may not be found by the District Court to constitute such a basis under the CPR. See Disciplinary Rule 2-110(C); Ethical Consideration 2-32.
APPENDIX A
IN RE: CROUSE NUCLEAR ENERGY SERVICES, INC., ARONIMINK CORPORATION, CROUSE COMBUSTION SYSTEMS, INC., CROUSE COMPANY, *561 INC., CROUSE MITCHELL FABRICATING, CROUSE RECOVERY OF DELAWARE, INC., CROUSE OF NEW JERSEY, INC., CROUSE NUCLEAR ENERGY SERVICES, INC., Debtors.
Bankruptcy Nos. 87-00576S to 87-00582S and 87-00834S.
ORDER AUTHORIZING EMPLOYMENT OF RONALD H. SILVERMAN, P.C. AS SPECIAL COUNSEL
AND NOW, this 3rd day of April, 1987, upon consideration of the APPLICATION OF DEBTORS TO EMPLOY RONALD H. SILVERMAN, P.C. AS SPECIAL COUNSEL praying for authority to employ and appoint the law firm of Ronald H. Silverman, P.C. ("Silverman") as Special Counsel for reasons set forth in the Application; it appearing that Silverman is fully qualified to perform the services involved; and the Court being satisfied that Silverman represents no interest adverse to the Debtors and that its employment is necessary and would be in the best interest of the Debtors, it is ORDERED, that the Debtors are authorized to employ Silverman as Special Counsel to represent the Debtors, The Crouse Group, Inc. and Crouse Company, Inc., fees to be allowed only after submission of an Application in accordance with In re Meade Land & Dev. Corp., 527 F.2d 280 (3d Cir.1975). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541386/ | 949 A.2d 949 (2008)
Jonel Witherspoon WATSON, Petitioner
v.
WORKERS' COMPENSATION APPEALS BOARD (SPECIAL PEOPLE IN NORTHEAST and Eagle Trust Management), Respondents.
No. 1924 C.D. 2007.
Commonwealth Court of Pennsylvania.
Submitted on Briefs February 15, 2008.
Decided May 30, 2008.
*951 Larry Pitt, Philadelphia, for petitioner.
Thomas J. Bailey, Philadelphia, for respondent, Special People in Northeast.
BEFORE: SMITH-RIBNER, Judge, SIMPSON, Judge, and FLAHERTY, Senior Judge.
OPINION BY Judge SIMPSON.
Jonel Witherspoon Watson (Claimant) petitions for review of an order of the Workers' Compensation Appeal Board (Board) that affirmed, in part, a decision of a Workers' Compensation Judge (WCJ) awarding Claimant medical benefits for a closed period and litigation costs. The WCJ denied Claimant indemnity benefits. The Board reversed the award of costs, but affirmed in all other respects. On appeal here, Claimant argues the WCJ's necessary determinations are not supported by substantial evidence. She also asserts the Board's order reversing the WCJ's award of litigation costs is contrary to law. Upon, review, we affirm the Board.
Special People in Northeast (Employer), a facility that cares for individuals with mental, physical, or sensory impairment, employed Claimant as a Direct Support Professional. In this position, Claimant provided personal care services, including taking Employer's residents on shopping trips. On February 20, 2006, while shopping for a resident at a Wal-Mart store, several fold-up chairs fell off a shelf and struck Claimant on the head.
Three days later, Claimant filed a claim petition seeking indemnity and medical benefits from the date of injury onward. Employer filed a timely answer admitting Claimant sustained a head contusion in the course of her employment as the result of falling chairs. Employer further agreed to pay necessary and reasonable medical expenses associated with the injury. However, Employer denied Claimant was disabled as a result of the injury. A WCJ hearing ensued.
Claimant testified as follows. On February 20, 2006, in the course of shopping for a resident at a Wal-Mart store, several chairs fell from a high shelf and struck her on the head. Claimant proceeded to Jeanes Hospital for a physical examination, where she received pain medication. The next day, at Employer's request, Claimant went to the Business Health Occupation Medicine Department (BHOMD) at Jeanes Hospital for a second physical examination. The BHOMD released Claimant to return to work; however, Claimant did not return to work.
Claimant also presented the deposition testimony of Dr. John Bowden (Claimant's Physician), who is board-certified in pain management. Based on Claimant's history, physical and neurological examinations, a CAT scan of Claimant's skull, and an x-ray of Claimant's spine, Physician opined Claimant suffers contractile headaches and a post traumatic cervical myoligamentous spinal supporting structure injury. Physician related these conditions to the work incident. Claimant's Physician also opined that as of June 7, 2006, Claimant continued to suffer from these injuries and, as a result, cannot return to her pre-injury job or perform light-duty work.
In opposition, Employer presented the deposition testimony of Dr. Stephanie Y. Koa (Employer's Internist), who is board-certified in internal medicine. She is the *952 medical director for the BHOMD at Jeanes Hospital and she examined Claimant one day after the work injury. Based on Claimant's history, physical and neurological examinations, and a CAT scan, Employer's Internist opined Claimant sustained a mild injury to the top of her head as a result of the work incident. She further opined Claimant could have returned to work three days after the work injury occurred.
Employer also presented the deposition testimony of Dr. Richard H. Bennett (Employer's Neurologist), who is board-certified in neurology and EMG studies. Employer's Neurologist examined Claimant in June 2006. Based on Claimant's history, physical examination, and medical records, Employer's Neurologist opined Claimant fully recovered from all neurological injuries and required no further medical treatment as of June 20, 2006, the date of his examination.
Upon review, the WCJ found the testimony of Claimant and her Physician credible to the extent they testified a work injury occurred on February 20, 2006; however, the WCJ rejected all testimony indicating Claimant suffered a compensable disability. The WCJ further rejected Claimant's Physician's testimony to the extent he opined Claimant suffers injuries other than a mild injury to the top of the head.
Notably, the WCJ accepted Employer's Internist's diagnoses and opinion that Claimant could return to work three days after the incident. Finally, the WCJ accepted Employer's Neurologist's opinion that Claimant fully recovered as of June 20, 2006. Based on the foregoing, the WCJ: denied indemnity benefits; awarded medical benefits for the closed period of February 20 to June 20, 2006; and, ordered Employer to reimburse Claimant $3,001.65 in litigation costs.
The parties filed cross appeals with the Board. On review, the Board reversed the award of litigation costs and affirmed in all other respects. Regarding litigation costs, the Board held:
Costs are recoverable by a claimant when the claimant has succeeded, in whole or in part, in a litigated matter. The WCJ concluded that Claimant met her burden of proof, in part, regarding the Petition, because she proved she sustained an injury to the top of her head even though she failed to prove any associated disability. Thus, the WCJ awarded litigation costs. However, a review of the record reveals that Claimant filed her Claim Petition only three (3) days after the work incident. [Employer] acknowledged a work injury in its Answer, and acknowledged that Claimant was entitled to medical expense payments as a result of the work incident. [Employer] denied any associated disability. Thus, Claimant would have been in the same position had she not so expeditiously filed a Claim Petition. Therefore, in light of the circumstance of this particular matter, we shall reverse the WCJ's award of costs. . . .
Bd. Op., 9/18/2007, at 4-5 (citations omitted). Claimant appealed.
On appeal,[1] Claimant argues the WCJ's decision to deny indemnity benefits is not supported by substantial and unequivocal evidence. She also asserts Employer did not present sufficient evidence to support a termination of medical benefits. *953 Finally, since the WCJ awarded medical benefits for a closed period, Claimant asserts she is entitled to litigation costs.
Claimant first argues the WCJ's decision to deny indemnity benefits is not supported by the record. Claimant maintains the WCJ's decision to reject her testimonial evidence on this issue is not supported. Claimant also argues Employer's Internist's opinion that Claimant could return to work within three days of sustaining the work injury is equivocal and, therefore, does not support a denial of indemnity benefits.
It is well settled that in a claim proceeding the claimant bears the burden of proving all elements necessary for an award. Inglis House v. Workmen's Comp. Appeal Bd. (Reedy), 535 Pa. 135, 634 A.2d 592 (1993). More specifically, a claimant must establish she sustained an injury during the course and scope of her employment and the injury is causally related to the employment. Delaware County v. Workers' Comp. Appeal Bd. (Baxter Coles), 808 A.2d 965 (Pa.Cmwlth.2002). In addition, a claimant must prove the work injury resulted in a disability, that is, wage loss, which continues for the period for which benefits are sought. Id.
When reviewing witnesses' testimony, determinations as to weight and credibility are solely for the WCJ as fact-finder. Cittrich v. Workmen's Comp. Appeal Bd. (Laurel Living Ctr.), 688 A.2d 1258 (Pa.Cmwlth.1997). A WCJ may accept or reject the testimony of any witness, including a medical witness, in whole or in part. Lombardo v. Workers' Comp. Appeal Bd. (Topps Co., Inc.), 698 A.2d 1378 (Pa.Cmwlth.1997). If supported by substantial evidence, a WCJ's findings are conclusive on appeal, despite the existence of contrary evidence. Grabish v. Workmen's Comp. Appeal Bd. (Trueform Founds., Inc.), 70 Pa.Cmwlth.542, 453 A.2d 710 (1982).
Here, Claimant and her Physician testified the work injury resulted in a continuing disability and ongoing wage loss. However, the WCJ rejected this testimony. WCJ Op., 1/31/2007, Finding of Fact (F.F.) No. 14. In so doing, the WCJ afforded Employer's Internist's opinion that Claimant could return to work three days after the injury greater weight. F.F. Nos. 8(c), 9(d). This weight-of-the-evidence determination is not subject to review here. Cittrich. Concomitantly, Claimant failed to meet her burden of proving a compensable injury with a disability lasting more than seven days.[2]
In addition, Employer's Internist's opinion is unequivocal. Medical evidence is unequivocal as long as the medical expert, after providing a foundation, testifies in his professional opinion he believes or thinks the facts exist. Cerro Metal Prods. Co. v. Workers' Comp. Appeal Bd. (Plewa), 855 A.2d 932 (Pa.Cmwlth.2004). Here, Employer's Internist clearly testified Claimant could return to work three days after the work injury occurred. Reproduced Record (R.R.) at 171a, 173a-74a. This credited testimony supports a determination that Claimant did not suffer a compensable disability. No error is apparent.
Next, Claimant maintains the record does not support the WCJ's decision to terminate medical benefits as of June 20, 2006. Despite the fact Employer did not file a termination petition, Claimant argues Employer failed to produce sufficient evidence *954 to support a termination of medical benefits.
Claimant's arguments notwithstanding, this is a proceeding on a claim petition and, therefore, Claimant maintains the burden of proof to show entitlement to the benefits sought. See DeJesus v. Workmen's Comp. Appeal Bd. (Friends Hosp.), 154 Pa.Cmwlth.165, 623 A.2d 397 (1993). On a claim petition, a claimant carries the burden of proving not only that medical expenses are causally connected to the work injury, but also that they are reasonable and necessary. See Trafalgar House & St. Paul Fire & Marine Ins. v. Workers' Comp. Appeal Bd. (Green), 784 A.2d 232 (Pa.Cmwlth.2001); Braden v. Workmen's Comp. Appeal Bd. (Beacon Auto Parts), 659 A.2d 655 (Pa.Cmwlth.1995); DeJesus. This includes demonstrating the ongoing nature of the injury during the period for which medical benefits are sought. See Trafalgar House.
Here, the WCJ found Claimant "failed to establish the ongoing nature of her injury on and after June 20, 2006." F.F. No. 14. To that end, the WCJ rejected the testimony of Claimant and her Physician that Claimant requires medical treatment for an ongoing work-related injury. See F.F. No. 13. Instead, the WCJ credited Employer's Neurologist testimony. F.F. No. 11. During direct examination of Employer's Neurologist, the following colloquy occurred:
[Employer's Attorney]: Doctor, based upon the history you obtained and the physical examination you performed of [C]laimant, coupled with your review of the records you were sent prior to examining [C]laimant, were you able to formulate an impression within a reasonable degree of medical certainty?
[Employer's Neurologist]: I was. . . . I was able to discern no objective evidence of neurological or orthopaedic impairment affecting [Claimant].
She appeared to have fully recovered from what may have been a cervical strain and sprain, a self limited condition, but when I saw her she was totally and completely healed of those conditions. There were no signs of impairment or physical abnormalities.
Q: Doctor . . . were you able to formulate an opinion within a reasonable degree of medical certainty as to whether or not [C]laimant fully recovered from any and all injuries [she] sustained while employed with [Employer]?
A: Yes. I felt that she had fully recovered and as such she would not require further treatment or additional diagnostic testing.
* * *
Q: Doctor, do you have an opinion within a reasonable degree of medical certainty as to whether or not [C]laimant is in need of any additional medical treatment, physical therapy or chiropractic care?
A: She is not in need of any such treatment.
R.R. at 112a-13a. In short, Claimant did not prove that any post-June 20, 2006 medical treatment is reasonable and necessary. See Trafalgar House. Having fully recovered from the head injury, there is no need or reason for Claimant to continue to treat.
As a final issue, Claimant argues the Board erred in reversing the WCJ's award of $3,001.65 in litigation costs, which are comprised of the fee for Claimant's Physician (whose testimony was rejected) and transcript costs.[3]
*955 Here, Claimant filed a claim petition seeking both medical and indemnity benefits. Employer's responsive pleading acknowledged Claimant sustained a work-related head contusion and accepted liability for all reasonable and necessary medical expenses associated with the injury. In light of this pleading, the parties dispute whether Claimant partially succeeded in the proceedings below.
Section 440(a) of the Act, which permits an award of litigation costs, states, in relevant part:
In any contested case where the insurer has contested liability in whole or in part, including contested cases involving petitions to terminate, reinstate, increase, reduce or otherwise modify compensation awards, agreements or other payment arrangements or to set aside final receipts, the employe . . . in whose favor the matter at issue has been finally determined in whole or in part shall be awarded, in addition to the award for compensation, a reasonable sum for cost incurred for attorney's fee, witnesses, necessary medical examination, and the value of unreimbursed lost time to attend the proceedings. . . .
77 P.S. § 996 (emphasis added). Litigation costs are warranted when a claimant is at least partially successful before a WCJ. Minicozzi v. Workers' Comp. Appeal Bd. (Indus. Metal Plating, Inc.), 873 A.2d 25 (Pa.Cmwlth.2005).
We agree with the Board's determination that Claimant is not entitled to litigation costs. To this end, Employer's responsive pleading to the claim petition admitted Claimant "is entitled to reasonable, necessary medical expenses related to a contusion to the head." R.R. at 4a. Following litigation, the WCJ ordered Employer "to pay all reasonable and necessary medical expenses related to Claimant's February 20, 2006 head injury for treatment incurred from February 20, 2006 through June 20, 2006." WCJ Op. at 13.
Claimant argues that she was successful in establishing her injury as a head concussion as opposed to a head contusion, the condition Employer acknowledged in its answer. She points to the accepted testimony of Employer's Internist. She claims that she established the right to treatment for a concussion rather than for a contusion. For these reasons, Claimant asserts costs should be awarded.
We reject Claimant's arguments on costs for two reasons. First, from a factual perspective, the accepted testimony described the injury as a mild concussion without loss of consciousness, with no neurologic complaints (such as dizziness, vision complaints, or nausea), with normal neurologic findings and with no neurologic treatment. F.F. No. 4. Thus, the WCJ found the "Claimant sustained a work injury on February 20, 2006 to the top of her head from which she was not disabled beginning February 24, 2006." F.F. No. 10 (emphasis added). As a result, it is impossible to distinguish the described injury from the contusion admitted in the Employer's answer.
Second, because there were no neurologic complaints, no positive neurologic findings and no neurologic treatment, there were no special medical expenses attributable to a concussion which would not be incurred for a contusion. Indeed, Claimant does not assert that the injury description resulted in any financial benefit to her.
In light of the foregoing, Claimant did not prevail on any disputed issue before the WCJ. Stated otherwise, the WCJ *956 awarded Claimant no financial benefit beyond the medical expenses Employer previously agreed to pay. Under these circumstances, Claimant's entitlement to medical benefits does not warrant an award of litigation costs. Cf. Amoratis v. Workers' Comp. Appeal Bd. (Carolina Freight Carriers), 706 A.2d 368 (Pa. Cmwlth.1998) (an award of litigation costs is not warranted where a claimant received no financial benefit from litigation).[4]
Based on the foregoing, the Board is affirmed.
ORDER
AND NOW, this 30th day of May, 2008, the order of the Workers' Compensation Appeal Board is AFFIRMED.
NOTES
[1] This Court is limited to considering whether substantial evidence supports the WCJ's factual findings, whether an error of law was committed, and whether constitutional rights were violated. Roadway Express, Inc. v. Workers' Comp. Appeal Bd. (Siekierka), 708 A.2d 132 (Pa.Cmwlth.1998).
[2] Section 306(a) of the Workers' Compensation Act (Act), Act of June 2, 1915, P.L. 736, as amended, 77 P.S. § 511, Schedule of compensation for total disability, states that compensation for total disability begins after the seventh day of total disability.
[3] The WCJ specifically found that Employer raised a reasonable contest. WCJ Op., 1/31/2007, Finding of Fact (F.F.) No. 14. Therefore, Claimant does not recover attorney's fees. The issue of attorney's fees is not raised on appeal.
[4] Claimant alternatively points to the fact Employer did not issue a notice of compensation payable (NCP), medical only NCP, or notice of compensation denial (NCD) pursuant to Section 406.1 of the Act, added by the Act of February 8, 1972, P.L. 25, 77 P.S. § 717.1. Claimant implies this failure forced her to litigate the compensability of her injuries and, therefore, provides an alternative ground to award litigation costs. We reject this contention for two reasons.
First, the failure to comply with the Act entitles a claimant to attorney's fees or a penalty, not litigation costs. See Transamerican Office Furniture v. Workmen's Comp. Appeal Bd. (Setegna Fanta), 149 Pa.Cmwlth.95, 612 A.2d 598 (1992). Second, Claimant's act of filing a claim petition only three days after the work injury occurred effectively denied Employer the opportunity to file a NCP, medical only NCP, or NCD. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541391/ | 75 B.R. 41 (1987)
In re Harry J. LIDDLE Carolyn A. Liddle, Debtors.
Bankruptcy No. 86-40771.
United States Bankruptcy Court, D. Montana.
April 21, 1987.
Kenneth Neill, Great Falls, Mont., for debtors.
Malcolm Goodrich, Billings, Mont., for Federal Land Bank.
Dunlap and Caughlan, Butte, Mont., Trustee.
ORDER
JOHN L. PETERSON, Bankruptcy Judge.
At Butte in said District this 21st day of April, 1987.
*42 In this Chapter 12 case, the Federal Land Bank of Spokane (FLB) has filed a Motion To Set Time For Termination of Right of Redemption or in the Alternative, For Relief From the Automatic Stay. The Debtors filed their Chapter 12 Plan on March 12, 1987. Hearing on confirmation was set for April 15, 1987, when the parties stipulated that the hearing should be continued until the Court ruled on whether the Debtors had sufficient legal interest in their farm property on which to confirm a Plan.
FLB's motion states that it held a first mortgage on the Debtors' 2240 acres of deeded land, which was foreclosed upon and then sold at Sheriff's Sale on January 7, 1986. FLB was purchaser at the Sheriff's Sale on January 7, 1986. Thus, a judgment on the mortgage is of record and the Debtors, under Montana law, had a one year right of redemption in the property, which expired January 7, 1987. Before the redemption period expired, the Chapter 12 petition was filed on December 30, 1986, listing total debts of $1,037,000.00, which includes the FLB judgment of $75,000.00. The largest creditor is Farmers Home Administration (FHA), which has a claim for $962,000.00. The Debtors listed no unsecured creditors, except FHA, which is undersecured. Under the Debtors' proposed Plan, FLB will be paid $66,000.00 over 20 years at 6% interest per annum, and FHA will be paid $102,250.00 over 40 years at 6% interest. The Plan values the Debtors' farm at $168,250.00.
FLB claims that under 11 U.S.C. § 108(b), the Debtors' right to redeem the property from the foreclosure sale expired 60 days after the Order of Relief. Section 108(b) provides:
"Except as provided in Subsection (a) of this Section, if applicable non-bankruptcy law, an order entered in a non-bankruptcy proceeding, or an agreement fixes a period within which the debtor or an individual protected under Section 1201 or 1301 of this title may file any pleading, demand, notice, or proof of claim or loss, cure a default, or perform any other similar act, and such period has not expired before the date of the filing of the petition, the trustee may only file, cure, or perform, as the case may be, before the later of(1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or (2) 60 days after the order for relief."
FLB, relying on In Re Cucumber Creek Development, Inc., 33 B.R. 820, 11 B.D.C. 105 (D.Colo.1983), contends the Debtor-in-Possession under Chapter 12 had to redeem the property within 60 days after filing of the petition by paying the entire judgment to FLB within that period of time. The district court in Cucumber Creek Development held, under facts very similar to the case sub judice:
"In Jenkins [19 B.R. 105], however, I did not discuss or consider the applicability of 11 U.S.C. § 108 to such a case. Given an opportunity to consider the question here and to review the body of case law which has developed, I now conclude that § 362 is inapplicable, and that state redemption rights may be preserved and extended only to the extent provided by § 108." Id. at 821.
To the same effect are Johnson v. First National Bank of Montevideo, Minn., 719 F.2d 270 (8th Cir.1983), cert. den., 465 U.S. 1012, 104 S.Ct. 1015, 79 L.Ed.2d 245; In Re Petersen, 42 B.R. 39 (Bankr.Or.1984); In Re Glenn, et al., 760 F.2d 1428 (6th Cir. 1985); Bank of Commonwealth v. Bevan, 13 B.R. 989 (E.D.Mich.1981); In Re Martinson, 26 B.R. 648 (D.N.D.1983); and Matter of Markee, 31 B.R. 429 (Bankr.D.Idaho 1983). The Debtors rely on In Re McCallen, 49 B.R. 948 (Bankr.Or.1985) and In Re Carr, 52 B.R. 250 (Bankr.S.D.Mich.1985). Both McCallen and Carr stand for the proposition, that under the state foreclosure method used by the creditor in those cases, a judgment of strict foreclosure or judgment of foreclosure on a land contract was not final, but was interlocutory, and a court imposed right of redemption as opposed to a statutory right was therefore governed and controlled by Section 362(a), not § 108(b) of the Code. Carr summarized such holding as follows:
"* * * The judgment of forfeiture is not final until the redemption period expires; *43 thus, any further proceedings to obtain possession constitute the continuation of a judicial proceeding against the Debtor within the intended meaning of § 362(a)(1). * * * Where there is no substantive right to cure a default and deaccelerate a debt under state law, the stay is ineffective as to any acts to obtain possession of property; but once the Debtor comes under the protection of the Bankruptcy Code with an equitable ownership interest in the property, the stay affords him the opportunity to protect that interest via the means provided by the Bankruptcy Code." Id., at 262-263.
Carr acknowledges that in the case where the right to deaccelerate dissolves under state law, such as at the time of the foreclosure sale, then Section 108(b) applies to the period of redemption, not Section 362. Id. at 260.
By statute in Montana, a judgment debtor of real property has one year to redeem after sale by paying the purchaser the amount of his purchase price, plus interest and any taxes paid by the purchaser. § 25-13-802, MCA. If no redemption is made within one year after the sale, the purchaser is then entitled to a conveyance of the property by Sheriff's Deed. § 25-13-810 and 811, MCA. However, during the period of redemption, the purchaser is not entitled to possession of the property if the debtor personally occupies the land as a home for himself and his family. § 25-13-821, MCA. The purchaser is entitled from the time of sale to redemption, if made, the rents of the property or value of the use and occupation thereof, and in this regard, the statute describes the Debtor as the "tenant in possession". § 25-13-822, MCA. Under these statutes and § 25-13-710, MCA, it has long been the law of Montana that upon sale by foreclosure, title passes to the purchaser, subject only to the right of redemption in the Mortgagor, and that right to redeem is not a property right but a mere privilege. Leonard v. Western, et al., 74 Mont. 513, 517, 241 P. 523 (1925).
Under the Bankruptcy Code, § 541(a), the debtor's right of redemption which had not expired at the date of the bankruptcy petition being filed becomes property of the estate. Matter of Markee, supra, at 431 holds:
"However, that right was not expanded or enhanced by the fact of bankruptcy. The estate obtained only the interest of the defendants as mortgagors under Idaho law following foreclosure and sale. That right is limited solely to the ability to redeem within the statutory period; title passes to the buyer at the foreclosure sale subject only to this conditional interest. Northwestern & Pacific Hypotheekbank v. Nord, 56 Idaho 86, 50 P.2d 4 (1935)."
The Sixth Circuit Court of Appeals in In Re Glenn, supra, would and did disregard state law when it chose as the cut-off date of the statutory right to cure defaults in Chapter 13 as the date of sale of the mortgaged property by holding:
"In so ruling, we avoid any effort to analyze the transaction in terms of state property law. Modern practice varies so much from state to state that any effort to satisfy the existing concepts in one state may only create confusion in the next. Thus, in construing this federal statute, we think it unnecessary to justify our construction by holding that the sale `extinguishes' or `satisfies' the mortgage or the lien, or that the mortgage is somehow `merged' in the judgment or in the deed of sale under state law." Id. at 1436.
I doubt the wisdom of such approach. See In Re Ivory, 32 B.R. 788 (Bankr.Or.1983) (deacceleration and cure may occur before the right of redemption expires) and In Re Thompson, 17 B.R. 748 (Bankr.W.D.Mich. 1982). I do not decide in this case the issue of the right to cure or modify a mortgage after foreclosure sale but before the expiration of the period of redemption as discussed in the Ivory case, supra.
I hold that the circuit court rationale of In Re Glenn, supra, and Johnson v. First National Bank, supra, settles the issue in this case regarding the application of § 108(b) as applied to the Montana redemption period. As held in Glenn: *44 "With respect to setion (sic) 362(a), the Eighth Circuit accepted the reasoning in Bank of Commonwealth v. Bevan [13 B.R. 989] and expressly rejected the position taken in In Re Jenkins [19 B.R. 105] and In Re Johnson [8 B.R. 371]. The Court found that the `clear majority' of cases decided under various automatic stay provisions of the old Bankruptcy Act held that the filing of a petition in bankruptcy did not toll or extend the running of a statutory period of redemption. Finding no clear manifestation of congressional intent to change the law on the issue, the court assumed that the newly-enacted statute, whose language was substantially identical to that of the previous statutes, was harmonious with existing law and its judicial construction. Moreover, the court found that the presence of Section 108(b) in the Code supported its determination that Section 362(a) did not apply to toll the Minnesota statutory redemption period. We find ourselves in agreement with the reasoning of the Eighth Circuit in First National Bank and are reinforced in our conclusion by the belief that inter-circuit conflicts should be avoided wherever it is possible to do so in good faith and in reason."
* * * * * *
We also hold that the automatic stay provisions of 11 U.S.C. § 362(a) do not toll or extend periods of redemption following foreclosure sales * * *." Id. at 1440, 1442.
Support for this holding is also buttressed by In Re Santa Fe Development etc., 16 B.R. 165 (BAP 9th Cir.1981) which holds that Section 108(b) governs curing of a default in order to preserve an option under agreement for the benefit of the estate. As stated in Cucumber Creek Development, supra, at 822, "where one section of the Code explicitly governs an issue, another section should not be interpreted to cause an irreconciable conflict". Section 108 specifically addresses the limitations of the Debtors' rights to the Montana statutory redemption period, and its operation controls. To hold otherwise, would render § 108(b) superfluous.
I conclude that the redemptive right of the Debtors passed to the estate under § 541, and such right was extended 60 days from the date of the filing of the bankruptcy petition, namely, to February 28, 1987, under Section 108(b) of the Code. Performance under Montana law sufficient to redeem the property had to be made by the Debtors by February 28, 1987, and if not made, as is the case here, the conditional interest of the Debtors and their bankruptcy estate terminated on February 28, 1987. Accordingly, the FLB is entitled to relief from the automatic stay to conclude the foreclosure process.
IT IS ORDERED the motion of FLB to fix the time to terminate the Debtors' statutory right of redemption is granted and fixed as of February 28, 1987.
IT IS FURTHER ORDERED the motion of FLB from relief from the automatic stay is granted. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541431/ | 75 B.R. 658 (1987)
In re JOHN GALT ENERGY, INC., Debtor.
Bankruptcy No. 183-31990-353.
United States Bankruptcy Court, E.D. New York.
July 10, 1987.
*659 Spilky & Spilky, Robert M. Spilky, Mineola, N.Y., and Wyatt, Tarrant & Combs, Debra H. Dawahare, Lexington, Ky., for Huscoal, Inc.
Vann & Borenstein, P.C., Avrom R. Vann, New York City, for Marty Corp.
Sherman, Citron & Karasik, P.C., Robert Kolodny, New York City, for debtor.
DECISION
JEROME FELLER, Bankruptcy Judge.
Before the Court for resolution is a long raging dispute between and among two judgment creditors and John Galt Energy Corporation ("Galt" or "Debtor") relating to entitlement to a certain fund of money arising out of pre-petition litigation in the State of Kentucky. Galt filed its Chapter 11 petition in October 1983. In early 1985, this Court (per Honorable Cecilia H. Goetz, United States Bankruptcy Judge), upon motion of the Debtor, ordered a turnover by the Kentucky state court of the subject monies to the Debtor, pending ultimate determination of entitlement thereto by the bankruptcy court. The monies, originally aggregating $56,345, are currently being held in an interest bearing account by Debtor's counsel.
The parties were apparently in no great haste in bringing the matter before the bankruptcy court. Huscoal, Inc. ("Huscoal"), a judgment creditor, made a motion in July 1986 and the other judgment creditor, Marty Corporation ("Marty"), filed a cross-motion in December 1986, for an order determining priorities and ordering the disbursement of the funds held by Debtor's counsel. In February 1987, the Debtor *660 filed an "answering affirmation" to both motions.[1]
Post-judgment collection efforts employed by both Huscoal and Marty were numerous. Huscoal obtained two executions and two garnishments at various times prior to Galt's filing of its Chapter 11 petition. Marty obtained three garnishments at different times prior to the inception of the Chapter 11 case. The Debtor contends that all of these efforts by both Huscoal and Marty failed to establish valid liens under Kentucky law and that, in any event, one of the executions and certain of the garnishments were obtained within the ninety day preference period contained in 11 U.S.C. § 547 and avoidable under that section.
The dispute was first scheduled for hearing on March 10, 1987, at which time the parties sought to rely upon their papers for the facts and to argue their respective legal positions. The Court informed the parties that the papers were not comprehensible, the record was confounding and in disarray, and that accordingly the matter was not ripe for adjudication. The parties, as directed by the Court, subsequently filed an agreed stipulation of facts, a document styled "Pleadings Filed In Wolfe Circuit Court," a document styled "Kentucky Revised Statutes, Sections 425.190-426.990" and memoranda of law or briefs. In addition, Huscoal and Marty filed reply affirmations. The matter was heard on May 7, 1987 and taken under advisement.
Jurisdiction
The bankruptcy court has jurisdiction over the parties and subject matter of the proceeding pursuant to 28 U.S.C. § 1334, 151, and 157, and the general order of reference entered by the United States District Court for the Eastern District of New York on August 28, 1986. This is a "core proceeding" pursuant to 28 U.S.C. § 157(b)(2)(F), (K) and/or (O), which this Court may hear and determine.
Findings of Fact
Based upon the stipulation of facts, motions, answering and reply affirmations, documents and the entire record of these proceedings, the Court makes the following findings of fact.
1. The saga begins with a lawsuit seeking recovery of monies for breach of a 1977 agreement involving a Kentucky coal tippling operation, filed by Parkway Processing, Inc. ("Parkway") on October 1, 1979 against Galt in the Wolfe Circuit Court, Wolfe County, Kentucky ("Wolfe Circuit Court"), in a case styled Parkway Processing, Inc. v. John Galt Energy Corp., Civil Action No. 79-CI-066. On the same date, Parkway obtained from the Wolfe Circuit Court a pre-judgment order of attachment. Also on October 1, 1979 and in aid of the pre-judgment attachment, Parkway obtained an order of garnishment from the clerk of the Wolfe Circuit Court ("Wolfe Circuit Court Clerk"), naming as garnishees the Shenandoah Coal Company, Inc. ("Shenandoah") and Richard H. Combs ("Combs"). The garnishment order stated that the garnishees were holding property belonging to Galt, and that the total amount due under the garnishment order was $56,269.
2. On October 20, 1979, Shenandoah and Combs filed an "Answer of Garnishees," admitting possession of $56,345 due Galt and stating they are holding the said sum of money pending further order of the Wolfe Circuit Court. On motion of Parkway filed on or about April 3, 1980, the Wolfe Circuit Court, on April 10, 1980, ordered garnishees, Shenandoah and *661 Combs, to pay the $56,345 to the Wolfe Circuit Court Clerk, pending the outcome of Parkway's lawsuit against Galt.
3. On April 21, 1980, Marty was granted a default judgment against John Galt Coal ("Galt Coal") in the sum of $163,757.72 arising out of a lawsuit on a promissory note instituted in the United States District Court for the Western District of Virginia (Marty Corporation v. John Galt Coal Company, Inc.), Civil Action No. 80-0048-B. One month later, Marty filed a certified copy of its judgment for registration in the United States District Court for the Eastern District of Kentucky, Lexington Division.
4. On June 19, 1980, Huscoal received an agreed judgment from the Wolfe Circuit Court in a case styled Huscoal, Inc. v. John Galt Energy Corp., Civil Action No. 79-CI-057, an action to recover from Galt the purchase price of coal sold and delivered. The agreed judgment was in the sum of $18,590.89, plus interest at the rate of 8% per annum from the date of the agreed judgment until paid.
5. Huscoal was swift in its initial efforts to enforce its judgment against the $56,345 fund. On July 10, 1980, Huscoal obtained a writ of execution returnable by August 7, 1980, delivered the writ to the Wolfe County Sheriff's Office and on that date the deputy sheriff served the execution upon the Wolfe Circuit Court Clerk, making a notation on the back of the execution to that effect.[2] At that time, the Wolfe County Circuit Court Clerk was holding the $56,345 pending the outcome of the Parkway litigation against Galt. Huscoal's execution was, of course, subject to Parkway's prior pre-judgment attachment. The amount of Huscoal's execution was equal to its judgment, i.e., $18,590.89 plus interest and $100 for court costs.
6. On November 17, 1980, the Wolfe Circuit Court's findings of fact and judgment were entered in Parkway's litigation against Galt. Judgment was entered in favor of Parkway in the amount of $165,000, which sum was later increased to $215,000. The Wolfe Circuit Court expressly sustained Parkway's pre-judgment attachment on the $56,345 fund, thus entitling Parkway to the monies in partial satisfaction of the judgment. The monies were turned over to Parkway on or about May 7, 1981 upon entry of an order by the Wolfe Circuit Court directing the Wolfe Circuit Court Clerk to pay the $56,345 to Parkway.
7. The turnover of the funds to Parkway hardly closed the matter for Galt had taken an appeal from the November 1980 judgment of the Wolfe Circuit Court. On February 12, 1982, the Kentucky Court of Appeals, in an unreported opinion, reversed the judgment of the lower court. The Kentucky Court of Appeals remanded the case back to the Wolfe Circuit Court, with directions to stay the proceedings therein and to submit the issues to arbitration by the American Arbitration Association in New York City, all in accordance with the 1977 agreement between Parkway and Galt. It should be emphasized that the decision of the Kentucky appellate court only held that an arbitration clause contained in the 1977 agreement is enforceable and made no rulings regarding entitlement to the $56,345, which fund was then held by Parkway.
8. The monies were not returned by Parkway to the Wolfe Circuit Court Clerk until on or about April 5, 1982, on which date the Wolfe Circuit Court entered an order directing the parties to proceed to arbitration and ordering Parkway to return the $56,345, with the express instruction that Parkway's pre-judgment attachment "shall remain on said funds in the custody of Clerk of this Court."[3]
*662 9. In March and April 1982, after reversal by the Kentucky Court of Appeals of the judgment in the Parkway lawsuit against Galt, Marty and Huscoal made efforts to garnish the $56,345 from Parkway.
10. On March 10, 1982, Marty obtained an order of garnishment from the Clerk of the United States District Court for the Eastern District of Kentucky, Lexington Division, based upon its April 1980 default judgment against Galt Coal. The garnishment order was served on March 11, 1982 and an "Answer of Garnishee" was filed on March 15, 1982, denying any indebtedness to Galt Coal or the holding of any property owned by Galt Coal.
11. On March 19, 1982, Marty obtained a second order of garnishment from the Clerk of the United States District Court for the Eastern District of Kentucky, Lexington Division, based upon its April 1980 default judgment against Galt Coal. This garnishment order was served on April 15, 1982 and an "Answer of Garnishee" was filed April 20, 1982, denying any indebtedness to Galt Coal or the holding of any property owned by Galt Coal.
12. On March 25, 1982, Huscoal obtained an order of garnishment from the Wolfe Circuit Court Clerk, based upon its June 1980 judgment against Galt. The garnishment was served on March 31, 1982 and an "Answer of Garnishee" was filed April 2, 1982, denying the holding of any property of Galt.
13. Ultimately, Galt prevailed in the arbitration mandated by the Kentucky Court of Appeals. On May 27, 1983, Galt obtained an award in the New York arbitration of the issues between Parkway and Galt. The arbitration award, among other things, resolved that Galt was entitled to the monies held by the Wolfe Circuit Court Clerk pursuant to Parkway's pre-judgment attachment.
14. On August 9, 1983, Galt obtained a judgment of the Supreme Court of the State of New York, County of Kings, confirming the arbitration award of May 27, 1983. On August 19, 1983, Galt caused to be filed a certified copy of aforesaid judgment with the Wolfe Circuit Court Clerk. The Wolfe Circuit Court Clerk made no disposition of the $56,345, presumably in light of the still unresolved claims to the fund by Galt, Huscoal and Marty.
15. Meanwhile, as a result of the arbitration award in favor of Galt, Huscoal and Marty made further efforts to enforce their judgment in July, August and September 1983.
16. On July 29, 1983, Huscoal obtained a second execution and a second order of garnishment for its unsatisfied agreed judgment of June 1980. The execution and garnishment were served upon the Wolfe Circuit Court Clerk on July 29, 1983 and, like Huscoal's earlier execution and garnishment, were unavailing.
17. On August 30, 1983, Marty obtained a third order of garnishment based upon its April 1980 unsatisfied default judgment against Galt Coal. This garnishment was directed to the Wolfe Circuit Court Clerk. It was served on September 19, 1983 and, in response thereto, the Wolfe Circuit Court Clerk answered that "$56,345 plus interest subject to execution and order of garnishment previously filed" was in her possession.
18. By motion dated September 29, 1983, and set for hearing before the Wolfe Circuit Court on October 6, 1983, Huscoal requested the Wolfe Circuit Court to disburse to Huscoal its portion of the $56,345 in satisfaction of its judgment. Similar relief was sought by Marty. By motion filed September 30, 1983, and set for hearing on October 19, 1983, Marty requested the Wolfe Circuit Court to disburse the $56,345 in partial satisfaction of its much larger judgment. The Wolfe Circuit Court did not dispose of either of these motions.
19. On October 18, 1983, Galt filed a petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of New York. On the following day, an order implementing 11 U.S.C. § 362, staying all further proceedings against the Debtor, was filed in the Wolfe Circuit Court.
*663 20. By application dated September 18, 1984, the Debtor requested Bankruptcy Judge Goetz to issue an order pursuant to 11 U.S.C. § 543 directing the Wolfe Circuit Court Clerk to turn the $56,345 fund over to the Debtor. Both Huscoal and Marty opposed vigorously the Debtor's turnover application. They contended, among other things, that, i) Galt, a New York Corporation, lacked the capacity to file a petition seeking Title 11 relief because the corporation was dissolved in 1981 by executive proclamation under New York law; and ii) pursuant to 28 U.S.C. § 1471(d) [now 28 U.S.C. § 1334(c)(1)], the bankruptcy court under the doctrine of forum non conveniens should abstain from hearing and determining the dispute relating to the $56,345 in favor of its adjudication by the Wolfe Circuit Court.
21. On January 18, 1985, Judge Goetz issued an unreported opinion rejecting the contentions of Huscoal and Marty and holding that the disputed funds should be turned over to the custody of the bankruptcy court, pending determination of entitlement to the subject fund by the bankruptcy court. On February 4, 1985, Judge Goetz entered an order directing the Wolfe Circuit Court Clerk to turnover to the Debtor the disputed monies. The Wolfe Circuit Court Clerk complied with the order and, as indicated, Debtor's counsel maintains the fund in a separate interest bearing account pending resolution of the instant litigation.
22. No motion was made to reconsider or vacate the February 4, 1985 order of Judge Goetz and/or the January 18, 1985 opinion upon which the order was based. No notice of appeal was taken from said order and opinion. Accordingly, that order and underlying opinion is a final order of this Court constituting the law of the case, insofar as the issues adjudicated therein.
23. By order entered September 25, 1985 of the Chief Bankruptcy Judge of the United States Bankruptcy Court for the Eastern District of New York, the Galt Chapter 11 case was transferred from Judge Goetz to the undersigned bankruptcy judge.
DISCUSSION
Parsing through the convoluted peregrinations of the much sought after $56,345 and the many efforts of the parties to reach that fund over a protracted period of time, there are two central issues that are presented. Both issues are governed by Kentucky law and involve efforts by Huscoal and Marty to recover on their judgments prior to the 90 day preference period contained in 11 U.S.C. § 547. First, whether the execution obtained by Huscoal on July 10, 1980 created a valid and subsisting lien, and second, whether the garnishment obtained by Marty on March 10, 1982 constituted a valid lien. For the reasons hereinafter set forth, we hold that Huscoal's execution was valid and continues to this very date, while Marty's garnishment failed to establish a valid lien.
A. Huscoal's July 10, 1980 Execution
Chapter 426 of the Kentucky Revised Statutes (hereinafter "KRS § ______") entitled "Enforcement of Judgments" governs executions on judgments in the State of Kentucky. Insofar as Huscoal's July 10, 1980 execution, the relevant statutes are KRS §§ 426.010, 426.120(1) and 426.040. These statutes, in pertinent part, provide as follows:
"426.010. Execution against property may issue on personal judgment. If a final judgment in personam is rendered in any court of record in this state for an ascertained sum of money, with interest and cost, or for either, an execution against property may issue thereon."[4] [Underscore of Section Title Added Boldtype in Original].
"426.120. Defendant's estate bound by execution from receipt by officer. . . . *664 (1) An execution against property shall bind the estate of the defendant only from the time of its delivery to the proper officer to execute. . . ." [Underscore of Section Title Added Boldtype in Original].
"426.040. Return of execution. (1) An execution against property by the levying officer shall be returnable to the court in which the action is pending within 30 days after levy but in no event more than 60 days after the execution is issued. . . . (2) If an execution against property is satisfied the officer shall return thereon, in substance, `satisfied,' unless it be by the sale of property in which case this fact must be stated. If satisfied in part, he must state what part and why the residue was not satisfied. If levied and no sale was made for want of bidders, or if no property has been found, he must state the facts." [Underscore of Section Title Added Boldtype in Original].
There can be no question that Huscoal's July 10, 1980 execution was long prior to Marty's garnishment efforts. As such, if such execution constitutes a valid lien, it is not difficult to conclude that Huscoal's claim to the disputed monies comes ahead of Marty in accordance with the familiar principle that first in point of time is first in priority. Commercial Transport Corporation v. Robinson Grain Company, 345 F.Supp. 342, 344 (W.D.Ky.1972); Note, Creditors' Rights Judgment Liens and Priorities in Kentucky, 41 Ky.L.J. 464, 466 (1953).
The creation and perfection of an execution lien under Kentucky law involves a four-step process i) issuance of an execution; ii) delivery of the order or writ to the proper official to execute; iii) a valid levy against property of the judgment debtor; and iv) making of an adequate return by the levying official. In Kentucky, the execution lien is created at the time the order or writ is placed in the hands of the appropriate official to execute. KRS § 426.120(1) ("An execution against property shall bind the estate of the defendant only from the time of its delivery to the proper officer to execute."); Wilkey v. Ohio Valley National Bank of Henderson (In re Baird), 55 B.R. 316, 317 (Bankr.W.D.Ky. 1985); C.T.C. Inv. Co. v. Daniel Boone Coal Corporation, 58 F.2d 305, 313 (E.D. Ky.1931); Hood v. Pope, 233 Ky. 749, 26 S.W.2d 1043, 1045 (1930); Richart v. Goodpaster, 116 Ky. 637, 76 S.W. 831 (1903); Note, Creditors' Rights Judgment Liens and Priorities in Kentucky, supra., 41 Ky.L.J. at 465. Perfection of the execution lien is attained when a valid levy is made against the property and the levying officer makes an adequate return of execution. Wilkey v. Ohio Valley National Bank of Henderson, supra., 55 B.R. at 317-18; Walker v. Bank of Cadiz & Trust Company (In re Wilson), 38 B.R. 940, 942 (Bankr. W.D.Ky.1984); W.E. Stephens Manufacturing Company v. H.C. Miller, 429 S.W.2d 384 (Ky.1968); Low v. Skaggs, 31 Ky. 1292, 105 S.W. 439, 440 (1907).
Bearing in mind the requisites for creation and perfection of an execution lien in Kentucky, we turn now to whether Huscoal acquired a valid and subsisting lien under its July 10, 1980 execution. On June 19, 1980, Huscoal obtained a judgment against Galt for an ascertained sum of money upon which an execution could properly issue. Huscoal obtained issuance of the execution and delivered it on July 10, 1980 to a proper official, a Wolfe County deputy sheriff, to execute. Delivery of the writ of execution to the deputy sheriff created a lien in favor of Huscoal against property of Galt in Wolfe County. The deputy sheriff promptly performed his duty by levying upon the $56,345 fund on the same date of his receipt of the writ, July 10, 1980. On that date, the deputy sheriff effected the levy by serving the execution upon the Wolfe Circuit Court Clerk who was holding the monies subject to Parkway's earlier pre-judgment attachment. The deputy sheriff, also on July 10, 1980, made his return of execution by indorsing his service upon the Wolfe Circuit Court Clerk on the writ of execution. On its face, the issuance of the execution, delivery of the execution to the deputy sheriff, levy and return of execution by the deputy sheriff, all on July 10, 1980, brings Huscoal within the requisites *665 of creation and perfection of an execution lien under Kentucky law. Accordingly, prima facie, Huscoal obtained a valid second lien on the $56,345 fund in possession of the Wolfe Circuit Court Clerk on July 10, 1980, and became entitled to the satisfaction of its judgment from that fund upon ultimate vitiation of Parkway's pre-judgment attachment as a result of the May 1983 arbitration award in favor of Galt finally resolving the litigation instituted by Parkway against Galt on October 1, 1979.
The Debtor interposes a number of challenges to Huscoal's July 10, 1980 execution lien.[5] The Debtor argues that a Kentucky execution has a life span of only 60 days and that there is nothing in the record to indicate that Huscoal's execution was returned within such time frame. It is asserted that since in Kentucky all executions are returnable within 30 days after levy, but in no event later than 60 days after issue, the execution issued on July 10, 1980 was good for only 60 days and lapsed on September 10, 1980.
These contentions are untenable as a matter of law and factually incorrect. KRS § 426.040(1), in effect, compels the proper official to whom the execution is delivered to levy not later than 60 days after issuance. The purpose of this provision "is to speed the process of execution and to ensure that levies are not made under the authority of stale writs of execution." Wilkey v. Ohio Valley National Bank of Henderson, supra., 55 B.R. at 318. It is not the execution that expires after 60 days, but rather the authority to levy which lapses after expiration of the 60 day period. See, Deskins v. Coleman, 286 Ky. 624, 151 S.W.2d 751, 752 (1941). A lien of an execution is not lost or released once the execution has been validly levied. Tee-garden v. McKenzie, 444 S.W.2d 892, 895 (Ky.1969).
As indicated above, the record does reflect that the Wolfe County deputy sheriff did indeed make a timely return of execution by indorsing his service of the writ upon the Wolfe Circuit Court Clerk on July 10, 1980. We can only assume, therefore, that the thrust of the Debtor's 60 day expiration contention is in reality directed towards the validity of the deputy sheriff's levy. Although, at best, confusingly articulated, it would appear the Debtor espouses the view that because the deputy sheriff did not come into possession of the $56,345 within 60 days after issuance of the execution, there was no valid levy and therefore the execution lapsed on September 10, 1980. Such a view finds no basis in Kentucky law. It is clear that a levying officer is not required to reduce the property to actual possession in order to perfect an execution lien. So long as he exercises dominion or control, the levying officer may leave the property in the possession of another person and the person holding possession after the levy holds the property as a bailee of the officer. C.T.C. Inv. Co. v. Daniel Boone Coal Corporation, supra, 58 F.2d at 314-16; W.E. Stephens Manufacturing Company v. Miller, supra, 429 S.W.2d at 386; McBurnie v. Overstreet, 8 Ky. Rep. 300, 303 (1849); Opinions of Attorney General of the State of Kentucky 79-80. Clearly, service of the execution upon the Wolfe Circuit Clerk by the deputy sheriff evinced the requisite intent of exercising dominion or control by the levying officer to constitue a valid levy.
In sum, Debtor's 60 day expiration argument must fail in light of the valid levy and the return of execution made by the deputy sheriff on July 10, 1980.
The Debtor further contends that Huscoal's July 10, 1980 execution lien is invalid because the deputy sheriff did not indicate the outcome of the levy on his return of execution. Therefore, it is asserted, that there was no adequate return of execution under KRS § 426.040. This argument is also without merit. There is no Kentucky statute specifying the form or precise contents for an officer's report of *666 execution after levy. KRS § 426.040(2) sets forth only some general guidelines geared primarily towards the sale of property to satisfy an execution. The adequacy of return of an execution will therefore vary under the facts and circumstances of the particular levy. Here, at the time of levy, the $56,345 fund was held in custodia legis by the Wolfe Circuit Court Clerk subject to a prior pre-judgment attachment. In effect, the Wolfe Circuit Court Clerk was in possession of the property as a stakeholder pending the outcome of ongoing litigation. Disposition of the property could not be made until resolution of that litigation. Under such circumstances, the deputy sheriff's indorsement of service upon the Wolfe Circuit Court Clerk on the writ of execution was an adequate return of execution and completed the perfection of Huscoal's second lien on the $56,345 fund behind Parkway's pre-judgment attachment. The deputy sheriff was unable to report "satisfied" or "unsatisfied" in the familiar sense of those terms because of the pending litigation. He merely did the only thing he could do, report his service of the execution upon the stakeholder, thereby fulfilling the statutory requirements. See, Scott's Ex'x v. Scott, 85 Ky. 385, 3 S.W. 598, 600 (1887) ("If the return [of execution] as entered by the officer be of doubtful import, it should be construed to uphold the action."); Adams v. Napier, 334 S.W.2d 915, 917 (Ky.1960) ("[T]here is always a presumption that an officer [i.e., a levying sheriff] performed his duties properly.").
Finally, the Debtor postulates that even if the deputy sheriff made a proper levy and return of execution, Huscoal lost its July 10, 1980 execution lien upon relinquishment of the $56,345 fund to Parkway by the Wolfe Circuit Court Clerk in May 1981 as a result of the Wolfe Circuit Court judgment of November 1980 in favor of Parkway. The release of the funds, however, was temporary. In April 1982, after Galt successfully appealed to the Kentucky Court of Appeals and obtained a reversal, Parkway returned the monies to the Wolfe Circuit Court Clerk pending arbitration. The Debtor cites no authority and our independent research has failed to uncover any basis for the proposition that transfer of possession of property subject to a valid lien ipso facto destroys that lien. Moreover, the legal effect of the reversal by an appellate court is to render the judgment of the lower court a nullity, just as if it never existed, and to restore positions to their status quo ante the lower court ruling. A.G. Miller v. Powell, 680 S.W.2d 128, 130 (Ky.1984); Turner v. Ewald, 295 Ky. 764, 174 S.W.2d 431, 436-37 (1943); Drury v. Franke, 247 Ky. 758, 57 S.W.2d 969, 972 (1933); Knights Adm'r v. Illinois Cent. R. Co., 143 Ky. 418, 136 S.W. 874, 875 (1911). Accordingly, the monies were transfered back to the Wolfe Circuit Court Clerk subject, first to Parkway's pre-judgement attachment and, secondly to Huscoal's July 10, 1980 lien. As shown above, upon final determination that the monies were the property of Galt and not Parkway, Huscoal became entitled to the fund under its July 10, 1980 lien. That lien is valid, continuing and extant to this very date and immune from attack by the Debtor under 11 U.S.C. § 547.
Huscoal's judgment was in the sum of $18,590.89 plus 8% interest from the date of the judgment. The disputed monies, originally aggregating $56,345, maintained now in an interest bearing escrow account by Debtor's counsel are more than sufficient to satisfy in full Huscoal's judgment plus interest and costs.[6] However, when Huscoal obtained its judgment on June 19, 1980, the Wolfe Circuit Court awarded post-judgment interest at what was then the statutory rate of interest on judgments, i.e., 8% per annum. KRS § 360.040, the Kentucky statute governing the interest on judgments, was amended, effective July 15, 1982, to increase the rate of interest on judgments from 8% to 12%. Under Kentucky law, a statutory increase in the rate of interest on judgments applies *667 prospectively to prior unsatisfied judgments, and the new rate becomes operative as the effective date of the statutory amendment. Ridge v. Ridge, 572 S.W.2d 859 (Ky.1978). Huscoal is therefore entitled to an interest rate of 8% on its judgment from June 19, 1980 to July 15, 1982 and 12% from July 15, 1982 until the judgment is paid.
Having decided that Huscoal's is to be satisfied from the monies now held by Debtor's counsel, entitlement to the residuum of that fund is a contest between the Debtor and Marty. To resolve that dispute, we turn now to the issue as to whether Marty's March 10, 1982 garnishment constituted a valid lien.
B. Marty's March 10, 1982 Garnishment
The term "garnishment" denotes a proceeding by a creditor to obtain satisfaction of indebtedness out of property or credits of its debtor in the possession of, or owing by, a third person. 6 Am.Jur.2d Attachment and Garnishment § 2 (1963).
Marty obtained a Virginia district court judgment in April 1980 and registered a certified copy of that judgment in the Kentucky district court for the purpose of enforcement. See, 28 U.S.C. § 1963. Enforcement of the judgment by Marty through the Kentucky district court is governed by applicable state law, i.e., the laws of Kentucky. Fed.R.Civ.P. 69; Moore's Federal Practice ¶ 69.03[2] at 12-13 (2d ed. 1986). Unlike Huscoal, Marty never obtained an execution but proceeded by way of garnishment in its efforts to enforce its judgment. On March 10, 1982, Marty obtained a garnishment from the Kentucky district court and on the following day the United States Marshall served the garnishment upon Parkway as garnishee.
KRS § 425.501 governs proceedings for obtaining an order of garnishment in the State of Kentucky and, in pertinent part, provides as follows:
"(1) Any person in whose favor a final judgment in personam has been entered in any court of record of this state may, upon filing of an affidavit by him or his agent or attorney in the office of the clerk of the court in which the judgment was entered, and in the same cause in which said judgment was obtained showing the date of the judgment and the amount due thereon, and that one or more named persons hold property belonging to, or are indebted to, the judgment debtor, obtain an order of garnishment to be served in accordance with the Rules of Civil Procedure
. . . .
(5) If the court finds that the garnishee was, at the time of service of the order upon him, possessed of any property of the judgment debtor, or was indebted to him, and the property or debt is not exempt from execution, the court shall order the property or the proceeds of the debt applied upon the judgment.
. . . .
(8) The order of garnishment shall be served in accordance with the Rules of Civil Procedure. It shall summon the garnishees to answer in the action in the manner and at the time required for an answer by the Rules of Civil Procedure, and to make due return thereof."
The garnishee has the right to present proof on the issue of the property allegedly held by him and/or the debt allegedly owed by him. See, KRS § 425.511(1). The garnishing creditor does not have an unconditional right to that property or debt until such proof has been submitted and an appropriate order entered thereon, unless there has been a default by the garnishee. See, KRS § 425.511(2).
Whether issuance and service of a garnishment order creates a lien on specific property in the hands of a garnishee is determined by the particular state's enabling statutes. 38 C.J.S. Garnishment § 181 (1943). Clearly, under the Kentucky statutory scheme, a garnishment order merely triggers a procedure whereby the creditor seeks to apply the debtor's non-exempt assets in satisfaction of an underlying judgment. By no stretch of the imagination does it establish a lien in the true *668 sense of that term. The Kentucky statutes contemplate, among other things, answer, proof and a finding by the court "that the garnishee was, at the time of the service of the order upon him, possessed of . . . property of the judgment debtor, or was indebted to him." KRS § 425.501(5). Basically, the right of the garnishing creditor created upon issuance and service of the garnishment order is inchoate or incomplete until a judgment or order is entered by the court.
Marty obtained a garnishment on March 10, 1982 and had it served the following day upon Parkway. At the time, Parkway was still vigorously disputing Galt's entitlement to the disputed $56,345 fund, claiming the monies rightfully belonged to it and not Galt. The February 1982 reversal of the Wolfe Circuit Court judgment in favor of Parkway did not determine entitlement to those funds, but left that determination to subsequent arbitration. Indeed, Parkway did not even return the monies in its possession to the Wolfe Circuit Court Clerk pending the arbitration until ordered to do so by the Wolfe Circuit Court on April 5, 1982. It should hardly be surprising to Marty that Parkway's answer of garnishee, filed March 15, 1982, flatly denied any indebtedness to Marty's judgment debtor or the holding of any property owned by Marty's judgment debtor.[7] Contrary to the assertions of Marty, Parkway's answer as garnishee was proper in view of its belief that it was entitled to the monies. Issue was thus joined but never adjudicated in the context of Marty's garnishment proceedings and accordingly, Marty never obtained a lien on the disputed funds. Shortly thereafter, Parkway returned possession of the monies to the Wolfe Circuit Court Clerk, pending arbitration of Parkway's action against Galt, thereby mooting Marty's garnishment proceedings. See, 30 Am. Jur.2d Executions § 777 (1967) ("[Garnishments and other] supplementary proceedings do not take the place of a civil action generally to determine disputed rights of the judgment debtor and the third party involved.").
Apparently unmindful of the relevant Kentucky statutes relating to garnishments, Marty insists with vigor that under Kentucky law the mere service of its garnishment order on March 11, 1982, when Parkway still had possession of the disputed monies, created a lien.[8] Apart from sheer emotion, Marty presents no real support in applicable Kentucky law for its proposition that mere service of process upon a garnishee creates a lien.[9] Marty relies primarily, if not solely, upon In re Fagan, 26 B.R. 212 (Bankr.W.D.Ky.1982), where the court stated that, "[U]nder Kentucky law the service of the summons upon the garnishee creates the garnishment lien." Id. at 215. The Fagan case, however, was decided in the context of a wage garnishment. KRS § 425.506(1), the Kentucky wage garnishment statute, provides:
"(1) An order of garnishment of earnings . . . shall create a lien on all nonexempt earnings earned during the pay period in which the order is served on the employer, and where the pay period is for a period of less than two (2) weeks, or where the employee has been paid in *669 advance for the pay period in which the order is served, also on all nonexempt earnings earned during the next succeeding pay period."
The Kentucky general garnishment statute, KRS § 425.501, contains no such comparable provision. It is plain that Marty's reliance on the Fagan case is misplaced. Marty has made a cardinal error of legal reasoning, to wit, taking judicial reasoning out of original context and applying it uncritically to a materially different context.
A garnishment issued and served under KRS § 425.501 is but a specie of restraining order initiating a process which may ultimately result in creation of a lien. That this is true, Marty did not have to go further than a reading of its own March 10, 1982 garnishment order. This form garnishment order itself indicates that its purpose is not to create a lien, but only to serve as a restraining order and to incept a procedure possibly leading to establishment of a lien. The March 10, 1982 garnishment order, as well as the other garnishment orders obtained by Marty, drafted in accordance with the Kentucky law, addresses the garnishee like this:
"You are hereby Ordered to hold and safely keep all of the non-exempt property of the defendant necessary to satisfy the amounts due as shown above. The object of this Order is to restrain you from paying to the defendant, or to anyone for him, the non-exempt money, property or other evidence of debt in your possession belonging to him or in which he has any interest. You are hereby summoned to and required to do the following:
(1) Answer as Garnishee under oath within twenty days from receipt of this Order by sending a copy of this Order with your Answer to the Court . . . "
For all of the foregoing reasons, we find that Marty failed to establish a lien on the disputed fund by virtue of its March 10, 1982 garnishment.[10]
CONCLUSION
To summarize: The disputed fund, originally aggregating $56,345,[11] is to be disbursed to Huscoal in full satisfaction of its June 19, 1980 judgment with interest at the rates set forth at p. 667, supra, plus costs awarded by the Wolfe Circuit Court, by virtue of its July 10, 1980 execution lien; the remainder of the fund after satisfaction of Huscoal's judgment is to be retained by the Debtor. Marty's March 10, 1982 garnishment did not give rise to a lien on the fund and it failed to otherwise establish any other cognizable right to these monies.
SETTLE ORDER, INCLUDING TOTAL AMOUNT TO BE DISBURSED, PRECISE SUMS TO BE ALLOCATED TO HUSCOAL AND THE DEBTOR, AND UNDERLYING CALCULATION OF DISBURSEMENT TO HUSCOAL.
NOTES
[1] The procedures invoked by the parties are technically incorrect. The motions of Huscoal and Marty are brought pursuant to 11 U.S.C. § 726 even though that provision is inapplicable to Chapter 11 cases. 11 U.S.C. § 103(b). Moreover, the relief sought by Huscoal and Marty should have been by way of adversary proceeding initiated by complaint. Bankruptcy Rule 7001. Similarly, the Debtor's assertions of voidable preferences also required the filing of a complaint in an adversary proceeding under Bankruptcy Rule 7001. Apart from noting these irregularities, this Court is not inclined to employ form or technical requisites as a barrier to resolution of the dispute, particularly in light of the time and effort already expended by the parties, the full opportunity of the parties to present their respective claims and the apparent agreement of the parties to proceed on this basis.
[2] The Wolfe Circuit Court docket entry, dated July 11, 1980, reads as follows "EXECUTION ON JOHN GALT ESTATE, FILED SERVED ON JEAN T. SMITH, WOLFE CIRCUIT COURT CLERK."
[3] The April 5, 1982 order of the Wolfe Circuit Court further provided that, "[t]he Clerk shall invest said funds in an interest bearing account, and said funds, together with any interest earned thereon shall be held by the Clerk until further order of this Court."
[4] The earliest point of time an execution may issue is 10 days after rendition of the judgment. KRS § 426.030. After expiration of the 10 day period following rendition of the judgment, an execution may issue at any time until collection of the judgment is barred by the statute of limitations. KRS § 426.035. In Kentucky, the statute of limitations for money judgments is 15 years. KRS § 413.090.
[5] Marty's cross-motion, reply affirmation and memoranda of law do not challenge Husocal's July 10, 1980 lien. Inexplicably, those papers make no mention whatsoever to Huscoal's July 10, 1980 execution. At oral argument on May 7, 1987, Marty conceded that it does not contest the July 10, 1980 execution of Huscoal. Transcript at pp. 24, 34.
[6] In light of the decision herein and full satisfaction of Huscoal's judgment by virtue of its July 10, 1980 lien, issues pertaining to Huscoal's March 25, 1982 garnishment, July 29, 1983 execution and July 29, 1983 garnishment need not be addressed.
[7] As indicated above, Marty's lawsuit was against John Galt Coal Company, Inc. and its judgment was entered against that entity and not John Galt Energy Corporation, the Debtor herein. The Debtor contends therefore that Parkway's answer as garnishee was accurate and Marty's efforts to obtain a garnishment lien against property of Galt ineffective. On the other hand, Marty asserts that Galt Coal and Galt were one and the same entities. The Kentucky courts never resolved this thorny factual issue and the record herein is wholly inadequate for this Court to do so. Fortunately, we need not address the issue in light of our determination that Marty failed to obtain a lien under its March 10, 1982 garnishment because of other valid and cogent reasons.
[8] Marty admits that its second garnishment order which was obtained on March 19, 1982, but served on April 15, 1982, when Parkway no longer had possession of the disputed monies, did not create a valid lien. Transcript of May 7, 1987 Hearing at pp. 19-20.
[9] Marty cites KRS § 425.270 as support for its position. However, KRS § 425.270 deals with liens of attachment and not garnishments. In any event, KRS § 425.270 was repealed in 1976, some 6 years before service of Marty's garnishment upon Parkway.
[10] Marty's pleadings and memoranda of law do not make mention of its third garnishment order which was obtained on August 30, 1983 as a basis for a claim to the monies. Nor at oral argument did Marty make reference to this garnishment. Presumably, Marty recognizes that even if this garnishment did create a lien, it would be avoidable by Galt under 11 U.S.C. § 547.
[11] The precise sum of the disputed fund, including accrued interest, has not been disclosed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541433/ | 75 B.R. 104 (1987)
In re Kenneth James RIDEOUT and Cari Collins Rideout, Debtors.
Bankruptcy No. 85-00177.
United States Bankruptcy Court, N.D. Ohio, W.D.
June 11, 1987.
*105 Buswell Roberts, Toledo, Ohio, Gene Graves, Oak Harbor, Ohio, for Anita and Charles Graves.
Louis Hattner, Toledo, Ohio, for debtors.
Howard H. Hershman, Toledo, Ohio, for Farmers Sav. Bank.
MEMORANDUM OPINION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court after Hearing on the Election made by Charles and Anita Hahn pursuant to 11 U.S.C. § 1111(b). The Election was originally made orally at the Hearing on Approval of Disclosure Statement. Written notice of the Election was filed the same day. A Hearing was held on this matter, at which time both parties called their witnesses and presented the materials which they wished the Court to consider in rendering its decision. The parties requested the opportunity to present further written arguments. Those arguments were filed within the time frame set by the Court. The Court has reviewed the testimony, exhibits, and the arguments of counsel, as well as the entire record in this case. Based on that review, and for the following reasons, the Court finds that the § 1111(b) Election should be allowed.
FACTS
The Debtors, Kenneth and Cari Rideout, filed for relief under 11 U.S.C. Chapter 11 on March 18, 1985. The Rideouts do business as "Rideout Farms", and were also formerly doing business as "Rideout Power Equipment", an Ohio corporation. The Debtor's farm consists of approximately 80 acres in Benton Township and 80 acres in Clay Township, both in Ottawa County, Ohio.
On January 23, 1987, the Defendant Debtors filed an amended Disclosure Statement, and with it, an amended proposed Plan of Reorganization. A Hearing was held on February 12, 1987, and the Disclosure Statement was approved without objection. At the Hearing, counsel for Charles and Anita Hahn made an oral Motion to the Court, pursuant to Bankruptcy Rule 3014, electing to be treated as secured under 11 U.S.C. § 1111(b). A written notice of the Election was filed the same day. The Debtors filed an Objection to the § 1111(b) Election on February 20, 1987, asserting that the Hahns' interest in the property was of "inconsequential value" and therefore the Hahns were precluded from making the Election by § 1111(b)(1)(B)(i).
On March 11, 1987, a Hearing was held on the Hahns' § 1111(b) Election. The Hahns' claim against the Debtor is by virtue of a certificate of judgment filed in Ottawa County based on a judgment obtained against the Debtors. Under Ohio law, the certificate of judgment creates a lien which only attaches to the land and fixtures of the Debtor. At the Hearing, counsel for the Hahns argued that certain liens of Farmers Savings Bank were invalid, and that the Hahns' lien was, as a consequence, entitled to a higher priority. Creditors' counsel stipulated that any determination of the status of the liens would be limited in its application to the § 1111(b) valuation question only. Debtors' counsel objected to opposing counsel's arguments on the grounds that an § 1111(b) Hearing was not the proper forum to contest the validity and priority of liens. It should be noted that it appears Farmers Savings Bank did not receive notice that the Election Hearing would include an attack on the status of their liens, and they did not attend the Hearing.
Both parties presented appraisal testimony as to the value of the property owned by the Debtors. The appraiser of the Debtors valued the property at Three hundred and eleven thousand dollars ($311,000.00), without certain grain storage bins which the Debtors contend are not fixtures. The appraiser of the Hahns valued the property, with the grain storage bins, at Five *106 hundred and twenty-two thousand dollars ($522,000.00). The Hahns' appraiser placed a higher per acre value on the farmland, valued the Debtor's residence higher, and appraised the land in the immediate area of the residence separately. The grain bins, and another farm building, were appraised at approximately One hundred and twenty-five thousand dollars ($125,000.00). The Debtors' Brief shows that the total amount of the liens, excluding the lien held by the Hahns, is Three hundred and fifty-seven thousand seven hundred and twenty-five dollars ($357,725.00).
Testimony on the grain storage bins was given by one of the Debtors, Kenneth Rideout. He testified that it was his intention that the storage bins be treated as personal property readily removable from the land. He further testified that the storage bins were "easily removable" and that the number of bins was excessive for the acreage and potential yield. Upon inquiry of the Court, Mr. Rideout admitted that the bins did have concrete foundations. The Debtors cite Teaff v. Hewitt 1 Ohio St. 511 (1853) for the proposition that the question of whether or not an item should be considered a fixture is generally controlled by the intention of the parties.
It should be noted that the Debtor's Plan of Reorganization proposes to treat the claim of the Hahns as undersecured. As an undersecured creditor, the Hahns would receive a 2% payment on their claim over a two year period. The Hahns are the only creditor so classified. Unsecured creditors with claims over One thousand dollars ($1,000.00) would receive a 10% payment over five years.
LAW
I
The first issue the Court must address is the Debtors' Objection to any determination as to the validity or priority of liens. Debtors' counsel's Objection is based on Bankruptcy Rule 7001(2), which states in pertinent part:
An adversary proceeding is governed by the rules of this Part VII. It is a proceeding in a bankruptcy court . . . (2) to determine the validity, priority, or extent of a lien or other interest in property other than a proceeding under Rule 4003(d) . . .
Under Bankruptcy Rule 7001, a proceeding to determine the "validity, priority, or extent of a lien or other interest in property" is an adversary proceeding. Pursuant to Bankruptcy Rule 7003, which makes Rule 3 F.R.Civ.P. applicable to adversary proceedings, an adversary proceeding is commenced by the filing of a complaint. In the case at bar, no complaint has been filed. Counsel for the Hahns seeks to have the Court determine the status of the Hahns' lien within the context of a § 1111(b) Election. Even though the Hahns' counsel has stipulated that the determination of the relative status of the liens would not be binding beyond the purposes of the Election under § 1111(b), such determination by the Court would not be proper in the instant case. Connelly v. Marine Midland Bank, N.A., 61 B.R. 748 (W.D.N.Y.1986); In re Palombo Farms of Colorado, Inc., 43 B.R. 709 (Bankr.D.Colo. 1984); In re Breaux, 55 B.R. 613 (Bankr.M. D.Ala.1985); In re Colrud, 45 B.R. 169 (Bankr.D.Alaska 1984).
First, it must be recognized that Courts have waived the procedural requirements of Rule 7001 in some cases. See In re Jablonski, 70 B.R. 381, 385 (Bankr.E.D.Pa. 1987) (The Court observed that the proper procedural device to challenge the validity of a lien was an adversary proceeding, rather than a Motion. But, the Court allowed the case to reach merits because the mortgagee, whose lien was in question, had answered and stipulated to a record upon which the issue could be decided.); In re Henning, 69 B.R. 348, 349 n. 2 (Bankr.N.D. Ill.1987) (There were no objections to the Court ruling on the priority of certain liens, and both lien holders were represented at the Hearing.); In re Sheehan 38 B.R. 859, 863 (Bankr.S.D.1984) (The Court stated that the waiver of the requirements of 7001(2) was "both fair and expedient as long as all potential parties are given the opportunity to resist the motion and participate in any hearings . . . ").
*107 In the case at bar, it appears that Farmers Savings Bank did not receive notice that their liens would be subject to attack in the § 1111(b) Hearing. Therefore, all "potential parties" were not given the opportunity to participate. Any records, or knowledge, which was in the exclusive control of Farmers Savings Bank could not be brought to bear in defense of the validity of the liens.
The primary concern of the Court is not, however, with any possible prejudice to Farmers Savings Bank. Counsel for the Hahns has stipulated that any decision of the Court on the validity of the Bank's lien would only be used for purposes of the § 1111(b) issue. It is the Debtors who are the ones at risk in this matter. If the Court found that the Hahns had a substantial interest in the Debtors' property based on the invalidity of the Bank's mortgages, nothing would prevent Farmers Savings Bank from filing an adversary complaint, presenting their evidence, and having this Court find the mortgages valid. This could leave the Debtors with the Hahns treated as a secured recourse creditor under § 1111(b), and Farmers Savings Bank with valid, enforceable mortgages. One of the policies behind Rule 7001 seems to be to prevent such "whipsawing" by bringing in all parties in interest. Moreover, the Debtors may themselves, at some point in time, wish to contest the validity of Farmers Savings Bank's lien. By not requiring the Hahns to file an adversary complaint, giving the Debtors "all the protections attendant thereto", [In re Taylor, 39 B.R. 31, 33 (Bankr.N.D.Ohio 1984).] the Court could be forcing the Debtors to research and present arguments they might later assail in other litigation.
For these reasons, particularly the risk of inconsistent judgments against the Debtors, the Court will not consider evidence introduced by the Plaintiff relative to the validity, priority, or extent of Farmers Savings Bank's interest in the Debtors' property. The Plaintiffs should have filed an adversary complaint on the heels of their Election if they wished to contest the Bank's mortgages.
II
It might be argued that a similar Rule 7001 problem is presented by the Debtors' assertion that the grain storage bins are not fixtures. If the storage bins are found to be fixtures, then the Hahns' judgment lien would attach to the bins. Thus, the argument might continue, the fixture issue should also be brought as an adversary action because it is, in actuality, an action to determine the extent of the Hahns' lien. It should be noted that, unlike the question of the validity of the mortgages, the Debtors have not raised any objection to the consideration of the fixture issue. In fact, most of the testimony on the subject was by the Debtor. However, there does not appear to be sufficient evidence before the Court upon which to base a reasoned judgment.
Debtor's counsel has cited Teaff v. Hewitt, 1 Ohio St. 511 (1853) for the proposition that the intention of the parties is the controlling factor in any decision on whether or not an item of property should be considered a fixture. A review of the case law reflects that this is one of the factors to be considered by the Court in making such a determination. However, it is not the only factor the Court must consider. Further, the only testimony on intent was given by Kenneth Rideout, an interested party. Other testimony by Mr. Rideout, such as the fact that the storage bins have concrete foundations, would weigh against a finding that they are personal property. Therefore, because it does not appear that a determination of the nature of the storage bins is necessary for this decision on whether to allow the Hahns to Elect under § 1111(b), and because there is insufficient evidence before the Court to support a reasoned determination of the issue, the Court will decline the opportunity to consider whether any or all of the storage bins are fixtures.
III
The Hahns have Elected to have their claim treated as secured under 11 U.S.C. § 1111(b), which states in pertinent part:
*108 (b)(1)(A) A claim secured by a lien on property of the estate shall be allowed or disallowed under section 502 of this title the same as if the holder of such claim had recourse against the debtor on account of such claim, whether or not such holder has such recourse, unless
(i) the class of which such claim is a part elects, by at least two-thirds in amount and more than half in number of allowed claims of such class, application of paragraph (2) of this subsection; . . .
(B) A class of claims may not elect application of paragraph (2) of this subsection if
(i) the interest on account of such claims of the holders of such claims in such property is of inconsequential value; . . .
(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.
The § 1111(b) Election is not available in two situations. If the secured creditor's collateral is of inconsequential value, the creditor cannot Elect. The Election is also not available if the secured creditor has recourse against the Debtor and the property is to be sold under the terms of the Plan, or in accordance with 11 U.S.C. § 363. Matter of Greenland Vistas, Inc., 33 B.R. 366 (Bankr.E.D.Mich.1983); In re Hallum, 29 B.R. 343 (Bankr.E.D.Tenn.1983). In the present case, the property will not be sold. Therefore, the issue before the Court is whether the Hahns' interest in the Debtors' real estate is "inconsequential".
Both parties have presented expert testimony as to the value of the subject real estate. The appraiser of the Hahns valued the property, with the grain storage bins, at Five hundred and twenty-two thousand dollars ($522,000.00). The grain bins, and another farm building, were appraised at approximately One hundred twenty-five thousand dollars ($125,000.00). Therefore, the appraised value of the property, without the storage bins, would be Three hundred and ninety seven thousand dollars ($397,000.00). The Debtors' Brief shows that, excluding the Hahns' lien, the total amount of the liens, for which claims have been filed, is Three hundred and fifty-seven thousand seven hundred and twenty-five dollars ($357,725.00). The equity to which the Hahns lien could attach would be Thirty-nine thousand two hundred and seventy-five dollars ($39,275.00).
The appraiser of the Debtors valued the property at Three hundred and eleven thousand dollars ($311,000.00) without the grain storage bins. Using the Debtors' appraisal, the other liens exceed the value of the property by Forty-six thousand seven hundred and twenty-five dollars ($46,725.00).
After consideration of the appraisals and the comparables, as well as the purposes and policies underlying § 1111(b), the Court finds that the collateral's value is not inconsequential. The Court agrees with the Hahns' appraiser that the value of the property exceeds Three hundred and fifty-seven thousand seven hundred and twenty-five dollars ($357,725.00). Therefore, the § 1111(b) Election should be allowed.
In reaching these conclusions, the Court has considered all the evidence and arguments of counsel, regardless of whether or not they are specifically referred to in this Opinion.
It is ORDERED that the Hahns' Election under 11 U.S.C. § 1111(b) is ALLOWED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541436/ | 75 B.R. 639 (1987)
In re MALL FOOD SERVICES CORP., Debtor.
Bankruptcy No. 85-00898-BKC-JJB, Claim No. 54.
United States Bankruptcy Court, E.D. Missouri, E.D.
July 9, 1987.
Curtis L. Mann, Clayton, Mo., for debtor.
*640 Jill S. Newman, Asst. U.S. Atty., St. Louis, Mo., Robert D. Metcalfe, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, D.C.
MEMORANDUM
JAMES J. BARTA, Bankruptcy Judge.
The matter being considered here is the objection of the Reorganized Debtor to the Amended Proof of Claim filed on behalf of the Internal Revenue Service (IRS). In a previous order entered on July 11, 1986, this Court had allowed the IRS Claim in part as an administrative expense priority for FICA taxes for the Second, Third and Fourth Quarters of 1985 and for the First Quarter of 1986. In addition, the Court ordered that post-petition interest and penalties would be allowed only through the date of confirmation of the plan of reorganization. The IRS was granted leave to further amend their proof of claim and provide authority for its argument that penalties and interest should be allowed through the date of payment of the tax.
The parties appeared at a hearing on August 26, 1986 and presented oral arguments upon two issues: (1) Whether the IRS claim is entitled to interest and penalties as an administrative expense priority until the tax is paid; and (2) Whether the Reorganized Debtor should be allowed full credit against its FUTA liability on the IRS claim for similar payments to State taxing authorities. After presentation of testimony and evidence, the parties submitted the matter to the Court. The IRS was granted leave to recompute the FUTA liability for only the last three quarters of 1985, which represent that portion of the tax liability which had not been included in the allowed claim as set forth in the Debtor's schedules. (See, 11 U.S.C. § 1111(a)). The recomputations have now been filed. This Memorandum is entered after a consideration of the record as a whole.
INTEREST AND PENALTIES
The Reorganized Debtor has argued that interest and penalties are an administrative expense item only through the date of confirmation of the plan of reorganization. The IRS contends that penalties and interest are to be assessed as an administrative expense through the date of payment of the post-petition taxes of the Bankruptcy estate.
Neither party has supported its position with definitive case law. The Court's own research has failed to locate a reported opinion which directly addresses the issues presented here. Therefore, after a review of the legislative history of 11 U.S.C. § 503, and of similar cases which have dealt with tax priorities, the Court has concluded that interest and penalties on a tax debt are an integral part of the continuing tax liability. Therefore, to the extent that the total debt is allowed as an administrative priority in a Chapter 11 Reorganization case, the grant of priority should extend through the date of payment of the total debt.
This conclusion is a logical extension of the opinion of the Fourth Circuit Court of Appeals in United States v. Friendship College, Inc., 737 F.2d 430 (4th Cir., 1984), wherein it was determined that "the government is entitled as a first priority expense of the bankruptcy estate to full payment of the taxes claimed, the penalties for failure to pay them on time, and interest from the date that it accrued." Id. at 433. (Emphasis added).
Similarly, in In re Thompson, 85-1, U.S.Tax Cases, ¶ 9243, 67 B.R. 1 (Bkrtcy.N. D.Ohio, 1984), the debtor's objection to the proof of claim of the IRS was overruled and the claim was allowed to include "interest and penalties to the date of payment" as first priority administrative expenses. Id. at ¶ 9244, 67 B.R. 1.
The language of Section 503 grants the priority status to "any fine, penalty, or reduction in credit relating to a tax of a kind specified in subparagraph (B) of this paragraph". 11 U.S.C. § 503(b)(1)(C). Nothing in the language of this Section limits the assessment period to the time before confirmation of a plan. The logical interpretation of this language is that such a claim may be allowed as an administrative *641 priority calculated through the date of payment.
The same conclusion is appropriate in the consideration of interest due on such a tax. To hold otherwise would be to allow an interest free loan to a debtor. See, In re Thompson, supra. Clearly Congress intended to grant an administrative priority to these claims for taxes. This Memorandum finds and concludes that this claim for taxes includes the Debtor's liability for interest and penalties on the post-petition, pre-confirmation taxes, through the date of payment of these claims.
FUTA
The second issue before this Court concerns the extent of the credit which should be granted to the Reorganized Debtor on its Federal Unemployment Tax Act (FUTA) obligation as the result of payments it made or will make to various States for unemployment taxes.
The Debtor contends that it should not be limited to a ninety (90%) percent credit for those taxes paid to the States. This limitation results in a ten (10%) penalty of the original amount due. The Debtor has requested that the Court enter a blanket order holding that such a limitation is improper. However, no authority has been presented in support of this contention.
The ninety (90%) percent credit for this tax is specifically provided for at 26 U.S.C. § 3302(a)(3). There is no legal or equitable basis upon which this Debtor may be treated differently from other taxpayers. Absent a grant of authority under the Bankruptcy Code, the Debtor's request to require a full credit for the payment of State taxes is DENIED.
A separate order consistent with this Memorandum is being simultaneously entered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541396/ | 75 B.R. 76 (1987)
In re TILSTON ROBERTS CORPORATION, Debtor.
Bruce D. SCHERLING, as Trustee of Tilston-Roberts Corporation, Appellant,
v.
CHASE MANHATTAN BANK, N.A., Respondent.
No. 86 Civ. 3385 (CSH).
United States District Court, S.D. New York.
May 28, 1987.
*77 Bruce D. Scherling, New York City, for appellant.
Harvis & Zeichner, by A. Zeichner, New York City, for respondent.
MEMORANDUM OPINION AND ORDER
HAIGHT, District Judge:
Appellant trustee in bankruptcy appeals from an order of the Bankruptcy Court, No. 84 B 11693 (PBA), Abram, Judge, denying the trustee's motion to require respondent bank to discharge a deposit and granting the bank's cross-motion to enforce a setoff. The order below is affirmed.
I.
The facts in this case are undisputed. Tilston-Roberts Corporation ("Debtor") filed a Chapter 7 petition on or about December 10, 1984. An interim trustee was appointed on December 10, 1984. In the afternoon of that day the Trustee delivered a letter to Daniel J. McOlvin, a second vice president of the Chase Manhattan Bank ("Chase"), confirming a prior telephone conversation in which the Trustee had advised him of the Chapter 7 filing and the concomitant freeze on the Debtor's bank accounts. On December 11, 1984 Mr. McOlvin informed the Trustee that the Debtor's account at Chase had a balance of $252,887.06. On December 12, 1984, the Trustee opened an account at Chase and debit and credit advices evidencing the transfer of $252,887.06 from the Debtor's account to the Trustee's new account were issued.
Also on December 12, 1984, the Trustee wrote a check on the new Chase account for $230,000 and deposited it in his account at another bank.
Approximately one hour after issuing the credit and debit advices on December 12, 1984, Mr. McOlvin learned that the Debtor had another account with Chase, at the branch office in Syracuse, New York. There was an overdraft in the Syracuse account in the amount of $133,126.28. Chase attempted to notify the Trustee of this situation and to advise him that the transfer of funds of which he had been advised earlier that day had been erroneous. Chase confirmed this by hand delivered letter to the Trustee on December 14, 1984. Chase also put a hold on the Trustee's new account to the extent of the Syracuse account's overdraft.
The Trustee's $230,000 check to his other bank failed to clear as a result of the hold placed on his Chase account. On December 17, 1984 the Trustee moved the Bankruptcy Court for an order directing, inter alia, Chase to disgorge the funds subject to the hold. The Trustee and Chase agreed to segregate the disputed amount into an escrow account at Chase pending a resolution of the dispute by the Court, whereupon Chase cross-moved the Bankruptcy Court for an order lifting the Code § 362 *78 automatic stay and permitting Chase to offset the Syracuse overdraft against the balance of the Debtor's Manhattan account. In its March 10, 1986 order, the Bankruptcy Court denied the Trustee's motion and granted Chase's cross-motion. This appeal followed.
II.
The right to setoff is preserved by Section 553 of the Bankruptcy Code, 11 U.S.C. § 553, which reads, in pertinent part: ". . . this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor . . . against a claim of such creditor against the debtor that arose before the commencement of the case [under this title] . . . ".
The Trustee contends on this appeal that the Bankruptcy Court erred in allowing Chase to offset the Syracuse overdraft against the Debtor's Manhattan balance. The Trustee argues that Chase lost its right to setoff the moment it issued the debit and credit advices transferring the Debtor's Manhattan balance to the Trustee's account because as soon as the transfer was complete, the overdraft was no longer a "mutual" debt within the meaning of § 553.
The Trustee relies in part on In re Royal Crown Bottling Company of Boaz, Inc., 29 B.R. 52 (Bankr.N.D.Ala.1981), which observed that:
"Once the bank paid to the Trustee the [balance of the Debtor's account], this debt was no longer owed by the bank to the Debtor in this case, and there was no longer a debt for that sum which it could offset against a debt which the Debtor in this case might then have owed to it. Thus, the [bank's] alleged right to recover said sum from the trustee, upon a right of setoff, collapses, because there was no such right after the bank paid that sum to the Trustee."
Id. at 54.
The Bankruptcy Judge in the instant action apparently disagrees with the Royal Crown court's statement of the law on the question of when a right to setoff exists. The crucial time, according to Judge Abram, is the date on which the petition for protection under the Bankruptcy Act is filed, not when the right of setoff is sought to be asserted. At the hearing on the motion and cross-motions at issue, Judge Abram stated:
"I do not accept [the principle that a creditor's right to set-off is extinguished by its transfer of funds to the Trustee]. I believe that if on the date the petition was filed, as the account then stood, the bank had a right of set-off, that[,] in the absence of gross laches, [the right to set-off is not extinguished by a transfer of funds to the Trustee]. . . . I don't think that the fact the bank transferred the account is any more than some evidence that the bank didn't then realize that it had a claim . . ." Tr. 4, 7.
Judge Abram, in her Memorandum Decision and Order of March 10, 1986, quoted another case relied upon by the Trustee in support of the view that the crucial inquiry was whether a right of setoff existed at the time the petition was filed. She quoted this statement from In re Mauch Chunk Brewing Company, 131 F.2d 48, 49 (3rd Cir.1942):
"[Setoff] is a privilege which the creditor may or may not claim. If it is not asserted, it is lost. Likewise if the creditor's conduct is inconsistent with a subsequent claim of set-off, he is held to have waived it."
The possibility of a successful subsequent claim of setoff, which is assumed by the Mauch Chunk court, would be absolutely barred under the rule proposed by the Trustee.
The rule proposed by the Trusteethat a debt is no longer "mutual" the instant a creditor completes the necessary paperwork to transfer the amount it owes the debtor to the Trusteehas the appeal of being technically neat and easy to apply. Section 553, however, is not intended to supply technically simple rules for the administration of debtors' estates.
The section exists to preserve the remedy of setoff, a remedy grounded in equity, albeit at odds with the dominant *79 theme of the bankruptcy code's equal treatment of creditors. Section 553's preservation of the common law of setoff "has the effect of paying one creditor more than another". Bohack Corp. v. Borden, Inc., 599, F.2d 1160, 1165 (2d Cir.1979) (construing § 68 of the predecessor Bankruptcy Act). Despite this inevitable effect, the doctrine of setoff "has long occupied a favored position in our history of jurisprudence." Id. at 1164.
The Second Circuit has repeatedly favored the allowance of setoffs, Id. at 1165; In re Applied Logic Corp., 576 F.2d 952 (2d Cir.1978), and has noted specifically its reluctance to disturb the Bankruptcy Code's policy of allowing setoffs "unless compelling circumstances require it." Bohack Corp., supra, 599 F.2d at 1165. Furthermore, the allowance or disallowance of a setoff is a decision which ultimately rests in the sound discretion of the bankruptcy court. Ibid.
Judge Abram's formulation of the timing question is more in line with proper administration of the Bankruptcy Code than that of the Trustee. As she puts it: "It is contrary to proper administration of the Bankruptcy Code for a trustee to be able to play `gotcha' with the debtor's banks. The bankruptcy system can function efficiently and effectively only with the cooperation of all concerned." Slip Op. at 3.
Adopting Judge Abram's formulation of the rule, however, does not give banks or other creditors the ability to preserve their right to setoff indefinitely. The doctrine of laches, another creature of equity, may bar a creditor's attempt to assert a right to setoff, as may the doctrine of equitable estoppel. Moreover, under certain circumstances a creditor may be held to have waived its right to setoff.
Judge Abram's decision turned on the obvious, indeed uncontested, fact that Chase did not intend to waive its right of setoff by issuing the "advices" necessary to transfer the Debtor's Manhattan balance to the Trustee's account. She implicitly found that Chase had issued the advices without knowledge of its then existing right of setoff and without the intention necessary under New York law to waive that right.[1]See Voest-Alpine International Corp. v. Chase Manhattan Bank, N.A., 707 F.2d 680, 685 (2d Cir.1983) (New York law requires knowledge of the existence of a right and an intention to relinquish it before waiver is established).
Conclusion
For the foregoing reasons, the decision of the Bankruptcy Court is affirmed.
NOTES
[1] Section 553 of the Bankruptcy Code merely preserves the right of setoff. The creation and substance of that right is controlled by state law. See In re Donato, 17 B.R. 708, 709 (E.D.Va. 1982); In re Williams, 61 B.R. 567 (N.D.Tx. 1986). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541400/ | 949 A.2d 140 (2008)
The STATE of New Hampshire
v.
William Joseph SULLIVAN, Jr.
No. 2005-594.
Supreme Court of New Hampshire.
Argued: February 21, 2008.
Opinion Issued: April 18, 2008.
*143 Kelly A. Ayotte, attorney general (Thomas E. Bocian, attorney, on the brief and orally), for the State.
Christopher M. Johnson, chief appellate defender, of Concord, on the brief and orally, for the defendant.
BRODERICK, C.J.
After a jury trial in Superior Court (Hicks, J.), the defendant, William Joseph Sullivan, Jr., was convicted of first degree murder, see RSA 630:1-a (2007), and conspiracy to commit murder, see id.; RSA 629:3 (2007). He appeals his convictions, arguing that the trial court erred by denying his motion to suppress evidence of self-incriminating statements he made to members of the Nashua Police Department, and by dismissing and replacing a member of his jury after the commencement of deliberations. We reverse and remand.
I
The record supports the following background information. In May 2002, the defendant met Nicole Kasinskas through an instant message service on the internet. At the time, the defendant was seventeen years old and lived with his family in Connecticut. Kasinskas, then fourteen years old, lived with her mother, Jeanne Dominico, in Nashua. The defendant and Kasinskas soon began communicating daily through the internet, letters and phone calls. In spite of the physical distance separating them, their relationship rapidly intensified; they professed love for one another within days, and soon spoke in detail of marriage and a future together.
Dominico drove Kasinskas to Connecticut to meet the defendant for the first time in August 2002, and subsequent visits soon followed. These visits led the defendant and Kasinskas to discuss the possibility of her moving to live with him. When Dominico objected to this plan, the two proposed that Kasinskas be legally emancipated. Dominico angrily refused this request, too, and similarly disapproved of Kasinskas making other moves toward cohabitation like opening a joint bank account with the defendant. Dominico's ongoing disapproval of such ideas engendered hostility and resentment in both the defendant and Kasinskas.
In early August 2003, the defendant drove to Nashua to spend a week with Kasinskas. By that time, their anger toward Dominico had crystallized. In fact, the two had moved from discussing ways to eliminate Dominico's opposition to their cohabitation to making plans to kill Dominico. During that week, Kasinskas and the defendant made four failed attempts to take Dominico's life, which ranged from poisoning her coffee creamer to an attempt to blow up her home by igniting its oil tank.
On August 6, 2003, the defendant and Kasinskas jointly carried out plans to make it look like Dominico's house had been broken into by a would-be intruder, and established false alibis for their own whereabouts. In reality, however, the defendant attacked Dominico in her home soon after she returned from work. Following an argument, he hit her with a baseball bat; once she was stunned, he then stabbed her to death.
*144 After the murder, the defendant cleaned himself off, removed some of his bloody clothing, and collected the knives he had used in the attack. Kasinskas assisted in these efforts. The two then disposed of evidence in various locations, and went to a mall to buy the defendant new clothes.
II
The following facts were found by the trial court in its order on the defendant's motion to suppress, and have not been challenged on appeal. Dominico's boyfriend discovered her body later in the evening of August 6 and promptly called 911. Shortly thereafter, Nashua police arrived at Dominico's home and roped off a perimeter around the residence. Sergeant William Moore took charge of "perimeter duty," and assigned Detective Shawn Hill to a position on the west side of the house.
At approximately 10:15 p.m., Hill and Moore noticed Kasinskas and the defendant approach the crime scene. Kasinskas testified that she and the defendant returned to Dominico's house with the goal of diverting suspicion from themselves. Initially, Hill told them to keep away from the residence, while Moore notified Detective Sergeant Rick Sprankle of their arrival. Sprankle ordered Moore to separate the defendant and Kasinskas and ask them to come to the Nashua Police Department for interviews. Moore then returned to where the defendant and Kasinskas stood, and, as the trial court found, explained that "they needed to be transported to the [police station]." When Kasinskas expressed concern about the defendant not knowing how to get to the station, Moore told her that he would make sure the defendant was transported there. Kasinskas was taken to the station first, while the defendant remained with Moore to await a second cruiser.
While they waited, Moore spoke with the defendant. The trial court found that their conversation was "primarily dominated by the defendant." For example, the defendant spontaneously volunteered that he did not like police officers, and described having been charged with crimes he did not commit in the past. In response, Moore asked the defendant to give him a "fair shake." The defendant also spoke about souvenir shopping with Kasinskas that day, about Dominico, and about Dominico's relationship with Kasinskas. Throughout his conversation with Moore, the defendant was pacing freely, and at one point sat down on the trunk of his car. He did not ask to leave or to drive himself to the police station. On the other hand, Moore never informed the defendant that he was free to leave; the trial court noted that Moore "assumed that it was implied."
At around 10:27 p.m., Detective Dennis Linehan arrived on the scene, and made contact with Moore and the defendant. Linehan noted that the defendant appeared "jumpy" and was not standing in one place. Linehan told the defendant to relax, which prompted the defendant to explain that he suffered from anxiety and took medication for it. The defendant said he did not need his medication, however, and also said that he "had no problem" with coming to the station when asked to do so by Linehan. Linehan sat with the defendant in the back seat of a cruiser for the drive from Dominico's house to the station, which lasted somewhere between five and eight minutes. He did not frisk the defendant before doing so. The trial court found no evidence of the use of physical force or threatening language on the part of the officers at any point during this time period, and found that overall "the atmosphere was casual and nonconfrontational."
*145 After being questioned separately at the station, both the defendant and Kasinskas eventually admitted their involvement in Dominico's murder. Both also led the police to the locations where they had hidden evidence.
III
Prior to trial, the defendant moved to suppress his self-incriminating statements as the fruit of an illegal seizure of his person at the crime scene. See State v. Belton, 150 N.H. 741, 747, 846 A.2d 526, cert. denied, 543 U.S. 1028, 125 S.Ct. 674, 160 L.Ed.2d 509 (2004). After a hearing, the trial court denied his motion, ruling that the defendant had not been "seized" for constitutional purposes during his interaction with the police outside Dominico's residence. The defendant challenges this ruling on appeal. In support of his claims, he invokes the protections of both Part I, Article 19 of the New Hampshire Constitution and the Fourth Amendment to the United States Constitution. We first address his arguments under the State Constitution, State v. Ball, 124 N.H. 226, 231, 471 A.2d 347 (1983), using federal opinions for guidance only, id. at 232-33, 471 A.2d 347.
When reviewing a trial court's order on a motion to suppress, we accept the trial court's factual findings unless they lack support in the record or are clearly erroneous. State v. Stern, 150 N.H. 705, 708, 846 A.2d 64 (2004). Our review of the trial court's legal conclusions, however, is de novo. Id.
We begin our review here with the baseline rule that the New Hampshire Constitution provides protection against unreasonable seizures. State v. Cote, 129 N.H. 358, 364, 530 A.2d 775 (1987); see N.H. CONST. pt. I, art. 19. An inquiry into the reasonableness of a seizure is only necessary, of course, when an individual has actually been seized. Cote, 129 N.H. at 364, 530 A.2d 775. An investigatory stop is a limited seizure. State v. Beauchesne, 151 N.H. 803, 809, 868 A.2d 972 (2005). However, "not all personal intercourse between policemen and citizens involves `seizures' of persons." Cote, 129 N.H. at 364, 530 A.2d 775 (quotation omitted). Indeed, "[a] seizure does not occur simply because a police officer approaches an individual and asks a few questions." Beauchesne, 151 N.H. at 809, 868 A.2d 972 (quotation omitted). An interaction becomes a seizure, however, when a reasonable person would no longer believe he or she is free to leave. Id. at 810, 868 A.2d 972; State v. Quezada, 141 N.H. 258, 259, 681 A.2d 79 (1996). "This occurs when an officer, by means of physical force or show of authority, has in some way restrained the liberty of the person." Beauchesne, 151 N.H. at 810, 868 A.2d 972.
"Circumstances indicating a show of authority might include the threatening presence of several officers, the display of a weapon by an officer, some physical touching of the person, or the use of language or tone of voice indicating that compliance with the officer's request might be compelled." Id. (quotation omitted). While "mere request[s] to communicate" generally do not amount to an official show of authority, Quezada, 141 N.H. at 260, 681 A.2d 79, the police "may not convey a message that compliance with their request[s] is required," Beauchesne, 151 N.H. at 809-10, 868 A.2d 972. Our analysis of this issue is an objective one, "requiring a determination of whether the defendant's freedom of movement was sufficiently curtailed by considering how a reasonable person in the defendant's position would have understood his situation." Id. at 810, 868 A.2d 972. Further, we conduct an inquiry into an alleged seizure *146 while mindful of all of the circumstances surrounding the incident. Cote, 129 N.H. at 365, 530 A.2d 775; see Quezada, 141 N.H. at 259-60, 681 A.2d 79.
In this case, we agree with the trial court that the defendant was not seized during his interaction with the police at the crime scene. At the outset, we find significant distinctions between the police communication at issue here and that challenged in Beauchesne and Quezada, cases relied upon by the defendant in his brief. In both of those cases, although the police never used physical force, the defendants were ordered by officers to "stop" and answer questions. Beauchesne, 151 N.H. at 815, 868 A.2d 972; Quezada, 141 N.H. at 260, 681 A.2d 79. Such commands, coupled in both cases with a measure of investigative pursuit, would not have left a reasonable person feeling free to disregard the police and simply walk away. As a result, in both cases we found that seizures occurred. Id.
Here, in contrast, it was the defendant who initiated contact with the police by returning to Dominico's residence. He and Kasinskas presented themselves at the crime scene to find out what was going on with the investigation; the police did not initially ask them to stop to respond to questions. Thus, the defendant was acting "voluntarily[,] in a spirit of apparent cooperation with the . . . investigation," Cote, 129 N.H. at 365, 530 A.2d 775 (quotation omitted), when interacting with the police. This, coupled with the fact that the defendant also controlled the flow of his conversation with the officers at all times prior to his arrival at the Nashua Police Department, weighs against a finding that a reasonable person in the defendant's position would not have felt free to disregard the officers and leave. See id.
Moreover, despite the fact that Moore told the defendant he "needed" to be transported to the police station, this statement, in context, did not "transcend[] a mere request to communicate." Beauchesne, 151 N.H. at 815, 868 A.2d 972. Within, at most, twelve minutes of Moore's statement, the defendant was asked by Linehan whether he "would mind" coming to the station. The defendant immediately responded he "had no problem" with that. We find the nonbinding nature of Linehan's request significant and curative of any coercive effect Moore's statement may have had, especially since it was Linehan who actually accompanied the defendant to the police station and interviewed him on arrival.
Finally, we note that throughout his interaction with both Moore and Linehan at the crime scene, the defendant retained freedom of movement. He paced at will and at one point sat on the trunk of his own car. He was outside, as opposed to being confined, for example, in a police cruiser. Cf. State v. Riley, 126 N.H. 257, 264, 490 A.2d 1362 (1985). The police made no show of forcelike a display of weapons or a pat friskindicating that the defendant was obligated to comply with their wishes.
In view of all the circumstances presented here, we are not persuaded that the defendant's encounter with the police at the crime scene amounted to a seizure. The defendant voluntarily placed himself in a situation where it could only be expected that the police would request further communication. The defendant readily agreed to engage in such communication at the Nashua Police Department, and also agreed to be transported there. He experienced neither physical force nor coercive commands. In sum, the record does not support the contention that, from the time he returned to the crime scene through his transport to the police station, the defendant had any objective reason to believe *147 that he was not free to end his conversations with Moore and Linehan and proceed on his way.
Given this holding, we need not inquire whether the police justifiably seized the defendant by possessing a reasonable suspicion that he had been engaged in criminal activity, see Beauchesne, 151 N.H. at 809, 868 A.2d 972, or whether the taint of any illegal seizure had been purged by the time the defendant confessed, see Belton, 150 N.H. at 747, 846 A.2d 526.
The Federal Constitution offers the defendant no greater protection than does our State Constitution under these circumstances. State v. Brown, 155 N.H. 164, 169, 930 A.2d 410 (2007); see Florida v. Bostick, 501 U.S. 429, 434-36, 111 S.Ct. 2382, 115 L.Ed.2d 389 (1991); United States v. Espinoza, 490 F.3d 41, 48-49 (1st Cir.2007). Accordingly, we reach the same conclusion under the Federal Constitution as we do under our State Constitution.
IV
The defendant next argues that his federal and state constitutional rights to a fair and impartial jury were violated by the trial court's dismissal and replacement of one of his jurors, Juror 13, after the commencement of deliberations. See Opinion of the Justices (Alternate Jurors), 137 N.H. 100, 103-05, 623 A.2d 1334 (1993); see also U.S. CONST. amend. VI; N.H. CONST. pt. I, art. 15. Specifically, the defendant first argues that the trial court dismissed Juror 13 from the panel deciding his case without adequate cause. Second, he maintains that, even if the dismissal of Juror 13 was proper, the trial court erred when substituting an alternate by failing to secure adequate assurances from the remaining original jurors that they could feasibly restart deliberations. In this instance, we agree with the defendant that violations of his rights under our State Constitution occurred. Accordingly, we need not reach his federal constitutional claim. See generally Beauchesne, 151 N.H. at 807, 868 A.2d 972.
A
Over the course of the defendant's trial, Juror 13 required the attention of the trial judge on a number of occasions. Following the trial court's issuance of general jury instructions on June 7, 2005, Juror 13 approached the court to inquire whether he could really be considered a "peer" of the defendant for the purpose of serving on a "jury of [the defendant's] peers." His dialogue with the court proceeded as follows:
Juror 13: I've got a little problem as this is supposed to be a jury of our peers. I don't know Mr. Sullivan, and I don't know if that presents us a problem or not.
The Court: Why? Howhow could it, sir?
Juror 13: Well if I'm a jury of his peers, it means I probably know him or know something about him, and
The Court: Thatthat's not thethe manner in which the word peer is intended. It simply means a citizen of the samenot thenecessarily the same community, but a citizen of the United States who's competent to be a juror. That's what juror of peers means in the modern sense. Okay?
Juror 13: Okay.
This exchange prompted no questions or concerns from counsel for either the defendant or the State.
On the sixth day of trial, June 27, 2005, Juror 13 requested to be excused from court on July 5 for a medical appointment in New York City. In a conference with counsel, the trial court expressed skepticism about the location of the alleged appointment. *148 During a voir dire of the juror at the end of the day, after the court made clear that an absence would require dismissal from jury service, Juror 13 offered to reschedule his appointment. On that same day, counsel for the State indicated to the court that a victim-witness advocate and an intern had observed Juror 13 sleeping "a number of times" during the trial.
On June 30, the court received two notes from Juror 13 seeking to have certain questions asked of Kasinskas, who was testifying at the time. At a bench conference with counsel just before a lunch recess, the trial judge stated that he would not allow juror questions to be transmitted to witnesses, and offered to issue an instruction to the jury to that effect. The parties agree, however, that no such instruction was actually given to the jury as a result of this conference.
On July 7, Juror 13 again submitted a question for a witness. On that day, after consultation with counsel, the court did address the jury's ability to ask questions:
The court has been handed a few more questions. And perhaps it's a good time for the court to remind the jury that at this juncture it cannot answer any of those questions.
. . . But in the end you'll receive written instructions after the closing arguments of counsel. . . .
And part of those instructions say that if you have any questions of fact, I cannot help you. . . . But if you have questions of law . . ., in fact, you can [ask questions]the foreperson will be asked to write them down very much in the manner that they've been written down and submitted to me now . . . and we'll get an answer to you just as soon as possible.
But that only begins when deliberations begin[].
We note that the court mistakenly indicated to counsel on July 7 that it had already given such a caution to the jury in the past.
On the fifteenth day of trial, July 11, the State filed pleadings seeking to have Juror 13 declared an alternate. The State contended that Juror 13 had been inattentive and sleeping "through a substantial portion of the State's case-in-chief," and argued, citing State v. Fernandez, 152 N.H. 233, 239-40, 876 A.2d 221 (2005), that nonrandomly selecting Juror 13 to serve as an alternate would be an appropriate exercise of discretion. In a hearing on the matter the next morning, the State supplemented its complaint vis-à-vis Juror 13 by arguing that he had also "disregarded" the court after it had "repeatedly" advised jurors not to submit questions for witnesses.
Moreover, counsel for the State reported the discovery of correspondence between Juror 13, who had apparently once been a member of the state legislature, and the Attorney General's Office. That correspondence, uncovered on the evening of July 11, related to a 2003 investigation of the juror that had produced "a strong reprimand" about his behavior while in office. The State contended that Juror 13's failure to disclose his familiarity with multiple members of the Attorney General's Officeeven though they were not involved in the prosecution of the defendantmerited his dismissal, as opposed to his mere selection as an alternate.
On July 12, the trial court made the following findings and rulings in response to the State's motion:
The fact that this juror was problematic or could have been problematic was obvious to the court from the beginning. So let's make sure that everything is on the record.
The court first became concerned about this juror when he approached the *149 court with a question following general instructions. And his question . . . was . . . roughly as follows: . . . he said, judge, you know . . . I'm supposed to be a jury of Mr. Sullivan's peers. I don't know that I'm his peer. And that was certainly an alarm bell at that juncture, but it was not a disqualifying one, by any means.
The court further became concerned with . . . Juror [Number] 13 during the course of the trial because there were three periods that I observed of him . . . responding to some soporific arguments . . . that the [S]tate or the defense was attempting to offer, but nevertheless, I satisfied myself that he was sufficiently alert throughout the proceedings. . . . I was observing him very, very closely. . . .
I found nothing improper in [Number] 13's attentiveness during trial. There were three very brief periods where he appeared to be asleep, but they were very brief and they were not essential periods of the trial.
. . . .
As to the notes, the court is not overly troubled by the fact that he repeatedly sent notes. They actually, to some degree, evinced a close awareness of what was going on in the trial and a very close concern about the nature of the testimony. . . .
The most troubling aspect, though, starts with the contact, the apparent history of contact, with the Attorney General's Office. Even in the most rudimentary form, the court inquired on the first day whether the [pro]spective jurors had had any dealings with any of the attorneys. . . . And it's clear that probably [Juror 13] didn't ever have any contact with [the prosecutors], but he certainly has had contact with people with the Attorney General's Office. . . .
The court cannot say in a vacuum, though, that that is a violation of his oath as a juror, which is what I'm ruling would be required[] to disqualify him. . . .
. . . .
. . . It's just as likely that he has forgotten [about the correspondence] based upon what I've observed of this gentleman.
. . . .
The constitutional issue has been framed and I just can't say, applying the general standards of what's speculation and what isn't, I can't say that this juror has violated his oath intentionally and that he is subject to disqualification. . . .
See also New Hampshire Juror Oath, available at http://www.courts. state.nh.us/jury/juror_handbook.htm ("You solemnly swear or affirm that you will carefully consider the evidence and the law presented to you in this case and that you will deliver a fair and true verdict as to the . . . charges against the defendant."). Juror 13 thus remained impaneled through closing arguments and the court's jury instructions, and was not chosen (randomly or otherwise) to be an alternate prior to the start of deliberations.
On July 14, 2005, the second day of deliberations, the trial judge received a note from the jury foreman stating the following:
I do not know if I am required to report this, but I am and letting you know.
One of the jurors brought in what looks to be some sort of law book. He opened it for just a second (perhaps 5-10 seconds), when several other jurors recognized it and asked him to put it away. (Knowing it was not supposed to be here.)
*150 He put it back in his bag and did not refer to it.
As I noted, I am not sure if you need any other information on this, or what else I should or could do.
The juror referred to by the note was Juror 13, and the "law book" in question was a copy of Black's Law Dictionary.
The court immediately halted deliberations and conducted a voir dire of Juror 13, who stated that he had planned to look up the word "conspiracy" in the dictionary because, in his view, the court's definition "didn't seem to be totally complete." Juror 13 also stated that he had not used the dictionary prior to coming to court, and had not had time to read anything in it before his fellow jurors told him to put the book away.
In response to this information, the State renewed its motion to remove Juror 13 from the panel. The defense again objected, raising constitutional arguments and labeling Juror 13's actions "innocuous" given that he had not been able to actually utilize the book. At this juncture, the trial court made the following findings and ruling:
Well, what [the defendant] is entitled to is a jury as impartial as the law of humanity will permit, among other things. But all parties are entitled to jurors who will refrain from violating their oath[s]. And it's a pattern with this gentleman that has raised serious concerns in this court's mind about his ability to adhere to his oath and deliberate consistent with the instructions.
And so that the record is clear, this is the [juror] who, after having been told repeatedly that he was not allowed to submit questions, continually throughout the trial submitted written questions to me.
. . . [T]his is the juror who repeatedly sought to ask questions after having been told not to do so and they are all marked as court exhibits in this case.
This is a juror who was specifically instructed that he is to decide the case, he and his fellow jurors are to decide the case based solely on the evidence and the law as I gave it to them. And he deliberately went out of his way to obtain law as provided by Black's Law Dictionary.
And as a result of this cumulative effect, I find that he is disqualified and I'm rejecting [defense counsel's] request to have additional time to research it.
It is a fundamental matter, I will grant you that, but it is a fundamental duty of this court to ensure that deliberations are done properly by jurors who have the capacity to follow their oath[s].
. . . .
It's a deliberate inability [ ]or a deliberate refusal . . . to follow clear instructions from this court. And that I submit to you is clear grounds for disqualification.
Over defense counsel's repeated objections, the trial judge then instructed the clerk of court to draw the name of an alternate to replace Juror 13.
We turn now to the defendant's argument that the trial court lacked sufficient cause to dismiss Juror 13. Appellate review of a trial court's decision to dismiss a deliberating juror is for an unsustainable exercise of discretion. See Com. v. Zimmerman, 441 Mass. 146, 804 N.E.2d 336, 340 (2004); Annotation, Propriety, Under State Statute or Court Rule, of Substituting State Trial Juror With Alternate After Case Has Been Submitted to Jury, 88 A.L.R.4th 711, § 10(a) (1991 & Supp.2007); see also State v. Lambert, 147 N.H. 295, 296, 787 A.2d 175 (2001) (explaining unsustainable exercise of discretion standard). Given the sensitive nature *151 of the decision to remove a deliberating juror, a juror's "inability to perform must appear in the record as a demonstrable reality." People v. Williams, 25 Cal.4th 441, 106 Cal.Rptr.2d 295, 21 P.3d 1209, 1213 (2001) (quotations omitted); see Lambert, 147 N.H. at 296, 787 A.2d 175 (record must establish an objective basis to sustain discretionary decision below). To "perform," in this context, means to carefully consider the evidence presented at trial, and to deliver a fair and true verdict on the charges against the defendant in accordance with the law outlined by the trial court.
RSA 500-A:13, V (1997) permits the substitution of an alternate juror for a sitting juror after the commencement of deliberations in the event that a sitting juror becomes "disqualified." While this statute serves the laudable goal of preventing unnecessary mistrials, it also implicates a defendant's right under our State Constitution to have a fair and impartial jury resolve his case. See Opinion of the Justices, 137 N.H. at 103-05, 623 A.2d 1334; see also N.H. CONST. pt. I, art. 15; State v. Colbert, 139 N.H. 367, 371-72, 654 A.2d 963 (1995). This is because "[t]he jury room is sacrosanct," State v. Alexander, 143 N.H. 216, 227, 723 A.2d 22 (1998), and "a just verdict cannot be reached if there is an inappropriate interference with or intrusion upon the deliberative process," People v. Burnette, 775 P.2d 583, 590 (Colo.1989). "The discharge of a deliberating juror is a sensitive undertaking and is fraught with potential for error." Opinion of the Justices, 137 N.H. at 104, 623 A.2d 1334 (quotation omitted).
Where an alternate juror is inserted into a deliberative process in which some jurors may have formed opinions regarding the defendant's guilt or innocence, there is a real danger that the new juror will not have a realistic opportunity to express his views and to persuade others. Moreover, the new juror will not have been part of the dynamics of the prior deliberations, including the interplay of influences among and between jurors, that advanced the other jurors along their paths to a decision. Nor will the new juror have had the benefit of the unavailable juror's views.
Burnette, 775 P.2d at 588 (citations omitted); cf. ABA Standards for Criminal Justice, Discovery and Trial by Jury § 15-2.9 cmt. at 177 (3d ed.1996) (given risks involved, "this standard comes down firmly on the side of prohibition of using an alternate juror once deliberations have begun"). We have consequently held that "[t]he discharge of a deliberating juror is . . . to be done only in special circumstances, and with special precautions." Opinion of the Justices, 137 N.H. at 104-05, 623 A.2d 1334 (quotation omitted).
Specifically, trial courts must scrupulously avoid interrupting the natural flow of deliberations without just cause. Thus, prior to removing a deliberating juror, we require trial courts to ask questions of that juror and make findings on the record establishing a "meritorious reason" for dismissal. Id. at 105, 623 A.2d 1334. Great care must be taken to ensure that a lone dissenting juror is not permitted to evade his or her responsibilities. Id. "Good cause [for dismissing a deliberating juror] includes only reasons personal to a juror, having nothing whatever to do with the issues of the case or with the juror's relationship with his fellow jurors." Com. v. Connor, 392 Mass. 838, 467 N.E.2d 1340, 1346 (1984) (quotation omitted); see Opinion of the Justices, 137 N.H. at 104, 623 A.2d 1334 (citing same standard).
As the defendant concedes, a juror's failure or refusal to follow the instructions of the court may be a meritorious *152 reason for dismissal. See Com. v. Peppicelli, 70 Mass.App.Ct. 87, 872 N.E.2d 1142, 1148-49 (2007). However, the mere failure to follow instructions, in and of itself, is not a meritorious reason to dismiss a juror per se. See Com. v. Rodriguez, 63 Mass.App.Ct. 660, 828 N.E.2d 556, 565-66 (2005).
For example, in Rodriguez, the trial judge discharged a deliberating juror for "violat[ing] her oath by discussing the deliberations over the phone with a third party within the earshot of other jurors." Id. at 565 (quotation and brackets omitted). The juror did not, however, discuss the substance of the jury's deliberations over the phone. Instead, she complained about having poor relations with her fellow jurors and about "her apparent hold-out position," i.e., her being the lone vote for acquittal. Id. at 565. In finding that the trial court had abused its discretion by dismissing the juror for using the phone, the Massachusetts Appeals Court noted the lack of findings that the juror was unable to be fair and impartial or unable to continue deliberating. Id. at 566. Therefore, the juror's failure to follow instructions was deemed essentially harmless.
In contrast, Peppicelli illustrates the necessity of dismissing a deliberating juror whose failure to follow court instructions could affect the deliberative process. Peppicelli, 872 N.E.2d at 1148-49. In that case, a juror, while shopping at a Home Depot, discussed the substance of the murder trial to which he had been assigned. The patron with whom he conversed happened to be an off-duty police officer, who readily offered his unfavorable opinion of the defendant involved. The officer later reported his interaction with the juror to the presiding judge. In this instance, the Appeals Court held that "it was not an abuse of discretion for the judge to conclude that allowing the juror to return to deliberations would have irreparably tainted the jury's deliberative process." Id. at 1149 (quotation omitted).
A survey of reported decisions from other jurisdictions supports this line of reasoning. In general, those cases illustrate that dismissal of a juror is warranted where a failure or refusal to follow instructions will likely have some impact on that juror's impartiality and ability to decide the case in question, or on the deliberative process as a whole. See, e.g., United States v. Thomas, 116 F.3d 606, 614 (2d Cir.1997) (juror intent on nullifying charges regardless of oath to consider evidence and applicable law properly dismissed); People v. Diaz, 95 Cal.App.4th 695, 115 Cal.Rptr.2d 799, 803-08 (intimidated and emotionally unstable juror who refused to deliberate properly dismissed), cert. denied, 537 U.S. 907, 123 S.Ct. 242, 154 L.Ed.2d 183 (2002); Cloud v. State, 235 Ga.App. 721, 510 S.E.2d 370, 372 (1998) (same); Boler v. State, 240 Ga.App. 90, 522 S.E.2d 676, 677 (1999) (juror met with relative during lunch break to seek input on guilt of defendant; "sound basis" for dismissal); Kalianov v. Darland, 252 N.W.2d 732, 737 (Iowa 1977) (juror who conducted out-of-court evidence gathering properly dismissed).
Therefore, we hold that a failure to follow the court's instructions constitutes a meritorious reason to disqualify a deliberating juror, see RSA 500-A:13, V, only if it is more likely than not that the juror's disobedience will have a relevant demonstrable impact on the deliberative process. Relevant impacts include, most pertinently, an effect on the individual juror's ability to impartially consider the evidence presented at trial, or to apply the law as outlined by the trial court. Absent these types of impacts, the necessity of dismissing a deliberating juror is lessened considerably, and should not be done over *153 a defendant's objection. Indeed, where it is the defendant who opposes the discharge of a particular juror, disqualification for more general disobedience will likely amount to an unsustainable exercise of discretion and grounds for reversal. See Connor, 467 N.E.2d at 1347.
In the present case, given the trial judge's extensive findings on July 12, the record does not fairly support his July 14 conclusion that Juror 13 had engaged in a "pattern" of disobedience amounting to a violation of his oath. On July 12, the trial court dismissed Juror 13's sleeping as insignificant, found his submission of questions to be evidence of attentiveness, and found no concrete evidence of an inability to deliberate fairly despite the juror's past dealings with members of the Attorney General's staff. These decisions are supported by the record, and the trial judge gave no reason for reversing them on July 14. Moreover, there is no support in the record for the trial court's July 14 finding that Juror 13 had "continually" submitted questions after being "repeatedly" instructed not to. To the contrary, the record reveals that after the trial court issued for the first and only time an instruction on July 7 stating that questions needed to be held until deliberations, Juror 13 ceased his submissions.
Nevertheless, after the legal dictionary incident, the trial court found that "as a result of [a] cumulative effect," Juror 13's behavior warranted dismissal. We disagree, however, that this act constitutes a meritorious reason for dismissal, or contributed to a would-be "pattern" of violations on the part of Juror 13. There is no evidence that Juror 13's attempt to use the dictionary had an impact on his own ability to deliberate, or on that of his fellow jurors. His action, to be sure, evidenced an intent to supplement or modify the trial court's definition of the law of conspiracy in violation of the court's instructions. We do not condone this behavior and can understand why the trial court may have been frustrated with it. We do emphasize, though, that the trial judge did not discredit Juror 13's voir dire testimony that the dictionary had not yet been used, or find that the dictionary had somehow influenced Juror 13's view of the law of conspiracy. We therefore agree with the defendant that the legal dictionary incident was innocuous, since the record does not support a finding that Juror 13 would have gone on to deliberate inconsistently with the law handed down by the court.
We also note that under these circumstances, namely, where a legal dictionary has been brought into deliberations but has not been used in any relevant way, courts tend to reject calls for a mistrial. See, e.g., United States v. Gillespie, 61 F.3d 457, 459 (6th Cir.1995). "When a jury makes unauthorized use of a dictionary, the trial judge should determine whether the jury actually substituted the dictionary definition of a legal term for that given in the instructions." Id. (quotation and emphasis omitted). Absent prejudicial use of a dictionary, no grounds for a mistrial exist. See id. Similarly, here, we find the lack of a taint on the deliberative process to be controlling. The record does not demonstrate that Juror 13's unsuccessful effort to use a legal dictionary had a demonstrable impact on the deliberative process.
In sum, we find that the trial court's ruling that Juror 13 could not generally follow directions or deliberate appropriately is not borne out by the record in this case, largely in light of the trial judge's own extensive findings to the contrary. We further find that the final act leading to Juror 13's dismissal a failed attempt to use a legal dictionary had no *154 demonstrable impact on the deliberative process. Therefore, while we understand that the State and the trial court may have experienced frustration with Juror 13's need for supervision over the course of a lengthy trial, we conclude that there was no meritorious reason to dismiss him from the panel. The trial court's order to the contrary necessitates reversal of the defendant's convictions, since the non-meritorious discharge of a deliberating juror is a violation of a fundamental constitutional right. Opinion of the Justices, 137 N.H. at 104-05, 623 A.2d 1334. Juror 13 was properly impaneled; the defendant had a vested interest in his continued participation in deliberations that should not have been disturbed.
B
The defendant also challenges the procedures employed by the trial court when it seated Juror 13's replacement. While he "makes no complaint about the court's instructions" to the jury, he maintains that the court secured inadequate guarantees from the remaining original jurors that they could and would completely restart their deliberations. We agree with his argument on this point, too, and thus find further grounds for reversal.
After the discharge of Juror 13, the trial judge undertook a brief voir dire of each of the remaining eleven jurors. Each juror responded in the negative when asked whether Juror 13's attempted use of a legal dictionary would have any impact on his or her deliberation, and whether Juror 13's dismissal and replacement would have an effect on deliberations. The jurors were also asked, as a group, whether they felt they could still be fair and impartial. All eleven responded affirmatively.
The court then issued the following additional instructions:
The statute says that I am to instruct you to recommence deliberations and give you such other instructions as may be appropriate and then you shall renew deliberations. But that's not enough. That's not enough.
I am instructing you to do something more burdensome than that. I am instructing you to go back to the beginning. I'm instructing you to colloquially . . . start from square one and not bring the alternate colloquially up to speed. And you have a collective I see[ ] nodding heads, and I'm very grateful for that.
You have a collective memory of where you started, I'm sure, and that includes going over exhibits, if it happened to be there, make sure you cover that base. If you started with the instructions, go back and start with the instructions. In other words, it's not simply enough to renew where you left off.
. . . .
. . . Ladies and gentlemen, I instruct you once again to begin at the beginning and we look forward to your work product. . . .
Is there anyone who does not understand the court's instructions? Alright. Thank you very much.
The jury was then released to deliberate, and ultimately returned guilty verdicts on the indictments.
RSA 500-A:13, V provides, in pertinent part, that after an alternate takes the place of a disqualified juror,
[t]he presiding justice shall instruct the jury to recommence deliberations and shall give the jury such other supplemental instructions as may be appropriate. The jury shall then renew its deliberations with the alternate juror.
*155 As the trial judge indicated, the reconstituted jury could not simply resume deliberations after the legal dictionary incident. Instead, the jury needed to once again "start from square one" with its new member. Constitutional concerns about the substitution of an alternate juror for a deliberating juror stem from the right of a defendant to have each juror arrive at his or her decision after engaging in all of the jury's deliberations. Opinion of the Justices, 137 N.H. at 103-04, 623 A.2d 1334. "The requirement that 12 persons reach a unanimous verdict is not met unless those 12 reach their consensus through deliberations which are the common experience of all of them." Id. at 104, 623 A.2d 1334 (quotation omitted). "Requiring that the trial court instruct the jury to set aside and disregard all past deliberations and begin deliberating anew is, therefore, essential to satisfying the defendant's constitutional right to a fair and impartial jury." Id. In this case, the trial court adequately addressed this concern with its instructions.
We have also held, however, that "the remaining jurors should affirmatively state that they can and will start the deliberations anew." Id. (emphasis added). This holding is not merely hortatory. Compare ABA Stds. for Criminal Justice, supra § 15-2.9 cmt. at 176 ("[I]t is uncertain that, even when so instructed by the court, the jury could truly go back to `square one,' discussing the case anew as though no prior deliberations had occurred, and repeating all prior arguments for the sake of the newcomer."). Therefore, prior to substituting an alternate for a deliberating juror, trial courts in this state must ask each remaining juror whether he or she "can and will start the deliberations anew." Opinion of the Justices, 137 N.H. at 104, 623 A.2d 1334 (emphasis added). In other words, each juror should be certain of his or her ability to set aside all opinions and conclusions formed during prior deliberations. Only in cases where this is possible is a defendant's constitutional right to have a jury of twelve arrive at a common verdict sufficiently protected in the event that it becomes necessary to seat an alternate juror after the commencement of deliberations. Because the trial court failed to secure such guarantees here, we find further cause to reverse the defendant's convictions.
In reversing the defendant's convictions, our focus is not upon the nature of the crime charged but upon the fundamental constitutional right implicated by the removal of a deliberating juror. There is a sanctity in ongoing jury deliberations that should not be disturbed unless patently necessary, regardless of the nature of the crime alleged. With that said, we remand this matter to the trial court for further proceedings consistent with this opinion.
Reversed and remanded.
DALIANIS and GALWAY, JJ., concurred. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541241/ | 344 B.R. 218 (2006)
In re Mezal AL-JIBOURY, Debtor.
No. 05-30057 JNF.
United States Bankruptcy Court, D. Massachusetts.
June 22, 2006.
*219 Walter Oney, Boston, MA, for Debtor.
MEMORANDUM
JOAN N. FEENEY, Bankruptcy Judge.
I. INTRODUCTION
The matter before the Court is the Motion for Contempt pursuant to which Mezal Al-Jiboury (the "Debtor") seeks a determination that the Massachusetts Department of Transitional Assistance (the "DTA"), which administers the Commonwealth's food stamps program, violated the discharge injunction imposed by 11 U.S.C. § 524 by forwarding to him, post-discharge, a notice stating that it would begin recoupment of an overpayment of food stamp benefits. The DTA filed an Opposition to the Debtor's Motion, observing that it sent the notice in error and had advised Debtor's counsel that it has suspended all efforts to recoup the overpayment.
The issue presented is whether the Debtor has sustained his burden of establishing a violation of the discharge injunction. The material facts necessary to determine the issue of liability are undisputed. The DTA submitted the Declaration of its Assistant General Counsel, *220 Daniel LePage, in which Attorney LePage set forth pertinent facts, and both parties submitted a number of documents, including the transcript of a hearing before Judge Somma in the case of Byrd-Enama v. Wagner, No. 05-1337-JS (Bankr.D. Mass., June 29, 2005). Neither party requested an evidentiary hearing with respect to the issue before the Court, although, if the Court were to find the DTA in contempt, an evidentiary hearing would be necessary to determine damages. For the reasons set forth below, however, the Court finds that the Debtor has failed to sustain his evidentiary burden. Accordingly, the Court shall enter an order denying the Debtor's Motion.
II. FACTS
The Debtor filed a voluntary Chapter 7 petition on November 4, 2005. He did not list the DTA as a creditor, and, as a result, it did not receive notice of the bankruptcy filing or notice of the meeting of creditors, which was held on November 29, 2006.
Approximately one month after the commencement of the Debtor's case, on December 7, 2005, the DTA notified the Debtor that, as a result of an error on its part, it overpaid his food stamp benefits by a total of $294 prior to the commencement of the bankruptcy case. According to Attorney LePage, the DTA was unaware that the Debtor had filed a bankruptcy petition at the time it mailed him the notification.
The Debtor appealed the DTA's determination of overpayment on December 23, 2005, and the DTA scheduled a hearing with respect to the appeal. On January 10, 2006, the Debtor attended a hearing conducted by the DTA. He was represented by an attorney who did not raise an issue that the hearing was being convened and conducted in violation of the automatic stay.[1] On January 12, 2006, the Debtor's bankruptcy counsel wrote to Attorney LePage to request that the DTA cease all attempts to recover the $294 overpayment. After receiving the letter from Debtor's counsel, Attorney LePage advised him that "the DTA would suspend the recoupment of the overpayment." Attorney LePage and Debtor's counsel, however, did not agree on whether the overpayment would be dischargeable in bankruptcy.
On February 6, 2006, the Debtor received his discharge. According to Attorney LePage, the DTA did not receive any notice from the Bankruptcy Court of the discharge order. Contemporaneously, on February 9, 2006, the DTA hearing officer issued a decision with respect to the Debtor's appeal. According to the written decision prepared by Colin M. Connor, the DTA hearing officer,
The appellant was represented by an attorney. His attorney did not dispute the amount of the overpayment, or that it had occurred. She argued that requiring the appellant to repay the overpayment would cause him undue hardship.
The appellant introduced a copy of a bankruptcy proceeding memorandum showing that his Chapter 7 petition had been approved . . . and other budget information. . . .
The hearing officer concluded that under 106 CMR 367.495, "overpayments of Food Stamp benefits must be repaid whether *221 caused by household error or Department error."
Despite having been advised of the Debtor's pending bankruptcy case and agreeing to suspend recoupment efforts, on March 15, 2005, the DTA mistakenly wrote to the Debtor to inform him that his food stamp benefits would be reduced for a period of time sufficient for the DTA to recover the overpayment. According to Daniel LePage, "[a]fter Attorney Oney brought the notice to my attention, I confirmed that DTA would suspend any efforts to recoup the overpayment."
III. POSITIONS OF THE PARTIES
A. The Debtor
The Debtor argues that the DTA's continued attempts to collect the overpayment should be punished as a contempt. Relying upon Judge Somma's ruling in Byrd-Enoma v. Wagner, No. 05-1337-RS (Bankr.D. Mass, June 29, 2005), the Debtor states that "[b]y the time this case was filed, DTA was already aware that, in the absence of fraud, pre-petition food stamp overpayments are discharged in a bankruptcy case." In Byrd-Enoma, Judge Somma, in a bench ruling, determined that DTA's alleged right to discontinue food stamp benefits under its governing regulations due to a prior overpayment is a right to payment and, therefore, a "claim" subject to discharge under § 727(b) of the Bankruptcy Code.
The Debtor admits that take he did not take steps to insure that DTA received a copy of the discharge order because his bankruptcy counsel was unaware until January 12, 2006 that the DTA asserted a claim against him. He adds:
By January 18, 2006, when bankruptcy counsel discussed the overpayment issue with Mr. LePage, the discharge order was imminent and Mr. LePage gave assurances that counsel interpreted as meaning that DTA would honor the discharge order when it entered. Counsel's January 12, 2006 letter to Mr. LePage specifically mentioned "any discharge that may enter". The Debtor says that this mention of discharge, coupled with DTA's institutional knowledge stemming from the Byrd-Enoma case, created a positive duty for DTA to determine whether and when a discharge might have entered before resuming its collection actions against the Debtor. DTA should therefore be found to have had constructive knowledge of the discharge injunction.
The Debtor argues that Ellis v. Dunn (In re Dunn), 324 B.R. 175 (D.Mass.2005), should not control this case because the legal principles applicable to violations of the discharge injunction changed after the discharge entered in the Dunn case. He urges the Court to employ the standard of proof used by the Court in Cherry v. Arendall (In re Cherry), 247 B.R. 176 (Bankr. E.D.Va.2000), a case cited by the United States Court of Appeals for the First Circuit in Bessette v. Avco Fin. Servs., Inc., 230 F.3d 439 (1st Cir.2000), namely the same standard used for determining whether a stay violation is willful under 11 U.S.C. § 362. Thus, he argues that the Court should not require proof of contempt by clear and convincing evidence. In sum, the Debtor argues that the DTA should have known of the discharge order by March 15, 2006 because of his counsel's letter of January 12, 2006 and Judge Somma's decision in Byrd-Enoma.
The Debtor also maintains that the DTA may not justify its actions by relying upon the equitable doctrine of recoupment. He states that the food stamp program constitutes an entitlement, not a contractual arrangement, and the nature of the payments in his case are different that those *222 considered by the First Circuit in Holyoke Nursing Home, Inc. v. Health Care Financing Administration, 372 F.3d 1 (1st Cir.2004). According to the Debtor, the Health Care Financing Administration made estimated payments to the nursing home, subject to annual adjustment, whereas he received food stamps that he used to buy food for himself and his dependents. As an alternative argument, he maintains that the DTA is not entitled to relief under a contract theory and should bear the risk if its unilateral mistake in overpaying benefits.
B. The Department of Transitional Assistance
The DTA maintains that it should not be held in contempt because there is no clear and convincing evidence that it received actual notice of a clear and unambiguous order addressed to it. Relying on United States v. Saccoccia, 433 F.3d 19, 27 (1st Cir.2005), Ellis v. Dunn (In re Dunn), 324 B.R. 175, 179 (D.Mass.2005), and Parker v. Boston Univ. (In re Parker), 334 B.R. 529, 538 (Bankr.D.Mass.2005), it argues that the Debtor must prove, with clear and convincing evidence that it had notice that it was within the ambit of the discharge order; that the order was clear and unambiguous, that it had the ability to comply with the discharge order, and that the order was violated. It maintains that constructive knowledge of the discharge order is insufficient for a finding of contempt, adding that it did not know that the discharge order actually existed or how the discharge specifically applied to it in view of its recoupment rights.
The DTA also rejects the Debtor's reliance on Judge Somma's bench ruling in Byrd-Enoma, noting that in that case the Debtor sought to enjoin it from conducting an administrative disqualification hearing while the automatic stay was in effect. The DTA stated that it had not addressed the propriety of recoupment at the time of the hearing before Judge Somma because it had not yet found an overpayment to have existed. Rather, according to the DTA, in Byrd-Enoma the regulatory sanction for the debtor's alleged violation was prospective ineligibility for food stamps.
The DTA also rejects the Debtor's attempt to distinguish the recoupment permitted in Holyoke Nursing Home, Inc. It maintains that it is required by regulation to attempt to recover overpayments caused by agency error. See 106 CMR 367.495(E)(2). It asserts that "[a]t the very least, it is an open question whether these overpaid benefits could be recouped, as so the preclusive effect of the discharge was uncertain."
Finally, the DTA maintains that the discharge injunction was not actually violated because to date nothing has been withheld from the Debtor's food stamp benefits, and the DTA has no intention of withholding any part of the $294 overpayment in the future.
IV. DISCUSSION
A. Applicable Law
1. Violations of the Discharge Injunction
Section 524(a)(2) provides that a discharge "operates as an injunction against the commencement or continuation of an action, the employment of process, or any act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived." 11 U.S.C. § 524(a)(2). A bankruptcy court is authorized to invoke 11 U.S.C. § 105 to enforce the discharge injunction imposed by § 524 and order damages, including actual damages, attorneys' fees and punitive damages, if warranted. U.S. v. Rivera Torres (In re Rivera *223 Torres), 432 F.3d 20, 27 (1st Cir.2005), Bessette v. Avco Fin. Servs., Inc., 230 F.3d 439, 445 (1st Cir.2000). See also In re Hardy, 97 F.3d 1384, 1389-90 (11th Cir. 1996).
There is a divergence of opinion as to the level of proof required to establish a violation of the discharge injunction. Some courts require clear and convincing evidence for a finding of civil contempt, while others adopt the same standard for enforcing the discharge injunction under § 105 as they employ for determining violations of the automatic stay. In Pratt v. General Motors Acceptance Corp. (In re Pratt), 324 B.R. 1, 5 (Bankr.D.Me.2005), aff'd, 2005 WL 1961341 (D.Me. August 15, 2005), Judge Haines ably discussed the issue. He stated:
GMAC argues that a finding of civil contempt must rest on clear and convincing evidence. Generally speaking, that proposition is true. AccuSoft Corp. v. Palo, 237 F.3d 31, 47 (1st Cir.2001); Gemco Latinoamerica, Inc., v. Seiko Time Corp., 61 F.3d 94 (1st Cir.1995). The Pratts posit that violations of the statutory discharge injunction stand on a different footing. In their view, enforcing the discharge injunction via § 105 is like enforcement of similar Code provisions where clear and convincing evidence is not required. See, e.g., § 362(h); Fleet Mortgage Group, Inc. v. Kaneb (In re Kaneb), 196 F.3d 265 (1st Cir.1999) (discussing willful violation of the automatic stay and determining that relief may be obtained if the offending party knew of the stay and intended the action that violated it).
The Pratts' position has much to recommend it, given the statute's clarity, and the essential role discharge plays in the Code's fresh start objective. Bessette recognized that § 524(a) is enforced by way of § 105(a), rather than directly, in proceedings styled "civil contempt." The cases cited by the Bessette court do not discuss burden of proof directly, although, on balance, they adopt the same "willfulness" elements as the First Circuit recognized in Kaneb. Those elements (knowledge of the order, willful action that violates the order) do not fit with a "clear and convincing" burden of proof. See Hardy v. United States (In re Hardy), 97 F.3d 1384, 1389-90 (11th Cir.1996) (citation for contempt under the court's inherent powers made only upon a showing of "bad faith," whereas liability for contempt of § 524 injunction under § 105 lies if defendant willfully violated § 524); In re Elias, 98 B.R. 332, 337 (N.D.Ill.1989) ("It is enough if the order violated is specific and definite, and that the offending party has knowledge of it."); but see In re Arnold, 206 B.R. 560, 568 (Bankr.N.D.Ala.1997) (sanctions for violation of discharge injunction can issue through court's inherent powers on showing of bad faith or "malevolent intent"); cf. In re Rosteck, 899 F.2d 694, 697 (7th Cir.1990) (affirming award of sanctions without mention of § 105, and holding that creditor waived argument that proof of willfulness was required). Moreover, the First Circuit has expressly recognized that enforcement of the statutory discharge injunction, as compared to enforcing an injunction "individually crafted" by a judge, is a straightforward exercise. Bessette, 230 F.3d at 446 (enforcing the discharge injunction does not call for consideration of the judge's "insights and thought processes" as would be pertinent to enforcing a custom-made injunction).
In re Pratt, 324 B.R. at 5. Upon consideration of the parties' positions which mirror those of the DTA and the Debtor in this case, Judge Haines concluded:
*224 It would seem that proving a violation of the discharge injunction, actionable by way of a § 105(a) contempt proceeding, should only require proof by a preponderance of the evidence that the offending creditor knew of the bankruptcy discharge and took willful action in violation of the discharge injunction. Section 524(a)'s injunction is as critical to a deserving debtor's fresh start as the Code's automatic stay is to providing immediate relief to the financially distressed debtor. See Soares v. Brockton Credit Union (In re Soares), 107 F.3d 969, 975 (1st Cir.1997). Its enforcement should be no more burdensome. . . .
Id. (footnote omitted). See also Cherry v. Arendall (In re Cherry), 247 B.R. 176, 187 ("The Court agrees with the holding in Hardy that the standard used for determining whether a stay violation was willful pursuant to § 362 may be used to determine whether a violation of the discharge violation was willful. In a civil contempt proceeding, the state of mind with which the contemnor violated a court order is irrelevant and therefore good faith, or the absence of an intent to violate the order, is no defense.").
In Pratt, Judge Haines determined that it was unnecessary to decide the issue which he discussed, although, citing Fed. R. Bankr.P. 4004(g), he observed that "Creditors will seldom be unaware of the discharge injunction or its content." Id. at 5 n. 6. He added that the court could also fashion relief suitable to the facts and circumstances of each case. Id.
In contrast to the decision in Pratt, the United States District Court for the District of Massachusetts in Ellis v. Dunn (In re Dunn), 324 B.R. 175 (D.Mass.2005), crafted a strict standard and directed the bankruptcy court to employ the non-bankruptcy standard for the imposition of civil contempt sanctions because of the circumstances of the case, namely the debtor's failure to list her former attorney as a creditor in her schedules. The district court stated:
The appellants do not dispute that Ellis and Burdine [the alleged contemnors] had been informed of Dunn's bankruptcy discharge at least by the beginning of the trial in the Westborough District Court. Their argument is that knowledge of the fact of the discharge was insufficient under the circumstances to give them sufficient notice of the scope of the discharge injunction, and without undisputed proof that they were on notice that the injunction prohibited the Westborough District Court suit, it was error for the bankruptcy judge to find them in contempt of the injunction on Dunn's motion for summary judgment. I agree.
The bankruptcy judge concluded, in substance, that knowledge of the fact of the discharge amounted to a kind of "inquiry notice" that imposed on the appellants the duty to learn the scope of the order and, more particularly, the obligation enforceable by contempt sanctions to desist immediately from proceeding with the state court suit unless and until it was determined that the suit could be maintained without violating the injunction. This was error because it is inconsistent with settled principles governing the standards for proving civil contempt.
Ellis v. Dunn, 324 B.R. at 178-79(emphasis in original).
Citing Project B.A.S.I.C. v. Kemp, 947 F.2d 11, 17 (1st Cir.1991), the District Court then articulated the applicable standard as follows:
"[T]hose who would suffer penalties for disobedience must be aware not merely of an order's existence, but also of the fact that the order is directed at them. . . . We think it is beyond serious *225 question that, as a necessary prelude to a finding of contempt, the putative con: temnor should have reasonably definite advance notice that a court order applies to it.
* * * * * *
A court order, then, must not only be specific about what is to be done or avoided, but can only compel action from those who have adequate notice that they are within the order's ambit. For a party to be held in contempt, it must have violated a clear and unambiguous order that left no reasonable doubt as to what behavior was expected and who was expected to behave in the indicated fashion. In determining specificity, the party enjoined must be able to ascertain from the four corners of the order precisely what acts are forbidden." Ellis v. Dunn, 324 B.R. at 179 (emphasis supplied). In reaching its decision, the district court cited Renwick v. Bennett (In re Bennett), 298 F.3d 1059, 1069 (9th Cir. 2002);[2]Koehler v. Grant, 213 B.R. 567, 570 (8th Cir. BAP 1997)("A court cannot issue a contempt order unless a party has violated a specific order of which he or she is aware."); Musslewhite v. O'Quinn (In re Musslewhite), 270 B.R. 72, 79 (S.D.Tex. 2000)("A movant in a civil contempt proceeding bears the burden of establishing by clear and convincing evidence: (1) that a court order was in effect, (2) that the order required certain conduct by the respondent, and (3) that the respondent failed to comply with the court's order.");[3] and American Chem. Works Co. v. Int'l Nickel, Inc. (In re American Chem. Works Co.), 235 B.R. 216, 220-21 (Bankr.D.R.I. 1999).[4] It concluded the clear and convincing *226 standard applies in the bankruptcy context and, it appeared to reject the view that the standard for determining violations of the automatic stay applies. Nevertheless, the district court recognized the Kaneb standard, stating:
The bankruptcy judge's grant of summary judgment was premised on the conclusion that the appellants' awareness of the discharge gave sufficiently specific content to the statutory discharge injunction that violation of the injunction by prosecution of the civil action was punishable as a contempt. She properly recognized that in cases involving violations of the automatic stay under 11 U.S.C. § 362, a creditor will be found to have willfully violated the stay if it is shown that he had knowledge of the stay and intended the actions which constituted the violation. Fleet Mortgage Group, Inc. v. Kaneb, 196 F.3d 265, 269 (1st Cir.1999). In such cases it is possible to presume that the violation of the stay was deliberate if the creditor had actual notice of the automatic stay, see id., because the Section 362 stay automatically forbids all collection actions. A creditor who receives actual notice of the stay necessarily knows it applies to him, so it is fair to conclude that any actions to press claims despite the stay were willfully undertaken. See McMullen v. Sevigny (In re McMullen), 386 F.3d 320, 330 (1st Cir.2004); Rijos v. Banco Bilbao Vizcaya (In re Rijos), 263 B.R. 382, 392 (1st Cir. BAP 2001).
The same standard may also be applied to violations of clear and unambiguous discharge orders that leave no reasonable doubt as to what behavior is expected and who is expected to behave in the indicated way. See In re Perviz, 302 B.R. 357, 370 (Bankr.N.D.Ohio 2003); McDonald v. Norwest Fin., Inc. (In re McDonald), 265 B.R. 3, 9 (Bankr. D.Mass.2001); Worthing v. Connecticut Nat'l Bank (In re Worthing), 24 B.R. 774, 777 (Bankr.D.Conn.1982). But if it is not clear whether the debtor's discharge affected a particular debt or a particular creditor, actual knowledge simply of the existence of that order by itself may not be sufficient to presume a deliberate violation of the order.
The discharge order at issue here did not release Dunn from all debts; it released her from all dischargeable debts. Some reference to the possible exceptions to discharge under 11 U.S.C. § 523 was therefore invited as necessary to understand the actual scope of the injunction. The appellants took the position that Ellis's claim against Dunn had not been discharged based on facts particular to Dunn's case. Unlike notice of the universal automatic stay during the pendency of the bankruptcy proceedings, knowledge of the discharge injunction in this case did not necessarily advise these appellants of the scope of the injunction. It is certainly possible that the appellants knew, or reasonably should have known, that the discharge injunction applied to them but chose to look the other way. It is also possible that they held an objectively reasonable belief that, for reasons specific to Dunn's bankruptcy case, the injunction did not apply to Ellis's claim.
Ellis v. Dunn, 324 B.R. at 179-80.[5]
The district court concluded that the scope of the discharge was sufficiently ambiguous *227 to preclude the entry of summary judgment with respect to liability because the debtor had failed to schedule the debt to the alleged creditor, Ellis, and allegedly had concealed assets. It determined that the "[s]ome reference to the possible exceptions to discharge under 11 U.S.C. § 523 was . . . invited as necessary to understand the actual scope of the injunction." Id. at 180. Thus, in Ellis v. Dunn, the court appears to have crafted an exception to the more liberal stay violation standard applicable to alleged violations of the discharge injunction formulated by the Eleventh Circuit in Hardy in those circumstances where the creditor did not receive timely notice of the discharge injunction or the discharge order left doubt as to who and what conduct was enjoined. Id.
2. Recoupment
The United States Court of Appeals for the First Circuit has had recent occasion to discuss the equitable doctrine of recoupment in the context of Medicare adjustments. In Slater Health Center, Inc. v. United States (In re Slater Health Center, Inc.), 398 F.3d 98, 103 (1st Cir. 2005), it stated:
The dispositive issue in this case is simply whether Medicare's adjustment to Slater's reimbursement claims for prior overpayments constituted an invalid setoff that contravened the bankruptcy code's automatic stay provision, 11 U.S.C. § 362(a)(7), or instead a valid recoupment, which would not be affected by bankruptcy but could simply be deducted from debts owed to Slater as a matter of course. See Holyoke, 372 F.3d at 3. A setoff is C's deduction from C's debt to B of an amount based on B's unrelated debt to C; a recoupment is C's deduction from C's debt to B based on B's debt to C arising out of the same transaction. See, e.g., id. at 3-4; United Structures of Am., Inc., v. G.R.G. Eng'g, S.E., 9 F.3d 996, 998 (1st Cir.1993); see also Collier on Bankruptcy ¶ 553.10 (15th ed. rev.2004).
The answer to this question is controlled by our recent decision in In re Holyoke Nursing Home, Inc. In that case we held, in conformity with the majority of other circuits to consider the question, that Medicare's adjustment for an overpayment constitutes a recoupment, not a setoff. . . .
398 F.3d at 103 (emphasis added).
Bankruptcy courts frequently consider recoupment in a variety of contexts. For example, in In re Jones, 289 B.R. 188 (Bankr.M.D.Fla.2002), the court observed the following:
[W]hile the discharge prohibits a setoff of any debt as to the personal liability of a debtor, Section 524(a)(2) of the Code does not prohibit a recoupment. Moreover, the term "debt" is defined by 11 U.S.C. § 101(12) as a liability of a claim, which in turn is defined by 11 U.S.C. § 101(5), to mean a "right to payment." Recoupment is a defensive mechanism, which does not seek affirmative relief but merely seeks to defeat or reduce the claim by the entity who seeks recoupment.
298 B.R. at 191. The court added: "Recoupment is an equitable defense, which enables a defendant to reduce liability on a plaintiffs claim by asserting an obligation of the plaintiff, which arose out of the same transaction. Recoupment is only a challenge to the validity and extent of the plaintiffs claim, and no affirmative recovery *228 is permitted." Id. at 192. See also Megafoods Stores, Inc. v. Flagstaff Realty Assocs. (In re Flagstaff Realty Assocs.), 60 F.3d 1031, 1035 (3d Cir.1995)("A claim subject to recoupment avoids the usual bankruptcy channels and thus, in essence, is given priority over other creditors' claims."); Malinowski v. N.Y. State Dep't of Labor (In re Malinowski), 156 F.3d 131, 133 (2d Cir.1998)("Recoupment is an equitable defense, which enables a defendant to reduce liability on a plaintiff's claim by asserting an obligation of the plaintiff, which arose out of the same transaction. Recoupment is only a challenge to the validity and extent of the plaintiff's claim, and no affirmative recovery is permitted."); United Structures of America, Inc. v. G.R.G. Eng'g, 9 F.3d 996, 999 (1st Cir.1993)(allowing creditor to recoup damages allows the debtor what it is due when viewing the transaction as a whole "because a debtor has, in a sense, no right to funds subject to recoupment"); Brown v. General Motors Corp. (In re Brown), 152 B.R. 935, 938 (W.D.Wis.1993). But see Kings Terrace Nursing Home and Health Related Facility v. N.Y. State Dep't of Soc. Servs. (In re Kings Terrace Nursing Home and Health Related Facility), 184 B.R. 200, 203 (S.D.N.Y.1995); Anthem Life Ins. Co. v. Izaguirre (In re Izaguirre), 166 B.R. 484, 492 (Bankr.N.D.Ga.1994).
B. Analysis
Under the circumstances of this case the Court finds that there was no violation of the discharge order. Because this case has elements in common with Ellis v. Dunn, namely the lack of notice to the DTA of both the case commencement and the entry of the discharge, the Court must hold the Debtor to a higher standard than if the DTA had received notice of the entry of the discharge and a copy of the discharge order in accordance with Fed. R. Bankr.P. 4004(g). The pertinent facts are that the DTA did not receive notice of the commencement of the case, notice of the meeting of creditors, notice of the deadlines for filing complaints under 11 U.S.C. §§ 523, 727, notice of the entry of the discharge order, or a copy of the discharge order. As in Ellis v. Dunn, and unlike the situation in In re Byrd-Enoma, the DTA was not listed as a creditor. Indeed, it did not determine it had overpaid food stamp benefits until after the commencement of the case. Thus, the Byrd-Enoma case is factually distinguishable from the instant case.
According to Attorney LePage, the DTA did not agree that its debt was dischargeable. Moreover, the DTA had recoupment rights against the Debtor, which may not have been available to it in the Byrd-Enoma case. The exercise of these rights, arguably, would not be barred by either the automatic stay or the entry of the discharge injunction. Although the Debtor attempts to distinguish contractual recoupment rights from those afforded the DTA through regulations set forth at 106 CMR 367.495, this is a distinction without a difference in view of the principles and purposes of the equitable doctrine of recoupment and the case law in this Circuit.
Under the circumstances of this case, the Court rejects the Debtor's argument that the DTA was required to monitor his case and determine when the discharge entered based upon receipt of notice in mid-January that the Debtor had filed a voluntary Chapter 7 petition or that the DTA had constructive notice of the entry of the discharge order which would preclude it from exercising its recoupment rights. While the standard applicable to violations of the automatic stay may pertain to most violations of the discharge injunction when the alleged contemnor is a listed creditor and receives notice of the discharge, that standard cannot serve as a *229 basis for civil contempt where the DTA was not listed as a creditor or served with the discharge order and at least arguably has recoupment rights for overpayments which would not diminish the bankruptcy estate. Notice of the bankruptcy case and constructive notice of the discharge order simply did not provide it with unambiguous notice that the discharge proscribed recoupment of the overpayment. In sum, the Debtor failed to establish that the DTA knew of the discharge order; that the order precluded it from exercising recoupment rights, and that it failed to comply with the Court's discharge order by sending the March 15, 2006 notice advising him that it intended to recoup the overpayment by a reduction in his food stamp benefits.
Additionally, in view of the DTA's representations that it would not seek to recoup the $294 overpayment following the intercession of Debtor's counsel, the equities, like the legal analysis set forth above, simply do not support the Debtor's position that the DTA should be found in contempt and subject to sanctions for mistakenly sending him a notice of its intention to exercise the right of recoupment.
V. CONCLUSION
In view of the foregoing, the Court shall enter an order denying the Debtor's Motion for Contempt.
NOTES
[1] The Debtor has not requested a determination that the hearing violated the automatic stay, and the Court makes no such determination. The Debtor's appeal, however, precipitated the DTA hearing, and the conduct of his attorney in failing to raise an issues as to a possible stay violation arguably estops the Debtor from contending that a stay violation occurred.
[2] In Renwick, the court stated:
"The standard for finding a party in civil contempt is well settled: The moving party has the burden of showing by clear and convincing evidence that the contemnors violated a specific and definite order of the court. The burden then shifts to the contemnors to demonstrate why they were unable to comply." F.T.C. v. Affordable Media, 179 F.3d 1228, 1239 (9th Cir.1999) (citation omitted). As discussed by the Eleventh Circuit in Hardy, to justify sanctions, the movant must prove that the creditor (1) knew the discharge injunction was applicable and (2) intended the actions which violated the injunction. See Hardy, 97 F.3d at 1390 (citing Jove Eng'g, Inc. v. Internal Revenue Service, 92 F.3d 1539, 1555 (11th Cir.1996)).
298 F.3d at 1069. Affordable Media is a nonbankruptcy case, while Hardy is a bankruptcy case. In Hardy, the court utilized the Kaneb formulation discussed by Judge Haines in Pratt. The Eleventh Circuit stated:
This court has stated that "the focus of the court's inquiry in civil contempt proceedings is not on the subjective beliefs or intent of the alleged contemnors in complying with the order, but whether in fact their conduct complied with the order at issue." Howard Johnson Co. v. Khimani, 892 F.2d 1512, 1516 (11th Cir.1990) (quoted in Jove, 92 F.3d at 1554). In Jove, this court adopted a two-pronged test to determine willfulness in violating the automatic stay provision of § 362. Under this test the court will find the defendant in contempt if it: "(1) knew that the automatic stay was invoked and (2) intended the actions which violated the stay." Jove, 92 F.3d at 1555. This test is likewise applicable to determining willfulness for violations of the discharge injunction of § 524.
Hardy, 97 F.3d at 1390.
[3] The court added that the contemptuous action need not be willful as long as the party alleged to be in contempt actually failed to comply with the court's order.
[4] In this case the corporate debtor sought damages for violation of the automatic stay. The bankruptcy judge discussed the debtor's argument for a civil contempt remedy under § 105 in lieu of damages under § 11 U.S.C. 362(h). The court, relying upon a non-bankruptcy case, Langton v. Johnston, 928 F.2d 1206, 1220 (1st Cir.1991), stated "`a complainant must prove civil contempt by clear and convincing evidence.'" 235 B.R. at 220-21.
[5] In Perviz, the court stated: "When a violation of the discharge injunction of § 524(a) is at issue, a finding of contempt is appropriate when, under the identical standard as set forth in § 362(h), the creditor's actions are found to be `willful.' Couched in the language of § 524, a `willful' violation of the discharge injunction takes place `if the creditor knew the discharge injunction was invoked and intended the actions which violated the discharge injunction.'" 302 B.R. at 370. The other decisions cited by the district court set forth that same standard. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541263/ | 700 A.2d 766 (1997)
R.D.H. COMMUNICATIONS, LTD., et al., Appellants,
v.
James L. WINSTON, et al., Appellees.
No. 96-CV-143.
District of Columbia Court of Appeals.
Argued January 28, 1997.
Decided September 18, 1997.
John K. Henderson, Jr., was on the brief for appellants.
Jack A. Gould, Washington, DC, for appellees. Aaron L. Handleman, Washington, DC, also entered an appearance for appellees.
Before SCHWELB and RUIZ, Associate Judges, and GALLAGHER, Senior Judge.
*767 GALLAGHER, Senior Judge:
In this legal malpractice action, the clients (appellants) argue we should adopt the continuous representation rule in relation to the statute of limitations. Under such a rule, the statute of limitations on their claim would begin to run on the date their attorney (appellee) ceased to represent them in the specific matter in which he allegedly committed malpractice. We hereby adopt the continuous representation rule and, therefore, reverse and remand.
I.
Appellee attorney James L. Winston represented appellant R.D.H. Communications, Ltd. in its effort to build a new FM radio station in Baker, Louisiana. Winston was responsible for preparing and filing an application to the Federal Communications Commission ("FCC"). On January 28, 1991, the FCC dismissed the application because it failed to include a financial certification page.
On January 29, 1991, Attorney Winston wrote to Mr. David Greenberg, the son of one of R.D.H.'s limited partners, and offered three explanations as to what could have happened to the missing page: (1) the page was lost in the process of being sent to the general partner of R.D.H., Ms. Renette Hall, for signature and return to Winston's office; (2) the page was lost during the photocopying process prior to being filed with the FCC; and (3) the FCC lost the page. Winston stated the second scenario raised the possibility that the page might have been lost by the law firm, but that in ten years of filing such applications this was the first time there had ever been a missing page. Winston indicated the firm would be preparing a petition for reconsideration and offered the following analysis:
It is too early to provide a complete assessment of the likelihood of success of our petition. However, our initial research suggests that we have a strong argument for reinstatement. We will do everything we can to get the application reinstated, and I will keep you fully advised of our progress.
On February 19, 1991, Winston sent a copy of the petition for reconsideration in the FCC to R.D.H. partner Renette Hall. In his cover letter, he wrote:
I am confident that we will be successful in obtaining reinstatement of your application. I will keep you advised.
The FCC denied the petition for reconsideration and the United States Court of Appeals for the District of Columbia Circuit affirmed, on a motion for summary affirmance, the FCC's decision. On March 15, 1994, Winston wrote to R.D.H. partner Hall indicating that it was unlikely that the Court of Appeals would rehear a case that was decided on summary affirmance and it was unlikely that the United States Supreme Court would accept their case on appeal. Winston concluded:
Therefore, we have come to the end of the road on this case. I regret it did not turn out differently. Best regards, please stay in touch.
R.D.H. and limited partner Lawrence Weinberg sued Winston and his law firm for malpractice on August 17, 1995. The trial court found that R.D.H. knew or should have known of the injury on January 29, 1991, the date of the first letter from Attorney Winston; and therefore, based on the discovery rule, the cause of action accrued on that date. Thus, the court reasoned, the action was time-barred by the three-year statute of limitations, pursuant to D.C.Code § 12-301 (1995 Repl.), and granted the defendants' motion for summary judgment. R.D.H. filed a motion for reconsideration. The trial court denied this motion, but noted that its failure to invoke the so-called continuous representation rule may be unnecessarily harsh to plaintiffs who may have been injured by defendants' alleged malpractice. The court concluded it was applying the law "as it stands" and noted any change in the law should come from the Court of Appeals.
II.
Summary judgment must be granted if there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Super. Ct. Civ. *768 R. 56(c) (1997). In reviewing the trial court's grant of summary judgment, we conduct an independent review of the record applying the same standard as the trial court. Colbert v. Georgetown Univ., 641 A.2d 469, 472 (D.C. 1994) (en banc). Where there is a question of law and the facts are undisputed, we will reverse the trial court only if the court reached an erroneous conclusion. Dale Denton Real Estate v. Fitzgerald, 635 A.2d 925, 927 (D.C.1993).
The statute of limitations for a legal malpractice claim is governed by the discovery rule "in cases where the relationship between the fact of injury and some tortious conduct is obscure at the time of injury." Knight v. Furlow, 553 A.2d 1232, 1234 (D.C. 1989).
Under this rule, a cause of action accrues when the plaintiff has knowledge of (or by the exercise of reasonable diligence should have knowledge of) (1) the existence of the injury, (2) its cause in fact, and (3) some evidence of wrongdoing.
Id. (citing Bussineau v. President & Directors of Georgetown College, 518 A.2d 423, 425 (D.C.1986)). Therefore, under the statute of limitations, R.D.H. had three years from the date of discovery to bring suit against Winston and his firm. Because the trial court found the discovery occurred on January 29, 1991, when Winston notified R.D.H. that his law firm might have lost the missing page, R.D.H. should have filed suit on or by January 29, 1994. Instead, the attorney malpractice claim was filed on August 17, 1995.
Assuming, but not deciding, that the trial court correctly found the discovery occurred on January 29, 1991, the discovery rule alone would bar this suit. But we are faced here with the question of whether this jurisdiction should adopt the continuous representation rule for legal malpractice claims. We think that it should and now hold that the continuous representation rule is applicable in the District of Columbia. Under this rule,
when the injury to the client may have occurred during the period the attorney was retained, the malpractice cause of action does not accrue until the attorney's representation concerning the particular matter in issue is terminated.
Weisberg v. Williams, Connolly & Califano, 390 A.2d 992, 995 (D.C.1978).[1] Thus, in essence, under the continuous representation rule the cause of action is tolled until the attorney ceases to represent the client in the specific matter at hand. Here, when the representation by Winston and his firm terminated is a question of fact that should be answered upon remand to the trial court. Wall v. Lewis, 393 N.W.2d 758, 763 (N.D. 1986).
The purpose and parameters of the rule have been recognized by the United States Court of Appeals for the District of Columbia:
The rule's primary purpose is to avoid placing a client in the untenable position of suing his attorney while the latter continues to represent him. For that reason, the rule is limited "to situations in which the attorney who allegedly was responsible for the malpractice continues to represent the client in that case."
Williams v. Mordkofsky, supra note 1, 284 U.S.App. D.C. at 57, 901 F.2d at 163 (quoting Glamm v. Allen, 57 N.Y.2d 87, 453 N.Y.S.2d *769 674, 677, 439 N.E.2d 390, 393 (1982)). Indeed, the rule is based on respect for the attorney/client relationship and the desire, if the client so chooses, to avoid unnecessarily disrupting the representation in which the error occurred. Ronald E. Mallen & Jeffrey M. Smith, Legal Malpractice § 21.12, at 817 and 824 (4th ed.1996).
The attorney has the opportunity to remedy, avoid or establish that there was no error or attempt to mitigate the damages. The client is not forced to end the relationship, although the option exists.
Id. at 817.[2]
In this case, there could be no clearer proof that Winston and the firm were attempting to remedy the error. Winston informed R.D.H. that his law firm might have lost the financial certification page, and in fact, assured R.D.H. that his firm would "do everything we can to get the application reinstated." Undoubtedly, at this point R.D.H. could have fired Winston and hired a new attorney to both get the application approved and file a malpractice claim against Winston and his firm. However, R.D.H.'s decision to stay the course with Winston is not one this court should second-guess in relation to the statute of limitations issue. Shortly after informing R.D.H. of the original error, attorney Winston assured R.D.H. partner Hall that he was "confident that we will be successful in obtaining reinstatement of your application." Whether R.D.H. chose to remain with Winston because of his assurances, because of his firm's ten years of experience in filing such applications, or because of blind loyalty is of no consequence to us now. Often, a client looks to his attorney for advice in areas in which he knows little to nothing. This is a relationship of trust and we see no compelling reason for effectively informing the client that he can no longer trust the professional from whom he seeks guidance, especially when this professional with expertise in the field indicates he is confident that the error can be remedied. See Greene v. Greene, 56 N.Y.2d 86, 451 N.Y.S.2d 46, 51, 436 N.E.2d 496, 501 (1982) ("A client who entrusts his assets to an attorney for professional assistance often faces the same dilemma as the client who entrusts his case to an attorney for possible litigation. In neither instance can the client be expected, in the normal course, to oversee or supervise the attorney's handling of the matter, and thus in neither case is it realistic to say that the client's right of action accrued before he terminated the relationship with the attorney.").
The reasoning behind the continuous representation rule is similar to that of the continuous treatment rule in medical malpractice actions and, in fact, the continuous representation rule is often considered an adaption of the latter doctrine. See Francis M. Dougherty, When statute of limitations begins to run upon action against attorney for malpractice, 32 A.L.R. 4th 260 § 17[a], at *770 339 (1984) (citing Siegel, supra note 2, 29 A.D.2d 477, 288 N.Y.S.2d 831). In Siegel, the court found the continuous treatment doctrine to be "equally relevant to the conduct of litigation by attorneys." 288 N.Y.S.2d at 834. In comparing the medical context to the legal, the court found the resemblance to be "more than superficial." Id. Both relationships (physician/patient and attorney/client) are "marked by trust and confidence," present an aspect "not sporadic but developing," and both the patient and the client are "necessarily at a disadvantage to question the reason for the tactics employed or the manner in which the tactics are executed." Id. The fact
that it would be ludicrous to expect a patient to interrupt a course of treatment by suing the delinquent doctor ... holds true as well in the case of a client who has confided his cause to an attorney. The client is hardly in a position to know the intricacies of the practice or whether the necessary steps in the action have been taken. For better or for worse, the client must depend on his attorney to pursue the litigation diligently and according to the rules.
Id. at 834-35.
While we have earlier rejected the continuous treatment doctrine for medical malpractice claims, we did so almost twenty years ago in a case in which we adopted the discovery rule for such cases. Burns v. Bell, 409 A.2d 614 (D.C.1979). Here, we are not asked to choose either the discovery rule or the continuous representation rule. Instead, we are asked to adopt the continuous representation rule as an exception to the discovery rule thereby extending the time period of filing suit so as to allow the attorney the opportunity to correct or mitigate the error and thus perhaps negate the need for the suit. See Mallen & Smith, supra, at 18 ("The rule of continuous representation is available and appropriate in those jurisdictions adopting the damage and discovery rules."); Murphy v. Smith, 411 Mass. 133, 579 N.E.2d 165, 167-68 (1991) (cause of action governed by discovery rule but continuous representation rule tolls the statute of limitations until attorney's termination). The rule will reduce the number of malpractice claims where such claims have been redressed by the attorney at fault. Should the attorney not prevail in remedying the error, the client still has the opportunity to bring suit upon the end of the representation.
III.
Several courts have found the policy reasons behind the continuous representation rule persuasive and thus adopted the rule. See Wilder v. Meyer, 779 F. Supp. 164, 169 (S.D.Fla.1991) (two-year statute of limitations runs from the date the cause of action is discovered or should have been discovered but is tolled by the continuing representation doctrine); Pittman v. McDowell, Rice & Smith, Chartered, 12 Kan. App. 2d 603, 752 P.2d 711 (1988); Lima v. Schmidt, 595 So. 2d 624, 630 (La.1992) (noting the continuous representation rule has been recognized and is based on the application of "contra non valentum, which suspends prescription when the debtor has done some act effectually to prevent the creditor from availing himself of his cause of action"); Murphy v. Smith, supra, 411 Mass. 133, 579 N.E.2d 165; Greene v. Greene, supra, 56 N.Y.2d 86, 451 N.Y.S.2d 46, 436 N.E.2d 496; Jacobsen v. Haugen, 529 N.W.2d 882 (N.D.1995); Omni-Food & Fashion, Inc. v. Smith, 38 Ohio St. 3d 385, 528 N.E.2d 941 (1988); Keegan v. First Bank, 519 N.W.2d 607 (S.D.1994); Keller v. Denny, 232 Va. 512, 352 S.E.2d 327 (1987); Smith v. Stacy, 198 W.Va. 498, 482 S.E.2d 115 (1996).[3]
Other courts have adopted an exhaustion of appeals rule through which the cause of action accrues when the plaintiff knows or reasonably should know of the malpractice *771 and when the damages are certain and not contingent upon the outcome of the appeal. In other words, the cause of action accrues when the case has come to the end of the appellate process. See Amfac Distrib. Corp. v. Miller, 138 Ariz. 155, 673 P.2d 795 (Ct. App.) (limiting the exhaustion of appeals rule to malpractice occurring during the course of litigation and citing, as giving "direct support to our holding," the New York cases applying the continuous representation rule that highlight the client's confidence in the attorney's ability and good faith), approved as supplemented, 138 Ariz. 152, 673 P.2d 792 (1983); Semenza v. Nevada Med. Liab. Ins. Co., 104 Nev. 666, 765 P.2d 184 (1988) (citing Amfac); Neylan v. Moser, 400 N.W.2d 538 (Iowa 1987) (same).
While this court has rejected an exhaustion of appeals rule, see Knight, supra, 553 A.2d at 1234-36 & n. 2, we did so, in part, because the exhaustion of appeals rule manipulates the concept of legal injury. In this jurisdiction, a legal malpractice claim becomes ripe when there is "client knowledge of some injury, its cause, and related wrongdoing." Id. at 1236. We critiqued the resolution or exhaustion of appeals rule as being premised on the notion that a client does not sustain actionable injury until a lower court judgment, adverse to that client, is affirmed on appeal. In fact, we noted that in appealing that adverse judgment, the client sustains injury such as attorney's fees and court costs. Id. at 1235. The result is not different even where the client prevails on appeal. "While a successful appeal undoubtedly will reduce a client's damages, it will not necessarily prove that the lawyer's negligence did not injure the client." Id. at 1235. Although the exhaustion of appeals rule is meant to prevent clients from prematurely rushing into court before their attorney's malpractice can be proved, we found that the proper application of the discovery rule would address these concerns. Id. at 1236 ("in some circumstances ... trial of the malpractice action should be stayed pending the appeal" of the underlying case when the client's damages are finally ascertainable).
The adoption of the continuous representation rule, as an exception to the discovery rule, fully addresses these concerns without any manipulation of the concept of legal injury. See Ranier v. Stuart & Freida, P.C., 887 P.2d 339, 342 & n. 11 (Okla.Ct.App.1994) ("The continuous representation rule has been consistently recognized even in jurisdictions which hold that the statute of limitations is not tolled pending final resolution of the underlying litigation."). When a client chooses to remain with his attorney, his decision, like a successful appeal, "will not necessarily prove that the lawyer's negligence did not injure the client." For example, in the instant case, had Winston successfully appealed the denial of the application presumably R.D.H. could still sue Winston for the delay in getting the application approved. But, whether to sue an attorney who fixed the error and whom a client may wish to employ in the future (perhaps out of the attorney's expertise in the area or a longstanding relationship between the attorney and client), is a decision for the client to make. See infra at 772-773.
Several courts have rejected the continuous representation rule. See Chapman v. Alexander, 307 Ark. 87, 817 S.W.2d 425 (1991) (rejecting termination of employment rule to avoid having individuals defend themselves from stale malpractice claims with the possibility that records or witnesses may no longer be available, and deeming a change in the statute of limitations rule more appropriate for legislative action); Fairway Dev. Co. v. Petersen, Moss, Olsen, Meacham & Carr, 124 Idaho 866, 865 P.2d 957, 961 (1993) (noting the Idaho legislature has specifically barred the rule); Witt v. Jones & Jones Law Offices, P.C., 269 Ill.App.3d 540, 206 Ill. Dec. 891, 894, 646 N.E.2d 23, 26 (1995) (failing to find a case adopting the rule in Illinois and noting the Illinois Supreme Court's rejection of the continuing course of treatment doctrine "suggests the court is not ready to adopt a continuous representation rule" for legal malpractice claims); Zero Mfg. Co. v. Husch, 743 S.W.2d 439 (Mo.Ct.App.1987); Schneider v. Leaphart, 228 Mont. 483, 743 P.2d 613 (1987) (declining to judicially adopt the continuous representation rule where such a rule is not in the legal malpractice statute), cf. Northern Mont. Hosp. v. Knight, 248 Mont. 310, 811 P.2d 1276, 1280-81 *772 (1991) (applying the continuous representation rule to architects and distinguishing Schneider which concerned a different statute); Sherman Industries, Inc. v. Goldhammer, 683 F. Supp. 502, 509 n. 9 (E.D.Pa. 1988); Stanbury v. Bacardi, No. 01-A-01-9509-CV-00420, 1996 WL 200338, *5, 1996 LEXIS 251, *25-26 (Tenn.Ct.App.1996) (Koch, J., concurring in part and dissenting in part); Merkley v. Beaslin, 778 P.2d 16 (Utah.Ct.App.1989) (rejecting the "termination of services rule because it would permit a client with knowledge of the attorney's negligent act to say nothing" during the relationship "and, thus, needlessly prolong the attorney's potential exposure to suit long after the client had discovered the malpractice"); Boehm v. Wheeler, 65 Wis. 2d 668, 223 N.W.2d 536 (1974) (concluding the rule is for the legislature to consider), overruled by Hennekens v. Hoerl, 160 Wis. 2d 144, 465 N.W.2d 812, 823 and n. 1 (1991) (Abrahamson, J., dissenting) (citing Mallen & Smith for a discussion of the continuous representation rule); Hiltz v. Robert W. Horn, P.C., 910 P.2d 566, 571 (Wyo.1996) (declining to judicially adopt the rule where it is absent from the legal malpractice statute; even if the rule was applied in the instant case it would not save the cause of action).[4]
IV.
Unlike some courts which deem the continuous representation rule inapplicable once the client knows of the attorney's alleged error,[5] we believe the client's knowledge *773 should not nullify the rule. A policy behind the rule is respect for the attorney/client relationship. A client may fully know his attorney has erred to his detriment, and still willingly place his confidence in the attorney's ability to correct the error. We see no reason for interfering with such a decision. Indeed, if we rejected the continuous representation rule, we would force the client into one of two scenarios. If the client chooses to retain his attorney, he risks the possibility that during such representation the statute of limitations would expire (because the client "discovered" the alleged negligence and three years passed) and thus he risks foregoing redress of his legal rights. If the client chooses not to stay with his original attorney he must sue that attorney for malpractice (and presumably hire a new attorney to remedy the error in the underlying case thus causing a major disruption to the underlying case). By adopting the continuous representation rule we avoid such a fish or cut bait scenario.[6]
Our adoption of the continuous representation rule even where the client knows of the attorney's negligence is thoroughly consistent with other rules we have adopted in the area of legal malpractice. In Diamond v. Davis, 680 A.2d 364 (D.C.1996) (per curiam), upon being sued for malpractice the law firm asserted the statute of limitations, while the client asserted the firm had fraudulently concealed an alleged conflict of interest. The trial court granted summary judgment for the law firm and we affirmed. There, the issue presented was what was the legal standard to be applied in determining when the client's cause of action accrued. Id. at 370. The client argued that accrual was delayed until "he had something close to actual notice of that cause of action." Id. at 371. The law firm insisted that the same discovery rule for "actions based on legal malpractice applie[d], regardless of any fraud or fraudulent concealment." Id. We agreed with the law firm, saying
[W]e take this opportunity to state that the standard is in fact the same in all cases to which the discovery rule applies, regardless of the presence or absence of fraud, or the characterization of that fraud. In every case, the plaintiff has a duty to investigate matters affecting her affairs with reasonable diligence under all of the circumstances. Once the plaintiff actually knows, or with the exercise of reasonable diligence would have known, of some injury, its cause-in-fact, and some evidence of wrongdoing, then she is bound to file her *774 cause of action within the applicable limitations period, measured from the date of her acquisition of the actual or imputed knowledge.
Id. at 381. Our ruling today does not negate the holding articulated in Diamond. Our ruling today only adds to the doctrine by granting the client the decision to retain or terminate his attorney even where he knows of the wrongdoing. Thus, the statute of limitations in cases of fraudulent concealment begins to run when the wrongdoing is discovered or when the representation is terminated, whichever is later.
We recognize that the continuous representation rule, like any other, is not entirely without its shortcomings. Indeed, several courts have rejected it. See supra at 771-772. No individual wants to defend himself against claims arising from acts occurring years earlier. Witnesses become unavailable, memories fade and documents are lost. But, as we have stated before, "limitations periods `find their justification in necessity and convenience rather than in logic. . . . Their shelter has never been regarded as what now is called a `fundamental' right or what used to be called a `natural' right of the individual.'" Ehrenhaft v. Malcolm Price, Inc., 483 A.2d 1192, 1202 (D.C.1984) (quoting Chase Securities Corp. v. Donaldson, 325 U.S. 304, 314, 65 S. Ct. 1137, 1142, 89 L. Ed. 1628 (1945)). In Ehrenhaft, we determined that in applying the discovery rule to tort and contract claims arising out of allegedly deficient design and construction of an addition to a house, "the burden imposed upon a defendant to defend against an `old' claim" was "not unreasonable." 483 A.2d at 1202. We reasoned that while applying the discovery rule "favors a plaintiff's interest in compensation," it "is somewhat tempered by the fact that the burden of proof remains upon the plaintiff." Id.
The same dynamics apply to the instant case. Winston and his firm now face a claim that they committed malpractice some time in 1990 or early 1991. While surely they may face obstacles in defending themselves against such a claim, the fact remains that the plaintiffs bear the burden of proving that the defendants committed the alleged malpractice. Although adopting the continuous representation rule in this case reopens the door for the plaintiffs, the controversy is far from over and the plaintiffs face no small hurdles in their attempts to prevail on the malpractice claim. Cf. John H. Bauman, The Statute of Limitations for Legal Malpractice in Texas, 44 BAYLOR L. REV. 425, 448 (1992) ("[T]o the extent the attorney is still involved in the action, [the continuous representation rule] certainly alleviates any fairness concerns toward the attorney in tolling the statute, since one can hardly claim to be ambushed while one is still handling the litigation.").
Indeed, our adoption of the rule is not meant simply to benefit clients, but rather to benefit the attorney/client relationship by granting the attorney the opportunity to mend or mitigate the error, if this is so decided by the client. See Smith v. Stacy, supra, 482 S.E.2d at 120 (noting the continuous representation doctrine "is designed, in part, to protect the integrity of the professional relationship by permitting the allegedly negligent attorney to attempt to remedy the effects of the malpractice and providing uninterrupted service to the client"); Morrison v. Watkins, 20 Kan. App. 2d 411, 889 P.2d 140, 148 (1995) (purpose of rule is to benefit both client and attorney by allowing attorney to attempt to remedy the error and allowing client to refrain from discharging attorney upon discovery of error).
Appellees argue, however, that this court would exceed its role by adopting the continuous representation rule as a tolling provision where the legislature has already spoken on when the statute of limitations for "discovered" claims is tolled. See D.C.Code § 12-302 (1995 Repl.) (tolling claims for plaintiffs who are minors, noncompos mentis, or imprisoned); cf. Sayyad v. Fawzi, 674 A.2d 905, 906 (D.C.1996) ("Rejection of the application of equitable tolling on a case-by-case basis ... rests on the belief that where the legislature has provided no savings statute, courts would exceed their prescribed role by providing a remedy where the legislature has determined that none should lie.").
While at first blush it might appear that the court is intruding into the legislative *775 power of the other branch of government, on closer examination it is apparent that we are simply deciding when a cause of action accrues, from which the existing enacted statutory period commences. The continuous representation rule, as we adopt it (see supra at 768, "the malpractice cause of action does not accrue until the attorney's representation concerning the particular matter in issue is terminated"), defines the date of accrual. See also Pittman, supra, 752 P.2d at 715 ("`The continuous representation rule the client's cause of action does not accrue until the attorney-client relationship is terminated.'... Pancake House, Inc. v. Redmond, 239 Kan. 83, 87, 716 P.2d 575, 579 (1986)."); Siegel, supra note 2, 29 A.D.2d 477, 288 N.Y.S.2d 831; Omni-Food & Fashion, Inc., supra, 528 N.E.2d at 944 (holding the cause of action accrues either when the client discovers or should have discovered, or when the attorney/client relationship for that matter terminates, whichever occurs later); Keller, supra, 352 S.E.2d at 330 ("the statute of limitations begins to run when the attorney's services rendered in connection with that particular undertaking or transaction have terminated").
Defining accrual is a matter which is better left to the judicial function. Farris, supra note 2, 652 A.2d at 61-62 ("In the absence of any clarifying legislation, it is our obligation to construe the word `accrues' in the existing statute, D.C.Code § 12-301 (1989)."); Ehrenhaft, supra, 483 A.2d at 1198 ("The term `accrual' is left undefined by the statute [D.C.Code § 12-301] and is thus left to judicial interpretation.").
Moreover, we are adopting the continuous representation rule as an exception to our discovery rule. Because the court has the authority to adopt the discovery rule as a way of defining "accrual,"[7] there can be no doubt that the court has the authority to adopt the continuous representation rule, an exception to the discovery rule, as a way of defining "accrual" in these cases. This is "a situation as in the case of the discovery rule where there is `no expression of legislative intent to assist us in construing when a cause of action accrues,' and thus `the question is one for judicial resolution, absent legislative limitation.'" Bond v. Serano, 566 A.2d 47, 55 (D.C.1989) (Farrell, J., concurring) (quoting Bussineau, supra, 518 A.2d at 436). This court "cannot defer the performance of our judicial duty until the enactment of a new law, an event which may or may not occur." Farris, supra note 2, 652 A.2d at 62.
In judicially adopting the continuous representation rule, this court joins many jurisdictions, as related earlier. See, e.g., Pittman, supra, 12 Kan. App. 2d 603, 752 P.2d 711; Lima, supra, 595 So. 2d 624; Murphy, supra, 411 Mass. 133, 579 N.E.2d 165; Siegel, supra, note 2, 29 A.D.2d 477, 288 N.Y.S.2d 831; Wall, supra, 393 N.W.2d 758; Omni-Food & Fashion, supra, 38 Ohio St. 3d 385, 528 N.E.2d 941; Keegan, supra, 519 N.W.2d 607; Keller, supra, 232 Va. 512, 352 S.E.2d 327; Smith, supra, 198 W.Va. 498, 482 S.E.2d 115; cf. Alagia, Day, Trautwein & Smith, supra note 4, 882 S.W.2d 121; Anoka Orthopaedic Assoc., P.A., supra note 4, 773 F. Supp. 158; Brunacini, supra note 4, 117 N.M. 122, 869 P.2d 821.
Accordingly, the judgment in this proceeding is reversed and the proceeding is remanded for a new trial.
Reversed and remanded.
NOTES
[1] Although we described the continuous representation rule in Weisberg, supra, we declined to adopt it there where appellants brought suit more than five years after their lawyers were granted leave to withdraw as counsel. We noted that even if we were to adopt the rule, appellants' claim would still be barred. Id. Twelve years later, the United States Circuit Court of Appeals for this jurisdiction recognized this court had not yet adopted the rule explicitly, and reasoned that even if we had. it was inapplicable to the case at hand. Williams v. Mordkofsky, 284 U.S.App. D.C. 52, 57, 901 F.2d 158, 163 (1990). In Williams, the trial court ruled that the claim accrued in November 1984, when the clients were sufficiently aware of their counsel's actions. Because the clients sued their former counsel more than three years later on January 7, 1988, the action was time-barred. The clients argued that the continuous representation rule tolled the limitations period until some time in 1985. The Court of Appeals disagreed noting that the clients had terminated their counsel's formal representation in September 1984. By November 1984, it was clear that the parties were in an adversarial position and that the clients were no longer relying on counsel for legal advice. Id.
[2] Another policy reason for adopting the continuous representation rule appears in jurisdictions applying the occurrence rule, whereby the statute of limitations runs from the date of the alleged negligent act. In contrast, the District of Columbia employs the discovery rule in cases "where the relationship between the fact of injury and some tortious conduct is obscure at the time of injury...." Knight, supra, 553 A.2d at 1234. Under the discovery rule, the statute of limitations begins to run when the client knows or reasonably should know of the alleged negligence. However, "[i]n ordinary negligence actions, a cause of action accrues for statute of limitations purposes at the time the injury actually occurs." Id.; see also Poole v. Lowe, 615 A.2d 589, 592 n. 7 (D.C.1992) (explaining that the District of Columbia has rejected the occurrence rule and instead adopted the "damage rule" whereby the cause of action accrues when the plaintiff/client suffers actual injury). In a jurisdiction applying the occurrence rule, the negligence might not come to light until the case is resolved and by that time the statute of limitations might have already expired. Thus, the continuous representation rule prevents the attorney from delaying the eventual outcome of the case in order to take advantage of the statute of limitations. See Siegel v. Kranis, 29 A.D.2d 477, 288 N.Y.S.2d 831, 835 (1968) (attorney's failure to serve notice of claim by May 1960, did not come to light until conclusion of litigation in September 1965, when the jury decided the claim was untimely and the permanent stay of arbitration of the claim resulted, and it appeared clients were never fully advised on the litigation concerning the timeliness issue until shortly before trial); cf. Farris v. Compton, 652 A.2d 49, 55 (D.C.1994) (quoting Glus v. Brooklyn Eastern Dist. Terminal, 359 U.S. 231, 232, 79 S. Ct. 760, 762, 3 L. Ed. 2d 770 (1959), where "the Court applied the principle, `deeply rooted in our jurisprudence,' that `no man may take advantage of his own wrong'").
[3] The rule has also been legislatively adopted in several states. See O'Neill v. Tichy, 19 Cal. App. 4th 114, 25 Cal. Rptr. 2d 162, 165 (1993) (noting the continuous representation rule has been legislatively adopted and "that the client's awareness of the attorney's negligence does not interrupt the tolling of the limitations period so long as the client permits the attorney to continue representing the client regarding the specific subject matter in which the alleged negligence occurred"); Seebacher v. Fitzgerald, Hodgman, Cawthorne & King, P.C., 181 Mich.App. 642, 449 N.W.2d 673 (1989) (continuous representation rule is codified in statute of limitations).
[4] Courts of several states have discussed the continuous representation rule but for various reasons have come short of adopting the rule. See Beesley v. Van Doren, 873 P.2d 1280, 1283 n. 4 (Alaska 1994) (noting the court is not asked to adopt the continuous representation rule but it has opined that it might adopt such a rule and citing Wettanen v. Cowper, 749 P.2d 362, 365 (Alaska 1988)); Morris v. Geer, 720 P.2d 994 (Colo.Ct.App.1986) (noting Colorado has not adopted the rule but that it would be inapplicable in the present case); S.M.S. Textile Mills v. Brown, Jacobson, Tillinghast, Lahan & King, P.C., 32 Conn.App. 786, 631 A.2d 340 (1993) (noting the continuous representation theory has never been discussed in an opinion by the court or Connecticut's Supreme Court and plaintiff has not demonstrated that through a continuing course of conduct defendant breached a duty after or in relation to the alleged torts); Shuttleworth v. Lynch, No. 94C-08-124, 1995 Del.Super. LEXIS 236, 1995 WL 339071 (April 25, 1995) (discusses the continuous representation rule but notes that the case is covered by the discovery rule); Alagia, Day, Trautwein & Smith v. Broadbent, 882 S.W.2d 121, 125 (Ky.1994) (deciding the case on other grounds but noting there "are sound theoretical and practical reasons for adoption of the continuous representation rule" and had this been "the decisive issue, appellees would prevail as their claim was brought within one year of the date appellants' representation came to an end"); Larochelle v. Hodsdon, 690 A.2d 986 (Me.1997) (court need not reach the issue of the continuous representation rule); Anoka Orthopaedic Assoc., P.A. v. Mutschler, 773 F. Supp. 158, 169 (D.Minn.1991) ("Although no Minnesota court has explicitly adopted the continuous representation doctrine, the Minnesota Supreme Court and Court of Appeals have reached essentially the same result on facts similar to those in the present case by determining that the statute of limitations begins to run as of the date when the last professional service was performed."); Stevens v. Lake, 615 So. 2d 1177 (Miss.1993) (discussing the continuous representation rule and finding that attorney represented client on other matters after the alleged malpractice therefore this later representation did not toll the statute of limitations); Brunacini v. Kavanagh, 117 N.M. 122, 869 P.2d 821, 828-29 (Ct.App.1993) ("We assume, but do not decide, that the continuous representation rule is applicable in New Mexico. In the present case, however, the rule does not aid Plaintiffs."); Sharp v. Teague, 113 N.C.App. 589, 439 S.E.2d 792 (1994) (assumes without deciding that North Carolina recognizes the continuous representation doctrine but the doctrine is inapplicable in the present case where complaint is insufficient to allege that the defendants continued to represent the plaintiff with regard to her claims which are the basis of the malpractice action); St. Paul Fire & Marine Ins. Co. v. Speerstra, 63 Or.App. 533, 666 P.2d 255, 259 n. 7 (1983) ("Whether the continuous representation rule is to be adopted, and what should be its scope, are not necessary to be decided here.") [hereinafter St. Paul], but see Fliegel v. Davis, 73 Or.App. 546, 699 P.2d 674, 676 & n. 2 (1985) (questioning the authority of St. Paul in light of later cases, and noting court by its holding in present case did not want to imply that a client should have hired another attorney to sue original attorneys for negligence while original attorneys were still representing client on appeal); Richmond Square Capital Corp. v. Mittleman, 689 A.2d 1067 (R.I.1997) (court need not address whether the continuous representation doctrine is applicable to the case).
[5] Economy Housing Co. v. Rosenberg, 239 Neb. 267, 475 N.W.2d 899, 900 (1991) (continuous representation rule inapplicable where claimant discovers alleged negligence prior to termination of professional relationship because to "hold otherwise would merely encourage clients to sit on their hands, with full knowledge of negligence on the part of the professional who is serving them, knowing that the clock would not start to run on their claim until they actually fired the practitioner"); Sharp, supra note 4, 439 S.E.2d at 795 (while assuming continuous representation rule is recognized in North Carolina, stating that under rule statute of limitations accrues the earlier of either the date the attorney ceases to represent client in matter or the date the client becomes aware of the negligent act); see generally Ranier, supra, 887 P.2d 339 (discussing continuous representation rule and holding that statute of limitations for legal malpractice action may be tolled until resolution on appeal of the underlying case if the client has not become aware of the harm prior to the decision on appeal); St. Paul, supra note 4, 666 P.2d at 259 n. 7 (while not deciding to adopt the continuous representation rule, the court noted that the fact that the plaintiffs chose to permit defendants' representation to continue past the time when they knew there was a conflict of interest is not controlling on the running of the statute of limitations); Murphy, supra, 579 N.E.2d at 169 (O'Connor, J., dissenting) ("According to the doctrine, which is entirely reasonable, the dependence of the client on his or her attorney while the representation continues makes any malpractice in connection therewith inherently unknowable by the client."). For a discussion of the continuous representation rule in New Jersey where courts find the rule inapplicable if there is client knowledge, see Nancy J. Moore, Implications of Circle Chevrolet for Attorney Malpractice and Attorney Ethics, 28 RUTGERS L.J. 57, 65-69 (1996).
[6] For a critique of those courts which consider the continuous representation rule inapplicable where the client knows of the alleged negligence, see Smith v. Stacy, supra, 198 W.Va. 498, 482 S.E.2d 115. The West Virginia Supreme Court criticizes both the Nebraska and North Carolina courts for their interpretations of the rule. Specifically, the court notes that deeming the rule inapplicable "`runs counter to the rationale for the rule ...' designed to permit a `client to work with the attorney to correct the error even though the client knows the error exists.'" Id. at 123 (quoting Morrison v. Watkins, 20 Kan. App. 2d 411, 889 P.2d 140, 147 (1995)). The West Virginia Supreme Court describes the North Carolina description of the rule as appearing to not be "an appropriate statement of the rule." 482 S.E.2d at 123 n. 9.
[7] On a number of occasions the court has applied the discovery rule to define when a cause of action accrues. See Knight, supra, 553 A.2d at 1236 (key issue for ripeness of a legal malpractice claim is client knowledge of some injury, its cause, and related wrongdoing); Burns, supra, 409 A.2d at 617 ("[I]n all medical malpractice actions, the cause of action accrues when the plaintiff knows or through the exercise of due diligence should have known of the injury."); Ehrenhaft, supra, 483 A.2d at 1203 ("We therefore hold that in an action based upon tort and contract claims arising out of allegedly deficient design and construction of an addition to a house, the cause of action does not accrue until the plaintiff knows, or in the exercise of reasonable diligence should know, of the injury."); Farris, supra note 2, 652 A.2d 49 (where plaintiff in alleged sexual abuse case repressed memory of wrongful conduct, right of action did not accrue until date plaintiff recovered memory of wrongful conduct). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541288/ | 344 B.R. 675 (2006)
In re A. Steven BUONOPANE, Debtor.
No. 9:05-bk-15856-ALP.
United States Bankruptcy Court, M.D. Florida, Fort Myers Division.
April 6, 2006.
Order Denying Motion to Alter or Amend Judgment, June 1, 2006.
*676 Edward R. Miller, Miller and Hollander, Naples, FL, for Debtor.
ORDER ON MOTION FOR PARTIAL SUMMARY JUDGMENT
(Doc. No. 52)
ALEXANDER L. PASKAY, Bankruptcy Judge.
THE MATTER under consideration before this Court is a Motion for Partial Summary Judgment, filed by Diane L. Jensen, Trustee (Trustee). The Motion is filed in a contested matter which involves a challenge by the Trustee of the Debtor's right to claim the benefits of the Florida homestead exemption. The property in question was, according to the Trustee, acquired by the Debtor within 1,215 days prior to the commencement of the Chapter 7 case, thus the homestead right is governed by 11 U.S.C. § 522(p). At the hearing on the Trustee's Motion, the Trustee established the following facts, which are without dispute and, according to the Trustee, would justify the award of a Partial Summary Judgment and the determination that the Debtor's right to enjoy the homestead exemption under the State of Florida is governed by Section 522(p).
On October 23, 2000, Stephen Lee Johnson conveyed by Warranty Deed real property, Parcel Identification No. 67390860061 (the Real Property) to Kathleen F. Buonopane, as Trustee to the Todd-Rae Realty Trust. On December 28, 2004, Kathleen F. Buonopane, individually and as Trustee of the Todd-Rae Realty Trust dated July 17, 2000, and A. Steven Buonopane (the Debtor), who resides at 879 Meadowland Drive, Naples, Florida 34108, as grantors executed a Warranty Deed conveying the interest in the Real Property described above to the Debtor and his wife, Kathleen Buonopane. (Trustee's Exhibit A). It appears from the record that on July 17, 2000, the Todd-Rae Realty Trust was established indicating that the beneficiaries of the Trust were the Debtor and his wife, who are not involved in this Chapter 7 case. (Trustee's Exhibit C). On the same date, the Debtor and his wife filed a Declaration of Domicile located at the above-stated Naples residence declaring that the property is their permanent home and predominate residence and they intend to use the same regularly. Id.
The Debtor filed his voluntary Petition for Relief on August 10, 2005. Based on these undisputed facts, the Trustee contends that, although it is not raised in the pleading, the Debtor does not have a cognizable interest in the Real Property, thus, he is not entitled to the constitutional protection granted to individuals in Florida by Article X, Section 4 of the Florida Constitution. In opposition to the Trustee's Motion, counsel for the Debtor contends first that Section 522(p) is not applicable in the State of Florida citing In re McNabb, 326 B.R. 785 (Bankr.D.Ariz.2005) and, in any event, the Debtor has sufficient equitable ownership interest in the subject property which would support his homestead exemption claim.
Considering first the applicability of Section 522(p) of the Code as it applies to the issue which is currently before this Court, it is without dispute that the bankruptcy court in Arizona held in McNabb, that Section 522(p) does not apply in states which have opted-out of the federal exemptions. *677 Section 522(p) provides in part: "as a result of electing under subsection (b)(3)(A) to exempt property under State and local law, a debtor may not exempt any amount of interest that was acquired by the debtor during 1215-day period preceding the day of the filing of the petition that exceeds in the aggregate $125,000 in value. . . ." The decision of McNabb has been rejected by a line of bankruptcy cases which considered the identical issue, such as, In re Kaplan, 331 B.R. 483(Bankr.S.D.Fla.2005); In re Virissimo, 332 B.R. 201(Bankr.D.Nev.2005); and In re Landahl, 338 B.R. 920 (Bankr. M.D.Fla.). Although the courts rejecting McNabb used somewhat different interpretation of the term "as of a result of electing," all rejected McNabb and concluded that McNabb's interpretation of the term "as a result of electing" was inconsistent with the undisputable intent of Congress in enacting subsection (p) of Section 522 of the Code. As Judge Makell of the Bankruptcy Court of Nevada noted in the case of In re Kane, 336 B.R. 477, (Bankr. D.Nev. Jan.2006), the statement by the Representative, James Sensenbrenner of Wisconsin, fully supports the proposition that the provision of the Code was designed to close "the `millionaire's mansion' loophole in the current bankruptcy code that permits corporate criminals to shield their multi-million dollar homesteads." 151 CONG. REC. H2048 (DAILY ED. Aril 14, 2005). A literal adoption of the McNabb principle would produce the bizarre result that Section 522(p) would not cover Florida, since Florida is where several mansion loophole abuses are alleged to have occurred, but Section 522(p) would cover Massachusetts, Minnesota and Rhode Island, none of which have unlimited exemptions. There is no known history of any widespread mansion abuses in these jurisdictions. This Court is in full agreement with the reasoning and the holding of Kane and is satisfied that subsection (p) of Section 522 of the Code applies in Florida, notwithstanding the fact that, in Florida, an individual has no right to elect between a federal and state election by virtue of Fla. Stat. 222.20.
This record leaves no doubt that the Debtor acquired his interest, if he has any, in the Real Property within the 1,215 days of his Petition date. Thus, the limitation on the right of exemption would apply assuming that under applicable local law the Debtor does have an interest cognizable in law which would support a claim of exemption based on the homestead exemption as granted by Article X, Section 4 of the Florida Constitution.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Trustee's Motion for Partial Summary Judgment be, and the same is hereby granted, and it is determined that Section 522(p) of the Bankruptcy Code is applicable in the State of Florida and, thus, controls the Debtor's right of exemption. It is further
ORDERED, ADJUDGED AND DECREED that the remaining issue, that is, the Debtor's right to claim the benefit of the Florida Homestead under Article X, Section IV of the Florida Constitution shall be forthwith scheduled for pretrial conference on ______, 2006, beginning at ______ .m. at the United States Bankruptcy Courthouse, Fort Myers, Federal Building and Federal Courthouse, Room 4-117, Courtroom D, 2110 First Street, Fort Myers, Florida, in order to prepare the issue for trial.
ORDER ON DEBTOR'S MOTION TO ALTER OR AMEND ORDER ON MOTION FOR PARTIAL SUMMARY JUDGMENT
(Doc. No. 65)
THIS IS the second occasion this Court is called upon to consider a challenge by *678 Diane Jensen (Trustee) of the right of the Debtor, A. Steven Buonopane, (the Debtor) to enjoy the full constitutional protection accorded to the Florida homestead by Article X, Section 4 of the Florida Constitution. On the first occasion, the Trustee contended that the property located at 879 Meadowland Drive, Naples, Florida, 34108 was acquired by the Debtor within 1,215 days prior to the commencement of his Chapter 7 case, thus the amount placed on the right to claim an unlimited immunity of the Florida homestead is now, by virtue of Section 522(p) of the Code, is limited to $125,000. In opposition to the Trustee's challenge, the Debtor contended that subsection (p) of Section 522 does not apply in the State of Florida and, therefore, it has no impact on the Debtor's right to claim the unlimited homestead exemption guaranteed by Article X, Section 4 of the Florida Constitution.
In support of this proposition, counsel for the Debtor relied on the provision in Section 522(p), which provides that the claim of exemption which could be made is, "as a result of electing." According to counsel for the Debtor, debtors in Florida do not have a right to elect between the federal and state exemption, because Florida opted-out from the right to elect between the Federal Exemptions established by Section 522(d) and the exemptions available under state law, which in Florida is limited to the exemptions available under Article X, Section 4 of the Florida Constitution and the statutory exemption, Section 222.01 et seq. of the Florida Statute. In addition, counsel for the Debtor relied on the case of In re McNabb, 326 B.R. 785 (Bankr.D.Ariz.2005). In In re McNabb, the Bankruptcy Court held that subsection (p) of Section 522 does not apply in States which opted-out because in those States the debtors do not have a right to elect between federal and state exemption.
The issue of the applicability of subsection (p) of Section 522 in opt-out States such as Florida has been extensively litigated since the decision in McNabb, and Bankruptcy Courts which considered this issue have uniformly rejected the decision of McNabb. See In re Kane, 336 B.R. 477, (Bankr.D.Nev. Jan.2006) (holding the provision of the Code was designed to close "the `millionaire's mansion' loophole in the current bankruptcy code that permits corporate criminals to shield their multi-million dollar homesteads."), See also In re Kaplan, 331 B.R. 483(Bankr.S.D.Fla.2005); In re Virissimo, 332 B.R. 201(Bankr.D.Nev.2005); and In, re Landahl, 338 B.R. 920 (Bankr.M.D.Fla.).
This Court, having considered the argument of counsel at the hearing on the Motion for Partial Summary Judgment, concluded that subsection (p) does apply in Florida, notwithstanding the language in the subsection "as a result of electing," and granted the Trustee's Motion for Partial Summary Judgment (Doc. No. 52).
The specific and discrete issue presently before this Court involves the Debtor's contention that, even assuming without conceding that subsection (p) does apply in Florida, whether it controls the debtor's rights to claim the unlimited exemption guaranteed by Article X, Section 4 of the Florida Constitution based on the undisputed facts of this case, which are as follows.
The Real Property involved in this controversy had been acquired sometime before December 28, 2004, by the Todd-Rae Realty Trust (Trust) a Trust established under the laws of the State of Massachusetts on July 17, 2000. The beneficiaries of the Trust were the Debtor and his non-debtor spouse. On December 28, 2004, Kathleen Buonopane, as Trustee of the Trust, conveyed the ownership of the *679 property by Warranty Deed to the Debtor and to herself, as tenancy by the entirety. On the same date, the Debtor and his wife also filed a Declaration of Domicile indicating the Real Property described above was their permanent home and their predominant residence. It is undisputed that prior to the conveyance of the Real Property on December 28, 2004, the Debtor's interest in the Trust was of a beneficiary of the Trust, which under the applicable laws of this State is sufficient to support a homestead claim. As stated in the case of Doing v. Riley, 176 F.2d 449 (5th Cir.1949) the Court recognized the general proposition announced by Bessemer Properties v. Gamble, 158 Fla. 38, 27 So. 2d 832 (1946) that the right of possession or any beneficial interest in property is sufficient to claim the Florida homestead exemption. This brings to play the consideration of subsection (p)(2)(B) which provides, the limitation of the debtors' right to claim exemptions under Florida law would not apply if the interest in the current homestead was transferred from a debtors' previous principal residence, which was acquired prior to the beginning of the 1,215-day period, if the debtors' previous and current residence are both located in the same State.
This Court takes judicial notice of the fact that the Debtor under oath stated in his Statement of Financial Affairs, in answering question fifteen, that during July 1985 through February 2004, the Debtor resided at 150 Shawsheen Road, Andover, MA. and then he resided at 300 Lynn Shore Dr., Lynn, MA. during February 2004 through March 2005. It should be evident from the foregoing that at the time the Debtor acquired his equitable interest in the subject property the property was not his principal residence.
The Debtor filed his Petition for Relief under Chapter 7 on August 10, 2005. It is clear from this record that while the Debtor held an equitable ownership interest in the subject property located in Florida, which would have supported his homestead claim, although none was claimed. It is clear from the record that the subject property was not his principal residence until he moved to Florida sometime during March 2005 or six (6) months prior to the commencement of his Chapter 7 case.
It is evident from the foregoing that the Debtor's reliance on Section 522(p)(2)(B) is misplaced, and, therefore, the Debtor's equity in the subject property is limited to $125,000. Based on the foregoing, this Court is satisfied that the Debtor's Motion to Alter or Amend Order on Motion for Partial Summary Judgment is without merit and should be denied.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Debtor's Motion to Alter or Amend Order on Motion for Partial Summary Judgment (Doc. No. 65) be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that the Trustee's Objection to Debtor's Amended Claim of Exemption be, and the same is hereby, sustained. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1734298/ | 774 So. 2d 144 (2000)
SUCCESSION OF Claude W. SLAY, Edna L. Jameson, et al.
v.
Clydie NUGENT, et al.
No. 2000-C-2481.
Supreme Court of Louisiana.
November 13, 2000.
Denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541559/ | 949 A.2d 732 (2008)
The STATE of New Hampshire
v.
Joseph PANARELLO.
No. 2007-554.
Supreme Court of New Hampshire.
Argued: March 27, 2008.
Opinion Issued: April 22, 2008.
*734 Kelly A. Ayotte, attorney general (Nicholas Cort, assistant attorney general, on the brief and orally), for the State.
Sisti Law Offices, of Chichester (Mark L. Sisti on the brief and orally), for the defendant.
GALWAY, J.
The State appeals the order of the Superior Court (Barry, J.) granting the motion to suppress filed by the defendant, Joseph Panarello. We affirm and remand.
The record supports the following facts. In May 2006, the defendant was the supervisor of the Belknap County House of Corrections. On May 15, 2006, he called in sick to work. When he failed to report to work the next day, his employer contacted the Hillsborough Police Department and requested that an officer perform a "welfare check" on the defendant at his Hillsborough home.
Hillsborough Police Officer Amy Collins subsequently arrived at the defendant's home. Seeing his truck outside, the officer knocked on three doors of the residence and looked into several windows. Although she saw lights on in the home, she did not see the defendant, and no one responded to her knocking. Officer Collins attempted to contact the defendant by phone, but to no avail. She returned to the police station and checked with dispatch, which had not received any further information.
Officer Collins later returned to the defendant's home. By stepping sideways through a fence opening, she accessed a fourth door, which was closed but unlocked. She entered the defendant's home, loudly announcing that she was Officer Collins of the Hillsborough Police Department. As she walked further into the home, she continued to identify herself and said that she was at the home to check on the defendant. Upon hearing movement upstairs, she again announced her presence. When she looked up, she saw the defendant descending the stairs. When he was at the bottom of the steps and had turned around to look at her, Officer Collins "hollered to him: [']Mr. Panarello, it's the Hillsborough Police. . . . [A]re you all right?[']" The defendant then allegedly pointed a gun at her. To get out of the line of fire, Officer Collins dove through the door to the outside.
A search warrant was subsequently obtained based upon Officer Collins' observations in the home. The defendant was eventually charged with one count of criminal threatening, see RSA 631:4 (2007), and one count of possession of a controlled substance, see RSA 318-B:2 (2004).
Before trial, the defendant moved to suppress "any and all physical or testimonial evidence obtained as a result of Officer Collins' entry into his home." He argued that the officer's entry violated Part *735 I, Article 19 of the State Constitution. Although the State argued that Officer Collins' initial warrantless entry into the defendant's home was lawful under the community caretaking exception to the warrant requirement, the trial court disagreed and granted the defendant's motion to suppress. The State filed a motion to reconsider, which the trial court denied, and this appeal followed.
Our review of the trial court's order on a motion to suppress is de novo, except as to any controlling facts determined at the trial court level in the first instance. State v. Gubitosi, 152 N.H. 673, 676, 886 A.2d 1029 (2005).
The State does not challenge the trial court's determination that Officer Collins' warrantless entry into the defendant's home was unlawful. Rather, the State argues that the trial court erred by suppressing "evidence that the defendant criminally threatened Officer Collins by pointing a gun at her." The State concedes that it did not present this argument to the trial court, but argues that we may reverse the trial court, nonetheless, under our plain error rule. See Sup.Ct. R. 16-A.
Generally, we do not consider issues raised on appeal that were not presented in the trial court. See State v. Brum, 155 N.H. 408, 417, 923 A.2d 1068 (2007). The preservation requirement recognizes that ordinarily, trial courts should have an opportunity to rule upon issues and correct errors before they are presented to the appellate court. Id.
The plain error rule allows us to exercise our discretion to correct errors not raised in the trial court. See Sup.Ct. R. 16-A. Before we may do so: "(1) there must be error; (2) the error must be plain; [and] (3) the error must affect substantial rights." State v. Hancock, 156 N.H. 301, 303, 934 A.2d 551 (2007) (quotation omitted). If all three of these conditions are met, we may then exercise our discretion to correct a forfeited error, only if a fourth criterion is met: "the error must seriously affect the fairness, integrity or public reputation of judicial proceedings." Id.; see Johnson v. United States, 520 U.S. 461, 467, 117 S.Ct. 1544, 137 L.Ed.2d 718 (1997). We use this rule sparingly, limiting it to those circumstances in which a miscarriage of justice would otherwise result. State v. Matey, 153 N.H. 263, 266, 891 A.2d 592 (2006). We look to the federal courts' application of the federal plain error rule to inform our application of the state rule. State v. Lopez, 156 N.H. 416, 423, 937 A.2d 905 (2007).
On the first criterion, the State argues that the trial court erred by excluding evidence that the defendant criminally threatened Officer Collins as the fruit of the illegal entry. The State contends that evidence that the defendant pointed a gun at Officer Collins is evidence of a new crime that does not fall under the "fruit of the poisonous tree" doctrine.
"The `fruit of the poisonous tree' doctrine requires the exclusion from trial of evidence derivatively obtained through a violation of Part I, Article 19 of the New Hampshire Constitution." State v. Cobb, 143 N.H. 638, 650, 732 A.2d 425 (1999) (quotation omitted). If the evidence in question has been obtained only through the exploitation of an antecedent illegality, it must be suppressed. Id.
The purpose of the exclusionary rule is three-fold. State v. Beauchesne, 151 N.H. 803, 818, 868 A.2d 972 (2005). It serves to: (1) deter police misconduct; (2) redress the injury to the privacy of the victim of the unlawful police conduct; and (3) safeguard compliance with State constitutional protections. See id.
*736 Nevertheless, there are exceptions to this rule. See id. at 817, 868 A.2d 972. For instance, evidence will not be excluded "if the connection between the illegal police conduct and the discovery and seizure of the evidence is so attenuated as to dissipate the taint." Segura v. United States, 468 U.S. 796, 805, 104 S.Ct. 3380, 82 L.Ed.2d 599 (1984) (quotation omitted). In such cases, the question to be resolved is "whether, granting establishment of the primary illegality, the evidence to which instant objection is made has been come at by exploitation of that illegality or instead by means sufficiently distinguishable to be purged of the primary taint." Wong Sun v. United States, 371 U.S. 471, 488, 83 S.Ct. 407, 9 L.Ed.2d 441 (1963); Cobb, 143 N.H. at 650, 732 A.2d 425.
We have not heretofore decided under the New Hampshire Constitution "whether a new crime committed in response to an unlawful police entry into one's residence is attenuated sufficiently to break the chain of causation from the unlawful entry." State v. Brocuglio, 264 Conn. 778, 826 A.2d 145, 151 (2003). Courts in other jurisdictions, however, have considered and adopted a new crime exception to the exclusionary rule. See id. at 152 (citing cases). Under this exception, where the response to an unlawful entry, search or seizure "has been a physical attack (or threat of same) upon the officer . . ., courts have . . . held that the evidence of this new crime is admissible." 3 W. LaFave et al., Criminal Procedure § 9.4(f), at 464-65 (3d ed. 2007). "[F]ederal and state courts alike have uniformly rejected the argument that trial courts should suppress evidence relating to the defendant's violence or threatened violence toward police officers subsequent to an unlawful search or seizure or a warrantless entry." Brown v. City of Danville, 44 Va.App. 586, 606 S.E.2d 523, 530 (2004) (quotation and brackets omitted); see United States v. Waupekenay, 973 F.2d 1533, 1537 (10th Cir.1992).
Courts advance different justifications for this exception to the exclusionary rule. Brocuglio, 826 A.2d at 152. "[T]he common explanation is that the attack was a `free and independent action.'" 3 LaFave, supra § 9.4(f), at 465; see People v. Townes, 41 N.Y.2d 97, 390 N.Y.S.2d 893, 359 N.E.2d 402, 406 (1976). Other rationales are that: (1) the defendant has a diminished expectation of privacy in the presence of police officers, see Waupekenay, 973 F.2d at 1538; and (2) the deterrent purpose of the exclusionary rule would not be served by applying it "in cases where the accused has committed a crime against police officers in response to police misconduct." People v. Doke, 171 P.3d 237, 240-41 (Colo.2007).
In our view, "the policy concerns underlying [this last] rationale present a persuasive reason for adopting the [new crime] exception to the exclusionary rule." Brocuglio, 826 A.2d at 152. "[T]he rationale of the exclusionary rule does not justify its extension to the extreme." 3 LaFave, supra § 9.4(f), at 465. "[T]he limited objective of the exclusionary rule is to deter unlawful police conduct[,] not to provide citizens with a shield so as to afford an unfettered right to threaten or harm police officers in response to the illegality." Brocuglio, 826 A.2d at 152; cf. Beauchesne, 151 N.H. at 818, 868 A.2d 972 (noting that purpose of law that resisting even illegal arrest or detention constitutes crime is to foster effective administration of justice, discourage self-help and provide for safety of police officers). Extending the exclusionary rule to these circumstances "gives a defendant an intolerable carte blanche. . . . This result is too far reaching and too high a price for society to pay in *737 order to deter police misconduct." United States v. Bailey, 691 F.2d 1009, 1017 (11th Cir.1982), cert. denied, 461 U.S. 933, 103 S.Ct. 2098, 77 L.Ed.2d 306 (1983); see United States v. Pryor, 32 F.3d 1192, 1196 (7th Cir.1994). While we recognize "the sanctity of the home, the right to live in peace therein and to be free from illegal governmental interference, these rights do not extend to turn a home into a free-fire zone against the police on whim." State v. Miskimins, 435 N.W.2d 217, 222 (S.D.1989).
We decline to hold that after an unlawful entry[, search or seizure] evidence of subsequent crimes committed against police officers must be suppressed. Such a rule would produce intolerable results. For example, a person who correctly believed that his home had been unlawfully entered by the police could respond with unlimited force and, under the exclusionary rule, could be effectively immunized from criminal responsibility for any action taken after that entry.
State v. Burger, 55 Or.App. 712, 639 P.2d 706, 708 (1982). The New Hampshire Constitution does not compel such a result. Accord id. Accordingly, we now join the overwhelming weight of authority in adopting the new crime exception to the exclusionary rule. Pursuant to this exception, the trial court erred by suppressing evidence that the defendant, after Officer Collins' unlawful entry into his home, allegedly pointed a gun at her. The first criterion for the plain error rule is, therefore, met.
We next address the second criterion: whether the trial court's error was "plain." For the purposes of the plain error rule, "an error is plain if it was or should have been obvious in the sense that the governing law was clearly settled to the contrary." Lopez, 156 N.H. at 424, 937 A.2d 905 (quotations and ellipsis omitted). When the law is not clear at the time of trial and remains unsettled at the time of appeal, a decision by the trial court cannot be plain error. Id. "Plain" as used in the plain error rule "is synonymous with clear or, equivalently, obvious." Id. (quotations omitted). As this court had never before adopted a new crime exception to the exclusionary rule, the trial court's error could not have been "clear" or unequivocally obvious. See United States v. Melton, 233 Fed.Appx. 545, 547 (6th Cir.2007); United States v. Jennings, 12 F.3d 836, 839 (8th Cir.1994) (where court had not previously addressed a particular issue, it was "unable to conclude that the error here, if any there was, should have been clear to the District Court under the current law"); Tschaggeny v. Milbank Ins. Co., 163 P.3d 615, 621 (Utah 2007) (where application of collateral source rule to medical bill write-offs was a matter of first impression in Utah, trial court's decision could not "rise to the level of plain error"). But see United States v. Whab, 355 F.3d 155, 158 (2d Cir.) ("It may be appropriate for this Court to find an error `plain,' even in the absence of binding precedent from the Supreme Court or this Circuit, where other circuits have uniformly taken a position on an issue that has never been squarely presented to this Court."), cert. denied, 541 U.S. 1004, 124 S.Ct. 2055, 158 L.Ed.2d 519 (2004). The second criterion, therefore, is not met.
The State contends that the trial court's error was plain in light of our decision in Beauchesne, which it asserts is on all fours with this case. In Beauchesne, however, we were not presented with the precise question at issue here. The defendant in Beauchesne was unlawfully seized and, thereafter, resisted arrest. Beauchesne, 151 N.H. at 815, 868 A.2d 972. On appeal, he conceded that "the State should be allowed to prosecute him for resisting detention," but argued that the marijuana that *738 he dropped or threw when he fell during his flight and the cocaine that the police later found on his person should be suppressed. Id. at 806, 815-16, 868 A.2d 972. While in dicta, we observed that resisting even an illegal arrest constitutes a crime, we did not opine as to whether the exclusionary rule applied to evidence of that crime. Id. at 818, 868 A.2d 972. Although our dicta in Beauchesne could be read as creating a new crime exception to the exclusionary rule, "we do not believe that this language made it [so] obvious" as to render the law "clearly settled." Lopez, 156 N.H. at 425, 937 A.2d 905.
Having concluded that the second criterion of our plain error test is not met, we hold that the State has failed to demonstrate that the trial court committed plain error in this case. Absent plain error, we decline to exercise our discretion to correct the trial court's error in this case.
Affirmed and remanded.
BRODERICK, C.J., and DALIANIS, DUGGAN and HICKS, JJ., concurred. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1541441/ | 75 B.R. 998 (1987)
In re AIR ONE, INC., Debtor.
AIR ONE, INC., Plaintiff,
v.
WING ON BANK, LIMITED, Defendant.
Bankruptcy No. 84-01889(2), Adv. No. 86-0379(2).
United States Bankruptcy Court, E.D. Missouri, E.D.
August 4, 1987.
*999 Asher Rabinowitz, Steven G. Howell, Todd M. Halbert, Detroit, Mich., for plaintiff.
Peter D. Kerth, Clayton, Mo., for defendant.
MEMORANDUM OPINION
DAVID P. McDONALD, Bankruptcy Judge.
INTRODUCTION
Pending for determination is the Motion To Dismiss filed by the Defendant, Wing On Bank, Limited ("Wing On"). After the parties submitted voluminous briefs, the Court heard testimony and argument on the Motion on July 10, 1987. Because matters outside the pleadings have been presented, the Court will treat the Motion as one for summary judgment under Bankruptcy Rule 7056. As so treated, the Court finds that although there are no genuine *1000 issues of material fact, Defendant is not entitled to judgment as a matter of law. This proceeding, therefore, must be set for trial on the merits. The Court's findings of fact and conclusions of law are set forth below.
FINDINGS OF FACT
1. On October 26, 1984, Air One, Inc. ("Air One" or the "Debtor") filed its petition for relief under Chapter 11 of the Bankruptcy Code.
2. On October 27, 1986, the Debtor's Revised Fourth Amended Disclosure Statement was filed and approved. This Disclosure Statement contains no discussion of the actual or projected realizable value from recovery of preferential or other voidable transfers and contains a liquidation analysis which does not include such value among the Debtor's assets.
3. Also on October 27, 1986, the Debtor filed its Revised Fourth Amended Plan of Reorganization. Article XIII of the Plan provides that "the Bankruptcy Court shall retain jurisdiction of the Chapter 11 Case so long as is necessary to . . . hear and determine any pending applications or adversary proceedings or contested matters, including proceedings to recover preferences and fraudulent conveyances." As of October 27, 1986, there were no pending adversary proceedings to recover preferences.
4. Prior to the filing of the October 27, 1986, Plan and Disclosure Statement, Interstate Airlines, Inc. ("Interstate"), funder of the Plan and the successor by merger to the reorganized Debtor, had conducted a number of discussions with Mark G. Morris, then President of Air One, regarding the existence of preferences. Although Morris believed there were preferences, his opinion was not shared by counsel for either Air One or the Creditors' Committee. Morris did not use the possibility of preferences as a bargaining lever in his negotiations with Interstate over the terms of the plan, and in September, 1986, he advised Charles A. Adami, Interstate's Secretary/Treasurer, that there were no preferences.
5. Despite having been advised that no preferences existed, Adami only a few days following approval of the Disclosure Statement engaged James V. McTevia and Associates, a bankruptcy specialty firm, to conduct an insolvency review of the Debtor's records. On the basis of a preliminary report given on or around November 11, 1986 and a final report given on or around November 18, 1986, Adami authorized the filing of a number of complaints to recover preferential transfers, including the instant one against Wing On. These complaints were filed on November 28, 1986.
6. Plaintiff's Complaint against Wing On requests a judgment of $876,792.00 plus interest, together with the return and/or cancellation of 330,000 shares of Air One stock. Wing On is also a creditor of the Debtor, having filed Proof of Claim No. 980 on March 11, 1985 in the sum of $3,282,324.38.
7. On December 1, 1986, the Revised Fourth Amended Plan of Reorganization (As Modified) of Debtor was filed with the Court. Article XIII of the Plan provides that "the Bankruptcy Court shall retain jurisdiction of the Chapter 11 Case so long as is necessary . . . to hear and determine any applications or adversary proceedings or contested matters, including proceedings to recover preferences and fraudulent conveyances."
8. Also on December 1, 1986, the Court held a hearing to consider whether to confirm the modified Plan. At the hearing, Kenneth Wideman, Vice President and General Counsel for Air One, and Adami testified about the existence of preferences, including the instant proceeding against Wing On.
9. Under the terms of the approved Plan of Reorganization, creditors will receive no direct benefit from the recovery of preferences, that is, no portion of the amount recovered is to be distributed directly to the creditors. The only benefit, if any, resulting to unsecured creditors from the recovery of such preferences is a possible increase in value of the Interstate stock received by them as part of the reorganization plan.
*1001 10. On December 1, 1986, the Court confirmed the Revised Fourth Amended Plan of Reorganization (As Modified) of Debtor.
11. After the filing of the Complaint against Wing On, Plaintiff was not able to effectuate service of process upon Wing On. On February 3, 1987, the Court granted Plaintiff's request to reissue summons to Wing On, reissued the summons, and ordered Plaintiff to serve Wing On within thirty days thereafter by (1) first class mail, (2) registered mail, return receipt requested, and (3) by personal service in Hong Kong by an agent of Debtor. By the end of February, 1987, Plaintiff accomplished all three forms of service upon Wing On and filed applications and certifications to that effect with the Court.
12. On April 24, 1987, within the time prescribed for responding to the reissued Summons and Complaint, Wing On filed its Motion To Dismiss alleging as grounds for dismissal that:
"(1) The Complaint must be dismissed for insufficiency of process for failure to serve the summons within the time provided by Bankruptcy Rule 7004;
(2) The Complaint against Wing On is barred by the two year Statute of Limitations contained in 11 U.S.C. §§ 546(a) and 1107(a). The two year period for the commencement of avoidance actions expired on October 26, 1986;
(3) The Complaint fails to state a cause of action in that the Plaintiff lacks standing as debtor-in-possession under 11 U.S.C. § 1107;
(4) The plaintiff is judicially estopped from asserting this cause of action as a result of its failing to disclose the existence of the cause of action in either the Plan or the Debtor's Revised Fourth Amended Disclosure Statement (the `Disclosure Statement');
(5) The plaintiff is barred from prosecuting this action in that any proceeds of preference recoveries will not accrue to the debtor's creditors; and
(6) This Court lacks personal jurisdiction over Wing On."
13. By Order dated May 7, 1987, the Court determined that the Complaint against Wing On was not barred by the Statute of Limitations contained in Title 11, Section 546(a) and 1107(a).
14. Any of the foregoing findings of fact deemed to be conclusions of law are hereby incorporated into the Conclusions of Law.
CONCLUSIONS OF LAW
1. This Court has jurisdiction over the parties and subject matter of this proceeding pursuant to 28 U.S.C. §§ 1334, 151, and 157 and Local Rule 29 of the United States District Court for the Eastern District of Missouri. This is a "core proceeding" pursuant to 28 U.S.C. § 157(b)(2)(B) and (F), which the Court may hear and determine.
2. Wing On asserts that Plaintiff's Complaint must be dismissed for insufficiency of process. The Court does not agree. Bankruptcy Rule 7004(a) incorporates Rule 4(i)(1)(E) of the Federal Rules of Civil Procedure. That rule provides that service upon a party in a foreign country may be made "as directed by order of the court". The Court's February 3, 1987 Order directed Plaintiff how to serve process upon Wing On. See Finding of Fact No. 11. Plaintiff having complied with that Order, the Court concludes that Plaintiff's Complaint should not be dismissed for insufficiency of process.
3. Wing On asserts that Plaintiff fails to state a cause of action in that Plaintiff lacks standing as a debtor-in-possession under 11 U.S.C. § 1107. Although confirmation of a plan terminates a debtor's status as a debtor-in-possession, under Title 11, Section 1123(b), "a plan may . . . (3) provide for (A) the settlement or adjustment of any claim or interest belonging to the debtor or the estate; or (B) the retention and enforcement by the debtor, by the trustee, or by representative of the estate appointed for such a purpose, of any such claim or interest" (emphasis added). In the instant case, the Plan does provide for the Court's post-confirmation jurisdiction to hear and determine proceedings to recover preferences. Since that language *1002 implies the reorganized Debtor's retention of the right to commence such actions and would, in fact, be rendered meaningless if it were not so construed, the Court concludes the Plaintiff's Complaint should not be dismissed for lack of standing by the Plaintiff. In re Amarex, 74 B.R. 378, Bankr.L.Rep. (CCH) ¶ 71823, p. 91319 (Bankr.W.D.Okla.1987) (citing cases).
4. Wing On asserts that "the Plaintiff is judicially estopped from asserting this cause of action as a result of its failing to disclose the existence of the cause of action in either the Plan or the Debtor's Revised Fourth Amended Disclosure Statement."
"Judicial estoppel operates to prevent a party from insulting a court through improper use of judicial machinery. Thus the concept's underlying rationale is that a party should not be allowed to convince unconscionably one judicial body to adopt factual contentions, only to tell another judicial body that those contentions were false. . . . It follows that judicial estoppel should not be applied if no judicial body has been lead astray." Konstantinidis v. Chen, 626 F.2d 933, 938-39 (D.C.Cir.1980) (citations omitted).
Although it is doubtful whether the doctrine of judicial estoppel has any vitality in this judicial circuit, see, Total Petroleum, Inc. v. Gary J. Davis, 822 F.2d 734, 737 n. 6 (8th Cir.1987), the Court agrees that a debtor is bound by its disclosure statement and plan. Were a debtor therein to recite that it had no preference actions, implying thereby that it had investigated the possibility of such claims and found there to be none, and thereafter brought actions to recover the same, the Court would grant a defendant's motion to dismiss. In re Galerie Des Monnaies of Geneva, Ltd., 55 B.R. 253 (Bankr.S.D.N.Y.1985), aff'd. 62 B.R. 224 (S.D.N.Y.1986). Here, however, the Disclosure Statement and Plan contain no such misrepresentation. While the Disclosure Statement's liquidation analysis might lead one to infer that there were no preferences, that inference would have to be tempered by the realization that the Plan specifically reserved the Court's retention of jurisdiction to determine preference matters. Taken together, the only reasonable inference would be that although there might be preferences, the plan proponent lacked enough detailed knowledge to factor them into the liquidation analysis. Indeed, the facts show that although Interstate ordered an insolvency review shortly after filing the Disclosure Statement and, therefore, must have at least determined by then that the possibility of preferences was worth investigating, it did not know of any specific preferences at the time that the Disclosure Statement was filed and, therefore, could not have disclosed them in any detail. When Interstate did become aware of the specific details, those details were fully disclosed to the Court at the confirmation hearing. While it arguable that Debtor should have amended its Disclosure Statement to reflect preferences in the liquidation analysis, compare, e.g., In re Metrocraft Publishing Services, Inc., 39 B.R. 567, 570 (Bankr.N.D. Ga.1984) (possible preferences must be disclosed in disclosure statement) with In re Jennings, Inc., 46 B.R. 167, 172 (Bankr.E. D.Pa.1985) (disclosure statement need not discuss preferences), the Court is of the opinion that by retaining jurisdiction to hear preferences in the Plan, creditors were on notice as to their possibility. If a creditor believed more information was needed in order to make the Disclosure Statement adequate, the creditor could have and should have objected to the Disclosure Statement on that basis. None did. The Court, therefore, concludes that Plaintiff's Complaint should not be dismissed on the grounds of judicial estoppel or any representations or omissions made in the Disclosure Statement approved by the Court.
5. Wing On asserts that "the Plaintiff is barred from prosecuting this action in that any proceeds of preference recoveries will not accrue to the Debtor's creditors." It is true that preference recoveries will not be paid directly to creditors and that the only benefit to be derived from such recoveries by the creditors is a possible and speculative increase in the value of Interstate stock received by them pursuant to the Plan. Even so, it is evident that Interstate bargained for the right to *1003 recover preferences by including the Court's retention of jurisdiction to determine them in the Plan. The Plan having been approved, under Title 11, Section 1141(a) all parties are bound by its terms. See also, In re Amarex, Inc., supra, 74 B.R. 378, Bankr.L.Rep. (CCH) at p. 91320. The Court, therefore, concludes that Plaintiff is not barred from prosecuting this action by reason of the manner in which preferential transfer recoveries will be distributed.
6. Wing On also asserts that this Court lacks personal jurisdiction over Wing On. It is well settled that where a party has filed its proof of claim in a case, the Court has jurisdiction over that party to determine a preference action. Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966). Wing On having filed its Proof of Claim in this case, the Court concludes that it has jurisdiction over Wing On.
7. Each of Wing On's arguments having been considered and rejected by the Court, Wing On's Motion To Dismiss taken as a motion for summary judgment will be denied and this proceeding will be set for trial.
8. Any of the foregoing conclusions of law deemed to be findings of fact are hereby incorporated into the Findings of Fact. | 01-03-2023 | 10-30-2013 |
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