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https://www.courtlistener.com/api/rest/v3/opinions/2857877/ | IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,
AT AUSTIN
NO. 3-90-077-CV
ELIZABETH ANN WINGER,
APPELLANT
vs.
ERIC RODGER PIANKA,
APPELLEE
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 53RD JUDICIAL DISTRICT
NO. 453,248, HONORABLE SCOTT McCOWN, JUDGE
In this case we must determine if the Texas Constitution authorizes persons about
to marry to partition or exchange between themselves the salary and income they will earn during
their future marriage, causing the portion set aside to each to become the respective spouse's
separate property. Before their marriage in 1983, the parties signed a written property agreement.
The trial court ruled that the agreement was valid and enforceable. Elizabeth Ann Winger appeals
from a divorce decree dividing the parties' property in accordance with the agreement. We will
affirm the judgment of the trial court.
On July 18, 1983, Elizabeth Winger and Eric Pianka signed a premarital agreement
that provided in relevant part:
Planning to engage in holy matrimony, we, the undersigned parties, do hereby
undertake this agreement to waive any and all rights to "community property,"
should this marriage terminate in divorce. Specifically, neither of us seek to
acquire any money or property owned by the other prior to, or accrued by the
other during the tenure of this marriage. Thus, each of us reserves full ownership
of the property listed below, along with any additional equity, appreciation in
value, or income or other proceeds that may be gained during the course of said
marriage:
PROPERTY OWNED SOLELY BY ERIC R. PIANKA:
. . . .
3. Any and all income, including salaries, tax refunds, etc.
. . . .
5. Retirement funds with V.A.L.I.C.
. . . .
PROPERTY OWNED SOLELY BY ELIZABETH ANN WINGER:
. . . .
4. Any and all income, including salaries, tax refunds, unemployment
compensation, etc.
During the marriage, Pianka earned some $163,000 as a professor and rancher,
while Winger lost money operating her business, the Flat Creek General Store. In its final
judgment granting the divorce, the trial court divided the couple's property in accordance with
their premarital agreement. Pianka was awarded all of the $55,538.64 that he contributed to his
retirement account from his earnings during the marriage. (1)
In two points of error, appellant complains that neither the Texas Constitution nor
the relevant statute in effect on the date the agreement was signed authorized the premarital
partition or exchange of future earnings. We will overrule both points of error.
THE 1980 CONSTITUTIONAL AMENDMENT PERMITS PERSONS ABOUT TO
MARRY TO PARTITION OR EXCHANGE THEIR FUTURE EARNINGS
In her first point of error, appellant complains that the trial court erred in
concluding that the parties' agreement validly partitioned their future personal earnings because
the Texas Constitution does not authorize the prenuptial partition of parties' future earnings.
Texas has retained the basic features of the community property system rooted in
its Mexican and Spanish heritage, but its marital property law has been changed numerous times
as a result of constitutional amendments, legislative enactments, and judicial decisions. Thomas
M. Featherston, Jr. & Julie A. Springer, Marital Property Law in Texas: The Past, Present and
Future, 39 Baylor L. Rev. 861, 862 (1987). Historically, neither married persons nor persons
about to marry could by "mere agreement" convert the character of income or community
property into separate property. Williams v. Williams, 569 S.W.2d 867, 870 (Tex. 1978); see
also Kellett v. Trice, 66 S.W. 51, 53-54 (Tex. 1902); King v. Bruce, 197 S.W.2d 830 (Tex. Civ.
App. 1946), rev'd on other grounds, 201 S.W.2d 803 (Tex. 1947). The Texas Constitution was
amended in 1948, making it possible for spouses to partition their existing community property.
Tex. Const. art. XVI, § 15 (1948, amended 1980); Joseph W. McKnight, Family Law: Husband
and Wife, 35 Sw. L. J. 93, 101 (1981).
In 1980 the Texas Constitution again was amended, authorizing spouses as well as
persons about to marry to partition or exchange their interests in property then existing or to be
acquired in the future. The amended article provided in relevant part:
All property, both real and personal, of a spouse owned or claimed before
marriage, and that acquired afterward by gift, devise or descent, shall be the
separate property of that spouse; and laws shall be passed more clearly defining the
rights of the spouses in relation to separate and community property; provided that
persons about to marry and spouses, without the intention to defraud pre-existing
creditors, may by written instrument from time to time partition between themselves
all or part of their property, then existing or to be acquired, or exchange between
themselves the community interest of one spouse or future spouse in any property
for the community interest of the other spouse or future spouse in other community
property then existing or to be acquired, whereupon the portion or interest set
aside to each spouse shall be and constitute a part of the separate property and
estate of such spouse or future spouse; and the spouses may from time to time, by
written instrument, agree between themselves that the income or property from all
or part of the separate property then owned by one of them, or which thereafter
might be acquired, shall be the separate property of that spouse; and if one spouse
makes a gift of property to the other that gift is presumed to include all the income
or property which might arise from that gift of property.
Tex. Const. art. XVI, § 15 (1980, amended 1987) (emphasis added). (2)
Because the amendment does not expressly refer to salaries or personal earnings,
a debate has ensued as to whether future personal earnings constitute "property . . . to be
acquired" that is subject to partition. W. Fred Cameron, Robert S. Hoffman & Alan V.
Ytterberg, Marital and Premarital Agreements, 39 Baylor L. Rev. 1096, 1116 (1987); see also
S. Christine Mercing, Comment, The Uniform Premarital Agreement Act: Survey of Its Impact
in Texas and Across the Nation, 42 Baylor L. Rev. 825, 845-47 (1990). Many commentators and
practitioners have assumed that salary and income are included within the meaning of "property"
as used in section 15. Cameron, Hoffman & Ytterberg, supra, at 1116; see also Featherston &
Springer, supra, at 886-87 (a "community free marriage" is possible because section 15 allows
all future community property, including salary and wages, to be partitioned into the spouses'
separate properties); Joseph W. McKnight, The Constitutional Redefinition of Texas Matrimonial
Property as It Affects Antenuptial and Interspousal Transactions, 13 St. Mary's L. J. 449, 458
(1982) (the amendment's reference to community property clearly includes personal earnings).
Although this question is squarely presented here, other courts have struggled with
the issue. Another court of appeals recently reached the same conclusion as we do. Fanning v.
Fanning, No. 10-90-112-CV (Tex. App.--Waco, March 4, 1992, no writ). Others have implied
that by premarital agreement parties may declare that future earnings of the spouses will be
separate, rather than community, property. See Chiles v. Chiles, 779 S.W.2d 127, 128 (Tex.
App. 1989, writ denied) (upholding a premarital agreement that precluded the acquisition of any
community property during the marriage); Dewey v. Dewey, 745 S.W.2d 514, 517 (Tex. App.
1988, writ denied) (holding that husband's income was community property because premarital
agreement did not mention salaries or state that there would be no accumulation of community
estate); Bradley v. Bradley, 725 S.W.2d 503, 504 (Tex. App. 1987, no writ) (premarital
agreement specified that parties intended earnings from their "respective personal efforts" would
be separate property, but such earnings were held to be community because spouses failed to
partition their community estate yearly as required by their agreement); see also Huff v. Huff, 554
S.W.2d 841, 843 (Tex. Civ. App. 1977, writ dism'd) (pre-1980 amendment holding that
premarital agreement that future income would be separate property did not violate Article XVI,
section 15).
The Historic Context: What Did Texas Voters Decide?
Appellant argues that the historical context of the 1980 amendment shows that it
addressed only income arising from separate property, not personal earnings. The primary rule
in interpreting the Texas Constitution is to give effect to the intent of the voters who adopted it.
Edgewood Indep. Sch. Dist. v. Kirby, 777 S.W.2d 391, 394 (Tex. 1989); Cramer v. Sheppard,
167 S.W.2d 147, 152 (Tex. 1942); Williams v. Castleman, 247 S.W. 263, 265 (Tex. 1922); State
v. Clements, 319 S.W.2d 450, 452 (Tex. Civ. App. 1958, writ ref'd).
Appellant suggests that the amendment was passed in response to specific federal
court estate tax decisions. These cases held that where one spouse made a gift of income-producing property to the other spouse, even though the gift became the recipient's separate
property, one-half the income the property produced thereafter nevertheless was includable in the
donor spouse's estate. See, e.g., Estate of Castleberry v. Commissioner, 68 T.C. 682, 686-87
(1977), rev'd sub nom., Estate of Wyly v. Commissioner, 610 F.2d 1282 (5th Cir. 1980). The
tax court reasoned that under Article XVI, section 15, the income arising from the separate
property continued to be characterized as community property. Id. at 686-87.
Clearly, appellant is correct at least to the extent that the last provision of the 1980
amendment alters the result in Castleberry:
[T]he spouses may . . . agree between themselves that the income or property from
all or part of the separate property then owned by one of them, or which thereafter
might be acquired, shall be the separate property of that spouse; and if one spouse
makes a gift of property to the other that gift is presumed to include all the income
or property which might arise from that gift of property.
Tex. Const. art. XVI, § 15 (1980, amended 1987).
As further support, appellant points to the ballot description of the amendment as
evidence of the voters' intent. The ballot description summarized the amendment as follows: "A
Constitutional amendment allowing spouses to agree that income or property arising from separate
property is to be separate property." Tex. H.J.R. 54, 66th Leg., 1979 Tex. Gen. Laws 3227.
This summary reflects that, if adopted, parties by agreement could change the result reached in
Castleberry. However, the Texas Supreme Court has rejected the argument that one may construe
a constitutional amendment by the language presented to the voters on the ballot: "We do not
think that it would be sound to permit the ballot form to have the effect of limiting the natural
meaning of the language of the amendment itself." Railroad Comm'n v. Sterling Oil & Ref. Co.,
218 S.W.2d 415, 418 (Tex. 1949). The voter is presumed to be familiar with the content of the
proposed amendment when voting. Hill v. Evans, 414 S.W.2d 684, 692 (Tex. Civ. App. 1967,
writ ref'd n.r.e.). Accordingly, the language of the ballot is sufficient if it identifies the
amendment and shows its character and purpose. Id.; Whiteside v. Brown, 214 S.W.2d 844, 851
(Tex. Civ. App. 1948, writ dism'd).
Although appellant correctly cites one factor prompting the change, the 1980
amendment also included provisions unrelated to Castleberry. The Texas Supreme Court recently
considered the purposes sought to be accomplished by adoption of the 1980 constitutional
amendment. Beck v. Beck, 814 S.W.2d 745 (Tex. 1991). The court recognized that one purpose
was to supersede the effect of Castleberry. See id. at 748. Another purpose, however, was to
supersede the supreme court's own opinion in Williams. See id. at 747-48. In Williams, a couple
about to marry executed a written agreement stating in part that each would retain all rights in
their respective property owned at marriage or acquired during marriage, and further agreed that
income from their separate properties, as well as their salaries, would also remain separate. The
supreme court held that this constituted a mere agreement attempting to characterize marital
property before its acquisition in violation of the constitution and laws of Texas. Williams, 569
S.W.2d at 870. In Beck, the supreme court recognized that one purpose of the 1980 amendment
was to supersede Williams so that persons about to marry could contract to recharacterize property
they would receive during their future marriage. See Beck, 814 S.W.2d at 747-48.
In construing its terms, a constitutional provision must be interpreted so as to give
effect to every phrase of the document; no provision ordinarily duplicates another, and provisions
should not be interpreted so as to be rendered meaningless. In the Interest of McLean, 725
S.W.2d 696, 697-98 (Tex. 1987); Hanson v. Jordan, 198 S.W.2d 262, 263 (Tex. 1946). If we
accept appellant's interpretation, portions of the pre-marital partition and exchange provisions are
rendered meaningless.
Finally, we are aware that in the years since the 1980 amendment the practice of
executing premarital contracts, sometimes partitioning future earnings, has become commonplace.
Public acceptance of and acquiescence in legislative interpretations over a long period of time are
particularly persuasive and are to be given serious consideration in construing constitutional
provisions. Director of Dep't of Agric. and Env't. v. Printing Indus. Ass'n, 600 S.W.2d 264, 269
(Tex. 1980).
The Meaning of the Text
The 1980 Constitutional amendment allows persons about to marry to partition
between themselves "all or part of their property then existing or to be acquired" or to exchange
between themselves "the community interest of one . . . in any property . . . for the community
interest of the other . . . in other community property then existing or to be acquired." Tex.
Const. art. XVI, § 15 (1980, amended 1987) (emphasis added). Appellant argues that future
earnings cannot be governed by this amendment because it does not explicitly refer to "salaries,"
"income," or "earnings," and because these items are not "property" within the meaning of this
amendment. We disagree.
First, Texas law defines "property" broadly. Property extends to every species of
valuable right and interest. Womack v. Womack, 172 S.W.2d 307, 308 (Tex. 1943); see also Ocie
Speer, Law of Marital Rights in Texas 436 (1929); 1 Edwin S. Oakes, Speer's Marital Rights in
Texas 508 (4th ed. 1961). If salary, personal earnings and income are not property, we are at a
loss to know what to label money earned and received. (3)
Second, we disagree with appellant's argument because earnings, when received,
are "community property" and thus are encompassed within the broad meaning of "property."
The Texas Constitution defines separate property as the property of a spouse, both real and
personal, owned before marriage or acquired during marriage by gift, devise, or descent. Tex.
Const. art. XVI, § 15. By exclusion, and apart from proof of certain specific circumstances, all
other property owned or acquired by married persons during marriage necessarily is community
property. (4) Arnold v. Leonard, 273 S.W. 799 (Tex. 1925). As appellant recognizes, it is
fundamental to the community property system that whatever is acquired during marriage by the
toil, talent, or other productive faculty of either spouse is community property. Vallone v.
Vallone, 644 S.W.2d 455, 458 (Tex. 1982); see also 15A Am. Jur. 2d Community Property § 3,
at 632. Thus, a spouse's personal earnings are community property. 15A Am. Jur. 2d
Community Property § 42. Community property obviously is defined as one type of property.
See Black's Law Dictionary 351 (5th Ed. 1979); 8 Words & Phrases, Community Property 216,
221-25 (1951 & Supp. 1991). Because earnings are community property, it follows that they must
also be a form of "property."
Appellant cites us to several well-known cases decided before the 1980
Constitutional amendment which are not controlling here. Some of these cases stand for the
proposition fundamental to the community property system that whatever spouses acquire by their
joint efforts is community property. See, e.g., Norris v. Vaughan, 260 S.W.2d 676 (Tex. 1953)
(citing DeBlanc v. Hugh Lynch & Co., 23 Tex. 25). Ironically, appellant insists that earned
income is the basic component of the community property system but rejects the notion that the
income itself is property contemplated by the constitution. Appellant stresses the imprudence of
allowing couples to "opt out" of the community property system. We agree that shared earnings
are the foundation of the community property system; we may even question the wisdom of
allowing couples to eliminate the accumulation of community assets. Nevertheless, in interpreting
the constitution, the court does not question the wisdom behind its provisions. McLean, 725
S.W.2d at 698 (citing Lewis v. Independent Sch. Dist. of City of Austin, 161 S.W.2d 450, 452-53
(Tex. 1942)).
Furthermore, the Texas Supreme Court recently reviewed the history of Article
XVI, section 15, and enunciated its support for premarital agreements in general:
[O]ne purpose of the amendment was to uphold the intentions of spouses who
entered into premarital agreements before 1980 . . . and to supersede the effect of
this court's decision in Williams . . . .
. . . .
When the Texas Legislature originally proposed the adoption of the Spanish
model of community property laws, it failed to include a constitutional provision
incorporating the Spanish rule that future spouses could contract to recharacterize
their property as they desired. Early court decisions interpreted our community
property laws as establishing an inflexible system that forbade contracts attempting
to recharacterize community property. These decisions were the legal
manifestation of the now outmoded belief that women were not capable of
managing their affairs and needed the law's protection.
. . . .
We hold that the 1980 amendment to article XVI, section 15, of the Texas
Constitution demonstrates an intention on the part of the legislature and the people
of Texas to not only authorize future premarital agreements, but to impliedly
validate section 5.41 of the Texas Family Code and all premarital agreements
entered into pursuant to that statute. The legislature and the people of Texas have
made the public policy determination that premarital agreements should be
enforced.
Beck, 814 S.W.2d at 748-49 (citations omitted). (5)
We hold that the 1980 amendment to Article XVI, section 15, of the Texas
Constitution permits persons about to marry to partition or exchange between themselves salaries
and earnings to be acquired by the parties during their future marriage.
Appellant's first point of error is overruled.
AGREEMENT IN CONTEMPLATION OF MARRIAGE
In her second point of error, appellant complains that the trial court erred in
concluding that the parties' prenuptial agreement validly partitioned their future personal earnings
because, even if the Texas Constitution authorizes such a partition, Family Code section 5.41(a)
in effect at the time of the agreement did not. (6)
The Texas Family Code was amended in 1981 to implement the constitutional
changes wrought by the 1980 amendment. The following statute provided for premarital
agreements:
Section 5.41. Agreement in Contemplation of Marriage
(a) Before marriage, persons intending to marry may enter into a marital
property agreement concerning their property then existing or to be acquired, as
they may desire.
1981 Tex. Gen. Laws, ch. 782, § 1, at 2964 (Tex. Fam. Code § 5.41(a), since amended). (7)
Appellant again complains that because the statute referred only to "property" and not to "salary,"
"income," or "earnings" these items could not be the subject of a premarital partition. For the
reasons already stated, we disagree. Further, appellant complains that section 5.41(a) only called
for persons intending to marry to execute a property agreement, while the constitution requires
them to partition or exchange property. Because the statute did not expressly deal with or mention
"partition," appellant argues the concept cannot be authorized by its terms. But in Williams, the
supreme court stated that the statute should be construed as broadly as possible in order to allow
the parties as much flexibility as possible within the confines of constitutional restrictions.
Williams, 569 S.W.2d at 870.
Appellant's argument is one of semantics without merit. Section 5.41(a) provided
that parties could execute a marital property agreement in contemplation of their marriage
concerning property to be acquired thereafter. The statute did not restrict the breadth of subject
matter or terms the agreement might contain. Nothing in the statute excluded or precluded the
parties' including therein the partition or exchange of any property they might acquire during
marriage. Clearly, a property agreement need not provide for partition or exchange of any
property. That is for the parties to determine. However, in order to partition or exchange
property, the parties were required to do so by written agreement. 1981 Tex. Gen. Laws, ch.
782, at 2965 (Tex. Fam. Code § 5.44, since amended). Pursuant to section 5.41(a), the parties
could enter into an agreement concerning their property and include therein the partition or
exchange of their property "as they may desire."
Appellant's second point of error also is overruled. We affirm the judgment of the
trial court.
Marilyn Aboussie, Justice
[Before Chief Justice Carroll, Justices Aboussie and Jones; Justice Jones not participating]
Affirmed
Filed: May 6, 1992
[Publish]
1. 1 Appellant does not challenge by point of error the wording of the agreement or any of
the trial court's findings of fact as to the separate character of any asset.
2. 2 Article XVI, section 15 was amended again in 1987 to allow spouses to agree "that all or
part of their community property becomes the property of the surviving spouse on the death of
a spouse." See Tex. Const. art. XVI, § 15.
3. 3 The Uniform Premarital Agreement Act, adopted in 1987, defines "property" as "an
interest, present or future, legal or equitable, vested or contingent, in real or personal
property, including income and earnings." Tex. Fam. Code Ann. § 5.41(2) (Supp. 1992)
(emphasis added).
4. 4 "Community property consists of the property, other than separate property, acquired by
either spouse during marriage." Tex. Fam. Code Ann. § 5.01 (1975).
5. 5 One earlier commentator observed, "[T]he supreme court now seems to have recognized
that in the absence of contrary legislation, the community property system is governed by
general principles of Spanish law. Under those principles, spouses were permitted to freely
contract away the community structure, either before or after marriage." 2 George D. Braden,
The Constitution of the State of Texas: An Annotated and Comparative Analysis 738 (1977).
6. 6 Appellant concedes that if the Texas Constitution authorizes the prenuptial partition and
exchange of future personal earnings, sections 5.41 and 5.43 of the Family Code may now
permit prenuptial partition of earnings. See supra note 2; Tex. Fam. Code Ann. §§ 5.41, 5.43
(Supp. 1992). Appellant contends, however, that § 5.41 in effect at the time of the agreement
in 1983 controls its validity rather than the amended version enacted in 1987. The trial court
upheld the agreement under the statute urged by appellant; we do likewise. Therefore, we
need not decide whether the 1987 act could be applied.
7. 7 The same act created sections 5.42 and 5.43 authorizing certain transactions between
spouses not placed in issue here. | 01-03-2023 | 09-05-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/2857907/ | IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,
AT AUSTIN
NO. 3-92-112-CV
CITY COUNCIL OF AUSTIN, TEXAS; BRUCE TODD, MAYOR OF THE CITY OF
AUSTIN; COUNCIL MEMBERS CHARLES URDY, MAX NOFZIGER,
RONNEY REYNOLDS, LOUISE C. EPSTEIN, ROBERT A. LARSON AND
GUS GARCIA; AND JAMES E. ALDRIDGE, CITY CLERK OF THE CITY
OF AUSTIN,
APPELLANTS
vs.
SAVE OUR SPRINGS COALITION, BRIGID SHEA, JENNIE HAMILTON
AND DAVID BUTTS,
APPELLEES
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 98TH JUDICIAL DISTRICT
NO. 92-03635, HONORABLE W. JEANNE MEURER, JUDGE
PER CURIAM
Save Our Springs Coalition, (1) a coalition of citizen organizations interested in the
protection of Barton Springs, Barton Creek, and the Edwards Aquifer, filed with the city clerk
of Austin, Texas, an initiative petition requesting the City Council of Austin, Texas, to adopt the
Coalition's proposed ordinance or to submit the ordinance to the voters. The city clerk certified
the petition to the city council on March 13, 1992.
When the city council did not adopt the initiated ordinance or call an election, the
Coalition sought mandamus relief from the district court of Travis County to compel the city
council to set an election on the initiated ordinance for May 2, 1992. The City responded that the
city charter allows the city council to exercise any one of three options in the face of such a
petition and, therefore, mandamus was improper. The district court ordered the city council to
call the election for May 2, 1992. We conclude that a conflict exists between the Austin city
charter and the relevant portions of the election code and that because the duty to act was not
clearly fixed, the district-court order was premature. Accordingly, we must reverse.
Our review is restricted to one specific question: whether the district court
properly ordered mandamus, an extraordinary remedy justified in only the most narrow
circumstances. We do not, and in fact cannot, consider the merits of the proposed ordinance, the
motivation of individual city council members, the propriety of the City's pursuit of this appeal,
or the resulting delay and expense. These are uniquely political questions which must be
answered by the voters of Austin.
In its original petition filed in the district court, the Coalition asserted, "Upon
receipt of the certified initiative petition, the City Council became duty bound to act in accordance
with Article IV, § 5 of the City Charter and the Texas Election Code." That section of the charter
provides:
When the council receives an authorized initiative petition certified by the
city clerk to be sufficient, the council shall either:
(a) Pass the initiated ordinance without amendment within sixty (60) days after
the date of the certification to the council; or
(b) Submit said initiated ordinance without amendment to a vote of the
qualified voters of the city at a regular or special election to be held within
ninety (90) days after the date of the certification to the council; or
(c) At such election submit to a vote of the qualified voters of the city said
initiated ordinance without amendment, and an alternative ordinance on the
same subject proposed by the council.
Texas Elec. Code Ann. § 3.005 (1986) provides, "An election ordered by an authority of a
political subdivision shall be ordered not later than the 45th day before election day." The
Coalition relied further on Tex. Elec. Code Ann. § 41.004(a) (1986), which states:
If a law outside this code other than the constitution requires a special
election subject to Section 41.004(a) to be held within a particular period after the
occurrence of a certain event, the election shall be held on an authorized uniform
election date occurring within the period unless no uniform election date within the
period affords enough time to hold the election in the manner required by law. In
that case, the election shall be held on the first authorized uniform election date
occurring after the expiration of the period.
Based on these provisions, the Coalition contended that, pursuant to Tex. Elec.
Code § 41.001(a) (Supp. 1992), the only authorized uniform election date within the ninety-day
period was May 2, 1992, and that the city council must set an election for that day no later than
March 18, 1992, a date forty-five days before May 2, 1992.
At the district-court hearing on March 17, 1992, the City responded that the council
had no obligation to set an election until the expiration of the sixty-day period set out in § 5(a)
and, therefore, the May 2, 1992, date did not afford sufficient time to hold the election in the
required manner. Pursuant to § 41.004(a), the council could, therefore, set the election for the
next uniform election date after the expiration of the ninety-day period.
On March 17, 1992, the district court issued its order granting the writ of
mandamus and ordering that
City Council of City of Austin, and Bruce Todd its Mayor and Charles Urdy, Max
Noziger [sic], Ronney Reynolds, Louise C. Epstein, Robert A. Larson and Gus
Garcia, members of the Austin City Council be and the same are hereby
commanded to forthwith call an election on the plaintiffs' Save Our Springs
Coalition initiative petition, said election to be called for May 2, 1992 in
accordance with Section 41.004 of the Texas Election Code, and these defendants
are ordered to take all steps necessary to order by March 18, 1992 such election
for May 2, 1992.
The City filed its notice of appeal seeking review of the district court's writ of mandamus. The
appeal effectively superseded the order of mandamus. Tex. Civ. Prac. & Rem. Code Ann.
§ 6.002 (Supp. 1992); Ammex Warehouse Co. v. Archer, 381 S.W.2d 478 (Tex. 1964); City of
W. Univ. Place v. Martin, 123 S.W.2d 638 (Tex. 1939).
A writ of mandamus is an extraordinary remedy and will issue only to compel a
public official to perform a ministerial act. Anderson v. City of Seven Points, 806 S.W.2d 791,
793 (Tex. 1991); Womack v. Berry, 291 S.W.2d 677, 682 (Tex. 1956). An act is ministerial
when the law clearly spells out the duty to be performed by the official with sufficient certainty
that nothing is left to the exercise of discretion. Anderson, 806 S.W.2d at 793; Depoyster v.
Baker, 34 S.W. 106, 107 (Tex. 1896); Hoot v. Brewer, 640 S.W.2d 758, 761 (Tex. App. 1982,
orig. proceeding). Before such a writ will issue, a party must have demanded performance of the
act and the public official must have refused to perform. Stoner v. Massey, 586 S.W.2d 843, 846
(Tex. 1979). The writ will not issue to review or control the action of a public officer in a matter
involving discretion. Womack, 291 S.W.2d at 682.
In its sixth point of error, the City contends, in effect, that the district court erred
in granting the writ of mandamus because at least as of March 17, 1992, the City still had
discretion in determining whether to set an election for May 2, 1992. We must agree and will
sustain the point of error. We do not do so, however, on the basis that the city council absolutely
had sixty days within which to deliberate before any obligation arose to set an election on the
initiated ordinance.
After the city charter provisions at issue were adopted, the legislature enacted
§ 3.005 of the election code, which requires a political subdivision to order an election forty-five
days in advance of the election. See 1985 Tex. Gen. Laws, ch. 211, § 1, at 809. The City cannot
deliberate the full sixty days the charter affords, give the required forty-five day notice, and still
hold an election within ninety days from the date the city clerk certifies an initiated ordinance.
Further, the four uniform election days provided by the election code do not fall precisely at 90
day intervals.
Once the city clerk certifies an ordinance, the city council has three options: (1)
to pass the initiated ordinance, (2) to submit the ordinance at a regular or special election, or (3)
to submit the initiated ordinance and an alternative ordinance at a regular or special election.
These provisions are mandatory. See Glass v. Smith, 244 S.W.2d 645, 647 (Tex. 1951). When
the district court rendered its order, the council still retained the discretion to choose among the
three options. However the conflict between the city charter and the election code may be
resolved, on March 17th the calling of an election for May 2, 1992, had not yet become merely
a ministerial duty.
The situation before this Court differs from those in which courts have found
mandamus relief appropriate. In those cases, the charter provisions and the facts clearly
established that the public official had no discretion to exercise. See e.g. Anderson, 806 S.W.2d
at 791 (once trial court determined that requisite number of voters had signed petition, mayor had
no discretion; act was ministerial); Duffy v. Branch, No. 05-92-00468-CV (Tex. App. - Dallas,
March 20, 1992, orig. proceeding) (if, after filing of recall petition, council member refuses to
resign, city charter provides that city council must order recall election; provision allows for no
discretion); Burns v. Kelly, 658 S.W.2d 731 (Tex. App. 1983, orig. proceeding); Blanchard v.
Fulbright, 633 S.W.2d 617 (Tex. App. 1982, orig. proceeding). The opinion in Glass similarly
reflects the city council's refusal to call an election based on a belief that the initiated ordinance
would be void.
In the instant cause, at the time the writ of mandamus issued, the city council
retained discretion to choose among three options. The calling of an election was not the only
remaining course of action. See generally Vara v. City of Houston, 583 S.W.2d 935 (Tex. Civ.
App. 1979, writ ref'd n.r.e.), appeal dism'd, 449 U.S. 807 (1980). Although unlikely, the city
council could have adopted the initiated ordinance at its meeting on March 18, 1992. Because the
district court order of March 17, 1992, foreclosed such action by directing the council to call an
election no later than March 18, 1992, the writ of mandamus was premature.
We reiterate that we do not adopt the City's argument that the period within which
to hold an election begins to run only after the council has had sixty days within which to consider
the initiated ordinance. The council does and should have a reasonable time to deliberate. The
provisions of the election code, however, may require that reasonable time to be less than the sixty
days provided in the charter. Likewise, an authorized uniform election day will not always occur
within ninety days from certification.
We sustain the City's sixth point of error on the limited basis set out above.
Because this disposition requires that we reverse the order of the district court, we do not address
the City's points of error one through five or the points raised in the brief of the four council
members.
The order of the district court of March 17, 1992, is reversed and judgment
rendered that the request for writ of mandamus be denied.
[Before Chief Justice Carroll, Justices Aboussie and B. A. Smith]
Reversed and Rendered
Filed: April 15, 1992
[Publish]
1. Appellants are the City Council of Austin, Texas; Bruce Todd, Mayor of the City of Austin;
Council Members Charles Urdy, Max Nofziger, Ronney Reynolds, Louise C. Epstein, Robert A.
Larson, and Gus Garcia; and James E. Aldridge, City Clerk of the City of Austin ("the City").
Appellees are Save Our Springs Coalition, Brigid Shea, Jennie Hamilton, and David Butts ("the
Coalition"). | 01-03-2023 | 09-05-2015 |
https://www.courtlistener.com/api/rest/v3/opinions/1546909/ | 13 F.2d 438 (1926)
ARMSTRONG et al.
v.
DE FOREST et al.
No. 390.
Circuit Court of Appeals, Second Circuit.
July 12, 1926.
*439 Thomas Ewing, Drury W. Cooper, and John C. Kerr, all of New York City, for appellants.
Thomas G. Haight, of Jersey City, N. J., and Samuel E. Darby, of New York City, for appellee De Forest.
Harry E. Knight and Clifton V. Edwards, Sp. Asst. Attys. Gen., for the Secretary of the Navy and Alexander Meissner.
Before HOUGH, MANTON and HAND, Circuit Judges.
HOUGH, Circuit Judge (after stating the facts as above).
The present argument for plaintiffs has two parts, viz.: (1) If the instrument creating American Company's license, and annexed to the bill, be examined, it will be seen that American Company possesses thereunder rights of use, manufacture, and sale far greater than those remaining in De Forest Company. Wherefore a reasonable interpretation of the statute would render American Company, as the major party in interest, a sufficient party defendant in suit under Rev. St. § 4915, if such suit be regarded as in personam. (2) A suit under that statute is, however, properly regarded as in rem. Wherefore all parties, whether called necessary, proper, or convenient, may be brought in by notice, and service within the district is not a prerequisite to jurisdiction.
The first of these contentions confessedly involves a new construction of Rev. St. § 4915, considered with Judicial Code, § 50 (Comp. St. § 1032).
The statute gives a "remedy by bill in equity" and requires "notice to adverse parties," but it does not define the kind of notice, nor how that notice shall be given, nor does it use the word "serve," except by saying that, "where there is no opposing party," a copy of the bill "shall be served on the Commissioner" of Patents. The Code section provides that where, of several defendants, "one or more" are not inhabitants of the district and do not voluntarily appear, "the court may entertain jurisdiction, and proceed to the trial and adjudication of the suit between the parties who are properly before it," but such judgment shall not "conclude or prejudice other parties not regularly served with process nor voluntarily appearing." Result claimed is that Armstrong can in the Southern district of New York proceed to prove that he is entitled to enjoy a monopoly of the invention concerned as against American Company, without any reference to De Forest Company, although from that concern all the rights of American Company were derived; so that after such a trial the Commissioner would be authorized to issue a patent to Armstrong for the same monopoly as that still vested in one who was no party to the suit, and whose rights under the express words of section 50 are neither concluded nor prejudiced by the proceeding.
*440 The vista of not only possible, but probable, litigation opened by this construction may well give one pause, especially when it is seen upon what the doctrine rests.
It admittedly rests upon a preliminary question of fact, viz. an investigation by the court as to whether a defendant i. e., in the language of the statute, an "opposing party" who can be served has a greater interest in the monopoly of the existing patent than has the record owner thereof who cannot be served.
But the result of any such inquiry will usually depend on a variety of facts, and on facts varying with every invention sued for. Who can say with any certainty that a license under patent A given by the same form of words as that used for a license under patent D, gives the same quantum of interest? The answer (if "interest" be used in any but a narrow legal sense) would depend often, if not usually, on the commercial possibilities of the patented invention. This patent furnishes an instance; for De Forest Company, in licensing (in effect) American Company, reserved "exclusive" rights in the patent for certain uses thereof, which we are by the theory of plaintiff called upon to value or appraise and compare with the rights or privileges as to which American Company became "exclusive" licensee. The question as to which of the two companies has the greater interest in the patent, in the sense of which is most interested in sustaining it, depends on the respective commercial values of the uses reserved and the uses parted with, and for answering such a question we have no more than the pleadings. And the patent relates to radio communication, a matter of which the history began but yesterday, while concerning its commercial or scientific possibilities prophecy is more dangerous than is usual even in that art.
We cannot think the rule proposed workable, or even possible. The fact always remains that the patent owner, the person whose property may be destroyed, is not reached, and after any decree can always say that he had not his day in court. Again, a suit under Rev. St. § 4915, in which the only defense is one offered by a licensee, is a great temptation to collusion, something not suspected here, but a point of weight as long as judicial decisions are precedents. Further, how can such a rule work, when there are several licensees in various parts of the country, and only one can be served in the district plaintiff prefers? The answer is unfavorable, to say the least. For these reasons we decline the construction of Rev. St. § 4915, and Judicial Code, § 50, now argued, and hold that in such a suit the holder of title to the existing patent is a necessary party under general equitable principles, and a party who must be, in the language of the Code, "properly before" the court before "adjudication of the suit" can be had.
It is urged that this construction leaves an inventor defeated in the Patent Office remediless against his victorious rival, who after receiving a patent removes altogether from the United States. This is true, but the answer is that this remedy is at best a statutory anomaly, and Congress has not seen fit to provide for such a case.
The foregoing assumes that the suit is in personam, and, while direct authority on the point argued is lacking, the cases to be cited under the second point furnish, we think, implications quite inconsistent with the construction we have now rejected.
The second point, to the effect that a suit under Rev. St. § 4915, is really a proceeding in rem, is also confessedly novel, and some review of cases on the nature of such suits seems justified.
If a patent be refused, and there are no "opposing parties," except the Commissioner who refused it, Butterworth v. Hill, 114 U. S. 128, 5 S. Ct. 796, 29 L. Ed. 119, seems conclusive that the proceeding is a personal suit; and that it must be a plenary suit in equity, and not an ex parte proceeding, was held in Hammer v. Robertson (C. C. A.) 6 F.(2d) 460.
That the suit is also a new and independent proceeding to obtain a patent, and not an appeal from an antecedent decision, is well settled. Colman v. Hathaway (D. C.) 285 F. 602; Loughran v. Quaker, etc., Co. (C. C. A.) 296 F. 822, with full citations.
While the present argument is novel, the fact situation is not, for Butler v. Shaw (C. C.) 21 F. 321, and Central Signal Co. v. Jackson (D. C.) 254 F. 103, presented the same situation and the same lack of parties. In the Butler Case Justice Gray was evidently not aware of the in rem theory, but in the Central Signal Case the point was nearly stated by plaintiff's moving for substituted service under Judicial Code, § 57, a motion which presupposed that there was "real or personal property within the district." The motion was denied, but the report does not aid us.
Exhaustive inquiry into the nature of suits or proceedings in rem is not required just now. It may, however, be noted that *441 this suit cannot be, "in a strict sense, a proceeding in rem," for it is not "taken directly against property," nor has it for object "the disposition of the property, without reference to the title of individual claimants." This suit can only be called in rem, because "in a larger and more general sense the terms are applied to actions between parties, where the direct object is to reach and dispose of property owned by them, or of some interest therein." Pennoyer v. Neff, 95 U. S. 714, 24 L. Ed. 565; Freeman v. Alderson, 119 U. S. 187, 7 S. Ct. 165, 30 L. Ed. 372; Arndt v. Griggs, 134 U. S. 316, 10 S. Ct. 557, 33 L. Ed. 918.
Undoubtedly the phrase has been used increasingly to cover cases where there was jurisdiction over property, or something affecting property, but lack of jurisdiction over persons who did or might assert an interest in the property. Thus the probate of a will has been often called a proceeding in rem, because it is instituted to "determine the state or condition of the thing itself, and the judgment is a solemn declaration upon the status of the thing." Woodruff v. Taylor, 20 Vt. 65. And for use of the term "quasi in rem" see Title, etc., Co. v. Kerrigan, 150 Cal. 289, 88 P. 356, 8 L. R. A. (N. S.) 682, 119 Am. St. Rep. 199.
We need not proceed, for whether the convenient phrase be used "strictly" or in a "general sense," or be excused by a quasi, there are two matters on which there is no dispute; i. e., there must be a res upon which to adjudicate, and that res must be within the jurisdiction i. e., the power of the court whose aid is asked.
There is agreement that the thing here in controversy is an invention and for our purposes Armstrong, De Forest, Langmuir, and Meissner (see 6 F.[2d] 369) all say (using the word untechnically) they made that invention, but legally it was an invention only in him who first came upon the idea.
Now plaintiffs assert that, since Armstrong was first, the invention, the res, is still in his brain, and since he dwells, brain and all, in the Southern district of New York, the invention is within the jurisdiction of the court of that district, and all the world can be compelled to come there and submit to an adjudication of the status of that invention. It, of course, follows that the other asserted inventors could do the same thing mutatis mutandis in their several districts of residence.
The possibility is an absurdity, which we think grows out of a mistake in selecting the res in dispute. In the popular sense, four or more men invented the same thing, but in the legal sense what they all say they first discovered is represented by and expressed in certain claims now embodied in a patent owned by De Forest Company. If plaintiffs succeed, Armstrong or his assignee should receive a patent containing the same language; i. e., the claims would become plaintiffs'. It follows that the res (assuming that word to be correct) here is the set of claims now owned by De Forest Company, and therefore legally situated in the district of Delaware.
Result is that, without holding, but assuming, that a suit like this is one in rem, we find the res to be without the Southern district of New York. Wherefore it is ordered that the decree appealed from be affirmed, with costs.
MANTON, Circuit Judge (dissenting).
This proceeding in equity invokes section 4915 of the United States Revised Statutes (Comp. St. § 9460), which provides:
"Whenever a patent on application is refused, either by the Commissioner of Patents or by the Supreme Court of the District of Columbia upon appeal from the Commissioner, the applicant may have remedy by bill in equity; and the court having cognizance thereof, on notice to adverse parties and other due proceedings had, may adjudge that such applicant is entitled, according to law, to receive a patent for his invention, as specified in his claim, or for any part thereof, as the facts in the case may appear. And such adjudication, if it be in favor of the right of the applicant, shall authorize the Commissioner to issue such patent on the applicant filing in the Patent Office a copy of the adjudication, and otherwise complying with the requirements of law. In all cases, where there is no opposing party, a copy of the bill shall be served on the Commissioner; and all the expenses of the proceeding shall be paid by the applicant, whether the final decision is in his favor or not."
The statute does not specify where the venue is to be laid, but provides for "notice to adverse parties." Personal service is not provided. The residence of the various defendants named in this proceeding indicates well the improbability and almost impossibility of securing personal service upon all adverse parties who might be interested in the outcome of such a proceeding. A multiplicity of suits would be unavailing, for in each instance they may be dismissed for *442 want of necessary party within the district. I think the proceeding is in rem. The res consists of what the statute says "a patent on application." Where section 4915 is invoked, the subject-matter to be litigated for is "the patent on application." It is not De Forest's patent, but Armstrong's application for which he seeks a patent. It is his concept; his right to a patent for it. It is like the will referred to as the res in Woodruff v. Taylor, 20 Vt. 65. In probating a will, all parties having an interest are given notice. If they reside without the county or district, it is unnecessary to proceed against them within the county or district of their residence. The decision in the proceeding thus instituted determines the validity of the application for the patent Armstrong's, not De Forest's. An adjudication in favor of the applicant merely authorizes the Commissioner to issue the patent, if the applicant otherwise complied with the requirements of the law. Gandy v. Marble, 122 U. S. 432, 7 S. Ct. 1290, 30 L. Ed. 1223.
If the suit is in rem, section 739 of the Revised Statutes does not apply. In Butterworth, Commissioner, v. Hill, 114 U. S. 128, 5 S. Ct. 796, 29 L. Ed. 119, and Barrett Co. v. Ewing, 242 F. 506, 155 C. C. A. 282, the Commissioner of Patents was the sole party defendant, and it was held that, since the residence of the Commissioner was in Washington, D. C., it was necessary to sue him there.
I dissent. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547027/ | 159 B.R. 730 (1993)
In re SHARON STEEL CORPORATION, et al., Debtor.
PENSION BENEFIT GUARANTY CORPORATION, Movant,
v.
SHARON STEEL CORPORATION, United Steelworkers of America and Citibank, N.A., as Agents, Respondents.
Motion No. TR & A-2, Bankruptcy Nos. 92-10958, 92-10959 and 92-10961.
United States Bankruptcy Court, W.D. Pennsylvania.
October 8, 1993.
*731 Herbert P. Minkel, New York City, for debtor.
Stephen Karotkin, New York City, William H. Schorling, Pittsburgh, PA, for Citibank, N.A., as Agent.
Philip E. Beard, Pittsburgh, PA, Mark Shapiro, New York City, for Official Committee of Unsecured Creditors.
Leonard F. Spagnolo, Pittsburgh, PA, Richard A. Pearson, and Melinda Tell Lazare, Washington, DC, for Pension Benefit Guar. Corp.
Richard E. Gordon, Pittsburgh, PA, for United Steelworkers of America.
Robert Wayne, Pittsburgh, PA, for Mueller Industries, Inc.
Shawn Riley, Cleveland, OH, for Cleveland Cliffs.
OPINION[1]
WARREN W. BENTZ, Bankruptcy Judge.
Introduction
By Memorandum and Order dated September 24, 1993, we fixed an evidentiary hearing for September 29, 1993 to afford the Pension Benefit Guaranty Corporation ("PBGC") an opportunity to present evidence *732 in support of its Motion for Stay Pending Appeal ("Motion"). The PBGC had filed an appeal from this Court's Order dated September 21, 1993 by which we approved an agreement ("Agreement") between Sharon Steel Corporation ("Debtor") and the United Steelworkers of America ("USWA").
The Agreement provides that the USWA will cease picketing and facilitate the orderly sale and shipment of the Debtor's steel inventory. In return, the Debtor agrees to reserve 6% of the gross proceeds realized from the sale of the steel inventory to pay certain prepetition wage claims of the USWA members.
The PBGC, which holds a junior lien on certain of the Debtor's fixed assets, but which does not hold a lien on the Debtor's inventory, objects to the payment of prepetition wage claims in the absence of a finding under 11 U.S.C. § 363(e) that the PBGC is adequately protected.
We determined from the argument of counsel, without the benefit of an evidentiary hearing, that the savings generated by the orderly liquidation of the Debtor's inventory with the cooperation of the USWA out-weighed the payment of 6% of the sales price to prepetition wage claimants and that the Agreement is a benefit to all parties including the PBGC.
Following the evidentiary hearing on the PBGC's Motion, at which we heard Malvin Sander, Esq., General In-house Counsel to the Debtor, James T. Wood, a steel marketing expert, and Gary Nietupski, Esq., a labor lawyer, our prior conclusion has been reaffirmed and we find that a stay is not warranted.
Facts
The Debtor has 95,000 tons of steel inventory with a present market value in the range of $20-24 million dollars. Citibank, in a separate complaint which would be settled by the Agreement, alleges that the USWA has engaged in unlawful picketing, amounting to a seizure of the Debtor's plant. Citibank might well be successful in obtaining an injunction to stop any illegal picketing, but lawful picketing would continue. Picketing renders the Debtor unable to conduct business; it is, in effect, paralyzed due to such picketing. The Debtor has been unable to even remove trash from its premises.
If the picketing were limited by an injunction, the problem would remain. Potential customers are intimidated by pickets and will be deterred from visiting the Debtor's premises to determine if they have an interest in the purchase of the Debtor's inventory. Union haulers will not cross picket lines to effect shipment. There is a shortage of non-union haulers willing to cross a picket line in order to deliver the Debtor's inventory. Haulers who will cross a picket line charge a higher price due to the increased risk. Without the Agreement, the Debtor will suffer substantial delays in the disposition of its inventory. Substantial delays equate to substantial deterioration in net realizable value and substantial increased costs.
In the meantime, the Debtor is incurring approximately $200,000 per month in interest on the $20 million dollar value of its inventory. The Debtor has 25,000 tons of steel stored in warehouses in the Sharon area. It continues to incur storage charges. The warehouse owners will refuse to ship across picket lines, even with an injunction in place. They are unwilling to risk their property and equipment.
To date, there has been no physical violence on the picket lines. The Debtor has not attempted to violate the picket lines. However, were the Debtor to obtain an injunction and attempt to make shipment, the risk of violence increases. There is a risk of physical harm because of the unfortunate circumstances.
The workers have some fundamental complaints which cannot be lightly disregarded. They produced the goods in inventory which the Debtor, the banks and PBGC seek to sell. But the workers did not get paid for their last few weeks' work before the plant shutdown. Now, they have not worked in nearly a year and they see the inventory which they produced, being sold for the sole benefit of the banks *733 and PBGC as lienholders. It is not hard to see why picket lines appeared.
The upward pressures on the price of steel which have existed over the past year have dissipated. The steel market is presently flat and may see price decreases in the future.
In the absence of the Agreement, the Debtor risks a reduction in the sales price of its inventory, deterioration in the quality of inventory (much of which is stored outside), added security costs, added transportation costs, a potential deterioration in the value of its facilities due to the inability to winterize the facility and to maintain compliance with environmental regulations.
Even with an injunction against the USWA and its members, security is threatened by lawful pickets which would remain and by the antagonistic atmosphere which would prevail.
The additional costs which will be borne by the Debtor in the absence of the Agreement far exceed the $1.5 million cost of paying prepetition wages under the Agreement. PBGC is correct, however, in asserting that once the money is distributed to prepetition wage claimants, it would be difficult to recover.
By Opinion and Order dated April 23, 1993, 159 B.R. 165, we determined that the liquidation value of all of the Debtor's assets was $138.9 million and that the total secured debt at that time was $130 million, leaving $8.9 million in equity. Since that time, the Debtor has continued to incur interest obligations, professional fees, and the expense of maintaining its facilities in a non-operating mode. Thus, while it has had little or no income, it has incurred substantial expense. It is not known at the present time whether any equity remains. The effect of making a finding that the PBGC is adequately protected under § 363(e) as PBGC requests is to grant it a superpriority claim under § 507(b) in the event that its collateral is insufficient to pay its claim in full. In effect, the PBGC would be entitled to payment on any deficiency claim ahead of all other administrative claimants of which there would be many, including the professionals in this case, without whom there could be no hope of a reorganization.
Discussion
Standard for Granting Stay Pending Appeal
The parties agree that the factors which must be considered when determining whether to grant a stay pending appeal are:
1. whether the movant has made a showing of likelihood of success on the merits,
2. whether the movant has made a showing of irreparable harm if the stay is not granted,
3. whether the granting of the stay would substantially harm other parties, and
4. whether the granting of the stay would serve the public interest.
See e.g., In re First South Savings Assn., 820 F.2d 700 (5th Cir.1987); In re Grand Traverse Dev. Co. Ltd. Partnership, 151 B.R. 792 (W.D.Mich.1993); In re Gleasman, 111 B.R. 595 (Bankr.W.D.Tex.1990).
Each of the four conditions must be satisfied, but all of the conditions need not be given equal weight. In re Leibinger-Roberts, Inc., 92 B.R. 570 (E.D.N.Y.1988); In re Great Barrington Fair and Amusement Inc., 53 B.R. 237 (Bankr.D.Mass. 1985). Fed.R.Bankr.P. 8005 provides, in part, that "the bankruptcy judge may suspend or order the continuation of other proceedings in the case under the Code or make any other appropriate order during the pendency of an appeal on such terms as will protect the rights of all parties in interest." Rule 8005 gives the Court the flexibility to fashion appropriate relief to fit the needs of a particular case. In re Gleasman, 111 B.R. at 600. The four factors referred to above are to be balanced in light of the overall circumstances of the case. Grand Traverse, 151 B.R. at 796.
As we discuss below, the granting of a stay would result in substantial harm to the Debtor and the PBGC has not shown that it will suffer any injury if the stay is *734 not granted. Further, it is unlikely that the PBGC will succeed on the merits of its appeal and the unnecessary delay in administration of this estate is contrary to the interests of every party involved in this case.
Likelihood of Success
The PBGC does not disagree with the sale of the Debtor's inventory or the method of sale proposed by the Debtor. We regard this as the key to the issue before us. The PBGC objects only to the payment of prepetition wage claims unless the Court makes a finding that the PBGC is adequately protected or provides the PBGC with some form of adequate protection.
11 U.S.C. § 363(e) provides:
(e) Notwithstanding any other provision of this section, at any time, on request of an entity that has an interest in property used, sole, or leased, or proposed to be used, sold, or leased, by the trustee, the court, with or without a hearing, shall prohibit or condition such use, sale, or lease as is necessary to provide adequate protection of such interest.
11 U.S.C. § 363(e).
In order to have a claim to adequate protection, the PBGC must have an interest in the property that the Debtor seeks to sell. The Debtor and the Official Committee of Unsecured Creditors assert that the PBGC has no lien on the Debtor's steel inventory and, therefore, has no right to adequate protection.
The PBGC holds a lien on the fixed assets of the Debtor's Farrell, Pennsylvania facility (the "Farrell Fixed Assets"). The PBGC lien is pari passu with liens held by the USWA and Cleveland Cliffs. The three pari passu liens are junior to a lien held by a group of lenders represented in this case by Citibank, N.A., as agent (collectively, "Citibank"). Citibank has a first position lien on substantially all of the Debtor's assets, including the steel inventory. The PBGC does not have a lien on the steel inventory.
Under the terms of the Agreement, 6% of the proceeds from the sale of the Debtor's steel inventory will be used to pay prepetition wage claims. Absent the Agreement, the 6% would be used to reduce Citibank's claim, thus reducing Citibank's reliance on the Farrell Fixed Assets to satisfy a portion of its claim and freeing the Farrell Fixed Assets for satisfaction of the PBGC lien. Therefore, we find that the PBGC has an "interest" as required by § 363(e) in the sale of the Debtor's steel inventory.
Under § 363, the Court is required to prohibit or condition "such . . . sale . . . as is necessary to provide adequate protection." Therefore, we must determine whether and to what extent adequate protection is necessary. We find that adequate protection is unnecessary in the within case. While it is true that 6% of the sale price will be used to pay claims lower in priority than the PBGC's lien claim, the evidence is also clear that, should the Agreement not be approved and a stay be granted which delays the sale of the inventory, the value of the inventory and of the Farrell Fixed Assets will diminish by an amount greater than 6%.
The concept of adequate protection is based on the requirement that the collateral of a secured creditor be protected from erosion in value. Here, the prompt sale of the steel inventory will enhance the value of PBGC's collateral. Since the value of PBGC's collateral will not be diminished, a finding of adequate protection is unnecessary. It is therefore unlikely that the PBGC's appeal will succeed on the merits.
Risk of Harm
Prior to reaching the Agreement with the USWA, members of the USWA maintained a picket line at the Debtor's premises, essentially paralyzing the Debtor's operations. Customers were unable or unwilling to visit the Debtor's facilities to view the product and haulers were not able or were unwilling to transport the product for delivery. The Debtor was even unable to remove trash from its facility! Not only could the Debtor not ship its product, it could not receive materials needed to winterize *735 the facility or to maintain compliance with environmental regulations.
Some of the Debtor's inventory is stored in warehouses in the Sharon area. The warehouse owners refused to make shipments for fear of harm to their facilities and equipment.
The PBGC suggests that the Debtor obtain an injunction to stop the picketing. An injunction may stop unlawful picketing. However, lawful picketing cannot be prohibited. The Debtor's customers would still be forced to cross a picket line to view the Debtor's product and union haulers would still refuse to effect shipment.
The Debtor may be able to obtain some non-union haulers to make some shipments. Due to the risk of crossing the picket line, the cost would be increased. Further, it is unlikely that enough haulers could be found to enable the Debtor to make timely shipments to its customers and avoid delay. Potential customers would know that they could not depend on delivery schedules. Even with an injunction, the warehousemen would not allow shipments from their facilities. The risk of harm remains present.
Without the Agreement, the Debtor faces continued delay in the sale of its inventory. Substantial portions of the inventory are stored outside and will suffer deterioration if it remains exposed to the elements through the winter. The upward pressure on price of steel has dissipated. The market has been flat over the summer. It is not likely that prices will increase in the near future. There is, however, a considerable risk that prices will decline. A minimal 10% loss in the value of the Debtor's inventory from deterioration in the product or decline in market prices would exceed $2.0 million dollars.
In addition to lost value on inventory, should the Debtor attempt to make shipment in the face of picketing by the USWA, the Debtor would necessarily incur substantial additional expense for security. During any delay in accomplishing sale of the inventory, the Debtor continues to incur interest expense on Citibank's loan. The total expense and losses the Debtor will incur in the face of delay far exceed the approximately $1.5 million payment to prepetition wage claimants under the Agreement.
Critical to our conclusion is the fact that PBGC has neither offered nor suggested any alternative means of liquidating Debtor's 95,000 tons of steel inventory worth an estimated $20-24 million. PBGC has filed a conditional consent or a conditional objection to the Agreement, offering to allow the sale of inventory to proceed if its junior lien on other assets is given some additional priority position. PBGC asserts that it is being hurt by the proposed method of sale, but does not suggest any alternative.
While approval of the Agreement will involve some $1.5 million in costs, the net return to the estate from the sale of the inventory under the Agreement will be (we conclude from the evidence as a matter of fact) much higher than if the Agreement is not approved. We also conclude that PBGC and its representatives are fully aware of this fact and agree with these factual conclusions.
PBGC and its representatives know that if it manages to block the Agreement now under consideration that the net return from the inventory will be far less. Notwithstanding that belief, the PBGC and its representatives have interposed the objection to the Agreement and the sale thereunder as a tactical maneuver in an attempt to force other parties in the case to give up or compromise their legitimate positions. For example, the PBGC, as a solution, suggests that the USWA give up its right to picket. Our view is that the USWA has a constitutional right to picket. These workers unfortunately worked for a period of weeks without pay just prior to the plant shutdown. The plant has been shut down now for nearly a year. Not only have the workers lost their jobs due to the shutdown, but their last few weeks' pay was never paid. They have a constitutional right to express their displeasure over the sale of the inventory which may benefit others in the case and yet leave the wages go unpaid. They have a constitutional right to express their views by picketing. *736 We could not order the pickets to disband and cooperate with the sale of the goods against their wishes.
Also, PBGC suggests that senior lienholders subordinate their senior lien positions in order to pay proceeds to the PBGC as a junior lienholder. We know of no law that would require or allow us to undertake such an action without the consent of the senior lienholders. Moreover, the senior lienholders are made up not just of the bank lenders led by Citibank but also by numerous other lienholders who were not present to even be asked to give up their liens.
If the PBGC and its representatives could offer us an alternative means of liquidating the inventory which would yield more to all parties concerned, all parties would be eager to examine and accept it. However, the PBGC offers us no such assistance.
PBGC wants the goods to be sold and agrees that the method of sale is the best that can be devised, but it wants to use the circumstance of the USWA picketing to bargain for a priority position over administration expenses in the event there are any unencumbered assets at the end of the case, or a priority position over senior lienholders.
We do not view the matter before us as involving the deprivation of a right of PBGC. We also believe that PBGC concurs. It concurs because it has not even made a suggestion as to a better way to market the inventory. It, in effect says, "give us someone else's share in addition to our own, or we will attempt to stop the sale even if we harm the Debtor's estate to the detriment of everyone." We do not regard the PBGC position as being taken in good faith.
Our conclusion is that the PBGC objection to the Agreement is made in a bad faith effort to obtain concessions from senior lienholders and administrative claimants, under a threat that a portion of the value of the Debtor's assets will otherwise be destroyed by delay. PBGC will suffer no harm in the absence of a stay, while the bankruptcy estate would be exposed to a substantial loss in the value of its inventory and incur additional expense if a stay is imposed.
Public Interest
While the public certainly has an interest in seeing that the PBGC, as the insurer of the majority of the pension plans in this country, is protected, the citizens of the Sharon, Pennsylvania area have an equally significant interest in seeing one of its major employers reorganize.
Since we have determined that the PBGC will suffer no harm as a result of the approval of the Agreement, we think that this prong of the test also weighs in favor of denial of the stay.
Payment of Prepetition Wages
The PBGC asserts that it is improper to allow the payment of prepetition wage claims prior to plan confirmation. There is a split of authority with respect to the issue of whether we are empowered to authorize a Chapter 11 debtor's payment of prepetition claims. The line of cases suggested by the PBGC, represented by Official Committee of Equity Security Holders v. Mabey, 832 F.2d 299 (4th Cir.1987), cert. denied, 485 U.S. 962, 108 S.Ct. 1228, 99 L.Ed.2d 428 (1988) hold that the Bankruptcy Code does not permit selective pre-confirmation payments to unsecured creditors. Other courts hold that the "necessity of payment" doctrine is a narrow exception to the rule prohibiting such payments, where the payment is necessary to permit the effectuation of the rehabilitative purposes of the Bankruptcy Code. See e.g., In re NVR L.P., 147 B.R. 126 (Bankr.E.D.Va. 1992); In re UNR Industries, Inc., 143 B.R. 506 (Bankr.N.D.Ill.1992); In re Eagle-Picher Industries, Inc., 124 B.R. 1021 (Bankr.S.D.Ohio 1991).
As stated in NVR L.P., 147 B.R. at 128:
To justify the pre-plan payment of a prepetition obligation the proponent of the payment must show substantial necessity. By definition, the "necessity of payment" rule is a rule of necessity and not one of convenience. For example, some courts have stated the payment must be "critical to the debtor's reorganization," "indispensably necessary" to continuing the debtor's operation, or "necessary to *737 avert a serious threat to the Chapter 11 process." In short, the payment must not only be in the best interest of the debtor but also in the best interest of its other creditors. See In re UNR Industries, Inc., 143 B.R. 506, 520 (Bankr. N.D.Ill.1992); Eisenberg & Gecker, The Doctrine of Necessary and Parameters, 73 Marq.L.Rev. 1, 20 (1989). (footnotes omitted)
The Third Circuit has adopted the "necessity of payment" doctrine. In re Lehigh and New England Ry. Co., 657 F.2d 570 (3d Cir.1981).
To justify payment of 6% of the sales price of the Debtor's inventory to prepetition wage claimants, the Debtor is required to show that the payment is necessary to avert a serious threat to the Chapter 11 process. The Debtor has met that burden.
The failure to allow the Agreement to take effect will result in an immediate economic sanction (e.g., picketing of the Debtor's facilities), which will impair the Debtor's ability to conduct operations including the sale and delivery of its inventory which is essential to its eventual reorganization.
At this point in the Debtor's case, its most significant operation is the liquidation of its steel inventory and other non-essential assets with the goal of resolving the claims of Citibank. Only then will the Debtor be in a position to propose a plan of reorganization which addresses the claims of its other creditors.
Approval of the Agreement and the payments to the Debtor's prepetition wage claimants contemplated thereby will increase rather than diminish the amounts realizable by the Debtor from the sale of the steel inventory. As a result, the secured position of the PBGC will be enhanced rather than harmed. The Agreement will permit the Debtor to liquidate the inventory at its maximal value and, thus, resolve a greater portion of Citibank's claims at an earlier time, thereby reducing the interest on such claims and their impact on the Debtor's estate and any eventual plan of reorganization.
In the absence of the Agreement, if the Debtor attempts to sell its inventory, there is a danger that a test of wills between the Debtor and members of the USWA could result in damage to the Debtor's property and a risk to the health and well-being of the Debtor's employees and members of the USWA who will attempt to prevent shipments of inventory and will result in the incurrence of additional costs relating to potential litigation and the need to protect the Debtor's facilities.
Conclusion
The PBGC is not entitled to adequate protection in connection with the sale of the Debtor's inventory and the Agreement. The "necessity of payment" doctrine justifies the Agreement and the payments contemplated thereby. The PBGC has failed to demonstrate a likelihood of success on appeal and failed to show that it will suffer any harm in the absence of a stay. The Debtor, on the other hand, has demonstrated that the harm it will suffer if a stay is imposed far exceeds the amount of payment made to prepetition wage claimants under the Agreement.
The PBGC's Motion will be refused.
NOTES
[1] This Opinion constitutes this Court's findings of fact and conclusions of law. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547028/ | 13 F.2d 13 (1926)
CITY OF DETROIT, MICH.,
v.
BLANCHFIELD.
No. 4544.
Circuit Court of Appeals, Sixth Circuit.
May 7, 1926.
*14 Clarence E. Page, of Detroit, Mich. (Charles P. O'Neil, of Detroit, Mich., on the brief), for plaintiff in error.
Harry C. Milligan, of Detroit, Mich., for defendant in error.
Before DENISON, DONAHUE, and MOORMAN, Circuit Judges.
DONAHUE, Circuit Judge.
John Blanchfield, guardian of Marion Killackey, a minor, recovered a judgment in the District Court against the city of Detroit for damages for personal injuries to his ward, alleged to have been caused by the negligence of the defendant.
It is insisted that a federal court has no jurisdiction, for the reason that Marion Killackey, the minor, in whose interest the suit is brought, is a resident of the state of Michigan, and that, where the jurisdiction of a federal court depends upon a diversity of citizenship, the residence of the ward, and not of the guardian, controls.
Section 2 of chapter 12 of the Judicature Act of 1915 of the state of Michigan (Pub. Acts 1915, No. 314) provides that "every action shall be prosecuted in the name of the real party in interest, but an executor, administrator, guardian, trustee of an express trust, a party with whom or in whose name a contract has been made for the benefit of another, or a party expressly authorized by a statute, may sue in his own name without joining with him the party for whose benefit the action is brought."
It was held by the Supreme Court of the United States in Mexican Central Railway Co. v. Eckman, 187 U. S. 429, 436, 23 S. Ct. 211, 47 L. Ed. 245, that, where a guardian in the state of the forum has the legal right to bring suit in his own name, it is his citizenship, and not the citizenship of the ward, upon which the jurisdiction of the federal court depends. This is the latest decision of the Supreme Court to which our attention has been called, and is necessarily controlling. To the same effect is the decision of the second Circuit Court of Appeals in New York Evening Post Co. v. Chaloner, 265 F. 204, 213. The opinion in Toledo Traction Co. v. Cameron, 137 F. 48, 69 C. C. A. 28, was apparently written without reference to the Mexican Central Ry. Co. Case, then recently decided.
It is also contended that the court erred "in permitting an amendment of the summons or declaration, or both, by substituting a different plaintiff in the person of John Blanchfield, guardian of Marion Killackey, a minor, in lieu of Marion Killackey, a minor, by John Blanchfield, her guardian."
We do not regard this change as of any importance. The action was in fact brought by John Blanchfield as guardian of Marion Killackey. The title of the cause does not alter the fact that the declaration affirmatively shows the suit was by the guardian for the benefit of his ward, and not by the ward herself. Even if the contrary appeared, it is not error to substitute a trustee or guardian for the beneficiary, where there is no change in the cause of action and the party substituted is the proper party to prosecute the action. Hines v. Smith (6 C. C. A.) 270 F. 132, 135, 136; New York Evening Post Co. v. Chaloner, supra, at page 213; Quaker City Cab Co. v. Fixter (C. C. A.) 4 F.(2d) 327, 328.
Marion Killackey, a minor, could not prosecute this action in her own name. The guardian was the proper party to bring and maintain the action in her behalf, and it is not necessary that she should be a party to the suit.
It is further claimed that it was error to permit this amendment to the declaration, because Blanchfield, as guardian, did not comply with the requirements of section 12, chapter 12, of title 6, page 137, of the charter of the city of Detroit, which provides that no action shall be commenced after one year from the time the injury was received, or unless *15 written notice was served upon the corporation counsel or his chief assistant within 60 days from the time of the happening of such injury, and that the time had expired for giving such notice and bringing such action. It appears, however, that the former guardian of Marion Killackey fully complied with these provisions of the city charter. It was therefore wholly unnecessary for the present guardian to give the corporation counsel or his chief assistant another written notice, or to delay 60 days after giving a second notice before bringing this suit.
It is also claimed on behalf of the plaintiff in error that the trial court erred in not sustaining its motion to dismiss this cause, for the reason that Blanchfield was appointed guardian of Marion Killackey for the sole purpose of creating diversity of citizenship. This objection was first made during the trial of the case, almost two years after the injury occurred, and after a new action was barred by the provision of defendant's charter. Clearly this objection, made at this late date and under the circumstances above stated, ought not to be sustained, except for compelling reasons.
Where diversity of citizenship is duly alleged, or apparent in the declaration, denial thereof must be made by plea in abatement, unless the statutes, rules of pleading, practice, and procedure prevailing in the courts of the state in which the action is brought provide some other method for presenting this issue. Roberts v. Lewis, 144 U. S. 653, 656, 12 S. Ct. 781, 36 L. Ed. 579. In Michigan, pleas in abatement and pleas to the jurisdiction have been abolished by statute, but the statute further provides that such questions shall be raised by motion to dismiss, or in the answer or notice attached to the plea, and that when so raised the same may be presented for determination by the court in advance of the trial of the cause, upon four days' notice by either party.
Prior to the enactment of this statute the rule was firmly established in Michigan that the question of jurisdiction should be presented by a plea in abatement, or a plea to the jurisdiction, before pleading to the merits. Johnson v. Burke, 167 Mich. 349, 354, 132 N. W. 1017. The statute does not change this rule that the question should be timely made, but it does provide that issue may be raised by motion to dismiss or in the answer or notice attached to the plea. No matter how raised, it presents a distinct and separate issue, to be heard and decided by the court before the trial of the cause upon its merits. Abbett's Cyc. Michigan Practice (2d Ed.) 1421 et seq. Nor does any different rule apply where the facts upon which the challenge to the jurisdiction are based appear for the first time during the trial of the cause. Johnson v. Burke, supra.
Because of the constitutional limitations of the jurisdiction of federal courts, a different rule necessarily obtains in federal jurisdiction. Where the jurisdiction of a federal court is invoked upon the sole ground of diversity of citizenship, the action will be dismissed whenever it clearly appears that there is no such diversity of citizenship, or that the interest of a nominal party to a suit is simulated and collusive, and created for the purpose of giving jurisdiction to a federal court. Little v. Giles, 118 U. S. 596, 7 S. Ct. 32, 30 L. Ed. 269; section 37, Judicial Code (Comp. St. § 1019).
In the instant case, the action was properly brought by the guardian of the minor. Diversity of citizenship is alleged in the declaration. The jurisdiction of the federal court must be determined by the citizenship of the guardian, and not the citizenship of the ward. The defendant, without challenging the validity of the guardian's appointment, either by plea in abatement or under the Michigan statute by motion, answer, or notice, pleaded the general issue. If it were conceded that a federal court has authority to inquire into the validity or regularity of the appointment of a guardian by a state court, a question upon which this court does not now express any opinion, because not necessary to the disposition of this cause, certainly that question should be presented and decided by the court before the cause is tried upon its merits. Perhaps a court might, in its discretion, if in its opinion the facts disclosed by the evidence in the trial of the cause justified such action, arrest the trial of the cause on its merits until that issue could be properly presented, heard, and decided upon consideration of all the evidence pertinent thereto; but that question, however, is not presented by this record. In this case the defendant did not ask the court for leave to withdraw its plea to the merits and challenge by appropriate pleading the regularity or legality of plaintiff's appointment as guardian, but contented itself with making a motion to direct a verdict for the reason "that there is an insufficient showing of citizenship, and that the testimony introduced here shows that the appointment of a guardian was for the sole purpose of giving color of diverse citizenship when there is no diverse citizenship in fact." This motion was *16 based solely upon the guardian's opinion as to the reason for his appointment.
The appointment of a guardian is a matter wholly within the jurisdiction and control of the state court. A federal court has no authority to control the discretion of a state court in making such appointment, or designate who shall or who shall not be appointed as guardian. The probate court of Wayne county had jurisdiction, not only to appoint a guardian for this minor, but also the authority to determine for itself the reasons for the appointment. Blanchfield may have been under the impression that he was appointed for the purpose of bringing this action in the federal court, but the court that appointed him may have done so for wholly different reasons.
The fact that an alien or a nonresident of the state, if appointed guardian, may bring an action in the federal court, is not necessarily a valid objection to his appointment. It is a matter that may be considered by the court making the appointment, in connection with the character and qualification of the person appointed and the best interest of the ward. Nor is the fact that this minor, or her counsel representing her, desire to bring this action in federal court, and were in part influenced by this consideration to request the appointment of Blanchfield as guardian, of itself a sufficient reason for the dismissal of this suit on the ground of fraud or collusion.
While, in a sufficiently clear case of collusion, it is the duty of the court to dismiss a case on its own motion, yet we think that the rather casual admission by the guardian, near the close of the trial, that he supposes he was selected because he was an alien, does not make a clear enough case of fraud or collusion if it be a collusion at all a question upon which we express no opinion, to justify dispensing with the safer practice of a special issue and a trial thereof.
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1546878/ | 988 A.2d 257 (2010)
294 Conn. 719
Richard COSTANTINO et al.
v.
Stanley SKOLNICK et al.
No. 18327.
Supreme Court of Connecticut.
Argued September 8, 2009.
Decided February 16, 2010.
*259 David A. Slossberg, with whom, on the brief, was Brian J. Wheelin, Milford, for the appellant (named plaintiff).
John B. Farley, with whom were Daniel P. Scapellati, Hartford and, on the brief, Brian J. Gedicks, for the appellees (defendant Medical Professional Mutual Insurance Company et al.).
ROGERS, C.J., and NORCOTT, KATZ, PALMER, VERTEFEUILLE, ZARELLA and McLACHLAN, Js.
KATZ, J.
The named plaintiff, Richard Costantino,[1] appeals from the trial court's decision[2] denying his request for a declaratory judgment that the defendant Medical Professional Mutual Insurance Company doing business as ProMutual and ProSelect Insurance Company (ProMutual), the medical malpractice insurer for the named defendant, Stanley Skolnick, is required to pay the plaintiff offer of judgment interest that exceeds the limits of liability in Skolnick's policy. The plaintiff sought the declaration after the parties had entered into a settlement agreement (agreement) that required ProMutual to pay Skolnick's $1 million policy limit to the plaintiff and under which they stipulated that: (1) the agreement was to be considered a verdict and judgment in favor of the plaintiff for purposes of the offer of judgment statute, General Statutes (Rev. to 2005) § 52-192a;[3] and (2) the plaintiff would have been entitled to offer of judgment interest had the case been tried to conclusion. *260 On appeal, the parties are aligned in their position that the trial court improperly declined to resolve the matter on the basis of the issue presented to it, in light of the stipulations in their agreement and the declaratory posture of the action. They disagree, however, as to whether the pertinent policy provision, which defined damages to include prejudgment interest, can be given effect so as to bar an award of such interest when the total recovery would exceed the policy limit. We conclude that the parties' stipulations did not satisfy the necessary predicate to an award of offer of judgment interest under § 52-192a, namely, a judgment in the plaintiff's favor after a trial. Accordingly, we conclude that the trial court properly declined to reach the issue on which the plaintiff had sought a declaration. Therefore, we affirm the trial court's decision.
The record reveals the following undisputed facts and procedural history. In August, 2004, the plaintiff commenced a malpractice action against Skolnick, a general internist, and Skolnick's medical practice, the defendant Darien Medical Group, alleging that Skolnick's negligent failure to properly diagnose and treat the plaintiff had caused him to suffer severe hypertension and end stage renal failure, which ultimately required him to undergo a kidney transplant. The plaintiff, who had been a senior vice president with The Bank of New York, further alleged that these injuries had resulted in his reassignment to a position at substantially reduced compensation and had derailed his promising career. On September 30, 2005, the plaintiff filed an offer of judgment in the amount of $1 million, the limit of liability under Skolnick's malpractice policy with ProMutual. That offer was not accepted within the thirty day period mandated under § 52-192a(a) and, therefore, was deemed rejected as a matter of law.[4] See footnote 3 of this opinion.
Approximately nineteen months after the filing of the offer of judgment, the plaintiff, Skolnick and ProMutual executed the agreement to settle the case.[5] Under the agreement, ProMutual was to pay Skolnick's $1 million policy limit to the plaintiff in exchange for the plaintiff's release of all claims against the defendants under the pending action except for a claim against ProMutual for offer of judgment interest. With respect to offer *261 of judgment interest, the agreement provided in relevant part: "The [plaintiff] and [Skolnick and ProMutual] agree that the issue of whether or not [ProMutual is] obligated, under the terms of the policy of insurance that [ProMutual] issued to [Skolnick], for the payment of offer of judgment interest is an issue that needs to be decided by a court of law.
"The [plaintiff] and [Skolnick and ProMutual] have agreed to reserve to the court the question on offer of judgment interest as set forth ... below in the interests of judicial efficiency, in order to avoid a full trial that the parties agree would result in a judgment of at least [$1 million] representing the underlying policy limits in this action....
"[I]t is agreed that if the action were tried to conclusion, the [plaintiff] would become entitled to recover from [ProMutual] the sum certain of [$1 million] plus offer of judgment interest in the amount of $293,000.00. For all purposes under the prejudgment [interest] statute,[6] this [a]greement shall be considered to be a verdict and judgment in favor of the plaintiff, it being both parties' desire to promote a fair and efficient resolution of the prejudgment ... interest issue without the time and expense to the parties and the judicial system of a long and protracted trial....
"The question reserved to the court is whether, given that a valid offer of judgment was filed by the plaintiff in the amount of [$1 million], and assuming a verdict entered after trial of at least [$1 million] such that offer of judgment interest would be due on the [$1 million] verdict, is [ProMutual] required to pay said offer of judgment interest where, as here, it exceeds the [$1 million] policy limits?"
The agreement further acknowledged that, if the court ruled in the plaintiff's favor, such a decision would obligate ProMutual to pay $293,000 in offer of judgment interest, and, conversely, if the court ruled in ProMutual's favor, such a decision would obligate the plaintiff to release all further claims against ProMutual beyond the $1 million policy payment. The agreement provided that in no event would Skolnick incur any obligation.
In accordance with their agreement, the plaintiff thereafter filed a motion to cite in ProMutual as a party defendant, which the court, Karazin, J., granted. The plaintiff concurrently filed an amended complaint, along with a copy of the agreement, in which he added to his original medical malpractice count against Skolnick a count against ProMutual for a declaratory judgment as to the question reserved in the agreement regarding offer of judgment interest. ProMutual thereafter filed an answer and asserted as a special defense that it was not liable for offer of judgment interest because the policy defines damages to include prejudgment interest[7] and *262 its agreement to pay the $1 million policy limit had exhausted its obligation under the policy. ProMutual subsequently filed a motion for summary judgment on the declaratory judgment count, and the plaintiff simultaneously filed a motion for a declaratory ruling.
After argument on the motions, the trial court, J.R. Downey, J., issued a memorandum of decision addressing both motions, making dispositive determinations in favor of ProMutual, but on a different ground than the one raised by the parties. Specifically, the court pointed to the fact that § 52-192a permits an award of offer of judgment interest only "`[a]fter trial'...." The court therefore reasoned that, because the matter had been settled before trial by way of a settlement, § 52-192a did not authorize offer of judgment interest. Although the court recognized that the parties had sought a determination as to the effect of the policy limit on offer of judgment interest, the court concluded that its construction of the statute rendered that determination unnecessary. The parties thereafter unsuccessfully invoked several procedural mechanisms in an attempt to obtain a ruling on the issue not addressed by the trial court. First, the parties filed a joint motion for reargument, specifically directing the trial court to the language in the agreement wherein the parties had stipulated that the agreement was to be treated as a verdict and judgment for purposes of the motions before the court. Judge Downey granted the motion for reargument, but denied the relief requested. Next, after the plaintiff had appealed from the trial court's judgment, ProMutual filed a motion for articulation in the trial court as to the following question: "Are insurance companies and policyholders free to enter into liability insurance contracts that limit the amount the insurer must pay as damages on behalf of the policyholder, including any prejudgment interest that may be assessed against the policyholder?" Judge Downey thereafter issued an articulation stating that he had considered, but not decided, the hypothetical question posed because "the necessary predicate, a trial, had not occurred." The court further explained that reaching this question would have been rendering an advisory opinion, which courts are not inclined to do.
On appeal to this court; see footnote 2 of this opinion; the plaintiff contends, and ProMutual agrees, that the trial court improperly declined to answer the question that the parties had presented to it because that question properly was before the court and did not require it to render an advisory opinion. With respect to the merits of this question, the plaintiff contends that the policy provision defining the limit on damages to include prejudgment interest cannot be given effect because: (1) the offer of judgment statute is mandatory and punitive; and (2) the policy's definition of damages as including prejudgment interest is unenforceable because it is an attempt to circumvent the legislative directive under § 52-192a and the policy's characterization cannot change the actual nature of the interest. As to its view of the merits, ProMutual contends that it cannot be obligated to pay offer of judgment interest because, under the unambiguous terms of Skolnick's policy, it had paid the policy limit to the plaintiff and public policy does not weigh in favor of superseding *263 such unambiguous contract language. We affirm the trial court's decision.
I
Our analysis begins with the question of whether the trial court properly based its decision on the dictates of § 52-192a or whether, as the parties claim, the trial court's decision should have been determined solely by the effect of the policy's limit on damages.[8] The parties contend that this issue properly was before the court in light of the express terms of their agreement that: (1) the agreement would constitute a verdict and judgment in the plaintiff's favor for all purposes of the offer of judgment statute; and (2) the plaintiff was entitled to interest under that statute. Therefore, they contend that the only issue properly before the court was whether ProMutual is obligated to pay offer of judgment interest when that interest, coupled with the $1 million settlement, would exceed the policy limit on damages. The parties also contend that, because a decision on the issue presented would have resulted in the payment or nonpayment of interest, the trial court improperly concluded that a decision on this question would have been merely advisory. In support of all of these contentions, ProMutual specifically contends that the trial court mistakenly treated the claim as one for an award of interest under § 52-192a, rather than a claim for a declaratory judgment under General Statutes § 52-29[9] regarding a policy coverage dispute.[10]
We note that, because the parties' claim centers on whether the trial court applied the proper legal standard, our review is plenary. Archambault v. Soneco/Northeastern, Inc., 287 Conn. 20, 32, 946 A.2d 839 (2008); Hartford Courant Co. v. Freedom of Information Commission, 261 Conn. 86, 96-97, 801 A.2d 759 (2002). Upon such review, we conclude that the trial court properly declined to decide whether the policy limitation on damages barred payment of offer of judgment interest because it properly concluded that a necessary predicate to reaching this question had not been satisfied.
*264 We first point out that, although the parties have attempted to characterize their dispute as arising wholly out of contractthe agreement and the policythe terms of the parties' agreement and their respective positions regarding the declaratory judgment action belie that characterization. The agreement provides in relevant part: "For all purposes under the prejudgment [interest] statute, this [a]greement shall be considered to be a verdict and judgment in favor of the plaintiff, it being both parties' desire to promote a fair and efficient resolution of the prejudgment ... interest issue without the time and expense to the parties and the judicial system of a long and protracted trial." (Emphasis added.) The agreement expressly instructed the trial court to "assum[e] a verdict was entered after trial of at least [$1 million] such that offer of judgment interest would be due on the [$1 million] verdict...." (Emphasis added.) In the first statement, the parties acknowledge that § 52-192a is the source of the obligation of offer of judgment interest.[11] In both statements, the parties implicitly acknowledge that the plaintiff would not be entitled to interest unless he had satisfied a predicate to recovery under that statute, namely, a trial upon which judgment was rendered in the plaintiff's favor.
The nature of the disagreement between the parties as to the question raised in the declaratory judgment count further underscores that § 52-192a was the necessary starting point for the trial court's analysis. The parties did not dispute the meaning of the policy. Rather, their dispute centered on whether it would be consistent with the legislature's intent in enacting § 52-192a to give effect to a contract provision that unambiguously defined its limitation on damages to include prejudgment interest. See footnote 8 of this opinion. Specifically, the plaintiff focused on the mandatory nature and punitive intent of the statute and contended that the policy's characterization of such interest as damages could not change the essential nature of the interest. Thus, it is clear that § 52-192a is the source of the obligation that the plaintiff invokes and that ProMutual seeks to avoid in this case. Therefore, despite their attempt to characterize the issue before the trial court as one arising solely out of contract, the record is to the contrary.
It also is evident that, by deeming their agreement tantamount to a judgment in the plaintiff's favor and directing the court to assume as much, the parties proceeded from the presumption that the requirements of § 52-192a had been met, such that the only question left to the court was whether the policy limit could bar the award of § 52-192a interest. The mere fact, however, that parties assume that a necessary predicate to their claim has been satisfied does not preclude the court from considering that predicate issue. See, e.g., Curry v. Allan S. Goodman, Inc., 286 Conn. 390, 403-404, 944 A.2d 925 (2008) (addressing question of whether provision of Connecticut Fair Employment Practices Act, General Statutes § 46a-51 et seq., imposes same duty on employers to provide reasonable accommodation to disabled individuals that is required under federal Americans with Disabilities Act of 1990, 42 U.S.C. § 12101 et seq., despite fact that parties were in agreement for purposes of appeal that same duty applied, "[b]ecause this question is an essential predicate to our analysis of the plaintiff's claim in the present case"); Schiano v. Bliss Exterminating Co., 260 *265 Conn. 21, 33, 792 A.2d 835 (2002) (deciding that, before court could reach issue raised as to whether attorney's fees fell within exclusion to General Statutes § 31-303, statute assessing interest on late payments due under workers' compensation award, it must decide threshold issue as to whether such fees constituted "`payment due under an award'" under that statute, which was issue that neither party had disputed); State v. Miranda, 245 Conn. 209, 214-15, 715 A.2d 680 (1998) ("[b]efore addressing the certified issue of whether the facts and circumstances of this case were sufficient to create a legal duty to protect the victim from parental abuse pursuant to [General Statutes] § 53a-59[a][3], we turn our attention to the question of whether, even if we assume such a duty exists, the failure to act can create liability under that statute"), rev'd, 274 Conn. 727, 878 A.2d 1118 (2005); see also Sastrom v. Psychiatric Security Review Board, 291 Conn. 307, 331-32, 968 A.2d 396 (2009) (addressing predicate assumption before addressing plaintiffs' ultimate claim on appeal). Therefore, the trial court properly considered the predicate issue of whether a settlement agreement deemed by the parties to be a verdict and judgment in the plaintiff's favor for purposes of § 52-192a could invoke the court's authority under that statute prior to addressing the parties' dependent claim as to whether the policy limit barred offer of judgment interest under § 52-192a.[12] See Bania v. New Hartford, 138 Conn. 172, 175, 83 A.2d 165 (1951) ("in an action for a declaratory judgment we are not limited by the issues joined or by the claims of counsel").
Accordingly, we turn to the merits of the trial court's decision, which turns on the proper construction of § 52-192a. Well settled rules guide our inquiry. "When construing a statute, [o]ur fundamental objective is to ascertain and give effect to the apparent intent of the legislature.... In seeking to determine that meaning, General Statutes § 1-2z directs us first to consider the text of the statute itself and its relationship to other statutes. If, after examining such text and considering such relationship, the meaning of such text is plain and unambiguous and does not yield absurd or unworkable results, extratextual evidence of the meaning of the statute shall not be considered.... When a statute is not plain and unambiguous, we also look for interpretive guidance to the legislative history and circumstances surrounding its enactment, to the legislative policy it was designed to implement, and to its relationship to existing legislation and common law principles governing the same general subject matter...."[13] (Internal quotation marks omitted.) Donahue v. Veridiem, Inc., 291 Conn. 537, 547, 970 A.2d 630 (2009).
General Statutes (Rev. to 2005) § 52-192a(b) provides in relevant part: "After trial the court shall examine the record to determine whether the plaintiff made an `offer of judgment' which the defendant failed to accept. If the court *266 ascertains from the record that the plaintiff has recovered an amount equal to or greater than the sum certain specified in the plaintiff's `offer of judgment', the court shall add to the amount so recovered twelve per cent annual interest on said amount...." (Emphasis added.) As this language makes clear, the trial court is authorized to award offer of judgment interest only after a trial. A settlement clearly is not a trial. Indeed, "[w]hen parties agree to settle a case, they are effectively contracting for the right to avoid a trial." (Emphasis in original.) Audubon Parking Associates Ltd. Partnership v. Barclay & Stubbs, 225 Conn. 804, 812, 626 A.2d 729 (1993). A settlement bears none of "the distinctive hallmarks of a trial." Nunno v. Wixner, 257 Conn. 671, 679, 778 A.2d 145 (2001); see id., at 678-82, 778 A.2d 145 (concluding that award rendered pursuant to court mandated arbitration proceeding does not constitute trial within meaning of § 52-192a and explaining substantive and procedural distinctions between proceedings). A trial and a settlement achieve different purposes and have different legal consequences. See Black v. Goodwin, Loomis & Britton, Inc., 239 Conn. 144, 168, 681 A.2d 293 (1996) ("[w]hen an award is made pursuant to a settlement ... the underlying issues have not been fully and fairly litigated, and, therefore, the earlier award can have no preclusive effect on a subsequent action"); Hill v. State Employees Retirement Commission, 83 Conn.App. 599, 613, 851 A.2d 320 ("[a]n issue that has been resolved by virtue of a settlement agreement has not actually been litigated"), cert. denied, 271 Conn. 909, 859 A.2d 561 (2004); see also Janus Films, Inc. v. Miller, 801 F.2d 578, 582 (2d Cir.1986) ("[i]n determining the details of relief [pursuant to a settlement agreement], the judge may not award whatever relief would have been appropriate after an adjudication on the merits, but only those precise forms of relief that are either agreed to by the parties ... or fairly implied by their agreement" [citations omitted]). Indeed, as in the present case, in a settlement, the defendant may deny or refuse to concede the factual predicate for liability.
Although we have no doubt that the parties were acting in good faith to resolve the matter expeditiously and properly, just as "putting a contract tag on a tort claim will not change its essential character"; Gazo v. Stamford, 255 Conn. 245, 263, 765 A.2d 505 (2001); calling a settlement a verdict after trial does not make it so. See also id. ("[p]utting a constitutional tag on a nonconstitutional claim will no more change its essential character than calling a bull a cow will change its gender" [internal quotation marks omitted]). Therefore, the legislative grant of authority to the courts in § 52-192a to award offer of judgment interest "[a]fter trial" reasonably cannot be construed to mean "after a settlement," even if the parties agree to treat the settlement as a verdict and judgment in the plaintiff's favor. The plaintiff in the present case sought an order from the court requiring ProMutual to pay offer of judgment interest. Although the parties could have agreed as part of their settlement to the payment or nonpayment of offer of judgment interest, they have provided no case law, and we are aware of none, that holds that a court may award relief conferred solely by statute under terms that are inconsistent with those under which the legislature conferred such authority. See Tele Tech of Connecticut Corp. v. Dept. of Public Utility Control, 270 Conn. 778, 790, 855 A.2d 174 (2004) ("authority to act refers to the way in which that power [to hear and to determine the controversy] must be exercised in order to comply with *267 the terms of the statute" [internal quotation marks omitted]).
We are mindful that the stated purpose of the parties' settlement is consistent with the purpose of the offer of judgment statute, which is "to encourage pretrial settlements and, consequently, to conserve judicial resources." (Internal quotation marks omitted.) Stiffler v. Continental Ins. Co., 288 Conn. 38, 43, 950 A.2d 1270 (2008). The statute also, however, is intended to provide an incentive to accept a reasonable offer of judgment within thirty days after the offer is made. In the present case, the defendants continued to litigate this issue for nineteen months after the offer of judgment was made for the same amount agreed to upon settlement, the policy limit. Nonetheless, even if the position advanced by the parties was entirely consistent with the policy underlying the statute, "[w]here there is no ambiguity in the legislative commandment, this court cannot, in the interest of public policy, engraft amendments onto the statutory language." Burnham v. Administrator, Unemployment Compensation Act, 184 Conn. 317, 325, 439 A.2d 1008 (1981); accord Hotarek v. Benson, 211 Conn. 121, 129, 557 A.2d 1259 (1989) ("[t]he statutes cannot be changed by the court to make them conform to the court's conception of right and justice in a particular case"); Local 218 Steamfitters Welfare Fund v. Cobra Pipe Supply & Coil Co., 207 Conn. 639, 645, 541 A.2d 869 (1988) ("We are bound to interpret legislative intent by referring to what the legislative text contains, not by what it might have contained.... Nor can we engraft language not clearly intended by its enactment onto legislation." [Citation omitted; internal quotation marks omitted.]). If the legislature concludes that it is consistent with the purpose of the offer of judgment statute to allow parties to stipulate to treating their settlement as a judgment in the plaintiff's favor for purposes of that statute, it has the sole authority to add such language to the statute. "It is axiomatic that the court itself cannot rewrite a statute to accomplish a particular result. That is a function of the legislature." (Internal quotation marks omitted.) Doe v. Norwich Roman Catholic Diocesan Corp., 279 Conn. 207, 216, 901 A.2d 673 (2006).
II
The parties also claim that the trial court improperly concluded that a decision on the issue presented as to the effect of the policy limit would be an improper advisory opinion. Our analysis in part I of this opinion demonstrates that the court properly declined to address the question as framed in the declaratory judgment count, not because to do so would have been to render an advisory opinion, but because a necessary predicate to reaching the issue raised had not been met. See, e.g., State v. Mullins, 288 Conn. 345, 377, 952 A.2d 784 (2008) (concluding that, because defendant did not establish necessary predicate to application of particular test, trial court properly declined to apply test); Gelinas v. West Hartford, 225 Conn. 575, 587, 626 A.2d 259 (1993) (concluding that, because plaintiffs' site plan application did not comply with zoning statutes' requirements, which was necessary predicate to claimed entitlement to writ of mandamus, court need not consider whether defendants had mandatory duty under statutes that warranted extraordinary remedy of mandamus relief).
The issue as framed by ProMutual in its motion for articulation, however, called on the trial court to render an advisory opinion. For purposes of raising an alternate ground for affirmance, ProMutual sought a broad declaration as to whether "insurance companies and policyholders *268 [are] free to enter into liability insurance contracts that limit the amount the insurer must pay as damages on behalf of the policyholder, including any prejudgment interest that may be assessed against the policyholder...."[14] In light of the trial court's determination that prejudgment interest could not be awarded under § 52-192a under the facts of the present case, the answer to such a question could not have determined any rights or obligations of the parties. Thus, as framed, ProMutual impermissibly "sought a declaratory judgment, not to settle a present controversy, but rather to avoid one in the future." Milford Power Co., LLC v. Alstom Power, Inc., 263 Conn. 616, 629, 822 A.2d 196 (2003). Indeed, at oral argument before this court, ProMutual acknowledged that it actually was seeking a "black letter" ruling, applicable to all insurance companies and policyholders. Such a determination, however, is too abstract to be determined properly by a court. See Milford Power Co., LLC v. Alstom Power, Inc., supra, at 625-26, 822 A.2d 196 ("declaratory judgment procedure may not be utilized merely to secure advice on the law ... or to establish abstract principles of law [citation omitted; internal quotation marks omitted]"); see also Singh v. Singh, 213 Conn. 637, 654, 569 A.2d 1112 (1990) ("[l]aw suits are not determined by a consideration of philosophy in the abstract, but by the application of legal principles to the facts of a particular case" [internal quotation marks omitted]). Numerous considerations might bear on such an issue, none of which are evident in this record and none of which necessarily would be uniform in every case, such as, for example, whether, for a greater premium, the policyholder had the ability to purchase a policy that would not bar such interest, whether the policyholder precluded the insurer from accepting the offer of judgment or whether the insurer acted in bad faith in declining to accept an offer of judgment. Therefore, we conclude that the trial court properly declined to grant the plaintiff's request for a declaratory judgment on the ground that the predicates for an award of offer of judgment interest under § 52-192a had not been met.
The decision is affirmed.
In this opinion ROGERS, C.J., and NORCOTT, VERTEFEUILLE, ZARELLA and McLACHLAN, Js., concurred.
PALMER, J., dissenting.
I disagree with the majority that the trial court properly declined to consider the issue raised by the named plaintiff, Richard Costantino,[1] in his request for a declaratory judgment pursuant to General Statutes § 52-29(a),[2] concerning the liability *269 of the defendant Medical Professional Mutual Insurance Company (ProMutual),[3] for offer of judgment interest under General Statutes (Rev. to 2005) § 52-192a[4] in an amount in excess of the limits of the medical malpractice insurance policy issued by ProMutual to its insured, the named defendant, Stanley Skolnick.[5] In support of its conclusion, the majority asserts that, because § 52-192a applies only to cases that have proceeded to trial, and because the present case was not tried, the trial court lacked the authority under § 52-192a to decide the issue posed by the plaintiff's declaratory judgment action. The majority reaches this erroneous conclusion because it confuses the authority of a trial court generally to order an award of such interest under § 52-192a, on the one hand, and the authority of the court in the present case to render a declaratory judgment under § 52-29(a), on the basis of the facts and representations contained in the parties' stipulation. In my view, it is clear that, under well established precedent governing requests for declaratory judgments, the trial court was required, first, to accept the parties' factual stipulation and, second, to render a decision in accordance with that stipulation on the plaintiff's request for a declaratory judgment. As a general matter, only if a dispute is nonjusticiable is a court permitted to decline to render a decision. The majority's contrary conclusion ignores the fact that, in the present case, the plaintiff is not seeking to have the court invoke its authority under § 52-192a to make an award of offer of judgment interest; rather, the plaintiff is asking the court to enforce the terms of the parties' stipulation, which itself authorizes the award of such interest if, as the plaintiff claims, ProMutual lawfully cannot shield itself contractually from paying that interest. Unfortunately, the failure of the trial court and the majority to address the issue posed by the parties deprives the plaintiff of his right to a judicial resolution of his claim that ProMutual is obligated to pay him $293,000 in offer of judgment interest under the parties' stipulation. I therefore respectfully dissent.
The facts, which are set forth in the majority opinion, are undisputed and straightforward, and need not be repeated in detail here. It is sufficient merely to underscore that the plaintiff filed an offer of judgment in the amount of $1 million, and approximately nineteen months later,[6] the plaintiff settled his malpractice claim against Skolnick for the $1 million limit of the ProMutual insurance policy. The plaintiff, however, did not wish to give up his claim against ProMutual for offer of judgment interest in the amount of $293,000. Thus, the issue of whether ProMutual would have been liable for such interest if the case had been tried to conclusion remained in dispute between the parties. For the purpose of providing a vehicle for the resolution of that dispute, the plaintiff, without objection from ProMutual, amended his complaint to include a count seeking a judgment declaring that ProMutual was liable for such interest, over and above the policy limits, despite language in the policy to the contrary. To facilitate the court's resolution of the plaintiff's *270 claim, the parties jointly agreed, by way of a stipulation, to treat the case as if it had proceeded to trial, with the plaintiff receiving an award of at least $1 million. Finally, the parties agreed to be bound by the court's decision as to whether ProMutual was liable for interest in accordance with the parties' stipulation.[7]
Despite the parties' joint request for a judicial resolution of their dispute, the trial court declined to decide the issue raised by the plaintiff's request for declaratory relief. Specifically, the court stated that, "[a]s clearly stated in [§ 52-192a (c)], the awarding of [offer of judgment] interest only occurs `after trial.'... No trial occurred in this case. Therefore, the court may not award interest per statute." (Citation omitted.) The court thereafter rendered judgment for ProMutual on the plaintiff's claim for declaratory relief.
In a joint motion to reargue, the parties explained that they "simply [were] asking the court to decide an issue of law based [on] agreement that all conditions for operation of the prejudgment remedy statute have ... been met, including that there was a verdict [after trial] exceeding the offer of judgment amount." The parties further maintained that the court's refusal to decide the issue would frustrate the parties' settlement agreement and thwart the remedial purpose of the declaratory judgment statute because a decision on the question would have resolved "a bona fide and substantial issue in dispute between [them]" and rendered a trial on the merits of the plaintiff's malpractice claim unnecessary. It was the parties' contention that, by settling the plaintiff's malpractice claim against Skolnick, the parties had sought to conserve not only their own resources but also those of the court. If the case had proceeded to trial, they maintained, the plaintiff likely would have obtained a judgment that exceeded the policy limits, and the issue of whether ProMutual was responsible for the payment of the offer of judgment interest, to which the plaintiff was statutorily entitled, necessarily would have been litigated at that time. The trial court granted the parties' motion for reargument but denied the relief sought therein.
As the majority has explained, on appeal to this court, the parties claim that, in light of their stipulation, "the only issue properly before the [trial] court was whether ProMutual is obligated to pay offer of judgment interest when that interest, coupled with the $1 million settlement, would exceed the policy limit on damages.... In support of ... [this contention], ProMutual specifically contends that the trial court mistakenly treated the claim as one for an award of interest under § 52-192a, rather than a claim for a declaratory judgment under [§ 52-29(a)] regarding a policy coverage dispute." (Emphasis in original.) The majority rejects the parties' claim, concluding that the trial court properly declined to render a decision on the issue *271 raised in connection with the plaintiff's request for a declaratory judgment. Although the majority acknowledges that the trial court had jurisdiction over the plaintiff's request, the majority concludes that the court was not bound by the parties' agreement to treat the case as if it had proceeded to trial. The majority further concludes that, because the case had not been tried, and because § 52-192a applies only to cases that result in a trial, the court properly determined that it lacked authority to award offer of interest judgment under § 52-192a.
I fully agree with the majority that the trial court had jurisdiction to render a decision on the declaratory judgment count of the plaintiff's complaint. I disagree with the majority, however, that the trial court properly declined to do so because it lacked authority under § 52-192a to award offer of judgment interest. The majority reaches the wrong conclusion because it views the issue raised by this appeal through the wrong lens; instead of determining whether, in light of the parties' stipulation, the trial court has the authority under § 52-29(a) to render a declaratory judgment resolving the parties' dispute, the majority treats the issue as implicating the court's authority to award offer of judgment interest under § 52-192a. Even if it is assumed that the majority is correct in concluding that § 52-192a applies only after a trial has occurred, there simply is no justification for the trial court to have rejected the stipulation filed by the parties for the purpose of obtaining a judgment declaring their rights in accordance with § 52-29(a). Because the parties agreed both to treat the case as if it had proceeded to trial and to be bound by the trial court's resolution of the issue raised by the plaintiff's request for a declaratory judgment, the court clearly has the authority to answer the question reserved to it and, if the court agrees with the plaintiff's claim, to render a decision in accordance with the parties' stipulation that ProMutual is obligated to pay offer of judgment interest to the plaintiff. In other words, although the trial court in the present case would have lacked the authority to award offer of judgment interest solely on the basis of § 52-192athis is so because no trial actually took place, and the court's authority to make an award under § 52-192a is limited to cases in which a trial has occurredthe decision that the plaintiff seeks is not predicated on § 52-192a but, rather, on the parties' stipulation. Because the trial court had the authority to render a decision on the plaintiff's request for a declaratory judgment on the basis of the parties' stipulation, the trial court properly could not refuse to consider the plaintiff's declaratory relief claim for lack of such authority. As I explain hereinafter, only if the issue presented were nonjusticiable would the court have been free to decline to resolve the merits of the plaintiff's claim. That is not the case here, however.
"The principles that underlie justiciability are well established. Justiciability requires (1) that there be an actual controversy between or among the parties to the dispute ... (2) that the interests of the parties be adverse ... (3) that the matter in controversy be capable of being adjudicated by judicial power ... and (4) that the determination of the controversy will result in practical relief to the complainant." (Internal quotation marks omitted.) Nielsen v. State, 236 Conn. 1, 6-7, 670 A.2d 1288 (1996). "In deciding whether the plaintiff's complaint presents a justiciable claim, we make no determination regarding its merits. Rather, we consider only whether the matter in controversy [is] capable of being adjudicated by judicial power according to the aforestated well *272 established principles." (Internal quotation marks omitted.) Milford Power Co., LLC v. Alstom Power, Inc., 263 Conn. 616, 626, 822 A.2d 196 (2003).
The plaintiff sought to invoke the trial court's jurisdiction over his claim for declaratory relief "pursuant to § 52-29, which, as we have recognized, provides a valuable tool by which litigants may resolve uncertainty of legal obligations.... The [declaratory judgment] procedure has the distinct advantage of affording to the court in granting any relief consequential to its determination of rights the opportunity of tailoring that relief to the particular circumstances.... A declaratory judgment action is not, however, a procedural panacea for use on all occasions, but, rather, is limited to solving justiciable controversies.... Invoking § 52-29 does not create jurisdiction where it would not otherwise exist. Wilson v. Kelley, 224 Conn. 110, 116, 617 A.2d 433 (1992) (Implicit in [§ 52-29 and Practice Book § 17-54] is the notion that a declaratory judgment must rest on some cause of action that would be cognizable in a nondeclaratory suit.... To hold otherwise would convert our declaratory judgment statute and rules into a convenient route for procuring an advisory opinion on moot or abstract questions ... and would mean that the declaratory judgment statute and rules created substantive rights that [do] not otherwise exist....).
"As we noted in Pamela B. v. Ment, 244 Conn. 296, 323-24, 709 A.2d 1089 (1998), [w]hile the declaratory judgment procedure may not be utilized merely to secure advice on the law ... or to establish abstract principles of law ... or to secure the construction of a statute if the effect of that construction will not affect a plaintiff's personal rights ... it may be employed in a justiciable controversy where the interests are adverse, where there is an actual bona fide and substantial question or issue in dispute or substantial uncertainty of legal relations which requires settlement, and where all persons having an interest in the subject matter of the complaint are parties to the action or have reasonable notice thereof.... Finally, the determination of the controversy must be capable of resulting in practical relief to the complainant." (Citations omitted; internal quotation marks omitted.) Milford Power Co., LLC v. Alstom Power, Inc., supra, 263 Conn. at 625-26, 822 A.2d 196.
Applying these principles to the present case, I conclude that the declaratory judgment count of the plaintiff's complaint meets all of the criteria of the justiciability doctrine. First, the parties' interests were adverse. Second, an actual bona fide and substantial question over the effect of § 52-192a on ProMutual's obligations under the insurance policy prohibited the parties from reaching a final settlement of the plaintiff's claims against Skolnick. Third, a determination of the controversy in the plaintiff's favor would afford him practical relief because it would entitle him to an additional $293,000 above and beyond the $1 million that he already was entitled to receive under the terms of the settlement agreement. Moreover, the fact that the parties have entered into a partial settlement does not render the case nonjusticiable. Indeed, in that respect, this case is identical to Connecticut Medical Ins. Co. v. Kulikowski, 286 Conn. 1, 942 A.2d 334 (2008), a declaratory judgment action in which this court recently was required to determine, after a partial settlement had been reached between the parties, the extent of coverage under a medical malpractice insurance policy. Id., at 3-4 and n. 3, 942 A.2d 334; see also, e.g., Guin v. Ha, 591 P.2d 1281, 1282-83 (Alaska 1979) (plaintiff in medical malpractice action settled all claims against defendant physician, expressly reserving issue of insurer's liability for prejudgment interest *273 in excess of policy limits, and, thereafter, parties filed stipulation reciting terms of settlement and request for declaration by court as to whether insurer was liable for prejudgment interest).
Indeed, the majority acknowledges that the question reserved to the trial court is a justiciable one. As I have indicated, however, the majority asserts that "the trial court properly considered the predicate issue of whether a settlement agreement deemed by the parties to be a verdict and judgment in the plaintiff's favor for purposes of § 52-192a could invoke the court's authority under that statute prior to addressing the parties' dependent claim as to whether the policy limit barred offer of judgment interest under § 52-192a." The majority further concludes that "the parties' stipulations did not satisfy the necessary predicate to an award of offer of judgment interest under § 52-192a, namely, a judgment in the plaintiff's favor after a trial."
The majority cites to no authority, and I have found none, in which a court assumed jurisdiction over a declaratory judgment action, declined to answer the question presented therein, and then rendered judgment in favor of one of the parties on a claim that no party had raised. The majority argues, however, that the trial court in the present case properly did just that because a predicate event to an award of interest under § 52-192a, namely, a trial, had not occurred. Not one of the cases that the majority cites, however, supports the proposition that parties may not stipulate to factseven essential predicate facts underlying a claimed entitlementin the context of a declaratory judgment action. Indeed, not one of the cases on which the majority relies involves a claim for declaratory relief. The first such case, Curry v. Allan S. Goodman, Inc., 286 Conn. 390, 403-404, 944 A.2d 925 (2008), simply stands for the proposition that, on appeal, parties may not bind the court with respect to the applicable law. The remaining cases that the majority cites also provide no support for its conclusion; they merely articulate the general rule that courts often must decide predicate legal issues before reaching the ultimate issue in a case. See Sastrom v. Psychiatric Security Review Board, 291 Conn. 307, 319-20 n. 15, 968 A.2d 396 (2009); Schiano v. Bliss Exterminating Co., 260 Conn. 21, 33, 792 A.2d 835 (2002); State v. Miranda, 245 Conn. 209, 214-15, 715 A.2d 680 (1998), rev'd on other grounds, 274 Conn. 727, 878 A.2d 1118 (2005). None of these cases, however, supports the conclusion that parties may be barred from stipulating to predicate facts in a declaratory judgment action. Thus, none of the foregoing cases supports the majority's determination that, because a trial court is not authorized to award offer of judgment interest in the absence of a trial, the trial court in the present case lacked the authority under § 52-29(a) to determine the effect of § 52-192a on the parties' respective rights and obligations under Skolnick's malpractice insurance contract.
In fact, the only declaratory judgment case that is even mentioned in the majority opinion, namely, Bania v. New Hartford, 138 Conn. 172, 83 A.2d 165 (1951), manifestly does not support the proposition that parties may be prohibited from presenting their case to the court via a stipulation of facts. To the contrary, Bania itself, like most declaratory judgment actions, was submitted to the trial court upon a stipulation of facts. Id., at 173, 83 A.2d 165. The majority, however, takes language from Bania out of context and then uses that language to support its conclusion that the trial court in the present case properly declined to answer the question presented to it. Specifically, the majority cites Bania for the principle that, "in an *274 action for a declaratory judgment we are not limited by the issues joined or by the claims of counsel." Id., at 175, 83 A.2d 165. In Bania, however, this court relied on the foregoing principle as a basis for deciding the issue on which the plaintiff in that case had requested a declaratory judgment, even though certain predicate facts necessary to support the plaintiff's claim were not apparent in the record. See id., at 175-76, 83 A.2d 165. Specifically, the court stated: "While the questions presented to the trial court under the plaintiff's claim for a declaratory judgment lack the clarity ... which is desirable [when] such a judgment is sought, they suffice to warrant our passing [on] the fundamental and controlling inquiry...." Id. We reached this determination in Bania because, as we further explained, "[a]n action for a declaratory judgment is a special statutory proceeding ... implemented by the rules [of practice].... The relief thus afforded is highly remedial and the statute and rules should be accorded a liberal construction to carry out the purpose underlying such judgments.... The object of the action is to secure an adjudication of rights which are uncertain or in dispute.... The complaint must allege such uncertainty or dispute and set forth the facts necessary for the determination of the question. It must also contain facts sufficient to show that the question is not moot and that the plaintiff is a proper party. However, in an action for a declaratory judgment we are not limited by the issues joined or by the claims of counsel.... Under [the rules of practice], a prerequisite to resort to the action is that there must be an issue in dispute or an uncertainty of legal relations which requires settlement between the parties. This ... means no more than that there must appear a sufficient practical need for the determination of the matter, and that need must be determined in the light of the particular circumstances involved in each case." (Citations omitted; emphasis added.) Id., at 175, 83 A.2d 165.
In the present case, the practical need for a determination of the question presented to the trial court stemmed from the parties' desire, on the eve of trial, to reach an equitable and fair settlement of the plaintiff's claims against Skolnick, which they were unable to accomplish completely because of a dispute over whether ProMutual would be obligated to pay the offer of judgment interest if the case proceeded to trial and, as the parties anticipated, the plaintiff obtained a verdict in excess of his offer of judgment. Thus, the parties stipulated to the fact that, if the case had been tried to conclusion, the plaintiff would have received a damages award of at least $1 million, thereby entitling him to offer of judgment interest in the amount of $293,000.
Finally, I am aware of no reason why the parties were not entitled to treat the case as if it were one that had proceeded to trial by entering into a stipulation to that effect. Unless such an agreement operates as a fraud on the court, purports to create a controversy when none actually exists, violates public policy or otherwise is improper,[8] there simply was no basis for the court to reject the parties' agreement. Aside from the majority's reliance on the unexceptional proposition that a court is not bound to abide by the parties' agreement on the lawa principle that also has no applicability to the present casethe majority makes no attempt to explain why the court was entitled to refuse to decide the issue presented in accordance with the parties' stipulation. As the majority itself has explained, the parties settled their *275 case in good faith, seeking to save the court and themselves the inconvenience of a lengthy trial, and they agreed to the likely outcome of any such trial. Moreover, by signing the stipulation, ProMutual effectively waived any objection that it otherwise would have been entitled to raise, because the case was resolved in advance of trial, with respect to an award of offer of judgment interest. Finally, as the majority concedes, the fact that no trial actually occurred is not a jurisdictional impediment to a resolution of the plaintiff's claim for a declaratory judgment. Thus, § 52-192a manifestly did not bar the court from rendering a decision, pursuant to § 52-29(a), in accordance with and predicated on the parties' stipulation, concerning the question posed by the plaintiff's request for a declaratory judgment.[9] In sum, it is true that, ordinarily, when a plaintiff seeks offer of judgment interest under § 52-192a but no trial has occurred, the court lacks authority to award such interest because a condition precedent for that award has not been met. In the present case, however, the plaintiff filed an action for a declaratory judgment, and, for purposes of that action, the parties entered into a stipulation reflecting their agreement, first, to treat the case as one in which a trial had occurred and, second, to be bound by the court's decision concerning ProMutual's liability for offer of judgment interest. In such circumstances, the trial court clearly had the authority, under § 52-29(a), to render a decision concerning Pro-Mutual's obligation to pay interest to the plaintiff because the plaintiff's declaratory judgment action, predicated as it is on the parties' stipulation, provides a perfectly proper vehicle for the court's resolution of the parties' dispute. Put differently, the court did not lack the authority to award offer of judgment interest to the plaintiff in light of the parties' stipulated agreement that the plaintiff is, in fact, entitled to such interest if the court concludes, upon consideration of the claims underlying the plaintiff's declaratory judgment action, that ProMutual is liable for that interest, over and above the $1 million policy limit, notwithstanding the policy language to the contrary.[10]
*276 For the foregoing reasons, I would address and resolve the plaintiff's claim that he is entitled to recover $293,000 in offer of judgment interest from ProMutual. Accordingly, I dissent.
NOTES
[1] Melissa Costantino, Richard Costantino's wife, also was included as a plaintiff in the original complaint in this action, which included a claim for loss of consortium. Because that claim was not realleged in the amended complaint and his wife no longer is involved in this case, we refer to Richard Costantino as the plaintiff.
[2] The plaintiff appealed from the trial court's decision to the Appellate Court, and we transferred the appeal to this court pursuant to General Statutes § 51-199(c) and Practice Book§ 65-1.
[3] General Statutes (Rev. to 2005) § 52-192a provides in relevant part: "(a) After commencement of any civil action based upon contract or seeking the recovery of money damages, whether or not relief is sought, the plaintiff may, not later that thirty days before trial, file with the clerk of the court a written `offer of judgment' signed by the plaintiff or the plaintiff's attorney, directed to the defendant or the defendant's attorney, offering to settle the claim underlying the action and to stipulate to a judgment for a sum certain.... Within sixty days after being notified of the filing of the `offer of judgment' and prior to the rendering of a verdict by the jury or an award by the court, the defendant or the defendant's attorney may file with the clerk of the court a written `acceptance of offer of judgment' agreeing to a stipulation for judgment as contained in plaintiff's `offer of judgment'. Upon such filing, the clerk shall enter judgment immediately on the stipulation. If the `offer of judgment' is not accepted within sixty days and prior to the rendering of a verdict by the jury or an award by the court, the `offer of judgment' shall be considered rejected and not subject to acceptance unless refiled. Any such `offer of judgment' and any `acceptance of offer of judgment' shall be included by the clerk in the record of the case.
"(b) After trial the court shall examine the record to determine whether the plaintiff made an `offer of judgment' which the defendant failed to accept. If the court ascertains from the record that the plaintiff has recovered an amount equal to or greater than the sum certain stated in the plaintiff's `offer of judgment', the court shall add to the amount so recovered twelve per cent annual interest on said amount, computed from the date such offer was filed in actions in actions commenced before October 1, 1981. In those actions commenced on or after October 1, 1981, the interest shall be computed from the date the complaint in the civil action was filed with the court if the `offer of judgment' was filed not later than eighteen months from the filing of such complaint. If such offer was filed later than eighteen months from the date of filing of the complaint, the interest shall be computed from the date the `offer of judgment' was filed. The court may award reasonable attorney's fees in an amount not to exceed three hundred fifty dollars, and shall render judgment accordingly. This section shall not be interpreted to abrogate the contractual rights of any party concerning the recovery of attorney's fees in accordance with the provisions of any written contract between the parties to the action."
[4] There is nothing in the record to indicate whether the decision not to accept the offer was made by Skolnick or ProMutual or both of those defendants.
[5] There is a two month discrepancy, which is not material to the issues on appeal, between the date cited by the trial court as to when the agreement was executed and the various dates on which the parties signed the agreement. We rely on the date on which the last party to the agreement signed it, May 2, 2007, as the date of execution.
[6] Although the parties' agreement refers to the "prejudgment remedy statute," it is undisputed that this reference is to the offer of judgment statute, § 52-192a.
[7] Section IX (3) of the policy provides: "DAMAGES means all monetary sums which the INSURED is legally obligated to pay as damages including judgments, awards and settlements entered into with OUR prior written consent. DAMAGES also includes pre-judgment interest awarded against an INSURED.
"DAMAGES does not include CLAIM EXPENSES, fines, penalties or taxes, punitive, exemplary, doubled, trebled or multiplied DAMAGES, or the refund, restitution or disgorgement of sums paid to or earned by the INSURED."
We note that the parties are in agreement, for purposes of this appeal, that this provision unambiguously bars payment of offer of judgment interest to the extent that such interest would bring the total payment under the policy above the $1 million policy limit. Therefore, their dispute centers not on what this provision means but rather on whether its enforcement is barred by § 52-192a when payment would be in excess of the policy limit.
[8] Although we generally would begin with the question of whether the declaratory judgment count sought an advisory opinion, our resolution of the question of whether the trial court properly based its decision on the requirements of § 52-192a makes evident why the declaratory judgment count did not call on the court to issue an advisory opinion. See part II of this opinion.
[9] General Statutes § 52-29(a) provides: "The Superior Court in any action or proceeding may declare rights and other legal relations on request for such a declaration, whether or not further relief is or could be claimed. The declaration shall have the force of a final judgment."
[10] We note that ProMutual also asserts that the trial court improperly concluded that it lacked subject matter jurisdiction. We do not address this claim because the trial court did not conclude that it lacked jurisdiction, but, rather, that it lacked authority under § 52-192a to award offer of judgment interest because the statutory predicate of a trial had not occurred. See Tele Tech of Connecticut Corp. v. Dept. of Public Utility Control, 270 Conn. 778, 790, 855 A.2d 174 (2004) ("Although related, the court's authority to act pursuant to a statute is different from its subject matter jurisdiction. The power of the court to hear and determine, which is implicit in jurisdiction, is not to be confused with the way in which that power must be exercised in order to comply with the terms of the statute.... Whereas [s]ubject matter jurisdiction involves the authority of a court to adjudicate the type of controversy presented by the action before it ... the authority to act refers to the way in which that power [to hear and to determine the controversy] must be exercised in order to comply with the terms of the statute." [Citations omitted; internal quotation marks omitted.]). Undoubtedly, the trial court had jurisdiction to consider a declaratory judgment count brought pursuant to § 52-29.
[11] Indeed, the amount of interest is fixed in the agreement by reference to the percentage mandated by § 52-192a.
[12] We disagree with the parties' view, however well-intentioned, that it is proper for parties to stipulate to facts that are false in order to bring their conduct within the ambit of a statute and in turn obtain a declaratory judgment that rests on those facts. The declaratory judgment claim and the parties' agreement concede that they are asking the court to assume facts that the court knows not only have not happened, but that never can happen by virtue of their choice to enter into the settlement agreement.
[13] We note that neither party contends that the term trial is ambiguous, nor have they implicitly made such an argument by bringing any legislative history to the court's attention that would indicate an intent to include settlements in that term.
[14] The declaratory judgment count referred to the facts of the case specifically and provided: "The question reserved to the court is whether, given that a valid offer of judgment was filed by the plaintiff in the amount of [$1 million], and assuming a verdict was entered after trial of at least [$1 million] such that offer of judgment interest would be due on the [$1 million] verdict, is [ProMutual] required to pay said offer of judgment interest where, as here, it exceeds the [$1 million] policy limits?"
[1] Richard Costantino's wife, Melissa Costantino, also was named as a plaintiff in the original complaint but no longer is a party to this action. In the interest of simplicity, I refer to Richard Costantino as the plaintiff throughout this opinion.
[2] General Statutes § 52-29(a) provides: "The Superior Court in any action or proceeding may declare rights and other legal relations on request for such a declaration, whether or not further relief is or could be claimed. The declaration shall have the force of a final judgment."
[3] This defendant's full name is Medical Professional Mutual Insurance Company doing business as ProMutual and ProSelect Insurance Company.
[4] See footnote 3 of the majority opinion for the relevant text of General Statutes (Rev. to 2005) § 52-192a. All references in this opinion to § 52-192a are to the 2005 revision.
[5] Darien Medical Group, Skolnick's medical practice, also was named as a defendant.
[6] See footnote 5 of the majority opinion and accompanying text.
[7] The parties framed the issue to be decided as follows: "[G]iven that a valid offer of judgment was filed by the plaintiff in the amount of [$1 million], and assuming a verdict entered after trial of at least [$1 million] such that offer of judgment interest would be due on the [$1 million] verdict, is ... ProMutual... required to pay said offer of judgment interest where, as here, it exceeds the [$1 million] policy limits?" In addition to seeking an answer to the foregoing reserved question, the plaintiff, in the declaratory judgment count of his complaint, sought certain relief to which he necessarily would be entitled in the event that the court ruled in his favor on that count. Specifically, the plaintiff sought "[a] declaration that [ProMutual is] required to pay prejudgment interest above the policy limits of liability" and "[a]n order requiring [ProMutual] to pay said prejudgment interest in the amount agreed to by the parties following a ruling that [ProMutual is] required to pay prejudgment interest above the policy limits...."
[8] None of these concerns is applicable in the present case.
[9] The majority insists, nevertheless, that it is not "proper for parties to stipulate to facts that are false in order to bring their conduct within the ambit of a statute and in turn obtain a declaratory judgment that rests on those facts." Footnote 12 of the majority opinion. I do not agree. First, the majority cites no authority for its proposition, and I have found none. Moreover, if, as in the present case, the parties' dispute is a justiciable one and there is nothing about the parties' factual stipulation that violates public policy, I see no basis for the court to avoid deciding the dispute merely because the parties have agreed to certain facts solely for the purpose of invoking a particular statutory provision. This is so because the legal requirements of justiciability have proven to be perfectly adequate to root out controversies that are not genuine or for which no practical relief can be afforded. When, therefore, the requirements of justiciability are met, as the majority concedes they have been in the present case, I can think of no reason for this court to decline to render a decision on the merits.
Finally, even if the majority were correct that the trial court was not bound to accept the parties' factual stipulation, that does not also support the conclusion that the trial court lacked the authority to decide the issue presented by the plaintiff's claim for a declaratory judgment. Under the majority's reasoning, at the most, the stipulation would provide a basis for the court to have elected not to render a decision on that claim, presumably for prudential reasons. As I have explained, however, there is nothing about the stipulation that is against public policy or that otherwise would provide a basis for the court's refusal to resolve the parties' dispute.
[10] It is worth noting that the result that the majority and the trial court reach verges on the bizarre because, under the majority's holding, if the plaintiff, with the agreement of the defendants, had proceeded to an exceedingly brief, one witness trial at which all parties agreed to a $1 million judgment in favor of the plaintiff, then the parties would have been entitled to a resolution of the question that the trial court and the majority decline to address. For the reasons set forth in this opinion, there simply is no reason why the parties were required to engage in the pretense of a trial merely to resolve their dispute over the offer of judgment issue. Indeed, the majority suggests that the plaintiff's request for a declaratory judgment is defective because, in the parties' settlement agreement, they "concede that they are asking the court to assume [a fact, namely, that a trial occurred] that the court knows not only [has] not happened, but that never can happen by virtue of their choice to enter into the settlement agreement." Footnote 12 of the majority opinion. I take issue with this assertion. There is nothing to prevent the parties from voiding their settlement agreement and proceeding to "trial"an event that will take all of a few minutesfollowing which, under the majority opinion, they then will be entitled to a resolution of the issue presented by this appeal. Thus, contrary to the majority's contention, there is no reason why a trial cannot occur in the future. Requiring such a trial, however, results in a waste of time and resources because this court is fully authorized to resolve the parties' dispute in the context of the present appeal. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1546892/ | 988 A.2d 719 (2009)
COM.
v.
FULLERTON.
No. 1614 MDA 2008.
Superior Court of Pennsylvania.
November 17, 2009.
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919581/ | 91 B.R. 551 (1988)
In re Larry Dean KIRKLAND and Billie Kay Kirkland, Debtors.
SECURITY PACIFIC NATIONAL BANK, Appellant,
v.
Larry D. KIRKLAND and Billie K. Kirkland, Appellees.
BAP No. NC-87-1743-MeAsV.
United States Bankruptcy Appellate Panel of the Ninth Circuit.
Argued and Submitted February 18, 1988.
Decided September 22, 1988.
*552 Richard A. Rogan, Broad, Schulz, Larson & Wineberg, San Francisco, Cal., for appellant.
Robert L. Hughes, Lempress & Wulfsberg, Oakland, Cal., for appellees.
Before MEYERS, ASHLAND and VOLINN, Bankruptcy Judges.
OPINION
MEYERS, Bankruptcy Judge:
I
This appeal raises the question whether a secured creditor must notify a guarantor before sale of collateral. The trial court concluded that guarantors are "debtors" under Section 9105(1)(d) of the California Commercial Code,[1] thereby entitling them to notice and other protections under Section 9504(3) and that any pre-default waiver of notice executed by guarantors is ineffective. Accordingly, the trial court held that the secured creditor's deficiency claim against the guarantors was barred under California law and, finding no material issues of fact remaining, granted summary judgment for the guarantors.
The Panel reviews a grant of summary judgment de novo. In re Washburn & Roberts, Inc., 795 F.2d 870, 872 (9th Cir. 1986); In re Pacific Exp. Inc., 69 B.R. 112, 114 (9th Cir.BAP 1986). We AFFIRM.
II
FACTS
Appellant Security Pacific National Bank ("Security Pacific") entered into an unsecured credit agreement with Cascade Oil Company ("Cascade"), establishing a $1,450,000 line of credit. Appellees Larry Kirkland, Cascade's president and major shareholder, and his wife, signed an unsecured general continuing guaranty expressly waiving all notices and giving Security Pacific the power to substitute, release, decrease or alter any collateral.
Cascade first defaulted on March 31, 1981. Pursuant to a workout agreement, Cascade executed a security agreement providing Security Pacific with a secured interest in certain real property of Cascade. Security Pacific extended the credit line period to May 29, 1981. The security agreement expressly renounced any right to notice of sale of the collateral. The *553 Kirklands, as guarantors, consented to the collateralization in a letter agreement which provided that the "collateralization does not affect or diminish . . . [the Kirklands'] obligations under the general Continuing Guaranty . . . ".
Security Pacific rejected Cascade's repayment proposal and the obligation was again in default. As part of a second workout arrangement, Security Pacific obtained from the Kirklands security for the previously unsecured guaranty in a second letter agreement dated June 8, 1981. The new agreement provided that the original continuing guaranty "shall remain in full force and effect." Security Pacific again extended the obligation, agreeing to a six-month moratorium until September 15, 1981.
At the end of the moratorium, Cascade again defaulted and then filed for Chapter 11. Kirkland subsequently resigned as president.
Two pieces of equipment were sold in 1983 for $59,000 by Cascade's new president, either with the consent or by the direction of Security Pacific. The Kirklands did not receive prior notice of the sales.
On January 3, 1985, the Kirklands commenced their personal Chapter 11 case. The Kirklands moved for summary judgment on their objection to Security Pacific's secured claim on the grounds that the Kirklands did not receive notice of the sales of collateral. The bankruptcy court granted summary judgment based on Security Pacific's failure to provide notice of the sales to the Kirklands and disallowed Security Pacific's deficiency claim.
III
DISCUSSION
A. Guarantors are Entitled to Notice of Sale of Collateral
The bankruptcy court held that guarantors are synonymous with "debtors" under Section 9105(1)(d) for purposes of entitlement to Section 9504(3) protections and thus must receive notice of any sale of collateral. Appellant insists that unconditional guarantors are not entitled to Section 9504(3) protections since the guaranty is separate and independent of the primary debt to which the guarantors owe no obligation.
Under Section 9504(3), a secured party may sell or dispose of collateral if the party first provides notice to the "debtor" prior to the sale. Cal.Com.Code Section 9504(3); Atlas Thrift Co. v. Horan, 27 Cal.App.3d 999, 1002, 104 Cal.Rptr. 315 (1972). Notice need not be given, however, if the debtor waives the right to such notice after default. Cal.Com.Code Section 9504(3).
Section 9105(1)(d) defines a "debtor" as a "person who owes payment or other performance of the obligation secured, whether or not he or she owns or has rights in the collateral . . .". Cal.Com.Code Section 9105(1)(d). Several California appellate and federal district courts interpreting California law have adopted the conclusion reached by "the overwhelming majority of courts . . . that a guarantor is a debtor within the meaning of Section 9501(3) and therefore entitled to the rights and remedies provided by Section 9504(3), including notice." Connolly v. Bank of Sonoma County, 184 Cal.App.3d 1119, 1124, 229 Cal.Rptr. 396 (1986); see also C.I.T. Corp. v. Anwright Corp., 191 Cal.App.3d 1420, 1426, 237 Cal.Rptr. 108 (1987), modified 192 Cal.App.3d 818f, 237 Cal.Rptr. 108 (1987); U.S. v. Kurtz, 525 F.Supp. 734 (E.Pa.1981), aff'd 688 F.2d 827 (3d Cir.1982) (Table) (interpreting California law).
B. A Guarantor's Renunciation of Waiver of Notice Before Default is Ineffective
A "debtor" may not waive notice of sale of collateral prior to default on the obligation. Cal.Com.Code Section 9501(3); Western Decor & Furnishings Industries, Inc. v. Bank of America, 91 Cal.App.3d 293, 306, 154 Cal.Rptr. 287 (1979); Krueger v. Bank of America, 145 Cal.App.3d 204, 193 Cal.Rptr. 322 (1983). Since a guarantor is considered a "debtor" within the meaning of Section 9105(1)(d) and thus entitled to the same rights and protections *554 Section 9504(3) afforded to debtors, any waivers they sign as guarantors prior to default are ineffective. Connolly v. Bank of Sonoma County, supra, 184 Cal.App.3d at 1125, 229 Cal.Rptr. 396. "[T]he reasons . . . advanced to support the conclusion that guarantors are debtors under Section 9504 are equally apposite to the waiver issue: that is, the regulatory scheme of the Code regarding disposition of collateral after default established a policy which must include guarantors to function rationally and, more importantly, cannot be nullified by prior agreement." C.I.T. Corp. v. Anwright Corp., supra, 191 Cal.App.3d at 1427, 237 Cal.Rptr. 108; Ford Motor Credit Co. v. Lototsky, 549 F.Supp. 996, 1005 (E.Pa.1982).
Several cases have permitted a guarantor to contractually waive, by the terms of the guaranty, notice and other protections otherwise afforded by law. Rutan v. Summit Sports, Inc., 173 Cal.App.3d 965, 219 Cal.Rptr. 381 (1985); U.S. v. Kurtz, supra, 525 F.Supp. 734; Krueger v. Bank of America, supra, 145 Cal.App.3d 204. However, subsequent California appellate decisions have expressly declined to follow these prior holdings. Connolly v. Bank of Sonoma County, supra, 184 Cal.App.3d at 1124, 229 Cal.Rptr. 396; C.I.T. Corp. v. Anwright Corp., supra, 191 Cal.App.3d at 1426, 237 Cal.Rptr. 108; Ford Motor Credit Co. v. Lototsky, supra, 549 F.Supp. 996.
In the absence of a state supreme court decision on the issue, a federal court is obligated to follow a decision of an intermediate court of appeal "in the absence of convincing evidence that the highest court of the state would decide differently." American Triticale, Inc. v. NYTCO Services, Inc., 664 F.2d 1136, 1143 (9th Cir. 1981); Stoner v. New York Life Ins. Co., 311 U.S. 464, 467, 61 S.Ct. 336, 337, 85 L.Ed. 284 (1940). According to Connolly and C.I.T. Corp., the complete waiver of notice of sale in the original guaranty signed by the Kirklands prior to Cascade's default is unenforceable.
C. The Guarantors did not Waive their Right to Notice Post-default
Section 9504(3) excuses notification of sale to the debtor if the debtor "has . . . signed after default a statement renouncing or modifying his right to notification of sale . . .". Cal.Com.Code Section 9504(3). The guaranty the Kirklands signed provides: "Notice of acceptance of their guaranty as well as demands, presentments, notices of protest and notices of every kind [and] nature, including those of any action or non-action on the part of the Debtor, Bank, or anyone else, are hereby fully waived [by] the undersigned." On May 18, 1981, the parties executed letter agreements providing "the taking of this collateral by the Bank does not affect or diminish your [Kirklands'] obligations under that General Continuing Guarantee." On June 8, 1981, a second letter agreement provided the "Guaranty shall remain in full force and effect."
Appellants contend the letter agreements incorporated by reference each term and condition of the guaranty, including waiver of notice. However, even if the waiver contained in the guaranty were sufficient to renounce the right to notice of sale and was effectively incorporated in the two subsequent letter agreements, there was no valid renunciation after the latest default.
Section 9504(3), on its face, requires only that a valid renunciation be signed "after default." Cal.Com.Code Section 9504(3). Both parties assume a default by the debtor is the event used to determine whether a waiver of notice by a guarantor is post-default.
Cascade defaulted on three separate occasions. It initially defaulted when its note became due in March 1981. Cascade again defaulted when it failed to tender payment following an extension through May 29, 1981 and after a six-month repayment moratorium, concluding on September 15, 1981. In each instance Cascade failed to tender payment when due, Security Pacific waived the default and granted an extension on Cascade's obligation in exchange for additional security. Rather than one continuing default, however, Cascade's repeated failures to make payment at the original *555 due date and upon termination of each extension comprises a series of separate defaults. The final letter agreement dated June 8, 1981, even if incorporating the waiver provision of the original guaranty, was nonetheless executed prior to the default on the last extension. There was, therefore, no effective waiver of notice by the guarantors after the last default. Security Pacific remained obligated to send notice of sale to the Kirklands.
D. Denial of Security Pacific's Deficiency Claim is an Appropriate Sanction if the Required Notice to the Kirklands was not Given
Under prevailing California law, a secured party who fails to properly notice a party entitled to notice under Section 9504(3) forfeits his conditional right to obtain a deficiency judgment. Cal.Com.Code Section 9504(3); Atlas Thrift Co. v. Horan, supra, 27 Cal.App.3d at 1009, 104 Cal.Rptr. 315; see also Backes v. Village Corner, Inc., 197 Cal.App.3d 209, 212-13, 242 Cal. Rptr. 716 (1987); Connolly v. Bank of Sonoma Co., supra, 184 Cal.App.3d at 1122, 229 Cal.Rptr. 396; Rutan v. Summit Sports, Inc., supra, 173 Cal.App.3d at 971-72, 219 Cal.Rptr 381; Ford Motor Credit Co. v. Price, 163 Cal.App.3d 745, 751, 210 Cal.Rptr. 17 (1985); Western Decor & Furnishings Industries, Inc. v. Bank of America, supra, 91 Cal.App.3d at 306-308, 154 Cal.Rptr. 287. Although we note the harshness of this rule, especially when applied to our current situation, we must apply California law as it exists and so deny Security Pacific's remaining deficiency claim for failure to notify the Kirklands before the sale of their collateral.
IV
CONCLUSION
We find no material issues of fact remaining and uphold the granting of summary judgment.
AFFIRMED.
NOTES
[1] All statutory references are to the California Commercial Code unless otherwise specified. When referring to statutory subparts, we omit repetition of the word "subdivision." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1546895/ | 13 F.2d 327 (1926)
BENTEL
v.
UNITED STATES.
AMOS
v.
SAME.
No. 396.
Circuit Court of Appeals, Second Circuit.
June 17, 1926.
*328 David V. Cahill, of New York City, for plaintiff in error Bentel.
Gallert, Hilborn & Raphael and David J. Gallert, all of New York City, for plaintiff in error Amos.
Emory R. Buckner, U. S. Atty., of New York City (Frederic R. Coudert and David P. Seigel, Asst. U. S. Attys., both of New York City, of counsel), for the United States.
Before ROGERS, HOUGH, and HAND, Circuit Judges.
HOUGH, Circuit Judge (after stating the facts as above).
Of the writ taken by Bentel it is almost enough to say that we think it wholly without merit.
There are assignments of error relating to the admission of evidence, concerning which we think the matters complained of were either discretionary with the trial judge, or illustrate the common complaint of counsel who start an inquiry and feel hurt when opponents pursue the matter to the disadvantage of him that started it.
It is also said to require a new trial that the prosecutor summed up in too forcible, if not a virulent, manner. We see nothing to complain of, except matters of taste, not errors of law. On the main proposition for Bentel, that there was no substantial evidence of his guilt to go to the jury, we must entirely disagree. It was admitted that Bentel was, if not a deviser, a most prominent forwarder, of the scheme for capitalizing Morosco. He promised to be the "watchdog of the treasury," and "watch Leven," with whom he joined hands to defraud the public by misrepresenting what Morosco had, and defraud the latter by withholding what Morosco Company was expected to yield to Morosco.
We perceive no legal question that will be made clearer by discussing the sordid details of evidence. The judgment as to Bentel is affirmed.
Amos is in a different and interesting category. He was never a principal, and he *329 had no part in devising the original advertisements or prospectuses, which contained most of the falsehoods mentioned in the indictment.
He was primarily a salesman, and for a while the sales manager, a position which brought him into intimate business relations with Bentel and Leven. He was, further, a prized salesman, and apparently a most successful one, for, while others had to be content with 15 to 20 per cent. commission, Amos received at least 25 and possibly 30 per cent. The argument on his behalf is this: Amos as an employee sent out circulars and prospectuses as true statements made by his superiors, who never revealed the truth to him, and he was justified in relying on those superiors' statements.
Obviously this argument is, in the main, matter for a jury. We are without power to do more than say whether or not there was evidence to go to the jury, and that, in this case, is equivalent to declaring the rule as to proof of scienter in respect of one who does not form, but as a servant assists in forwarding a scheme to defraud.
A scheme, under section 215, is usually, as in this instance, a method of obtaining money under false pretenses; it is in common speech a cheat by means of lies. But a stock-selling swindle like this was not an indictable cheat at common law; for "when one injured another by a falsehood, the common law said the neighbor should not have believed him"; wherefore the government permitted a private suit, but denied a criminal prosecution. Bishop, Cr. Law (Ed. 1892) vol. 2, § 582. Cf. Rex v. Wheatley, 2 Burr. 1125, per Mansfield, C. J. This was a theory of human responsibility suitable for a simple, if not a rude, state of society, and by statute for more than a century the Legislature has been making crimes of representations which would at common law only have supported an action for deceit, if even that were possible. Section 215, Criminal Code, is emphatically a statute of that kind.
But during the same time that statutory criminal responsibility for cheats has been growing, the civil responsibility for false pretense and fraudulent representation has received much study. It is now plain that one is more or less firmly held to knowledge of falsity by the circumstances under which he states that as true which is in fact false. Thus a man is supposed and required to know matters pertaining to his own business, and one who makes representations, not knowing whether they be true or false, cannot be regarded as innocent, for a positive assertion of fact is by plain implication an assertion of knowledge concerning the fact asserted. Bigelow on Fraud, p. 57, citing cases. And see Angus v. Clifford, [1891] 2 Ch. 449.
The matter is summed up by Lord Cairns in saying that a reckless statement of a fact of which the narrator is ignorant may be equivalent civilly to a statement of that which he knows to be false. Reese River, etc., Co. v. Smith, L. R. 4 H. L. 64.
The measure or rule for what is evidence of the ultimate fact does not change in moving from the civil to the criminal side of the court; only the necessary quantum of probative force changes, and the just cited rules as to knowledge of falsity are applied, when what was once but a civil responsibility becomes by statute a criminal offense. See Wharton, Cr. Law (11th Ed.) §§ 1429, 1452, 1492, 1510, and cases cited.
It always remains true that, when an intent or state of mind is a necessary ingredient of the offense charged, it must be averred and proved beyond a reasonable doubt; but it is just as true that, when that state of mind is a knowledge of false statements, while there is no allowable inference of knowledge from the mere fact of falsity, there are many cases where from the actor's special situation and continuity of conduct an inference that he did know the untruth of what he said or wrote may legitimately be drawn.
This is such a case. The evidence trailed Amos through months of time and many places into talk or writing with many persons whom he induced to buy stock of the Morosco Company. It was amply proven that he told most, if not all, of the falsehoods of the prospectus, and added some equally false statements, apparently devised by himself. The tales he told or wrote were the same sort of positive untruths as the prospectus contained, all calculated to persuade a gullible public that what was sold by him at prices varying with the victim's readiness to pay would yield a return beyond most dreams of avarice. And this was his business, at 25 per cent. or so to himself on every sale made. He was not a humble servant; he had opportunity as sales manager for a time to learn the truth; he was at headquarters, and the sort of statements made, whether taken from the company's "literature" or devised seemingly by himself, were of a kind that any man with a fair business sense of probabilities would have thought required much corroboration. And all was wholly without denial, for Amos offered no denials; he did not testify.
*330 We hold as matter of law that from this kind of evidence the jury could reasonably infer the necessary scienter, and that the quantum thereof was sufficient for their consideration.
The defense that one accused under this statute honestly believed, or had reasonable grounds to believe, the statements put forth, is for the jury. Rudd v. United States, 173 F. 912, 97 Cow. C. A. 462; Horn v. United States, 182 F. 721, 105 Cow. C. A. 163.
Judgment affirmed as to Amos, and by default as to Leven. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919554/ | 91 B.R. 17 (1987)
In re Kamal D. VERMA and Savitri Verma, his wife, Debtors.
Kamal D. VERMA and Savitri Verma, his wife, Plaintiffs,
v.
FIRST UNITED FEDERAL, formerly known as Cambria Savings and Loan Association; Mellon Bank, N.A.; American Express Company; Diners Club; Equibank; Sheonath B. Srivastrava; "Berger"; Somerset Trust Company; Internal Revenue Service, United States of America; Sun Oil Company; Salix State Bank; Bhaskaram Murali; and Riverside Service Station, Defendants.
Bankruptcy No. 86-1277, Adv. No. 87-0136.
United States Bankruptcy Court, W.D. Pennsylvania.
September 29, 1987.
Robert O. Lampl, Janice L. Morison, Pittsburgh, Pa., for debtors.
Craig R. McKay, Asst. U.S. Atty., Pittsburgh, Pa., Gerard J. Mene, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, D.C., for the U.S.
MEMORANDUM OPINION
JOSEPH L. COSETTI, Bankruptcy Judge.
The motion of the United States for dismissal of the action as it affects the lien of the United States is granted. The Debtors' *18 motion fails to state a cause of action as to the statutory lien of the United States. The motion of the Debtors for default as to the other Defendants who have not answered is granted.
The Debtors raise both 11 U.S.C. § 522(f) and 11 U.S.C. § 506 to avoid various liens. The Debtors claim an exemption in their residence located at 1038 Haverford Street, Upper Yoder Township, Cambria County, Pennsylvania. They believe the residence has a market value of $70,000. A mortgage to First United Federal, recorded December 22, 1978, exists and a balance of approximately $68,700 is owed. There are various other mortgages and liens which attach to this property. Many of these Defendant creditors have not answered and are defaulted.
Among the liens the Debtors seek to avoid is a statutory tax lien of the United States. The United States has answered and has filed a Brief. The Code at 11 U.S.C. § 522(c)(2) specifically excepts statutory tax lien debts from discharge and exemption:
(c) Unless the case is dismissed, property exempted from 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, except
(2) a debt secured by a lien that is
(A)(i) not avoided under subsection (f) or (g) of this section or under Section 544, 545, 547, 548, 549, or 724(a) of this title; and
(ii) not void under Section 506(d) of this title; or
(B) A tax lien, notice of which is properly filed. (Emphasis added.)
See In re Davis, 22 B.R. 523 (Bankr.W.D. Pa.1982); In re Simonson, 758 F.2d 103 (3d Cir.1985). Debtors may not exempt property in order to avoid the statutory tax lien which has attached to the property.
The Debtors also raise 11 U.S.C. § 506 in an attempt to avoid the tax lien. The Debtors argue that the United States' tax lien is not secured by value and should be declared unsecured. 11 U.S.C. § 506(a). The United States concedes that the market value of this property is not sufficient to pay their claim. However, the United States argues that 11 U.S.C. § 506 can not be used to invalidate their statutory lien. See Estate of Lellock v. Prudential Insurance Co., 811 F.2d 186 (3d Cir.1987); United States v. Marlow, 48 B.R. 261 (Bankr.D. Kan.1984).
More important, on the facts of this case, the parties agree that the lien of the United States is solely in the name of Savitri Verma and that the property is held as tenants by the entireties. Pennsylvania's entireties law provides that a lien filed against only one debtor spouse is inchoate as to entireties property and does not attach to the entireties property. In essence, the Debtors request this Court to avoid the inchoate characteristic of the United States' statutory lien. We do not decide here, but it appears from Pennsylvania law that the statutory lien will attach to this property if and when the property becomes solely the property of Savitri Verma. That event may or may not occur. See Patwardhan v. Brabant, 294 Pa. Super. 129, 429 A.2d 784, 785 (1982); In re Barsotti, 7 B.R. 205 (Bankr.W.D.Pa.1980).
In the case of In re Tanner, 14 B.R. 933 (Bankr.W.D.Pa.1981), this Court addressed issues related to 11 U.S.C. § 506. In Tanner, this Court permitted a debtor to declare a third mortgage to be unsecured because the value of the property would not support the third mortgage. However, the use of 11 U.S.C. § 506(a) requires a stated purpose:
[S]uch value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor's interest.
If the Debtors were able to claim this residence as exempt property, 11 U.S.C. § 506 would facilitate a fresh start by allowing the Debtors to sell or keep the property, pay the market value of the allowed secured debt and in the future enjoy the improvement of the financial position.
*19 That cannot be the purpose in this case, because by 11 U.S.C. § 522(c)(2), Congress expressly excepted avoiding statutory tax liens for exemption or fresh start purposes. The Debtors have not provided a bankruptcy purpose for this avoidance action which does not violate the policy of 11 U.S.C. § 522(c)(2). The policy of 11 U.S.C. § 522(c)(2) determined by Congress applies clearly to 11 U.S.C. § 522(f). We apply the same policy to actions taken under 11 U.S.C. § 506. The lien does not attach to the entireties property; but if it did, it could not be avoided. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919563/ | 373 Pa. Super. 448 (1988)
541 A.2d 756
In re TRUST OF Isabella W. MUNRO, Katharine S. Weibley, Executrix of the Estate of Richard W. Weibley, Deceased and William A. Cope, Objectants,
v.
COMMONWEALTH NATIONAL BANK, Trustee.
Appeal of Katharine S. WEIBLEY Executrix of the Estate of Richard W. Weibley, Deceased.
Supreme Court of Pennsylvania.
Argued February 2, 1988.
Filed May 4, 1988.
*450 G. Thomas Miller, Harrisburg, for appellant.
Robert C. Spitzer, Harrisburg, for appellee.
Before CAVANAUGH, OLSZEWSKI and POPOVICH, JJ.
CAVANAUGH, Judge:
The issue before us in whether the court below properly refused to surcharge a corporate trustee for retaining its own stock as principal of the trust.
By Deed of Trust dated July 29, 1932, Joseph Munro and Isabella W. Munro, his sister, placed designated assets in trust, including shares of stock in Carlisle Deposit Bank and Trust Company which was named as sole Trustee. The trust agreement stated, inter alia that the Trustee was:
to hold all stock of the Carlisle Deposit Bank and Trust Company which may come into hands of trustee under this agreement and pay the net income received therefrom, from time to time, to parties of the first part, [the Settlors] in equal shares, during their joint lives and to the survivor of parties of the first part during his or her life and upon the death of said survivor, then to distribute such dividends as received by the trustee in equal shares *451 to the following named grand-nephews of parties of the first part or to such of them as may be living at the death of the last survivor of the parties of the first part, to wit: Edward Weibley, Richard Weibley and William Cope all grand-sons of our deceased brother William S. Munro, for and during their natural lives and the life of the survivor of them, the share of any one of them dying to be paid to the survivor or survivors and upon the death of the last survivor of said grand-nephews to distribute said stock in accordance with the last wills and testaments of the said grand-nephews and a power of appointment by will is hereby conferred upon each of said grand-nephews as to that portion of stock on which he receives the income, distribution however to be deferred as above provided until the death of the last survivor of said grand-nephews.[1]
The trust agreement also provided:
It is expressly agreed that Trustee shall not be liable for accepting and retaining investments not within the laws of Pennsylvania defining lawful investments for trust funds nor for any losses resulting from the depreciation of any such investments.
The settlors are deceased. In 1985, the Commonwealth National Bank, the successor Trustee, filed its First and Partial Account in the Orphans' Court Division of Cumberland County, Pennsylvania. By that time, Edward Weibley had died. The income beneficiaries were Richard Weibley and William Cope. Edward Weibley had exercised his power *452 of appointment and designated Patricia Hain and Barbara Alexander as beneficiaries of one-third of the trust principal upon the death of the survivor of Richard Weibley and William A. Cope. Mr. Weibley and Mr. Cope, the income beneficiaries, filed objections to the account and sought to impose a surcharge on the trustee and other relief.[2] After the account was filed, an auditor was appointed who conducted hearings and filed a report in which he recommended that the trustee not be surcharged, but should be allowed to invest two-third's of the principal in legal investments other than in its own stock and one-third to be held in shares of Commonwealth Financial Corporation, the successor bank to Commonwealth National Bank.[3] Weibley and Cope filed exceptions to the auditor's report. By Order of July 8, 1987 the court, by Sheely, P.J., directed that the Auditor's Report be confirmed absolutely and modified the trust agreement in accordance with the report. In the meantime, Richard W. Weibley died and Katharine S. Weibley, Executrix of his estate, filed an appeal to this court. Mr. Cope did not appeal.
In our opinion, the court below properly refused to impose a surcharge upon the appellee. A surcharge is the penalty imposed for failure of a trustee to exercise common prudence, skill and caution in the performance of its fiduciary duties and is imposed to compensate beneficiaries for the loss caused by the fiduciary's want of due care. Stephenson Estate, 469 Pa. 128, 138, 364 A.2d 1301, 1306 *453 (1976). The standard of care imposed upon a trustee is that which a man of ordinary prudence would practice in the care of his own estate.[4]McCrea Estate, 475 Pa. 383, 380 A.2d 773 (1977). One seeking to impose a surcharge has the burden of proving that the fiduciary failed to meet the duty of care owed to the estate. Bard Estate, 339 Pa. 433, 13 A.2d 711 (1940); Dobson Estate, 490 Pa. 476, 417 A.2d 138 (1980); Ellis Estate, 460 Pa. 281, 333 A.2d 728 (1975). Further, the exceptant must prove the particulars of the wrongful conduct. Killey Estate, 457 Pa. 474, 326 A.2d 372 (1974); Linn Estate, 435 Pa. 598, 258 A.2d 645 (1969); Maurice Estate, 433 Pa. 103, 249 A.2d 334, 336 (1969); Brown Estate, 343 Pa. 19, 21 A.2d 898 (1941). Where the trustee is authorized to retain certain stock, an exceptant to the trustee's account has the burden of proving that retention of the stock was negligent. Mereto Estate, 373 Pa. 466, 96 A.2d 115 (1953); Glauser Estate, 350 Pa. 192, 38 A.2d 64 (1944). See also Jones Estate, 344 Pa. 100, 23 A.2d 434 (1942).
The settlors directed the original trustee to retain all of the stock owned in the trustee bank and to distribute income in accordance with the terms of the trust. Had the trustee bank remained the same, it clearly would have violated the express terms of the trust agreement had it sold the stock and diversified the principal. The trust provided that the trustee should hold all of the stock of the Carlisle Deposit Bank and Trust Company and distribute the income to designated individuals during their lifetime. At the death of the last survivor of the class receiving income, the stock was then to be distributed in kind in *454 accordance with the exercise of a power of appointment set forth in the Deed of Trust. Consistent with modern banking tendencies, the Carlisle Deposit Bank and Trust Company did not remain a static institution and in 1962 it merged with the Harrisburg National Bank and Trust Company which thereafter became the Commonwealth National Bank. In due course, that bank became the Commonwealth National Financial Corporation. The auditor found, and the court below confirmed, that the stock in the successor banks was substantially equivalent to that in the Carlisle Deposit Bank and Trust Company and that the trustee properly retained the stock. Macfarlane Estate, 317 Pa. 377, 381-382, 177 A. 12, 14-15 (1935) stated:
At the outset it may be noted that the shares of the new corporation might well be found to be so substantially equivalent to those of the old that the trustee's retention of them was within its testamentary authority to hold the shares left by the testator, and therefore entirely proper.
.....
The new common shares maintained relatively as important a position and represented substantially the same interest in the enterprise as did the common shares of the former company, and would doubtless have been so considered by the testator. If a trustee holds shares of a corporation which he can properly retain, and the corporation is merged or reorganized into a new corporation, the trustee can properly receive and retain new shares issued in exchange for the old where they are substantially equivalent to the old shares and it is not imprudent for him to do so: In re Smith, [1902] 2 Ch. 667; Anderson v. Bean, 272 Mass. 432 [172 N.E. 647]; see Restatement, Trusts (Tentative Draft No. 4), section 223, comment f.
.....
However, we are not required to decide that question in the situation now before us. The court below denied the claim of surcharge on the ground that appellant's conduct amounted to an affirmance of the acquisition and *455 retention of the shares. We think it was right in so holding. (Emphasis added.)
The auditor found that the stock in the successor corporation was the substantial equivalent of the original shares. However, as in Macfarlane's Estate, supra, we do not have to reach that issue.[5] The court determined that the income beneficiaries had acquiesced in the trustee's retention of the stock in the Harrisburg National Bank and its successors. If the evidence supports the findings of fact and the findings justify the decree, then the decree will not be set aside. Mintz Trust, 444 Pa. 189, 282 A.2d 295 (1971); Walton Estate, 348 Pa. 143, 34 A.2d 484 (1943). The Carlisle Deposit Bank and Trust Company merged with the Harrisburg National Bank and Trust Company in 1962 and the appellant was aware of this merger and subsequent mergers and consolidations. There were regular contact between the income beneficiaries and the officers in the bank's trust department. Richard Weibley testified to many communications about the trust with the bank. In addition, the income beneficiaries were aware that they could petition the court to modify the terms of the trust. They were advised of this by their own attorney as well as by the trustee and they knew of this option as early as 1979. It was only after the bank suspended dividends in 1983 that the income beneficiaries decided to compel the bank to file an accounting and to seek a surcharge for failure to diversify. The court below properly determined that the beneficiaries acquiesced to the nondiversification of principal and the retention of the stock. As noted in Macfarlane Estate, 317 Pa. at 382-383, 177 A. at 15:
A competent beneficiary who with full knowledge of the facts and of his rights expressly consents to or affirms an investment by the trustee cannot, in the absence *456 of fraud, thereafter question its propriety: (Citing Cases). Affirmance of the investment may be implied from failure of the beneficiary to object within a reasonable time, although aware of the facts and continually receiving benefits from the investment: (Citing cases). Here there was more than enough evidence to indicate that the beneficiary had notice of the reorganization, of the acquisition of the new shares, and of the financial condition of the company from year to year, and that she had been unwilling to sell the shares in 1919. In such a situation it cannot be doubted that if she thought the Trustee's action was improper she was under a duty to speak. . . . Plainly, such conduct amounts to an affirmance sufficient to bar her claims of surcharge.
The Supreme Court stated in Walton Estate, 348 Pa. at 145, 34 A.2d at 485: "After a careful consideration of the record we conclude that there is sufficient evidence to warrant and justify the conclusion of the court below that appellant knew of the investment, and was sufficiently advised of all material facts, or of what he would have learned had he inquired, as to any subject in which he considered the information periodically given to him, as inadequate." This language is particularly applicable in the matter before us.
In 1979 Mr. Weibley discussed with Mr. Reitzel, who was Vice-President of the Commonwealth National Bank, and who had been in the trust department of the trustee bank since 1967, his concern that the income from the trust should be greater. After talking to Mr. Weibley and Mr. Cope, Mr. Reitzel sought an opinion from counsel concerning sale of the bank stock and he was advised that in the light of the trust agreement the trustee could not sell the stock without court approval.[6]
*457 In 1979 the bank stock produced income of about 6% which the trustee felt was quite adequate. The income beneficiaries were fully aware of the non-diversification of trust principal, but did nothing about it until after 1983. In that year the bank stock did not pay a dividend. Subsequently, the trustee filed its First and Partial Account to which exceptions were filed. Mr. Weibley and Mr. Cope were fully aware that they could petition the court to direct diversification.
The trustee did not diversify as it believed it was prohibited from doing so under the terms of the trust agreement. This decision was reasonable based on the terms of the agreement and opinion of its counsel. Mere failure to diversify is not a sufficient basis for the imposition of a surcharge as diversification of investments is not required in Pennsylvania. Lentz Estate, 364 Pa. 304, 72 A.2d 276 (1950). The decision whether to diversify must be made on a case by case basis. Knipp Estate, 489 Pa. 509, 414 A.2d 1007 (1980). In the circumstances of this case, considering the intentions expressed by the settlors in the deed of trust, and the acquiescence of the beneficiaries in the retention of the stock in the successor banks, we find that the exceptants have not met their burden of proof that the trustee did not exercise the required prudence in the performance of its fiduciary duties. We note that the trust principal has greatly increased since the inception of the trust and there is no complaint from the remaindermen, *458 who will ultimately obtain principal, about the bank's performance as trustee.
Order affirmed.
NOTES
[1] The trust agreement also provided as follows concerning trust assets other than stock in Carlisle Deposit Bank and Trust Company:
And in trust nevertheless, as to all the rest of the securities and investments coming into the possession of the trustee, to pay the income derived therefrom to parties of the first part in equal shares during their joint lives and to the survivor of parties of the first part during his or her life and upon the death of said survivor to distribute the same in accordance with such instruction in writing lodged with trustee as may be given by the last survivor of parties of the first part and in the absence of such instructions then according to the intestate laws of the Commonwealth of Pennsylvania, as if the said personal assets constituted the absolute property of said last survivor.
[2] Specifically, the exceptants sought to surcharge the accountant in the amount of $43,960.00 representing the additional income, computed at simple interest, that they calculated they would have received as income from the trust in the calendar years 1979 through 1984 if the principal had been invested in what they considered to be appropriate investments.
[3] Patricia Hain and Barbara Alexander, remaindermen, desired that the trust continue to hold the shares of the Commonwealth Bank stock in accordance with the Settlors' intent as evidenced by the trust agreement. Richard Weibley and William A. Cope wanted the trust to diversify and to invest two-third's of the principal in legal investments and retain one-third of the principal in the bank stock. The recommendations by the auditor gave effect to these desires. On appeal, there is no issue raised as to the propriety of this recommendation which the court approved and we will not consider it.
[4] If a fiduciary has greater skill than that of a man of ordinary prudence, then the fiduciary's standard of care must be judged according to the standard of one having this special skill. Stirling Estate, 342 Pa. 497, 21 A.2d 72 (1941). Lohm Estate, 440 Pa. 268, 269 A.2d 451 (1970). Further, a trustee who obtains his appointment as trustee by representing that he has greater skill than a man of ordinary prudence will be held to have such skill that he represented he had. Killey Estate, 457 Pa. 474, 326 A.2d 372 (1974). Restatement (Second) of Trusts § 174. In the instant case, although the trustee was a bank, there was no evidence that it had special skill, nor that it represented that it did when the trust was established in 1932.
[5] The auditor gave careful consideration to the question of substantial equivalency between the original shares and the shares in the successor banks. There are highly technical factors in determining substantial equivalency of stock in successor corporations which we need not consider in this case. See Bissell Trust, 5 Pa.Fid.2d 27 (Allegheny County 1984); Cope Estate, 351 Pa. 514, 41 A.2d 617 (1945); Buist Estate, 297 Pa. 537, 147 A. 606 (1929).
[6] The letter from counsel to the trustee stated in part:
Pursuant to your request of March 5, 1979, I reviewed the above Trust Account which is pursuant to the Agreement of Trust dated July 29, 1932, between Joseph I. and Isabella W. Munro and the Carlisle Deposit Bank and Trust Company.
The Trust document clearly differentiates between investments in the Carlisle Deposit Bank and Trust Company and other securities and investments. In so doing, it has limited the control over the Bank stock by providing that it only can be distributed by exercise of a power of appointment or the intestate laws of the Commonwealth of Pennsylvania as set forth in the paragraph beginning on the bottom of page 2 and continuing on page 3 of the Trust document. There is no provision for the liquidation or reinvestment of the Bank security.
In light of the above, it is my opinion that the Bank cannot liquidate the stock which it now owns as a result of being the successor to the Carlisle Deposit Bank and Trust Company. The only way it could be done would be upon application to the Court. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919574/ | 91 B.R. 129 (1988)
In re Eddie BULGER, Minnie Bulger, Debtors.
Bankruptcy No. 87-02608-APG.
United States Bankruptcy Court, M.D. Alabama, E.D.
July 1, 1988.
Opinion on Motion to Avoid Security Interest July 19, 1988.
Cody W. Foote, Opelika, Ala., for movant.
Cecil M. Tipton, Opelika, Ala., trustee.
*130 ORDER AVOIDING SECURITY INTEREST
A. POPE GORDON, Bankruptcy Judge.
In accordance with an opinion to be entered in this case in this matter, the court finds that the creditor, Rice Acceptance Company, has a security interest in a 1965 International truck, Model 1200, of the debtor, which is the kind of property (see 11 U.S.C. § 522(f)(2)(A)(B) and (C)) on which such a lien may be avoided. That security interest is a nonpossessory and nonpurchase-money security interest and impairs an exemption to which the debtor would have been entitled. Therefore, it is
ORDERED that the motion is granted and that the security interest of the creditor, Rice Acceptance Company, in the 1965 International truck, Model 1200, is declared void to the extent that such lien impairs the personal property exemption of the debtor claimed and allowed in these proceedings.
OPINION ON MOTION TO AVOID SECURITY INTEREST
Pursuant to Rules 4003(d) and 9014, Bankruptcy Rules, the debtor filed a motion to avoid the nonpossessory, nonpurchase-money security interest of a creditor on the debtor's 1965 International truck, Model 1200, valued at $500, under 11 U.S.C. § 522(f)(2). The truck is used by the debtor in his pulpwood hauling business and is necessary to the business.
Under 11 U.S.C. § 522(f)(2), a debtor may avoid a nonpossessory, nonpurchase-money security interest in property of the kind included in subsections (A), (B), or (C) to the extent that it impairs an exemption to which the debtor would otherwise be entitled. Thus, to avoid a nonpossessory, nonpurchase-money security interest the property must pass two tests: (1) the property must be exempt to the debtor under state law, not section 522(b)(1) and (d) (Alabama is an opt out state), and the security interest lien must impair the exemption; and (2) the property must be of the kind included in subsections (A), (B), or (C), which in this case would be "implements . . . or tools, of the trade of the debtor . . ." from subsection (B).
I
The pulpwood truck passes the first test. It may be exempted as personal property under Ala.Code § 6-10-6 (1975). The property exempted by the debtor in Schedule B-4 includes wearing apparel, $200; family portraits, $25; and 75 percent of wages, $380.62, totalling $405.62. Other personal property exempted in the schedule amounts to $2,864.88 and includes the $500 truck. The plain language of section 6-10-6[1] shows that the property valued at $2,864.88 (including the truck) is exempt under section 6-10-6 in addition to wearing apparel and family portraits. The wages are exempt under Ala.Code § 6-10-7 (1975), which section provides an exemption in addition to the section 6-10-6 personal property exemption. See In re Ezekiel, No. 85-922, slip op. (Bankr.M.D. Ala., October 24, 1985).
The truck, however, is not exempt under Ala.Code § 6-10-126, as claimed by the debtor. Section 6-10-126 is not an exemption statute. See First Ala. Bank v. Mims, 66 B.R. 20 (M.D.Ala.1986). Section 6-10-6, which exempts the truck, exempts personal property generally and does not confer a right of exemption in tools of the trade as such. Since the truck is exempt under section 6-10-6, however, it is immaterial that the debtor sought to exempt it under the wrong statute.
The lien of the creditor on the truck obviously impairs the exemption in this property, since the lien diminishes the value of the exemption.
II
The more difficult issue presented is whether the pulpwood hauler's truck passes *131 the test as an implement or tool of the trade under section 522(f)(2)(B).
Since implements and tools come in various sorts and sizes, it is difficult in many cases to decide whether a particular thing owned by a debtor should be called a tool or implement. The result is inconsistency among decisions of the bankruptcy courts. That is unfortunate because a federal statute should be construed to give it uniform application throughout the nation. 73 Am Jur 2d Statutes § 144 (1974).
"Tools" and "implements" as used in subsection (B) are not words of art.[2] It is a well-established principle of statutory construction that absent clear evidence of a contrary legislative intention, a statute should be interpreted according to its plain language. United States v. Apfelbaum, 445 U.S. 115, 121, 100 S. Ct. 948, 952, 63 L. Ed. 2d 250 (1980). Absent unusual circumstances the court is bound by the plain meaning of the language Congress has enacted. Hills v. I.R.S., 691 F.2d 997, 1000 (11th Cir.1982). A fundamental canon of statutory construction is that, unless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning. Perrin v. United States, 444 U.S. 37, 42, 100 S. Ct. 311, 314, 62 L. Ed. 2d 199 (1979).
Dictionary definitions of "tools" and "implements" are of help in discovering the plain meaning of these terms. By definition a tool can be an object[3] or an implement used in performing an operation or carrying on work of any kind, or an apparatus necessary to a person in the practice of a vocation or profession. See Webster's Third New International Dictionary of the English Language Unabridged (1976). An implement can be a thing used or employed in a trade or occupation or employment. See Black's Law Dictionary 679, 1338 (5th ed. 1979). Webster's gives as examples of tools, a hammer, a saw, a machine for shaping metal, a barber's chair, a photographer's camera, and books. The Black's definition of "implement" refers to trade implements and farm implements as examples. From these definitions, it is apparent that, for all practical purposes, these two terms are synonymous. In re Yparrea, 16 B.R. 33, 35 (Bank.D.N.M.1981). Also, it appears that it is the use of the property not necessarily the size or shape that determines whether it is a tool. These definitions would certainly include not only hand tools, but also things of much greater size and complexity.
In interpreting the meaning of "implements" or "tools of the trade," some courts have refused to regard certain kinds of property as tools or implements without regard to use.[4] Some courts have said that only property of limited value may be a tool or implement under section 522(f)(2)(B).[5] Some courts, faced with the dearth of legislative history, have attempted a holistic approach to construction of section 522(f)(2)(B).[6] Other courts have examined the ratio of the value of the property to total capital assets to define a tool or *132 implement.[7] Some cases use more than one, sometimes all, of these approaches to interpretation. See Matter of Patterson, 825 F.2d 1140 (7th Cir.1987); In re Harrell, 72 B.R. 107 (Bankr.N.D.Ala.1987). All of this has led to uneven results and no doubt will continue to do so in the absence of legislative rectification.
This court has no difficulty in finding that a pulpwood hauler's truck is a tool of the trade.[8] First the truck passes the "use" test, In re Walkington, 42 B.R. 67 (Bankr.W.D.Mich.1984), because it is necessary and used by the debtor in his business. See also In re Dubrock, 5 B.R. 353 (Bankr. W.D.Ky.1980). Second, Congress did not place a limit on the value of a tool of the trade under subsection (B). "Neither legislative history nor persuasive case authority compel a holding that only liens on tools or implements of nominal resale value may be avoided under [subsection (B)]." In re Taylor, 73 B.R. 149 (Bankr. 9th Cir.1987). In Alabama, as in most states, the value of a tool on which a lien may be avoided is limited as a practical matter by the amount of the personal exemption available. Under Ala.Code § 6-10-6 (1975), as already seen, the maximum amount is $3,000.
Third, with respect to statutory construction, the court agrees with the Taylor court that ". . . Congress' failure to provide for specific lien avoidance for motor vehicles in § 522(f) while providing for a motor vehicle exemption in § 522(d)(2), may express the intent that if a vehicle is a tool of trade the liens may be avoided pursuant to § 522(f)(2)(B). The Bankruptcy Code has been amended twice since 1978 and no changes or limitations were made in § 522(f)."
Fourth, the court will not deny lien avoidance on the truck as a tool of the trade merely because it may also be called a capital asset. Broadly speaking, all assets are capital except those specifically excluded. Major categories of noncapital assets include: property held for resale in the normal course of business, trade accounts and notes receivable, depreciable property and real estate used in a trade or business. See Black's, supra, at 108. Thus, it appears that tools that are depreciable (generally understood to be tools having a life of more than one year, see 34 Am Jur 2d Federal Taxation ¶ 6064 (1988)) are not capital assets. Under a less technical definition, arguably such tools might be called capital assets. The practice, however, of excepting property classified as capital assets from the operation of subsection (B) introduces another uncertainty and merely adds existing confusion on interpretation of the subsection. The plain language of the subsection makes no exception for tools or implements that are capital assets.
Finally, it has been said that Congress, which first provided for lien avoidance on tools or implements of the trade under the Bankruptcy Code, took over a familiar term from state law as a basis for the modest federal exemption. Patterson, supra, at 1147. Under state law it was not clear in 1978 when the Code became law or in 1850 (at least in Alabama, Connecticut, and Massachusetts) that a tool of the trade need be of "modest" value. See Sallee v. Waters, 17 Ala. 482 (1850), which held that a printer's printing press and type were exempt as "tools and implements of the trade." The arguments in 1950 against holding a *133 printing press to be a tool were about the same then as now.[9]
The Sallee court observed, as courts still do, "It is to be regretted that the framers of our laws do not (if by possibility it can be done) use more definite and precise language to convey their meaning and intention."
The conclusion reached in the case sub judice is that any tangible personal property used as a tool or implement in carrying on one's trade qualifies as a tool or implement of the trade under 11 U.S.C. § 522(f)(2)(B).
An appropriate order has heretofore entered in this matter.
NOTES
[1] Section 6-10-6 exempts the "personal property of such resident to the extent of the resident's interest therein, to the amount of $3,000.00 in value, to be selected by him or her, and, in addition thereto, all necessary and proper wearing apparel for himself or herself and family, all family portraits or pictures and all books used in the family . . ." (Emphasis added)
[2] There is no indication that the terms are being used in a technical sense. Matter of Patterson, 825 F.2d 1140 (7th Cir.1987).
[3] An "object" may be anything tangible or visible. Black's at 967.
[4] "[Tool] is not a word which is commonly used to refer to an automobile or motor vehicle." In re Harrell, 72 B.R. 107 (Bankr.N.D.Ala.1987). "We think the tractor is no more a tool of the trade in the statutory sense than the cow is." In the Matter of Patterson, supra.
[5] In re O'Neal, 20 B.R. 13 (Bankr.E.D.Mo.1982) holds "[Subsection (B)] is to be construed to permit the avoidance of a security interest in hand tools and small implements with only nominal commercial re-sale value." See also In re Yparrea, 16 B.R. 33 (Bankr.D.N.M.1981); In re Middleton, 37 B.R. 36 (Bankr.D.Minn.1983).
[6] Section 522(d)(6) limited to $750 the value of tools and implements to be exempted; therefore, that limitation must be read into the tool and implement provisions of section (f)(2)(B), which are silent as to value. Section 522(d)(2) provides a separate exemption for motor vehicles; section (f)(2)(B) does not. Therefore, liens on motor vehicles may not be avoided under section (f)(2)(B) as tools or implements. See Matter of Patterson, supra; In re Harrell, supra.
[7] "Even though most of the farm implements here in issue are individually of modest value as compared to the tractor in the Patterson case [supra], we believe that taken together they are in fact the debtors' capital assets." In re Hintz, 86 B.R. 571 (Bankr.E.D.Wis.1988). See also In re Heape, 85 B.R. 577 (D.Kan.1988); Matter of Patterson, supra.
[8] In re Satterwhite, 28 B.R. 178 (Bankr.M.D.Ala. 1983) does not hold, as contended by the debtor, that a pulpwood truck is a tool of the trade. In that case the debtor attempted to exempt a pulpwood truck and pulpwood equipment under Ala.Code § 6-10-126 (1975). The case held that the equipment was exempt under section 6-10-126. There was no occasion to decide whether the truck was a tool because the section categorizes "a vehicle used by and essential to the debtor's business" separately from "tools used personally by and essential to the debtor's business." Thus, the pulpwood truck qualified under the section as a vehicle, making it unnecessary to inquire whether it was also a tool.
[9]
The intention of the Legislature must have been to protect such hand-articles as the operative mechanic or artisan employs in his daily labor, not machinery, furniture, etc., of an extensive establishment . . . It certainly cannot be contended for a moment that a printing press and types and materials, no matter what their extent or value, are implements of trade, and exempt from levy and sale. If this be so, the most extensive publication offices in the world are within the reservation. The Harpers, it is understood, have a printing establishment worth half a million of dollars. There are many other offices not much less valuable. Even in this State many offices and their furniture, presses, etc. are worth ten thousand dollars, or more. Is an entire lucrative business of one man to be secured to him and his family, while no other pursuits are alike protected? Power presses, propelled by steam, are now employed in many offices are the steam engines protected? Moreover, if the press, types, materials, etc. are exempt on the principle that otherwise the printer could not support his family, does not the same rule exempt the house in which his works are put up? Without a house to work in, the press and type, etc. are wholly valueless. If this be the principle, what limits shall we assign to its application?
As well may it be contended that all the manufacturing establishments of the country, and all their machinery are tools and implements of trade, including cotton factories, paper factories, iron foundries, wood shops, and even steamboats, wagons and teams used in transportation, etc.
Sallee, supra, at 483.
In opposition, the argument went:
The only other question is whether a printing press and types, and type stands, are tools or implements of trade within the meaning of the statute? This statute should be liberally construed. Printing is a mechanical employment: Curtis was a practical printer, worked daily at his trade this was his only means of support and his printing press, types, etc. were "tools or implements" of his trade. Patten vs. Smith, 4 Conn. 450. The exemption of our statute extends to all "tools or implements of trade." There is no restriction of amount or value.
Id. at 484. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919648/ | 91 B.R. 661 (1988)
In re Petition Pursuant to Section 304 of the Bankruptcy Code of BANCO NACIONAL de OBRAS Y SERVICIOS PUBLICOS, S.N.C., as Trustee of the Estate of Aeronaves de Mexico, S.A. de C.V., a debtor in a bankruptcy proceeding under the laws of the United Mexican States.
Bankruptcy No. 88 B 10870 (TLB).
United States Bankruptcy Court, S.D. New York.
September 30, 1988.
*662 Cleary, Gottlieb, Steen & Hamilton, by George Weisz, James W. Pharo, and Proskauer, Rose, Goetz & Mendelsohn by Edward Brill, Saul G. Kramer, New York City, for petitioner.
Guerrieri, Edmond & James, Washington, D.C. by Edgar N. James, Robert S. Clayman, and Shapiro, Shiff, Beilly, Rosenberg & Fox, New York City by Sidney Fox, Gerald Richman, for the Intern. Ass'n of Machinists & Aerospace Workers.
DECISION ON MOTION FOR RELIEF FROM SECTION 304 STAY
TINA L. BROZMAN, Bankruptcy Judge:
The International Association of Machinists and Aerospace Workers and IAM District Lodge 142 (the IAM) ask that, over the objection of Banco Nacional de Obras y Servicios Publicos, S.N.C. (Banobras), the Mexican bankruptcy trustee of Aeronaves de Mexico, S.A. de C.V. (Aeronaves), I modify a preliminary injunction granted in this ancillary bankruptcy to permit the IAM to continue prosecuting in the district court an action for a judgment declaring that there existed a collective bargaining agreement between the IAM and Aeronaves. The issue presented is one of first impression, pitting against one another strong policies relating to the formation of collective bargaining agreements and the extra-territorial recognition of foreign bankruptcies. Unfortunately, the question of which policy must yield has no clear answer; resolution requires examination of underlying congressional concerns and analogy to the automatic stay imposed in a full-scale bankruptcy case, which, of course, this is not.
I.
Aeronaves, owned by agencies of the Mexican government, operated Mexico's national airline, known as "Aeromexico." As a result, in major part, of labor strife in Mexico, Aeronaves commenced a bankruptcy proceeding under Mexican bankruptcy law effective April 15, 1988.[1] On April 21, 1988, Banobras moved pursuant to section 304 of the Bankruptcy Code (the Code) by order to show cause for preliminary injunctive relief. The order to show cause contained a temporary restraining order, extended from time to time with the consent of Aeronaves' major creditor constituencies, which, with a couple of exceptions not here relevant, restrained American creditors from pursuing in any court other than the Mexican bankruptcy court or this court claims against Aeronaves or its property in this country. On June 22, 1988 at the adjourned hearing on the preliminary injunction motion, I entered an order again on consent of the debtor's major creditor constituencies (the Consent Order) which provides, in pertinent part, an injunction of limited duration granting substantially the same relief as did the temporary restraining order.[2]
Aeromexico conducted business in the United States as well as Mexico. It employed approximately 12,000 workers in *663 Mexico and 500 elsewhere, of whom 350 in the United States are represented by the IAM. The IAM, on behalf of these employees, entered into two collective bargaining agreements with Aeronaves which became effective on June 1, 1983 and amendable on May 31, 1986 (the 1983 Agreements). The IAM alleges that following extensive negotiations, Aeronaves and the IAM on March 14, 1987 entered into an agreement modifying the 1983 Agreements (the 1987 Amendment). The 1987 Amendment provided that all provisions of and amendments to the 1983 Agreements were to remain in full force and effect except as specifically amended. The 1987 Amendment further set forth specific wage and benefit reductions to be effective through March 1990. The term of the concessions was contingent upon Aeronaves' obtaining identical relief from the International Brotherhood of Teamsters within 120 days. If this contingency were not satisfied, the concessions would terminate and the wages and benefits would "snap-back" to the levels provided in the 1983 Agreements.
On September 17, 1987, the conditions allegedly not having been satisfied, the IAM notified Aeronaves that the terms of the 1983 Agreements should be reinstated. Aeronaves protested the IAM's position and in December 1987 wrote to the IAM that there was no existing contract between them.
On March 24, 1988, the IAM commenced an action in the Southern District of New York against Aeronaves for declaratory and injunctive relief (the IAM Action). The complaint alleges that Aeromexico is a common carrier by air engaged in commerce as defined in section 201 of the Railway Labor Act (RLA), 45 U.S.C. § 181, and is subject to the provisions of the Act. The IAM seeks a declaration that the 1983 Agreements are in full force and effect and that Aeronaves is violating the RLA by refusing to honor the relevant terms of the 1983 and 1987 Agreements. Further, the IAM seeks to have the district court determine rights pursuant to the 1983 and 1987 Agreements.[3] Aeronaves filed an answer on April 13, 1988 in which it denied most of the allegations and asserted the defense that the district court is without jurisdiction. The IAM Action is stayed as a result of the Consent Order.
It was only a few days after Aeronaves filed its answer in the IAM Action that it commenced its bankruptcy case in Mexico. The Mexican bankruptcy court has permitted the rejection of any labor contracts between Aeronaves and its various unions, including the IAM. Because the claims of its members against Aeronaves are bottomed on the existence of a collective bargaining agreement, the IAM requests the right to have the district court determine, pursuant to American labor law, whether a collective bargaining agreement was in existence on the date of Aeronaves' bankruptcy and, if so, what rights flowed from it. The IAM recognizes that it cannot execute on any award for monetary damages, but urges that the relief requested is essential to a complete and accurate assessment of the claims of the American employees against Aeronaves. It is forcefully argued that no one individual employee resident in the United States has the requisite incentive and financial wherewithal to litigate in Mexico whether there existed under the laws of the United States a collective bargaining agreement and what its terms may have been.
Banobras responds that (i) the prospective relief sought in the IAM Action is moot in light of the termination of the claimed collective bargaining agreement by the Mexican bankruptcy court and Aeronaves' intention not to operate in the United States during the pendency of the bankruptcy,[4] (ii) the claims arising from the breach of any collective bargaining agreement, while not moot, should be determined by the Mexican bankruptcy court which would assertedly handle the claims more speedily than would the district court, and *664 (iii) the IAM will not be unduly prejudiced if the motion is denied. Because the IAM requests only declaratory relief relating to the existence and calculation of claims arising from the breach of the alleged contracts, there is no issue of mootness.
II.
An injunction was granted to Banobras in aid of the foreign proceeding and to prevent individual American creditors from arrogating to themselves property belonging to the creditors as a group. This broad injunctive relief, which is specifically permitted and so typically granted in a section 304 case, is not unlike the injunction which is automatic in a chapter 7 or 11 case pursuant to section 362 of the Code. See 11 U.S.C. § 304(b)(1). Indeed, the reasons underlying an automatic stay were professed to be the reasons supporting injunctive relief in this 304 case. See Affidavit of George Weisz, Esq. sworn to April 21, 1988 in support of Order to Show Cause for Section 304 Relief at 4-5.
The purpose of the section 362 stay is to prevent a chaotic and uncontrolled scramble for the debtor's estate, thereby permitting systematic and equitable distribution. H.R.Rep. No. 595, 95th Cong., 1st Sess. 340 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6296. But just as the automatic stay may apply to situations or actions that bear no relationship to its purpose so that the stay should be modified, terminated, annulled or conditioned for cause, 11 U.S.C. § 362(d)(1), it may be necessary after a 304 case is filed and relief granted to tinker with that relief to do justice in particular circumstances. As my colleague Judge Lifland wrote in In re Culmer, 25 B.R. 621, 624 (Bankr.S.D.N.Y. 1982), the court in an ancillary proceeding is free to mold appropriate relief in near blank check fashion.
The legislative history to section 362(d) provides that "a desire to permit an action to proceed to completion in another tribunal may provide . . . cause." H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 343 (1977), U.S.Code Cong. & Admin.News 1978, p. 6300. Where it is necessary to liquidate a claim the subject matter of which is within the particular expertise of another tribunal, the bankruptcy courts have deferred to other forums. See, e.g., MacDonald v. MacDonald (In re MacDonald), 755 F.2d 715, 717 (9th Cir.1985) (circuit court affirmed bankruptcy court decision "to avoid incursions into family law matters `out of consideration of . . . economy, judicial restraint and deference to our state court brethren and their established expertise in such matters.'" citations omitted.); White v. White (In re White), 851 F.2d 170, 18 Bankr.Ct. Dec. 60 (6th Cir.1988) (same); Nathanson v. NLRB, 344 U.S. 25, 73 S. Ct. 80, 97 L. Ed. 23 (1952) (labor relations); Holtkamp v. Littlefield (In re Holtkamp), 669 F.2d 505 (7th Cir.1982) (personal injury action); General Drivers, Warehousemen and Helpers Local 89 v. Midwest Emery Freight System, Inc. (In re Midwest Emery Freight System, Inc.), 48 B.R. 566, 569 (Bankr.N.D. Ill.1985) (arbitration proceeding).
The IAM contends that the RLA, which governs the IAM Action, provides a unique regulatory scheme applied by courts in such a way as to effectuate it purpose. Banobras contends that the present dispute does not require any special expertise and involves nothing more than ordinary principles of contract law which the Mexican court may apply. In support of this contention, Banobras cites several American cases where the courts have applied the principles of offer and acceptance, intent and meeting of the minds to determine whether a collective bargaining agreement has been formed. The IAM does not dispute that common law contract rules provide some guidance, but asserts that courts have not strictly adhered to the technical rules of contract construction but have interpreted them in such a way as to effectuate federal labor policies.
American labor law is an area which is sui generis. In United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 578-80, 80 S. Ct. 1347, 1351, 4 L. Ed. 2d 1409 (1960), the Supreme Court declared that
[t]he collective bargaining agreement states the rights and duties of the parties. *665 It is more than a contract; it is a generalized code to govern a myriad of cases which the draftsmen cannot wholly anticipate . . . The collective agreement covers the whole employment relationship. It calls into being a new common law the common law of a particular industry or a particular plant . . . A collective bargaining agreement is an effort to erect a system of industrial self government. (Citation and footnote omitted.)
See also United Steelworkers v. Am. Manufacturing Co., 363 U.S. 564, 80 S. Ct. 1343, 4 L. Ed. 2d 1403 (1960); United Steelworkers v. Enter. Wheel and Car Corp., 363 U.S. 593, 80 S. Ct. 1358, 4 L. Ed. 2d 1424 (1960). Subsequently, in a case involving a labor contract under the RLA, the Supreme Court concluded that based upon its opinion in Warrior & Gulf, "[a] collective bargaining agreement is not an ordinary contract for the purchase of goods and services, nor is it governed by the same old common-law concepts which control such private contracts." Transportation-Communication Employees Union v. Union Pacific Railroad Co., 385 U.S. 157, 160-61, 87 S. Ct. 369, 371, 17 L. Ed. 2d 264 (1966), reh'g denied, 385 U.S. 1032, 87 S. Ct. 737, 17 L. Ed. 2d 680 (1967) (citations omitted).
Congress fashioned a specialized statutory scheme to effectuate its policy of self-adjustment of the common carrier industry's labor problems. International Ass'n of Machinists v. St., 367 U.S. 740, 759, 81 S. Ct. 1784, 1795, 6 L. Ed. 2d 1141 (1961). Concerned with the public's need for safe, reliable and convenient transportation, Congress created a comprehensive procedure for resolution of disputes between labor and management. The basic theory of the RLA is to compel the parties to negotiate their differences in good faith. If they reach an impasse, they must then follow a series of procedures set forth by the RLA. 45 U.S.C. §§ 152, 156. Only after these procedures have been exhausted may the parties abandon the status quo and resort to self-help. See Brotherhood of R.R. Trainmen v. Jacksonville Terminal Co., 394 U.S. 369, 378-80, 89 S. Ct. 1109, 1115-16, 22 L. Ed. 2d 344 reh'g denied, 394 U.S. 1024, 89 S. Ct. 1622, 22 L. Ed. 2d 51 (1969).
Congressional concern with the implementation of labor policies is further exhibited by the treatment accorded collective bargaining agreements in reorganization cases under the Code. In response to the Supreme Court's decision in NLRB v. Bildisco and Bildisco, 465 U.S. 513, 104 S. Ct. 1188, 79 L. Ed. 2d 482 (1984), which allowed a reorganizing debtor to reject unilaterally a collective bargaining agreement on grounds too easily met in the congressional estimation, Congress established a specific procedure to be followed before a debtor may reject a collective bargaining agreement. The debtor must first propose modifications necessary to permit a reorganization, provide information to the union necessary to evaluate the proposal and confer in good faith to reach a satisfactory agreement. If the debtor then seeks to reject, the court can approve a rejection only if a proposal has been made to the union which the union has without good cause refused to accept and if the balance of the equities clearly favors rejection of the agreement. 11 U.S.C. § 1113(c). By way of contrast, a contract to manufacture widgets may be rejected with court approval if the debtor's sound business judgment so dictates. Bildisco, 465 U.S. at 523-24, 104 S. Ct. at 1193-94, citing Group of Institutional Investors v. Chicago, M., St. P. & P.R. Co., 318 U.S. 523, 63 S. Ct. 727, 87 L. Ed. 959 (1943); 11 U.S.C. § 365(a).
To determine whether a collective bargaining agreement was in existence between the IAM and Aeronaves when the latter filed its petition in bankruptcy, two separate issues will have to be considered: whether a collective bargaining agreement was entered into in March 1987 by virtue of the parties' conduct; and whether the 1983 Agreements terminated prior to Aeronaves' bankruptcy. If resolution of these issues demands a special expertise, it may be appropriate to modify the injunctive relief previously granted.
The "rule is well-established that technical rules of contract do not control the question of whether a collective bargaining agreement has been reached." *666 American Fed'n of Television & Radio Artists, AFL-CIO v. Inner City Broadcasting Corp., 748 F.2d 884, 886-87 (2d Cir.1984); Textile Workers Union v. Lincoln Mills, 353 U.S. 448, 456-57, 77 S. Ct. 912, 917-18, 1 L. Ed. 2d 972 (1957). Although the principles of contract law are applied, they are interpreted liberally and adapted to the collective bargaining context. John Wiley & Sons v. Livingston, 376 U.S. 543, 550, 84 S. Ct. 909, 915, 11 L. Ed. 2d 898 (1964); Warehousemen's Union Local No. 206 v. Continental Can Co., Inc., 821 F.2d 1348, 1350 (9th Cir.1987). A labor contract may be binding upon the parties if they have agreed to the substantive terms and conditions, regardless of whether the parties have signed an agreement. NLRB v. New York-Keansburg-Long Branch Bus Co., Inc., 578 F.2d 472, 476-77 (3d Cir.1978); Kaylor v. Crown Zellerbach, Inc., 643 F.2d 1362 (9th Cir.1981); Certified Corp. v. Hawaii Teamsters and Allied Workers, Local 996, IBT, 597 F.2d 1269 (9th Cir.1979).[5] The Second Circuit employs this standard, but will look to see whether the parties intended only a written contract to be enforceable. American Federation, 748 F.2d at 887. The crucial inquiry is not whether a contract was "accepted" in the sense of traditional contract law, but whether the conduct of the parties manifested to a reasonable observer an intention to abide by the terms of an agreement. NLRB v. Haberman Construction Co., 641 F.2d 351, 356 (5th Cir.1981) (en banc); Wilkes Barre Printing Pressmen and Assistants' Union, No. 137 I.P.P. & A.E. v. Great Northern Press, 522 F. Supp. 106, 111 (M.D.Pa.1981). Here, both the IAM and Aeronaves continued to operate pursuant to the terms and conditions of the 1983 and 1987 Agreements for more than a year after alleged entry into the 1987 Amendment. Accordingly, notwithstanding principles of ordinary contract law, a court familiar with the precepts applicable to labor disputes could find that a collective bargaining agreement was formed.
Federal labor law will also answer the question whether the 1983 Agreements were still valid and binding contracts at the time of bankruptcy. The IAM contends that it served notice on Aeronaves pursuant to section 6 of the RLA prior to March 1986. Section 6 of the RLA makes it incumbent upon a party to a collective bargaining agreement to follow a protracted procedure for resolution of any difference which arises from any proposed changes to the terms of the agreement. Brotherhood of Railway AFL-CIO v. REA Express, Inc., 523 F.2d 164, 168 (2d Cir.1975), cert. denied, 423 U.S. 1073, 96 S. Ct. 855, 47 L. Ed. 2d 82 (1976); Manning v. American Airlines, Inc., 329 F.2d 32, 34 (2d Cir.), cert. denied, 379 U.S. 817, 85 S. Ct. 33, 13 L. Ed. 2d 29 (1964). Once the section 6 procedures have been exhausted, it is unclear what, if any, provisions of the original agreement survive. The Eighth Circuit has recently addressed this issue and decided that the interpretation of the language in the contract regarding duration (substantially similar to that in the 1983 Agreements) must be viewed in light of the national labor policy enunciated by the RLA. Specifically, that court found that it must construe the contract language so as to further the continuity of existing relationships between management and labor. Thus, the court held that service of a section 6 notice does not wholly terminate the collective bargaining agreement; rather, the subject of the proposed change becomes subject to collective bargaining. Tran World Airlines v. Indep. Fed'n of Flight Attendants, 809 F.2d 483, 485-91 (8th Cir.1987), aff'd, ___ U.S. ___, 108 S. Ct. 1101, 99 L. Ed. 2d 150 (1988), petition for reh'g pending.
The IAM and Banobras disagree as to the precedential value of TWA. The circuit *667 court was affirmed by an equally divided Supreme Court before which a petition for rehearing is pending. And Banobras urges that the decision is at odds with decisions in the Ninth and Second Circuits. See Airline Pilots Ass'n, Int'l v. Pan American World Airways, Inc., 765 F.2d 377, 382 (2d Cir.1985); International Ass'n of Machinists and Aerospace Workers v. Reeve Aleutian Airways, Inc., 469 F.2d 990 (9th Cir.1972), cert. denied, 411 U.S. 982, 93 S. Ct. 2273, 36 L. Ed. 2d 958 (1973). Any uncertainty in this area of the law is a factor militating in favor of resolution by an American court.
Since both issues fall within the ambit of the RLA and its interstices, they can be more easily resolved by a court whose expertise embraces such matters. Were this a chapter 11 or 7 case, modification of the automatic stay would be appropriate. In fact, withdrawal of this court's reference to determine the claims of employees might well occur. See 28 U.S.C. § 157(d). But because this motion was made in the context of a section 304 ancillary proceeding, I must necessarily weigh those factors which led me to grant the injunction in the first instance before I can determine the propriety of modifying the Consent Order to allow the IAM Action to continue.
Section 304 was enacted to provide an alternative to the filing of a full scale bankruptcy case by a foreign debtor who sought to administer assets located in this country and to prevent the dismemberment by local creditors of assets located here. See H.R. Rep. No. 595, 95th Cong., 1st Sess. 324-25 (1977). The alternative created by Congress is an ancillary proceeding designed to aid in the bankruptcy proceeding pending before a foreign tribunal. When asked to grant relief pursuant to section 304, American courts are to be guided by principles of international comity and respect for the laws of other nations. Id. The court must consider the economic and expeditious administration of the estate consistent with six factors including just treatment of all holders of claims against or interests in the estate, comity and the protection of American creditors against prejudice or inconvenience in the proceeding. 11 U.S.C. § 304(c).
Comity is the recognition by one nation of the acts of another as they impact on those within the territory of the former having concern for both international duty and convenience and the rights of those under the protection of its laws. See Hilton v. Guyot, 159 U.S. 113, 163-64, 16 S. Ct. 139, 40 L. Ed. 95 (1895). It will not be granted in the bankruptcy context if it would result in forcing American creditors to participate in foreign proceedings in which their claims will be treated in some manner inimical to this country's policy of equality. See Cunard S.S. Co. v. Salen Reefer Services, A.B., 773 F.2d 452, 459-60 (2d Cir.1985).
Mexico's interest in administering Aeronave's estate must be balanced against the interests of the union members in having the IAM Action proceed in the United States. So long as the foreign law is not repugnant to our own, the scale will ordinarily tip in favor of having the foreign tribunal liquidate claims against the estate, because the equitable and orderly distribution of the debtor's property can best be accomplished in a single proceeding. See Victrix Steamship Co., S.A. v. Salen Dry Cargo, A.B., 825 F.2d 709 (2d Cir.1987). Here, however, there is the added wrinkle that, to determine the amount of the union members' claims, the tribunal must first decide whether a collective bargaining agreement existed and what its terms were issues which turn on a specialized area of law laced with strong policy considerations.
Whether there existed a collective bargaining agreement will have to be litigated somewhere. The prejudice to Banobras in litigating in New York is minimized by the presence of local bankruptcy and labor counsel. The claimed prejudice in timing can probably be ameliorated through an application to expedite the proceedings. On the other hand, the United States creditors will be severely prejudiced both if they must litigate individually their claims emanating from a disputed collective agreement in Mexico and if the Mexican bankruptcy court is called upon to construe and apply American labor law in an area in which traditional contract principles are not *668 strictly applied and in which policy considerations abound. The prejudice to Banobras in litigating the matter here is not nearly so harsh. I conclude that in light of the contest relating to the existence of a collective bargaining agreement, the IAM Action should be tried by a judge fully sensitive to the unique nature and purposes of the RLA, experienced in the complexities of the statutory scheme and familiar with the policies sought to be effectuated by Congress.
The district court will first have to determine whether it is empowered to hear the IAM Action, for Aeronaves disputes the court's jurisdiction. Aeronaves alleges that the dispute is a minor, not a major one (which in the absence of the Mexican bankruptcy would be resolved by arbitration if Aeronaves is correct). Assuming that the district court determines that it is vested with jurisdiction and that a collective bargaining agreement exists,[6] it will have to determine what the terms of the agreement are, and will also be in the best position to fix the amount of the claims of the employees which flow from the collective bargaining agreement.[7] If, however, the dispute is minor and the district court concludes that it has no jurisdiction, or, if the district court determines that no collective bargaining agreement exists, then, for reasons of comity, the Mexican bankruptcy court, which maintains control over the disposition of Aeronaves' estate and all the claims against it, should be free to make a determination as to where the claims of the employees are to be liquidated.
SETTLE ORDER in accordance with this opinion.
NOTES
[1] Although that bankruptcy was filed as a liquidation, there being no cognate in Mexico to our chapter 11, Banobras has steadfastly represented to this court that the Mexican bankruptcy court is, in effect, attempting to reorganize Aeronaves. It is hoped that the creditors with valid claims will be paid all or a very substantial portion of their debt, that the airplanes leased to Aeronaves will be leased to a new entity which will operate the airline and that the necessary employees will be rehired by the new entity. If this all occurs as planned, ownership of the new entity will initially reside in the Mexican government or its agencies but will eventually be sold in whole or substantial part to the private sector.
[2] It must be noted that the IAM did not acquiesce in the granting of an injunction only to then seek its modification. The IAM at all times reserved its right to seek to modify the injunction.
[3] The IAM Action also sought other relief which the IAM has voluntarily forsaken. Its motion for relief from the injunction is limited to the declaratory relief.
[4] Banobras has recently indicated that it may resume limited operations here.
[5] Although these cases were decided under the National Labor Relations Act (NLRA), 29 U.S.C. §§ 141-187, rather than the RLA, the distinction in this context is insignificant, for the construction and interpretation of all collective bargaining agreements are governed by the same standards. 9 W. Jaeger, Williston on Contracts § 1020B (3d ed. 1967). See also Transportation-Communication Employees Union v. Union Pacific Railroad Co., 385 U.S. 157, 161, 87 S. Ct. 369, 371, 17 L. Ed. 2d 264 (1966), reh'g denied, 385 U.S. 1032, 87 S. Ct. 737, 17 L. Ed. 2d 680 (1967); Hendricks v. Airline Pilots Ass'n, Int', 696 F.2d 673, 677 (9th Cir.1983).
[6] Were I convinced that the district court clearly had no jurisdiction I would not modify the injunction. But given that the dispute involves the very existence of a collective bargaining agreement, it is not unlikely that the district court will find that it has jurisdiction. See Elgin Joliet & Eastern Railway v. Burley, 325 U.S. 711, 722-28, 65 S. Ct. 1282, 1289-92, 89 L. Ed. 1886 (1945), aff'd on reh'g, 327 U.S. 661, 66 S. Ct. 721, 90 L. Ed. 928 (1946).
[7] This does not mean that it is the province of the district court to determine the allowability of the claims under Mexican law or the priority which they are to be accorded in distribution. These are matters for the Mexican court. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547145/ | 809 A.2d 1051 (2002)
DELAWARE COUNTY INTERMEDIATE UNIT, Petitioner,
v.
JONATHAN S., by and through his parents, Mr. and Mrs. Walter S., Respondents.
Commonwealth Court of Pennsylvania.
Argued June 12, 2002.
Decided October 29, 2002.
*1053 Andria L. Borock, Huntington Valley, for petitioner,
Judith A. Gran, Philadelphia, for respondent.
BEFORE: McGINLEY, J., SIMPSON, J., and MIRARCHI, JR., Senior Judge.
*1052 OPINION BY Senior Judge MIRARCHI.
Delaware County Intermediate Unit (DCIU) appeals from an order of the Special Education Appeals Panel (Panel) which affirmed an order of a hearing officer. The hearing officer found that DCIU was financially responsible for the pre-school placement of an early intervention eligible student afflicted with cerebral palsy. The due process hearing convened before the hearing officer was requested by Jonathon S., by and through his parents, Mr. and Mrs. S. (collectively, Student). We reverse.
Student is a pre-school aged child diagnosed with cerebral palsy and concomitant orthopedic disabilities. Prior to age three, Student received early intervention services under Part C of the Individuals with Disabilities Education Act (IDEA), 20 U.S.C. §§ 1431-1445, as an infant and toddler with disabilities. Student received those services pursuant to an Individualized Family Services Plan (IFSP) through the Delaware County Department of Human Services (Department). In January 2001, as Student approached the age of three, the Department referred him to DCIU for a multidisciplinary evaluation (MDE) to determine Student's eligibility for special education services funded by the Pennsylvania Department of Education and to assist in planning for his programmatic needs.
DCIU thereafter issued a Comprehensive Evaluation Report (CER) in which the MDE team recommended further early intervention *1054 services[1] for Student. DCIU's CER recommended eligibility for early intervention services and supplemental intervention. The CER team reported that Student needs specific physical skills in classroom-related tasks "to function successfully in a variety of settings, including the home, school and community." Reproduced Record (R.R.) at 66a. At a subsequent Individualized Education Program (IEP) meeting on January 17, 2001, the IEP team determined that Student was exceptional and in need of specially designed instruction. R.R. at 70a. DCIU further recommended that Student receive "supplemental intervention" special education services. R.R. at 67a.
As a result of its evaluations, DCIU offered Student a program including two hours of weekly physical therapy, one hour of weekly occupational therapy, and .1 hours of weekly itinerant educational service. R.R. at 71a. Additionally, DCIU offered Student a personal care assistant when enrolled in pre-school and further offered help in selecting and funding a preschool. Id.
Student thereafter requested that DCIU fully fund his placement into an appropriate pre-school program, which request DCIU denied. DCIU declined Student's request to be placed in a preschool program with typical peers where he could receive intervention in the regular classroom, on the grounds that it does not fund such programs for children with Student's needs. R.R. at 52a. That refusal was made pursuant to the policies set forth in a DCIU booklet, which defines two types of programs in which eligible children are educated with children who do not have disabilities: Integrated Classroom-Based Services, and Inclusion Programs. R.R. at 51a-52a. DCIU does not offer those programs directly, and will only fund those programs if (1) the child's needs include severe cognitive, communication or social delays (2) the child would otherwise be eligible for a specialized classroom, and, (3) the child's IEP includes goals, objectives and specially designed instruction in the areas of cognition, communication or social skills. Id. If the child does not meet those criteria, the costs of the program are the responsibility of the family. Id.
Student subsequently requested a hearing on the issue of DCIU's legal responsibility to fully and completely fund Student's pre-school program. The parties agreed that the facts of this case were undisputed. After oral arguments of counsel, the hearing officer, by order dated August 29, 2001, ordered DCIU to provide Student with a Free and Appropriate Public Education (FAPE), as opposed to solely providing appropriate early intervention services, as DCIU has offered. Opinion of the Hearing Officer, pp. 5, 14. The hearing officer further ordered DCIU to fully fund Student's attendance in an appropriate pre-school program for the 2001-2002 school year and to delineate the specially designed instruction necessary to address Student's needs in relation to his physical disability taking into account the importance of peer relationships, peer interaction, and his need to be able to learn and function as part of a group in a variety of settings including pre-school. Id.
DCIU filed exceptions to the hearing officer's decision with the Panel, which affirmed by order dated October 17, 2001. DCIU now timely appeals that order of the Panel to this Court.
*1055 This Court's scope of review of decisions of the Panel is limited to a determination of whether the adjudication is supported by substantial evidence, whether errors of law were committed, or whether constitutional rights were violated. Punxsutawney Area School District v. Kanouff, 663 A.2d 831 (Pa.Cmwlth.1995).[2]
DCIU first argues that the Panel erred by affirming the hearing officer's conclusion that Student was eligible for publicly funded pre-school placement pursuant to the IDEA, 20 U.S.C. § 1419.
Pursuant to the regulations promulgated at 34 C.F.R. § 300.7,[3] IDEA requires *1056 that a FAPE be provided to children who fall within IDEA's definition of a child with a disability. While children with cerebral palsy can be considered to be disabled under IDEA, this definition is limited by the further requirement that the student require specially designed instruction and related services. 34 C.F.R. § 300.7.
For DCIU to be responsible for providing a FAPE under 20 U.S.C. § 1419(9K), a student must show that (1) Pennsylvania received a pre-school grant, and; (2) that the student is a child with a disability as defined in 20 U.S.C. § 1401(3)(B).[4] Under Section 1401, to be a child with a disability a student must be experiencing a developmental delay, and by reason thereof need special education and related services. Special education is defined by Section 1401 as specially designed instruction, provided at no cost to the parents, to meet the unique needs of the child with the disability. 20 U.S.C. § 1401(25).[5]
In short, for a student to be eligible under IDEA's definition of disability, and for DCIU to be responsible for fully funding a student's pre-school needs under IDEA, that student must be found to be in need of specially designed instruction.
In the case sub judice, neither party disputes that Student has a physical disability that affects his fine and gross motor skills, and that his cognitive skills are age appropriate. Additionally, the parties agree that Pennsylvania has received a pre-school grant as required by 20 U.S.C. § 1419. The record in this case, however, is bereft of any evidence that Student's gross and fine motor development delays require the adapting of content, methodology, or delivery of instruction to address Student's unique needs. Because there is no evidence of record that Student requires such specially designed instruction, he does not meet the controlling definition of a child with a disability articulated in 20 U.S.C. § 1401(3)(B) and (25), and is therefore ineligible for a FAPE.
The hearing officer, in concluding that Student was eligible under the definitions articulated above, was unable to cite to any substantial evidence of record indicating that Student required any specially designed instruction. The sole support mentioned by the hearing officer in support of his conclusion was DCIU's failure to conduct more tests on Student than it did in its evaluation,[6] an accompanying implication *1057 that such further testing would reveal such a need on Student's part, and a broad generalization that "conventional wisdom" regarding children with cerebral palsy and their development reveals such a need. R.R. at 181a-186a. We agree with DCIU that the Hearing Officer's findings and concomitant conclusions that Student is therefore disabled are subjective, and unsupported by any evidence of record.
The hearing officer does cite, and Student argues in the instant appeal, that DCIU's own IEP team conclusively found that Student was in need of specially designed instruction when that team checked a box on Student's IEP form indicating the same. R.R. at 70a. We do not agree that the checking of that box, without any further evidence of record, supports a finding or conclusion that Student is in need of specially designed instruction. DCIU argues, and we agree, that it is the evidence of record, and not the unsupported clerical act of checking a box on a form, that controls this issue when presented for our review.[7] Student is able to cite to, and our review of the record reveals, no other evidence of record besides the checked box that Student is in need of specially designed instruction. The special needs of the child are what determines his entitlement to funded services, but neither the hearing officer, the Panel, nor Student have cited to any actual substantive evidence that Student requires specially designed instruction, i.e. the adaptation of the content, methodology, or delivery of instruction to address the unique needs of the child that result from the child's disability. As such, the Panel erred as a matter of law in affirming the hearing officer's order in the absence of such substantial evidence. Kanouff.
DCIU next argues that the Panel erred as a matter of law by affirming the hearing officer's conclusion that Student was eligible for publicly funded private pre-school placement pursuant to Pennsylvania law.
The Pennsylvania Early Intervention Services System Act (Act)[8] requires the provision of a FAPE to all eligible children with disabilities ages three through five. The Act defines an eligible young child as:
A child who is younger than the age of beginners and at least three years of age and who meets any of the following criteria:
(1) The child has any of the following physical or mental disabilities: autism/pervasive developmental disorder, serious emotional disturbance, neurological impairment, deafness/hearing impairment, specific learning disability, mental retardation, multihandicap, other health impairment, physical disability, *1058 speech impairment or blindness/visual impairment.
(2) The child is considered to have a developmental delay, as defined by regulations of the State Board of Education and the standards of the Department of Education.
11 P.S. § 875-103.
Under Pennsylvania law, while a student may be eligible for early intervention services such as those offered in this case by DCIU and rejected by Student, that eligibility does not necessarily require private pre-school attendance at public expense. Pennsylvania defines eligibility for early intervention services differently than eligibility for school-aged students, in that there are no requirements that the child need special education or specially designed instruction. The Chapter 14 of 22 Pa.Code provides that a child with one of a list of disabilities, or a developmental delay, is eligible for intervention services, and no requirement exists regarding the need for specially designed instruction. Id. Student clearly meets both criteria, as a child with a physical disability that has caused a developmental delay. As an eligible early intervention student, DCIU is providing Student with exactly what is required by law, namely services that are developmentally appropriate and meet his individual needs. Thus, Pennsylvania law requirements have been fulfilled in this case.
In determining that Pennsylvania early intervention regulations require publicly funded private pre-school placement, the hearing officer misinterpreted the General Assembly's intent. The General Assembly defined eligibility for early intervention to differ from IDEA eligibility. The early intervention regulations do not require a child to have specially designed instructional needs as a result of his disability, unlike IDEA, and only require that he have a disability and a developmental delay.[9] Similarly, the definition of the mandated least restrictive environment in the Pennsylvania early intervention regulations differs significantly from that of IDEA in that it specifically considers that for a pre-school aged child, home may be the least restrictive environment. 22 Pa.Code § 14.155(b). Consistent with that concept is the fact that neither Federal nor Pennsylvania law mandates a public pre-school program.
Pennsylvania's different definition for eligibility and least restrictive environment can be read as indicative of the General Assembly's intent to exclude publicly funded private pre-school in cases such as this one, where a child's physical disabilities require some early intervention services, but a lack of cognitive disabilities negate the need for publicly funded pre-school attendance.
Accordingly, we reverse.
ORDER
AND NOW, this 29th day of October, 2002, the order of the Special Education Appeals Panel in the above-captioned matter is hereby reversed.
NOTES
[1] The DCIU Early Intervention program serves children ages three to five from all Delaware County School Districts.
[2] Student argues that this Court lacks jurisdiction to hear the instant appeal because the order of the hearing officer was not appealed to this Court within 30 days of its issuance. DCIU first timely filed exceptions to the hearing examiner's report, which were heard by the Panel. DCIU timely appealed the Panel's order to this Court. Section 14.162(o), relied on by Student does not support student's argument that the instant appeal was untimely filed.
[3] The Regulation at 34 C.F.R. § 300.7, provides in relevant part:
(a) General.
(1) As used in this part, the term child with a disability means a child evaluated in accordance with §§ 300.530-300.536 as having mental retardation, a hearing impairment including deafness, a speech or language impairment, a visual impairment including blindness, serious emotional disturbance (hereafter referred to as emotional disturbance), an orthopedic impairment, autism, traumatic brain injury, an other health impairment, a specific learning disability, deaf-blindness, or multiple disabilities, and who, by reason thereof, needs special education and related services.
(2)(i) Subject to paragraph (a)(2)(ii) of this section, if it is determined, through an appropriate evaluation under §§ 300.530-300.536, that a child has one of the disabilities identified in paragraph (a)(1) of this section, but only needs a related service and not special education, the child is not a child with a disability under this part.
(ii) If, consistent with § 300.26(a)(2), the related service required by the child is considered special education rather than a related service under State standards, the child would be determined to be a child with a disability under paragraph (a)(1) of this section.
(b) Children aged 3 through 9 experiencing developmental delays. The term child with a disability for children aged 3 through 9 may, at the discretion of the State and LEA and in accordance with § 300.313, include a child
(1) Who is experiencing developmental delays, as defined by the State and as measured by appropriate diagnostic instruments and procedures, in one or more of the following areas: physical development, cognitive development, communication development, social or emotional development, or adaptive development; and
(2) Who, by reason thereof, needs special education and related services.
(c) Definitions of disability terms. The terms used in this definition are defined as follows:
* * *
(8) Orthopedic impairment means a severe orthopedic impairment that adversely affects a child's educational performance. The term includes impairments caused by congenital anomaly (e.g., clubfoot, absence of some member, etc.), impairments caused by disease (e.g., poliomyelitis, bone tuberculosis, etc.), and impairments from other causes (e.g., cerebral palsy, amputations, and fractures or burns that cause contractures).
* * *
(10) Specific learning disability is defined as follows:
(i) General. The term means a disorder in one or more of the basic psychological processes involved in understanding or in using language, spoken or written, that may manifest itself in an imperfect ability to listen, think, speak, read, write, spell, or to do mathematical calculations, including conditions such as perceptual disabilities, brain injury, minimal brain dysfunction, dyslexia, and developmental aphasia.
(ii) Disorders not included. The term does not include learning problems that are primarily the result of visual, hearing, or motor disabilities, of mental retardation, of emotional disturbance, or of environmental, cultural, or economic disadvantage.
[4] 20 U.S.C. § 1401(3)(B) states:
(3) Child with a disability
(B) Child aged 3 through 9
The term "child with a disability" for a child aged 3 through 9 may, at the discretion of the State and the local educational agency, include a child
(i) experiencing developmental delays, as defined by the State and as measured by appropriate diagnostic instruments and procedures, in one or more of the following areas: physical development, cognitive development, communication development, social or emotional development, or adaptive development; and
(ii) who, by reason thereof, needs special education and related services.
[5] 20 U.S.C. § 1401(25) states:
(16) The term `special education' means specially designed instruction, at no cost to parents or guardians, to meet the unique needs of a child with a disability, including
(A) instruction conducted in the classroom, in the home, in hospitals and institutions, and in other settings; and
(B) instruction in physical education.
[6] The Hearing Officer does not cite to, and we are unaware of, any regulation mandating more testing than was performed in this case by DCIU.
[7] We emphasize that the inadequacy of the box checking in determining whether Student is in actual need of specially designed instruction is supported by the fact that that very form, and the IEP team, in no way indicates expressly or impliedly exactly what specially designed instructional needs Student may possess and whether those needs are cognitive and best addressed by a preschool environment, or physical and best addressed by the early intervention services offered by DCIU and rejected by Student. Further, and perhaps even more supportive of our view, the Hearing Officer implicitly acknowledges the lack of such record evidence in writing: "That the specially designed instruction has not been defined in the IEP is a matter that the team must address at the appropriate time". R.R. at 185a (emphasis added). The absence of such evidence within an IEP is not fatal to a finding of eligibility for a student. The absence of such evidence within the entire record as a whole, however, is.
[8] Act of December 19, 1990, P.L. 1372, as amended, 11 P.S. §§ 875-101-875-503.
[9] It is instructive to note that, since changes to Chapter 14 were adopted in June, 2001, the definition of eligibility for early intervention has been changed to conform to that of IDEA. 22 Pa.Code § 14.101. Under that current definition, Student would not be eligible for early intervention services absent a need for specially designed instruction. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2453063/ | 256 P.3d 897 (2010)
WHITE
v.
CLINE.
No. 103342.
Court of Appeals of Kansas.
June 11, 2010.
Decision Without Published Opinion
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919625/ | 91 B.R. 782 (1988)
In re HATFIELD ELECTRIC CO., Debtor.
David O. SIMON, Trustee, Plaintiff,
v.
ENGINEERED PROTECTION SYSTEMS, INC., Defendant.
Bankruptcy No. B87-01922, Adv. No. B88-0154.
United States Bankruptcy Court, N.D. Ohio, E.D.
October 6, 1988.
Jerome Leiken, Cleveland, Ohio, for plaintiff.
Robert A. Hendricks, Grand Rapids, Mich., Arnold E. Shaheen, Jr., Pataskala, Ohio, for defendant.
MEMORANDUM OF OPINION AND ORDER
WILLIAM J. O'NEILL, Bankruptcy Judge.
Defendant, Engineered Protection Systems (EPS), filed a motion for summary *783 judgment on Trustee's complaint for avoidance and recovery of a preferential transfer. The summary judgment request is based on certain exceptions to preference. There are, however, genuine issues of material fact regarding these exceptions and summary judgment is, therefore, inappropriate. See Bankr.R. 7056 as it incorporates Fed.R.Civ.P. 56.
Proceedings to determine, avoid or recover preferences are core proceedings pursuant to Section 157(b)(2)(F) of Title 28 of the United States Bankruptcy Code. 28 U.S.C. § 157(b)(2)(F). The issues raised in the within motion are similarly posed in other adversary proceedings in this bankruptcy case. Westinghouse Electric Corp., a defendant in one of those proceedings, was granted leave to file an amicus curiae brief herein.
Based on the pleadings, briefs, affidavits and stipulations, the relevant facts are as follows:
In September of 1986, Hatfield Electric Co., (Debtor), entered into an agreement with EPS for installation of electronic security equipment in a building under construction in Reynoldsburg, Ohio owned by Meijer, Inc. EPS commenced work under the contract on October 30, 1986, and last provided labor or materials on the project on April 4, 1987. On May 4, 1987, the Debtor paid EPS $31,500.00 in full payment of invoice # 8287A for work and material provided under the contract. See Supp. Affidavit of Allan Carlson filed June 28, 1988. On May 5, 1987, concomitant with the payment, EPS executed a waiver of lien rights on the Meijer premises. The parties intended payment to be an exchange contemporaneous with the waiver of lien rights. The parties agree that EPS had an inchoate mechanic's lien on the Meijer project for labor or materials when payment was received from Hatfield.
On June 3, 1987, Hatfield filed a voluntary petition under Chapter 7 of the United States Bankruptcy Code. Trustee seeks to recover the $31,500 payment as a preference under Section 547 of the Bankruptcy Code. For purposes of this motion, the parties concede the existence of the elements of preference in Section 547(b) of the Code. 11 U.S.C. § 547(b).
DISCUSSION
Section 547 of the Bankruptcy Code sets forth avoidance of preferential transfers. 11 U.S.C. § 547. Subsection 547(b) defines preferences while subsection 547(c) excepts certain of these transfers from avoidance. Two of these exceptions are at issue. Defendant contends that receipt of payment in conjunction with its waiver of lien rights falls within Section 547(c)(1) as a contemporaneous exchange for new value and is also within the Section 547(c)(6) exception for perfection of non-avoidable statutory liens. Policy objectives underlying the preference provisions are to assure equality of distribution among estate creditors and to prevent dismemberment of the estate by a race to the courthouse. H.R. Rep. No. 95-595, 95th Cong., 1st Sess. 177-78 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6137-6139. Determining applicability of exceptions to preference must be accorded these same considerations. Waldschmidt v. Mid-State Homes, Inc. (In re Pitman), 843 F.2d 235 (6th Cir.1988); Charisma Investment Co. v. Airport Systems, Inc. (In re Jet Florida Systems, Inc.), 841 F.2d 1082 (11th Cir. 1988).
I. SECTION 547(c)(1)
Section 547(c)(1) excepts from avoidance, 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 . . ." 11 U.S.C. § 547(c)(1)
Defendant's waiver of lien rights in return for payment from the Debtor was intended to be and was a contemporaneous exchange. The issue is whether this waiver of rights with respect to a third-party's property constitutes "new value given to *784 the debtor" within the meaning of the exception.
"New value
means money or money's worth in goods, services, or new credit, or release by a transferee of property previously transferred to such transferee in a transaction that is neither void nor voidable by the debtor or the trustee under any applicable law, including proceeds of such property, but does not include an obligation substituted for an existing obligation . . ." 11 U.S.C. § 547(a)(2)
There is a definitive split in case authority regarding waiver of lien rights against third-party property as "new value". Waiver of such rights has been held to constitute "new value" to the debtor. Lang v. Heieck Supply (In re Anderson Plumbing Co.), 71 B.R. 19 (Bankr.E.D.Calif. 1986); Cooley v. General Elevator Corp. (In re Advanced Contractors), 44 B.R. 239 (Bankr.M.D.Fla.1984); LaRose v. Crosby and Son Towing, Inc. (In re Dick Henley, Inc.), 38 B.R. 210 (Bankr.M.D.La.1984). Contra. Fredman v. Milchem, Inc. (In re Nucorp. Energy, Inc.), 80 B.R. 517 (Bankr. S.D.Calif.1987); Ragsdale v. M & M Electric Supply, Inc. (In re Central Electric Inc.), 66 B.R. 624 (Bankr.N.D.Ga.1986); Tidwell v. Bethlehem Steel Corp. (In re Georgia Steel, Inc.), 56 B.R. 509 (Bankr.M. D.Ga.1985), rev'd. on other grounds, 66 B.R. 932 (D.C.M.D.Ga.1986). Distinction should be noted between this issue and new value with respect to waiver of lien rights against a debtor's property. There is also case law dichotomy on the latter issue which is presently not before this court. Weill v. Evans Lumber Co. (In re Johnson), 25 B.R. 889 (Bankr.E.D.Tenn.1982), in which a waiver was held to constitute "new value". Contra. Cimmaron Oil Co. v. Cameron Consultants, Inc., 71 B.R. 1005 (D.C.N.D.Tex.1987).
To secure payment for those who perform work or furnish materials in the private construction of a building, Ohio law provides mechanic lien rights thereon. Ohio Rev.Code Ann. § 1311.02 (Anderson 1979). To perfect these lien rights, an affidavit reflecting the amount due must generally be filed within ninety days from the date on which the last work or material was furnished. Ohio Rev.Code Ann. § 1311.06(B)(3) (Anderson Supp.1987). It is the waiver of right to file the affidavit to perfect its lien rights which defendant contends is new value. Generally, an owner who pays these liens encumbering its property is subrogated to the claims of the lienors. Dusi v. Albanese, 74 Ohio App. 136, 57 N.E.2d 802 (1943).
Although primarily intended to protect laborers and materialmen, the lien statutes also contain provisions to protect the property owner. See 68 O.Jur.3d, Mechanic's Liens §§ 11, 99, 167. Generally, prerequisite to the owner's payment of money becoming due or whenever the original contractor wishes to draw money from the owner, the owner must be provided prescribed statements and certificates. Ohio Rev.Code Ann. § 1311.04 (Anderson Supp. 1987). An owner so provided, may retain money due or to become due the principal contractor in an amount sufficient to pay all demands due or to become due the subcontractors, laborers and materialmen as reflected in the statements and certificates. In lieu of filing a certificate, a materialman may file a waiver of lien. Ohio Rev.Code Ann. § 1311.04 (Anderson Supp. 1987). In the within motion for summary judgment, pertinent facts regarding the owner's rights to retain payment on the Meijer project have not been provided or addressed.
Contemporaneous exchange exception in Section 547(c)(1) is premised, inter alia, on the presumption that receipt of new value offsets the transfer and the estate is not depleted or diminished to the detriment of other creditors. Gulf Oil Corp. v. Fuel Oil Supply and Terminaling, Inc., 837 F.2d 224 (5th Cir.1988). A.I. Credit Corp. v. Drabkin (In re Auto-Train Corp.), 49 B.R. 605 (D.C.D.C.1985), aff'd. 800 F.2d 1153 (D.C.Cir.1986). This reasoning also underlies the conclusion that payments to a fully secured creditor are not preferences. Waldschmidt v. Mid-State Homes, Inc. (In re Pitman), 843 F.2d 235 (6th Cir.1988). The definition of *785 "new value" under Section 547(a)(2) by use of the term "means" is exclusive, not openended. Energy Cooperative, Inc. v. SOCAP International Ltd., 832 F.2d 997 (7th Cir.1987). The legislative history indicates, however, that the term was intended to be defined in its ordinary sense. H.Rep. No. 95-595, 95th Cong., 1st Sess. 372 (1977); S.Rep. No. 95-989, 95th Cong., 2d Sess. 87 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5873, 6328. Commensurate with the purposes of preference avoidance, case law generally requires that "new value" must provide a value to prevent diminution of the estate. Gulf Oil Corp.; Energy Cooperative, Inc.; Drabkin v. A.I. Credit Corp., 800 F.2d 1153 (D.C.Cir.1986). Contra. Kenan v. Fort Worth Pipe Co. (In re George Rodman, Inc.), 792 F.2d 125 (10th Cir.1986). A tripartite relationship may satisfy the elements of Section 547(c)(1); i.e., "new value" received by the debtor need not be provided by the creditor to whom the transfer was made, but may emanate from a fully secured third party. Gulf Oil Corp.
It is argued that waiver of lien rights on third-party property should be defined as "new value" under the current Bankruptcy Code to conform with the result which would have obtained under prior law. A review of the cited cases, however, reflects they are not dispositive of this issue. Further, these cases were not addressing the issue of "new value". In Greenblatt v. Utley, 240 F.2d 243 (9th Cir.1956), debtor's payment in exchange for waiver of lien rights on debtor's property was held non-preferential. Greenblatt, however, dealt with payment of liens against debtor property and is inapposite. In Mullins v. Noland Co., 406 F. Supp. 206 (N.D.Ga.1975), the court held payments under a joint-check arrangement between a debtor-subcontractor, a supplier and the contractor coupled with the contractor's independent obligation to satisfy liens against the property were not preferences. Mullins, while cited to support the proposition that debtor's payments under a joint-check arrangement in exchange for waiver of liens on non-debtor property are not preferential due to no diminution to the estate, is equally inapposite. The holding in Mullins is ultimately premised on determination that "those payments should not be considered as payment by indirection from the assets of the bankrupt to the detriment of the bankrupt's other creditors." Mullins at 214. The court, therefore, found payments were not transfers of debtor's property, not that transfers in exchange for waiver of lien rights were inherently non-preferential. In fact, the vulnerability of such transfers to preference avoidance was noted in Ricotta v. Burns Coal and Building Supply Co., 264 F.2d 749 (2d Cir.1959). Under prior law such transfers were subject to avoidance to the extent they diminished the estate. Ricotta.
Case law defining the mere waiver of lien rights on third-party property as "new value" is essentially based on the attendant release of owner's general unsecured claim against the debtor, usually described as a claim for indemnity. Under Ohio Law, it is a right of subrogation. That consequential release is actual value which the debtor receives. Lang v. Heieck Supply, 71 B.R. 19 (Bankr.E.D.Calif.1986); Cooley v. General Elevator Corp., 44 B.R. 239 (Bankr.M. D.Fla.1984); LaRose v. Crosby and Son Towing, Inc., 38 B.R. 210 (Bankr.M.D.La. 1984). Such waiver and release is not, however, within the exclusive definition of "new value". 11 U.S.C. § 547(a)(2). Payment for such waiver, therefore, is not excepted from avoidance under the terms of Section 547(c)(1). Moreover, to expand the "new value" definition would defeat the purpose behind avoidance. Had debtor not made payment, the owner could only have asserted a claim in subrogation against Debtor's estate, an unsecured claim. Debtor's constructive release from that claim provides no tangible benefit to the estate, and payment in full therefor, depleted the estate to the detriment of creditors. Payment conflicts with the congressional purpose of promoting equality of distribution. To expand the parameters and re-define "new value" is not left to judicial supposition or conjecture, but is rather a legislative function within the province of the Congress. Thus the argument *786 so presented in the motion for summary judgment fails. There may well be, however, material facts which, if established, could constitute a basis for application of the contemporaneous exchange exception.
The purpose of preference avoidance is not eroded by payments to fully secured creditors, since the estate is not thereby diminished. Congruously, to the extent the owner could withhold funds or retain payments due the debtor, which would have permitted satisfaction of EPS's lien claim, the estate was not depleted. The right of a third party to withhold or retain payment constructively released by debtor's payment in exchange for waiver of creditor's inchoate lien would come within the term "money" in the definition of "new value". Moreover, excepting payment under these circumstances conforms with the purpose of preference avoidance and provides value to the estate. The court in LaRose v. Crosby and Son Towing, Inc., 38 B.R. 210 (Bank.M.D.La.1984), specifically refused to limit its holding in this manner. While establishing existence of "new value" in these circumstances will undoubtedly present evidentiary problems, it results from the limitations of the definition of "new value" and is consonant with the purpose of preference avoidance.
II. SECTION 547(c)(6)
Section 547(c)(6) excepts from avoidance, a transfer
"(6) that is the fixing of a statutory lien that is not avoidable under section 545 of this title . . ." 11 U.S.C. § 547(c)(6)
Defendant maintains a transfer in satisfaction of a non-avoidable statutory lien, its mechanic lien, is also protected under this subsection. The characterization of satisfaction of a statutory lien as an exception to preference avoidance is nebulous. Case law excepting satisfaction of such liens is based on the assumption that payment merely avoids the bite of a lien which the trustee could not have attacked. Cimmaron Oil Co. v. Cameron Consultants, Inc., 71 B.R. 1005 (D.C.N.D.Tex.1987); Weill v. Evans Lumber Co. (In re Johnson), 25 B.R. 889 (Bankr.E.D.Tenn.1982). However, legislative history reveals a broadening of the exception to include satisfaction of such liens was deleted before passage of the final bill. H.R.Rep. 595, 95th Cong., 1st Sess. 374 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 88 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5874, 6330. Determination on this issue is obviated because Defendant's payment falls outside this exception for a more basic reason. Section 547(c)(6) refers to Section 545 which delineates avoidability, and consequently non-avoidability of certain statutory liens "on property of the debtor . . ." The difficulty in applying this exception with respect to liens on non-debtor property was noted but not resolved in Newton v. Andrews Distributing Co. (In re White), 64 B.R. 843 (Bankr.E.D.Tenn.1986). Reported cases defining satisfaction of liens within this exception involved debtor property. See Cimmaron Oil Co. and Weill, but see Osherow v. Westinghouse Electric Supply Co. (In re Todt Electric Co.), Adv. No. 5-86-0252-K (Bankr.W.D.Tex., August 24, 1987). The inchoate lien in issue would not have been perfected against debtor's property. Section 545 has no application to such liens. Section 547(c)(6) which refers solely to liens not avoidable under Section 545 is, therefore, inapplicable to the within proceeding.
CONCLUSION
The exception to preference in Section 547(c)(6) is inapplicable to the transfer in this proceeding. Absent material facts, applicability of the exception in Section 547(c)(1) cannot be determined. Defendant's motion for summary judgment is, therefore, denied.
IT IS SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919630/ | 91 B.R. 742 (1988)
In re KENDAVIS INDUSTRIES INTERNATIONAL, INC., Kendavis Holding Company, Loffland Brothers Company, Mid-Continent Supply Co., Geodril, Inc., Loffland Brothers Eastern Hemisphere, Inc., Loffland Brothers (Singapore) PTE, Ltd., Debtors.
Bankruptcy No. 385-30348-HCA-11.
United States Bankruptcy Court, N.D. Texas, Dallas Division.
September 28, 1988.
*743 *744 Fred Shannon, Martin, Shannon & Drought, Inc., San Antonio, Tex., Locke, Purnell, Rain, Harrell, P.C., Dallas, Tex., for Locke, Purnell, Rain, Harrell, P.C.
Ogden N. Lewis, Davis, Polk & Wardwell, New York City, for Morgan Guar. Trust Co. of New York.
Julia Dobbins (John Blinn, Stephen Goodwin and J. Michael McBride, formerly with the firm), Shannon, Gracey, Ratliff & Miller, Fort Worth, Tex., for Official Unsecured Creditors' Committee.
David Snodgrass, Gardere & Wynne, Dallas, Tex., for Sec. Pacific Nat. Bank.
Thomas E. Kurth, Haynes & Boone, Dallas, Tex., for InterFirst Bank Dallas, N.A. and InterFirst Bank Fort Worth, N.A. (InterFirst is now First RepublicBank).
Henry Gompf, Jones, Day, Reavis & Pogue, Dallas, Tex., for Kendavis Holding Co., Loffland Bros. Co., and Mid-Continent Supply Co.
Jerry Beane, Strasburger & Price, Dallas, Tex., for First Interstate Bank of California.
J. Maxwell Tucker, Winstead, McGuire, Sechrest & Minick, Dallas, Tex., for MBank-Houston.
REVISED[*] FINDINGS OF FACT AND CONCLUSIONS OF LAW REGARDING MOTION FOR DISGORGEMENT OF COMPENSATION PAID TO LOCKE, PURNELL, BOREN, LANEY & NEELY
HAROLD C. ABRAMSON, Bankruptcy Judge.
One of a bankruptcy court's least favorite duties is the enforcement of the Code provisions dealing with compensation of professionals. In dealing with these provisions, the Court is not likely to win any popularity contests. Yet, it is inherently the Court's duty to examine professional compensation, and to act where problems are discovered. This case demonstrates a variety of problems on the part of counsel for the Debtor including conflicts of interest, lack of benefit to the estate, and failure to disclose compensation. It also demonstrates the problems inherent in a popular theory regarding representation of Debtors in bankruptcy, the concept of the "potential" conflict of interest. Ultimately, this case demonstrates what happens when a case is allowed to proceed with a "potential" conflict of interest, and the Court is hopeful that it has demonstrated that a "potential" conflict is a contradiction in terms.
I. INTRODUCTION
Came on to be considered the Joint Motion for Disgorgement of Compensation and Reimbursement of Expenses Paid to Locke, Purnell, Boren, Laney & Neely ("Locke Purnell") filed by the Official Unsecured Creditors' Committees ("Committees"); Security Pacific National Bank; Morgan Guaranty Trust Company of New York; InterFirst Bank Dallas, N.A. and InterFirst Bank Fort Worth, N.A. (InterFirst is now named First RepublicBank); and MBank-Houston, N.A., (collectively "Movants"); and the Court, after a consideration of the pleadings filed, including detailed briefs, after a review of the relevant legal authorities, and after hearing extensive argument of counsel, is of the opinion that the motion should be granted, and further finds as follows:
II. FINDINGS OF FACT AND BACKGROUND RELEVANT TO ALL OTHER FINDINGS
1. These cases were initiated by the filing of involuntary bankruptcy petitions under 11 U.S.C. § 303 on February 21, 1985, against Kendavis Holding Company ("KHC") and Kendavis Industries International, Inc. ("KIII").
*745 2. The Debtors consented to the petitions, and Orders for Relief were entered on March 19, 1985.
3. Debtor, KHC is a Nevada corporation. Directly, or indirectly, it owned more than 80% of the outstanding common stock of 20 operating companies, including the other debtors in this proceeding.
4. At various times following the filing of these cases, petitions were filed either voluntarily or involuntarily against various subsidiaries or entities related to these two debtors. Between 1985 and 1986, Orders for Relief were entered against several of these entities.
5. During the course of these proceedings, the Court authorized the law firm of Locke, Purnell, Boren, Laney & Neely, now known as Locke Purnell Rain Harrell, to represent the debtor entities.
6. The Debtors in these proceedings attempted more than once to confirm various plans of reorganization. None of those plans were able to reach standards necessary to permit confirmation.
7. On February 3, 1986, competing plans were filed by the Debtor on one hand, and by the Creditors' Committees on the other.
8. Pursuant to Court Order, hearings on the Debtors' Third Amended Joint Plan of Reorganization came on for consideration on May 7, 1986, prior to hearings on the Committees' Plan.
9. At the close of the Debtors' case in chief on June 22, 1986, the Committees moved for judgment denying confirmation of the Debtors' Plan under Federal Rule of Civil Procedure 41(b).
10. The Committees' motion was granted on June 24, 1986. An Order and supplemental findings were entered on August 6, 1986.
11. Hearings on the Committees' Plan began on June 26, 1986 and continued until November 12, 1986. At the conclusion of the hearings, the Court filed its order and findings confirming the Committees' Plan of Reorganization for KHC and KIII. The Committees' Plan was denied for Loffland Brothers Company.
12. Soon after confirmation, the reorganized Debtor sought to replace Locke Purnell, and retain the services of Jones, Day, Reavis & Pogue.
13. The Locke Purnell firm continued to act in the name of the Debtors in appealing the order confirming the Committees' Plan of Reorganization.
14. The District Court for the Northern District of Texas dismissed the Debtors' appeal and affirmed the denial of confirmation of the Debtors' Plan on March 26, 1987. In re Kendavis Holding Co., No. CA3-86-2995-G, slip op. at 4 (D.Tex. Mar. 26, 1987).
15. The United States Court of Appeals for the Fifth Circuit let stand the District Court's orders on September 24, 1987. In re Kendavis Holding Co., No. 87-1251, slip op. at 3 (5th Cir.1987) [830 F.2d 1128 (table)] (per curiam).
16. Acting on instructions from this Court, Locke Purnell did not file for a writ of certiorari to the United States Supreme Court. However, attorneys working on behalf of the Davis family interests filed for a writ. The writ was denied by the Supreme Court on June 20, 1988. In re Kendavis Holding Co., No. 87-1251, slip op. at 3 (5th Cir.1987) (per curiam), cert. denied, ___ U.S. ___, 108 S. Ct. 2845, 101 L. Ed. 2d 882 (1988).
17. During the course of the bankruptcy case, Locke Purnell made several fee applications to the Court. Committee members filed objections to Locke Purnell's fee applications at least 19 times. These objections included many of the objections contained in the Motion for Disgorgement. These objections included:
(i) Lack of beneficial results accruing from Locke Purnell's representation of the Debtors,
(ii) Actual conflicts of interest on the part of Locke Purnell in connection with its representation of the Debtors,
(iii) Unwarranted and intentional delay in the conduct of the proceedings.
18. Later in the proceedings, the Committee raised other objections to Locke Purnell's interim fee applications, including:
(i) Locke Purnell's participation in a fraud on the Court by presenting a set of *746 allegedly "cooked" financial statements to the Court,
(ii) Locke Purnell's breach of various fiduciary duties in connection with its representation of the Debtor entities,
(iii) Failure of Locke Purnell to meet the Fifth Circuit's requirements for approval of compensation.
19. Locke Purnell has been awarded interim compensation in an amount in excess of $4,000,000.00 for its activities in these cases.
20. The Orders entered by the Court approving Locke Purnell's interim fee applications were intended by the Court to be interim, and subject to reexamination at the conclusion of the case.
21. The Bankruptcy Judge originally handling this case discovered that he had a disqualification. Therefore, he recused himself, and the case was transferred to this Court on March 26, 1987.
22. On November 9, 1987, the Committee filed its Joint Motion for Disgorgement of Compensation and Reimbursement of Expenses Paid to Locke Purnell.
23. On January 11, 1988, Locke Purnell filed its Answer to Factual Contentions Contained in the Joint Motion for Disgorgement of Compensation and Reimbursement of Expenses and its Brief in Opposition to the Motion.
24. On February 29, 1988, this Court held an evidentiary hearing on the Committees' assertion that Locke Purnell improperly failed to disclose a retainer from which it made withdrawals.
25. On April 28, 29, and May 2, 1988, this Court held evidentiary hearings on the remaining contentions contained in the Committees' Motion.
26. The Court accepted proposed findings of fact and conclusions of law from the parties on July 11, 1988.
III. COMMENT REGARDING THE COURT'S POWER TO DETERMINE THIS CONTROVERSY LAW OF THE CASE
One side issue raised in this proceeding is whether this Court has the authority to address the issues raised in the Committees' motion. The Court believes that this issue was adequately addressed by the Court orally at an early hearing, but a restatement is perhaps appropriate here.
Locke Purnell has suggested that this Court lacks authority to determine this controversy, based on the Law of the case doctrine. Locke Purnell notes that its previous interim fee applications were approved by order of the Court. In those orders, various findings were made regarding Locke Purnell's right to payment under the applicable provisions of the Bankruptcy Code. Locke Purnell suggests that the findings in these orders are binding on this Court. In short, Locke Purnell argues that the Court lacks authority to alter its previous fee orders. The Committees take the position that the orders previously entered by the court were exactly what they were titled interim. That is, the original judge handling this case never intended for the awards of fees to be final. Instead, the Committees argue, the judge intended to reexamine the fees at the conclusion of the case. This Court has made a finding that the original judge handling this case did not intend for his interim fee orders to be final.
The Court is also of the opinion that all fees awarded prior to the end of a case are by definition interim, and may be reviewed by the Court at the close of the case. See, e.g., In re Callister, 673 F.2d 305, 306-07 (10th Cir.1982). However, these conclusions are not necessary to determine whether this Court has authority to hear the Committees' motion. The Court holds that Locke Purnell's arguments regarding the Court's authority are based on a mistaken interpretation of the Law of the case doctrine. A review of the Law of the case doctrine highlights the error.
The Law of the case doctrine is actually several related doctrines, and Locke Purnell is confusing two of them. Under one "heading" is the rule that a lower court must follow the ruling of a higher court. Compliance with the ruling of higher *747 courts is non-discretionary for a lower court. However, under another "heading," the Law of the case doctrine is discretionary. The Law of the case doctrine in this instance is a rule of discretion which justifies a court's refusal to rehear what has already been determined in a single proceeding before the same court. In other words, it is a discretionary rule which enables a court to defeat the efforts of a die-hard litigant. The distinction between these aspects of the Law of the case doctrine is illuminated by the commentators Wright & Miller, Federal Practice & Procedure, § 4477, (1981), and cases cited therein. While it is certainly appropriate that a court have some type of rule limiting argument on topics upon which the court has ruled, it is not a binding restriction. A trial court is free to reconsider its previous decisions whenever it is necessary. Id. at 789.
The cases support this interpretation of the rule. In Slotkin v. Citizens Casualty Co., 614 F.2d 301, 312 (2d Cir.1979), the court held that the Law of the case doctrine is not a limitation on the power of the court, rather it is merely an expression of the general practice of refusing to reopen what has already been decided. The Fifth Circuit has made similar statements, holding that the Law of the case doctrine is not an "inexorable command, but rather a rule of practice limited in scope." Falcon v. General Telephone Co., 815 F.2d 317, 319 (5th Cir.1987), (quoting Todd Shipyards Corp. v. Auto Transportation, S.A., 763 F.2d 745, 750 (5th Cir.1985)).
Even if Law of the case were controlling, one of the several exceptions to the rule would apply in this instance. First, where new evidence is presented, the rule yields. Johnson v. Bernard Insurance Agency, Inc., 532 F.2d 1382, 1384 (D.C.Cir.1976). In this case, the Committee has presented new evidence. In fact, a great deal of the evidence presented was not even available to the Committees at the time of Locke Purnell's interim fee applications. Second, to relieve manifest injustice, law of the case may waiver. Wrist-Rocket Mfg. Co. v. Saunders Archery Co., 578 F.2d 727, 730-31 (8th Cir.1978). In this case, an injustice to the creditors of the estates would occur if Locke Purnell were awarded more than its due. Third, a court need not await reversal before correcting errors. Instead, the Court must address errors when they are discovered. Champaign-Urbana News Agency, Inc. v. J.L. Cummins News Co., 632 F.2d 680, 683 (7th Cir.1980).
The only possible conclusion which can be reached from these authorities is that it is eminently within the Court's power to hear and decide the Committees' motion.
IV. STANDARDS FOR GRANTING PROFESSIONAL FEES
To properly evaluate the Committees' motion, the Court must consider the standards applicable to attorney fees under the Bankruptcy Code. This involves consideration of the relevant statutes and cases. Much of the material in this section will serve as the basis for conclusions of law made in subsequent sections.
The Bankruptcy Code gives the Court the power to control the award of attorney fees. 11 U.S.C. § 330 (1982 & Supp. IV 1987). This section authorizes a court to inquire into and limit compensation from any source. See, In re Furniture Corporation of America, 34 B.R. 46 (Bankr.S.D. Fla.1983). The purpose of section 330 was to "guard against a recurrence of the `sordid chapters' in the history of fees in corporate reorganizations." S.Rep. No. 989, 96th Cong., 2d Sess. 40, reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5826 (quoting Dickinson Industrial Site, Inc. v. Cowan, 309 U.S. 382, 388, 60 S. Ct. 595, 599, 84 L. Ed. 819 (1940)). It is interesting to note that many of the comments made regarding the disinterestedness requirement at early congressional hearings remain relevant today.[1]
The Bankruptcy Code gives only the most general guidance as to standards to be applied in awarding attorney fees to *748 counsel for a debtor. Section 330 limits an attorney to "reasonable compensation for actual, necessary services . . . based on the nature, the extent, and the value of such services, the time spent on such services, and the cost of comparable services." 11 U.S.C. § 330(a) (1982 & Supp. IV 1987).
Section 327(a) of the Code provides other clues relevant to compensation of attorneys. This section states a two prong test for the employment of attorneys. First, the attorney for the Debtor must hold no adverse interest to the bankruptcy estate. Second, the attorney must be a disinterested person. In re Leisure Dynamics, Inc., 33 B.R. 121, 122 (D.Minn. 1983). Section 101 of the Code defines a "disinterested person" as one who "does not have any interest materially adverse to the interest of the estate . . . by reason of any direct or indirect relationship to, connection with, or interest in the debtor . . . or for any other reason." 11 U.S.C. § 101(13)(E) (1982). Further, Section 328(c) allows the Court to deny compensation to a professional in any case where "such professional person is not a disinterested person, or represents or holds an interest adverse to the interest of the estate." 11 U.S.C. § 328(c) (1982). In other words, where an attorney for a debtor is found to be interested, disallowance of attorney fees is appropriate. In re Chou-Chen Chemicals, Inc., 31 B.R. 842 (Bankr.W.D.Ky. 1983).
The case law has been informative in filling out the requirements for payment of professional persons in a bankruptcy case. One of the most prominent cases discussing compensation of professionals is Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir.1974). This case gives us the so called Johnson factors. The Johnson factors were made applicable to bankruptcy proceedings in the Fifth Circuit in In re First Colonial Corp. of America, 544 F.2d 1291 (5th Cir.1977). Of the twelve Johnson factors listed in those opinions, the Fifth Circuit has instructed that courts pay special heed to:
(i) the time and labor involved,
(ii) the customary fee,
(iii) the amount involved and the results obtained, and
(iv) the experience and reputation of counsel.
Copper Liquor, Inc. v. Adolph Coors Co., 624 F.2d 575, 583 (5th Cir.1980). The Fifth Circuit has also instructed that a judge explain the findings and reasons upon which the award is based, including an indication of how each of the twelve factors in Johnson affected his decision. First Colonial, 544 F.2d at 1300.
Additionally, ethical considerations are proper for the Court to consider when ruling on the propriety of awarding professional fees. This is because ethical violations or conflicts of interest may lessen the value of services. In re Coastal Equities, Inc., 39 B.R. 304, 312 (Bankr.S.D. Cal.1984). If an attorney holds an undisclosed adverse interest, a court is empowered to deny all compensation. Id. at 308; In re Guy Apple Masonry Contractor, Inc., 45 B.R. 160, 163 (Bankr.D.Ariz.1984).
It is these broad overall standards which this Court must apply in consideration of the Committees' motion. Additionally, other general legal rules may apply to a specific claim made by the Committees. These rules will be noted and applied where appropriate throughout this opinion.
V. SPECIFIC FINDINGS REGARDING CLAIMS MADE BY THE COMMITTEES' MOTION
CLAIM NUMBER I:
Locke Purnell Represented Interests Adverse to the Estate
FINDINGS OF FACT
i. Introduction to Findings of Fact
1. The Committee suggests that Locke Purnell represented interests which were *749 adverse to the interests of the bankruptcy estate, and that those interests directly led to excesses committed by Locke Purnell in delaying the case, and engaging in unproductive, unnecessary litigation. The most damaging of the Committees' assertions is that Locke Purnell actually represented the interests of the principals of the Debtors, the Davis family, and that representation was a fatal conflict of interest for which Locke Purnell should not be compensated from the estate.
2. Locke Purnell counters by maintaining that their actions in this case were reasonable, and in the best interests of the estate.
3. As indicated in the following findings of fact, the Court finds for the Committees and holds that Locke Purnell had a fatal conflict of interest during its representation of the Debtors. The Committees' contention that Locke Purnell intentionally delayed these proceedings, and that Locke Purnell violated its fiduciary duties, is considered as part of the Committees' objection to Locke Purnell's conflict of interest.
ii. The Debtors' Plan Was Designed Exclusively to Benefit the Shareholders The Davis Family
4. The Debtors in the bankruptcy proceeding were insolvent. Therefore, there was no equity interest, and the stockholders held no recognizable economic interest in the reorganization of these entities. This being true, the Debtors' Plan of Reorganization was inexplicably generous to the stockholders when compared with the treatment of senior classes of creditors.
5. The Debtors' Third Amended Plan was a so-called "Marston"[2] plan. That means that the principals of the Debtors were to make a cash contribution to "purchase" the Debtors. In return, the stockholders, primarily the Davis family, would be able to retain their interests.
6. Under the Debtors' Plan, the stockholders were to contribute $5,000,000.00 in new funds to the seven entities included in their plan. The Debtors' Plan also included a $20 million subordinated debt component to be paid over twenty years. Since, KHC and KIII owed collectively over $500,000,000.00 in institutional debt, this amount was considered a "drop in the bucket." That is, the proposed contribution was not a substantial contribution of new capital sufficient to justify the stockholders retaining their interests. Norwest Bank v. Ahlers, ___ U.S. ___, 108 S. Ct. 963, 99 L. Ed. 2d 169 (1988).
7. Debtors' Plan omitted a determination of a fair market price for the purchase of the Debtors because no competing bids for the purchase of the Debtors were ever solicited.
8. The terms of the Debtors' Plan contemplated a substantive consolidation of seven of the Debtors. The effect of this would have been particularly beneficial to a non-debtor corporation owned by Mr. Ken Davis. Had the Debtor Mid-Continent been reorganized alone, the unsecured creditors of Mid-Continent could have expected a return of something on the order of four cents on the dollar. Under the terms of the Plan proposed by the Debtors, the creditors of Mid-Continent, a co-debtor under the Plan, would have received a greatly increased return, on the order of seventy-three cents on the dollar. A major unsecured creditor of Mid-Continent was Great Western Drilling Company (GWDC), a non-debtor, with a $10,400,000.00 disputed claim. Mr. Ken Davis, the principal of all of the Debtors, owned 87% of GWDC's stock. The effect of the consolidation was to greatly benefit the person whom the Committees suggest Locke Purnell actually represented.[3]
9. Under the terms of the Debtors' proposed Plan, the creditors were to receive *750 partial payment over a period of 20 years, through a Sinking Debenture. During this period, no provision was made for the creditors to share in any potential "upside" growth in the company.[4]
iii. Locke Purnell's Opposition to the Committees' Plan was Designed to Benefit the Shareholders the Davis Family
10. The Committees' Plan called for 100% payment of all non-bank and non-insider creditors.
11. No substantial legitimate non-insider creditors objected to the Committees' Plan.
12. Locke Purnell vigorously opposed the Committees' Plan of reorganization, despite the fact that their objections could benefit only the interest holders, primarily the Davis family.
iv. The Sale of Cummins Sales & Service, Inc., as Proposed by Locke Purnell, Benefitted the Interest Holders, the Davis Family
13. During the course of these proceedings, the Debtors proposed to sell one of the involuntary debtor corporations, Cummins Sales & Service, Inc. ("Cummins"). The terms of that sale included a $4,000,000.00 non-competition clause in favor of two of the Debtors' principals, Mr. Ken Davis and Mr. Cullen Davis.
14. The draft agreement originally provided that the payment of the $4,000,000.00 non-competition compensation would be paid to the Debtor estates. Counsel for Locke Purnell was aware or should have been aware that the original draft of the sales agreement called for the Debtors to receive the funds. Yet when Locke Purnell presented the proposal to the Court, the agreement had been changed to provide that the funds were to go to the Davis brothers individually.
15. The Court finally did approve the sale, but reserved decision on use of the disputed funds.
v. Substantial Documentary Evidence Exists Which Calls Into Question Locke Purnell's Disinterestedness
16. Numerous correspondence from members of the Davis family to various attorneys at Locke Purnell indicates that the Davis family, at least, believed that Locke Purnell was working to benefit the family's interest exclusively.
17. Other correspondence from various attorneys for Locke Purnell to members of the Davis family uses language which casts doubt on where Locke Purnell's loyalties truly lay with the Debtors, or with the Davis family.
18. Correspondence between the Davis family and other of the Debtors' professionals, such as accountants, indicates that the Davis family, at least, regarded the entire reorganization proceeding to be in their exclusive interest. One letter, Movant's Exhibit 34[5], from Ms. Kay Davis on behalf of Mr. Ken Davis indicated the story of this Chapter 11. Mr. Davis instructed Locke Purnell to lay waste to all, unless the banks agreed to his terms of settlement. He dictated a war of "scorched earth" leaving what remained after the battle to the institutional creditors.[6] Locke *751 Purnell followed this dictate and was paid handsomely on interim fee applications.
19. An agenda for a Plan of Reorganization meeting was sent from an attorney with Locke Purnell to Mr. Ken Davis. In that agenda, a negotiating strategy was scheduled that "[k]eeps K.D. [Mr. Ken Davis] behind the Scenes and Provides Deniability."[7] Further in the agenda, a listed objective of the meeting group was an attempt to maximize the retention of assets by the Davis family, and to buy time for a turnaround in the oil market.
20. The Davis family was never represented by counsel before this Court throughout the term of the proceedings prior to confirmation. Members of the family did, however, appear individually at two hearings.
vi. Locke Purnell Intentionally Delayed the Proceedings
The banks have contended the following, and the Court makes no findings with regard to these allegations by the Movants because the subject matter of this contention (as to the factual questions of disinterestedness and adverse interests) is treated above.
21. The actions of Locke Purnell in this case indicate that the firm actively sought to lengthen the proceedings to ridiculous extremes.
22. During the course of the proceedings, Locke Purnell engaged in excessively litigious conduct, including:
i. unnecessarily detailed cross-examination of witnesses,
ii. unnecessary objections,
iii. bad faith filings, including a counter-claim against the Committees which Locke Purnell knew to be without basis.
CONCLUSIONS OF LAW
i. Representation of Adverse Interests
It is apparent to this Court from the Findings of Fact that Locke Purnell had serious conflicts of interest in representing the Debtors, their affiliates, and equity owners in these bankruptcy cases. The courts of this circuit are "sensitive to preventing conflicts of interest and [that] requires a `painstaking analysis of the facts and precise application of precedent.'" In re Consolidated Bancshares, Inc., 785 F.2d 1249, 1256 (5th Cir.1986) (quoting Brennan's, Inc. v. Brennan's Restaurant, Inc., 590 F.2d 168, 173-74 (5th Cir.1979)). The evidence supporting the finding of a conflict of interest in this case is admittedly circumstantial, since neither Locke Purnell nor the Davis family has ever stated that Locke Purnell represented anyone other than the Debtors. Further, each piece of evidence, taken alone, would probably be insufficient to find Locke Purnell guilty of conflict of interest. However, from the totality of the evidence, together with the objective manifestations of Locke Purnell's conduct throughout this proceeding can lead to only one factual conclusion that Locke Purnell actually represented the interests of the Davis family throughout the pendency of the case and that representation was a conflict of interest. For the Court to reach the legal conclusions to be applied, the Court must consider many of the legal principles discussed in the preceding section entitled Standards for Granting Professional Fees.
The inevitable conclusion of law drawn from the facts as they appear to this Court are similar to those which faced a Bankruptcy Court in the Southern District of Texas, and the conclusion is the same:
Thus while it was not totally apparent to the Court during the pendency of this action (pre-confirmation), it seems abundantly clear now that the activities of Skadden, Arps during this proceeding best served the principals of Coral Petroleum, Inc. rather than the debtor, its estate, and its creditors . . . this Court concludes that in this proceeding Skadden, Arps was acting in the best interest of the principals of Coral Petroleum during the time they were appointed by the Court as attorneys for the debtor-in-possession.
*752 This raises most serious issues of conflicts of interest and of benefit to the estate.
In re Coral Petroleum, Inc., No. 83-02460-H2-5, slip op. at 3 (Bankr.S.D.Tex. Jan. 30, 1988).[7a] This Court finds that a similar situation occurred in the present case. The activities of Locke Purnell best served the principals of KHC, primarily the Davis family. Locke Purnell's actions in this case were designed to further the interests of their primary client, the Davis family. Therefore, serious conflict of interest problems arise, and questions as to the benefit of Locke Purnell's service to the estate are apparent. It is plain to this Court from the Findings of Fact, that Locke Purnell was not disinterested during its term as counsel for the Debtors. A law firm must exercise impartial and undivided loyalty on behalf of a client, and is therefore prohibited from representing conflicting interests. In re Paine, 14 B.R. 272, 274 (W.D.Mich. 1981). Representing the principals of the debtor, and not the debtor itself lacks the disinterestedness required by section 327, because once counsel is employed, "a lawyer owes his allegiance to the entity and not to the stockholder, director, officer, employee, representative or other person connected with the entity." In re King Resources Co., 20 B.R. 191, 200 (D.Colo.1982); See also, In re Hoffman, 53 B.R. 564, 566 (Bankr.W.D.Ark.1985); In re Watson Seafood & Poultry Co., 40 B.R. 436, 442 (Bankr.E.D.N.C.1984). In this case, members of the Davis family were the primary and controlling shareholders of the Debtors. Further, members of the Davis family were directors, officers, and employees of the Debtors. Locke Purnell's actions attempting to benefit the Davis family at the expense of the estates fit the definition of a conflict of interest.
As was previously discussed, section 327 of the Code describes a two prong test for the employment of counsel for a debtor. A law firm which is not disinterested does not meet the second prong to that test. Locke Purnell's representation of the Davis family was an "interest materially adverse to the interest of the estate . . . by reason of [a] direct or indirect relationship to, connection with, or interest in the debtor . . ." 11 U.S.C. § 101(13)(E) (1982); See also, Consolidated Bancshares, 785 F.2d at 1256, quoting, 2 Collier on Bankruptcy § 327.03 at 327-19, 20 (15th ed. 1985) (disinterestedness includes "anyone who in the slightest degree might have some interest or relationship that would color the independent and impartial attitude required by the Code"). Therefore, Locke Purnell was not disinterested and its employment as counsel for the Debtors was, in retrospect, inappropriate.
The Bankruptcy Code provisions dealing with conflicts of interest find their counterparts in the ABA Code of Professional Responsibility. In re Marine Power & Equipment Co., 67 B.R. 643, 654 (Bankr. W.D.Wash.1986). Therefore, the Canons and Disciplinary Rules are particularly relevant when considering alleged conflicts of interest. Especially relevant are Canons Five, Nine, and Four under the ABA Code of Professional Responsibility.
Canon Five requires an attorney to exercise independent professional judgment on behalf of a client. Disciplinary Rule 5-105 requires that an attorney refuse to accept employment if the interests of another client impair the independent professional judgment of the attorney. This rule requires that an attorney not place him or herself in a position where he or she may be required to choose between conflicting loyalties. In re 765 Associates, 14 B.R. 449, 451 (Bankr.D.Haw.1981). Representation of a shareholder, officer or director of a debtor corporation led to a situation in *753 this case where Locke Purnell's ability to exercise independent judgment on behalf of its client, the Debtors, was impaired.
Also relevant to a consideration of a possible conflict of interest is Canon Nine. Canon Nine provides that an attorney should avoid even an appearance of impropriety. It appears that most courts apply a type of balancing test when considering Canon Nine. As a general rule, counsel may be disqualified upon a "showing that there is a `reasonable possibility of the occurrence of the specifically identifiable appearance of improper conduct.'" In re Roger J. Au & Son, Inc., 64 B.R. 600, 605 (Bankr.N.D.Ohio 1986). Locke Purnell plainly violated this rule. Even if Locke Purnell arguably did not represent the Davis family, their actions throughout the case, as expressed in the Court's Findings of Fact, point to an inescapable appearance to the contrary. Counsel has been disqualified from representing parties in a bankruptcy proceeding solely for this "appearance of impropriety" grounds. See, e.g., Id. at 605 (noting that Canon Nine does not require the court to find actual evidence of ethical violations); In re ESM Government Securities, Inc., 66 B.R. 82, 84 (S.D.Fla. 1986).
Also related is Canon Four. Canon Four requires that an attorney preserve the confidences and secrets of a client. This issue arises most frequently when an attorney has clients with claims against each other. The rule is relevant as it relates to a use of information obtained in regard to representation of a debtor, and using that information to the benefit of one client versus the other client. Where this situation arises, a conflict of interest is present.
Considering the above authorities, it is inescapable that Locke Purnell had a conflict of interest in representing the Debtors in these cases, whether under the ABA Code of Professional Responsibility, or under the Bankruptcy Code. The question remains as to what the Court should do to resolve the violation.
The Bankruptcy Code authorizes a court to disallow fees where a professional is found not to have been disinterested. 11 U.S.C. § 328(c) (1982). The cases are plainly in accord. Where a law firm is found not to be disinterested, disallowance of fees is appropriate. Woods v. City National Bank and Trust Co., 312 U.S. 262, 266, 61 S. Ct. 493, 496, 85 L. Ed. 820 (1941) ("where an actual conflict of interest exists, no more need be shown in this type of case to support a denial of compensation"); Wolf v. Weinstein, 372 U.S. 633, 641, 83 S. Ct. 969, 975, 10 L. Ed. 2d 33 (1963) ("a fiduciary may not receive compensation for services tainted by disloyalty or conflict of interest"); In re Georgetown of Kettering, Ltd., 750 F.2d 536 (6th Cir.1984); In re Chou-Chen Chemicals, Inc., 31 B.R. 842 (Bankr.W.D.Ky.1983); In re Paine, 14 B.R. 272 (Bankr.W.D.Mich.1981); In re Coastal Equities, Inc., 39 B.R. 304 (Bankr.S.D.Cal. 1984); In re Michigan General Corp., 77 B.R. 97 (Bankr.N.D.Tex.1987); In re N.S. Garrott & Sons, 63 B.R. 189 (Bankr.E.D. Ark.1986). The court may also order the return of fees already paid. In re 765 Associates, 14 B.R. 449 (Bankr.D.Haw. 1981); In re B.E.T. Genetics, Inc., 35 B.R. 269 (Bankr.E.D.Cal.1983).
Perhaps the most unfortunate aspect of this case is the fact that many of the problems could have been avoided through simple precautions. It is apparent to this Court that problems with Locke Purnell's representation of the Debtors arose early in the case. Yet, Locke Purnell insisted that their conflict in this case was, at most, "potential" not "actual." It is that mistaken theory of law which allowed this case to reach the present point. A group of creditors acting to have legal fees paid to counsel for a debtor returned to an estate long after counsel for the debtor has surrendered representation. In this case, the concept of potential conflicts of interest has been harmful not only to the interests of the Debtors, but to the attorneys in the case. Had Locke Purnell's conflicts been acted on at the beginning of the case, they would not now be in the present situation.
The concept of potential conflicts of interest in bankruptcy is based on a mistaken interpretation of the Bankruptcy Code. Section 327 requires that counsel be "disinterested." *754 11 U.S.C. 327(a) (1982). The disinterested requirement is intended to "prevent even the appearance of conflict irrespective of the integrity of the person or firm under consideration." In re Martin, 817 F.2d 175, 181 (1st Cir.1987). Further, a "disinterested person should be divested of any scintilla of personal interest which might be reflected in his decision concerning estate matters." Id. This Court would therefore join with the Pennsylvania court which questioned the decisions of courts finding potential conflicts of interest. In re Paolino, 80 B.R. 341, 345 (Bankr.E.D.Pa.1987). Locke Purnell's conflict of interest did not become actual sometime after they began representation of the Debtors. Instead, their conflict arose on the date they began representing the Debtors as well as representing the principals of the Debtors. Upon their employment, Locke Purnell was no longer disinterested, and therefore, they were not eligible to represent the Debtors.
To make the Court's holding more concrete, the Court holds that whenever counsel for a debtor corporation has any agreement, express or implied, with management or a director of the debtor, or with a shareholder, or with any control party, to protect the interest of that party, counsel holds a conflict. That conflict is not potential, it is actual, and it arises the date that representation commences. This holding would apply equally to partnerships. An attorney who claims to represent a partnership, but also has some agreement, whether express or implied, with the general or limited partners, or with any control person, to protect its interest, that attorney has an actual conflict of interest, and is subject to disqualification and a disallowance of fees. The concept of potential conflicts is a contradiction in terms. Once there is a conflict, it is actual not potential.
A historical basis exists for this rule interpreting section 327 of the Code. When Chapter X was enacted into law, the Congressional policy was stated in part as follows:
Under the bill the independent trustee will serve as the focal point for formulation and negotiation of a plan of reorganization. This important function under the present system has been left to the inside few. That normally has meant leaving it to the management and the investment bankers. It should no longer be left in these hands, since those persons too often have interests conflicting with those of the investors.
The content of the plan is the all-important item in the whole proceeding. Its preparation and negotiation should be carefully scrutinized and supervised. Placing this function in the hands of the independent trustee also means that greater opportunity for investor participation in the preparation of the plan can be afforded. Under the bill proposals of plans are not restricted to the favored few; it forsakes the tradition of leaving all of these matters to the insiders. By its provisions any investor can prepare, or submit proposals for, a plan. But the dangers of `town meetings' are avoided by placing on the trustee the duty to head up the formulation of a plan and to report out a plan to the court within a reasonable time. The trustee, as a representative of the court, plays an active role in the formulation and negotiation of plans, and supplies scrutiny and control thereof in the interest of creditors and stockholders. In handling the suggestions of proposals for plans, the independent trustee would act in an informal administrative manner. He is made the active head of the reorganization process; he would provide an intermediate forum and round table where creditors and stockholders could be heard and could negotiate. In short, vital functions which in the past have been performed by inside groups or by protective committees seeking personal profit, will be vested in the trustee with the advice and consent of creditors and stockholders and subject to court supervision. No longer will the basic, all-important phases of reorganization be performed by groups which have a selfish interest to protect and promote. Heretofore these groups *755 have thrived because they have provided leadership for investors where otherwise there would be anarchy; because they have seized the reins and produced action and provided directions regardless of their destination. Under the bill these functions will be performed by a disinterested person appointed by the court with the opportunity to interested persons to express their views on the appointment."
H.R.Rep. No. 1409, 75th Cong., 1st Sess., at 38 (1937); See also Footnote 1, Page 747, supra.
Section 156 of the Bankruptcy Act provided as follows:
Upon the approval of a petition, the judge shall, if the indebtedness of a debtor, liquidated as to amount and not contingent as to liability, is $250,000 or over, appoint one or more trustees.
11 U.S.C. § 556 (1938) (Chapter X of the Chandler Act).
Chapter X required that the trustee as well as any attorney appointed to represent him be "disinterested," a term which is carefully defined. Collier on Bankruptcy 14th Edition, ¶ 7.01[2]. Section 158 of the Act and Bankruptcy Rule 10-202(c)(2), (the latter derived from Section 156), set forth the affiliations, connections and interests which disqualify persons from acting as disinterested trustees. In this Court's view, the Congressional intent, as evidenced upon the fusion of Chapters X, XI, and XII into the present Chapter 11 under the Code was to, insofar as possible, install the debtor in possession and its attorney as fiduciaries with the similar obligations and powers as a trustee in the Chapter X, except for the investigative type powers. Further, it appears that the Congressional intent in the drafting of section 327 of the Code was to impose a fiduciary obligation analogous to that of the disinterested trustee in a Chapter X proceeding. However, in reality, although an attorney for a debtor corporation is usually not previously affiliated with that entity prior to the bankruptcy, he nevertheless expressly or impliedly accepts certain obligations of advice or aid to equity holders, management directors, and the like.
Some courts have taken varying positions as to why section 327(a) of the Code does not mean what it says. Some courts say that until a conflict of interest is actual it is not disqualifying; some say that only a potential conflict is not disqualifying until it becomes actual; other courts say that the equities of the case dictate whether there is a conflict of interest or whether it should be enforced.[8] Additionally, many articles have been written and lectures given to bankruptcy seminars by various attorneys with torturous rationale as to why a conflict is not a conflict until the court sees it as a real and actual conflict.[9] Some of those attorneys, and at least one court,[10] have relied upon the single enterprise theory[11] to justify the representation by one law firm of all multi-affiliated entities in a bankruptcy proceeding. It seems to this Court that those decisions and their rationale fly in the face of the specific language *756 of Congress in the drafting of section 327 of the Code, as well as completely ignoring the nonbankruptcy legal status and obligations of multi-affiliated entities.
Absent a bankruptcy scenario, the structure of a holding company with subsidiaries and affiliated entities is created so as to (a) insulate the group from failure of one or more entities, (b) insulate from unusual exposure of some entities to unusual liability, (c) and for issuance of securities on the public or private markets. Trade, institutional, and state tax entities rely on the separateness of the entities in extension of credit or collection of property or sales taxes. Separateness requires some constitutional protection for the creditors who relied on this structure.
The occurrence of a bankruptcy should not change the state created rights of the parties except in unusual circumstances. To allow one law firm's representation of the group results in its control of the case and exclusive billings as to all debtors. The basic motivation of the law firm seeking to be exclusive is potential remuneration, and achievement of the ends of management and equity. The need of the lawyer in the 1930's is now the greed of the lawyer in the 1980's.[12]
Furthermore, how can a bankruptcy court monitor actual conflicts of interest versus potential conflicts of interest when these matters come before the court in less than obvious ways? Unless a court is extremely experienced in bankruptcy tactics and negotiations, or unless a party in interest brings the matter before the court with a "smoking gun," no effective manner exists to monitor this problem. Also, the "potential conflicts" rationale leaves open the incurrence of fees and expenses by a law firm for a period of time until the court announces some decision finding actual conflicts of interest; this thereupon amounts to a late disqualification of counsel and disgorgement of all or part of fees which could have been avoided by early action in the case (assuming real compliance with section 327 of the Code).[13]
In the realities of bankruptcy law practice today, as was so in previous years, the attorney for the debtor in a Chapter 11 proceeding often encounters the situation where the debtor prior to bankruptcy has incurred substantial withholding taxes or other types of taxes which may flow through to the "responsible" persons. The control officers and directors of the closely-held corporation often times have signed guarantees of trade debt or institutional debt. In the larger publicly held corporation, management and directors are sometimes concerned about potential liability to shareholders or potential securities violations claims. Also in the large multi-affiliate cases, management is concerned about the need for consolidation of all of the entities in order to utilize all assets available to settle all debts of all the entities. There are also concerns in corporate cases about the retention of the equity position of shareholders without loss thereof.
In the partnership real estate cases of the 1980's, the syndicator-general partner is quite concerned about the tax consequences of a foreclosure of the property as impacting upon the limited partner equity holders. In these cases letters of credit have been furnished upon guarantees or collateral furnished by equity holders and the bankruptcy attorney is faced with the protection of these interests (whether he or she admits this or not). Therefore, the attorney for the debtor oft-times is in a position of negotiating terminations of stays upon release of guarantees; use of the Chapter 11 process to seek injunctions for the protection of guarantors or management; negotiation of a plan that *757 encompasses the release of all co-obligors and guarantors upon confirmation. Is this not a similar situation that was discussed in House Report No. 1409 in 1937? Deja vu? As pointed out In re Leisure Dynamics, 32 B.R. 753, 756 (D.Minn.1983):
"A debtor in possession has fiduciary responsibilities imposed upon it in dealing with property of the estate. See Matter of Halux, Inc., 665 F.2d 213 (C.A. Minn.1981); In re E. Paul Kovacs and Co., Inc., 16 B.R. 203 (Bkrtcy.D.Conn. 1981); and In re Wesco Products Co., 22 B.R. 107, 9 B.C.D. 400 (Bkrtcy.N.D.Ill. 1982). Congress wanted an attorney with independence to "assist `in carrying out' duties under [The Bankruptcy Code]". I agree."
The resolution of the problem lies with the Congress, not loose interpretation of section 327 by the Courts.
CLAIM NUMBER II:
Locke Purnell Failed to Disclose Payment of Fees and Wrongfully Caused a Debtor in Possession to Pay a $500,000.00 Retainer
FINDINGS OF FACT
i. Locke Purnell Failed to Disclose a Retainer
1. General findings regarding Locke Purnell's representation of the Debtors have already been noted in the Findings of Fact and Background Relevant to All Other Findings section; only a brief review is necessary regarding this claim by the Committees.
2. Beginning in February 1985, and continuing throughout the term of this bankruptcy proceeding, Locke Purnell was retained to represent KHC, KIII, and various of the KHC subsidiaries. Representation continued until May 13, 1987, when this Court ordered Locke Purnell to discontinue representation of the Debtors, effective April 29, 1987.
3. During the course of the bankruptcy case, Locke Purnell applied for interim fee awards. The Court approved many of these applications, subject to later review.
4. On November 8, 1985, subsequent to an Order for Relief being entered against KIII, Locke Purnell received a retainer in the amount of $500,000.00 from KIII.
5. A letter from an attorney with Locke Purnell to Mr. Ken Davis indicates that the retainer was for the representation of several Involuntary Debtors in bankruptcy. These so called "Involuntary Debtors" were some of the many KHC related entities brought before this Court during the course of these proceedings.
6. The retainer had been paid with a cashiers' check drawn on InterFirst Bank Fort Worth, N.A. The cashiers's check provided to Locke Purnell indicated that KIII was the purchaser of the check; nothing in the cashier's check mentioned the Involuntary Debtors, or indicated that they were the purchasers.
7. The cashier's check had been purchased with a check drawn on KIII's account at InterFirst. The check used to purchase the cashiers check was stamped "Debtor-in-Possession" Case No. 385-30348.
8. Although KIII was a Debtor in Possession, no disclosure of the retainer was ever made to the Court or creditors.
9. KIII had complete ownership and control of the funds maintained in the account on which the cashiers' check was drawn. At no time did KIII charge the accounts of the KHC subsidiaries for any part of the retainer or for any of the legal expenses which were later charged to the retainer.
10. It is impossible to determine the source of the funds in KIII's bank accounts. KIII had income from several sources, including bank loans, cash forwarded from the subsidiaries, and accounts receivable. These accounts receivable were primarily for funds transferred to the subsidiaries as loans from KIII to the Involuntary Debtors, and for management fees.
11. Locke Purnell placed the retainer into an interest bearing account and for two years did not make any charges against it. While maintaining the retainer, *758 Locke Purnell was paid over $700,000.00 by KIII on behalf of the Involuntary Debtors for legal services. Neither the retainer nor the accrued interest held by Locke Purnell was charged for fees.
12. On August 13, 1987, and again on November 4, 1987, well after confirmation of the Committees' Plan of Reorganization, and after Locke Purnell had been removed as counsel for the Debtors, Locke Purnell charged the retainer for legal services provided after confirmation of the Committees' Plan.
13. The amount charged was $99,380.63 for services rendered after April 14, 1987, primarily in connection with representation of the Debtor's appeal regarding confirmation of the Committees' Plan. At the time of this representation of the Debtors on appeal, this Court had not authorized Locke Purnell to conduct any action on behalf of the estates.
14. Locke Purnell did not make application to this Court for approval of its charging the retainer for their services prior to actually charging the retainer.
15. Locke Purnell has returned the unused portion of the retainer, yet they have refused to return the $99,380.63 which was charged for post-confirmation, post-removal as counsel for the debtor, legal expenses.
16. The petitions against the remaining Involuntary Debtors, whom Locke Purnell claimed to represent, were dismissed by the Court on August 25, 1987.
17. On October 7, 1987, KHC filed an Application for Order Requiring Locke Purnell Rain Harrell to Return Fee Retainer.
ii. Undisclosed Payments of Fees to Locke Purnell
18. During the term of the case in which Locke Purnell was submitting interim fee applications to the Court for approval, they were also submitting bills to the Debtor, KIII, on account of work performed on behalf of the Involuntary Debtors.
19. Total billings were in the amount of $791,691.22; this amount includes the sum of $99,380.63 charged to the undisclosed $500,000.00 retainer. This payment occurred after Locke Purnell was removed as counsel for the Debtors.
20. KIII paid these bills out of its Debtor in Possession account. Locke Purnell was aware of the fact that their legal fees for representation of the Involuntary Debtors were being paid by an adjudged Debtor in Possession.
21. These payments were not disclosed to the Court nor to the Committees nor were they revealed in the several cash management orders entered by the Court.
22. Locke Purnell failed to make complete disclosure of the sums being paid by KIII on account of the Involuntary Debtors.
CONCLUSIONS OF LAW
i. Jurisdiction of this Court to Determine the Controversy
Initially, a comment might be made regarding the Court's jurisdiction over the amounts in controversy. The parties stipulated, and the Court agrees, that the Court lacks jurisdiction over amounts paid to an attorney by an Involuntary Debtor until such time as an order for relief is entered or unless the Court fashions some other order. See, 11 U.S.C. § 303(f) (1982). However, the Committees and current counsel for the reorganized Debtors argue that the amounts in question were not paid by the Involuntary Debtors but were in fact paid by KIII, a debtor. Because the funds were paid by KIII, the Court has jurisdiction to determine whether the funds were property of the estate. This jurisdiction is apparent form several sources. First, the general jurisdictional statutes for bankruptcy cases indicate that the Court will have jurisdiction over all property of the Debtor, wherever located. 28 U.S.C. § 1334(d) (Supp. IV 1987); 11 U.S.C. § 541 (1982 & Supp. IV 1987). Second, because the transfer is alleged to be an unauthorized post-petition transfer of property of the estate, the matter would be core under 28 U.S.C. § 157(b)(2)(A), (E), (H) and (O) (Supp. IV 1987). Third, Article XII of the confirmed Plan of Reorganization *759 reserves in this Court the power to adjudicate disputes as to recovery of assets of KHC and KIII.[14] The jurisdiction of this Court to determine this controversy is therefore established.
ii. The Facts Before the Court Indicate that the Amounts in Question Were Paid With Assets of the Estate
Section 329(a) of the Code, and Bankruptcy Rule 2016(b) plainly require that an "attorney representing a debtor . . . shall file with the court a statement of compensation paid or agreed to be paid." 11 U.S.C. § 329(a) (Supp. IV 1987). The possible consequences of failure to disclose may include disallowance of fees. In re Arlan's Department Stores, Inc., 615 F.2d 925 (2d Cir.1979) (attorneys for debtor denied compensation, and ordered to return fees paid for failure to disclose retainer until six months after retention); In re Futuronics Corp., 655 F.2d 463 (2d Cir. 1981) (fees disallowed for failure to disclose fee sharing arrangement). Under the applicable rules, the filed statement must also disclose the source of the compensation, even if the source is a third party entity. In re Chapel Gate Apartments, Ltd., 64 B.R. 569, 572 (Bankr.N.D.Tex.1986). It is undisputed that Locke Purnell did not disclose the $500,000.00 retainer it received from the Debtor, KIII, nor did it disclose the arrangements made with KIII for payments made to Locke Purnell for the benefit of the Involuntary Debtors. Therefore, if it is shown that the payments were made with property of the estate, disallowance of fees could provide an appropriate remedy.
Additionally, section 330 of the Code forbids payment to professionals without notice and hearing. The amounts paid by KIII to Locke Purnell on behalf of the Involuntary Debtors were made without notice and hearing. Again, if the amounts paid to Locke Purnell without approval were property of the Debtor estates, then disallowance of the fees is appropriate.
The critical question then is whether the funds used by KIII to pay the retainer to Locke Purnell, and used to pay the legal fees of the Involuntary Debtors, were property of the estate. The Court holds that regardless of (a) the source of the cash, (b) whether KIII was a zero net income company, or (c) to whom the assets of KIII were owed, the funds were property of the estate. Upon the filing of the involuntary petition, a bankruptcy estate was created, and that estate included the property of the Debtor. See, 11 U.S.C. § 541 (1982 & Supp. IV 1987). Those assets included all cash, property, and accounts receivable of the Debtor.
Locke Purnell attempted at hearing to argue that the amounts in KIII's accounts constituted some sort of trust fund for the subsidiary companies. This was based on the fact that KIII was solely a holding company for the KHC subsidiaries. However, Locke Purnell has not shown this Court anything which evidences any intent to create a trust. Therefore, no express trust is shown. Rosenberg v. Collins, 624 F.2d 659, 663 (5th Cir.1980). Further, this Court has already made a finding that it was impossible to trace specific funds in the accounts of KIII. Because specific funds are not traceable, an implied trust cannot be shown. Id.
The Court has already made a finding that KIII made no allocation of the expenses of Locke Purnell to any of the Involuntary Debtors. This also weighs against any trust theory, or any claim that it was actually the Involuntary Debtors who were paying Locke Purnell's fees.
All that remains is the fact that Locke Purnell received money from KIII, a debtor in bankruptcy. No evidence indicates that these funds were not property of the estate. Therefore, Locke Purnell violated *760 sections 541, 363, 328, 330 of the Code, and Bankruptcy Rule 2016 by receiving an undisclosed post-petition transfer of property of the estate as compensation of a professional.
CLAIM NUMBER III:
The Services Provided by Locke Purnell Were of No Benefit to the Estates
FINDINGS OF FACT
1. The Debtors' First Amended Plan of Reorganization was filed with the Court on December 5, 1985.
2. Counsel with Locke Purnell admitted that the Plan was "legally flawed," and could only be confirmed with the unanimous vote of all classes.
3. Locke Purnell was aware or should have been aware that the Committees were not going to vote for the Debtors' First Amended Plan, yet they went to the great expense of mailing the plan and having related hearings.
4. The First Amended Plan never obtained votes sufficient to allow it to proceed to confirmation.
5. On February 3, 1986, Locke Purnell filed its Third Amended Plan of Reorganization.
6. After months of hearings on the Third Amended Plan, the Court rejected the Plan by granting the Committees' motion under Federal Rule of Civil Procedure 41(b). Judgment was entered on June 24, 1986, and subsequent findings were entered on August 6, 1986.
7. Among other things, the findings of the Court, in the denial of confirmation, discussed the legal inadequacies of the Debtors' Third Amended Plan. For instance, the Court found that classification of one creditor was an "attempt to create an impaired consenting class, and was not done in good faith."
8. Following rejection of the Debtors' Plan, the Committees' Plan proceeded to confirmation hearings. Locke Purnell vigorously opposed confirmation, despite their view, as expressed to Mr. Ken Davis, that the Committees' Plan was confirmable.
9. On November 24, 1986, the Committees' Plan was confirmed.
10. Also on that date, the Court issued its order denying Locke Purnell's request for a new hearing of the Debtors' Third Amended Plan.
11. On November 24, 1986, Locke Purnell appealed the Court's order confirming the Committees' Plan, and the order denying rehearing on the Debtors' plan.
12. On November 28, 1986, Locke Purnell filed a motion for stay pending appeal with this Court.
13. On December 4, 1986, the Court allowed temporary stay until January 16, 1987.
14. On January 7, 1987, Locke Purnell filed a motion for stay pending appeal with the District Court.
15. On March 26, 1987, the District Court denied stay pending appeal, and issued a memorandum opinion dismissing Locke Purnell's appeal.
16. On March 31, 1987, Locke Purnell filed a motion to vacate the Court's order confirming the committees' plan based on the previous Bankruptcy Judge's alleged conflict of interest. On April 7, 1987, a similar motion was filed with this Court.
17. On April 10, 1987, the District Court denied Locke Purnell's motion to vacate. The motion to vacate was also denied by this Court.
18. On April 10, 1987, Locke Purnell appealed the District Court's order denying motion to vacate. Also on that date, the District Court denied Locke Purnell's motion to stay the District Court's order pending appeal.
19. On September 24, 1987, the United States Court of Appeals for the Fifth Circuit affirmed the District Court's orders denying Locke Purnell's appeals. Among other findings, the Fifth Circuit held that only "one aspect of the appeal [was] not frivolous." In re Kendavis Holding Company, No. 87-1251, slip op at 2 (5th Cir. 1987) (per curiam).
20. On November 10, 1987, the Fifth Circuit directed that costs of the appeal be *761 assessed against old management of KHC, and the Davis stockholders.
21. On December 18, 1987, this Court denied Locke Purnell permission to seek writ of certiorari to the United States Supreme Court.
22. Following implementation of the Committees' plan, Locke Purnell made several motions to this Court, in an apparent attempt to delay or defeat implementation. These motions included:
(i) motion to appoint a trustee,
(ii) motions to prevent dismissal of several involuntary debtors, and
(iii) motions to stop payment to a class of creditors.
All of these motions were overruled.
CONCLUSIONS OF LAW
The point of all of the above findings is to show that Locke Purnell's efforts in these cases have been remarkably unsuccessful. Their best efforts have been defeated at every turn for nearly three years. For example, their plans were rejected twice and appeals of the confirmation were uniformly denied. This raises the issue of the previously discussed Johnson factors regarding Locke Purnell's right to compensation. Johnson, 488 F.2d 714. Also to be considered is 11 U.S.C. § 330 (Supp. IV 1987).
Section 330 of the Code allows professionals compensation based partially on "the value of such services." 11 U.S.C. § 330(a)(1) (Supp. IV 1987). Obviously if a service is of little value to the estate that fact should be considered when awarding compensation.
As previously discussed, the Fifth Circuit has instructed that courts consider the Johnson factors when making awards of compensation. First Colonial, 544 F.2d at 1299. One of the "special heed" Johnson factors is "results obtained." Copper Liquor, 624 F.2d at 583. In this case, the results obtained by counsel for the Debtor did not benefit the estate. One must wonder whether the battle was to confirm a plan or for some other retribution.
The case law plainly supports a reduction of fees for failure to achieve beneficial results. In In re Coastal Equities, Inc., 39 B.R. 304, 311 (Bankr.S.D.Cal.1984), the court found that counsel for the debtor's fees should be reduced by 50% for failure to achieve a successful plan of reorganization. Accord, In re Garnas, 40 B.R. 140, 142 (Bankr.D.N.D.1984).
Therefore, based on the facts of the case, the Court has no choice but to hold that Locke Purnell's fees do not survive one of the special heed Johnson factors, that of benefit to the estate. Further, the requirements of section 330 of the Code requiring compensation only for value of services provided have not been met. Reduction of fees is appropriate under this standard.
VI. DISCUSSION OF THE LAW REGARDING FEE ALLOWANCE TO COUNSEL HOLDING A CONFLICT OF INTEREST
Having reached the conclusion that Locke Purnell had a conflict of interest in its representation of the Debtors, the Court must take appropriate action. In particular, the Court must consider the various cases which suggest methods for dealing with a conflict of interest in a bankruptcy case. The conclusion is that Locke Purnell's fees must be reduced. It might be noted that the discussion in this section of the opinion applies only to a fee reduction for conflicts of interest. Any possible reduction of fees for other claims is considered hereafter.
It has already been noted that the Bankruptcy Code gives the Court the authority to disallow fees where a professional is found to not have been disinterested. 11 U.S.C. section 327 (1982). It has also been shown that the case law supports the result. See, e.g., In re Chou-Chen Chemicals, 31 B.R. 842 (Bankr.W.D.Ky.1983). The only question therefore is whether fees are to be disallowed in their entirety, or only in part.
The seminal case regarding conflicts of interest in bankruptcy cases is Woods v. City National Bank and Trust Co., 312 *762 U.S. 262, 61 S. Ct. 493, 85 L. Ed. 820 (1941). This case affirmed the decision of a district court which disallowed compensation to an attorney for a Chapter X debtor because the applicants were serving conflicting interests. In Woods, the court held that "reasonable" compensation "necessarily implies loyal and disinterested service in the interest of those for whom the claimant purported to act." Id. at 268, 61 S. Ct. at 497. A narrow interpretation of this case might indicate that attorney fees should be disallowed in total upon the finding of a conflict. This conclusion is reached from the Supreme Court's frequently cited conclusion that "where an actual conflict of interest exists, no more need be shown in this type of case to support a denial of compensation." Id. at 266, 61 S. Ct. at 496.
Other courts do not maintain this strict standard. For example, in Berner v. Equitable Office Building Corp., 175 F.2d 218 (2d Cir.1949), the court held that the penalty for the conflict of interest ought to be in proportion to the gravity of the breach, rather than the entire fee. Id., at 222. In re Martin, 817 F.2d 175 (1st Cir. 1987); In re GHR Energy Corp., 60 B.R. 52 (Bankr.S.D.Tex.1985); In re O'Connor, 52 B.R. 892 (Bankr.W.D.Okla.1985); In re Roberts, 46 B.R. 815 (Bankr.N.D.Ga.1985).
Other courts suggest a type of balancing test which would compare the attorneys misconduct with the equities of the case. Watson Seafood, 40 B.R. at 440. This case held that "all fees are denied when a conflict is present, but the court should have the ability to deviate from that rule in those cases where the need for attorney discipline is outweighed by the equities of the case." Id. Absent a clear pronouncement of another rule in the Fifth Circuit, the rule this Court adopts is that where a conflict of interest is apparent, all fees should be denied unless for exceptional reasons partial compensation should be allowed.
In this case, it is the Court's view that it would be inequitable to disallow Locke Purnell's fees in their entirety, because Locke Purnell plainly committed a great deal of time and labor to these cases, based on the previous Court Orders as to interim compensation and postponement of ascertainment of lack of disinterestedness. The Court therefore finds that by awarding Locke Purnell 50% of the compensation it was previously awarded in these cases, an adequate balance is struck between the attorney discipline and the exceptional equities of this case. This is the Court's order regarding the conflicts issue in the Chapter 11 cases only. Again, the other issues in involuntary cases are treated separately.
CONCLUSION
The Court has made three overall conclusions:
i. Locke Purnell had a conflict of interest in its representation of the Debtors.
ii. Locke Purnell failed to disclose payment of fees, and wrongfully paid itself a retainer.
iii. The services of Locke Purnell were of questionable benefit to the estates.
The Court has concluded that a 50% reduction in fees is an appropriate response for Locke Purnell's conflicts of interest and the rendition of services of doubtful value. The Court will use this section to make findings on the amount of fees to be allowed, and make some other comments to make the drafting of an order more complete.
Locke Purnell failed to disclose the fact that it had received a retainer from KIII without Court approval, and received further payments from KIII as to services rendered to the Involuntary Debtors, all without Court approval, as required by Bankruptcy Rule 2016(a). In short, Locke Purnell accepted payment of fees from a bankruptcy estate without disclosure, and without Court order. The Court orders a denial of fees in toto as to the funds received from KIII for retainer ($500,000), plus all receipts from KIII on billings (including expenses) pertaining to Involuntary Debtors. The order requires any sums paid by KIII post-petition on behalf of Involuntary *763 Debtors or any other non Court approved purpose to be returned to the estate.
This constitutes Findings of Fact and Conclusions of Law as required by Bankruptcy Rule 7052.
*764 ADDENDUM *765
NOTES
[*] Pursuant to Rule 60(a), Federal Rules of Civil Procedure.
[1] "The record of corporate reorganizations . . . is not pleasant. It shows the absolute control exercised over reorganizations by the inside few; it shows the financial well-being of investors and the public sacrificed to the insiders' desire for protection and for profit . . . It shows that these delays, these futile prolongations of the agony of reorganizations were frequently due to deliberate sabotage by a group which had something to gain and was unwilling to compromise . . . The record also shows, with overwhelming proof, that plans of reorganization were frequently dictated by a single interest by a closely knit inside group; primarily in the interests of that group and of dubious wisdom so far as interest outside the inner circle were concerned."
H.R.Rep. No. 1409, 75th Cong., 1st Sess., at 38 (1937) (statement of Justice William O. Douglas).
[2] In re Marston Enterprises, Inc., 13 B.R. 514 (Bankr.E.D.N.Y.1981).
[3] It is interesting to note that the requested substantive consolidation was in name only, the assets of the companies were never actually to be combined for purposes other than confirmation of the plan itself. Immediately upon implementation of the plan, the Debtors would have become separate entities. Effectively, the substantive consolidation was effective only to claims against the estates.
[4] For instance, if the oil-field service industry experienced growth during the course of the plan, the increase in value of the debtor corporations would not accrue to the benefit of the unsecured creditors, despite the fact that those creditors were to receive only partial payment under the proposed plan. Effectively, any "upside" growth would benefit only the interest holders, primarily Mr. Ken Davis.
[5] Attached as an Addendum.
[6] Movant's Exhibit 37, a letter dated September 13, 1985 from Mr. Ken Davis to Mr. James W. Harris of Lehman Brothers, states:
My present reaction is to disregard the all rhetoric by the banks of what's acceptable and what's not and plan to fight to the last ditch for what is acceptable to us and not be persuaded by anything you are told by any banker.
I don't think I can be very proud of selling out.
An easier approach would be to sell off all the companies, leave me with a minority interest and I could quit work, go fishing, and live off dividends.
[7] Movant's Exhibit 62 at III(E)(2)(b)(1).
[7a] During the preparation of this opinion, District Court Judge DeAnda entered an order providing that Judge Wheless' January 30, 1988 memorandum in Coral Petroleum had been rendered "moot" and "of no further force and effect." In re Coral Petroleum, No. 88-1527 slip op. at 2 (D.S.D.Tex. July 7, 1988). While this Court is unaware of the subsequent event eliminating the element of controversy between the parties in Coral Petroleum, the language and analysis of the Bankruptcy Court opinion during its vibrancy remains pertinent for purposes of this decision.
[8] In re Roberts, 75 B.R. 402, 413 (D.Utah 1987); In re O.P.M. Leasing Services, Inc., 16 B.R. 932 (Bankr.S.D.N.Y.1982); In re O'Connor, 52 B.R. 892 (Bankr.W.D.Okla.1985) (de minimus adverse interest); In re Martin, 817 F.2d 175 (1st Cir.1987).
[9] Exhibit No. LPRH-27, introduced into evidence by Locke Purnell, is an article in support of its position.
[10] In re S.I. Acquisition, 58 B.R. 454 (W.D.Tex. 1986) rev'd on other grounds, 817 F.2d 1142 (5th Cir.1987). The Bankruptcy Court in the Western District of Texas in dictum so stated:
Bankruptcy courts are seeing an increase in large parent corporations with multi-tiered subsidiaries. The "increased judicial recognition of the widespread use of interrelated corporate structures by subsidiary corporations operating with a parent entity's umbrella for tax and business planning purposes" will soon force courts to respond to this transition from entity to enterprise law.
. . . . .
The "entity" concept and "piercing the corporate veil" jurisprudence must be replaced by an "enterprise" theory of law where evaluation of a cause of action relies on broader equitable principles governing conduct of fiduciaries on either an individual or interrelated corporate basis. (Citations omitted).
This Court disagrees.
[11] Blumberg, The Law of Corporate Groups (1985).
[12] This observation is directed to our profession in general rather than as a criticism of the individual lawyers in this case.
[13] This Court has had a graphic experience with such situations. In one case of multi-affiliated entities, one of which was a public company, after this Court disqualified counsel for the holding company and affiliated subsidiaries, a consensual confirmed plan was achieved within one year. All this was accomplished with new counsel for each corporate entity at no greater expense than the use of one firm. The Court foresees no reason to assume one large firm will represent several entities at less cost than one firm representing each entity.
[14] Article XII, section 12.05 of the Committees' Plan provided for the retention of jurisdiction:
To determine any application, adversary proceeding or contested matter commenced on or after the Confirmation Date involving the collection or liquidation of assets of the Debtors, including, without limitation, any proceeding commenced for the purpose of voiding, recovering or preserving for the benefit of the Estates any transfer of property, obligations incurred by the Debtors lien or set off. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547316/ | 73 F.2d 177 (1934)
MATHESON et al.
v.
NORFOLK & NORTH AMERICA STEAM SHIPPING CO., Limited, et al.
No. 7438.
Circuit Court of Appeals, Ninth Circuit.
October 22, 1934.
R. G. Wright, H. B. Jones, Robert Bronson, and Wright, Jones & Bronson, all of Seattle, Wash., for appellants.
Erskine Wood and Wood, Montague, Matthiessen & Rankin, all of Portland, Or., for appellee Norfolk & N. A. Steam Shipping Co.
Before WILBUR, SAWTELLE, and GARRECHT, Circuit Judges.
*178 SAWTELLE, Circuit Judge.
This is an appeal from a decree in admiralty in an action whereby libelant/appellee, the Norfolk & North America Steam Shipping Company, Limited, owner of the British motorship Pacific Commerce, a steel steamer 420 feet long, 54 feet in beam, and 25 feet in depth, sought to recover from appellant Matheson, as pilot, damages alleged to have resulted from the grounding of said vessel on Desdemona Sands, opposite the Port of Astoria, Or., on October 29, 1931, while Matheson was in charge of the navigation of the vessel as pilot.
The Hartford Accident & Indemnity Company is involved in the proceeding only as surety for appellant Matheson.
Matheson impleaded the Port of Astoria, a municipal corporation, under General Admiralty Rule No. 56 (28 USCA § 723), claiming said port to be primarily responsible for any damage which was occasioned. The Port of Astoria was exonerated by the decree of the court below, and, by stipulation of the parties, it has been eliminated from this appeal, and the decree, in so far as it affects such party, is not sought to be disturbed.
The libel alleged that Matheson was a licensed Columbia river pilot and a member of the Columbia River Pilots' Association, and held himself out as one able and skilled in the piloting of vessels on the Columbia river; that on October 29, 1931, appellee employed Matheson as pilot on its vessel the Pacific Commerce and while in charge of the navigation of said vessel Matheson so maneuvered and navigated her that she grounded upon a sand bank in the Columbia river at Astoria, Or., doing considerable damage to the vessel; that the causes and circumstances of the grounding were as follows:
"The said respondent [Matheson], while in charge of said vessel and her navigation, attempted to bring her alongside and make her fast to Astoria Port Dock Pier No. 1, but so misjudged the state of the tide and the currents and eddies thereby set up around said dock, that after the forward spring line was made fast, the tide, striking the vessel on her port quarter, set the stern out from the dock before a stern line could be made fast; that thereupon said respondent ordered the spring line let go, intending to turn the vessel around on a port helm and come up stream to the dock with the vessel's starboard side thereto so that she would not be set out from the dock as had just happened; that said respondent, in navigating said vessel in his attempt to turn her around on a port helm, ran her aground on a bar or shoal, the port side of the vessel grounding on the shoal; that the navigable channel at this place is more than a quarter of a mile wide; that as a result of said grounding, the ship's plates were bent and dented and she was otherwise damaged, and had to be repaired, and also had to employ towboats to come to her assistance, and libelant was thereby damaged in the sum of $9,000.00; that said damage was all occasioned by the negligence of the respondent, and especially respondent was negligent and careless in the following particulars, to-wit:
"1. In attempting to dock the vessel head down stream in the then state of the tide and currents;
"2. In the manner in which he attempted to turn the vessel around after leaving the dock;
"3. In misjudging the strength and effect of the tide and current that he would encounter in turning the vessel around in the manner he attempted;
"4. In misjudging the distance between the dock and the shoal and the width of the navigable water;
"5. In failing to order one or both anchors dropped to keep said vessel from going aground;
"6. In not backing away from the dock when the spring line was cast off, instead of going ahead, and in not turning the vessel around by means of so backing her out instead of in the manner he attempted;
"7. In grounding the vessel upon said shoal as alleged;
"8. And all of said acts of negligence caused or contributed to the said stranding and damage."
The court found and decreed that Matheson was negligent in navigating the ship, as follows:
"In failing to keep the motor-ship in the channel of the river;
"In misjudging the location and extent of the shoal on the north bank of the river;
"In misjudging the distance between the dock and the shoal;
"In grounding the vessel upon said shoal;
"In failing to order one or both anchors dropped to keep said vessel from going aground."
The court held that "libelant is entitled to recover of and from the respondent such damages as it incurred in employing towboats and such incidentals as were necessary to pull the motor-ship off the bar of the shoal, including *179 the cost of employing towboats to come from Portland to its assistance," but is not entitled to recover for damages to the ship's plates. The amount of expenses and loss has been reached by agreement of the parties as $1,169.11 and is not in dispute on this appeal.
The court also made findings of facts as follows:
"That shortly prior to said stranding the said pilot had attempted to dock the said vessel at the Port of Astoria dock in the Columbia River, but failing to do so, due to the then state of the tide, he attempted to turn the vessel around in the channel by going ahead on a port helm with the intention of bringing the vessel back again to the dock, starboard side to, and head up stream. The channel at this point between the dock and the shoal on which the ship stranded is about 1800 to 2000 feet wide, and is of ample width to turn ships of the size and character of the `Pacific Commerce' with safety, and a great many ships have been turned there in safety.
"That the weather was clear, it was broad daylight, there was no wind sufficient to affect the movement of the vessel, and the tide was commencing to ebb. The Port of Astoria dock is on the south side of the channel. Desdemona Sands are on the north side of the channel. The ebb tide sets in a westerly direction, down stream, or a northwesterly direction from the dock toward the Sands, according to the varying stages of the tide, but there were no tidal or any other conditions existing to prevent the safe turning of the vessel, had she been properly handled.
"That the said pilot's commands were all promptly and reasonably obeyed, the vessel's helm and machinery all worked properly, the pilot's handling of the vessel was not in any way interfered with by the master, who relied upon the pilot, with his superior knowledge of the local conditions and waters, to turn the vessel as he deemed best, the master merely asking the pilot whether there was plenty of water in which to make the turn, and the pilot responding that there was. Notwithstanding this, the pilot, maneuvering the vessel ahead on a port or hard-a-port helm, did not make the turn successfully, but ran the ship aground on Desdemona Sands approximately 1800 to 2000 feet away from the dock from which he had started, and approximately opposite thereto. The pilot did not at any time order the anchors dropped, nor were they dropped, and the ship took the sands with engines at full speed ahead. The pilot admitted that Desdemona Sands at the place where he grounded had shoaled out into the channel a little further than he had thought they extended."
As stated in the brief of appellant,
"The assignments of error, taken as a whole, disclose one primary issue, followed by one subordinate alternative issue, which may be stated as follows:
"1. Under the undisputed facts of this case, excluding testimony or evidence which is reasonably conflicting, was actionable negligence established against the appellant?
"and
"2. If actionable negligence was established, then was not the appellee also negligent in particulars proximately contributing to the grounding, requiring a division of damages?"
It is admitted that there was ample room in the channel to successfully turn the vessel as attempted. Nevertheless, the ship was grounded on a shoal 1,800 feet distant from the pier where the turning maneuver was commenced. The facts immediately suggest negligence on the part of the pilot. This thought finds support in a letter written by appellant right after the accident, addressed to the State Board of Pilot Commissioners, and admitting his fault, as follows: "Report of grounding of the m/v Pacific Commerce. While attempting to turn the said vessel around off the Astoria Port dock, I let her get too far over on the north side of the channel. At about 2:36 P. M. she took the ground on her port bow and swung against the sands on her port side. I tried to work her off but without success. This grounding was no fault of the ship's maneuvering, and wish to state the Captain or his officers were in no way at fault, it just being a misjudgment on my part regarding the set of the tide. I first came in to Pier No. 1 head downstream, but the stern of the vessel set off, so I had to turn her around. While attempting this she took the ground."
In considering the question of appellant's negligence, it must be remembered that he was charged with the duty of being familiar "with all dangers that are permanently located in the course of the river, as sand-bars, snags, sunken rocks or trees, or abandoned vessels or barges." Atlee v. Packet Company, 21 Wall. (88 U. S.) 389, 396, 22 L. Ed. 619. "All this he must know and remember and avoid." Id.
From the situation as we have seen it to be, therefore, "we must infer fault unless good proof exculpates the navigator." Louis-Dreyfus v. Paterson Steamships (C. C. A. 2) 43 F.(2d) 824, 826, 72 A. L. R. 242.
*180 To relieve himself from liability, or to obtain a division of the damages, appellant contends: (1) That the turning of the vessel in the channel would have been successfully accomplished had not its captain stopped the engines for about one minute while passing a ship at berth, thus lengthening her turning radius; and (2) that certain buoys did not correctly mark the edge of the shoal in question.
If the engines were in fact stopped for approximately one minute, as claimed by appellant, nevertheless appellant continued on his course, considering it safe to do so. In any event, in his report, above quoted, he absolved the captain and the ship's officers from fault. The court found that "the pilot's handling of the vessel was not in any way interfered with by the master." We see no error in this finding.
So far as the record discloses, only appellant testified to the alleged erroneous location of the buoys. Whether or not this was a fact and a cause which contributed to the grounding of the vessel has been determined adversely to appellant by the trial court, and we think properly so. In view of the duty imposed on appellant of knowing the true location and extent of the shoal, and his admission that he knew it gradually shifts from year to year, we believe the court correctly found him negligent "in misjudging the location and extent of the shoal on the north bank of the river," and "in grounding the vessel upon said shoal."
It is contended that the use of a wire cable in attempting to tie up at the pier, instead of a Manila rope spring line which was requested by appellant for that purpose, "unquestionably contributed to the vessel being placed in the awkward position from which it was necessary to attempt to extricate her, resulting in the maneuver under discussion." We fail to see how this fact contributed in any way to the grounding of the vessel. Appellant admits that after the line was cast off the vessel was still in a perfectly safe position to go ahead and make the turn and that he considered it safe to do so.
We believe this case calls for application of the well-settled rule that the trial judge's findings, on conflicting evidence heard by him, will not be disturbed on appeal unless clearly against the weight of the evidence. Some of the testimony in this case was by deposition, but most of it was in open court. In The Warrior, 54 F. 534, 537, this court said: "In this case the most of the evidence was taken before the district judge, and it would seem to be a proper case for the application of the rule that on appeal in admiralty from the district court, where questions of fact are involved depending upon conflicting testimony, the decision of the district judge, who has had the opportunity of seeing the witnesses, hearing them testify, and judging of their credibility, will not be reversed unless clearly against the weight of evidence. [Citing cases.]"
The same rule was announced by Judge Lurton in City of Cleveland v. Chisholm (C. C. A. 6) 90 F. 431, 434. Likewise pertinent and controlling here is the statement of the Supreme Court in The Ludvig Holberg, 157 U. S. 60, 71, 15 S. Ct. 477, 481, 39 L. Ed. 620: "If there be any evidence to support the findings, as there undoubtedly is, they should not be disturbed." See, also, Chesapeake Lighterage & Towing Co., Inc., v. Baltimore Copper Smelting & Rolling Co. (C. C. A. 4) 40 F.(2d) 394, 395.
We have, however, examined all of the evidence in the record, and agree with the trial court that it is sufficient to sustain the charge of negligence against appellant Matheson, and that there is no reason why a decree of divided damages should be entered.
The decree is therefore affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547318/ | 73 F.2d 473 (1934)
HILLIARD
v.
PENNSYLVANIA R. CO.
No. 6441.
Circuit Court of Appeals, Sixth Circuit.
November 7, 1934.
*474 M. C. Harrison, of Cleveland, Ohio (Harrison & Marshman and Krieg & Stendel, all of Cleveland, Ohio, on the brief), for appellant.
T. L. Jackson, of Youngstown, Ohio (Harrington, Huxley & Smith, of Youngstown, Ohio, on the brief), for appellee.
Before MOORMAN, HICKS, and SIMONS, Circuit Judges.
MOORMAN, Circuit Judge.
Appellant was injured in the state of Pennsylvania by one of appellee's trains when he was three and a half years old. Eighteen years later he brought this suit in Ohio to recover for the injuries, alleging that they were caused by the negligence of the crew in charge of the train. The appellee by answer denied the allegations of negligence and pleaded, in bar of the action, the Pennsylvania statute of limitation, which it alleged was applicable. At the conclusion of the opening statement at the trial, the court directed a verdict for the appellee, on which judgment was entered. The record does not show whether the court acted on the view that the facts stated by counsel were not sufficient to support an inference of negligence, or was of opinion that the action was barred by limitation.
*475 In Best v. District of Columbia, 291 U. S. 411, 415, 54 S. Ct. 487, 489, 78 L. Ed. 882, it was said: "To warrant the court in directing a verdict for defendant" upon an opening statement, "it is not enough that the statement be lacking in definiteness, but it must clearly appear, after resolving all doubts in plaintiff's favor, that no cause of action exists." See, also, Anderson v. Missouri State Life Ins. Co., 69 F.(2d) 794, 797 (C. C. A. 6). Applying this rule to the opening statement here acted upon, it is our opinion that the court was not justified in directing the verdict upon the ground that the facts stated were not sufficient to support an inference of negligence. Whether they clearly show that the action was barred when brought depends on the construction to be placed upon the statutes of Ohio limiting the time in which actions may be brought in Ohio on causes arising in foreign jurisdictions.
Counsel agree that by the law of Pennsylvania, the cause of action was barred at the expiration of two years from the date of the injury. Pa. St. 1920, § 13859a (12 PS Pa. § 34); Peterson v. Ferry Co., 190 Pa. 364, 42 A. 955. They also agree that the Pennsylvania statute is a limitation on the remedy only, and that the question whether the cause of action is barred in Ohio must be determined by the law of Ohio. They differ as to the interpretation to be placed on the Ohio statutes. General Code Ohio, § 11224-1, provides: "An action for bodily injury or injuring personal property shall be brought within two years after the cause thereof arose." Section 11229 provides: "Unless otherwise specially provided therein, if a person entitled to bring any action mentioned in this chapter, unless for penalty or forfeiture, is, at the time the cause of action accrues, within the age of minority, of unsound mind, or imprisoned, such person may bring it within the respective times limited by this chapter, after such disability is removed. * * *" This latter section clearly postpones the application of the former to a minor injured in Ohio until the minor shall become of age. The Pennsylvania statute, as indicated, provides that a minor's cause of action for personal injury shall be barred at the expiration of two years from the date of the injury. Thus under the Pennsylvania statutes, limitation for bringing an action for personal injury to a minor is a "less number of years" than under the statutes of Ohio. Ohio General Code, § 11234, provides: "If the laws of any state or country where the cause of action arose limits the time for the commencement of the action to a less number of years than do the statutes of this state in like causes of action then said cause of action shall be barred in this state at the expiration of said lesser number of years." The time allowed by the Pennsylvania law for commencing an action for personal injury to an infant being less than the time fixed by the statutes of Ohio, it would seem plain that this statute fixes in Ohio the same period for commencing action on such causes arising in Pennsylvania as is fixed by the Pennsylvania statute. Appellant contends, however, that section 11229 of the Ohio Code, which extends section 11224-1 of the Code of that state, must be construed as likewise applicable to and extending section 11234 so far as it relates to a minor's cause of action for personal injuries arising in another state. We think the history of the Ohio statutes does not justify that construction.
The origin of sections 11229 and 11234 is to be found in the Code of Civil Procedure Act of March 14, 1853 (51 Laws of Ohio 57). Title 2 of that act is entitled "Time of Commencing Civil Actions," and is divided into chapters. Chapter 3 is entitled "Actions other than for the recovery of real property." Section 19 thereof is substantially the same as the present section 11229. Chapter 4 is entitled "General Provisions," and section 22 thereof corresponds to the present section 11234. The headings and numbers of the chapters were retained in Swan's Revised Statutes of Ohio (1854), and the language remained unchanged (pages 628, 629). It thus appears that causes of action arising in other states were not mentioned in the same chapter with the section relating to disabilities in either the Civil Procedure Act of 1853 or in the Revised Statutes of 1854. In the Revised Statutes of 1880, title 2 was denominated "Chapter 2" but was entitled "Time for Commencing Civil Actions." Chapter 3 became subdivision 3 and was entitled "Other Actions." Section 19 became section 4986, and the wording was changed so as to read: "If any person entitled to bring any action mentioned in this subdivision," etc. Chapter 4 became subdivision 4, and section 22 became section 4990, and as changed read: "If, by the laws of the state or country where the cause of action arose, the action is barred, it is also barred in this state." In this edition of the Revised Statutes, causes of action arising in other states were not mentioned in the subdivision which contained the section relating to disabilities. Section 4986 of the Revised Statutes was amended March 26, 1883 *476 (80 Ohio Laws, p. 77), and therein the section relating to disabilities referred to any action mentioned in "this subdivision." Likewise, in the amendment of April 14, 1886 (83 Ohio Laws, p. 74) and the Revised Statutes of Ohio (Smith & Benedict 1893) the word "subdivision" was used in this section. The two sections were not in the same subdivision in any of these enactments. In the Ohio General Code of 1910, chapter 2, tit. 54, was entitled "Limitations of Actions," and divided into subheadings, but the subheadings were not called "subdivisions." In that Code, section 4986 of the Revised Statutes became section 11229, in its present form, under the heading "Saving Clause Disabilities," with the word "chapter" substituted for "subdivision." This change and the adding of "Unless otherwise specially provided therein" were the work of a codifying commission. Revised Statutes, § 4990, became section 11234, in its present form, having been amended by an Act of May 10, 1910 (101 Ohio Laws, p. 226), and was printed in the same chapter under the heading "Bar of Foreign Law and Other Matters." The present Ohio General Code is the same. These changes, as we have stated, were made by a codifying commission, but the entire Code was adopted by the General Assembly of Ohio in 1910 by an act entitled "An Act to revise and consolidate the General Statutes of Ohio."
It is clear from the history of these statutes that prior to the Code of 1910 the disability section had no application to the section relating to causes of action arising in other states. The question, therefore, is whether we must accept the grouping of the sections in the Code of 1910 as conclusive, or should examine and consider the original statutes in determining the legislative intent of the provisions here in question. Both provisions were enacted at the same time. Section 11234 definitely provides for the same period of limitation as exists in the state where the cause of action arose, provided it is "a less number of years" than the Ohio period. A preceding section in the same enactment deals, as we have seen, with the Ohio limitation in actions for personal injuries to minors. The plain purpose of section 11234, it seems to us, is not to extend the limitation as to causes arising in other states beyond the periods fixed in such states. This purpose would be defeated if appellant's construction of section 11229 is to be accepted. Furthermore, we cannot suppose that it was intended by the enactment of section 11229 to make the Ohio courts the haven of infants and other persons under disability having claims outlawed in the states in which they arose. In this situation we think there is such doubt as to the meaning of the two provisions as to justify resort to the original statutes as an aid in arriving at the legislative intent. Ash v. Ash, 9 Ohio St. 383; Hamilton v. Steamboat R. B. Hamilton, 16 Ohio St. 428; State ex rel. v. Commissioners of Shelby County, 36 Ohio St. 326; Allen v. Russell, 39 Ohio St. 336; The State ex rel. Manix v. Auditor of Darke Co., 43 Ohio St. 311, 1 N. E. 209; State ex rel. Pugh v. Brewster, 44 Ohio St. 249, 6 N. E. 653; State v. Stout, 49 Ohio St. 270, 284, 30 N. E. 437. There are, it is true, decisions of the Supreme Court of Ohio where the court has refused to allow earlier acts to influence interpretation of later ones, but an examination of those decisions shows that in each case it was clear from the wording of the revised act that a "change in substance was intended." In our opinion, there is no such intent apparent from the wording of this act, and we must therefore hold that section 11229 does not relate to causes of action arising in other states and does not have the effect of extending the period of limitation fixed by the Pennsylvania law as imported into the Ohio law by section 11234.
The appellant contends that the appellee is estopped from asserting the defense of limitation because of a statement made by its claims adjuster to appellant's father, shortly after the accident, that "when the boy gets to be twenty-one years old, he can determine for himself whether he will file a lawsuit or not." This statement did not amount to an express promise or agreement not to rely upon the statutes, as in Schroeder v. Young, 161 U. S. 334, 16 S. Ct. 512, 516, 40 L. Ed. 721, where the defendant stated that "the statutory time to redeem would not be insisted upon." In our view, it was but an expression of the opinion of the claims adjuster as to a matter of law. Nothing appears in the record to indicate that he was an expert in the laws of limitation or that the facts were not as well known to the father as to him. Each of the parties was chargeable with knowledge of the law. Mutual Life Ins. Co. of New York v. Phinney, 178 U. S. 327, 342, 20 S. Ct. 906, 44 L. Ed. 1088. The expression by the claims adjuster of his opinion as to the law, in such circumstances, cannot, therefore, operate as an estoppel. Fish v. Cleland, 33 Ill. 243; Hopperton v. Louisville & N. R. Co., 34 S. W. 895, 17 Ky. Law Rep. 1322; Upton v. Tribilcock, 91 U. S. 45, 50, 23 L. Ed. 203; Sturm *477 v. Boker, 150 U. S. 312, 336, 14 S. Ct. 99, 37 L. Ed. 1093. The case is different from Snell v. Insurance Co., 98 U. S. 85, 25 L. Ed. 52, where the party relied upon the greater knowledge of an insurance agent as to the extent of the protection offered by the policy, and, similarly, from Wheeler v. Smith, 9 How. 55, 81, 82, 13 L. Ed. 44, where a young, inefficient, and easily-misled man relied upon statements made by a distinguished lawyer in whom he reposed great confidence. Here, as stated, there was no showing that the claims adjuster was an expert in the law, or was believed to be one by the appellant's father, or that the latter was not fully as competent as the adjuster to determine what the son's rights were as to the question of law upon which the adjuster is said to have expressed an opinion.
It is our view, therefore, that the appellee is not estopped from relying upon the statutes of limitation, and that as the statutes had run when the action was commenced, the trial court rightly directed a verdict for the appellee.
The judgment is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547321/ | 73 F.2d 184 (1934)
NEW YORK ESKIMO PIE CORPORATION
v.
RATAJ et al.
No. 5289.
Circuit Court of Appeals, Third Circuit.
September 27, 1934.
James Alan Montgomery, Jr., Layton M. Schoch, and Richard A. Smith, all of Philadelphia, Pa., for appellant.
Michael D. Hayes and Francis M. McAdams, both of Philadelphia, Pa., for appellees.
Before BUFFINGTON, DAVIS, and THOMPSON, Circuit Judges.
DAVIS, Circuit Judge.
The facts in this case were found by a jury in the District Court and are undisputed. The questions here involve the issue of the negligence of the defendant, the New York Eskimo Pie Corporation, and the difficult and abstract proposition of whether or not the negligent conduct or act of the defendant *185 was the "proximate cause" of the injuries of the plaintiff Josephine Rataj, a minor.
The defendant manufactures and sells a product of ice cream with a chocolate covering, known in the trade as "Eskimo Pie," and furnishes its dealers with a suitable receptacle in which it places its product daily, together with a cake of dry ice, weighing approximately one pound, in a paper bag, for refrigeration.
On the day of the accident, an employee of the defendant delivered "Eskimo Pies" to the store of John Rataj, one of the plaintiffs in this case and the father of the injured child. The employee took the bag containing the dry ice which was placed in the receptacle the previous day and threw it into the street in front of the store and residence of the plaintiffs. The bag contained a piece of dry ice that had not evaporated or melted in the meantime. It was triangular in shape and approximately one inch long, one inch wide at its apex, and about one-half inch thick. A block or cake of dry ice which weighs one pound is three and one-quarter inches long, three and one-quarter inches wide, and one and seven-eighths of an inch thick.
Children, who were playing near by saw vapor or "smoke" coming from the mouth of the bag lying in the street and went there to investigate it. One of them picked up the bag and removed the ice. After playing with it for a time, one of the children put the dry ice into a citrate of magnesia bottle, partly filled with water, and clamped the lever top down and began to shake it. About then the child's older sister, Josephine Rataj, who was fifteen years of age, saw the child, and, remembering that she had been cautioned against playing with bottles, ordered her to throw it away. She did not obey, and Josephine came from the house and forcibly took the bottle, which exploded in her hands, and she was seriously and permanently injured.
Dry ice is carbon dioxide, or C O2, in solid form. At ordinary temperatures, it is in a gaseous state. By applying pressure, it may be liquified and, in turn, solidified, whence comes the product known by the trade-name "Dry Ice." It has a temperature of 110 degrees Fahrenheit below zero. At normal temperatures, dry ice changes from a solid to gas rapidly and, increasingly so when placed in water and agitated. In the transition from solid to gas, its volume increases 500 times, and, when confined, as in a bottle, the pressure exerted naturally increases, and, if the container cannot withstand the expansion, it must burst. Because of its low temperature, dry ice will cause frostbite if part of the body is exposed to it for any length of time.
The court submitted the several issues of fact to a jury which found for the plaintiffs. A motion for a new trial was denied by the District Court, sitting en banc, and judgment was entered on the verdict for the plaintiffs. The defendant appealed.
The learned trial judge allowed the jury to determine the issues of fact raised by the pleadings, including whether or not dry ice was a dangerous or explosive substance and whether or not the negligence of the defendant was the proximate cause of the plaintiff's injuries.
The sole alleged error of the trial court is that the court erred in refusing to give binding instructions to the jury for the defendant. Such an assignment is valid, but it only raises the question of whether or not there was any substantial evidence, under the law, for the jury to consider. The defendant argues, under this assignment, that the initial act of the defendant in throwing the dry ice into the street was not negligent, and that the act was not the "proximate cause" of the plaintiff's injuries.
Whether or not dry ice is in the nature of or is an explosive is immaterial. Under normal temperatures, as above stated, dry ice and liquid carbon dioxide pass rapidly from a solid form to a gas, and in that process there is a comparatively great expansion, which naturally increases the pressure exerted on a container confining the carbon dioxide. This expansive quality of the substance is used to an advantage under certain conditions as an explosive in particular types of blasting.
At any rate, the defendant and its employees are chargeable with the knowledge of the expansive or "explosive" quality of dry ice just as they are with the knowledge that its low temperature will cause frostbite.
"In Pennsylvania, liability for negligence depends on the antecedent probability, not the mere possibility, of harmful results therefrom. The general test of liability is whether the injury imputed to the defendant is such that a person of ordinary intelligence would have foreseen it as the natural and probable outcome of his conduct." Rugart v. Keebler-Weyl Baking Company, 277 Pa. 408, 121 A. 198, 199.
Like all general rules, the one above is stated in broad language that requires amplification to fit the circumstances of this case. There is evidence from which the jury might *186 determine that the initial act of throwing the paper bag containing the dry ice into the street was negligent. Dry ice has at least two qualities, low temperature and its expansive property, that might make it both attractive and dangerous to children. The low temperature itself, of course, had nothing to do with the accident here. But there was evidence from which the jury might find, as it did, that, because of the expansive factor of melting dry ice, it was dangerous when confined.
The doing of a negligent act, even though it results in an injury, is not enough to create liability. Restatement of Torts, § 305, P. F. D. No. 2, p. 71. Under the Pennsylvania law, the consequences of negligence must be foreseeable. Snare & Triest Company v. Friedman (C. C. A. 3) 169 F. 1, 40 L. R. A. (N. S.) 367; Chesko v. Delaware & Hudson Company (C. C. A. 3) 218 F. 804; Dobie, Federal Procedure, § 144, p. 575. Even, if this rule is considered narrow and unsatisfactory, a broader one would not help the defendant in this case. Restatement of Torts, §§ 306, 308-319, P. F. D. No. 2, p. 71.
Under the Pennsylvania rule, to impute liability to the defendant, the injury must be such that under the circumstances the defendant should have foreseen it as the natural and probable consequence of its conduct. That does not mean that in this case it must have been able to anticipate the exact details from the time of its negligent act to the injury of the child by the explosion.
If the defendant should have realized that its conduct might cause injury to another in substantially the manner in which it was brought about, the injury will be regarded as the legal consequence of the act. Hess v. Coal Min. Company, 178 Pa. 239, 35 A. 990; Bunting v. Hogsett, 139 Pa. 363, 21 A. 31, 33, 34, 12 L. R. A. 268, 23 Am. St. Rep. 192; Potter v. Natural Gas Company, 183 Pa. 575, 39 A. 7.
The defendant is charged with the knowledge of the expansive character of dry ice and with the propensity of children to be attracted by it, and to be amused by confining "smoke and vapors" within bottles, without realizing the attendant dangers. There was sufficient evidence from which the jury could find these facts, and it so found. It is not necessary that the defendant should have foreseen the particular injury, its extent, the type of container used by the children, and other details.
The judgment is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547331/ | 159 B.R. 264 (1993)
In re FOOD BARN STORES, INC., Debtor.
Bankruptcy No. 93-40012-2-11.
United States Bankruptcy Court, W.D. Missouri.
October 13, 1993.
*265 Henry J. Kaim, Sheinfeld, Maley & Kay, Houston, TX, Larry Frazen, Bryan Cave, Kansas City, MO, for debtor.
James E. Bird, Polsinelli, White, Vardeman & Shalton, Kansas City, MO, for Prudential Ins. Co.
S. Margie Venus, Akin, Gump, Hauer & Feld, Houston, TX, Jack N. Bohm, Stuart Stein, Leawood, KS, for Regniers.
MEMORANDUM OPINION
FRANK W. KOGER, Chief Judge.
Debtor is a chain of supermarkets, formed in 1988 by the leveraged buyout of a division of Safeway Stores, Inc. It presently operates some 40 plus supermarkets in Missouri and Kansas. It filed for Chapter 11 Reorganization in January of 1993. Movant is one of the many landlords of debtor. Movant filed a Motion For Relief From Automatic Stay in August of 1993. Hearing was had on September 23, 1993, and the Court's ruling announced at that time. This opinion memorializes that ruling.
Debtor's predecessor had been a tenant of Victor and Helen Regnier or one of their corporations for a number of years. It originally occupied a relatively small store on the north side of 95th Street in a strip shopping center. The Regniers, who have extensive holdings in Johnson County, wanted to build a larger shopping center, with space on three levels, on the south side of 95th Street. To obtain financing, the Regniers needed an anchor tenant; Safeway wanted to expand. From those compatible desires, a business marriage was fashioned whereby Safeway leased 55,000 square feet for 20 years, with 4 five year renewal options at $1.82 per square foot, or a greater percentage rent based on sales; the Regniers obtained the financing they needed; the shopping center was built and the parties lived happilyfor awhile.
Safeway subleased one-half of its space to Katz Drug Company. The Regniers consented to the sublease. Katz was succeeded by Skaggs and then Osco Drug. Safeway exercised the first two of its four options for five years. The lease contained *266 no escalators. Ergo for 40 years Safeway had a sweetheart lease. The florist on the west of this space pays $11.00 per square foot for its space.
In 1988, Safeway sold its Missouri-Kansas Division to Food Barn Stores, Inc., the debtor. Safeway asked the Regniers for permission to sublet. The lease provided that the lease could not be assigned nor sublet without the consent of the landlord. However, it also provided that landlord's consent would not be unreasonably withheld. The Regniers responded through their attorney with a substantial list of conditions, but finally reduced their demands to two:
"1. Safeway shall assign back to Vic Regnier Builders, Inc. its interest in the portion of the Lease covering the drug store facility, presently subleased by Safeway to Osco Drugs.
2. Safeway shall provide a guarantee that the base rent that it pays under the Lease shall be substantially increased. This is to be effected by either (a) increasing the base rent to a level equal to the present base rent under the Lease plus the percentage rent paid by Safeway in 1987, or (b) modifying the Lease so that the Lessor shall have an absolute right to cancel the Lease in the event that the percentage rent paid by any subsequent tenant falls below the level of percentage rent paid in 1987".
Safeway took the position that these conditions were unreasonable, notified the Regniers' counsel thereof, and thereafter sublet the leased space to debtor, including certain options to renew.
It is the Regniers' position that this was a breach of the lease. Also, that since the Regniers never consented to the sublease that the debtor had no interest in the property and that it was not property of the estate. Merely as a precautionary matter they sought lift of the stay, even though debtor had no interest and it was not property of the estate. The Regniers apparently learned in their discovery in this case that Safeway claimed that debtor had not timely exercised one of its options and, therefore, was only a tenant at will on a month to month basis. They claim that this reinforces their contention that debtor has no interest in the premises.
Debtor maintains that it has performed its sublease and has a sub-leasehold interest which extends to 2008 A.D. at $1.82 per square foot or at a percentage rent, whichever is greater. Debtor also claims that the Regniers are guilty of laches, unconscionable delay, etc. This is the background from which the legal issues must be viewed.
FIRST ISSUE
11 U.S.C. § 541(a) states that commencement of a case creates an estate and that it is comprised of:
"all legal or equitable interests of the debtor in property as of the commencement of the case wherever located and by whomever held".
To suggest that this is an extremely broadeven catchall-provisionis to state the obvious. To again be obvious, debtor has an interest in the premises, even if it was only a possessory interest. See Mays v. United States of America, 85 B.R. 955, 18 C.B.C.2d 911 (Bkr.E.D.Pa.1988). Courts have held that rights of redemption, after completion of foreclosure, pass to the trustee (debtor-in-possession) and are property of the estate. See In re Roger Brown & Co., 196 F.758 (8th Cir.1912) and In re Novak, 111 F. 161 (N.D.Ia.1901). This is true even after a tax sale, In re ArgyleLake Shore Bldg. Corp., 78 F.2d 491 (7th Cir.1935). Since debtor was occupying the premises, was paying rent, and had had no pre-petition eviction proceedings concluded against it, it had at worst a possessory right to the premises which became property of the estate.
SECOND ISSUE
Next we move to the automatic stay under 11 U.S.C. § 362(a)(3). That section provides that the filing of a petition operates as a stay of:
"any act to obtain possession of property of the estate or of property from the estate . . . "
*267 Therefore, the Regniers had to seek relief from the automatic stay to proceed in state court.
THIRD ISSUE
11 U.S.C. § 362(d) provides two possible bases for relief, and they are:
"(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest; or
(2) with respect to a stay of an act against property under subsection (a) of this section, if
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization".
While subsection (1) above talks about cause, including lack of adequate protection, most cases and even bankruptcy commentators have concentrated their respective insights on the words "adequate protection" only. This Court interprets the phrase "for cause" to mean any reason whereby a creditor is receiving less than his bargain from a debtor and is without a remedy because of the bankruptcy proceeding. The automatic stay was designed to maintain and preserve the status quo as of the date of the petition. Johnson v. First Nat'l Bank of Monevideo, 719 F.2d 270, 277 (8th Cir.1983). Common examples are:
(1) Debtor is not making lease payments;
(2) Debtor is not paying taxes;
(3) Debtor is not providing insurance coverage;
(4) Debtor is not providing maintenance.
In each of these examples cause exists because of a failure of performance on the part of the lessor that harms the creditor's interests. The Code will not give more to the landlord than that which he had under the Lease. In re Sapolin Paints, Inc., 5 B.R. 412, 420 (Bankr.E.D.N.Y.1980). "What the Code requires is that the lessor be given the performance for which he has contracted." Id. (The court determined that the causes raised by the landlord were insufficient to prevent the assumption of an advantageous commercial lease by the debtor.)
In this case, there is no indication but that debtor is paying its monthly rent, paying common area charges, paying taxes, etc. In a motion brought under 11 U.S.C. § 362(d)(1), the burden is on the movant. In this case the movant failed its burden. Movants' only contention was that the automatic stay (perhaps) kept them from seeking to break a lease under which they were currently receiving every monetary provision they had bargained for. The movants showed no breach by debtor of any of debtor's obligations.
Subsection (2) provides a second ground for relief from the stay. That ground is founded on the principle that if a debtor has no equity or value in property, it should go back to the creditor who has the economic interest in the item. This axiom does have a corollary, which is that if the item is necessary to an effective reorganization, the debtor may defeat the sought after relief. It is the movant's burden to show the lack of equity. It is then the debtor's burden to establish both the necessity of the item for an effective reorganization and the reasonable likelihood of such a reorganization. United Savings Association of Texas v. Timbers of Inwood Forest Assoc., 484 U.S. 365, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988). Again, movant failed in its burden.
The value of a commercial lease is determined by taking the difference between the lease price and the current market price for the leased space. In re Sapolin Paints, Inc., 5 B.R. at 418. Here, debtor is paying no less than $1.82 per square foot for space that the landlord apparently can rent for approximately $11.00 per square foot. (At least the florist who shares a party wall with the debtor is paying that price.) The difference is $9.18 per square foot per year. Debtor occupies 27,500 square feet (one half of the *268 original space let to Safeway) giving the lease a value of $252,450.00 per year. If the stay is lifted, debtor's rent in all likelihood will go up based on the result of the proposed state court litigation. No matter what the outcome, debtor is going to be financially adversely affected. Debtor has a decided economic interest in the continuance of the debtor's sublease, and the movants failed to show the Court why this interest is not equity held by the debtor in the property within the meaning of the Code. Therefore, movants have failed to meet their burden under § 362(d)(2)(A).
FOURTH ISSUE
As to laches, movants' assertions that they did not know about the sale of the markets to debtor is not credible. Victor and Helen Regnier are not unsophisticated yokels dealing with an overbearing corporate giant. They own numerous shopping centers. The leveraged buy out of Safeway by debtor was front page news in 1987 and 1988. The Food Barn strike of more recent vintage was front page news for weeks. Victor Regnier admitted he saw pickets in front of the store. His office is above the store and he is in the store nearly every day. Movants want to escape the economic strictures of a 40 year lease that contained no escalators. The Court does not blame them. But movants' disaster is debtor's windfall and debtor has a substantial equity in its possession of these premises at a bargain rental.
CONCLUSION
For all these reasons, the Court granted debtor's Motion For Judgment at the conclusion of movants' case and those same reasons are why Relief From The Stay is DENIED.
The foregoing Memorandum Opinion constitutes Findings of Fact and Conclusions of Law as required under Rule 7052, Rules of Bankruptcy.
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547332/ | 809 A.2d 1072 (2002)
LHT ASSOCIATES, LLC, Appellant
v.
TOWNSHIP OF HAMPTON and the Hampton Township Zoning Hearing Board, and Paul Loftus and Bridget Loftus, Husband and Wife.
Commonwealth Court of Pennsylvania.
Argued May 8, 2002.
Decided October 31, 2002.
*1073 David F. Toal, Pittsburgh, for appellant.
Thomas T. Frampton and Christina E. McKaveney, Pittsburgh, for appellee, Twp. of Hampton.
Dwight D. Ferguson, Pittsburgh, for appellees, P. Loftus and B. Loftus.
*1074 BEFORE: FRIEDMAN, Judge, COHN, Judge, and FLAHERTY, Senior Judge.
Opinion by Judge COHN.
This is an appeal by LHT Associates, LLC (LHT) from an order of the Court of Common Pleas of Allegheny County, that affirmed a decision of the Hampton Council (Council), denying applications for site plan approval and for preliminary and final subdivision plan approval, as well as an order from the Zoning Hearing Board of Hampton Township (Board) denying nine occupancy permits.
LHT seeks to build a Lowe's and adjacent parking lot on property consisting of nine lots. It proposed a plan that would consolidate the nine lots and then re-divide them into two parcels. A small peninsular shaped lot (Lot 2) would consist of 1.288 acres and LHT planned to use that lot, which is zoned entirely commercial, for a restaurant. The proposed Lot 1, consisting of nearly 22 acres, is presently split zoned approximately half residential (RA) and half commercial. The plan calls for this area to be utilized for a single commercial project with the Lowe's store to be built in the area zoned commercial and the parking lot in the area zoned residential. In its site plan, LHT requested that the entire split-zoned tract be employed for a single use, with commercial parking located on the portion zoned residential. Initially, LHT had filed an application to rezone Lot 1, which it later withdrew. It then sought, in essence, to accomplish a zoning change via its applications filed with Council for preliminary and final subdivision approval and site approval. Council denied both of LHT's applications.
Among the reasons cited for Council's denial of the subdivision plan were that the plan was not consistent with the objectives of the subdivision ordinance and its definition of "lot," that the plan was not consistent with the purpose and objectives of the zoning ordinance, including the requirements for lot consolidations, and that the zoning ordinance requirement of buffer yards prohibits consolidating a split-zoned property. Council also denied LHT's site plan application, primarily for its noncompliance with the zoning ordinances of the Township. Among the factors cited were that the parking spaces required for the commercial retail store were not a permitted accessory use in the residential zone.
In addition, LHT filed nine requests for occupancy permits with the zoning officer, which he denied on the basis that each separate lot would not allow the proposed use and that the requests were premature since no consolidation had been granted. The zoning officer also indicated that, on the merits, the permits could not be granted because the use proposed was inconsistent with the split zoning designation, was at odds with the definition of "lot" in the zoning ordinance, did not meet the requirements for a buffer yard, and the proposed parking lot did not qualify as a permitted accessory use if placed in the area zoned residential.
The Board upheld the zoning officer's permit denial, and opined that the property was not valueless as zoned. The Board also rejected a validity challenge to the zoning ordinance in which LHT asserted that reverse spot zoning was occurring. The Board found the challenge lacking in specificity and, alternatively, found that, as to the merits, LHT failed to meet its burden of proof on this issue. Additionally, it rejected a challenge to the zoning map and also held that no reverse spot zoning had occurred. Both the Council and Board decisions were appealed; the common pleas court consolidated them and affirmed. *1075 This appeal ensued.[1]
On appeal, LHT asserts numerous issues which we shall deal with seriately. However, we note, initially, that many of the issues raised by LHT result from its creative attempts to re-zone. Such issues properly belonged before either a zoning board via a request for variance or before a township council via a request for re-zoning or a curative amendment. As we have stated, "[W]e cannot uphold subdivision rulings which would effectively amend that zoning; that would be equivalent to letting the township `hold in reserve unpublished requirements capable of general application for occasional use.'" Goodman v. Board of Commissioners of the Township of South Whitehall, 49 Pa. Cmwlth. 35, 411 A.2d 838, 842 (1980) (citation omitted) (finding, inter alia, that a developer, seeking to build several commercial structures on a 16.6 acre tract of land zoned general commercial, could not be prevented from building structures because they were near, but not in, a residential district).
We also note, preliminarily, that the zoning of property, a legislative act, is usually not subject to successful challenge unless disparate treatment is shown. See generally Ryan, Pennsylvania Zoning Law and Practice, § 3.4.7 (1999). Appellants have not proven that the zoning boundary at issue here is not rational, since the line is drawn to divide steep sloping topography, which is zoned residential, from a more level area, zoned commercial.
VALIDITY OF ZONING MAP/SPOT ZONING
LHT first maintains that it met its burden to demonstrate spot zoning. It asserts that the zoning map is outdated due to the passage of time and intervening events, arguing that the portion of the property zoned residential has effectively been reverse spot zoned because of the surrounding development. Reverse spot zoning occurs where an "island" develops as a result of a municipality's failure to rezone a portion of land to bring it into conformance with similar surrounding parcels that are indistinguishable. Guentter v. Borough of Lansdale, 21 Pa.Cmwlth. 287, 345 A.2d 306 (1975). The trial court wrote:
[LHT's] property has not been singled out for differential treatment. The existing zoning of the adjacent land bordering [LHT's] property is predominantly residential. The southern portion of [LHT's] property, the parcel at issue, is zoned residential. The northern portion of the ... property, comprising the land where Wildwood Road and Route 8 intersect, is zoned Highway Commercial. A portion of the neighboring property, across Route 8, is zoned for conservation. [LHT's] parcels are clearly not an "island" singled out for treatment unjustifiably *1076 different from that of surrounding land.
(Trial court opinion, pp. 3-4.) We agree.[2] This determination is supported by the record. The topographical map submitted clearly demonstrates that there is only one commercial tract next to the property and the rest of the surrounding area is zoned either residential or conservation. Therefore, LHT's assertions of reverse spot zoning cannot prevail.
LHT also asserts that Route 8 traffic precludes safe use as a residential development. It maintains that its expert, who testified that the failure to rezone the residential area as commercial resulted in a small area that was actually unsafe for residential development because it would not qualify for a traffic signal and because of a potential need for turning left onto Route 8 from a driveway, was not refuted. The Board found that LHT's traffic proposals were speculative, relying, inter alia, on needed actions by the Pennsylvania Department of Transportation, that were not even certain to occur. Further, the Board as fact finder was not obligated to credit the testimony of this witness, even if it was unrebutted. McDonald v. Zoning Board of Adjustment, 133 Pa.Cmwlth. 664, 577 A.2d 240 (1990).
Thus, LHT did not meet its burden to show that changes in traffic flow rendered the zoning map invalid.
ACCESSORY PARKING AND ATTENDANT CLAIMS
LHT argues that it had sought occupancy permits for its nine separate parcels in order to obtain an interpretation of the Ordinance regarding accessory parking in RA areas, buffer yards in its proposed single development, height of retaining walls and the need for a variance for slope averaging. LHT asserts that the trial court erred in refusing to address its claims that Council's interpretations of the Zoning Ordinance were arbitrary, capricious, an abuse of discretion and an error of law as applied to LHT. We consider the parking issue first.
Section 13.160 of the zoning ordinance states:
A commercial vehicle of not more than one (1) ton capacity, used by the occupant of a residential property for transportation to and from work, may be parked on a residentially zoned property. A commercial vehicle may be parked on a property containing a non-conforming use served by such commercial vehicle but no parking lot or area to serve a use not permitted in a residential zone may be placed in that residential zone.
LHT asserts that this provision is only intended to prevent independent truckers from parking their rigs in the driveways of their homes in residential developments. Relying on the definitions of "property" and "lot,"[3] in Article 4 of the ordinance, it *1077 contends that the zoning ordinance does not require a single property split by a zoning line to be treated as though two separate zoning lots are created. It maintains, "[a]s the Zoning Ordinance makes no provision for the treatment of split-zoned lots, LHT can use either zoning district for its development and place the parking under the HC classification as permitted." (Brief of LHT, p. 18.) It cites no authority for this proposition and our research has disclosed none. In fact, in instances involving a split-zoned lot, the practice has been for the owner of the split-zoned property to seek a variance. Zoning Board of Adjustment of Philadelphia v. Fun Bun, Inc., 5 Pa.Cmwlth. 439, 291 A.2d 344 (1972); see also Esterhai v. Zoning Board of Adjustment of Philadelphia, 1 Pa. Cmwlth. 361, 274 A.2d 556 (1971). Indeed, we have held that refusing to allow a landowner to use the residential portion of a parcel of land bisected by a zoning district boundary line as a parking lot, absent obtaining a variance, is permissible. 813 Associates v. Zoning Hearing Board of Springfield Township, 84 Pa.Cmwlth. 420, 479 A.2d 677 (1984). In that case, the owner of a lot that had the same split zoning as the case sub judice sought to expand a parking area for a medical facility. The existing building was on the commercial tract, but the proposed parking area would have been on the area zoned residential. The variance was denied, an action affirmed on appeal. But, although the applicant did not meet his burden, there was no question that in seeking a variance he had used the proper procedural vehicle, unlike the appellant here.
Under LHT's theory, a large parcel of split-zoned land, in which the commercial area is de minimis and the residential area substantial, could be forced to support a commercial use. Clearly, such a radical departure from municipal planning concerns and zoning requirements would require a variance or re-zoning, and must be presented in the appropriate forum with the appropriate procedure.
In the alternative, LHT suggests that its parking lot should be regarded as an accessory use under the zoning provision that allows for an accessory use for "private garages and parking areas." We disagree for the same reason. An accessory use in a residential area must be accessory to the permitted principal use in the residential area. Therefore, a parking area for a retail outlet is not a permitted accessory use in a residential district. As we said in Fun Bun, 291 A.2d at 346, "[w]here two adjacent lots are split-zoned commercial and residential, and the owner proposes a single commercial use, the appropriate procedure is to request a variance to use the residential parcel for commercial purposes." (Emphasis added.) Additionally, in Fun Bun we quoted with approval from 3 A. Rathkopf, The Law of Zoning and Planning § 75-9 (1960) as follows:
Where ... a variance to permit property in a residence district to be used for parking as an adjunct to business use in the adjacent business district [is at issue]... [t]he extent of inconvenience or hardship enuring to the commercially zoned property through lack of a parking lot is irrelevant; the variance is improperly granted if the residentially zoned property can reasonably be used for the purposes to which the ordinance restricts it.... *1078 Fun Bun, 291 A.2d at 346 (omissions and textual alterations in original); See also Township of Haverford v. Spica, 16 Pa. Cmwlth. 326, 328 A.2d 878 (1974). The principle espoused in Fun Bun applies here as well.[4]
LHT also contends that the trial court erred when it decided that it did not need to reach the issues attendant to the appeal from the Board decision relating to (1) the requirement that LHT create a buffer zone between the two zoning districts on the property, (2) the view that it needed a variance for slope averaging and (3) the fact that it treated retaining walls as structures. However, we need not decide these issues since we agree with the trial court's conclusion that the plan was correctly denied based on the fact that the property was not zoned for the proposed use.
ULTRA VIRES ACTIVITIES
LHT next asserts that Council acted ultra vires by denying the request to consolidate the property because the Pennsylvania Municipalities Planning Code[5] (MPC) does not allow the "regulation of consolidation as a subdivision." The gist of LHT's argument seems to be that its "subdivision" request was not in fact seeking a subdivision, but only consolidation and, therefore, denial of the subdivision plan was in error. We note first that LHT did label its plan as one for subdivision. Moreover, from the statements made in its application, and the maps submitted, it is clear that LHT was, in fact, seeking both to consolidate all 9 lots into 1 lot, and then, immediately after, to subdivide a new Lot 1 from a new Lot 2. Additionally, LHT makes no argument that Council was without jurisdiction to act on a consolidation request. While, we agree that consolidation of the nine lots should probably have been permitted here, we conclude that any failure to do so was harmless error since merely consolidating the lots would not have resulted in LHT being able to build the Lowe's and attendant parking lot in the manner it proposed. Therefore, while we reject this argument, we direct that consolidation be granted upon LHT's submission of a proper request for consolidation.
AUTHORITY OF COUNCIL TO DENY LAND DEVELOPMENT APPLICATION FOR NON-COMPLIANCE WITH ZONING REQUIREMENTS
LHT next asserts that Council wrongfully denied its subdivision plan because Council's basis for denying the plan was that it would violate provisions in the zoning ordinance.[6] It asserts that it is the Board, not Council, who must decide zoning issues. We have held that a governing body has a duty to consider zoning problems at the planning stage and that "[w]here significant use or zoning issues are apparent on the face of a site plan application, it does not offend policy to *1079 deny approval of the plan and require the developer to resolve the use or zoning issue first...." Bell Atlantic Mobile Systems, Inc. v. Zoning Hearing Board of the Township of O'Hara, 676 A.2d 1255, 1263 (Pa.Cmwlth.1996), affirmed sub nom., Crown Communications v. Zoning Hearing Board of the Borough of Glenfield, 550 Pa. 266, 705 A.2d 427 (1997). Therefore, Council's action was in no way improper. It was LHT's decision to request subdivision approval without addressing the existing significant zoning issues first. Council does not have to ignore the fact that property is not zoned for the development proposed in evaluating a subdivision plan.[7]
EQUAL PROTECTION
Finally, LHT maintains that it received disparate treatment from Council because Council approved a similar site plan filed by Home Depot. We disagree that, on the record, LHT received disparate treatment from Council. The undisputed evidence in the record is that Home Depot's site plan proposed a commercial development on property currently zoned commercial; it fit within the existing zoning classification. Conversely, LHT's plan was not in accordance with the existing zoning classification of the property, and was proposed for property zoned half commercial and half residential. The commercial development proposed may have been similar, but the site plans were quite different given the different zoning classifications of the property. As such, no additional trial court findings were needed. (Ex. B. to Response to Motion to Supplement Reproduced Record Regarding Shoppers Plaza). We, thus, hold that the trial court committed no error of law in ruling as it did.
Based on the foregoing discussion, we affirm the order of the trial court.
ORDER
NOW, October 31, 2002, the order of the Court of Common Pleas of Allegheny County in the above-captioned matter is hereby affirmed.
NOTES
[1] The trial court permitted the record to be augmented by allowing the inclusion of the record documents for approval of the Shoppers' Plaza Highway Site Plan, which concerned the property where a Home Depot was built. We hold that this constituted the taking of additional evidence and that the trial court was, thus, acting de novo. Therefore, our scope of review is to determine whether the trial court committed legal error or abused its discretion. David Aaron Ltd. v. Borough of Jenkintown, 63 Pa.Cmwlth. 577, 439 A.2d 1322 (1982). We distinguish Amerikohl Mining, Inc. v. Zoning Hearing Board of Wharton Township, 142 Pa.Cmwlth. 249, 597 A.2d 219 (1991), petition for allowance of appeal denied, 529 Pa. 652, 602 A.2d 861 (1992), cited by the Township of Hampton for the proposition that the trial court was not acting de novo, on the basis that the evidence received here related to the merits of the case, not to a collateral issue, such as the alleged bias of the tribunal, that was the subject of the additional evidence in Amerikohl.
[2] LHT's basic argument has been rebuffed before:
"The line of demarcation must be fixed somewhere ... To carry appellant's contention to its logical conclusion would lead to the encroachment upon and the complete destruction of the residential character of the other properties in the immediate area." If we were to hold that the zoning of appellants' strip as residential is arbitrary and unconstitutional merely because it is different from the zoning across the street, the same arguments should prevail in favor of landowners immediately adjacent to the subject strip on the east and so on ad infinitum.
Guentter, 345 A.2d at 310 (quoting DiSanto v. Zoning Board of Adjustment, 410 Pa. 331, 335, 189 A.2d 135, 137 (1963)) (citation omitted).
[3] "Property" is defined as "a tract of contiguous land surface, including the structures thereon, all sections of which are in the same ownership surrounded by a boundary that closes on itself."
"Lot" is defined as "a designated parcel or tract of land established by a plat or otherwise permitted by law, and to be used, developed or built upon as a unit."
[4] While not specifically argued, LHT might have questioned whether the Zoning Officer's interpretation of the ordinance (that a parcel or tract of land must be used, developed or built upon as a unit which cannot occur if the lot sits in two different zoning districts), renders LHT's entire split-zoned lot unusable as long as it is split zoned. We do not address that issue since it was not raised, nor was the zoning ordinance provided to this Court on appeal. We note, however, that an interpretation of the Zoning Ordinance that would prohibit the split-zoned parcel from being utilized at all because it sits in two different zoning districts would not be permitted.
[5] Act of July 31, 1968, P.L. 805, as amended, 53 P.S. §§ 10101-11202.
[6] Among the reasons listed for the denial were issues concerning the need for a retaining wall, a buffer zone, and the steepness of slopes.
[7] We also note that, contrary to LHT's legal posture that this case is not about rezoning, in its arguments, LHT refers to its "requested rezoning" (LHT brief at 15), and decries Council's "failure to rezone the RA parcel" (LHT brief at 16). Furthermore, the cases cited in LHT's brief also address the issue of rezoning. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919660/ | 91 B.R. 23 (1988)
In re Joseph B. SHUMATE, Jr., Debtor.
Joseph B. SHUMATE, Jr., Plaintiff,
v.
SIGNET BANK, NCNB Financial Services, John H. Miller, Defendants.
Bankruptcy No. 7-84-00549, Adv. No. 7-88-0022.
United States Bankruptcy Court, W.D. Virginia, Roanoke Division.
September 22, 1988.
Joseph B. Shumate, Jr., Pulaski, Va., pro se.
George R. Pitts, Richmond, Va., for Signet Bank.
James F. Douthat, Roanoke, Va., for NCNB Financial Services.
Charles R. Barnett, Jr., Roanoke, Va., for John H. Miller.
MEMORANDUM OPINION
ROSS W. KRUMM, Bankruptcy Judge.
The matter for decision before the Court involves the question of the right of Joseph B. Shumate, Jr., the debtor herein, to appeal an order of this Court dated April 29, 1988, in forma pauperis, pursuant to 28 U.S.C. § 1915.
Facts
On February 16, 1988, Joseph B. Shumate, Jr. ("Shumate") filed this adversary proceeding in the form of a motion to void an order of this Court dated November 15, 1984. Shumate's ground for voiding the previous order of this Court is that fraud was committed on the Court. In addition, the motion, by separate counts, alleged a *24 conspiracy to injure Shumate under the Virginia Conspiracy Statute, Code of Virginia, § 18.2-499, et seq., and for equitable subordination of the claim of Signet Bank in the bankruptcy proceeding. The prayer for relief requested an award of damages.
All of the defendants filed motions to dismiss the adversary proceeding pursuant to Bankruptcy Rule 7012 and Federal Rule of Civil Procedure 12(b)(6). Briefs were filed by all parties and hearing was held on April 13, 1988, on the motions to dismiss. At the conclusion of the arguments, the Court made its findings of fact on the record. Thereafter, an order was entered dated April 29, 1988, granting the motions to dismiss. By motion dated May 11, 1988, Shumate asked this Court to reconsider and amend the order dated April 29, 1988. This Court denied the motion for reconsideration by order dated May 17, 1988, and on May 27, 1988, Shumate filed his notice of appeal. On June 1, 1988, Shumate filed his designation of record on appeal and his motion for leave to proceed on appeal in forma pauperis. In conjunction with the motion to proceed on appeal in forma pauperis, Shumate filed an affidavit which stated, under oath, that he is not employed, has had no income in the last six months, has cash, checking, and savings of less than $3,000.00, that all of his assets are being administered in his bankruptcy proceeding, and that he has no dependents.
Signet Bank opposed the motion to proceed in forma pauperis on three grounds:
1. That the bankruptcy court does not have authority to grant in forma pauperis status under 28 U.S.C. § 1915 since it is not a "court of the United States."
2. That Shumate is not proceeding on appeal in good faith; and
3. That Shumate is not financially eligible to proceed on appeal in forma pauperis. This last ground of opposition was raised at oral argument.
Hearing on Shumate's motion to proceed in forma pauperis was held in Roanoke, Virginia, on June 28, 1988. Shumate testified as to his financial ability and offered Exhibit 3 showing a savings account at Signet Bank having a balance of $33.37 and two checking accounts at the Bank of Speedwell having an average monthly balance of $179.12 and $676.81, respectively. Shumate also testified that he drives a blue Cadillac liened to his brother in the amount of $7,500.00, that he borrows money on the life insurance policies he owns, that he employs a houseboy at $200.00 per week, that he employs a secretary to whom he pays 90¢ per page for typing services, and that he can borrow the money to proceed on appeal if he has to.
Signet Bank filed a brief in support of its opposition to the motion for leave to proceed on appeal in forma pauperis on June 27, 1988. Shumate was granted leave of Court to file a written brief in response and filed his brief on July 15, 1988.
Law
The first issue for determination by the Court is Signet Bank's challenge to this Court's authority to grant leave to proceed on appeal in forma pauperis. Section 1915(a) states that "any court of the United States may authorize the commencement, prosecution or defense of any action, action or proceeding, civil or criminal, or appeal therein, without prepayment of fees and costs or security therefor. . . ." 28 U.S.C. § 1915(a). Signet argues that the bankruptcy court is not a court of the United States as that term is defined in 28 U.S.C. § 451 which states, in relevant part, as follows:
The term `court of the United States' includes the Supreme Court of the United States, courts of appeals, district courts constituted by chapter 5 of this title, including the Court of International Trade and any court created by Act of Congress the judges of which are entitled to hold office during good behavior.
28 U.S.C. § 451.
Signet notes both in its brief and at oral argument that the amendments to § 451 of Title 28 which were due to become effective on July 10, 1984, were specifically deleted by § 113 of Public Law 98-353. This deletion, along with many others in the United States Code, arose as a result of the *25 decision of the Supreme Court in Northern Pipeline Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982).
This Court has found only one reported decision that addresses the right of a bankruptcy court to grant a motion for leave to appeal in forma pauperis. In re Moore, 86 B.R. 249 (W.D.Okla.1988), holds that bankruptcy courts do have the authority under 28 U.S.C. § 1915(a). In the Moore decision, Judge Bohanon bases his reasoning on the holding in In re Palestino, 4 B.R. 721 (Bankr.M.D.Fla.1980), which involved the right of a party to proceed in forma pauperis in initiating adversary proceedings in the bankruptcy court. Moore, 86 B.R. at 251.
The Palestino decision is grounded in an interpretation of 28 U.S.C. § 1930(b). This provision states that "[t]he Judicial Conference of the United States may prescribe additional fees in cases under Title 11 of the same kind as the Judicial Conference prescribes under § 1914(b) of this Title." 28 U.S.C. § 1930(b). Section 1930(a), which immediately precedes the section just quoted provides for the payment of filing fees in specific instances and contains the language "notwithstanding section 1915 of this title, the parties commencing a case under title 11 shall pay to the clerk of the court the following filing fees . . .:" 28 U.S.C. § 1930(a). Thus, the Palestino court reasoned that § 1930(a) makes § 1915 specifically inapplicable to the original filing fee for a bankruptcy petition. Palestino, 4 B.R. at 722. However, § 1930(b) contains no reference to § 1915 and the Palestino court states: "It appears that Congress intended the absolute requirement for payment of fees to apply on (sic) where specifically designated." Id. Based upon that analysis, the Palestino court held that only filing fees for a petition were excluded from the operation of § 1915 and the court was free to use it to deal with in forma pauperis motions in adversary proceedings. Id. at 723.
In an opinion issued the same day as the Palestino opinion, the Bankruptcy Court for the Eastern District of Pennsylvania decided the same issue as the Palestino court in the same way but for different reasons. See In re Sarah Allen Home, Inc., 4 B.R. 724 (Bankr.E.D.Pa.1980). In Sarah Allen, Judge Goldhaber discussed in forma pauperis proceedings under the Act. In addition, he discussed the in forma pauperis proceedings under the Bankruptcy Code and described the § 1930 analysis which was used by the Palestino court. However, Judge Goldhaber did not rely on the § 1930 analysis since the amendment to 28 U.S.C. § 451, which specifically recited that bankruptcy courts were to be included as "courts of the United States" did not become effective until July 10, 1984. Id. at 727. Instead, Judge Goldhaber relied on "the same constitutional arguments which compelled us to allow the filing of adversary complaints in forma pauperis under the Act . . ." Id. Thus, while both the Palestino and the Sarah Allen decisions allowed proceedings in forma pauperis when a litigant initiates an adversary proceeding in the bankruptcy court, neither court wrestled with the language of 28 U.S.C. § 451 which defines a court of the United States. Judge Goldhaber's decision did, by way of dicta, indicate his belief that the language of 28 U.S.C. § 451 in 1980 (which is essentially the same language as is present today in the statute) did not make bankruptcy courts "courts of the United States." Id. at 726.
A decision contrary to Palestino and Sarah Allen is In re Bauckey, 82 B.R. 13 (Bankr.D.N.J.1988). This decision relies not only on the decision of the Supreme Court of the United States in United States v. Kras, 409 U.S. 434, 93 S. Ct. 631, 34 L. Ed. 2d 626 (1973), but also on 28 U.S.C. § 1930(a). The Bauckey case differs from the Palestino and Sarah Allen cases since it involves the question of whether a debtor could initiate a bankruptcy proceeding in forma pauperis. Bauckey, 82 B.R. at 13.
Even though the Bauckey court believed that § 1930 and the Kras decision were controlling in its case, the bankruptcy court stated that § 1915 was not available to litigants in the bankruptcy court since it is not a court which is "created by Act of Congress the judges of which are entitled *26 to hold office during good behavior." Id. at 14.
This Court has considered the Bauckey rationale with respect to § 1915. At the outset, it is to be noted that the Bauckey court found § 1930 and the Kras opinion to be controlling when dealing with the filing fees for initiating a petition. Thus, this Court deems the statements in the opinion with respect to § 1915 to be dicta. This Court declines to follow that dicta for two reasons. First, the necessity to proceed in forma pauperis on appeal is closely related to the need to have rights adjudicated by the trial court in adversary proceedings. To permit a party to proceed in forma pauperis in the initial adversary proceeding, but to deny that status on appeal would be inconsistent and would short circuit access to the entire legal process. Thus, this case is closer to the Palestino and Sarah Allen cases then it is to the Bauckey case.
Second, this Court feels that 28 U.S.C. § 152(e) necessarily implies that a bankruptcy judge does hold office during good behavior: "(e) A bankruptcy judge may be removed during the term for which such bankruptcy judge is appointed, only for incompetence, misconduct, neglect of duty, or physical or mental disability and only by the Judicial Council of the circuit in which the judge's official duty station is located." 28 U.S.C. § 152(e).
As a result of the Bankruptcy Amendment and Federal Judgeship Act of 1984, bankruptcy courts are units of the district court. 28 U.S.C. § 151. In addition, bankruptcy judges are appointed for a term of fourteen (14) years and "shall serve as judicial officers of the United States district court established under Article Three of the Constitution." 28 U.S.C. § 152(a)(1).
28 U.S.C. § 451 requires that the court be created by an Act of Congress, the judges of which are entitled to hold office during good behavior. Bankruptcy judges fit this language. The language of 28 U.S.C. § 451 does not specifically require that judges fall into the category of Article III judges and it does not make good behavior the sole criteria for service. In fact, Article III judges are specifically enumerated in preceding clauses of § 451.
In the case at bar, Shumate wishes to appeal an order of this Court which granted lifting of the automatic stay to permit secured creditors to foreclose on their security rights outside of the bankruptcy proceeding. Thus, it appears that Shumate wishes to litigate, on appeal, issues involving property. It appears to this Court that the rationale offered by Judge Goldhaber in Sarah Allen is applicable. To a greater extent, however, this Court is of the opinion that the bankruptcy court does fall within the definition of a court of the United States under 28 U.S.C. § 451 for purposes of proceeding on appeal in forma pauperis in an adversary proceeding. Accordingly, Signet's motion to deny the in forma pauperis appeal on the ground that this Court is not a court of the United States will be denied.
The next issue to be decided by the Court is whether Shumate qualifies to proceed in forma pauperis under 28 U.S.C. § 1915. As noted in the fact situation, Shumate has presented his affidavit in connection with his motion to proceed in forma pauperis. He also offered testimony at the hearing on June 28, 1988 as to his financial status. The threshold question is one of financial eligibility. Handley v. Union Carbide, 622 F. Supp. 1065, 1066 (S.D. W.Va.1985).
The allegation of Shumate's poverty appears in his affidavit. However, § 1915(d) provides, in relevant part; "[t]he court . . . may dismiss the case if the allegation of poverty is untrue, or if satisfied that the action is frivolous or malicious." 28 U.S.C. § 1915(d).
Shumate's testimony and the exhibits which he offered at the hearing on June 28, 1988, lead this Court to believe that his poverty is not the kind contemplated by § 1915 for in forma pauperis proceedings. For example, Shumate drives a blue Cadillac, he employs a houseboy at $200.00 per week, he has an average monthly balance in the bank in excess of $855.00, and he has borrowing power. The Court also notes that Shumate has litigated extensively in *27 the bankruptcy court, the district court, and the Fourth Circuit Court of Appeals and has always, apparently, paid for the costs of appeal. Thus, this Court is not satisfied that Shumate qualifies under § 1915 and his motion to proceed in forma pauperis will be denied.
An appropriate order will be entered implementing this memorandum opinion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547407/ | 867 A.2d 200 (2005)
Theodore R. SIMMS, Jr., Appellant,
v.
UNITED STATES, Appellee.
No. 02-CF-1165.
District of Columbia Court of Appeals.
Argued December 15, 2004.
Decided January 27, 2005.
Jonathan W. Anderson, Public Defender Service, with whom James Klein and Jaclyn S. Frankfurt, Public Defender Service, were on the brief, for appellant.
Emily A. Miller, Assistant United States Attorney, with whom Roscoe C. Howard, Jr., United States Attorney at the time the brief was filed, and John R. Fisher, Roy W. McLeese III, Lionel Andre and Toni B. Florence, Assistant United States Attorneys, were on the brief, for appellee.
Before SCHWELB and WASHINGTON, Associate Judges, and KRAVITZ, Associate Judge, Superior *201 Court of the District of Columbia.[*]
SCHWELB, Associate Judge:
Following a jury trial, Theodore R. Simms, Jr., was found guilty of simple assault. The jury acquitted Simms of aggravated assault, first-degree cruelty to children, and second-degree cruelty to children. At the time of the offense, the victim, William Calloway, who was the son of Simms' fiancee, Pauline Calloway, was fourteen months old.
On appeal, Simms contends that he was acting in loco parentis and that the trial judge committed reversible error by refusing to instruct the jury on the defense of reasonable parental discipline. The government responds, inter alia, that no impartial jury could reasonably find that Simms was acting in loco parentis, and that there was therefore no evidentiary foundation for the requested instruction. We agree with the government and accordingly, we affirm.[1]
I.
THE EVIDENCE
A. William's injuries.
On November 7, 2000, Michael Knaggs, a firefighter and emergency medical technician, responded to Simms' home after receiving a report that a father and child had fallen down a flight of stairs. When Knaggs arrived, Simms told him that William was his son. Simms confirmed that he had fallen down the stairs with William in his arms. Simms took Knaggs upstairs, and Knaggs found the child lying down, holding his arm, and whimpering. Knaggs noted bruises on William's upper arm and a bite mark on his left arm. Knaggs recalled the bite mark because "there are some things that stand out in your head."
Knaggs took William to Children's Hospital, where the boy was found to have suffered numerous injuries, including three fractures of his left arm, two fractures of his right arm, several bite marks, and bruises all over his head, face and body. Simms indicated, both to Knaggs and to physicians at Children's Hospital, that William might have been bitten by a puppy. The bite marks, however, were human, and the parties ultimately so stipulated at trial. Because William's injuries appeared inconsistent with Simms' explanation of a fall down the stairs, and because they were so numerous, Dr. Maria Ieni, a Children's Hospital pediatrician, reported the matter to the District's Office of Child Protective Services.
Following Dr. Ieni's call, Sergeant Morani Hines and Detective Wallace of the Metropolitan Police Department (MPD) responded to Children's Hospital. After Simms had told them that he was prepared to talk about the incident, Hines and Wallace transported him to a police station where Simms made a videotaped statement which was subsequently introduced into evidence at his trial.
B. Simms' videotaped statement.
In his statement, Simms asserted that on Sunday, November 5, 2000, his fiancee brought William to the home where Simms lived with his parents. Simms claimed that he had been slightly injured in an *202 automobile accident on the preceding Friday night, and that he was therefore unable to perform his job as a chef for a few days. He therefore agreed to look after William, whom he claimed to regard as a son, while Ms. Calloway was at work.
Simms told the police that on the evening of Monday, November 6, he and some friends were playing video games in Simms' bedroom. On that evening, William had a slight fever. William was lying down in Simms' mother's room, and he knocked down a glass vase. Simms "used some force and smacked [William's] hand," and he "popped" (i.e., slapped) William on the thigh,[2] apparently to discipline him for knocking down the vase. Simms then "tucked William in the sheets real tight so he couldn't get out" and returned to his friends. Notwithstanding Simms' efforts to keep him tucked in, William got loose and was about to fall; Simms "tapped" or "popped" him again.
Simms further related that neither he nor William had slept during the night from Monday to Tuesday. On Tuesday morning, at Ms. Calloway's direction, Simms set out to give William a bottle. He picked William up and headed towards the stairs. En route, Simms was "playing" with William by shaking him, rubbing him, and putting William's arm in his (Simms') mouth and biting him on both arms in order to "make him laugh." Thereafter, as he was walking downstairs with William in his arms, Simms' leg buckled and he fell, dropping William as he did so. Simms may have accidentally bitten William as a result of the fall. William also hit his head.
A short time after the accident Simms noticed a bruise on the boy's forehead and a lump on his upper right thigh. William was also unable to hold the bottle. Simms called Ms. Calloway who returned home and called an ambulance. The ambulance arrived and, as previously described, William was taken to Children's Hospital.
C. The trial testimony.
At Simms' trial, the prosecution introduced expert testimony and medical evidence regarding William's injuries, and sought to prove that these injuries were not sustained in the manner described by Simms. Because Simms was acquitted of aggravated assault and cruelty to children, we find it unnecessary to describe this testimony. The government also introduced into evidence Simms' videotaped statement. Pauline Calloway, William's mother, did not testify.
Simms took the witness stand on his own behalf. His description of the events leading to the transportation of William to Children's Hospital generally conformed to his videotaped statement to the police, but there were some inconsistencies and elaborations. Simms testified that on the Tuesday morning, he was "nibbling" on William's left arm at the top of the staircase, not on both arms. He claimed that he told Dr. Ieni that William had been bitten by a puppy because "that was the only thing that I could think of at the time." He acknowledged that the bite mark on William's left arm "might have occurred while I was nibbling the baby" when he fell.
Simms acknowledged that he physically "disciplined" William over the weekend, and that he had done so in a similar fashion in the past. Although he denied that he had made William cry or caused any injury to the boy, he admitted that each time he "popped" William, he did so three *203 times consecutively. He acknowledged having told Detective Wallace that he had "popped" William on the leg four times over the vase and several more times for not sleeping and that this caused injury to William's right thigh. Simms knew that William was "restless" from a fever on Monday night, but "popped" him anyway as a form of discipline to make him sleep. Simms did not regard this "discipline" of a fourteen-month-old child as "excessive."
D. Simms' relationship with William.
Simms also presented testimony designed to show that, in disciplining William, he was acting in loco parentis. He testified that he met William's mother in February 2000, that she became his fiancee in July of that year, and that he considered William to be his son or stepson. He claimed that from the time when he had met Ms. Calloway, he had on occasion provided food, clothes, shoes, diapers, bottles, and "anything else that [William] needed...." Simms testified that he accepted this financial burden even while Ms. Calloway was unemployed. He took William to the park or to the mall, and he accompanied the boy and his mother on similar outings. Simms stated that he had seen William's mother and grandmother discipline William in the same manner that Simms did, and he claimed that the mother had been present on occasions when he disciplined the boy.
At the time of the events that led to his prosecution, however, Simms was still living with his parents, while Ms. Calloway and William lived together in a separate household. Indeed, Simms answered in the affirmative when his attorney asked him, "Did you babysit [William] on occasion?" (Emphasis added.) Simms estimated that before November 2000, he "babysat" or "watched" William four or five times when the boy's mother had "to go to work or [when] it would be inconvenient for her to handle him." (Emphasis added.) By Simms' own account, the occasions on which he looked after William had been sporadic and given that he had known Ms. Calloway since the previous February quite infrequent, once every couple of months.
E. The trial judge's rulings.
The trial judge refused Simms' request that the jury be instructed on the defense of "reasonable parental discipline,"[3] concluding as a matter of law that Simms was not acting in loco parentis. Putting the matter in a nutshell, the judge stated that Simms was just "babysitting" and "was not keeping this kid the whole time or taking care of this kid. That was his mother's responsibility."
As previously noted, the jury convicted Simms of simple assault only. Simms filed a motion for a new trial, which the trial judge denied in a written order. In his order, the judge wrote, inter alia, that Simms "did not offer any evidence other than a conclusory naked assertion that he was acting in loco parentis." After discussing Martin v. United States, 452 A.2d 360 (D.C.1982), and Fuller v. Fuller, 247 *204 A.2d 767 (D.C.1968), aff'd, 135 U.S.App. D.C. 353, 418 F.2d 1189 (1969) (per curiam), the judge continued:
Here, the Defendant had certainly not put himself in the position of a lawful parent. He had occasionally watched the child over the past few months, but had not assumed any other duties or obligations beyond babysitting and duties incidental thereto. As the Government notes, when the child was injured the Defendant did not take any action on his own. Defendant simply called the child's mother.[4] It was the mother, not Defendant, who then left her job, took a cab across town, evaluated the child's condition, then called an ambulance for her son. Neither Defendant's testimony, nor his actions, present any evidence that Defendant even attempted to place himself in the position of a lawful parent notwithstanding his stating that he was the father or considered himself thus. This evidence, if you can describe it as such, is no more than a conclusory statement of his relationship with the child or an emotional feeling of fatherhood on his part without any evidentiary basis in fact.
The judge sentenced Simms to imprisonment for 180 days, but suspended execution of the sentence, placed Simms on supervised probation for two years, and ordered him to perform 100 hours of community service, to complete high school or its equivalent, and to obtain counseling.
II.
LEGAL ANALYSIS
Simms contends on appeal that the trial judge erred by refusing to instruct the jury on the defense of reasonable parental discipline. We do not agree, for in our view, the record did not warrant such an instruction.
A "defendant in a criminal case is entitled to an instruction on any issue `fairly raised by the evidence.'" Martin, 452 A.2d at 362. "A special instruction is warranted when there is evidence of special facts sustaining a rational defensive theory." Id. Simms was "entitled to an instruction as to any recognized defense for which there exists evidence sufficient for a reasonable jury to find in his favor." Outlaw v. United States, 806 A.2d 1192, 1200 (D.C.2002) (quoting Jackson v. United States, 645 A.2d 1099, 1102 (D.C.1994)) (citation and internal quotation marks omitted). As this court explained in Martin, 452 A.2d at 362,
[i]n order to be entitled to a jury instruction on the right of one acting in loco parentis to use reasonable disciplinary measures, two issues must be fairly raised by the evidence. First, there must be evidence that the aggressor stood in loco parentis to the child, and second, there must be evidence upon which a jury could conclude that reasonable discipline was used under the circumstances.
(Citations omitted); accord, Newby v. United States, 797 A.2d 1233, 1241 (D.C.2002). In determining whether the requested defense instruction was properly denied, we must review the record in the light most favorable to Simms. Adams v. United States, 558 A.2d 348, 349 (D.C.1989). An instruction on a proposed defense is not required, however, where in order to accept that defense, the jury would have to engage in "bizarre reconstructions of the evidence." Id. (quoting *205 Wood v. United States, 472 A.2d 408, 410 (D.C.1984)).
The Latin phrase "in loco parentis," literally translated, means "in the place of a parent." We have described the concept as follows:
The term "in loco parentis," according to its generally accepted common law meaning, refers to a person who has put himself in the situation of a lawful parent by assuming the obligations incident to the parental relation without going through the formalities necessary to legal adoption. It embodies the two ideas of assuming the parental status and discharging the parental duties.
Fuller, 247 A.2d at 770 (quoting Niewiadomski v. United States, 159 F.2d 683, 686 (6th Cir.), cert. denied, 331 U.S. 850, 67 S.Ct. 1730, 91 L.Ed. 1859 (1947)); accord, Martin, 452 A.2d at 362.[5] "This relationship involves more than a duty to aid and assist, more than a feeling of kindness, affection or generosity." Fuller, 247 A.2d at 770; Niewiadomski, 159 F.2d at 686.[6]
The principles underlying our cases discussing the status of in loco parentis are consistent with the law in other jurisdictions. In Commonwealth v. O'Connor, 407 Mass. 663, 555 N.E.2d 865 (1990), the Supreme Judicial Court of Massachusetts addressed the "disciplinary privilege" granted to one standing in loco parentis persuasively and in some detail:
Of course, as a predicate to establishing such a disciplinary privilege, a person who is not a parent must prove that he or she stands in loco parentis to the child. Annot., 89 A.L.R.2d, supra at 399 n. 1.[[7]] To be entitled to the legal status of one in loco parentis, a person must assume all the duties and obligations of a parent toward the child. Martin v. United States, supra, [452 A.2d] at 362. Nova Univ., Inc. v. Wagner, 491 So.2d 1116, 1118 n. 2 (Fla.1986). Peterson v. Kabrich, 213 Mont. 401, 408, 691 P.2d *206 1360 (1984). Kransky v. Glen Alden Coal Co., 354 Pa. 425, 428, 47 A.2d 645 (1946). Gribble v. Gribble, 583 P.2d 64, 66 (Utah 1978). The key factors to a threshold showing of in loco parentis status are the intent to take over the position of parent, and the discharge of support and maintenance responsibilities toward the child. Klein v. Sarubin, 324 Pa.Super. 363, 367-368, 471 A.2d 881 (1984). State v. Pittard, [45 N.C.App. 701, 703, 263 S.E.2d 809 (1980)]. Fevig v. Fevig, 90 N.M. 51, 53, 559 P.2d 839 (1977). State ex rel. Gilroy v. Superior Court, 37 Wash.2d 926, 933, 226 P.2d 882 (1951). McManus v. Hinney, 35 Wis.2d 433, 437, 151 N.W.2d 44 (1967).
Intent to replace a natural parent is never to be lightly inferred. In re Appeal of Fowler, 130 Vt. 176, 179-180, 288 A.2d 463 (1972). For example, an in loco parentis relationship does not arise merely because someone in a position of a stepparent has taken a child into his or her home and cares for the child. Klein v. Sarubin, supra, 324 Pa.Super. at 368, 471 A.2d 881. In re Appeal of Fowler, supra, 130 Vt. at 181, 288 A.2d 463. Matter of Montell, 54 Wash.App. 708, 712, 775 P.2d 976 (1989). An impermanent living arrangement shared between the adult and the child has been held to demand even greater affirmative indication of the adult's intention to assume parental responsibilities toward the child to raise a jury question of his in loco parentis status. Kransky v. Glen Alden Coal Co., supra 354 Pa. at 429, 47 A.2d 645.
Id. at 868-69.
In the present case, no impartial trier of fact could rationally find that Simms "put himself in the situation of a lawful parent" or that he "assum[ed] the obligations incident to the parental relation without going through the formalities necessary to legal adoption." Fuller, 247 A.2d at 770. Indeed, the difference between Simms' status and that of a parent consists of far more than "going through the formalities." As of November 1990, Simms had never lived in the same household as William, and he had never provided William with a home. See O'Connor, 555 N.E.2d at 868-69 (explaining that the lack of a permanent living arrangement between an adult claiming in loco parentis status and the child makes proof of the intent to replace a natural parent, which, in any event, is "never to be lightly inferred," even more difficult). "It has been said that when a person takes a child not his own into his custody as a member of his own family, this constitutes the clearest evidence of consent to stand in loco parentis." Bowers v. Maryland, 38 Md.App. 21, 379 A.2d 748, 753 (Spec.App.1977) (emphasis added) (quoting 59 AM. JUR. 2d Parent and Child § 88).[8] Indeed, although Simms had met William's mother in February 2000, and although he claimed that he had regarded William as his son or stepson from the beginning of his relationship with her, Simms had only "watched" or "babysat" the child four or five times prior to the events in November 2000 that resulted in his prosecution and conviction. This hardly amounted to a de facto parent-child relationship, lacking only the formalities. Indeed, the fact that Simms was looking after William at the time of the offense was itself fortuitous; because he had been injured in an automobile accident, Simms was temporarily unable to go to work, so that he was temporarily available to care *207 for William while the boy's mother was at her job.
Simms also testified that he had often purchased food and other necessities for William. Assuming, as we must for present purposes, that this testimony was accurate,[9] it was insufficient, independently or together with the other evidence of record, to establish that Simms stood in loco parentis, a "relationship [which] involves more than a duty to aid and assist, more than a feeling of kindness, affection or generosity." Fuller, 247 A.2d at 770. A kindly uncle, or, for that matter, an ardent suitor, might have performed these generous acts without becoming the substantial equivalent of a parent to William.
Simms argues, correctly, that the status of in loco parentis turns in substantial part on intent of the person claiming it. See Cooley v. Washington, 136 A.2d 583, 585 (D.C.1957). He asserts that he considered William to be his son or stepson, and that it was his intention to treat the boy as his own child. The difficulty with Simms' position is that it equates the hoped for future with the markedly different present. According to Simms, William's mother was his fiancee. He presumably intended, at some future time, to marry her and, together with her, to provide a home for her son. Once he had provided the home and lived in it with William and his mother, Simms might achieve the kind of continuous, day-to-day relationship with William which could reasonably be viewed as akin to that of father and son. But in November 2000, none of this had happened, and a proclamation of future intent could not make it so.[10]
Finally, Simms' claim in this case rests solely on his assertion that the trial judge erred by refusing to instruct the jury with respect to the right of a parent to use a reasonable amount of force to discipline his or her child. Simms asserts that he was entitled to this instruction because he stood in loco parentis vis-a-vis William. No issue has been raised in this case, either in the trial court or in this court, regarding whether a care giver not in loco parentis has a derivative or other right, under some circumstances, to impose any discipline upon a child.[11] We therefore express no opinion on this subject.
III.
CONCLUSION
For the foregoing reasons, Simms' conviction is
Affirmed.
NOTES
[*] Sitting by designation pursuant to D.C.Code § 11-707(a) (2001).
[1] In light of our disposition, we do not reach the government's alternative contention that, even assuming, arguendo, that Simms was acting in loco parentis, no impartial jury could rationally find that the discipline imposed by Simms on a 14-month-old child was reasonable. Cf. Fabian v. State, 235 Md. 306, 201 A.2d 511, 518 (1964) (holding that slapping a 2½ year old sleeping infant for bed-wetting was excessive).
[2] Simms explained at trial that "popping him is a form of spanking. It's a form of discipline."
[3] Specifically, Simms' attorney had asked the trial judge to give Redbook Instruction No. 4.06, which provides, in pertinent part, as follows:
The parent of a minor child is justified in using a reasonable amount of force upon the child for the purpose of safeguarding or promoting the child's welfare, including the prevention or punishment of his/her misconduct. Thus, the parent may punish the child for wrongdoing and not be guilty of assault (1) if the punishment is inflicted out of a genuine effort to correct the child, and (2) if the punishment thus inflicted is not excessive in view of all the circumstances....
See CRIMINAL JURY INSTRUCTIONS FOR THE DISTRICT OF COLUMBIA (4th ed. 2002).
[4] Simms claimed, however, that he had made a sling for the baby's arm and had encouraged Ms. Calloway to summon the ambulance.
[5] In the Fuller case, the question was whether the defendant was liable for child support on the theory that he was in loco parentis vis-a-vis the child. In Martin, the defendant asserted, as Simms claims here, that he had the right to discipline the victim because he stood in loco parentis towards him. Although the cases thus arose in different contexts, the court in Martin adopted the definition of the term articulated in Fuller.
[6] This court further stated in Fuller, 247 A.2d at 770, and reiterated in Martin, 452 A.2d at 362, that the status of "in loco parentis" arises only "when one is willing to assume all the obligations and to receive all the benefits associated with one standing as a natural parent to a child." (Emphasis added in Martin). The trial judge quoted this language in his opinion denying Simms' motion for a new trial. Simms argues, not implausibly, that this sentence was not necessary to the court's decision either in Fuller or in Martin. He points out that the quoted language, read literally, "would preclude such a finding for a step-parent, for example, when the [biological] parent continues to assume `some' obligations and receive `some' benefits." There may indeed be situations in which the language to which Simms objects might be too broad, e.g., in the example suggested by Simms.
We have no occasion, on this record, to consider whether, during the thirty-five years that have elapsed since Fuller was decided, there have been developments in the numerous kinds of arrangements that characterize modern child-rearing which might require some revision of the "all or nothing" approach articulated in that decision and reiterated in Martin. These concerns have no application here; Simms demonstrably fails to qualify for in loco parentis status under the quoted language in Fuller preceding the phrasing with which Simms takes issue, as well as under the additional authorities cited infra.
[7] The court's reference is to Annotation, Criminal Liability for Excessive or Improper Punishment Inflicted on Child by Parent, Teacher, or One In Loco Parentis, 89 A.L.R.2d 396 (1963).
[8] But even "the fact that a child was a part of a man's household and received its support entirely from him is not enough to establish a in loco parentis relationship...." Id. In this case, Simms did not make William a part of his household at all.
[9] For purposes of Simms' entitlement to the requested instruction, we view the record in the light most favorable to him. Adams, 558 A.2d at 349. William's mother did not testify for either party and thus provided no corroboration for Simms' account, but no corroboration was required.
[10] Byrd v. United States, 705 A.2d 629 (D.C.1997), provides no solace to Simms' position. In Byrd, the defendant was the stepfather of his wife's children, and had lived with them during his five year marriage to their mother, had acted as a parent to them. The question was whether the defendant remained in loco parentis, and was thus not prosecutable for kidnapping, under an exception for parents in the kidnapping statute. Id. at 631-33; see D.C.Code § 22-2101 (1996). The court ruled that a jury question was presented as to whether the defendant remained in loco parentis, but that, under all of the circumstances, the trial court error in ruling to the contrary was harmless. Nothing in the Byrd opinion bears on Simms' claim that he stood in loco parentis vis-a-vis William.
[11] Simms' testimony that the discipline that he imposed was the same as that imposed by William's mother was offered solely to prove that he personally stood in loco parentis vis-a-vis William. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547408/ | 15 F.2d 347 (1926)
SOUTHERN INDUSTRIAL INSTITUTE
v.
MARSH et al.
No. 4835.
Circuit Court of Appeals, Fifth Circuit.
October 27, 1926.
John A. Sibley, of Atlanta, Ga. (Spalding, MacDougald & Sibley, of Atlanta, Ga., on the brief), for appellant.
Robert C. Alston, Clifford L. Anderson, Shepard Bryan, and James A. Branch, all of Atlanta, Ga., for appellees.
Before WALKER, BRYAN, and FOSTER, Circuit Judges.
BRYAN, Circuit Judge.
Southern Industrial Institute, appellant, filed its bill in equity to establish its title to 134 shares of common stock and 110 shares of preferred stock of the Bibb Manufacturing Company. Appellant is an educational institution, situated in Alabama, and bases its claim of title upon an alleged gift of the stock to it by the admitted owner, Francis M. Marsh, a few days before his death. Marsh's widow and the executor of his will, appellees, defended the suit on the ground that a valid gift had not been made, because there had been no delivery of the stock.
Marsh was a successful business man, and lived in Atlanta, Ga. He was president of the Atlanta Table Company, with offices in Atlanta. In February of 1922, Marsh visited the Institute, was favorably impressed with it as an educational institution, and in May of that year executed a will in which he made it residuary legatee of his entire estate. About the beginning of the year 1925 his health had become so impaired that he realized he had not long to live, but he went almost daily to his office, and directed his business until April 16 of that year. He died on April 27. In February he made large gifts of stocks and bonds to the Institute, and at that time he gave the stock which is the subject-matter of this suit to a Mr. and Mrs. White. He made the gifts effectual by indorsing the stock certificates and delivering the indorsed certificates to the donees. On March 12 he made a new will, and again named the Institute residuary legatee. A few days later he had the Whites to surrender the stock given to them, and had new certificates issued to himself.
*348 Dr. Lyman Ward, president of the Institute, testified that early in April he was at Marsh's home, and Marsh told him that he had taken back the Bibb Company stock from the Whites, and that the Institute would get that stock; that the witness then stated that he was planning to go to California, and suggested that the stock be transferred immediately, but Marsh replied that was unnecessary, and said "that if anything happened to him before I came back that stock would all be transferred, and Mr. Stewart would hand it to me." On April 13 Ward wrote to Marsh that he had given up his contemplated trip to California. Marsh received the letter, and on April 14 caused A. H. Stewart, the office manager of the Atlanta Table Company, to answer it. On April 11 Marsh wrote a letter to the Citizens' & Southern Company, requesting it to secure the transfer of the Bibb Manufacturing Company stock to the Institute, and gave its address, Camp Hill, Ala., but directed that the new certificates of stock be returned to him; and on April 15 the Citizens' & Southern Company by letter advised Marsh that it was in position to make delivery of the stock. On the 16th, in reply, Marsh signed an order to deliver the stock to Stewart. Stewart did not see Marsh again before the latter's death, but he procured the certificates of stock as directed and placed them in the safe in Marsh's office. Stewart testified that Marsh, in discussing the gift of stock to the Institute, stated that he wanted the Institute to have it, but that he wanted to make delivery in person, that at the time of delivery he intended to require a written agreement from the Institute securing to him the income from the stock during his life, and that it was in pursuance of this purpose that the letter of April 11 to the Citizens' & Southern Company contained the instructions that the new certificates of stock should be returned to Marsh.
The District Judge, as stated in a written opinion, concluded from the evidence, which was taken in his presence, that Marsh intended "to give the stock to the Institute, but to exact an agreement that the dividends be paid to him during his life, and that his belief was that the transfer of the certificates and registration of the company's books in the name of the Institute would operate to entitle it to the stock in case of his death, and that he did nothing further because of this belief. * * * He intended to put the title to the stock out of his estate and into the Institute, if he should presently die, but to control it for further stipulations if he should live to make them. Because of the latter intent he did not deliver to the Institute either the indorsed old certificates or the new ones; because of the former intent he had certificates issued in the Institute's name, instead of simply holding the indorsed old certificates until the stipulations could be made. But the latter intent disappoints the former one, because it destroys that present absolute and unconditional parting with dominion which is necessary to effectuate a gift. The new certificates were held by Marsh, not because he was the proper final custodian of them, nor because it was inconvenient or impossible to get them to the Institute, but in order that terms might be imposed on the gift." Consequently the bill was dismissed.
The wills of Marsh are mentioned for the purpose of throwing light on his intention. The earlier will was revoked by the latter one, but the bequest to the Institute under the latter one was void, because made to an educational institution less than 90 days before Marsh's death. Code Georgia, § 3851.
It is apparent from the District Judge's opinion that he believed Stewart's testimony to the effect that Marsh intended to give the stock to the Institute, but that he also intended before making delivery to exact an agreement from it that he should have the income therefrom during his life. It is insisted on behalf of appellant that Stewart's testimony is against the weight of the evidence, and should be rejected. It is said in argument that he is not a disinterested witness, because an employee of the Atlanta Table Company, of which Mrs. Marsh, appellee, is a large stockholder, and that Stewart's statement was inconsistent with Marsh's act in making the transfer of the stock. The credibility of Stewart was necessarily passed upon by the District Judge, who heard his testimony, and there is nothing in this case to justify an appellate court in rejecting that testimony, because of the supposed interest the witness might have had because of his employment.
There is nothing in the admitted facts and circumstances to contradict that testimony, but, on the other hand, it is corroborated by the written request of Marsh that the new certificates of stock be returned to him, instead of being sent direct to the Institute, whose address had been given to, and was known by, the transfer agent. Although, according to the testimony of the president of the Institute, Marsh stated that the new certificates would be returned to the office of the Atlanta Table Company, that *349 statement was made at a time when it was supposed that Ward would be in California; but, after Marsh knew that Ward was at the Institute in Alabama, he nevertheless gave written instructions to have the certificates delivered to his own agent. So it can hardly be doubted that Marsh, for some purpose of his own, was not ready to part with any of the stock and make delivery of it. Marsh made delivery of the stock he gave away in February by indorsing and delivering the certificates. If he intended unconditionally to surrender the new gift, no reason is suggested why he could not have had the new certificates delivered direct to the Institute. We feel bound, therefore, to accept the District Judge's estimate of Stewart's testimony to the effect that it was Marsh's intention to exact a written agreement that he should have the dividends from the stock as a condition precedent to delivery of the stock itself to the Institute.
It is also contended, even if Stewart's testimony be accepted as true, that the gift to appellant is nevertheless valid, because there is no inconsistency or conflict between giving the stock and reserving the dividends. The validity of that gift depends upon the laws of Georgia. 28 C. J. 625. The Georgia Code provides that, to constitute a valid gift, there must be an intention to give by the donor, acceptance by the donee, and delivery of the article given, or some act equivalent in law to delivery; that acceptance of a gift of substantial benefit is presumed, unless the contrary be shown; that, when a conveyance is required to be in writing, such conveyance, if executed and delivered, will dispense with the necessity of delivery of the article given; that actual manual delivery is not essential, but any act which indicates a renunciation of dominion by the donor and the transfer of dominion to the donee is constructive delivery. Sections 4144, 4145, 4146, 4147. Delivery is therefore essential to the validity of a gift of personal property. In the absence of a manual delivery, there must be a renunciation of dominion by the donor.
We are of opinion that there was no delivery, because, under the District Judge's findings of fact, there was not an unconditional surrender of dominion. Helmer v. Helmer, 159 Ga. 376, 125 S. E. 849, 37 A. L. R. 1137. The transfer of stock on the books of the Bibb Manufacturing Company was only prima facie evidence of delivery, and cannot be held to constitute delivery in view of Marsh's intention to impose conditions upon his contemplated gift. Until the certificates were actually delivered they were in Marsh's control and under his dominion, and it was still within his power to have the stock transferred back to himself without the consent of the Institute. Matter of Crawford, 113 N. Y. 560, 21 N. E. 692, 5 L. R. A. 71. The transfer on the books of the corporation did not purport to separate dividends from the stock itself. That transfer, if good at all, transferred the whole interest. It cannot logically be held that the transfer was insufficient to convey the whole interest but was sufficient to convey a less interest. It was either valid as a whole or invalid altogether. Where the donor delivers stocks or securities into the possession of the donee, it has been held that delivery is complete although the donor also has access to the safe where the stocks or securities are placed for safe-keeping. Such is the holding in Beaumont v. Beaumont, 152 F. 55, 81 C. C. A. 251, and Shepard v. Shepard, 164 Mich. 183, 129 N. W. 201, relied on by appellant. But in each of those cases it appeared that at least constructive delivery had been made to the donee. Roberts' Appeal, 85 Pa. 84, is also relied on by appellant. In that case it is held that the writing by the donor of the donee's name upon the envelope containing the certificates of stock was sufficient to show constructive delivery when taken in connection with the will of the donor. But it is clear in this case that the transfer of stock was not intended as a substitute for delivery.
Appellant's final contention is that under the court's findings there was a valid gift causa mortis. That contention cannot prevail, because delivery is as essential in gifts causa mortis as in gifts inter vivos. Basket v. Hassell, 107 U. S. 602, 2 S. Ct. 415, 27 L. Ed. 500; McKenzie v. Downing, 25 Ga. 669. Besides, a gift causa mortis must be intended to be absolute only in the event of death (Code Georgia, § 4154); whereas, the testimony in this case does not support the theory that the gift to the Institute was to be returned in the event Marsh did not die (Burt v. Andrews, 112 Ga. 465, 37 S. E. 726).
The decree is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547124/ | 809 A.2d 836 (2002)
355 N.J. Super. 162
Maureen F. HEENAN and Matthew Heenan, her husband, Plaintiffs-Appellants,
v.
Ralph T. GREENE, III and Township of Washington, Defendants-Respondents, and
SUZANNE K. Raggio and RONALD M. Raggio, Defendants.
Superior Court of New Jersey, Appellate Division.
Argued October 22, 2002.
Decided November 20, 2002.
*837 Edward H. Mulvihill, Gibbsboro, argued the cause for appellants (Marmero & Mammano, attorneys; Mr. Mulvihill, on the brief).
LaTonya N. Bland, argued the cause for respondents (Capehart & Scatchard, attorneys; Robert A. Hicken, of counsel; Ms. Bland on the brief).
Before Judges SKILLMAN, CUFF and LEFELT.
The opinion of the court was delivered by CUFF, J.A.D.
In this appeal, we consider whether the presence of a herniated cervical disc with radiculitis satisfies the Tort Claims Act threshold to pursue a claim for pain and suffering. The motion judge found that the injury was not substantial and dismissed plaintiffs' complaint against the municipal defendants.[1] We affirm.
On June 12, 1998, the motor vehicle occupied by plaintiff Maureen Heenan was struck by a truck driven by defendant Ralph T. Greene, III, after the truck was struck by a motor vehicle driven by defendant Suzanne Raggio. Plaintiff was taken by ambulance to the hospital where she received treatment in the emergency room for facial lacerations, contusions, and complaints of pain in her left wrist, knee and head. Following examination and several diagnostic tests, plaintiff was discharged. On June 15, 1998, she consulted her personal physician. At that time, she complained of headaches, difficulty sleeping, low back pain, left shoulder pain, left arm pain, left leg pain, dizziness and fatigue. Dr. Biggiani diagnosed several conditions including acute sprain/strain of the cervicothoracic soft tissues, acute sprain/strain of the lumbar soft tissue, left shoulder sprain/strain, cervical disc syndrome with radicular sensation, post-traumatic cervicocranial syndrome, and post-traumatic myofascitis.
An MRI of the lumbar spine revealed degenerative disc changes at L4-L5 and L5-S1. An MRI of the cervical spine revealed a disc herniation at C5-C6. A May 26, 1999 nerve conduction study and needle EMG of the bilateral lower extremities *838 was normal. A June 23, 1999 nerve conduction study and EMG of the upper extremities revealed left C6 radiculitis. Between June 15, 1998 and July 1999, plaintiff received conservative treatment including physiotherapy and spinal manipulations.
Plaintiff is a special education teacher. She lost no time from work; however, she testified that she was required to transfer to the resource room because she was unable to physically restrain a student. She has lost no pay, benefits or opportunities for advancement. Plaintiff was physically active before the accident. She played competitive indoor soccer several times a week and had just participated in her first 5K run. Plaintiff remains physically active after the accident. In her deposition, plaintiff testified that she does interval training which she defined as walking for five minutes, running for two minutes, walking for five minutes, and running for two minutes. She related she can still play sports but needs frequent breaks. Plaintiff also reported that she can no longer perform household tasks in an uninterrupted fashion.
Plaintiff contends she has provided objective medical evidence of injury and this injury is substantial because her cervical function is substantially restricted. Defendants Greene and the Township concede plaintiff has presented objective evidence of injury but argue the injury is not serious enough to satisfy the statutory threshold.
Plaintiffs' claim against defendants Greene and the Township is governed by the New Jersey Tort Claims Act, specifically N.J.S.A. 59:9-2d. Subsection d provides:
No damages shall be awarded against a public entity or public employee for pain and suffering resulting from any injury; provided, however, that this limitation on the recovery of damages for pain and suffering shall not apply in cases of permanent loss of a bodily function, permanent disfigurement or dismemberment where the medical treatment expenses are in excess of $3,600.00.
It is undisputed that plaintiff meets the monetary threshold.
In Brooks v. Odom, 150 N.J. 395, 696 A.2d 619 (1997), the Court considered whether permanent soft tissue injuries affecting plaintiff's neck and low back satisfied the statutory requirement of permanent loss of a bodily function. The Court held that "a plaintiff must sustain a permanent loss of the use of a bodily function that is substantial." Id. at 406, 696 A.2d 619. While the Court acknowledged that plaintiff's injuries were permanent, it held that her injuries were not substantial because she had returned to work and could function as a homemaker. Ibid.
Recently, the Court has addressed the same issue in two cases: Gilhooley v. County of Union, 164 N.J. 533, 753 A.2d 1137 (2000), and Kahrar v. Borough of Wallington, 171 N.J. 3, 791 A.2d 197 (2002).[2] In Gilhooley, the plaintiff slipped and fell on a wet floor in a public building. 164 N.J. at 536, 753 A.2d 1137. As a result of the fall, plaintiff fractured her nose and right patella. Ibid. The knee fracture left plaintiff with a complete loss of quadriceps power. Ibid. She was required *839 to undergo a surgical reconstruction of the knee. Ibid. Although she made a good recovery and returned to work, she regained function of her knee and right leg through the insertion of wires and pins which are permanent in nature. Id. at 536-37, 753 A.2d 1137. The Court held that plaintiff's injury satisfied the statutory threshold of a "permanent loss of a bodily function." Id. at 542, 753 A.2d 1137. The Court reasoned that plaintiff had lost forever the normal use of her knee. Furthermore, her knee could not function without the internal fixation devices. Id. at 542, 753 A.2d 1137. Going beyond the specific case presented by plaintiff, the Court stated
We are satisfied that the Legislature intended to include within the notion of aggravated cases those involving permanent injury resulting in a permanent loss of normal bodily function even if modern medicine can supply replacement parts to mimic the natural function. As is the case with dismemberment and disfigurement, when pins, wires, mechanisms and devices are required to make the plaintiff normal, the statutory standard is met. The fact that a physician has jury-rigged the knee to function with pins and wires in no way inhibits the characterization of that injury as the permanent loss of a bodily function. The same would be true of a plaintiff whose vision is restored with a lens, one whose hearing is restored with a hearing aid, and one whose heart is operating efficiently with a pacemaker or implanted valve. We conclude that those are all aggravated cases within the contemplation of the Legislature when it enacted the "permanent loss of bodily function" language and that they fall squarely within the "substantial" requirement of Brooks.
[Id. at 542-43, 753 A.2d 1137.]
The Court observed, however, that not every objectively determined permanent injury results in a substantial loss of a bodily function. Id. at 541, 753 A.2d 1137.
In Kahrar, the plaintiff fell in a hole while crossing the street. As a result of the fall, the plaintiff fractured her elbow and right ankle. 171 N.J. at 6, 791 A.2d 197. After the elbow fracture healed and following complaints of persistent pain, an MRI revealed a massive tear of the rotator cuff. Ibid. An open surgical procedure was required to repair the tear and a torn tendon. The procedure shortened the length of the tendon and reduced the shoulder range of motion by 40%. Id. at 6-7, 791 A.2d 197. Nevertheless, the plaintiff was able to return to work as a secretary two months after the surgery. Id. at 8, 791 A.2d 197.
Initially, the Court observed that a two-prong test had emerged from Brooks. A plaintiff must prove an objective permanent injury and a permanent loss of a bodily function that is substantial. Id. at 12, 791 A.2d 197 (citing Gilhooley, supra, 164 N.J. at 541, 753 A.2d 1137). The Court also recognized that the issue in Kahrar was the substantiality requirement of the Brooks test. Ibid. The Court noted that the rotator cuff and the tendon which required surgical repair were essential to every function of the arm. Id. at 15-16, 791 A.2d 197. The Court considered the injury and repair analogous to the injury and knee reconstruction in Gilhooley. Id. at 15, 791 A.2d 197.
In Gerber v. Springfield Bd. of Educ., 328 N.J.Super. 24, 744 A.2d 670 (App.Div. 2000), cited with approval in Kahrar, a student was beaten by a fellow student and received serious facial injuries, including multiple fractures of the nasal septum. In *840 spite of reconstructive surgery, plaintiff has difficulty breathing through the nose and suffers from intermittent but recurring headaches. Id. at 31, 744 A.2d 670. We held that plaintiff had submitted objective evidence of permanent injury and substantiality which defeated a motion for summary judgment. Id. at 35-36, 744 A.2d 670. We observed that plaintiff had presented medical evidence that the basic life function of respiration was permanently restricted to a significant degree. Id. at 36, 744 A.2d 670.
Here, as in Gilhooley, Kahrar, and Gerber, plaintiff has established an objective permanent injury, a herniated cervical disc at C5-C6. We conclude, however, that this is one of those cases in which a permanent injury does not result in a substantial loss of a bodily function. Plaintiff has not sustained the type of aggravated injury discussed in Gilhooley, Kahrar and Gerber.
Notably, in Gilhooley and Kahrar, both plaintiffs sustained injuries that would have rendered an extremity useless without significant surgical intervention. In Gerber, plaintiff's respiratory function was compromised. That is not the situation in this case. Plaintiff experiences some restriction of movement in her neck but continues to play sports and does interval training. She can perform household chores to some extent. Plaintiff continues to work as a teacher. She did not miss a day of work. Although she no longer teaches emotionally disturbed children, she continues to work as a teacher with no loss of pay, benefits or opportunity for advancement. Plaintiff's limitation of movement is analogous to the limitations experienced by the plaintiff in Brooks, which were found insubstantial. Brooks, supra, 150 N.J. at 406, 696 A.2d 619.
The order granting defendants Greene and the Township's motion for summary judgment is affirmed.
Affirmed.
NOTES
[1] Plaintiffs' claims against defendants Suzanne K. and Ronald M. Raggio have been settled.
[2] The Court has also recently decided Ponte v. Overeem, 171 N.J. 46, 791 A.2d 1002 (2002). We do not discuss Ponte here because it involved neither a permanent nor a substantial injury. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547344/ | 809 A.2d 607 (2002)
Marcus K. WINSTEAD, Appellant,
v.
UNITED STATES, Appellee.
No. 98-CF-348, 01-CO-1497.
District of Columbia Court of Appeals.
Submitted October 8, 2002.
Decided October 31, 2002.
*608 William T. Morrison filed a brief for appellant in No. 98-CF-348. Henry A. Escoto filed a brief for appellant in No. 01-CO-1497.
Wilma A. Lewis, United States Attorney at the time the brief was filed, and John R. Fisher, Elizabeth Trosman, Tina Sciocchetti, and Tricia D. Francis, Assistant United States Attorneys, were on the brief for appellee in No. 98-CF-348. Roscoe C. Howard, Jr., United States Attorney, and John R. Fisher, Thomas J. Tourish, David P. Saybolt, and Denise M. Clark, Assistant United States Attorneys, were on the brief for appellee in No. 01-CO-1497.
Before FARRELL and GLICKMAN, Associate Judges, and NEWMAN, Senior Judge.
GLICKMAN, Associate J.
A jury found Marcus K. Winstead guilty of fourteen felonies, including three counts of first degree sexual abuse while armed, kidnapping while armed, and armed carjacking. The trial judge imposed a sentence totaling sixty years to life in prison, and subsequently denied without a hearing Winstead's motion to vacate his convictions on grounds of ineffective assistance of counsel. We affirm. Winstead raises several issues on appeal, but in our view the only one that merits more than summary treatment concerns the proper construction of the carjacking statute that the Council enacted in 1993, D.C.Code § 22-2803 (2001).[1]
I.
According to the government's proof at trial, Winstead committed his crimes while on a weekend pass from a youth home. Shortly after he left on the pass, Winstead stole a Buick Skylark parked near his *609 mother's residence. At around six o'clock the following morning, he drove the stolen car to the vicinity of the WTTG Fox Television station in Northwest Washington, D.C. Abandoning the car on the street behind the station, Winstead walked to the guard booth in the WTTG parking lot. Alone in the booth was E.J., a young woman working for the station as an unarmed security guard. Pointing a gun at E.J., Winstead ordered her out of the booth, reached into her purse, and removed her car keys. Winstead led E.J. to her car, a Geo which was parked in the WTTG lot a few feet away from the guard booth, and directed her to drive him across town to an alley in Northeast Washington. There Winstead ordered E.J. to stop and to take off all her clothes. Winstead then forced E.J. to engage in sexual acts with him, holding his gun to the base of her neck and threatening to beat her when she resisted and tried to leave the car.
Despite the danger and Winstead's threats, E.J. made another attempt to get out of the vehicle. Winstead pulled her back and reached for his gun, but it fell to the floor and E.J. grabbed it first. Unable to fire the weapon, E.J. exited the car with it and ran naked out of the alley while Winstead, disarmed, drove off. The residents of a nearby house took E.J. in, clothed and sheltered her, and called the police. The gun that E.J. seized from Winstead was loaded and operable.
The next morning, E.J.'s Geo was located in an alley in Southeast Washington. The car had been set on fire and was still burning. The evidence recovered from the vehicle included E.J.'s clothing and purse and a condom that Winstead had used during the assault. The stolen Buick Skylark was found the following week, parked on the street behind WTTG. The driver's door window was smashed and the steering column was damaged. A bag by the front passenger seat contained a screwdriver.
The government adduced compelling evidence, which we need not recount in detail, that Winstead was the perpetrator of these crimes. Among other things, Winstead matched the detailed description of her assailant that E.J. gave the police, down to a distinctive skin graft on his left thigh. E.J. identified Winstead from his photograph two days after her ordeal and in person at trial. The police recovered E.J.'s college book bag and compact disk player at the youth home to which Winstead had returned after his weekend pass. A resident of the youth home testified that Winstead brought the compact disc player with him when he returned and sold it to the witness for thirty dollars. Following his arrest, Winstead made a confession in which he admitted using a screwdriver to steal a car similar in appearance to the Buick Skylark, abandoning it within walking distance of WTTG, and then abducting a woman from a booth in the WTTG parking lot at gunpoint. Winstead denied sexually assaulting his captive and claimed that he released her on Pennsylvania Avenue (far from Northeast Washington, where the police had found E.J.), but admitted driving off in her car and later setting fire to the vehicle.
Winstead presented no evidence in his defense.
II.
Winstead's main challenge in his direct appeal is to his carjacking conviction. The offense of carjacking is committed if a person knowingly or recklessly uses force or violence to "take from another person immediate actual possession of a person's motor vehicle." D.C.Code § 22-2803(a)(1) (emphasis added). Winstead contends that the term "immediate actual possession" means that the victim *610 must be in direct physical control of the car at the time of the initial assault, "in a position to put a key into the ignition and... start the engine." From that premise, Winstead argues that the evidence did not support his conviction for carjacking because E.J. was in the guard booth rather than in her car when he initially assaulted her.[2]
The flaw in Winstead's argument lies in its premise. The Council borrowed the term "immediate actual possession" from the robbery statute on which the carjacking statute is patterned.[3] As used in the robbery statute, the term "refers to the area within which the victim can reasonably be expected to exercise some physical control over the property." Head v. United States, 451 A.2d 615, 624 (D.C. 1982). "[A] thing is within one's `immediate actual possession' so long as it is within such range that he could, if not deterred by violence or fear, retain actual physical control over it." Rouse v. United States, 402 A.2d 1218, 1220 (D.C.1979). See generally Leak v. United States, 757 A.2d 739, 743 (D.C.2000) (noting that immediate actual possession "may continue for purposes of robbery even though the owner is prevented by force from effectively exercising that possession"). By employing the same term in the closely related carjacking statute, the Council evidently intended that it be given the same scope; there is no reason to think otherwise. We therefore reject Winstead's contention that under the carjacking statute, the victim must be in the car or in direct physical control of the car at the time of the assault. Rather, we hold, in agreement with the D.C. Circuit, that under the carjacking statute, immediate actual possession "is retained if the car is within such range that the victim could, if not deterred by violence or fear, retain actual physical control over it." United States v. Gilliam, 334 U.S.App. D.C. 391, 402-03, 167 F.3d 628, 639-40 (1999) (affirming convictions of carjackers who confronted their victim and took his car after he stepped out of the vehicle to unlock a parking lot gate).[4]
Nor, contrary to the premise of Winstead's argument, does the question of "immediate actual possession" necessarily turn on whether the victim is within close enough range of the car at the precise time the assault commences. The carjacking *611 statute contains no such temporal limitation. A carjacker may take immediate actual possession of a motor vehicle from another by force or violence at any point during a continuous course of assaultive conduct, not just at the starting point.
It follows from our rejection of Winstead's premise that the evidence in this case was sufficient to prove carjacking in violation of D.C.Code § 22-2803. When Winstead assaulted E.J. at the guard booth, her car was only a few feet away, near enough for it to be in E.J.'s "immediate actual possession" then and there. Winstead removed any doubt, however, when he ordered E.J. to get into the car with him. Winstead then took immediate actual possession of the car from E.J. by force when he held his gun on her and ordered her to drive against her will. While E.J. remained at the wheel, it was Winstead who directed her movements and usurped actual physical control of the vehicle. It was no less a carjacking because Winstead took his victim along with the car.
III.
Moving on to Winstead's other claims, we are unpersuaded by his argument that there was insufficient evidence to link him to the stolen Buick Skylark. The night before Winstead kidnapped E.J., the Buick's owner had parked the car in front of the apartment building in which Winstead was staying on his pass. The owner discovered the following afternoon that the vehicle was missing. Not long afterward, the car was located on a street near the WTTG lot. Its steering column had been broken, and a screwdriver that could have been used to start the engine was found inside. In his confession, Winstead admitted that he used a screwdriver to steal a car and drive it to the vicinity of the WTTG television station the morning of the kidnapping. Although Winstead described the car he took as black while the stolen Buick was dark blue on its side and tan on the front, a reasonable jury readily could have discounted this discrepancy in light of the other evidence and concluded beyond a reasonable doubt that it was indeed the Buick that Winstead stole.
Finally, we agree with the trial judge that no evidentiary hearing was required on Winstead's post-conviction claims that his trial attorney was constitutionally ineffective in failing to move to suppress his confession and to introduce DNA evidence. As to the confession, Winstead failed to proffer sufficient facts to show that his Miranda rights waiver was invalid or that his ensuing statement was involuntary.[5]Miranda v. Arizona, 384 U.S. 436, 86 S.Ct. 1602, 16 L.Ed.2d 694 (1966); see, e.g., Artis v. United States, 802 A.2d 959, 966 (D.C.2002) (upholding denial of ineffectiveness claim without a hearing, where movant's allegations did not show that a motion to suppress evidence likely would have been granted if one had been filed). In addition, the record, which included an unrebutted affidavit from Winstead's trial counsel, showed that the DNA evidence would not have given rise to a reasonable probability of acquittal and that counsel made a reasonable tactical decision *612 not to introduce it.[6]See Strickland v. Washington, 466 U.S. 668, 688, 694, 104 S.Ct. 2052, 80 L.Ed.2d 674 (1984) (to prevail on an ineffectiveness claim, the movant must show performance of counsel falling "below an objective standard of reasonableness" and a "reasonable probability that, but for counsel's unprofessional errors, the result of the proceeding would have been different").
IV.
In sum, none of Winstead's claims of error entitles him to relief. We affirm Winstead's convictions and the judgment on appeal.
So ordered.
NOTES
[1] At the time of Winstead's trial, the offense of carjacking was codified at D.C.Code § 22-2903 (1996).
[2] Winstead also argues that the trial judge erred in failing to instruct the jury that "immediate actual possession" means that the victim is in a position to operate the vehicle when the assault commences.
[3] Compare D.C.Code § 22-2801 (2001) ("Whoever by force or violence, whether against resistance or by sudden or stealthy seizure or snatching, or by putting in fear, shall take from the person or immediate actual possession of another anything of value, is guilty of robbery.") with D.C.Code § 22-2803(a)(1) ("A person commits the offense of carjacking if, by any means, that person knowingly or recklessly by force or violence, whether against resistance or by sudden or stealthy seizure or snatching, or by putting in fear, or attempts to do so, shall take from another person immediate actual possession of a person's motor vehicle."). The Report of the Committee on the Judiciary referred to the new offense as "robbery of a motor vehicle." COUNCIL OF THE DISTRICT OF COLUMBIA, COMM. ON JUDICIARY, Report on Bill 10-16, the "Carjacking Prevention Amendment Act of 1993," at 2 (February 10, 1993). We have recognized the "obvious similarity" of the offenses despite the slight differences in their elements. Pixley v. United States, 692 A.2d 438, 440 (D.C.1997).
[4] In accord with our holding, the trial judge in this case properly instructed the jury that "[a] motor vehicle is in the immediate actual possession of the complainant if it is located close enough that one could reasonably expect the complainant to exercise physical control over it." The language is verbatim from Instruction No. 4.51, "Carjacking," in the CRIMINAL JURY INSTRUCTIONS FOR THE DISTRICT OF COLUMBIA (4TH ED.1993).
[5] Winstead alleged only that he was "groggy" during his questioning and that the interrogating officer made "false promises and allegations." In support of the latter allegation, Winstead relied solely on the fact that during his taped interrogation (which was played at trial) the officer falsely told him that his fingerprints were on the condom recovered from E.J.'s car. But this misstatement was immaterial because it came at the end of the interrogation and E.J. said nothing in response to it. In his appeal brief, Winstead alleges for the first time that the officer also falsely promised him that he would be charged as a juvenile rather than as an adult. As Winstead did not make this allegation to the trial judge, we do not consider it. See Young v. United States, 639 A.2d 92, 97 n. 8 (D.C.1994).
[6] Prior to trial Winstead's counsel received a DNA analysis of a spot of semen found on E.J.'s underpants, which the police had recovered from her burning car. According to the analysis, the semen was not contributed by Winstead. Trial counsel explained in an affidavit why she did not use this DNA evidence at trial. The prosecutor had informed her that if the evidence was introduced, E.J. would testify that she was naked and not wearing the underpants when Winstead sexually assaulted her, and that she had had intercourse with someone else a day or two before the assault. The government also would present evidence that semen does not wash out of clothing easily. Trial counsel discussed the DNA evidence with Winstead in light of these considerations, and he agreed with her that using it at trial would undermine the credibility of the defense case. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547085/ | 809 A.2d 10 (2002)
147 Md.App. 336
Rebecca M. MOORE
v.
JIMEL, INC., t/a Hightopps Bar and Grill.
No. 1985, Sept. Term, 2001.
Court of Special Appeals of Maryland.
September 27, 2002.
Michael B. Green, Towson, for appellant.
Kathleen M. McDonald (Kerr McDonald, LLP on brief), Baltimore, for appellee.
Argued before SONNER, ADKINS, CHARLES E. MOYLAN, JR., (retired, specially assigned), JJ.
MOYLAN, Judge.
The appellant, Rebecca M. Moore, was, on October 4, 1998, a customer in the commercial establishment owned by the appellant, Jimel, Inc., t/a Hightopps Bar and Grill in the Fells Point neighborhood of Baltimore City. While using the ladies' restroom on the third floor at approximately *11 6 p.m., she was attacked and raped. She sued the appellee in the Circuit Court for Baltimore City for negligently having failed to provide the security owed to her as a business invitee.
The appellee moved for summary judgment in its favor. Judge John Carroll Byrnes granted the summary judgment motion, ruling that the appellant failed to establish a duty to protect a patron against crimes committed by third persons.
In Valentine v. On Target, 353 Md. 544, 549, 727 A.2d 947 (1999), Judge Karwacki listed for the Court of Appeals the required elements of the tort in question.
To maintain an action in negligence, the plaintiff must assert in the complaint the following elements: "(1) that the defendant was under a duty to protect the plaintiff from injury, (2) that the defendant breached that duty, (3) that the plaintiff suffered actual injury or loss, and (4) that the loss or injury proximately resulted from the defendant's breach of the duty."
It is the first of those elements that concerns us here. This case turns on whether the Hightopps Bar and Grill, under the undisputed circumstances of this case, owed a duty to its customers to provide enhanced security to guard against criminal attacks on the customers by third persons.
The Existence of a Duty Is a Question of Law
A key procedural question is that of whether the existence of such a duty is a question of fact, for a jury, or a question of law, capable of being decided by the judge on summary judgment. It is the teaching of Valentine, 353 Md. at 549, 727 A.2d 947, that that question is one for the court, as a matter of law.
Generally, whether there is adequate proof of the required elements needed to succeed in a negligence action is a question of fact to be determined by the fact finder; but, the existence of a legal duty is a question of law to be decided by the court.
(Emphasis supplied).
In the Valentine case itself, the Court of Appeals affirmed the dismissal of a suit because the complaint, as a matter of law, failed to allege a legally cognizable duty owed by the defendant to the plaintiff. The Court cited a number of cases in which there had been held to be the lack of a duty and in which such a determination was one properly to be decided by the trial judge, as a matter of law.
As clearly outlined by Judge Wilner, "[t]he view expressed in Scott has been confirmed in later cases. See Lamb v. Hopkins, 303 Md. 236, 492 A.2d 1297 (1985); cf. Southland Corp. v. Griffith, 332 Md. 704, 716-17, 633 A.2d 84 (1993), applying the same principle with respect to a duty to aid, i.e., there is no duty on the part of a storeowner to aid a customer from attack by a third person in the absence of statute or special relationship. See also Ashburn v. Anne Arundel County, 306 Md. 617, 510 A.2d 1078 (1986) (police officer had no duty to prevent allegedly drunk driver from injuring pedestrian); Furr v. Spring Grove State Hosp., 53 Md.App. 474, 454 A.2d 414, cert. denied, 296 Md. 60 (1983) (psychiatrist owed no public duty to prevent harm by failing to detain patient); Hartford Ins. Co. v. Manor Inn, 335 Md. 135, 642 A.2d 219 (1994)." Valentine v. On Target, 112 Md.App. 679, 686, 686 A.2d 636, 639 (1996).
353 Md. at 552, 727 A.2d 947.
In Nails v. Community Realty Co., 166 F.3d 333, 1998 U.S.App. LEXIS 31576 (4th *12 Cir.1998),[1] the United States Court of Appeals for the Fourth Circuit applied Maryland law as it held:
Under Maryland law whether a landlord has a duty to protect tenants is a legal question, ... which we review de novo.
(Emphasis supplied).
The Factual Background
Sunday, October 4, 1998, was the final day of the Fells Point Festival, an occasion on which the neighborhood and its commercial establishments would be expected to be more than ordinarily crowded. The Hightopps Bar and Grill is at the corner of Broadway and Thames Street, the literal epicenter of Fells Point. Hightopps is a three-story establishment. The first floor is a bar, with several tables for customers. It is entered from Thames Street. The second floor contains both a game area and a restaurant. The third floor has an outdoor deck overlooking both Thames Street and Broadway. It also has a bar, two restrooms, a storage area, and an office.
There are two approaches to the second and third floors. They may be reached through a ground level door on Broadway, which leads to a stairway with entrances to both the second and third floors. Those upper levels may also be approached from an interior stairway leading from the first floor bar area. There are thus two doors providing ingress for the public, one on Thames Street and one on Broadway.
Because of the anticipated crowd from the Fells Point Festival (the weather turned out to be cold and damp and the crowd was less than anticipated), Hightopps had approximately six security personnel on duty on the evening of October 4. A separate guard was stationed at each of the public entrances, the door on Thames Street and the door on Broadway. Their primary mission was to prevent 1) underage persons and 2) obviously intoxicated persons from entering the establishment. A third guard was stationed at the top of the stairs leading up from the door on Broadway, at the entrance to the third-floor deck. The other three security personnel walked throughout the premises to prevent disruptive incidents between patrons and to handle them if any such incidents should occur.
The appellant, as part of a party of six persons, arrived at the Fells Point Festival at approximately five p.m. In her party was her fiancé, Jason Postlewaite; her friend, Lauren Wolf; another work-acquaintance named Jen; and two friends of Jason's, Ryan Currie and Ryan Dunnigan. Shortly after their arrival at the Festival, the party entered Hightopps via the door on Broadway and climbed the stairs directly to the third-floor deck.
The appellant recalled that someone at the Broadway entrance was "carding," to wit, checking the identification cards for age, of everyone who entered. She also recalled a bartender being present behind the third-floor deck bar. When the appellant and Lauren returned from an uneventful trip to the restroom shortly after their arrival at Hightopps, the appellant recalled there being between six and ten customers, in addition to her own party, on the third-floor deck.
The appellant described her first and uneventful trip to the restroom. From the deck she ascended five to seven steps to a hallway. The door to the ladies' room was "another twelve strides" from the top of those stairs. That third-floor ladies' room *13 had two stalls, each with a swinging door. The large stall on the left (as one enters the ladies' room) had a sliding-type latch; the other stall had no latch. The door from the hallway had no lock because the restroom was designed to be used by more than one person at a time.
On that first trip, the appellant simply "primped" at the mirror while Lauren used one of the stalls. In terms of noise level, the appellant and Lauren were able to converse with each other in normal tones. Lauren made no comment about a door not closing or a latch not working. The appellant saw nothing that caused her to be concerned for her safety. She described the facility as a "fairly typical bar bathroom." Although the appellant's brief now characterizes the lighting as "dim," her deposition testimony was that the lighting did not appear to her to be particularly dim, either in the restroom or in the hallway leading to the restroom. It was, moreover, not yet dark outside.
At about six p.m., the appellant made her second trip to the restroom, on that occasion alone. At that time, in addition to her own party there were "between two and six other people" on the deck. With respect to the demeanor of the crowd, moreover, the appellant, in her deposition, described it as being qualitatively quiet as well as quantitatively sparse.
Q. Was there anything about the other patrons that you saw at Hightopps at any time before this incident that caused you to be concerned about your safety or your security?
A. No.
Q. They weren't rowdy or poorly dressed?
A. No, it was just rather quiet. Most of what I remember being up there were kind of petite little females, because I think that's kind of why my party was interested in staying up there.
Q. You mean the men in your party?
A. Yes.
(Emphasis supplied).
There was no suggestion as to why there should have been a heightened need for security because of an unusually large or unruly crowd. Indeed, where a rape occurs in an allegedly lonely restroom off an allegedly secluded hallway, the danger would seem to stem more from the lack of people than from the presence of too many people.
When the appellant arrived there, no one else was in the restroom. The appellant chose the stall on the right, without the latch, rather than the stall on the left, with the latch. It did not concern her that she had to hold the stall door shut, because she had been in public restrooms before where that had been the case.
The appellant then saw a man enter the restroom, a man she knew, from past acquaintanceship, to be one Richard Casey.[2] In her deposition, the appellant stated that she "looked" and "kind of opened her stall door to see if it was Lauren." The lack of a latch does not appear to have had significance.
There was then nothing in Casey's appearance or initial behavior to cause the appellant any concern. He looked "like a normal guy" and she did not smell alcohol on his breath at any time. The fact that Hightopps served intoxicating beverages does not appear to have had any significance.
At that point, Richard Casey entered the stall, grabbed the appellant by the shoulders, turned her around, and raped *14 her from behind. The appellant in her deposition described the nature of her yells or screams:
Q: How many times did you scream?
A: Twice.
Q: Was one scream louder than the other, that you were conscious of?
A: The second one was louder.
Q: Did you yell words or did you just scream a sound?
A: No, I think the first time, I think the first time I yelled "help" or something stupid. And then the second time I yelled "please, stop," thinking, I think in my head at the time, thinking maybe somebody had heard "help," but was thinking it was somebody playing around or joking.
Casey asked the appellant if she wanted him to kill her, and she quieted down. As she was being sexually assaulted, however, the appellant kicked backward, striking Casey. He backed out of the stall, backed out of the restroom, and disappeared. The appellant remained in the restroom for two or three minutes and then returned to the deck, where she informed her fiancé that she had been raped.
The only other exhibit before Judge Byrnes, as he made his ruling on summary judgment, was the affidavit of one of the owners of Hightopps, attesting, inter alia, to the fact that,
[a]t no time prior to this alleged October 4, 1998, incident were there any incidents of physical or sexual assault against a female patron in the Hightopps premises, much less in any of the bathrooms, nor had there been any crimes against persons committed in this facility, other than minor altercations between patrons.
No General Duty to Protect Patrons From Crimes by Third Persons
We hold that Judge Byrnes was not in error in granting summary judgment in favor of the appellee on the ground that Hightopps owed no duty to its customers to protect them from the criminal acts of third persons while on the premises of the bar and grill. We find to be absolutely dispositive the opinion of Chief Judge Murphy for the Court of Appeals in Scott v. Watson, 278 Md. 160, 359 A.2d 548 (1976).
In Scott v. Watson, the plaintiff had "claimed that the defendants had breached a duty owed to Scott as one of their tenants to protect him from criminal acts of third parties committed in common areas within their control." 278 Md. at 161, 359 A.2d 548. Following a transfer of the case to federal court, the United States District Court certified to the Court of Appeals three questions of law, the first two of which are pertinent to the case before us.
"(1) Does Maryland law impose upon the landlord of an urban apartment complex a duty to tenants to protect them from the criminal acts of third parties committed in common areas within the landlord's control and, if so, what is the extent of such duty?
"(2) If no such duty exists generally, would such a duty be imposed if the landlord has knowledge of increasing criminal activity on the premises or in the immediate neighborhood?"
278 Md. at 161-62, 359 A.2d 548.
Although the first question was posed in the context of a landlord's duty to a tenant, the answer would also apply with respect to a merchant's duty to a patron. In Nigido v. First National Bank, 264 Md. 702, 288 A.2d 127 (1972), a bank customer, wounded in the course of a bank robbery, sued the bank for negligently failing to provide adequate security. In affirming *15 the dismissal of the suit, as a matter of law, the Court of Appeals expressly analogized the absence of a special duty in that case to the absence of such a special duty by a shopkeeper to his customer.
Appellants have not cited, nor have we found, any authority for the notion that the bank owed Salvatore "a special duty" to protect him against robbers. We think he was an invitee to whom was owed the same duty a shopkeeper owes his customer, i.e., to use reasonable care for his protection.
264 Md. at 704, 288 A.2d 127 (emphasis supplied).
In Tucker v. KFC National Management Co., 689 F.Supp. 560 (D.Md.1988), a customer sued Kentucky Fried Chicken, alleging that "it did not provide an adequately safe place for its business invitees" and that it negligently "had failed to have a security guard on the premises." 689 F.Supp. at 561. In granting summary judgment in favor of KFC, Judge Niemeyer made it clear that "the applicable law is that of Maryland." 689 F.Supp. at 562. He cited as authoritative both Scott v. Watson and Nigido v. First National Bank, as he held:
The duty to protect patrons against conduct of third persons does not exceed the general duty of care and duty to warn of hidden dangers. A higher duty to protect a private person from the conduct of a third person arises under Maryland law only when a special relationship exists, such as that created by common carrier and passenger. The storekeeper and business invitee do not have that special relationship.
....
The general duty of reasonable care... does not include a requirement to provide police protection.
Id. (emphasis supplied).
Judge Niemeyer's conclusion made it clear that the question of whether a duty is owed is an issue of law, for the court, and not an issue of fact, for the jury.
Were the Court to hold otherwise, every newsstand, drug store, fast food establishment, gas station and similar establishment would be required to provide security guard service for its business invitees. The articulation of a duty so broad and with such extensive consequences rests on the legislature and will not be imposed judicially. Would one guard be enough? What procedures would be necessary for the guard to prevent criminal activity? Could the requirement to have a security force or guard not lead to greater harm and exposure to business invitees by confrontation? These are not questions of reasonableness for the jury to decide, but are questions of duty.
689 F.Supp. at 563-64 (emphasis supplied).
Having established the pertinence of Scott v. Watson, we turn to that opinion's answer to the first certified question:
[W]e hold that there is no special duty imposed upon the landlord to protect his tenants against crimes perpetrated by third parties on the landlord's premises. Indeed, this is the general rule in other jurisdictions. In a somewhat analogous situation we noted, in Nigido v. First Nat'l Bank, 264 Md. 702, 288 A.2d 127 (1972), the absence of authority for the proposition that a bank owed a customer, shot by robbers in the course of a bank holdup, a special duty of protection; we said there that he was owed the same duty a shopkeeper owes his customer, to use reasonable care for his protection ....
The general rule is a subsidiary of the broader rule that a private person is under no special duty to protect another from criminal acts by a third person. *16 278 Md. at 166, 359 A.2d 548 (emphasis supplied). After further discussion, Chief Judge Murphy restated the Maryland law on the subject:
[W]e decline to impose a special duty on a landlord to protect his tenants from criminal activity since to do so would place him perilously close to the position of insurer of his tenants' safety. Our answer to the first certified question is that Maryland law does not impose upon the landlord of an urban apartment complex a special duty to tenants to protect them from the criminal acts of third parties committed in common areas within the landlord's control.
278 Md. at 167, 359 A.2d 548 (emphasis supplied).
Foreseeability of Risk As Creating a Special Duty
The first certified question having been answered by the Court of Appeals in the negative, the second certified question now assumes pertinence. Might the foreseeability of future criminal activity, based on the knowledge of past criminal activity, create a duty to provide security even if the duty would not otherwise exist?
"(2) If no such duty exists generally, would such a duty be imposed if the landlord has knowledge of increasing criminal activity on the premises or in the immediate neighborhood?"
278 Md. at 162, 359 A.2d 548.
Chief Judge Murphy, quoting from Eyerly v. Baker, 168 Md. 599, 607, 178 A. 691 (1935), responded to that question by stating that a duty may be enhanced or an additional duty created based on the foreseeability of the special risk:
[A] storekeeper who invites the public to come upon his premises [is held] to a "positive affirmative duty to protect them, not only against dangers which may arise from some defect or unsafe condition of the physical property upon which they are invited to enter, but against dangers which may be caused by negligent acts of his employees, or even of customers, where, as a reasonably prudent person, he should have anticipated the possible occurrence and the probable results of such acts."
278 Md. at 166, 359 A.2d 548 (emphasis supplied).
The Court of Appeals then particularized that enhanced duty to the situation involving the perceived risk of crimes being committed against customers.
If the landlord knows, or should know, of criminal activity against persons or property in the common areas, he then has a duty to take reasonable measures, in view of the existing circumstances, to eliminate the conditions contributing to the criminal activity.
278 Md. at 169, 359 A.2d 548.
Pertinent History of Criminal Incidents Confined to Premises And Not to Surrounding Neighborhood
As to the area covered by known criminal incidents and giving rise to the foreseeability of risk, the Court of Appeals confined the area to the storeowner's premises itself and not to the surrounding neighborhood.
We think this duty arises primarily from criminal activities existing on the landlord's premises, and not from knowledge of general criminal activities in the neighborhood. Every person in society is subject to the risk of personal injury or property damage from criminal activity, both inside and outside his abode. The risk obviously varies with the time and locale. Since the landlord can affect the risk only within his own premises, ordinarily only criminal acts occurring on the landlord's premises, *17 and of which he knows or should have known (and not those occurring generally in the surrounding neighborhood) constitute relevant factors in determining, in the particular circumstances, the reasonable measures which a landlord is under a duty to take to keep the premises safe.
Id. (emphasis supplied).
Scott v. WatsonConsistently Followed
Scott v. Watson has been consistently followed as the settled law of this State. In Hemmings v. Pelham Wood, 144 Md. App. 311, 317-18, 797 A.2d 851 (2002), Judge Davis wrote for this Court:
This rule also applies to criminal acts of third parties; "there is no special duty imposed upon the landlord to protect his or her tenants against crimes perpetrated by third parties on the landlord's premises." Scott, 278 Md. at 166, 359 A.2d 548. However, when it can be illustrated that the landlord had knowledge of increased criminal activity on the premises, a duty is imposed on the landlord to undertake reasonable measures to keep the premises secure. Id. at 165, 359 A.2d 548.
(Emphasis supplied). See also Valentine v. On Target, 112 Md.App. 679, 686, 686 A.2d 636 (1996); Valentine v. On Target, 353 Md. 544, 551-52, 727 A.2d 947 (1999).
In applying what it interpreted to be prevailing Maryland law, the Fourth Circuit, in Nails v. Community Realty Co., 166 F.3d 333, 1998 U.S.App. LEXIS 31576 (1998), cited Scott v. Watson as its authority and summarized its holding.
There is no special duty imposed upon the landlord to protect his tenants against crimes perpetrated by third parties on the landlord's premises. Rather, a landlord who has set aside areas for the use of his tenants in common owes them the duty of reasonable and ordinary care to keep the premises safe. The landlord is not an insurer of tenants and is only obliged to use reasonable diligence and ordinary care to keep common areas in reasonably safe condition.... [I]f the landlord knows, or should know, of criminal activity against persons or property in the common areas, he then has a duty to take reasonable measures, in view of the existing circumstances, to eliminate the conditions contributing to the criminal activity. This duty arises primarily from criminal activities existing on the landlord's premises-not from knowledge of general criminal activities in the neighborhood.
(Emphasis supplied).
In terms of foreseeability, there had been in Nails a purse snatch at knife point some four months earlier on the apartment parking lot in question. Even that, held the Fourth Circuit, was not enough to create a jury question on foreseeability so as to preclude summary judgment.
Relying on Scott [v. Watson ] the district court found this sole instance of violent criminal conduct insufficient, as a matter of law, to create a duty for Lake Arbor Towers to provide all night security, as urged by Nails.
(Emphasis supplied).
Conclusion
In this case, there was no general duty on the part of Hightopps to protect its customers from possible crimes committed by third persons. Because there was no evidence of any prior crime having been committed against a customer on the premises, there was no foreseeability of risk so as to create a special duty in that regard. We affirm the decision of Judge Byrnes to grant summary judgment in favor of the appellee.
*18 JUDGMENT AFFIRMED; COSTS TO BE PAID BY APPELLANT.
NOTES
[1] Nails v. Community Realty Co. is an unpublished opinion of the Fourth Circuit listed at 166 F.3d 333. The text of the opinion is nonetheless circulated by both West Law and LEXIS.
[2] Richard Casey was arrested and tried for the assault on the appellant. At his trial in the Circuit Court for Baltimore City on March 3, 2000, however, he was acquitted. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547111/ | 73 F.2d 350 (1934)
NEW YORK LIFE INS. CO.
v.
MILLER.
No. 9918.
Circuit Court of Appeals, Eighth Circuit.
October 25, 1934.
*351 Clifford V. Cox and Donald Evans, both of Des Moines, Iowa (Wm. F. Riley and John Inghram, both of Des Moines, Iowa, on the brief), for appellant.
L. H. Salinger, of Carroll, Iowa (Edward A. Wissler and Salinger, Reynolds & Meyers, all of Carroll, Iowa, on the brief), for appellee.
Before BOOTH, Circuit Judge, and MUNGER and BELL, District Judges.
MUNGER, District Judge.
The appellee had a verdict and judgment against the appellant in an action upon two policies of insurance. The parties will be referred to as they appeared in the trial court. The defendant's answer alleged that the assured had obtained the policies by making, knowingly, false representations, consisting of untrue answers to questions propounded to him in his written application for the policies and the same facts were also alleged in a cross-bill, with allegations that upon discovery of the falseness of the representations the defendant had tendered to plaintiff the premiums which it had collected and had notified her that it had elected to rescind the policies. The prayer asked for a decree of rescission of the policies and for general relief. In her replication to the cross-bill, the plaintiff admitted that the assured had made the answers to the questions, as alleged, but denied their falsity and materiality, and denied that the policy was issued in reliance upon them. It also alleged that the defendant had an adequate remedy at law. When the case was first reached for trial, the defendant moved that the case be set for trial before the court on the equitable issues tendered for trial in the cross-bill. This motion was overruled, and an exception noted. Thereafter a jury was impaneled in the case and following this the plaintiff was given leave to amend her replication, and in her amendment the plaintiff alleged, in substance, that the copies of the application which were attached to the policies, when the policies were delivered to the assured, were not copies, because illegible. It does not appear that a verdict was reached by the jury at that time, but, one year later, a trial was had to a jury, resulting in the verdict and judgment mentioned.
It is assigned as error that the court overruled the defendant's motion asking for a trial of the equitable issues set forth in the cross-bill before the trial of the legal issues. The trial court held that the defendant had an adequate remedy at law. The appellant's claim that this was erroneous finds support in the case of New York Life Ins. Co. v. Marotta (C. C. A.) 57 F.(2d) 1038, 1039. In that case it appeared that an action at law had been brought to recover upon two life insurance policies, after the death of the insured. The defendant's answer alleged that the policies were procured by means of false and fraudulent answers given by the insured to questions propounded to him in his application for the insurance, and prayed for a rescission and cancellation of the policies. The trial court made an order dismissing the equitable defenses because the defendant had an adequate remedy at law, but this order was reversed by the Court of Appeals. The reason for the reversal was stated in this language:
"There is a clearly marked difference in the elements of proof necessary to support fraud as a defense to an action at law, and fraud as a ground for the equitable relief of rescission and cancellation. This distinction the court did not appear to recognize. No misrepresentation is fraudulent at law, unless it is made with actual knowledge of its falsity, or under such circumstances that the law must necessarily impute such knowledge to the party, at the time when he makes it; but the courts have clearly and repeatedly recognized that there may be actual fraud in equity, without any feature of moral culpability.
"The person making an untrue statement without knowing or believing it to be untrue, and without any intent to deceive, may be chargeable with actual fraud in equity. Of course, whatever would be fraudulent at law is fraudulent in equity; but the equitable doctrine goes further, and includes instances of fraudulent misrepresentation which do not exist at law. At law there must be a showing, not only of the falsity of the allegation, but also knowledge by the applicant of such falsity. As a general rule, courts of equity may grant relief by way of rescission, abatement, or otherwise, although no fraudulent intent on the part of the person making the representation is shown, and even though he may be honestly misled as a result of misapprehension or mistake. All that need be shown in such case is that the representations were false, and actually misled the person to whom they were made. A very large number of cases sustaining these distinctions are set forth in the appellant's brief, and need not be cited here. These authorities sustain the distinction which exists between fraud at law and fraud in equity so clearly as to remove *352 the question beyond the domain of controversy. While it pretty clearly appears from the record that a number of the material questions answered by the applicant were untrue, under all the circumstances, there being a conflict of evidence, we think the court was right in submitting the question to the jury as to the existence or nonexistence of legal fraud; particularly as to whether or not the applicant was suffering from, and had been treated for, gout, and, if so, whether he had knowledge of the fact that he was treated for that disease. But that is only a portion of the case. Either prior to the submission of the case to the jury, or afterwards, under the pleadings, it was the duty of the court to find the facts upon which the equitable defenses were based, and, if the findings showed that the applicant's answers were untrue and material, it was the duty of the court to apply to those facts the equitable principle that such false representations were fraudulent, and entitled the defendant to a rescission of the policies, even though the applicant believed the answers to be true when he made them."
In Derry v. Peek, 14 App. Cases, 337, 359, Lord Herschell stated the distinction in the elements of proof between actions at law for deceit, and suits in equity for rescission, as follows:
"This action is one which is commonly called an action of deceit, a mere common law action. This is the description of it given by Cotton, L. J. in delivering judgment. I think it important that it should be borne in mind that such an action differs essentially from one brought to obtain rescission of a contract on the ground of misrepresentation of a material fact. The principles which govern the two actions differ widely. Where rescission is claimed it is only necessary to prove that there was misrepresentation; then, however honestly it may have been made, however free from blame the person who made it, the contract, having been obtained by misrepresentation, cannot stand. In an action of deceit, on the contrary, it is not enough to establish misrepresentation alone; it is conceded on all hands that something more must be proved to cast liability upon the defendant, though it has been a matter of controversy what additional elements are requisite. I lay stress upon this because observations made by learned judges in actions for rescission have been cited and much relied upon at the bar by counsel for the respondent. Care must obviously be observed in applying the language used in relation to such actions to an action of deceit."
In McFerran v. Taylor, 3 Cranch, 270, 281, 2 L. Ed. 436, which was a suit for specific performance, Chief Justice Marshall said:
"He who sells property on a description given by himself, is bound to make good that description; and if it be untrue in a material point, although the variance be occasioned by a mistake, he must still remain liable for that variance."
The case of Smith v. Richards, 13 Pet. 26, 36, 10 L. Ed. 42, was a suit for rescission of a contract to purchase a tract of land, upon which was a gold mine, upon the ground, alleged by the purchaser as the plaintiff, that he had been induced to make the contract by false representations of the seller. The court said:
"It is an ancient and well-established principle, that whenever suppressio veri or suggestio falsi occur, and more especially both together, they afford a sufficient ground to set aside any release or conveyance. This ancient principle, thus expressed with so much sententious brevity, is laid down in terms somewhat more comprehensive, and having a direct bearing on the present case, by a modern text-writer on equity. In 1 Madd. Chan. 208, it is thus stated: If, indeed, a man, upon a treaty for any contract, make a false representation, whether knowingly or not, by means of which he puts the party bargaining under a mistake upon the terms of bargain, it is a fraud, and relievable in equity. The doctrine thus laid down is almost in the very words used by the chancellor, in the case of Neville v. Wilkinson, 1 Bro. C. C. 546, with the exception of the words, whether knowingly or not; and the part of the proposition embraced by these words, is founded upon the case of Ainslie v. Medlycott, 9 Ves. 21, which fully sustains Mr. Maddock. In this latter case, the following strong language is used: `No doubt, by a representation, a party may bind himself just as much as by an express covenant. If, knowingly, he represents what is not true, no doubt, he is bound. If, without knowing that it is not true, he takes upon himself to make a representation to another, upon the faith of which that other acts no doubt he is bound; though his mistake was perfectly innocent.'
"But the doctrine is laid down with more comprehensiveness and precision by a still more modern writer on equity; who gives *353 us, in the form of distinct propositions, what he considers the result of the various cases on the subject, and marks, with particularity, the modifications which belong to it. In 1 Story's Equity, 201, 202, it is thus stated: `Where the party, intentionally, or by design, misrepresents a material fact, or produces a false impression, in order to mislead another, or to entrap or cheat him, or to obtain an undue advantage of him; in every such case, there is a positive fraud, in the truest sense of the terms; there is an evil act, with an evil intent; dolum malum, ad circumveniendum. And the misrepresentation may be as well by deeds or acts, as by words; by artifices to mislead, as by positive assertions.' Whether the party thus misrepresenting a fact, knew it to be false, or made the assertion, without knowing whether it were true or false, is wholly immaterial; for the affirmation of what one does not know, or believe to be true, is equally, in morals and law, as unjustifiable, as the affirmation of what is known to be positively false. And even if the party innocently misrepresents a fact, by mistake, it is equally conclusive; for it operates as a surprise and imposition on the other party. Or, as Lord Thurlow expresses it, in Nevill v. Wilkinson, `it misleads the parties contracting, on the subject of the contract.'"
The principle stated in these cases that it is immaterial in an equitable suit for rescission or cancellation of a contract, whether the false representation inducing its execution was made with knowledge of its falsity or was made with an honest belief that it was true, has been stated in many decisions in the courts of the United States. Doggett v. Emerson, Fed. Cas. No. 3,960, 3 Story, 700, 733; In re American Knit Goods Mfg. Co. (C. C. A.) 173 F. 480, 482; Grant v. Giuffrida, 50 App. D. C. 28, 267 F. 330, 332; New York Life Ins. Co. v. Marotta (C. C. A.) 57 F.(2d) 1038, 1039; Kell v. Trenchard (C. C. A.) 142 F. 16, 23; Halsey v. Minnesota-South Carolina Land & Timber Co. (C. C. A.) 28 F.(2d) 720, 723; Franco v. New York Life Ins. Co. (C. C. A.) 53 F. (2d) 562, 565; Hindman v. First Nat. Bank (C. C. A.) 112 F. 931, 944, 57 L. R. A. 108; Joslyn v. Cadillac Automobile Co. (C. C. A.) 177 F. 863, 867; Independent Harvester Co. v. Tinsman (C. C. A.) 253 F. 935, 937; Herschberger v. Woodrow-Parker Co. (C. C. A.) 275 F. 908, 916; Billings v. Aspen Mining & Smelting Co. (C. C. A.) 51 F. 338, 347; Kimber v. Young (C. C. A.) 137 F. 744, 747; City of Omaha v. Venner (C. C. A.) 243 F. 107, 113; Fay v. Hill (C. C. A.) 249 F. 415, 419; Woods-Faulkner & Co. v. Michelson (C. C. A.) 63 F.(2d) 569, 572. See, also, Hare & Chase v. National Surety Co. (D. C.) 49 F.(2d) 447, 454; Pittsburgh Life & Trust Co. v. Northern Cent. Life Ins. Co. (C. C.) 140 F. 888, 892; Benton v. Ward (C. C.) 47 F. 253, 256; Burroughs Add. Mach. Co. v. Scandinavian-American Bank (D. C.) 239 F. 179, 183.
In the case of Phoenix Mut. Life Ins. Co. v. Bailey, 13 Wall. 616, 622, 20 L. Ed. 501, the insurance company, after the death of the assured, had filed a bill asking for the cancellation of two policies of insurance which it had issued upon the life of Albert Bailey. The bill alleged that the policies had been procured by the suppression of material facts and by fraudulent misrepresentations. In affirming a dismissal of the bill the court said:
"Whether the remedy sought in this case would have been available if the suit had been instituted before the death of the person whose life was insured it is not necessary to determine, as no such question is involved in the record. Suffice it to say upon that topic that the complainant has not referred the court to any decided case which supports the affirmative even of that inquiry, but the difficulty in the way to such a conclusion in the case before the court is much greater, as by the death of the cestui que vie the obligation to pay, as expressed in the policies, became fixed and absolute, subject only to the condition to give notice and furnish proof of that event within ninety days. Notice having been given and the required proof furnished, the obligation to pay certainly became fixed by the terms of the policies and the sums insured became a purely legal demand, and if so, it is difficult to see what remedy, more nearly perfect and complete, the appellants can have than is afforded them by their right to make defence at law, which secures to them the right of trial by jury. Foley v. Hill, 2 House of Lords Cases, 45; Thrale v. Ross, 3 Brown's Chancery Cases, 56; Arundel v. Holmes, 4 Beav. 325; Norris v. Day, 4 Young & Collyer, 475.
"Where a party, if his theory of the controversy is correct, has a good defence at law to `a purely legal demand,' he should be left to that means of defence, as he has no occasion to resort to a court of equity for relief, unless he is prepared to allege and prove some special circumstances to show that he may suffer irreparable injury if he is denied a preventive remedy. Nothing of the kind is *354 to be apprehended in this case, as the contracts, embodied in the policies, are to pay certain definite sums of money, and the record shows that an action at law has been commenced by the insured to recover the amounts, and that the action is now pending in the court whose decree is under re-examination.
"Courts of equity unquestionably have jurisdiction of fraud, misrepresentation, and fraudulent suppression of material facts in matters of contract, but where the cause of action is `a purely legal demand,' and nothing appears to show that the defence at law may not be as perfect and complete as in equity, a suit in equity will not be sustained in a Federal court, as it is clear that the case, under such circumstances, is controlled by the sixteenth section of the Judiciary Act [see 28 USCA § 384]."
In the case of Cable v. United States Life Insurance Company, 191 U. S. 288, 24 S. Ct. 74, 77, 48 L. Ed. 188, the insurance company had brought suit in the United States court seeking cancellation of a policy of life insurance which it had issued on the life of Herman D. Cable, alleging that the policy had been procured by fraud and by false representations. Before that suit was filed, an action had been begun in the state court, by the beneficiary in the policy, asking for a recovery upon the policy. The bill alleged the lack of an adequate remedy at law, in that a removal of the action on the policy was impracticable, because an Illinois statute declared that a removal of such a case would forfeit the company's right to transact business in Illinois; and alleged that the laws of Illinois, as interpreted by the state courts, were less favorable, on the facts of the case, than the laws applied in the United States courts. In its decision the Supreme Court stated that the plaintiff's bill had alleged that the policy was procured by the fraud and fraudulent representations of the agents of the assured, and dismissed the question of the adequacy of any remedy at law, referring to the decision in the Bailey Case as controlling. The court said:
"We start with the proposition that, to any action brought upon the policy in a Federal court, the company would have a complete and adequate defense by proving the fraud as alleged in the bill herein. That shows a defense in the same jurisdiction resorted to by the complainant herein. It is answered, however, that the action has not been commenced in the Federal court, but, on the contrary, the administratrix has commenced her action in the state court, and hence the defense, if made in the state court, is not in the same jurisdiction as that in which the bill in this case was filed. But the company may bring its defense within the same jurisdiction by removing the case from the state to the Federal court, which it has the right to do on account of the diversity of citizenship of the parties thereto. No stipulation or agreement, founded on a state statute or otherwise, which the company may have entered into, could prevent the removal of the case in the exercise of its constitutional right. This has been so held in Home Ins. Co. v. Morse, 20 Wall. 445, 22 L. Ed. 365; and that case has been repeatedly approved. See Doyle v. Continental Ins. Co., 94 U. S. 535, 24 L. Ed. 148; Barron v. Burnside, 121 U. S. 186, 7 S. Ct. 931, 30 L. Ed. 915, 1 Inters. Com. Rep. 295. * * *
"One thing is entirely clear, that the company could have removed this case from the state to the Federal court, notwithstanding the state statute or anything contained in its application for a license to do business within the state. Upon removal the company would have the full and adequate defense, under the law as administered by the Federal courts, that it would have in the equity case."
In the decision the court referred approvingly to the cases of Home Ins. Co. v. Stanchfield, Fed. Cas. No. 6,660, 1 Dill. 424, and Aetna Life Ins. Co. v. Smith (C. C.) 73 F. 318, in each of which the court had declared that bills to cancel insurance policies on the ground of false representations could not be maintained because the remedy at law was adequate, when the bill was filed after a loss had occurred under the policy.
Before the decision in the Marotta Case, it had been held, in cases which cited the Bailey and Cable Cases that an insurance company ordinarily had an adequate remedy at law, by setting up its defense in an answer alleging that the policy had been procured by false representations, when an action had been begun against it on the policy, after a loss had occurred under the policy. Continental Casualty Co. v. Yerxa (D. C.) 16 F.(2d) 473, 474; New York Life Ins. Co. v. Marshall (C. C. A.) 23 F.(2d) 225; New York Life Ins. Co. v. Feicht (D. C.) 29 F. (2d) 318, 320; New York Life Ins. Co. v. Seymour (C. C. A.) 45 F.(2d) 47, 48, 73 A. L. R. 1523; Riggs v. Union Life Ins. Co. (C. C. A.) 129 F. 207, 208.
*355 The right to maintain an equitable action to rescind or cancel a contract of insurance, because of false representations made by the assured to induce its execution, where there is no adequate remedy at law, is well recognized. Riggs v. Union Life Ins. Co. (C. C. A.) 129 F. 207, 208; Jefferson Standard Life Ins. Co. v. Keeton (C. C. A.) 292 F. 53, 54; Jefferson Standard Life Ins. Co. v. McIntyre (C. C. A.) 294 F. 886, 888; Jones v. Reliance Life Ins. Co. (C. C. A.) 11 F.(2d) 69, 70; Peake v. Lincoln Nat. Life Ins. Co. (C. C. A.) 15 F.(2d) 303, 305; Keystone Dairy Co. v. New York Life Ins. Co. (C. C. A.) 19 F.(2d) 68, 69; New York Life Ins. Co. v. McCarthy (C. C. A.) 22 F.(2d) 241, 245; Adler v. New York Life Ins. Co. (C. C. A.) 33 F.(2d) 827; New York Life Ins. Co. v. Hurt (C. C. A.) 35 F.(2d) 92, 96; Lincoln Nat. Life Ins. Co. v. Hammer (C. C. A.) 41 F.(2d) 12, 16, 17; Equitable Life Assur. Soc. of U. S. v. Schwartz (C. C. A.) 42 F.(2d) 646, 648; New York Life Ins. Co. v. Seymour (C. C. A.) 45 F.(2d) 47, 48, 73 A. L. R. 1523; Brown v. Pacific Mut. Life Ins. Co. (C. C. A.) 62 F.(2d) 711, 712; Phillips-Morefield v. Southern States Life Ins. Co. (C. C. A.) 66 F.(2d) 29, 30; Penn. Mut. Life Ins. Co. v. Joseph (D. C.) 5 F. Supp. 1003, 1006; Massachusetts Protective Ass'n v. Stephenson (D. C.) 5 F. Supp. 586, 590.
The right to maintain such a suit, as illustrated by the cases cited, often arises from the fact that a defense at law in an action on the policy may be lost to the insurer, because of the uncertainty when a loss may occur, the danger that witnesses may disappear, or because the policy will become incontestable after a limited period unless such a suit is begun by the insurer.
If an insurer is entitled to ask the equitable relief of rescission or cancellation of a policy which it has issued, on the ground that it was procured by fraudulent representations of the insured, solely because the elements of proof in such a suit differ from the elements of proof in making the defense in an action on the policy, it is needless in any case to bring suit for that relief before the incontestable period has expired, or before a loss has occurred, or to show that essential testimony may be lost, or to show that any other special circumstances exist, and the insurer would be entitled to make such an equitable defense in every case, where suit was brought upon a policy. While the exact question was not discussed in the Bailey or Cable Cases, or in the cases which have followed those decisions, it must be presumed that the courts were aware of the essential elements of the suits for rescission or cancellation of instruments as contrasted with the elements of a defense at law. While recognizing the force of the reasoning in the Marotta Case, on the authority of the decisions in the Bailey and Cable Cases and the cases which have cited and followed them, we are constrained to hold that it was not erroneous for the trial court to refuse a trial of the alleged equitable issues, because of the nature of the proofs required of the defendant in making a defense in the law action, and there being neither allegation or proof that the policies were issued as the result of mistake. The policies in suit by their terms were incontestable after two years from the date of issue, except for nonpayment of premiums, and except as to provisions for disability and double indemnity benefits. This action was begun, and the defendant's answer and cross-bill were filed before the two-year period had expired. The defendant having thus instituted a contest of the policy within the time limited, was not entitled to the equitable relief asked because of the possibility that the plaintiff might dismiss her action and begin a new one on the policies after the two-year period had expired. New York Life Ins. Co. v. Hurt (C. C. A.) 35 F.(2d) 92, 96; Powell v. Mutual Life Ins. Co., 313 Ill. 161, 170, 144 N. E. 825, 36 A. L. R. 1239.
Complaint is made that the court should have sustained the defendant's motion for a directed verdict. The court submitted the case to the jury with instructions to find for the defendant company if the jury found that the copies of the applications attached to the policies were legible copies, such that a person with undefective eyes and normal vision could read with a fair degree of certainty. Section 8772 of the Code of Iowa (1931), in force at the time this insurance was written, required that a company issuing a life insurance policy should attach or indorse thereon a true copy of any application or representation of the assured, which by the terms of the policy were made a part of it, or of the contract of insurance, or referred to therein, or which might in any manner affect the validity of the policy, and section 8773 of the Code provided that if any insurance company neglected to comply with the requirements of the preceding section, it should be *356 precluded from pleading, alleging, or providing such application or representations or any part thereof, or the falsity thereof, or any part thereof in any action upon such policy.
Appellant claims that a verdict for the defendant should have been directed because it was undisputed that a true copy of the original application was attached to the policies delivered to the assured, and that it could be read by a person with undefective eyes and normal vision.
The record shows that the original application made by the assured was identified and offered and received in evidence. This exhibit is not preserved in the record on this appeal. The original policies delivered to the assured, with the copies of the applications attached, are presented by the record. We are precluded by this condition of the record from a comparison, available to the court below, of the contents of the original application with the contents of the alleged copies delivered to the assured. The parts of the original policies, alleged to be copies of the original application, appear to be photographic reproductions of an application signed by the assured. The questions, and some other portions of it are in printed form, while the answers, and the purported signature of the assured and of the medical officer are in handwriting. A large part of the answers can barely be read by means of a strong magnifying glass owing to the small size and dimness of the letters. The missing exhibit, the original application, may have demonstrated that it was printed and written on sheets of larger size, and with larger printed and written words, legible to any ordinary reader. It is obvious, from a casual inspection of the policies, that a large portion of the papers attached as copies of the application were not capable of being read by persons of normal vision, without the aid of some magnifying instrument. As to the further claim that the statute is obeyed, if the copy of the original application attached to a policy and delivered to the assured is a true copy of its contents, regardless of its legibility, this would not be the test, if the original is plainly printed and written, in letters of fair size and easily legible, while the copy furnished is so reduced in size, or so dim or blurred that it can be read by persons of normal vision only by the use of strong magnifying glasses. Fidelity Mut. Ins. Co. v. Preuser, 195 Ky. 271, 274, 242 S. W. 608; Arter v. Northwestern Mut. Life Ins. Co. (C. C. A.) 130 F. 768, 769. There was no error in overruling the defendant's motion for an instructed verdict.
Other errors assigned challenge that part of the instructions of the court by which he told the jury that a true copy of the original application must be a legible copy, such as a person with undefective eyes and normal vision could discern the writing upon and could read with a fair degree of certainty. The only ground of exception taken to this portion of the instructions was that the test of compliance with the statute was not whether the copy could be read, but whether it was a true copy, and that the portion of the charge defining the person who would be the judge of the ability to read the true copy was immaterial. In Eastman v. Metropolitan Life Ins. Co., 228 Mich. 125, 129, 199 N. W. 655, 656, the court said in discussing a similar statute:
"The test which the court laid down by which the jury was to determine whether the copy was legible was `whether it may be read by a person of normal eyesight under normal conditions and with reasonable ease.' We think this was a proper test and, undoubtedly, one which was contemplated by the Legislature when the act was passed. It would be idle for the Legislature to prescribe a notice to be posted that could not be read by the normal eye under normal conditions. In the present case the provision that a copy of the application should be attached to the policy was inserted for a purpose, and that purpose was to enable the insured to know at all times just what representations he had made to obtain the insurance (New York Life Ins. Co. v. Hamburger, 174 Mich. 254, 140 N. W. 510), and thereby lessen the controversies which were continually arising after the death of the insured over claimed fraudulent representations made by him to obtain the insurance."
In Janunas v. Metropolitan Life Ins. Co., 239 Mich. 150, 153, 214 N. W. 117, 118, it was said in a similar case:
"Whether the reduced size photographic copy of the application attached to the policy serves the purpose of the statute involves the question of whether it can be read by a normal eye, under normal conditions, with reasonable ease. If it cannot be read by a normal eye, under normal conditions, with reasonable ease, then to hold it a compliance would render the statute meaningless."
We think these cases express the true rule applicable in this case, and that there appears *357 to be no error in the giving of the instruction of which the appellant may complain. These are all of the errors assigned that present any substantial question for review, and therefore the judgment will be affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547123/ | 159 B.R. 616 (1993)
The PRUDENTIAL INSURANCE COMPANY OF AMERICA, Appellant,
v.
BOSTON HARBOR MARINA COMPANY, Appellee.
Civ. A. No. 93-40075-GN.
United States District Court, D. Massachusetts.
November 5, 1993.
Amending Order Certifying Decision for November 30, 1993.
Howard J. Levitan, Paul D. Moore, Choate, Hall & Stewart, Boston, MA, for Boston Harbor Marina Co.
Joseph H. Baldiga, Jon D. Schneider, Andrew L. Cohen, Goodwin, Proctor & Hoar, Boston, MA, for Prudential Insurance Co. of America.
Amending Order Certifying Decision for Appeal November 30, 1993.
MEMORANDUM AND ORDER
GORTON, District Judge.
This is an appeal from an Order of the United States Bankruptcy Court for the District of Massachusetts, Western Division, James F. Queenan, Jr., B.J., pursuant to 28 U.S.C. § 158(a) and 28 U.S.C. § 1334. On April 7, 1993, the Bankruptcy Court decided that the rents assigned to The Prudential Insurance Company of America ("Prudential"), as additional security for a mortgage executed by Boston Harbor Marina Company ("Debtor") did not constitute cash collateral within the meaning of Section 363(a) of the U.S.Bankruptcy Code ("the Code"), 11 U.S.C. §§ 101 et seq. Consequently, the Court denied Prudential's Motion to Segregate Rents and to Limit Debtor's Use of Rent ("the Motion to Segregate").
*617 Prudential filed an appeal from that decision on May 20, 1993. Oral argument was heard by this Court on October 26, 1993. For the reasons stated below, the decision of the Bankruptcy Court is reversed, and the case is remanded with instructions to segregate the rents as cash collateral, unless the Bankruptcy Court finds that equitable considerations require it to do otherwise.
I. Factual and Procedural Background
The Debtor is a joint venture formed in 1982 to acquire and develop land in Quincy, Massachusetts, adjacent to Boston Harbor into a multi-use development known as "Marina Bay". One portion of the development consists of a 153,000 square-foot, revenue-generating office building ("the Property").[1] On January 29, 1988 the Debtor executed and delivered to Prudential a promissory note ("the Note") in the original principal amount of $15.3 million. As security for the Note, the parties executed a non-recourse Mortgage and Security Agreement ("the Mortgage") which encumbered the property and a Collateral Assignment of Leases and Rents ("the Collateral Assignment"), with respect to the leases, rents, income and profits arising from the property.[2]
The development was initially successful, but like many others, was adversely affected by the decline in real-estate values which beset the region in the late 1980's. Accordingly, on July 1, 1992, ("the filing date"), Debtor filed a voluntary petition for relief under Chapter 11 of the Code. Prior to June 1, 1992, one month before the filing date, the Debtor's Note was current. The payment made on that date, however, was the last payment. Moreover, on the filing date, real estate taxes due to the City of Quincy for the entire fiscal year ending June 30, 1992, remained unpaid. Although both parties concede that Debtor was in default, pursuant to Article Two, § 2.01 of the Mortgage, Prudential did not accelerate the Note nor take any action to enforce its rights under the Mortgage Documents prior to the filing date.
Debtor remained in possession of the Property after the filing date and continued to operate the business as a debtor-in-possession. Once the petition was filed, Prudential was restrained from taking any action to enforce its rights to the rents because of the Code's imposition of an automatic stay. On December 16, 1992, more than five months after the filing date, Prudential filed a motion in the Bankruptcy Court for relief from stay, seeking to foreclose on its mortgage and take possession of the building. On December 30, 1992, the Bankruptcy Court authorized Prudential to take possession of the Property, which it did on January 25, 1993. Prudential has collected rents derived from the Property from that date forward. From the filing date (July 1, 1992) through the date Prudential took possession (January 25, 1993), the Debtor continued to collect rents from the property, and paid all operating expenses with the exception, however, of accruing real-estate taxes.
On January 6, 1993, Prudential filed the Motion to Segregate seeking segregation of the rents for the benefit of Prudential. Prudential argued that properly recorded, and therefore perfected Mortgage Documents, give it a cash collateral security interest in the rents under Sections 363 and 552 of the Code. The Debtor opposed this motion, asserting that Prudential had not enforced its interest in the rents in accordance with Massachusetts law by taking possession of the property pre-petition and therefore held no interest in the rents. On April 7, 1993, the Motion to Segregate was denied by the Bankruptcy Court without written findings of fact or conclusions of law. This appeal, filed on May 20, 1993, is from that denial.
Debtor filed its First Amended and Restated Plan of Reorganization ("the Plan") on April 5, 1993. Prudential has filed an *618 objection to the confirmation of the Plan because it does not call for payment of past-due real estate taxes by the Debtor, and because it proposes to distribute monies that Prudential considers to be its cash collateral. A hearing on confirmation of the plan is scheduled in the Bankruptcy Court on November 9, 1993.
II. Legal Reasoning
The factual determinations of the Bankruptcy Court are binding unless clearly erroneous, but its conclusions of law are to be reviewed de novo. In re LaRoche, 969 F.2d 1299, 1301 (1st Cir.1992); Robb v. Schindler, 142 B.R. 589, 590 (D.Mass. 1992).
After hearing extensive oral argument on this issue, and after carefully reviewing the memoranda of both parties as well as the relevant case law both in this circuit and others, this Court holds that a perfected security interest in rents, even if unenforced prior to the date of the bankruptcy petition, constitutes cash collateral. As the United States Court of Appeals for the Second Circuit recently explained, "the failure of a secured party to perform enforcement procedures prior to bankruptcy merely renders an interest inchoate, not nullified." In re Vienna Park Properties, 976 F.2d 106, 112 (2d Cir.1992). To the extent that previous bankruptcy decisions in this district, notably, In re Prichard Plaza Assoc. Ltd. Partnership, 84 B.R. 289 (Bankr.D.Mass.1988), have concluded otherwise, this Court respectfully finds them unpersuasive.
A. Issue Presented
The central issue in this analysis, is whether Prudential had sufficient security interest in the rents for them to qualify as cash collateral. If the rents are cash collateral, then Prudential has a right to have them segregated by the Bankruptcy Court. Consequently, the Debtor will have only such use of them as is deemed by that Court to be consistent with preserving Prudential's security interest therein and consistent with equitable considerations. The security interest, if any, that Prudential holds in the rents is disputed because Prudential did not enforce its right to collect the rents under Massachusetts law before Debtor filed for bankruptcy.
The ultimate question is, therefore, whether a mortgagee who holds a recorded, pre-petition mortgage against the debtor's real property as well as a recorded, pre-petition assignment of rents pertaining to that property, has sufficient interest in the rents to trigger the "cash collateral" provisions of the Code, where the mortgagee has not taken possession of the real property prior to the bankruptcy filing. For the following reasons, this Court believes that the mortgagee has such an interest.
B. Cash Collateral under the Bankruptcy Code
"Cash collateral", as defined in § 363(a) of the Code, includes cash:
in which the estate and an entity other than the estate have an interest and includes the proceeds, products, offspring, rents or profits of property subject to a security interest as provided in section 552(b) of this title, whether existing before or after the commencement of a case under this title.[3]
The significance of a determination that assets constitute cash collateral is that the debtor's use of such assets is restricted. Pursuant to Section 363(c)(2):
The trustee may not use, sell or lease cash collateral ... unless (A) each entity that has an interest in such cash collateral consents; or (B) the court, after notice and a hearing, authorized such use, sale or lease in accordance with the provisions of this section.
Section 363(e) further provides that:
at any time, on request of an entity that has an interest in property used, sold or *619 leased, or proposed to be used, sold, or leased, by the trustee, the court, with or without a hearing, shall prohibit or condition such use, sale or lease as is necessary to provide adequate protection of such interest.
Section 552(a) of the Code establishes the general rule that property acquired after the commencement of bankruptcy is not subject to any security interest arising from an agreement entered into before the commencement of the bankruptcy case. It specifically states that:
property acquired ... by the debtor after the commencement of the case is not subject to any lien resulting from any security agreement entered into by the debtor before the commencement of the case.
However, § 552(b) provides an exception applicable to the question before this Court. That subsection provides that:
if the debtor and an entity entered into a security agreement before the commencement of the case and if the security agreement extends to property of the debtor acquired before the commencement of the case and to ... rents ... of such property, then such security interest extends to such ... rents ... acquired by the estate after the commencement of the case to the extent provided by such security agreement and by applicable nonbankruptcy law, except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise.
Section 101(51) of the Code defines "security interest" as a "lien created by an agreement," and Section 101(50) of the Code defines a "security agreement" as an "agreement that creates or provides for security interest." A "lien", in turn, is broadly defined in Section 101(37) of the Code as a "charge against or interest in property to secure payment of a debt or performance of an obligation." Thus, under § 552(b), a pre-petition lien on rents continues in bankruptcy to the extent such interest in rents is expressly provided for by the security agreement and by "applicable nonbankruptcy law".
C. Massachusetts Law Applied
By operation of § 552(b), the starting point for the analysis of whether Prudential has a security interest in the rents is Massachusetts law as the "applicable nonbankruptcy law". It is well settled that state law controls the determination of the extent and existence of a security interest in property, such as rents. See Butner v. United States, 440 U.S. 48, 55, 99 S. Ct. 914, 918, 59 L. Ed. 2d 136 (1979).[4] In order to assess the validity of Prudential's security interest in the rents, this Court must apply the relevant provisions of Massachusetts law. There is no question in this case, that Prudential had a perfected interest in the rents under Massachusetts law.
The Mortgage and Collateral Assignment were executed and properly recorded in the Norfolk County Registry of Deeds well before Debtor filed the bankruptcy petition. Pursuant to Massachusetts law, the recording of a mortgage assigning existing or future rents creates a conveyance good against third parties. M.G.L. c. 183, § 4. Both documents expressly grant Prudential a security interest in the rents, and the interest was perfected at the time the documents were recorded.
The Mortgage itself provides that the Debtor grants to Prudential:
(c) All rents, incomes, profits ... under any an all leases or tenancies now existing or hereafter created of the Premises or any part thereof with the right to receive and apply same to such indebtedness after an event of Default hereunder, and Mortgagee may demand, sue for and recover such payments but shall not be required to so.
Mortgage, at p. 3. The Collateral Assignment, executed contemporaneously with the Mortgage, grants Prudential an interest in the rents, stating that upon an Event of Default, Prudential may:
*620 at its option, without notice and without regard to the adequacy of the security for the said principal sum, interest and indebtedness, either in person or by agent, with or without bringing any action or proceeding, or by a receiver appointed by a court, take possession of the Premises and have, hold, manage lease and operate the same on such terms and for such period of time as the Assignor remains in default and either with or without taking possession of the Premises, in its own name, sue for or otherwise collect and receive all rents....
Collateral Assignment, at p. 3.
Therefore, at the filing date, Prudential had a "perfected" security interest in the rents derived from the Property. For purposes of §§ 363(a) and 552(b) of the Code, the rents were subject to a security interest "to the extent provided by [a] security agreement [entered into before the commencement of the case] and by applicable nonbankruptcy law". Accordingly, the rents, even though Prudential's interest therein had not yet been enforced as of the date of the bankruptcy petition, are cash collateral under § 363(a) of the Code, entitled to protection under § 363(c)(2) of the Code.
D. Scope of the Application of Massachusetts Law
While this Court recognizes that Massachusetts law applies in determining the extent of the security interest, at that point we diverge from the reasoning of several bankruptcy opinions, including Prichard, which hold that a security interest not yet enforced, or "inchoate", at the time of a bankruptcy filing is not enforceable.
In Prichard, the Bankruptcy Court held that Massachusetts law requires a mortgagee to take peaceable and exclusive possession of the property in order to be entitled to collect rents, even if there is a specific assignment of rents in the mortgage documents. Prichard, 84 B.R. at 297.[5] While this Court does not quarrel with that interpretation of Massachusetts law concerning enforcement of a right to collect rents, we believe it is unrelated to the determination of what constitutes cash collateral under the Bankruptcy Code. The distinction between "enforcement" and "perfection" needs to be clarified.
Bankruptcy Courts have rendered confusing and inconsistent opinions with respect to the distinction between "perfection" and "enforcement" of security interests. See, e.g., In re Carmania Corp. N.V., 154 B.R. 160, 163 (S.D.N.Y.1993); In re Vienna Park Properties, 136 B.R. 43, 50-51 (S.D.N.Y.1992), aff'd, 976 F.2d 106 (2nd Cir.1992); In re Rancourt, 123 B.R. 143, 147-48 (Bankr.D.N.H.1991); In re Park at Dash Point L.P., 121 B.R. 850 (Bankr.W.D.Wa.1990), aff'd, 985 F.2d 1008 (9th Cir.1993); See also Donahue, supra at 645-54.
This Court agrees with the position taken by the District Court for the Southern District of New York, and affirmed by the Second Circuit, resolving the "definitional issue that appears to have contributed to the confusion in this area of the law: the distinction between `perfection' and `enforcement' of a security interest." Vienna Park, 136 B.R. at 50-51. In Vienna Park, the Court for the Southern District of New York found that:
`perfection' refers to the process by which a secured party puts third-parties on notice of its interest, whereas `enforcement' refers to the steps the secured *621 party must take to realize its rights in collateral which in this case is the rental income.
Id., at 51.
While it is true that Massachusetts law governs the procedure required to perfect or to enforce a security interest, it is unnecessary for a determination of cash collateral status to go beyond ascertaining whether, under Massachusetts law, a perfected, security lien exists.[6] Enforcement of a right to receive rent and the perfection of a security interest in rents are separate and distinct legal issues. See Vienna Park, 976 F.2d at 112; In re SeSide Corp. Ltd., 152 B.R. 878, 884 (E.D.Pa.1993); Carmania, 154 B.R. at 163-64; Midlantic Nat'l Bank v. Sourlis, 141 B.R. 826, 832 (D.N.J. 1992); In re Mount Pleasant Ltd. Partnership, 144 B.R. 727, 733 (Bankr. W.D.Mich.1992).
The relationship between the timing of enforcement and the entitlement to rents has led courts to describe security interests in rents as "choate" or "inchoate". See, e.g., Prichard, 84 B.R. at 298, 301; See also Dash Point, 121 B.R. at 855 (describing the development of the "choate" and "inchoate" concept); Rancourt, 123 B.R. at 148 (same); Edwards, supra, at 645-46. The distinction depends on whether a security interest in rents had been enforced pursuant to one of the enforcement procedures permitted under applicable state law. If the interest has not yet been enforced, meaning the mortgagee is not yet entitled to collect rents, his interest is considered "inchoate", Dash Point, 121 B.R. at 855, and in many cases non-existent. See e.g., Prichard, 84 B.R. at 197; In re Ledgemere Land Corp., 116 B.R. 338, 341 (Bankr. D.Mass.1990); Ashford, 132 B.R. at 219; In re Wynnewood House Assoc., 121 B.R. 716 (Bankr.E.D.Pa.1990) (applying Pennsylvania law).[7]
In the view of this Court, the concept of inchoateness is irrelevant to the determination of cash collateral status under the Bankruptcy Code. As the Second Circuit explained:
An enforceable interest regarding an assignment of rents arises in favor of the assignee upon the creation of the security interest. The right to actual enforcement, however, is subject to the occurrence of statutory and contractual conditions precedent. While the conditions precedent might not have occurred as of filing [for bankruptcy] regarding the ... rents, that does not change the fact that the post-petition rents are subject to the [creditor's] security interest and becomes its cash collateral under 11 U.S.C. § 363.
Vienna Park, 976 F.2d at 113, quoting, In re Pavilion Place Associates, 89 B.R. 36, 39 (Bankr.D.Minn.1988); See also, New York Life Insurance Co. v. Bremer Towers, 714 F. Supp. 414, 418 (D.Minn.1989) ("The fact that a creditor did not enforce that perfected interest prior to bankruptcy does not invalidate the interest, it merely stays the enforcement of that interest pending the bankruptcy court's determination of the party's entitlement to it."); SeSide, 152 B.R. at 884 ("This Court does not agree that a creditor must have obtained a present right to receive rents prior to the bankruptcy in order to have an enforceable security interest in rents as cash collateral."); Rancourt, 123 B.R. at 148 ("The fact that the mortgagee can't [yet] enforce his security interest in specific rents ... does not destroy the legal existence of an effective security interest in rents.").
The District Court of New Jersey joined the trend by holding that while a mortgagee's right to collect rents may not exist *622 absent an act of enforcement, the mortgagee's interest in the rents exists and should be protected. The Court noted that there was no question that a state court would enforce a mortgagee's perfected, contractual right to the rents and that therefore a different result should not exist in bankruptcy court. Sourlis, 141 B.R. at 832.[8] Moreover, the Court observed that a strict requirement of pre-petition enforcement by creditors would encourage a "race to the courthouse", thus discouraging negotiations and workouts between debtors and mortgagees. Id.; See also, Donahue, supra at 644-45.
For the reasons set forth above and from what it believes to be the clear meaning of the relevant statutes, this Court concludes that Prudential has a "cash collateral" security interest in post-petition rents. It would be inconsistent with the growing trend in other federal jurisdictions to rule that Prudential, which concededly has a perfected interest in the rents, no longer has a valid security interest merely because it did not enforce its right to collect rents prior to the bankruptcy filing. Accordingly, the denial by the Bankruptcy Court of Prudential's Motion to Segregate is hereby REVERSED and REMANDED for further consideration not inconsistent with the holding of this Court.
D. Equitable Considerations
Section 552(b) of the Bankruptcy Code, which extends cash collateral protection to post-petition security interests, nevertheless allows a court to order otherwise "after notice and a hearing and based on the equities of the case." The question therefore arises in this case as to whether an admitted cash collateral interest should be permitted to reach post-petition rents after consideration of the specific equities involved in this case.
In Butner, the Supreme Court found that state law should apply to a mortgagee's property rights and held that the bankruptcy courts should "take whatever steps are necessary to ensure that the mortgagee is afforded in federal bankruptcy court the same protection he would have under state law if no bankruptcy had ensued." 440 U.S. at 56, 99 S.Ct. at 918. This cuts both ways. One court has interpreted this Supreme Court proviso to mean that:
"[w]hile the mortgagee should not have any lesser property interest because of the bankruptcy filing, it would equally violate the Butner standard to give the mortgagee greater rights in the rentals than it would have absent a bankruptcy filing,"
Rancourt, 123 B.R. at 150.
The First Circuit, citing the legislative history of the relevant provisions of § 552(b), has concluded that:
the "equities of the case" proviso is a legislative attempt to address those instances where expenditures of the estate enhance the value of proceeds which, if not adjusted, would lead to an unjust improvement of the secured party's position. In such cases Congress intended for courts to limit the secured party's interest in the proceeds according to the equities of the case so as to avoid prejudicing the unsecured creditors.
In re Cross Baking Co., Inc., 818 F.2d 1027, 1033 (1st Cir.1987), citing, S.Rep. No 989, 95th Cong., 2d Sess. 91 (1978), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5877; H.R.Rep. No. 595, 95th Cong., 1st Sess. 376-77 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5963, 6333. In further support of its interpretation of the "equities of the case" instruction, the First Circuit noted that:
the flexible approach taken by section 552(b) permits the court to preserve valid security interest in proceeds, rent and the like, but at the same time, allows the court to protect the interests of unsecured creditors.
Cross Baking, 818 F.2d at 1033, quoting, 4 Collier on Bankruptcy § 552.02, at 552-10, -11 (15th ed. 1987) (footnotes omitted). As that Court explained, either the creditor or the debtor can request a hearing regarding whether, based on the equities involved, the creditor's interest in proceeds should be limited. Depending on the *623 court's evaluation of the equities, proceeds may be apportioned between the estate and the secured party as the court deems appropriate. Id.
The First Circuit's explanation of Section 552(b) is applicable here regardless of the fact that in Cross Baking the Court found it inappropriate to consider the equities of the case because the property involved did not constitute proceeds of the secured creditor's original collateral. The facts in the case at bar are distinguishable because it is uncontested that the rents involved are proceeds of Prudential's real property collateral. Consequently, consideration of the equities may be appropriate here.
Without the benefit of a full hearing on the issue, this Court cannot and will not assess the "equities of the case" nor decide what steps must be taken, if any, to afford equitable protection to Prudential's cash collateral interest in post-petition rents. Such an assessment is properly left to the review and discretion of the Bankruptcy Judge. When considering the "equities of the case", however, certain facts deserve attention, including the facts that: 1) Prudential has already foreclosed on the Property, 2) Prudential delayed taking steps to enforce its interest in the rents and 3) tracing the rents is particularly difficult in light of the commingled account. Finally, the Bankruptcy Court may want to determine whether Prudential's interest in the rents can be adequately protected without fully allocating the rents to them, for example, by allocating only that portion necessary to pay past-due real estate taxes.
ORDER
For the foregoing reasons, this Court finds that Prudential's perfected security interest in rents, although unenforced at the time of the bankruptcy filing, constitutes cash collateral within the meaning of Sections 363 and 552 of the Bankruptcy Code and must be accorded the applicable protection, and, accordingly, orders that:
the decision of the Bankruptcy Court denying Prudential's Motion to Segregate Rents and to Limit Debtor's Use of Rent, is REVERSED and REMANDED for reconsideration not inconsistent with this Order.
So Ordered.
AMENDED ORDER
Nov. 30, 1993.
On November 5, 1993, this Court entered a Memorandum and Order (the "Order") reversing and remanding a decision of the Bankruptcy Court rendered on April 7, 1993. On November 15, 1993, Appellee filed a motion requesting that this Court amend its Order so as to certify the decision for appeal to the United States Court of Appeals for the First Circuit. Appellant opposed that motion.
Because this Court concludes that the Order involves a serious and controlling question of law and that an immediate appeal may materially advance the termination of this litigation, Appellee's motion is ALLOWED and the Order is AMENDED as follows:
The Court finds that Prudential's perfected security interest in rents, although unenforced at the time of the bankruptcy filing, constitutes cash collateral within the meaning of Sections 363 and 552 of the Bankruptcy Code and must be accorded the applicable protection, and, accordingly, orders that:
the decision of the Bankruptcy Court denying Prudential's Motion to Segregate Rents and to Limit Debtor's Use of Rent, is REVERSED and REMANDED for reconsideration not inconsistent with this Order.
Pursuant to 28 U.S.C. § 1292(b), this Court believes that this Order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from this Order to the United States Court of Appeals for the First Circuit may materially advance the ultimate termination of the litigation.
So ordered.
NOTES
[1] No verified evidence has been introduced regarding the net rents generated by the Property. Moreover, rents from this property have been deposited, along with rents from other properties controlled by the Debtor, into a single, consolidated debtor-in-possession account.
[2] The Note, the Mortgage and the Collateral Assignment will hereinafter be referred to collectively as the "Mortgage Documents".
[3] In Section 203 of Senate Bill No. 1985 (part of the Omnibus Bankruptcy Reform Act not yet enacted, S. 1985 102d Cong., 2d Sess. (1992)), Congress sought to amend Section 363(a) of the Code. According to academic commentary, "[t]he intent of the proposed amendment appears to be that all assignments of rent properly recorded pre-petition would be deemed to be perfected as of the filing of the petition and the rents thereby treated as cash collateral." Donahue & Edwards, The Treatment of Assignments of Rents in Bankruptcy: Emerging Issues Relating to Perfection, Cash Collateral, and Plan Confirmation, 48 Bus.Law 633, 652-53 (1993) (hereinafter "Donahue").
[4] Although Butner was decided under the former Bankruptcy Act, its holding has been extended to determine a mortgagee's interest in rents under the current Bankruptcy Code. See Barnhill v. Johnson, ___ U.S. ___, ___, 112 S. Ct. 1386, 1389, 118 L. Ed. 2d 39 (1992).
[5] Several later cases interpreting Massachusetts law have relaxed the actual possession requirement for enforcement of a right to collect rents, although they still require some overt act. Collectively, those cases demonstrate that the question of what action is required under Massachusetts law to entitle a mortgagee to collect rents post-petition has not yet been conclusively decided. See e.g., In re Ashford Apartments Limited Partnership, 132 B.R. 217, 219 (Bankr. D.Mass.1991) ("a mortgagee who enters the property and gives notice of that fact to tenants prior to the filing of that petition under the Bankruptcy Code has done all that is required to obtain an interest in rents entitled to protection under Sec. 363."); In re Milford Common J.V. Trust, 117 B.R. 15 (Bankr.D.Mass.1990) (Massachusetts law requires an overt act by the assignee to take actual or constructive possession for it to be entitled to the rents); In re Cantonwood Associates Ltd. Partnership, 138 B.R. 648, 659 (Bankr.D.Mass.1992) (filing a certificate of entry, giving notice to tenants and commencing suit for possession is sufficient); In re Concord Mill Ltd., 136 B.R. 896, 901 (Bankr.D.Mass.1992) (an attempt to take possession, although frustrated by the borrower, and notice to tenants is adequate).
[6] An analysis of Massachusetts law governing the actual enforcement of a right to collect rents, would be relevant only if a secured creditor had not yet enforced his rights and the bankruptcy court deemed it necessary, in order to provide adequate protection to the mortgagee, to declare the mortgagee entitled to collect the rents. As at least one Bankruptcy Court has held, "the bankruptcy court's powers are sufficiently broad to allow it to enforce a mortgagee's security interest in rents when and to the extent a state court would do so." Dash Point, 121 B.R. at 860. That situation is not present here.
[7] The holding and reasoning in Wynnewood, 121 B.R. 716, was expressly rejected by the District Court in SeSide, 152 B.R. at 884. SeSide and its disapproval of Wynnewood, was thereafter cited by the United States Court of Appeals for the Third Circuit in Commerce Bank v. Mountain View Village, Inc., 5 F.3d 34, n. 1 (3d Cir.1993).
[8] The Supreme Court in Butner indicated that the relief in bankruptcy court should not differ from that which would be available in state court. Butner, 440 U.S. at 54-57, 99 S.Ct. at 917-19, see infra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547147/ | 73 F.2d 772 (1934)
BOWLES
v.
UNITED STATES.
No. 3733.
Circuit Court of Appeals, Fourth Circuit.
November 19, 1934.
*773 Norman S. Bowles, in pro. per.
Bernard J. Flynn, U. S. Atty., of Baltimore, Md., and Cornelius Mundy, Sp. Asst. to Atty. Gen., for the United States.
Before PARKER and NORTHCOTT, Circuit Judges, and WATKINS, District Judge.
NORTHCOTT, Circuit Judge.
The appellant, hereinafter referred to as the defendant, was convicted in the District Court of the United States for the District of Maryland in May, 1934, on the charge of violating the income tax law of the United States. The indictment against the defendant contained four counts; the first charging willful failure to make an income tax return for the year 1930; the second count charging the defendant with feloniously attempting to evade the payment of his income tax for the year 1930 by means of failing to make a return; the third and fourth counts charging a willful attempt to defeat and evade a payment of income tax for the year 1931, by means of filing a false and fraudulent return for that year. The judgment of the court, upon the verdict of guilty returned by the jury, was a fine of $1,000 and costs, on the first count; fine of $1,000, and costs and sentence of imprisonment for three years in the penitentiary on the second count; and fine of $1,000 and costs, on the third count. No sentence was given on the fourth count. The fines were cumulative.
The prosecution was based upon USCA, tit. 26, § 2146, which provides:
"(a) Any person required under this title to pay any tax, or required by law or regulations made under authority thereof to make a return, keep any records, or supply any information, for the purposes of the computation, assessment, or collection of any tax imposed by this title, who willfully fails to pay such tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, together with the costs of prosecution.
"(b) Any person required under this title to collect, account for, and pay over any tax imposed by this title, who willfully fails to collect or truthfully account for and pay over such tax, and any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof, shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution.
A number of questions are raised on this appeal, the first being on a plea entered by the defendant to the jurisdiction of the trial court. The defendant was a resident of the District of Columbia, and the government conceded that he was not personally in the state of Maryland at any time with relation to the counts of the indictment charging offenses with regard to his income tax for the year 1930, and that the income tax return prepared and filed by the defendant for the year 1931 was filed by him with the person in charge of the local or branch office of the Collector situated in the city of Washington and was in due course transmitted to the principal office of the Collector at Baltimore.
In pursuance of Congressional authority, codified as USCA, tit. 26, § 12, the President was empowered to establish "convenient collection districts." That act provides as follows:
"For the purpose of assessing, levying, and collecting the taxes provided by the internal revenue laws, the President may establish convenient collection districts, and for that purpose he may subdivide any State, Territory, or the District of Columbia, or may unite two or more States or Territories into one district, and may from time to time alter said districts. The whole number of collection districts for the collection of internal revenue shall not exceed sixty-five."
In pursuance of this act, a Presidential Proclamation was promulgated by President Arthur under date of June 25, 1883, which established the District of Columbia as part of the Revenue Collection District of Maryland. The pertinent part of the Proclamation provides:
"I, Chester A. Arthur, President of the United States, by virtue of the authority vested in me by Sections 3141 and 3142 Revised Statutes, approved June 22, 1874, hereby order that the Internal Revenue Collection Districts within the United States hereinafter named be altered and united as follows: and Collectors are designated for the new districts as hereinafter set forth.
"This order to take effect, July 1st, 1883, or as soon thereafter as practicable.
*774 "Maryland
"The Counties of Allegany, Carroll, Frederick, Garrett and Washington of the present Fourth District of Maryland are hereby consolidated with the counties of Baltimore (including the City of Baltimore), Harford, Calvert, Anne Arundel, Charles, Howard, Montgomery, Prince George's and St. Mary's, and the District of Columbia of the present Third District of Maryland, the consolidated district to be known as the District of Maryland, and John Henry Sellman is hereby designated as Collector of the consolidated district."
It was early settled that such a delegation of authority by Congress was constitutional. In Wayman v. Southard, 10 Wheat. 1, 42, 6 L. Ed. 253, Chief Justice Marshall said:
"It will not be contended, that congress can delegate to the courts, or to any other tribunals, powers which are strictly and exclusively legislative. But congress may certainly delegate to others, powers which the legislature may rightfully exercise itself."
See, also, Wisconsin v. Illinois, 278 U.S. 367, 49 S. Ct. 163, 73 L. Ed. 426; Hampton, Jr. & Co. v. United States, 276 U.S. 394, 48 S. Ct. 348, 72 L. Ed. 624; United States v. Chemical Foundation, 272 U.S. 1, 47 S. Ct. 1, 71 L. Ed. 131; Mahler v. Eby, 264 U.S. 32, 44 S. Ct. 283, 68 L. Ed. 549; First National Bank v. Fellows ex rel. Union Trust Co., 244 U.S. 416, 37 S. Ct. 734, 61 L. Ed. 1233, L. R. A. 1918C, 283, Ann. Cas. 1918D, 1169; Mutual Film Corp. v. Ohio Industrial Commission, 236 U.S. 230, 35 S. Ct. 387, 59 L. Ed. 552; Red "C" Oil Mfg. Co. v. Board of Agriculture, 222 U.S. 380, 32 S. Ct. 152, 56 L. Ed. 240.
Under the Income Tax Law, USCA, tit. 26, § 2053(b)(1), the taxpayer is required to make his return to the Collector for the district in which is located his legal residence or principal place of business. Said section 2053(b)(1) reads as follows:
"(b) To Whom Return Made. (1) Individuals. Returns (other than corporation returns) shall be made to the collector for the district in which is located the legal residence or principal place of business of the person making the return, or, if he has no legal residence or principal place of business in the United States, then to the collector at Baltimore, Maryland."
The defendant being a resident of the District of Columbia, it became his duty to make his income tax return to the Collector at Baltimore, Md., and failure to make such return constituted an offense within the District of Maryland. In United States v. Lombardo, 241 U.S. 73, 36 S. Ct. 508, 60 L. Ed. 897, it was held that a resident of the state of Washington was guilty of an offense in the city of Washington, District of Columbia, for failing to file with the Commissioner General of Immigration, in the District of Columbia, a statement in writing required by an Act of Congress. In Rumely v. McCarthy, 250 U.S. 283, 39 S. Ct. 483, 486, 63 L. Ed. 983, the court said:
"It is contended, indeed, that there was no probable cause to believe that the offense charged in the Washington indictment was committed within the District of Columbia, and this upon the ground that appellant was not personally present in the District at the time of the alleged offense, and that he was under no duty to make report there to the Alien Property Custodian. The commissioner, however, found as a matter of fact that the Custodian's office was in the District of Columbia, and as the finding was supported by competent evidence the District Court properly held that it was not reviewable on writ of habeas corpus. That being so, the duty imposed by the statute to make report to the Alien Property Custodian involved the duty to make such report in the District of Columbia, and failure to make it was an offense against the United States committed in that District. United States v. Lombardo, 241 U.S. 73, 76, 36 S. Ct. 508, 60 L. Ed. 897; New York C. & H. R. R. Co. v. United States, 166 F. 267, 269, 92 Cow. C. A. 331."
See, also, United States v. Clayton-Kennedy (D. C.) 2 F. Supp. 233; United States v. Commerford (C. C. A.) 64 F.(2d) 28.
The crime charged in the third and fourth counts was the filing of a false return. The offense was committed at the place where the filing took place upon delivery at the office of the Collector in Baltimore. Wampler v. Snyder, 62 Ohio App. D. C. 215, 66 F.(2d) 195.
The offenses having been committed in the state of Maryland where the Collector's office is located and where the return should be filed, it follows that the District Court of the United States for the District of Maryland had jurisdiction of the offenses charged.
It is contended that, the defendant being a resident of the District of Columbia, a grand jury drawn only from the citizens of the state of Maryland (excluding all qualified citizens of the District of Columbia) *775 was an unlawful grand jury, but as we have concluded that the offense was committed in Maryland, this contention has no merit.
On plea in abatement and motion to quash the defendant raised the question that the indictment was found without any competent evidence being presented to the grand jury. Upon this point the judge below, after taking evidence, held that there was not sufficient proof to sustain the contention. In McGregor v. United States, 134 F. 187, 192, this court held that a motion of this character was addressed to the discretion of the trial court and that a ruling thereon was not reviewable, Goff, Circuit Judge, saying that the plea "was simply an effort to revise the judgment of the grand jury, and was in fact an appeal from the jury to the court for the purpose of determining whether or not the jury acted upon sufficient proof in finding the indictment."
In Cooper v. United States, 247 F. 45, this court held to the same effect and in Simpson v. U. S., 11 F.(2d) 591, we again affirmed this holding.
See, also, Luxenberg v. U. S. (C. C. A.) 45 F.(2d) 497, and authorities there cited.
The law on this question is summarized in section 154, Zoline's Federal Criminal Law and Procedure, vol. 1, where it is said:
"The earlier authorities hold rather broadly that it is proper for the trial court to go behind the indictment and inquire into the character of the evidence upon which the grand jury acted. But the later authorities seem to hold that the power should be exercised sparingly, and only for the purpose of preventing a clear injustice."
From a study of the record, we are convinced that the motion to quash was not sustained by any proper evidence and that the action of the trial judge, even were it reviewable, was correct.
The point is raised that the defendant had testified before a former grand jury in the district of Maryland with regard to a charge against one Wampler and that by such appearance he was entitled to immunity from this prosecution. Upon this, evidence was heard before the judge below who properly reached the conclusion that the defendant had acquired no immunity by his appearance and testimony. The record shows that in his evidence before the grand jury the defendant had given no testimony tending to incriminate him, but that he had repeatedly exercised his constitutional privilege by refusing to answer questions on the ground that they might tend to incriminate him.
The defendant demurred to the indictment on the ground that it did not show upon its face at which term it was returned by the grand jury and presented to the court; that it was not sufficient in law to charge a crime; that it was contradictory and repugnant in its terms; and that it was faulty for duplicity. An examination of the indictment shows that it was indorsed as filed on the 5th day of March, 1934, and that it adequately and sufficiently presented the offenses with which the defendant was charged and was in no way repugnant and contradictory in its terms or faulty for duplicity. The demurrer was correctly overruled.
The defendant pleaded the statute of limitations claiming that the fiscal year for which the return should have been made, as charged in the first and second counts, ended December 31, 1930, and that the statute then began to run. The indictment was returned on the 5th day of March, 1934. The trial judge properly ruled that, as the time for filing returns for the year ending December 31, 1930, did not expire until March 15, 1931, the statute of limitations did not begin to run until that date, and that the indictment was returned within the three-year period fixed by the statute. In addition to this, the period of the statute of limitations with regard to income tax violations was extended to six years by the Act of June 6, 1932 (section 1108, Revenue Act, 1932 [18 USCA § 585 and note]), and this act specifically applied to all offenses the prosecution for which was not barred at the time of its enactment.
Defendant contends that the offenses charged in count 1 and 2 were but one offense and that sentence on the first count rendered illegal any sentence on the second count. There is no merit in this contention. It will be noted that (a) and (b) of section 2146 above quoted have the words, "shall, in addition to other penalties provided by law," clearly indicating that Congress intended to punish each step taken in violation of the statute. One could violate section (a) by failing to make a return when required to do so even though no tax were due because of exemptions. The second count charges a felony in violating provisions of section (b) in attempting to evade the payment of a tax due by failing to file a return. The first and second counts charged different offenses; the one involving the element of *776 intent to evade not necessary in the other and a sentence may be imposed for each offense. O'Brien v. United States (C. C. A.) 51 F.(2d) 193, certiorari denied 284 U.S. 673, 52 S. Ct. 129, 76 L. Ed. 569; United States v. Miro (C. C. A.) 60 F.(2d) 58; Oliver v. United States (C. C. A.) 54 F.(2d) 48, certiorari denied 285 U.S. 543, 52 S. Ct. 393, 76 L. Ed. 935.
"A single act may be an offense against two statutes; and, if each statute requires proof of an additional fact which the other does not, an acquittal or conviction under either statute does not exempt the defendant from prosecution and punishment under the other." Ex parte Nielsen, 131 U.S. 176, 9 S. Ct. 672, 676, 33 L. Ed. 118. See, also, Gavieres v. U. S., 220 U.S. 338, 31 S. Ct. 421, 55 L. Ed. 489; Burton v. U. S., 202 U.S. 344, 26 S. Ct. 688, 50 L. Ed. 1057, 6 Ann. Cas. 362.
No question is raised as to the sufficiency of the evidence upon which the verdict of the jury was based and no error alleged in the conduct of the trial or the charge of the judge. The rulings of the court below upon the numerous pleas and motions were correct and the judgment is accordingly affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547229/ | 159 B.R. 323 (1993)
In re CONLEY, Dennis K., Debtor.
Bankruptcy No. 93-00922-7.
United States Bankruptcy Court, D. Idaho.
September 29, 1993.
*324 Kenneth L. Anderson, Lewiston, ID, for debtor.
Charles L. Graham, Landeck, Westberg, Judge & Graham, P.A., Moscow, ID, for creditors Craig D. Whittlesey and Gary and Norma Bishop.
MEMORANDUM OF DECISION
ALFRED C. HAGAN, Chief Judge.
In this chapter 7 case, creditors Craig D. Whittlesey ("Whittlesey") and Gary and Norma Bishop ("the Bishops") have moved for an order permitting those creditors to file a complaint against Dennis Conley ("debtor") and against Patrick W. Conley and Margaret A. Conley to avoid what the movants claim are unlawful transfers by the debtor to Patrick W. Conley and Margaret A. Conley. Whittlesey and the Bishops seek to attack the debtor's grant of a mortgage on real property to Patrick and Margaret Conley, who are the parents of the debtor.
Whittlesey and the Bishops propose to assert three causes of action against the debtor and Patrick & Margaret Conley. These are: (1) to avoid the transaction as a preference under 11 U.S.C. § 547; (2) to avoid the transaction as a fraudulent transfer under 11 U.S.C. § 548; and (3) to equitably subordinate Patrick and Margaret Conley's interest under 11 U.S.C. § 510(c). It is noted Whittlesey and the Bishops assert a security interest in the real property at issue. The stipulation between the trustee and Whittlesey and the Bishops provides that Whittlesey and the Bishops will be paid first as secured creditors, with any remainder to go to the estate. The trustee believes the potential benefit to the estate does not justify the cost to the estate of his prosecuting the action.
Sections 547 and 548 limit standing to assert actions under their respective sections to the trustee. 11 U.S.C. §§ 547(b), 548(a).[1] The Bankruptcy Appellate Panel of the Ninth Circuit has stated "[i]ndividual creditors generally have no remedy to institute such an action [under 11 U.S.C. § 548] except through the trustee or debtor-in-possession." Hansen v. Finn (In re Curry and Sorensen, Inc.), 57 B.R. 824, 827 (9th Cir.B.A.P.1986) (citations omitted). A limited exception to this rule is set forth in 11 U.S.C. § 1123(b)(3)(B), which permits a "representative of the estate," appointed pursuant to an approved Chapter 11 plan of reorganization, to prosecute avoidance actions. It may also be appropriate, where a trustee or debtor in possession wrongfully refuses to bring an action under section 547 or 548, for the court to give permission for a creditor to bring such an action on behalf of the estate. Curry and Sorensen, supra, 57 B.R. at 828 (trustee's decision not to assert an action reviewed for abuse of discretion). The trustee is otherwise prohibited from selling or assigning his right to bring an avoidance action. Grass v. Osborn, 39 F.2d 461 (9th Cir.1930) (trustee could not sell or assign power to avoid preferential transfer).[2]
None of these exceptions to standing applies in the current case. Therefore, Whittlesey and the Bishops lack standing to assert a claim under sections 547 or 548. Cf. Hall v. Sunshine Mining Co. (In re *325 Sunshine Precious Metals, Inc.), 157 B.R. 159 (Bankr.D.Idaho 1993) (creditor lacks standing to assert state law claims against third party, where injury is general to all creditors of the debtor).
This conclusion accords with the policies underlying the Bankruptcy Code. In Chapter 7 cases, it is the duty of the trustee to marshal the debtor's assets on behalf of unsecured creditors. See 11 U.S.C. § 704 (duties of the trustee). The trustee's powers to avoid preferences or fraudulent transfers are provided to aid in that process. These avoidance powers are for the benefit of the estate; they were not intended to serve as weapons for secured creditors to battle among themselves for priority status.
The third cause of action Whittlesey and the Bishops wish to assert is for equitable subordination under section 510(c) of the Bankruptcy Code. Unlike avoidance actions brought by a creditor, there does not appear to be any requirement of court approval prior to the bringing of an equitable subordination action. See 11 U.S.C. § 510(c) ("[A]fter notice and a hearing, the court may" subordinate one claim or interest to another claim or interest). The Court therefore finds it unnecessary to grant permission for Whittlesey and the Bishops to bring such an action. No other issues regarding this cause of action have been presented.
The trustee believes the expense of the action outweighs any possible benefit to the estate.[3] No evidence has been presented to suggest this conclusion is incorrect. No other grounds exist to give Whittlesey and the Bishops standing to pursue this action.
Accordingly, the motion will be denied. A separate order will be entered.
NOTES
[1] Section 547 states that "[e]xcept as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property" where certain conditions are met. 11 U.S.C. § 547(b) (emphasis added). Similarly, section 548 provides that "[t]he trustee may avoid any transfer of an interest of the debtor in property" that is deemed fraudulent under the statute. 11 U.S.C. § 548(a) (emphasis added). Pursuant to 11 U.S.C. § 1107, a Chapter 11 debtor-in-possession may exercise these powers. 11 U.S.C. § 1107(a).
[2] The Ninth Circuit recently reconsidered the Grass decision. Briggs v. Kent (In re Professional Investment Properties of America), 955 F.2d 623 (9th Cir.1992), cert. denied sub nom. Miller v. Briggs, ___ U.S. ___, 113 S. Ct. 63, 121 L. Ed. 2d 31 (1992). The court concluded Grass was superseded by the adoption of 11 U.S.C. § 1123(b)(3)(B). 955 F.2d at 625-26. However, the Professional Investment decision clearly rests on section 1123(b)(3)(B), and thus Grass remains good law in bankruptcy cases not in chapter 11. Moreover, the Professional Investment decision reaffirmed that the creditor must be pursuing interests common to all creditors, and not merely acting for the creditor's sole benefit. 955 F.2d at 626.
[3] It is unclear whether Whittlesey and the Bishops are willing to pay the cost of litigation if the trustee will pursue this action. The Court does not render any opinion with regard to the legitimacy of such an undertaking. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547239/ | 159 B.R. 374 (1993)
In re Jeffrey ROTHWELL, Debtor.
William B. BILLINGHAM, Trustee, Plaintiff,
v.
WYNN & WYNN, P.C., Defendant.
Bankruptcy No. 91-15501-JNF, Adv. P. No. 92-1786.
United States Bankruptcy Court, D. Massachusetts.
October 6, 1993.
*375 William B. Billingham, Marshfield, MA, for plaintiff.
Steven J. Drew, Wynn & Wynn, Boston, MA, for defendant.
MEMORANDUM
JOAN N. FEENEY, Bankruptcy Judge.
I. INTRODUCTION
Several matters are before the Court for determination: 1) Cross Motions for Summary Judgment filed by William G. Billingham, the Chapter 7 Trustee (the "Trustee") of the estate of Jeffrey Rothwell ("Rothwell" or the "Debtor"), and Wynn & Wynn, P.C. ("Wynn & Wynn"); and 2) Wynn & Wynn's "Motion for Compensation" and the Trustee's Response to the Motion for Compensation. The Court heard the Cross Motions for Summary Judgment on August 11, 1993 and took the motions under advisement. Pursuant to the Court's instructions, Wynn & Wynn filed its Motion for Compensation by August 18, 1993, in which it seeks fees of $9,490.37, and the Trustee filed his Response by August 25, 1993. The following constitutes findings of fact and conclusions of law in accordance with Fed.R.Bankr.P. 7052.
II. FACTS
On June 26, 1991, the Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code. William G. Billingham was appointed interim trustee. The Debtor filed schedules in which he listed Wynn & Wynn as an unsecured creditor with a claim in excess of $20,000, but he failed to list among his assets a civil action that was pending in the Plymouth Superior Court, captioned "Jeffrey P. Rothwell, Individually and as Beneficiary of the J & E Realty Trust; David B. Carleton, Individually and as Trustee and Beneficiary of the J & E Realty Trust; and Edward M. Latorie, Individually and as Beneficiary of the J & E Realty Trust, Plaintiffs v. John Valle, d/b/a, John Valle General Contractors and as Trustee of J & E Realty Trust, Defendant," in which he was represented by Wynn & Wynn. The Plaintiffs in the civil action sought damages for breach of contract, conversion and breach of fiduciary duty, stemming from a dispute with respect to a construction contract pursuant to which the Plaintiffs acted as financiers and the Defendant acted as general contractor.
In January of 1992, the Debtor was discharged. Shortly thereafter, on January 18, 1992, his Chapter 7 case was closed as a "no-asset" case.
By letter dated June 2, 1992, Thomas E. Pontes, Esq. of the firm of Wynn & Wynn *376 advised the Trustee of the pendency of the civil action and a June 23, 1992 trial date that had been scheduled by the Plymouth Superior Court. The letter also stated the following:
Since it appears that this matter will go forward on June 23, 1992, it is imperative that this office be appointed as special counsel by the Bankruptcy Court to represent the Debtor in this matter. I have enclosed an application for appointment as special counsel to the trustee as well as related papers. Kindly review the same and contact me so that we may discuss how we can get the appointment made prior to June 23, 1992.
The related papers referred to by Attorney Pontes included an "Application for Approval of Employment of Attorney for Special Counsel," an affidavit, and a form of order.
A disagreement arose between the Trustee and Wynn & Wynn as to the terms of Wynn & Wynn's employment as special counsel. By letter dated June 4, 1992, the Trustee advised Wynn & Wynn that he would not agree to the proposed employment of Wynn & Wynn as special counsel unless the firm waived its claim as a creditor. The Trustee suggested that Wynn & Wynn be employed as special counsel on a contingency fee basis of one-third of any amounts recovered. Wynn & Wynn rejected this proposal. Wynn & Wynn was not employed as special counsel, and the Trustee did not file an appearance in the state court litigation.
On August 5, 1993, an Agreement for Judgment, executed by Attorney Pontes and Valle's attorney, was entered in the Plymouth Superior Court action in the amount of $25,000 plus interest accrued in an escrow account. Prior to the entry of the Agreement for Judgment, there was no communication between the Trustee and Wynn & Wynn regarding any settlement. Indeed, in his affidavit filed in this action, Attorney Pontes acknowledged that he did not have authority from the Trustee when he executed the Agreement for Judgment on behalf of Rothwell and the other plaintiffs in the state court action. Under the terms of the J & E Realty Trust and in accordance with the Debtor's beneficial interest in the trust, the Debtor was entitled to 31.557% [sic] of the judgment or $9,416.08.
On September 21, 1992, the Trustee moved to reopen Rothwell's Chapter 7 case, and, on October 8, 1992, the case was reopened. On November 23, 1992, the Trustee commenced the above-captioned adversary proceeding against Wynn & Wynn, seeking through his amended complaint 1) a determination that Wynn & Wynn has no lien or claim to the funds which it holds as the result of its settlement of the civil action; and 2) turnover of the funds it holds from the settlement of the civil action. Wynn & Wynn answered the Trustee's complaint, asserting that it is owed $30,073.75 for prosecution of the Valle litigation, that Rothwell is jointly and severally liable for that obligation, and that it is entitled to a lien for its attorneys' fees which can be offset against any recovery. Assuming Rothwell would be responsible for its fees in the same proportion as his interest in the trust, his share of the firm's fees would be $9,490.37 an amount in excess of his share of the recovery.
III. DISCUSSION
Pursuant to Fed.R.Civ.P. 56, made applicable to this proceeding by Fed.R.Bankr.P. 7056, 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," the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c). In this proceeding, the Trustee suggests that there are material facts in dispute with respect to whether he acquiesced to Wynn & Wynn's representation of the estate in the state court action and the amount and reasonableness of Wynn & Wynn's purported lien. The Court disagrees. The facts upon which the parties agree are sufficient for a resolution of this adversary proceeding, as the asserted factual disputes are immaterial to the outcome of this case.
*377 It is beyond cavil, and the parties do not dispute, that the cause of action that was pending at the time of the Debtor's bankruptcy filing was property of the bankruptcy estate. See 11 U.S.C. § 541(a)(1) (property of the estate includes ". . . all legal or equitable interests of the debtor in property as of the commencement of the case."). In Dallas Cabana, Inc. v. Hyatt Corp., 441 F.2d 865 (5th Cir.1971), the court stated: "A `cause of action' is an asset or a property right of the individual to whom it belongs. Under the Bankruptcy Act, title to a `cause of action' vests in the trustee unless abandoned." Id. at 867 n. 9 (citations omitted). The same is true under the Bankruptcy Code. Therefore, Rothwell's cause of action against Valle became property of his bankruptcy estate when he filed his Chapter 7 petition on June 26, 1991, and Rothwell was not free to dispose of that asset until the Trustee abandoned it.
Section 554 of the Bankruptcy Code provides in relevant part:
(a) After notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.
(b) On request of a party in interest and after notice and a hearing, the court may order the trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.
(c) Unless the court orders otherwise, any property scheduled under section 521(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor and administered for purposes of section 350 of this title.
(d) Unless the court orders otherwise, property of the estate that is not abandoned under section (a) or (b) of this section and that is not administered in the case remains property of the estate.
11 U.S.C. § 554.
For property to be abandoned by operation of law under section 554(c), the debtor must formally schedule the property before the close of the case. Vreugdenhill v. Navistar Internat'l Trans. Corp. (In re Vreugdenhill), 950 F.2d 524, 526 (8th Cir. 1991). The court in Vreugdenhill stated that "[i]t is not enough that the trustee learns of the property through other means; the property must be scheduled pursuant to section 521(1)." Id.
Pursuant to Fed.R.Bankr.P. 6007, abandonment under section 554(a) and (b) requires notice, a hearing and an order of the court authorizing abandonment. Pace v. Battley (In re Pace), 146 B.R. 562, 564 (Bankr. 9th Cir.1992). The appellants in the Pace case argued that the trustee's knowledge of a cause of action reflected in his interim report was sufficient notice to creditors of the intent to abandon the claim. In rejecting this argument, the court stated "[a]bandonment requires affirmative action by the trustee or some other evidence of the intent to abandon the asset." Id. at 566.
In Dallas Cabana, Inc., supra, the court considered the Debtor's appeal from a decision dismissing a cause of action that vested in the trustee by operation of law. Noting that the trustee had not abandoned the cause of action, the court determined that the trustee's failure to prosecute a claim did not permit the would-be plaintiff/debtor from bringing suit without first petitioning the bankruptcy court for an order authorizing or compelling abandonment of the property. Id. 441 F.2d at 867 (footnote omitted).
Applying the holdings of the above cases to the facts of this case, the Court finds that Rothwell's cause of action against Valle was property of the estate that was not abandoned by the Trustee either formally or by operation of law. Moreover, neither Rothwell nor his counsel in the state court litigation filed a motion with this Court to compel the Trustee to abandon the cause of action pursuant to 11 U.S.C. § 554(b) a procedure that in all probability would have obviated the present dispute between Wynn & Wynn and the Trustee. Accordingly, the Debtor was without authority to either prosecute or *378 settle the action against Valle. It follows that his attorneys at the firm of Wynn & Wynn, acting as his counsel and not as counsel to the Trustee, were without authority to either prosecute or settle the Plymouth Superior Court action.
The Court rejects Wynn & Wynn's argument that the Trustee acquiesced in the prosecution of the state court action. Neither the affidavits of the Debtor and Attorney Pontes from Wynn & Wynn nor the case law cited justify the unauthorized use or disposition of property of the estate. Wynn & Wynn relies upon the case of Greene v. Schmukler (In re De Berry), 59 B.R. 891 (Bankr.E.D.N.Y.1986), to support its argument that the Trustee acquiesced in Wynn & Wynn's representation of the estate. In that case, the Chapter 7 trustee sought turnover of attorney's fees from the attorney who had represented the debtor in a personal injury action, arising out of a pre-petition accident, that resulted in a favorable settlement. The state court lawsuit was commenced at about the same time the debtor filed the first of two bankruptcy petitions. The debtor received a Chapter 7 discharge in June of 1981, the same month the personal injury suit was settled. The Chapter 7 trustee commenced an adversary proceeding against the debtor's attorney four years after the settlement. Unlike the instant case, the debtor had scheduled, under contingent and unliquidated claims, his personal injury action, the value of which was undetermined at the commencement of the case. The trustee was aware of the action as early as 1981 and was aware that the debtor's attorney continued to represent the debtor in the personal injury matter. The court found that the trustee knew and acquiesced in the defendant's representation of the debtor and through inaction implicitly approved the settlement that was reached in the personal injury action. The New York court also indicated that the defendant's charging lien survived the bankruptcy, and attached to the proceeds of the settlement in the same way as it would attach to a judgment.
The De Berry case is totally distinguishable from the instant case. Not only did the debtor in that case list his cause of action in his schedules, the trustee's four year delay in initiating the turnover action against the debtor's personal injury attorney was a compelling factor in the court's decision. The court emphasized the inequity of allowing the trustee to "attempt to undue his tardiness." Id. at 898.
The Court finds that there has been no pattern of delay in this case as in De Berry. Absent the unusual and extenuating circumstances present in the De Berry case, purported acquiescence on the part of the Trustee to either the Debtor's prosecution of a case or his counsel's representation and settlement of a case is insufficient justification for action without bankruptcy court authority where the cause of action has not been abandoned by the Trustee. Moreover, in this case, the Trustee rejected Wynn & Wynn's terms for employment as special counsel and no application was filed with this Court.
The absence of Court approval of Wynn & Wynn's representation is an independent basis for disallowance of its claim for compensation from the estate. Section 327(e) provides:
(e) The trustee, with the court's approval, may employ, for a specified special purpose, other than to represent the trustee in conducting the case, an attorney that has represented the debtor, if in the best interest of the estate, and if such attorney does not represent or hold any interest adverse to the debtor or to the estate with respect to the matter on which such attorney is to be employed.
11 U.S.C. § 327(e). See also Fed. R.Bankr.P. 2014. The Bankruptcy Code and Rules require court authority for the employment of special counsel to ensure that the proposed employment is in the best interest of the estate and that the attorney who is to be employed does not hold an interest adverse to the estate. Failure to comply with these disclosure and authorization requirements may result in denial of employment or forfeiture of compensation. See In re Hub Business *379 Forms, Inc., 146 B.R. 315 (Bankr.D.Mass. 1992); In re Lincoln North Assocs., L.P., 155 B.R. 804 (Bankr.D.Mass.1993).
Wynn & Wynn's June 2, 1992 letter to the Trustee evidences an awareness of the requirements of the Bankruptcy Code and Rules. Accordingly, its arguments that the Trustee acquiesced in the firm's employment are irrelevant because court authorization, not trustee action or inaction, must be obtained if the attorney is not to be considered a volunteer or officious intermeddler in the administration of the bankruptcy case. Because the cause of action against Valle was not abandoned and because the firm of Wynn & Wynn was not employed as special counsel to the Trustee, the firm is not entitled to attorneys' fees for its involvement in the Valle litigation.
Wynn & Wynn also improperly settled the Valle litigation without the authority of this Court. Fed.R.Bankr.P. 9019 provides in relevant part:
(a) COMPROMISE. On motion by the trustee and after a hearing on notice to creditors, the United States trustee, the debtor and indenture trustees as provided in Rule 2002 and to such other entities as the court may designate, the court may approve a compromise or settlement.
Fed.R.Bankr.P. 9019. Subdivisions (a) and (c) of Rule 9019 are essentially the same as the provisions of former Bankruptcy Rule 919. A settlement agreement is unenforceable without notice of the settlement to creditors or a court order approving it. In re Lloyd, Carr and Co., 617 F.2d 882, 885 (1st Cir.1980). In this case, as in the First Circuit case where there was a failure to comply with Rule 919, there was no compliance with Rule 9019. Therefore, from the point of view of the bankruptcy estate the Agreement for Judgment is without effect.
Two issues remain: 1) Does Wynn & Wynn have an attorney's lien on the Debtor's portion of the settlement proceeds? and 2) Is the Trustee entitled to turnover of the Debtor's share of the proceeds? The answer to the first question is no, and the answer to the second question is yes.
The attorney's lien statute in Massachusetts provides in relevant part:
From the authorized commencement of an action, counterclaim or other proceeding in any court, or appearance in any proceeding before any state or federal department, board or commission, the attorney who appears for a client in such proceeding shall have a lien for his reasonable fees and expenses upon his client's cause of action, counterclaim or claim, upon the judgment, decree or other order in his client's favor entered or made in such proceeding, and upon the proceeds derived therefrom. . . .
Mass.Gen.Laws.Ann. ch. 221, § 50 (West 1958). In Torphy v. Reder, 357 Mass. 153, 257 N.E.2d 435 (1970), the Supreme Judicial Court described the attorney's lien as follows: ". . . the type of lien created by G.L. c. 221, § 50 is a charging lien which binds the judgment or money decree for payment of expenses incurred and for services rendered by an attorney with respect to the particular action or suit." 357 Mass. at 156. See also In re Leading Edge Prods., Inc., 121 B.R. 128, 130 (Bankr.D.Mass. 1990); Collins v. Town of Webster, 25 Mass.App.Ct. 745, 749, 522 N.E.2d 12 (1988), review denied, 402 Mass. 1104, 525 N.E.2d 678 (1988).
In In re Leading Edge Prods., Inc., the court explained:
when an attorney files an action an inchoate lien arises in his or her favor. The lien becomes choate when a judgment, decree or other order is entered in the client's favor ("upon the judgment, decree etc."). Finally, the lien attaches to "the proceeds derived therefrom. . . . "
121 B.R. at 131. Absent the unusual circumstances present here, Wynn & Wynn's statutory lien would attach to the proceeds of the judgment it obtained in favor of the Debtor and his co-Plaintiffs. However, because of Wynn & Wynn's unauthorized and flagrant violation of the Bankruptcy Code and Rules, the Court determines that the Trustee can prevent the lien from becoming choate with respect to the Debtor's *380 proportionate share of the Agreement for Judgment as the judgment was an unauthorized and void post-petition transfer. Section 549 of the Bankruptcy Code provides in relevant part:
(a) . . . the trustee may avoid a transfer of property of the estate
(1) that occurs after the commencement of the case; and . . .
(2)(B) that is not authorized under this title or by the court.
11 U.S.C. § 549. Transfer "means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property. . . ." Id. § 101(58)[54]. Although under Massachusetts law the attorney's lien relates back to the commencement of the representation, both the substitution of the judgment for the cause of action and the transfer of funds from the Defendant to Wynn & Wynn in purported satisfaction of that lien are subject to avoidance.
The Plymouth Superior Court judgment and the proceeds derived from the judgment are property of the Debtor's bankruptcy estate as a substitute for the cause of action that was not listed on the Debtor's schedules or abandoned by the Trustee. See 11 U.S.C. § 541(a)(6). Moreover, the judgment is unenforceable against the bankruptcy estate and, void vis a vis the Debtor and the Trustee, although the judgment is binding and enforceable against those parties duly authorized to enter into the Agreement for Judgment, namely the remaining Plaintiffs and the Defendant. Under these circumstances the absence of Court authority for both the employment of Wynn & Wynn and the compromise embodied in the Agreement for Judgment Wynn & Wynn's lien "evaporated" with respect to the Debtor's share of the proceeds from the Agreement for Judgment in the same way it would if the case had been lost. In short, for an attorney's lien to be enforceable, a condition subsequent must occur, namely the entry of a judgment or other decree in the client's favor to which the lien can attach. Because of this Court's determination that the Agreement for Judgment is void vis a vis the Trustee and the estate, there is nothing to which Wynn & Wynn's asserted lien can attach.
Section 542 of the Bankruptcy Code provides in relevant part:
(a) . . . an entity other than a custodian, in possession, custody, or control, during the 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, shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate.
11 U.S.C. § 542(a). Since Wynn & Wynn is in possession of funds that rightfully belong to the Debtor's Chapter 7 estate, turnover is the appropriate vehicle for the Trustee to obtain those funds.
IV. CONCLUSION
In accordance with the foregoing, the Court hereby allows the Trustee's Motion for Summary Judgment, denies Wynn & Wynn's Motion for Summary Judgment, and denies Wynn & Wynn's Motion for Compensation for their knowing violation of the Bankruptcy Code and Rules. Wynn & Wynn shall forthwith turnover to the Trustee the sum of $9,416.08. As a sanction for unauthorized representation and settlement of a cause of action that belonged to Rothwell's bankruptcy estate, activities that needlessly contributed to increasing the cost of the administration of this bankruptcy case, the Court, pursuant to Fed.R.Bankr.P. 9011, orders Wynn & Wynn to reimburse the Trustee for his reasonable costs and expenses in prosecuting this action. An appropriate order shall enter. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547276/ | 809 A.2d 1098 (2002)
Leno Ferreira et al.
v.
Integon National Insurance Co.
No. 2001-254-A.
Supreme Court of Rhode Island.
November 13, 2002.
*1099 Present: WILLIAMS, C.J., LEDERBERG, FLANDERS, and GOLDBERG, JJ.
Robert J. Ameen, Pawtucket, for plaintiff.
R. Kelly Sheridan, Providence, for defendant.
OPINION
PER CURIAM.
When a party is added as a named insured to a policy that does not provide uninsured motorist (UM) coverage, is the insurer required to obtain a written rejection of UM coverage from the new insured, in accordance with G.L. 1956 § 27-7-2.1(a), or is the insurer required only to notify the insured of the existence of UM coverage, in accordance with subsection (d) of § 27-7-2.1? The plaintiff, Leno Ferreira, who was the added insured in this case, appealed a summary judgment in favor of the defendant, Integon National Insurance Co., in his suit to reform his automobile insurance policy to include UM coverage. The plaintiff argued that the motion justice erred in finding that § 27-7-2.1 did not require the defendant to obtain a written rejection of UM coverage from the plaintiff at the time he was added as an insured to an insurance policy that did not provide UM coverage.
The plaintiff was insured by defendant under a policy that was originally issued in May 1995 to Natalia Lopes (Lopes), whom plaintiff later married. When defendant initially issued the policy to Lopes, it made UM coverage available to her in accordance with § 27-7-2.1(a), which allows a named insured who purchases the minimum coverage for bodily injury liability to decline any uninsured motorist coverage, "but only after signing an advisory notice approved by the director of business regulation concerning the hazard of uninsured and underinsuredmotorists." Lopes declined the UM coverage by executing a rejection notice and warning form, in accordance with the manner of rejection required by law. In November 1996, plaintiff became an additional named insured on the policy. At that time, pursuant to § 27-7-2.1(d), defendant sent a notice to both plaintiff and Lopes, advising them of the availability of UM coverage, and defendant also so advised them at the annual renewals of the policy. At no time thereafter did either plaintiff or Lopes seek or obtain UM coverage. On June 25, 1999, plaintiff was injured in an automobile accident with an uninsured driver.
The plaintiff and Lopes filed a complaint seeking, inter alia, a declaration that the insurance policy should be reformed to include UM coverage for plaintiff. Thereafter, they filed a motion for a partial summary judgment on their claim for a declaratory judgment, and defendant also filed a motion for summary judgment. The plaintiff and Lopes argued that when plaintiff was added to Lopes's policy as a named insured, defendant was required to grant him UM coverage in accordance with § 27-7-2.1(a), because defendant never received from plaintiff a written rejection of UM coverage. Therefore, plaintiff and Lopes argued, their insurance policy should be reformed to include UM coverage.
In contrast, defendant argued that only when policies are initially issued does § 27-7-2.1(a) require an insurer to provide UM coverage if it does not receive the signed rejection notice and warning form. When additional insureds are added to a policy, defendant claimed, the insurer's sole obligation is to issue written notice of the availability and desirability of UM coverage, in accordance with § 27-7-2.1(d). *1100 The hearing justice denied plaintiff and Lopes's motion for summary judgment and granted defendant's motion. She found that the language of § 27-7-2.1 was clear and concluded that a written rejection is required only at thetime a policy is originally issued or delivered. The plaintiff appealed both judgments; Lopes did not join in the appeal.[1]
The plaintiff has argued that in light of the strong public policy in favor of UM coverage, coupled with the clear statutory language of § 27-7-2.1, the trial judge erred in granting summary judgment in favor of defendant and in denying his motion for summary judgment. The plaintiff also asserted that even if the language contained in § 27-7-2.1 creates an ambiguity over whether an added named insured must sign off on the statutory advisory notice, such ambiguity should be construed in his favor and against the insurer.
This Court generally will not review a denial of a motion for summary judgment, and, in any case, would do so only by certiorari. Boucher v. McGovern, 639 A.2d 1369, 1373 (R.I. 1994). Thus, we will not consider plaintiff's appeal of the denial of his motion for summary judgment, given his failure to file a petition for certiorari. The sole question before us, then, is whether the hearing justice erred in granting defendant's motion for summary judgment. We review such decisions de novo, applying the same rules and standards as the hearing justice. Roe v. Gelineau, 794 A.2d 476, 481 (R.I.2002). Thus, we shall affirm a grant of summary judgment "only when, after reviewing the admissible evidence in the light most favorable to the nonmoving party, we conclude that n o genuine issue of material fact remains to be decided, and the moving party is entitled to judgment as a matter of law." Id.
The issue presented by this case requires examination of § 27-7-2.1. When construing a statute, our "task is to establish and effectuate the intent of the Legislature." R & R Associates v. City of Providence Water Supply Board, 765 A.2d 432, 436 (R.I.2001) (quoting Cardarelli v. DET Board of Review, 674 A.2d 398, 400 (R.I.1996)). If a statutory provision is clear and unambiguous, "there is no room for statutory construction and we must apply the statute as written." Cummings v. Shorey, 761 A.2d 680, 684 (R.I.2000) (quoting In re Denisewich, 643 A.2d 1194, 1197 (R.I.1994)). In reviewing such a statute, we "must give the words of the statute their plain and ordinary meanings." Id. (quoting Accent Store Design, Inc. v. Marathon House, Inc., 674 A.2d 1223, 1226 (R.I.1996)). If, instead, we discern a statutory ambiguity, we shall examine the entire statute to ascertain the "legislative intent behind the enactment." State v. Fritz, 801 A.2d 679, 682 (R.I.2002).
Section 27-7-2.1(a) provides in pertinent part:
"No policy * * * shall be delivered or issued for delivery in this state with respect to any motor vehicle * * * unless coverage is provided * * * for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured motor vehicles * * *. The insurer shall provide uninsured motorist coverage in an amount equal to the insured's bodily injury liability limits. However, the named insured shall have the option of selecting a limit in writing less than the bodily injury liability coverage, but in no event less than the limits set forth in § 31-37-7 or § 31-32-24, *1101 unless the named insured is purchasing only the minimum coverage required by compulsory insurance provisions of the general laws, in which case the limit can be reduced to zero, but only after signing an advisory notice approved by the director of business regulation concerning the hazard of uninsured and underinsured motorists."
Section 27-7-2.1(d) provides in pertinent part:
"After the selection of limits by the named insured * * * the insurer or any affiliated insurer shall be required to notify the policyholder, in any renewal, reinstatement, substitute, amended, altered, modified, transfer, or replacement policy, as to the availability of that coverage or optional limits." (Emphasis added.)
Subsection (d) of § 27-7-2.1 requires an insurer to notify the policyholder(s) of the availability of UM coverage, a duty that was carried out by defendant at the time plaintiff was added to the policy. There is no requirement for a written rejection. Thus, if the addition of plaintiff to the policy was a transaction covered by § 27-7-2.1(d), defendant need not have provided automatic UM coverage, and the motion justice was correct to grant defendant's summary judgment motion.
The motion justice found that the plain reading of § 27-7-2.1(a) requires that an insurer obtain a signed rejection of UM coverage only at the time an insurance policy is initially issued or delivered, given that the Legislature could have required that subsection (a) apply also when the events listed in § 27-7-2.1(d) occurred, such as an amendment, modification, or renewal. We agree, especially in light of our previous holding that § 27-7-2.1 does not address the question of who is covered on a particular insurance policy; that question is determined purely by the terms of the policy. Malo v. Aetna Casualty and Surety Co., 459 A.2d 954, 956-57 (R.I. 1983). In the case before us, the addition of plaintiff to the policy changed the policy's terms, but did not represent the new issue or delivery of a policy. The addition of plaintiff's name, then, was a transaction contemplated by § 27-7-2.1(d), and was not subject to the provisions of § 27-7-2.1(a). Any change in these clear statutory provisions that would impose this arguably onerous burden on insurers should be made by duly enacted legislation.
Accordingly, we affirm the summary judgment in favor of the defendant, deny the plaintiff's appeal, and remand the papers in the case to the Superior Court.
NOTES
[1] The plaintiff and Lopes have settled their claims against defendant Henry Allard. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547354/ | 15 F.2d 623 (1926)
EMITE et al.
v.
UNITED STATES.
No. 4784.
Circuit Court of Appeals for Fifth Circuit.
November 18, 1926.
Thos. F. Whiteside, Jr., of Dallas, Tex. (John R. Palmer, of Galveston, Tex., on the brief), for plaintiffs in error.
H. M. Holden, U. S. Atty., of Houston, Tex.
Before WALKER, BRYAN, and FOSTER, Circuit Judges.
WALKER, Circuit Judge.
The plaintiffs in error were convicted on two counts of an information charging them with unlawfully possessing and unlawfully transporting intoxicating liquor fit and intended for beverage purposes. Over their objection the court permitted a federal prohibition enforcement officer to testify as to the witness and another federal prohibition enforcement officer arresting the accused and finding 51 gallons of intoxicating liquor in an automobile in which they were traveling on a public highway after dark. The witness testified to the following effect:
"When we [the witness and the other officer] were traveling in an automobile, the accused passed us in another car, which was owned by one of the accused, who worked for the Dickinson ice plant at Dickinson, Tex. We noticed that they were traveling slowly, that their car appeared to be heavily loaded and weighed down on the springs, and they went over the rough spots in the highway very carefully. We followed them about 10 miles, then drove our car in front of theirs, told them to stop, and that we were federal officers, and we searched them and their car, and found the liquor in their car. We had no search warrant. The accused did not give us permission to search their car. I did not see or smell liquor until I opened the door of *624 their car. The reason I suspected they had liquor was because I had seen that car parked out by the side of the Dickinson ice plant, and I had been told that cars that were parked out by there hauled liquor from that ice plant. When I saw that car parked at the ice plant, it was about 30 feet from the highway and inside the ice plant property. I never raided or searched the Dickinson ice plant. I have made many arrests around Dickinson, Tex. It is a small town, and has the reputation of being a haven for still operators and bootleggers."
The testimony of the witness, not only did not show that, before the search was made, the officers had probable cause to believe that an offense had been committed, but indicated the absence of such probable cause. Probable cause did not exist, unless the facts and circumstances within their knowledge, and of which they had reasonably trustworthy information, were sufficient in themselves to warrant a man of reasonable caution in the belief that intoxicating liquor was being transported in the automobile which they stopped and searched. Carroll v. United States, 267 U.S. 132, 162, 45 S. Ct. 280, 69 L. Ed. 543, 39 A. L. R. 790; Pales v. Paoli (C. C. A.) 5 F.(2d) 280.
The facts and circumstances which the testimony showed were within the knowledge of the two officers before the search was started furnished no basis for a reasonable belief or inference that the searched car contained intoxicating liquor. The facts that an automobile moving on a public highway appears to be heavily loaded and is driven carefully are entirely consistent with a legitimate use of it, and do not warrant a reasonable belief that it is being used as a means of committing a criminal offense. The testimony indicated that the officers had no knowledge or information of any illegal use of the searched car, or that its owner or an occupant of it had committed or intended to commit any criminal offense. The testimony as to what the witness had been told did not indicate that his informant was trustworthy, or that he even claimed to know that what he said was true.
Evidence of the fact that an automobile of an employee of an ice manufacturer was seen parked on the employer's premises, where some unidentified person said automobiles used in hauling liquor from the employer's plant were parked, plainly would not, by itself, or in connection with evidence of the fact that that automobile, when apparently heavily loaded, was seen on a public highway, where it was being carefully driven, be enough to warrant a man of reasonable caution in the belief that intoxicating liquor was being transported in that automobile. A search without warrant of an automobile is not justified by a mere suspicion, based on the facts that it came from a small town having the reputation of being a haven for bootleggers, and that it had been seen parked on an ice manufacturer's premises which were said to be used for parking cars which hauled liquor from that place.
On its face the testimony of the witness negatived the conclusion that, prior to the search of the automobile, the witness or the other officer, by the use of their senses or otherwise, had learned of facts that would warrant a reasonably prudent man in believing that it then was being used in transporting liquor, or in the commission of any other crime. It appearing on the face of the testimony that the knowledge of the witness of the fact that the automobile contained intoxicating liquor was obtained by a search made without a warrant, and without probable cause to believe that a crime was being committed in his presence, that testimony was subject to be excluded on the ground that the knowledge of the witness of the incriminating facts deposed to was obtained by a violation of the constitutional provision against unreasonable searches. We conclude that the above-mentioned ruling was erroneous. Because of that error, the judgment is reversed, and the cause is remanded for another trial.
Reversed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547189/ | 159 B.R. 689 (1993)
UNITED STATES of America, Plaintiff,
v.
VALORES CORPORATIVOS, S.A., Daniel De La Garza, Individually, and Francisco Garza Calderon, Defendants.
No. 90 Civ. 6435 (JES).
United States District Court, S.D. New York.
October 20, 1993.
Otto G. Obermaier, U.S. Atty., S.D.N.Y., New York City (Paula T. Dow, Asst. U.S. Atty., of counsel), for plaintiff.
Law Offices, Yorkston W. Grist, P.C., New York City (David L. Mazaroli, of counsel), for defendants.
*690 MEMORANDUM OPINION AND ORDER
SPRIZZO, District Judge:
Plaintiff United States, on behalf of the Export-Import Bank of the United States ("Eximbank"), brings this action seeking to recover on guarantees made by defendants (the "guarantors") of the unpaid balance of a commercial loan made to Textiles Key, S.A., (the "borrower"), a non-party to this action, in 1981. Defendants have moved for summary judgment, arguing that the unpaid balance due on the loan, along with the guarantees for that amount, were discharged by the Mexican suspension of payments court presiding over the bankruptcy of the borrower. For the reasons that follow, defendants's motion is denied.
BACKGROUND
The relevant facts, as summarized, are as follows. In that bankruptcy, all creditors of the borrower had approved of a plan by the Mexican Receiver to sell the borrower's assets and pay 10% on its debts to each creditor out of the proceeds. As reflected in the recorded minutes of a meeting of the creditors on March 11, 1987, Eximbank agreed to accept the Receiver's plan but expressly reserved its rights to proceed against the guarantors for the balance of the loan.[1]
Five days later, on March 16, 1987, Eximbank filed suit against the guarantors in a Mexican civil court seeking payment on the loan guarantees. Eventually, the parties stipulated that the proper forum for the action was in New York and discontinued the action in Mexico. Plaintiff eventually filed that action in this Court.
On October 6, 1988, over one year after Eximbank agreed to discontinue against the guarantors in Mexico, the suspension of payments court concluded the aforesaid suspension of payments proceeding by (1) finding that payments to creditors according to the Receiver's plan had been fully satisfied, and (2) cancelling the obligations of the non-party guarantors for the rest of the borrower's debt, contrary to Eximbank's express reservation of its rights to proceed against the guarantors as recorded in the creditors' meeting minutes subsequently approved by the court.
The court further directed that personal notice of that judgment be given to the debtor borrower, the Receiver and the Office of the Government Attorney. The judgment was also listed in the Monterrey Daily Judicial Bulletin, a legal journal. Eximbank did not receive actual notice of the judgment until defendants raised their res judicata defense in the instant action. As a consequence, Eximbank never appealed that ruling.
Having received the benefit of two rounds of briefing, and having held a hearing and heard testimony from expert witnesses about Mexican suspension of payments law and about whether Mexican law required that Eximbank be notified of the judgment, the Court, in an oral opinion given at Oral Argument on January 8, 1993, denied defendants's motion for summary judgment for the reasons that follow.
DISCUSSION
The Court is persuaded that defendants are not entitled to summary judgment on their defense of res judicata. The concept of res judicata embodies a policy of preventing the judicial inefficiency that would ensue if issues which have been fully litigated could be relitigated in a subsequent action. See, e.g., Milltex Indus. Corp. v. Jacquard Lace Co., 922 F.2d 164, 168 (2d Cir.1991) (quoting Montana v. United States, 440 U.S. 147, 153-54, 99 S. Ct. 970, 973-74, 59 L. Ed. 2d 210 (1979)).
In the instant case, although Eximbank expressly reserved its rights to proceed against the guarantors, the suspension of payments court discharged Eximbank's claims against the guarantors, even though the issue as to whether the guarantors' obligations could be properly discharged had not been actually litigated, and indeed had not even been raised. In *691 these circumstances, the Court concludes that plaintiff was not given and did not have a full and fair opportunity to litigate its claims against the guarantors. See, e.g., Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 398, 101 S. Ct. 2424, 2428, 69 L. Ed. 2d 103 (1981); Blonder-Tongue Lab., Inc. v. University of Ill. Found., 402 U.S. 313, 333, 91 S. Ct. 1434, 1445, 28 L. Ed. 2d 788 (1971).
The Court rejects defendants' argument that plaintiff could have, but failed to, appeal the decision by the suspension of payments court, and thereby cannot now claim that it did not have a fair opportunity to challenge the decision of that court, especially since it was the parties' express understanding that these issues should be resolved here.[2] Moreover that argument assumes that the publication of that decision in a local newspaper was sufficient to provide plaintiff with sufficient notice, an assumption that seems particularly unfounded in view of the fact that that publication did not set forth the text of that decision or make any reference to the fact that the guarantors had been discharged. The Court therefore, need not reach the issue of whether that notice was or was not sufficient under Mexican Law, an issue disputed by experts in Mexican law, because it was not in any event sufficient to preclude the litigation of these issues in this case.
Collateral estoppel is a flexible concept based upon avoiding duplicative litigation. Where, as here, that policy is outweighed by other considerations, i.e., the fact that plaintiff never was afforded actual or constructive notice of the court's decision in a manner reasonably calculated to provide actual notice, see Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314-15, 70 S. Ct. 652, 657-58, 94 L. Ed. 865 (1950), and the Mexican civil action seeking the same relief was discontinued on the express understanding that those issues would be litigated in a United States forum, the Court declines to bar plaintiff's action on that ground.
CONCLUSION
Accordingly, notwithstanding the issues of comity present in this case, for the reasons hereinabove set forth and because defendants' other defenses raise issues of fact, defendants' motion for summary judgment is denied.
It is SO ORDERED.
NOTES
[1] On April 9, 1987, the suspension of payments court approved the minutes of that creditors' meeting, including Eximbank's reservation of its rights.
[2] Republic Supply Co. v. Shoaf, 815 F.2d 1046 (5th Cir.1987), relied on by defendants, is factually inapposite. There, the court determined that the discharge of a third-party guarantee was res judicata to a later suit on that guarantee even while noting that 11 U.S.C. § 524 generally precludes release of guarantors by a bankruptcy court. That court's conclusion depended, however, on the particular facts of that case which are distinct from those here, to wit, the creditor there had neither objected to the final plan of confirmation nor appealed the order of confirmation and received proper notice throughout the process. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547188/ | 809 A.2d 916 (2002)
David and Leontine COLVILLE, H/W, Appellees,
v.
CROWN EQUIPMENT CORPORATION and Omnilift, Inc., Appellants.
Superior Court of Pennsylvania.
Argued June 12, 2001.
Filed September 23, 2002.
Reargument Denied November 27, 2002.
*919 William J. Conroy, Wayne, for Omnilift, appellant.
Benjamin P. Shein, Philadelphia, for appellees.
BEFORE: JOYCE, LALLY-GREEN and KELLY,[*] JJ. *917
*918 JOYCE, J.:
¶ 1 Appellants, Crown Equipment Corporation and Omnilift, Inc., appeal from the March 20, 2000 judgment entered in the Court of Common Pleas of Philadelphia County following a $3,843,253.29 jury verdict in favor of Appellees, David and Leontine Colville. Upon review, we vacate *920 the judgment entered by the trial court and remand for a new trial. The relevant facts and procedural history of this case are as follows.
¶ 2 On October 20, 1994, David Colville sustained an injury to his left foot while operating a Crown RR3020-45 standup forklift during the scope of his employment at Hechinger's, a building supply store in Philadelphia. While attempting to unload a delivery truck, Colville lost control of the forklift and slammed into the truck. During this accident, Colville's foot was expelled from the operator's compartment and was crushed between the wheel of the delivery truck and the base of the forklift.
¶ 3 On October 11, 1996, David Colville filed a strict products liability action against the forklift's manufacturer, Crown Equipment Corporation, and the seller of the forklift, Omnilift, Inc. Mr. Coville's wife, Leontine Colville, also made a derivative loss of consortium claim against Appellants. In their complaint, Appellees alleged that the forklift was defective because it was designed and manufactured without a door enclosing the operator's compartment and did not provide certain warnings. A jury trial commenced on this action on March 8, 1999. At the close of Appellees' evidence, Appellants filed a motion for non-suit alleging that Appellees failed to introduce evidence to support each of the claims. The trial court granted Appellants' motion for non-suit, in part, by dismissing Appellees' lack of warnings claim. However, the trial court denied the motion with respect to the defective design claim, and Appellants proceeded with their defense.
¶ 4 During their case-in-chief, Appellants called expert witnesses to establish that a forklift equipped with a door would not constitute a safer alternative design. Specifically, Appellants' witnesses testified that the addition of a door could prevent operators from jumping out of the forklift in the event of a rollover and that an operator could sustain more serious, if not fatal, injuries if the forklift landed upon him. At a subsequent charge conference on March 11, 1999, Appellants requested that the trial court instruct the jury on the elements of the crashworthiness doctrine. Appellants claimed that this charge was warranted because Appellees had invoked the theory during their opening statement and throughout their case-in-chief. The trial court denied this request upon its determination that it was within the province of the judge to determine whether the forklift was crashworthy and that Appellees had met this burden.[1] N.T. Jury Trial, 3/11/99, at 558. The trial court then informed the parties that it would only instruct the jury on the elements of a traditional Section 402(a) strict products liability claim.[2]Id.
*921 ¶ 5 After the close of the evidence, Appellants requested that the trial court direct a verdict in their favor on the defective design claim. The trial court denied this motion. On March 12, 1999, the jury returned a verdict in favor of Appellees, awarding David Colville $3,000,000.00 on his strict liability claim and Leontine Colville $500,000.00 on her loss of consortium claim. Appellants filed a motion for post-trial relief, which was denied on March 20, 2000. On this same date, the trial court granted Appellees' motion for delay damages and entered judgment in the amount of $3,843,253.29 against Appellants.
¶ 6 On April 11, 2000, Appellants filed a timely notice of appeal with our Court. In their brief, Appellants alleged that the trial court erred when it (1) failed to instruct the jury on the crashworthiness doctrine; (2) excluded evidence of Appellants' compliance with government regulations and industry standards; and (3) determined that federal regulations did not preempt Appellants' state law claims. On July 30, 2001, we affirmed the judgment of the trial court after determining Appellants waived their first issue and that Appellants' second and third issues lacked merit. Colville v. Crown Equipment Corp., 785 A.2d 1023 (Pa.Super.2001) (unpublished memorandum).
¶ 7 On October 31, 2001, Appellants filed a timely petition for allowance of appeal with the Pennsylvania Supreme Court asserting, inter alia, that our panel erred when it held that Appellants waived their challenge to the jury instructions. On March 20, 2002, the Pennsylvania Supreme Court granted Appellants' petition and vacated our judgment upon its determination that Appellants properly preserved their challenge to the jury instructions by making a timely objection during the charge conference. Colville v. Crown Equipment Corp., 568 Pa. 61, 791 A.2d 1168 (2002). The Supreme Court then remanded the case to our Court for an exclusive "consideration of the merits of [Appellants'] claim that the trial court erred in failing to instruct the jury on the crashworthiness doctrine." Id. at 1168-69. Pursuant to this specific and narrow mandate, we will now address Appellants' claim that the trial court erred when it refused to instruct the jury on the crashworthiness doctrine.
¶ 8 As a preliminary matter, we must set forth the governing standard of review. When determining whether a trial court erred by making an inadequate or insufficient instruction to the jury, "we must examine the charge in its entirety against the background of the evidence to determine whether error was committed." Ottavio v. Fibreboard Corp. et al., 421 Pa.Super. 284, 617 A.2d 1296, 1301 (1992). An error will be found if "the jury charge in its entirety was unclear, inadequate, or tended to mislead or confuse the jury." Ettinger v. Triangle-Pacific Corp., 799 A.2d 95, 106 (Pa.Super.2002); see also Price v. Guy, 558 Pa. 42, 46, 735 A.2d 668, 670-71 (1999) ("error will be found where the jury was probably mislead by what the trial judge charged or where there was an omission in the charge").
¶ 9 In their brief, Appellants argue that the crashworthiness doctrine applies in the instant case because the alleged design defect (i.e. the absence of a door on *922 the operator's compartment) did not cause the accident itself. Simply stated, Appellants maintain that Mr. Colville would have crashed the forklift into the delivery truck regardless of the presence of a door. Rather, Appellants contend that the absence of a door only increased or enhanced the severity of the injury incident to the accident. In light of this position, Appellants assert that a jury charge on crashworthiness was necessary, especially where Appellees pursued the case under a crashworthiness theory from the outset of trial. Upon review, we agree.
¶ 10 The Pennsylvania Supreme Court has adopted the strict products liability doctrine enunciated in Section 402(a) of the Restatement (Second) of Torts. Webb v. Zern, 422 Pa. 424, 220 A.2d 853 (1966). As such, to submit a Section 402(a) products liability case to a jury, it must be shown that "a product was sold in a defective condition unreasonably dangerous to the user or consumer, and that the defect was the proximate cause of the plaintiff's injuries." Walton v. Avco Corp., 530 Pa. 568, 576, 610 A.2d 454, 458 (1992). Additionally, courts of this Commonwealth have specified that a product is defective when it is not fit for the intended use for which it was sold. Azzarello v. Black Bros. Co. Inc., 480 Pa. 547, 559, 391 A.2d 1020, 1027 (1978).
¶ 11 The crashworthiness or second collision doctrine is merely a subset of a Section 402(a) products liability action and routinely arises in the context of a vehicular accident. Kupetz v. Deere & Company, Inc., 435 Pa.Super. 16, 644 A.2d 1213, 1218 (1994), appeal denied, 539 Pa. 693, 653 A.2d 1232 (1994).[3] Historically, a Section 402(a) strict products liability action only created liability for injuries proximately caused by a defect where the defect also caused the accident. Barris v. Bob's Drag Chutes & Safety Equipment, Inc., 685 F.2d 94, 99 (3rd Cir.1982). However, the crashworthiness doctrine extends the liability of manufacturers and sellers to "situations in which the defect did not cause the accident or initial impact, but rather increased the severity of the injury over that which would have occurred absent the design defect." Kupetz, 644 A.2d at 1218 (citing Mills v. Ford Motor Co., 142 F.R.D. 271 (M.D.Pa.1990)). Therefore, in order for a manufacturer to avoid liability, it must design and manufacture a product that is "reasonably crashworthy", or alternatively stated, the manufacturer must contemplate accidents among the intended uses of its product. Kupetz, 644 A.2d at 1218.
¶ 12 To prevail on a crashworthiness or second collision theory in a products liability action under Section 402(a), a plaintiff must prove three elements. First, the plaintiff must demonstrate that the design of the vehicle was defective and that when the design was made, an alternative, safer, practicable design existed. Kupetz, 644 A.2d at 1218 (citing Craigie v. *923 General Motors Corp., 740 F. Supp. 353 (E.D.Pa.1990)). Second, the plaintiff must show what injuries, if any, the plaintiff would have received had the alternative safer design been used. Id. Third, the plaintiff must prove what injuries were attributable to the defective design. Id.[4]
¶ 13 To determine whether the trial court's failure to instruct on the crashworthiness doctrine was erroneous, we must first determine whether the facts of this case arguably support a recovery under the crashworthiness doctrine. As stated supra, an application of the crashworthiness doctrine is required where the alleged defect did not cause the accident or initial impact, but merely serves to increase the severity of the injury. Kupetz, 644 A.2d at 1218.
¶ 14 Upon our review of the facts of this case, we find that Appellees consistently introduced evidence indicating the absence of a door did not cause the initial impact. For example, Mr. Colville testified that the accident occurred when the steering and braking mechanism of the forklift failed and he lost control.[5] N.T. Jury Trial, 3/8/99, at 90-1. Additionally, Appellees' expert witness, John Sevart, testified that the forklift would have collided with the delivery truck even if a door were present. N.T. Jury Trial, 3/9/99, at 183.
¶ 15 Additionally, Appellees presented evidence that the defect served to increase the injury Mr. Colville suffered during the accident. Specifically, John Sevart testified that the installation of a proper structural door would have prevented all of the injuries sustained in the collision. Id. As the crashworthiness doctrine was created to extend liability to manufacturers and sellers of defective products in a situation of this kind, we find that a crashworthiness instruction was warranted. See Kupetz, supra (holding that the crashworthiness doctrine extends liability to "situations in which the defect did not cause the accident..., but rather increased the severity of the injury over that which would have occurred absent the design defect").
¶ 16 Appellees argue, however, that the crashworthiness doctrine is not applicable in the instant case because Mr. Colville was not involved in a "second collision." Rather, Appellants maintain that Mr. Colville sustained his injury during the first and only collision (i.e. when the forklift slammed into the delivery truck). Upon review, we disagree with Appellees' narrow interpretation of the "second collision"/crashworthiness doctrine.
¶ 17 In our Commonwealth, crashworthiness "means the protection that a motor vehicle affords its passenger against personal injury or death as a result of a motor vehicle accident." Kupetz, 644 A.2d at 1218 (citing Jeng v. Witters, 452 F. Supp. 1349, 1355 (M.D.Pa.1978)). Additionally, a second collision, "as used in the definition of a crashworthiness of a motor vehicle in products liability cases, generally refers to the collision of the passenger with the interior part of the vehicle after the initial impact or collision." Id. We note, however, that other courts have extended *924 this "second collision" principle to include situations where the passenger is ejected from the vehicle and impacts with the highway. Id. The principle behind the second collision concept is that, "because of the way the vehicle has been manufactured, a person's injuries have been aggravated unnecessarily." Id. (citing Jeng, 452 F.Supp. at 1355).
¶ 18 In Kupetz, as stated infra, a panel of our Court recognized the viability of the crashworthiness doctrine in the context of a rollover accident involving a bulldozer/crawler. Id., 644 A.2d at 1219. Upon our review of Kupetz, we note that the case was pursued under a crashworthiness theory despite the fact that the decedent was fatally injured during the initial impact or accident and not during a "second collision". Simply stated, the bulldozer/crawler in Kupetz rolled over and impacted the ground at the same moment, and during the same motion, when it crushed its operator under its own weight. In light of the factual scenario in Kupetz, we must conclude that the critical focus of a crashworthiness/ second collision case is not whether an independent second collision occurs or whether the injured strikes a particular surface (i.e. highway, interior of vehicle, ground etc.) during a "second collision." Rather, consistent with the principle underlying the doctrine, the term "second collision" must be interpreted to encompass any situation where unnecessary or "secondary" injuries occur as the result of a defective product's failure to protect the passenger. Id.; see also Volkswagen of America v. Marinelli, 628 So. 2d 378, 385 (Ala.1993) (focus in crashworthiness cases is on the "capacity of automobile to respond to a foreseeable hazardous situation without causing or enhancing injury" and not on whether a per se second collision occurred).
¶ 19 In the instant case, we recognize that Mr. Colville was not involved in an independent "second collision." Mr. Colville sustained his injuries when his foot was simultaneously crushed during the initial impact with the truck. Nonetheless, we recognize that Appellees pursued their strict products liability claim under the theory that an effectively designed door would have prevented all of his injuries during the crash. In light of this theory of the case, and the principle underlying the "second collision" doctrine, Kupetz, supra, we find that a jury should have been instructed on the elements of crashworthiness. See also Habecker v. Clark Equipment Co., 36 F.3d 278 (3rd Cir.1994) (case properly brought under crashworthiness doctrine where forklift rolled over and crushed operator under its own weight); Marshall v. Clark Equipment Co., 680 N.E.2d 1102 (Ind.Ct.App.1997) (case properly pursued under crashworthiness theory where operator of a forklift crushed his foot between a post and the base of the forklift).
¶ 20 In their brief, Appellees also maintain that a crashworthiness instruction was unwarranted because Mr. Colville did not sustain an "enhanced injury." Essentially, Appellees maintain that, in order for a jury to find an "enhanced injury," the evidence must first demonstrate that some injury would have occurred regardless of the defect. We disagree.
¶ 21 In Kupetz, we stated the three elements necessary to succeed on a crashworthiness claim. The second of these elements required the plaintiff to demonstrate "what injuries, if any, the plaintiff would have received had the alternative safer design been used." (Emphasis added). In light of this language, it is clear that our Court sought to include those circumstances, as in the instant case, where an individual would not have received *925 any injuries in the absence of a defect. See also Kolesar v. Navistar Int'l Transp. Corp., 815 F. Supp. 818, 819 (M.D.Pa.1992), affirmed 995 F.2d 217 (3rd Cir.1993) (permitting plaintiff to proceed on a crashworthiness theory where the plaintiff would have walked away uninjured absent the defect). Therefore, we find that Appellees' interpretation of the term "enhanced injury" is clearly erroneous.
¶ 22 Furthermore, Appellees argue that the trial court did not err in failing to charge the jury on crashworthiness because Appellees did not advance a crashworthiness theory at trial. This assertion is unsupported by the record. The record is replete with Appellees' own references to this doctrine and to their accompanying burden of proof in a crashworthiness case. For example, in their opening statement, Appellees' counsel made the following remarks to the jury:
The second theory, which is also a type of products liability, is what is called crashworthiness, and under the crashworthiness theory, the crashworthiness doctrine provides a manufacturer is liable in a situation in which the defect did not cause the accident or initial impact but rather increased the severity of the injury over that which would have occurred absent the design defect. We have to prove the crashworthiness.
There was an alternative safer design. How will that get proved? That will get proved because when Mr. Colville was injured in October of 1994, Crown had approximately 300 forklifts out being used which had doors to protect the operator and the operator compartment from the left leg and left foot coming out.... We will show the injuries in this case, if any, what they would be from an alternative safer design. They would be non-existent. We wouldn't be here. You would be home with your jobs or with your families. We will show you enhanced injuries from the defective design and you will see that in photographs of Mr. Colville's foot.
N.T. Jury Trial, 3/8/99, at 45-6. Furthermore, during their case-in-chief, Appellees asked their expert witness whether a door would constitute a safer alternative design and whether Mr. Colville's injuries were enhanced by the alleged design defect. When Appellants' counsel objected to the expert's testimony regarding enhanced injury, Appellees' counsel responded that enhanced injury was "one of the elements for me to prove the crashworthiness claim." N.T. Jury Trial, 3/9/99, at 181. We also note that Appellees submitted three proposed jury instructions related to crashworthiness prior to trial. In light of these facts, we find no merit in Appellees' contention that the instant case was not tried as a crashworthiness case.
¶ 23 Next, Appellees contend that a jury instruction on crashworthiness was unnecessary since they chose to pursue their case under the traditional Section 402(a) strict liability theory (i.e. that the defect caused the initial accident). In making this argument, Appellees essentially maintain that crashworthiness is an additional theory of recovery that a plaintiff may elect to pursue. Upon review, however, we disagree.
¶ 24 As stated supra, one may pursue a classic, Section 402(a) products liability action when a defect proximately causes both the accident and the injuries that are sustained during the accident. See Barris, 685 F.2d 94 at 99. While we recognize that a crashworthiness claim is characterized as a subset of a Section 402(a) claim, it is clear that the crashworthiness doctrine is uniquely tailored to address those situations where the defective product did not cause the accident but served to increase *926 the injury. Kupetz, 644 A.2d at 1218. In the instant case, our review of the evidence indicates that the absence of a door to the operator's compartment did not cause Mr. Colville to collide with the delivery truck. Therefore, an instruction on crashworthiness was required.
¶ 25 Appellees, however, cite Barris, 685 F.2d at 100, as persuasive authority for the proposition that a plaintiff may solely proceed on a Section 402(a) strict liability claim where the defect did not cause the initial accident. In Barris, the driver of a sprint racing car was killed when his car collided with the left rear tire of a second sprint car and flipped over. Id. at 97. The driver's widow brought an action against the manufacturer of the car's shoulder harness alleging that a more effectively designed harness would have protected her husband during the crash. Id. The widow failed to bring an action against the manufacturer of the sprint car itself. Id. At trial, the widow pursued her case under a theory of crashworthiness, and at the close of her evidence, the trial court directed a verdict in favor of the harness manufacturer. Id. The trial court concluded that the widow failed to demonstrate that her husband's death would have been prevented by a better shoulder harness. Id. On appeal, the Third Circuit panel determined that the district court erred when it determined that the crashworthiness standard applied. Id. at 100. Rather, the panel held that the case presented a classic Section 402(a) strict liability case "where an allegedly defective product, a shoulder harness, failed during the car's flip, causing decedent to come loose in the race car and suffer fatal injuries." Id. Upon this basis, the panel vacated the district court's order granting a directed verdict against the harness manufacturer and remanded for a new trial. Id. at 102.
¶ 26 Upon our review, we find the Third Circuit's decision in Barris distinguishable from the instant case. Although the facts in Barris indicate that the allegedly defective shoulder harness did not cause the accident itself (i.e. the collision between the sprint cars), the Third Circuit did not rely upon this factor when it determined that crashworthiness was inapplicable. Instead, the panel stated that it refused to extend the crashworthiness doctrine to cases where the plaintiff only sues the manufacturer of a component part, rather than the manufacturer of the motor vehicle itself. Id. at 100, n. 8.
¶ 27 As Barris only discussed the applicability of the crashworthiness doctrine in the context of a suit against a component manufacturer, we do not find the Barris case persuasive in the context of a suit against the manufacturer of the forklift. Thus, we conclude that Appellees could not simply "elect" to try their instant case under a Section 402(a) theory of liability.
¶ 28 Upon our determination that the trial court erroneously failed to instruct the jury on crashworthiness, we must now determine whether this error might have prejudiced Appellant, thereby necessitating a new trial. When reviewing a trial court's denial of a motion for a new trial, we will not overturn the trial court's determination unless the trial court grossly abused its discretion or committed an error of law that controlled the outcome of the case. Turney Media Fuel, Inc. v. Toll Bros., Inc., 725 A.2d 836, 841 (Pa.Super.1999). It is well settled that "a trial court abuses its discretion by rendering a judgment that is manifestly unreasonable, arbitrary or capricious, or has failed to apply the law, or was motivated by partiality, prejudice bias or ill-will." Ettinger, 799 A.2d at 106. Moreover, in determining whether to grant a motion for a new trial based upon the adequacy or sufficiency *927 of the jury charge, we may only grant a new trial if the charge was erroneous and "if the jury charge might have prejudiced the appellant." Ottavio, 617 A.2d at 1301. Moreover, "[a] new trial will be granted even though the extent to which the appellant has been prejudiced is unascertainable." Id.
¶ 29 In the instant case, the jury was instructed on the elements of a Section 402(A) strict products liability claim without any reference to the crashworthiness standard. See Kupetz, supra. As a result of this error, the court failed to give the jury any guidance on how to determine whether the door constituted a safer alternative design or how to utilize all of the expert testimony regarding this issue. Since Appellants primarily based their defense on the assertion that a door would not constitute a safer alternative design, we find that Appellants must have been prejudiced by this omission.
¶ 30 We find the federal district court's decision in Olsen v. U.S., 521 F. Supp. 59 (E.D.Pa.1981) distinguishable from the instant case. In Olsen, the plaintiff brought an action against the Ford Motor Company when he sustained a head injury during a rollover accident. Id. at 62. At the close of trial, the court only instructed the jury under Section 402(a) despite the fact that a defective A-pillar in the car was not the cause of the rollover. Id. After its deliberations, the jury returned a verdict for the defense. Id. On appeal, the court determined that the plaintiff suffered no prejudice from the trial court's failure to instruct on the crashworthiness doctrine as long as the jury received an adequate instruction on the elements of a Section 402(a) strict liability claim and had no difficulty applying these elements. Id. at 65. Presumably, the Olsen court concluded that plaintiff's failure to establish a Section 402(a) claim indicated that the plaintiff would have likewise failed on a crashworthiness claim. As such, the trial court refused to grant a new trial on this issue.
¶ 31 Unlike the facts in Olsen, however, we note that the jury, in the case sub judice, returned a verdict in plaintiffs' (Appellees') favor at the conclusion of the trial. The jury returned this verdict upon its determination that Appellants' proved each of the elements under a Section 402(a) claim by a preponderance of the evidence. Despite Appellees' success on the Section 402(a) claim, we note that the crashworthiness doctrine "imposes on the plaintiff more rigorous proof requirements than the typical Section 402(a) claim." Barris, 685 F.2d at 99. As the trial court did not hold Appellees to this burden, Appellants have certainly suffered prejudice. Thus, we must vacate the judgment of the trial court and remand for a new trial.
¶ 32 Judgment vacated and case remanded for a new trial. Jurisdiction relinquished.
NOTES
[*] Judge Kelly did not participate in the consideration or decision in this case.
[1] Although the trial court plainly stated its reasons on the record for refusing to include a crashworthiness charge during the conference, the trial court advanced an alternative reason for its ruling in its 1925(a) opinion. In the opinion, the trial court explained that a crashworthiness charge was unwarranted because "no evidence of crashworthiness was presented" and "there is no evidence of an enhanced injury or second collision." Trial Court Opinion, 12/29/00, at 7. Additionally, the trial court stressed that Appellants "did not argue crashworthiness in [their] closing" and, as such, "the case was tried and went to the jury as a strict liability case." Id.
[2] Section 402(a) of the Restatement (Second) of Torts provides:
(1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if
(a) the seller is engaged in the business of selling such a product, and
(b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.
(2) The rule stated in Subsection (1) applies although
(a) the seller has exercised all possible care in the preparation and sale of his product, and
(b) the user or consumer has not bought the product from or entered into any contractual relation with the seller.
[3] We note that the court in Kupetz was the first court of this Commonwealth to explicitly state that the crashworthiness/second collision doctrine is a permissible theory of recovery in Pennsylvania. Kupetz, 644 A.2d. at 1219. In Kupetz, a widow brought a products liability action against the manufacturer of a bulldozer/crawler, pursuant to the crashworthiness doctrine, when the machine crushed her husband during a rollover accident. Id. at 1215. At trial, the widow argued that a rollover protection system would have saved her husband's life. Id. Despite this assertion, the jury returned a verdict in favor of the manufacturer upon its determination that her husband assumed the risk of his fatal injuries by operating the machine on a steep slope. Id. On appeal, after recognizing the viability of the crashworthiness doctrine in Pennsylvania, the Kupetz court also held that the husband's assumption of the risk could operate as a complete bar to recovery. Id. at 1221.
[4] We note that a panel of our Court recently re-allocated the burden of proof under the second and third elements of the crashworthiness doctrine. See Stecher v. Ford Motor Company, 779 A.2d 491 (Pa.Super.2001), appeal granted, 568 Pa. 619, 792 A.2d 1254 (Pa.2001). However, the panel in Stecher held that this re-allocation only applied in cases where plaintiff suffers an indivisible injury. Id. As we are not confronted with an indivisible injury in the instant case, we find that our decision in Stecher has no bearing on this appeal.
[5] We note that this case was not tried on the theory that the steering or braking mechanism of the forklift were defective. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547252/ | 73 F.2d 776 (1934)
SPRADLIN
v.
ROYAL MFG. CO.
No. 3735.
Circuit Court of Appeals, Fourth Circuit.
November 19, 1934.
John J. Ingle, of Winston-Salem, N. C., and John H. Folger, of Mt. Airy, N. C., for appellant.
E. C. Bivens, of Mt. Airy, N. C., for appellee.
Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.
PARKER, Circuit Judge.
This is an appeal from a decree holding a claim of the Royal Manufacturing Company for $3,483.73 to be a lien on the assets of the failed Elkin National Bank in hands of its receiver. The claim arose out of a draft on the Chatham Manufacturing Company which was sent to the bank for collection. The company last named paid the draft by a check drawn against its deposit account with the bank, and the bank remitted for the collection by draft on one of its correspondents, but failed before this draft could be paid. There was, of course, no augmentation of the assets of the bank as a result of the collection, but merely a shifting of credits, and consequently no basis for the declaration of a trust. Lifsey v. Goodyear Tire & Rubber Co. (C. C. *777 A. 4th) 67 F.(2d) 82, 83; Ellerbe v. Studebaker Corporation of America (C. C. A. 4th) 21 F.(2d) 993, 995; Larabee Flour Mills v. First Nat. Bank (C. C. A. 8th) 13 F.(2d) 330, 331. The learned judge below was of opinion, however, that the assets of the bank were subjected to a lien to the amount of the collection by reason of the proviso appearing in section 218 (c) (14) of the North Carolina Code of 1927.
Section 218 (c) of the North Carolina Code is composed of twenty-three subsections all of which relate to the liquidation of state banks. Subsection 14 thereof, which contains the proviso in question, is as follows:
"(14) Declaration of Dividends; Order of Preference in Distribution. At any time after the expiration of the date fixed by the Chief State Bank Examiner, or the duly appointed agent, for the presentation of claims against the bank, and from time to time thereafter, the Corporation Commission, out of the funds in its hands, after the payment of expenses and priorities, may declare and pay dividends to the depositors and other creditors of such bank in the order now or hereafter provided by law; and a dividend shall be declared when and as often as the funds on hand subject to the payment of dividends shall be sufficient to pay ten (10) per centum of all claims entitled to share in such dividends. In paying dividends and calculating the same, all disputed claims and deposits shall be taken into account but no dividend shall be paid upon such disputed claims and deposits until the same shall have been finally determined. The following shall be the order and preference in the distribution of the assets of any bank liquidated hereunder: (1) Taxes and fees due the Corporation Commission for examination or other services; (2) wages and salaries due officers and employees of the bank, for a period of not more than four months; (3) expenses of liquidation; (4) certified checks and cashier's checks in the hands of a third party as a holder for value and amounts due on collections made and unremitted for or for which final actual payment has not been made by the bank; (5) amounts due creditors other than stockholders. The word `asset' used herein shall not be deemed to include bailments or other property to which such bank has no title. Provided, that when any bank, or any officer, clerk, or agent thereof, receives by mail, express or otherwise, a check, bill of exchange, order to remit, note, or draft for collection, with request that remittance be made therefor, the charging of such item to the account of the drawer, acceptor, indorser, or maker thereof, or collecting any such item from any bank or other party, and failing to remit therefor, or the nonpayment of a check sent in payment therefor, shall create a lien in favor of the owner of such item on the assets of such bank making the collection, and shall attach from the date of the charge, entry or collection of any such funds. A statement of all dividends paid shall be filed in the office of the clerk of the Superior Court in the pending action, and said statements shall show the expenses deducted and the disputed claims and deposits considered in determining said dividend."
It is clear, we think, that even if this proviso be construed as having relation to solvent banks as distinguished from those in liquidation, it cannot affect national banks. It has been held that these banks have no power to pledge their assets to secure a private deposit (Texas & Pac. Ry. Co. v. Pottorff, 291 U.S. 245, 253, 54 S. Ct. 416, 78 L. Ed. 777); and one of the reasons for this holding is that to permit such pledge would be inconsistent with many provisions of the national bank act which are designed to insure a ratable distribution of assets among creditors. The same reasoning would forbid the creation of a lien on assets as security for funds collected. And, of course, if the creation of such a lien be beyond the powers of the bank, it could not be created by act of the state Legislature; for the Legislature could not provide that action on the part of the bank should give rise to a lien which the bank, by reason of the limitations imposed upon it by act of Congress, was powerless to create.
But it is clear that the statute in question was not intended to have application to solvent banks. Quite apart from the fact that it is a proviso to one of the subsections of a statute dealing with the liquidation of insolvent banks, it appears that it can have no practical application except in connection with their liquidation. The lien created, although it is to attach from the date of the charge, entry or collection, arises only upon "failing to remit" or "the non-payment of a check sent in payment"; and it is manifest that a solvent bank will not fail to remit collections or permit a check sent in payment of a collection to remain unpaid. It is only in case of banks which have failed, therefore, that the statute can have any practical application; and the lien which it creates is of such a character that it can be enforced only by a liquidation of the bank. See Lewis v. Fidelity & Deposit Co., 292 U.S. 559, at pages 563 and 567, 54 S. Ct. 848, 78 L. Ed. 1425, 92 A. L. R. 794. The statute must be *778 construed, therefore, as relating to the distribution of assets in the hands of banks which have failed; for "in whatever language a statute may be framed, its purpose must be determined by its natural and reasonable effect." Collins v. New Hampshire, 171 U.S. 30, 34, 18 S. Ct. 768, 43 L. Ed. 60; Morgan's Louisiana & T. R. & S. S. Co. v. Board of Health of Louisiana, 118 U.S. 455, 462, 6 S. Ct. 1114, 30 L. Ed. 237; Henderson et al. v. Mayor of New York, 92 U.S. 259, 268, 23 L. Ed. 543. So construed, it can have no application to the assets of national banks; for the national banking act provides how the assets of insolvent national banks shall be distributed. 12 USCA § 194. And it is well settled that state statutes cannot affect this distribution. Davis v. Elmira Savings Bank, 161 U.S. 275, 16 S. Ct. 502, 40 L. Ed. 700; Easton v. State of Iowa, 188 U.S. 220, 23 S. Ct. 288, 47 L. Ed. 452; Old Company's Lehigh v. Meeker (C. C. A. 2d) 71 F.(2d) 280; Fiman v. South Dakota (C. C. A. 8th) 29 F.(2d) 776, 777; First Nat. Bank of Chicago v. Selden (C. C. A. 7th) 120 F. 212, 62 L. R. A. 559.
The case of Lewis v. Fidelity & Deposit Co., 292 U.S. 559, relied upon by appellee, is in reality an authority against its position. In that case a statute of Georgia, creating a general lien on the assets of banks as security for deposits of state funds, was held to have application to a national bank merely because the Act of Congress of June 25, 1930, c. 604, 46 Stat. 809, 12 USCA § 90, authorized a national bank to give security for a deposit of public funds of the same kind as authorized by state law for state banking institutions. The Supreme Court said that no lien under the Georgia statute arose in 1928 when the deposit was made, and that the judgment of the court below sustaining the lien would have been reversed but for the enactment by Congress of the act of 1930. See page 564 of 292 U. S., 54 S. Ct. 848. Here there is no act of Congress authorizing the creation of a lien on the assets of a national bank as security for collections; and the act of the North Carolina Legislature can no more create a lien on the assets of a national bank than could the Georgia statute without the aid of the act of 1930.
We do not interpret the proviso as having been intended to make the collecting bank the agent of the holder of the item sent for collection, which was the purpose of the sections of the uniform bank collection code under consideration in National Bank of America v. United States F. & G. Co. (C. C. A. 7th) 71 F.(2d) 618, 619, and Old Company's Lehigh v. Meeker, supra. Nevertheless, under the rule recognized in this circuit, the bank here was the agent of the owner of the draft for the purpose of making the collection and remitting the proceeds. Ellerbe v. Studebaker Corporation (C. C. A. 4th) 21 F.(2d) 993, 994; Lifsey v. Goodyear Tire & Rubber Co. (C. C. A. 4th) 67 F.(2d) 82, 83. But under the authority of these cases, appellee is not entitled to have a trust declared or to receive preferential payment from the assets in the hands of the receiver, since it has failed to show that these assets have been augmented as a result of the collections.
For the reasons stated, the decree appealed from will be reversed.
Reversed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547286/ | 73 F.2d 136 (1934)
VULCAN MFG. CO.
v.
MAYTAG CO.[*]
No. 9947.
Circuit Court of Appeals, Eighth Circuit.
September 25, 1934.
Rehearing Denied November 2, 1934.
*137 William G. Boatright and Armwell L. Cooper, of Kansas City, Mo. (Daniel S. Millman, Cooper, Neel, Kemp & Sutherland, and Ringolsky, Boatright & Jacobs, all of Kansas City, Mo., on the brief), for appellant.
George Mankle, of Chicago, Ill., and Nelson E. Johnson, of Kansas City, Mo. (Wallace R. Lane and Parkinson & Lane, all of Chicago, Ill., on the brief), for appellee.
Before STONE, Circuit Judge, and JOYCE and BELL, District Judges.
STONE, Circuit Judge.
Appellee, as licensor under various patents, brought this action to enjoin appellant, its licensee, from violation of the license and for an accounting of damages on account of violations. Upon final hearing the court decreed a permanent injunction, an allowance of damages, and appointed a master to take the accounting in damages. From that decree this appeal is brought.
The patents covered by the license had to do with a swinging wringer and its gear mechanism for use on power-operated washing machines. Appellee granted a license to endure *138 until expiration of the longest patent covered thereby, under certain conditions set forth in the license, in return for payment of a fixed royalty for each swinging wringer and gear mechanism made and sold by the licensee. One of the conditions of the license was to manufacture and sell "swinging wringers and gear mechanisms shown in the attached circular, for use only in connection with and as a part of power-operated washing machines of the general type and design shown in the circular attached hereto and made a part hereof under said patents and patent application, and to sell the same in accordance with the provisions hereinafter contained." (Italics added.)
A related provision of the license is as follows: "Second party further agrees not to sell any of said patented devices separately or as a part of any other mechanism than on the washing machines made by it of the general type shown in the attached circular to any person, firm or corporation, except for repairs to machines previously sold by second party." (Italics added.)
Attached to and made part of the license were illustrations and descriptions of the washing machine manufactured by the licensee and referred to in the license in the two above quotations.
After proceeding under this license for several years, the licensee abandoned the type of washing machine formerly made by it and covered by the license. Refusing to cease attaching the wringers and gearing covered by the license to this new type of machine this action resulted. In the court below there were issues as to the construction of the license and as to whether this new machine was a departure therefrom, but those issues are not in the appeal, so we may enter our consideration with the established situation that attachment of the licensed apparatus to the machines made and being made by appellant is a violation of the terms of the license. The issues on this appeal concern the binding effect of the license under the situation here presented.
I. Invalidity of License.
One important issue urged here is that this license is invalid as a violation of the Clayton Anti-Trust Act § 3 (15 USCA § 14). The basis of this contention is that the wringer and gear mechanism covered by the patents and the license are for attachments to power-operated washing machines, which are not covered by patents; that such attachments are necessary to salability of such washing machines; that to limit, through license, the use of the patented device to a particular kind of washing machine, thus preventing its use upon other and more desirable types of washing machines which are manufactured by appellant, has the effect of giving appellee a monopoly over unpatented articles through the device of such character of license.
It may be conceded that the evidence establishes that it is difficult, if not impractical, to dispose of power-operated washing machines without the wringer and gearing attachments covered by these patents. Also, that there are various types of washing machines, and that a limitation of license to a less desirable and salable washing machine would seriously hamper, if it did not practically prevent, competition with a more desirable and a more salable machine, and that this lessening of competition would have a tendency to create a monopoly. Also, that these patents cover only the wringer and gearing mechanism, and have no reference to the washing machines themselves.
These concessions, however, fall short of establishing a situation which invalidates this license. It is well established that the essence of a patent is monopoly in the subject-matter of the patent. E. Bement & Sons v. National Harrow Co., 186 U.S. 70, 91, 22 S. Ct. 747, 46 L. Ed. 1058. The sole incentive offered by the patent laws to encourage development in the arts and sciences is the right to this monopoly for a given term of years. It is not against such kind of monopoly that the anti-trust laws are aimed or to which they have any application. It is true, however, that it is possible for a patentee to so employ the force of this legitimate monopoly, through a license, through sales of the patented article, or otherwise, as to effect another and additional monopoly unrelated to that accorded by the patent. When this is done, such license, sales, or other device is unlawful. In declaring the rule of law applicable to this latter situation the Supreme Court has said that the patentee may grant a license "upon any condition the performance of which is reasonably within the reward which the patentee by the grant of the patent is entitled to secure." United States v. General Elec. Co., 272 U.S. 476, 489, 47 S. Ct. 192, 196, 71 L. Ed. 362. Therefore, the question here is whether the condition of this license (that the patented matters should be used only in connection with a particular type of washing machine) is reasonably within the reward of monopoly granted by the patent.
*139 Obviously, there was no obligation on the patentees to grant any license whatsoever. If the situation in the washing machine business was such that there would be no commercial demand for washing machines without these patented attachments, the natural and legitimate result flowing from the monopoly of these attachments would be a monopoly of the washing machine business, although the machines themselves were entirely unpatented. This is a situation brought about by the excellence of the patent in a commercial sense, and not by any arrangement, contract, or other act of the patentee than the bare ownership of the patent and the monopoly of use of the subject-matter covered thereby. If this be the situation of the evidence, the only effect of granting a license to use the patented attachments would be one beneficial to the licensee, since it would enable him to continue in a business where he could not commercially remain without the license. Obviously, the patentee is not compelled to choose between granting full and complete use under the patent or granting no use. He may attach such limitations upon the use as do not go beyond the influence of his complete monopoly without granting licenses. Under the situation here, it is clear that this limitation in the license to use of the patented attachments to certain types of washing machines is well within the monopoly of the patent. The very fact that appellant insists on going outside of the license, and testifies (through its president) that it would have to go out of business unless it did, is convincing that the commercial situation is such that the monopoly of these patented attachments has the practical effect of a monopoly of the power driven washing machine business. None of appellant's rights are invaded by this limitation, since it may cease using the patented device and manufacture any character of washing machines it desires with any other wringer and gearing attachments or with no such attachments. As to it, the difficult situation is one naturally resulting. It has no standing of itself to claim a right to use the patented device. Nor is the public harmed by this limitation, because the patentee is entitled to all the benefits naturally flowing from the monopoly of his patent and, under the commercial situation here shown, a natural benefit of this monopoly is its extension to the entire machine. This limitation in the license is well within the language and the intent of the rule as quoted above from the Supreme Court.
II. Estoppel, etc.
It is quite evident that the main reliance of appellant in the court below and here is upon its contention that the conduct of appellee in connection with the violation of the license by appellant is such as to defeat this action. In presenting this matter, the ingenuity of able counsel has left no legal ground untouched. They claim estoppel, ratification, acquiescence, approval, implied license, waiver, election, and kindred doctrines. While there are differences in the rules of law governing these various grounds, it seems unnecessary to burden this opinion with such legal definitions, as we are convinced there is no ground in the evidence for sustaining any of them. This involves a discussion of the purport of so much of the evidence as relates to these matters.
Prior to 1927, appellant discovered that the type of washing machine (as distinguished from the patented attachments) which it was making was being replaced in the purchasing public esteem by machines differently constructed and differently performing the washing operation. Thereupon, it set to meet this change in public demand. The result was that it devised the machine objected to by the licensor. By September or October, 1927, it had constructed, by hand, a working model. Convinced of the practicability and sales attraction of this construction, it laid out money for dies and machinery designed for production of this new type machine. In the December, 1927, number of a trade journal it advertised this new machine, describing it and offering introductory samples on attractive terms. A few machines were produced in the last days of that month. There was a small production in January, 1928, an increase in the subsequent months until "good production" was reached in June, 1928. From thence on to the trial, it produced this machine for several years, replacing the form and character of material of the washing tub in later models, but preserving in all the washing machinery and methods.
The situation relied upon by appellant to show estoppel, etc., is made up of various items concerning each of which something should be said. One of these is that appellee, with full knowledge that appellant intended to make this new machine and apply thereto the licensed articles and knowing that such would require the expenditure of substantial money for dies and machinery to make this change, stood by and did not object until after such expenditures had been incurred. The *140 evidence does not justify this position. As to these matters, there is but one dispute in the evidence as to which there is a direct conflict, depending on the remembrance or veracity of the two conflicting witnesses and without anything in the evidence outside of their testimony to point to a determination of that conflict in favor of appellant.[1] The trial court found that the first information appellee had of this contemplated change in type of machine was in January, 1928. We think this finding is slightly inaccurate. The first information coming to appellee was some time in December, 1927, when the above advertisement in the trade journal was brought to the attention of the chairman of the board of the Maytag Company. On December 14, 1927, this chairman (F. L. Maytag) notified his district manager, at Kansas City, that appellant was "advertising a cast aluminum tub, which in appearance to the laymen would be recognized as the Maytag"; and that the advertisement stated appellant would, during December only, ship a sample machine at carload discount. He requested that Ireland procure one of these machines through one of the Maytag nearby dealers and ship it "as soon as you get it. Your prompt attention to this will be appreciated." To this Ireland replied, December 16th, that he had arranged to have a dealer at Liberty, Mo., order the machine and ship it direct from Kansas City, stating, "they hope to be able to do this tomorrow or Monday at the latest." There was a further letter from Ireland to Maytag, of December 17th (not set out but referred to in the record), advising that appellant would not be in production until after January 1st. To this Maytag answered, on December 19th, suggesting that Ireland have the dealer "submit his order and let it stand for delivery as soon as the machine is in production." The thirteenth machine produced was delivered to the dealer, about January 16th, and promptly shipped to appellee, at Newton, Iowa, where it seems to have been received about January 24th. It was then sent to the attorneys of appellee, in Chicago, for their inspection and action. April 2, 1928, the attorneys wrote appellant calling attention to the terms of the license limiting the application of the licensed articles to the type of machine covered thereby; calling attention to a recently litigated case between appellee and another company in Ohio, regarding a similar subject-matter; and demanding that appellant immediately discontinue the use of the patented wringers on this new machine and discontinue marking such machines licensed thereunder, and also informing them that unless they heard promptly appellee would be obliged to take steps necessary to prevent such "wrongful acts." Shortly after receipt of this letter the president of appellant made a trip to Toledo to investigate the litigation referred to in the above letter. Although he determined that the decree entered in that litigation was by consent, he sent an attorney to Chicago to confer with the attorney of appellee regarding the matter. The result of this conference was that appellant's attorney was told that appellant could not attach the licensed mechanism to that machine. Thereafter, appellant continued to make the machine and, apparently, to build up production, since his testimony is that "good production" was not reached until June. July 19, 1928, this suit was filed. The above recital makes clear that there was no standing by on the part of appellee. As soon as it had information of the change it acted to procure an actual machine for submission to its counsel for their judgment of the rights of appellee. It obtained this machine as soon as possible, and it was promptly submitted to counsel. About a month after such submission the above letter of April 2d, notifying appellant that it was violating and must cease violating the license, was sent. After that letter there appears to be no unjustifiable delay in bringing the action. Another matter which should be noticed in this connection is the expenditure claimed by appellant. The testimony shows a total expenditure of something over $64,000. Of this amount, over $16,000 was spent before production began; that is, before appellee had knowledge of the change in machine. $35,000 was spent after April 2d, when the notice of violation was sent to appellant; *141 thus, more than $51,000 of the more than $64,000 spent was expended either before knowledge of appellee or after notice to appellant. There was neither standing by on the part of appellee nor any expenditure by appellant which was induced by the attitude of appellee.
Another matter strongly pressed by appellant is that royalties were accepted and retained upon the changed machines. This is true, but it is also true that appellee had a legal right to such royalties; the question here being whether its acceptance and retention thereof was an indication that it consented to the violation of the license or was such action that appellant might properly infer such consent and act thereon. When it is considered that the matter was under investigation until April 2, 1928, was in suspension between then and the time suit was filed, on July 19th following, and that this suit was filed, it seems impossible for the appellant to reasonably infer any such consent. There is no basis for such position. To this may be added that the evidence clearly shows that this action of appellee had not the slightest influence upon appellant continuing its violation of the license. The reason why it continued to violate this license is tersely stated by its president, who, being asked as to his going ahead with plans to complete the machine and put it on the market after investigating the Ohio case, answered, "We had no alternative. It was either that or go busted."
In August, 1928, and because of a suggestion from its counsel, appellee instructed the National Household Devices Company, which was the royalty collecting agency of appellee, to write appellant not to send any royalties on the new machine, and to advise it whether appellant had been paying royalties on the new machine and, if so, the amount thereof, "with the understanding that it should be refunded to you." This letter was referred by appellant to its counsel, who wrote a careful, noncommittal answer, stating that they regarded the letter as "but a studied attempt to lay a foundation for Mr. Maytag and his company to avoid the legal consequences of their knowledge and acts," and stating that Mr. Maytag and his company had known for a long time that the royalties were being paid on "all machines" manufactured by appellant, and that all of such machines had been manufactured with the knowledge, acquiescence and approval of the Maytag Company, both by words and by conduct. The letter also stated that all royalties that had been paid "have been properly paid and properly due under its contract and subsequent circumstances, and it expects to continue to pay the royalties thereunder in the future, the same as it has in the past." This correspondence seems to have ended this attempt at segregating future or refunding past royalties. We see nothing in this situation concerning the royalties to avoid the effect of the license.
Another item bearing upon this matter is the furnishing of license labels to place upon the machines made by appellant. This matter, standing alone, might cause hesitation, although it is explainable on the theory that certainly up into 1931, appellee had no reason to believe that all machines made and sold by appellant were violative of the license, and since it had requested (in August, 1928) information concerning the number of machines in connection with the royalty payments and had been rebuffed it might, without loss of right, continue to furnish labels. But when this item is considered in the entire situation, it is impossible to give it great importance. There was never a moment from the letter of protest of April 2, 1928, when appellant did not know that appellee was vigorously denying the right of appellant to apply the licensed attachments to any machines except those covered by the license. It never had reason to believe any change in that position, and it never acted in reliance upon any such change.
Another matter is the contention of appellant that others under licenses of identical form were permitted to use the licensed apparatus on washing machines other than covered by their licenses. Whether this is true or not, or the reason therefor, is of no consequence to appellant. It cannot affect the rights of the parties under this license. There is no business or legal connection between this license and that to any one else. Each stands upon its own terms, and the action of appellee in regard to any one of them has no effect upon the legal rights of the parties to any other license.
Another matter, not greatly stressed here, is delay in prosecution of this action to judgment. The record reveals the suit filed July 19, 1928. A considerable number of pleadings resulting in a reply to an amended answer and cross-bill, filed December 8, 1930, followed by defendant's application for commission to take depositions, filed December 27, 1930, allowed by order, March 18, 1931, depositions taken as late as November 2, 1931, by appellant, with trial beginning July 7, *142 1933. This record, unquestionably, shows delay in determination of this suit, but to what such delay is attributable does not at all appear in the record. If appellant desired to rely upon this ground, it should have presented and preserved in the record evidence justifying the conclusion that culpable delay was attributable to appellee.
III. Admission of Evidence.
Appellant presents here claimed errors in connection with the exclusion of two pieces of evidence. The first of these occurred during the redirect examination of the president of appellant. He was asked if, at the taking of the depositions, in October or November, 1931, a statement was made to Mr. Magtag, either by witness or by examining counsel, "with reference to the royalties that had been paid and on what machines they had been paid." An objection to the competency of this testimony was sustained, and counsel made an offer of proof that Mr. Maytag had been then informed "what royalties had been paid on the particular type of machine, including the machine in controversy." Obviously, the purpose of this offer was to bring home, as of that date, knowledge to appellee that it was receiving royalties in connection with the objectionable machines. This testimony was admissible, but, in view of what has been above expressed concerning the effect of receipt and retention of the royalties, we are certain that its exclusion was harmless error.
The second piece of evidence has to do with the same general matter, that is, with notice that the royalties, in whole or part, were in connection with the new machine. Appellant had taken the deposition of H. W. Power, secretary of the National Household Devices Company. The patents covered by this license had been issued to various parties who had combined the ownership in the Maytag Company under an agreement to share royalties from licenses according to a specified percentage. This agreement provided that the National Household Devices Company, a separate corporation, should act as the royalty collecting agency. Such collections were paid over by it to a trustee who made the distribution among the parties to the agreement. The license contract here involved provided that the royalties should be paid to National Household Devices Company, and that appellant would allow that company "as the duly authorized representative of first party [appellee] to inspect its books at all reasonable times for the purpose of ascertaining the accuracy of such reports," meaning monthly royalty reports by appellant. Power was the individual in the Household Company who checked up and verified the reports and royalty payments of licensees. At the trial appellant did not offer the deposition of Power which it had taken, but offered extracts therefrom as admissions of appellee against interest. These admissions had to do with knowledge gained by Power, from checking the books and reports of appellant in connection with royalty payments, that royalties were being paid covering the objectionable machines, and the amount of such payments thereon. An objection that Power was not shown to be the agent of appellee so that his knowledge was that of appellee was sustained. The evidence abundantly sustains that ruling. The trial court held that it had been shown that Power was the agent of appellee in collecting and checking up royalties, but that it had not been shown that he was a general agent for all purposes. The evidence sustains this ruling of the court, and goes no further.
Counsel for appellant have presented this case with great ability, but even such ability cannot overcome the law and the facts, and the decree should be, and is, affirmed.
NOTES
[*] Writ of certiorari granted 55 S. Ct. 347, 403, 79 L. Ed. ___.
[1] This conflict is as to whether the witness Shaeffer, divisional manager of appellee, at Kansas City, was shown the working model at the plant of the appellant some time in September or October, 1927 (when he was division manager of Oklahoma). The president of appellant testified that this was true. Shaeffer testified that he had never seen the machine at that time, and had never been in the plant. The president of appellant also testified that two salesmen of appellee had seen the model in the plant during the above two months. There was, however, no evidence that these salesmen had communicated that information to any officer of appellee, and, obviously, the knowledge of the salesmen was not the legal knowledge of appellee. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547359/ | 15 F.2d 496 (1926)
BUCHANAN
v.
UNITED STATES.
No. 7315.
Circuit Court of Appeals, Eighth Circuit.
November 1, 1926.
Franklin H. Griggs, of Tulsa, Okl., for plaintiff in error.
John M. Goldesberry, U. S. Atty., and W. L. Coffey, Asst. U. S. Atty., both of Tulsa, Okl.
Before KENYON and VAN VALKENBURGH, Circuit Judges, and JOHN B. SANBORN, District Judge.
JOHN B. SANBORN, District Judge.
Plaintiff in error, Homer Buchanan, jointly with V. N. Church, was charged, by an indictment returned in the District Court of the Northern District of Oklahoma, under one count, with the unlawful possession of intoxicating liquor in Tulsa county, Okl., "where the said liquor was had, possessed and kept by the said defendants, having been within the limits of the Indian Territory, and a part thereof prior to the admission of the state of Oklahoma into the Union as one of the United States of America, and being then and there a place where the introduction of spirituous *497 and intoxicating liquor is and was prohibited by the federal statutes," and, under a second count, with the unlawful transportation of intoxicating liquor, in violation of section 3, title 2, of the National Prohibition Act (Comp. St. § 10138½aa). A demurrer to the indictment was overruled. A motion for a separate trial for Buchanan was denied. The case was tried. At the close of the government's case, a demurrer to the evidence was also overruled. Buchanan rested; Church testified in his own behalf. A verdict was returned by the jury, finding the former guilty of the crimes charged, and acquitting his codefendant, Church. A motion for a new trial was denied, and Buchanan brings the case to this court by writ of error.
The questions presented by the assignments of error are: Did the court have jurisdiction? Was Buchanan entitled to a separate trial? Did the judge commit error in expressing his opinion in his charge to the jury? Is the verdict sustained by the evidence, and the judgment and sentence in accordance with the law?
It is claimed that Judge Kennamer, who tried the case, was without jurisdiction, because Congress, by the Act of February 16, 1925 (43 Stat. 945 [Comp. St. §§ 1088-1088e]), exceeded its authority in assigning him to the Northern District of Oklahoma; that, for that reason, the indictment and the sentence must fall. This same contention was made and disposed of adversely to the contentions of the plaintiffs in error in the cases of Bland v. Kennamer, and Coatney v. Kennamer (C. C. A.) 6 F.(2d) 130.
In the federal courts, joint defendants have no right to be tried separately. It is within the discretion of the trial judge to grant separate trials. Moore v. United States (C. C. A.) 2 F.(2d) 839; Waldeck v. United States (C. C. A.) 2 F.(2d) 243; Sullivan v. United States (C. C. A.) 7 F.(2d) 355. Buchanan and Church were together in an automobile roadster with two gallons of grain alcohol, when arrested. The trial court evidently could see no reason for granting separate trials, nor do we see any.
Buchanan questions the right of the court to use the following language in his charge: "What I say to you is not binding on you; you are to determine all the facts. It just occurs to me it is a plain case of two men out there with two gallons of alcohol, in the liquor business. That is for you to determine, and what I say to you is not binding on you."
A direct and complete answer to this question is found in the decision of this court in Weiderman v. United States, 10 F.(2d) 745. The only difference between that case and this one is that there the expression of opinion complained of was more emphatic. The question as to how far a judge may go in expressing his opinion as to what the evidence proves is an interesting one. In the United States Supreme Court it has arisen in the following cases: Carver v. Jackson, 4 Pet. 1, 80, 7 L. Ed. 761; Magniac v. Thompson, 7 Pet. 348, 390, 8 L. Ed. 709; Mitchell v. Harmony, 13 How. 115, 131, 14 L. Ed. 75; Transportation Line v. Hope, 95 U.S. 297, 24 L. Ed. 477; St. Louis, Iron Mountain & Southern Ry. v. Vickers, 122 U.S. 360, 7 S. Ct. 1216, 30 L. Ed. 1161; United States v. Philadelphia & Reading Rd. Co., 123 U.S. 113, 8 S. Ct. 77, 31 L. Ed. 138; Rucker v. Wheeler, 127 U.S. 85, 8 S. Ct. 1142, 32 L. Ed. 102; Lovejoy v. United States, 128 U.S. 171, 9 S. Ct. 57, 32 L. Ed. 389; Simmons v. United States, 142 U.S. 148, 12 S. Ct. 171, 35 L. Ed. 968; Doyle v. Union Pacific Ry. Co., 147 U.S. 413, 13 S. Ct. 333, 37 L. Ed. 223; Lincoln v. Power, 151 U.S. 436, 14 S. Ct. 387, 38 L. Ed. 224; Allis v. United States, 155 U.S. 117, 15 S. Ct. 36, 39 L. Ed. 91; Starr v. United States, 153 U.S. 614, 14 S. Ct. 919, 38 L. Ed. 841; Wiborg v. United States, 163 U.S. 632, 16 S. Ct. 1127, 1197, 41 L. Ed. 289.
The rule is stated in Vicksburg & Meridian Rd. Co. v. Putnam, 118 U.S. 545, 553, 7 S. Ct. 1, 2 (30 L. Ed. 257) as follows:
"In the courts of the United States, as in those of England, from which our practice was derived, the judge, in submitting a case to the jury, may, at his discretion, whenever he thinks it necessary to assist them in arriving at a just conclusion, comment upon the evidence, call their attention to parts of it which he thinks important, and express his opinion upon the facts, and the expression of such an opinion, when no rule of law is incorrectly stated, and all matters of fact are ultimately submitted to the determination of the jury, cannot be reviewed on writ of error."
This rule has been consistently followed by that court, and the only case we have found in which a judge has been reversed for expressing his opinion is Starr v. United States, 153 U.S. 614, 14 S. Ct. 919, 38 L. Ed. 841, although a somewhat similar situation is presented in Allison v. United States, 160 U.S. 203, 16 S. Ct. 252, 40 L. Ed. 395, involving the charge of the same trial judge, and Hickory v. United States, 160 U.S. 408, 16 S. Ct. 327, 40 L. Ed. 474. In the Starr Case, after stating the rule, the court says of the trial judge:
*498 "But he should take care to separate the law from the facts, and to leave the latter in unequivocal terms to the judgment of the jury as their true and peculiar province. McLanahan v. Universal Insurance Co., 1 Pet. 170, 182 [7 L. Ed. 98]. As the jurors are the triers of facts, expressions of opinion by the court should be so guarded as to leave the jury free in the exercise of their own judgments. They should be made distinctly to understand that the instruction is not given as to a point of law by which they are to be governed, but as a mere opinion as to the facts, to which they should give no more weight than it was entitled to. Tracy v. Swartwout, 10 Pet. 80, 96 [9 L. Ed. 354]; Games v. Stiles, 14 Pet. 322 [10 L. Ed. 476]."
Further on in the same opinion, it is said:
"It is obvious that under any system of jury trials the influence of the trial judge on the jury is necessarily and properly of great weight, and that his lightest word or intimation is received with deference, and may prove controlling. Hicks v. United States, 150 U.S. 442, 452 [14 S. Ct. 144, 37 L. Ed. 1137]. The circumstances of this case apparently aroused the indignation of the learned judge in an uncommon degree, and that indignation was expressed in terms which were not consistent with due regard to the right and duty of the jury to exercise an independent judgment in the premises, or with the circumspection and caution which should characterize judicial utterances."
The court then sets forth the language of the charge complained of, which clearly shows that the trial judge, instead of instructing the jury, appealed to their passions and prejudices, and in effect argued to them the guilt of the defendant.
A parallel case in this court is that of Weare v. United States, 1 F.(2d) 617. In Reynolds v. United States, 98 U.S. 145, 168 (25 L. Ed. 244), the court said: "Every appeal by the court to the passions or the prejudices of a jury should be promptly rebuked."
It would be difficult to put into words stronger expressions of opinion than some of those considered by the Supreme Court and sustained. For example: In United States v. Philadelphia & Reading Rd. Co., 123 U.S. 113, 8 S. Ct. 77, 31 L. Ed. 138, the language complained of was: "In other words, while the court does not desire to control your finding, but submits the question to you, it is of opinion that you should not, under the circumstances, find for the plaintiff." In Simmons v. United States, 142 U.S. 148, 12 S. Ct. 171, 35 L. Ed. 968, it appeared that, after the jury in a criminal case had retired, they failed to agree and requested to be discharged. The judge refused their request, saying that he regarded the testimony as convincing.
Under the rule, as stated and applied by the Supreme Court, it seems that, when a judge expresses his opinion as to the facts to the jury, making it clear that it is nothing but his opinion, and not binding upon them in any way, and that it is their duty and responsibility to determine all of the facts, he is within his rights, and that he is only subject to reversal when his comments upon the evidence or opinion as to the facts amount to partisan argument or advocacy, or constitute an appeal to passion or prejudice. It is unquestionably true that, because of the judge's influence with the jury, the right which he has to express his opinion as to the facts should be sparingly, carefully, and wisely used. At the same time, because of his participation in the actual trial of the cause, he is better able to tell when the use of that right is justified than is an appellate court from reading the cold record. After all, jurors are men with minds of their own, and, where they are given to understand that the responsibility for determining the facts is upon them, they do not generally act against what they believe to be right and just. There is a good illustration of that in this case. The judge expressed his opinion as to both defendants. The jury acquitted one and convicted the other.
As to the sufficiency of the evidence: It showed that the defendants, who were in an automobile roadster, were stopped at the intersection of Peoria and Admiral boulevard, public streets in the city of Tulsa, Okl., by an officer connected with the police department of that city, who had been following the car because of information that it was used for transporting liquor; that Buchanan was driving; that, when stopped, he said there was no liquor in the car; that, on request of the officer, he opened the "turtle back" or rear compartment of the car; that there were two gallon cans in it, which Buchanan said contained oil, and which were found to contain grain alcohol. The evidence justifies the conclusion that the alcohol was in the possession of Buchanan and that he was transporting it.
The only remaining question to be considered is whether the possession was simply a violation of the Prohibition Act, or whether it came within the purview of the Act of June 30, 1919 (41 Stat. p. 4, c. 4; Comp. St. Ann. Supp. 1923, § 4137aa), which provides:
"That on and after July 1, 1919, possession by a person of intoxicating liquors in *499 the Indian country or where the introduction is or was prohibited by treaty or federal statute shall be an offense and punished in accordance with the provisions of the acts of July 23, 1892 (27 Statutes at Large, page 260), and January 30, 1897 (29 Statutes at Large, page 506)."
The Act of March 1, 1895 (28 Stat. 693, § 8, p. 697 [Comp. St. § 4136b]), prohibited the introduction of intoxicating liquor into the Indian Territory, which included what is now the state of Oklahoma. Tulsa is therefore a place where the introduction of intoxicating liquor was prohibited by federal statute. We are not to be understood as stating or holding that Tulsa is now Indian country. Under the Act of July 23, 1892 (27 Stat. p. 260 [Comp. St. § 4136a]), as amended by the Act of January 30, 1897 (29 Stat. p. 506 [Comp. St. § 4137]), the punishment for a violation of the act was, for a first offense, imprisonment for not less than 60 days and a fine of not less than $100. Edwards v. United States (C. C. A.) 5 F.(2d) 17. The court imposed a fine of $300 and imprisonment for four months under the first count, and a $25 fine under the second.
The judgment and sentence of the court as to each count of the indictment was in accordance with the law.
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547392/ | 867 A.2d 767 (2005)
Ronald J. SMOLOW, Individually and on Behalf of all Persons and Entities Similarly Situated, Petitioner,
v.
Barbara HAFER, Treasurer of the Commonwealth of Pennsylvania and Treasury Department of Commonwealth of Pennsylvania, Respondents.
Commonwealth Court of Pennsylvania.
Argued December 6, 2004.
Decided February 9, 2005.
*768 Ann M. Caldwell, Philadelphia, for petitioner.
Daniel J. Doyle, Harrisburg, for respondent.
BEFORE: McGINLEY, Judge, LEAVITT, Judge, and FLAHERTY, Senior Judge.
OPINION BY Judge McGINLEY.
Ronald Smolow (Smolow), individually and on behalf of all persons and entities similarly situated, commenced a class action in this Court against Barbara Hafer, Treasurer of the Commonwealth of Pennsylvania, and Treasury Department (hereinafter collectively referred to as "Treasury Department"). Smolow seeks the payment of interest on property recovered pursuant to Article XIII.1 of the Fiscal Code also known as the Disposition of Unclaimed and Abandoned Property Act (Unclaimed Property Law)[1], and declaratory and injunctive relief on the grounds that the Unclaimed Property Law violates the Just Compensation and Due Process Clauses of the United States Constitution. Smolow also seeks damages and attorney fees pursuant to 42 U.S.C. § 1983. Before this Court are the Treasury Department's preliminary objections to Smolow's amended class action complaint.
The facts as pled are as follows. In August 2002, the Treasury Department took possession of Smolow's 300 shares of "Parker Drilling" stock pursuant to the Unclaimed Property Law.[2] Amended Complaint, *769 June 7, 2004, Paragraph ¶ 8 at 3. On February 18, 2003, the Treasury Department sold Smolow's Parker Drilling stock at $1.9549 per share and received $586.47 in exchange. Amended Complaint ¶ 9 at 3. After converting Smolow's Parker Drilling Stock, the Treasury Department earned "interest, increments and other appreciation and profits" on the $586.47. Amended Complaint ¶ 10 at 3. After discovering in August 2003 that his Parker Drilling stock had come into the possession of the Treasury Department, Smolow filed for the return of his property. Amended Complaint ¶¶ 12-13 at 3-4.
On January 5, 2004, the Treasury Department returned $586.47, the actual amount received from the sale of the stock, no interest was included. The interest amounted to approximately $30. Amended Complaint ¶¶ 14, 16 at 4. On January 15, 2004, Smolow filed another claim and requested the interest from the time the Treasury Department had use of his property. Amended Complaint ¶ 15 at 4. On February 9, 2004, Smolow was informed that his request was denied.
On March 8, 2004, Smolow filed a seven-count class action complaint[3] which is the subject of the Treasury Department's preliminary objections before this Court. Smolow maintains that the Treasury Department is obligated to pay him the interest it earned on his property pursuant to Section § 1301.15 of the Unclaimed Property Law which provides:
1301.15. Income accruing after payment or delivery.
When property is paid or delivered to the State Treasurer under this article, the owner is entitled to receive income or other increments actually received by the State Treasurer.
72 P.S. § 1301.15.
Alternatively, Smolow contends to the extent that the Unclaimed Property Law does not require the payment of interest, the statute is unconstitutional since it does not provide just compensation for the taking and use of private property for public purposes.[4]
*770 In preliminary objections[5], the Treasury Department asserts that Smolow erroneously brought this action in this Court's original jurisdiction when it is actually an "appeal" from the Treasurer's denial of his claim for interest.[6] The Treasury Department further contends that since the class members failed to exhaust their administrative remedies, this Court lacks jurisdiction over the class. Specifically, the Treasury Department asserts there is nothing in the amended complaint which indicates that any class member, other than Smolow, requested and was denied interest on a claim, and there is nothing in the pleadings which suggests that any other person commenced an action pursuant to the specific statutory remedy provided by the legislature in 72 P.S. § 1301.21. The Treasury Department asserts that the unnamed class members who did not object to any action of the Treasurer may not avoid statutorily prescribed procedures and participate in a purported class action lawsuit, especially where as here, the right to recover unclaimed property is a personal right which may not be maintained as a class action. Finally, the Treasury Department contends that Smolow's claims as a matter of law are unfounded because Smolow failed to allege any taking of "net earnings" which, it contends, is a requisite element of an unconstitutional taking claim.
I.
Appellate versus Original Jurisdiction
First, the Treasury Department contends that the action labeled a "complaint" is actually an "appeal." It maintains that Smolow seeks review of a governmental determination made by the Treasurer, and appeals pursuant to statutes providing for judicial review of a determination of a governmental unit and objections to such determinations are governed exclusively by Chapter 15 of the Pennsylvania Rules of Appellate Procedure.
The Treasury Department cites Daily Express, Inc. v. Office of the State Treasurer, 683 A.2d 963 (Pa.Cmwlth.1996) in support of its position. In that case, Daily Express, a trucking company, had failed to file annual reports of abandoned and unclaimed property in accordance with Section 1301.23 of the Unclaimed Property Law. The Office of the State Treasurer, Office of Unclaimed Property (OUP) performed an audit of the company's books and records and identified abandoned and unclaimed property in excess of $175,000. OUP presented the company with its audit in the form of a "summary of findings." *771 The company petitioned for review and requested a hearing before the review committee. After hearing, the review committee approved the audit and the company sought review by this Court. The Treasurer argued that the committee's decision was not a "final order." This Court agreed and held that the order was not final and dismissed the appeal for lack of jurisdiction. The Treasury Department contends that the Daily Express decision supports the conclusion that this complaint is actually an "appeal" since neither party questions the finality of the Treasurer's order with respect to Smolow's claim.[7]
Smolow counters by arguing that this action is properly before this Court in its original jurisdiction. Smolow maintains that although there is no case law to support the proposition that actions commenced pursuant to the Unclaimed Property Law fall within this Court's original jurisdiction, case law has addressed whether proceedings brought pursuant to statutes authorizing a trial de novo following an adverse decision by a government agency is an appellate proceeding. Commonwealth of Pennsylvania Department of Transportation v. Fiore, 138 Pa.Cmwlth. 596, 588 A.2d 1332 (1991) (The issue was whether court of common pleas conducting a de novo review of a license suspension under Section 1550 of the Vehicle Code, 75 Pa.C.S. § 1550, could modify the penalty imposed by the Department of Transportation. Commonwealth Court held that de novo review means a "full consideration of the case at another time", and concluded that the court of common pleas was substituted for the Secretary of Transportation and properly "re-decided" the case). Citing Commonwealth of Pennsylvania v. Ripley, 833 A.2d 155 (Pa.Super.2003), and Stoner v. Presbyterian University Hospital, 609 F.2d 109 (3d Cir.1979), Smolow contends that other courts have held that a trial or hearing de novo is a proceeding in which the court sits as a court of original rather than appellate jurisdiction. Accordingly, Smolow argues, this Court must conduct a de novo review of the case.
This Court is persuaded that the express language of the statute itself resolves the issue. Section 1301.19 of the Unclaimed Property Law, 72 P.S. § 1301.19, provides that "[a]ny person claiming an interest in any property paid or delivered to the Commonwealth under this article may file a claim thereto or to the proceeds from the sale thereof on the form prescribed by the State Treasurer." Section 1301.20(a) of the Unclaimed Property Law goes on to provide that:
The State Treasurer shall consider any claim filed under this article and may hold a hearing and receive evidence concerning it. If a hearing is held, the State Treasurer shall prepare a finding and a decision in writing on each claim filed, stating the substance of any evidence heard by the State Treasurer and the reasons for the State Treasurer's *772 decision. The decision shall be a public record.
72 P.S. § 1301.20(a).
Section 1301.21 of the Unclaimed Property Law further provides the procedure for aggrieved persons regarding abandoned or unclaimed property paid or delivered to the Commonwealth:
Any person aggrieved by a decision of the State Treasurer, or as to whose claim the State Treasurer has failed to act within ninety (90) days after the filing of the claim, may commence an action in the Commonwealth Court to establish his claim. The proceeding shall be brought within thirty (30) days after the decision of the State Treasurer or within one hundred twenty (120) days from the filing of the claim if the State Treasurer fails to act. The action shall be tried de novo without a jury.
72 P.S. § 1301.21 (Emphasis added).
While there has been no court of record review of whether actions commenced in this Court pursuant to Section 1301.21 of the Unclaimed Property Law fall within this Court's original or appellate jurisdiction, the language of the statute is clear. A person aggrieved by a governmental decision pertaining to a claim "may commence an action in the Commonwealth Court to establish [the] claim" and "the action shall be tried de novo without a jury." 72 P.S. § 1301.21. (Emphasis added). Clearly, the General Assembly intended that a person, after having received an adverse decision from the Treasurer, may commence, i.e., to begin or originate, an action in this Court in order to establish the claim, and the action be tried in this Court de novo.[8]
This Court notes that the procedure is consistent with 42 Pa.C.S. § 761(a)(1) which provides, with certain exceptions not applicable here, that "[t]he Commonwealth Court shall have original jurisdiction of all civil actions or proceedings ... [a]gainst the Commonwealth government, including any officer thereof, acting in his official capacity." (Emphasis added).
Notably, the Treasury Department offers no reason why its own procedural rules do not apply. Instead, it maintains that this action is an "appeal" and the review of a government determination is governed exclusively by Pennsylvania Rules of Appellate Procedure 1501(a) and 1502. However, the Treasury Department neglects to consider that Chapter 15 governs both appeals to this Court as well as actions in this Court's original jurisdiction. See Pa.R.A.P. 1512(c); and G. Darlington, K. McKeon, D. Schuckers, K. Brown, Pennsylvania Appellate Practice, 2d Ed. § 1501:1-1501:6 (1995). Pursuant to Pa.R.A.P. 1501(a)(3), a petition for review is the proper filing to commence an original jurisdiction action in this Court in matters including requests for injunctions and declaratory judgments. So, while the Treasury Department is correct that Smolow's action should have been labeled a "petition for review" under Chapter 15 of the Appellate Rules, the express language of Section 1301.21, 72 P.S. § 1301.21, and the express provisions of 42 Pa.C.S. § 761(a)(1) confer that Smolow's action be addressed in this Court's original jurisdiction.
*773 II.
Jurisdiction Over the Class
Next, the Treasury Department asserts that this Court lacks jurisdiction over the class[9] because the class members failed to comply with Section 1301.2 of the Unclaimed Property Law, 72 P.S. § 1301.21, which requires persons aggrieved by a decision of the State Treasurer to commence actions in this Court within the statutory frame of 30 days after final action of the Treasurer or 120 days if there is no action. Further, the Treasury Department contends that a class action is inappropriate "when only individual causes of action exist." Treasury Department Brief, August 30, 2004, at 8.
It is well settled that where a State through its Legislature consents to be sued, the modes, terms and conditions of the statute conferring such privilege must be strictly construed. Land Holding Corporation v. Board of Finance and Revenue, 388 Pa. 61, 130 A.2d 700 (1957).
In Aronson v. City of Pittsburgh, 98 Pa.Cmwlth. 1, 510 A.2d 871 (1986), this Court applied this principle and affirmed the Court of Common Pleas of Allegheny County's denial of class certification to taxpayers owed a refund of business privilege taxes erroneously paid. There, after this Court set aside the assessment of business privilege taxes on fees Mark Aronson (Aronson) received as a director of various corporations, Aronson filed a class action complaint seeking, on behalf of himself and others similarly situated, to recover the business privilege taxes paid. Sections 1 and 2 of the Act of May 21, 1943, P.L., as amended, 72 P.S. § 5566b and § 5566c, provided the exclusive procedure for a taxpayer who pays a local occupation tax, later found to be void. Specifically, 72 P.S § 5566c provided that a person claiming a refund must file a petition within two years from the date the tax was paid. 72 P.S § 5566c provided that in the event a refund was denied, the person aggrieved had the right to bring suit in the court of common pleas.
There we noted "where the Legislature has provided a specific statutory remedy, a class action may not be used to provide a different remedy." Aronson, 510 A.2d at 873. Any class member who had not complied with the procedures set forth in 72 P.S. § 5566b and § 5566c was not entitled to a refund. This Court went on to note, "in any event," even if class members had requested a refund, they could not be members of the putative class. This Court explained: [t]he statute is clear that the Legislature has seen fit to give only the individual aggrieved the right to sue for a refund. The right is personal and may not be transferred to another by way of a class action." Aronson, 510 A.2d at 873.
Here, as in Aronson, Smolow does not allege that each putative class member specifically requested and was denied interest, and there is nothing in the record which indicates that any member of the putative class, other than Smolow, commenced an action within the statutorily prescribed time. Where the statutory procedure is not followed, any putative class member who did not pursue this remedy is not entitled to recover interest. Moreover, even if a putative class member had requested and was denied interest, and timely filed a petition for review, the individual *774 would not be entitled to join in a class action.
In this controversy, the mechanism for an aggrieved person to challenge an action of the Treasurer under the Unclaimed Property Law is carefully set forth by the Legislature. That remedy, as this Court held in Aronson, is personal to "persons aggrieved" by a decision of the Treasurer, and may not be transferred to others by way of a class action. See also School District of Borough of West Homestead v. Allegheny County Board of School Directors, 440 Pa. 113, 118, 269 A.2d 904, 907 (1970) ("[I]f the legislature provides a specific exclusive, constitutionally adequate method for the disposition of a particular kind of dispute, no action may be brought ... to adjudicate the dispute by any kind of `common law' form of action other than the exclusive statutory method."); Stranahan v. County of Mercer, 697 A.2d 1049, 1052 (Pa.Cmwlth.1997); Zarwin v. Montgomery County, 842 A.2d 1018 (Pa.Cmwlth.2004); Israelit v. Montgomery County, 703 A.2d 722, 725 (Pa.Cmwlth.1997) ("Taxpayers cannot pursue their requests for tax refunds through a class action, as the statutorily prescribed refund procedure permits only individual refund claims and adequately protects Taxpayers' potential entitlement to a refund"); Hargrove v. Ehinger, 161 Pa.Cmwlth. 306, 638 A.2d 282 (1994) (Department of Banking Code, which provided the exclusive remedy for the prosecution of any claim against the Secretary of Banking, did not provide for the maintenance of class actions).
Accordingly, this Court holds that the right to claim unclaimed or abandoned property under the Unclaimed Property Law is individual, and it must be pursued individually within the statutory confines of that legislation. The Treasury Department's preliminary objection seeking dismissal of the class is sustained.
II.
Smolow's Claims are Unfounded as a Matter of Law
A. Delivery of Smolow's Abandoned Stock to the Treasury Department did not Constitute a "Taking"
The Treasury Department next contends that Smolow has no clear right of relief because there is no allegation of any taking of "net earnings" which is a requisite element of a cause of action for an unconstitutional taking. Preliminary Objections to Amended Complaint, June 28, 2004, at 2. This Court adopts the Treasury Department's position that Smolow has no clear right of relief, but for reasons other than those asserted.
A "taking" occurs when an "entity clothed with the power substantially deprives an owner of the use and enjoyment of his property." Machipongo Land & Coal Co., Inc. v. Department of Environmental Resources, 719 A.2d 19 (1998).
In the present controversy, the delivery of Smolow's stock to the Treasury Department did not constitute a taking. Under the Unclaimed Property Law, property received by the Treasury Department does not permanently escheat to the state. The Commonwealth exercises its right to take "custody and control" of abandoned property, as opposed to taking absolute title, and the Unclaimed Property Law provides an entitled claimant the opportunity to recover his property from the Treasurer. It has been held that no unconstitutional taking occurs where a state exercises its right to take custody and control of abandoned property, as opposed to taking absolute title. See In re Folding Carton Antitrust Litigation 744 F.2d 1252, 1255 (7th Cir.1984) (custodial escheat under federal statute raises no unconstitutional *775 taking); See also Fong v. Westly, 117 Cal. App. 4th 841, 12 Cal. Rptr. 3d 76 (2004).
This holding is consistent with Federal case law which "has never required the State to compensate the owner for the consequences of his own neglect." Texaco, Inc. v. Short, 454 U.S. 516, 102 S. Ct. 781, 70 L. Ed. 2d 738 (1982). The United States Supreme Court explained:
In ruling that private property may be deemed to be abandoned and to lapse upon the failure of its owner to take reasonable actions imposed by law, this Court has never required the State to compensate the owner for the consequences of his own neglect. We have concluded that the State may treat a mineral interest that has not been used for 20 years and for which no statement of claim has been filed as abandoned; it follows that, after abandonment, the former owner retains no interest for which he may claim compensation. It is the owner's failure to make any use of the property and not the action of the State that causes the lapse of the property right; there is no "taking" that requires compensation. The requirement that an owner of a property interest that has not been used for 20 years must come forward and file a current statement of claim is not itself a "taking."
Texaco, 454 U.S. at 530, 102 S. Ct. 781 (Emphasis added).
Here, it is Smolow's abandonment of his property, not the action of the Treasurer, which caused his pecuniary loss. There was no taking that requires compensation.
Accordingly, this Court holds that where an owner's interest in property is transferred to another pursuant to the Unclaimed Property Law and due to the original owner's abandonment, the delivery of the property to the Treasurer does not constitute a taking.
B. The Commonwealth is Not Liable for Payment of Interest In Absence of any Contract or Statute
It is well recognized that the Commonwealth is not liable for interest except where expressly or by reasonable construction of a contract or statute, it is placed in a position of liability. In Purdy's Estate, 447 Pa. 439, 291 A.2d 93 (1972); Commonwealth v. Philadelphia Gas Works, 484 Pa. 60, 398 A.2d 942 (1979); Cianfrani v. Commonwealth State Employee's Retirement Board, 505 Pa. 294, 479 A.2d 468 (1984).
Importantly, the Unclaimed Property Law does not expressly provide for the payment of interest.[10] Neither party disputes this.[11] In fact, the statute expressly *776 states that "[t]he Treasurer shall be responsible to an owner only for the amount actually received by the State Treasurer upon the sale of any property." 72 P.S. § 1301.17(d) (emphasis added). The Treasurer complied with the statute by returning "the amount it actually received" upon the sale of the stock. The Treasurer did not violate the Unclaimed Property Law by not paying interest on the property recovered for Smolow.
The Treasury Department's preliminary objection in the nature of a demurrer to the Amended Complaint in the above captioned matter is hereby sustained and the Amended Complaint is Dismissed, with prejudice.
ORDER
AND NOW, this 9th day of February, 2005, the Treasury Department's preliminary objections to the Amended Complaint in the above captioned matter are hereby SUSTAINED and the Amended Complaint is DISMISSED, with prejudice.
NOTES
[1] Act of April 9, 1929, P.L. 343, added by Section 5 of the Act of December 9, 1982, P.L. 1057, as amended, 72 P.S. §§ 1301.1-1301.28a.
[2] Property that is presumed abandoned is subject to the custody and control of the Commonwealth. Section 1301.2 of the Unclaimed Property Law, 72 P.S. § 1301.2. Property is presumed abandoned if it is unclaimed by the apparent owner for a specified period of time in this case, for seven years. Section 1301.6 of the Unclaimed Property Law, 72 P.S. § 1301.6. Once the period of time has passed and the property is presumed abandoned, the holder of the property must file with the Treasurer a report identifying such property. Section 1301.11 of the Unclaimed Property Law, 72 P.S. § 1301.11. The Treasurer is then required to publish a notice of the existence of the property and to attempt to notify by mail the possible owner of the property. Section 1301.12 of the Unclaimed Property Law, 72 P.S. § 1301.12. If the property is not claimed from the property holder (financial institutions, insurers, utilities, business associations, fiduciaries, courts and public officers and agencies), the property is paid or delivered to the Treasurer. Section 1301.13(a) of the Unclaimed Property Law, 72 P.S. § 1301.13(a). The Treasurer may sell the property and any funds the Commonwealth receives are deposited into the state's general fund. Sections 1301.17 and 1301.18 of the Unclaimed Property Law, 72 P.S. § 1301.17-72 P.S. § 1301.18. The Treasurer shall be responsible to an owner "only for the amount actually received by the State Treasurer upon the sale of any property." Section 1301.17(d) of the Unclaimed Property Law, 72 P.S. § 1301.17(d).
[3] On June 7, 2004, Smolow filed an Amended Complaint. Count I is brought under Section 1301.15 of the Unclaimed Property Law, 72 P.S. § 1301.15, and avers that the Unclaimed Property Law requires the interest be paid. Count II asserts a denial of substantive and procedural due process under the Pennsylvania Constitution because the property was allegedly taken without just compensation. Count III claims the Treasurer was unjustly enriched by not paying interest. Count IV alleges the Treasurer breached her fiduciary duty to property owners. Count V seeks injunctive relief precluding Treasury Department from taking and using private property without paying interest. Counts VI and VII are due process claims brought under the U.S. Constitution. Smolow seeks damages, an accounting, a declaration that the Treasury Department violated the Unclaimed Property Law and the Pennsylvania and U.S. Constitutions, injunctive relief and attorney fees.
[4] Under both the Fifth Amendment to the U.S. Constitution and Art. 1, § 10 of the Pennsylvania Constitution, the taking of private property by the government is unconstitutional without payment of just compensation. U.S. Const. amend. 5; Pa. Const. art. 1, § 1.
[5] In ruling on preliminary objections, this Court must accept as true all well-pleaded facts and all inferences reasonably deducible therefrom. Stone and Edwards Insurance Agency, Inc. v. Department of Insurance, 151 Pa.Cmwlth. 266, 616 A.2d 1060 (1992). "However, we need not accept as true conclusions of law, unwarranted inferences from facts, argumentative allegations or expressions of opinion." Myers v. Ridge, 712 A.2d 791, 794 (Pa.Cmwlth.1998), petition for allowance of appeal denied, 560 Pa. 677, 742 A.2d 173 (1999). In order to sustain preliminary objections, it must appear with certainty that the law will not permit recovery, and any doubt should be resolved by a refusal to sustain them. Envirotest Partners v. Department of Transportation, 664 A.2d 208 (Pa.Cmwlth.1995).
[6] The Treasury Department does not dispute this Court's appellate jurisdiction over Smolow, as an individual, even though it contends his action was mislabeled a "complaint", rather than a "petition for review" since Smolow specifically requested interest from the Treasurer, was denied interest and sought relief from this Court within 30 days after the Treasurer's decision.
[7] This Court disagrees with the Treasury Department's analysis of Daily Express and with its contention that Daily Express controls the resolution of the present controversy. In Daily Express, this Court noted that Section 1301.21 of the Unclaimed Property Law was inapplicable since Daily Express was not a party who claimed an interest in property paid or delivered to the Commonwealth under Section 1301.19, 72 P.S. § 1301.19. Therefore, the Court's analysis with respect to whether the review committee's approval of an audit of a trucking company which failed to file annual reports of abandoned and unclaimed property in accordance with section 1301.23 of the Unclaimed Property Law was a final appealable order is completely inapplicable here based on the plain language of Section 1301.21, and where, contrary to Daily Express, the complaining parties are unquestionably persons who have an interest in property paid or delivered to the Commonwealth.
[8] We are cognizant of our decision in Direnzo Coal Company v. Department of General Services, 779 A.2d 614 (Pa.Cmwlth., 2001) in which this Court reviewed recent amendments to the Procurement Code, 62 Pa.C.S. §§ 101-4509, which includes the phrase "commence an action in the Commonwealth Court." In that case, we concluded that the phrase meant an action in our appellate jurisdiction. However, in light of the phrase "The action shall be tried de novo without a jury" which appears in the Unclaimed Property Law, our analysis in Direnzo is distinguishable.
[9] The Amended Complaint defines the class as: "[a]ll persons and entities whose property was delivered to defendants as unclaimed or abandoned property pursuant to [the Unclaimed Property Law] converted to cash, and returned to the owner without just compensation during the Class Period." Amended Complaint ¶ 22 at 5. The "Class Period" is defined as beginning "six years prior to the filing of this lawsuit and is continuing." Id.
[10] Compare the Louisiana's Unclaimed Property Act, La.R.S. 9:163, which expressly includes the requirement that the administrator pay interest on previously interest-bearing property:
If the property was interest bearing to the owner on the date of surrender by the holder, the administrator shall pay interest at a rate of five percent a year or any lesser rate the property earned while in the possession of the holder. Interest begins to accrue when the property is delivered to the administrator and ceases on the earlier of the expiration of ten years after delivery or the date on which payment is made to the owner. Interest on interest bearing property is not payable for any period before the effective date of this Chapter, unless authorized by law superseded by this Chapter.
[11] Smolow states in his Brief: "Plaintiff asserts that the statute itself, by not providing for the payment of interest (a contention Defendants do not dispute) is unconstitutional." Smolow's Brief, October 1, 2004, at 13.
This Court notes that Smolow does argue, in the alternative, that "income and other increments" contained in 72 P.S. § 1301.15, encompasses interest earned on the property while it is in the custody and control of the Treasurer. This Court does not agree. Conspicuously missing from the Unclaimed Property Law is any provision for the Treasurer's payment of interest. Compare: Section 806.1 of the Act of April 9, 1929 (P.L. 343, No. 176), known as "The Fiscal Code" which expressly provides for the payment of interest by the Commonwealth on overpayments of taxes not legally due. This Court has no power to insert words into a statutory provision where the legislature has chosen not to supply it. Latella v. Unemployment Compensation Board of Review, 74 Pa.Cmwlth. 14, 459 A.2d 464 (1983). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1919601/ | 91 B.R. 19 (1988)
In re John T. BROWN, Lydia Brown, Debtors.
Bankruptcy No. 88-00199-AB.
United States Bankruptcy Court, E.D. Virginia, Alexandria Division.
September 26, 1988.
*20 Mitchell J. Singer, Alexandria, Va., for debtors.
Andrew C. Meehan, Alexandria, Va., for creditor.
Gerald M. O'Donnell, Alexandria, Va., trustee.
MEMORANDUM OPINION
MARTIN V.B. BOSTETTER, Jr., Chief Judge.
The issue for determination is whether the curing of a default on a debtor's residential mortgage under chapter 13 merely should restore the parties to their previous positions under non-bankruptcy law, or whether the curing of a default requires that interest be paid on the arrearages.
John and Lydia Brown, debtors, filed a petition for relief under chapter 13 on February 3, 1988. The debtors' personal residence, provided for in the Browns' second amended plan, is secured by A.E. Landvoight, Inc. ("Landvoight/mortgagee"). The mortgagee objects to confirmation of the chapter 13 plan because it does not provide for costs plus interest on the debtors' arrearages, plus pre- and post-petition attorneys' fees.
At the crux of the parties' dispute is the applicability of sections 1322, 1325 and 506(b) of the Bankruptcy Code to the facts at hand. In view of their importance to our discussion below, we set forth the relevant subsections. Section 1322 provides in part that a chapter 13 plan may:
[b] (2) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence, or leave unaffected the rights of holders of any class of claims;
[b] (5) notwithstanding paragraph (2) of this subsection, provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due[.]
11 U.S.C. § 1322 (emphasis added). Section 1325(a)(5)(B)(ii) provides that the court shall confirm a plan, if with respect to allowed secured claims the plan provides that:
(ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim[.]
11 U.S.C. § 1325. Finally section 506(b) of the Code provides that:
[t]o the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement under which such claim arose.
Relying on the "plain language" of § 1322(b), the debtors contend that an award of interest on arrearages, plus pre-and post-petition attorneys' fees in the case at bar would constitute an impermissible modification of the mortgage contract, as neither are provided for in the mortgage instruments. Also relying on the "plain language" of § 1322, Landvoight contends that an award of interest on arrearages while perhaps a modification is merely incident to the "cure" provided for under § 1322(b)(5). Landvoight then cites § 1325 and § 506(b) as explicit indications that a mortgagee, as a holder of a secured interest under the debtors' plan, is entitled to post-petition interest on arrearages.
We note here that relevant to the issue of interest on arrearages under § 506 is the value of the security, which must exceed the amount of the claim. No evidence was adduced on this issue at the hearing, the only indications of value being the debtor's schedules and Landvoight's proof of claim. Thus, we do not address whether interest on arrearages is due under § 506 at this time.
*21 The issue of whether § 1325 read in connection with § 1322 requires the application of interest on arrearages has been addressed by three Courts of Appeal. The first circuit to attempt to reconcile the seemingly contradictory Code sections was the Sixth Circuit in In re Colegrove, 771 F.2d 119 (6th Cir.1985). In Colegrove, the court determined that the allowance of interest on arrearages would not constitute a modification of the loan agreement because an award of interest was "merely incident to the `cure', which is excepted from the rule of section 1322(b)(2)." 771 F.2d at 122. The Colegrove court then noted that sections 506(b) and 1325(a) in guaranteeing interest for oversecured creditors, and ensuring secured creditors the receipt of the present value of their claim, respectively, supported the court's conclusion that the application of interest to the mortgagee's claim was permissible.
The Eleventh Circuit in In re Terry, reached the opposite conclusion based upon a more literal interpretation of § 1322 and its prohibition against altering the rights of residential mortgage lenders. 780 F.2d 894, 896 (11th Cir.1985) (modified on denial of rehearing, January 30, 1986); see 11 U.S.C. § 1322(b)(5). The Terry court concluded that the only permissible "modification" allowed under section 1322 was the curing of a default and the reinstatement of regular installment payments under § 1322(b)(5). See id. at 896.
While acknowledging that § 1325 required the payment of interest to over-secured creditors for the time value of money, the Eleventh Circuit noted that § 1325 was inapplicable to residential mortgages.
The legislative history indicates that section 1322(b) was intended to create a special exception to section 1325(a)(5)(B). [The] latter section, intended for those creditors whose rights may be modified or whose collateral is subject to rapid depreciation, is irrelevant to a claim such as this one.
780 F.2d at 897. Consequently, the Terry court held that "under Chapter 13 of the Bankruptcy Code, a secured creditor who holds a security interest in the debtor's principal residence is not entitled to receive interest on arrearages, unless the mortgage contract so provides, when the debtor seeks to cure default and reinstate the mortgage." Id. at 895.
In Appeal of Capps, the Third Circuit provided additional insight into the issue of whether a Chapter 13 debtor who seeks to cure a home mortgage default must pay interest on mortgage arrearages. 836 F.2d 773 (3rd Cir.1987). While reaching the same conclusion as the Eleventh Circuit in Terry, the Third Circuit's opinion differs slightly in that it begins its analysis with the proposition that Congress did not consider the curing of a default as effecting a modification of creditors' interests. See id. at 775. Relying primarily upon the then recent decision of the Third Circuit in Matter of Roach, 824 F.2d 1370 (3rd Cir.1987), the Capps court claimed that support for this conclusion could be found in the legislative history of § 1322 and analagous provisions in the Code. Id.; see Roach, 824 F.2d at 1374-77. Accordingly, the court determined that section 1325(a)(5)(B)(ii), a "cramdown" provision applicable only to situations in which a chapter 13 plan has modified the loan contract, was irrelevant to situations involving cure and reinstatement. See 836 F.2d at 776. The court in Capps conceded that creditors certainly are affected by bankruptcy and a debtor's plan, but noted that Congress regarded the incidental adverse effect inherent in cures to be insignificant. Id.
As the Senate Report concerning the cure provision under Chapter 11 indicates, Congress felt that `[t]he holder of a claim . . . who under the plan is restored to his original position, when others receive less or get nothing at all, is fortunate indeed and has no cause to complain.'
836 F.2d at 777 (quoting S.Rep. No. 989, 95th Cong., 2d Sess. 120 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5906, reprinted in Collier App. 3).
As the Eleventh Circuit in Terry has observed, "[t]here is simply no right or wrong to this argument." 780 F.2d at 895. In struggling to ascertain what Congress *22 actually intended and to harmonize seemingly contradictory Code sections, courts have come to various conclusions. Compare In re Van Gordon, 69 B.R. 545, 547 (Bankr.D.Mont.1987) (oversecured creditor entitled to interest on arrearages under § 506(b) and § 1325) and In re Trigwell, 67 B.R. 808, 810 (Bankr.C.D.Calif.1986) (interest on arrearages permitted under § 1325) with In re Stamper, 84 B.R. 519, 521 (Bankr.N.D.Ill.1988) (§ 1325(a)(5)(B)(ii) inapplicable to residential mortgages) and In re Harmon, 72 B.R. 458, 461 (Bankr.E.D. Pa.1987) (no right to interest on arrearages absent provision in mortgage agreement permitting such a charge). While recognizing that determinations of Congressional intent are inherently problematic, we must strive to reach a logical and fair conclusion until such time as Congress addresses the need for clarification of this issue.
Therefore, we conclude in accordance with Terry and Capps that subsections (b)(2) and (b)(5) of section 1322 of the Code provide for the unique treatment of claims held by residential mortgage lenders. Section 1322(b)(2) states that a debtor's plan cannot modify "a claim secured only by a security interest in real property that is the debtor's principal residence[,]" therefore, any modification of such a claim is simply impermissible. In concurrence with Capps, we further hold that the curing of a default does not constitute a modification of a creditor's claim, thereby rendering § 1325, the necessary precondition for which is a modification of the mortgage contract, inapplicable. See Capps, 836 F.2d at 776.
As Collier has noted:
section 1322(b)(5) was intended to codify the practice under which foreclosure was enjoined during the pendency of a Chapter XIII plan under the former Bankruptcy Act, with the debtor given a reasonable amount of time to cure defaults. Since that cure occurred under nonbankruptcy law, the interest and costs to which the mortgagee was entitled were determined under applicable nonbankruptcy law.
5 Collier on Bankruptcy, ¶ 1322.09[4] at 1322-21 (15th ed. 1988) (footnotes omitted). Consequently, when a default is cured under section 1322(b)(5), interest and costs will be determined in accordance with nonbankruptcy law. See id. In contrast, when the secured creditor's rights have been modified, a plan is not entitled to confirmation unless it provides for the full payment of the allowed secured claim including interest. Id.; see 11 U.S.C. § 1325(a)(5)(B)(ii).
Returning to the circumstances of the instant case, neither the Deed of Trust, nor the Deed of Trust Note, provide for interest on arrearages. Allowance of these charges, therefore, would constitute an impermissible modification of the contracts. The deed of trust note, however, expressly allows for the assessment of costs and reasonable legal fees which may arise with respect to any indebtedness on the debtors' property. The court in curing the default according to non-bankruptcy law may allow these costs as part of Landvoight's claim.
Although no evidence was offered at the hearing as to value, we note that the mortgagee in its proof of claim listed the following:
Principal balance $117,749.31
Interest at 13% from
6/1/872/3/88 10,401.12
Late charges 7/871/88 391.80
Escrow deficit 208.80
Foreclosure attorney's fees 1,252.00
Estimated attorney's fees
for representation in Bankruptcy
Court 725.00
___________
$130,728.03
The proof of claim also states that the debtors' personal residence is valued at $145,000. The debtors' petition, on the other hand, estimates the same property to be worth $120,000. In the event that Landvoight's claim is undersecured, it would still receive payment in full because the contract cannot be modified.
Thus, it is in consideration of the mortgagee's protected status under § 1322, whether oversecured or undersecured, in addition to the same section's prohibition against modification of the loan contract, *23 and all the reasons set forth above that we conclude, based upon the evidence as presented, that the mortgagee cannot be allowed post-petition interest on arrearages under § 1322(b)(2) unless so provided for in the loan contract.
An appropriate Order will enter. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547114/ | 73 F.2d 193 (1934)
DENMAN
v.
COMMISSIONER OF INTERNAL REVENUE.
No. 9792.
Circuit Court of Appeals, Eighth Circuit.
October 11, 1934.
Rehearing Denied November 17, 1934.
A. F. Schaetzle and B. J. Flick, both of Des Moines, Iowa (Stiver & Schaetzle, of Des Moines, Iowa, on the brief), for petitioner.
Helen R. Carloss, Sp. Asst. Atty. Gen. (Frank J. Wideman, Asst. Atty. Gen., Sewall Key, Sp. Asst. Atty. Gen., and Walter L. Barlow, Sp. Asst. Atty. Gen., on the brief), for respondent.
Before GARDNER, WOODROUGH, and VAN VALKENBURGH, Circuit Judges.
VAN VALKENBURGH, Circuit Judge.
This is an appeal from orders of redetermination of the Board of Tax Appeals, affirming the rulings of the Commissioner of Internal Revenue, and deciding that there were deficiencies in income taxes for the years 1925, 1926, and 1927. The amounts are not in controversy. Decedent, during these years, was employed as manager of the waterworks system of the city of Des Moines, Iowa, and the only question presented is whether his salary as such manager is exempt from payment of federal income tax. The original petitioner, now deceased, was first employed as general manager of the Des Moines Water Company in 1892, before the city bought the plant. The purchase was made in 1919, and decedent was retained in the same position by the city under the board of waterworks trustees. His salary was $8,000 per annum during the years in question. The municipal Des Moines waterworks was organized under Acts of the General Assembly of the state of Iowa, providing for a board of waterworks trustees to be appointed by the city council, such board having power to appoint the general manager, treasurer, and accountants. Decedent's compensation was paid by the city through the board of waterworks trustees. The municipal waterworks supplies all the water used by the city for all purposes, and by private consumers. About 40 per cent. of the water furnished is used by the city. The board was empowered to determine the rates to private consumers and to the city, and the latter was authorized to levy a tax sufficient to pay for the water used by it for public purposes. Any surplus remaining after payment of operation expenses, interest of the debt of the plant, depreciation, and sinking fund for the payment of purchase bonds might be used for the improvement, extension, and betterment of the waterworks. So far as appears from the record, decedent's duties and services, and the conduct of the enterprise, were substantially the same after the purchase by the city as they were before.
The claim of the petitioner is that an employee of a water company owned and operated by a municipality is engaged in the exercise of an essential governmental function and that his salary is exempt from the payment of federal income tax. The question is not a new one in this circuit, and the controlling principle, now firmly established, is that only the instrumentalities, means, and operations, whereby the states exert the governmental powers belonging to them, are exempt from taxation by the United States.
In Illinois Trust & Savings Bank v. City of Arkansas City, 76 F. 271, 282, 34 L. R. A. 518, this court stated the distinction between the governmental or public, and the proprietary or business, powers of a municipality, a subdivision of a state. Judge Walter H. Sanborn, speaking for the court, said:
"A city has two classes of powers, the one legislative, public, governmental, in the exercise of which it is a sovereignty and governs *194 its people; the other, proprietary, quasi private, conferred upon it, not for the purpose of governing its people, but for the private advantage of the inhabitants of the city and of the city itself as a legal personality."
The same principle was reiterated in Pikes Peak Power Co. v. City of Colorado Springs (C. C. A. 8) 105 F. 1, 10. In Omaha Water Company v. City of Omaha, 147 F. 1, 12 L. R. A. (N. S.) 736, 8 Ann. Cas. 614, this court was still more explicit. It held that:
"Municipal corporations have two classes of powers, the one governmental, in the exercise of which their officers may not bind the municipalities beyond their terms of office, the other business or proprietary, in the exercise of which they are governed by the same rules as individuals or private corporations.
"A city exercises its business or proprietary power in purchasing waterworks or contracting for their construction or operation."
In City of Winona v. Botzet (C. C. A. 8) 169 F. 321, 23 L. R. A. (N. S.) 204, the distinction between the two classes of powers of municipalities is again expressly stated.
In Blair v. Byers, 35 F.(2d) 326, this court had before it this same municipality-owned waterworks system. An attorney, seeking to be declared an employee of the system, claimed immunity from federal taxation. It was held that he was not such an employee, but the court properly had occasion and jurisdiction to consider the merits of the contention from all angles. We held that the building and operation of a waterworks system by a municipality constitutes the exercise of a proprietary, rather than a governmental, function. In support of this holding we cited the decision of the Supreme Court in Flint v. Stone Tracy Co., 220 U. S. 107, 172, 31 S. Ct. 342, 357, 55 L. Ed. 389, Ann. Cas. 1912B, 1312, that "it is no part of the essential governmental functions of a state to provide means of transportation, supply artificial light, water, and the like." It was pointed out that these objects are often accomplished through the medium of private corporations. The means and instrumentalities employed in carrying on the governmental operations of a state, which the cases unite in exempting from taxation, are of a nature such as the establishment of a judiciary to administer justice through the courts, and the employment of all necessary agencies for legitimate purposes of state government. Collector v. Day, 11 Wall. 113, 20 L. Ed. 122. But in Flint v. Stone Tracy Co., supra, it was held that the rule to be deduced from the previous cases of the court is that "the exemption of state agencies and instrumentalities from national taxation was limited to those of a strictly governmental character, and did not extend to those used by the state in carrying on business of a private character."
To this distinction the Supreme Court of the United States has consistently adhered. State of South Carolina v. United States, 199 U. S. 437, 461, 26 S. Ct. 110, 50 L. Ed. 261, 4 Ann. Cas. 737; Metcalf & Eddy v. Mitchell, 269 U. S. 514, 523, 46 S. Ct. 172, 70 L. Ed. 384; Willcuts v. Bunn, 282 U. S. 216, 51 S. Ct. 125, 75 L. Ed. 304, 71 A. L. R. 1260; Fox Film Corporation v. Doyal, 286 U. S. 123, 128, 52 S. Ct. 546, 76 L. Ed. 1010; Burnet v. A. T. Jergins Trust, 288 U. S. 508, 516, 53 S. Ct. 439, 77 L. Ed. 925; Board of Trustees v. United States, 289 U. S. 48, 59, 53 S. Ct. 509, 77 L. Ed. 1025; State of Ohio v. Helvering, 292 U. S. 360, 54 S. Ct. 725, 78 L. Ed. 1307, decided May 21, 1934.
It is true, as stated in Metcalf & Eddy v. Mitchell, supra, and as quoted in Burnet v. Coronado Oil & Gas Company, 285 U. S. 393, 399, 52 S. Ct. 443, 444, 76 L. Ed. 815, that:
"Just what instrumentalities of either a state or the federal government are exempt from taxation by the other cannot be stated in terms of universal application. But this court has repeatedly held that those agencies through which either government immediately and directly exercises its sovereign powers, are immune from the taxing power of the other."
And the courts, in their desire to preserve unburdened the right of the states to administer their governmental affairs within their own sphere, have exercised extreme caution in drawing the line "which separates those activities having some relation to government, which are nevertheless subject to taxation, from those which are immune." Metcalf & Eddy v. Mitchell, supra, 269 U. S. loc. cit. 523, 46 S. Ct. 172, 174, 70 L. Ed. 384. Compare, upon this point, State of South Carolina v. United States, supra, and Ambrosini v. United States, 187 U. S. 1, 23 S. Ct. 1, 47 L. Ed. 49. But in substantially all cases, whatever the decision, care has been taken to restate the principle that the limitation upon the taxing power of the government applies only to such instrumentalities, *195 means, and operations whereby the states exert their strict governmental powers, and it is uniformly held that, to entitle the state to immunity, the federal taxes levied must not be in their bearing so indirect or remote as to place them outside this established principle. Indian Motocycle Co. v. United States, 283 U. S. 570, 51 S. Ct. 601, 75 L. Ed. 1277; Willcuts v. Bunn, 282 U. S. 216, 225, 51 S. Ct. 125, 75 L. Ed. 304, 71 A. L. R. 1260; Trinityfarm Construction Co. v. Grosjean, 291 U. S. 466, 54 S. Ct. 469, 78 L. Ed. 918. The question before us seems to be very well answered by the language of Chief Justice Hughes in Fox Film Corporation v. Doyal, supra, loc. cit. 128 of 286 U. S., 52 S. Ct. 546, 547:
"The principle of the immunity from state taxation of instrumentalities of the federal government, and of the corresponding immunity of state instrumentalities from federal taxation essential to the maintenance of our dual system has its inherent limitations. It is aimed at the protection of the operations of government (McCulloch v. Maryland, 4 Wheat. 316, 436, 4 L. Ed. 579), and the immunity does not extend `to anything lying outside or beyond governmental functions and their exertion' (Indian Motocycle Co. v. United States, 283 U. S. 570, 576, 579, 51 S. Ct. 601, 603, 75 L. Ed. 1277). Where the immunity exists, it is absolute, resting upon an `entire absence of power' (Johnson v. Maryland, 254 U. S. 51, 55, 56, 41 S. Ct. 16, 65 L. Ed. 126), but it does not exist `where no direct burden is laid upon the governmental instrumentality, and there is only a remote, if any, influence upon the exercise of the functions of government' (Willcuts v. Bunn, 282 U. S. 216, 225, 51 S. Ct. 125, 127, 75 L. Ed. 304 [71 A. L. R. 1260])."
The danger which would menace the revenues of the United States, if the immunity from federal taxation here claimed should be indulged, is thus well stated by Justice Brewer in State of South Carolina v. United States, supra, loc. cit. 455 of 199 U. S., 26 S. Ct. 110, 114:
"Obviously, if the power of the state is carried to the extent suggested, and with it is relief from all Federal taxation, the national government would be largely crippled in its revenues. Indeed, if all the states should concur in exercising their powers to the full extent, it would be almost impossible for the nation to collect any revenues. In other words, in this indirect way it would be within the competency of the states to practically destroy the efficiency of the national government."
A like warning has issued from this court in State of North Dakota v. Olson, 33 F.(2d) 848.
Our attention has been directed to the decision of the District Court for the Eastern District of Michigan in Frey v. Woodworth, 2 F.(2d) 725, which holds that a city operating a street railway is engaged in a governmental function, and that the employees thereof are not subject to federal taxation; and to the decision of the Circuit Court of Appeals for the First Circuit in Powers v. Commissioner, 68 F.(2d) 634. An examination of the facts stated in the opinions, and the bases of the conclusions reached, suggests that those cases may be readily distinguished from the case at bar. But if it be insisted that those conclusions should be deemed applicable to the facts of the instant case, we must respectfully reject them as in conflict, not only with the uniform holdings in this circuit, but also with the principles established by the Supreme Court of the United States.
It follows that the orders of the Board of Tax Appeals are affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547115/ | 73 F.2d 359 (1934)
REED & BARTON CORPORATION
v.
MAAS.
No. 2914.
Circuit Court of Appeals, First Circuit.
November 10, 1934.
*360 Albert A. Schaefer, of Ropes, Gray, Boyden & Perkins, of Boston, Mass., for appellant.
J. Alex. Lane, of Gaston, Snow, Saltonstall & Hunt, of Boston, Mass., for appellee.
Before BINGHAM, WILSON, and MORTON, Circuit Judges.
WILSON, Circuit Judge.
This is an action of tort for injuries alleged to have been caused by the appellant's negligence. The appellee is a minor and brought this action in the name of her father as next friend. The minor will hereinafter be referred to as the plaintiff and the appellant as the defendant.
The plaintiff is a resident of Wisconsin, and the defendant is located in Massachusetts. The ad damnum was $25,000.
The defendant is a manufacturer of coffee urns and in 1924 sold the urn involved in this case to one Horace E. Keebler of Milwaukee, Wis., engaged in the catering business, who, in September, 1931, loaned the urn to Mrs. George Gessner of Milwaukee to be used in serving coffee at a social tea given for her daughter.
The plaintiff was invited to pour coffee, and at the time of the accident was seated at one end of a table. The coffee urn had been filled with hot coffee in the kitchen and brought and placed on the table directly in front of the plaintiff. The coffee was kept hot while being served by means of a spirit lamp of common design, which was lighted before the urn was brought into the dining room in which it was served.
The urn had been on the table about fifteen minutes and the plaintiff had served three or four guests, the last one about five minutes before the accident. Suddenly, without warning, the urn toppled over, spilling the hot coffee into the lap of the plaintiff, severely burning her hands, body, and legs.
The defendant moved for a directed verdict on the ground that the defendant owed no duty to the plaintiff and there was no substantial evidence that the plaintiff's injuries were due to the defendant's negligence. This motion was denied, but the trial court took an alternative verdict, so called. The jury awarded the plaintiff $4,000 as damages, but added, according to the customary form of alternative verdicts, that "if, as a matter of law, the plaintiff is not entitled to a verdict, then the jury find for the defendant and consent that this verdict may be entered on order of the United States District Court for the District of Massachusetts, or of the United States Circuit Court of Appeals for the First Circuit, or of the Supreme Court of the United States, with same effect as if returned by them."
Thereupon the defendant filed a motion for a new trial and also that the jury's verdict be set aside and a verdict be entered for the defendant pursuant to the alternative verdict of the jury.
The District Court denied the motion for a new trial, and by a memorandum decision denied the motion to set aside the verdict.
Exceptions were taken by the defendant to rulings by the court in its memorandum decision, and the court's refusal to direct a verdict for the defendant.
The issues raised by the defendant by its assignments of error may be considered under two heads: (1) The law governing the rights of the parties; (2) whether there was any substantial evidence warranting the jury in finding that the plaintiff's injuries were due to the negligence of the defendant.
The first issue raises the question of whether a manufacturer of an article not inherently dangerous owes any duty to a third party injured in its use, if the injuries arose from some defect in the article due to the negligence of the manufacturer.
Under the law of Massachusetts a manufacturer owes no such duty in the case of an article not inherently dangerous (Lebourdais v. Vitrified Wheel Co., 194 Mass. 341, 80 N. E. 482; Windram Manufacturing Co. v. Boston Blacking Co., 239 Mass. 123, 131 N. E. 454, 17 A. L. R. 669); but under the laws of Wisconsin, in this case the lex loci delicti, the manufacturer of an article, though not inherently dangerous, but due to the negligence of the manufacturer it is probable that injuries will result from its proper use, is liable for any injury due to such negligence (see Bright v. Barnett & Record Co., 88 Wis. 299, 60 N. W. 418, 26 L. R. A. 524; Miller v. Mead-Morrison Co., 166 Wis. 536, 166 N. W. 315; Flies v. Fox Bros. Buick Co., 196 Wis. 196, 218 N. W. 855, 60 A. L. R. 357). In the latter case the Wisconsin court expressly adopted *361 the rule laid down in the case of MacPherson v. Buick Motor Co., 217 N. Y. 382, 111 N. E. 1050, L. R. A. 1916F, 696, Ann. Cas. 1916C, 440 (opinion by Mr. Justice Cardozo). Also see Marsh Wood Products Co. v. Babcock & Wilcox Co., 207 Wis. 209, 240 N. W. 392.
Ordinarily, the lex loci delicti governs in actions of tort. Jarrett v. Wabash Ry. Co. (C. C. A.) 57 F.(2d) 669, 671; Restatement, Conflict of Laws, § 411; Northern Pacific R. R. v. Babcock, 154 U. S. 190, 197, 14 S. Ct. 978, 38 L. Ed. 958.
We think there was no error in the District Court applying the law of Wisconsin in this case.
It is not necessary to decide whether a federal court is bound to follow the rule in the lex loci delicti, if it differs from the rule in the federal courts. The decisions, however, indicate that the rule applied in the federal courts is not contra to that in Wisconsin and New York. Huset v. J. I. Case Threshing Machine Co. (C. C. A.) 120 F. 865, 61 L. R. A. 303; Keep v. National Tube Co. (C. C.) 154 F. 121; National Pressure Cooker Co. v. Stroeter (C. C. A.) 50 F.(2d) 642, certiorari denied 284 U. S. 674, 52 S. Ct. 129, 76 L. Ed. 570; Johnson v. Cadillac Motor Co. (C. C. A.) 261 F. 878, 8 A. L. R. 1023; Employers' Liability Assur. Corporation, Limited, v. Columbus McKinnon Chain Co. (D. C.) 13 F. (2d) 128; Waters-Pierce Oil Co. v. Deselms, 212 U. S. 159, 29 S. Ct. 270, 53 L. Ed. 453; Tom v. Nichols-Fifield Shoe Machinery Co. (C. C. A.) 215 F. 881.
It is urged by the defendant that National Savings Bank v. Ward, 100 U. S. 195, 25 L. Ed. 621, and McClaren v. United Shoe Machinery Co. (C. C. A.) 166 F. 712, indicate that a different rule from that applied in Wisconsin is held in the federal courts, but we think these cases are not in point and do not indicate that the rule usually applied in the federal courts differs materially from that in Wisconsin and New York.
The Ward Case did not involve a personal injury. In the McClaren Case above cited, the action was against the manufacturer, but under two of the counts in the plaintiff's declaration, the employer of the injured workman was alleged to have agreed to keep the machine in good working order. A third count was based on a contract of the manufacturer to keep the machine in repair. The court found there was no such promise by the manufacturer, and ordered a verdict for the defendant. In a second suit based on the agreement of the employer to keep the machine in repair, the jury awarded a verdict for the plaintiff. See McClaren v. Weber Bros. Shoe Co. (C. C. A.) 166 F. 714.
We think the District Court in the instant case correctly instructed the jury that a coffee urn, when properly constructed, was not inherently dangerous; but if by reason of a defect caused by the negligence of the manufacturer it becomes an article fraught with danger to anybody using it, the manufacturer may be held liable for the consequences of that negligence to any person using it for the purpose and in the manner it was intended to be used, though not a party to a contract with the manufacturer.
He also gave a further instruction at the request of the defendant as follows:
"An article which is normally and naturally harmless does not become inherently dangerous, because if defective in its construction it may make a possibility of endangering the persons using it. It is not enough that the article by reason of its defective design or construction leaves a possibility of danger or injury. It must create probability of such things. The mere fact that it is possible to use an article in such a way as to cause injury is not enough. It must be of such a character that it can not be used for the purposes for which it is intended without creating a direct certainty that its use will expose persons to the probability of injury."
The jury must have understood from these instructions and other language used by the District Judge in his charge that the damages must be not merely a possible but a probable result from the normal use of the defective article; that an injury is possible from the use of a defective article is not enough to charge a manufacturer with a duty independent of a contract; that it must appear that the manufacturer knew or had reasonable ground to believe that in the usual course of events it would be reasonably certain to cause injury to a user in the exercise of due care.
We now come to the other question: Was there any substantial evidence from which the jury was warranted in finding as a fact that the defendant was negligent in the construction of this particular urn, and the defect was such as to render it probable that a person using it in the way it was intended to be used would receive injuries due to the defect, and the plaintiff's injuries were the result of such negligence?
*362 The issue here is not whether this court would have found that the plaintiff had failed to prove by a preponderance of the evidence that the defendant was negligent in the construction of this particular urn; but whether there was substantial evidence supporting the plaintiff's allegations that her injuries were due to negligence of the defendant that rendered the urn inherently dangerous, the weight of the evidence being a question of fact for the jury, and the plaintiff being entitled to have the evidence examined and weighed by the jury from the viewpoint most favorable to the plaintiff. Chicago, Milwaukee & St. Paul Ry. Co. v. Anderson (C. C. A.) 168 F. 901; Lowell v. Boston Storage Warehouse Co., 280 Mass. 234, 182 N. E. 341.
That the urn was manufactured and sold by the defendant to one Keebler in 1924 and was loaned by him to Mrs. Gessner in September, 1931, and was being used by the plaintiff at the time she was injured, is not in dispute; or that she was seriously injured and that the injuries occurred through the melting of the solder holding the base of the urn to a wire bead, so called, which solder alone supported the part of the urn containing the coffee, and also the melting of the solder holding the wire bead together, and resulting in the urn toppling over and spilling the hot contents of the urn in the plaintiff's lap.
There was also evidence from which the jury was warranted in finding that the urn had been used by Keebler prior to the accident to the plaintiff only four or five times, and that no accident resulted in any prior use may have been due to the conditions under which it was used; that it was in as good condition at the time of the accident as when delivered to Keebler in 1924; that no instructions were given when sold by the defendant to Keebler as to the manner of its use, and none were given by him to Mrs. Gessner, or by her to the plaintiff; that it was well known to the manufacturer of this particular urn that the flame of the spirit lamp furnished with it would in ordinary use vary in height; that a flame touching the bottom of the urn was not an improper use; that it was adjusted properly when Mrs. Gessner received it from Keebler; that Mrs. Gessner did not touch the wick of the lamp, nor was it changed in any way by the plaintiff; that in the construction of such urns by the defendant a flat piece of rolled metal or wire bead is first joined together with a solder of comparative high fusibility and is then soldered to the base of the urn with a solder of lower fusibility; that the wire bead rests on four legs and is soldered to them with a solder of still lower fusibility; that all that supported the container of the urn, which when filled with coffee weighed about seven and one half pounds, was solder estimated to be from one to two or three-thousandths of an inch in thickness and less than a half inch in width, by which the wire bead was joined to the base of the container of the urn.
No positive testimony, however, was offered by the defendant as to the exact fusing point of the solder used in constructing this particular urn. Apparently direct evidence as to the construction of any particular urn was not available in a factory making hundreds of such urns each year. The defendant offered evidence only of the custom or practice at its own and other factories in constructing urns of this design as to the fusing point of the solder used in joining the base of the container to the metal bead and the metal bead to the legs. The expert witnesses for the defendant representing other concerns making coffee urns, who testified as to the method of constructing such urns in the factory of the company by which they were employed, had no personal knowledge of the kind of solder used in the defendant's factory in manufacturing this type of urn, and, of course, could have no personal knowledge of the composition of the solder used in manufacturing this particular urn. The manager of the defendant's plant could not and did not undertake to say that some employee may not have used too little solder or solder of inferior grade in soldering the wire bead to the base of the container of this particular urn.
While no inference of negligence could properly be drawn by the jury simply because the accident occurred, as the urn had not been in the possession and control of the defendant for at least seven years, San Juan Light & Transit Co. v. Requena, 224 U. S. 89, 99, 32 S. Ct. 399, 56 L. Ed. 680, the jury was entitled, however, from the evidence offered by both sides, to make reasonable deductions as to the cause of the accident. Coleman v. Mechanics' Iron Foundry Co., 168 Mass. 254, 46 N. E. 1065.
The expert witnesses for both the plaintiff and the defendant all agreed that it was to be expected that flames of varying heights would be used even in a proper use of the urn, and the defendant's experts admitted that with a flame touching the bottom of the urn, or at a height of two or two and one half inches, they could not explain how the accident happened, unless there was a draft. All the evidence, however, excluded a draft in this case. One *363 of the defendant's experts, when asked, whether, if solder of low fusibility was used to join the base of the container to the wire bead, that would explain how the accident occurred under the circumstances described in the testimony, said his answer would be "Yes," although he indicated by his answer that he did not thereby admit the premises on which the answer was based.
The expert for the plaintiff expressed the opinion that the accident was due to a faulty design and construction of the urn in that there was no support for the urn except the thin film of solder by which its base was joined to the flat metal bead which alone rested on shoulders of the four legs; and that if this solder melted, the urn would drop down and topple over. This hazard would, of course, be increased if through negligence of the defendant's workmen too little solder, or solder of too low fusibility was used in joining the metal bead to the base of the urn.
We think there was substantial evidence from which the jury could have found that the plaintiff's injuries were due to the use in constructing this particular urn of solder of too low fusibility in joining the base of the urn to the metal bead; that the testimony of the experts corroborated the evidence of the plaintiff that the urn at the time the accident occurred was not being used in an improper manner and tended to exclude any other explanation of the accident except the negligence of the defendant in designing and constructing this particular urn, for which the defendant is liable, since it resulted in an article reasonably certain to expose a third person to injury even when using it in the manner it was intended to be used.
The judgment of the District Court is affirmed with costs to the plaintiff. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547120/ | 809 A.2d 411 (2002)
COMMONWEALTH of Pennsylvania, Appellant,
v.
Ruba JACKSON, Appellee.
Superior Court of Pennsylvania.
Argued April 17, 2002.
Filed October 11, 2002.
*412 Kelly Kline, Asst. Dist. Atty., Reading, for Commonwealth, appellant.
Emmanuel H. Dimitriou, Reading, for appellee.
Before: JOYCE, BECK and POPOVICH, JJ.
OPINION BY POPOVICH, J.:
¶ 1 The Commonwealth appeals the order granting the pretrial motion to suppress and writ of habeas corpus of Ruba Jackson/Appellee. We affirm.
¶ 2 The facts, as is herein relevant and recited in the suppression court's opinion, show the following events leading to the present appeal; to-wit:
... Sometime during Saturday, May 26, 2000, Mrs. Jill Kraemer, a postal worker for the Mohnton Post Office, supposedly first noticed a tape recorder which had been on the Defendant's ... desk for years. The Defendant is ... the Postmaster for the Mohnton Post Office....
Mrs. Kraemer opened the tape recorder and discovered that it contained a *413 cassette with her name displayed on the outside of the tape. Mrs. Kraemer played the cassette and recognized a recent conversation that had occurred between the Defendant and her. Mrs. Kraemer summoned two (2) employees to listen to the cassette and disclosed to them that her conversation with the Defendant had been taped without her permission. After Mrs. Kraemer discovered the audio cassette with her name written on the outside of it, she conducted a further search of the Defendant's closed desk drawer and discovered additional audio cassettes. A complaint regarding the Defendant's cassettes was filed with the postal worker's union, and the union then notified Mr. Andrew Katerman, the designated Postal Inspector for Berks County. Mr. Katerman received the complaint on June 13, 2000 and immediately contacted his supervisor, Mr. Bill Burmeister. Mr. Burmeister informed Mr. Katerman that there was no interest in federal prosecution or a further investigation of this matter.
On June 29, 2000, Mrs. Kraemer reported to Trooper Barry L. Whitmoyer of the Pennsylvania State Police that she was being taped without her approval. On June 20, 2000, Trooper Whitmoyer visited the Mohnton Post Office and with the assistance of Postal Inspector Andrew Katerman conducted a warrantless search of Defendant's desk. Trooper Whitmoyer recovered two (2) audio cassettes which contained conversations with three (3) different postal employees in addition to Mrs. Kraemer. Shortly thereafter, the Defendant was arrested and scheduled for a Preliminary Hearing.
A Preliminary Hearing was held ... [and t]he Defendant ... was bound over to court for four (4) counts of Interception, Disclosure, or Use of Wire, Electronic, or Oral Communications, 18 Pa. C.S.A. § 5703. The Defendant was arraigned....
Following arraignment, ... the Defendant... filed an Omnibus Pretrial Motion ... [and] a Petition for a Writ of Habeas Corpus, Suppression of Physical Evidence and Statements.... After hearing testimony, ... th[e] court issued Findings of Fact and Conclusions of Law which suppressed the illegally seized evidence and granted the Defendant's request for a Writ of Habeas Corpus.
Suppression Court Opinion, 6/8/01, at 1-3. Thereafter, the Commonwealth filed an appeal raising the following issues:
1. THE TRIAL COURT ERRED IN SUPPRESSING ANY TAPES OR EVIDENCE FOUND BY JILL KRAEMER OR ANY OTHER EMPLOYEE OF THE MOHNTON POST OFFICE IN THE DEFENDANT'S OFFICE WHEN LAW ENFORCEMENT HAD NO PART IN THE SEARCH.
2. THE TRIAL COURT ERRED IN SUPPRESSING ANY TAPES OR EVIDENCE FOUND BY POSTAL INSPECTOR ANDREW KATERMAN IN THE DEFENDANT'S OFFICE SINCE THE POSTMASTER HAD NO EXPECTATIONS OF PRIVACY IN THE AREAS SEARCHED.
3. THE TRIAL COURT ERRED IN CONCLUDING THAT THE COMMONWEALTH FAILED TO ESTABLISH A PRIMA FACIE CASE FOR THE CHARGES AGAINST THE DEFENDANT AND, THEREFORE, ERRED IN GRANTING HABEAS CORPUS RELIEF.
Appellant's Brief at i.
¶ 3 Before addressing the merits of the Commonwealth's claims, we need to *414 assure ourselves that the case is properly before us as dictated by our Supreme Court in Commonwealth v. Dugger, 506 Pa. 537, 486 A.2d 382 (1985), which held that, as a condition precedent to accepting an appeal from the Commonwealth's challenge of an order granting a motion to suppress, the Commonwealth must make a good faith certification that a suppression order terminates or substantially handicaps its prosecution.
¶ 4 Consistent with Dugger and its progeny, we have scrutinized the record and present in the Commonwealth's "Notice of Appeal" is a statement that the prosecution's case is "substantially handicapped" or likely to "terminate" with the entry of the suppression order. This preserves our ability to review the appeal of the order granting the motion to suppress. Contrast Commonwealth v. Slovikosky, 374 Pa.Super. 441, 543 A.2d 553, 555 (1988)("... the Commonwealth's appeal of that portion of the court's order granting the defendant's motion to suppress is quashed for non-compliance with Dugger.") Therefore, the appeal of that portion of the April 17, 2001, order assailing the grant of the motion to suppress is reviewable.
¶ 5 Where the Commonwealth appeals the adverse decision of a suppression court, we must consider only the evidence of defense witnesses and so much of the prosecution's evidence as remains uncontradicted. Commonwealth v. Dewar, 449 Pa.Super. 517, 674 A.2d 714, 716 (1996). If "the evidence supports the factual findings, we are bound by such findings; a reviewing court may only reverse if the legal conclusions drawn therefrom are in error." Commonwealth v. Fahy, 512 Pa. 298, 516 A.2d 689, 694-695 (1986).
¶ 6 In the present case, the evidence presented by the Commonwealth does not establish that the two cassettes seized from the postmaster's desk-drawer were seized solely at the insistence of the postal inspector (Andrew Katerman). On the contrary, Mr. Katerman was acting at the direction of State Trooper Whitmoyer, who first contacted the postal inspector that "he had received information that there may be evidence of a crime inside the Mohnton Post Office." N.T., 12/05/00, at 25-26. This prompted the postal inspector, in the company of the state trooper, to enter Appellee's office and search for any evidence reflective of the commission of a crime without a warrant.
¶ 7 The strictures of the Fourth Amendment, applied to the States through the Fourteenth Amendment, have been applied to the conduct of governmental officials in various civil activities. New Jersey v. T.L.O., 469 U.S. 325, 334-335, 105 S.Ct. 733, 83 L.Ed.2d 720 (1985). Stated otherwise, searches and seizures by government employers or supervisors of the private property of their employees are subject to the restraints of the Fourth Amendment. See O'Connor v. Ortega, 480 U.S. 709, 714, 107 S.Ct. 1492, 94 L.Ed.2d 714 (1987), wherein the United States Supreme Court granted certiorari to assess the perimeters of a hospital's warrantless search of its employee/Dr. Ortega's office. Ortega was on paid administrative leave during an investigation of charges of professional misconduct involving fellow staff members. In reviewing the decision of the Court of Appeals for the Ninth Circuit, the Ortega Court wrote in pertinent part:
Within the workplace context, this Court has recognized that employees may have a reasonable expectation of privacy against intrusions by police. See Mancusi v. DeForte, 392 U.S. 364, 88 S.Ct. 2120, 20 L.Ed.2d 1154 (1968). As with the expectation of privacy of one's home, such an expectation in one's place of work is "based upon societal expectations that have deep roots in the *415 history of the Amendment." Oliver v. United States, supra, 466 U.S. at 178, n. 8, 104 S.Ct. 1735. Thus, in Mancusi v. DeForte, supra, the Court held that a union employee who shared an office with other union employees had a privacy interest in the office sufficient to challenge successfully the warrantless search of that office:
"It has long been settled that one has standing to object to a search of his office, as well as of his home.... [I]t seems clear that if DeForte had occupied a `private' office in the union headquarters, and union records had been seized from a desk or a filing cabinet in that office, he would have had standing.... In such a `private' office DeForte would have been entitled to expect that he would not be disturbed except by personal or business invitees, and that records would not be taken except with his permission or that of his union supervisors." 392 U.S. at 369, 88 S.Ct. 2120.
Given the societal expectations of privacy in one's place of work expressed in both Oliver and Mancusi, we reject the contention ... that public employees can never have a reasonable expectation of privacy in their place of work. Individuals do not lose Fourth Amendment rights merely because they work for the government instead of a private employer. The operational realities of the workplace, however, may make some employees' expectations of privacy unreasonable when an intrusion is by a supervisor rather than a law enforcement official.
* * * * * *
The Court of Appeals concluded that Dr. Ortega had a reasonable expectation of privacy in his office, and five Members of this Court agree with that determination. * * * But, regardless of any legitimate right of access the Hospital staff may have had to the office as such, we recognize that the undisputed evidence suggests that Dr. Ortega had a reasonable expectation of privacy in his desk and file cabinets.
480 U.S. at 416-419, 107 S.Ct. 1187 (Emphasis in original).
¶ 8 Here, the Commonwealth's evidence established that State Trooper Whitmoyer approached Appellee's supervisor to advise him he "may" have information that evidence of a crime was contained in Appellee's office. In the trooper's company, the postal inspector accessed the post office on a Saturday through the rear door, then the two entered Appellee's private room. This was followed by a joint search of Appellee's entire office before the trooper uncovered two audio cassettes in Appellee's desk drawer, which are the subject of this appeal.
¶ 9 In line with Ortega, we hold that Appellee's right to privacy, i.e., freedom from unreasonable searches and seizures, was not compromised when she became employed by the postal authorities, nor was there any written procedural policy submitted by the Commonwealth which dissuades us from that conclusion. See Suppression Court Opinion, 6/28/01, at 7-8; see also Ortega, 480 U.S. at 718, 107 S.Ct. 1492. Further, no evidence was presented by the Commonwealth indicating that "exigent" circumstances existed excusing the securement of a warrant by the State Trooper in advance of the search and seizure of Appellee's private property from her desk drawer. See Commonwealth v. Eliff, 300 Pa.Super. 423, 446 A.2d 927, 935 (1982)(In the presence of "exigent" circumstances a warrantless search may hurdle the ultimate test of avoiding condemnation via the Fourth Amendment as "unreasonable."); Commonwealth v. Gibson, 536 Pa. 123, 638 A.2d 203, 206 (1994)(Semble).
*416 ¶ 10 Accordingly, Appellant's claim (No. 2) seeking a reversal of the suppression of evidence by Trooper Whitmoyer and Postal Inspector Katerman is found to be specious.[1]
¶ 11 Likewise, the appeal of that portion of the April 17, 2001, order questioning the grant of Appellee's writ of habeas corpus is suspect. We begin with Commonwealth v. Morman, 373 Pa.Super. 360, 541 A.2d 356 (1988), wherein it is written in relevant part:
... As a starting point, we must recognize the importance and history of the writ of habeas corpus in our system of government. "The writ of habeas corpus has been called the `great writ.' It is an ancient writ, inherited from the English common law, and lies to secure the immediate release of one who is detained unlawfully."
* * * * * *
The writ of habeas corpus exists to vindicate the right of personal liberty in the face of unlawful government deprivation.
* * * * * *
... The purpose of a preliminary hearing is much the same as the purpose of the pretrial petition for habeas corpus relief. As has often been stated:
The primary reason for the preliminary hearing is to protect an individual's right against unlawful arrest and detention. It seeks to prevent a person from being imprisoned or required to enter bail for a crime which was never committed, or for a crime with which there is no evidence of his connection....
* * * * * *
... We find that the scope of evidence which a trial court may consider in determining whether to grant a pretrial writ of habeas corpus is not limited to the evidence as presented at the preliminary hearing. On the contrary, we find that the Commonwealth may present additional evidence at the habeas corpus stage in its effort to establish at least prima facie that a crime has been committed and that the accused is the person who committed it.
* * * * * *
... In the pretrial setting, the focus of the habeas corpus hearing is to determine whether sufficient Commonwealth evidence exists to require a defendant to be held in government "custody" until he may be brought to trial. To make this determination, the trial court should accept into evidence the record from the preliminary hearing as well as any additional evidence which the Commonwealth may have available to further prove its prima facie case.
Morman, 541 A.2d at 358-360 (Citations omitted; emphasis in original).
¶ 12 Further, at a habeas corpus hearing, the Commonwealth need not produce evidence of such character and quantum of proof as to require a finding by a *417 jury of the accused's guilt beyond a reasonable doubt. But it should be such as to present "sufficient probable cause to believe, that the person charged has committed the offense stated[.]" Commonwealth ex rel. Scolio v. Hess, 149 Pa.Super. 371, 374, 27 A.2d 705, 707 (1942) (Citations omitted).
¶ 13 Applying such precepts here, we hold the Commonwealth's failure to prevail in its challenge of the suppression order inhibits our ability to review the grant of the writ of habeas corpus. As stated by the court below on this point, it:
... did not address the prima facie elements of the charged crimes because the evidence was successfully suppressed and everything obtained as a result of the illegally obtained evidence [wa]s also suppressed according to the "fruits of the poisonous tree" doctrine. Without the evidence of the two (2) audio cassettes, the Commonwealth's case was insufficient to meet their burden and satisfy all of the required elements under the statute.[2]
Suppression Court's Opinion, 6/28/01, at 9. We agree.
¶ 14 On February 13, 2001, a hearing was conducted to evaluate the merits of Appellee's petition for writ of habeas corpus and motion to suppress (tapes seized without warrant by Pennsylvania State Trooper Whitmoyer). The transcript of the preliminary hearing was admitted without objection at the February 13th hearing, which produced but one witness (Ms. Encarnacion) who recalled seeing a tape recorder on Appellee's desk for the six years that she cleaned the office.
¶ 15 A review of the preliminary hearing transcript reveals the testimony of a Ms. Kraemer, Mr. Weik, Ms. Maillie and Ms. Landis, all employees working under the postmaster (Appellee) in the Mohnton post office. Ms. Maillie testified to reading a transcript of a tape seized by Trooper Whitmoyer from Appellee's office, but the content related to a co-worker and not her. As for the other three employee/witnesses, each gave an account of being tape recorded, without their knowledge or consent, by Appellee. However, and this is key, their knowledge of the tape recordings originated with, or were the product of, the tapes in the possession of Trooper Whitmoyer, which were suppressed by the court below. See, e.g., Reproduced Record at 25a, 32a & 40a; Suppression Court Opinion, 6/28/01, at 2 ("Trooper Whitmoyer recovered two (2) audio cassettes which contained conversations with three (3) different postal employees in addition to Mrs. Kraemer.")
¶ 16 Weik, Maillie and Landis had no independent knowledge of being taped by Appellee absent a review of the transcripts of the tapes seized from Appellee's office, all of which was suppressed by the court below and affirmed by this Court on appeal, which undermines the Commonwealth's efforts to reverse the suppression *418 and habeas corpus order.[3]
¶ 17 Order affirmed.
¶ 18 BECK, J. files a Concurring and Dissenting Opinion.
CONCURRING AND DISSENTING OPINION BY BECK, J.:
¶ 1 I agree with the majority that the warrantless search of appellee Jackson's desk was a violation of the Fourth Amendment, thus requiring suppression of the evidence seized as a result of the search, i.e., the tapes and any other evidence gained by their seizure. However, I do not agree that the habeas court acted properly in discharging Ms. Jackson. Rather, I believe that even without the tapes, the record establishes a prima facie case against Ms. Jackson, which requires that she face trial on the charges lodged against her.
¶ 2 Where a criminal defendant seeks to challenge the sufficiency of evidence presented at her preliminary hearing, she may do so by filing a writ of habeas corpus with the court of common pleas. Commonwealth v. McBride, 528 Pa. 153, 595 A.2d 589, 590 n. 2 (1995). See also Commonwealth v. Saunders, 456 Pa.Super. 741, 691 A.2d 946 (proper means for challenging pretrial finding that Commonwealth has made out a prima facie case is petition for writ of habeas corpus), appeal denied, 550 Pa. 703, 705 A.2d 1307 (1997). In such instances, the habeas court acts in the capacity of a reviewing court to assess whether a prima facie case was presented at the preliminary hearing, that is, whether sufficient evidence exists to require the defendant to be brought to trial. Commonwealth v. Scott, 396 Pa.Super. 339, 578 A.2d 933, 936-37 (1990), appeal denied, 528 Pa. 629, 598 A.2d 283 (1991). The standard is clear: the Commonwealth establishes a prima facie case when it produces evidence that, if accepted as true, would warrant the trial judge to allow the case to go to a jury. Commonwealth v. Marti, 779 A.2d 1177, 1180 (Pa.Super.2001).
¶ 3 In this case, Ms. Jackson combined her suppression motion with her request for habeas relief. After it ruled that the tapes were inadmissible, the habeas court considered the remaining evidence against Ms. Jackson and concluded that it fell short of establishing a prima facie case. The habeas court reasoned: "Without the evidence of the two (2) audio cassettes, the Commonwealth's case was insufficient to meet their [sic] burden to satisfy all of the required elements under the statute." Trial Court Opinion, 6/28/01, at 9. The majority apparently agrees, relying on the fruit of the poisonous tree doctrine to find that all of the witnesses' "knowledge of the tape recordings originated with, or were the product of, the tapes in the possession of Trooper Whitmoyer, which were suppressed." Majority Opinion at 10-11. While this is true of some of the witnesses that appeared at the preliminary hearing, it is not true of all of them.
¶ 4 The majority correctly concludes that the testimony of those witnesses who relied on police-prepared transcripts is tainted and therefore inadmissible. Plainly, *419 that testimony was given as a direct result of the illegally seized tapes. Because those tapes were subject to suppression, all evidence that emanated from them likewise must be suppressed. However, both the habeas court and the majority have neglected to consider other relevant evidence presented at the preliminary hearing, evidence that was untainted by the illegal seizure.
¶ 5 Jill Kraemer testified that she discovered the tapes in Ms. Jackson's desk. observed her name and others on them and listened to them. She described hearing her own voice and Jackson's engaged in conversations that Kraemer remembered having with the postmaster. She also testified that she did not give permission to be recorded and was not aware that she was being recorded. Ms. Kraemer's observations neither originated with nor were the product of Trooper Whitmoyer's subsequent, illegal seizure.
¶ 6 Further, Ms. Kraemer and several other employees testified to statements made by Ms. Jackson at an office-wide meeting, wherein she admitted that she taped conversations with employees and was aware that she might lose her job as a result. These statements, admissions by the accused, neither originated with nor were the product of Trooper Whitmoyer's subsequent, illegal seizure.
¶ 7 Ms. Kraemer's testimony, along with that of the other employees who testified about Ms. Jackson's statements, were not only admissible but were also sufficient to establish a prima facie case under 18 Pa. C.S.A. § 5703(1). This evidence, if believed, established that Ms. Jackson recorded conversations she had with her employees without their permission. As a result, the habeas court erred in concluding that appellee was entitled to a discharge.
¶ 8 The habeas court's further comments regarding its assessment of the case, including Ms. Jackson's purported reasons for making the tapes and the question of whether the tape recorder was in plain view on Ms. Jackson's desk, are simply irrelevant. Neither the credibility of the witnesses presented nor the validity of any claimed defenses is of any concern when determining if a prime facie case is present. See Liciaga v. Court of Common Pleas, 523 Pa. 258, 566 A.2d 246, 248 (1989) (preliminary hearing magistrate not empowered to make credibility determinations). See also Marti, supra (Commonwealth establishes prima facie case when it produces evidence that, if accepted as true, would warrant the trial judge to allow the case to go to a jury; weight and credibility are not factors). Thus, it was neither necessary nor appropriate for the habeas court judge to make such findings at that stage in the proceedings.
¶ 9 Because I believe there is sufficient evidence to constitute a prima facie case under 18 Pa.C.S.A. § 5703(1), even without the tapes seized by Trooper Whitmoyer, I would find that the trial court erred in granting appellee habeas relief. As a result, I would affirm that part of the trial court's order suppressing the tapes and any fruits thereof. In addition, I would reverse that part of the trial court's order granting habeas relief and would remand the case for trial on all charges.
NOTES
[1] Appellant's argument (No. 1) that the audio cassette tapes found by Appellee's co-employee Jill Kraemer are not suppressible is meritless.
The tapes found by Kraemer in Appellee's desk were returned to the same location. See N.T., 12/05/00, at 13. Consequently, as noted quite correctly by the suppression court, "the chain of custody of the cassette tapes did not begin with Mrs. Kraemer but with Trooper Whitmoyer after he removed the tapes from the Defendant's bottom drawer." Trooper Whitmoyer's actions under a Fourth Amendment analysis, discussed in response to the Commonwealth's No. 2 issue, responds appropriately to the No. 1 issue and need not be repeated here.
[2] Appellee was charged with four counts of violating 18 Pa.C.S.A. § 5703(1), which reads in relevant part:
§ 5703. Interception, disclosure or use of wire, electronic or oral communication.
Except as otherwise provided in this chapter, a person is guilty of a felony of the third degree if he:
(1) intentionally intercepts, endeavors to intercept, or procures any other person to intercept or endeavor to intercept any wire, electronic or oral communication....
The statute defines "oral communication" in Section 5702 as:
Any oral communication uttered by a person possessing an expectation that such communication is not subject to interception under circumstances justifying such expectation.
[3] The Commonwealth would have us hold the mere oral testimony of its witnesses to the existence of the tape recorder in Appellee's office, without the production of some physical evidence that the illegal "intercept" occurredi.e., the tapes, is sufficient to hold the matter for court. We find that said testimony, in and of itself, falls short of the prima facie evidence necessary to establish a violation of 18 Pa.C.S.A. § 5703(1) allowing the case to be held for court. See Morman, supra (discussing the level of proof necessary to create a prima facie case). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/773061/ | 248 F.3d 698 (7th Cir. 2001)
THOMAS G. VOLLMER, PEGGY R. POSPESHIL, MARY KENNAH, ET AL., PLAINTIFFS-APPELLEES,v.PUBLISHERS CLEARING HOUSE AND CAMPUS SUBSCRIPTIONS, INCORPORATED, A NEW YORK CORPORATION, DEFENDANTS-APPELLEES,APPEALS OF FREDERICK L. HAWK, PUTATIVE INTERVENOR, LYNDE SELDEN II, ATTORNEY, RICHARD H. ROSENTHAL, ATTORNEY.
No. 99-3993, 00-1562, 00-1610
IN THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT
ARGUED SEPTEMBER 6, 2000April 27, 2001
Appeals from the United States District Court for the Southern District of Illinois. No. 99 C 434--G. Patrick Murphy, Chief Judge.[Copyrighted Material Omitted][Copyrighted Material Omitted]
Steven A. Katz (argued), Carr, Korein, Tilery, Kunin, Montroy, Cates, Katz & Glass, Belleville, IL, for Plaintiffs-Appellees.
Rebecca Jackson, Bryan Cave, St. Louis, MO, Richard A. Mescon, David Leichtman (argued), Joseph P. Cyr, Morgan, Lewis & Bockius, New York City, Richard H. Rosenthal, Carmel, CA, Lynde Selden, II (argued), San Diego, CA, Paul A. Levy (argued), Public Citizens Litigation Group, Washington, DC, for Defendants-Appellees.
Before Cudahy, Coffey and Ripple, Circuit Judges.
Ripple, Circuit Judge
1
Mr. Frederick L. Hawk, represented by his attorneys Lynde Selden II and Richard H. Rosenthal, attempted to intervene in this class action. The district court denied Mr. Hawk's motion to intervene under Federal Rules of Civil Procedure 24(a) and (b) ("Rule 24(a) and 24(b)").
2
The district court also found that Mr. Selden and Mr. Rosenthal did not investigate appropriately Mr. Hawk's claims and that they filed pleadings on Mr. Hawk's behalf to interfere with and delay the administration of justice. Consequently, on its own initiative, the court entered an order directing Mr. Selden and Mr. Rosenthal to show cause as to why they should not be sanctioned under Federal Rule of Civil Procedure 11 ("Rule 11") and later imposed $50,000 in sanctions on the attorneys.
3
For the reasons set forth in the following opinion, we affirm the district court's denial of the motion to intervene. We vacate the decision to impose Rule 11 sanctions, and we remand that decision to the district court for proceedings consistent with this opinion.
I. BACKGROUND
A. Facts
4
On February 3, 1998, Thomas G. Vollmer filed this class action lawsuit against Publishers Clearing House ("PCH") and its competitor American Family Publishers ("AFP") in Illinois state court.1 PCH is a New York limited partner-ship that sells magazine subscriptions and other merchandise through direct mail advertising, and it often personalizes its solicitation materials to include specific information about the recipient. Since 1967, PCH has also operated the "Publishers Clearing House Sweepstakes" ("the Sweepstakes"), which offers prospective customers the ability to win cash and prizes as a method of drawing attention to its mailings. No purchase of PCH merchandise is necessary to enter or improve one's chances of winning the Sweepstakes.
5
Mr. Vollmer's suit, one of a number against PCH at the time, alleged violations of Illinois state consumer protection law. His complaint charged that PCH fraudulently induced customers to purchase magazines and other items. The complaint claimed that PCH did so by falsely suggesting in its advertising that customers could increase their chances of winning the Sweepstakes by making purchases, and Mr. Vollmer sought to certify a class of Illinois residents who had been deceived by PCH mailings into making unwanted purchases. The complaint was later amended on June 21, 1999, to include the additional named plaintiffs and to add Campus Subscriptions, Inc. ("CSI") as an additional defendant.2 It was also amended to allege violations of federal racketeering laws, which led to the removal of the case to the district court, pursuant to its federal question jurisdiction.
6
After negotiations between class counsel and PCH, the parties entered into a stipulation of settlement, filed with the district court on June 23, 1999. One week later, the district court conditionally certified a class for settlement purposes that included all persons in the United States who received a PCH solicitation between February 3, 1992, and June 30, 1999. This certification also included a subclass of class members who purchased PCH merchandise during the class period.3 Additionally, the district court granted preliminary approval of the settlement. The settlement included remedial undertakings by PCH aimed at addressing the allegations raised in Mr. Vollmer's complaint4 and also provided monetary relief in the form of refunds for subclass members who filed a claim during the claims period. Initially, the settlement contained a cap on these refunds of $10 million, less costs, other refunds and attorneys' fees that could have reduced the total amount to as low as $4 million. One month after Mr. Hawk had attempted to intervene in this action, when it became clear that claims would exceed this $10 million figure, PCH agreed to pay all approved claims in full. The amount of those claims would eventually reach approximately $18 million to $21 million.
7
Mr. Hawk, a farm equipment salesman from San Diego, California, was a past customer of PCH and had received a notice of the settlement in early August of 1999. Mr. Hawk testified that soon after, he contacted Mr. Selden regarding the notice. He knew Mr. Selden because Mr. Hawk's wife was an administrator in Mr. Selden's office. Mr. Selden, later joined by Mr. Rosenthal, contacted class counsel requesting information and access to documents regarding the settlement, ostensibly to determine whether it would be in Mr. Hawk's best interest to opt out of the settlement class. These requests were denied by class counsel.
8
As a result, on September 13, 1999, Mr. Hawk filed a "Petition to Intervene for Limited Purposes of Viewing Document Depository," which noted that "[b]efore Intervenor accepts the proffered settlement... [he] wants to view the document depository defendant has made available to class counsel." R.44 at 1. Mr. Hawk claimed that intervention of right under Rule 24(a) was appropriate because class counsel had not considered the impact of the settlement upon Mr. Hawk in comparison to the relief Mr. Hawk could achieve under California's consumer protection laws. Additionally, he claimed that permissive intervention was appropriate under Rule 24(b) for basically the same reason.
9
Both class counsel and the defendants opposed this motion. Among its arguments in this regard, class counsel asserted that Mr. Selden and Mr. Rosenthal were "professional objectors" or "claim jumpers" who filed such claims often in the past, usually without merit. To bolster this theory, they cited a number of cases and a newspaper article describing the attorneys' involvement in contesting class action settlements, some of which cast Mr. Selden and Mr. Rosenthal in an unflattering light. See R.45 at 1-2. Class counsel and the defendants also disputed Mr. Hawk's asser tion that greater monetary relief could be gained under California law, and argued that, because he had not decided whether to request exclusion from the settlement, Mr. Hawk could not properly seek intervention under Federal Rule of Civil Procedure 23(c)(2)(C).
B. District Court Proceedings
1.
10
The district court, noting that difficulties can arise with intervention in major class action litigation, required Mr. Hawk and two other proposed intervenors to appear before the court to explain their objections to the settlement. On October 4, 1999, the day he was scheduled to appear, Mr. Hawk filed "Intervenor's Motion to Intervene," which requested the ability to "intervene into this preliminarily approved class action, appoint purported Intervenor's counsel as co-class counsel and such other relief as the court deems proper." R.56 at 1-2. In a memorandum in support of that motion, Mr. Hawk maintained that his interests were inadequately represented by class counsel because (1) the temporal proximity of the filing of class counsel's Second Amended Complaint and the agreement to the settlement suggested collusion between class counsel and defendants, (2) no meaningful discovery had been undertaken by class counsel and (3) the monetary and injunctive relief in the settlement was inadequate.
11
Later that morning, the district court held a hearing regarding the motions to intervene. The court was alerted by Mr. Selden that, in addition to his motion to intervene for the limited purpose of discovery, Mr. Hawk had also filed a more general motion to intervene that morning. The following exchange ensued:
12
THE COURT: All right. So are you withdrawing your... petition to intervene for a limited purpose... ?
13
MR. SELDEN: No, your Honor. We're supplementing it.
14
THE COURT: Well, do you want in for all purposes or for a limited purpose?
15
MR. SELDEN: All purposes.
16
THE COURT: All right. When you say you're supplementing it, what do you wish for me to do with this paper, the one for a limited purpose?
17
MR. SELDEN: I would wish that that would be granted and then the motion to intervene would come on and you would grant that. That would be my wish.
18
Tr.6 at 4-5. At this point, the court seemed inclined to believe that Mr. Hawk now meant to intervene to represent others in the action, not primarily to conduct discovery regarding the settlement. It noted that "[w]hat they do once they get here, if I let them intervene, is a whole different matter as to whether I'm going to let them conduct discovery." Id. at 6.
19
Mr. Hawk then testified. He claimed that he believed that the monetary relief for refunds in the settlement, at that point capped at a maximum of $10 million, was insufficient. He also asserted that he sought legal counsel in this case on his own initiative. However, Mr. Hawk also demonstrated great unfamiliarity with the nature of his complaint. He lacked any knowledge of the injunctive relief agreed to in the settlement, the mechanics of the refund process described in the notice, the settlement's $3 million cap on attorneys' fees and the amount that he had personally spent on PCH merchandise. Moreover, Mr. Hawk did not recall ever reading the "Motion to Intervene" filed on his behalf prior to that morning and could not articulate his basis for asking to intervene on behalf of other individuals in the lawsuit. He also was not familiar with Mr. Rosenthal and was unaware that Mr. Rosenthal was representing him in the case. Lastly, Mr. Hawk confirmed that he was unsure as to whether he would opt out of the class and did not know what information he would need to ultimately make such a decision.
20
The district court thereafter denied Mr. Hawk's motions to intervene in this case. It determined that Mr. Hawk had not shown that intervention of right was appropriate under Rule 24(a) because he could not demonstrate that his interests were inadequately represented by class counsel.Additionally, the court ruled that permissive intervention under Rule 24(b) was not justified because it would unduly delay and prejudice the rights of the class. The district court also made it clear that, after hearing Mr. Hawk, it now believed that he was not "here because [he] ha[d] serious questions about the injunctive relief that the Court has authored," but that the "intervention was for purposes of conducting discovery." Tr.7 at 24-25. The district court also determined that Mr. Hawk's lack of a "passing understanding" about the nature of the lawsuit, id. at 25, showed that he was put forward by Mr. Selden and Mr. Rosenthal to cause delay and increase the cost of the litigation. As a result, on its own initiative, the court ordered the attorneys to show cause as to why they had not violated Rule 11(b) and should not be sanctioned.
21
Subsequently, on January 25, 2000, the district court held a final fairness hearing regarding the settlement, at which Mr. Selden and Mr. Rosenthal appeared on behalf of Mr. Hawk. Before the hearing, the district court noted that "it was never this Court's intention to deny anyone the opportunity to intervene and preserve their appellate rights." Tr.16 at 9. Instead, it maintained that it had denied Mr. Hawk's motions to intervene because it "became clear to the Court" that "these proposed intervenors wanted to intervene [for a limited purpose] and conduct discovery to see if they did wish to intervene for all purposes" and because it did not find Mr. Hawk to be a proper class representative or his attorneys to be proper class counsel. Id. at 148-50. When asked if they wished to make any argument against the settlement, Mr. Selden and Mr. Rosenthal declared that they would rest on their pleadings. The district court queried at the end of the hearing if Mr. Hawk still wished to intervene, but Mr. Selden responded that because the hearing was over, such a motion would serve no purpose. The district court subsequently approved the settlement on February 18, 2000.
2.
22
On February 25, 2000, the district court held a hearing on Mr. Selden and Mr. Rosenthal's objection to the imposition of Rule 11 sanctions. There the court said that Mr. Hawk's lack of knowledge regarding the settlement and his personal relationship with Mr. Selden led it to believe that the attorneys recruited Mr. Hawk to intervene so that they could extract a fee from the proceedings. It believed that Mr. Hawk's discovery request was a ploy to "see how much is here and what we can get out of it." Tr.18 at 13. Moreover, in referring to Mr. Selden and Mr. Rosenthal, the court claimed that they "are not real class action lawyers" but instead that "they follow people around the country,... and then they stick their nose in [a case] and they extract money." Id. at 7.
23
Additionally, the district court asserted that it had "made it the court's business to find out all I can" about the attorneys' legal practice and that "I haven't been able to find anyone anywhere that say these are recognized class counsel." Id. at 15. Ultimately, the court levied sanctions in the amount of $50,000. To arrive at that figure, it used the attorneys' fees that class counsel and the defendants' counsel generated in response to the motions to intervene as a "marker", but not a dispositive one. Id. at 20. It directed that the fees were to be paid directly to the Greater East St. Louis Community Fund, Inc., a local charitable organization.
24
Mr. Hawk appealed the denial of his motion to intervene and the judgment certifying the class and approving the settlement. Mr. Selden and Mr. Rosenthal appealed the imposition of Rule 11 sanctions. All three appeals were consolidated into the present case.
II.
DISCUSSION
A. Motion to Intervene
1.
25
Mr. Hawk sought to intervene as of right under Rule 24(a), which required him to (1) make a timely application, (2) have an interest relating to the subject matter of the action, (3) be at risk that that interest will be impaired by the action's disposition and (4) demonstrate a lack of adequate representation of the interest by the existing parties. See Nissei Sangyo America, Ltd. v. United States, 31 F.3d 435, 438 (7th Cir. 1994). Mr. Hawk is required to prove each of these four elements; the lack of one element requires that the motion to intervene be denied. See Keith v. Daley, 764 F.2d 1265, 1268 (7th Cir. 1985). The district court denied this motion on the ground that Mr. Hawk had not shown that his interests were inadequately represented by class counsel. With the exception of the first factor, which relates to the timeliness of the intervention and is reviewed for abuse of discretion, we review de novo the denial of an intervention of right. See Nissei Sangyo, 31 F.3d at 438. However, it is clear that the district court based much of its determination regarding this issue on its assessment of Mr. Hawk's testimony, a finding to which we owe deference. See Rush v. Martin Petersen Co., 83 F.3d 894, 896 (7th Cir. 1996) (regarding factual finding, deference given to district judge "who had the opportunity to observe the witnesses firsthand, to assess their credibility and weigh their testimony"). The district court determined that Mr. Hawk had failed to articulate reasons as to why he was not represented adequately by class counsel.
26
Ample evidence exists to support the district court's conclusion that Mr. Hawk could not demonstrate why he was represented inadequately in this action. Although both of his motions to intervene argue that the settlement's terms were unfair, Mr. Hawk showed a lack of familiarity with the content of those terms. He did not know when he was required to decide to opt out of the settlement, was unclear on the amount of attorneys' fees sought by class counsel and PCH's counsel and he showed general unfamiliarity with the motions to intervene filed on his behalf. He thought, incorrectly, that to receive a refund under the settlement he must return the actual magazines that he had purchased from PCH.5 Also worrisome was Mr. Hawk's ignorance of the terms of the injunctive relief contained in the settlement. When asked whether he had "any concept of what PCH is willing to do to change the message to customers," Mr. Hawk replied "No." Tr.6 at 20. Lastly, when asked whether he had any basis, other than what Mr. Selden had told him, to believe that class counsel was inadequately representing him in the suit, Mr. Hawk again responded "No." Id. at 28.
27
Moreover, although Mr. Hawk indicated that he wanted to intervene to represent other members of the class, he could not articulate why he wished to do so. When asked by PCH's counsel what his basis for intervention was, the following exchange occurred:
28
Q [PCH counsel]: What's your basis for asking to represent other individuals in this lawsuit?
29
A [Mr. Hawk]: I don't know.
30
Q: You don't have a basis; do you?
31
A: I don't know.
32
Id. at 34. The district court was thus presented with a proposed intervenor in the lawsuit who could not explain his basis for wishing to intervene on behalf of other class members.6 Its determination that Mr. Hawk could not meet Rule 24(a)'s requirements was therefore well supported by the facts.
33
The district court also denied Mr. Hawk's request for permissive intervention under Rule 24(b). Relevant factors to consider in ruling on a motion for permissive intervention include whether the request is timely and whether it would unduly delay or prejudice the adjudication of the rights of the original parties. See Southmark Corp. v. Cagan, 950 F.2d 416, 419 (7th Cir. 1991). We shall reverse a denial of permissive intervention only if the district court abused its discretion. See Keith, 764 F.2d at 1272.
34
For similar reasons to those supporting the denial of Mr. Hawk's intervention under Rule 24(a), the district court did not abuse its discretion in denying permissive intervention in this matter. In light of its examination of Mr. Hawk, the court's ruling that his entry as a party would unduly delay and prejudice the adjudication of the lawsuit was eminently reasonable.
2.
35
Because Mr. Hawk's motion to intervene was properly denied, under the law of this Circuit, he cannot appeal the fairness of the settlement. See Felzen v. Andreas, 134 F.3d 873, 876 (7th Cir. 1998), aff'd by an equally divided court, California Pub. Employees' Ret. Sys. v. Felzen, 525 U.S. 315 (1999). We have noted that, because only those who intervene in a class action may appeal such a settlement, "it is vital that district courts freely allow the intervention of unnamed class members who object to proposed settlements and want an option to appeal an adverse decision." Crawford v. Equifax Payment Servs., Inc., 201 F.3d 877, 881 (7th Cir. 2000). However, in this case, the district court was on solid ground in concluding that Mr. Hawk's real purpose in intervening was to conduct discovery, not to preserve his appellate rights regarding the fairness of the settlement. Numerous times after the court denied Mr. Hawk's motions to intervene, it clarified that it did so because it believed Mr. Hawk's intention was solely to gain access to settlement-related documents. The court repeatedly emphasized that it did not intend to deny class members the right to intervene to protect their appellate rights. When reminded of this point at the fairness hearing and asked if he still wished to intervene, Mr. Selden replied that he was "at a loss" as to what such intervention would accomplish. Tr.16 at 151.
36
Given the chance, repeatedly, Mr. Hawk's attorneys never moved to intervene to protect Mr. Hawk's appellate rights.7 As a result, the district court was entitled to believe that Mr. Hawk's motions to intervene were for the primary purpose of obtaining discovery of the settlement negotiations.
37
Discovery of settlement negotiations in a case such as this one is difficult to obtain because of the potential for under mining the settlement process. See Mars Steel Corp. v. Continental Ill. Nat'l Bank & Trust Co. of Chicago, 834 F.2d 677, 684 (7th Cir. 1987). It is only proper where "the party seeking it lays a foundation by adducing from other sources evidence indicating that the settlement may be collusive." Id. Mr. Hawk claimed that collusion existed between class counsel and PCH's counsel, due primarily to (1) the close time frame between the amendment of Mr. Vollmer's complaint to allege federal claims and the agreement to the settlement and (2) the lack of "meaningful adversarial discovery" undertaken before settlement. R.57 at 8. The timing of a settlement in relation to the start of litigation is an important indicator in determining whether collusion occurred. See Mars Steel, 834 F.2d at 684 (noting timing as an important factor and finding no suggestion of collusion when settlement reached less than a year after suit filed by party to settlement); White v. National Football League, 822 F. Supp. 1389, 1407 (D. Minn. 1993) (collusion not suggested when settlement occurred after "five and one-half years of frequently acrimonious litigation"). The initial suit in this case against PCH and AFP was filed well over a year before the settlement, and class counsel's investigation of the claims surrounding this suit began in 1997.8 Although set-tlement negotiations were ongoing during much of the period after the lawsuit was brought, class counsel's efforts demonstrate a zealous representation of the class's interests, sufficient to prevent any inference of collusion with PCH.
38
In sum, therefore, the district court was correct in characterizing Mr. Hawk's motions to intervene as attempts to gain discovery, not motions seeking to maintain his right to appeal. It was also correct in denying those motions. Moreover, the court repeatedly gave Mr. Hawk the chance to protect his right to appeal, an approach counseled by our decision in Crawford, 201 F.3d at 881, but Mr. Hawk failed to do so. As a result, Mr. Hawk cannot now appeal the merits of the settlement. Nevertheless, we note that Mr. Hawk did have the opportunity to present his objections at the fairness hearing and also presented them to this court in his appellate briefs. We believe that his substantive objections, even if they were properly before us, would not merit a disruption of the settlement in this case.
B. Rule 11 Sanctions
39
Rule 11 provides that if an attorney presents a motion to a court for "any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation," monetary sanctions may be imposed. See Fed. R. Civ. P. 11(b)(1) & (c). The district court found that Mr. Selden and Mr. Rosenthal encouraged Mr. Hawk to intervene for such purposes, solely to enable themselves to receive a fee as part of this litigation. As a result, the court imposed monetary sanctions on its own initiative under Rule 11(c)(1)(B), requiring Mr. Selden and Mr. Rosenthal to pay $50,000 to a local charity. We review all aspects of the district court's decision to impose Rule 11 sanctions for abuse of discretion. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990); Independent Lift Truck Builders Union v. NACCO Materials Handling Group, Inc., 202 F.3d 965, 968 (7th Cir. 2000).
40
The record certainly contains some evidence to support the district court's determination to impose sanctions on Mr. Selden and Mr. Rosenthal. Mr. Hawk's marked unfamiliarity with basic components of the settlement supports the court's finding that he was put forward by his attorneys solely to enable them to collect fees in this action. On its own, Mr. Hawk's testimony and the circumstances surrounding it would provide sufficient justification for the imposition of Rule 11 sanctions.
41
The district court, however, also took into account the nature of Mr. Selden and Mr. Rosenthal's legal practice in deciding to impose sanctions and in determining the amount of the fine. In doing so, it appeared to consider not only information provided by class counsel regarding Mr. Selden and Mr. Rosenthal's past actions,9 but also information about the attorneys that the court gathered in ex parte conversations. This latter source was suggested when the district court maintained that it had "made it the court's business to find out all I can" about Mr. Selden and Mr. Rosenthal's legal practice and that "I haven't been able to find anyone anywhere that say these are recognized class counsel." Tr.18 at 15.
42
Rule 11 was designed to ensure due process and to give the potentially offending party a "full and fair opportunity to respond and show cause before sanctions are imposed." Divane v. Krull Elec. Co., 200 F.3d 1020, 1025 (7th Cir. 1999); see also Fed. R. Civ. P. 11, Advisory Committee's Notes (1993 Amendments) (noting that when court acts on own initiative under Rule 11(c)(1)(B), a show cause order must be granted to "provide[ ] the person with notice and an opportunity to respond"); Johnson v. Waddell & Reed, Inc., 74 F.3d 147, 151 (7th Cir. 1995). In reviewing this sanction, we must be able to look to information in the record that justifies the imposition of sanctions articulated by the district court. See Pacific Dunlop Holdings, Inc. v. Barosh, 22 F.3d 113, 118 (7th Cir. 1994). Additionally, although not all ex parte contacts by the district court are prohibited, if they render it impossible for the district court to fairly consider a plaintiff's arguments, or are not made a matter of record in the case and do not provide an opportunity for a plaintiff to respond to them, those contacts threaten that plaintiff's due process rights. See Simer v. Rios, 661 F.2d 655, 680-81 (7th Cir. 1981); see also Blumenfeld v. Stuppi, 921 F.2d 116, 118 n* (7th Cir. 1990).
43
The district court was permitted to consider Mr. Selden and Mr. Rosenthal's past conduct in fashioning Rule 11 sanctions, as the decision to impose such sanctions and their form may be influenced by consideration of a party's past misconduct. See, e.g., Fed. R. Civ. P. 11, Advisory Committee's Notes (1993 Amendments) (noting that "in deciding whether to impose a sanction or what sanctions would be appropriate," factors to consider include whether conduct "was part of a pattern of activity" or "whether the person has engaged in similar conduct in other litigation"); Pope v. Federal Exp. Corp., 49 F.3d 1327, 1328 (8th Cir. 1995); Lockheed Martin Energy Sys., Inc. v. Slavin, 190 F.R.D. 449, 459 (E.D. Tenn. 1999); see also Cheek v. Doe, 828 F.2d 395, 398 (7th Cir. 1989) (per curiam) (considering past improper conduct as relevant factor in Rule 11 fee determination). However, Rule 11 and our case law also mandate that this evidence must be stated with some specificity in the record, and the offending party must be given a full and fair opportunity to respond to the charges. Here, there is evidence suggesting that the district court, in considering information regarding Mr. Selden and Mr. Rosenthal's reputation or past conduct, utilized sources not disclosed to the attorneys or presented in the record. Use of such information to fashion a Rule 11 sanction would be inappropriate.10
44
Adding to our concern in this regard, the $50,000 sanction is extremely large, as compared to other Rule 11 sua sponte sanctions that this court has reviewed. See, e.g., Powers v. Duckworth, No. 90-2492, 1995 WL 496751, at *3 (7th Cir. 1995) (upholding $500 sua sponte sanction); Burda v. M. Ecker Co., 2 F.3d 769, 776 (7th Cir. 1993) (reducing sua sponte sanction from $2,500 to $1,000). Rule 11 requires that the least severe sanction adequate to serve the purpose of the penalty should be imposed. See Johnson v. A.W. Chesterton Co., 18 F.3d 1362, 1366 (7th Cir. 1994). There may be cases in which a $50,000 sanction under Rule 11(c)(1)(B) is appropriate, if such a significant penalty is warranted for effective deterrence of such conduct in the future. See Fed. R. Civ. P. 11(c)(2). Indeed, the district court suggested as much in this case, stating that because of the huge fees available in class action litigation, sanctions for misconduct in the filing of intervention motions must be similarly weighty. Yet when the district court is cursory or unclear about its reasoning for imposing significant monetary sanctions, we have required that a more detailed explanation be provided. See Katz v. Household Intern., Inc., 36 F.3d 670, 673 (7th Cir. 1994); Kotsilieris v. Chalmers, 966 F.2d 1181, 1187 (7th Cir. 1992).
45
The district court took information into account regarding Mr. Selden and Mr. Rosenthal's past legal practice, information that Mr. Selden or Mr. Rosenthal may not have been aware of or may not have had the opportunity to respond to. It then used that information, in part, to find that the imposition of an extraordinarily large sanction was appropriate. The record in this case does not provide us with sufficient information to determine all of the sources for the district court's consideration of Mr. Selden and Mr. Rosenthal's past relevant conduct. Therefore, the district court should reconsider its decision regarding the appropriateness and, if necessary, the amount of Rule 11 sanctions. In doing so, it must afford counsel an adequate opportunity to reply to the information upon which the court relies. It also must state explicitly the evidence that it relies upon to determine the appropriateness, and, if necessary, the amount of the sanction.11 The court may not consider any information that has not been adequately introduced into the record or to which Mr. Selden or Mr. Rosenthal have not had the ability to respond.
Conclusion
46
For the foregoing reasons, we affirm the district court's denial of Mr. Hawk's motions to intervene. We vacate the imposition of Rule 11 sanctions and remand that matter to the district court for further proceedings consistent with this opinion.
47
AFFIRMED in part, VACATED and REMANDED in part.
NOTES:
1
The Illinois state court later severed Mr. Vollmer's claims against AFP from his claims against PCH alleged in this action. Due to the similar nature of their businesses, PCH and AFP are often confused with each other. PCH is perhaps best known for its "Prize Patrol," which makes unannounced visits to the homes of its Sweepstakes winners to surprise them with their winnings. AFP, on the other hand, is most often associated with its spokespersons, television personalities Ed McMahon and Dick Clark.
2
CSI is a wholly owned subsidiary of PCH that markets similar products to students and educators on college campuses. For purposes of convenience, the defendants in this action will be referred to collectively as "PCH" or "the defendants."
3
The settlement class was estimated to include hundreds of millions of people, although PCH cannot provide information as to the names of those persons who simply received its mailings but did not respond to them. The subclass of those who did make purchases included over 42 million people.
4
The injunctive relief in the settlement included: (1) an Ironclad Guarantee in PCH's future solicitation materials containing various statements and information alerting customers that no purchase is necessary to enter the Sweepstakes, (2) further revision of PCH's business practices to ensure that customers understand that ordering is not necessary to win the Sweepstakes and (3) PCH's commitment to furnish customer assistance and education services designed to protect the public from entities committing sweepstakes fraud and assist persons who respond inappropriately to sweepstakes promotions.
5
In fact, the notice Mr. Hawk had received described a method by which refunds could be garnered without the return of actual merchandise. When asked by PCH's counsel if knowledge of this fact changed his mind about the fairness of the settlement, Mr. Hawk replied, "I don't know." Tr.6 at 30.
6
Mr. Hawk also repeatedly indicated that he had not yet determined whether he wished to opt out of the proposed settlement, at the same time that he was requesting to intervene in this litigation. It is unclear if a party may request intervention under Rule 24 without first deciding that it wishes to be a part of the settlement class. See, e.g., In re Potash Antitrust Litig., 162 F.R.D. 559, 561 (D. Minn. 1995) (holding that to make an appearance in a class action lawsuit, Rule 23(c)(2)(c) requires that a party must have decided not to opt out of the class). We need not reach this issue, however, as we have determined that Mr. Hawk's motions to intervene were properly denied on the merits.
7
Mr. Hawk now argues that his attorneys did not make such a motion because they believed that their appeal of the district court's denial of their initial motions to intervene divested the district court of jurisdiction to grant a future motion to intervene for a limited purpose. This assertion was apparently first made, not by Mr. Selden or Mr. Rosenthal during the course of the litigation leading up to the settlement's approval, but by their attorney during a later hearing on the issue of Rule 11 sanctions. See Tr.18 at 19 ("About the declining of the invitations to intervene. The denial of leave to intervene was, at that time, on appeal. I think that divested the court of jurisdiction... [as to] the intervention question. I think that's why they declined.").
However, a district court is not divested of jurisdiction to grant a motion to intervene until an appeal has been filed on a final judgment in the entire case. See, e.g., Roe v. Town of Highland, 909 F.2d 1097, 1099-1100 (7th Cir. 1990); Armstrong v. Board of Sch. Dirs. of the City of Milwaukee, 616 F.2d 305, 327 (7th Cir. 1980), overruled on other grounds, Felzen v. Andreas, 134 F.3d 873 (7th Cir. 1998), aff'd by an equally divided court, California Pub. Employees' Ret. Sys. v. Felzen, 525 U.S. 315 (1999). So long as they are not duplicative, there is no bar to filing more than one motion to intervene during litigation such as this. See, e.g., B.H. v. McDonald, 49 F.3d 294, 297 n.3 (7th Cir. 1995); Heyman v. Exchange Nat. Bank of Chicago, 615 F.2d 1190, 1193 (7th Cir. 1980).
The district court made it clear on numerous occasions, before it made a final judgment on the settlement, that it had characterized both of Mr. Hawk's earlier motions to intervene as ones seeking discovery. Therefore, Mr. Hawk was on notice that if he wished to intervene for the limited purpose of preserving his appellate rights, he could do so and that the district court would likely look favorably on such a motion. See Tr.16 at 149 (district court notes at fairness hearing that "I tried to make that clear, at several of the hearings, that I wasn't and didn't intend to prevent someone from simply intervening as an objector to protect their appellate rights" and asks Mr. Selden if he still wishes to move to intervene). The court also remarked at the fairness hearing that "of course... a motion to intervene can be granted at any time as long as I have jurisdiction over this case." Id. at 151. Therefore, this attempted justification cannot excuse Mr. Hawk's failure to move for intervention to preserve his appellate rights.
8
The district court described this investigation in the following way:
The investigation included interviewing hundreds of PCH customers and reviewing PCH mailings, meeting with members of the Florida Attorney General's office concerning its investigation of AFP, reviewing files that the Florida Attorney General had accumulated, meeting with the Illinois Attorney General, and discussing the case with a national expert on marketing psychology and direct mail marketing.... In addition, after entering into a Court-approved Protective Order, class counsel was given access to thousands of pages of documents containing internal and proprietary PCH information. PCH also produced numerous officers and employees to answer questions about its internal operations, customer purchasing histories, composition and conduct of mailings, computer and database issues, and customer contacts and complaints.
R.227 at 20-21.
9
In an earlier memorandum opposing Mr. Hawk's initial motion to intervene, class counsel cited a number of sources to show that Mr. Hawk's lawyers were "professional objectors." These included a Wall Street Journal article describing the potentially lucrative nature of challenging class action settlements, which quotes Mr. Rosenthal describing his involvement in one such matter. See Richard B. Schmitt, Objecting to Class-Action Pacts Can Be Lucrative for Attorneys, Wall Street Journal, Jan. 10, 1997, at B1 (also noting that the judge who approved the fee in that case found it "'a reasonable amount'"). This article was later noted disapprovingly by another court, in a case where Mr. Selden and Mr. Rosenthal were involved in a fee dispute with other attorneys, and where the court also stated that a part of Mr. Rosenthal's testimony had been "somewhat hyperbolic at best, and somewhat false at worst." French v. Selden, 59 F. Supp.2d 1152, 1156, 1160 (D. Kan. 1999). The other references made by class counsel were to cases involving Mr. Selden and/or Mr. Rosenthal in which the attorneys simply represented objectors to class actions or, in one matter, in which Mr. Selden himself opted out of a settlement.
10
We note that it is possible, though perhaps difficult, to read the district court's statements that "I've made it the court's business to find out all I can about [the attorneys'] legal practice" or that "I haven't been able to find anyone anywhere that say these are recognized class counsel" to mean that, based on information presented in the record, the district court drew these conclusions. Tr.18 at 15. It is precisely because of this uncertainty that we require a more explicit justification for the district court's determination as to the basis for the sanction.
11
Two other aspects of the district court's imposition of sanctions are problematic. First, Rule 11(c)(2) allows for a penalty requiring the payment of attorneys' fees by a party only if the sanctions were initiated by motion; a district court would abuse its discretion if, on its own initiative, it imposed a sanction based on attorneys' fees. See Divane, 200 F.3d at 1030. We have noted that Rule 11(c)(2) was amended to limit the extent that attorneys' fees may be used as a measure of sanctions, so as to more precisely focus on the Rule's primary goal of deterrence. See id. at 1030-31; see also Fed. R. Civ. P. 11, Advisory Committee's Notes (1993 Amendments) ("Since the purpose of Rule 11 sanctions is to deter rather than to compensate, the rule provides that, if a monetary sanction is imposed, it should ordinarily be paid into the court as a penalty."). Here the district court initially indicated that Mr. Selden and Mr. Rosenthal would be required to pay a sanction based on the attorneys' fees of class counsel and PCH's counsel; when alerted that such a ruling would be improper under Rule 11(c)(2), the court nevertheless used those fees as "a marker but not dispositive" in its sanction determination. Tr.18 at 20. In light of the intent of Rule 11(c)(2), in reflecting on the amount of the sanction in this case, the district court should not consider attorneys' fees at all. Instead, it should only take into account those factors relating to effective deterrence of such misconduct in the future.
Secondly, the district court ordered that the sanctions be paid to the Greater East St. Louis Community Fund, Inc., a local charity. Yet where sanctions are imposed under Rule 11(c)(1)(B) by the district judge on his own initiative, Rule 11(c)(2) provides that payment of sanctions may be directed only to the court as a penalty. See Johnson, 74 F.3d at 152 n.3 (where judge awarded such sanctions payable to financial services corporation and to United States, Rule 11(c)(2) was violated). As a result, when this issue is reconsidered on remand, if the district court again determines that sanctions are warranted, it must direct that they be paid only to the court. | 01-03-2023 | 04-18-2012 |
https://www.courtlistener.com/api/rest/v3/opinions/1547439/ | 15 F.2d 25 (1926)
WEST KENTUCKY COAL CO.
v.
DILLMAN.[*]
In re METROPOLIS TOWING CO.
No. 7076.
Circuit Court of Appeals, Eighth Circuit.
September 25, 1926.
*26 James G. Wheeler, of Paducah, Ky. (Wheeler & Hughes, of Paducah, Ky., and Benson C. Hardesty, of Cape Girardeau, Mo., on the brief), for appellant.
C. G. Shepard, of Caruthersville, Mo., (E. E. Alexander, of Blytheville, Ark., on the brief), for appellee.
Before LEWIS, Circuit Judge, and MUNGER and JOHNSON, District Judges.
JOHNSON, District Judge.
The West Kentucky Coal Company filed a suit in admiralty in the court below on the 30th day of June, 1921, to enforce a maritime lien against the steamer Metropolis for coal alleged to have been furnished the steamer upon the order of the master, between the 26th day of June, 1920, and the 14th day of May, 1921, amounting to $7,098.33. Later the bill was amended, increasing the amount to $8,316.19. The vessel was seized by the marshal on the 1st day of July, 1921. On June 20, 1921, the Metropolis Towing Company, owner of the steamer Metropolis, was adjudicated a bankrupt in the court below. A trustee was appointed July 9th. Later the court ordered the marshal to release the steamer to the trustee in bankruptcy and transferred the suit of the coal company to the bankruptcy division of the court "for trial upon the issues as framed by the pleadings filed, or by such amendments as may be properly allowed, according to the course and practice of this court in causes of admiralty and maritime jurisdiction."
The court further ordered that the cause "be referred to Hon. H. E. Alexander, referee in bankruptcy, to take and hear such testimony as the nature of the case may require, and to determine whether under the admiralty law the libelant and intervening libelant are entitled to maritime liens, and to enforce such lien or liens, if allowed or adjudged to exist, against the bond heretofore given for the release of said vessel from the custody of the United States marshal and against the principal and sureties on said bond; that pending the hearing and determination before the referee and such review and appeals as may be had, if any, said bond shall be and remain in full force and effect."
The referee heard the case and disallowed the lien claimed by the coal company against the steamer, but allowed the claim as an unsecured claim against the estate of the bankrupt. Upon review the trial court confirmed the order of the referee. The coal company has appealed from the order of the District Court.
The first question presented is one of procedure. The appellant asserts that its suit in admiralty could not be lawfully transferred to the bankruptcy division of the court and heard by the referee, as was done in this case. In the absence of any act of Congress fixing the procedure in such cases, the question presented is not without difficulty. The Bethulia (D. C.) 200 F. 862; The Casco (D. C.) 230 F. 929. Courts of admiralty and bankruptcy courts are by statute given exclusive jurisdiction within their peculiar spheres, but the jurisdiction of both is vested in the District Courts of the United States. Each of these divisions of the court below had jurisdiction of the subject-matter of this litigation. The steamer, from the moment the towing company was adjudicated a bankrupt, was in the constructive possession of the bankruptcy division of the court. In admiralty the court had jurisdiction to seize the steamer at the suit of the coal company. In the administration of the estate of the towing company in bankruptcy the court had jurisdiction to establish liens and determine priorities; in admiralty it had like jurisdiction in respect to maritime liens. Whether in any particular case the court will proceed in one division or in the other or in both in our opinion must be left, until Congress acts, to the sound discretion of the District Court. If by the order made in the court below the coal company was deprived of no substantial right, if it had an opportunity to be heard and present its evidence, and if the determination of the case was in accordance with admiralty law, we are of opinion appellant has no ground for complaint. *27 If, however, we were required here to decide between the two courts, we would be disposed to hold that the case was properly disposed of by the bankruptcy court which acquired constructive possession of the boat before the marshal's seizure. Taubel, etc., Co. v. Fox, 264 U. S. 426, 432, 44 S. Ct. 396, 68 L. Ed. 770.
Section 1 of the Act of Congress of June 23, 1910, 36 Stat. p. 604, re-enacted by Act June 5, 1920, 41 Stat. p. 1005, § 30, subsec. P, being Comp. Stat. § 8146¼ooo, provides:
"Any person furnishing repairs, supplies, * * *, or other necessaries, to any vessel, whether foreign or domestic, upon the order of the owner of such vessel, or of a person authorized by the owner, shall have a maritime lien on the vessel, which may be enforced by suit in rem, and it shall not be necessary to allege or prove that credit was given to the vessel."
And section 4 of the Act of June 23, 1910 (section 30, subsection S, of the Act of June 5, 1920, being Comp. St. § 8146¼ppp), provides:
"Nothing in this section shall be construed to prevent the furnisher of repairs, supplies * * * or other necessaries * * * from waiving his right to a lien * * * at any time, by agreement or otherwise; and this section shall not be construed to affect the rules of law now existing, in regard to (1) the right to proceed against the vessel for advances, (2) laches in the enforcement of liens upon vessels, (3) the right to proceed in personam * * *."
The referee and trial judge both found that all of the coal for which the coal company claimed a lien against the steamer Metropolis had been sold and delivered to the towing company personally and solely upon its credit, and that no part of the coal had been furnished as supplies to the steamer by the coal company, so as to entitle it to a lien against the steamer under the statute.
The deliveries of the coal covered by the libel may be grouped under two heads: (1) Those made in bargeload lots; (2) those made in less than bargeload lots.
There was evidence in behalf of the trustee tending to show that some of the coal for which the coal company filed its libel was ordered by the towing company from its office at Caruthersville, Mo.; that the coal so ordered was loaded by the coal company on barges belonging to it at Paducah, Ky., the place of business of the coal company, and that some of the loaded barges were taken by the coal company to Caruthersville, Mo., the home port and place of business of the towing company, and there delivered to and left with the towing company, to be unloaded as the coal was needed for use by the steamers and derrick boats of the towing company; that other of the loaded barges were delivered to the steamer Metropolis at Paducah, and towed by it to Caruthersville, and the coal unloaded as needed by the steamers and derrick boats of the towing company. The referee and trial judge accepted this version of the dealings between the parties as true and found that the barge deliveries were outright sales to the Towing Company for such use as it saw fit. This finding we may not disturb. Schlafly v. United States (C. C. A.) 4 F.(2d) 195; Fienup v. Kleinman (C. C. A.) 5 F.(2d) 137. And under it the coal company was not entitled to a lien against the steamer Metropolis for the coal so sold and delivered. Piedmont Coal Co. v. Seaboard Fisheries Co., 254 U. S. 1, 41 S. Ct. 1, 65 L. Ed. 97.
The coal covered by the libel sold in less than bargeload lots was loaded at Paducah, Ky., or Memphis, Tenn., by the coal company directly on the steamer Metropolis or on flats belonging to the steamer and carried along for that purpose. There is no conflict in the evidence that this coal was ordered by the master as fuel for the steamer and furnished for that purpose by the coal company, and there is no evidence in the record tending to show that the coal company ever waived its right to a lien upon the steamer for this coal.
The account of the coal company was carried in the name of the steamer Metropolis, with the name of the towing company written underneath. This account was of long standing. It was in balance on June 26, 1920. The account sued upon was between June 26, 1920, and May 14, 1921. In this account in January and February, 1921, items had been charged and noted on the margin as deliveries of coal to the towing company and to the steamer Dillman. Deliveries of coal charged in the account (including these items) were entered on the debit side of the ledger in the order of their dates. The towing company from time to time made general payments upon the account; the coal company entered such payments as general credits on the account. At the time the coal company brought suit, it arbitrarily offset enough of the cash standing to the credit of the towing company to liquidate the items of the account noted as furnished to the towing company and to the steamer Dillman. This the coal company had no right to do. The cash standing to the *28 credit of the towing company in the account should have been applied in payment of the items of the account in the order of their dates, including the items charged to the towing company and to the steamer Dillman. The Mary K. Campbell (D. C.) 40 F. 906; The Sophia Johnson (D. C.) 237 F. 406; The William B. Murray (D. C.) 240 F. 147.
After eliminating from the account the items paid by the cash credits and those items charged against the towing company and the steamer Dillman there is left the Memphis account and the last four items of the Paducah account. Two of the four items of the Paducah account were barge deliveries, which the referee and the trial court on conflicting evidence found were sold and delivered to the towing company for general use. This finding we will not disturb. The remaining two items of the Paducah account were for coal delivered to the steamer Metropolis for its use, as were also the deliveries made at Memphis. These amount to $1,681.86. The right of the coal company to enforce its lien for the coal deliveries represented in this sum was never waived. The coal represented in this sum having been furnished the steamer for its own use, and the right to enforce the lien not having been waived, the coal company was justly entitled under the statute to a lien upon the steamer Metropolis for said sum of $1,681.86. The Yankee, 233 F. 919, 147 C. C. A. 593; The Bronx, 246 F. 809, 159 C. C. A. 111; The Portland (C. C. A.) 273 F. 401.
There is no basis in the record before us for the contention of the trustee that the coal company lost its right to claim the lien given it under the statute through laches in its enforcement. No lien claimant is contesting the right of the coal company to a lien, and the trustee is not contesting such right in behalf of any claimant shown by the record to be entitled to a lien, and as against the claims of general creditors the plea of laches is without merit. The question of priorities of lien claimants between themselves, if there are others besides the coal company, is not before us on this record.
The court below is directed to set aside the order allowing the claim of the coal company as a general claim against the estate of the bankrupt, and in lieu thereof enter an order allowing the coal company a maritime lien against the steamer Metropolis, for the sum of $1,681.86 and allowing the balance of its claim, amounting to $6,634.33, as a general claim against the estate of said bankrupt. Appellant to recover its costs, including such part of premiums paid on account of bonds given in the cause as $1,682 bears to $8,316.
NOTES
[*] Rehearing denied December 20, 1926. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547443/ | 15 F.2d 400 (1926)
SLOCUM et al.
v.
BOWERS, Collector of Internal Revenue.
District Court, S. D. New York.
September 14, 1926.
*401 De Forest Bros., of New York City (Robert Thorne, of New York City, of counsel), for plaintiffs.
Emory R. Buckner, U. S. Atty., of New York City (Thomas J. Crawford, Asst. U. S. Atty., of New York City, and T. H. Lewis, Jr., Sp. Asst., Internal Revenue, of Washington, D. C., of counsel), for defendant.
AUGUSTUS N. HAND, District Judge.
This is a motion to dismiss the complaint. The action is brought against the collector of internal revenue to recover income taxes upon the estate of Margaret Olivia Sage, deceased, for the year 1919 alleged to have been illegally exacted. These taxes amounted to $1,408,568.68 and were based upon income ultimately passing to various religious, charitable, scientific, and educational corporations which were residuary legatees under the will of Mrs. Sage. The income was derived from personal property. There has already been a refund of an income tax of $15,200.75, which was based on rentals derived from real estate. This latter sum the department finally admitted could not be assessed against the above corporations, which on the death of Mrs. Sage succeeded to the title to the real estate as residuary devisees. It is thus apparent at the outset that the position of the government is based upon the rule that a legacy of personal property does not pass the legal title to the legatee, whereas a devisee takes title directly under the will. Nevertheless the beneficial interest in each kind of property belonged to religious, charitable, scientific, or educational corporations generally exempt from income taxes. It is interesting to note that the department first took the position now maintained by the executors of the Sage estate and approved returns filed by the executors under which they claimed that the net residuary income of the estate was payable to and had been set aside for the residuary legatees which were corporations organized and operated exclusively for religious, charitable, scientific, or educational purposes and exempt from income taxes. In a letter of July 28, 1921, the department referred to the amended returns by the executors and said:
"An audit of the several returns discloses that those filed on January 25, 1921, are correctly made. Since it appears that the residuary legatees are tax exempt corporations and that the amounts actually paid to the general legatees have been included in their returns, there is no further tax due from the executors for that year."
The government changed its ruling and assessed a tax for 1919 on the income passing to the residuary legatees because of a reaudit made at the request of the executors in July, 1921, in order that they might be in position safely to distribute the income to the residuary legatees.
The claim that such income is taxable is based on section 219 of the Revenue Act of 1918 (Comp. St. § 6336 1/8ii), which reads as follows:
"Estates and Trusts.
"Sec. 219. (a) That the tax imposed by sections 210 and 211 shall apply to the income of estates or of any kind of property held in trust, including
"(1) Income received by estates of deceased persons during the period of administration or settlement of the estate;
"(2) Income accumulated in trust for the benefit of unborn or unascertained persons or persons with contingent interests;
"(3) Income held for future distribution under the terms of the will or trust; and
"(4) Income which is to be distributed to the beneficiaries periodically, whether or not at regular intervals, and the income collected by a guardian of an infant to be held or distributed as the court may direct.
"(b) The fiduciary shall be responsible for making the return of income for the estate or trust for which he acts. The net income of the estate or trust shall be computed in the same manner and on the same basis as provided in section 212, except that there shall also be allowed as a deduction (in lieu of the deduction authorized by paragraph [11] of subdivision [a] of section 214) any part of the gross income which, pursuant to the terms of the will or deed creating the trust, is during the taxable year paid to or permanently set aside for the United States, any state, territory, or any political subdivision thereof, or the District of Columbia, or any corporation organized and operated exclusively for religious, charitable, scientific, *402 or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual; and in cases under paragraph (4) of subdivision (a) of this section the fiduciary shall include in the return a statement of each beneficiary's distributive share of such net income, whether or not distributed before the close of the taxable year for which the return is made.
"(c) In cases under paragraphs (1), (2), or (3) of subdivision (a) the tax shall be imposed upon the net income of the estate or trust and shall be paid by the fiduciary, except that in determining the net income of the estate of any deceased person during the period of administration or settlement there may be deducted the amount of any income properly paid or credited to any legatee, heir or other beneficiary. In such cases the estate or trust shall, for the purpose of the normal tax, be allowed the same credits as are allowed to single persons under section 216.
"(d) In cases under paragraph (4) of subdivision (a), and in the case of any income of an estate during the period of administration or settlement permitted by subdivision (c) to be deducted from the net income upon which tax is to be paid by the fiduciary, the tax shall not be paid by the fiduciary, but there shall be included in computing the net income of each beneficiary his distributive share, whether distributed or not, of the net income of the estate or trust for the taxable year, or, if his net income for such taxable year is computed upon the basis of a period different from that upon the basis of which the net income of the estate or trust is computed, then his distributive share of the net income of the estate or trust for any accounting period of such estate or trust ending within the fiscal or calendar year upon the basis of which such beneficiary's net income is computed. In such cases the beneficiary shall, for the purpose of the normal tax, be allowed as credits in addition to the credits allowed to him under section 216, his proportionate share of such amounts specified in subdivisions (a) and (b) of section 216 as are received by the estate or trust."
The general provisions of the Revenue Act of 1918 exempting charitable corporations from taxation so far as applicable to this case are as follows:
"Sec. 231. * * * The following organizations shall be exempt from taxation under this title
* * * * *
"(6) Corporations organized and operated exclusively for religious, charitable, scientific, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual." Comp. St. § 6336 1/8o.
Under the original Revenue Act of 1913 (38 Stat. 177) there was no provision for a tax of estates and trusts and the only provision was for the taxing of individuals and for the withholding at the source of income received by agents and fiduciaries. Accordingly income accumulated for unborn or unascertained persons could not be reached in the hands of fiduciaries. Smietanka v. First Trust & Savings Bank, 257 U. S. 602, 42 S. Ct. 223, 66 L. Ed. 391. The Revenue Act of 1916, as amended by the act of 1917, aimed at reaching these hitherto untaxed incomes by the following provision:
"Sec. 2. (b) Income of Estates. * * * Income received by estates of deceased persons during the period of administration or settlement of the estate, shall be subject to the normal and additional tax and taxed to their estates, and also such income of estates or any kind of property held in trust, including such income accumulated in trust for the benefit of unborn or unascertained persons, or persons with contingent interests, and income held for future distribution under the terms of the will or trust shall be likewise taxed, the tax in each instance, except where the income is return for the purpose of the tax by the beneficiary, to be assessed to the executor, administrator, or trustee, as the case may be: Provided, that where the income is to be distributed annually or regularly between existing heirs or legatees, or beneficiaries the rate of tax and method of computing the same shall be based in each case upon the amount of the individual share to be distributed. * * *" Comp. St. § 6336b.
Revenue Act 1916, § 11 (Comp. St. § 6336k [a]), contained a general exemption from income taxes in favor of corporations organized for religious, charitable, scientific, or educational purposes, similar to that of the act of 1918. Both of these acts contained in substance the further exemption from income taxes, which I quote from section 231 (12) of the act of 1918:
"Corporation or association organized for the exclusive purpose of holding title to property, collecting income therefrom, and turning over the entire amount thereof, less expenses, to an organization which itself is exempt from the tax imposed by this title."
The act of 1918 not only continued the former exemptions and added the additional exemption up to 15 per cent. of the income *403 of any individual given by him to charity, but it also exempted from the federal estate tax every bequest and devise to charity and made this exemption retroactive to January 1, 1918. It is quite clear that the primary purpose of the amendments taxing estates and trusts as entities was to reach income that had not theretofore been presently taxable at all. A design to tax income where the beneficial ownership is in corporations generally exempt under the law accordingly seems contrary to the history and spirit of the statute.
The act of 1918 (section 219) clearly covers the situation in the case of a trust where income is to be distributed periodically to the beneficiary and provides for payment by a taxable beneficiary of the tax on such income "whether distributed or not." The government relies on the language of section 219, supra, taxing generally: "(a) (1) Income received by estates of deceased persons during the period of administration or settlement of the estate" and bases its claim on a literal reading of the statute which does not in terms exempt estates passing to charitable corporations from income taxes and the testamentary rule of law that the legal title to the income in question was in the executors and the beneficiaries had only the right to require an accounting.
In view of the wide general exemption of charitable corporations under section 231 (6), supra, of the act of 1918, the careful provision to exempt a corporation holding title to property the income of which is to be turned over to exempt corporations, the 15 per cent. exemption in the case of distributions of income to charity inter vivos by private individuals, and the permitted deduction by a fiduciary in his return of any part of the gross income of an estate which is paid or permanently set aside for religious, charitable, scientific, or educational corporations, it is hard to believe that in the one case of administration of an estate the exemption should turn on the technical question of whether the corporations seeking it have the legal or equitable title to the income. The policy of exempting these corporations is firmly established and has been continuously expanding ever since the system of income taxation was adopted. The statute should be read, if possible, in such a way as to carry out this policy and not to make the result turn on accidental circumstances or legal technicalities. There is no doubt that the executors held the legal title, but it does not necessarily follow because they can sell assets, pay debts and distribute, that the portion of the property which they hold, though ultimately distributable to tax exempt persons, is taxable in their hands. The New York Court of Appeals held that where a statute provided that "if a person holds taxable property as * * * executor * * * he shall be assessed therefor as such," an executor was not subject to a personal tax on property ultimately passing to a corporation exempt by statute from taxation. People ex rel. Crook v. Wells, 179 N. Y. 257, 71 N. E. 1126.
The Circuit Court of Appeals of the Third Circuit, in the case of Lederer, Collector, v. Stockton, 266 F. 676, held (by a court consisting of Buffington, Woolley, and Haight, Circuit Judges) that surplus income accumulated in the hands of a trustee, which on the death of an annuitant would immediately pass to tax exempt charities, was not taxable under the Revenue Act of 1916. Section 2 (b) (1) of the act of 1916 differs in no substantial respect from section 219 (a) (1) of the act of 1918. Judge Buffington said:
"* * * The temporary holding of the income being by a trustee, who was the agent and representative solely of the hospital, it is clear that when substance and spirit, and not mere form and words, are the interpreters of the statute, the receipt of this income by the hospital's agent and representative was in truth and reality a receiving by the hospital, for he who acts by the hand of another himself acts."
It is true that the trustee in the Stockton Case, supra, made a loan of the corpus of the trust to the tax exempt remainderman in order to avoid a decision of the Pennsylvania Supreme Court holding that the income could not be paid out until the death of all the annuitants, so that the charitable corporation actually received the income. The Supreme Court placed its decision on the ground that the charitable corporation had actually received the income, while the Circuit Court of Appeals also relied on the further ground that the remainderman, though acting for the trustee in collecting the income, was the beneficial owner of the income. But the Supreme Court in no way disapproved of the additional ground adopted by the Court of Appeals and Chief Justice Taft, who wrote the opinion, reported in 260 U. S. 3, 43 S. Ct. 5, 67 L. Ed. 99, said:
"This residuary fund was vested in the hospital. The death of the annuitant would completely end the trust."
In the case of Kings County Trust Co. v. Law, 201 App. Div. 181, 194 N. Y. S. 370, affirmed without opinion in 234 N. Y. 610, 138 N. E. 466, a situation similar to the one here arose under the New York Income Tax Act *404 and the income though ultimately passing to corporations exempt under the New York act was held taxable as against the executor during the period of administration: The opinion in the Appellate Division did not discuss or mention the cases of People ex rel. Crook v. Wells or Lederer v. Stockton, supra, and there was a dissent in the Court of Appeals by Judges Cardozo, McLaughlin, and Crane from the decision of the four judges holding the income taxable in the hands of the executors. Moreover, the Legislature, pending the litigation (Laws 1922, c. 426), amended the act, so that no question of taxation of income destined for charitable corporations could thereafter arise and the case when finally decided was not a test case and relatively unimportant. Furthermore in a technical sense the exemption in the state statute did not reach the income in question in the Kings County Trust Company Case for section 359 (2) (g) of the New York act (Consol. Laws, c. 60, as added by Laws 1919, c. 627) provided that the term "gross income" should not include income "received" by religious, etc., corporations, and the income had not been literally received.
In the present litigation the debts of the Sage estate, so far as known, are alleged to have been paid during the year 1919, and the legacies and expenses seem properly to have been payable out of principal. Part of the income was earned out of assets distributable after one year from the date of letters testamentary in satisfaction of legacies as well as payable in due course of administration in discharge of debts and expenses, but the income from all of these sources belonged to the residuary legatees.
Furthermore, it is unimportant whether all of that income was derived from capital passing to them or not; if it in equity belonged to them, it was, except for the exemption, taxable as such from whatever source derived. Irwin v. Gavit, 268 U. S. 161, 45 S. Ct. 475, 69 L. Ed. 897. I think it reasonable to suppose that the income on which income taxes must be paid by an executor while the estate is in process of administration or settlement is only such income as is ultimately taxable as such and that the liability of income to taxation does not depend on where the legal title is vested but upon who is ultimately entitled to the property constituting that income.
The executors further rely on paragraph (c) of section 219 of the act of 1918 already quoted. That provides that in the case of income received by estates of deceased persons during the period of administration or settlement "the tax shall be imposed upon the net income of the estate or trust and shall be paid by the fiduciary, except that in determining the net income of the estate of any deceased person during the period of administration or settlement there may be deducted the amount of any income properly paid or credited to any legatee, heir or other beneficiary."
There was a claim made in the returns filed in this estate that the income in question was not taxable because it belonged to tax exempt corporations, but it was not paid to them during the year 1919, nor was it credited to them on the books until 1923, after the government had changed its former ruling and held the estate taxable as an entity upon this income. While the act does not prescribe when the income of the year is to be paid or credited to the legatee in order to render it deductible, there is force in the argument that an entry subsequent to the year 1919 did not satisfy the statute and would not be regarded as effecting the tax in the case of a taxable legatee. If the word "credited" is intended to cover all such sums as the executors may at any time set aside on the estate books or in their judicial accounts as applicable to a beneficiary, the provisions of section 219 of the act of 1918 taxing estates during the period of administration will be limited to income accumulated in trust for unascertained persons with contingent interests, income held for future distribution under the terms of a will or trust and to income of such other persons as a fiduciary may choose not to credit. In other words, it leaves the matter in the ordinary estate where there is no trust to the option of the fiduciary. Certainly the government adopted this view as to the general legatees under the Sage will, whose legacies were not paid within the year and allowed them rather than the estate to return and pay taxes on such income items. Strangely enough, as a matter of consistency the department only refused to allow this method of return in case of the tax exempt corporations.
There is nothing, however, in section 219, supra, to prescribe when income may be credited to legatees and it is perhaps more reasonable to interpret it as allowing the executor to credit income to a beneficiary after the amount is established beyond a peradventure, or after he realizes the importance of such action to the beneficiary, than to construe the statute with rigor and leave the matter wholly to the chance of an entry by a bookkeeper before the last day of the tax year. Is it reasonable to suppose that an entry must be made before the books can ordinarily be written up in preparation for income tax returns and that a credit even a week later will result *405 in losses of hundreds of thousands of dollars to innocent taxpayers? The option left to the fiduciary under any interpretation results in serious practical difficulties. It is reasonable, therefore, to hold that the return of estate income, even in the case of a taxable individual, may be made either by himself or by the executor. What the act has endeavored to reach is the income irrespective of who might pay the tax.
It is probable that section 219 (b), which allows a deduction by the fiduciary of any part of the gross income "paid to or permanently set aside for" religious, charitable, scientific or educational corporations "pursuant to the terms of the will or deed creating the trust" is not applicable. At first the executors of the Sage estate seem to have relied upon this provision. But as the will in terms does not refer to income, and the income merely passes to the residuary legatees along with the disposal of the principal, it may well be contended that no income was ever permanently set aside "pursuant to the terms of the will." Yet it was disposed of by the will and so far as not used to pay off items chargeable against income might be said to have been "set aside" for the corporations for which it was ultimately destined. If, however, the word "trust" in the clause "pursuant to the terms of the will or deed creating the trust" means only literal trusts and does not broadly include the general fiduciary relations of executor and legatee, the provisions of section 219 (b) are not applicable to the residuary legatees under the Sage will.
But entirely irrespective of the provisions of section 219, subdivisions (b) and (c), of the Revenue Act of 1918, the sweeping exemptions of section 231 (6) thereof, in my opinion save the residuary legatees from taxation. Undoubtedly the terms of the act are confusing and this case is not free from doubt, but I believe that broadly speaking the purpose of the statute is to exempt from taxation all income essentially belonging to religious, charitable, scientific or educational corporations. In this view one can hardly suppose that moneys entirely exempt from taxation when in the hands of the residuary legatees are to be subjected to taxation because of a failure of an executor (often more or less accidental) to distribute, or the neglect of a bookkeeper to enter a credit during the tax year. It is evident that the entry might have been made or the income safely distributed in this very case. There was ample principal to justify the act, if it had been thought necessary in order to save the tax.
The motion to dismiss the complaint is denied. The defendant may answer within 20 days, and, in the event of failure so to do, judgment will go against him for the amount demanded in the complaint. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547858/ | 144 F.2d 737 (1944)
DORFMAN et al.
v.
FEDERAL TRADE COMMISSION.
No. 12653.
Circuit Court of Appeals, Eighth Circuit.
October 5, 1944.
Roger Rutchick, of St. Paul, Minn. (W. L. Ulvin, of St. Paul, Minn., on the brief), for petitioners.
Everett F. Haycraft, Sp. Atty., Federal Trade Commission, of Washington, D. C. (W. T. Kelley, Chief Counsel, and Joseph J. Smith, Jr., Asst. Chief Counsel, for Federal Trade Commission, both of Washington, D. C., on the brief), for respondent.
Before GARDNER, THOMAS, and RIDDICK, Circuit Judges.
THOMAS, Circuit Judge.
This case is presented on a petition to review and set aside an order of the Federal Trade Commission. The scope of the relief sought is limited in the brief to the contention that the Cease and Desist Order "should only be modified, rather than reversed for any insufficiency of the evidence."
The petitioners, Meyer Dorfman and Arthur Cohler, trading under the name Stetson Felt Mills, are engaged at St. Paul, Minnesota, in the manufacture and in the sale in interstate commerce of felt rugs.
In a conventional proceeding under the Federal Trade Commission Act, 15 U.S. C.A. § 41 et seq., comprising a complaint, an answer, the taking of testimony and the report of an examiner, the Commission made findings of fact and entered the Order here sought to be modified. The complaint relates to the activities and practices of the petitioners in the sale and distribution of their products in interstate commerce. The Commission found that the proceeding is in the interest of the public, and that the acts and practices of the petitioners as found are all to the prejudice *738 and injury of the public and constitute unfair and deceptive acts and practices within the intent and meaning of the Federal Trade Commission Act.
The findings of fact briefly summarized are (1) that the petitioners are and have been engaged in the manufacture and sale of felt rugs and other things in interstate commerce; (2) that in the conduct of their business they and their salesmen have been accustomed falsely to represent to prospective purchasers that they are connected with John B. Stetson Company, a wellknown hat manufacturer of Philadelphia, and that their rugs are made from trimmings from felt hats made by that company; (3) that petitioners and their salesmen practiced padding orders and shipping to purchasers merchandise greatly in excess of that actually ordered; that the order blanks used were to some extent confusing; that their salesmen failed to extend the totals of the various purchases on such blanks so that the purchaser could immediately determine the amount of merchandise purchased; that in some instances confusing notations were placed upon orders indicating additional purchases or purchases of more expensive merchandise than that actually ordered or desired; that petitioners when attempts were made to cancel such orders often collected as much as 19 per cent of the total amount of the order as handling charges, and in many instances large sums as damages by threats to sue and other forms of intimidation; and (4) that such acts and practices are deceptive and result in purchasers paying for rugs in excess of those ordered and paying more than they agreed or expected to pay.
Petitioners first assail paragraph Three of the findings of fact wherein the Commission found that in carrying out their false and fraudulent sales plan the salesmen padded orders and "failed and neglected to extend the totals of the various purchases on said order blanks so that the purchaser could immediately determine the amount of the merchandise which he was purchasing." The contention is that the quoted part of the finding should be eliminated as not supported by the evidence. The contention is without merit. The evidence directly and unequivocally supports the finding. The evidence of the petitioners, instead of denying the statement, tended only to show that it is not customary for salesmen for other business concerns to extend the totals on orders for merchandise.
In their brief petitioners state that they have no quarrel with items 1, 2, 5 and 10 of the Order to Cease and Desist, and in their brief these items are not discussed other than incidentally. Items 1 and 2 cover the representations that petitioners are a part of or in any way connected with the John B. Stetson Company of Philadelphia, and that their rugs are manufactured from trimmings of felt hats made by the said John B. Stetson Company. Item 5 embraces the use of a sales plan by which notations placed on customers' orders increase the amount of their purchases and make the amounts purchased not readily recognizable on the order blanks when they affix their signatures thereto. Item 10 deals with the coercion of or attempt to coerce purchasers by threats to sue or other forms of intimidation into paying damages to petitioners in order to induce them to accept the return of merchandise in excess of the amount ordered.
In three particulars, however, the petitioners seek modification of the Cease and Desist Order. First, they ask that item 4 be modified "if the same is susceptible of an interpretation requiring Petitioners to require their salesmen to extend the amounts of such orders." Second, they contend that the Order is too broad in its prohibition of the use of any sales plan which misleads or deceives purchasers and enables salesmen to obtain orders from purchasers in quantities greater than they order or expect to receive, or for amounts greater than they intend or expect to pay for, or in excess of their desires. Third, they assert that the Order requiring petitioners to cease coercing or attempting to coerce purchasers by threats to sue or other forms of intimidation is in violation of their rights to resort to courts of competent jurisdiction, even though the threats to sue and other forms of intimidation are made in the endeavor to compel the purchasers to accept rugs in excess of the quantity ordered or to compel them to pay more money than they agreed or expected to pay.
The first of these objections scarcely requires comment. Item 4 of the Order does not prescribe a means but enjoins a practice. Item 4 directs the petitioners to cease the use of a sales method "which involves the preparation of orders in such a manner that the purchasers cannot readily determine the quantity of rugs or other merchandise ordered or the amount to be paid, as a means of inducing the purchase *739 of greater quantities of such merchandise than that desired or the payment of amounts greater than such purchaser expects or intends to pay." In other words, the requirement is that the orders of purchasers must be clear and understandable both as to the quantity of merchandise purchased and the price to be paid. If to accomplish this purpose a blank order form is used which is not clear without an extension of the totals, then such extension is required. It is within the power of the Commission to require the preparation of orders for interstate sales which shall be clear not only to experts but which may also readily be understood by "that vast multitude which includes the ignorant, the unthinking and the credulous." Florence Mfg. Co. v. J. C. Dowd & Co., 2 Cir., 178 F. 73, 75; Charles of the Ritz Distributors Corporation v. Federal Trade Commission, 2 Cir., 143 F.2d 676, 679. The Act was "made to protect the trusting as well as the suspicious." Federal Trade Commission v. Standard Education Society, 302 U.S. 112, 116, 58 S. Ct. 113, 115, 82 L. Ed. 141. To comply with Item 4 of the Cease and Desist Order petitioners may entirely revise the order blank form in evidence or they may instruct their salesmen to prepare the orders so as to conform to the Order of the Commission. Compliance will be easy if undertaken in good faith. Judicial interpretation is not necessary.
The second objection is directed to those clauses of the Order to Cease and Desist intended to prevent the padding of purchasers' orders by any means whatever. It is said the language used by the Commission is "too broad" because "it binds the Petitioners by the undisclosed `expectations', `desires', `intentions', etc., of its customers." We do not think the Order is subject to the criticism directed against it. The petitioners were dealing unfairly with their customers in devious ways. The Order, while prospective in its application, deals with particular practices of the past and is designed to fit the situation and remove the evil practices disclosed by the facts. Compliance requires only that petitioners deal fairly with customers; that they see to it that orders of purchasers are not padded, and that such orders be prepared to include only the quantity and quality of merchandise actually ordered at prices actually made known to the purchasers and agreed upon. Whether the language of an order is too broad or not depends upon the nature and character of the unfair practice which it is intended to cure. The Order requires only that salesmen, before preparing orders, discover the desires, intentions and expectations of the purchasers with reference to the amount and cost of the merchandise, and prepare the orders accordingly. In short, the Order says to the petitioners and their salesmen, cease deceiving your customers and stop padding their orders. The Order, in our opinion, places no unfair burden upon the petitioners. It should be strictly obeyed. Hill v. Federal Trade Commission, 7 Cir., 124 F.2d 104; Haskelite Mfg. Corporation v. Federal Trade Commission, 7 Cir., 127 F.2d 765; National Labor Relations Board v. Express Publishing Co., 312 U.S. 426, 61 S. Ct. 693, 85 L. Ed. 930.
Petitioners' final contention is that threats to sue in connection with controversies with their customers are not coercion and intimidation and should not have been included in the Order to Cease and Desist. In support of this contention they urge that resort to the courts is a constitutional right of all citizens and that a threat to sue can not constitute coercion or intimidation.
The Order requires petitioners to cease and desist from coercing or attempting to coerce purchasers, by threats to sue or other forms of intimidation, into accepting rugs in excess of the quantity ordered, or into paying sums of money in excess of that agreed to be paid, or into paying damages for cancellation of orders for quantities of rugs in excess of that ordered.
Petitioners make no claim that the Order is not supported by the findings or the evidence or that the question was not in issue. The sole claim is that one's right to sue makes it impossible for a threat to do so to constitute coercion or intimidation. The reasoning is fallacious. Right, in law, is not an absolute. An act innocent in itself may be lawful or unlawful depending upon circumstances and the intent of the actor. For example, a man has a right to draw a check upon his deposit in a bank and the holder has a right to present it for payment. But if a man for the purpose of ruining the bank by causing a run upon it threatens to accumulate a large amount of checks and to present them at one time he may be enjoined. American Bank & Trust Co. v. Federal Reserve Bank of Atlanta, 256 U.S. 350, 358, 41 S. Ct. 499, 65 L. Ed. 983. A series of contracts, each of which is *740 lawful, the necessary result of which is materially to restrain trade among the states violates the Sherman Anti-Trust Act, 15 U.S.C.A. §§ 1-7, 15 note, and may be enjoined. United States v. Reading Company, 226 U.S. 324, 357, 33 S. Ct. 90, 57 L. Ed. 243. And acts absolutely lawful may be steps in a criminal plot. Aikens v. Wisconsin, 195 U.S. 194, 206, 25 S. Ct. 3, 49 L. Ed. 154. So here, threats to sue for the purpose of extorting money from customers where no money is due may be forbidden by the Federal Trade Commission, and an Order to Cease and Desist from such a practice is within its powers under the Act. Such an Order does not interfere with petitioners' constitutional rights.
The Order is affirmed and a decree of enforcement will be entered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547444/ | 867 A.2d 524 (2005)
SMITH v. HARTFORD INS. CO.
No. 271 & 272 WAL (2004)
Supreme Court of Pennsylvania.
January 11, 2005.
Disposition of petition for allowance of appeal denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547459/ | 15 F.2d 465 (1926)
BEYER CO. et al.
v.
FLEISCHMANN CO.
No. 4585.
Circuit Court of Appeals, Sixth Circuit.
November 11, 1926.
Donald M. Carter, of Chicago, Ill. (Parker & Carter, of Chicago, Ill., and Day & Day, of Cleveland, Ohio, on the brief), for appellants.
Berkeley W. Henderson, of Cleveland, Ohio (Baker, Hostetler & Sidlo, of Cleveland, Ohio, and Mayer, Warfield & Watson, Frederic P. Warfield, and Leonard A. Watson, all of New York City, on the brief), for appellee.
Before DENISON, DONAHUE, and MOORMAN, Circuit Judges.
MOORMAN, Circuit Judge.
This suit in equity charges defendants (appellants here) with infringement of letters patent Nos. 1,148,328 and 1,151,526. The patents relate to a process for the manufacture of bread. The infringement was alleged to have resulted from the manufacture and sale of a yeast food used in the making of bread. The bill sets up as ground for the relief sought, among others, the proceedings in Ward Baking Co. v. Hazleton Baking Co. (D. C.) 292 F. 202, wherein the two patents were adjudged valid, and alleges that the plaintiff herein was the plaintiff in that case, and that defendants herein were the real parties defendant in interest in that case. The proceedings and judgment in that case were pleaded in bar of defendants' right to question the validity of the patents. By joint answer defendants put in issue that plea of adjudication, and also denied the other averments of the bill, presenting the questions: First, as to whether defendants were in such privity with the Hazleton Baking Co. Case as to make the judgment in that case binding upon them; and, second, if so, whether there was equivalency in the legal sense between the process involved in that case and defendants' present process, or from a broader consideration, whether the later process is an infringement on the claims of the patents. Upon both issues the trial court found for the plaintiff.
At the hearing on the first of these questions the defendants introduced no evidence, but plaintiff introduced certified copies of the proceedings and judgment in the former case. They showed that the main defense was anticipation by long-continued prior use by David Beyer, the owner of the Beyer Company; that in the opening statement in that case it was said by counsel for plaintiff, and not denied, that his understanding was that the defense was being conducted by the Beyer Company; that Beyer was present throughout the trial and testified for defendant; that counsel for defendant, who was originally counsel for defendants in this case, in stating the case for the defense, among other things said: "There is nothing inventive in the process which they claim under the first patent. It is not new. We have used this since 1898. When I say `we,' I speak of the Beyer Company. We have used calcium salts, ammonium salts, and bromates, and stand ready to prove it, separately and in combination with other chemical compounds, since 1898;" that the trial judge in an opinion said: "In fact, the Beyer Company has been present at the trial and assisted in the defense against the charge of infringement; hence the essential question remaining is whether the use of Beyer's yeast food makes defendant liable to plaintiff's charge;" that an interlocutory decree was entered sustaining the validity of the patents, and before the final judgment of like effect was rendered on August 29, 1924, an order was entered substituting the Fleischmann Company as plaintiff for the Ward Baking Company.
The general rule is that one who prosecutes or defends a suit in the name of *466 another, to establish or protect some interest of his own, or who openly assists in an action in aid of some such interest, to the knowledge of the opposing party, is as much bound by the judgment as he would be if he had been a party of record. Penfield v. Potts & Co. (6 C. C. A.) 126 F. 475, 61 C. C. A. 351; Greenwich Ins. Co. v. Friedman Co. (6 C. C. A.) 142 F. 944, 74 C. C. A. 114; Foote v. Parson, etc. (6 C. C. A.) 196 F. 951, 118 C. C. A. 105; Southern Pacific R. Co. v. United States, 168 U. S. 1, 18 S. Ct. 18, 42 L. Ed. 355; Souffront v. La Compagnie Des Sucreries, 217 U. S. 475, 30 S. Ct. 608, 54 L. Ed. 846. Upon an application of this principle, the lower court found that defendants were bound by the decree in the first case. It is insisted in their behalf that the finding is without warrant of evidence. Objection is also made to the admission in evidence of the opening statements of counsel for the Baking Company in the former case on the ground that they were incompetent because of a purely hearsay nature.
Under different or the usual circumstances this latter objection might present a question of substantial merit. But, taken in connection with the admitted use of the Beyer Company's product, its natural interest in the first case, and the presence at the trial of Beyer, the president and sole owner of that company, the statements were entitled to some consideration in determining whether in fact Beyer was an interested party to that proceeding. Of like consequence, perhaps with added force, because of a common interest, to say the least, was the use of the word "we" by counsel for defendant, followed by the explanation that he referred to the Beyer Company. We do not think that the definition of that particular reference had the effect of excluding the Beyer Company from the meaning of the term as thereafter used, except where expressly included. As to the sufficiency and effect of the evidence, it is enough to say that the facts referred to, in our opinion, constitute a showing of such participation by defendants in the former proceedings as to make the judgment therein binding upon them.
The second issue is in a measure simplified by a comparison of the patented and alleged infringing processes. Plaintiff's first patent shows a bromin compound operating with the yeast, flour, and other ingredients of the dough batch. It is less specific as to quantities and associated elements than the second patent, which claims a "composition of matter for use, associated with yeast, in the making of leavened bread, flour containing in admixture therewith ammonium chloride, calcium sulphate, and potassium bromate, substantially as described" in the specifications. The last-mentioned ingredient is the new and efficient element in both patents, being associated definitely in the second with the other two ingredients in substantially the proportion described in the specifications. This new ingredient is also used by defendants, and, except for an added ingredient, its new formula C more nearly approximates the later patent of plaintiff than does the infringing product in the Hazleton Case. Defendants have increased in their newer formula the quantity of ammonium chloride, and have brought into it calcium carbonate, which they claim possesses functions and produces results that make an entirely new process.
Illustrative formulas of compounds given in the specifications of the patents, and made according to the infringing product in the Hazleton Case and plaintiff's new product, are shown in the record. The evidence touching the chemical workings of the various ingredients of these formulas when in contact with their associated elements is somewhat involved and technical. Much of it, as respects functions and results, is conflicting. The ultimate fact, however, we think, is that the difference in substance not in the functioning of the substance between formula C and defendants' former process is the added ingredient, calcium carbonate.
It is claimed by defendants that this ingredient modifies the action of all associated elements, producing a novel process. One of the advantages claimed for it is that the dough can be withheld from the oven for a long time without spoiling, which cannot be done, it is said, with plaintiff's dough. Perhaps this is another way of saying, what is also claimed as a difference, that the calcium carbonate neutralizes the excess of acidity caused by the increased quantity of ammonium chloride, and thus prevents the speeding up of the fermentation and the too rapidly maturing of the dough. These theories, with others advanced by defendants as indicating novelty in their formula, are disputed. In our opinion they are not sustained by the evidence.
Nor are we impressed with the contention that the larger proportion of ammonium chloride, of itself or in connection with the calcium carbonate, produces a formula that is chemically different in its workings from the older process. We concur in the view of the court below that the added quantity of *467 calcium carbonate was introduced to neutralize the added quantity of ammonium chloride, and the only purpose of using them was to practice, if possible without infringement, the process shown by plaintiff's patents.
Judgment affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547596/ | 867 A.2d 1167 (2005)
182 N.J. 494
STATE of New Jersey, Plaintiff-Respondent,
v.
Daniel J. DALZIEL, Defendant-Appellant.
Supreme Court of New Jersey.
Argued November 9, 2004.
Decided March 3, 2005.
*1169 Seon Jeong Lee, Assistant Deputy Public Defender, argued the cause for appellant (Yvonne Smith Segars, Public Defender, attorney).
Lora B. Glick, Deputy Attorney General, argued the cause for respondent (Peter C. Harvey, Attorney General of New Jersey, attorney).
Justice LONG delivered the Opinion of the Court.
This appeal provides us with an opportunity to revisit the aggravating and mitigating factors prescribed in our Code of Criminal Justice and to assess the propriety of their use under the particular facts presented.
I
On March 1, 2002, 19-year-old defendant, Daniel Dalziel and his co-defendant Brad DeBlasi committed a robbery. DeBlasi was armed with a pellet gun, and Dalziel with an eighteen-inch wooden souvenir bat. The two concealed their faces with dark bandanas and went to the Larsen Shell Gas Station in Toms River. Villem Vainjoe, the station attendant, was watching television in the booth when Dalziel and DeBlasi arrived.
DeBlasi pointed the gun at Vainjoe and ordered him to hand over the money. Vainjoe, believing the gun was a toy, refused to comply, angering Dalziel. Dalziel then grabbed Vainjoe, put him in a headlock, and while asking for the money, hit the victim three times on the head and in the face with the bat. Ultimately, Vainjoe gave Dalziel $25 from his pocket and was released. Dalziel and DeBlasi took three packs of cigarettes and fled. The total value of the robbery proceeds was $39.
Vainjoe was treated for a head laceration and contusions to his head and face. The police questioned Dalziel and DeBlasi on the day of the robbery and both denied participation. On March 21, 2002, DeBlasi, while being questioned for a second time, admitted that he and Dalziel robbed the station. Later, Dalziel also admitted to the robbery and to assaulting Vainjoe.
Dalziel and DeBlasi were indicted for first-degree armed robbery, N.J.S.A. 2C:15-1. Dalziel was also charged with second-degree aggravated assault, N.J.S.A. 2C:12-1(b)(1), second-degree possession of a weapon (baseball bat) for an unlawful purpose, N.J.S.A. 2C:39-4(d) and fourth-degree unlawful possession of a weapon. N.J.S.A. 2C:39-5(d). Dalziel agreed to plead guilty to first-degree robbery in exchange for truthful testimony against DeBlasi. In return, the State agreed to dismiss all other charges, not seek a sentence greater than the presumptive fifteen years with an 85% parole disqualifier and five years of parole supervision, and, to allow Dalziel to argue for a lesser sentence. Thereafter, Dalziel pled guilty to the armed robbery charge.
On November 15, 2002, the trial judge sentenced Dalziel to a custodial term of fifteen-years subject to an 85% parole disqualifier and five years of parole supervision following release. See N.J.S.A. 2C:43-7.2. In so doing, the judge found four aggravating factors: (1) the risk that Dalziel would commit another crime, N.J.S.A. 2C:44-1(a)(3); (2) his prior criminal record and the seriousness of the current offense, N.J.S.A. 2C:44-1(a)(6); (3) a need to deter, N.J.S.A. 2C:44-1(a)(9); (4) and that Dalziel might view a lesser or minimum sentence merely as the "cost of doing business," N.J.S.A. 2C:44-1(a)(11). *1170 The judge found no mitigating factors and, considering the preponderance of aggravating over mitigating factors and the seriousness of the assault during the robbery, stated that, but for the terms of the plea agreement, he would have imposed a sentence greater than fifteen years.
On January 8, 2003, Dalziel filed a motion for a reduction or change of sentence pursuant to R. 3:21-10. That motion was denied. Subsequently Dalziel filed a Notice of Appeal. The Appellate Division affirmed the judgment after a hearing on the Excessive Sentence Oral Argument (ESOA) calendar. We granted Dalziel's petition for certification, 180 N.J. 357, 851 A.2d 650 (2004), and now reverse.
II
Dalziel argues that the trial judge incorrectly found and weighed aggravating and mitigating factors. More particularly, he contends that the "cost of doing business" aggravating factor (N.J.S.A. 2C:44-1(a)(11)) is inapplicable where the court is not balancing a non-custodial sentence against incarceration; that reliance on his lengthy "juvenile record" was unwarranted because he was not found delinquent in most instances; and that the trial judge did not cite a reason, specific to Dalziel, for invoking the deterrence factor.
He also claims that the trial judge erred in determining that no mitigating factors were present. In that respect, he points to his remorse and his post-sentence efforts at rehabilitation, including enrollment in college courses and vocational training; his participation in Alcoholics and Narcotics Anonymous; his efforts to obtain individual therapy and anger management and to focus on the effects his actions had on his victim; the fact that he has serious emotional problems; that those problems can be controlled with medication; that he has a stable environment waiting for him upon release; that his lengthy prison sentence would be an excessive hardship to his family; and that he was "willing to cooperate with law enforcement." According to Dalziel, if the proper aggravating and mitigating factors were weighed and considered, he would have received a lesser sentence.
The State counters globally that the test on review of a sentence is "whether, on the basis of the evidence, no reasonable sentencing court could have imposed the sentence under review." State v. Ghertler, 114 N.J. 383, 388, 555 A.2d 553 (1989). Applying that level of deference, the State contends that Dalziel's sentence was reasonable.
More specifically, the State urges that the "cost of doing business" aggravating factor may be applied by analogy in balancing a longer versus a shorter sentence and that, in any event, it was merely a shorthand way of impressing Dalziel with the seriousness of his crime. Regarding his prior history of criminality, the State points out that Dalziel's juvenile record includes five complaints in Florida and New Jersey, including sexual assault, theft by unlawful taking, receiving stolen property and criminal attempt; that Dalziel was adjudicated delinquent on four of the five charges, including sexual assault; that he was sentenced to two years probation and violated it after only seven months; and that as an adult, Dalziel was arrested four times before his most recent offense and was found guilty of criminal trespass and provoking breach of the peace.
In terms of deterrence, the State contends that the record clearly demonstrates that Dalziel's prior conduct coupled with his post-arrest psychiatric evaluation underscore that he is likely to re-offend and thus is a strong candidate for deterrence. Regarding excessive hardship on his family, the State notes that Dalziel has never resided with or supported them. Further, *1171 with respect to the "willingness to cooperate with law enforcement" mitigating factor, the State argues that Dalziel's cooperation was too little, too late.
Finally, the State submits that Dalziel may not advance the argument that the trial court erred in denying his motion for reconsideration of sentence because he failed to raise the issue at his ESOA proceeding. R. 2:10-2. On the merits, the State contends that the judge's denial of the motion was well-founded because Dalziel's post-sentence rehabilitation efforts, while commendable, do not merit a lessening of his sentence, imposed pursuant to a plea agreement.
III
In sentencing, trial judges are given wide discretion so long as the sentence imposed is within the statutory framework. However, there are limits on that power.
As Justice O'Hern prescribed in State v. Roth, 95 N.J. 334, 471 A.2d 370 (1984):
First, we will always require that an exercise of discretion be based upon findings of fact that are grounded in competent, reasonably credible evidence. State v. Johnson, 42 N.J. 146, 162[, 199 A.2d 809] (1964); see also N.J.S.A. 2C:44-7.
Second, we will always require that the factfinder apply correct legal principles in exercising its discretion. In State in the Interest of C.A.H. and B.A.R., 89 N.J. 326[, 446 A.2d 93] (1982), we set aside a discretionary decision not to waive juvenile jurisdiction because the record showed that the "analytical step that was not taken below" the balancing of juvenile rehabilitation against the protection of society was required by the statutory framework guiding the decisionmaker. 89 N.J. at 344[, 446 A.2d 93]. See also In re Trantino Parole Application, 89 N.J. 347, 373[, 446 A.2d 104] (1982) (discretionary decision to parole without consideration of statutory standard concerning punitive aspects of sentence would be improper); In re Polk License Revocation, 90 N.J. 550[, 449 A.2d 7] (1982) (factfinding agency must use correct evidentiary standard in determining issues).
Third, we will exercise that reserve of judicial power to modify sentences when the application of the facts to the law is such a clear error of judgment that it shocks the judicial conscience. State v. Whitaker, 79 N.J. [503,] 512[, 401 A.2d 509 (1979)]. We anticipate that we will not be required to invoke this judicial power frequently.
[Id. at 363-64, 471 A.2d 370.]
That standard is one of great deference and "[j]udges who exercise discretion and comply with the principles of sentencing remain free from the fear of `second guessing.'" State v. Megargel, 143 N.J. 484, 494, 673 A.2d 259 (1996)(quoting State v. Roth, supra, 95 N.J. at 365, 471 A.2d 370).
In terms of our function as an appellate court, we are analogously empowered to
(a) review sentences to determine if the legislative policies, here the sentencing guidelines, were violated; (b) review the aggravating and mitigating factors found below to determine whether those factors were based upon competent credible evidence in the record; and (c) determine whether, even though the court sentenced in accordance with the guidelines, nevertheless the application of the guidelines to the facts of this case make the sentence clearly unreasonable so as to shock the judicial conscience.
[State v. Roth, supra, 95 N.J. at 364-65, 471 A.2d 370 (emphasis added).]
It follows that where the proper legal principles have not been applied or the facts found by the judge are not supported by the record, it is not for us to agree or *1172 disagree with the sentence; it is for the judge to resentence, applying the correct sentencing guidelines to the facts of record.
The sentence in this case should be evaluated with those precepts in mind.
IV
We turn first to aggravating factors.
A.
N.J.S.A. 2C:44-1(a)(6) provides that the extent of a defendant's prior record shall be considered an aggravating factor. Despite Dalziel's protestations, we agree with the trial judge that Dalziel's uninterrupted history of criminality justified the finding of that aggravating factor. Moreover, it provided support for the judge's separate conclusions regarding the risk of reoffense and the need for deterrence. N.J.S.A. 2C:44-1(a)(3) and (9).
B.
It is here that we part company from the trial judge. N.J.S.A. 2C:44-1(a)(11) provides that if "the imposition of a fine, penalty or order of restitution without also imposing a term of imprisonment would be perceived by the defendant or others merely as part of the cost of doing business, or as an acceptable contingent business or operating expense associated with the initial decision to resort to unlawful practices[,]" it is an aggravating factor. By its very terms, that provision is inapplicable unless the judge is balancing a non-custodial term against a prison sentence. State v. Rivera, 351 N.J.Super. 93, 110, 797 A.2d 175 (App.Div.2002), aff'd o.b., 175 N.J. 612, 818 A.2d 1284 (2003).
Here, as in Rivera, Dalziel was faced with a presumptive prison term for his conviction of first-degree robbery under N.J.S.A. 2C:44-1(d) and no effort to overcome that presumption was made. Of that circumstance, the court in Rivera stated:
The trial judge cited N.J.S.A. 2C:44-1a(11) as an aggravating factor. That factor deals with situations where the imposition of a monetary penalty without a term of imprisonment "would be perceived by the defendant or others merely as part of the cost of doing business, or as an acceptable contingent business or operating expense associated with the initial decision to resort to unlawful practices." We do not view this factor as applicable unless the sentencing judge is balancing a non-custodial term as against a state prison sentence. Where, as in this case, defendant is convicted of a crime carrying a presumption of imprisonment, factor (11) is ordinarily inapplicable unless the court is being asked to overcome the presumption pursuant to N.J.S.A. 2C:44-1(f)(2). Other than in such an instance, factor (11) should not be utilized in sentencing for first and second degree crimes.
[State v. Rivera, supra, 351 N.J.Super. at 110, 797 A.2d 175.]
We agree, and reject the State's argument that that factor may be applied, by analogy, in situations where a shorter prison term may be deemed "the cost of doing business" in order "to impress a defendant with the seriousness of his crime." If the Legislature had intended such an application, the language of N.J.S.A. 2C:44-1(a)(11) would not have focused specifically on monetary sanctions. To the extent that State v. Biancamano, 284 N.J.Super. 654, 664, 666 A.2d 199 (App.Div.1995), certif. denied, 143 N.J. 516, 673 A.2d 275 (1996), and State v. Ascencio, 277 N.J.Super. 334, 337, 649 A.2d 891 (App.Div.1994), certif. denied, 140 N.J. 278, 658 A.2d 302 (1995), suggest otherwise, they are disapproved.
V
Dalziel also challenges the trial judge's failure to find three mitigating factors. *1173 With respect to mitigating factors, some preliminary observations are in order. More particularly, the state argued in its brief that regardless of the evidence in the record, the trial judge has discretion to reject a mitigating factor altogether and thus, any error was necessarily harmless. We disagree.
Prior to 1983, the Criminal Code provided that in sentencing, a court "may properly consider" certain enumerated aggravating and mitigating factors. N.J.S.A. 2C:44-1(a) and (b) (amended 1983). In 1983, the Legislature changed the first sentence of N.J.S.A. 2C:44-1(a) (aggravating factors) from "may properly consider" to "shall" consider. In the same initiative, it added § (g) to the statute which reads:
Imposition of Noncustodial Sentences in Certain Cases. If the court, in considering the aggravating factors set forth in subsection a., finds the aggravating factor in paragraph a.(2) or a.(12) and does not impose a custodial sentence, the court shall specifically place on the record the mitigating factors which justify the imposition of a noncustodial sentence.
At least one commentator has concluded that those amendments were linked such that they constituted a "half step toward a presumptive sentence of imprisonment where either the crime was committed in a particularly odious manner or a particularly vulnerable victim was involved." Cannel, supra, New Jersey Criminal Code Annotated, comment 1 on N.J.S.A. 2C:44-1.
We believe that is the likely genesis of the differential language in the aggravating and mitigating sections of the statute. We recognize that some of our case law can be read to express the contrary view that the "shall consider" language in N.J.S.A. 2c:44-1(a) when juxtaposed against the "may consider" language in N.J.S.A. 2c:44-1(b) allows a court "discretion" to refuse to consider a mitigating factor that is supported by the record. See State v. Sherman, 367 N.J.Super. 324, 842 A.2d 859 (App.Div.), certif. denied, 180 N.J. 356, 851 A.2d 650 (2004); State v. Soto, 340 N.J.Super. 47, 773 A.2d 739 (App.Div.), certif. denied, 170 N.J. 209, 785 A.2d 438 (2001). We read those decisions as narrowly declaring that, under the facts presented, the failure to find a particular mitigating factor was not an abuse of discretion. See State v. Sherman, supra, 367 N.J.Super. at 360, 842 A.2d 859 (stating "the evidence could support, but does not compel, the conclusion that any of the cited mitigating factors apply"); State v. Soto, supra, 340 N.J.Super. at 72, 773 A.2d 739 (stating "the judge satisfactorily explained why he did not consider th[e] mitigating factor"). To the extent that they suggest a broader conclusion, contrary to our holding here, they are disapproved.
Indeed, during oral argument the state properly conceded that where mitigating factors are amply based in the record before the sentencing judge, they must be found. To be sure, they may be accorded such weight as the judge determines is appropriate. That is a far cry, however, from suggesting that a judge may simply decline to take into account a mitigating factor that is fully supported by the evidence. Such a reading of the statute flies in the face of our sentencing scheme and of the well-established rule that aggravating and mitigating factors must be supported by credible evidence. State v. Roth, supra, 95 N.J. 334, 356-64, 471 A.2d 370 (1984). A corollary of that rule is that where they are so supported, they must be part of the deliberative process. That is the backdrop for our inquiry.
A.
Dalziel's first argument regarding mitigating factors that his lengthy imprisonment *1174 will result in "excessive hardship on" him and his family within the meaning of N.J.S.A. 2C:44-1(b)(11) requires little attention. Dalziel offered no evidence to show that the length of his sentence would be an "excessive hardship" on him. N.J.S.A. 2C:44-1(b)(11). Likewise because he has never lived with or supported his fiancee and child, his incarceration could not constitute an excessive hardship on them.
B.
Dalziel's next argument has substance. He urges that N.J.S.A. 2C:44-1(b)(12), "the willingness of the defendant to cooperate with law enforcement authorities," is "a strong mitigating factor" that should have been considered by the trial judge. State v. Henry, 323 N.J.Super. 157, 166, 732 A.2d 549 (App.Div.1999). Here, despite the fact that cooperation was part of the plea agreement, the trial judge did not consider that factor at all, perhaps because Dalziel did not squarely present it.
However, the trial judge is required to consider all of the aggravating and mitigating factors and to find those supported by the evidence. Here, cooperation with law enforcement, although late in the game, was part of the plea agreement, and therefore was rooted in the record. To be sure, the judge may determine that voluntary cooperation by a defendant in the very early stages of an investigation is more significant than later cooperation; the only issue is the weight to be ascribed to that mitigating factor, not whether it exists in the first instance. The trial judge's failure to acknowledge Dalziel's cooperation, which was fully supported by the record, thus was error.
VI
Because it is unclear to us how this case would have turned out if the trial judge had applied the proper standards, we reverse and remand the matter to him for resentencing. Nothing in this opinion should be viewed as tilting one way or the other regarding Dalziel's ultimate sentence. Our opinion merely reaffirms that he is entitled to the application of the correct sentencing guidelines and to consideration of aggravating and mitigating factors that are supported by the record.
VII
The judgment of the Appellate Division is reversed. The matter is remanded to the trial judge for resentencing in light of the principles to which we have averted.
For reversal and remandment Chief Justice PORITZ and Justices LONG, LaVECCHIA, ZAZZALI, ALBIN, WALLACE and RIVERA-SOTO 7.
Opposed None. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547502/ | 867 A.2d 213 (2005)
Brendan F. BURKE, M.D., Appellant,
v.
Steven SCAGGS, et. al., Appellees.
No. 03-CV-188.
District of Columbia Court of Appeals.
Argued October 19, 2004.
Decided January 27, 2005.
*215 Alfred F. Belcuore for appellant.
Kim M. Keenan, with whom Jack H. Olender, Harlow R. Case and Karen E. Evans, Washington, were on the brief, for appellees.
Before TERRY, RUIZ and GLICKMAN, Associate Judges.
RUIZ, Associate Judge.
The legal issue presented in this matter is whether a plaintiff in a medical malpractice action fails to establish a prima facie case when his experts differ as to the applicable standard of care. We hold that a discrepancy between experts as to the standard of care will not defeat the plaintiff's prima facie case for malpractice. We further hold that by failing to request a special verdict form, the appellant has forfeited the right to assert that the individual jurors may have relied on different theories of liability in reaching their verdict for the plaintiff. We therefore affirm the judgment entered on the jury's verdict.
I.
This case resulted from injuries which occurred during the birth of appellees' daughter, Haley, on June 27, 1998. The appellant, Dr. Brendan F. Burke, was the attending obstetrician. During the birthing process, a condition known as "shoulder dystocia" presented itself. This condition occurs when the baby's anterior shoulder becomes stuck behind the mother's pubic bone after the head has been delivered. Mr. Scaggs, who was present for the delivery, testified that at the time this complication was discovered, a pall came upon the delivery room, and the situation became tense. Dr. Burke maintains that, upon discovering the complication, he applied "gentle traction" to Haley's head and shoulder area,[1] employed the "McRoberts maneuver,"[2] and then applied *216 suprapubic pressure to Mrs. Scaggs.[3]
Haley now suffers from severe brachial plexus injuries.[4] Haley has undergone a number of surgeries in an attempt to assuage the harsh effect of these injuries. Nevertheless, Haley remains physically handicapped for life, unable to supinate[5] her hand so as to undertake those little things in life which many take for granted: the ability to button one's own clothing, hold a cup, use a toothbrush, or tie one's shoes.
The Scaggs filed suit against Dr. Burke in 2000, alleging that he was negligent in delivering Haley. Although Dr. Burke was alleged to have been negligent in a number of ways, he challenges only the sufficiency of the expert testimony on whether his use of traction in delivering Haley fell below the applicable standard of care. In support of their claim that the doctor's use of traction was negligent, the Scaggs presented two expert witnesses to testify as to the applicable standard of care. The first, Dr. James Anderson, had been a board-certified practicing gynecologist and obstetrician for over a third of a century. Dr. Anderson testified that Dr. Burke had violated the standard of care "by not going through the proper maneuvers to disimpact the shoulder and by putting traction on the head." Dr. Anderson also maintained that "traction to disimpact the shoulder is below the standard of care. It is not a maneuver to be used to resolve shoulder dystocia." Even though the medical records from the birth noted that only "gentle" traction had been employed, Dr. Anderson opined that "gentle traction becomes excessive in this kind of a setting without the obstetrician even realizing it. No traction is appropriate."
The plaintiffs' other expert witness as to the standard of care was Dr. James O'Leary, who is also board-certified in obstetrics and gynecology. Although he had retired from the active practice of medicine, Dr. O'Leary continued to teach obstetrics, and has published a book on shoulder dystocia. Dr. O'Leary was of the opinion that Haley's injuries were the result of "excessive traction or pulling on Haley's head after the head had been delivered and the shoulder was stuck." Dr. O'Leary was more permissive than Dr. Anderson as to the use of traction during delivery. He would allow gentle traction, but only after unsuccessful attempts to employ alternative maneuvers, and "only if you put the mother in the McRoberts position and somebody is pushing down above the pubic bone." Thus, he was of the opinion that gentle traction was sometimes permissible, but as a last option during the delivery and only when used in conjunction with other simultaneous procedures.
Appellant moved for judgment as a matter of law at the close of the appellees' *217 case, claiming that the evidence as to the correct standard of care concerning the use of traction "[was] contradictory between the two expert witnesses." Specifically, appellant argued that because Dr. Anderson would never permit traction, and Dr. O'Leary would allow it in some circumstances, "the jury [was] going to be left with the need to speculate as to what is exactly the standard of care." The court denied the motion, ruling that "there is certainly enough in this case to let the jury have it." The jury ultimately returned a general verdict for the plaintiffs and awarded damages in the amount of $850,000.00.
II.
A.
Judgment as a matter of law is proper "[i]f during a trial by jury [the plaintiff] has been fully heard with respect to [a claim], and there is no legally sufficient evidentiary basis for a reasonable jury to have found" in the plaintiff's favor. Super. Ct. Civ. R. 50(a)(1); see also Abebe v. Benitez, 667 A.2d 834, 835-36 (D.C.1995). Since the court is not the trier of fact in a jury trial, in deciding whether judgment is appropriate, the judge "must take care to avoid weighing the evidence, passing on the credibility of witnesses, or substituting its judgment for that of the jury." Carter v. Hahn, 821 A.2d 890, 892 (D.C.2003) (quoting Abebe, 667 A.2d at 836 (internal quotations and citations omitted)). "Thus, `[a] verdict may be directed only if it is clear that the plaintiff has not established a prima facie case.'" Haynesworth v. D.H. Stevens Co., 645 A.2d 1095, 1097 (D.C.1994) (quoting Clement v. Peoples Drug Store, Inc., 634 A.2d 425, 427 (D.C.1993)). "In reviewing a directed verdict, we `view the facts, as the trial court was required to, in the light most favorable to the non-moving party.'" Id. (quoting Washington v. A & H Garcias Trash Hauling Co., 584 A.2d 544, 545 (D.C.1990)).
In a medical malpractice action, there are three elements a plaintiff must show to establish a prima facie case: "(1) the applicable standard of care; (2) a deviation from that standard of care by the defendant; and (3) a causal relationship between that deviation and the plaintiff's injury." Talley v. Varma, 689 A.2d 547, 552 (D.C.1997); see Meek v. Shepard, 484 A.2d 579, 581 (D.C.1984); Kosberg v. Washington Hosp. Ctr., Inc., 129 U.S.App. D.C. 322, 324, 394 F.2d 947, 949 (1968). The applicable standard must be nationally recognized. See Morrison v. MacNamara, 407 A.2d 555, 560 (D.C.1979) (rejecting the "locality rule," and requiring that a physician's actions be adjudged by a national standard of care). Establishing the standard of care is essential to a prima facie case of negligence because physicians are not expected to be perfect and "do not and cannot guarantee results," Meek, 484 A.2d at 581; they are liable in negligence only when their behavior falls below that which would be undertaken by a reasonably prudent physician, and there is a causal link between this behavior and the injury suffered.
B.
Appellant argues that he was entitled to judgment as a matter of law at the end of the plaintiffs' case because their evidence was insufficient to present a prima facie case with respect to the applicable standard of care. Specifically, appellant contends that because plaintiffs' two experts disagreed on whether traction was ever a proper response to shoulder dystocia, they failed to present evidence of the applicable standard of care against which Dr. Burke's actions were to be assessed. *218 We disagree and conclude that the trial court did not err in denying the motion for judgment as a matter of law and permitting the entire case to go to the jury.[6] Even if we assume that Doctors O'Leary and Anderson opined as to differing standards of care,[7] it has long been recognized with respect to expert testimony as with the testimony of other witnesses that the assessment of credibility is for the jury, and "the jury may assign a preference to one item of testimony over the other...." Kosberg, 129 U.S.App. D.C. at 325, 394 F.2d at 950. In Kosberg, the plaintiff's two expert witnesses in a medical malpractice action differed in their opinions as to what caused the decedent's death. See id. at 324, 394 F.2d at 949. The United States Court of Appeals for the District of Columbia Circuit reversed the trial court's grant of a directed verdict in favor of the defendants, holding that "conflicts in the testimony of witnesses, including expert witnesses, called by a party are not necessarily fatal to his case." Id. at 325, 394 F.2d at 950. Kosberg is binding precedent dispositive of the issue raised by the appellant in the instant case. See M.A.P. v. Ryan, 285 A.2d 310, 312 (D.C.1971).
If we were to address the issue anew, we would come to the same conclusion, and hold that different opinions of expert witnesses as to the standard of care presented by the plaintiff do not defeat a prima facie case and are properly submitted to a jury, just as differing opinions of experts by opposing parties are submitted *219 for the jury's evaluation.[8] Determining the applicable standard of care is a question of fact for the jury. See Ray v. American Nat'l Red Cross, 696 A.2d 399, 404 (D.C.1997) ("[T]he jury, informed by expert testimony where appropriate, determines what the applicable standard of care is in a particular case.") (citing Washington v. Washington Hosp. Ctr., 579 A.2d 177, 183 (D.C.1990)). In a medical malpractice action, because the requisite knowledge is often beyond the ken of laypersons, it must be proved through expert testimony. See Meek, 484 A.2d at 581; see also W. PAGE KEETON ET AL., PROSSER & KEETON ON THE LAW OF TORTS, 188 (5th ed. 1984) ("Since juries composed of laymen are normally incompetent to pass judgment on questions of medical science or technique, it has been held in the great majority of malpractice cases that there can be no finding of negligence in the absence of expert testimony to support it."). The function of an expert witness is to utilize his or her skill, knowledge, and expertise to render an opinion, and thus assist the trier of fact in reaching its conclusions about scientific, technical, or other specialized matters outside the knowledge of the average layperson. See, e.g., Dyas v. United States, 376 A.2d 827, 832 (D.C.1977); see also FED. R. EVID. 702 (allowing "a witness qualified as an expert by knowledge, skill, experience, training, or education" to testify if "scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue"). In a medical malpractice case, the expert's role is to present "evidence that a particular course of treatment is followed nationally," based on his or her specialized knowledge of medicine. Travers v. District of Columbia, 672 A.2d 566, 568 (D.C.1996). The expert can also opine as to whether the conduct at issue in the case met, or fell below, that standard of care, and whether it caused injury.
In the courtroom setting, it is only the rare trial which does not see any variation in the testimony of its different witnesses. Our legal system has long relied on independent and neutral triers of fact to weigh the evidence submitted for their consideration, including the character, demeanor, and credibility of the witnesses *220 they hear, and come to a common-sense resolution of the facts in dispute. The critical role of the fact-finder, when facts are in dispute, is to find definitively what the facts of the case are. In making these findings, one of the essential functions of the fact-finder is to resolve discrepancies between witnesses, including experts. See, e.g., Designers of Georgetown, Inc. v. E.C. Keys & Sons, 436 A.2d 1280, 1281 (D.C.1981) (per curiam) ("Contradictory expert testimony presents an issue of fact for the fact-finder"); Rock Creek Plaza-Woodner Ltd. P'ship v. District of Columbia, 466 A.2d 857, 859 (D.C.1983) ("[A]s a general proposition, when faced with conflicting expert testimony, the trial court may credit one expert over the other or even disregard both in rendering its judgment."). While the majority of our cases have considered discrepancies between experts presented by opposing parties, see Rock Creek Plaza, 466 A.2d at 859, Designers of Georgetown, 436 A.2d at 1281, the role of the jury is no different where there are discrepancies in the testimony of experts presented by one party.
Permitting the case to go to the jury in this circumstance is not only consistent with the jury's role, but also mindful of the plaintiff's burden to present evidence of a prima facie case. When there is no expert testimony or the single expert's testimony is inconclusive as to the proper course of treatment, the plaintiff's case necessarily fails because of a lack of proof as to a required element of the tort of negligence, the standard of care. See Quick v. Thurston, 110 U.S.App. D.C. 169, 171, 290 F.2d 360, 362 (1961) (testimony of plaintiff's only expert inconclusive as to standard of care held insufficient to present prima facie case). But when there are discrepancies between the testimony of two or more expert witnesses offered by the plaintiff either one of which is sufficient to establish the standard of care there is proof of the standard of care for the jury's consideration. Given that the burden is on the plaintiff to show a deviation from the standard of care in a medical malpractice case, see Travers, 672 A.2d at 568-70, the disagreement between the plaintiff's experts will necessarily show that there is a wide range of medical opinion as to the proper course of action, and defense counsel will alert the jury that the plaintiff recognizes there is not only one acceptable course, but a range of opinion and more than one option or means of treatment. In such a case it is the plaintiff's burden either to convince the jury that the applicable standard of care is the one breached by the defendant or to show that the defendant's actions fell below all of the acceptable options.
C.
There was sufficient evidence in this case for the jury to conclude that Dr. Burke acted in violation of the standards of care, as articulated by either Dr. Anderson or Dr. O'Leary. Commentators have opined that "the jury's finding of negligence is thus always that the actor should not have acted as he did; this implies a finding that he should have acted otherwise, but not necessarily in any specific manner." 3 FOWLER V. HARPER ET AL., THE LAW OF TORTS 545 (3rd ed.1986) (emphasis in original). Thus, although a jury must find that a physician's actions fell below the standard of care in order for there to be a finding of negligence in a medical malpractice case, the jury need not definitively settle on a single standard of care, so long as it agrees that, under all of the standards presented, the physician's conduct fell short. In this case, the differences in the testimony of the appellees' two expert witnesses with respect to the standard of care did not prevent all the jurors from coming to a *221 common understanding that the doctor's actions were below the standards articulated by both experts.
Appellant admitted that he applied traction in an attempt to deliver Haley, and then performed the McRoberts maneuver, re-applied traction, and lastly, applied suprapubic pressure to the mother. None of these maneuvers was successful and Haley was eventually delivered simply by locating her hand and seizing it to lead the rest of her body from the birth canal. Dr. Burke's application of any traction, when presented with shoulder dystocia, violated the standard of care as articulated by Dr. Anderson. It also violated Dr. O'Leary's standard of care which mandated that traction should be utilized only in conjunction with the McRoberts maneuver and while suprapubic pressure was applied. By applying traction before the McRoberts maneuver and suprapubic pressure were utilized, Dr. Burke violated the standard of care identified by Dr. O'Leary. Additionally, Dr. O'Leary testified that if any traction was applied, it was to be gentle; the use of excessive traction would violate the standard of care. After delivery, it was documented that Haley's face was bruised, and Dr. O'Leary testified that normal delivery forces will not produce bruising. Mr. Scaggs, who was present for the delivery, testified that he saw Dr. Burke "pull what I would consider very hard," and observed his arms tense during the pulling. He later asked Dr. Burke if such pulling was normal, and, according to Mr. Scaggs, Dr. Burke responded that such pulling was "not usual." Even though Dr. Burke denied Mr. Scaggs's version of events, there was enough evidence from which the jury could conclude that Dr. Burke violated the standard of care established by Dr. O'Leary either by applying traction prematurely or with excessive force.
III.
Appellant asserts in the alternative that, even if the appellees presented a prima facie case, because multiple theories of liability were submitted to the jury namely, whether the jury found that Dr. Burke violated the standard of care in his use of traction (by applying any traction at all, or excessive traction, or by applying traction before trying alternative maneuvers), by not making an episiotomy, or any of the other alleged violations of the standard of care, see, supra, note6 we cannot be certain that the jurors all agreed as to how the appellant violated the standard of care. We hold that the appellant, by not requesting a special verdict form, has forfeited his right to complain on appeal that the jury might not have been unanimous in its views.
The jurisprudence of this court establishes that a civil appellant is estopped from challenging the validity of a verdict which could rest on a theory of liability unsupported by the evidence, where the appellant did not take prophylactic steps in the trial court to ensure that the error is amenable to appellate review. See Nimetz v. Cappadona, 596 A.2d 603, 607 (D.C.1991); George Washington Univ. v. Lawson, 745 A.2d 323, 328-29 (D.C.2000). In Nimetz, this court
adopt[ed] the rule that a defendant who fails to request a special verdict form in a civil case will be barred on appeal from complaining that the jury may have relied on a factual theory unsupported by the evidence when there was sufficient evidence to support another theory properly before the jury.
596 A.2d at 608.
In this regard, appellant's argument is not that the evidence was insufficient to prove the standard of care with respect to the use of traction we hold that it was *222 but that all the jurors might not have evaluated appellant's conduct against the same standard of care. Because we have no record basis for concluding that the jury's verdict was not grounded on a common understanding of appellant's breach of the standard of care, the same concern for judicial efficiency and respect for jury verdicts pertains. See Nimetz, 596 A.2d at 608. As noted, although there was expert testimony on a number of breaches of various applicable standards of care, the case presented to the jury was primarily focused on the use of excessive traction. See, supra, note 6. On this record, we perceive no reason to relieve appellant of the burden to create a record that persuades this court that error has occurred and that he has been prejudiced by it. See Newell v. District of Columbia, 741 A.2d 28, 33 (D.C.1999).
In order for the issue to be sufficiently preserved on appeal, not only must a special verdict form be requested, but "counsel must state the request with specific precision to indicate the specific interrogatories that should be included in the special verdict form, object to their noninclusion, and include the proposed special verdict form in the record on appeal." Id. The record shows that appellant agreed to a general verdict form, and did not request any special interrogatories. Thus, under Nimetz and its progeny, because appellant failed to request a special verdict form, he is estopped from arguing that the jury's verdict may rest on alternate theories of liability.
For the foregoing reasons, the judgment for appellees is
Affirmed.
NOTES
[1] Traction is defined as "the act of pulling or drawing, used as a corrective or therapeutic measure, or as a maneuver." 4 J.E. SCHMIDT, THE ATTORNEY'S DICTIONARY OF MEDICINE, T-136 (1991).
[2] An expert testified at trial that in administering the McRoberts maneuver, "the patient's legs go back against her chest as far as you can and what it does, it doesn't make any more room in the bon[e]y pelvis, the bon[e]y pelvis is a given dimension, but it takes and lines up the forces so that the forces [are] single directional instead of going through instead of going through the slope of the pelvis." Experts for both parties testified that the McRoberts maneuver is considered the preferred first response to shoulder dystocia.
[3] Suprapubic pressure is, as its etymology suggests, pressure "situated, or performed, above the pubic bones or pubic arch." 3 SCHMIDT, supra, note 1, at S-279.
[4] The brachial plexus is defined as "a large and important nerve structure situated partly in the neck and partly in the armpit...." See 1 SCHMIDT, supra note 1, at B-118. It "descends in the lower part of the neck region know as the posterior triangle ..., and is placed above the clavicle and to the side and back of the sternocleidomastoid muscle...." Id. Injuries to the brachial plexus may cause pain in the shoulder, arm, and hand regions, as well as the wasting of some of the arm muscles. Id.
[5] To supinate, as applied to hands, is to rotate the right hand clockwise, or the left hand counterclockwise, as in tightening or unscrewing the lid of a jar. See 3 SCHMIDT, supra, note 1, at S-273.
[6] At trial, it was contended that Dr. Burke violated the applicable standard of care not only by applying excessive traction in the delivery, but also by failing to make an episiotomy (an incision to enlarge the birth canal), and, more importantly, by failing to attempt first to deliver the baby's hand, so as to allow additional room for the rest of her body. Doctors Anderson and O'Leary both agreed that the standard of care required that these other techniques be utilized before any traction was applied. Appellant does not take issue with this part of their testimony. Thus, even if we agreed with appellant that the discrepancy in the experts' testimony undermined appellees' prima facie case on the standard of care concerning the use of traction, he would not have been entitled to judgment, but only to have the case in chief limited to the other theories of liability. As it was not, the case presented to the jury was focused primarily on the use of traction, and the injuries that resulted from pulling on the baby's head and shoulder. Appellees do not argue, as they do with respect to appellant's argument concerning lack of unanimity, discussed infra, that by agreeing to a general verdict appellant has failed to preserve the argument that the evidence was insufficient to support a prima facie case. The trial judge was presented with, and ruled on, the motion for judgment with respect to the standard of care on the use of traction. Although it is theoretically possible that the general verdict could logically and properly rest on another theory of liability, we think that the manner in which this case was presented to the jury makes it likely that the verdict relied upon the primary theory presented, the misuse of traction.
[7] Appellant maintains that the plaintiff submitted two "contradictory" standards of care to the jury: Dr. Anderson's, which maintained that any traction in this situation fell below the standard, and Dr. O'Leary's, which prohibited excessive traction, but would allow gentle traction only after all other options had been employed, and if the mother was properly positioned. The jury, however, could have found that these opinions were complementary, rather than contradictory. For example, the O'Leary standard prohibits any excessive traction, and Dr. Anderson is of the opinion that in this situation any traction was, by definition, excessive. Appellant did not dispute that he applied traction in delivering Haley; Dr. O'Leary was of the opinion that this traction was excessive and thus below the standard of care, and Dr. Anderson would concur that such application of traction, in these circumstances, was below the standard of care. Therefore, the opinions submitted by the appellees' experts are not so mutually exclusive that they must be considered "contradictory."
[8] In the past, some courts held that because a party was "bound" by the testimony of his or her expert witnesses, their conflicting testimony in a malpractice case negated each expert's opinion as to the applicable standard of care. See L.S. Tellier, Annotation, Party Litigant in Civil Personal Injury or Death Case as Bound by Conflicting Testimony of His Own Medical Witnesses, 53 A.L.R. 2d 1229 (1957). The doctrine seems rooted upon Mudano v. Phila. Rapid Transit Co., 289 Pa. 51, 58-59, 137 A. 104, 106-107 (1927), which held that a plaintiff's case will fail when the testimony of his two expert witnesses is so contradictory that the jury is left with no guidance on the issue. This body of law, however, was founded upon the now-disavowed notion that parties could not impeach their own witnesses, and the offering of conflicting expert opinions was seen as the impeachment of each. See 53 A.L.R.2d at 1231. Kosberg acknowledged the doctrine, but nevertheless allowed such conflicts to be submitted to the jury for resolution, 129 U.S.App. D.C. at 325 n. 5, 394 F.2d at 950 n. 5, consistent with the more modern view that "a party may not necessarily be bound by the conflicting testimony of his or her own medical witnesses." Conflicting Testimony by Medical Witnesses, 31A AM.2d Expert and Opinion Evidence § 220, at 228 (2002); see also Brannan v. Lankenau Hosp., 490 Pa. 588, 596, 417 A.2d 196, 200 (1980) (limiting Mudano to only those instances where the experts "so vitally disagree on essential points as to neutralize each other's opinion evidence," and allowing more minor discrepancies to be submitted to a jury for resolution). Kosberg, and our decision here, are therefore in line with the jurisdictions which hold "that the conflict between opposing opinions raises a question for the jury or the trial court to determine." 31A AM. JUR.2d § 220, at 228. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547495/ | 867 A.2d 70 (2005)
87 Conn.App. 568
Adrian D. SANTIAGO
v.
COMMISSIONER OF CORRECTION.
No. 24980.
Appellate Court of Connecticut.
Argued October 13, 2004.
Decided February 22, 2005.
*74 Avery S. Chapman, New Haven, for the appellant (petitioner).
Rita M. Shair, senior assistant state's attorney, with whom were Michael Dearington, state's attorney, and, on the brief, Carolyn K. Longstreth, former senior assistant state's attorney, for the appellee (respondent).
LAVERY, C.J., and FLYNN and BISHOP, Js.
LAVERY, C.J.
The petitioner, Adrian D. Santiago, appeals from the judgment of the habeas court denying his petition for a writ of habeas corpus. He claims on appeal that (1) the court improperly denied him certification for leave to appeal and (2) the denial of his petition for a writ of habeas corpus was improper because his trial counsel was burdened by an actual conflict of interest. Because we conclude that the petitioner's first claim is moot and disagree with the second, we affirm the judgment of the habeas court.
The following facts and procedural history are pertinent. A jury found the petitioner guilty of murder after a trial held in February, 1996. The occurrences underlying his conviction are recounted in our Supreme Court's decision disposing of his first direct appeal:
"On the night of November 1, 1993, the [petitioner] had been drinking beer with Mark Aviles and Joanne Negron, fellow residents of the Willimantic YMCA. At some point, Aviles and the [petitioner] left to purchase some marijuana. They encountered Fernando Ilarraza, the victim, on West Avenue in Willimantic and he offered to sell them marijuana. The [petitioner] refused to buy from the victim, however, because he believed that he would be cheated. When Aviles and the [petitioner] saw the victim later that evening, the [petitioner] and the victim `exchanged looks.' The [petitioner] subsequently told Aviles that he intended to shoot the victim. Aviles and the [petitioner] walked to a pay phone where the [petitioner] called a friend who lived in a Willimantic neighborhood called Windham Heights. Aviles heard the [petitioner] tell the friend that he was going to `do the mission' and that he needed a `piece' to do it. Aviles and the [petitioner] then walked back to the YMCA. The [petitioner] asked Negron to telephone for a taxi to take him to Windham Heights. He returned with a .22 caliber revolver, which he cleaned and loaded in Negron's apartment. Thereafter, he left wearing a black hat, a full-length black coat, black pants and black boots.
"Shortly before 11 p.m. that evening, a Coventry police officer, having just picked up a prisoner from the Willimantic police department, was traveling on Valley Street in Willimantic. He saw the body of the victim lying in the street, and contacted the Willimantic police. The victim was taken by ambulance to Windham Hospital where he was pronounced dead on arrival. An autopsy revealed that the victim had sustained two gunshot wounds, one behind the right ear and one to the right cheek. The gunshot behind the ear was fired from a distance of less than six inches and had caused the victim's death.
"When the [petitioner] returned that night, Aviles asked him if he had killed the victim and the [petitioner] replied that he had. The next day, Negron confronted the [petitioner] about the shooting. The [petitioner] told her that it was `something he had to do out of his heart' and that no one had told him to do it. Aviles met with a Willimantic police officer and reported the information. Thereafter, the *75 [petitioner] was arrested and advised of his Miranda[1] rights. When the officers asked him if he had shot the victim, the [petitioner] responded, "si," and nodded his head affirmatively.
"Yajira Vega, who lived on West Avenue, testified that she had seen the [petitioner] and Aviles walking on West Avenue toward Valley Street. In addition, a taxi driver identified the [petitioner] as the person he had driven from the YMCA to Windham Heights at approximately 9:30 p.m. on November 1. The jury found the [petitioner] guilty of murder. The trial court denied the [petitioner's] motions for a new trial, for acquittal and in arrest of judgment, and rendered judgment in accordance with the jury verdict." State v. Santiago, 245 Conn. 301, 303-305, 715 A.2d 1 (1998).
On initial direct appeal, the petitioner's claims of error largely were rejected. The Supreme Court disagreed with the petitioner's arguments that his waiver of a probable cause hearing was invalid due to the state's failure to disclose exculpatory evidence; see id., at 306-13, 715 A.2d 1; that he was unconstitutionally deprived of a timely probable cause hearing, see id., at 313-16, 715 A.2d 1; and that his confession was involuntary. See id., at 316-23, 715 A.2d 1. The case was remanded, however, for a hearing to conduct further inquiry on the issue of possible juror misconduct. See id., at 323-40, 715 A.2d 1. After that hearing and a second appeal, the petitioner's conviction was affirmed. State v. Santiago, 252 Conn. 635, 748 A.2d 293 (2000).
On May 6, 2002, the petitioner filed an amended petition for habeas corpus relief, claiming that his trial counsel was ineffective in violation of the petitioner's sixth and fourteenth amendment rights due to, inter alia, an actual conflict of interest.[2] Specifically, the petitioner alleged that his counsel, various members of the Windham public defender's office (office), failed to investigate adequately and to interview possible alternate suspects and to pursue a meritorious defense of third party culpability because those suspects were current or former clients of the office. According to the petition, "all were considered suspects by the police, but were not investigated by counsel for petitioner," and "a third party guilt ... defense could have been adequately supported had the aforementioned investigation been conducted."
A hearing was held, and three attorneys from the office testified as to their representation of the petitioner before and during his trial. Through their testimony and the introduction of exhibits, the following was conveyed. Ramon J. Canning was the supervisor of the office and the ultimate decision maker; Pamala J. Favreau and Mark Shapera worked for Canning. Favreau was employed by the office until April, 1995, at which time she was replaced by Shapera. The office was small and had a heavy caseload covering several courts. Each attorney there would work on any of the office files as need and availability dictated. The office did not have the resources to segregate cases by attorney or to institute a formal conflict checking procedure. Canning and Favreau represented the petitioner on pretrial matters and during discovery; Shapera represented him during discovery and at trial.[3]
*76 Two other clients of the office, Paul Casanova and Edwin Mendez, were among the group of people who in some way were involved with the investigation of the murder of Ilarraza. A third such individual, Ray Soto, was alleged but not shown to be a public defender client. Casanova, for some time, was represented concurrently with the petitioner, although on an unrelated charge.[4] Mendez was a former client, also on an unrelated matter, and briefly was represented concurrently with the petitioner when Mendez violated his probation.[5] Neither Casanova, Mendez nor Soto ever were arrested or charged with anything in connection with the murder.
The petitioner was arraigned and charged with murder on November 4, 1993. On February 16, 1994, on the advice of the office, the petitioner waived a hearing in probable cause. The state had made its witnesses, Aviles and Negron, available to the office, and the office investigator, Ray Condon, interviewed them. The office made a strategic decision to waive the hearing because they viewed Aviles and Negron as transient, i.e., if there were no hearing and the two witnesses thereafter left the area, their testimony would not be preserved in the record.
Favreau testified that at the time of the waiver, the office probably was unaware that it was representing Casanova, although it considered him a possible witness for the defense. She did not then consider the petitioner's and Casanova's interests to be adverse. When asked whether the advice to the petitioner to waive the hearing was "influenced in any way by [her] relationship as attorney to Soto, Mendez and Casanova," Favreau answered, "No."
During discovery in the petitioner's case, the relationship between the prosecution and the defense apparently was something less than cooperative. The prosecution sought a protective order for its file, which Favreau opposed. Ultimately, on September 2, 1994, the trial court ordered the state to disclose material from its file. The disclosed material included (1) a police report of a complaint made by two women, ten days prior to the murder, that Casanova had threatened to shoot the victim, (2) a police report of an interview with Mendez in which he recounted Soto's purported confession[6] and relayed a street rumor that connected Soto with the gun that was used in the shooting,[7] (3) a police report of *77 an interview with Soto in which he stated that the victim was nothing but trouble, indicated that he had fought with the victim two to three weeks prior to the murder and gave an alibi for the night of the murder, (4) a statement taken from the victim's girlfriend in which she claimed that he had in the recent past fought with Soto, Mendez and the petitioner, and that Mendez had been looking for the victim on the night of the murder, asking about a bicycle[8] and looking nervous, and (5) a statement of a security guard at a school attended by the victim's nephew in which the guard recounted the nephew's telling him that five people were in a car when the murder occurred, including two girls, Mendez, the petitioner and an unknown male, and that the petitioner had shot the victim because Soto wanted him killed.[9]
After receiving the foregoing information from the state's file, Favreau believed there was a conflict and that Casanova needed to be investigated. Favreau did not consider the information pertaining to Mendez to be as significant.[10] She immediately alerted Canning to the circumstances. Thereafter, she stopped working substantively on the case.[11] About six months later, Favreau resigned from the office; she ultimately ceased working there in April, 1995. When asked whether, between September 2, 1994, and the time she left the office, she did anything in the petitioner's case that would benefit Casanova or Mendez, Favreau answered, "No."
Canning believed that the information raised a possible conflict that would need to be investigated. According to Canning, given the nature of the office and its clientele, it often was presented with potential conflicts, so it would look continuously throughout a case to see if any developed into actual conflicts. He testified that immediately after the disclosure of the material from the state's file, Condon, the office investigator, was sent out. Condon investigated Casanova and was unable to document anything. He attempted to develop evidence that could support a third party culpability defense, but was unsuccessful. Canning testified that every possible lead was pursued through the petitioner's trial. Canning did not believe that the situation ever developed beyond a potential conflict. He offered that rumors circulating did not produce an actual conflict in a public defender's office and that other clients' names constantly came up in case files.[12] In his view, if that automatically were to give rise to an actual conflict *78 of interest, the office would have to shut down.
Canning testified that the office's representation of the petitioner at the time of the probable cause hearing waiver was not influenced in any way by the office's relationship with Casanova, Mendez or Soto. He testified further that from the time of the disclosure of the information from the state's file through the petitioner's trial in 1996, neither he nor any of the other attorneys in the office did or refrained from doing anything in the representation of the petitioner in order to advance or to protect the interests of the other three individuals.
Shapera assumed the representation of the petitioner in the summer of 1995. Shapera was familiar with the information that had been disclosed from the state's file. He stated that the office had investigated the allegations pertaining to Mendez and the bicycle, and determined that they had no significance. Shapera testified further that the office had investigated the information it had received about Casanova, but did not find anything connecting him to the crime. The office also followed up on Mendez's allegation that Soto had confessed to the shooting, but found no evidence that was strong enough to present. Shapera confirmed that the office had investigated and verified Soto's alibi by interviewing his girlfriend. Shapera testified that during his representation of the petitioner, he did not do anything to advance the interests of Casanova, Soto or Mendez and did not hold back on his investigation in order to protect those three individuals.
Shapera testified as to the strategy chosen for the petitioner's trial. According to Shapera, he considered but ultimately did not pursue third party culpability or alibi defenses due to lack of supporting evidence and the existence of significant countervailing evidence. With the approval of the petitioner, he instead pursued a defense strategy focusing on inconsistencies in and weakness of the state's evidence. Shapera testified that his decision as to the defense strategy was not affected in any way by the office's representation of Casanova or Mendez. The petitioner was convicted on February 27, 1996, and on May 23, 1996, was sentenced to fifty years imprisonment.
In its memorandum of decision, the habeas court summarized the procedural history of the case and the testimony adduced at the habeas hearing. It noted that the petitioner framed the issue as one of actual, rather than potential, conflict of interest, and the court outlined the law governing that issue. It found that Soto was not an office client, but that Casanova and Mendez were. The court cited Favreau's testimony that she considered Casanova to be a possible witness for the defense and that prior to disclosure of the information from the state's file, she had not viewed Casanova's interests as different from those of the petitioner. The court found that Favreau was not aware until that disclosure on September 2, 1994, that Casanova had threatened to shoot the victim. The court noted Favreau's testimony that her advice to the petitioner to waive the hearing in probable cause was not influenced in any way by her relationships with Soto, Mendez and Casanova. It found that she had not worked substantively on the petitioner's case "from September 2, 1994, to April, 1995...."
The court recounted Canning's statements that he believed Casanova presented a possible conflict that was investigated timely and continuously by the office, but never was established to be anything beyond potential. The court found that the office also investigated Soto, "who was not the [public defender's] client," and did all it could to develop a third party culpability *79 defense. The court noted Canning's testimony that the petitioner's representation was in no way compromised as to his waiver of the hearing in probable cause and that "[n]othing was done in the [public defender's] office to protect the interests of the other three named individuals."
The court summarized Shapera's testimony, in particular his stated belief that a third party culpability defense would have been problematic due to weak evidentiary support and other contrary evidence implicating the petitioner. It found that Shapera "never held back on his investigation of Casanova, Soto or Mendez," and that the office's representation of Casanova and Mendez did not affect Shapera's trial strategy to forgo a third party culpability defense, which strategy the petitioner had approved.
The court also reiterated expert testimony presented by the parties. It cited rules that the expert for the respondent, the commissioner of correction, had considered applicable and the adoption of those rules by the Superior Court. The court noted the expert's testimony distinguishing between actual and potential conflicts, and his opinion that the former, absent consent by the clients, required the attorney to withdraw from representation while the latter required further investigation. The court also cited the expert's opinion that it is not inappropriate to "attack" a former client on a subsequent matter unrelated to that client's representation unless information learned during the representation is utilized. The court noted that the expert considered the information about Casanova and Mendez to present potential rather than actual conflicts.
After considering all the evidence, the court concluded that the situation faced by the office during its representation of the petitioner was a potential conflict that never rose to the level of an actual conflict. It found that the office had not acted unethically in its representation of the petitioner. The court rejected the petitioner's argument that an alternative, third party culpability defense "was inherently in conflict with or not undertaken due to the attorney's other loyalties or interest"; (emphasis in original); and found, rather, that such defense was not pursued because the evidence in support thereof was not strong. It concluded that because "there [was] no showing ... that counsel represented actual conflicting interests and that counsel's performance was adversely affected," the applicable legal standard had not been satisfied. Accordingly, the court denied the petition.
I
The petitioner claims first that the court improperly declined to grant him certification to appeal from the denial of his petition because in so doing, it relied on case law that subsequently was overturned. We need not address that claim because it is moot.
The following additional procedural history is relevant. After the court denied the petition for a writ of habeas corpus on October 27, 2003, the petitioner filed motions for reargument and a new trial. Both motions were denied on November 12, 2003. Thereafter, the petitioner requested certification to appeal from the denial of his petition. Although the request was untimely; see General Statutes § 52-470(b); the petitioner explained therein that there had been a delay in his receipt of the court's November 12, 2003 rulings. The court denied the petitioner's request, citing Iovieno v. Commissioner of Correction, 222 Conn. 254, 258, 608 A.2d 1174 (1992), overruled, 242 Conn. 689, 700, 699 A.2d 1003 (1997) (en banc), for the proposition that it lacked discretion to grant an untimely request for certification. *80 The petitioner then renewed his request for certification to appeal, again explaining the reason for his untimeliness and noting that Iovieno had been overruled.[13] He filed this appeal contemporaneously with the renewed request for certification. On February 5, 2004, about eight months prior to oral argument in this matter, the court granted the renewed petition for certification to appeal.
"Mootness implicates [this] court's subject matter jurisdiction and is thus a threshold matter for us to resolve.... It is a well-settled general rule that the existence of an actual controversy is an essential requisite to appellate jurisdiction.... When, during the pendency of an appeal, events have occurred that preclude an appellate court from granting any practical relief through its disposition of the merits, a case has become moot." (Internal quotation marks omitted.) Sweeney v. Sweeney, 271 Conn. 193, 201, 856 A.2d 997 (2004).
Because the court, during the pendency of this appeal, granted the renewed petition for certification to appeal, the issue no longer presents an actual controversy that, if resolved in the petitioner's favor, would result in his obtaining any practical relief. Accordingly, the claim is moot.
II
The petitioner next argues that "[b]ecause trial counsel and the public defender had represented and continued to represent both Paul Casanova and Edwin Mendez while representing [the petitioner], trial counsel was burdened by an actual conflict of interest at trial." He claims that the office's awareness of the conflict precluded it from conducting an adequate investigation of Casanova, Mendez and Soto, and that the office's conflicting loyalties prevented it from presenting the plausible alternative defense theory of third party culpability. According to the petitioner, representation of conflicting interests is per se ineffective, and the record and case law demonstrate that his trial counsel were laboring under an actual conflict. We disagree.
"Our standard of review of a habeas court's judgment on ineffective assistance of counsel claims is well settled. In a habeas appeal, this court cannot disturb the underlying facts found by the habeas court unless they are clearly erroneous, but our review of whether the facts as found by the habeas court constituted a violation of the petitioner's constitutional right to effective assistance of counsel is plenary." (Internal quotation marks omitted.) Goodrum v. Commissioner of Correction, 63 Conn.App. 297, 299, 776 A.2d 461, cert. denied, 258 Conn. 902, 782 A.2d 136 (2001).
"The sixth amendment to the United States constitution as applied to the states through the fourteenth amendment, and article first, § 8, of the Connecticut constitution, guarantee to a criminal defendant the right to effective assistance of counsel. Powell v. Alabama, 287 U.S. 45, 69, 53 S. Ct. 55, 77 L. Ed. 158 (1932); Festo v. Luckart, 191 Conn. 622, 626, 469 A.2d 1181 (1983). Where a constitutional right to counsel exists, our Sixth Amendment cases hold that there is a correlative right to representation that is free from conflicts of interest. Wood v. Georgia, 450 U.S. 261, 271, 101 S. Ct. 1097, 67 L. Ed. 2d 220 (1981)." (Internal quotation marks omitted.) State v. Parrott, 262 Conn. 276, 286, 811 A.2d 705 (2003), quoting State v. Crespo, *81 246 Conn. 665, 685-86, 718 A.2d 925 (1998), cert. denied, 525 U.S. 1125, 119 S. Ct. 911, 142 L. Ed. 2d 909 (1999). The right attaches at trial as well as at all critical stages of a criminal proceeding, including a hearing in probable cause. See State v. Gaines, 257 Conn. 695, 706-707, 778 A.2d 919 (2001).
"Cases involving conflicts of interest usually arise in the context of representation of multiple codefendants by one attorney where the attorney adduces evidence or advances arguments on behalf of one defendant that are damaging to the interests of the other defendant.... A conflict of interest also arises [however] if trial counsel simultaneously represents the defendant and another individual associated with the incident and that representation inhibits counsel's ability to represent the defendant." (Internal quotation marks omitted.) Goodrum v. Commissioner of Correction, supra, 63 Conn.App. at 317, 776 A.2d 461; see also State v. Martin, 201 Conn. 74, 80-81, 513 A.2d 116 (1986) (enumerating various types of conflicts).
"In a case of a claimed [actual] conflict of interest... in order to establish a violation of the sixth amendment the [petitioner] has a two-pronged task. He must establish (1) that counsel actively represented conflicting interests and (2) that an actual conflict of interest adversely affected his lawyer's performance." (Internal quotation marks omitted.) State v. Parrott, supra, 262 Conn. at 287, 811 A.2d 705, quoting State v. Crespo, supra, 246 Conn. at 689, 718 A.2d 925; Goodrum v. Commissioner of Correction, supra, 63 Conn.App. at 316-17, 776 A.2d 461.[14]
"The [United States Court of Appeals for the Second Circuit] has honed this test further. Once a [petitioner] has established that there is an actual conflict, he must show that a lapse of representation ... resulted from the conflict.... To prove a lapse of representation, a [petitioner] must demonstrate that some plausible alternative defense strategy or tactic might have been pursued but was not and that the alternative defense was inherently in conflict with or not undertaken due to the attorney's other loyalties or interests." (Internal quotation marks omitted.) State v. Vega, 259 Conn. 374, 387, 788 A.2d 1221, cert. denied, 537 U.S. 836, 123 S. Ct. 152, 154 L. Ed. 2d 56 (2002), quoting United States v. Stantini, 85 F.3d 9, 16 (2d Cir.), cert. denied sub nom. Bisaccia v. United States, 519 U.S. 1000, 117 S. Ct. 498, 136 L. Ed. 2d 390 (1996). Nevertheless, no lapse of representation should be found to have occurred when a foregone strategy or tactic either is against the petitioner's interest or is "so insubstantial that even the most ardent and talented, conflict-free advocate would likely have avoided it." United States v. Malpiedi, 62 F.3d 465, 469 (2d Cir.1995). In short, the alleged foregone strategy must possess "sufficient substance to be a viable alternative." (Internal quotation marks omitted.) United States v. Feyrer, 333 F.3d 110, 116 (2d Cir.2003).
"We have had occasion to point out the caution from the United States Supreme Court that the possibility of conflict is insufficient to impugn a criminal conviction.... Cuyler v. Sullivan, [446 U.S. 335, 350, 100 S. Ct. 1708, 64 L. Ed. 2d 333 (1980)]. To demonstrate an actual *82 conflict of interest, the petitioner must be able to point to specific instances in the record which suggest impairment or compromise of his interests for the benefit of another party." (Emphasis in original; internal quotation marks omitted.) Goodrum v. Commissioner of Correction, supra, 63 Conn.App. at 318, 776 A.2d 461. A "mere theoretical division of loyalties" is not enough. (Internal quotation marks omitted.) United States v. Feyrer, supra, 333 F.3d at 116.
To begin, it is clear that as to Soto, the court's conclusion that no actual conflict existed is legally correct. Insofar as the petitioner did not present any evidence at the habeas hearing to establish that Soto ever was a client of the office, it necessarily follows that the office could not have "`actively represented conflicting interests'"; State v. Parrott, supra, 262 Conn. at 287, 811 A.2d 705; by representing both Soto and the petitioner. Accordingly, any claimed deficiency in the investigation of Soto's purported involvement in the murder could not have been due to counsel's divided loyalties. Furthermore, the fact that Soto was implicated by an office client, Mendez, does not create an actual conflict. See State v. Cator, 256 Conn. 785, 796, 781 A.2d 285 (2001) (no actual conflict when codefendants represented by same counsel did not attempt to implicate each other, but rather one identified third party as perpetrator of crime).
As to the other two allegedly viable alternate suspects, the timing of the representation of each is "relevant for purposes of establishing the existence of an actual conflict." State v. Gaines, supra, 257 Conn. at 712, 778 A.2d 919. To reiterate, the office was representing Casanova on an unrelated assault charge at the time of the petitioner's arraignment and at the time the petitioner waived the hearing in probable cause, but that charge was disposed of on March 8, 1994, almost two years prior to the petitioner's February, 1996 trial. The office did not represent Casanova thereafter.
The court credited Favreau's testimony that at the time she advised the petitioner to waive the hearing in probable cause, she was unaware that Casanova had threatened the victim and that she became aware of the threat only with the disclosure ordered from the state's file several months later. The court concluded that the situation presented only a potential conflict. We agree with that conclusion.
The dynamic is similar to one presented in Walton v. Commissioner of Correction, 57 Conn.App. 511, 749 A.2d 666, cert. denied, 254 Conn. 913, 759 A.2d 509 (2000). In that case, the petitioner argued that his counsel, a public defender, labored under an impermissible conflict of interest because counsel's office also represented an individual whom the petitioner claimed had coerced him into committing the crimes with which he was charged. Id., at 515, 749 A.2d 666. We rejected that argument because the identity of that individual was not known during the course of the petitioner's trial and surfaced only after his sentencing. Id., at 516, 749 A.2d 666. In that circumstance, we found it "difficult to imagine how the attorney's duty of undivided loyalty to his client was compromised or how the petitioner's representation was jeopardized in any way." Id., at 517, 749 A.2d 666. In short, for counsel to represent actively conflicting interests and for the representation to be affected adversely, counsel necessarily must be aware that a conflict exists.
In this case, although Casanova was a client of the office at the time it advised the petitioner to waive a hearing in probable cause, the office had no reason at that time to believe that the petitioner's *83 and Casanova's interests possibly were adverse. Rather, at that stage of the proceedings, Casanova was considered to be only a potential defense witness.[15] As such, it is hard to conceive how counsel's loyalty to the petitioner was compromised in favor of allegiance to Casanova. "[I]t is not representation of more than one client which deprives a defendant of his constitutional right to effective assistance of counsel, it is representation of clients with adverse interests." (Emphasis in original; internal quotation marks omitted.) State v. Cator, supra, 256 Conn. at 794, 781 A.2d 285, quoting State v. Henton, 50 Conn.App. 521, 527, 720 A.2d 517, cert. denied, 247 Conn. 945, 723 A.2d 322 (1998). Moreover, both Favreau and Canning testified that the petitioner's representation as to the hearing in probable cause was not affected by any duty to Casanova, and the court credited their testimony. This court will not revisit credibility determinations. State v. Griffin, 78 Conn.App. 646, 651, 828 A.2d 651 (2003).
Regarding Mendez, the court found that the office represented him on an unrelated larceny charge that was disposed of on September 21, 2003, more than one month prior to the petitioner's arrest and arraignment. Mendez became an active client again on August 10, 1994, due to a violation of probation; that violation was disposed of on February 7, 1995. The office did not represent Mendez again until April, 1999. Thus, although the petitioner and Mendez were represented concurrently for a time, it was well after the time the petitioner waived the hearing in probable cause and well before the petitioner's February, 1996 trial. After the disclosure of the information from the state's file on September 2, 1994, which potentially implicated Mendez, Favreau stopped working substantively on the petitioner's case and ceased working for the office in April, 1995. She testified that during that period, she did nothing in the petitioner's case to benefit Mendez, and the court, in finding that "[n]othing was done in the [public defender's] office to protect the interests of the other three named individuals," necessarily credited her testimony. Given that this brief period of corepresentation of the petitioner and Mendez was on wholly unrelated matters and, as to the petitioner's case, nothing occurred aside from Favreau's requesting of continuances, we conclude that the court's finding that there was no active representation of conflicting interests, as to that period, was legally correct.
During the remaining time that the office represented the petitioner, Casanova and Mendez merely were former clients of the office and, pursuant to the opinion of the ethics expert cited by the court,[16] the office was free to attempt to *84 implicate them in matters unrelated to their representation as long as it did not use privileged information learned during the course of their representation.[17] According to the testimony of Condon and Shapera, which the court found credible, that is precisely what the office did. Relying on that testimony, the court properly concluded that the situation never progressed beyond being a potential conflict.
"[A] client's representation suffers from a potential conflict of interest if the interests of the defendant may place the attorney under inconsistent duties at some time in the future." (Emphasis in original; internal quotation marks omitted.) United States v. Williams, 372 F.3d 96, 102 (2d Cir.2004). That is all that was proven in this case. The office became privy to information that, if it led to the discovery of evidence of third party culpability, could have put counsel, at some future time, in the position of accusing one client of wrongdoing to the end of protecting another client charged with that wrongdoing. Because the office, despite its efforts, was unable to develop any further evidence implicating Casanova or Mendez in the murder of Ilarraza, the potential conflict never ripened into an actual conflict. The petitioner, thus, raised a "`mere theoretical division of loyalties'"; United States v. Feyrer, supra, 333 F.3d at 116; that is insufficient to impugn his criminal conviction.
As to the petitioner's argument that the office should have pursued a third party culpability defense, pursuant to the test articulated by the Second Circuit in Stantini and Feyrer, to amount to an unconstitutional lapse in representation, an alternative defense not undertaken must be "plausible" and "viable," as well as in conflict with counsel's other interests. We have in the past rejected a habeas petitioner's allegations that counsel was conflicted due to simultaneous representation, on an unrelated charge, of a potential witness and alleged alternate suspect. See Dunkley v. Commissioner of Correction, 73 Conn.App. 819, 828-29, 810 A.2d 281 (2002), cert. denied, 262 Conn. 953, 818 A.2d 780 (2003). In that case, the evidence adduced at the habeas hearing did not link the alleged suspect to the petitioner's crime and did not show that counsel's performance as attorney for the petitioner was in any way affected by the joint representation. Id., at 828, 810 A.2d 281. This case is similar.
Here, the evidence adduced at the habeas hearing consisted, in relevant part, of statements that Casanova had threatened the victim ten days before the murder, that Mendez had fought with the victim, *85 and that Mendez was looking for the victim and asking about a bicycle on the night of the murder.[18] Although the police took those statements, no arrests resulted, presumably because they did not lead to anything directly connecting Casanova and Mendez with the murder. Without more, none of those statements contain sufficient substance to support a viable third party culpability defense, particularly when taken in conjunction with the considerable evidence that instead implicated the petitioner.
"[A] defendant may introduce evidence which indicates that a third party, and not the defendant, committed the crime with which the defendant is charged.... The defendant, however, must show some evidence which directly connects a third party to the crime with which the defendant is charged.... It is not enough to show that another had the motive to commit the crime ... nor is it enough to raise a bare suspicion that some other person may have committed the crime of which the defendant is accused." (Citations omitted.) State v. Echols, 203 Conn. 385, 392, 524 A.2d 1143 (1987). Evidence that a murder victim and a third party had argued shortly before the victim was killed, without more, is insufficient to be admissible under Echols. See State v. Boles, 223 Conn. 535, 548-49, 613 A.2d 770 (1992).
Shapera testified that with the approval of the petitioner, he did not pursue a third party culpability defense because despite the office's investigatory efforts, the supporting evidence was weak[19] and was contrary to other evidence. The court credited Shapera's testimony, and it is not this court's role to second guess that credibility determination.[20]State v. Griffin, supra, 78 Conn.App. at 651, 828 A.2d 651. Under the circumstances, we agree with the court's conclusion that the office's failure to pursue a third party culpability defense did not result from an actual conflict of interest that adversely affected counsel's performance. See United States v. Feyrer, supra, 333 F.3d at 118-19 (finding alleged foregone defense not plausible when supporting evidence problematic and concluding that counsel likely considered it poor trial strategy); see also 3 W. LaFave, J. Israel & N. King, Criminal Procedure (2d Ed. 1999) § 11.9(d), p. 699 ("to establish an adverse impact through the inherent conflict of a strategy not undertaken, the court must be able to find that the conflict actually does explain that failure; the conflicting character of the strategy will not be sufficient if the strategy actually was rejected because another strategy was even more favorable to the accused"). It simply is not ineffective assistance of counsel to decline to pursue a third party *86 culpability defense when there is insufficient evidence to support that defense. Dunkley v. Commissioner of Correction, supra, 73 Conn.App. at 827, 810 A.2d 281.
To summarize, as the findings of the court are supported by the testimony and evidence presented at the hearing, they are not clearly erroneous. Because those findings demonstrate that the office faced only a potential conflict of interest, the court's conclusion that the petitioner was not deprived of his constitutional right to effective assistance of counsel due to an actual conflict was legally correct.
The judgment is affirmed.
In this opinion the other judges concurred.
NOTES
[1] See Miranda v. Arizona, 384 U.S. 436, 86 S. Ct. 1602, 16 L. Ed. 2d 694 (1966).
[2] The petitioner also raised claims of ineffective assistance as to his counsel for both of his direct appeals. Those claims are not subjects of this appeal.
[3] Another attorney, Matthew Davis, assisted Shapera at trial. Davis did not testify at the habeas hearing.
[4] The court, citing a stipulated trial exhibit summarizing arrest and representation records for Casanova, Mendez and Soto, found that Casanova was represented by the office several times in the period spanning 1990 to 1993. That exhibit reflects that the last representation was in connection with a charge of assault in the third degree, on which Casanova was arrested six days before the petitioner's arraignment on November 4, 1993. That charge was disposed of on March 8, 1994. The court noted these events in its memorandum of decision. The exhibit also shows that although Casanova was arrested five more times between May 2, 1994, and June 22, 2001, he was not represented by the office on any of those charges.
[5] The court, presumably relying on the same exhibit, found that the office represented Mendez from 1990 through 1999. The exhibit shows that Mendez was convicted of larceny in the second degree on September 21, 1993. He violated his probation on August 10, 1994, and that violation was disposed of on February 7, 1995. Thereafter, the office did not represent him again until 1999, well after the conclusion of the petitioner's trial.
[6] Mendez reported that Soto had approached him at an alternative incarceration plan office and stated, "I did it," which statement Mendez interpreted as referring to the murder of Ilarraza. According to the report, Soto did not say anything else.
[7] Mendez also had provided similar information to Favreau in an affidavit dated August 1, 1994. On August 17, 1994, Casanova, too, provided an affidavit to Favreau, stating that Soto had fought with Ilarraza one week before he was killed. Neither affidavit was executed during the time the affiant was being represented by the office.
[8] A disinterested witness to the murder reported that the victim had been riding a bicycle and indicated that the killer had absconded with the bicycle. State v. Santiago, supra, 245 Conn. at 307-308, 715 A.2d 1.
[9] In ordering the information disclosed, the trial judge noted that the victim's nephew had been interviewed and stated that the source of his information had been a Ouija board.
[10] Favreau could not recall precisely why the information regarding Mendez seemed insignificant, but believed that she possibly possessed other information that made him an implausible suspect.
[11] Favreau appeared in court and requested continuances in the petitioner's case on September 30, 1994, and January 6 and February 17, 1995. Otherwise, according to Favreau, she "stopped doing anything on the case other than referring it to [Canning] until he figured out what to do with it."
[12] Canning testified that "[e]very police report that I read has the name of other defendants in it, either prior representation or even current people that I represent."
[13] In that regard, the petitioner is correct. See Iovieno v. Commissioner of Correction, 242 Conn. 689, 700, 699 A.2d 1003 (1997) (en banc).
[14] The test for ineffective assistance due to an actual conflict differs from that for ineffective assistance claims generally, which require a showing of prejudice. See Strickland v. Washington, 466 U.S. 668, 687, 104 S. Ct. 2052, 80 L. Ed. 2d 674 (1984). When only a potential conflict is established, however, the general test applies and resultant prejudice must be proven. United States v. Williams, 372 F.3d 96, 102-103 (2d Cir.2004).
[15] Impermissible conflicts can arise when counsel represents both a criminal defendant and a witness to the crime alleged. That typically occurs, however, when the witness is one for the state, rather than the defense, such that defense counsel is put in the position of having to cross-examine his or her client, possibly using confidential information learned in the course of the representation. See, e.g., State v. Crocker, 83 Conn.App. 615, 627, 852 A.2d 762, cert. denied, 271 Conn. 910, 859 A.2d 571 (2004); Ciak v. United States, 59 F.3d 296, 305-306 (2d Cir.1995). Here, there is no evidence showing that counsel was placed in such a position.
[16] The expert's opinion in that regard accurately reflects rule 1.9 of the Rules of Professional Conduct, which provides: "A lawyer who has formerly represented a client in a matter shall not thereafter: (1) Represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client consents after consultation; or (2) Use information relating to the representation to the disadvantage of the former client except as Rule 1.6 would permit with respect to a client or when the information has become generally known." (Emphasis added.)
Here, the matters on which Casanova and Mendez were represented were wholly unrelated to the petitioner's case. Further, the information suggesting that they should be investigated was not learned by the office in conjunction with its representation of them, but rather came to light when the court ordered disclosure from the state's file.
[17] Federal case law interpreting the sixth amendment is in accord. "[I]n a successive representation case, mere proof that a criminal defendant's counsel previously represented a witness is insufficient to establish `inconsistent interests.' In such a context, if defendant fails to show that either (1) counsel's earlier representation of the witness was substantially and particularly related to counsel's later representation of defendant, or (2) counsel actually learned particular confidential information during the prior representation of the witness that was relevant to defendant's later case, then defendant has not come even close to showing `inconsistent interests.'" Smith v. White, 815 F.2d 1401, 1405-1406 (11th Cir.), cert. denied, 484 U.S. 863, 108 S. Ct. 181, 98 L. Ed. 2d 133 (1987).
[18] As explained previously, the information pertaining to Soto is not pertinent because it was not established that he was a client of the office. Regarding the statement of the security guard placing Mendez at the scene of the murder, the petitioner did not press its relevance in his appellate brief. That likely is due to the fact that the statement also identifies the petitioner as the shooter and, as noted by the trial judge in ordering its disclosure, it appears to have questionable underpinnings. See footnote 9.
[19] At the habeas hearing, Shapera testified that during the petitioner's trial, the state filed a motion in limine to preclude the defense from introducing evidence as to third party culpability unless it met the standard of Echols. Shapera believed there was a possibility of satisfying that standard, but only in regard to Soto.
[20] In determining whether counsel's performance was adversely affected by an actual conflict of interest, counsel's testimony regarding the reasons for his or her trial strategy is wholly proper evidence to be considered and credited by the court. See Burger v. Kemp, 483 U.S. 776, 785-86, 790-92, 107 S. Ct. 3114, 97 L. Ed. 2d 638 (1987). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547552/ | 353 B.R. 564 (2006)
In re Lyndon Walter GRYDZUK and Lisa Kathleen Grydzuk, Debtors.
No. 06-61211 JPK.
United States Bankruptcy Court, N.D. Indiana, Hammond Division.
October 20, 2006.
*565 Lori D. Fisher, Esq., Merrilville, IN, for the Debtors.
Julia M. Hoham, Esq., Merrillville, IN, for the Chapter 13 Trustee.
ORDER ON MOTION TO DETERMINE ELIGIBILITY FOR DISCHARGE ["MOTION"]
J. PHILIP KLINGEBERGER, Bankruptcy Judge.
The Motion, filed on August 2, 2006 by the Chapter 13 Trustee, came before the *566 Court for hearing on August 28, 2006. The debtors appear by Lori Fisher; the Chapter 13 Trustee appears by counsel Julia M. Hoham.
The Trustee contends that the debtors are not eligible for a discharge in this case pursuant to 11 U.S.C. § 1328(f)(1) because they received a discharge under Chapter 7 in a case filed during the 4-year period preceding the date of the filing of this Chapter 13 case. The debtors, however, contend that the prior case was filed under Chapter 13, and that thus by obtaining a discharge under Section 727(a) subsequent to the conversion of their Chapter 13 Base to a case under Chapter 7, the literal language of § 1328(f)(1) does not apply to cause them to be not eligible for a discharge under § 1328(a).
The debtors filed a joint petition initiating a voluntary Chapter 13 case on September 19, 2003, docketed as case number 03-64557. A Chapter 13 plan was confirmed on March 25, 2004. On September 14, 2004, the debtors filed a motion to convert their Chapter 13 case to a case under Chapter 7, which was granted by order entered on September 15, 2004. Things proceeded apace in the Chapter 7 case, and the debtors were granted a discharge under 11 U.S.C. § 727(a) on January 10, 2005. The debtors then initiated this Chapter 13 case by petition filed on June 23, 2006.
The pertinent provision of the Bankruptcy Code 11 U.S.C. § 1328(f)(1) inserted into the law by the BAPCPA states:
(f) Notwithstanding subsections (a) and (b), the court shall not grant a discharge of all debts provided for in the plan or disallowed under section 502, if the debtor has received a discharge
(1) in a case filed under chapter 7, 11, or 12 of this title during the 4-year period preceding the date of the order for relief under this chapter
The issue before the Court is the meaning to be given to the phrase "filed under": Does this phrase refer solely to a chapter under which a case was initiated regardless of the chapter under which a discharge was obtained, or alternatively is the focus of the statute the chapter under which the debtors' discharge was entered if the case was initiated in a chapter other than that one?
There is a fascinating article in the September, 2006 edition of Smithsonian magazine concerning the true author of plays traditionally credited to William Shakespeare. A debate has raged for years in academic circles on this issue. One camp including such luminaries as Mark Twain, Orson Wells, Walt Whitman and Sigmund Freud has asserted that the historical person who did in fact walk the earth under the name of William Shakespeare had neither the educational nor cultural background to write plays and sonnets traditionally attributed to him. The pro-Bill camp focuses on the fact that a renowned literary contemporary, Ben Johnson, attributed authorship of the plays to his friend William Shakespeare, and that there is no historical evidence whatsoever that any other person ever came forward to claim authorship.
The foregoing is set out in this opinion to compare and contrast the BAPCPA with the plays and sonnets attributed to William Shakespeare. Although certainly participants in its drafting know who they are, no one has come forward to claim authorship of the newly-minted provisions of the BAPCPA. This is understandable, for unlike the rapture which arises from reading the most eloquent prose and poetry ever written in the English language, no such elevated state of consciousness derives from reading the BAPCPA. Thus, while a debate rages over whether William Shakespeare or someone else wrote the *567 plays and sonnets attributed to the Bard of Avon, there will never be a similar debate over the authorship of the BAPCPA because no one wants to be associated with that body of work.
11 U.S.C. § 1328(f)(1) presents another in a long string of incredible poorly drafted statutory provisions under the BAPCPA. There is little, if any, meaningful legislative history with respect to the BAPCPA, and even if there were, this Court has traditionally disavowed reliance on legislative history as a tool of construction, in consonance, with pronouncements of the United States Supreme Court; see, e.g., Exxon Mobil Corp. v. Allapattah Services, Inc., 545 U.S. 546, 125 S. Ct. 2611, 2626, 162 L. Ed. 2d 502 (2005). Because of the political process involved in the enactment of legislation in our pluralistic republican form of government, the intent of Congressmen or Senators who voted for a particular piece of legislation may have nothing to do with the goals sought to be implemented by a drafter or sponsor of a law. This Court will thus not review legislative history in order to construe § 1328(f)(1).
If a debtor received a discharge in a case which was initiated as a Chapter 7, 11 or 12 case and remained under that chapter throughout the course of proceedings leading up to the discharge, the statute is clear as to the consequence. However, the statute is ambiguous when a case is initiated under one chapter, and is then converted to another chapter in which the debtor receives a discharge. The obligation of the United States Courts is to give effect to the intention of the legislature in enacting a particular law; Baltimore & O.R. Co. v. Chicago River and Indiana R. Co., 170 F.2d, 654, 658 (7th Cir.1948). There are two major schools of thought now prominent among bankruptcy scholars and bankruptcy judges as to manner in which the BAPCPA is to be construed. One is the "literalist" movement, which holds that "it says what it says", and even if it doesn't make any sense, the law must be construed in strict accordance with the statutory language. The other is the "common sense" approach, which accepts the fact that the BAPCPA in many instances makes no sense whatsoever, but that it must be construed against the background of what it is presumed the drafters intended to change from the prior law.
The critical elements of § 1328(f)(1) are two: (1) the debtor must have "received a discharge" in a prior case, and (2) that case must have been "filed under chapter 7, 11 or 12 . . . during the 4-period preceding the date" of the filing of the Chapter 13 case in which discharge is to be considered. It would have been an easy matter indeed for the statute to have been written in terms of the statutory provisions under which the discharge would have been entered, i.e. 11 U.S.C. § 727(a), 11 U.S.C. § 1141; or 11 U.S.C. § 1228(a): That is the terminology utilized in 11 U.S.C. § 727(a)(8) and (9) to determine eligibility for a discharge in a case filed under Chapter 7. One might argue from the differentiation in the terminology utilized between these former sections and § 1328(f)(1) that the only criteria for the latter section is the chapter under which a prior bankruptcy case had been initiated regardless of the chapter under which a discharge was ultimately entered in that case.
11 U.S.C. § 1328(f)(1) is an example of an ambiguity, not an example of a literal construction leading to an absurd result. Obviously, the he/she/they/it who actually authored this provision had no clue as to the fact that certain cases are initiated under one chapter of the Bankruptcy Code, and end up with a discharge being granted under another chapter. *568 That is an ordinary occurrence in consumer bankruptcy cases, particularly with respect to conversion of Chapter 13 cases to Chapter 7 cases, and less frequently so with conversion of Chapter 7 cases to Chapter 13 cases. However, viewed against the background of pre-BAPCPA culture, one of the perceived "evils" of pre-BAPCA law although totally endorsed by the United States Supreme Court [Johnson v. Home State Bank, 501 U.S. 78, 111 S. Ct. 2150, 115 L. Ed. 2d 66 (1991) ] was the infidel concept of a "20", i.e. the filing of a Chapter 7 to eliminate debts which might be discharged under 11 U.S.C. § 727(a), coupled with the post-discharge filing of a Chapter 13 which could then deal with the debts that were not so discharged and which could not be affected by a Chapter 7 case. A "26" (back to back Chapter 13 cases) was less anathema than was a "20", and a "25" (Chapter 12 followed by Chapter 13) and a "24" (Chapter 11 followed by Chapter 13) were slightly less a worry than was a "20", if only because they didn't happen much. It is this perceived "evil" that 11 U.S.C. § 1328(f)(1) was clearly designed to address. The discharge in Chapter 11 and Chapter 12 cases for an individual mirrors the discharge provided by Chapter 7, and it is clearly the primary intent of § 1328(f)(1) to preclude the filing of a "20", a "24" and a "25" for a more extended period of time than a "26". The fact that the language utilized to implement this crusade does not evidence any perceptual understanding of bankruptcy law does not obfuscate the identity of the infidel targeted by this section. The fact that the language of § 1328(f)(1) does not parallel that of 11 U.S.C. § 727(a)(8) or (9) does not diminish the construction to be given to the ambiguous former statute.
Additionally, 11 U.S.C. § 1328(f)(1) is not, really very ambiguous, if one understands 11 U.S.C. § 348(a) an understanding which certainly passed that of the BAPCPA drafters. What of the phrase "filed under"? As stated in 11 U.S.C. § 301(a), a "voluntary case under a chapter of this title is commenced by the filing with the bankruptcy court of the petition under such chapter by an entity that may be a debtor under such chapter." Thus, in a very strict and literal sense, the debtors' prior case was "filed" under Chapter 13. The statute does not use the phrase "filed as", but rather the phrase "filed under". The debtors converted their Chapter 13 case to a case under Chapter 7, a process governed by 11 U.S.C. § 348. Subparagraph (a) of that statute states that "[c]onversion 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 . . ." (emphasis supplied). Thus, upon conversion, the order for relief the critical component in the initiation of a bankruptcy case became "an order for relief under the chapter to which the case was converted", i.e., Chapter 7. Thus, the case became "filed under" Chapter 7 rather than under Chapter 13. 11 U.S.C. § 348((f)1) states certain consequences/manifestations "when a case under chapter 13 of this title is converted to a case under another chapter under this title". Thus, combining the fact that 11 U.S.C. § 348(a) literally rendered the debtors' converted case to have been filed under Chapter 7 with § 1328(f)(1)'s statement of what happens to a Chapter 13 case when it becomes a case "under another chapter under this title", it is clear that the discharge referred to in 11 U.S.C. § 1328(f)(1) refers to the chapter under which the discharge was actually entered, rather than the chapter under which the case was initiated. The only published decision on this issue, In re Capers, 347 B.R. 169 (Bankr.D.S.C.2006) is in accord with this determination with the exception *569 that it in part relies on legislative history for its determination, which this Court does not endorse. Moreover, as stated in Capers, the debtors' argument here is a double-edged sword. If the debtors were to prevail, a debtor who begins a case in Chapter 7, converts to Chapter 13 and receives a discharge in the Chapter 13 case would be precluded from obtaining a discharge in a subsequent Chapter 13 case filed four years or less from the date of the filing of the Chapter 7 case. This is not a propitious result, and one which runs counter to the obvious intent of § 1328(f)(1) to primarily attack "20's", not "26s".
Given the foregoing, the Court finds that the Trustee is correct, and that the debtors are not entitled to a discharge in this case pursuant to the provisions of 11 U.S.C. § 1328(f)(1).
IT IS ORDERED that the debtors are not entitled to discharge under 11 U.S.C. § 1328(f)(1) in this case. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547548/ | 867 A.2d 717 (2005)
SANTARELLI REAL ESTATE, INC., Appellant,
v.
TAX CLAIM BUREAU OF LACKAWANNA COUNTY.
Commonwealth Court of Pennsylvania.
Argued December 6, 2004.
Decided February 2, 2005.
*718 James P. Gregorowicz and James M. Scanlon, Scranton, for appellant.
David Z. Smith, Moscow, for appellee.
BEFORE: COLINS, President Judge, PELLEGRINI, J., and COHN JUBELIRER, J.
OPINION BY Judge COHN JUBELIRER.
Santarelli Real Estate, Inc., (Appellant) appeals from an order of the Court of Common Pleas of Lackawanna County (common pleas), which, inter alia, dismissed its complaint seeking performance of an agreement of sale, conveyance of title, and deliverance of deed and declared null and void a tax sale against former owner Paul Kotchko (Kotchko), who was deceased.
At issue in this appeal are an unsuccessful public tax sale and an unconfirmed private tax sale, instituted pursuant to the Real Estate Tax Sale Law (Tax Sale Law),[1] of property deeded to the deceased Kotchko.[2]
In 2003, because of delinquent real-estate taxes, the Lackawanna County Tax Claim Bureau (Tax Claim Bureau) listed the Kotchko property (Property) for public tax sale. The Tax Claim Bureau mailed, on July 9, 2003, via certified mail, notice of the public tax sale to the owner of the property, Kotchko, who was then deceased, and physically posted notice (Tr. at 120-21) on the Property.[3] (Tr. at 31.) The notice sent via certified mail was returned to the Tax Claim Bureau, with "Deceased 7-18-2003" marked on the returned envelope, along with a forwarding address[4] to Veronica Balog (Balog), the last surviving joint tenant with right of survivorship of the property.[5] The Tax Claim Bureau did not produce evidence of any subsequent attempt(s) to contact Balog or another representative of the Kotchko estate *719 at either the forwarding address or another address. (Tr. at 36.)
On September 20, 2003, the Tax Claim Bureau conducted a public sale of the Property, exposing it at its upset price.[6] No one submitted a bid to purchase the Property. Where a public sale fails to produce a buyer, Section 613 of the Tax Sale Law, 72 P.S. § 5860.613, authorizes the Tax Claim Bureau to sell the property through a private sale. On December 19, 2003, Victor and Tamara Santarelli submitted to the Tax Claim Bureau a bid to purchase the Property for $5,500.00. Submission of this bid came on a one-page paper with the introductory title: "Offer to Purchase Private Sale Real Estate Owned By The County Of Lackawanna Tax Claim Bureau"[7] (Bid Sheet). Appellant then paid the required advertising fee of $220.00 for the Section 613 private sale notice requirements. The Bid Sheet listed Victor and Tamara Santarelli as "bidders" for the Property, listed Lackawanna County as "title owner," and Kotcho[8] as "assessed owner." Payment of this advertising fee is the only expenditure made by Appellant towards the purchase of the Property. Thomas Walsh, Director of the Tax Claim Bureau of Lackawanna County, accepted and approved the price listed on the Bid Sheet in September 2003. (Tr. at 105-06.)
The Tax Claim Bureau, on December 22, 2003, provided notice concerning the unconfirmed private sale by advertising[9] Appellant's bid for sale with the Lackawanna Jurist, and by posting notice on the Property. (Tr. at 13-15.)
On December 26, 2003, both Arlene Miller (Miller), who is Balog's daughter,[10] and the Lackawanna County Redevelopment Authority (Redevelopment Authority)[11] submitted letters to the Tax Claim Bureau requesting the removal of the Property from future tax sales and asking the Bureau not to accept any outside bids. Miller also informed the Tax Claim Bureau that future profits[12] derived from the sale of the Property to the Redevelopment Authority would be used to satisfy all delinquent taxes. Following receipt of these two letters,[13] the Tax Claim Bureau refused to complete the sale of the Property to Appellant.
Appellant filed a complaint on February 25, 2004 in common pleas seeking, inter *720 alia, (1) an order for specific performance of an agreement of sale between the parties; (2) an order for conveyance to Appellant of title free, clear and discharged of all tax claims and tax judgments; and, (3) an order for the Tax Claim Bureau to sign, seal, acknowledge and deliver a deed to Appellant. On March 2, 2004, Appellant filed with common pleas a "Petition For Rule To Show Cause Why Private Tax Sale Shall Not Be Completed." Common pleas granted that motion and scheduled a hearing for April 8, 2004. ("Rule to Show Cause Hearing".)
On April 6, 2004, Appellant filed an amended complaint, pleading a new cause of action: a mandamus action seeking common pleas to order the Tax Claim Bureau to forward a deed for the Property to the Santarellis. That same day, the Tax Claim Bureau filed an answer to Appellant's petition and asserted, as new matter, that notice of the public sale was not properly effectuated, pursuant to Section 5860.602(e) of the Tax Sale Law,[14] to the owner of the Property, Balog, as her address appeared on the returned notice sent via certified mail to Kotchko. Appellant replied to the new matter on April 8, 2004. On April 7, 2004, Balog petitioned for allowance, nunc pro tunc, to file objections and exceptions to the sale of the Property. Common pleas, on the same day, also scheduled Balog's nunc pro tunc petition to be heard on April 8th at the Rule to Show Cause Hearing. Thus, arguments on the two separate petitions were heard on April 8, 2004. At the hearing, common pleas allowed Miller to testify, under a Power of Attorney for her mother, that Balog had never brought to Miller's attention any mailing from the Tax Claim Bureau. Common pleas overruled hearsay objections made by counsel for Appellant.
Common pleas, at the end of the hearing, issued its decision from the bench, denying Appellant's request for mandamus and delivery of the deed to the Property and directing that there be no sale of the Property to Appellant because of the Tax Claim Bureau's failure to provide notice of the public sale. (Tr. at 151-52.) Appellant, subsequently, filed a Motion for Post Trial Relief seeking: 1) a new trial, claiming an inability to conduct pretrial discovery of Intervenor Balog; or 2) a judgment *721 entered in its favor, claiming it established that Balog had adequate notice of the public sale. On April 20, 2004, common pleas issued its formal order, which dismissed Appellant's complaint in equity and mandamus, declared null and void the sale of the Property, and ordered the Kotchko Estate to reimburse Appellant the cost of advertising the Property. Also, on April 20, 2004, common pleas denied Appellant's motion for post-trial relief. On July 21, 2004, common pleas issued its opinion explaining its reasons for voiding the tax sale of the Property based on the Tax Claim Bureau's failure to give notice of the public sale to the owner of the property as required by Section 602 of Tax Sale Law. (Trial Ct. Op. at 14-16.)[15]
The basis of common pleas' formal opinion was its determination that the Tax Claim Bureau had failed to provide Balog with notice of the public sale and, due to this failure, the Property was never "exposed" at a public sale, so there could be no private sale. (Trial Ct. Op. at 15-16.) Appellant filed a timely appeal of that decision to this Court.
As a preliminary matter, we recognize that our standard of review in a tax sale case is limited to determining whether the trial court abused its discretion, rendered a decision lacking supporting evidence, or clearly erred as a matter of law. See, e.g., Casaday v. Clearfield County Tax Claim Bureau, 156 Pa.Cmwlth. 317, 627 A.2d 257 (1993).
Appellant attempts to focus this Court's analysis on issues surrounding the private sale of the Property. However, before this Court can address issues surrounding the private tax sale, there must be a determination of the existence of a valid public tax sale. A valid public tax sale is a prerequisite for the consideration of a private tax sale under Section 613 of the Tax Sale Law. See Rivera v. Carbon County Tax Claim Bureau, 857 A.2d 208 (Pa.Cmwlth.2004) (holding that divestiture of ownership following exposure of property at a public tax sale cannot occur when the notice provisions for a public tax sale are not strictly complied with). Therefore, we must necessarily first determine that the Property was "exposed at public sale" before we can address the private sale.
The Tax Claim Bureau conceded before common pleas, and in its answer to Appellant's petition for rule to show cause, that it did not give Balog, owner of the Property, notice of the public sale. However, Appellant argues here that Balog's failure to pay taxes on the Property constituted implied actual notice of the public sale, and that it should have had the opportunity to conduct further discovery on whether she had notice and, as an alternative argument, that Balog abandoned the Property.[16]
*722 As previously stated, in order for there to be a valid public sale, there must be evidence establishing compliance with the notice requirements found in Section 602 of the Tax Sale Law. (March 2, 2004 Rule to Show Cause); see also Krawec v. Carbon County Tax Claim Bureau, 842 A.2d 520 (Pa.Cmwlth.2004). Usually, it is the Tax Claim Bureau that establishes notice to the record owner here Balogof an impending public tax sale. However, in this case, after Appellant filed its "Petition For Rule To Show Cause Why Private Tax Sale Shall Not Be Completed," the Tax Claim Bureau filed an answer stating that it had not, in fact, complied with the notice requirements. At trial, the Tax Claim Bureau could not produce either a return receipt from certified mail sent to Balog, a copy of a first class letter mailed to her address,[17] or any notation in its records that any notice had been sent. Thus, unless Appellant could demonstrate that Balog otherwise received actual notice, in the absence of statutory notice to the owner, the public sale was void. Hunter v. Washington County Tax Bureau, 729 A.2d 142, 143 (Pa.Cmwlth.1999) (finding that "[n]otice provisions [of the Tax Sale Law] are to be strictly construed and strict compliance with such provisions is necessary to guard against deprivation of property without due process, and if any one method of notice is defective, the sale is void").
Once the Tax Claim Bureau established that its files relating to the Property did not contain evidence of compliance with the notice requirements of Section 602 of the Tax Sale Law, the burden to establish that Balog, nonetheless, had notice shifted to Appellant, the only party seeking consummation of its bid offer. At trial, however, Appellant failed to produce any evidence that either the Tax Claim Bureau notified Balog or that Balog possessed actual notice of the public sale. Instead, it asserted that Balog's "knowing failure" to pay the taxes provided her with notice that there will be a public sale of the Property. Appellant cites this Court's decision in Sabbeth v. Tax Claim Bureau of Fulton County, 714 A.2d 514, 517 (Pa.Cmwlth.1998), for the proposition that Balog possessed implied actual notice. However, the facts of that case are clearly distinguishable. In Sabbeth, the certified letter from the Tax Claim Bureau was delivered to the property owner's former office, where she continued to check her mail weekly. A company employee placed the letter on Sabbeth's desk, where it remained unread for nearly two months. Based on these facts, the Court in Sabbeth found that failure to open and read notice sent via certified mail is not a defense and held that the property owner has implied actual notice. Id. In contrast, here, there is no dispute that the certified letter was never sent to Balog.
Appellant also contends that "to allow Veronica Balog to file and prove objections *723 to the public sale on a day that was set for enforcement of the private sale contract deeply prejudiced the Santarelli case." (Appellant Br. at 19.) However, Appellant misunderstands what actually occurred: the public sale was not invalidated on the basis of Balog's objections. The Tax Claim Bureau, two days before the hearing, raised the issue of inadequate notice, as new matter, in its answer to Appellant's petition for rule to show cause. Appellant, moreover, filed an answer to the new matter. Thus, even in the absence of Balog's objections, the issue of notice would have remained a salient issue at the hearing, and Appellant was aware of the Tax Claim Bureau's argument. Common pleas did not grant Balog's petition to file, nunc pro tunc objections; it did not need to. The Tax Claim Bureau established the lack of notice to Balog, which was never rebutted by Appellant.
Appellant also argues in its post trial motions and before this Court, that common pleas' decision to allow Miller, through Balog's power of attorney, to testify violated basic notions of fairness because it did not have the opportunity to conduct discovery, depose or elicit testimony from Balog about the receipt of notice. However, Appellant, despite its two days foreknowledge of the Tax Claim Bureau's intent to argue failure of notice, raised only hearsay objections to Miller's testimony at trial and did not, at any time during trial, raise the issue of unfair surprise. Not having preserved the issue of unfair surprise at trial,[18] the issue is, thus, waived. Pa. R.A.P. 302; see also Dilliplaine v. Lehigh Valley Trust Co., 457 Pa. 255, 322 A.2d 114 (1974).
Appellant also argues that Balog abandoned the Property. However, Appellant did not raise the issue of abandonment at trial; therefore, it cannot be argued for the first time before our Court. Pa. R.A.P. 302; see also Dilliplaine.
Based on the failure of Appellant to refute the Tax Claim Bureau's position that it did not provide Balog with notice of the public sale, common pleas correctly held that the public sale was void and, therefore, the private sale was also void. For these reasons, we affirm the order of common pleas,[19] which declared null and void the tax sale.[20]
ORDER
NOW, February 2, 2005, the order of the Court of Common Pleas of Lackawanna County in the above-captioned matter hereby affirmed.
NOTES
[1] Act of 1947, P.L. 1368, as amended, 72 P.S. §§ 5860.101-5860.803.
[2] The record does not establish an exact date for the death of Kotchko although, Arlene Miller, his niece and agent for Veronica Balog (joint tenant of the Property), indicated on direct examination that he died, approximately, in 1993. (Tr. at 96.)
[3] Gary Ado Propersi, Director of Lackawanna County Tax Claims, testified that his file concerning the Property, which contains all information kept by the Tax Claim Bureau, did not contain evidence of whether notice appeared in local publications. (Tr. 32, 34.)
[4] There is no evidence in the record that the Tax Claim Bureau mailed a notice to the forwarding address.
[5] Appellant concedes in its brief to this Court that the deed to the Property lists Paul Kotchko, Jr., Michael Kotchko, Anna Kotchko, Mildred Kotchko, and Veronica Balog as joint tenants with the right of survivorship. (Appellant Br. at 6.)
[6] Section 605 of the Tax Sale Law defines "upset price" as the total amount of delinquent taxes on the property. 72 P.S. § 5860.605.
[7] Propersi testified that no other bids were received for the Property. (Tr. at 9-10.)
[8] Kotchko's name is improperly spelled on the Bid Sheet.
[9] The record is not clear whether notice of the private sale was provided, as required by Section 613 of the Tax Sales Law, in one newspaper of general circulation published in the county where the property is located; however, because of our disposition of this case, we need not address it.
[10] Miller testified that she first received notice of the private sale when a representative of the Redevelopment Authority contacted her and brought the letter, dated December 26, 2003, for her to sign. (Tr. at 98.)
[11] There is evidence in the record that the Redevelopment Authority plans to condemn the Property in the near future.
[12] William Coleman, Executive Director of the Lackawanna County Redevelopment Authority, testified that the heirs to the Property were offered $55,000.00 for the property. (Tr. at 42.)
[13] Thomas Walsh testified that the private sale of the Property was canceled based on a letter from Jessup Borough challenging the sufficiency of the value/price of the Property, although this letter was not part of the Tax Claim Bureau's file for the Property. (Tr. at 124-25.)
[14] Section 602 of the Tax Sale Law, provides, in relevant part:
(a) At least thirty (30) days prior to any scheduled sale the bureau shall give notice thereof, not less than once in two (2) newspapers of general circulation in the county, if so many are published therein, and once in the legal journal, if any, designated by the court for the publication of legal notices. Such notice shall set forth (1) the purposes of such sale, (2) the time of such sale, (3) the place of such sale, (4) the terms of the sale including the approximate upset price, (5) the descriptions of the properties to be sold as stated in the claims entered and the name of the owner.
* * * *
(e) In addition to such publications, similar notice of the sale shall also be given by the bureau as follows:
(1) At least thirty (30) days before the date of the sale, by United States certified mail, restricted delivery, return receipt requested, postage prepaid, to each owner as defined by this act.
(2) If return receipt is not received from each owner pursuant to the provisions of clause (1), then, at least ten (10) days before the date of the sale, similar notice of the sale shall be given to each owner who failed to acknowledge the first notice by United States first class mail, proof of mailing, at his last known post office address by virtue of the knowledge and information possessed by the bureau, by the tax collector for the taxing district making the return and by the county office responsible for assessments and revisions of taxes. It shall be the duty of the bureau to determine the last post office address known to said collector and county assessment office.
72 P.S. § 5860.602(a), (e).
[15] Appellant makes several arguments concerning the propriety of common pleas allowing Balog to file and argue nunc pro tunc objections. However, this Court notes that nunc pro tunc objections did not form the basis of any ruling of common pleas in this matter.
[16] Appellant raised issues concerning Balog's ability to file objections to the public sale and the potential existence of a binding contract for sale resulting from the offer to bid on the private sale. Appellant argued in common pleas, and in his brief to this Court, that because the private sale was confirmed nisi and absolute, and no objections were lodged with common pleas within the statutorily required 45 days, it was too late to file a petition to set aside the public sale. (Tr. at 89.) Nonetheless, this argument is clearly without merit because this Court has held that where notice is improperly effectuated, the public sale is void, not voidable. County of Schuylkill, v. Ryon, 143 Pa.Cmwlth. 285, 598 A.2d 1075 (1991), petition for allowance of appeal denied, 530 Pa. 662, 609 A.2d 169 (1992). Once the Tax Claim Bureau conceded that their files relating to the Property could not establish conformity with Section 602 notice requirements, the public sale was void and title effectively returned to Balog. Under Section 613(a), a precondition to a private sale is that the property first be "exposed to public sale," and, because no legally proper exposure occurred due to the defective notice, the private sale is, a fortiorari, void. Therefore, arguments as to objections to voided sales and the existence of a binding contract resulting from, arguendo, a private sale agreement are clearly without merit and irrelevant to this appeal. Furthermore, Appellant testified that in performing a title search, it learned that Balog's name was on the deed.
[17] Thomas Walsh testified that when certified notices are returned, the Tax Claim Bureau mails some form of pre-printed or handwritten letter, via first class mail, but there is nothing in the record that indicates such a letter was sent to Balog, or the contents of that letter. (Tr. at 143.)
[18] Furthermore, as we do not rely on Miller's testimony in our opinion, any error regarding her testimony would be harmless.
[19] In its opinion, common pleas noted that counsel for Appellant was previously solicitor for the Tax Claim Bureau and, in his capacity as solicitor, prepared the notices issued for the public sale of the Property. (Trial Ct. Op. at 8-9.)
[20] Appellant and the Tax Claim Bureau also argue whether the Tax Claim Bureau has discretion to complete a private sale, in the absence of any infirmity in either the public or private sale; however, due to our disposition of this case we do not address that issue. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547557/ | 353 B.R. 124 (2006)
In re Bobby Gene SALINAS and Cindy Dianne Salinas, Debtors.
American Investors Life Insurance Company, Inc., Plaintiff,
v.
Bobby Gene Salinas; Brenda J. Keisler as the Personal Representative of the Estate of Ernestine B. Corley, deceased; Brenda J. Keisler as Personal Representatives of the Estate of James W. Corley, Sr., deceased; James W. Corley, Jr.; Brenda J. Keisler, Individually; Elizabeth D. Griggs; Sandra P. Stevenson; Richard A. Corley; Debra R. Corley; and Emily Hall, Defendants.
Bankruptcy No. 06-01150-JW, Adversary No. 06-80087-JW.
United States Bankruptcy Court, D. South Carolina.
July 21, 2006.
*125 Reid B. Smith, Columbia, SC, for Debtors.
Michael S. Church, Lexington, SC, for Plaintiff.
Barbara George Barton, Columbia, SC, for Defendants.
ORDER FOR ABSTENTION
DAVID R. DUNCAN, Bankruptcy Judge.
This matter comes before the Court on a Motion to Abstain filed by defendants Brenda J. Keisler as the Personal Representative of the Estate of Ernestine B. Corley, Deceased: Brenda J. Keisler as the Personal Representative of the Estate of James W. Corley, Sr., deceased; James W. Corley, Jr.; Brenda J. Keisler, individually; Elizabeth D. Griggs; Sandra P. Stevenson; Richard A. Corley; Debra R. Corley; and Emily Hall (the "State Court Plaintiffs"). In responding to the complaint *126 of American Investors Insurance Company, Inc. (the "Insurance Company") the State Court Plaintiffs asked that the Bankruptcy Court abstain from exercising jurisdiction over the first and second causes of action in the Complaint, pursuant to 28 U.S.C. § 1334(c)(1) or (2). The Court conducted a hearing in this matter on July 18, 2006, at which time counsel for the State Court Plaintiffs and the Insurance Company appeared. At the hearing, the Insurance Company withdrew its first cause of action in the Complaint and that matter is no longer before the Court. Having considered the pleadings filed in this matter, the arguments of counsel, the exhibits and testimony, the Court has determined to exercise its discretion and abstain pursuant to 28 U.S.C. § 1334(c)(1) with regard to the second cause of action. In reaching this conclusion, the Court has made the following findings of fact and conclusions of law.[1]
FINDINGS OF FACT
1. On June 22, 2004, Ernestine B. Corley and Brenda Keisler as the Personal Representative of the Estate of James W. Corley[2] filed suit against Bob Salinas ("Debtor") and a number of other defendants (together, the "State Court Defendants"),[3] one of whom is American Investors. Life Insurance Company, Inc. ("Plaintiff' or "Insurance Company"), in a suit designated 2004-CP32-2255, in Lexington County, in the Court of Common Pleas for the Eleventh Judicial Circuit, South Carolina (the "State Court").
2. Immediately thereafter, on June 22, 2004, James E. Corley, Jr.; Brenda J. Keisler, Elizabeth D. Griggs; Sandra P. Stevenson; Richard A. Corley, Debra R. Corley and Emily Hall filed suit against the same State Court Defendants,[4] one of whom is American Investors Life Insurance Company, Inc. ("Plaintiff" or "Insurance Company"), in a suit designated 2004-CP32-2256, in Lexington County, in the Court of Common Pleas for the Eleventh Judicial Circuit, South Carolina (together, the two cases in State Court are hereinafter referred to as the State Court Litigation).
3. Both of the complaints in the state court litigation (the "State Court Complaints") allege virtually identical facts and causes of action, indicating that the Debtor caused the State Court Plaintiffs to invest in companies which were defunct, bankrupt *127 or in receivership. The State Court Complaints allege that the Debtor contacted the State Court Plaintiffs while acting on behalf of the Insurance Company. Specifically, the State Court Complaints contain the following causes of action:
a. Negligence;
b. Fraud;
c. Constructive Fraud;
d. Breach of Fiduciary Duty;
e. Breach of Contract Accompanied by a Fraudulent Act;
f. Unfair Trade Practices; and
g. Negligent Misrepresentation.
4. The State Court Plaintiffs have requested a jury trial and they do not consent to a jury trial before the Bankruptcy Court.
5. The State Court Litigation has progressed in State Court through various pleadings and discovery. The deposition of the Debtor was scheduled on March 30, 2006.
6. The bankruptcy of Bobby Gene Salinas and Cindy Dianne Salinas was filed on March 24, 2006 (Case Number 06-01150) (the "Bankruptcy").
7. The State Court Litigation has been on the court docket since June 2004. It has appeared on court rosters numerous times. If not for the filing of the Bankruptcy by the Debtor, it is very possible that these cases would have already been tried.
8. The Insurance Company filed this Adversary Proceeding on April 25, 2006 (the "Adversary Proceeding"). In the Adversary Proceeding, the Insurance Company asserts three causes of action. The first cause of action, for injunctive relief, has been withdrawn. The second cause of action seeks a declaratory judgment as to whether the Debtor was acting within the course or scope of an agency relationship with the Insurance Company when he provided investment advice to the State Court Plaintiffs (the "Second Cause of Action"). The State Court Plaintiffs have not asked for relief pursuant to the Third Cause of Action and that is not addressed in this Order.
9. With regard to the Second Cause of Action, the State Court Plaintiffs filed a Motion for Abstention, asking the Court to abstain from hearing the Second Cause of Action.
10. The Chapter 7 Trustee of the Bankruptcy conducted an examination of the Debtor pursuant to F.R.Bank.P. 2004. On June 20, 2006, the Trustee filed a Report of No Distribution, indicating that there is no property available for distribution from the estate and that the estate has been fully administered. He abandoned all scheduled assets and asked that he be discharged as trustee.
ABSTENTION PURSUANT TO 28 U.S.C. § 1334(c)(1)
The Bankruptcy Court may decide, in its discretion, to abstain from hearing a matter should it determine, pursuant to 28 U.S.C. § 1334(c)(1), that the interest of justice or the interest of comity with State Court or respect for State Law, justifies such abstention.
Except with respect to a case under chapter 15 of title 11, nothing in this section prevents a district court in the interest of justice, or in the interest of comity with State Courts or respect for State Law, from abstaining from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11.
28 U.S.C. § 1334(c)(1).
In reviewing the provisions of § 1334(c)(1), Courts have considered each of the disjunctive factors in determining *128 whether discretionary abstention is warranted in any given case.
. . . discretionary abstention is permitted (1) where abstention is in the interests of justice; (2) where abstention is in the interest of comity with state courts, or (3) out of respect for concurrent state law. The three bases are disjunctive and the court need only consider one of three as the basis of its conclusion;
In re Dunes Hotel Associates, 94-75715-W, C-95-8223, 1996 WL 33340785 (Bankr. D.S.C.7/11/96); In re Bellucci, 119 B.R. 763, 772 (Bankr.E.D.Ca.1990): In re Kolinsky, 100 B.R. 695, 705 (Bankr.S.15.N.Y. 1989).
In considering discretionary abstention, the South Carolina Bankruptcy Court has specifically adopted the factors proposed by the court in In re Republic Reader's Serv., 81 B.R. at 429:
1. The effect or lack thereof on the efficient administration of the estate if a Court recommends abstention;
2. The extent to which state law issues predominate over bankruptcy issues;
3. The difficulty or unsettled nature of the applicable state law;
4. The presence of a related proceeding commenced in state court or other nonbankruptcy court;
5. The jurisdictional basis, if any, other than 28 U.S.C. § 1334;
6. The degree of relatedness or remoteness of the proceeding to the main bankruptcy case;
7. The substance rather than form of an asserted "core" proceeding;
8. The feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court;
9. The burden of the bankruptcy court's docket;
10. The likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties;
11. The existence of a right to a jury trial; and
12. The presence in the proceeding of nondebtor parties.
In re Dunes Hotel Associates, 94-75715-W, C-95-8223, 1996 WL 33340785 (Bankr. D.S.C.7/11/96); In re Landmark Land Co., Case No. 91-5817, Adv. No. 2:XX-XXXX-X (D.S.C.1994).
Application of these factors to the Second Cause of Action indicates that discretionary abstention should be exercised.
1. The Bankruptcy is a No Asset Chapter 7. The issue raised by the Second Cause of Action has no nexus to the Bankruptcy or impact upon the administration of the bankruptcy estate, because there will be no distribution. A determination of the State Court Litigation may well determine the issue raised in the Second Cause of Action. Allowing a determination in State Court will greatly facilitate and expedite the determination of the issues in that litigation and will not hamper or affect the ongoing bankruptcy estate in any way. This factor indicates abstention.
2. The State Court Litigation was filed almost two years prior to the Bankruptcy. It has progressed pursuant to the state procedures and the parties have pursued written discovery and depositions in State Court. It has appeared on the state court roster numerous times and the parties have indicated to the state court that they are ready for trial. The issue of agency of the Debtor is an issue of state law. The United States Court of Appeals for the Fourth Circuit has considered Congressional Intent in determining whether matters involving issues of state law should be determined in a bankruptcy forum.
*129 Congress has indicated a strong preference for allowing state law claimants to litigate their disputes in state courts rather than the bankruptcy courts.
In re Steingold Cos., 960 F.2d 147 (Table), 1992 WL 81677 at *1 (4th Cir.1992).
This factor indicates abstention.
3. While the state law issues raised are not particularly difficult or unsettled, this Court believes that the progress in State Court for two years weighs heavily in favor of allowing a determination in State Court, where trial is imminent.
Where a cause of action for monetary damages based primarily on state law can be litigated in state court without substantial delay and disruption to the orderly administration of the estate, the best forum for resolution of that action is state court, irrespective of whether the legal issues present unsettled questions of state law.
In re Republic Reader's Serv., Inc. 81 B.R. 422, 426 (Bankr.S.D.Tex.1987).
This factor indicates abstention.
4. There are also two probate estates that remain open in Lexington County, pending the outcome of the State Court Litigation. This factor indicates abstention.
5. There does appear to be diversity jurisdiction in this matter, which would provide federal jurisdiction other than pursuant to 28 U.S.C. § 1334. However, there is no federal subject matter jurisdiction and this matter does not appear to arise under Title 11, to arise in Title 11, or be related to a case under Title 11. As noted above, the resolution of the Second Cause of Action will have no impact on the ongoing Bankruptcy. This factor indicates abstention.
6. The Second Cause of Action is not directly related to anything that will occur in the ongoing Chapter 7 Bankruptcy. This factor indicates abstention.
7. There is no core proceeding alleged, in form or substance. This factor indicates abstention.
8. Severance is not indicated since no core proceeding is involved. This factor indicates abstention.
9. The calendar of the Bankruptcy Court has been burdened recently by the Bankruptcy Reform Legislation that has substantially changed many of the procedures in bankruptcy court and has necessitated additional proceedings in compliance with its requirements. This Court believes that the most expeditious method of obtaining a final result with regard to the issue raised in the Second Cause of Action would be trial in the state court of the State Court Litigation. This factor cates abstention.
10. The Court makes no finding of forum shopping.
11. All parties have recognized that the State Court Litigation is to be tried by a jury. This will include a jury determination of the issue raised in the Second Cause of Action. This factor indicates abstention.
12. The State Court Litigation involves many non-debtor parties. Many of the State Court Plaintiffs are elderly and two are represented by probate estates. In addition, the State Court Plaintiffs have been required to obtain bankruptcy counsel in addition to their regular counsel, increasing the fees and expenses in the litigation. The inconvenience to these non-debtor parties in requiring them to participate in a new forum would constitute prejudice in favor of abstention.
In summary, almost every factor of the discretionary abstention test indicates that the Court should exercise its discretionary abstention with regard to the Second *130 Cause of Action. The interests of comity with the state courts and respect for state law, together with the consideration of judicial efficiency, indicate that abstention is appropriate.
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED
1. That the First Cause of Action is withdrawn by the Insurance Company, and
2. That the Court abstains from hearing the Second Cause of Action, pursuant to 28 U.S.C. § 1334(c)(1).
NOTES
[1] To the extent any of the following Findings of Fact constitute Conclusions of Law, they are adopted as such, and to the extent any Conclusions of Law constitute Findings of Fact, they are so adopted.
[2] During the course of the litigation, Ernestine B. Corley died and her estate is one of the Plaintiffs.
[3] Bob Salinas; Salinas Financial Associates dba Salinas Associates, Family Trust, Senior Information Services and Salinas & Associates; American Telecommunications Company, Inc., dba ATC, Inc. and Alpha Telcom, Inc.; Family Heritage Portfolio, Inc.; American Investors Life Insurance Company, Inc.; Mobile Cash Systems, LLC; Senior Education Centers, Inc., dba Senior Education Center of America; Resort Holdings International, LLC dba Resort Holdings; HFG, Inc., dba Hayes Financial Group, Inc., HFG and ETS Payphones, Inc.; Sunshine Real Estate Corporation; and AquaDyn Technologies, Inc.
[4] Bob Salinas; Salinas Financial Associates dba Salinas Associates, Family Trust, Senior Information Services and Salinas & Associates; American Telecommunications Company, Inc., dba ATC, Inc. and Alpha Telcom, Inc.; Family Heritage Portfolio, Inc.; American Investors Life Insurance Company, Inc.; Mobile Cash Systems, LLC; Senior Education Centers, Inc., dba Senior Education Center of America; Resort Holdings International, LLC dba Resort Holdings; HFG, Inc., dba Hayes Financial Group, Inc., HFG and ETS Payphones, Inc.; Sunshine Real Estate Corporation; and AquaDyn Technologies, Inc. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547546/ | 353 B.R. 388 (2006)
In re Robert E. FOX, Debtor.
No. 03-35768 (LMW).
United States Bankruptcy Court, D. Connecticut.
October 26, 2006.
*389 Irve J. Goldman, Esq., Jessica Grossarth, Esq., Pullman & Comley, LLC, Bridgeport, CT, for Debtor. .
Ignazio J. Lazo, Esq., Cadden & Fuller, LLP, Irvine, CA, for National Wood Products, Inc.
Joseph L. Rini, Esq., New Haven, CT, for National Wood Products, Inc.
MEMORANDUM AND ORDER GRANTING (IN PART) DEBTOR'S MOTION TO AVOID JUDICIAL LIEN
LORRAINE MURPHY WEIL, Bankruptcy Judge.
The matters before the court are (a) the above-referenced debtor's (the "Debtor") *390 Motion To Avoid Judicial Lien under § 522(f) of the Bankruptcy Code (Doc. I.D. No. 7, the "Motion")[1] and (b) National Wood Products, Inc.'s ("NWP") objection thereto (Doc. I.D. No. 35, the "Objection"). This court has jurisdiction over this matter as a core proceeding pursuant to 28 U.S.C. §§ 157 and 1334 and that certain Order dated September 21, 1984 of the District Court (Daly, C.J.).[2]
This memorandum constitutes the findings of fact and conclusions of law required by Rule 7052 of the Federal Rules of Bankruptcy Procedure (the "Rules") (made applicable here by Rule 9014 of the Rules).
I. PROCEDURAL BACKGROUND
The Debtor commenced this bankruptcy case by the filing of a petition under chapter 7 of the Bankruptcy Code on November 24, 2003 (the "Petition Date"). The Debtor voluntarily converted his chapter 7 case to a case under chapter 11 of the Bankruptcy Code and an order (Doc. I.D. No. 84) to that effect was entered on February 25, 2005. The Debtor remains in possession and/or control of his assets and business affairs as debtor in possession pursuant to Bankruptcy Code §§ 1107 and 1108.
Contemporaneously with his petition, the Debtor filed his schedules and Statement of Financial Affairs (Doc. I.D. No. 1). On Schedule A Real Property the Debtor listed an interest as "Co-Owner" and owner of "½ share" with respect to certain real property located at 15 Long Point Road, Branford, Connecticut (the "Property") with a stated value of $675,000.00. (See Doc. I.D. No. 1 (Schedule A).)[3] On Schedule C Property Claimed as Exempt, the Debtor claims an exemption (the "Exemption") with respect to his interest in the Property in the amount of $75,000.00 under Section 52-352b(t) of the Connecticut General Statutes. (See Doc. I.D. No. 1 (Schedule C).)[4] On Schedule D Creditors Holding Secured Claims, the Debtor lists the following encumbrances in respect of the Property: (a) a first lien held by Washington Mutual Bank, FA ("Washington Mutual") in the amount of $1,436,261.00; (b) a second lien (collectively with the first lien, the "Mortgages") held by Webster Bank in the amount of $182,000.00; and (c) a judgment lien (the "NWP Lien") held by NWP in the amount of $151,467.00. (See Doc. I.D. No. 1 (Schedule D).) Mrs. Fox is jointly liable with the Debtor on the Mortgages; the NWP Lien is solely the Debtor's obligation. (See id.)
The Motion was filed on December 11, 2003 and seeks to avoid the NWP Lien pursuant to 11 U.S.C. § 522(f). (See Doc. I.D. No. 7.) The Objection was filed on *391 February 9, 2004. An evidentiary hearing (the "Hearing")[5] was held on the Motion and the Objection on January 24, 2006. At the Hearing, Mr. Robert Opotzner (an appraiser)[6] and Matthew Beatman, Esq. (counsel for Loretta Fox) testified for the Debtor, and John Tolbert (an appraiser),[7] Garry Brooke (an appraiser)[8] and Joseph Rini, Esq. (local counsel for NWP) testified for NWP. Both the Debtor and NWP placed documentary evidence into the Hearing record.[9] During the Hearing, certain evidentiary objections and/or motions were taken under advisement and are disposed of below. At the conclusion of the Hearing, the court took the matter under advisement subject to post-Hearing briefing. Post-Hearing briefing now is complete and the matter is ripe for decision.
II. FACTS[10]
The Property is located in the Stony Creek section of the Town of Branford, Connecticut. The Stony Creek section is "semi-exclusive"; it has its own post office and there is a private beach and an association fee. (See Transcript at 51, 88 (testimony of Mr. Tolbert).) The Property is a direct waterfront property abutting Long Island Sound. (See Transcript at 52 (testimony of Mr. Tolbert).) The Property consists of .64 acres. (See NWP Exh. C at 2.) Located on the Property are (a) a nine room, four bedroom, 2.5 bath, 3,688 square foot, 83-year old residence and (b) a separate 400 + square foot guest house. (See id. at 2-3 (NWP Appraisal).)[11] The Property *392 also has a granite boat ramp at which a boat can be docked and launched into the Sound. (See Transcript at 72-73 (testimony of Mr. Tolbert).) At the Hearing, the Debtor's appraiser (Mr. Opotzner) testified that the Property was worth $1,350,000.00 as of the Petition Date (See Transcript at 10) while NWP's appraisers (Messers. Tolbert and Brooke) testified that the Property was worth $2,200,000.00 as of the Petition Date (See Transcript at 78, 115).
As noted above, (a) the Property is co-owned by the Debtor and his wife and (b) the Mortgages are their joint obligation but (c) the NWP Lien is solely the Debtor's obligation. The aggregate amount of the Mortgages as of the Petition Date was $1,602,655.45. (See Transcript at 21 (Stipulation).) The amount of the NWP Lien as of the Petition Date was $151,467.19. (See id.)
Some time in 2003, Washington Mutual commenced a foreclosure action (the "Foreclosure Action") on its mortgage with respect to the Property.[12] NWP was a defendant in the Foreclosure Action. (See Transcript at 30-31 (testimony of Attorney Rini).) Washington Mutual filed therein a motion for judgment of strict foreclosure. (See Debtor Exh. 5 (Washington Mutual's Motion for Judgment of Strict Foreclosure).) Annexed to that motion was a copy of an appraisal report (the "Bank Appraisal") in respect of the Property prepared by Esposito & Associates for Washington Mutual's counsel stating a value for the Property of $1,600,000.00 as of March 8, 2004. (See id. (annexed Bank Appraisal).) NWP moved in the Foreclosure Action for foreclosure by sale but NWP could not obtain the necessary supporting return of appraiser in a timely manner. (See Transcript at 31-32 (testimony of Attorney Rini).) Nevertheless, on or about April 19, 2004 the foreclosure court entered a Judgment of Foreclosure by Sale (the "Foreclosure Judgment," a copy of which is in the record as Debtor Exh. 6) which found the Property value to be $1,600,000.00 and which scheduled a sale of the Property for July 24, 2004. (See. id.)[13] No foreclosure sale has been confirmed in the Foreclosure Action.
III. ANALYSIS
A. Standards
Section 522(f) provides in relevant part as follows:
(1) [T]he debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is
(A) a judicial lien. . . .
. . .
(2) (A) For the purposes of this subsection, a lien shall be considered to impair an exemption to the extent that the sum of
(i) the lien;
(ii) all other liens on the property; and
*393 (ii) the amount of the exemption that the debtor could claim if there were no liens on the property;
exceeds the value that the debtor's interest in the property would have in the absence of any liens.
11 U.S.C.A. § 522(f) (West 2005). See also 11 U.S.C.A. § 522(a)(2) ("`[V]alue' means fair market value as of the date of the filing of the petition. . . . ").
Subject to certain exceptions not relevant here, all determinations relevant to Section 522(f)(1) and 522(f)(2) are made as of the petition date. In re Salanoa, 263 B.R. 120, 123 (Bankr.S.D.Cal.2001) ("The Court holds the petition date is the operative date to make all § 522(f) determinations." (emphasis added)). That includes the date for valuing the liens relevant to a Section 522(f)(2)(A) calculation. Salanoa, 263 B.R. at 123. The Debtor bears the burden to prove by a preponderance of the evidence each element necessary for a Section 522(f)(1) lien avoidance. See, e.g., Soost v. NAH, Inc. (In re Soost), 262 B.R. 68, 74 (8th Cir. BAP 2001) ("As the movant, the debtor bears the burden of proving by a preponderance of the evidence all the elements required to establish his entitlement to lien avoidance under section 522(f) of the Bankruptcy Code."); Premier Capital, Inc. v. DeCarolis (In re DeCarolis), 259 B.R. 467, 471 (1st Cir. BAP 2001) ("Debtor has the burden of proof on all avoidance issues."). If the Section 522(f)(2) calculation yields a negative number a to a target lien, the lien is avoided but only to that extent. See East Cambridge Says. Bank v. Silveira (In re Silveira), 141 F.3d 34 (1st Cir.1998); Soost, 262 B.R. at 74; Tedeschi v. Falvo (In re Falvo), 227 B.R. 662, 666-67 (6th Cir. BAP 1998). Accord Corson v. Fidelity and Guaranty Ins. Co. (In re Corson), 206 B.R. 17, 22 (Bankr.D.Conn.1997) (Dabrowski, J.).
B. Application of Section 522(f)(2)(A) to Jointly Owned Property
There is a conflict of authority as to whether Section 522(f)(2)(A)'s direction that the sum of "all other liens on the property," 11 U.S.C.A. § 522(f)(2)(A) (emphasis added), be deducted from the "value . . . [which] the debtor's interest in the property would have in the absence of any liens," id. (emphasis added), requires that the full amount of a joint mortgage be deducted from the value of the debtor's partial interest in the property in determining whether a judgment lien is "impaired" within the meaning of Section 522(f)(1)(A). See In re. White, 337 B.R. 686, 689 (Bankr.N.D.Cal.2005) (surveying conflicting cases). Compare White, supra (full amount of joint mortgage must be deducted from the value of the debtor's partial interest) with Miller v. Sul (In re Miller), 299 F.3d 183 (3d Cir.2002) (only ratable portion of joint mortgage properly is deducted from the value of the debtor's partial interest). Not surprisingly, the Debtor urges this court to adopt the White approach because application of that approach would render the Exemption "impaired" within the purview of Section 522(f)(1)(A) even if the Property is worth what NWP says the Property is worth. Needless to say, NWP urges the opposite proposition.
The court agrees with those courts which have held that Section 522(f)(2)(A) does not compel the White approach. See, e.g., Miller, supra; Lehman v. Vision-Span, Inc. (In re Lehman), 205 F.3d 1255 (11th Cir.2000); Nelson v. Scala, 192 F.3d 32, 35 n. 2 (1st Cir.1999). As the Miller court observed:
It is illogical to net the total outstanding secured debt balance attributable to both a debtor and his joint tenant against the debtor's one-half interest in *394 the property alone because Congress could not have intended that a debtor benefit under section 522(f)(2)(A) by the use of what realistically should be regarded as someone else's debt even if the debtor may be liable personally to the creditor for the entire debt.
Miller, 299 F.3d at 186.
Among those courts rejecting the White approach, there is a difference in the manner of calculating "impairment" (but not in the mathematical result). Compare Miller, supra (prorate the joint liens between the co-owners' interests) with In re Ware, 274 B.R. 206 (Bankr. D.S.C.2001) (bankruptcy court had to start with the total value of the property, then subtract full amount of joint liens and then divide the difference (i.e., the joint equity) ratably between the co-owners' interests). See also Lehman, 205 F.3d at 1257.[14] This court adopts the Miller proration approach as more consistent with the language of Section 522(f)(2)(A). Accord Dolan v. D.A.N. Joint Venture (In re Dolan), 230 B.R. 642, 647 n. 4 (Bankr.D.Conn.1999) (Krechevsky, J.) (using Miller proration approach), abrogated on other grounds by Trahan v. Day Kimball Hospital (In re Trahan), 337 B.R. 448, 450 (Bankr. D.Conn.2006) (Krechevsky, J.).
C. Other Preliminary Issues
1. Effect of Foreclosure Judgment
The Debtor argues that, because NWP was a party defendant to the Foreclosure Action, the finding of Property value contained in the Foreclosure Judgment (i.e., $1,600,000.00) is binding on NWP under the doctrine of collateral estoppel. The court does not agree. As an initial matter, the valuation in the Foreclosure Judgment was either as of March 8, 2004 (See Debtor Exh. 7) or as of the date of that judgment (i.e., April 19, 2004). As discussed above, the issue here is the value of the Property (actually the value of the Debtor's interest in the Property) as of the Petition Date (i.e., November 24, 2003). Therefore, the respective issues in the Foreclosure Action and these proceedings are not identical. Under applicable Connecticut law, for a judgment in a prior action to preclude litigation of an issue in a later action, the issues in both actions must be identical. See Crochiere v. Board of Educ. of Town of Enfield, 227 Conn. 333, 345, 630 A.2d 1027 (1993) ("Before collateral estoppel applies there must be an identity of issues between the prior and subsequent proceedings. To invoke collateral estoppel the issues sought to be litigated in the new proceeding must be identical to those considered in the prior proceeding.").
Moreover, even if the issues are deemed to be identical (which they are not), the court is mindful of the admonition of the Connecticut Supreme Court that pre-sale determinations of property value rendered during the foreclosure-by-sale process "are primarily intended to give the court a valuation by which to judge the fairness of the highest bid received . . . [and are] not conclusive in determining valuation for the purpose of resolving collateral issues." Bryson v. Newtown Real Estate and Dev. Corp., 153 Conn. 267, 274, 216 A.2d 176 (1965) (emphasis added; alteration added). Accordingly, for all of the *395 above-stated reasons, the court concludes that NWP is not precluded by the doctrine of collateral estoppel from litigating here the issue of Property valuation as of the Petition Date.
The Debtor argues that, even if the Foreclosure Judgment is not collateral estoppel here, it, the Bank Appraisal and the related Return of Appraiser still are evidence of Property value as of the Petition Date (presumably by assuming stability of market values back to the Petition Date). However, without the supporting testimony here of the appraiser who rendered the Bank Appraisal (and made the Return of Appraiser), or any testimony respecting market stability, the court gives the Bank Appraisal (and the corresponding valuation finding of the Foreclosure Judgment) very little weight as evidence of Property value as of the Petition Date.
2. Alleged $1.6 million NWP Appraisal
Attorney Beatman (Loretta Fox's counsel) testified at the Hearing that Attorney Rini (local counsel for NWP) admitted in discussions between them some time in 2005 that NWP then had in its possession a written appraisal of the Property (allegedly prepared for NWP or its counsel) stating a valuation of $1,600,000.00. (See Transcript at 40-41 (testimony of Attorney Beatman).) The Debtor buttresses its position by pointing to the fact that, when asked to "produce all appraisals of the . . . [Property]" pursuant to Rule 7034 of the Rules,[15] NWP did not state that the Bank Appraisal was the only appraisal report it had but, rather, objected (in part) to that request based upon the "attorney-client and work product privileges." (Debtor Exh. 9 at 8 (Response of National Wood Products, Inc. to Movant's First Set of Interrogatories and First Request for Production of Documents signed (as to answers) by NWP on May 11, 2005 and (as to objections) by Attorney Rini on June 3, 2005).) However, the court credits Attorney Rini's testimony that the only $1,600,000.00 appraisal for the Property he was aware of was the Bank Appraisal and it was to that appraisal he was referring in his discussions with Attorney Beatman.[16] That appraisal is before the court and, as discussed above, the court gives it very little weight.
D. Valuation
The court declines to accept either party's appraisal in toto. However, for the purposes of a starting point, the court is more persuaded by the NWP Appraisal than by the Debtor Appraisal for reasons including the following. Both appraisals rely upon the "comparable sales" approach to valuation. (See Transcript at 11 (testimony of Mr. Opotzner); NWP Exh. C at 3 ("[Cost Approach] is not a relevant approach to valuation in this case. . . . ").) The NWP Appraisal uses all waterfront (Long Island Sound front) properties as comparable sales; the Debtor Appraisal uses only one such property. (See NWP Exh. C at 3 (all "waterfront" properties or "waterfront +" properties (with appropriate downward adjustment))); Transcript at 53:25-54:1 and 63:20-22 ("[The] Harbor Street [property used in the Debtor Appraisal] . . . faces the Branford River [rather than Long Island Sound]. . . . The description used for the . . . [Property] is waterfront, and [the] Juniper Point [property used in the Debtor Appraisal] would *396 be water view.") (testimony of Mr. Tolbert). The court is persuaded by the testimony of Mr. Tolbert that it is not reasonable for an appraiser to compare a property which abuts Long Island Sound to properties which are on the Branford River or which merely have a "water view." (See Transcript at 52-54 (testimony of Mr. Tolbert); see also Transcript at 125:14-23 ("[The Property] . . . is very unique. It's sitting on a cove. It has [a] beautiful view of the cove and also Long Island Sound to [the] Thimble Islands. . . . You cannot compare properties that are away from the shoreline or do not have comp[arable] views . . .") (testimony of Mr. Brooke).)
However, the court is persuaded that the NWP Appraisal must be adjusted downward because the sales price for the "16 Flying Point Road" property which the NWP Appraisal used as "Comparable No. 2" was overstated therein. Mr. Tolbert testified that he relied on the hearsay statement of a fellow appraiser that the relevant sales price for the 16 Flying Point Road property was $3,000,000.00 (as opposed to the $2,340,000.00 sales price recited in the relevant deed (Debtor Exh. 10) and the "field card" maintained by the Branford town assessor (Debtor Exh. 11)). (See Transcript at 98 (testimony of Mr. Tolbert).) Mr. Brooke assumed that Mr. Tolbert had verified that hearsay statement with the deed, but Mr. Tolbert had not. (See Transcript at 133-34.) The court finds the only persuasive evidence of the sales price for 16 Flying Point Road to be Debtor Exhs. 10 and 11 which state a sales price of $2,340,000.00.[17]
Further adjusting the "Adjusted Sales Price of Comparable" as recited in the NWP for 16 Flying Point Road to reflect the lower "Sales Price" for that property, the relevant "Adjusted Sales Price of Comparable" for that property becomes $1,959,500.00. Weighing the "Adjusted Sales Price Comparable" for the three "comparable" properties equally as does the NWP Appraisal (See NWP Exh. C at 3 ("As a result of the range, quality, and consistency of the sales data, all comparable sales were weighted equally as adjusted.")), the appropriate value for the Property is $1,988,933.00.[18]
There are two putative further adjustments which the court declines to make. Mr. Tolbert attacked the Debtor Appraisal's use of the "39 Flying Point Road" property as a comparable sale and attempted to renounce the NWP Appraisal's use of the same property for the same purpose because of alleged information he obtained the day before the Hearing that the relevant sale may not have been "arms length." (See Transcript at 82-84 (testimony of Mr. Tolbert).) However, Mr. Tolbert also testified that he did not really know that the sale was not arms length, that the property had been listed on the MLS (Multiple Listing Service) for $1,600,000.00 and that such listing "more than likely" indicated an arms length sale. (Transcript at 83-85.) Based on the foregoing, the court sees no reason to redact *397 that property from the appraisals or to adjust the stated purchase price(s).[19]
The Debtor argues that the 166 Middle Beach Road property (which is "Comparable No. 1" in the NWP Appraisal) either is entirely inappropriate because it is located in Madison which is two towns removed from Branford and a more desirable area than Branford, or its value in the NWP Appraisal needs to be adjusted downward. Mr. Tolbert testified that although Madison is a more desirable area than Branford generally, the Stony Creek area of Branford is comparable to the Madison shore. (See Transcript at 88 (testimony of Mr. Tolbert); see also Transcript at 125:14-21 ("[W]e're dealing with a property that is very unique. . . . In order to match apples with apples you have to extend the market search beyond that. In fact, in this case, definitely beyond the town and go along the coastline in order to find more comparable sales.") (testimony of Mr. Brooke).) The court credits that testimony and is satisfied that the NWP Appraisal's use of the Middle Beach Road property was appropriate and that appraisal's adjustments in respect of that property also were appropriate.
E. Section 522(f)(2) Calculation
Based upon the above, the Section 522(f) calculation for the NWP Lien is as follows:
Value of Property = $1,988,933.00
Value of Debtor's Interest in the Property ("Debtor Value")
$1,988,933.00 =
---------------
2
$994,466.50
===========
$1,602,655.45
Total Mortgages =
Portion of Mortgages Apportioned to Debtor's Interest in the Property
("Debtor Mortgages") =
$1,602,655.45 =
---------------
2
$801,327.73
===========
Debtor Value Debtor Mortgage NWP Lien-Exemption = $994,466.50-$801,327.73-
$151,467.19-$75,000.00 =
-$ 33,328.42
============
Accordingly, because the result of the Section 522(f)(2) calculation is negative, the NWP is avoidable to that extent (i.e., $33,328.42).
V. CONCLUSION
For the reasons discussed above, the NWP Lien shall be avoided to the extent of $33,328.42 and is unaffected to the extent of $118,138.77.
It is SO ORDERED.
NOTES
[1] References herein to the docket of this chapter 7 case are in the following form: "Doc. I.D. No. ____."
[2] That order referred to the "Bankruptcy Judges for this District" inter alia "all proceedings . . . arising under . . . Title 11, U.S.C. . . ." References herein to title 11 of the United States Code or to the Bankruptcy Code are references to the same as they appeared prior to the effective date of their amendment by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
[3] The Debtor values the entire Property at $1,350,000.00. (See id.) The Property is the Debtor's residence which he co-owns with his wife, Loretta Fox. Mrs. Fox is a debtor in a separate chapter 11 case before this court, see In re Loretta Erma Fox, Chapter 11 Case No. 04-33468.
[4] Section 52-352b(t) is Connecticut's "homestead" provision. It is conceded that the Exemption is valid thereunder.
[5] A transcript (the "Transcript") of the Hearing appears in the docket of this case as Doc. I.D. No. 283.
[6] Mr. Opotzner is a real estate appraiser with 21 years experience in residential appraisals. He has resided in Branford for about 25 years and is familiar with the Branford residential real estate market having done between 100 and 200 appraisals there during his career. He also has done about a "couple hundred" appraisals of Connecticut shore front properties. He has been certified as an appraiser under Connecticut law since the late 1980's. (Transcript at 6-8 (testimony of Mr. Opotzner).) Mr. Opotzner was qualified as an expert at the Hearing. (Id. at 9.) A copy of his appraisal report (the "Debtor Appraisal") is in the record as Debtor Exh. 1 (as hereafter defined).
[7] At the time of the Hearing, Mr. Tolbert had been a real estate appraiser for about 4½ years. He had recently become certified as an appraiser under Connecticut law. He was pursuing his SRA designation (i.e., designation as a senior residential appraiser). He was living in Branford and had done so for about six years. He had done about 300 to 400 appraisals in total, about 20 of those in Branford. (Transcript at 48-50 (testimony of Mr. Tolbert).) He is "intimate" with the Stony Creek area (where the Property is located) because he runs there five or six times a week. (Transcript at 62 (testimony of Mr. Tolbert).) Mr. Tolbert was qualified as an expert at the Hearing. (Id. at 50.)
[8] At the time Mr. Tolbert performed his appraisal of the Property he was not yet certified and his work had to be reviewed by a supervising appraiser. Mr. Brooke was that reviewing appraiser and signed the relevant appraisal report in that capacity. Mr. Brooke has been an appraiser for about 20 years. He has been certified since the early 1990's and also is a Certified Review Appraiser. He went out to the Property and also went out to the Flying Point Road properties. (Transcript at 111-116 (testimony of Mr. Brooke).) Mr. Brooke was qualified as an expert at the Hearing. (Id. at 113.) A copy of the Tolbert/Brooke appraisal report (the "NWP Appraisal") is in the record as NWP Exh. C (as hereafter defined).
[9] References herein to such documentary evidence appear in the following form: "Debtor Exh. ___" or "NWP Exh. ___" (as the case may be).
[10] The facts found below and elsewhere in this memorandum have been taken from the record of the Hearing and of this entire bankruptcy case.
[11] The Debtor Appraisal describes the residence as having ten rooms, three bedrooms, "2F2H" baths and 3,462 square feet. (See Debtor Exh. 1.) The Bank Appraisal (as hereafter defined) describes the residence as having nine rooms, three bedrooms, 2.5 baths and 2,732 square feet. (See Debtor Exh. 5.) The parties have not attached any significance to these differences and neither will the court.
[12] Washington Mutual was granted relief from stay in this case to continue the Foreclosure Action pursuant to an order dated February 4, 2004. (See Doc. I.D. No. 30.)
[13] Copies of the related Affidavit of Appraiser and Return of Appraiser are in the record as Debtor Exh. 7 and Exh. 8 (respectively).
[14] In effect, the [bankruptcy] court was simply substituting . . . the total value of the home ($225,000) in place of Lehman's interest in the home in the absence of any liens ($112,500) [and dividing the resulting equity in half]. The same outcome would also be produced by substituting the value of the NationsBank mortgage attributable to Lehman's share of the property ($82,500), in place of the value of the mortgage on the whole property ($165,000).
[15] Rule 7034 is applicable to these proceedings pursuant to Rule 9014 of the Rules.
[16] In light of the court's above-stated finding, the court need not consider the "settlement discussions" privilege discussed by the parties in their respective briefs.
[17] The court does not believe that Mr. Tolbert lied when he said that he had verified the higher sales price with the relevant deed but, rather, that he misremembered.
[18]
$2,278,000.00 + $1,959,500.00 + $1,729,300.00 = $1,988,933.00
------------- ------------- ------------- -------------
3 3 3
Because of the importance of each marginal dollar in this case, the court declines to "round" that value figure either up or down.
[19] The court's resolution of the above issue moots the pending related evidentiary dispute. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547591/ | 867 A.2d 585 (2005)
COMMONWEALTH of Pennsylvania, Appellee,
v.
Steven DAVIS, Appellant.
Superior Court of Pennsylvania.
Argued November 9, 2004.
Filed January 21, 2005.
*586 Michael E. Wallace, Philadelphia, for appellant.
Hugh J. Burns, Asst. Dist. Atty., Philadelphia, for Com., appellee.
BEFORE: DEL SOLE, P.J., HUDOCK, FORD ELLIOTT, JOYCE, STEVENS, LALLY-GREEN, TODD, KLEIN, and BOWES, JJ.
OPINION BY KLEIN, J.:
¶ 1 Steven Davis appeals from the judgment of sentence entered in the Court of Common Pleas of Philadelphia County following his conviction on the charges of, inter alia, first-degree murder,[1] arson,[2] and conspiracy.[3] In his opinion, the trial judge stated that neither the defendant nor counsel had responded to the court's order to submit a Pa.R.A.P. 1925(b) statement of matters complained of on appeal. Therefore, the court chose to limit its review to the issues of sufficiency of the evidence and whether denying severance of the case was proper. However, since there is no evidence that the order to file a Rule 1925(b) statement was ever sent to Davis' counsel or Davis, and counsel certified to this Court in his brief that he never received the Rule 1925(b) order, we refuse to find waiver. Accordingly, we: (1) remand for the proper service of the 1925(b) order upon defense counsel; (2) direct counsel to file a Rule 1925(b) statement within 14 days of receipt of the order; and (3) direct the trial judge to file a revised Rule 1925(a) opinion addressing all issues contained in the 1925(b) statement.
¶ 2 Pennsylvania Rule of Criminal Procedure 114(C)(2) provides that all orders and court notices must be docketed, and the docket must contain the date the clerk received the order, the date of the order, and the date and manner of service of the order or court notice. In this case, there is no showing that the Philadelphia County clerk of courts ever notified counsel of the trial court's order to file a Pa.R.A.P. 1925(b) statement. Nothing is reflected in the docket, and there is no other evidence that the order was ever sent. This case is therefore controlled by the Pennsylvania Supreme Court's decision in Commonwealth *587 v. Hess, 570 Pa. 610, 810 A.2d 1249 (2002), where these provisions were held to be mandatory.
¶ 3 Michael Wallace, Esquire, an experienced and highly regarded trial attorney, stated in his brief that he never received any request for a Rule 1925(b) statement. He also added that if he did in fact get one and did not respond, that would be ineffectiveness.
¶ 4 Although perhaps it might have been better if Mr. Wallace had also filed an affidavit to that effect, we accept the statement in the brief, as he is an officer of the court. The brief was his first opportunity to respond to the trial judge's statement in the 1925(a) opinion that Wallace had failed to file a court-ordered Rule 1925(b) statement.
¶ 5 Wallace said the following:
The trial court claims to have forwarded an Order dated March 16, 2001 directing present counsel to file a Statement of Matters Complained of on Appeal. At no time was the Order received and the trial court's docket entry fails to indicate the method of mailing and to whom the Order was forwarded. In the trial court's Opinion, it states that present counsel did not comply with the court's Order directing the filing of a Statement of Matters Complained of on Appeal and as a result, all issues have been waived. Opinion of Smith, J., at p. 3. Since present counsel did not receive the Order and the trial court's docket entry fails to indicate the method of mailing and to whom the Order was forwarded, the issues raised in this appeal should not be considered waived. Regardless, present counsel has asserted his own ineffectiveness should this Court conclude that the issues were waived as a result of the failure to file a Statement of Matters Complained of on Appeal.
(Appellant's Brief, at 9.)
¶ 6 The trial judge never stated that he or his office ever mailed a statement to counsel. The judge merely said that "[n]either the defendant nor, [sic] his counsel have responded to this court's order." (Trial Court Opinion, 11/8/2001 at 3.)
¶ 7 Viewing the docket, there is no evidence indicating that the clerk of courts ever furnished a copy of the trial court's Rule 1925(b) order to Davis or his counsel, which is required by Pa.R.Crim.P. 114. There is also no indication of the time and manner in which such service was made, if ever, to Davis or his attorney. The comment to this Rule suggests that the notice and recording procedures are mandatory and not modifiable. The import of this requirement has been repeatedly upheld and reaffirmed by our Supreme Court and this Court.
¶ 8 For example, in Commonwealth v. Hess, supra, the Pennsylvania Supreme Court was faced with an almost identical fact pattern. The defense attorney in Hess claimed he never received a Rule 1925(b) request, but the trial judge nonetheless said "Appellant chose to ignore" its order. The Supreme Court said, "Of course, it is axiomatic that in order for an appellant to be subject to waiver for failing to file a timely Rule 1925(b) statement, the trial court must first issue a 1925(b) order directing him to do so." 810 A.2d at 1252. The Court went on to say that the language of Pa.R.Crim.P. 114 provides that "The clerk shall forthwith furnish a copy of the order, by mail or personal delivery, to each party or attorney, and shall record in the docket the time and manner thereof." Id. at 1253 (emphasis in original). There was more of an indication of service in Hess than in the instant case, since in Hess there at least was a docket entry *588 indicating that the parties were served. However, the docket did not indicate the date or manner of service. Because of that, the Supreme Court held there was no waiver of issues for failing to file a Rule 1925(b) statement. Here, there is not even an indication that there was any service.
¶ 9 In Hess, the Supreme Court referenced two of our cases that reached the same result: Commonwealth v. Parks, 768 A.2d 1168 (Pa.Super.2001), and Commonwealth v. Phinn, 761 A.2d 176 (Pa.Super.2000). In Phinn, significantly, our Court refused to find appellant's issues waived on appeal based solely on the fact that there was no indication on the docket regarding when or how the court's order was furnished to the appellant. Moreover, in Parks, there also was no recorded notation on the docket indicating that the clerk of courts had furnished the appellant or his counsel of record a copy of the Rule 1925(b) order. Additionally, our Court found this to be in direct contravention of the rules of criminal procedure, and therefore declined to find appellant's issue waived. Counsel in that case averred that he could not punctually comply with the order since it was erroneously sent to his prior business address. Our Court properly looked at the certified record and refused to doubt counsel's averment.
¶ 10 Here, too, not only is there no indication that the order was ever served, but counsel, as an officer of the court, denies that he ever received it. As our Court did in Phinn and Parks, we accept as true counsel's good faith assertion that he never received notice of the trial court's Rule 1925(b) order where that statement is made in connection with a certified record that does not indicate when or how this alleged notice was sent to appellant.
¶ 11 The requirement that defendants be given notice of the need to file a Rule 1925(b) statement is not a mere technicality. If we are to find that defendants waived their constitutional rights, we must be sure that the clerk of the court did his or her job to advise the defendants that it was necessary to act.
¶ 12 We have been strict in holding appellants to the dictates of Commonwealth v. Lord, 553 Pa. 415, 719 A.2d 306 (1998), and its progeny. If we are going to do that, we should also be strict in requiring the trial court and clerk of courts to comply with the rules regarding notice of Rule 1925(b) orders. In the present case, it is clear the clerk did not comply with the mandatory requirements of Pa.R.Crim.P. 114. Under these circumstances, it would be improper to find Davis' issues waived.
¶ 13 A request for a Rule 1925(b) statement is optional with the trial judge. Many judges will write their Rule 1925(a) opinions without a Rule 1925(b) statement when they know the issues from presiding over the trial. If counsel is not advised that an order for a 1925(b) statement is issued, he or she should not have to guess whether or not the judge wanted one.
¶ 14 Case remanded. Within 14 days of the receipt of this Opinion, the trial judge is directed to issue a new order requiring Davis to file a Pa.R.A.P. 1925(b) statement. The 1925(b) order shall be promptly and properly docketed and mailed to counsel. Counsel is then directed to file a Rule 1925(b) statement within 14 days of receipt of the trial court's order. The trial judge is directed to file a Rule 1925(a) opinion within 45 days of receipt of Davis' Rule 1925(b) statement. Original panel jurisdiction retained.
NOTES
[1] 18 Pa.C.S.A. § 2502.
[2] 18 Pa.C.S.A. § 3301.
[3] 18 Pa.C.S.A. § 903. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547584/ | 353 B.R. 520 (2006)
In the Matter of Wilson TRAVIS, Debtor.
No. 06-43456-MBM.
United States Bankruptcy Court, E.D. Michigan, Southern Division.
November 6, 2006.
*521 *522 Robert E. Jones, Allen Park, MI, for Debtor.
OPINION DENYING UNITED STATES TRUSTEE'S MOTION TO DISMISS
MARCI B. McIVOR, Bankruptcy Judge.
This matter came before the Court on the United States Trustee's Motion to Dismiss Debtor's Chapter 7 bankruptcy. The United States Trustee seeks to dismiss the case pursuant to 11 U.S.C. §§ 707(b)(2) and 707(b)(3).
A trial was held on September 25, 2006. At the conclusion of the trial, the Court took the United States Trustee's Motion to Dismiss under advisement. Based on the evidence the Court denies the United States Trustee's Motion to Dismiss under both §§ 707(b)(2) and (b)(3).
Findings of Fact
(1) Debtor married in June, 1999.
(2) At the time Debtor married, his wife was the sole source of support for her mother and her teenage daughter.
(3) At the time Debtor and his wife were married, Debtor's spouse had substantial outstanding credit card debt.
(4) After Debtor and his wife married, the parties continued to accumulate substantial unsecured debt.
(5) Prior to filing for bankruptcy, Debtor sought credit counseling in an effort to restructure his debt, but Debtor continued to fall further behind every month, and ultimately filed for bankruptcy.
(6) On March 23, 2006, Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code.
(7) The Debtor's Amended Schedule I states: gross income $3,500; payroll taxes and social security $980; insurance $64; Debtor's net income is $2,456. Debtor's non-filing spouse's income is reflected on Schedule I as follows: gross income $3,291; payroll taxes and social security $921; insurance $60; net monthly income $2,310.
(8) Debtor's Statement of Current Monthly Income and Means Test Calculation (the "B-22 Form") states that a presumption of abuse does not arise. This statement is based on the following facts:
(A) Debtor's household contains five (5) family members.
(B) The marital adjustment on line 17 of the B-22 Form is $2,616.
(C) Debtor's current monthly income as stated on line 18 of the B-22 Form is $4,175.
(D) Debtor's total allowed deductions as stated on line 47 of the B-22 Form are $4,474.
*523 (E) Debtor's sixty (60) month disposable income as stated by Debtor on line 51 of the B-22 Form is - $35,940.
(9) In addition to the taxes withheld from Debtor's spouse's paycheck, Debtor's spouse pays the following expenses (Trustee's Exhibit 4):
Life insurance $ 20.00
Her credit cards 300.00
Gas 220.00
Insurance 100.00
Personal and sundry items 200.00
Clothing 150.00
Utilities 120.00
IRS 100.00
Food 400.00
Medical 50.00
(10) Debtor's mother-in-law lives with Debtor and his spouse and is a dependent. She receives $450.00 in Social Security.
(11) Debtor's step-daughter lives with Debtor and his spouse and is a dependent. In addition, Debtor's step-daughter is unemployed and has a thirteen-month-old child. Immediately prior to the trial, Debtor's step-daughter had gone to a hospital to deliver her second child. Both of the step-daughter's children are also dependents of Debtor and his spouse.
(12) Debtor's Schedule F shows total unsecured debt of $29,000.23. The debt is consumer debt.
Jurisdiction
This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157(b)(2).
Statement of Law
The United States Trustee ("UST") seeks dismissal of Debtor's Chapter 7 bankruptcy proceeding pursuant to 11 U.S.C. § 707(b)(2)(A). Section 707(b)(2)(A) provides:
(i) In considering under paragraph (1) whether the granting of relief would be an abuse of the provisions of this chapter, the court shall presume abuse exists if the debtor's current monthly income reduced by the amounts determined under clauses (ii), and (iv), and multiplied by 60 is not less than the lesser of
(I) 25 percent of the debtor's nonpriority unsecured claims in the case, or $6,000, whichever is greater; or
(II) $10,000.
At trial the UST took issue with the Debtor's calculations on the B-22 Form, arguing that had Debtor completed the form correctly, a presumption of abuse arises. The UST's primary disagreement with Debtor arises out of line 17 of the 22 form. Line 17 of the B-22 form states: "If you checked the box at line 2c, (married not filing jointly), enter the amount of the income listed in Line 11, Column B that was NOT regularly contributed to the household expenses of the debtor or debtor's dependents." On Line 17, Debtor entered the figure of $2,616. The UST disputes that this figure is a correct calculation for the marital adjustment. The UST argues: (1) that Debtor's spouse cannot include in this figure any amounts for food, utilities, clothing and personal items because those expenses are already accounted for on the B-22 Form when Debtor calculated his deductions for food, clothing, utilities, housing and personal items (lines 19, 20A, 20B and 21) based on a household consisting of five (5) members. Since Debtor calculated his food, housing, utilities and miscellaneous expenses based on five (5) family members, the UST argues it would be double dipping to allow Debtor's non-filing spouse to also deduct her contribution to the expenses as a marital adjustment. The non-filing spouse claimed food, clothing, utility and personal expenses in the amount of $870. The UST argued that those amounts should not have been included in the marital adjustment, thereby reducing *524 the marital adjustment from $2,616 to $1,746. In addition, the UST argued that the marital adjustment claimed by the Debtor already included the amount she withholds for taxes, and therefore, the additional $100 of IRS expense claimed by the non-filing spouse should not be included in the marital adjustment. This further reduces the marital adjustment to $1,646. (At trial, the UST argued that after disallowing the above amounts, the correct marital adjustment should be $1,661. The Court cannot discern from the record how the UST arrived at $1,661 rather than $1,646, however, the difference is small enough to have no impact on the UST's argument with regard to the B-22 Form and will be ignored by the Court.)
The UST also objected to several of the other deductions and expenses taken by the Debtor on his B-22 Form. Specifically, the UST argued that the Debtor's Line 32 telecommunications services expense should be reduced from $160 to $130; that his Line 35 deduction regarding continued contribution to the care of household family members should be reduced by $100, given that Debtor's testimony at his § 341 meeting that this amount was used for his own expenses; and elimination of the Line 39 expense of $52 for additional food and clothing expenses given Debtor's testimony at the § 341 hearing that $52 is the amount he spends on lunches out. (Transcript p. 17)
At trial, the Debtor argued that his non-filing spouse had extraordinary expenses as a result of caring for her mother, her grown daughter and grandchildren, and that the marital adjustment of $2,616 is justified by these extraordinary expenses. Debtor also testified that his wife's income is not as stable as shown on Schedule I, due to unpaid leave taken under the Family Medical Leave Act. Debtor also testified that his non-filing spouse paid property taxes of $250 a month in addition to the other expenses she paid and listed on Exhibit 4. The Debtor, argued that the means test as filed is correctly calculated, leaving him with insufficient income to give rise to a presumption of abuse.
The following chart compares the Debtor's filed B-22 Form with the B-22 Form as proposed by the UST:
----------------------------------------------------------------------
Chapter 7 Statement of Current Monthly Income
as Calculated by the Debtor and UST
----------------------------------------------------------------------
Debtor's B-22 Form UST's Proposed B-22 Form
Line 3 Debtor's Income Debtor's Income
(gross wages) $3,500 $3,500
Non-Filing Non-Filing
Spouse Income Spouse Income
$3,291 $3,291
----------------------------------------------------------------------
Line 17 $2,616 $1,661
(marital adjustment)
----------------------------------------------------------------------
Line 18 $4,175 $5,130
(current monthly
income)
----------------------------------------------------------------------
Line 32 $160 $130
(telecommunication
services)
----------------------------------------------------------------------
Line 35 $100 $ 0
(contributions to care of household members)
*525
----------------------------------------------------------------------
Line 39 $52 $ 0
(additional food and
clothing expense)
----------------------------------------------------------------------
Line 47 $4,774 $4,592
(total expense
deductions)
----------------------------------------------------------------------
Line 48 $4,175 $5,130
(monthly income)
----------------------------------------------------------------------
Line 50 $599 $538
(monthly disposable
income under
§ 707(b)(2))
----------------------------------------------------------------------
Line 51 $35,940 $32,280
(60 month disposable
income)
-----------------------------------------------------------------------
no presumption presumption
of abuse of abuse
Using the UST's recalculated B-22 Form, the UST argues that Debtor's case must be dismissed pursuant to 11 U.S.C. § 707(b)(2)(A) because Debtor's current monthly income less allowed deductions, multiplied by 60, exceeds $10,000, the threshold amount above which abuse is presumed.
As a preliminarily matter, the Court notes that the calculation of current monthly income when there is a non-filing spouse is complicated. The requirements which the Code imposes on a non-filing spouse in reference to the non-filing spouse's income are not clearly defined and are subject to interpretation. Specifically, the Code defines "current monthly income" as follows:
§ 101(10A) The term "current monthly income"
(A) means the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor's spouse receive) without regard to whether such income is taxable income . . .
On first reading, 11 U.S.C. § 101(10A)(A)[1], it appears that a spouse's income is relevant only in a joint case.[2]
*526 However, this reading of 11 U.S.C. § 101(10A)(A), does not address the language in 11 U.S.C. § 101(10A)(B) that states:
The term "current monthly income"
(B) includes any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor's spouse), on a regular basis for the household expenses of the debtor or the debtor's dependents (and in a joint case the debtor's spouse if not otherwise a dependent), but excludes benefits received under the Social Security Act . . .
Thus, while 11 U.S.C. § 101(10A)(A) excludes a non-filing spouse's income, a nonfiling spouse's income must be accounted for under 11 U.S.C. § 101(10A)(B) to the extent that the non-filing spouse contributes on a regular basis to the household expenses of the debtor and the debtor's dependents.
This definitional section is incorporated into the B-22 Form by requiring the nonfiling spouse to state his/her income, and then allowing the non-filing spouse to subtract the amount the non-filing spouse does not pay on a regular basis for the household expenses of the debtor or the debtor's dependents.
A determination of the amount paid by a non-filing spouse on a regular basis for household expenses of the debtor or the debtor's dependents is necessarily fact specific and subject to interpretation. For example, if the non-filing spouse has substantial income and chooses to spend that income on an expensive home, or a vacation home, or a luxury vehicle that is driven by the debtor and the non-filing spouse, are payments on those items "household expenses" of the debtor? To the extent that a non-filing spouse's income is deemed to be a contribution to the debtor's household expenses, it will raise the debtor's current monthly income and increase the likelihood that the presumption of abuse will arise.
This Court is not passing judgment on the manner in which BAPCPA deals with the income of the non-filing spouse. The issue of how to account for a non-filing spouse's income has plagued courts long before the enactment of BAPCPA. In Chapter 13 cases, the issue arises under 11 U.S.C. § 1325(b)(1) which requires a determination of the debtor's available disposable income. See In re Sellers, 33 B.R. 854 (Bankr.D.col.1983); Matter of Saunders, 60 B.R. 187 (Bankr.N.D.Ohio 1986); In re Williamson, 296 B.R. 760 (Bankr. N.D.Ill.2003). In the context of Chapter 7 cases, the non-filing spouse's income has generally been considered in conjunction with a § 707 substantial abuse motion filed by the United States Trustee. See In re Welch, 347 B.R. 247 (Bankr.W.D.Mich. 2006); In re Duncan, 201 B.R. 889 (Bankr. W.D.Pa.1996); In re Falke, 284 B.R. 133 (Bankr.D.Or.2002); In re Staub, 256 B.R. 567 (Bankr.M.D.Pa.2000). The Court is simply noting that because of the impact of the Line 17 marital adjustment calculation on a debtor's ability to remain in bankruptcy, courts have an obligation to scrutinize challenges to Line 17 very carefully.
In the instant case, the Court agrees with the UST that some of the expenses claimed by debtor's non-filing spouse as her own expenses are either counted twice or are a contribution to the *527 household expenses of the debtor and debtor's dependents, and therefore, cannot be included in the Line 17 marital adjustment. Specifically, the Court agrees that to the extent the non-filing spouse contributes income for food and utilities, these are clearly contributions to the household expenses of the debtor and the debtor's dependents. Since the debtor's non-filing spouse claims that she spends $520 on these expenses, these expenses are properly excluded from Line 17 of the B-22 Form. In addition, the $100 deduction included by the non-filing spouse as an expense for taxes is already accounted for when the non-filing spouse included her payroll taxes and Social Security as part of the marital adjustment.
However, contrary to the argument of the UST that the non-filing spouse's expenses for clothing and personal items must be excluded from the marital adjustment, the Court finds it appropriate, on the facts of this case, for the non-filing spouse to take a marital adjustment for these items. The UST argues that the Debtor's expenses were calculated based on a household of five (5) family members, and that he ought not to be able to reduce his current monthly income by allowing his non-filing spouse to subtract additional amounts for food, clothing, utilities and personal items. The Court disagrees. The amount of the debtor's deductions for food, clothing, utilities and personal items is determined by local and national standards based on the number of members in the household. The Debtor is allowed the same deductions regardless of whether the Debtor files with his spouse as a joint debtor, or files without his spouse, and regardless of whether a spouse is a dependent. In this case, the Debtor correctly stated his household as containing five members and he is entitled to take the national and local standard deductions for a family of five.
The B-22 Form, however, distinguishes between the expenses of the debtor and the expenses of the non-filing spouse which can be deducted prior to the calculation of debtor's current monthly income. The debtor's expenses are fixed by the IRS national standards for allowable living expenses and the IRS local standards for housing and utility payments. By contrast, the non-filing spouse's expenses on Line 17 are not a fixed amount; they are defined as the expenses not contributed to the household expenses of the debtor and the debtor's dependents. If the non-filing spouse spends his/her income on his/her own expenses, those are legitimate deductions on Line 17, regardless of whether those expenses could also be generally categorized as household expenses. The non-filing spouse is entitled to include in the marital adjustment expenses for his/her clothing and other personal items, even if some of those personal items are purchased for debtor's dependents. If the non-filing spouse chooses to spend his/her income on purchasing a small number of extra personal items or clothing for family members other than the debtor (after all, they are his/her dependents as well), the non-filing spouse may include them as part of the marital adjustment, provided they are reasonable.
In this case, the Debtor claims that he spends $150 per month on clothing and $200 per month on personal and sundry items. The UST introduced no evidence to support an argument that these sums were contributed for the support of the Debtor and his dependents. If the non-filing spouse chooses to spend those amounts on her own clothing and extra items for the family, those are not amounts paid on a regular basis for the household *528 expenses of the Debtor or the Debtor's dependents.
With regards to the UST's objection to Lines 32, 35 and 39, the Court agrees with the position of the UST based on Debtor's testimony. Debtor's testimony supports the disallowance of $30 of the telecommunications expense and all the expenses on Lines 35 and 39. However, the Court also finds that Debtor substantially understated his taxes on Line 25 of the B-22 Form. In response to the UST's questions at trial, the Debtor agreed that $921, as stated on Schedule I as the amount deducted from his non-filing spouse's income for payroll taxes and Social Security, and $980 deducted from his income for taxes and Social Security, are "in line" with what Debtor and his spouse pay for taxes and Social Security. (Transcript at 13-15). However, on Line 25 of the B-22 Form, which requires the Debtor to enter the "total average monthly expenses that you actually incur for all federal, state and local taxes", the Debtor stated only $550. There is no explanation as to why this number is placed on the B-22 Form. Based on Schedule I and the Debtor's testimony with regard to his and his wife's actual tax liability, the Court finds that the correct figure on Line 25 is $980.
The Court's conclusions as to the law based on the facts of this case are set forth as follows:
Chapter 7 Statement of Current Monthly Expenses
UST's Proposed Court's Corrected
Debtor's B-22 Form B-22 Form B-22 Form
Line 3 Debtor's Income Debtor's Income Debtor's Income
(gross wages) $3,500 $3,500 $3,500
Non-Filing Non-Filing Non-Filing
Spouse Income Spouse income Spouse Income
$3,291 $3,291 $3,291
Line 17 $2,616 $1,661 $2,021
(marital
adjustment)
Line 18 $4,175 $5,130 $4,770
(current monthly
income)
Line 25 $550 $550 $980
(other necessary
expenses: taxes)
Line 32 $160 $130 $130
(telecommunication
services)
Line 35 $100 $0 $0
(contributions to
care of household
members)
Line 39 $52 $0 $0
(additional food
and clothing
expense)
Line 47 $4,774 $4,592 $5,022
(total expense
deductions)
*529
Line 48 $4,175 $5,130 $4,770
(monthly income)
Line 50 -$599 $538 -$252
(monthly
disposable income
under § 707(b)(2))
Line 51 -$35,940 $32,280 -$15,120
(60 month
disposable income)
no presumption presumption no presumption
of abuse of abuse of abuse
The B-22 Form as calculated based on the Court's ruling results in a negative sixty (60) month disposable income under § 707(b)(2). Since the Debtor has negative income, there is no presumption of abuse in this case under 11 U.S.C. § 707(b)(2).
11 U.S.C. § 707(b)(3)
The UST also seeks to dismiss Debtor's case pursuant to 11 U.S.C. § 707(b)(3). Section § 707(b)(3) states in relevant part:
In considering under paragraph (1) whether the granting of relief would be an abuse of the provisions of this chapter in which the presumption in subparagraph (A)(i) of such paragraph does not arise or is rebutted, the court shall consider
(A) whether the debtor filed the petition in bad faith; or
(B) the totality of the circumstances (including whether the debtors seeks to reject a personal services contract and the financial need for such rejection as sought by the debtor) of the debtor's financial situation demonstrates abuse.
11 U.S.C. § 707(b)(3) replaces 11 U.S.C. § 707(b) of the Bankruptcy Reform Act of 1994. 11 U.S.C. § 707(b) reads:
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 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.
The initial issue before the Court is what standard the Court should use in analyzing abuse under 11 U.S.C. § 707(b)(3). There is a substantial body of law in Sixth Circuit setting out the standard for analyzing "substantial abuse" under 11 U.S.C. § 707(b). The pre-BAPCPA cases required the court to look at the totality of the debtor's circumstances and look at the debtor's motives for filing. While the prior act refers to "substantial abuse" and the new act refers to "abuse", the language change is a distinction without a difference for purposes of analyzing whether granting relief to the debtor would be an abuse of the bankruptcy system. The Court, therefore, finds that the standard for analyzing abuse under 11 U.S.C. § 707(b) is equally applicable to cases filed under 11 U.S.C. § 707(b)(3).
Prior to the enactment of the BAPCPA, the controlling law in the Sixth Circuit on 11 U.S.C. § 707(b) was In re Krohn, 886 F.2d 123 (6th Cir.1989). See also, In re Behlke, 358 F.3d 429 (6th Cir.2004). Krohn held that in determining whether to *530 dismiss a case under § 707(b), the Court must look to the totality of the circumstances. Krohn, 886 F.2d at 126. The court also held that there are two independent grounds on which to dismiss a debtor's case under § 707(b): (1) the debtor has acted dishonestly; or (2) where the debtor is not needy; that is, his financial situation does not warrant a discharge in exchange for the liquidation of his assets.
In this case, the UST raised no issue with regard to the Debtor's honesty or good faith. However, the UST argues that the Debtor does have an ability to pay his debts out of future earnings and could fund a hypothetical chapter 13 plan. In part, the UST based his argument on the recalculation of the Means Test Form. However, since the Court has rejected the recalculation by the UST, the Court finds no monthly disposable income on Line 50 that would be available for distribution to unsecured creditors.
The Court must then lock at the totality of circumstances to determine whether Debtor's bankruptcy filing is an abuse of the system under 11 U.S.C. § 707(b)(3). In In re Krohn, supra, the Court listed the following factors to be considered by the Court in determining whether the debtor was sufficiently needy to avail himself of a Chapter 7 bankruptcy: (1) whether the debtor enjoys a stable source of income; (2) whether he is eligible for adjustment of his debts through Chapter 13; (3) whether there are state remedies with the potential to ease financial problems; (4) the degree of relief obtainable through private negotiations; and (5) whether his expenses can be reduced significantly without depriving him of adequate food, clothing, shelter and other necessities. Krohn, 886 F.2d at 126-127.
The UST did not directly address any of these facts, but rather argued that if the non-filing spouse's available income was taken into consideration as shown on Debtor's Schedule I, Debtor had sufficient income to fund a chapter 13 plan. The UST specifically objects to the non-filing spouse continuing to allocate $300 on her own credit card debt, which Debtor's consumer debt (if the case is not dismissed or converted) will be discharged at the conclusion of the Chapter 7 bankruptcy proceeding.
This Court agrees with the UST that Debtor's non-filing spouse's income and expenses are relevant in a § 707(b) motion against a debtor. See, In re Welch, 347 B.R. 247 (Bankr.W.D.Mich.2006), In re Duncan, 201 B.R. 889 (Bankr.W.D.Penn. 1996); In re Rysso, 321 B.L. 522 (Bankr. D.Minn.2005); In re Falke, 284 B.R. 133 (Bankr.D.Or.2002). This conclusion leads to two questions: first, how much consideration does the Court give to the non-filing spouse's income and, second, even if all of the non-filing spouse's income is available to the Debtor, is there an ability to commit any of that income to repayment of unsecured creditors?
The Court finds that the non-filing spouse's income should be considered only if his/her income is substantial enough to significantly raise the debtor's standard of living and generate total household income in excess of the reasonable costs of food, clothing, shelter and other necessities. In the instant case, the non-filing spouse's net monthly income is $2,310.[3] The non-filing spouse uses this income to pay her own expenses: taxes, insurance, gas and her own credit card debt, and uses the balance to pay for food ($400), utilities ($120), *531 clothing ($150) and miscellaneous personal items ($200). The Debtor's net taxable income is $2,456. He uses his income to pay the mortgage payment ($1,107), his car payment ($277), gas ($90), utilities, telephone and cable ($255) and a small portion of the food budget (S200) and clothing ($35). The Court finds that in this case, the non-filing spouse's income does not enable Debtor to significantly improve his standard of living; it simply makes possible the Debtor's ability to provide adequate food, clothing, shelter and other necessities for Debtor and his dependents. Under these facts, the Court finds no reason to take into consideration the non-filing spouse's income in determining whether the Debtor is committing abuse of the bankruptcy system.
Even if the Court were to consider the non-filing spouse's income, the Court concludes there is no available income to pay to unsecured creditors. The Debtor's testimony indicated he and his wife split the bills, and at the end of the month, there is no money. Debtor's testimony was entirely credible. The Debtor and his non-filing spouse's expenses are reasonable. The only possible belt tightening is the $300 a month Debtor's non-filing spouse pays on her own credit card debt. Debtor has not abused the Code by failing to require his non-filing spouse to fund repayment of his obligations. The non-filing spouse is choosing to use her income to pay her unsecured creditors in full, she is not using her income to fund an extravagant lifestyle for her and the Debtor. If the Debtor's non-filing spouse's extra income was funding a vacation home or an expensive car for the Debtor, the Court could reach a different conclusion. In this case every dime of the non-filing spouse's income is committed to legitimate expenses of her own or household expenses of her and her dependents. In contrast, see In re Staub, 256 B.R. 567 (Bankr. M.D.Penn.2000)(the Chapter 7 debtor's case was dismissed where debtor had little income but non-filing spouse earned $16,000 a month).
This case presents additional facts which weigh against a finding of abuse. The Debtor testified that his inability to pay his debts has come about primarily as a result of his marriage in 1999. At that time, Debtor's non-filing spouse was the sole source of support for her mother and her daughter. The unanticipated expenses of these additional dependents caused Debtor and his non-filing spouse to use their credit cards for routine expenses. This pattern has continued and Debtor's financial situation has worsened, as his unemployed step-daughter has two children who are also dependent on the Debtor and his non-filing spouse for support. The Court finds that the Debtor's unsecured debt arose not out of an extravagant lifestyle, but rather out of the financial assistance he has provided to his mother-in-law, step-daughter and step-grandchildren. Based on the totality of the circumstances, the Court finds that the Debtor is in need of bankruptcy relief and there are no grounds for dismissal under 11 U.S.C. § 707(b)(3).
Conclusion
For the reasons set forth above, the Court denies the UST's Motion to Dismiss pursuant to 11 U.S.C. §§ 707(b)(2) and 707(b)(3).
NOTES
[1] The Court notes that it is unwieldy to cite a code section as 11 U.S.C. § 101(10A)(A). As many courts have pointed out, BAPCPA has more than its share of drafting errors, and this odd numbering scheme is one of them.
[2] One court has already opined on this issue. In In re Welch, 347 B.R. 247 (Bankr, W.D.Mich.2006), the Court denied the UST's motion to dismiss on the grounds of substantial abuse under 11 U.S.C. § 707(b) of the prior act. The court ruled that on the specific facts of that case, the income of the debtor's non-filing spouse could not be included in debtor's income in determining whether debtor's case should be dismissed on grounds of substantial abuse. The case was decided on August 4, 2006, prior to the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. However, the court noted in footnote 14:
I also note that the recent BAPCPA amendments to § 707 are consistent with my conclusion that a non-filing spouse's income is not to be included in determining whether the debtor's petition is abusive. For example, only the debtor's income is to be included in determining whether the § 707(b)(2) presumption applies unless the debtor and his spouse filing jointly. 11 U.S.C. § 101(10A). Similarly, the spouse's needs are not to be included in the calculation of the debtor's expenses for purposes of the § 707(b)(2) presumption unless the spouse is in fact a dependent or the spouse joined in the debtor's petition. 11 U.S.C. § 707(b)(2)(A)(2)(I). Indeed, it is only in determining who may file a § 707(b) motion and when the § 707(b)(2) presumption may be used that the non-filing spouse's income is to be considered.
[3] Based on the Debtor's testimony, this figure is actually higher than the spouse's actual income. Debtor testified that his spouse takes unpaid leave under the Family Medical Leave Act to care for her mother, who suffers from kidney failure. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547598/ | 867 A.2d 57 (2005)
87 Conn.App. 592
STATE of Connecticut
v.
Kevin MARSHALL.
No. 24373.
Appellate Court of Connecticut.
Argued October 27, 2004.
Decided February 22, 2005.
*60 Andrew S. Liskov, special public defender, for the appellant (defendant).
Proloy K. Das, deputy assistant state's attorney, with whom, on the brief, were Christopher L. Morano, chief state's attorney, and John H. Malone, senior assistant state's attorney, for the appellee (state).
LAVERY, C.J., and FLYNN and WEST, Js.
LAVERY, C.J.
The defendant, Kevin Marshall, appeals from the judgments of conviction, rendered after a jury trial, of two counts of burglary in the third degree in violation of General Statutes § 53a-103 and two counts of larceny in the third degree in violation of General Statutes § 53a-124. On appeal, the defendant claims that the trial court improperly admitted into evidence (1) a prior statement of the codefendant, Joseph Grant, (2) evidence of the police chase that resulted in Grant's arrest and (3) evidence of the defendant's four other burglary convictions. He also claims that the prosecutor engaged in misconduct. We disagree and affirm the judgments of the trial court.
The jury reasonably could have found the following facts. In February, 2001, the defendant and Grant burglarized several gasoline station convenience stores in Portland, Southington, Windsor Locks, Rocky Hill, Newington, Plainville and Simsbury. The Windsor Locks and Simsbury burglaries are the subject of this appeal.[1]
On February 15, 2001, Officer David Provencher of the Windsor Locks police department was performing his routine patrol when he found that the lock cylinder to the front door of an Exxon gasoline station had been removed and the merchandise inside strewn on the floor. He notified the police dispatcher and requested backup assistance. The lock was lying on the ground a few feet from the door and bore marks that appeared to have been made by pliers or vice grips. The use of a police dog revealed that the burglars had parked a car close to the front *61 door of the store and then used the car to flee. The store manager testified that the burglars had taken forty-five cartons of cigarettes worth approximately $2800 to $3000.
On February 27, 2001, the owner of a Citgo gasoline station and convenience store in Simsbury discovered that the front door lock to his store had been broken. Looking through the glass door, he noticed his merchandise scattered all over the floor. He immediately contacted the police. Officer Michael Scheidel of the Simsbury police department reported to the scene and found that the lock to the front door had been pried out and was left six to eight feet from the doorway. The lock cylinder had tool marks on it. The owner discovered that someone had stolen thirty-seven cartons of cigarettes worth approximately $1475 at retail value.
Grant and the defendant became suspects in those burglaries. On February 28, 2001, at approximately 2:13 a.m., Trooper Shawn Corey of the state police attempted to stop a maroon automobile in the parking lot of a gasoline station in Bolton, which was closed. He activated his vehicle's lights and sirens, but the automobile was driven away, and a pursuit ensued. At one point, Corey drove his vehicle alongside the automobile such that he could see the passenger, whom he identified in court as the defendant. Subsequently, the driver and the passenger got out of the automobile before it crashed into a snowbank. Corey tackled and apprehended Grant, but the defendant jumped over a fence and escaped. Inside the abandoned vehicle, Corey found a Craftsman screwdriver, two pairs of latex gloves, a green garbage pail and the defendant's wallet, which contained his state issued identification card. Vice grips were found where the defendant had jumped over the fence.
Grant was taken into custody. He later gave a statement in which he confessed to and provided a detailed account of the two men's burglary spree. During each of the burglaries, Grant and the defendant would drive to the front door of a closed convenience store. The defendant, wearing latex gloves, would open the front door by "spinning out" the cylinder lock with vice grips and a screwdriver. They then would enter the store with a large garbage pail. Once inside, they would fill the pail with cartons of cigarettes. They then would take those goods and flee, leaving the store in disarray. The stolen cigarettes later were sold to the A.C. Convenience Store in Hartford, and Grant and the defendant would divide the money. Additional facts will be set forth as necessary.
I
The defendant claims that the court improperly admitted into evidence a prior statement Grant gave to the police. The defendant argues that it was harmful error for the court to admit the statement as substantive evidence under the rule of State v. Whelan, 200 Conn. 743, 513 A.2d 86, cert. denied, 479 U.S. 994, 107 S. Ct. 597, 93 L. Ed. 2d 598 (1986), because it was (1) not sufficiently inconsistent and (2) not given under the necessary conditions of reliability and trustworthiness. We disagree.
On March 8, 2001, Grant called Detective Thomas Dillon of the Wethersfield police department to tell Dillon that he had information he wanted to provide. Grant provided Dillon with a signed, sworn statement on March 16, 2001, detailing several burglaries that Grant and the defendant had committed. Grant also identified several businesses in photographs that Dillon showed him as establishments that Grant and the defendant had burglarized.
*62 That document was entered into evidence as a Whelan statement. In State v. Whelan, supra, 200 Conn. 743, 513 A.2d 86, our Supreme Court "adopted the rule allowing the substantive use of a prior inconsistent statement if: (1) the statement is in writing; (2) it is signed by the declarant; (3) the declarant has personal knowledge of the facts set forth in the statement; and (4) the declarant testifies at trial and is subject to cross-examination.... A Whelan claim is evidentiary in nature and, accordingly, the defendant bears the burden of establishing that the trial court's erroneous ruling was harmful to him in that it probably affected the outcome of the trial.... The admissibility of evidence, including the admissibility of a prior inconsistent statement pursuant to Whelan, is a matter within the wide discretion of the trial court.... On appeal, the exercise of that discretion will not be disturbed except on a showing that it has been abused." (Emphasis added; internal quotation marks omitted.) State v. Goodson, 84 Conn.App. 786, 795, 856 A.2d 1012, cert. denied, 271 Conn. 941, 861 A.2d 515 (2004).
The defendant argues that he preserved the issue for appeal. We disagree. When the state offered the statement into evidence, the defendant objected. When the court asked for the basis of his objection, the defendant stated, "Yes, Your Honor. The trustworthiness of the actual statement that was given by the actual person cannot verify the trustworthiness of the evidence, the document that's going in. I know there is a ruling that a statement by a coparty can go into evidence, but it would have to be verified by the actual person who gave the statement." The court overruled the objection, stating that a foundation had been laid and that the objection pertained to the weight of the evidence, not its admissibility.
"Appellate review of evidentiary rulings is ordinarily limited to the specific legal [ground] raised by the objection of trial counsel.... The purpose of requiring trial counsel to object properly is not merely formal: it serves to alert the trial court to purported error while there is time to correct it without ordering a retrial.... To permit a party to raise a different ground on appeal than [that] raised during trial would amount to trial by ambuscade, unfair both to the trial court and to the opposing party." (Citation omitted; internal quotation marks omitted.) State v. Sandoval, 263 Conn. 524, 556, 821 A.2d 247 (2003). The defendant objected on the ground that the person who made the statement had not verified it in court. Because the grounds claimed on appeal are different, we conclude that the defendant did not preserve his claim, and we turn to his alternate argument that review of his claim is warranted under State v. Golding, 213 Conn. 233, 239-40, 567 A.2d 823 (1989).
"In State v. Williams, [231 Conn. 235, 250, 645 A.2d 999 (1994)] our Supreme Court held that it was improper, under State v. Whelan, supra, 200 Conn. 743, 513 A.2d 86, to admit into evidence the prior inconsistent statement of an individual who had been a witness in a prior proceeding where the declarant was not a witness in the trial in which the statement was admitted under Whelan. Our Supreme Court in Williams, however, stated that this was a harmless `evidentiary error.' Id. The court stated: `If a claim on appeal is nonconstitutional in nature, the burden of establishing that the error was harmful is on the appellant.'" State v. Crocker, 83 Conn.App. 615, 654, 852 A.2d 762, cert. denied, 271 Conn. 910, 859 A.2d 571 (2004). Because the second prong of Golding requires that the claim to be reviewed be of "constitutional magnitude alleging the violation of a fundamental right"; State v. *63 Golding, supra, 213 Conn. at 239, 567 A.2d 823; we conclude that the defendant's claim fails under Golding and decline to review it further.[2]
II
The defendant maintains that the court improperly admitted evidence of the police chase that resulted in Grant's arrest. He argues that it was harmful error for the court to admit that evidence because the prejudice it caused clearly outweighed its probative value. We disagree.
The state sought to introduce evidence regarding the police chase from Bolton to Hartford that ultimately resulted in Grant's arrest. The state argued that the evidence was relevant because it tied the defendant to Grant and the criminal enterprise of the burglaries. The state, outside the presence of the jury, introduced the testimony of Corey as an offer of proof. The defendant objected to the evidence as that of prior misconduct intended to show that he had an "evil disposition" and argued that it did not fall within the common scheme exception to the prohibition against prior misconduct evidence. The court overruled the defendant's objection, ruling that the evidence of other burglaries was probative as to common scheme and intent. The court concluded that the evidence was background information regarding how the defendant came to be implicated in the crimes and was not characterized properly as misconduct evidence.[3] The evidence concerning the police chase was admitted.
At trial, the defendant argued that the evidence of the chase was not relevant to the crimes charged, that it was not admissible as misconduct evidence and that the court prejudicially characterized the incident as a "preparation of a burglary." On appeal, the defendant contends that there was no basis for the court to allow testimony regarding the chase and that its prejudice outweighs its probative value. We disagree.
The evidence was not misconduct evidence because it did not demonstrate that a crime was being committed. "A trial court's ruling on the admissibility of evidence is entitled to great deference and will be overturned only if a clear abuse of the court's discretion is shown and the defendant shows that the ruling caused substantial prejudice or injustice.... An appellate tribunal is required to make every reasonable presumption in favor of upholding the trial court's ruling." (Citation omitted; internal quotation marks omitted.) State v. Abernathy, 72 Conn.App. 831, 851, 806 A.2d 1139, cert. denied, 262 Conn. 924, 814 A.2d 379 (2002).
"Evidence is admissible only if it is relevant. Relevant evidence is evidence that has a logical tendency to aid the trier in the determination of an issue.... One fact is relevant to another if in the common course of events the existence of one, alone or with other facts, renders the *64 existence of the other either more certain or more probable." (Internal quotation marks omitted.) State v. Lucky, 74 Conn.App. 92, 96, 810 A.2d 303 (2002). The evidence in this case was relevant in that it showed how the defendant became a suspect in the burglaries and linked him to Grant. See State v. Vidro, 71 Conn.App. 89, 95, 800 A.2d 661 (evidence allowed because it showed investigative efforts of police, sequence of events leading to defendant's arrest), cert. denied, 261 Conn. 935, 806 A.2d 1070 (2002).
The defendant argues essentially that the evidence was unnecessary, stating "that the state knew that [it] would be able to establish a connection between the defendant and [Grant] through [Grant's] testimony and his statement of March 16, 2001, which implicated the defendant." Evidence does not have to be absolutely necessary in order to be admissible. Rather, any evidence that is relevant is admissible unless some other rule makes it inadmissible. State v. Izzo, 82 Conn.App. 285, 290, 843 A.2d 661, cert. denied, 270 Conn. 902, 853 A.2d 521 (2004); see also Conn.Code Evid. § 4-2. "A party is entitled to offer any relevant evidence to aid the trier of fact in its determination, as long as the evidence is not unfairly prejudicial." State v. Izzo, supra, at 290-91, 843 A.2d 661. We can find no rule that would make the evidence pertaining to the chase inadmissible.
III
The defendant argues that the court improperly admitted evidence of the defendant's four other burglary convictions. He contends that the evidence was prejudicial and constituted harmful error because he opted to forgo his constitutional right to testify so as to avoid being impeached with his prior felony convictions. We disagree.
Evidence was admitted regarding the defendant's convictions in the Rocky Hill, Newington, Southington and Plainville burglaries. The police officers who investigated each incident testified about the respective burglaries. At the conclusion of testimony about each burglary, the state and the defendant stipulated that he had pleaded guilty to burglary in the third degree, pursuant to the doctrine of North Carolina v. Alford, 400 U.S. 25, 37-38, 91 S. Ct. 160, 27 L. Ed. 2d 162 (1970),[4] for the burglaries committed in each respective jurisdiction. The court gave the jury a limiting instruction regarding the use of the evidence and explained that an Alford plea was not an admission of the facts, but rather a concession that there was sufficient evidence to obtain a conviction.
As stated in part II, the admission of prior misconduct evidence is a decision within the discretion of the court, and every reasonable presumption will be given in favor of the court's ruling. State v. Holliday, 85 Conn.App. 242, 249, 856 A.2d 1041, cert. denied, 271 Conn. 945, 861 A.2d 1178 (2004). The evidence must first fit within an exception to the general prohibition against its use, such as to show, "inter alia, intent, identity, malice, motive, common plan or scheme, absence of mistake or accident, knowledge, a system of criminal activity, or an element of the crime, or to corroborate crucial prosecution testimony." (Internal quotation marks omitted.) Id. If the evidence fits within an exception, it is admissible if its probative value outweighs its prejudicial effect. Id.
*65 The defendant does not claim that the evidence describing his participation in the burglaries was inadmissible as prior misconduct evidence. Instead, he argues that the admission of "the actual convictions of these burglaries" was improper and impeached his credibility even though he had opted not to testify. We agree with the state that the defendant incorrectly construes the law governing impeachment evidence. The state did not offer the evidence of the other burglaries to impeach the defendant's credibility. Instead, as the court instructed the jury, it was presented to show a "characteristic method in the commission of criminal acts, the existence of the intent, which is a necessary element of the crimes charged, a motive for the commission of the crimes charged or to corroborate crucial prosecution testimony." As noted by the defendant, the evidence regarding the burglaries was admissible prior misconduct. He has not cited, nor can we find, any authority that precludes mention of prior convictions regarding admissible prior misconduct. In fact, our Supreme Court specifically has held that convictions may be used as admissible prior misconduct evidence. See State v. Mandrell, 199 Conn. 146, 151, 506 A.2d 100 (1986). Therefore, because evidence of the burglaries was admissible, evidence of the convictions also was admitted properly. We disagree with the defendant that he was prejudiced by the jury's knowledge of his convictions when it already had evidence regarding the specifics of the underlying crimes.
IV
The defendant contends that the prosecutor committed misconduct.[5] He argues that his due process rights, guaranteed under the fourteenth amendment to the United States constitution and article first, § 8, of the Connecticut constitution, were violated when the prosecutor indicated to the jury that the defendant was incarcerated. The defendant claims that the prosecutor's use of the word "lockup" when questioning Grant about his conversation with the defendant deprived him of a fair trial and nullified the presumption of his innocence. We disagree.
During a brief court recess before Grant was to testify before the jury, the defendant was overheard instructing Grant, while both were in adjoining jail cells, to continue to deny recollection of facts pertaining to the case. A judicial marshal informed the court of that communication outside the presence of the jury. When Grant took the witness stand, the prosecutor inquired about the defendant's influence over Grant's testimony. The prosecutor twice referred to the conversation that took place in the lockup. The court asked the prosecutor to approach the bench. Thereafter, the prosecutor did not mention the defendant's incarceration.
"[C]laims of prosecutorial misconduct trigger a two step analytical process. The two steps are separate and distinct: (1) whether misconduct occurred in the first instance; and (2) whether that misconduct deprived a defendant of his due process right to a fair trial. Put differently, misconduct is misconduct, regardless of its ultimate effect on the fairness of the trial; whether that misconduct caused or contributed to a due process violation is *66 a separate and distinct question.... Once the first step is complete and misconduct has been identified, we must apply the factors set forth in State v. Williams, [204 Conn. 523, 540, 529 A.2d 653 (1987)], to determine whether the prosecutorial misconduct was so serious as to amount to a denial of due process.... Among them are the extent to which the misconduct was invited by defense conduct or argument... the severity of the misconduct ... the frequency of the misconduct ... the centrality of the misconduct to the critical issues in the case ... the strength of the curative measures adopted ... and the strength of the state's case." (Citation omitted; internal quotation marks omitted.) State v. Harris, 85 Conn.App. 637, 641-42, 858 A.2d 284, cert. denied, 272 Conn. 901, 863 A.2d 695 (2004).
"Not every reference to a defendant's pretrial incarceration is grounds for a mistrial.... There is nothing sacrosanct about a defendant's pretrial incarceration." (Citation omitted; internal quotation marks omitted.) State v. Tucker, 226 Conn. 618, 628, 629 A.2d 1067 (1993). In this case, the jury knew that the defendant had prior convictions and was on trial for serious crimes. Therefore, it would not be surprising for the jurors to have knowledge of or suspicions regarding the defendant's incarceration. We cannot conclude that two references to "lockup" were improper.
Additionally, even if we assume that the remarks were improper, the defendant's claim could not meet the Williams test. The "misconduct" could not be considered severe, it was infrequent, and the court gave the jury instructions, both before and after the presentation of evidence, on the presumption of innocence and the state's burden of proof. We reject the defendant's contention that the prosecutor's remarks nullified the presumption of innocence and prejudiced the defendant enough to warrant reversal of the judgments.
The judgments are affirmed.
In this opinion the other judges concurred.
NOTES
[1] The defendant entered guilty pleas under the Alford doctrine to burglary in the third degree in connection with the Southington, Rocky Hill, Newington and Plainville burglaries. See North Carolina v. Alford, 400 U.S. 25, 37-38, 91 S. Ct. 160, 27 L. Ed. 2d 162 (1970).
[2] Even if we were to review the claim, we would affirm the court's ruling. All four elements of Whelan were met, and the finding that the statement was inconsistent with Grant's testimony was within the discretion of the court. After a review of the record, we conclude that the court did not abuse its discretion.
[3] The court stated: "Well, I am going to overrule your objection, because I see this as basically preliminary, introductory testimony. This really cannot be characterized as misconduct information. It's a foundation. It's the beginning of a story in which this is chapter one. Basically, [i]t ties in the relationship between [the defendant] and Mr. Grant, and it will go from there ... concerning how the officers eventually arrested Grant and talked to him. And that's the way I see it ... unfolding."
[4] Pursuant to North Carolina v. Alford, supra, 400 U.S. at 37-38, 91 S. Ct. 160, a criminal defendant may plead guilty to the state's charges without admitting that he committed the crimes in order to take advantage of a plea bargain, and to avoid the risk of conviction and a possibly more severe sentence after a trial.
[5] The defendant originally brought his claim under State v. Golding, supra, 213 Conn. at 239-40, 567 A.2d 823. Our Supreme Court in State v. Stevenson, 269 Conn. 563, 572-73, 849 A.2d 626 (2004), which was published after the briefs for this case were filed, held that unpreserved claims of prosecutorial misconduct do not have to fulfill the requirements of Golding, but instead must meet the test set forth in State v. Williams, 204 Conn. 523, 540, 529 A.2d 653 (1987). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547690/ | 279 B.R. 290 (2002)
In re Stephen F. KIEFFER, Paula Kieffer, Debtors.
No. 01-41775.
United States Bankruptcy Court, D. Kansas.
June 19, 2002.
*291 *292 Charles T. Engel, Cosgrove, Webb & Oman, Topeka, KS, for Debtors.
Eric C. Rajala, Overland Park, KS, trustee.
MEMORANDUM OPINION AND ORDER
ROBERT NUGENT, Bankruptcy Judge.
This case comes before the Court on the debtors' motion to avoid liens filed pursuant to 11 U.S.C. § 522(f)(1)(B).[1] This matter requires the Court to construe the "tools of the trade" exemption under Kansas law.
The debtors each claim a $7,500 exemption for farming tools of the trade pursuant to K.S.A. 60-2304(e) and seek to avoid the lien of Frontier Farm Credit, PCA ("Farm Credit") on certain farm equipment. Farm Credit objects to the debtors' motion contending that debtor Paula Kieffer is not a farmer and therefore, not entitled to a $7,500 tool of the trade exemption in the farm equipment. The issue presented is whether Paula is engaged in farming as her principal trade or occupation, is entitled to a tool of the trade exemption in farm equipment, and may avoid Farm Credit's lien. The Court held an evidentiary hearing on April 8, 2002 and is now prepared to rule.
Paula has been employed outside the debtors' farming operation as a nurse (LPN) at the Cloud County Health Center ("CCHC") since 1990. She works nine out of every ten working days at CCHC, working five days in one week and four days the next week. She is entitled to vacation or leave from her nursing job as needed and can therefore be on the farm at peak times of the farming operation. Paula earned $21,408 from her nursing job at CCHC in 2000 and $20,068 from her nursing job at CCHC in 2001. The W-2s attached to the debtors' 2001 tax return show that Paula also worked at Clay County Medical Center and received wages of $686. The 2001 tax return lists total wages of $30,408, but the record does not indicate whether any of the wages above those evidenced by Paula's W-2s are attributable to her.
The debtors' tax returns for the years 2000 and 2001 listed Paula's occupation as a nurse and Stephen's occupation as a farmer. Only Stephen was listed on Schedule F (Profit or Loss from Farming) of the debtors' tax returns. The debtors' respective occupations were similarly described *293 in Schedule I of their bankruptcy schedules.
Schedule F of the debtors' tax return for 2000 shows gross income of $167,183 from farming and net income of $5,300. The debtors claimed depreciation expense of $20,582 for 2000. If the depreciation expense a "paper" deduction for tax purposes is added back, the net income from farming was $25,882 in 2000. Schedule F for 2001 reflects gross income from farming of $102,385 and net income of $8,141. Depreciation expense of $34,664 is claimed for 2001. Without the depreciation deduction, the net income from farming was $42,805 in 2001.
Paula acknowledged that the net farm income, not gross, is the amount that farming contributes to support of the household. Paula also admitted that depreciation was a legitimate expense to consider for calculating net income.
Debtors filed their Chapter 12 bankruptcy petition on July 9, 2001. On Schedule C of the debtors' bankruptcy petition, the debtors claimed a $15,000 tool of the trade exemption for livestock. In their motion to avoid liens, however, the debtors claimed a $15,000 tool of the trade exemption for certain farm equipment, to-wit: a Gehl mixer feeder wagon ($7,500), John Deere 4010 ($4,500), load out panels ($300), four cement feed bunks ($300), and Linn squeeze chutes ($2,400). It is unclear from the record, and the debtors have not designated, those item(s) of farm equipment which are attributable to Stephen's exemption and those item(s) of farm equipment which are attributable to Paula's claimed exemption. Farm Credit concedes that the farm equipment at issue here is collateral for the debtors' indebtedness to Farm Credit. Farm Credit does not contend or provide any evidence that the note and security agreement evidencing its claim were not signed by Paula.
Paula described the nature of the debtors' farming operation. The debtors lease 600 acres on which they grow wheat, milo and corn. They also rent pasture and raise cattle. Paula testified that although she has worked at her off-farm nursing job since 1990, she also worked on the farm with her husband. She worked cattle, moved machines, did the bookkeeping and check-writing for the farm, and brought lunch out tasks commonly performed by farm wives. She made farming decisions jointly with Stephen, such as when to buy and sell cattle and how to finance farm operations. She frequently signed promissory notes and security agreements to creditors for farming operations.[2] Paula considers herself a co-owner of the real and personal farm property with Stephen.
ANALYSIS
The debtors filed their motion to avoid the lien of Farm Credit pursuant to § 522(f)(1)(B) which provides, in pertinent part:
. . . the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is . . . (B) a nonpossessory, nonpurchase-money security interest in any . . . (ii) implements, professional books, or tools, of the trade of the debtor . . .
Each of the debtors claimed a $7,500 tool of the trade exemption in farm equipment pursuant to K.S.A. 60-2304(e). The *294 "tools of the trade" exemption provided under Kansas law states:
Every person residing in this state shall have exempt . . . (e) The tools, implements and equipment, . . . or the other tangible means of production regularly and reasonably necessary in carrying on the person's profession, trade, business or occupation in an aggregate value not to exceed $7,500.
No contention is made that the items of equipment which the debtors claim as exempt do not qualify as tools of the trade of farming. Farm Credit does not dispute that Stephen is principally engaged in farming and entitled to the $7,500 exemption and lien avoidance. Farm Credit also concedes that its lien on the subject farm equipment is a nonpossessory, nonpurchase-money lien. Farm Credit argues that Paula is principally engaged in nursing, not farming, and therefore, not entitled to the $7,500 tool of the trade exemption in farm equipment nor entitled to avoid Farm Credit's lien.
It is well-established that the exemption laws are to be construed liberally in favor of exemption. In re Mueller, 71 B.R. 165, 167 (D.Kan.1987), aff'd 867 F.2d 568 (10th Cir.1989). Moreover, once an exemption is claimed, the burden is on the party objecting to prove that the exemption is not properly claimed. In re Zink, 177 B.R. 713, 714 (Bankr.D.Kan.1995); Fed. R. Bankr.P. 4003(c). A debtor's right to an exemption is determined as of the date the bankruptcy petition is filed. In re Currie, 34 B.R. 745, 748 (D.Kan.1983). In this case, the relevant time period is 2001.
A debtor may claim a tools of the trade exemption for only one trade or occupation. Zink, 177 B.R. at 715. Where a debtor is engaged in more than one trade, business or occupation, the tools of the trade exemption is applicable only to the trade or occupation in which the debtor is principally or primarily engaged. Zink, 177 B.R. at 715; Seel v. Wittman, 173 B.R. 734, 736 (D.Kan.1994).
Accordingly, this Court must make a factual determination from the evidence before it whether Paula's principal occupation is that of a nurse or a farmer. The case law provides the Court with some guidance in making this determination. The Court may consider from which occupation the debtor derives his or her principal support. See Seel, 173 B.R. at 737.
In determining whether Paula derives her principal support from nursing or farming, Farm Credit urges this Court to compare the net income derived from farming activities to Paula's wages from her nursing job. No clear rule has been established whether gross income or net income should be examined in comparing the debtor's occupations. Nor does the case law suggest that a mathematical formula or bright-line test can be applied to determine principal support. It appears to this Court that a comparison of net income from a self-employed farming operation to income earned by a wage earner is not a fair comparison due to the availability of business expenses and deductions by the farming operation. A wage earner does not typically have deductible business expenses. While the debtor's tax returns are relevant, they are not controlling in determining the tools of the trade exemption. In re Zimmel, 185 B.R. 786, 789 (Bankr.D.Minn.1995).
For the year 2001, based upon Paula's W-2s, Paula's wages or gross income from her nursing job was $20,754. The gross income derived from the farming operation in 2001 was $102,385. The net income derived from the farming operation in 2001 was $42,805, without deducting depreciation *295 expense. Notwithstanding Paula's testimony that depreciation expense is a legitimate business expense of farming and is properly deducted to arrive at net income, the depreciation expense is irrelevant in the Court's determination. See Seel, 173 B.R. at 737. (It is inappropriate to include the depreciation expense deduction claimed on the tax return because it does nothing to demonstrate which business is actually producing support for the debtors.).
Farm Credit focuses almost exclusively on a comparison of income figures. Farm Credit does not suggest what percentage of the farming income may be attributable to Paula based upon her testimony concerning her involvement in the farming operation. While Paula testified that she considered herself a co-owner of the farm equipment, that she co-signed loans and security agreements for the farming operation with her husband, did the bookkeeping, and that she actively participated in farming decisions, she also testified that she did not perform one-half of the actual farm labor or work. Even if this Court finds that less than 50% of the income from farming is attributable to Paula, the calculations and comparisons of income do not support a finding that Paula derives her principal support as a nurse. If only 40% of the gross farm income is attributable to Paula, she derives $40,954 from her farming occupation nearly twice that of nursing. Forty percent of the net farm income is $17,122. However, the Court does not believe that Paula's contribution of actual labor or percentage of time spent in the farming operation is the sole criterion for determining the amount of income that should be attributable to her. The Court believes that the other farm-related activities performed by Paula, coupled with her actual farm labor, amply supports a finding that Paula contributes or jointly participates 50% in the debtors' farming endeavor. Thus, the Court finds that Paula is principally engaged in farming and derives her principal support from farming. See also, Zink, supra (debtor farm wife who was also licensed beautician was principally engaged in farming); In re Kobs, 163 B.R. 368 (Bankr.D.Kan.1994) (debtor farm wife who held off-farm job as a librarian was principally engaged in farming).
The Court has carefully reviewed the recent decision in In re Lampe, 278 B.R. 205 (10th Cir. BAP 2002) and has considered it in the context of ownership of the tools of the trade. Lampe does not compel a different result here.
In Lampe, the bankruptcy court found that the debtors were principally engaged in farming but denied the Kansas tools of the trade exemption to the debtor farm wife on the basis that she had no co-ownership interest in the tools of the trade. The debtors appealed. The Bankruptcy Appellate Panel reversed the denial of the exemption to the debtor wife, concluding:
. . . [B]ased on the evidence of the Debtors' intent, their conduct in carrying on the farming operation, in purchasing the equipment from a joint account funded by earnings from the farm, and in and [sic] pledging the equipment together as security for operating loans, Sheila Lampe co-owned the property for purposes of the tools of the trade exemption.
278 B.R. at 213.
The Panel in Lampe discussed the ownership requirement implied in the tools of the trade exemption. It recognized that Kansas' tools of the trade exemption does not specify the quantum of ownership required for a debtor to qualify for the exemption. Nor does the Kansas exemption specify the nature of the ownership interest required. The Panel observed that courts have held that ownership of the property claimed as exempt, is implied in *296 the exemption statutes. Kansas is in accord. See Zink, 177 B.R. at 714-15; Kobs, 163 B.R. at 373.
The Panel concluded, however, that the bankruptcy court had taken an overly restrictive view of the ownership requirement in concluding that the debtor wife had no co-ownership interest in the farm equipment. The bankruptcy court had relied on the debtors' tax returns which listed debtor husband as the sole proprietor of the farm and thus concluded that the debtor husband was the sole owner of the farm equipment, even though the debtor testified that the equipment had been acquired with money from the farming operation that had been deposited in the debtors' joint account. There was also evidence that both debtors signed the notes and security agreements to finance the operations and for which the farm equipment was listed as collateral. Finally, the debtor husband testified that he and his wife considered everything they had half and half.
The bankruptcy court in In re Brollier, 165 B.R. 286 (Bankr.W.D.Okla.1994) discussed co-ownership of personal property by a married couple under Kansas law.
K.S.A. 23-201(b) indicates and common experience dictates that a married couple can acquire a co-ownership title in personal property as joint tenants or tenants in common. In re Griffin, 141 B.R. 207, 210 (Bankr.D.Kan.1992). Co-ownership of property acquired during the marriage is allowed pursuant to K.S.A. 23-201(b). Griffin, supra at 210. . . .
Therefore, the court must examine what evidence exists indicating intent and conduct of co-ownership.
Id. at 291. See also, Zink, 177 B.R. at 715; Kobs, 163 B.R. at 373.
In Lampe, given the evidence and the bankruptcy court's findings that both debtors worked on the farm and engaged in farming activity on a daily basis, the Panel characterized the debtors' farming operation as . . .
not a partnership in the legal sense, but a family business operated as a proprietorship with each Debtor as a co-owner of the equipment.
278 B.R. at 214. The Panel also noted the rule that exemption laws are to be liberally construed in favor of those claiming the exemption.
The case before this Court stands on similar footing. In addition to the liberal construction of the exemption laws, the Court is mindful of the parties' burden of proof under Fed. R. Bankr.P. 4003(c).
Once an exemption has been claimed, it is the objecting party's burden to prove that the exemption is not properly claimed.
In re Gregory, 245 B.R. 171, 174 (10th Cir. BAP 2000).
The evidence presented to this Court concerning ownership of the farm equipment was very similar to the evidence in Lampe. Moreover, Farm Credit did not rebut Paula's testimony concerning her co-ownership of the farm equipment. See Kobs, 163 B.R. at 373 (debtor farm wife's unrebutted testimony of ownership satisfies the exemption statute; the creditor presented no evidence to show that debtor farm wife was not the owner of the machinery). With respect to the farm operation, Paula made decisions jointly with Stephen, such as when to buy and sell cattle and how to finance farm operations. She signed notes and security agreements to creditors for farming operations, including the notes and security agreements granted to Farm Credit. Paula considered herself a co-owner of the real and personal farm property with Stephen. Only the debtors' tax returns and schedules prepared by an outside tax preparer identify Stephen as the sole proprietor of the farm operation. As in Lampe, the above evidence *297 supports and compels the conclusion that Paula co-owned the farm equipment with Stephen.[3] Accordingly, Paula may claim an exemption in the farm equipment as tools of the trade.
Based upon the evidence and law recited above, the Court finds that debtor Paula Kieffer had an ownership interest in the farm equipment, was principally engaged in farming, is entitled to a $7,500 tools of the trade exemption in the farm equipment under Kansas law, and may avoid Farm Credit's lien on the subject farm equipment. The debtors' motion to avoid the lien of Farm Credit is granted.
NOTES
[1] All statutory references are to the Bankruptcy Code, 11 U.S.C. § 101, et seq. unless otherwise specified.
[2] There appears to be no argument that Paula signed the notes and security agreements pertaining to the farm equipment at issue here and comprising part of Farm Credit's collateral.
[3] Alternatively, this Court concludes that Paula had an ownership interest in the farm equipment by virtue of her contingent property interest in separate personal property as a spouse in the marital relationship. See Lampe, 278 B.R. at 215-16. (Concurring opinion). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547613/ | 867 A.2d 823 (2005)
STATE of Rhode Island, DEPARTMENT OF CORRECTIONS
v.
RHODE ISLAND BROTHERHOOD OF CORRECTIONAL OFFICERS.
No. 2003-42-Appeal.
Supreme Court of Rhode Island.
February 25, 2005.
*824 Michael B. Grant, Pawtucket, for plaintiff.
Andrew H. Berg, Providence, for defendant.
Present: WILLIAMS, C.J., GOLDBERG, FLAHERTY, SUTTELL, and ROBINSON, JJ.
OPINION
SUTTELL, Justice.
This case comes before us on cross-appeals filed by the plaintiff, State of Rhode Island, Department of Corrections (state or DOC), and the defendant, Rhode Island Brotherhood of Correctional Officers (RIBCO), from a Superior Court order confirming in part and vacating in part an arbitrator's award.
Contending that the arbitrator overlooked material evidence and that his findings were irrational, the state appeals from the denial of its motion to vacate the arbitrator's award of back pay and benefits to a former correctional officer. On its part, RIBCO appeals from that portion of the Superior Court order that vacated the arbitrator's award of prejudgment interest. For the reasons hereinafter set forth, we reverse the order of the Superior Court and direct that judgment be entered consistent herewith.
Facts and Procedure
On February 26, 1993, four detectives and officers of the Johnston Police Department, accompanied by two DOC investigators, executed a search warrant at the apartment of Anthony Algasso. At the time, Mr. Algasso had been employed as a correctional officer/steward at the Adult Correctional Institutions (ACI) for nearly twenty years. Among the items seized by the police were a partially smoked marijuana cigarette; a white powdery substance *825 suspected of being cocaine; various drug paraphernalia; food and kitchen items allegedly stolen from the DOC; fourteen towels, blankets and other linens clearly marked as property of the Department of Mental Health, Retardation and Hospitals (MHRH); and five cable television converter boxes.
Upon receipt of a report from one of the DOC investigators, the then-director of the DOC, George A. Vose, Jr., convened an administrative hearing to review the charges against Mr. Algasso. The specific charges were that he had participated in the theft of DOC food items and kitchen supplies, as well as MHRH linens and/or towels, and that he had committed two counts of off-duty misconduct for the possession of illegal drugs and possession of an illegal cable television hookup. A fourth charge alleging off-duty misconduct for the possession of stolen state property subsequently was added.
By letter dated April 14, 1993, Director Vose notified Mr. Algasso that his employment as a correctional officer/steward at the DOC was to terminate, effective April 25, 1993. The termination letter indicated that the four charges were factually substantiated and that "any one of the charges regarding theft, possession of stolen items, or possession of marijuana and cocaine, standing alone, warrant discharge." RIBCO immediately filed a grievance, pursuant to the Rhode Island Brotherhood of Correctional Officers' Collective Bargaining Agreement (CBA), on behalf of union member Mr. Algasso, alleging that his dismissal violated the CBA because it was without just cause.
The CBA in effect at the time contained several provisions relevant to the issue of employee termination and discipline, including:
Article 4.1: "The Brotherhood recognizes that except as limited, abridged, or relinquished by the terms and provisions of this Agreement, the right to manage, direct, or supervise the operations of the State and the employees is vested solely in the State.
"For example, the employer shall have the exclusive right, subject to the provisions of this Agreement and consistent with applicable laws and regulations:
"* * *
"B. To hire, promote, transfer, assign, and retain employees in positions within the bargaining unit, and to suspend, demote, discharge or take other disciplinary action against such employees;
"* * *
"E. To relieve employees from duties because of lack of work or for other legitimate reasons."
Article 16.1: "It is agreed that an Appointing [A]uthority may dismiss, demote or suspend an employee for just cause."
Article 16.4: "If within two weeks of such dismissal, demotion, or suspension, the employee or the Brotherhood so affected notifies the Appointing Authority in writing that he has been unfairly treated and gives his reasons therefore, he may have his case reviewed in accordance with the grievance and arbitration procedure set forth in this Agreement."
Criminal charges were also lodged against Mr. Algasso as a result of the search of his apartment. On February 11, 1997, at a Superior Court hearing on Mr. Algasso's motion to suppress the items seized during the February 1993 raid, the Superior Court found that the police had acted recklessly and with reckless disregard for the truth in obtaining the search warrant. As a result, the Superior Court suppressed the evidence obtained pursuant to the search warrant. Thereafter, on *826 July 11, 1997, the state dismissed the criminal charges against Mr. Algasso emanating from the search of his apartment.
In the meantime, however, on July 23, 1996, Mr. Algasso had been arrested on a separate and distinct charge of aiding and abetting another to commit a burglary an incident completely unrelated to the 1993 charges. On March 12, 1997, Mr. Algasso pled nolo contendere to the charge, and received a four-year suspended sentence and five years of probation.
The grievance that was filed in 1993 was held in abeyance pending resolution of the criminal charges, but eventually was heard in 1998. On June 5 of that year, the hearing officer denied the grievance, finding that DOC had cause to terminate Mr. Algasso from state service. On June 25, 1998, RIBCO filed a demand for arbitration seeking review of the adverse grievance determination.[1]
Before the arbitration hearings began, RIBCO filed a motion in limine to exclude the evidence illegally seized in the 1993 search. The arbitrator denied the motion, finding that "based upon the circumstances of this case, application of the Exclusionary Rule to the evidence in question is not warranted." As a result the state was allowed to submit "photographs of, lists of, and in certain cases, actual items consisting of part of the material seized" in the search. The arbitrator commented that, given the suppression justice's "scathing indictment of the investigators," he would look with "enhanced scrutiny" at any statement contained in any of the investigators' reports before accepting such statement as factual. The arbitrator conducted hearings over four days in the spring and summer of 2001.
On October 1, 2001, the arbitrator ruled that the director had no just cause to terminate Mr. Algasso. The arbitrator addressed each of the charges separately.
With respect to the allegations of theft of food items and kitchen supplies from the DOC, the arbitrator found that the evidence did not substantiate the DOC investigators' assertions of any missing inventory. The arbitrator noted that because it lacked an inventory control system, the state was unable to prove that any food or supply items were, in fact, missing. Additionally, the arbitrator noted that the parties had stipulated to the fact that, with one exception, all the items were available to the public at various restaurant supply stores. Coupled with the fact that the arbitrator accepted Mr. Algasso's testimony that the items were used in a small catering side business that he operated out of his home, the arbitrator found that the state failed to prove that the seized items were the property of the DOC, that Mr. Algasso was guilty of theft, or that quantities of these items actually were missing from the DOC.
In addressing the allegations of the theft of the blankets and towels, the arbitrator found that, although Mr. Algasso did not dispute possessing the items, his method of obtaining them fell short of theft. The arbitrator noted that the DOC kitchen employees had engaged in an "extensive and long-term `bootlegging'" of MHRH towels and linens for use in the DOC kitchen. The arbitrator noted that this "bootlegging" procedure appeared "somewhat shady," and involved getting access to the area where these towels and linens were stored by removing "loose boards." The *827 arbitrator also noted that the towels were placed underneath food items to prevent spills while these food items were transported by the DOC kitchen staff, including Mr. Algasso, and that Mr. Algasso used the blankets when he slept in his vehicle at the prison in periods of inclement weather. Furthermore, the arbitrator noted that there was no evidence that the DOC ever instructed any of its employees to treat the items "in any manner other than as disposable items to be used and discarded." The arbitrator reasoned that "the method of obtaining, using, and disposing of MHRH towels and blankets was such as to encourage viewing them as essentially disposable items of little or no value," and thus, Mr. Algasso had a reasonable basis to view them as disposable.
Concerning the allegations of drug possession, the arbitrator found that the absence of any laboratory tests establishing that the seized materials were illegal substances, combined with the "full deference" the arbitrator gave to the suppression justice's "scathing criticism of the investigators," was fatal to the state's attempt to prove this allegation.
In regard to the allegation of an illegal cable television hookup, the arbitrator noted that RIBCO had asserted, without rebuttal, that obtaining cable television channels illegally is a misdemeanor. The arbitrator emphasized that the DOC director testified that "there are correctional officers who have been convicted of misdemeanor offenses that remain on the job because those offenses have been * * * off duty misconduct which there wasn't a direct nexus to their employment in some of those incidents." The arbitrator concluded that Mr. Algasso's illegal cable hookup was a misdemeanor that occurred off duty and did not constitute a direct nexus to his employment, and thus did not represent just cause for termination.
On January 8, 2002, the arbitrator issued a written decision on the remedy for DOC's wrongful termination in which he reinstated Mr. Algasso effective April 25, 1993, to March 12, 1997, with full back pay ("less any and all outside earnings"), benefits, and statutory interest. The arbitrator granted the DOC sixty days from the date of the remedy award to take action in response to Mr. Algasso's 1997 nolo plea. On March 5, 2002, the DOC held a pre-disciplinary hearing addressing the effect of said plea on Mr. Algasso's employment. On March 8, 2002, the current director of the DOC, Ashbel T. Wall, notified Mr. Algasso that he was being fired, effective April 8, 1995, the alleged date of the criminal conduct. On April 3, 2002, Mr. Algasso tendered his resignation, effective March 11, 1997, the day before his nolo plea.
On April 5, 2002, pursuant to G.L.1956 § 28-9-18, the state filed a motion in Superior Court to vacate the arbitrator's award. Shortly thereafter, RIBCO filed a countermotion to confirm the arbitrator's award. The state argued that the arbitrator's findings were irrational, that the arbitrator exceeded his authority, and that the arbitrator improperly substituted his judgment for that of the director. RIBCO countered that the arbitrator's findings and conclusions were rationally based on the arbitrator's independent evaluation of the evidence before him.
After considering these arguments, the Superior Court justice ruled that the arbitrator's findings were not irrational, and that the arbitrator did not substitute his judgment for that of the director. The Superior Court justice also found that the arbitrator's award of back pay from April 25, 1993, to March 12, 1997, was rational and supported by the terms of the CBA and relevant DOC rules. Furthermore, the Superior Court justice ruled that Mr. *828 Algasso's post-discharge criminal conduct did not prohibit the award of back pay after that conduct. The Superior Court justice found that there was no evidence that the DOC discovered Mr. Algasso's misconduct in 1995, and noted that the DOC's Code of Ethics and Conduct expressly indicates that discipline is warranted upon a criminal conviction or a plea of nolo contendere. With respect to prejudgment interest, the Superior Court justice found that the doctrine of sovereign immunity insulates the state from paying interest, and that the state neither had expressly nor implicitly waived that protection. The Superior Court justice denied the state's motion to vacate the arbitrator's award of back pay and benefits and granted RIBCO's motion to confirm the arbitrator's award of back pay and benefits. He further granted the state's motion to vacate the arbitrator's award of prejudgment interest and denied RIBCO's motion to confirm the arbitrator's award of prejudgment interest.
Standard of Review
At the outset, we note that judicial authority to review an arbitration award is statutorily prescribed and very limited. Town of North Providence v. Local 2334 International Association of Fire Fighters, AFL-CIO, 763 A.2d 604, 605 (R.I.2000). Limited judicial review of these proceedings is based on the strong public policy favoring private settlement of collective bargaining grievances. Rhode Island Council 94, AFSCME, AFL-CIO v. State, 714 A.2d 584, 588 (R.I.1998); Belanger v. Matteson, 115 R.I. 332, 356, 346 A.2d 124, 138 (1975). However, "[a]lthough public policy favors the final resolution of disputes * * * by arbitration, this policy relies on the premise that arbitrators act within their power and authority." Town of Coventry v. Turco, 574 A.2d 143, 147 (R.I.1990).
"The general rule is that `[a]bsent a manifest disregard of a contractual provision or a completely irrational result, [an arbitration] award will be upheld.'" Rhode Island Brotherhood of Correctional Officers v. State Department of Corrections, 707 A.2d 1229, 1234 (R.I.1998) (quoting Turco, 574 A.2d at 146). The standard of review in this situation is governed by § 28-9-18(a), which requires a court to vacate an arbitrator's award in three circumstances.[2] Specifically, § 28-9-18(a)(2) states that an award must be vacated "[w]here the arbitrator or arbitrators exceeded their powers." An arbitrator may exceed his or her powers in one of several ways. "First, if the arbitration award does not `draw[ ] its essence' from the *829 {CBA} or is not based upon a `passibly [sic] plausible' interpretation thereof, a court may determine that the arbitrator manifestly disregarded a contractual provision or reached an irrational result and thereby exceeded his or her authority." Rhode Island Brotherhood of Correctional Officers, 707 A.2d at 1234. Second, an arbitration award will be vacated if, for example, the issue determined was not arbitrable in the first place. See, e.g., Rhode Island Court Reporters Alliance v. State, 591 A.2d 376, 378-79 (R.I.1991). Similarly, an arbitrator may exceed his or her powers by interpreting a CBA in such a way that it contravenes state law or other public policies that are not subject to alteration by arbitration. See State Department of Mental Health, Retardation, and Hospitals v. Rhode Island Council 94, A.F.S.C.M.E., AFL-CIO, 692 A.2d 318, 321-22 (R.I.1997) (vacating arbitration award when arbitrator exceeded his powers because the dispute was nonarbitrable and the submission of the dispute to arbitration constituted an unlawful usurpation of statutory authority).
Recognizing that "the role of the judiciary in the arbitration process is `extremely limited,'" Purvis Systems, Inc. v. American Systems Corp., 788 A.2d 1112, 1114 (R.I.2002), we are nevertheless of the opinion that in this case the arbitrator reached an irrational result, and impermissibly substituted his judgment for that of the director for reasons hereinafter set forth.
"Bootlegged" Towels
At the commencement of the arbitration hearings RIBCO filed a motion in limine to prohibit introduction of any evidence that had been suppressed in the criminal proceedings. The arbitrator properly denied the motion and permitted the state to submit evidence of the items seized in February 1993. Among the items seized was a large garbage bag containing fourteen towels marked "Prop. of MHRH" and a plastic bag containing bedspreads or blankets, also signifying MHRH's proprietary interest.
At the arbitration hearing George H. Truman, Jr., the former associate director of Food Services at the DOC, testified that Mr. Algasso was assigned to the Center Kitchen Facility at the ACI complex. He indicated that a corridor led from the kitchen building to the MHRH laundry room. The corridor had been blocked off, but the boards "were basically loose, and we would routinely go in there * * * [t]o borrow towels and things they use for cleaning in the kitchen." He further testified that although DOC personnel never were given permission to take the towels, they would "barter" with nurses for them "because nothing cleans up better in a kitchen than terry cloth." Consequently, kitchen personnel would "bootleg" them from the laundry. However, he said, "there is no established procedure that would entitle employees to take them home for personal use; because there's not even a policy or an entitlement to use them in the kitchen, never mind take them home."
Michael P. Rigney, the DOC supervisor for Food Services and Mr. Algasso's immediate supervisor, explained that the towels were used for rags and potholders. They were often used when stewards were required to use their own vehicles to transport food to various DOC facilities. Dampened towels also were used to keep certain foods, such as cooked turkeys, moist during transportation.
Mr. Algasso's testimony was consistent with that of his supervisors. Although denying that he ever procured towels directly from the MHRH laundry, he acknowledged that they were available in the kitchen facility and used for food preparation, *830 carrying pans, and washing cars. He also testified that he used the MHRH blankets when he would spend the night on ACI grounds because of snowstorms. On such occasions he would sleep in his van "because there was the rats in there, the mice, the cats and cockroaches."
In his award, the arbitrator said, "it is reasonable to conclude that [DOC] employees engaged in extensive and long-term `bootlegging' of what was property belonging to another State department." Yet he went on to determine that, although "[i]n an ideal world," Mr. Algasso should have returned the towels, his acquisition of the items fell short of theft. The arbitrator reasoned that even though Mr. Algasso clearly possessed state property, this did not amount to theft, even though some of the items were obtained through the "somewhat shady" method of "bootlegging" and removing "loose boards." The arbitrator also noted that there was no evidence that the DOC ever instructed any of its employees to treat the items "in any manner other than as disposable items to be used and discarded." The arbitrator opined that "the method of obtaining, using, and disposing of MHRH towels and blankets was such as to encourage viewing them as essentially disposable items of little or no value," and thus, Mr. Algasso had a reasonable basis to view them as disposable. We conclude, however, that such a result is not only irrational, it also impermissibly usurps the disciplinary function of the director.
The DOC Code of Ethics and Conduct, promulgated pursuant to the director's authority under G.L.1956 § 42-56-10, prohibits the following conduct:
Section V(F)(7)(a): "Theft."
Section V(F)(9)(a): "Using state property, either by intention or through negligence, in a manner which causes damage or injury, or unnecessarily diminishes its value."
Section V(F)(9)(e): "Removing state property from departmental premises without the permission of a superior, or for other than the performance of one's duties."
The towels and linens clearly were state property, regardless of how Mr. Algasso obtained possession of them. The fact that the DOC lacked a specific policy prohibiting the use of MHRH linens does not equate with permission to remove the property from departmental premises. Furthermore, the fact that DOC employees may have considered the towels to be of little value is irrelevant. The DOC Code of Ethics and Conduct prohibits the theft or removal of state property regardless of the intent of the employee or its value. Furthermore, the DOC Code of Ethics and Conduct states that employees who violate the sections referred to above may be subject to "disciplinary measures, up to and including termination." DOC Code of Ethics and Conduct Section V(F). As we previously have stated, the Legislature has delegated the determination of the extent and severity of discipline to the DOC director and that determination is not subject to review by an arbitrator. See State Department of Corrections v. Rhode Island Brotherhood of Correctional Officers, 725 A.2d 296, 299 (R.I.1999) (Riel) ("The Legislature could not have intended to make the paramount disciplinary function of the director subject to the caprice of an arbitrator."). Director Vose determined that "any one of the charges regarding theft * * * standing alone, warrant discharge." A violation of the DOC Code of Ethics and Conduct having been established, the appropriateness of the disciplinary measures to be invoked lies within the discretionary authority of the director. The arbitrator lacked the authority *831 to alter or determine the discipline imposed. Thus, the arbitrator's decision to reverse the director's termination of Mr. Algasso was irrational and the arbitrator exceeded his powers by substituting his judgment for that of the director concerning the choice of discipline.
Cable Television Converter Box
At the arbitration hearing, Mr. Algasso admitted that in February 1993 he had a box connected to his television that allowed him to receive pay channels without paying for them. He said that he also had two or three broken converter boxes that he was trying to learn how to fix.
As the arbitrator found, and both parties agree, the wrongful obtaining of telecommunication service is a misdemeanor offense.[3] The arbitrator, however, was persuaded that the testimony of Director Wall was
"dispositive on the question of how that `misdemeanor' should have been handled. He was asked if ' * * * a criminal offense * * * a conviction, is * * * automatic grounds for dismissal * * *.' Director Wall responded, `We look at the conduct that underlies the criminal charge.' Director Wall went on to testify that `every case has to be looked at on its own terms within the parameters of our departmental policies and the Code of Ethics and Conduct.' He further testified that ' * * * there are correctional officers who have been convicted of misdemeanor offenses that remain on the job because those offenses have been have been off duty misconduct which there wasn't a direct nexus to their employment in some of those instances.' I am satisfied Mr. Algasso's illegal arrangement to secure cable channels to which he was not entitled was a `misdemeanor' which occurred `off duty' and which did not constitute ' * * * a direct nexus to [his] employment * * *.' As such, under the Department practice as testified to by Director Wall, that illegal cable use does not represent just cause for termination."
We are of the opinion, however, that the arbitrator has substituted his judgment about what the appropriate disciplinary action should be for that of the DOC director. The arbitrator's conclusion, therefore, is inconsistent with § 42-56-10, which outlines the powers of the director "in light of the director's nondelegable authority to maintain security, safety, and order at all state correctional facilities. Section 42-56-10(2)." Riel, 725 A.2d at 298.
The Riel case involved a correctional officer who had been convicted of an off-duty misdemeanor. Here, Mr. Algasso was not convicted, indeed the criminal charges were dismissed. Nevertheless, the charge was "factually substantiated" after an administrative hearing, and Mr. Algasso admitted to obtaining cable service without paying for it at the arbitration hearing. The misconduct clearly occurred off duty, but as we said in Riel, "[w]e believe that the Legislature did not intend the director under a CBA to abdicate the disciplinary function to an arbitrator in light of the awesome responsibility that is imposed upon the director." Id.
The efficacy of this principle is apparent from the testimony of Director Wall:
"If an inmate is aware or discovers that a staff member is engaged in misconduct, that inmate then has something on the staff member, that inmate has *832 leverage over the staff member. It can be used for extortion and blackmail and to undermine confidence in the performance of staff; and those translate into security breaches."
On cross-examination, Director Wall did acknowledge that every case must be reviewed on its own terms, and the conduct underlying a criminal charge examined. But he also said that "certainly there are situations for whatever reason somebody may not be charged criminally but * * * it still is an episode or an incident that has compromised our security, and we will make decisions on that basis."
He further testified, "[o]ur practice has been that if a misdemeanor conviction is related to the performance of [one's] duties on the job, the underlying conduct justifies termination, that if it is not directly related to performance on the job it may not lead to termination."
The determination of whether a sufficient relationship exists between the employee misconduct and performance on the job, however, has been statutorily delegated to the director under the provisions of § 42-56-10(7), which empowers the director to "[h]ire, promote, transfer, assign, and retain employees and suspend, demote, discharge, or take other necessary disciplinary action."
We also are not persuaded that by failing to reference the illegal cable box as a specific ground for termination in his letter of April 14, 1993, Director Vose was expressing his judgment that such conduct did not warrant discharge. Director Vose wrote, "any one of the charges regarding theft, possession of stolen items, or possession of marijuana and cocaine, standing alone, warrant discharge." We conclude, rather, that in this context his use of the word "theft" was comprehensive enough to include the wrongful obtaining of telecommunication service.
As with the purloined towels, the evidence before the arbitrator clearly established an incident of employee misconduct. The fact that the arbitrator did not deem the infractions to be worthy of termination is of no significance to his responsibilities, or to our analysis. The Legislature has entrusted the director of DOC with the sole responsibility to determine the appropriate disciplinary action.
Conclusion
The orders of the Superior Court therefore are reversed, and the arbitrator's award is vacated. Because of our holding, we need not reach the issue of whether the arbitrator's award of prejudgment interest was appropriate. The papers of this case are remanded to the Superior Court with instructions to enter judgment for the state in accordance with this opinion.
FLAHERTY, J., with whom ROBINSON, J., joins dissenting.
We respectfully dissent from the holding of the majority in this case. In so doing, we note that the majority has correctly set forth the demanding standard of review of an arbitrator's award as stated in Rhode Island Brotherhood of Correctional Officers v. State Department of Corrections, 707 A.2d 1229, 1234 (R.I.1998), that "`absent a manifest disregard of a contractual provision or a completely irrational result, [an arbitrator's] award will be upheld.'" Where we depart from the majority is in its assessment that the arbitrator's award was irrational.
Relevant Facts
This case involves an employee of the Department of Corrections, Anthony Algasso, who was charged both criminally and departmentally with a variety of offenses. As set forth in the majority opinion, those offenses arose primarily from a *833 raid at Algasso's home, pursuant to a search warrant issued by a Superior Court justice. When the search of Algasso's home allegedly revealed drugs and drug paraphernalia, food stuffs and linen purportedly stolen from the state, and illegal cable boxes, Algasso was charged with a variety of criminal offenses. As a result of those charges, Algasso was terminated from his position as a kitchen steward at the Department of Corrections, effective April 25, 1993. The Rhode Island Brotherhood of Correctional Officers (RIBCO) filed a timely grievance on Algasso's behalf contesting his termination.
Meanwhile, the criminal charges against Algasso proceeded in the Superior Court. A pretrial suppression hearing was conducted by the Court on February 11, 1997, with respect to the items seized in the 1993 raid on Algasso's home. After a hearing and an examination of the affidavits and the police investigation conducted prior to the search of those premises, the trial justice suppressed all evidence seized. He noted reckless conduct on behalf of the Johnston police in its investigation and in the preparation of affidavits. The hearing justice determined that, based on the totality of the circumstances, Algasso had proven by a preponderance of the evidence that the police had engaged in reckless disregard for the truth. All criminal charges stemming from the search subsequently were dismissed.[4]
For reasons unclear to this Court, arbitration hearings did not commence in connection with Algasso's 1993 termination until March 2000. Between then and June of that year, a series of hearings were conducted before an arbitrator on the issue of whether there was just cause to terminate Algasso.[5] In a written decision issued on October 1, 2001, the arbitrator found that the state did not have just cause to fire Anthony Algasso. With respect to the food and linens seized at Algasso's home, the arbitrator found insufficient evidence that either had been stolen from the prison. He noted that a supervisor of Algasso had testified that although most of the food item brands seized at Algasso's home could be found in the prison kitchen, there were no reports of any food items missing during the period in question, and that those items also could be purchased on the market. Uncontradicted testimony was presented to the arbitrator that Algasso ran a small catering business out of his home, which tended to support his assertion that he legitimately obtained the food for that purpose.
With regard to the linens, the arbitrator concluded that the linens were "throwaways," as testified to by prison officials, and that Algasso had been called upon to use the linens in his vehicle to deliver food to other prison facilities as part of his duties. Therefore, the arbitrator reasoned, Algasso should not be regarded as stealing that which was intended to be discarded. Moreover, even though there was significant testimony from management personnel at the Department of Corrections that linens were "bootlegged" from the Department of Mental Health, Retardation and Hospitals (MHRH) by removing loose boards, there was absolutely *834 no evidence that Algasso had obtained any of the linens in that manner, but only that they were available in the DOC kitchen where he worked.
With respect to the allegations of drug use, the arbitrator gave great weight to the lack of evidence before him regarding the nature of the alleged drugs seized from Algasso's home. No evidence of laboratory or even field testing was presented to verify that the substances seized were in fact cocaine or marijuana. The arbitrator therefore considered the state to have fallen short of its burden of proving that drugs were seized in Algasso's home.
It is certainly worth mentioning that the state presented no live testimony whatsoever in the arbitration hearings. The arbitrator accepted police and investigatory documents into evidence with respect to the 1993 search and seizure of Algasso's residence, despite their hearsay nature. He also correctly found that the exclusionary rule did not apply to the arbitration process, and therefore allowed the results of the search and seizure to come into evidence before him. However, in his decision, he guardedly considered the findings of the trial justice in the 1997 suppression hearing and the criticisms that the justice lodged against the reckless conduct of the Johnston police. The arbitrator pointedly noted that the justice's findings were only one of many factors that he considered.
Finally, with respect to the illegal cable boxes in Algasso's residence, the arbitrator considered the testimony of the acting director of the department, Ashbel T. Wall, in which the director said that not all minor offenses committed off the job were grounds for termination; rather there had to be some nexus found between the offense and the job for termination to be warranted. The arbitrator therefore found that there was no just cause for firing Algasso based upon the 1993 charges. He did not consider Algasso's subsequent 1995 misconduct in his just cause determination, but did allow the state sixty days to pursue disciplinary action in that regard.[6]
In a remedial decision issued on January 8, 2002, the arbitrator awarded Algasso reinstatement to his former position as kitchen steward with full back pay, including statutory prejudgment interest from April 25, 1993, through March 12, 1997, the day of his nolo plea to the 1995 charges. In so doing, the arbitrator cited the departmental code of ethics and conduct, which states as one ground for termination a "[f]inding of guilt or a plea of nolo contendere to a criminal charge." (Emphasis added.)
Analysis
In its opinion the majority has acknowledged the "extremely limited" role of the judiciary with respect to the arbitration process. See Purvis Systems, Inc. v. American Systems Corp., 788 A.2d 1112, 1114 (R.I.2002); Rhode Island Council 94, AFSCME, AFL-CIO v. State, 714 A.2d 584, 587 (R.I.1998). The majority also says that it is abiding by the principle that the Court should "not reconsider the merits of an award despite allegations that it rests upon errors of fact or on a misinterpretation of the contract." Rhode Island Council 94, 714 A.2d at 588 (citing United *835 Paperworkers International Union, AFL-CIO v. Misco, Inc., 484 U.S. 29, 36, 108 S.Ct. 364, 98 L.Ed.2d 286 (1987)).
It appears to us, however, that in its holding in this case, the majority has, in fact, substituted its judgment for the judgment of the arbitrator, thereby undermining the strong public policy encouraging the private settlement of labor grievances through the relatively inexpensive and expedient means of arbitration. Id.; see also Purvis Systems Inc., 788 A.2d at 1118.[7]
In our view there is no reason to disturb the arbitrator's determination of a lack of just cause in this case. The arbitrator gave careful consideration to the contractual provisions of the collective bargaining agreement, the terms of the code of ethics and conduct, and the practices and termination policies enforced by the department. Upon due regard for all the testimony presented at the arbitration hearings, and carefully weighing the evidence with an eye for how such evidence was obtained, we believe that the arbitrator's award of reinstatement was not irrational and did not conflict with the provisions of the collective bargaining agreement.
We also distinguish this case from those cases in which this Court has held an arbitrator to have improperly substituted his judgment for that of the director of the Department of Corrections, or exceeded his powers in altering the discipline imposed. In those cases, the conduct of the correctional officer had a direct nexus to the job, clearly compromised security at the facility, or was egregious. See State v. Rhode Island Brotherhood of Correctional Officers, 819 A.2d 1286, 1289 (R.I.2003) (holding that the arbitrator did not have authority to alter the discipline from termination to sixty-day suspension for misplacing a key found in an inmate's possession); see also State Department of Corrections v. Rhode Island Brotherhood of Correctional Officers, 725 A.2d 296, 299 (R.I.1999) (the Riel case) (arbitrator erroneously and irrationally changed director imposed termination to thirty-day suspension for officer convicted and incarcerated for driving under the influence); cf. State Department of Children, Youth and Families v. Rhode Island Council 94, 713 A.2d 1250, 1259 (R.I.1998) (arbitrator exceeded powers when he found department lacked just cause to dismiss employee convicted of violent crimes).
In its holding, the majority cites Riel for the principle that the extent and severity of discipline is left to the DOC director and that that determination is not subject to review by an arbitrator. However, even a cursory review of the Riel case reveals that it is factually distinguishable from the matter now before us, and that the majority's reliance on it is misplaced.
In Riel, the correctional officer was charged and convicted of driving while intoxicated in Massachusetts, and subsequently sentenced to a period of confinement. The grievant in that case failed to give notice of her arrest until after her conviction, in direct contravention of the departmental code of ethics. In denying the union's appeal from a Superior Court judgment vacating the award of an arbitrator reducing a termination to a thirty-day suspension, this Court cited the security implications involved in operating a prison and held that it was the director, not an arbitrator, who was responsible for the "`consequences of a previously convicted and incarcerated officer filling a security *836 post at the adult correctional institutions.'" Riel, 725 A.2d at 298.
We believe that Riel should be restricted to its somewhat unusual facts, which differ substantially from the factual pattern present here. In this case, the department was well aware of the charges filed against its employee even before the employee was presented to the Superior Court, eliminating any risk to security that may be engendered by an inmate learning of the incident and compromising the employee. More importantly, Riel involved a conviction, not present here because all charges against Algasso arising from the 1993 raid were dismissed.
Finally, Riel involved an acknowledgment by the arbitrator that discipline was warranted, even as the arbitrator lessened the penalty from termination to suspension. Under the circumstances presented in that case, this Court determined the reduction impermissible, balancing the language present in the collective bargaining agreement with the director's responsibility under G.L.1956 § 42-56-10.[8]
In this case, however, the arbitrator did not lessen the penalty, but ruled that there was no just cause for discipline in the first place, the very issues submitted to arbitration by the parties. We do not believe that he was "completely irrational" in doing so and respectfully submit that the majority has simply substituted its judgment for his.
Conclusion
For those reasons, we would affirm the order of the Superior Court.
NOTES
[1] Mr. Algasso also filed an appeal with the Personnel Appeal Board on July 8, 1998, seeking to appeal the 1993 decision of the appointing authority terminating his employment. His appeal was dismissed for failure to file the appeal within thirty days, pursuant to G.L.1956 § 36-4-42, and also for electing to pursue a grievance and arbitration.
[2] General Laws 1956 § 28-9-18 provides:
"Grounds for vacating award. (a) In any of the following cases the court must make an order vacating the award, upon the application of any party to the controversy which was arbitrated:
(1) When the award was procured by fraud.
(2) Where the arbitrator or arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final, and definite award upon the subject matter submitted was not made.
(3) If there was no valid submission or contract, and the objection has been raised under the conditions set forth in § 28-9-13.
"(b) A motion to vacate, modify, or correct an arbitrator's award shall not be entertained by the court unless the award is first implemented by the party seeking its vacation, modification, or correction; provided, the court, upon sufficient cause shown, may order the stay of the award or any part of it upon circumstances and conditions which it may prescribe.
"(c) If the motion to vacate, modify, or correct an arbitrator's award is denied, the moving party shall pay the costs and reasonable attorneys' fees of the prevailing party."
[3] The information charging Mr. Algasso, which was dismissed, alleged violations of G.L.1956 §§ 11-35-16 and 11-35-25.
[4] In a separate incident, Algasso was charged with aiding and abetting in a burglary between March 8 and April 8, 1995. On March 12, 1997, he entered a plea of nolo contendere to that charge. The department, however, was unaware of this charge until such time as he entered his plea, and it was not a factor in his 1993 termination.
[5] Section 16.1 of Article 16 of the Collective Bargaining Agreement between the parties provides: "It is agreed that the appointing authority may dismiss, demote or suspend an employee for just cause."
[6] The state held a disciplinary hearing with respect to Algasso's 1995 misconduct in March 2002, charging him with conduct unbecoming a correctional employee in violation of the department's code of ethics and conduct. On March 8, 2002, Algasso was terminated from his job, effective April 8, 1995, the alleged date of the misconduct. However, in an April 3, 2002 letter, Algasso resigned from his position effective March 11, 1997, the day before the entry of his nolo plea for the 1995 charges.
[7] We do not imply that we would have reached the same result as the arbitrator in this case. However, the issue before this Court is whether the result actually reached by the arbitrator was irrational. We do not believe that it was.
[8] General Laws 1956 § 42-56-10 provides in pertinent part:
"In addition to exercising the powers and performing the duties which are otherwise given to him or her by law, the director of the department of corrections shall:
"(1) Designate, establish, maintain, and administer those state correctional facilities that he or she deems necessary, and may discontinue the use of those state correctional facilities that he or she deems appropriate for that action;
"(2) Maintain security, safety, and order at all state correctional facilities, utilize the resources of the department to prevent escapes from any state correctional facility, take all necessary precautions to prevent the occurrence or spread of any disorder, riot, or insurrection of any state correctional facility, including but not limited to the development, planning, and coordination of emergency riot procedures, and take suitable measures for the restoration of order;
"* * *
"(6) Direct employees in the performance of their official duties;
"(7) Hire, promote, transfer, assign, and retain employees and suspend, demote, discharge, or take other necessary disciplinary action * * *."
The collective bargaining agreement also included a provision "granting the employer the right to suspend, demote, discharge, or take other disciplinary action against employees." State Department of Corrections v. Rhode Island Brotherhood of Correctional Officers, 725 A.2d 296, 298 (R.I.1999). On the other hand, the right of the director is restricted by the collective bargaining agreement, which limits the imposition of discipline to "just cause." Section 16.1 of Article 16 of the Collective Bargaining Agreement. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547615/ | 867 A.2d 305 (2005)
385 Md. 50
John Louise WILLIAMS
v.
STATE of Maryland.
No. 73, September Term, 2004.
Court of Appeals of Maryland.
February 4, 2005.
*306 Arthur A. DeLano, Jr., Asst. Public Defender (Nancy S. Forster, Public Defender, on brief), for appellant.
Diane E. Keller, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen., on brief), for appellee.
Argued before BELL, C.J., RAKER, WILNER, CATHELL, HARRELL, BATTAGLIA and GREENE, JJ.
HARRELL, J.
I.
In the Circuit Court for Baltimore County on 9 October 2003, Appellant, John Louise Williams, pleaded guilty to one count of theft over $500. At the plea proceeding, the Assistant State's Attorney recited the following supporting statement of facts, which were agreed to by Appellant's trial counsel, although she reserved the right to argue as to restitution:
Your Honor, the State in support of the defendant's guilty plea, on April 1st, 2003 Officer Grelak, G-R-E-L-A-K, responded to 7600 Gough Street for a burglary. Upon arrival he spoke with the victim, Craig Jones. Mr. Jones advised that between March 31st, 2003 at approximately 9 o'clock p.m. and April 1st, 2003 at 9:15 a.m., unknown subjects cut the padlock [[1]] on the far side door of his garage and removed the following items: A 1975 Yamaha GT80R motorcycle, a Suzuki DS-80 motorcycle, a 1994 Yamaha PW50 motorcycle, and finally a 2002 Yamaha TTR225R motorcycle. The total value of the property loss was $4,100.
On April 3rd, 2003, a teletype was received at Precinct 12 in reference to the recovery of the 2002 Yamaha TTR225R motorcycle. The motorcycle was recovered by Officer Saunders of the Baltimore City Police, Northeast District. She advised that she recovered the motorcycle along with three others on April 2nd, 2003 in the rear yard of 3018 Clifton Park Terrace. The motorcycle was in possession of John Louise Williams and Alan Williams. Both were arrested and the motorcycles were towed for storage.
On April 24th, 2003, Detective Claridge along with Sergeant Stelmack met with Craig Jones at the Baltimore City impound lot to identify the stolen motorcycles. Mr. Jones identified an additional motorcycle as belonging to him. He identified it by the white epoxy on the tail pipe.
*307 Specifically, Judge, what unfortunately happened, the motorcycle that was the most expensive was actually recovered and returned to the victim. There wasa Mr. Jones was actually maintaining possession of that motorcycle for another individual who had properly titled it. That motorcycle was subsequently returned to the victim, the owner of the motorcycle. The other three motorcycles, because Mr. Jones used them for off road purposes and rightly or wrongly did not title them, [the] Baltimore City impound lot would not return them to him despite the fact that they were recovered and Mr. Jones identified them as belonging to him. So he of course is still out the $1500, and that, I think, is the subject of the restitution issue that we're going to argue about.
This case did occur in Baltimore County. Of course Mr. Jones did not give anyone permission to remove any cycles or have them without his permission.
The trial judge found the facts sufficient to support the guilty plea and, accordingly, found Appellant guilty. As to sentence, defense counsel argued:
[DEFENSE COUNSEL]: Regarding the issue for restitution, Your Honor, all the property was recovered. The fact that it wasn't returned by the Property Division by the impound lot is not within Mr. Williams' control. The fact that the victim didn't have it properly titled to himself is not Mr. Williams' fault. That is an issue for the victim. The restitution would not be owable by Mr. Williams for property that is recovered. That's an entirely separate issue as to whether or not the impound lot released it to the victim or to whoever it's titled to. It's the same as if the victim has it and it's titled to a third person, he can simply ask the third person to get it released. It's not restitution that Mr. Williams owes.
THE COURT: Well, he wouldn't have had to worry about the recovery if Mr. Williams didn't steal it, would he?
[DEFENSE COUNSEL]: Certainly not. It wouldn't be in the impound lot but for Mr. Williams' actions. But if he didn't have it insured or licensed for some reason, that has nothing to do with Mr. Williams. That's an issue the victim has with the MVA regarding the motorcycle, not with Mr. Williams. And I would ask Your Honor not to impose restitution since the property has been recovered.
It seems to me there are other avenues that the victim can pursue with the person who indeed does have the title.
In arguing for restitution, the prosecutor explained:
I was up front with [Defense Counsel]. I told her that the bikes were actually recovered and that in speaking with the victim, the victim explained to me and he's not here today because he actually has testicular cancer and was just coming off his chemotherapy was that he just didn't title them because he used them for off road. And again, whether rightly or wrongly, that's what he indicated and the impound lot would not return them to him.
I sort of take the same view as the Court, I'd otherwise defer to the Court, that but for Mr. Williams, he would still have these bikes. That's the reason I'm asking for the restitution, but I'll defer to the Court on that as well.
The trial judge, in addition to imposing a sentence of five years incarceration (all but 30 months suspended and five years probation), ordered Williams to pay restitution to Jones in the amount of $1,500.
*308 Williams appealed to the Court of Special Appeals, challenging the legality of the order of restitution component of his sentence. Before the intermediate appellate court decided the appeal, we, on our initiative, issued a writ of certiorari to consider the sole question of whether the order of restitution was legal. Williams v. State, 383 Md. 211, 857 A.2d 1129 (2004). Oral argument was held in this case on 7 December 2004, the day after the Court's opinion in Pete v. State, 384 Md. 47, 862 A.2d 419 (2004) was filed. Pete, as we make clear later, has a marked effect on the outcome of the present case.[2]
II.
Md.Code (2001, 2004 Supp.), Criminal Procedure Article, § 11-603, the relevant part of the statutory scheme governing restitution in criminal cases,[3] provides in pertinent part as follows:
(a) Conditions for judgment of restitution. A court may enter a judgment of restitution that orders a defendant or child respondent to make restitution in addition to any other penalty for the commission of a crime or delinquent act, if:
(1) as a direct result of the crime or delinquent act, property of the victim was stolen, damaged, destroyed, converted, or unlawfully obtained, or its value substantially decreased;
(2) as a direct result of the crime or delinquent act, the victim suffered:
* * * * * *
(ii) any other direct out-of-pocket loss
* * * * * *
(c) Effect of judgment of restitution. (1) A judgment of restitution does not preclude the property owner or the victim who suffered personal physical or mental injury, out-of-pocket loss of earnings, or support from bringing a civil action to recover damages from the restitution obligor.
* * * * * *
Because the record does not reveal that the three motorcycles at issue were damaged when recovered by police within a day or two of their theft, presumably, had Jones been able to reclaim the vehicles from the Baltimore City impound lot, his situation would not have fit within the relevant statutory justifications supporting an order of restitution in this case.[4] The key factual predicate for whether the order entered in this case was proper was that the Baltimore City authorities rebuffed Jones's attempt to repossess the motorcycles because he could not offer sufficient evidence of his ownership of the vehicles.[5] Had Jones been able to do so, *309 *310 Williams' argument, at least in its present posture, could not be maintained. Because Jones's inability to recover the undamaged vehicles was arguably due solely to his sin of omission in not titling the vehicles in his name and producing proof of those titles (or alternative documentation of ownership), Williams maintains Jones suffered no loss or injury for which restitution could be ordered (within the meaning of the statute), and, in any event, if his inability to reclaim the motorcycles was deemed a loss or injury, the loss or injury did not occur as the "direct result" of the theft.
Once again, we are called upon to construe and apply a statute. The overarching standard in any such analysis may be stated succinctly. "Our preeminent goal is to discern and implement legislative intent, and, to do that, we begin with the plain meaning of the statutory language. If the intent is clear from that language, there is no need to search further." Walker v. Dept. of Human Res., 379 Md. 407, 420, 842 A.2d 53, 61 (2004), quoting Allstate v. Kim, 376 Md. 276, 290, 829 A.2d 611, 619 (2003); see also Podgurski v. OneBeacon Ins. Co., 374 Md. 133, 142, 821 A.2d 400, 405-06 (2003); Maryland Div. of Labor & Industry v. Triangle Gen. Contractors, Inc., 366 Md. 407, 420-21, 784 A.2d 534, 541-42 (2001); Anne Arundel County, Md. v. City of Annapolis, 352 Md. 117, 123, 721 A.2d 217, 220 (1998). We find that is the case here.
As we recently reiterated in State v. Garnett, 384 Md. 466, 863 A.2d 1007 (2004):
Restitution imposed under Article 27, Section 807 [[6]] "is a criminal sanction, not a civil remedy." Grey v. Allstate Insurance Company, 363 Md. 445, 451, 769 A.2d 891, 895 (2001) (emphasis in original). Judge Wilner, writing for this Court in Grey, traced the history of restitution and explained that it serves retributive, deterrent, and rehabilitative objectives, which are the principal functions of criminal punishment. Id. at 459-60, 769 A.2d at 899-900. We explained that penal goals are accomplished through restitution to the extent that the defendant is forced to focus on the harm that was caused to the victim. Grey, 363 Md. at 459, 769 A.2d at 899. Likewise, restitution is a monetary detriment to the defendant and "satisf[ies] society's demand for meaningful justice," thus serving the punitive objective of the criminal system.
Op. at 475, 863 A.2d at 1012. (some internal citations omitted).
Instructive to the present case is our recent opinion in Pete v. State, 384 Md. 47, 862 A.2d 419 (2004). Pete committed second degree assault on a woman in her apartment and fled the scene in a pickup *311 truck. Id. at 51, 862 A.2d at 421. About two hours later, a police officer on patrol in his marked vehicle in another part of the city spotted Pete in his pickup. Id. The officer activated his vehicle's overhead lights and began to follow Pete in an effort to make a traffic stop. Pete sped away, but then abruptly stopped, causing the police cruiser to collide with the rear of the pickup truck. Id. at 51-52, 862 A.2d at 421. The police cruiser, it was determined later, suffered $6,490.53 in damages. Pete fled the accident scene, but was captured.
In addition to the second degree assault on the woman, Pete was charged with, among other things, reckless driving in connection with the collision with the police cruiser. Pete was convicted of both offenses. Id. at 49-50, 862 A.2d at 420. The trial court sentenced him on the assault conviction to eighteen months imprisonment, with all but two months suspended in favor of three years probation upon release. As one of the conditions of probation regarding the assault conviction and sentence, Pete was ordered to make restitution in the sum of $6,490.53 to the Local Government Insurance Trust (LGIT) for the repairs to the police cruiser. On the non-incarcerable reckless driving conviction, the Court assessed a fine of $250.00. Id. at 52-53, 862 A.2d at 421-22.
On certiorari review in this Court, Pete argued, analogous to Williams's argument in the present case, that the order of restitution as to LGIT, whether as a direct part of the sentence or as a condition of probation, was illegal because the damage to the police cruiser was not, within the meaning of § 11-603(a)(1), the "direct result" of the conduct giving rise to the conviction for second degree assault. Id at 50, 862 A.2d at 420.[7]
In considering Pete's arguments in this regard, we observed that "[t]he term `direct result of the crime' appeared first in the Restitution for Crimes Act of 1977. 1977 Md. Laws, Chap. 581 (H.B.1680); Md.Code (1957, 1976 Repl.Vol., 1977 Cum.Supp.), Art. 27, § 640(b)." Id. at 57, 862 A.2d at 424. Regarding the legislative history of H.B. 1680, we commented that there was little
to suggest that "direct result of the crime" means anything other than that discerned from the plain language. The history of H.B. 1680 shows that the Director of the Department of Legislative Reference of the General Assembly had sought, and received, the existing restitution statutes of the Colorado, Georgia, and Oklahoma code from their respective legislative bodies. Of these statutes, only the Oklahoma statute provided specifically that, "`Monetary restitution' shall mean the sum paid by the defendant to the victim of his criminal act to compensate that victim for the economic loss suffered as a direct result of the criminal act of the defender." 1976 Okla. Sess. Laws c. 160, § 5 (emphasis added).
Id. at 58, n. 14, 862 A.2d at 425.
Pete argued primarily a plain meaning approach to construing § 11-603(a)(1)'s "direct result" language, by which restitution would be "limited to the victim of the qualifying crime and that victim's injuries and/or damages arising from that crime." *312 Id. at 59, 862 A.2d at 426. Alternatively, he urged that we apply tort proximate cause analysis to illuminate what the Legislature meant by "direct result." Id. By application of the latter to his facts, the intervening event of his reckless driving incident, occurring in another part of the city from where the assault took place[8] and approximately two hours later, would break the chain of causation between the assault and the damage to the police cruiser. Id.
In Pete, the State advocated a broad reading of § 11-603. Under its approach, if the State "can obtain a conviction for a crime where restitution may be had, but is not ordered, and [also] conviction of [another], related crime, then restitution may be ordered to the appropriate victims as an appropriate sentence under the related crime. Such a reading would require solely `a nexus between the defendant's criminal activity and the losses that form the basis for an order of restitution.'" Id. at 60, 862 A.2d at 426. The nexus would be satisfied if the losses were merely "related to" the crime or crimes for which a defendant was convicted. Thus, under the State's "Single Charging Document" doctrine, any count for which a defendant is convicted under the same charging document would be sufficient to satisfy the "direct result" standard. Id.
The Court in Pete declined specifically to engage in tort proximate cause analysis (id. at 60, 862 A.2d at 420, n. 15) or even to "weigh the persuasion quotient of an attenuated nexus between the damages to [the police cruiser] and the assault...." Id. at 60-61, 826 A.2d at 426-27.[9] Instead, we explained:
The General Assembly has required a direct result between the qualifying crime committed and the damages inflicted before restitution may be ordered. Any attempt by a court to craft a proximate causation, mere nexus, or single charging document substitute would be clearly contrary to the plainly-worded intent of § 11-603.
In this case, the collision with, and resultant damage, to Patrolman Cheesman's cruiser are a direct result of Pete's reckless driving, not his assault on Ms. Raickle. The damage to the cruiser is a direct result of Pete stopping abruptly, from a relatively high rate of speed, in the path of the cruiser. Reckless driving, by definition, is driving with a "wanton or willful disregard for the safety of persons or property." § 21-901.1 of the Transportation Article. In this case, Pete's wanton or willful disregard was for the safety of Patrolman Cheesman, his police cruiser, and possibly any other person, vehicle, or property on the same roadway or placed at risk by Pete's driving. It is easy to see on this record that the damage to the police cruiser could not be a direct result of the assault on another individual that occurred approximately two hours earlier than the vehicle collision.
Id. at 61, 826 A.2d at 427.
The facts of the present case compel a similar conclusion to that reached in Pete, perhaps even more clearly so. Jones's inability to reclaim the undamaged motorcycles was not the direct result of Williams's theft of them. While there is undeniably a causal link between the theft in Baltimore County and the motorcycles *313 ending up in the Baltimore City impoundment lot, that nexus does not partake of the directness required by the statute. Moreover, Jones's failure to produce proof of ownership to secure release of the vehicles is in no way a direct result of their underlying theft. The aftermath of the theft in this case merely revealed Jones's possible failures to title properly the motorcycles with the State and/or register them with Baltimore County. If Jones can muster some means of proving ownership and satisfy the Baltimore City authorities, he presumably will be able yet to recover the undamaged vehicles. Failing that, Jones may be able to mount a tort or other civil action against Williams where proof of causation of any alleged damages may be less stringent than in the criminal statute governing restitution. See Grey, 363 Md. at 451, 769 A.2d at 895 ("restitution under the statute is a criminal sanction, not a civil remedy"). To compel Williams to make restitution to Jones, under the circumstances revealed by the record in this case, neither complies with the letter of the statute nor fulfills the purposes of restitution (as explicated in Grey, Pete, and Garnett). Rather it operates to make Williams the insurer of Jones for the latter's possible failure to title and/or register the vehicles. Any loss that Jones may have suffered here (if indeed such may be found to have occurred on these facts) is not represented in the record by any damage to or loss of value caused directly by the theft.
9 OCTOBER 2003 ORDER AND JUDGMENT OF RESTITUTION ENTERED IN THIS CASE BY THE CIRCUIT COURT FOR BALTIMORE COUNTY VACATED; COSTS TO BE PAID BY BALTIMORE COUNTY, MARYLAND.
NOTES
[1] Although Williams was charged, among other things, with malicious destruction of property to wit, the padlock, and the Application For Statement of Charges claimed the padlock was valued at $5.00, neither figured in the State's rendition of the statement of facts offered in support of the guilty plea to the theft over $500 count. Thus, the asserted value of the padlock had no bearing on whether the restitution ordered in connection with the theft count was appropriate.
[2] To their credit, counsel for both parties at oral argument expressed awareness of Pete and engaged in offering their views as to its effect here.
[3] Restitution as it relates to criminal cases currently is regulated in §§ 11-601-11-618 of the Criminal Procedure Article. For a thorough review of the history of restitution, see Judge Wilner's discussion in Grey v. Allstate Ins. Co., 363 Md. 445, 450-62, 769 A.2d 891, 894-900 (2001). The current relevant version of § 11-603 remains unchanged from the 2001 version, enacted by Chp. 10, Acts 2001, in effect at the time of Williams's sentencing.
[4] In addition to the record lacking evidence of damage to the motorcycles arising from their theft, there was no evidence the vehicles suffered depreciation in value or that Jones incurred any particular amount of out-of-pocket loss related to the theft.
[5] The agreed statement of facts supporting the plea in this case offers as the only reason the motorcycles were not returned to Jones that he did not offer proof of title to them in his name. The further suggestion in the agreed statement is that Jones had not titled the vehicles in his name because of his belief that titling was not required if they were only "used... for off road purposes." The parties to this case have not concerned themselves much with analyzing the legitimacy of the reason offered for the refusal to return the vehicles.
There is a meaningful difference between titling and registration under the relevant State statutes. Section 13-101.1 of the Transportation Article of the Md.Code (1977, 2002 Repl.Vol.), requires that, unless covered by an exception enumerated in § 13-102 (none of which appear relevant here), "the owner of each vehicle that is in this State and for which the [Motor Vehicle] Administration has not issued a certificate of title shall apply to the Administration for a certificate of title of the vehicle." A "vehicle," within the meaning of the Maryland Vehicle Law generally, is "any device in, on, or by which any individual or property is or might be transported or towed on a highway." § 11-176(a), Transp. Art. A certificate of title to a vehicle is prima facie evidence of who owns it. § 13-107(a)(2) and (c), Transp. Art. The Administration is precluded from issuing registration of a vehicle unless it also "has issued to the owner [of a vehicle] a certificate of title of the vehicle...." § 13-402(b), Transp. Art.
Vehicle registration, as a separate documentary process, requires that "each motor vehicle ... driven on a highway shall be registered" with the Administration, unless "otherwise provided in ... the Maryland Vehicle Law." The definition of "motor vehicle," as opposed to merely a "vehicle," is generally a "vehicle that is self-propelled...." § 11-135, Transp. Art. A "motor cycle," as a sub-species of both "vehicle" and "motor vehicle," is generally a motor vehicle that: (1) has one front wheel and one or two rear wheels on a single axle; (2) is self-propelled by a motor with a rating of more than 1.5 brake horsepower and a capacity of at least 49 cubic centimeters piston displacement; (3) has a singular front steering road wheel mounted in a fork assembly that passes through a frame steering bearing and to which is attached a handlebar or other directly operated steering device; (4) has a seat that is straddled by the driver; and (5) except for a windshield or windscreen, does not have any enclosure or provision for an enclosure for the driver or any passenger. § 11-136, Transp. Art. We shall assume for purposes of this opinion that the pertinent three motorcycles held in the Baltimore City impound lot met this definition. If required to be registered, a motor vehicle may be registered without a certificate of title (§ 13-402(b) notwithstanding), but only under very limited conditions. § 13-109, Transp. Art.
Of greater relevance to the "facts" of the present case, however, is the provision of § 25-102.1 of the Transportation Article:
§ 25-102.1. Off-the-road motorcycles.
(a) Definition. (1) In this section, "off-the-road motorcycle" means a motorcycle not otherwise registered under this article.
(2) "Off-the-road motorcycle" includes motorcycles designed for off-the-road operation, motorcycles not otherwise eligible for registration under this article, and motorcycles commonly referred to as "dirt bikes".
(b) Regulation. Each county and Baltimore City may regulate the operation of off-the-road motorcycles, require them to be registered, and impose a registration fee for them.
From the foregoing regulatory scheme, we glean that, assuming the motorcycles were off-the-road motorcycles and used only for that purpose (within the meaning of § 25-102.1), Jones (if he was the owner) was not required to register them with the State Motor Vehicle Administration, but was required to apply to the Administration for a certificate of title as to each.
Of tangential interest and adding to the complexity of whether Jones could have produced evidence of ownership of the motorcycles, Jones's home county, Baltimore County, where the motorcycles were stored at the time of their theft by Williams, required registration of "off-the-road motorcycles." See generally §§ 21-12-101 through XX-XX-XXX, Baltimore County Code (2004). Submission of an application for such registration must include (1) the identity of the owner and (2) the current certificate of title issued by the State Motor Vehicle Administration, a certificate of origin, or a genuine bill of sale. § 21-12-201(b) and (c), County Code. When the County issues such a registration, the owner receives a registration card bearing, among other things, his or her name as owner, a registration number assigned by the County for each motorcycle, the manufacturer's serial number on the motorcycle's engine and frame, and a description of the motorcycle. § 21-12-205, County Code. The registration card is to be carried by the owner "at all times." § 21-12-211, County Code. If a registered motorcycle is sold, the seller is required to inform the buyer that registration may be required before the motorcycle may be driven in the County. § 21-12-210, County Code.
By the same token, Baltimore City (where Jones sought to reclaim the property) appears to have exercised a bit differently its authority granted by § 25-102.1(b) of the Transp. Art. of the Md.Code. Section 40-6 of the Baltimore City Code prohibits outright the driving or riding of any dirt bike or unregistered motorcycle on any public or private property in the City. Apparently, under this prohibition, registration with the City is not an option to legitimate such vehicles.
On this record, we do not know whether Jones registered these off-road motorcycles with Baltimore County, or whether he possessed a certificate of title or other evidence of ownership as required by the State Vehicle Law. What we may observe, however, is that apparently there were alternate means by which Jones could have acquired and produced evidence of his ownership of the three motorcycles, an apparent condition precedent to their release by the impound lot personnel. Such a condition seems both reasonable and foreseeable under the circumstances.
[6] Article 27, Section 807 was recodified without substantive change as Md.Code (2001), § 11-603 of the Criminal Procedure Article.
[7] The charge of reckless driving, which arose directly from the collision of the police vehicle with Pete's pickup truck, was not a "crime" for which restitution may be ordered under the statute. Pete, 384 Md. at 56-57, 862 A.2d at 424. Reckless driving is a non-incarcerable misdemeanor. For purposes of restitution being authorized as a direct part of a sentence, the related "crime," when it is a violation of the Transportation Article, must be punishable by a "term of confinement". Id. at 56, 862 A.2d at 424; Md.Code (2001), § 11-601(d)(2), of the Criminal Procedure Article.
[8] No hot pursuit was in process in connection with the earlier assault.
[9] The trial judge's comments in this case imply that a tort-like ("but for") proximate cause analysis was used, "[d]on't we have to take the victims the way we find them?" It is exactly this manner of analysis that the Legislature foreclosed by allowing restitution only where the loss was the "direct result of the crime." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547637/ | 144 F.2d 720 (1944)
MECHANICAL ICE TRAY CORPORATION et al.
v.
GENERAL MOTORS CORPORATION.
No. 378.
Circuit Court of Appeals, Second Circuit.
August 26, 1944.
*721 Pennie, Davis, Marvin & Edmonds, of New York City (William H. Davis and Daniel V. Mahoney, both of New York City, of counsel), for plaintiffs-appellants-appellees.
Drury W. Cooper, of New York City (John N. Cooper, of New York City, of counsel), for General Motors Corporation.
Before AUGUSTUS N. HAND, CHASE, and FRANK, Circuit Judges.
CHASE, Circuit Judge.
Mechanical Ice Tray Corporation and I. C. E. Corporation brought this suit against General Motors in the District Court for the Southern District of New York for an accounting and to recover royalties alleged to be due the plaintiffs for ice trays manufactured and sold by the defendant since April 1, 1940, under the terms of a license agreement the parties had made covering the manufacture, use and sale of ice trays for mechanical refrigerators under certain U. S. patents owned by Mechanical Ice Tray Corporation. Jurisdiction based on diversity of citizenship was alleged and is clear and undisputed.
By amendment to the complaint, the plaintiffs alleged that the license was an exclusive one and that the defendant had failed in violation of its implied obligation so to do, to exploit the licensed inventions in good faith and to refrain from adopting commercially equivalent devices outside the scope of the claims of the patents included in the license agreement.
The defendant answered by denying that it had since April 1, 1940, manufactured and sold without paying royalties any ice trays which were within the claims of the patents; denied that any royalties were due the plaintiffs; denied that it had broken any implied obligation to exploit the licensed devices in good faith; and alleged that no such implied obligation could exist *722 because it would be contrary to public policy.
The trial court found that the defendant had not manufactured and sold any ice trays which were within the scope of the licensed patents without paying royalties to the plaintiffs. It did, however, find that the defendant had manufactured and sold an ice tray, known as type 4, which was a breach of its implied obligation to exploit the patents and awarded damages computed on the basis of the royalties agreed upon by the parties to the license. Both parties have appealed from the decree.
Though the license agreement covered other patents, the present controversy is confined to claims 13 and 17 of U. S. Patent No. 1,893,535 granted to Buchanan on January 10, 1933, and to claims 8, 9, and 14 of U. S. Reissue No. 18,819 granted to Buchanan and Horton on May 2, 1933. Ice trays, called types 2, 3, and 4, manufactured by the defendant without payment of royalty since April 1, 1940, are the ones involved.
A license was originally granted to the defendant by I. C. E. Corporation on August 21, 1934. Thereafter Mechanical Ice Tray Corporation, which claimed to own an interest in the patents, became a party to it. That agreement is the one on which this suit is based. It is dated April 1, 1936, and provides, so far as need now be stated, that the defendant was exclusively licensed under the patents within the United States, except in the County of Roscommon, Mich., with the sole exception of a non-exclusive license which had been granted to Westinghouse Electric & Manufacturing Company. It was agreed that if the Westinghouse license should be terminated the defendant should become the sole licensee. A minimum royalty of $5000 a year was payable to the plaintiffs and unit royalties were payable in amounts varying in accordance with the kind and number of ice trays sold each year.
Mechanical agreed to sue infringers upon the written request of the defendant and if it failed to do so within thirty days the defendant was given the right to prosecute infringers in its own name and at its own expense. Mechanical also agreed to defend any suit brought against defendant, its sublicensees, or customers or users growing out of the manufacture and sale of ice trays in accordance with the claims of the licensed patents. The license could be cancelled by the defendant upon ninety days' notice to the plaintiffs at any time after December 31, 1938, and the plaintiffs could cancel in the same way for any material breach by the defendant but during the notice period the defendant might repair the breach and thereby keep the license in effect. The defendant also was given the right to surrender the exclusive license at the end of any calendar year and retain a non-exclusive license. If it did so it was no longer bound to make the guaranteed minimum royalty payments.
At the request of the defendant four suits were brought against alleged infringers. Three of them were settled before trial. The fourth was against Abraham & Straus upon claims 4, 13, 17 and 19 of Buchanan Patent No. 1,893,535. It was tried in the District Court for the Eastern District of New York and decided March 8, 1940. The result was a decree holding the claims valid but not infringed as they were then construed. See, Mechanical Ice Tray Corp. v. Abraham & Straus, Inc., D.C., 31 F.Supp. 938. No appeal was taken from that decree and that fact plays an important part in the present controversy.
Paragraph Eleventh (b) of the license agreement provides in part as follows: "It is understood and agreed that in the event any of the claims of any of said patents are construed or held invalid by a decision of a court of competent and final jurisdiction, or by an inferior court from whose decree no appeal is taken within the time required by law, then the requirement to pay royalties under this license with respect to any such claim or claims shall be interpreted in conformity with the court's decision as to the scope or validity of such claims of said patents so that no royalty shall be payable under such claims after the date of such decision upon any ice tray which has heretofore been deemed made under such claims of any such patents and hence subject to royalties hereunder solely because they fell within the claims so held invalid or construed * * *."
After April 1, 1940, following this decision, the defendant stopped paying royalties on the trays, type 2 and 3, which it continued to manufacture without change in construction. It also changed the construction of other trays it made to what was essentially that of type 2 and 3 but was called type 4 and paid no royalties on that.
It will be convenient to discuss first the original cause of action to recover royalties claimed due under the license. Whether there are any depends upon whether any *723 type 2, 3, or 4 ice trays made by the defendant would, but for the license, infringe either claim 13 or claim 17 of Buchanan Patent No. 1,893,535 as construed in the above suit or claims of Reissue Patent No. 18,819 since the plaintiffs now rely on no others.
Before this invention, ice that was frozen in metal trays of a mechanical refrigerator could not be readily removed until it had melted sufficiently to reduce the pressure between the ice and the sides of the tray caused by the expansion of the water during freezing or otherwise loosen the bond between ice and metal. By "sides of the tray" in this connection are meant the sides also of the metal insert which was placed in the pan to cause the ice to freeze into blocks of convenient shape and size which are called cubes. This insert is called a grid and is usually made of a piece of metal of a length to fit the inside of the pan longitudinally. Extending crosswise from it at intervals are pieces of metal, called fins, which with the middle piece divide the pan into spaces with sides approximately as high as the pan. The melting needed to permit the cubes to be removed from the tray was often caused by letting hot or cold water run over the tray and the ice. It was sometimes accomplished by letting the tray with the ice stand at room temperature for a sufficiently long time. However it was done, there was a wastage of ice and a somewhat vexatious consumption of time and effort.
The invention disclosed in the licensed patents and covered by the claims above mentioned did away with much of the trouble in a simple and effective manner. A cam placed at one end of the tray could be turned to exert sufficient pressure against that end of the grid so that the latter was raised a little from the pan. This raising of one end of the grid was sufficient to break the ice along the entire length of the tray. Then the grid could be lifted wholly from the pan, and the cubes, which would still be frozen to the grid, could be released from it by melting or breaking. The characteristic feature of patent No. 1,893,535 is the raising of the grid from the pan by the use of enough force mechanically applied through a cam to break the ice loose from the pan.
In the Reissue Patent No. 18,819 an improvement was disclosed which carried the same process to the grid itself by making part of it move relative to the remainder when the moveable section of the grid was raised from the pan and so the cubes were broken loose both from the grid and from the sides of the pan, i.e., from the tray as a whole.
The fins of the grid were made in separate pieces and those forming the outer ends were attached to the pan. The middle portion of the grid alone could be raised. That was done by a bar, flange and gears at one end which were a fair equivalent of the cam in No. 1,893,535 but in one form a supplemental lever was shown at the other end which had a flange extending over that edge of the pan. When the handle of the lever was raised this edge of the pan served as a fulcrum and thus that end of the grid was raised from the pan. There were nubs on this moveable portion of the grid which became frozen into each ice cube between the fixed parts of the fins and prevented the cubes from breaking away from the moveable part of the grid without being broken from the stationary part and from the pan.
The defendant, after obtaining its license, manufactured, used, and sold a large number of trays which the parties supposed were within the licensed claims, and paid royalties on them. They had no cam but instead used a lever attached to a longitudinal member of the grid with upper and lower sections which were relatively moveable toward the front and the back of the pan as the lever was raised or lowered. Fins on either side of this middle member were attached to it in such a way that they would tilt as the lever was raised and would rock back and forth as it was raised and lowered. This motion of the middle member in the grid and of the fins not only relative to the pan but to one another and to the two-part longitudinal piece so loosened the ice that it would wholly, or for the most part, then be free from the pan and grid. On the trays of the defendant called types 7 and 9, the latter being the first tray made under the license and having mechanism for moving the middle member and fins somewhat, but now immaterially, different from that of type 7, the lever was attached to the longitudinal pieces of the grid near their ends and had one end made to overlap the top of the edge of the pan. As this lever was raised the overlapping end would engage the top of the pan which acted as a fulcrum. This use of a lever having the edge of the pan for a fulcrum caused the entire grid to move up from the *724 pan by means obviously the equivalent of the cam of No. 1,893,535. When such an overlapping end was used on that lever, royalties were payable on the trays so made and no one claims the contrary. So long as the defendant did that it paid royalties as the license provided.
Types 2 and 3 were trays made by the defendant with similar grids, but the lever was attached to the longitudinal pieces at or near their center. Movement of the lever did not bring any part of it into contact with the pan and caused only such movement of the fins relative to each other and to the longitudinal pieces and the pan as could be thus accomplished. Until the decision in the Abraham & Straus suit, these two types were thought to be within the license and the defendant paid royalties on them. After that decision it contended that types 2 and 3 were not within the claims and refused to pay any more royalties on them. It also changed the type 7 tray, which had apparently superseded type 9, to what is called type 4 simply by using a lever which did not have an end overlapping the top of the pan. The lever was left near the end of the grid in type 7, but the added lifting movement of type 7 was eliminated by discontinuing the use of the edge of the pan as a fulcrum and type 4 operated as did types 2 and 3, but with a lever less centrally located on the grid.
Because of the provision in the license above quoted, the claims of patent No. 1,893,535 in this action must be given the same limited scope they were given in the Abraham & Straus suit. Unless defendant's tray types 2, 3 and 4 do therefore fall within these claims as so construed, no royalties on them are now due for they do not have a grid in part moveable and in part stationary which is a distinguishing feature of the reissue claims.
The tray alleged in that suit to infringe had fins attached to a divided longitudinal member. Extending the length of this divided member between its two parts was a metal piece near the top which was moveable on its axis. When it was turned this metal piece caused the divided member of the grid to spread apart. This made the ice move outwardly from it and broke the ice from that member and from the fins and the sides of the tray. The ice was, of course, somewhat lifted from the tray because movement upwardly, as the divided member was expanded outwardly, was unrestrained except by the bonding of the ice to the tray by freezing and by the weight of the ice and grid. Movement in other directions was restrained by the bottom and sides of the pan and was permitted only to the extent they would flex. The moving force was applied through a cam in substantially the same way it was in the Buchanan patent. The importance of that decision for present purposes lies in the fact that the claims of the patent sued upon were construed not to cover such an incidental lifting of ice and grid. Judge Campbell so held and the plaintiff did not appeal. Concerning the inevitable, slight movement of the grid up and away from the tray when the ice was freed from the metal Judge Campbell wrote as follows: "The expanding bar of the defendant's device is a cam, but is not used nor is it directed to be used for raising a grid in a tray, and even if plaintiff be correct in its contention that in the defendant's device in the presence of ice, there is some upwardly movement of the grid, of extremely small proportions, when the bond of the ice is broken, in expanding the grid, there is no such structure camming up of the grid from the tray thereby breaking the ice from the tray as is all that is taught and shown in the patent in suit, nor equivalent thereof." Mechanical Ice Tray v. Abraham & Straus, Inc., supra, 31 F.Supp. at page 946.
In the instant suit, it was proved that when the fins of the grid were turned by the lever there was a pivoting of each cube on one edge at the bottom of the pan which caused a slight raising of the opposite edge of the cube unless the flexing of the bottom of the pan under pressure allowed compensating downward movement there. In any event this raising was slight and incidental. It is in the same category with that in the Abraham & Straus case which now controls decision on the scope of the claims. What Judge Campbell said in his opinion in the above case immediately following the part already quoted applies here as well. "Defendant's structure is mechanically different from that of the patent in suit, works in a different way, and accomplishes a different result. The difference is not one only of form, but a substantial difference in substance." We, therefore, find no error in the judgment below denying recovery of royalties.
The second cause of action is based on the duty of an exclusive licensee on the unit royalty basis to exploit in good faith, and its alleged breach. The theory of that *725 cause of action is that the productiveness of the licensor's property having been placed solely within the control of the licensee, a covenant on its part to work the patent in good faith to make it produce royalty income will be implied.
The principle is well established with respect to a wide variety of contracts in which the consideration for a grant of property lies wholly in the payment of "sums of money based upon the earnings of property transferred." In re Waterson, Berlin & Snyder Co., 2 Cir., 48 F.2d 704, 709. It has been applied in the case of such diverse transactions as the granting of the exclusive right to place the licensor's endorsement of approval on the dress designs of others (Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88, 118 N.E. 214), to quarry stone (Stoddard v. Illinois Improvement Ballast Co., 275 Ill. 199, 113 N.E. 913; Ellis v. Swan, 38 R.I. 534, 96 A. 840), to sink and operate oil wells (Harris v. Ohio Oil Co., 57 Ohio St. 118, 48 N.E. 502), to transport cargoes (Great Lakes & St. Lawrence Transp. Co. v. Scranton Coal Co., 7 Cir., 239 F. 603), to mine gold (Pritchard v. McLeod, 9 Cir., 205 F. 24), and to exploit a musical composition (In re Waterson, Berlin & Snyder Co., supra). And see, Dwight & Lloyd Sintering Co. v. American Ore Reclamation Co., D.C., 44 F.Supp. 391. It has been held that such a contract includes an implied negative covenant that "neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." Uproar Co. v. National Broadcasting Co., 1 Cir., 81 F.2d 373, 377, certiorari denied 298 U.S. 670, 56 S.Ct. 835, 80 L.Ed. 1393.
In a number of cases an express covenant to exploit a patent has been enforced against an exclusive licensee. See Neenan v. Otis Elevator Co., 2 Cir., 194 F. 414; Crowe v. Oscar Barnett Foundry Co., D.C., 213 F. 864, modified 3 Cir., 219 F. 450; Carbo-Frost, Inc., v. Pure Carbonic, Inc., 8 Cir., 103 F.2d 210, certiorari denied 308 U.S. 569, 60 S.Ct. 83, 84 L.Ed. 478; Matzka Corp. v. Kelly Dry-Pure Juice Corp., 19 Del. Ch. 359, 168 A. 70; DeStubner v. Microid Process, Inc., 121 W.Va. 773, 6 S.E.2d 777.
We think this license made the defendant an exclusive licensee though it is true that the non-exclusive license to Westinghouse remained in effect. The argument that the Westinghouse license prevented the defendant from becoming an exclusive licensee does not take wholly into account the legal meaning of that term. As this court explained in Western Electric Co. v. Pacent Reproducer Corp., 2 Cir., 42 F.2d 116, certiorari denied 282 U.S. 873, 51 S.Ct. 78, 75 L.Ed. 771, it is not the equivalent of "sole licensee." A license can have the attributes which make it exclusive in the legal sense though it is not the only license. There may be one or more previous licenses which are non-exclusive and by contrast with the exclusive license are called bare. When this is so the exclusive license does not, of course, cover the entire field but it binds the licensor not to enlarge thereafter the scope of other licenses already granted or increase the number of licenses. It is plain that these parties intended that the defendant should to that extent be free from competition in the manufacture and sale of trays made under the licensed patents and it is equally plain that they expected the defendant to make and sell trays on which royalties would become due and not merely to pay a guaranteed minimum royalty. The license provided that, "All guaranteed minimum royalties paid * * * shall be considered as advance royalty payments and shall be credited against royalties earned under Article Sixth hereof, regardless of when said royalties are earned."
But even though the defendant is an exclusive licensee, there is some doubt whether that part of its duty to exploit the licensed trays in good faith which involves refraining from entering into competition with them has survived in a practical sense the decision in Mercoid Corp. v. Mid-continent Investment Co., 320 U.S. 661, 64 S. Ct. 268. Although the defendant has argued with much force that public policy no longer permits an exclusive licensee to be so restricted in action, a majority of the court does not believe decision on that point is necessary on this appeal.
Whatever may be left of the rule of implied covenant of an exclusive licensee to exploit the licensed device in good faith rests, as the doctrine always has rested, upon the ground that not to hold the licensee to that standard of conduct would be unfair and inequitable as between the parties to the license.
There is one well recognized exception to the doctrine as it has previously been applied. That is where there is outside competition which the exclusive *726 licensee cannot meet with reasonable chance of success with the licensed article. Eclipse Bicycle Co. v. Farrow, 199 U.S. 581, 26 S.Ct. 150, 50 L.Ed. 317; Carbo-Frost, Inc., v. Pure Carbonic, Inc., supra; Briggs v. United Shoe Machinery Corp., 92 N.J.Eq. 277, 114 A. 538. If such competition comes from something not commercially better than the licensed device he must meet it by means of the latter. If he sees fit to overcome the competition by purchasing the right to make the competing article, he cannot substitute the latter for the licensed device without thereby violating his covenant to exploit so long as he retains an exclusive license. But if the competition comes from a better article than the one licensed, he is under no obligation to try with no hope of success to meet it with the licensed device. Compare, Parev Products Co. v. I. Rokeach & Sons, 2 Cir., 124 F.2d 147. Faced with such a business situation he may, if he can, obtain and exercise the right to make or use the competing article without violating any obligation to exploit under his exclusive license. Eclipse Bicycle Co. v. Farrow, supra; Carbo-Frost, Inc., v. Pure Carbonic, Inc., supra.
Paragraph Eleventh (b) of the license shows that the parties contemplated that their construction of the patent claims might be narrowed by court decision and that, if they were so narrowed, devices which the defendant had made and on which it had paid running royalties could thereafter be manufactured and sold royalty-free. The trays of type 2 and 3 were in this category. The continued manufacture, use and sale of them without payment of running royalties was, therefore, permissible in accordance with the express provisions of the license and no obligation to the contrary can be implied.
Otherwise, however, any obligation to exploit in good faith remained unaffected, for there was no competition to justify a failure by the defendant to do so. The court below found in accordance with sufficient evidence that "Defendant's type 7 tray did not differ materially from and was the commercial equivalent of its type 4 tray. The only reason defendant began manufacturing the type 4 tray in October 1940 was to avoid the payment of royalties to plaintiffs on the type 7 tray under the April 1, 1936, agreement. To accomplish this purpose the lever of the type 4 tray was so shaped and positioned as not to fulcrum on the flange of the tray but on the longitudinal member of the grid. The action of the defendant in making this change was not attributable to any competition." It was in view of this action of the defendant so motivated that the trial judge held that there had been a breach of an implied covenant to exploit.
Assuming, arguendo, that there was an implied covenant not to compete with the licensed trays except to meet outside competition, this manufacture and sale of the type 4 tray was not a breach of it provided the parties had agreed that the defendant might make and sell that tray royalty free. The exercise of good faith in exploiting the licensed patents did not require the defendant to refrain from doing whatever the plaintiffs had expressly agreed that it might do. No obligation not to manufacture and sell whatever kind of trays the license gave the defendant the right so to manufacture and sell can be implied and of course there can be no breach of a non-existent obligation.
Although the type 4 tray was correctly found to be a modification of the type 7 tray, it was in fact also no more than a modification of the type 2 and type 3 trays. The court found that "Type 4 embodies the moveable transverse sections of types 2 and 3 and the two-part structure of the longitudinal member of the grid of type 3. In structure and mode of operation to effect the release of ice blocks from the grid it is quite similar to types 2 and 3." The similarity in operation just mentioned is so close that it is identical. The only mechanical difference is that already mentioned which is the attachment of the lever of type 4 to the grid near one end instead of nearer the center as in the 2 and 3 types. Mechanically the three types, 2, 3 and 4 are equivalent.
There was no covenant, express or implied, limiting the number of types 2 and 3 trays which the defendant could manufacture and sell after the Abraham & Straus decision. As type 4 was mechanically, structurally, and commercially the equivalent of types 2 and 3 the manufacture and sale of it was included in the permission to manufacture and sell such trays without limitation.
It should be noticed that the defendant is not charged with having failed to manufacture and sell any trays under the license after the Abraham & Straus decision. The record shows that it did continue to sell *727 type 7 trays and sold 1,440,000 on which it paid royalties between April 1, 1940 and December 1, 1942. The second cause of action was therefore not proved and the judgment thereon must be reversed.
Judgment affirmed as to the first cause of action and reversed as to the second.
FRANK, Circuit Judge (dissenting in part).
On the issue of the breach of defendant's equitable obligation, I think that Judge Leibell was correct, for the reasons excellently stated in his opinion, and that his decree should be affirmed. Before the execution of the present license agreement, defendant had been making and selling types 2 and 3. Clause 11 of the agreement, coupled with the decision of Judge Campbell in the Abraham & Straus case, put defendant in the position it would have occupied if the agreement had provided that types 2 and 3 were not within the patent claims and that defendant could continue, free of royalties, to make and sell them. It was as if originally the parties had expressly agreed that, although defendant was required to exploit the patent, it was not required to discontinue making and selling types 2 and 3, despite the fact that they competed in part with the patented device. But, had the agreement expressly so provided, defendant's obligation to exploit the patent would have required it, nevertheless, I think, not to reduce the number of its sales of the patented device by making and selling a wholly-new device like type 4 which, although not covered by the patent, was even more directly competitive within the patented device and better than types 2 and 3, unless there arose (as there did not here) outside competition that could not be successfully met with the patented device.[1]
Defendant played dog-in-the-manger from November 1940 when it began the substitution of type 4 for type 7 until at least the date of the decree, October 11, 1943, and, for all we know from this record, up to now. Under the contract, it could have relieved itself of its equitable obligation either by surrendering the license or by accepting a non-exclusive license. It did neither. It retained its original license, thereby preventing plaintiff from manufacturing and selling type 7 in competition with defendant's new type 4. I do not believe that, when the parties agreed upon clause 11, they had any such result in mind, that they meant that defendant could thus, in part, place plaintiff's patent on ice. In other words, I do not believe that they intended that, should a court decision narrow the patent claims in any respect, the defendant, still retaining its right to keep plaintiff from using the patent, could itself reduce the sales of the patented device while making and selling a competing article which it had not therefore made and which no one else was making or selling or threatening to make or to sell. Nor can I agree that, on any principle of fairness or public policy, we should, without regard to the parties' actual intention, read into the contract a "constructive" intention[2] to permit such anti-social conduct, which, I think, closely approaches (if, indeed, it does not reach) illegality.
My colleagues say that the defendant is not charged with having failed to make and sell any trays after the Abraham & Straus decision, and that it did continue thereafter to sell type 7 trays. But the sales of type 4 trays go to show that the sales of type 7 trays were substantially reduced. As type 4 is inferior to type 7 but more directly competitive with type 7 than are types 2 and 3, it is obvious that the sales of type 4 derived from defendant's desire to escape royalty payments. It is also obvious that defendant's course of conduct reduced the availability to the public of type 7 trays.
It is true that the doctrine of the Paper Bag Patent cases (Continental Paper Bag Co. v. Eastern Paper Bag Co.) 210 U.S. 405, 28 S.Ct. 748, 52 L.Ed. 1122, allows a patentee to refrain from manufacturing and selling the patented device and yet to stop others by injunctions from making or selling it.[3] Whether that doctrine still lives has recently been doubted by Judges Arnold and Miller.[4] Be that as it may, the *728 far-flung extension of that doctrine which began with the Dick case [Henry v. A. B. Dick Co., 224 U.S. 1, 32 S.Ct. 364, 56 L.Ed. 645, Ann.Cas.1913D, 880], was repudiated in 1931 in Carbice Corporation v. American Patents Development Corporation, 283 U.S. 27, 51 S.Ct. 334, 75 L.Ed. 819, and again in 1941, in Morton Salt Co. v. Suppiger Co., 314 U.S. 488, 62 S.Ct. 402, 86 L.Ed. 363. And, cutting across the Paper Bag rule, the courts developed the doctrine of the obligation of an exclusive licensee not to deprive the public of the benefit of the patent. As this latter doctrine promotes the public interest, it is surprising that the defendant should urge that it is inconsistent with, and should be abandoned because of, such recent cases as Sola Electric Co. v. Jefferson Electric Co., 317 U.S. 173, 63 S.Ct. 172, 87 L.Ed. 165, or Mercoid Corp. v. Mid-continent Investment Co., 320 U.S. 661, 64 S.Ct. 268, or Nachman Spring-Filled Corporation v. Kay Mfg. Co., 2 Cir., 139 F.2d 781, and should quote in favor of its position this statement from the Mercoid case [320 U.S. 661, 64 S.Ct. 271]: "The patent is a privilege. But it is a privilege which is conditioned by a public purpose."[5] The decisions cited by defendant, which stress the limited constitutional basis for congressional authorization of patent monopolies, have insisted that patent rights should not be utilized to repress competition unduly. Yet defendant here asserts, with my colleagues' approval, that it may employ its license to reduce competition between types 4 and 7, thereby barring the public from receiving the advantages of the exploitation of plaintiff's patent.
The decision of my colleagues involves, I think, an unnecessary and undesirable corollary to the Paper Bag doctrine, suggesting to those interested in stifling competition a new-fangled method by which a patent, constitutionally issuable only if it will "promote the progress of the useful arts," may be made a means of impeding that progress.
NOTES
[1] There is no evidence of even a threat of outside competition of that kind.
[2] That obligations thus "implied" have nothing to do with the actual intention of the contracting parties but are imposed by the courts because of policy considerations, see Beidler & Bookmyer, Inc., v. Universal Ins. Co., 2 Cir., 134 F.2d 828.
[3] For comments on suggested expedients to meet criticisms of that doctrine, see concurring opinion in Picard v. United Aircraft Corp., 2 Cir., 128 F.2d 632.
[4] Special Equipment Co. v. Coe, ___ U.S. App.D.C. ___, 144 F.2d 497.
[5] Defendant suggests that the implied equitable obligation doctrine should now be abandoned because it compels the conclusion that, even if a patent is invalid, the licensee cannot make or sell a competing device. But Nachman Spring-Filled Corp. v. Kay Mfg. Co., 2 Cir., 139 F.2d 781, serves, in most instances, to answer that contention. Moreover, the defendant here could not be thus hemmed in, since, as above noted, it reserved the right to surrender its license. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547510/ | 353 B.R. 465 (2006)
In re WELLINGTON APARTMENT, LLC, Debtor.
Wellington Apartment, LLC, Plaintiff,
v.
Charles Clotworthy, et al., Defendants.
Bankruptcy No. 04-50301-DHA, Adversary No. 05-5029.
United States Bankruptcy Court, E.D. Virginia, Newport News Division.
October 20, 2006.
*466 *467 John M. Ryan, Jr., Karen M. Crowley, Kelly Megan Barnhart, Marcus, Santoro & Kozak, P.C., Chesapeake, VA, for Debtor.
MEMORANDUM OPINION AND ORDER
DAVID H. ADAMS, Bankruptcy Judge.
This matter is before the Court on the debtor's Motion to Approve Entry of Order Relating to Poydras (Louisiana), LLC. The debtor is asking this Court to approve an agreement it reached with Poydras (Louisiana), LLC ("Poydras LA"), whereby Poydras LA would pay to the debtor any monetary distributions that Poydras LA would ordinarily make to WP New Orleans, L.L.C. ("WP New Orleans") and WPN, L.L.C. ("WPN") and would send to the debtor any correspondence, notices, financial reports and other documents relating to Poydras LA to which WP New Orleans and WPN are entitled.
FACTS
On January 5, 2004, Wellington filed for relief under Chapter 11 of the Bankruptcy Code in the District of Connecticut, Bridgeport Division, and its case was transferred to the Eastern District of Virginia, Newport News Division, on February 3, 2004. Wellington's sole asset was a 152-unit apartment complex located in Newport News, Virginia.
On June 1, 2005, the debtor filed an adversary proceeding against Charles H. Clotworthy, III, Richard Merel, Steven Byers, Garfield & Merel, Ltd., WP New *468 Orleans, and WPN,[1] based on their allegedly fraudulent conduct surrounding the placement of First Bank's Second Deed of Trust on the debtor's apartment complex. The money obtained from the Second Deed of Trust was used by the defendants to invest in a piece of property in Louisiana ("the Poydras building").
A five day trial was held that resulted in a judgment in favor of the debtor in the amount of $2,546,174.59; additionally, an equitable lien was imposed upon WPN's interest in the Poydras building, a resulting trust was imposed upon Byers' and WPN's interests in the Poydras building and a constructive trust was imposed upon WPN and WP New Orleans' interests in the Poydras building, all until such time that the judgment is paid in full to the debtor.
On September 6, 2006, the debtor filed the instant motion, which was objected to by WPN and WP New Orleans, and therefore a hearing was held on the motion and the objections thereto.
ARGUMENTS
The debtor argues that it is entitled to the relief requested because a resulting or a constructive trust has been imposed upon WPN and WP New Orleans until the judgment is paid in full. The debtor states that it is entitled to receive all distributions that would be paid to either WPN or WP New Orleans and copies of all correspondence Poydras LA sends to either entity. The debtor argues that this information is its only form of protection against these defendants.
WPN and WP New Orleans argue that the debtor is attempting to exercise ownership and control over both entities through a document that does not confer such rights. They argue that the Court did not void any transfers or bestow upon the debtor any type of control over WPN or WP New Orleans, but rather merely granted an in personam judgment and pursuant to FRBP 7069 the only remedies the debtor has arise under state execution laws.
CONCLUSIONS OF LAW
A. Subject Matter Jurisdiction
The issue that necessarily must be addressed first is that of subject matter jurisdiction; can this Court properly decide the motion before it? Bankruptcy Courts are courts of limited jurisdiction. Celotex v. Edwards, 514 U.S. 300, 307, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995). Their subject matter jurisdiction is derived from 28 U.S.C. §§ 1334 and 157.
1. § 1334
In § 1334 Congress bestows upon the District Courts "original and exclusive jurisdiction of all cases under title 11" and "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(a) and (b) (2006).
2. § 157
Section 157 authorizes the District Courts to refer "any and all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11" to the Bankruptcy Courts. Id. at § 157(a). The District Court for the Eastern District of Virginia did refer all such cases to the Bankruptcy Judges of the Eastern District of Virginia pursuant to a Standing Order filed on August 15, 1984. Further, on December 13, 1985, that the District Court ordered that *469 because "the bankruptcy court is a unit of the district court, the judgments rendered by the bankruptcy judge and entered by the clerk of the bankruptcy court are judgments of the district court." Standing Order, E.D. Va., Dec. 13, 1985.
Section 157 allows Bankruptcy Courts to hear and determine all cases under title 11 and all proceedings that arise under or in, or are related to a case filed under title 11. 28 U.S.C. § 157(a). A bankruptcy case is instituted when a petition is filed under Chapters 7, 9, 11, 12, 13, or 15 of the Bankruptcy Code and proceedings arise within bankruptcy cases. This Code section specifically authorizes the Bankruptcy Court to enter orders and judgments in core proceedings that are delineated in § 157(b)(2), and while core proceedings are not defined in the Code, they have been described as "`those proceedings that would not exist in law absent the Bankruptcy Code.'" Helmer v. Murray (In re Murray), 149 B.R. 383, 386 (E.D.Va.1993) (quoting Levy v. Butler, Payne & Griffin Equity Corp. (In re Landbank), 77 B.R. 44, 47 (E.D.Va.1987)). Finally, § 157 grants Bankruptcy Courts the authority to hear and determine non-core proceedings, but states that such courts may only enter judgments in those proceedings with the parties' consent. 28 U.S.C. § 157(c)(2). Without such consent, the Bankruptcy Court must submit findings of fact and conclusions of law in those proceedings to the District Court for determination. Id. at § 157(c)(1).
a. "Arises Under"
A proceeding "arises under" Title 11 when "`a well-pleaded complaint establishes either that federal [bankruptcy] law creates the cause of action or that the plaintiffs right to relief necessarily depends on resolution of a substantial question of federal [bankruptcy] law.'" Poplar Run Five Ltd. P'ship v. Va. Elec. & Power Co. (In re Poplar Run Five Ltd. P'ship), 192 B.R. 848, 855 (Bankr.E.D.Va. 1995) (quoting Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 27-28, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983)).
The Ninth Circuit has found that this sort of "arises in" jurisdiction exists in collection proceedings if the original matter was a core matter according to the Bankruptcy Code. McGowan v. Fraley (In re McCowan), 296 B.R. 1, 4 (9th Cir. BAP 2003); In re Lawson, 156 B.R. 43, 46 (9th Cir. BAP 1993). It reasons that the collection of any money judgment entered by the Bankruptcy Court is merely a continuation of the underlying matter and that the subject matter jurisdiction also relates to the collection proceeding. Id. The Fourth Circuit has not determined that any such extension of jurisdiction exists.
Thus, under the law in this Circuit, enforcement of the judgment in this case does not involve a substantial federal question and jurisdiction to determine the debtor's motion cannot lie under this wording of the statute.
b. "Arises In"
A proceeding "arises in" a bankruptcy case when Title 11 does not specifically provide the basis for it, but without the bankruptcy case, it is of no practical significance. In re Poplar Run Five Ltd. P'ship, 192 B.R. at 857 (i.e., the validity of a proof of claim, which must be filed by creditors in bankruptcy in order to be paid, may be a determination made under state law) Id.
It is clear that enforcement of the judgment in this case has practical significance outside of bankruptcy and therefore, jurisdiction cannot lie under this wording of the statute either.
*470 c. "Related To"
The Fourth Circuit has adopted the definition of "related to" found in Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984). Celotex Corp. v. Edwards, 514 U.S. 300, 309, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995), New Horizon of N.Y. LLC v. Jacobs, 231 F.3d 143, 151 (4th Cir.2000). The Pacor court found that an action is related to a bankruptcy case "`if the outcome [of the proceeding] could alter the debtor's right, liabilities, options, or freedom of action (either positively or negatively) and [the proceeding] in any way impacts upon the handling and administration of the bankrupt estate.'" Spartan Mills v. Bank of Am. Ill., 112 F.3d 1251, 1255-56 (4th Cir.1997), cert. denied 522 U.S. 969, 118 S.Ct. 417, 139 L.Ed.2d 319 (1997) (quoting Pacor, 743 F.2d at 994); A.H. Robins Co. v. Piccinin, 788 F.2d 994, 1002 n. 11 (4th Cir.1986). Chief Justice Rehnquist best articulated the underlying reasons for this broad definition of "related to" when he said,
"Congress intended to grant comprehensive jurisdiction to the bankruptcy courts so that they might deal efficiently and expeditiously with all matters connected with the bankruptcy estate" . . . and that the `related to' language of § 1334(b) must be read to give district courts (and bankruptcy courts under § 157(a)) jurisdiction over more than simply proceedings involving the property of the debtor or the estate."
Celotex, 514 U.S. at 309, 115 S.Ct. 1493 (citations omitted). In a Chapter 11 case with a confirmed plan, such as the case at bar, the Court must look to the terms of that plan to determine "related to" status. In re Poplar Run Five Ltd. P'ship, 192 B.R. at 858.
d. Post-confirmation Chapter 11 cases
Bankruptcy courts have more limited jurisdiction once a plan is confirmed as the confirmation order becomes the law of the case. Id. at 859, see 11 U.S.C. § 1142. According to § 1142 the Court retains only enough jurisdiction to implement the plan; that section states:
(a) Notwithstanding any otherwise applicable nonbankruptcy law, rule, or regulation relating to financial condition, the debtor and any entity organized or to be organized for the purpose of carrying out the plan shall carry out the plan and shall comply with any orders of the court.
(b) The court may direct the debtor and any other necessary party to execute or deliver or to join in the execution or delivery of any instrument required to effect a transfer of property dealt with by a confirmed plan, and to perform any other act, including the satisfaction of any lien, that is necessary for the consummation of the plan.
11 U.S.C. § 1142(a) and (b) (2006), see also Brown v. GMAC Mortg. Corp. (In re Brown), 300 B.R. 871, 875-76 (D.Md.2003), Walnut Assocs. v. Saidel, 164 B.R. 487, 492 (E.D.Pa.1994). Additionally, jurisdiction cannot stand where the action sought has no effect on the bankruptcy case. HOC, Inc. v. McAllister (In re McAllister), 216 B.R. 957, 974-75 (Bankr.N.D.Ala. 1998) (holding that the Bankruptcy Court had no jurisdiction over a non-dischargeable judgment it granted because the garnishment sought by the creditor would not impact the bankruptcy estate as it was an enforcement proceeding against the garnishee and not the debtor). Consequently, unless the confirmed plan in this case calls for the collection of a judgment under the auspices of this Court and the action sought by the debtor impacts the bankruptcy case, we can not exercise "related to" jurisdiction over this motion.
*471 The operative language of the plan states:
Administrative Expense Claims will be paid by the Debtor under the Plan upon the earlier of the Effective Date or when funds are available to pay such claims.
Class 1 Claim of NIPM. NIPM will receive at least one distribution and potentially two distributions: After the payment of Administrative Expense Claims, the Escrowed Funds shall be distributed to NIPM. In the event that the Debtor obtains any Litigation Proceeds, they will be distributed to NIPM, after the payment of Administrative Expense Claims, until NIPM has received a total amount of $522,000.
Class 2 Interest holders. After the payment of the Class 1 claim of NIPM and Administrative Expense Claims, the Debtor will distribute any Litigation Proceeds to Interest holders in accordance with their interests which are as follows: 50% to NI USA, LLC and 50% to Woodland Holdings, LLC.
Plan, p. 6, Section C. According to the plan, the only monies to be distributed are the litigation proceeds, should any actually be collected. While the plan does not delineate steps to do so, the wording does infer that collection of the proceeds is contemplated by the plan; for in order to distribute the proceeds they must first be collected. Furthermore, obviously the action sought impacts the plan as the entire plan is based on the collection the litigation proceeds, without which there is no distribution under the plan. As a result, the Court may exercise "related to" jurisdiction in regards to the instant motion.
B. Ancillary Jurisdiction
As an alternative to subject-matter jurisdiction as discussed above, the Court may also decide this matter through the application of ancillary jurisdiction. There are two schools of thought on whether a Bankruptcy Court can enforce its own judgment using ancillary jurisdiction; one concludes with a resounding "yes" and the other, made up of only one court, with a very limited "no."[2]
It is well settled law that federal courts may enforce their own orders through the application of ancillary jurisdiction, Peacock v. Thomas, 516 U.S. 349, 354, 116 S.Ct. 862, 133 L.Ed.2d 817 (1996); Local Loan Co. v. Hunt, 292 U.S. 234, 239, 54 S.Ct. 695, 78 L.Ed. 1230 (1934), Riggs v. Johnson County, 6 Wall. 166, 73 U.S. 166, *472 187, 18 L.Ed. 768 (1867), Wayman v. Southard, 10 Wheat. 1, 23 U.S. 1, 24, 6 L.Ed. 253 (1825), Marino v. Pioneer Edsel Sales, Inc., 349 F.3d 746, 752 (4th Cir. 2003). The Peacock court also stated that courts must be careful not to utilize this type of jurisdiction to determine new or original proceedings and that it had not recognized any exercise of supplemental or ancillary jurisdiction that went beyond execution of a federal judgment. Peacock, 516 U.S. at 357-58, 116 S.Ct. 862. The Court of Appeals for the Fourth Circuit notes that
ancillary jurisdiction `may extend to claims having a factual and logical dependence on the primary lawsuit, . . . but that primary lawsuit must contain an independent basis for federal jurisdiction.' The Peacock Court reasoned that, while a proper exercise of enforcement jurisdiction will result in efficiencies which outweigh comity concerns, an exercise of enforcement jurisdiction over a factually independent proceeding has no practical benefit for judicial economy.
Marino, 349 F.3d at 752 (internal citation omitted). Jurisdiction of this type is employed so "that the court may do complete justice in the chief controversy." Coop. Transit Co. v. West Penn Elec. Co., 132 F.2d 720, 723 (4th Cir.1943). However, exercising this type of jurisdiction even in aid of judgment proceedings is not without boundaries. Travelers Indemnity Co. of Illinois v. Hash Management, Inc., 173 F.R.D. 150, 153 (M.D.N.C.1997) (citing Natural Gas Pipeline Co. of America v. Energy Gathering, Inc., 2 F.3d 1397, 1406 (5th Cir.1993)) (holding that ancillary jurisdiction over judgment enforcement can not overcome a lack of statutory or rule authority to conduct discovery with a third party).
Bankruptcy Courts, as units of the District Courts, Grewe v. United States (In re Grewe), 4 F.3d 299, 304 (4th Cir. 1993) (citing 28 U.S.C. § 151), are also entitled to enforce their own judgments. See Hall v. Davenport (In re Hall), 76 F.3d 372 (4th Cir.1996) (denial of the judgment debtor's motion to quash a garnishment summons issued by the district court based on a judgment entered in the bankruptcy court), Carlton v. Firstcorp, Inc., 967 F.2d 942, 944 (4th Cir.1992) (holding that the bankruptcy court was authorized under § 105(a) to issue an injunction to prevent the continuation of ongoing government administrative proceedings that were excepted from the automatic stay), A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 1002 (4th Cir.1986), cert. denied, 479 U.S. 876, 107 S.Ct. 251, 93 L.Ed.2d 177 ("It has been repeatedly held that 11 U.S.C. §§ 105 [. . .] `empowers the bankruptcy court to enjoin parties other than the bankrupt' from commencing or continuing litigation." (internal citations omitted)), Coop. Transit Co., 132 F.2d at 723 ("Because a suit exists in state court that never left the jurisdiction of this court after removal, this court can exercise ancillary jurisdiction to dispose of a factually interdependent claim, vindicate its authority, and protect its judgment."), Executive Risk Indemnity, Inc. v. Brooks (In re Jackson Brook Institute, Inc. and In re Viburnum, Inc.), 280 B.R. 779, 784 (D.Me. 2002) (citing 11 U.S.C § 105(a) as a basis for authority to enforce judgment orders), Ricker v. Sams (In re Sams), No. 87-4-3254, Adversary No. 88-A-0055, 1990 WL 41422, at *1, 1990 Bankr.Lexis 668, at *2 (Bankr.D.Md. Mar. 13, 1990) (holding that the Bankruptcy Court retained jurisdiction to enforce its own judgment after the bankruptcy case was dismissed because the judgment was not voided as a matter of law when the bankruptcy case itself was dismissed), Temecula v. LPM Corp. (In re LPM Corp.), 300 F.3d 1134, 1136-37 (9th Cir.2002) (holding that before the bankruptcy *473 court could issue a writ of execution on a money judgment it entered against the debtor the judgment creditor must obtain a lift of automatic stay), Tsafaroff v. Taylor (In re Taylor), 884 F.2d 478, 481 (9th Cir.1989) (holding that bankruptcy court retained jurisdiction over ancillary issues, such as attorney's fees, after the dismissal of the underlying bankruptcy case), State Bank of Spring Hill v. Bucyrus Grain Co., Inc. (In re Bucyrus Grain Co., Inc.), 127 B.R. 52, 53 (D.Kan.1991) (bankruptcy court denied stay from a writ of execution it issued on its own judgment). Therefore, following the law of the Supreme Court and the Fourth Circuit we find that this Court has the authority to enforce its own judgment through the application of ancillary jurisdiction. Travelers Indemnity Co. of Ill., 173 F.R.D. at 152-53. Thus, we have two independent bases of authority on which to hear and determine debtor's instant motion.
C. Relief Requested in Debtor's Motion
The debtor is requesting that this Court approve an order under which Poydras LA agrees to pay to the debtor any monetary distributions from the operation of the Poydras building that would ordinarily go to WPN and WP New Orleans. Additionally, the debtor wants this Court to order Poydras LA to provide the debtor with any financial information, notices and communications regarding the Poydras LA that WPN or WP New Orleans receives from Poydras LA.
Fed.R.Civ.P. 69, applicable to adversary proceedings in bankruptcy court through Fed. R. Bankr.P. 7069, describes how judgments are to be executed. It states:
Process to enforce a judgment for the payment of money shall be a writ of execution, unless the court directs otherwise. The procedure on execution, in proceedings supplementary to and in aid of a judgment, and in proceedings on and in aid of execution shall be in accordance with the practice and procedure of the state in which the district court is held, existing at the time the remedy is sought, except that any statute of the United States governs to the extent that it is applicable. In aid of the judgment or execution, the judgment creditor or a successor in interest when that interest appears of record, may obtain discovery from any person, including the judgment debtor, in the manner provided in these rules or in the manner provided by the practice of the state in which the district court is held.
Fed. R. Bankr.P. 7069 (2006). According to this rule, unless the Court directs otherwise, in order for a judgment creditor to enforce a monetary judgment it must follow the execution law of the state in which the district court sits, which in this case is Virginia. See S & D Land Clearing v. D'Elegance Mgmt. Ltd., Inc., 34 Fed.Appx. 885, 892-93 (4th Cir.2002) (utilizing North Carolina's supplemental proceedings law to enforce a money judgment when the supplemental proceeding was filed in a District Court in North Carolina), Travelers Indemnity Co. of Ill., 173 F.R.D. at 153-56 (same).
In Virginia, in order to enforce a money judgment a creditor must wait twenty-one days after the judgment's entry and then request a writ of fieri facias be issued by the clerk of the court that rendered judgment. Va.Code § 8.01-466. That writ must then be delivered to the proper person for execution. Id.
In the instant case, this Court will not authorize the debtor to deviate from the enforcement procedures found in the Virginia Code as it attempts to collect the judgment debt from WPN and WP New Orleans. Therefore, the debtor's motion to receive the payment of money from *474 Poydras LA is premature as no writ of execution has been obtained, as required by § 8.01-466.
As for the request for turnover of Poydras LA's financial and other written documents that WPN and WP New Orleans may receive in the future, the Court again refuses to authorize the debtor to receive that information without following the proper procedure as dictated in the Virginia Code pertaining to discovery proceedings in aid of a judgment. Va.Code § 8.01-506.1 states that in order to obtain book accounts or other written documentation the judgment creditor must request the issuance of a subpoena duces tecum for their production. Va.Code § 8.01-506.1 (2006). Without the issuance of such a subpoena, this Court will not order that financial records be turned over.
CONCLUSION
We have determined that the following resolution of the issues presented is appropriate under the facts of this case and the law as applied to those facts:
1. This Court has subject matter jurisdiction as described in 11 U.S.C. § 157 over the enforcement of the underlying judgment and, therefore, over the instant motion.
2. This Court also has ancillary jurisdiction over the enforcement of the underlying judgment and, therefore, over the instant motion.
3. However, the Motion to Approve Entry of Order Relating to Poydras (Louisiana), LLC is DENIED as the debtor has not complied with the appropriate procedure for judgment enforcement pursuant to Fed. R. Bankr.P. 7069.
IT IS SO ORDERED.
NOTES
[1] The Complaint included Poydras LA and Marc New Orleans, LLC as defendants, but the debtor ultimately settled its case against both of those defendants prior to trial.
[2] This one court is the Northern District of Indiana, Fort Wayne Division. In Edwards v. Sieger (In re Sieger), 200 B.R. 636 (Bankr. N.D.Ind.1996), the court found that jurisdiction "must be conferred, not assumed." Id. at 639 (citing Matter of Chicago, Rock Island and Pacific R. Co., 794 F.2d 1182, 1188 (7th Cir.1986)). That court goes on to say that the jurisdiction of a bankruptcy court ends when the purpose for which it was given ends. Id. at 639 (citing Matter of Xonics, Inc., 813 F.2d 127, 131 (7th Cir.1987)). Most importantly, that court states that it "must consider the bankruptcy purpose served by . . . [the] litigation and whether that purpose extends far enough to include the enforcement of any resulting money judgment." Sieger, 200 B.R. at 638. The issue litigated in Sieger was one of Dischargeability, which the court ultimately found to be a declaratory determination that once made ended the court's jurisdiction. Id. at 639-40. See also Kaminski v. Kaminski (In re Kaminski), No. 03-15282, Proc. No. 04-1115, 2006 WL 2136010, 2006 Bankr.Lexis 1682 (Bankr.N.D. Ind., Fort Wayne Div., July 27, 2006) (holding that once the court determined whether the state court judgment was dischargeable in bankruptcy the Bankruptcy Court's jurisdiction ended, precluding enforcement by that court). Both the Sieger and Kaminski opinions were issued by Judge Grant. While this Court respects that interpretation and strict constructionist reading of the Code, we must follow the applicable precedential law. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547511/ | 15 F.2d 234 (1926)
In re AMERICAN ALUMINUM METAL PRODUCTS CO.
No. 5475.
District Court, S. D. California, S. D.
February 4, 1926.
*235 Turnbull, Heffron & Kelley, of Los Angeles, Cal., for petitioning creditors.
W. T. Craig, of Los Angeles, Cal., for trustee.
Wood, Janeway & Pratt, of Los Angeles, Cal., for claimant Dempsey.
McCORMICK, District Judge.
In my opinion, under the stipulated facts as shown by the referee's certificate of review, the claimant Dempsey is estopped, as against the trustee in bankruptcy and the general creditors of the bankrupt corporation, from transforming himself from a stockholder in American Aluminum Metal Products Company, a corporation, into a creditor thereof, to the prejudice and damage of innocent general creditors of the bankrupt corporation, and claimant is therefore precluded from asserting any right against the bankrupt estate for the return of the purchase price of the corporate stock which he obtained under the contract of August 9, 1922.
Even if it be true that the issue of the stock to Dempsey under the contract of August 9, 1922, was void, because contrary to section 12 of the California Corporate Securities Act (St. 1917, p. 679), such invalidity cannot operate to impair and destroy the rights of innocent creditors, who knew nothing about the secret subscription contract, and who had a right to rely upon the trust fund doctrine of California in dealing with the corporation. Vermont Marble Co. v. Declez, 135 Cal. 579, 67 P. 1057, 56 L. R. A. 728, 87 Am. St. Rep. 143; R. H. Herron Co. v. Shaw, 165 Cal. 668, 133 P. 488, Ann. Cas. 1915A, 1265; Handley v. Stutz, 139 U. S. 417, 11 S. Ct. 117, 34 L. Ed. 706.
It is well settled in California that, while estoppel is unavailable as a plea in an action between parties to a void stock subscription contract, this rule has an exception that permits innocent creditors to invoke the conduct of the parties to the void contract as an estoppel and barrier against their asserting the invalidity of their contract, so as to defeat just claims of innocent creditors. Reno v. American Ice Machine Co. (Cal. App.) 237 P. 784; Moore v. Moffatt, 188 Cal. 1, 204 P. 220.
The conduct and actions of Mr. Dempsey in making the subscription agreement of August 9, 1922, under which he purchased the stock of the American Metal Products Company, and paid for it partly in cash and partly with promissory notes that were presently discounted by the corporation for cash, together with his acceptance of stock certificates issued from the company's books, and his acceptance of the position and salary of superintendent of the company's factory for several months, and the further acceptance of the office of president and director of the corporation, all under the agreement of August 9, 1922, which he continued to perform without objection until March 8, 1923, should and do estop him from repudiating his agreement to the prejudice of innocent third persons, and from claiming funds which induced innocent creditors to deal with the corporation and to part with value. To allow Mr. Dempsey's claim for the return of his money as against the just claims of the general creditors of the corporation, who were misled and deceived by his voluntary conduct, would be inequitable, unconscionable, unjust, and legally unwarrantable. In re Racine Auto Tire Co. (C. C. A.) 290 F. 939; Allen v. Commercial National Bank of Detroit, 191 F. 97, *236 111 C. C. A. 577; In re Desnoyers Shoe Co., 224 F. 372, 140 C. C. A. 58; Fletcher, Cyclopedia Corporations, vol. 2, § 716; Schulte v. Boulevard Gardens Land Co., 164 Cal. 464, 470, 129 P. 582, 44 L. R. A. (N. S.) 156, Ann. Cas. 1914B, 1013; Tidewater Southern Ry. Co. v. Vance, 31 Cal. App. 503, 160 P. 1097; 6 California Jurisprudence, p. 768.
Cases cited by claimant, of which California Bank v. Kennedy, 167 U. S. 362, 17 S. Ct. 831, 42 L. Ed. 198, and Concord First National Bank v. Hawkins, 174 U. S. 364, 19 S. Ct. 739, 43 L. Ed. 1007, are examples, to my mind are inapplicable to the instant case. In those two cases, and in all similar cases cited by claimant, it appears that the corporations dealt with were either national banks or companies functioning in jurisdictions where the trust fund doctrine of California corporations did not exist. At least none of these decisions seem to have considered the applicability of the trust fund doctrine as such has been uniformly applied to domestic corporations by the California courts. Moreover, in most, if not all, of the cases cited by claimant, the parties to the contract or their successors were the suitors, and the courts held that, the contract being void ab initio, it was totally ineffectual and unavailable to support any right or claim of any of the parties thereto.
But in the instant case there is an entirely different situation; for here it is the innocent creditors who are opposing an effort of one of the contracting parties to reap benefits on account of the invalidity of his own agreement, to the great prejudice and damage of such innocent creditors, who, the California decisions say, had a right to rely upon the apparent status of Dempsey as a stockholder, and who can invoke the doctrine of estoppel as against the claim of Dempsey.
The order of the referee, dated November 13, 1925, disallowing certain claims of B. A. Dempsey, is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547515/ | 15 F.2d 52 (1926)
AMBROSE et al.
v.
UNITED STATES et al.
District Court, W. D. New York.
August 6, 1926.
Moot, Sprague, Brownell & Marcy, of Buffalo, N. Y. (Helen Z. M. Rodgers, of Buffalo, N. Y., of counsel), for plaintiffs.
Richard H. Templeton, U. S. Atty., of Buffalo, N. Y., for the United States.
Desbecker, Fisk & Newcomb, of Buffalo, N. Y. (Walter C. Newcomb, of Buffalo, N. Y., of counsel), for defendant Smith.
HAZEL, District Judge.
This action in equity was brought to recover on a war risk insurance policy issued to Raymond Joseph Howard, who entered the military service of the United States in October, 1917, and in November following he procured a certificate of insurance under the provisions of the War Risk Insurance Act for $10,000, payable in monthly installments of $57.50, upon his death, to his sister, Alice M. Howard, as beneficiary, who has since married *53 and is the defendant Alice M. Smith. Another sister, Gertrude, and a brother, Lawrence, who are plaintiffs herein, survive him. The insured soldier was killed in action on October 12, 1918. On April 18, 1919, the award under the policy was made and approved by the Secretary of the Treasury, and the installments of insurance paid to the designated beneficiary down to and including the installment due July, 1924, when the government stopped payments, owing to conflicting claims asserted between the designated beneficiary and plaintiffs.
This action was then brought to establish the rights of the adverse claimants to the unpaid installments and to the insurance benefits. Such an action against the United States is authorized by section 402 of the War Risk Insurance Act, as amended by Act Cong. June 25, 1918 (Comp. St. § 514uuu), and the issue presented is concededly of an equitable nature.
The uncontradicted evidence supports the averment of the bill that, before taking out the insurance certificate, the soldier, in letters to his sisters, and subsequently in conversations with them, stated that he intended to insure under the provisions of the War Risk Insurance Act, and for convenience would designate Alice as beneficiary, with the understanding, however, that both his sisters and his brother, Lawrence, would share equally in its benefits in case of his death. It is proven that, in explaining why he intended to name Alice as beneficiary, he said he wished to avoid confusion that might arise from naming several relatives, but that, if anything happened to him, the insurance should be divided equally among all three. The designated beneficiary was present when this was said. In fact, the remark was addressed directly to her, and, although she was present in court, she made no denial thereof.
Following the death of the insured, the monthly installments, up to July, 1924, were paid to Alice, who divided the installments equally between herself, her sister, and her brother at first apportioning the warrants after cashing them, and later by indorsing and delivering check for one month to her brother, then to her sister, and retaining a third month's installment for herself. In April, 1924, however, she kept the installment check which should have been indorsed over to Lawrence, and all subsequent installments were kept by her without apportionment, claiming that she had been advised to keep all the insurance, and she intended to do so. Plaintiffs protested, and made written demands for their respective shares, and later submitted claims and evidence of their right to participate in the benefits to the bureau, which declined to assent to a division of the warrants or participation in the benefits unless plaintiffs' rights were judicially established.
The government contends that section 402 of the act and regulations of the Bureau, specifically conferring upon an insured the right to change a beneficiary without the beneficiary's consent, became a material part of the contract of insurance, and that the government is bound to a strict compliance with its terms requiring payment to the designated beneficiary without giving recognition to conflicting claims, and in short that the contract cannot be changed or altered by parol or extrinsic evidence. An insurance policy, of course, is a contract between a soldier and the Bureau of War Risk Insurance, within the intendment of the act and regulations under which the policy was issued. If the insured had written the bureau of his desire to have his two sisters and his brother benefit by his insurance, there is no doubt that the installments would have been divided equally among them.
Does his failure to understand the requirements defeat his established intention an intention explicitly stated in letters written by him to his sisters, and especially to the beneficiary on November 21st, wherein he says, after informing her that the policy was made payable to her as beneficiary: "We may as well look at this matter frankly. I would like it divided equally between you and Gertrude and Lawrence" a direction that was repeated in subsequent conversations between them. The regulations relating to change of a beneficiary, no doubt, were adopted, not only to protect the insured, but also to enlarge his rights under the contract. Should not his letters to his sister Alice, the beneficiary, expressing his wish or direction for an equal division or apportionment to both sisters and brother, in fairness to him, be accepted as the equivalent of a written request to the bureau to include them as beneficiaries? In matters of the kind under consideration the soldier's real purpose and wish should control.
In Claffy v. Forbes (D. C.) 280 F. 233, Judge Neterer said that it was not vital that the bureau should receive notice of the change of beneficiary before the death of the *54 insured, and that "throughout the history of the civilized world, since the decrees of Julius Caesar, the intention and wish of the soldier, with relation to designation of beneficiary or disposition of property, killed in the line of duty, has been carried out when ascertained, whether it was scrawled in the sand with the point of his sword, or written on the scabbard of his sword or his shield; * * * and remedial justice requires, under the facts in this case, that the designation of the niece in the letter to the mother be established from the date of presentation to and record thereof by the Bureau of War Risk Insurance."
The principle of that case is fairly applicable to the instant case. The policy in that case was made payable by the insured to his mother, who wrote to her what he had done, and in his letter expressed a wish that, if she should not live to get the entire benefits which were payable in monthly installments, she should then make it so that Agnes (his niece) would get it. The mother in her last will, by codicil, left the remaining insurance to the niece, as requested by her son, but her executor demanded that the unpaid installments be turned over to him. The niece thereupon presented to the bureau the letter written to the mother. The court ruled that failure to receive the letter, during the life of the soldier, designating the niece as beneficiary, did not defeat the rights conferred by the letter after the death of the insured.
Plaintiffs also seek recovery herein on the theory that the designated beneficiary became a trustee for the combined benefit of plaintiffs and herself. The proofs, supplemented by her conduct in making equal payments for several years after the soldier's death, in my opinion, establish this claim. The parol agreement between her and the insured that she would divide the installments was valid, and was sufficiently broad to impress a trust upon her which a court of equity may enforce. Hirsh v. Auer, 146 N. Y. 13, 40 N. E. 397; Matter of O'Hara, 95 N. Y. 403, 47 Am. Rep. 53; Hoeger v. Dorscheid, decided by Judge Brown in the New York Supreme Court May 7, 1925 (no opinion filed).
The adjudications cited by counsel for defendants relating to hortatory or precatory words expressive of the wish that Alice would divide with the others are inapposite, since, according to the proofs, relations of a trustee clearly eventuated. The letters (Exhibits 1 and 2) and conversations were admissible. The interest in the insurance was to be derived from the insurer, and the letters and conversations did not concern property of the deceased, but specifically related to a trust relationship. Ward v. N. Y. Life Ins. Co., 225 N. Y. 314, 122 N. E. 207; Matter of Carpenter, 131 N. Y. 86, 29 N. E. 1005.
The United States is a proper party defendant. The adverse claims and the evidence in support thereof were submitted to the bureau, which gave no recognition thereto, maintaining that there existed no rights of participation with the designated beneficiary. Shepherdson v. U. S. (D. C.) 271 F. 330; Elliott v. U. S. (D. C.) 271 F. 1001.
There are other adjudications cited in the briefs on both sides, but it is unnecessary to refer to them, as I am convinced that, under the proofs, the designated beneficiary and plaintiffs became entitled to an equal division of the monthly installments, and that a fair and reasonable interpretation of the War Risk Insurance Acts and the promulgated regulations justifies making such division and apportionment upon the records of the Bureau of War Risk Insurance.
A decree in conformity with this opinion may be entered on notice to the defendants. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547712/ | 279 B.R. 890 (2002)
In re Denise A. BELL, Debtor.
Denise A. Bell, Plaintiff,
v.
Instant Car Title Loans, and M. Regina Thomas, Trustee, Defendants.
Bankruptcy No. 02-63362-PWB. Adversary No. 02-9117-PWB.
United States Bankruptcy Court, N.D. Georgia, Atlanta Division.
June 17, 2002.
*891 G. Alfred Brunavs, Martin & Brunavs, Atlanta, GA, for plaintiff.
John K. Rezac, Holland & Knight, Atlanta, GA, for defendants.
M. Regina Thomas, Atlanta, GA, Chapter 13 Trustee.
MEMORANDUM OPINION
PAUL W. BONAPFEL, Bankruptcy Judge.
Denise A. Bell, the Chapter 13 Debtor (the "Debtor"), filed this adversary proceeding against Bethenod and Associates, Inc., d/b/a Instant Car Title Loans[1] (the "Pawnbroker") seeking turnover of her pawned motor vehicle, a 1999 GMC Jimmy. Pawnbroker took possession of the vehicle on March 26, 2002, one day prior to the filing of Debtor's Chapter 13 petition but several months after December 16, 2001, the expiration of the grace period for its redemption under O.C.G.A. § 44-14-403(b)(3). This is a "core proceeding" pursuant to 28 U.S.C. § 157(b)(2)(E), (H) and (O) over which the Court has jurisdiction pursuant to 28 U.S.C. § 1334 and Local Rule 83.7, ND Ga.
After Pawnbroker answered the complaint, but before commencement of discovery, the Court held an expedited hearing on May 16, 2002, on Debtor's request for immediate turnover of the vehicle. Under Part VII of the Federal Rules of Bankruptcy Procedure and the Federal Rules of Civil Procedure applicable to this adversary proceeding, Debtor's expedited request for an order compelling the immediate return of the vehicle prior to a final trial on the merits is, in substance and effect, a request for a preliminary injunction pursuant to FED. R. BANKR. P. 7065, which generally incorporates the provisions of FED. R. CIV. P. 65. It is appropriate to frame the issues in that procedural context.
To be entitled to a preliminary injunction, a plaintiff must demonstrate that she is likely to prevail on the merits; that she will suffer irreparable harm in the absence of the grant of immediate injunctive relief; that the potential harm to the plaintiff outweighs any potential harm the injunction may do to the defendant; and that, if issued, the injunctive relief will not be adverse to the public interest. E.g., McDonald's Corp. v. Robertson, 147 F.3d 1301, 1306 (11th Cir.1998); U.S. v. Lambert, 695 F.2d 536 (11th Cir.1983).
At the hearing, the parties agreed on certain facts. The facts presented show that Debtor has clearly satisfied the last *892 three requirements for issuance of a preliminary injunction. Resolution of Debtor's request for immediate relief, then, turns on whether Debtor is likely to prevail on the merits of her claim for turnover of the vehicle based on her contention that the pawned and repossessed, but not yet disposed of, vehicle is property of her bankruptcy estate under § 541(a) of the Bankruptcy Code, 11 U.S.C. § 541(a).
Debtor's complaint, as amended, asserts two theories in support of her claim that the vehicle is property of her estate. First, she claims that, because she remains the owner of record on its certificate of title and because Pawnbroker has not disposed of the vehicle, she has a legal or equitable interest that is property of the estate under § 541(a)(1). Alternatively, she asserts that, if her failure to timely redeem the vehicle from the pawn transaction resulted in an automatic forfeiture of her ownership interest to Pawnbroker, the forfeiture is a fraudulent transfer avoidable under 11 U.S.C. § 548.[2] If the transfer of the vehicle is avoidable under § 548, the vehicle is recoverable under 11 U.S.C. § 550 and is property of the estate under 11 U.S.C. § 541(a)(3).
As explained below, the forfeiture of Debtor's ownership interest on December 17, 2001[3] by operation of Georgia's pawnshop statutes involuntarily terminated her interest prior to the filing of her petition on March 27, 2002. On the petition date, therefore, it is not property of the estate under 11 U.S.C. § 541(a)(1).
The vehicle will be property of the estate under § 541(a)(3) if the forfeiture is avoidable as a fraudulent transfer under § 548(a)(1)(B). To avoid the transfer under § 548(a)(1)(B), Debtor must establish that (1) she made a transfer of her property to Pawnbroker (2) within one year before the filing of her bankruptcy petition (3) for less than a reasonably equivalent value in exchange for the transfer and (4) at the time of the transfer she was insolvent or the transfer rendered her insolvent.[4] The facts adduced at the expedited hearing show that the Debtor has established the first two elements, but the parties and the Court did not completely address the factual issues relating to the vehicle's value or Debtor's insolvency. Although the Court's files and the colloquy at the hearing could provide the basis for determining the value and insolvency issues in Debtor's favor, the informal and expedited nature of the hearing and the pleadings may have precluded the parties *893 from having adequate notice and opportunity to be heard with regard to these issues.
The Court will, therefore, schedule a further hearing on an expedited basis to permit the parties to address those issues. In the meantime, because Debtor has shown some probability of prevailing on the § 548 theory, because a brief additional delay in disposing of the vehicle will not harm Pawnbroker materially, if at all, and because immediate disposition of the vehicle could preclude effective relief to Debtor and result in irreparable injury, the Court will maintain the status quo by enjoining Pawnbroker from disposing of the vehicle pending further hearing and order of the Court.
This memorandum opinion constitutes findings of fact and conclusions of law pursuant to FED. R. CIV. P. 52(a), applicable to this proceeding pursuant to FED. R. BANKR. P. 7052.
I.
On September 17, 2001, Debtor borrowed $4,000 from Pawnbroker and gave Pawnbroker a security interest in her unencumbered 1999 GMC Jimmy. She signed a "Pawn Ticket/Contract and Disclosure/Receipt" (the "Contract") which stated that she could redeem the vehicle within 30 days, on or before October 17, 2001, for $4,818, representing principal of $4,000, a "finance charge" of $800, and filing fees of $18. The annual percentage rate was 243.33 percent. The Contract advised Debtor that she was giving a security interest in the vehicle to Pawnbroker and that her failure to make payments "can result in the loss of the pawned item." The Contract also gave Pawnbroker the right to "sell or keep the item if [Debtor did] not make all payments by the specified maturity date," which it defined as October 17, 2001. Pawnbroker took possession of the vehicle's certificate of title and its lien was noted thereon on September 19, 2001.
On the original maturity date, October 17, 2001, Debtor paid the charges then due pursuant to the Contract, but not the principal, and the parties agreed to extend the pawn for 30 days, to a maturity date of November 16, 2001. Debtor did not make any payment on November 16, nor was there any extension of the redemption period. Therefore, the 30 day grace period for the Debtor to redeem the vehicle as provided by O.C.G.A. § 44-14-403(b)(1) expired on December 16, 2001. The amount required to redeem the vehicle at that time was $4,000 principal, an $800 interest charge through the maturity date of November 16, and an additional 12.5 percent interest charge to redeem the vehicle during the grace period, or $500, for a total of $5,300.
After the expiration on December 16 of the grace period for redemption, Debtor filed Chapter 13 Case No. 01-75892 on December 24, 2001. That case was dismissed on March 21, 2002, and during the pendency of that case, Debtor remained in possession of the vehicle. Pawnbroker repossessed the vehicle on March 26, 2002. Debtor filed her second Chapter 13 petition on March 27, 2002, and commenced this adversary proceeding for turnover of the vehicle. At the time of the filing of the latter petition, Debtor's name still appeared on the certificate of title as the owner, with Pawnbroker's security interest duly noted thereon.
Debtor requires the vehicle for transportation to and from work and for other personal and family needs. The vehicle is insured, and Debtor desires to propose a Chapter 13 plan to deal with Pawnbroker's claim to the extent it is valid and secured. Pawnbroker currently has possession of the vehicle and has not demonstrated any *894 material hardship if disposition of the vehicle is temporarily delayed.
The Court's files reflect that Debtor was insolvent in her first bankruptcy case and that she remains so. Debtor's schedules filed January 22, 2002, in A01-75892, and her schedules filed April 10, 2002, in the present case, reflect that Debtor's liabilities exceed her assets, exclusive of the vehicle at issue in this proceeding.
Debtor contends that the vehicle is worth $16,735, whereas Pawnbroker asserts that the vehicle is worth between $10,000 and $12,000. However, neither party provided any actual evidence of the value of the vehicle.
II.
As noted above, the critical question in this proceeding is whether the vehicle is property of Debtor's estate. This issue is substantively dispositive because of the consequences that flow if the vehicle is property of the estate. The automatic stay of 11 U.S.C. § 362(a) prevents enforcement of liens against property of the estate. Moreover, a creditor in possession of collateral that is property of the estate must surrender it under 11 U.S.C. § 542(a). Under these provisions, Pawnbroker will be required to turn the vehicle over if it is property of the estate. If it is not, Pawnbroker will be free to dispose of it as it sees fit.
If Debtor ultimately prevails on the merits but there is no preliminary injunction requiring turnover of the vehicle pending such determination, Debtor, her bankruptcy estate, and potentially her creditors will suffer irreparable injury. Debtor will have been denied use of the vehicle which is critical to her transportation needs. The bankruptcy estate and creditors will have lost a valuable asset. Issuance of a preliminary injunction, therefore, is necessary to avoid irreparable injury to Debtor and her estate.
On the other hand, if the preliminary injunction issues and Pawnbroker ultimately prevails, it will then be able to get the vehicle back. In the meantime, provisions of § 363 of the Bankruptcy Code, 11 U.S.C. § 363, will require that Pawnbroker receive adequate protection that will compensate it for any depreciation or other loss arising from Debtor's use. The continuation of insurance coverage will be an essential part of adequate protection. A preliminary injunction, therefore, will not likely result in any material damage to Pawnbroker.
The purpose of Chapter 13, of course, is to provide the Chapter 13 debtor with the opportunity to retain assets, rather than see them liquidated through creditor collection activity or by a bankruptcy trustee in a Chapter 7 liquidation case, through a Chapter 13 plan that pays creditors at least as much as they would receive in a Chapter 7 case. Another important objective of the Bankruptcy Code is to protect the rights of general, unsecured creditors by, among other things, establishing various rights of recovery to the debtor's estate, such as the right to avoid certain transfers of property. At the same time, the Bankruptcy Code protects the interests of secured creditors by requiring adequate protection of their collateral interests in the debtor's property.
The grant of injunctive relief in this case is consistent with all of these objectives. Debtor will have an opportunity to retain her vehicle; the interests of unsecured creditors are preserved to the extent the potential asset is preserved; and Pawnbroker will receive the value of its allowed secured claim as well as adequate protection against loss or depreciation of its collateral. Granting the requested relief, therefore, is not adverse to the public interest *895 and, indeed, furthers the policies of Chapter 13.
Debtor's entitlement to a preliminary injunction, then, depends on her satisfying the first requirement: that she is likely to prevail on the merits of her claim that the vehicle is property of the estate.
Section 1306 of the Bankruptcy Code provides that property of the estate in a Chapter 13 case includes property specified in 11 U.S.C. § 541(a), which defines property of the estate in seven subsections. Two are material here. The first is § 541(a)(1), which provides that property of the estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case." The second is § 541(a)(3), which provides that property of the estate includes any interest in property that the trustee recovers under 11 U.S.C. § 550, among others; section 550, in turn, authorizes the recovery of property, or its value, from certain transferees if the transfer is avoidable under 11 U.S.C. § 548, among others.
Whether a debtor has a "legal or equitable interest" in property for purposes of § 541(a)(1) is determined by reference to state law. Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). The Georgia law applicable to this transaction is found in three sections of the Official Code of Georgia Annotated.[5] O.C.G.A. § 44-12-130 contains definitions of, among other things, a "pawn transaction;" O.C.G.A. § 44-12-131 governs the length of a pawn transaction and the interest, fees, and charges that a pawnbroker may charge in a pawn transaction; and O.C.G.A. § 44-14-403 deals with the pawnbroker's lien rights, the borrower's right to redeem the pawned property, and the forfeiture of the pawned property to the pawnbroker upon the borrower's failure to redeem it within the specified grace period.
O.C.G.A. § 44-12-130(3) defines a "pawn transaction" as "any loan on the security of pledged goods or any purchase of pledged goods on the condition that the pledged goods may be redeemed or repurchased by the pledgor or seller for a fixed price within a fixed period of time." Although a pledge traditionally requires the creditor to have possession of the pledged property, the statutes permit a borrower to pledge a motor vehicle by providing that the pawnbroker's possession of the vehicle's certificate of title is conclusively deemed to be possession of the vehicle. O.C.G.A. § 44-12-130(5). In this transaction, therefore, the vehicle was "pledged goods." Because the loan was made on that security with conditions for redemption for a fixed price within a fixed period, the transaction was a pawn transaction.
O.C.G.A. § 44-12-131 requires certain terms in a pawn transaction. Under this section, a pawn transaction must be for a 30 day period but may be continued for additional 30 day periods. § 44-12-131(a)(1). During the first 90 days of any pawn transaction or extension or continuation of it, the pawnbroker may charge interest and pawnshop charges for each 30 day period that together do not exceed 25 percent of the principal advanced (an annual rate of 300 percent). § 44-12-131(a)(4)(A). For a transaction beyond 90 days, the limit for each 30 day period is 12.5 percent of the principal amount advanced. § 44-12-131(a)(4)(B). In addition, in a pawn transaction involving a motor vehicle, a pawnbroker can charge certain title, storage, and repossession fees. § 44-12-131(a)(4)(C). *896 Georgia's statute making it a crime to charge interest at a rate greater than five percent per month (equivalent to 60 percent a year), O.C.G.A. § 7-14-18, does not apply to a pawn transaction. Glinton v. And R, Inc., 271 Ga. 864, 524 S.E.2d 481 (1999).
Pawn transactions must be for a period of 30 days, but the maturity date may be extended or continued for additional 30 day periods by written agreement of the parties. O.C.G.A. §§ 44-12-131(a)(1), 44-14-403(b)(2). The Contract here appears to contemplate, but it does not require, extensions of the pawn period, provided that interest, fees, and charges other than principal are paid every 30 days. If the parties do not agree to extend or continue the pawn transaction, however, and if the borrower does not pay the principal, interest, and charges in full to redeem the pawned property by the maturity date (as extended, if applicable), the borrower has an additional grace period of 30 days (in the case of motor vehicles) to redeem the pawned property. § 44-14-403(b)(1), (2). To do so, the borrower must pay the principal, interest, and other charges due on the maturity date plus an additional interest charge of up to 12.5 percent of the principal. § 44-14-403(b)(3).
If the vehicle is not timely redeemed, the statute provides for forfeiture of the borrower's ownership interest. Specifically, O.C.G.A. § 44-14-403(b)(3) provides as follows (emphasis added):
Pledged goods not redeemed within the grace period shall be automatically forfeited to the pawnbroker by operation of this Code section, and any ownership interest of the pledgor or seller shall automatically be extinguished as regards the pledged item.
Pawnbroker here asserts that Debtor's right to redeem the vehicle expired on December 16, 2001 and that, upon her failure to pay the principal, pawn period interest, grace period interest, and other charges then due in order to redeem the vehicle from the pawn (approximately $5,300 consisting of $4,000 principal, $800 pawn period interest, and $500 grace period interest), Debtor's interest in the vehicle automatically and by operation of law, and without any further act on anyone's part, was forfeited to Pawnbroker. As Pawnbroker views the law, Pawnbroker became the owner of a vehicle worth $16,735 (in Debtor's estimation) based on Debtor's failure to pay $5,300 within the grace period the statute provides to redeem it.
Expiration of the grace period does not necessarily mean that Debtor's rights have been terminated. Traditional doctrines of waiver, estoppel, novation, accord and the like might be invoked to demonstrate that the parties by their conduct have necessarily changed the rules that govern their transaction. For example, in In re Jones, 206 B.R. 569 (Bankr.M.D.Ala.1997), the court found that a creditor's agreement to forbear with regard to enforcement of a motor vehicle pawn resulted in a secured transaction subject to Alabama's Uniform Commercial Code rather than a pledge under the Alabama Pawnshop Act. However, there is nothing in the evidence presented so far in this case to indicate the applicability of any such principles at this stage of the proceeding.
Under the facts of this case, O.C.G.A. § 44-14-403(3) has precisely the effect that Pawnbroker asserts: forfeiture of the borrower's ownership interest by operation of law upon expiration of the grace period for redemption. On December 16, 2001, Debtor's redemption rights terminated by involuntary forfeiture. The pawn transaction ended. Pawnbroker became the owner on December 17 as a result of the statutorily mandated forfeiture. As between *897 Debtor and Pawnbroker under Georgia law, therefore, Debtor had no legal or equitable interest in the vehicle and title vested in Pawnbroker.
The fact that the vehicle's certificate of title still named Debtor as its owner does not change this result. As between Debtor and Pawnbroker, Pawnbroker owned the vehicle and Debtor had no continuing interest therein.
Consequently, when Debtor filed her current chapter 13 petition, the vehicle was not property of the estate under § 541(a)(1). Bankruptcy courts in neighboring jurisdictions have reached the same conclusion based on similar statutes. E.g., In re Dunlap, 158 B.R. 724 (M.D.Tenn.1993); In re Walker, 204 B.R. 812 (Bankr.M.D.Fla.1997).[6]
The next question is whether the vehicle is property of the estate under § 541(a)(3). This provision states that property that a trustee[7] recovers under *898 § 550 (among other sections) is property of the estate. Among other things, § 550 permits a trustee who has avoided a transfer of property as a fraudulent transfer pursuant to § 548 to recover the property from the appropriate transferee. In short, therefore, if the transfer of the vehicle to Pawnbroker on December 17, 2001 was a fraudulent transfer avoidable under § 548, the vehicle is property of the estate.
A transfer of property is avoidable under § 548(a)(1)(B) if four requirements are met. First, the debtor must have made a transfer of property. 11 U.S.C. § 101(54) defines "transfer" as "every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest and foreclosure of the debtor's equity of redemption." Second, the transfer must have been made within one year before the filing of the bankruptcy petition. Third, the debtor must have received less than "reasonably equivalent value" in exchange for the transfer of the property. Finally, the debtor must have been insolvent at the time the transfer was made or must have been rendered insolvent as a result of the transfer. § 548(a)(1)(B).[8] A debtor is insolvent when her assets, excluding property that is exempt in the bankruptcy case and that is transferred, concealed, or removed with intent to hinder, delay, or defraud creditors, taken at a fair value, exceed her liabilities. 11 U.S.C. § 101(32).
Arguably, all of the elements for success on the § 548 claim are present here. On December 17, 2001, as Pawnbroker contends and as set forth above, the operation of O.C.G.A. § 44-14-403(b)(3) effected an involuntary transfer, as defined in § 101(54), of Debtor's ownership interest in the vehicle to Pawnbroker in exchange for the amount then due, $ 5,300. Carter v. H & B Jewelry and Loan (In re Carter), 209 B.R. 732 (Bankr.D.Or.1997)[9]; 2 COLLIER oN BANKRUPTCY ¶ 101.54. The transfer took place within one year before the filing of the Chapter 13 petition. The current value of the vehicle could be assumed to be $10,000 the lowest value suggested by Pawnbroker at the May 16 hearing. The vehicle would not have been worth less than that on the forfeiture date five months earlier. A vehicle worth $10,000 is not reasonably equivalent in value to an obligation of $5,300. Finally, Debtor's schedules in this and her previous case could demonstrate that she was, and is, insolvent.
If such findings were made, it would follow that the transfer of the vehicle to Pawnbroker is avoidable as a fraudulent transfer under § 548(a)(1)(B), that the vehicle is recoverable from Pawnbroker under § 550, and that the vehicle is property of the estate under § 541(a)(3). Pawnbroker *899 would be obligated to turn possession of it over pursuant to 11 U.S.C. § 542(a).[10]
As noted earlier, however, the evidence has not been fairly and adequately developed to support findings of fact on the issues of value and insolvency that would be sufficient to grant a preliminary injunction requiring turnover of the vehicle. More definite proof of insolvency and value is necessary. Given the informal and expedited nature of the hearing and the pleadings, justice requires that both parties have ample opportunity to present evidence with regard to these issues to permit their determination in a proper manner. At the same time, the likelihood that Debtor will prevail on the merits based on the current record is high enough to justify maintaining the status quo, taking into account the potential injury that Debtor and the estate will suffer if Pawnbroker disposes of the vehicle as opposed to the minimal, if any, damage Pawnbroker will suffer if disposition is delayed pending a further hearing. A preliminary injunction to that effect shall issue as set forth below.[11]
ORDER
Based on the foregoing, it is hereby ORDERED AND ADJUDGED as follows:
1. The request of Debtor for immediate turnover of the 1999 GMC Jimmy in which she claims an ownership interest is denied, without prejudice.
2. Pawnbroker is hereby enjoined from transferring or disposing of the vehicle, and is further enjoined from any use of the vehicle, pending further order of this court.
3. The Chapter 13 Trustee is named as a party defendant but has not answered, presumably because the complaint seeks no relief against her. The Court directs counsel for the Debtor and the Chapter 13 Trustee to confer within five days with regard to the standing issues addressed in footnote 7 and with regard to whether the Chapter 13 Trustee should be aligned as a party plaintiff. Debtor and the Chapter 13 Trustee are granted leave to file such pleadings, motions, or amendments to Debtor's Chapter 13 Plan, schedules, claim of exemptions, or other papers as they deem appropriate to assert their respective rights and positions with regard to the claim to avoid the transfer of the vehicle within 10 days.
4. The Court will schedule a hearing on notice to the parties to hear evidence with regard to any factual issues relating to Debtor's request for immediate turnover of the vehicle and to hear and determine any objections of Pawnbroker to any motions, pleadings, amendments, or other papers that Debtor or the Chapter 13 Trustee files.
IT IS SO ORDERED.
NOTES
[1] The complaint was filed against "Instant Car Title Loans." An answer was filed by Bethenod and Associates, Inc., d/b/a Instant Car Title Loans. The parties have not raised any issue concerning this discrepancy and, therefore, the Court concludes that the proper defendant is before the Court.
[2] Immediately prior to the hearing, Debtor amended her complaint to assert a claim to set aside the transfer of the vehicle as a fraudulent transfer. At the hearing, Debtor suggested that the transfer might be avoidable as a preference. Debtor's contention that the transfer is avoidable is most appropriately viewed as a claim under 11 U.S.C. § 548(a)(1)(B). Under theories of notice pleading, the complaint, as amended, may be sufficient to survive a motion to dismiss for failure to state a claim on which relief may be granted, but it appears subject to a motion for a more definite statement. Amended pleadings may be in order as contemplated by the directions in the Order at the end of this opinion.
[3] The time to redeem the vehicle expired on December 16. Transfer occurred immediately thereafter, i.e., the next day.
[4] The statute also permits recovery if the debtor was in distressed financial circumstances short of insolvency. Thus, a transfer for less than reasonably equivalent value may be avoided if the debtor "was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital," or if the debtor "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." 11 U.S.C. §§ 548(a)(1)(B)(ii)(II), (III).
[5] The sections are separately codified but the material provisions of all of them were enacted in the same legislation, and they use the same terminology. See 1989 Ga. Laws 819, 1992 Ga. Laws 3245.
[6] The conclusion may be different when the debtor files the petition prior to default. See In re Burnsed, 224 B.R. 496 (Bankr.M.D.Fla.1998).
[7] Unlike a Chapter 7 debtor, a Chapter 13 debtor enjoys certain powers otherwise reserved for a trustee. 11 U.S.C. § 1303 specifically provides that "the debtor shall have, exclusive of the trustee, the rights and powers of a trustee under sections 363(b), 363(d), 363(e), 363(f), and 363(l), of this title." 11 U.S.C. § 1303. However, neither Section 1303 nor any other code section specifically confers the authority to exercise avoidance powers upon a Chapter 13 debtor. See Realty Portfolio, Inc. v. Hamilton (Matter of Hamilton), 125 F.3d 292, 296 (5th Cir.1997) ("There is no specific statutory provision generally authorizing Chapter 13 debtors to exercise trustees' avoidance powers.").
A majority of courts have held that a Chapter 13 debtor lacks standing to exercise avoidance powers. See In re Stangel, 219 F.3d 498 (5th Cir.2000) (Chapter 13 debtor lacks standing under 11 U.S.C. § 545); In In re Merrifield, 214 B.R. 362, 365 (8th Cir. BAP 1997) (Chapter 13 debtor lacks standing to pursue avoidance action because "statutory language of § 548 expressly confers avoidance powers exclusively on the trustee."); In re Miller, 251 B.R. 770 (Bankr.D.Mass.2000) (Debtor lacks standing to bring avoidance action under 11 U.S.C. § 547); In re Cardillo, 169 B.R. 8 (Bankr.D.N.H.1994) (Debtor lacks standing to bring avoidance action under 11 U.S.C. § 547); In re Pilgreen, 161 B.R. 552 (Bankr.M.D.Ga.1989) (Debtor lacks standing to bring avoidance actions under 11 U.S.C. § 547); In re Colandrea, 17 B.R. 568 (Bankr.D.Md.1982) (Debtor lacks standing to bring avoidance action under 11 U.S.C. § 547). A handful of courts have found that a Chapter 13 debtor may exercise avoidance powers. See, e.g., In re Weaver, 69 B.R. 554 (Bankr.W.D.Ky.1987); In re Einoder, 55 B.R. 319 (Bankr.N.D.Ill.1985); In re Boyette, 33 B.R. 10 (Bankr.N.D.Tex.1983).
Notwithstanding the potential standing problem for a Chapter 13 debtor, other avenues exist for a Chapter 13 debtor's recovery of property. Section 522(h) provides a statutory exception to the doctrine that a chapter 13 debtor lacks standing to bring an avoidance action. Generally, it authorizes a debtor to pursue avoidance claims such as a § 548 fraudulent transfer action to recover involuntarily transferred property that the debtor claims as exempt if the bankruptcy trustee does not. See Hamilton, 125 F.3d at 297 ("Congress has specifically authorized narrow exceptions to the general rule that Chapter 13 debtors lack standing to exercise the strong-arm powers of Chapter 13 trustees."). Both the Eighth Circuit and the Ninth Circuit have adopted a five part test to determine whether a debtor may exercise avoidance powers under 11 U.S.C. § 522(h). Under the five part test, a debtor may avoid a transfer if (1) the trustee did not attempt to avoid the transfer; (2) the debtor did not conceal the property; (3) the debtor's transfer of property was involuntary; (4) the debtor seeks to exercise an avoidance power enunciated under 11 U.S.C. § 522(h); and (5) the transferred property could have been exempted if the trustee had avoided the transfer under the provisions of 11 U.S.C. § 522(g). In re DeMarah, 62 F.3d 1248, 1250 (9th Cir.1995); In re Merrifield, 214 B.R. 362, 365 (8th Cir. BAP 1997). If the Debtor claims an exemption with regard to the vehicle, she has standing to seek its return under § 548. Moreover, a Chapter 13 debtor may include provisions in her plan for the prosecution of claims for the recovery of avoidance of fraudulent transfers and payment of claims with the property of the estate thus recovered, 11 U.S.C. § 1322(b)(8), or for use of the property of the estate thus recovered under § 363(b) and § 1306 in order to effectuate the plan. 11 U.S.C. § 1322(b)(10). In any event, one of either the Chapter 13 trustee or Debtor will have standing to assert a § 548 claim. Inasmuch as the Chapter 13 Trustee has been named as a party in this adversary proceeding and could be expected to assert the claim if Debtor cannot, it is not necessary to decide this issue.
[8] See note 4 supra.
[9] The court in Carter denied the pawnbroker's motion for summary judgment. Following trial on the merits, the court found that reasonably fair equivalent value had been given in exchange for the transfer and entered judgment in favor of the pawnbroker. Carter v. H & B Jewelry and Loan (In re Carter), 212 B.R. 972 (Bankr.D.Or.1997).
[10] Section 542(a) requires turnover of property to the trustee, not the debtor. In a Chapter 13 case that involves rehabilitation of a debtor rather than liquidation of assets, property that would ordinarily be administered by the bankruptcy trustee remains, instead, in the possession and control of the Chapter 13 debtor. The Chapter 13 debtor has the rights of a trustee under 11 U.S.C. §§ 363(b), (d), (e), (f), and (l) to use, sell, or lease property in accordance with the requirements of those sections. 11 U.S.C. § 1303. Thus, a Chapter 13 debtor is entitled to assert turnover claims under 11 U.S.C. § 542(a).
[11] No bond is necessary. Fed. R. Bankr.P. 7065. In any event, continued possession by Pawnbroker would obviate the need for a bond. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547730/ | 279 B.R. 320 (2002)
In re CONRAD, Robert F., Debtor.
No. 00-00012-9P3.
United States Bankruptcy Court, M.D. Florida, Fort Myers Division.
March 7, 2002.
*321 Steven M. Berman, Berman & Norton Breman, P.A., Tampa, FL, for Debtor.
Terry E. Smith, Bradenton, FL, Chapter 13 Trustee.
ORDER AWARDING SANCTIONS AND ORDER REGARDING MOTIONS FILED BY JUDGMENT CREDITORS
(Doc. No. 45 & 97)
ALEXANDER L. PASKAY, Bankruptcy Judge.
The specific matters under consideration, in this never ending confusing case, are Amended Motion to Partially Alter or Amend Order on Motion to Dismiss Bankruptcy Case and Order on Motion to Strike Motion to Dismiss and for Award of Sanctions (Doc. No. 45) and Motion for Reconsideration of Issue of Garnishment Monies to 13 Judgment Creditors in Order of August 11, 2000 and/or as a Form of Monetary Sanctions (Doc. No. 97), both filed by the Thirteen Judgment Creditors (13 Judgment Creditors), on June 21, 2000 and June 14, 2001 respectively, in the bankruptcy case of Robert F. Conrad (Debtor). Notwithstanding the several motions, the ultimate issue before this Court is the amount of sanctions to be imposed on the Debtor and then counsel of record, Richard Hollander, if any, and in connection with the Motions, as part of the sanctions, to compel the turnover of funds still held by Continental Airlines by virtue of a writ of garnishment that were not released.
In order to understand the history of this case, a summary of the pleadings filed to date, the legal theories and arguments asserted by the parties, and a synopsis of this Court's rulings are as follows:
Part I: The Original Judgment and Previous Bankruptcy Filings
Prior to the initiation of this Chapter 13 Case, the 13 Judgment Creditors (at that time thirty-nine disappointed investors) initiated an adversary proceeding in the United States Bankruptcy Court, in the Central District of California against the Debtor seeking to except from discharge damages claimed to have been suffered by the disappointed investors as a result of alleged fraud of the Debtor. On May 24, 1994, the Honorable Geraldine Mund entered a judgment in favor of the thirty-nine disappointed investors (the Judgment Creditors) jointly, and not jointly and severally, and against the Debtor in the amount of $6,563,43.69, plus costs (California Judgment). However, the bankruptcy court failed to make a determination of whether or not the amount of the California Judgment award was or was not within any of the exceptions of discharge under Section 523 of the Bankruptcy Code, which was the precise relief sought by the Judgment Creditors.
*322 Prior to the commencement of this case, the Debtor filed his first bankruptcy case, in which the California Judgment was entered, which was ultimately closed without disposition of a grant or denial of the Debtor's general discharge. Subsequent, while the California case was still pending, the Debtor filed a Petition for Relief in Hawaii in order to stop the garnishment of his wages by the Judgment Creditors. The bankruptcy court dismissed, with prejudice, the case based on a finding of bad faith. Thereafter, the Debtor filed his second Petition in Hawaii, notwithstanding the previous dismissal with prejudice. The case was also dismissed, however without prejudice.
Part II: The Dismissal of this Chapter 13 Case
The Debtor filed his fourth Voluntary Petition (Doc. No. 1) on January 3, 2000 in this Court, and initiated this case under Chapter 13 of the Bankruptcy Code. On the same date, the Debtor filed his Chapter 13 Plan. On April 3, 2000, the thirteen of the original thirty-nine Judgment Creditors filed Motion to Dismiss Bankruptcy Case (Doc. No. 11). The basis for the Motion to Dismiss, was two-fold: (1) that the "Debtor failed to qualify for Chapter 13" and (2) that the "case was not filed in good faith." In the Motion to Dismiss, the 13 Judgment Creditors also sought the imposition of attorney's fees and costs incurred as a monetary sanction, without specifying whether or not they were sought against the Debtor or his attorney.
On April 17, 2000, the Debtor filed Response to Thirteen Creditors' Motion to Dismiss Bankruptcy (Doc. No. 19) and on May 5, 2000, the Debtor filed Amended Response to Motion to Dismiss (Doc. No. 32). In the Responses, the Debtor generally denied the allegations alleged in the Motion to Dismiss and in support stated that (i) the 13 Judgment Creditors were barred by Florida Statutes § 95.11 to enforce their judgment against the debtor; (ii) there was no "bad faith"; (iii) the 13 Judgment Creditors did not have standing to file the Motion to Dismiss; and (iv) the "claims and debts due to the moving creditors were discharged on November 2, 1999" in the California.
Following a hearing to consider the Motion to Dismiss and Responses, on May 26, 2000, this Court entered "Order On Motion to Dismiss Bankruptcy Case (Doc. No. 11) And Order on Motion to Strike Motion to Dismiss Bankruptcy Case (Doc. No. 37A)" (Doc. No. 42) (Dismissal Order). This Court was satisfied that the Debtor was not eligible to seek relief under Chapter 13 of the Bankruptcy Code, the first basis sought under the Motion to Dismiss and specifically did not rule on the second basis, for bad faith. In the Dismissal Order, this Court specifically determined that Florida Statutes § 95.11 did not bar the 13 Judgment Creditors from asserting their claim in this Bankruptcy Case, and determined that the 13 Judgment Creditors did have standing to assert claims as against the Debtor. The Dismissal Order did not refer to any award of attorneys' fees and costs.
Part III: Award of Sanctions
Following the entry of the Dismissal Order, both parties, having been aggrieved by this Court's decision, attacked the Dismissal Order by filing (1) Motion to Alter (Doc. No. 43) and Amended Motion to Alter (Doc. No. 45), by the 13 Judgment Creditors and (2) Notice of Appeal, by the Debtor. In the Motion to Alter, the 13 Judgment Creditors sought sanctions against the Debtor in the form of attorneys' fees and costs expended, and requested this Court compel Continental Airlines to pay monies withheld since the *323 filing by virtue of a writ of garnishment obtained by the Judgment Creditors, as a form of additional sanctions.
Originally, on August 11, 2000, this Court entered "Order On Amended Motion to Partially Alter or Amend Order on Motion to Dismiss Bankruptcy Case and Order on Motion to Strike Motion to Dismiss and Award of Sanctions (Doc. No. 45)" (Doc. No. 49) (Sanction Order). In the Sanction Order, this Court determined that monetary sanctions were appropriate against the Debtor, in the form of attorneys' fees and costs but denied the request to order Continental Airlines to release the garnished funds for lack of jurisdiction. The Sanction Order also set for final evidentiary hearing the issue of the amount of sanctions to be awarded as against the Debtor only.
In the Motion to Alter, the 13 Judgment Creditors sought monetary sanctions only against the Debtor. In the Amended Motion to Alter, the 13 Judgment Creditors sought monetary sanctions against not only the Debtor but also the Debtor's counsel of record at that time, Richard Hollander based on F.R.B.P. 9011 and the inherent powers of the court. Although the Sanction Order's title referred to the Amended Motion to Alter, the body of the Sanction Order and the Motion under consideration was the Motion to Alter.
This "clerical mistake" was brought to the Court's attention by the filing of Motion to Correct Clerical Mistake in Order Awarding Sanctions (Doc. No. 53), filed on September 18, 2000 by the 13 Judgment Creditors. This Court granted the same on September 28, 2000, with the entry of Order Granting Motion to Correct Clerical Mistake (Doc. No. 58), thereby correcting the clerical error.
The 13 Judgment Creditors also sought reconsideration of this Court's ruling in the Sanction Order by filing Motion for Reconsideration (Doc. No. 97). In the Motion for Reconsideration, the 13 Judgment Creditors asserted that this Court should award as sanctions the garnished funds that the creditors would have received but for the several filings. On July 12, 2000, this Court granted the Motion for Reconsideration with the entry of an Order (Doc. No. 106), and set for hearing the merits of the same. This issue is also presently before this Court.
Part IV: Withdrawal of Debtor's Counsel
To complicate matters, on October 23, 2000, Richard Hollander filed Motion to Withdraw (Doc. No. 62) and on November 20, 2000, Edward R. Miller also filed Motion to Withdraw as Attorney for Debtor (Doc. No. 69). In between the filing of these two motions, this Court entered an Order (Doc. No. 65) scheduling a final evidentiary hearing to consider the amount of sanctions against the Debtor and the award, if any, against Mr. Hollander. As a result of the two Motions to Withdraw, on November 14, 2000, this Court entered an Order (Doc. No. 68) indefinitely deferring the final evidentiary hearing to consider the amount of the award of sanctions against the Debtor and the award, if any, against Mr. Hollander.
Part V: California Bankruptcy Case Revisited
During the pendency of this case, Hollander, counsel for the Debtor, sought to reopen the first California bankruptcy case, which was reopened and a discharge was entered. At that point, it should be noted that the dischargeability vel non of the California Judgment was still not resolved; however, when the Debtor sought clarification of the original judgment and asked the California court to rule on the dischargeability vel non and the severability of the judgment, the bankruptcy court *324 ruled on the issue of dischargeability and determined that the judgment is a nondischargeable debt but declined to rule on the severability of the judgment as to each of the plaintiffs.
In the last analysis, disregarding the mess of motions and confusing manner which they are presented, this Court is satisfied that the only issues to be resolved are as follows: (1) the amount of the award of sanctions against the Debtor; (2) an award, if any, in the form of sanctions against counsel for the Debtor; and (3) reconsideration of the Sanction Order with respect to not awarding the garnishment funds as an additional award of sanctions.
Considering first, the appropriate sanctions if any to be imposed on the Debtor, this record leaves no doubt that the sole purpose of the Debtor's initiation of this Chapter 13 Case was to avoid payment of the California Judgment. This is not a bona fide attempt to adjust the debts, in general, of this Debtor for the simple reason that other than the judgment entered against him in California, the only scheduled debts include Robert J. Conrad, the father of the Debtor with a claim in the amount of $35,000 and JC Penney, with a claim in the amount of $158, which no doubt has been paid since. See 11 U.S.C. § 1301 et seq. See also In re Davis, 239 B.R. 573 (10th Cir. BAP 1999)(Chapter 13 case dismissed for bad faith where debtor filed case on heels of chapter 7 discharge in attempt to be relieved of nondischargeable debt); In re Beauty, 42 B.R. 655 (E.D.La.1984)(Chapter 13 case dismissed for lack of good faith where the ostensible purpose of plan was to restructure nondischargeable debts which survived the Chapter 7 case and not to deal fairly with all creditors); In re Hurdle, 11 B.R. 304 (Bankr.E.D.Va.1981); In re Beaver, 2 B.R. 337 (Bankr.S.D.Ca.1980). In order to impose sanctions, there must be a finding of the abuse of the system, or the filing for an improper purpose. Clearly, the sole purpose to prevent the enforcement of the California Judgment and not to adjudicate the debts in general, is clear evidence of an abuse by this Debtor, especially in light of the fact that this is the fourth attempt by the Debtor to pursue this goal.
It is now well established that Federal courts, including bankruptcy courts, have the inherent power to impose sanctions under appropriate circumstances. Chambers v. NASCO, 501 U.S. 32, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991); In re Mroz, 65 F.3d 1567 (11th Cir.1995). However, as stated by the Supreme Court,
[b]ecause of their very potency, inherent powers must be exercised with restraint and discretion. A primary aspect of that discretion is the ability to fashion an appropriate sanction for conduct which abuses the judicial process.
Chambers, 501 U.S. at 44-45, 111 S.Ct. 2123.
It has been generally accepted that Section 105 of the Bankruptcy Code is broad enough to authorize the bankruptcy court to sanction a litigant or its attorney. This Section provides that "the court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. § 105(a). Section 105 creates a statutory contempt power in addition to the court's inherent contempt powers in bankruptcy proceedings. This Court has the power to impose monetary sanctions where there is sufficient evidence to demonstrate an abuse of the judicial system to achieve an improper purpose by the debtor. In re IAMEC Funding, Inc., 236 B.R. 490 (Bankr.M.D.Fla.1999); In re Singer Furniture Acquisition Corporation, 265 B.R. 458 (Bankr.M.D.Fla.2001); In re Graffy, *325 233 B.R. 894 (Bankr.M.D.Fla.1999). Congress expressly granted bankruptcy courts independent statutory powers in bankruptcy proceedings to "achieve the orderly and expeditious disposition of cases." Jove Engineering, Inc., v. I.R.S., 92 F.3d 1539, 1553 (11th Cir.1996).
Concerning the imposition of sanctions against Hollander, the 13 Judgment Creditors seek to impose sanctions pursuant to F.R.B.P. 9011. This rule provides in pertinent part as follows:
a party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances,
(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;
(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;
(3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and
(4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.
F.R.B.P. 9011.
There is nothing in this record to warrant the finding that there is any document signed in this case by Hollander or his partner which contained incorrect facts. Neither, there is anything in this record to find that counsel for the Debtor urged this Court to accept that the relief sought was not supported by existing law or a good faith argument that could have been advanced to change existing law. The fact that this Court rejected the proposal urged by counsel for the Debtor is insufficient to impose sanctions against Hollander. The legal theories were fairly debatable and not totally unsupported by existing law. The fact that Hollander scheduled each Judgment Creditor in the zero amount, which should have been indicated to be disputed, but the zero amount might have been justified because the California Judgment was jointly in favor of all thirty-nine plaintiffs. Thus, one could not determine the amount of the judgment entered in California for each and every one of the original Judgment Creditors, certainly it cannot be determined how much each of these particular plaintiffs were owed. Accordingly, this Court has determined that it is not appropriate to award sanctions against Hollander.
This leaves for consideration sanctions against the Debtor. This Court reaffirms its previous decision as set forth in the Sanctions Order, that the evidence supports an award of sanctions to the 13 Judgment Creditors against the Debtor, and there is nothing in this record to warrant a change of its previous conclusions. This Court has determined that attorneys' fees and cost incurred to litigate dismissal of this case, together with some subsequent fees and costs as a direct result of this filing are appropriate. However, a sanction against the Debtor for the litigation before the Honorable Mund is inappropriate because that was litigation, regarding the dischargeability vel non of the California Judgment, is not an item for which sanctions should be awarded.
The Court has reviewed the declarations of Vin A. Fichter and John H. Mueller with respect to the attorneys' fees and *326 costs expended on behalf of the 13 Judgment Creditors. Upon consideration of the same, together with the record, this Court finds that attorneys' fees for services rendered by Mueller in the total amount of $33,275.50 and reasonable costs in the amount of $2,178.36 are awarded as a form of sanctions against the Debtor. As to Fichter, this Court finds that attorneys' fees for services rendered by him in the amount of $25,000 and reasonable costs in the amount of $4,345.49 are awarded as a form of sanctions against the Debtor. This Court approved Fichter to appear pro hac vice on April 17, 2000. Substantial amounts of legal research, pleading filings and appearances at hearings were made by Mueller, who also sought and is being awarded attorneys' fees and costs. Fichter's active participation overlapped with Mueller's services, and is excessive. As this is an award of attorneys' fees and costs as a sanction against the Debtor, this Court is disinclined to award all fees and costs incurred.
Finally, based upon the record, this Court has determined that the Motion for Reconsideration is without merit and this Court will not compel Continental Airlines to pay monies withheld since the filing with respect to the garnishment of the Debtor's income, as a form of sanctions.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the award of sanctions in the form of attorneys' fees and costs against the Debtor are as follows: (a) attorneys' fees for services rendered by Mueller in the total amount of $33,275.50 and reasonable costs in the amount of $2,178.36 or a total of $35,453.36 and (b) attorneys' fees for services rendered by Fichter in the amount of $25,000.00 and reasonable costs in the amount of $4,345.49 or a total of $29,345.49. It is further
ORDERED, ADJUDGED AND DECREED that the Motion to Alter (Doc. No. 43) and Amended Motion to Alter (Doc. No. 45) be, and the same are hereby, granted in part and denied in part, granted to the portion that awards reasonable fees and costs in the form of sanctions against the Debtor and denied as any award of sanctions against counsel for the Debtor, Richard Hollander. It is further,
ORDERED, ADJUDGED AND DECREED that the Motion for Reconsideration (Doc. No. 97) be, and the same is hereby, denied. There is no award of sanctions against the Debtor in the form of the garnished funds. It is further
ORDERED, ADJUDGED AND DECREED that the Debtor be, and the same is hereby, directed to make payment to Mueller and Fichter in the amounts allowed as set forth in this Order within thirty (30) days from the entry of this Order. If the Debtor fails to do so, the 13 Judgment Creditors are entitled to obtain a money judgment in the amount of the sanctions in favor of Mueller and Fichter, for which let execution issue. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547734/ | 423 Pa. Superior Ct. 232 (1993)
620 A.2d 1196
COMMONWEALTH of Pennsylvania
v.
James R. FIERST, Appellant.
Superior Court of Pennsylvania.
Submitted November 2, 1992.
Filed February 24, 1993.
*236 Shelley Stark, Public Defender, Pittsburgh, for appellant.
Sandra Preuhs, Asst. Dist. Atty., Pittsburgh, for Com., appellee.
Before ROWLEY, President Judge and HUDOCK and CERCONE, JJ.
CERCONE, Judge:
This is an appeal from the judgments of sentence entered in the Court of Common Pleas of Allegheny County, dated January 24, 1992, which imposed sentence against appellant, James Fierst, for various criminal convictions. We vacate the judgments of sentence and remand for further proceedings.
The sequence of events which serves as the basis for the criminal complaints against appellant is protracted. On December 7, 1989, appellant went to see David Perl at the residence of Mr. Perl's mother. When appellant arrived, Mr. Perl was helping his mother into the house from the driveway. Mr. Perl's fiancee, Danielle Mainolfi, who is now his wife, was walking behind. Appellant approached Perl and asked to speak with him. Perl declined and asked if he could speak with appellant the following day. Appellant then left.
Mr. Perl and Ms. Mainolfi then went to Mr. Perl's apartment in Wilkins Township. Approximately twenty minutes after leaving Perl's mother's house in Churchill, appellant went to Perl's apartment. After that, Perl's version of the events differs markedly from that advanced by appellant. Perl testified that he let appellant in the apartment with the intent of getting rid of him. He stated that appellant anxiously began following him around the apartment. When Perl entered his bedroom to fold laundry, appellant followed him in and asked Perl for his .357 magnum gun so that he could shoot himself. Perl refused. Perl testified that appellant had previously *237 manifested certain suicidal and homicidal tendencies. Perl then stated that appellant diverted Perl's attention by pointing to something in Perl's fish tank, and attacked him. According to Perl, appellant continuously hit him on different areas of his head and torso with a heavy metal object. During this time, he testified that appellant announced, "Give me your gun or I will kill you." Perl screamed for help and Ms. Mainolfi entered and jumped on appellant who then threw her off and began to hit her. Perl was then able to obtain a knife and he lunged toward appellant with the weapon. Appellant jumped back and yelled, "Have you gone crazy?" Shortly thereafter, appellant fled. As a result of the scuffle, Mr. Perl sustained head injuries which required 51 stitches. Ms. Mainolfi sustained minor bruises.
In contradiction to Mr. Perl's averments, appellant testified in his own behalf that Perl initiated the attack. He stated that he never asked Perl for his gun and that once they entered the bedroom Perl began to strike him without provocation. Appellant asserted that Perl wanted him out of the apartment and threatened him with a knife. Appellant then testified that Ms. Mainolfi jumped onto his back and he swung around at her. All the while appellant questioned Perl why he was acting in this manner. Appellant then left the apartment.
After the incident at the Perl apartment, appellant got in his car and drove down Greensburg Pike towards Turtle Creek. From there, he drove on the Triboro Expressway which turns into Broadway in Pitcairn. Coming down a curve in the road, appellant swerved into the oncoming lane in which George Bucar was travelling in his car. Bucar swerved off the roadway to avoid being hit by appellant and slammed into the abutting hillside. Appellant returned to his proper lane but moments later swerved into the path of another oncoming car driven by Robert Baldosky. The two cars collided. As a result, passenger Marcie Brown, whose parents owned the car, was killed. After police arrived at the scene, they removed appellant from his car which was lying on its side. Police officers noticed that appellant seemed to be suffering from a seizure.
*238 Based on the alleged reign of terror caused by appellant, the Commonwealth filed three separate informations against him. The first information (CC 9000961) charged appellant with two counts of aggravated assault[1] and two counts of reckless endangerment of another person[2] in connection with the scuffle involving David Perl and Danielle Mainolfi. The second information (CC 9005437) charged appellant with one count of criminal homicide[3] and one count of homicide by vehicle[4] in connection with the death of Marcie Brown. The last information (CC 9009127) charged appellant with one count each of aggravated assault and reckless endangerment in connection with the aforementioned automobile accident for appellant's attempt to cause bodily injury to the driver of the automobile, Robert Baldosky. The information also charged appellant with aggravated assault and reckless endangerment in connection with appellant's prior attempt to collide with the automobile driven by George Bucar. Appellant was also charged with various summary offenses in that information.[5]
A jury trial was held from July 22-25, 1991 before the Honorable George H. Ross. On the first information, the jury convicted appellant of aggravated assault and reckless endangerment as to David Perl. Appellant was convicted of aggravated assault against Danielle Mainolfi, but was acquitted of recklessly endangering her. On the second information, appellant was convicted of murder in the third degree and homicide by vehicle. Appellant was convicted of all counts in the third information.
Trial counsel for appellant filed timely post-verdict motions, which were denied. The trial court sentenced appellant to an aggregate term of incarceration of eighteen (18) to thirty-six (36) years, including a term of imprisonment of ten (10) to *239 twenty (20) years on the conviction of third-degree murder. This particular sentence was the statutory maximum for third-degree murder. Appellant then filed a motion to modify sentence, which was denied. On February 14, 1992 appellant filed his timely notice of appeal and leave to file an appeal in forma pauperis. The trial court granted appellant's request for leave and appointed the Allegheny County Public Defender to represent him.
Appellant raises four issues for our review:
1. was [trial] counsel ineffective for failing to offer expert testimony and instructions explaining the defense position that Mr. Fierst's actions at the time of the collision were not voluntary;
2. was the evidence insufficient to support convictions for aggravated assault with respect to Danielle Mainolfi and George Bucar insofar as the Commonwealth did not prove that they suffered serious bodily injury, or that the defendant intended to inflict such injury; and was counsel ineffective for not preserving this issue in the brief in support of post trial motions;
3. did the [trial] court provide a sufficient statement of reasons for imposing sentence for third degree murder in the aggravated range of the guidelines; and was counsel ineffective for failing to preserve this issue;
4. did the [trial] court abuse its discretion in imposing the statutory maximum sentence for third degree murder by considering only the nature of the offense?
We shall first consider appellant's claims of ineffectiveness for failing to challenge the sufficiency of two of the aggravated assault convictions as the relief for those claims is an acquittal on those counts.
Appellant maintains that the evidence was insufficient to prove the charges of aggravated assault directed against Danielle Mainolfi and George Bucar, and that trial counsel was ineffective for failing to pursue and preserve this issue in post-verdict motions. The crux of appellant's argument is that since neither Mainolfi nor Bucar sustained serious bodily injury, the Commonwealth failed to prove that he *240 specifically intended to cause them serious bodily injury. Our standard of review for allegations of ineffective assistance of counsel is well-established and quite narrow. Ineffectiveness claims are subject to a three-part analysis. First, it must be demonstrated that the underlying claim is of arguable merit. Next, it must be determined whether counsel's choice of action had some reasonable basis designed to effectuate his or her client's interests. Finally, a showing must be made of how counsel's choice of action prejudiced the client. Commonwealth v. Tavares, 382 Pa.Super. 317, 321, 555 A.2d 199, 201 (1989), allocatur denied, 524 Pa. 619, 571 A.2d 382 (1989). Prejudice in the context of a claim of ineffective assistance of counsel is determined by an evaluation of whether "but for the arguably ineffective act or omission there is a reasonable probability that the result would have been different." Commonwealth v. Petras, 368 Pa.Super. 372, 376, 534 A.2d 483, 485 (1987). The law presumes that counsel was effective, so that the burden of establishing ineffectiveness rests squarely upon the defendant. Commonwealth v. Smith, 380 Pa.Super. 619, 624, 552 A.2d 1053, 1056 (1989), allocatur denied, 525 Pa. 581, 575 A.2d 112 (1990). Counsel will not be deemed ineffective for failing to assert a baseless claim. Commonwealth v. Cook, 383 Pa.Super. 615, 623, 557 A.2d 421, 425 (1989). Moreover, in making assertions of ineffectiveness, a claimant must allege sufficient facts upon which a reviewing court can conclude that trial counsel may have been ineffective since the appellate courts will not consider such claims in a vacuum. Commonwealth v. Durst, 522 Pa. 2, 4, 559 A.2d 504, 505 (1989).
In order for us to determine whether appellant's claim contains arguable merit, we must review the sufficiency of the evidence. Our standard of review for claims raising the sufficiency of the evidence is well established. "[A]n appellate court must review the evidence presented and all reasonable inferences drawn therefrom in a light most favorable to the verdict winner and determine whether on the record there is a sufficient basis to support the challenged conviction." Commonwealth v. Madison, 501 Pa. 485, 490, 462 A.2d 228, 231 (1983) (citations omitted). The proper application of the sufficiency *241 test requires us to evaluate the entire trial record and all evidence actually received in the aggregate and not as fragments isolated from the totality of the evidence. Commonwealth v. Harper, 485 Pa. 572, 576, 403 A.2d 536, 538 (1979). See also Commonwealth v. Griscavage, 512 Pa. 540, 517 A.2d 1256 (1986) (explicating appropriate application of standard of review set forth in Harper, supra). This standard means that we must review the evidence in the light most favorable to the Commonwealth as the verdict winner, and drawing all proper inferences favorable to the Commonwealth, determine if the jury could reasonably have concluded that all of the elements of the crime were established beyond a reasonable doubt. Commonwealth v. Edwards, 521 Pa. 134, 143, 555 A.2d 818, 823 (1989). Moreover, the jury, as the trier of fact, is free to believe all, some or none of the evidence presented. Griscavage, 512 Pa. at 543, 517 A.2d at 1257.
Our law deems a person guilty of aggravated assault if he:
(1) attempts to cause serious bodily injury to another, or causes such injury intentionally, knowingly or recklessly under circumstances manifesting extreme indifference to the value of human life; . . .
18 Pa.C.S.A. § 2702(a). Further, as both sides stipulate, without any showing of actual serious bodily injury, the Commonwealth must demonstrate that an accused attempted to inflict serious bodily injury. Commonwealth v. Everett, 408 Pa.Super. 166, 169, 596 A.2d 244, 245 (1991), allocatur denied, 530 Pa. 639, 607 A.2d 250 (1992). Attempt is proven by establishing specific intent to commit the crime charged. Id. Contrary to appellant's assertion, however, intent to commit serious bodily injury need not be directed at a specific person. Further, the Commonwealth may prove its case by the use of circumstantial evidence. Commonwealth v. Hogan, 321 Pa.Super. 309, 314, 468 A.2d 493, 496 (1983).
In the present case, neither Danielle Mainolfi nor Robert Bucar sustained serious bodily injury. Thus, in order for the evidence to be sufficient to prove aggravated assault against each of them, the Commonwealth had to prove that appellant *242 intended to cause serious bodily injury. Everett, supra. We therefore turn to the facts of this case, taken in a light most favorable to the Commonwealth as the verdict winner, to determine whether the evidence was sufficient to convict appellant of aggravated assault against Danielle Mainolfi and George Bucar.
Appellant began beating Danielle Mainolfi after she jumped on him in response to David Perl's screams. He had been severely beating Perl before that in order to obtain Perl's gun.[6] Mainolfi testified that after she jumped on appellant's back, he threw her onto the bed and started to hit her on her head and arms with a cold black instrument she thought was a police blackjack. Taken in a light most favorable to the Commonwealth as the verdict winner, the evidence demonstrates that appellant began viciously attacking David Perl to obtain his gun. He had told Perl to give him the gun or else he would kill him [Perl]. In response to Perl's screams, Mainolfi entered and tried to stop appellant from attacking Perl. At that point, he began beating Mainolfi with a hard weapon. After appellant noticed Perl escaping to find a weapon for himself, he ceased his attack on Mainolfi and redirected his attack towards Perl. The evidence demonstrates that appellant attacked whoever stood between him and Perl's gun. The evidence indicates that he threatened to kill Perl. Given the chain of events which followed, it can be inferred that he also attempted to seriously injure Ms. Mainolfi to get the gun. The fact that Perl successfully thwarted the attack by chasing appellant away does not alter appellant's intent to cause serious bodily injury. We find that under the circumstances of this incident, the evidence was sufficient to convict appellant of aggravated assault against Ms. Mainolfi.
Next, appellant contends that the evidence is insufficient to prove aggravated assault against George Bucar. Bucar's auto was the first car which appellant encountered as he came down the Triboro Expressway into Pitcairn. Appellant was already travelling in Bucar's lane of traffic when Bucar *243 had to swerve out of the way to avoid being hit by appellant. Appellant contends that since he had already turned into his lane before seeing Bucar, he could not have had a specific intent to inflict serious bodily injury upon Bucar. Appellant misinterprets the nature of aggravated assault in this instance. David Perl testified that appellant was both suicidal and homicidal. Accepting such testimony, the jury could infer that appellant was attempting to kill himself by colliding with another car. It did not matter who was behind the wheel of the other car because appellant was attempting to collide with any car by moving his own vehicle into opposing traffic. By turning into the oncoming lane before identifying a specific car, appellant may have been trying to preclude any escape by an oncoming car which could not see him. Finally, attempt to commit aggravated assault is bolstered by the fact that after unsuccessfully attempting to collide with Bucar's auto, he swerved into the path of Marcie Brown's automobile, thereby causing the fatal collision. We find this evidence sufficiently proves that appellant attempted to commit serious bodily injury against George Bucar. Thus, appellant's ineffectiveness claim has no arguable merit and must fail. Commonwealth v. Cook, supra.
Appellant also argues that trial counsel was ineffective for failing to interview or call expert witnesses to testify concerning appellant's alleged seizure which, according to his trial testimony, occurred shortly before the automobile accident in question. He contends that such evidence would have supported his defense that his act in hitting an oncoming automobile was involuntary. In order to assess whether appellant's claim has merit, however, we must first delineate the defense which he proffers and assess its applicability. Appellant relies upon the involuntariness of his act while driving his car as a defense to third-degree murder and aggravated assault against George Bucar and Robert Baldosky. Appellant testified that before the incident occurred on the roadway in Pitcairn, the stress of his prior incident with Perl and Mainolfi brought on a seizure which caused him to lose control of his automobile. Section 301 of the Pennsylvania *244 Crimes Code does not impose criminal liability on a person for an involuntary act.[7] Although this court has never addressed this argument as to third degree murder, we have previously discussed whether a person could be found guilty of homicide by vehicle when the defendant has a seizure, thereby causing him to lose control of his car. Commonwealth v. Cheatham, 419 Pa.Super. 603, 615 A.2d 802 (1992).
In Cheatham, the appellant argued that a seizure-induced blackout is an involuntary act which lacks the mens rea necessary to raise his conduct from negligent to grossly negligent as required to convict for homicide by vehicle. Id. at 605-07, 615 A.2d at 804. Without applying section 301 of the Crimes Code, the panel in Cheatham held that where the appellant knew the frequency of his seizures and that the seizures came on without warning, and chose to drive despite such knowledge, the appellant's conduct rose to a level of gross negligence sufficient to impose liability for homicide by vehicle. Id. at 611-13, 615 A.2d at 807. The panel reasoned that liability attaches to those who know or should know that death is a probable consequence of their actions. Id. Thus, the judgment of sentence was affirmed because the appellant knew that his seizures could cause the death of another, despite the fact that, at the critical moment, his actions were involuntary.
In the present matter, appellant testified that he had experienced seizures very few times in the past and they were brought on by distress. He also commented that he never considered the seizure disorder very serious. N.T. 7/24/91 at 27. Such evidence is not so strong compared with that which the Court in Cheatham faced with regard to the seizure disorder. However, it is clear that appellant, in his own mind, knew that stressful situations could cause him to have seizures. Therefore, appellant's alleged seizure disorder would provide no defense to the charge of homicide by vehicle if he *245 chose to drive in such situations. In light of this fact, counsel cannot be deemed ineffective for failing to mount a defense to the charge of homicide by vehicle based on this theory.
However, the mens rea requirement applicable to both third degree murder and aggravated assault is different from that which pertains to homicide by vehicle. As stated previously, a conviction for homicide by vehicle can be sustained merely upon evidence that a defendant was grossly negligent. However, in order to sustain a conviction for third-degree murder, codified at 18 Pa.C.S.A. § 2502(c), the Commonwealth must establish that the killing was committed with malice aforethought. Commonwealth v. Reilly, 519 Pa. 550, 564, 549 A.2d 503, 510 (1988). Malice must also be present to sustain a conviction for aggravated assault. Commonwealth v. Hickson, 402 Pa.Super. 53, 60, 586 A.2d 393, 396 (1990), allocatur denied, 527 Pa. 630, 592 A.2d 1297 (1991). Malice exists "where there is a wickedness of disposition, hardness of the heart, cruelty, recklessness of consequences, and a mind regardless of social duty, although a particular person may not be intended to be injured." Reilly, 519 Pa. at 564, 549 A.2d at 510. Where malice is based on the recklessness of consequences, it is not sufficient to show mere recklessness as codified at 18 Pa.C.S.A. § 302(b)(3);[8] but rather, it must be shown that the defendant consciously disregarded an unjustified and extremely high risk that his actions might cause death or serious bodily harm. In the Interest of Smith, 396 Pa.Super. 624, 637, 579 A.2d 889, 895 (1990), allocatur denied, 527 Pa. 610, 590 A.2d 296 (1991) (emphasis added).
Although the evidence presented by the Commonwealth may be sufficient to convict appellant of third degree murder *246 and the related charges of aggravated assault, we find that appellant's proposed defense to those charges was a matter for the jury's consideration due to the alleged involuntariness of his actions and lack of malice due to seizure. As such, appellant was entitled to an adequate presentation of the defense. Appellant testified that although he had experienced seizures in the past, they occurred relatively infrequently and never while driving. Although appellant disregarded the risk of seizure while driving, we cannot say with any certainty that his actions in disregarding this risk rose to the level necessary to prove the malice requisite for aggravated assault and third degree murder. The claimed involuntariness of appellant's actions could arguably serve as a valid defense for the jury's consideration, along with the Commonwealth's evidence, to both of these charges under section 301 of the Crimes Code. Thus, it is possible that appellant possessed an adequate defense to the Commonwealth's evidence relating to malice. Having ascertained that appellant could at least argue that the involuntariness of his actions negated the necessary degree of malice to sustain the third degree murder count and the related aggravated assault charges, we must now decide whether his claim has "arguable merit" within the meaning of an ineffectiveness claim.
Appellant argues that prior counsel failed to interview pertinent witnesses. On that subject, we have held:
It is the duty of the lawyer to conduct a prompt investigation of the circumstances of the case and explore all avenues leading to facts relevant to guilt and degree of guilt or penalty. Although counsel's failure to interview witnesses about whom he neither knew nor should have known does not constitute ineffectiveness, he must investigate those he knows or has reason to know would be helpful to the defense.
Commonwealth v. White, 303 Pa.Super. 550, 553, 450 A.2d 63, 64-65 (1982). See also Commonwealth v. Anderson, 410 Pa.Super. 524, 600 A.2d 577 (1991), allocatur denied, 531 Pa. 644, 612 A.2d 983 (1992) (counsel's failure to interview witnesses whose testimony is beneficial and exculpatory can constitute *247 ineffectiveness if no reasonable basis otherwise exists for counsel's failure). No case of this Commonwealth has discussed the need for expert medical testimony to support a defense theory that certain acts were involuntarily committed. We find guidance, however, in those cases which have discussed the need for expert psychiatric testimony in cases where a defense of diminished capacity is proffered.
In Commonwealth v. Potts, 486 Pa. 509, 406 A.2d 1007 (1979) (plurality), our Supreme Court addressed the ineffectiveness of trial counsel in a murder case where counsel failed to present psychiatric witnesses to testify to the defendant's emotionally disturbed state of mind. The only defense offered in Potts was that the defendant was psychotic and therefore incapable of acting with malice. The Supreme Court agreed with appellant and awarded a new trial. The plurality held:
When the only issue is appellant's state of mind, trial counsel's decision not to present relevant psychiatric and psychological testimony which may be determinative of the issue can be as damaging to the truth finding process as the failure in other contexts to present the testimony of an available eyewitness, or other key witness.
Id. at 513, 406 A.2d at 1009 (citations omitted). Similarly, the Supreme Court has held:
In a case where virtually the only issue is the credibility of the Commonwealth's witness versus that of the defendant, failure to explore all alternatives available to assure that the jury heard the testimony of a known witness who might be capable of casting a shadow upon the Commonwealth's witness's truthfulness is ineffective assistance of counsel.
Commonwealth v. Twiggs, 460 Pa. 105, 111, 331 A.2d 440, 443 (1975). This principle applies with equal weight to favorable expert testimony. Commonwealth v. Guerrisi, 297 Pa.Super. 245, 250, 443 A.2d 818, 821 (1982).
In the case sub judice, the lack of malice involved in the claimed involuntariness of appellant's actions based on seizure was his only defense to third degree murder and aggravated assault arising from the automobile collision. Appellant maintains *248 that counsel was ineffective for failing to interview or otherwise offer expert testimony to explain how the seizure affected his control of the automobile. Such evidence, coming from an expert, would have been probative of appellant's state of mind at the time of the automobile incidents. The evidence would also have aided the jury in resolving the conflicts between the Commonwealth's theory of liability that appellant intended to commit suicide and that of appellant that appellant was subject to seizure while driving the automobile. Commonwealth v. Potts, supra. Moreover, appellant avers that trial counsel had knowledge of his seizure disorder at least one year before trial.
The Commonwealth responds that appellant has not met his threshold burden for establishing an ineffectiveness claim namely, that he has not explained what exculpatory evidence would have been presented had counsel investigated this avenue. In support, the Commonwealth cites to our Supreme Court's decision in Commonwealth v. Wallace, 495 Pa. 295, 433 A.2d 856 (1981). We find that the Commonwealth's reliance on this decision is misplaced. The Court in Wallace held that in order for counsel to be deemed ineffective for failing to pursue an investigation, the defendant must allege a benefit that could have resulted from the investigation. Id. at 298, 433 A.2d at 858. Here, appellant has averred that investigation of medical experts as to his seizure disorder could bolster his lack of malice defense to third degree murder and aggravated assault by showing how the disorder affected his motor control. We therefore find that appellant's claim of ineffectiveness has arguable merit.
From the record we cannot ascertain whether counsel had a reasonable basis for failing to interview or call expert witnesses. Under these circumstances, we would normally remand for an evidentiary hearing on counsel's ineffectiveness. However, we will not do so in this case because our resolution of appellant's ineffectiveness claim on the underlying issue involving the jury instruction mandates the grant of a new trial.
Appellant argues that trial counsel was ineffective for failing to request a jury charge that appellant could not be *249 liable for third degree murder and aggravated assault because his involuntary actions would not suffice to prove malice. We agree and find that this case must be remanded for a new trial on third degree murder and aggravated assault charges emanating from the automobile incident.
Jury instructions must be viewed in their totality to assess whether the charge accurately and adequately explains the relevant law to the jury and guides the jury in its deliberations. Commonwealth v. Ort, 398 Pa.Super. 475, 482, 581 A.2d 230, 234 (1990), allocatur denied, 527 Pa. 623, 592 A.2d 44 (1991). The trial judge is not required to grant a requested point for charge, so long as the charge given sufficiently states the pertinent law. Commonwealth v. Sanders, 380 Pa.Super. 78, 95, 551 A.2d 239, 248 (1988), allocatur denied, 522 Pa. 575, 559 A.2d 36 (1989).
Appellant suggests that trial counsel was ineffective for failing to request a charge regarding the involuntariness of his actions as they related to malice, a necessary element in proving third degree murder and aggravated assault. The Commonwealth attempts to refute this argument by maintaining that the charge to the jury adequately covered the involuntariness of appellant's actions. The trial judge charged the jury with the various categories of culpability, as defined in section 302 of the Crimes Code, which were necessary to prove the plethora of crimes with which appellant was charged. However, the trial judge failed to instruct the jury that appellant could be exonerated of the charges of third degree murder and aggravated assault relating to the automobile collision if it found that appellant's actions were involuntary, in accordance with 18 Pa.C.S.A. § 301. Since we have determined that appellant had a valid defense on the basis of the involuntariness of his actions, the trial judge would have been required to instruct the jury of his defense had trial counsel requested such a charge. Since the jury was not instructed as to the involuntariness of appellant's actions pursuant to section 301, it had no guidance on how to apply the defense to the circumstances of the case. Thus, the charge to the jury did not adequately explain the pertinent *250 points of law. Furthermore, this was appellant's sole defense to the collision related charges. As such, counsel could have had no reasonable basis for their failure to request such a charge. We also find that appellant was prejudiced by counsel's ineffectiveness. Had the jury been aware of its ability to exonerate appellant on the basis of his seizure disorder, it is entirely possible they would have acquitted appellant on the related charges.[9] Thus, we find that appellant has averred a claim of ineffectiveness of trial counsel which warrants the granting of a new trial on the particular claims which counsel's ineffectiveness tainted.
Appellant's next two issues concern the discretionary aspects of sentencing for appellant's ten (10) to twenty (20) year conviction for third-degree murder. Because we vacate the conviction as to third-degree murder, however, we need not consider the sentencing issues. Although we affirm all of appellant's convictions except for third-degree murder and the two counts of aggravated assault related to the automobile incident, the trial court's sentencing scheme has been unavoidably disturbed by our disposition. Accordingly, we must vacate all judgments of sentence entered in this case.
Judgments of sentence are vacated; new trial is awarded on the count of third-degree murder contained in information number CC 9005437; new trial is awarded on the counts of aggravated assault contained in information number CC 9009127; case remanded for resentencing on all other counts. Jurisdiction is relinquished.
NOTES
[1] 18 Pa.C.S.A. § 2702(a)(1).
[2] Id. § 2705.
[3] Id. § 2501.
[4] 75 Pa.C.S.A. § 3732.
[5] Appellant was charged with the summary offenses of reckless driving, 75 Pa.C.S.A. § 3714; driving on the right side of the roadway, id. § 3301; and, driving without a license, id. § 1501.
[6] The evidence sufficiently proves that appellant committed aggravated assault against David Perl.
[7] Section 301 provides the following rule of law:
(a) General rule. 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.
18 Pa.C.S.A. § 301(a).
[8] Section 302(b)(3) provides:
A person acts recklessly with respect to a material element of an offense when he consciously disregards a substantial and unjustifiable risk that the material element exists or will result from his conduct. The risk must be of such a nature and degree that, considering the nature and intent of the actor's conduct and the circumstances known to him, its disregard involves a gross deviation from the standard of conduct that a reasonable person would observe in the actor's situation.
18 Pa.C.S.A. § 302(b)(3).
[9] The Commonwealth refers us to the decision in Commonwealth v. Crosby, 444 Pa. 17, 279 A.2d 73 (1971) which held that "unconsciousness as a defense has been permitted only where the defendant's state of unconsciousness resulted from a physical ailment such as epilepsy, or a physical disability such as that resulting from a blow on the head." Id. at 22, 279 A.2d at 76 (citations omitted). The Court further stated, "the defense of unconsciousness resulting from a blackout a complete defense has never been recognized in Pennsylvania where, as here, the defendant's state of unconsciousness is the result of excitement or emotion naturally engendered by the commission of an unlawful, cold-blooded killing." Id. at 22-23, 279 A.2d at 76. In the present case, however, appellant contends that he suffers from a seizure disorder. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547778/ | 144 F.2d 693 (1944)
COOPERSTOWN CORPORATION
v.
COMMISSIONER OF INTERNAL REVENUE.
No. 8188.
Circuit Court of Appeals, Third Circuit.
Argued January 5, 1943.
Decided January 19, 1944.
Reargued April 3, 1944.
Decided August 30, 1944.
Writ of Certiorari Denied November 13, 1944.
Lewis A. Spence and Alexander B. Siegel, both of New York City, for petitioner.
Warren F. Wattles and Louis J. Monarch, both of Washington, D. C. (Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, Sp. Asst. to Atty. Gen., on the brief), for respondent.
Before BIGGS, JONES, and GOODRICH, Circuit Judges.
Writ of Certiorari Denied November 13, 1944. See 65 S. Ct. 131.
JONES, Circuit Judge.
The facts material to the question raised by the pending petition for review were found by the Board of Tax Appeals as stipulated by the parties. The findings show the following situation.
*694 The corporate petitioner kept its books on a cash receipts and disbursements basis and made its returns for federal tax purposes on that basis. In 1937 it filed a capital stock tax return showing a $7,000 capital stock tax liability, which the Commissioner thereupon assessed and the petitioner paid in that year. In its income tax return for the calendar year 1937 the taxpayer claimed and took a deduction for the capital stock tax so paid in 1937 and, on April 27, 1938, filed a claim for refund therefor on the ground that it was not engaged in business in 1937 so as to become liable for capital stock tax for that year. The claim for refund was later allowed and, on November 3, 1939, the Collector accordingly paid the taxpayer $7,000 and interest thereon. In its income tax return for the calendar year 1939, the taxpayer reported as income received by it during that year the $7,000 tax refund with interest and paid income taxes thereon.
The Commissioner held, however, that, since the taxpayer was not liable for capital stock tax in 1937, the deduction taken in its 1937 return for the payment of such tax should be disallowed and, accordingly, determined a deficiency in the taxpayer's income taxes and personal holding company surtaxes for 1937. The Board, upon the taxpayer's petition for a redetermination, sustained the Commissioner's action and the taxpayer filed the pending petition for a review of the Board's decision.
While the subject matter of the review relates solely to the petitioner's tax liability for the year 1937, the question, as presented to the Board of Tax Appeals and as disposed of by it, was whether the Commissioner may, if the procedure be not barred by the statute of limitations, readjust, the petitioner's income tax return for the earlier year, in the light of the subsequent tax refund, by disallowing the deduction taken for the tax payment, or whether the deduction should stand as originally claimed and the corresponding tax refund of the later year be charged as income to the petitioner in the year received.
Whatever differences of opinion may have heretofore existed as to the problem present under circumstances such as are here found, or as to the rule applicable thereto,[1] we think there is no longer any room for controversy since the recent decisions of the Supreme Court in Dobson v. Commissioner 320 U.S. 489, 64 S. Ct. 239, decided December 20, 1943, and Dixie Pine Products Company v. Commissioner, 320 U.S. 516, 64 S. Ct. 364, decided January 3, 1944.
In the Dobson case, Circuit Courts of Appeals were admonished to be careful, upon reviewing decisions of the Tax Court (formerly the Board of Tax Appeals) not to mistake questions of fact for questions of law and to give to facts determined by the Tax Court no less finality than is properly accorded, upon court review, to administrative determinations in other fields. Concretely, what that meant in relation to the Dobson case was that the Tax Court's decision, that a recovery had by that taxpayer in 1939 (the taxable year there in question) growing out of a particular transaction, entered into ten years before, was a return of capital and not income, was a determination of a fact competently found by the Tax Court according to relevant accountancy principles and, as such was binding upon the reviewing court.
As the Tax Court had found in the Dobson case that the recovery did not constitute income to the taxpayer, the year of its taxability was obviously not a question in that case. But that was the question present in the Dixie Pine case, where the Commissioner disallowed a deduction for a tax payment accrued for the taxable year under review, the taxpayer having later obtained release from liability for the item deducted. The Board sustained the Commissioner's action and the Court of Appeals affirmed the Board's decision, 5 Cir., 134 F.2d 273. The Supreme Court, in affirming [320 U.S. 519, 64 S. Ct. 366], held that the Board's "determination that the item in question was not properly deducted on the accrual basis is entitled to the finality indicated by *695 Dobson v. Helvering [Commissioner], 320 U.S. 489, 64 S. Ct. 239." We think that the ruling in the Dixie Pine case necessarily determines the disposition to be made of the question here involved. We do not see how any distinction is to be drawn from the fact that the tax for which a deduction was taken in the instant case was actually paid, the taxpayer being on a cash receipts and disbursements basis, while in the Dixie Pine case the tax liability was accrued, the taxpayer reporting on the accrual basis. The authority for deducting the one is no different than that of the other. Sec. 23(c) of the Revenue Act of 1936, c. 690, 49 Stat. 1648, 26 U.S.C.A. Int.Rev.Code, § 23(c).
The decision of the Board of Tax Appeals is affirmed.
On Rehearing.
Our decision in this case was based upon what we took to be the requirements of the ruling in Dobson v. Commissioner, 320 U.S. 489, 64 S. Ct. 239, particularly, as interpreted and applied in the case of Dixie Pine Products Company v. Commissioner, 320 U.S. 516, 64 S. Ct. 364.
Burnet v. Sanford & Brooks Co., 282 U.S. 359, 51 S. Ct. 150, 75 L. Ed. 383, and cases following it, had indicated that income received or accrued and disbursements made or accrued were automatically to be accounted for in the year (calendar or fiscal) in which they had actually been received or paid, respectively, or were accruable depending upon the accounting system used by the particular taxpayer. Assuming the instant taxpayer's payment of a capital stock tax in 1937 to have been a certain and fixed liability, the payment would seem to have been deductible in the taxpayer's return of its gross income for the year 1937. By the same token, the refund in 1939 of the earlier tax payment, later found to have been erroneously made in 1937, would seem to have been accountable as income to the taxpayer in the year of the receipt of the refund. The Commissioner might not arbitrarily, merely because the statute of limitations had not run, redetermine the taxpayer's liability for an earlier year by disallowing, because of a related refund in a subsequent year, the deduction taken in the earlier year for the tax paid in that year. However, in the light of the opinions in the Dobson and Dixie Pine cases, we held that whether the taxpayer's payment of the capital stock tax in 1937 was a properly allowable deduction for that year involved a matter which fell peculiarly within the Tax Court's competence to determine.
Shortly thereafter, in Security Flour Mills Company v. Commissioner, 321 U.S. 281, 64 S. Ct. 596, Mr. Justice Roberts, speaking for the Supreme Court, after quoting from Burnet v. Sanford & Brooks Company, supra, to the effect that the Revenue Acts contemplate "annual returns showing the net result of all the taxpayer's transactions during a fixed [calendar or fiscal yearly] accounting period," said (321 U.S. at page 286, 64 S.Ct. at page 598) that: "The uniform result has been denial both to government and to taxpayer of the privilege of allocating income or outgo to a year other than the year of actual receipt or payment, or, applying the accrual basis, the year in which the right to receive, or the obligation to pay, has become final and definite in amount." The effect of this appeared to be the reestablishment of the intendment of the Sanford & Brooks case in full vigor and to restrict certain expressions and implications of the Dobson case. Confirmation of this impression is impliedly to be found in the fact that, in the Security Flour Mills case, Mr. Justice Douglas and Mr. Justice Jackson (who wrote the opinion in the Dobson case) were "of opinion that the [Security Flour Mills] case is governed by Dobson v. Commissioner, 320 U.S. 489, 64 S. Ct. 239, and that the judgment should, for the reasons therein stated, be reversed."
It was in that situation that we granted rehearing of the instant case. Having now fully reconsidered the matter, particularly in the light of the more recent decisions of the Supreme Court, as above cited, we are of the opinion that our decision was correct, not because the ruling of the Sanford & Brooks case has been in any way impaired or qualified, but because the taxpayer's obligation to pay at the time the payment was made, for which a deduction was contemporaneously taken, involves a legal question which must be decided adversely to the taxpayer in the instant case.
It is true that the taxpayer in 1937 filed a capital stock tax return for that year showing a tax liability which it promptly paid. The return and tax payment were accepted by the Collector as of course without audit or other formal action designed to render the taxpayer's liability final and definite in amount. In other words, the taxpayers' capital stock tax return and its *696 tax payment in accordance therewith represented its own voluntary appraisal of its liability.
It was in March 1938 that the taxpayer filed its income tax return for the year 1937 wherein it took a deduction for the capital stock tax which it had paid during the taxable year. On April 27, 1938, the taxpayer filed a claim for refund with the Commissioner on the ground that it was not liable for the capital stock tax in 1937. While we predicate nothing upon the brevity of time between the taxpayer's filing of its income tax return for 1937 and its claim for refund for the capital stock tax for which it had lately claimed credit as an allowable deduction, the circumstance does give point to the fact that before the Commissioner could be expected in ordinary course to audit or otherwise consider the return, the taxpayer itself was indirectly assailing the capital stock tax deduction which it had taken in the return.
The tax return for 1937 still being open and being the subject of review by the Commissioner, we think that he was well within his legal province in disallowing the deduction claimed for the payment of the capital stock tax in 1937 for which the taxpayer was not liable. That the taxpayer was not so liable was conclusively established upon the allowance and payment of its claim for refund which was well within the time available for the Commissioner's review of the taxpayer's income tax return for 1937. But, this is not a case of relating back to a reported complete transaction of an earlier year, a matter which occurred in a later year.
Even had no claim for refund been made or as yet allowed, it would, none the less, have been within the Commissioner's power, the return still being open to review, to disallow the deduction for the payment for which there was no legal liability resting upon the taxpayer. In order to isolate a payment or an accrual of a liability as a completed transaction in the year in which it is made or accrued, it is necessary that the taxpayer be under a legal obligation for the payment at the time it is made or accrued. On the basis of that criterion, the recent case of Stanard-Tilton Milling Co. v. Commissioner, 3 T.C. ____, which the taxpayer urges upon us, seems plainly distinguishable. Where a liability for a state tax rested upon a taxpayer which denied the validity of the tax and was contesting its imposition in which it was ultimately successful, the circumstance of the taxpayer's denial and contest of the liability was held sufficient to render the liability so uncertain and indefinite as to deprive the taxpayer of the right to accrue the tax in the year for which it was assessed. See Dixie Pine Products Company v. Commissioner, supra. No less unwarranted can be a deduction for a tax payment for which indisputably no liability existed.
The Board having correctly concluded that the item in question was not a legally allowable deduction from the taxpayer's gross income for the year 1937, we accordingly confirm our former decision and reaffirm the decision of the Board of Tax Appeals.
NOTES
[1] Compare the decision of the Board of Tax Appeals in E. B. Elliott Co. v. Commissioner, 45 B.T.A. 82, 91, with its decision in Block et al. v. Commissioner, 39 B.T.A. 338, 341, affirmed sub nom. Union Trust Co. v. Commissioner, 7 Cir., 111 F.2d 60. Also compare Bergan v. Commissioner, 2 Cir., 80 F.2d 89; Leach v. Commissioner, 1 Cir., 50 F.2d 371; and Inland Products Co. v. Blair, 4 Cir., 31 F.2d 867, with Athens Roller Mills, Inc., v. Commissioner, 6 Cir., 136 F.2d 125; Davies' Estate v. Commissioner, 6 Cir., 126 F.2d 294; J. A. Dougherty's Sons, Inc., v. Commissioner, 3 Cir., 121 F.2d 700; and Commissioner v. Central United Bank, 6 Cir., 99 F.2d 568. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547845/ | 279 B.R. 519 (2001)
In re James Hamilton NEEDHAM and Janell Renae Cole Needham, Debtors.
No. 99-50242.
United States Bankruptcy Court, W.D. Louisiana, Lafayette-Opelousas Division.
August 14, 2001.
Order Denying Reconsideration October 2, 2001.
*520 D. Patrick Keating, Opelousas, LA, Charles M. Pisano, New Orleans, LA, for Debtors.
Paul N. Debaillon, Lafayette, LA, trustee.
MEMORANDUM RULING
GERALD H. SCHIFF, Chief Judge.
James Hamilton Needham and Janell Renae Cole Needham ("Debtors") filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code[1] on February 8, 1999 ("Petition Date"), and on that day an order for relief was duly entered. The Debtors remained in possession of their property and continued to operate their business as no chapter 11 trustee was appointed. The case, however, was converted to chapter 7 on April 18, 2000.
The Debtors have been represented herein by D. Patrick Keating, A Professional Law Corporation ("Keating"). Keating has now filed its FINAL APPLICATION FOR COMPENSATION AND REIMBURSEMENT OF EXPENSES BY ATTORNEY FOR DEBTORS ("Application"). Pursuant to the Application, Keating is seeking an award of attorney fees in the amount of $18,942.00, and reimbursement of expenses in the amount of $1,948.84, for a total award of $20,890.84, subject to a credit for prepetition retainer in the amount of $2,700.00. The United States Trustee ("UST") filed an objection to the Application. A hearing on the Application was held on July 3, 2001. Present were D. Patrick Keating, Gail B. McCulloch, counsel for the UST, and Paul N. DeBaillon, the chapter 7 trustee. After hearing from parties in interest, the matter was taken under advisement.
Section 330(a) deals with compensation to professionals and provides in relevant part as follows:
(a) (1) After notice to the parties in interest and the United States trustee and a hearing, and subject to sections 326, 328, and 329, the court may award to a . . . a professional person employed under section 327 or 1103
(A) reasonable compensation for actual, necessary services rendered by the . . . attorney . . .; and
(B) reimbursement for actual, necessary expenses.
(2) The court may, on its own motion or on the motion of the United States Trustee, the United States Trustee for the District or Region, the trustee for the estate, or any other party in interest, award compensation that is less than the amount of compensation that is requested.
(3) (A) In determining the amount of reasonable compensation to be awarded, the court shall consider the nature, the extent, and the value of such services, taking into account all relevant factors, including
(A) the time spent on such services;
(B) the rates charged for such services;
(C) whether the services were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case under this title;
*521 (D) whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue, or task addressed; and
(E) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title.
(4) (A) . . ., the court shall not allow compensation for
(i) unnecessary duplication of services; or
(ii) services that were not
(I) reasonably likely to benefit the debtor's estate; or
(II) necessary to the administration of the case.
* * * * * *
(6) Any compensation awarded for the preparation of a fee application shall be based on the level and skill reasonably required to prepare the application.
In Andrews & Kurth, L.L.P. v. Family Snacks, Inc. (Matter of Pro-Snax Distributors, Inc.), 157 F.3d 414 (5th Cir.1998), the Fifth Circuit addressed the standard to be applied in awarding fees to debtor's counsel in chapter 11 cases. The court recognized the competing standards of the "reasonableness test" on the one hand ("whether the services were objectively beneficial toward the completion of the case at the time they were performed"), and the more "stringent test whether [counsel]'s services resulted in an identifiable, tangible, and material benefit to the bankruptcy estate." 157 F.3d at 426. The court opined:
We determined today that the stricter test is the appropriate measure.
. . . The bankruptcy court found that [counsel's] services were useful in certain respects-liquidation, business operations, case administration, claims objection, attempted settlement, disclosure statement and plan prosecution-but we are disinclined to hold that any service performed at any time need only be reasonable to be compensable.
. . . we believe it important to stress that any work performed by legal counsel on behalf of a debtor must be of material benefit to the estate. (Citation omitted.) (Emphasis added.)
157 F.3d at 426.
In Pro-Snax, the bankruptcy court had awarded counsel fees based upon the more liberal "reasonableness test." The district court reversed, suggesting that the bankruptcy court look closely at a most critical factor, the degree of success. This instruction, the Fifth Circuit noted, "is consistent with the standards identified by Congress in § 330, which require that-at the time the services are performed-the chances of success must outweigh the costs of pursuing the action." Ibid. The court then observed: ". . . we find that [counsel] should have known from the outset that the Debtor's prosecution of a Chapter 11 plan would fail. . . ." Ibid.
There is no question but that the ability of the Debtors to reorganize was at all times dependent upon the ability of a non-debtor entity, NTC Pump and Equipment, Inc. ("NTC"), to continue paying rental to the Debtors on real property owned by the Debtors and leased to NTC. From the beginning of the case, the UST requested of Keating that the Debtors provide the UST with financial information regarding NTC. Ultimately, the court ordered the Debtors to provide all requested financial information regarding NTC that may be requested by the UST.
Throughout the chapter 11 proceeding, the Debtors steadfastly maintained that *522 100% of the stock of NTC was owned by their daughter and that they had no ownership interest in the corporation whatsoever. Some 14 months after the Petition Date, however, Mr. Keating advised the UST that the Debtors in fact owned 100% of the corporation. This revelation occurred during a phone conversation between Mr. Keating and a representative of the UST on or about April 13, 2000. In fact, the court had approved the Debtors' Disclosure Statement on February 1, 2000, notwithstanding the fact that the Disclosure Statement and the Debtor's Chapter 11 Plan were premised on NTC stock ownership by the daughter rather than the Debtors.
The UST's objection focuses upon the Debtors' untimely response to the UST's request for financial information regarding NTC and the failure to ascertain information regarding the ownership of NTC. As a result, the UST contends that the majority of Keating's efforts during the confirmation process cannot satisfy the Pro-Snax criteria, i.e.,"whether [counsel]'s services resulted in an identifiable, tangible, and material benefit to the bankruptcy estate." 157 F.3d at 426.
The court agrees with the UST. The court acknowledges that counsel for the Debtors can only do so much in seeking to obtain the cooperation of his clients. Nonetheless, the Debtors' failure to respond to the UST's requests for information and the Debtors' erroneous insistence of lack of ownership in NTC, resulted in significant time being spent by Mr. Keating which in no way can be considered a benefit to the estate. While certain of the ultimate facts were not disclosed to Mr. Keating until certain tax returns were ultimately prepared, the court finds a lack of investigation by Mr. Keating with respect to the issue of NTC stock ownership. A more aggressive stance being taken by counsel would have resolved that issue months before, thus relieving the court, creditors, the UST, and Mr. Keating of wasting substantial time and effort.
Mr. Keating's time records reflect a total of 157.85 hours. Of this amount, 98.25 hours were categorized as "Plan and Disclosure Statement." Inasmuch as no plan was ever filed which accurately set forth ownership of the NTC stock, the court will not approve fees at the level requested by Mr. Keating. While it is very difficult to estimate the amount of time Mr. Keating would have spent if he had acquired the correct information, the court believes that a fair allowance for "Plan and Disclosure Statement" time would be 20 hours.
Within 15 days of the entry of this Memorandum Ruling, Mr. Keating is to prepare a proposed order in conformity with the foregoing and submit such order to counsel for the UST. Counsel for the UST is to approve the order as to form and submit same to the Clerk of the Bankruptcy Court for processing.
ORDER DENYING MOTION FOR RECONSIDERATION
On August 14, 2001, this court set forth reasons for allowance of compensation to D. Patrick Keating, A Professional Law Corporation ("Keating"), counsel for the Debtors in this case. A Motion to Reconsider Memorandum Ruling ("Motion") was timely filed. The United States Trustee has filed an Opposition to Motion to Reconsider Memorandum Ruling ("Opposition.")
The court has reviewed the Motion and the Opposition and is convinced that its initial ruling was correct and that the compensation awarded Keating was reasonable.
The premise of the Debtors' efforts at rehabilitation under chapter 11 was that *523 the stock of the corporation which owned the real property was held by the Debtors' daughter and not by the Debtors. This proved to be incorrect. The Opposition clearly shows that with diligent effort this fact should have been ferreted out early in the case. With the Debtors' 1995 income tax returns indicating corporate income to the Debtors, and knowing that ownership of the stock was a critical issue in the case, a reasonable step would have been to interrogate the accountant regarding ownership of the stock. Once the ownership of the stock in 1995 was determined, counsel should have demanded evidence of the transfer of the stock to the daughter as the Debtors contended. This was not done of course, and the progress of the case was greatly affected.
The court quoted at length from the case of Andrews & Kurth, L.L.P. v. Family Snacks, Inc. (Matter of Pro-Snax Distributors, Inc.), 157 F.3d 414, 426 (5th Cir.1998), which requires a court to investigate "whether [counsel's] services resulted in an identifiable, tangible, and material benefit to the bankruptcy estate." Based upon the problems inherent in this case relating to stock ownership, the court concluded that many of counsel's 98.25 hours attributable to "Plan and Disclosure Statement" matters did not satisfy this requirement. Thus, the court disallowed all but 20 hours of counsel's time with respect to this project. The court concludes that this amount was and is reasonable in light of the circumstances of the case.
Lastly, Keating suggests that reducing counsel fees will only result in a windfall for the Debtors. While this may be true, the fact that a debtor's return of surplus funds is enhanced by disallowance of counsel fees is not a proper inquiry for the court. The court is guided by the constraints of 11 U.S.C. § 330(a) and the jurisprudence thereunder. And based upon those authorities, the court considers its prior determination to be correct. For the foregoing reasons, the Motion is DENIED.
The following is the last paragraph of the court's original ruling:
Within 15 days of the entry of this Memorandum Ruling, Mr. Keating is to prepare a proposed order in conformity with the foregoing and submit such order to counsel for the UST. Counsel for the UST is to approve the order as to form and submit same to the Clerk of the Bankruptcy Court for processing.
The proposed order has not yet been received by the court. The court again directs Mr. Keating to prepare the proposed order and submit same to counsel for the UST.
IT IS SO ORDERED.
NOTES
[1] Title 11, United States Code. References herein to sections of Title 11 are shown as "section ____." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547853/ | 144 F.2d 45 (1944)
SPENCER, WHITE & PRENTIS, Inc.,
v.
COMMISSIONER OF INTERNAL REVENUE.
No. 304.
Circuit Court of Appeals, Second Circuit.
July 10, 1944.
Writ of Certiorari Denied December 4, 1944.
Edgar A. B. Spencer, of New York City, for petitioner Spencer, White & Prentis, Inc.
Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key, Robert N. Anderson, and Harry Baum, Sp. Assts. to the Atty. Gen., for the Commissioner of Internal Revenue.
Before AUGUSTUS N. HAND, CHASE, and FRANK, Circuit Judges.
Writ of Certiorari Denied December 4, 1944. See 65 S. Ct. 269.
PER CURIAM.
The taxpayer is a New York corporation engaged in general construction and engineering business. It installed foundations, underpinned buildings and entered into short term construction contracts dealing with sub-surface and hydraulic conditions. Most of its contracts were short term contracts completed within one year, but it was also interested in various long-term contracts. Its books were kept and its returns made for fiscal years beginning on July 1 and ending the following June 30, but always on the accrual basis. On December 11, 1933, it applied to the Commissioner for a consent to change its method of accounting for long-term contracts to a completed contract basis but failed to obtain a consent because the application was not submitted within ninety days after *46 the beginning of the taxable year as required by Article 41-2 of Treasury Regulations 94, promulgated under the Revenue Act of 1936.
On June 29, 1937, the taxpayer entered into and in July, 1937, began to perform a unit price contract with the Board of Transportation of the City of New York for subway construction under Sixth Avenue, from West 9th Street to West 18th Street, in the Borough of Manhattan. It was engaged in work on this contract during the fiscal year ended June 30, 1938. The contract required the performance of thousands of types of operations, only some of which were known as pay items. In making bids under the contract, the taxpayer included in the bid prices for pay items the cost of those operations for which no price was specified and in this manner distributed the cost of the operations not specified as pay items over the pay items to which they were related or ratably over all the pay items. The nonpay items included such things as the taking up and relaying of sidewalks and roadways, support and maintenance of buildings, water mains and gaspipes and administration and engineering expenses.
The contract provided for progress payments to the taxpayer based upon certified partial estimates, to be made from time to time by the city engineer, of the value of the work done and materials incorporated in the work. The first certification of work completed was made approximately three months after the work was begun and certificates were generally made each month thereafter. The contract was subject to a performance bond and as further security to retention by the City of 15% of the amounts certified.
The taxpayer in its income tax statement returned as gross income, accrued under the contract during the fiscal year July 1, 1937 to June 30, 1938, inclusive, a total which was made up as follows:
(a) Moneys earned under
contract certified and
paid $3,002,303.34
(b) Amount certified under
contract but retained
by the City 529,818.24
(c) Amount earned but not
yet certified 321,519.85
_____________
$3,853,641.43
The total of $3,853,641.43 included by the taxpayer as gross income in its return for fiscal year in question covered not only the contract price for pay items completed but some nonpay items yet to be performed. This resulted from the fact that the cost of nonpay items was included in the cost of pay items.
The taxpayer accrued on its books as of June 30, 1938, the sum of $327,500 as a "liability to restore property under contracts" which was the estimated cost of items which it had carried in its accrual of gross income. This amount of $327,500 it deducted in its tax return as "increased expenses". But this amount did not represent obligations due to subcontractors, materialmen, laborers or other creditors and was an estimate of the cost of work under the contract performed after June 30, 1938, at a cost of $339,090.40. The Commissioner disallowed the deduction and assessed a deficiency in the taxpayer's income tax of $71,828.41 and in its excess profits tax of $34,049.38 and the Tax Court reached the same result as the Commissioner.
The question before us on this appeal is whether the estimated future cost of work which had not been performed in the fiscal year ending June 30, 1938, was a proper accrual deduction from the income of that year. We think that under the authorities the Commissioner and the Tax Court were right in disallowing the deduction and that the order determining the foregoing deficiencies against the taxpayer should be affirmed.
It is conceded that the receipts by the taxpayer, though they exceeded the amount due for the work that had been performed under the contract, were properly returned as income. But the fact that payments would have to be made by the taxpayer in a future year for work which had not been done in the year in question did not give rise to a proper tax deduction. It is argued that it did give rise to such a deduction because a liability existed to perform the work during that year. This theory, however, proves too much, for under it a taxpayer on the accrual basis could estimate the entire gross income which might be received from his contract, though no work had been begun, could deduct the estimated expense of performance and could compute the taxes accordingly. In other words, if an estimate was possible, there would be room to make returns involving *47 anticipated results of great uncertainty. Moreover, if the taxpayer's theory were applied consistently, in the present case, the income derived from the contract would have to be returned for the fiscal year ending June 30, 1937, rather than for the year ending June 30, 1938, because the contract went into effect during the former year and the obligations of the parties then became fixed inter sese.
The difficulty with the taxpayer's claim is that it ignores the fact that our income tax law is based upon annual periods of computation and that it seeks to have the taxes computed under a system which Justice Roberts, in Security Flour Mills Co. v. Commissioner, 321 U.S. 281, 287, 64 S. Ct. 596, 599, termed "partly annual and partly transactional." In Dixie Pine Products Co. v. Commissioner, 320 U.S. 516, 519, 64 S. Ct. 364, 365, the same Justice said: "It has never been questioned that a taxpayer who accounts on an accrual basis may, and should, deduct from gross income a liability which really accrues in the taxable year. It has long been held that, in order truly to reflect the income of a given year, all the events must occur in that year which fix the amount and the fact of the taxpayer's liability for items of indebtedness deducted though not paid; * * *." The liability for the estimated deduction clearly had not accrued during the year in which deduction was sought. The only thing which had accrued was the obligation to do the work which might result in the estimated indebtedness after the work was performed.
It is well settled that deductions may only be taken for the year in which the taxpayer's liability to pay becomes definite and certain, even though the transactions (such as the contract in the present case) which occasioned the liability, may have taken place in an earlier year. Brown v. Helvering, 291 U.S. 193, 54 S. Ct. 356, 78 L. Ed. 725; American Hotels Corp. v. Commissioner, 2 Cir., 134 F.2d 817; Amalgamated Housing Corp. v. Commissioner, 37 B.T.A. 817, affirmed 2 Cir., 108 F.2d 1010; cf. Security Flour Mills Co. v. Commissioner, 321 U.S. 281, 287, 64 S. Ct. 596; Burnet v. Sanford & Brooks Co., 282 U.S. 359, 51 S. Ct. 150, 75 L. Ed. 383. Here the work for which the deduction is sought was unperformed and its cost was, as we have already indicated, no more than a fair estimate. Such a deduction as the taxpayer seeks had not accrued "during the taxable year" and, therefore, did not meet the requirements of Section 23(a) of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev. Code, § 23(a).
The petitioner's reliance upon United States v. Anderson, 269 U.S. 422, 46 S. Ct. 131, 70 L. Ed. 347, is misplaced. There the deduction of certain estimated tax liabilities set up in a reserve entered on the taxpayer's books in accordance with a Treasury Regulation was allowed, though the taxes had not been assessed. But all the events had occurred which determined the liability to pay the tax. Here liability for the work done after July 1, 1938, had not been incurred for the work had not been performed. Cf. Lucas v. American Code Co., 280 U.S. 445, 50 S. Ct. 202, 74 L. Ed. 538, 67 A.L.R. 1010.
The contention that the deduction of future expenses was consistent with the taxpayer's former accrual method of accounting clearly is without substance fortified as it is by only a single entry some years before. The claim that the Tax Court erred in its findings and in its failure to make certain findings is likewise without merit. The contention seems to rest on a confusion of facts with conclusions of law.
The order of the Tax Court is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547902/ | 279 B.R. 326 (2002)
In re CONRAD, Robert F., Debtor.
No. 00-00012-9P3.
United States Bankruptcy Court, M.D. Florida, Fort Myers Division.
March 19, 2002.
*327 Steven M. Berman, Berman & Norton Breman, P.A., Tampa, FL, for Debtor.
Terry E. Smith, Bradenton, FL, Chapter 13 Trustee.
ORDER DENYING (1) EMERGENCY MOTION TO VACATE ORDER OF DISMISSAL AND REOPEN CASE, (2) AMENDED MOTION TO VACATE ORDER OF DISMISSAL AND TO REOPEN CHAPTER 13 CASE, AND (3) MOTION TO DISMISS
ALEXANDER L. PASKAY, Bankruptcy Judge.
(Doc. Nos. 131, 173 & 11)
This is the next matter under advisement in this convoluted Chapter 13 Case of Robert F. Conrad (Debtor), originally filed in this Court on January 3, 2000. Without revisiting the turbulent history of the litigation in detail between the original thirty-nine judgment creditors, subsequently reduced to thirteen judgment creditors, who were originally participating out of which twelve are now participating in this Chapter 13 case (Judgment Creditors), suffice to state that the precise matter under consideration at this time are the following motions: (1) Emergency Motion to Vacate Order of Dismissal and Reopen Case (Doc. No. 131) and Amended Motion to Vacate Order of Dismissal and to Reopen Chapter 13 Case (Doc. No. 173), both filed by the Debtor and (2) Motion to Dismiss (Doc. No. 11), filed by the Judgment Creditors.
The current matter is presented by the Debtor pursuant to Federal Rule of Civil Procedure 60(b), as adopted by F.R.B.P. 7060(b). In his Motion, the Debtor contends that the judgment entered in California against the Debtor, jointly and not severally, is legally unenforceable and therefore, this Debtor is eligible for relief under Chapter 13, contrary to the original Motion and Order which granted the Motion that dismissed this Chapter 13 case, based solely on the proposition that the Debtor's unsecured debt, in this instance, the judgment, was in excess of the statutory cap placed by Section 109(e) of the Bankruptcy Code.
The original Order of Dismissal (Doc. No. 42), entered on May 26, 2000, did not consider whether or not the Chapter 13 case should have been dismissed on the alternative ground urged by the Judgment Creditors, which was that the Petition was filed in bad faith. However, on March 7, 2002, this Court entered an Order (Doc. No. 209) on Motion to Impose Sanctions, and specifically found that the Petition was *328 filed in bad faith, which in turn warranted the imposition of sanctions against the Debtor.
This leaves for consideration the procedural dilemma posed by the current Motions under consideration which seek to have this Court vacate its Order of Dismissal and reinstate the Chapter 13 Case, as asserted by the Debtor and then consider again dismissal of the Chapter 13 case, as asserted by the Judgment Creditors, based on bad faith. Should this Court grant the Motion to reinstate the currently dismissed Chapter 13 Case based on the fact that the unsecured debts do not exceed the statutory cap, as the Debtor theoretically would then be eligible for relief under Chapter 13 of the Bankruptcy Code. And, should this Court then schedule an additional hearing to consider the alternative basis for dismissal urged by the Judgment Creditors, that the Petition was filed in bad faith. Concerning this record, this would be an unwarranted and unnecessary use of judicial power in light of the fact that this Court already made a specific finding when it ruled on the Motion to Impose Sanctions that this Petition was filed in bad faith. This Court is satisfied that this represents the law of the case, and for that reason, the Motion to reinstate the dismissed Chapter 13 Case would not be warranted. The Motion to reinstate pursuant to F.R.B.P. 7060(b) is hereby denied. Accordingly, the Chapter 13 Case remains dismissed on the basis that the Petition was filed in bad faith.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Emergency Motion to Vacate Order of Dismissal and Reopen Case (Doc. No. 131) and Amended Motion to Vacate Order of Dismissal and to Reopen Chapter 13 Case (Doc. No. 173) be, and the same are hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that the Motion to Dismiss (Doc. No. 11) be, and the same is hereby, denied as moot. This Court's previous finding of bad faith remains in full force and effect, and this Chapter 13 Case remains dismissed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547892/ | 279 B.R. 818 (2002)
In re Petition of Len B. BLACKWELL, for the ESTATE OF I.G. SERVICES, LTD., Debtor.
Len B. Blackwell, as the Joint Official Liquidator of I.G. Services, Ltd., and Chapter 11 Trustee for I.G. Services, Ltd., Plaintiff,
v.
Deloitte & Touche, LLP, Defendant.
Bankruptcy No. 99-53170-C. Adversary No. 02-5061-C.
United States Bankruptcy Court, W.D. Texas, San Antonio Division.
June 27, 2002.
*819 Patrick J. Neligan, Jr., Weil, Gotshal & Manges, Neligan Andrews Bryson Foley LLP, Dallas, TX, for debtor.
Patrick J. Neligan, Neligan Andrews Bryson Foley LLP, Dallas, TX, for joint admin. debtor.
Douglas J. Buncher, Neligan Andrews Bryson Foley LLP, Dallas, TX, for trustee.
William T. Reid, IV, Diamond McCarthy Taylor & Finley LLP, Austin, TX, for plaintiff.
Gavin Robert Villareal, Robb L. Voyles, Austin, TX, for defendant.
ORDER REGARDING JURY DEMAND AND STATEMENT REGARDING CONSENT
LEIF M. CLARK, Bankruptcy Judge.
CAME ON for consideration the foregoing matter. On May 29, 2002, the defendant filed its jury demand and also indicated that it did not consent to this court's conduct of a jury trial or to the entry of a final judgment in this case. Plaintiff concedes that the jury demand is well-founded, but asks the court to "delay" ruling on the jury demand until such time as it has ruled on the pending motion of the defendant to dismiss this case.
The court agrees with both parties that the defendant's jury demand is well-founded. The court also agrees with the defendant that there is no reason to delay ruling on the jury demand (to the extent that a ruling is even necessary). See Fed.R.Civ.P. 39(a) ("when trial by jury has been demanded . . . the action shall be designated upon the docket as a jury action"). The court disagrees with the defendant that this court is thereby divested of the judicial power to consider the pending motion to dismiss, however.
I. EFFECT OF FAILURE TO TIMELY SEEK WITHDRAWAL OF THE REFERENCE ON PARTY'S JURY DEMAND
Once a jury has been demanded, and once at least one of the parties refuses to consent to the conduct of the jury trial by the bankruptcy court, the bankruptcy court can no longer conduct the trial of the matter unless neither party timely seeks to withdraw the reference. This is so because the bankruptcy court cannot unilaterally transfer the matter to the district court. Instead, the district court must affirmatively act to withdraw the reference. See 28 U.S.C. § 157(d). If, however, no one asks the district court to act, the district court is unlikely even to be aware of the existence of the matter, much less to actually withdraw the reference. Both the statute and the rules contemplate the party who desires (and needs) withdrawal to affirmatively seek it by motion to the district court. See id.; see also FED. *820 R.Bankr.P. 5011. If neither party timely takes this additional step (the essential last step to assure that one gets the jury trial they desire before the tribunal they prefer), then that failure can only be construed as a waiver of the party's right to a jury trial.
Rule 38 confirms that the constitutionally protected right to a jury trial is in fact waivable by inaction on the part of a litigant. See Fed.R.Civ.P. 38(d). In bankruptcy cases, due to the structure of the bankruptcy court, additional steps are required to perfect the jury demand. The failure to complete these steps in the bankruptcy context ought to be construed in precisely the same fashion as the failure to file the requisite pleading contemplated by Rule 38 in an ordinary civil trial context. Rule 9015 of the Bankruptcy Rules is unfortunately silent on this issue, but no other construction is possible. The failure to seek a withdrawal of the reference, for example, leaves the case pending before the bankruptcy judge. When a jury demand is made, consent is not given, and no party seeks to withdraw the reference, the bankruptcy court is left with only two options at law: first, it could dismiss the case on grounds that it lacks the judicial power to conduct the trial; second, it could try the case without a jury on grounds that the party who refuses to allow the bankruptcy judge to conduct the trial, but who also fails to take the necessary steps to place the matter before the district judge, has of necessity waived its right to have a jury trial. The first choice is unacceptable, because a dismissal might well deprive the plaintiff of an alternative forum for proceeding with the action if the statute of limitations has, in the meantime, run.[1] It also permits a litigant to benefit from their lack of diligence, and affirmatively discourages parties from pursuing the very course plotted out by Congress in section 157, namely, to impose on the parties the duty to seek withdrawal of the reference when a case should not (or cannot) be tried by the bankruptcy court.
The second choice, by contrast, is consistent with the way waiver in the litigation context normally works. When a party has a duty to take certain steps in the course of litigation, and fails to take those steps, waiver is a common presumed consequence of that failure. We have already noted that a party's failing to file a jury demand within the time specified in Rule 38 constitutes a waiver of the right to have a jury trial. A failure to timely respond to requests for admissions will result in the party's being deemed to have admitted everything requested a de facto waiver of the right to contest the allegations. See Fed.R.Civ.P. 36(a). A failure to timely raise evidentiary objections at trial constitutes a waiver of the right to later challenge the admission of evidence on appeal. See C.P. Interests, Inc. v. California Pools, Inc., 238 F.3d 690, 696-97 (5th Cir.2001). A failure to put on evidence in support of an affirmative defense is typically treated as a waiver of that defense (as is a failure to plead that defense). See U.S. v. Thibodeaux, 211 F.3d 910, 912 (5th Cir.2000). A party's failure to follow through with the relatively simple procedural steps required to assure that party that they will have their day in court before a jury of their peers ought similarly to be treated as a waiver of that right. In this way, the party with the duty to act is the party who suffers the adverse consequences for failing to act. The other approach (dismissal) *821 achieves exactly the opposite, undesirable result the party with the duty to act is rewarded for failing to act.
II. WHETHER A BANKRUPTCY COURT CAN CONSIDER OR RULE ON A DISPOSITIVE MOTION IN A NON-CORE PROCEEDING WITHOUT BOTH PARTIES' EXPRESS CONSENT
It is well-settled that, until such time as the district court withdraws the reference, a given matter in a bankruptcy case remains before the bankruptcy judge to whom the case has been assigned. The jury demand does not change this fact in the least. Indeed, all that a jury demand assures is that the case will, at the appropriate time, be tried to a jury. Many a party never makes it to trial, never has the opportunity to present their facts to a jury of their peers, because the matter is disposed of on its legal merits, without there ever being a contestable issue of fact. A matter might, for example, be one for which there is no legal remedy as a matter of law. See Fed.R.Civ.P. 12(b)(6). Or there may be no contested issues of material fact, such that the matter can be disposed of as a matter of law by summary judgment. Fed.R.Civ.P. 56. In such cases, the right to a trial by jury never arises because the case never goes to trial at all. Thus, even if a jury has been demanded in such cases, that right is not abridged by the entry of a final order which, say, grants a motion to dismiss or grants summary judgment. So long as the matter is pending before the bankruptcy court, then, that court may rule on dispositive motions presented to it without contravening any party's jury entitlements and without contravening any party's right to have a jury trial before the district court as provided in 28 U.S.C. § 157(e).
A separate question is presented by a party's refusal to consent to the bankruptcy court's hearing and determining, and entering appropriate orders and judgments with respect to noncore matters. See 28 U.S.C. § 157(c). The defendant here contends that that section prevents this court even from considering dispositive motions filed pursuant to Rule 12 or Rule 56, much less ruling on such motions. The statute's language lends credible support to this contention. The statute provides that, absent consent as provided in subsection (c)(2),
[a] bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11. In such a proceeding, the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected.
28 U.S.C. § 157(c)(1); see also Celotex Corp. v. Edwards, 514 U.S. 300, 115 S. Ct. 1493, 1500 n. 7, 131 L. Ed. 2d 403 (1995) (finding that an injunction issued in a noncore proceeding did not violate this section because the injunction was interlocutory and so not final, within the meaning of this section).
Section 157(c)(1) was enacted in reaction to the Supreme Court's decision in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S. Ct. 2858, 73 L. Ed. 2d 598 (1982), in which the Court struck down as unconstitutional the 1978 Bankruptcy Reform Act's allocation of judicial power to the bankruptcy courts. See In re Apex Express Corp., 190 F.3d 624, 631 (4th Cir.1999). In the Bankruptcy Amendments and Federal Judges Act of 1984, Congress purported to vest original bankruptcy jurisdiction in the district court, which could then refer all bankruptcy matters to the adjunct bankruptcy *822 courts, subject to the right to withdraw that reference in whole or in part, on its own motion or on motion of a party in interest.[2] Core matters can be heard and decided by the bankruptcy judges, subject only to appellate review that is indistinguishable from the appellate review that is given to district court decisions by the courts of appeal. See 28 U.S.C. §§ 157(b), 158(d) (district court has jurisdiction to hear appeals "from final judgments, orders, and decrees"); see also Matter of U.S. Abatement Corp., 79 F.3d 393, 397-98 (5th Cir.1996) (legal conclusions are reviewed de novo on appeal). Non-core matters, of the sort that gave rise to Marathon, can be heard by the bankruptcy court, but the statute itself says that only the district court can enter "final judgments and orders," absent consent of the parties. See 28 U.S.C. § 157(c)(1).
The statute is silent, however, regarding just what the expression "final order or judgment" contemplates. Does this expression refer only to the ultimate ruling to be rendered after an evidentiary hearing, or does it also encompass rulings on dispositive motions, which implicate only legal conclusions and rulings? The standard of review for appellate review of legal conclusions and the district court's review of the legal conclusions incorporated in a bankruptcy judge's report and recommendation after trial of a non-core matter is the same de novo review. Indeed, it is exactly the same, because, in the latter case, the district court's de novo review is limited to "those matters to which [a] party has timely and specifically objected," the selfsame scope of review as applies when appellate review is sought. This parallelism suggests that a reading of section 157(c)(1) that requires a report and recommendation to the district judge even on at-law rulings on dispositive motions (such as motions to dismiss and motions for summary judgment) may elevate form over substance and introduce an unnecessary extra layer of paperwork that only adds delay.
We may gain some guidance by comparing section 157(c)(1) with section 636(b)(1) of title 28, which describes the powers of magistrate judges with regard to referred civil matters. The statutes, while similar, are not precisely the same. The magistrate statute states that
(A) A [district] judge may designate a magistrate to hear and determine any pretrial matter pending before the court, except a motion for injunctive relief, for judgment on the pleadings, for summary judgment, . . . to dismiss for failure to state a claim upon which relief can be granted, and to involuntarily dismiss an action.
(B) a [district] judge may also designate a magistrate to conduct hearings . . . and to submit to a judge of the court proposed findings of fact and recommendations for disposition . . . of any motion excepted in subparagraph (A) . . .
28 U.S.C. § 636(b)(1). There is no similar express bar to the bankruptcy judge's hearing dispositive motions. In addition, bankruptcy judges can enter final orders without question on so-called "core" matters, subject only to ordinary appellate review, a power not accorded magistrate judges. The difference suggests a broader grant of judicial power on reference to bankruptcy judges than to magistrate judges, one that could easily permit direct rulings by the bankruptcy judge on dispositive motions in non-core proceedings. Congress certainly could have tracked the *823 language it had used in section 636(b)(1), but did not, suggesting that Congress did not intend to so closely proscribe the powers of the bankruptcy court. In addition, the essential nature of review of a bankruptcy court's legal conclusions in a core matter and a bankruptcy court's at-law ruling on dispositive motions in a non-core matter is precisely the same: de novo review of the bankruptcy judge's legal conclusions. Compare Matter of U.S. Abatement Corp., 79 F.3d 393, 397-98 (5th Cir.1996) (bankruptcy judge's conclusions of law are reviewed on appeal de novo) with 28 U.S.C. § 157(c)(1) (conclusions rendered on non-core matters are reviewed de novo, to the extent of timely and specific objections). Dispositive motions do not involve factual findings, of course especially dispositive motions under Rule 12(b) so the scope of review on dispositive motions is the same as is the scope of ordinary appellate review of any legal conclusion rendered by a bankruptcy judge in a core proceeding.
Congress, it seems, was most concerned that a differing standard of review by applied when the bankruptcy court made factual findings, as opposed to legal conclusions, for that is the only circumstance in which a differing standard ever would be used. The operative sentence in subsection (c)(1) says that "[i]n such proceedings, the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge, after considering the bankruptcy judge's proposed findings and conclusions and after review de novo those matters to which any party has timely and specifically objected." 28 U.S.C. § 157(c)(1) (emphasis added).
Reasonable persons could certainly read the subclause referring to the entry of final orders and judgments in isolation and conclude that bankruptcy judges cannot enter dispositive rulings on motions to dismiss or for summary judgment. See, e.g., In re Apex Express Corp., supra at 633. Yet there is no essential difference between the review accorded at-law findings in non-core proceedings, and the at-law findings in core proceedings: "Because this was a motion for summary judgment and we have before us all of the facts developed below, rather than remanding to the district court so that it can conduct a de novo factual analysis, we undertake that de novo analysis in the first instance." See id. Indeed, there are no factual findings on a motion for summary judgment. See Reyes v. City of Richmond, Texas, 287 F.3d 346, 350 (5th Cir.2002) (the determination that there are no genuine issues of material fact on summary judgment is a legal conclusion, not a factual one).
A more wholistic and rational reading of the sentence in section 157(c)(1) suggests that the final judgment or order to which the statute refers is the ruling that emerges from an evidentiary hearing, and that Congress had in mind the preparation of a report and recommendation only upon the conclusion of a final evidentiary hearing or trial. That is the context in which a differing standard of review arises (de novo versus "clearly erroneous"). That also makes sense of the remainder of the statute, which applies de novo review not to the entirety of the bankruptcy judge's recommendation but only to "those matters to which any party has timely and specifically objected." 28 U.S.C. § 157(c)(1). If no one objects, then the district court does not engage in de novo review. There is nothing left for the district court to do unless one believes that Congress at this critical juncture believed it essential to the constitutionality of the bankruptcy court structure to require the district court to perform the ministerial act of signing a separate piece of paper. Given that the *824 ministerial act contains no element of "supervision," one is hard-pressed to imagine just how it could take on constitutional proportions. See Gomez v. U.S., 490 U.S. 858, 109 S. Ct. 2237, 2247, 104 L. Ed. 2d 923 (1989).
Yet, despite the utter lack of necessity for this ministerial act, the appellate structure of the bankruptcy court system seems to afford little alternative. Section 158(a) gives appellate jurisdiction to the district court only with respect to those final judgments, orders and decrees which have been referred to the bankruptcy judge under section 157. As we have already seen, section 157(c)(1) is itself a severe limitation on the scope of that reference. It seems clear that Congress thought that, with respect to whatever final rulings were rendered in non-core proceedings, the first level of appellate review would occur at the circuit level. The structure of section 157(c)(1) may not make much practical sense, but there seems to be no room for district court appellate review of bankruptcy court final rulings on dispositive motions. Meanwhile, there is easy direct review by the circuit court of final decisions of the district court, of which a district court ruling on a dispositive motion would be one example. See 28 U.S.C. § 1291. Sensible or no, the statute seems to require that the district court enter the order on dispositive motions in non-core proceedings.
Neither of these alternatives demands that the consideration of dispositive motions be passed on to the district court however, as the defendant has suggested. Indeed, even under the magistrate statute, magistrate judges consider dispositive motions and submit reports to the district judge. 28 U.S.C. § 636(b)(1)(B). So long as the reference remains with the bankruptcy judge, then, motions to dismiss and other dispositive motions should and will be considered by this court. As and when the court reaches a conclusion with respect to such motions, it will prepare a report and recommendation for submission to the district court, requesting entry of a final order thereon, and affording the parties the opportunity to timely and specifically object, as provided in section 157(c)(1).
SO ORDERED.
NOTES
[1] Limitations are normally tolled for a brief period of time when a given case is dismissed for lack of subject matter jurisdiction. However, the dismissal option here described would result not from a lack of subject matter jurisdiction, but from a lack of judicial power. It is less certain that tolling would apply in this context.
[2] The 1984 Act continued the procedure of separate bankruptcy court and clerk offices, where all matters would be originally filed so long as a general order of reference was in place. See Fed.R.Bankr.P. 5005. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547893/ | 156 F.2d 483 (1946)
ADDRESSOGRAPH-MULTIGRAPH CORPORATION
v.
COOPER et al.
No. 253, Docket 20161.
Circuit Court of Appeals, Second Circuit.
July 18, 1946.
Joshua Ward, of New York City, and George H. Wallace and Charles B. Cannon, both of Chicago, Ill. (Ward Crosby & Neal, of New York City, and Wallace & Cannon, of Chicago, Ill., of counsel), for plaintiff-appellant.
J. B. Felshin, of New York City, for defendants-appellees.
Before SWAN, CLARK and WOODBURY, Circuit Judges.
WOODBURY, Circuit Judge.
This is an appeal from a final decree dismissing a complaint in a suit brought for infringement of United States patent No. 1,967,221 issued to William R. Allen and Emmett C. Hartley on July 24, 1934, for a Printing Plate and Holding Means Therefor.
A former suit brought in the court below by the present plaintiff-appellant against only the individual defendant-appellees herein for infringement of this patent terminated in a consent decree dated January 25, 1939. In that decree it was adjudicated first that the patent was good and valid in law as to each of its claims, and second that the plaintiff-appellant was possessed of the entire right, title and interest therein. Then the decree continued: "That, whereas the defendants have represented *484 that they have merely furnished to others printing plates employing the invention covered by said Letters Patent for use upon the holding means of said Letters Patent as claimed therein, but that they have not made or sold the aforesaid printing plates and have no intention of making, using or selling such printing plates, plaintiff has waived the issuance of an injunction against, and an accounting by, the defendants, Eva Cooper and Milton Berg, and each of them." In conclusion the decree awarded taxable costs to the defendants.
At the trial of the present suit in the court below the plaintiff-appellant contended that the consent decree in the former suit estopped all the defendants from contesting the validity of the patent. The District Court, however, held otherwise and then proceeded to hold both claims of the patent here in issue invalid for lack of invention. This appeal, therefore, presents two questions. We shall consider them in the order stated.
The District Court found that the individual defendants were incorporators and are directors and officers of the defendant corporation; that they own all but one share of its stock; that the evidence does not disclose that anyone other than themselves controlled or transacted any business of the corporation; and that they participated in the manufacture and sale of the plates which it was conceded by the corporation over which they had control infringe the plaintiff's patent if it is valid. On the basis of these findings it properly concluded that if the consent decree in the former suit estopped at all, it estopped the corporate defendant as well as the individual defendants. But the court below concluded that the consent decree in the prior suit was invalid as a matter of law for the reason that infringement was not adjudicated therein, and hence that it did not estop any of the defendants from later contesting the validity of the patent. It found that there was no trial in the former suit nor any adjudication therein on the merits as to the validity of the patent; that the consent decree, although it did not give the defendants any relief, provided for the payment of costs to them; that it did not provide for any injunction or accounting, and that it did not disclose that there had been any infringement of the plaintiff's patent. "On the contrary," it found, "the evidence discloses that the defendants rejected a proposed consent decree submitted by plaintiff to them because it contained an allegation that they infringed the patent. The consent decree, therefore, submitted by the plaintiff to the defendants and signed by them does not contain any allegation of infringement." And it found "If the defendants in the prior suit did not infringe at the time said consent decree was entered, they were not seriously interested in any adjudication of the validity of the patent." On these findings the court below concluded that the consent decree in the prior suit adjudicating, the patent to be valid could not be sustained. In other words, the court below held as a general proposition of law that an adjudication of the validity of a patent, unless accompanied by an adjudication of infringement, is invalid and will not estop a defendant from later contesting the validity of the same patent in another suit for infringement brought by the same plaintiff.
We agree with the District Court that the issue of infringement was not adjudicated one way or the other by the decree in the former suit. And, although no case directly in point has come to our attention, we also agree with the District Court that on grounds of public policy such a decree does not estop.
In Pope Mfg. Co. v. Gormully, 144 U.S. 224, 12 S. Ct. 632, 636, 36 L. Ed. 414, decided in 1892, the question before the Supreme Court was whether a court of equity can be called upon to decree the specific performance of a provision in a licensing contract whereby the defendant-licensee had agreed never to dispute or contest either the validity of, or the plaintiff-licensor's title to, the patents covered by the license. In it the court stated the "real question" to be whether by contract "the defendant can estop himself from disputing patents which may be wholly void, or to which the plaintiff may have no shadow of title." Then it proceeded to consider whether such contracts were void as contrary to public policy, in the course of which it said that "It *485 is * * * important to the public that competition should not be repressed by worthless patents * * *", and "it is a serious question whether public policy permits a man to barter away before hand his right to defend against unjust actions or classes of actions * * *" "But," the Supreme Court continued, "whether this contract be absolutely void, as contravening public policy, or not, we are clearly of the opinion that it does not belong to that class of contracts, the specific performance of which a court of equity can be called upon to enforce," and on this ground a decree below dismissing the plaintiff's bill of complaint was affirmed.
Several recent decisions have elaborated upon and applied the public policy adverted to in the above case to various concrete situations.
In Electrical Fittings Corp. v. Thomas & Betts Co., 307 U.S. 241, 59 S. Ct. 860, 83 L. Ed. 1263, the Supreme Court held that a defendant in a suit for patent infringement who appealed from a decree adjudicating a claim of the patent sued upon valid although not infringed was entitled to reformation of the decree by eliminating therefrom the portion dealing with validity so that it would not stand as an adjudication of that issue, and this in spite of the fact that the decree as it originally stood finally terminated the litigation in the defendant's favor. Then subsequently, on the basis of the above case and the decision in this circuit of Cover v. Schwartz, 2 Cir., 133 F.2d 541, the Supreme Court announced in Altvater v. Freeman, 319 U.S. 359, 363, 63 S. Ct. 1115, 1117, 87 L. Ed. 1450, that "To hold a patent valid if it is not infringed is to decide a hypothetical case."
But, logic notwithstanding, it does not follow that to hold a patent invalid if it is not infringed, is also to decide a hypothetical case. See Hale v. General Motors Corp., 1 Cir., 147 F.2d 383, 388; Grant Paper Box Co. v. Russell Box Co., 1 Cir., 151 F.2d 886, 890; Sinclair & Carroll Co., Inc., v. Interchemical Corp., 325 U.S. 327, 330, 65 S. Ct. 1143, 89 L. Ed. 1644. The reason for this is the importance to the public generally that an invalid patent "should not remain in the art as a scarecrow." Bresnick v. United States Vitamin Corp., 2 Cir., 139 F.2d 239, 242. Then in Mercoid Corp. v. Mid-Continent Investment Co., 320 U.S. 661, 670, 64 S. Ct. 268, 88 L. Ed. 376, the Supreme Court held that in patent cases, as in other litigation, equitable relief should be either extended or limited as the public interest may require, and that as a result the doctrine of res judicata in patent cases is limited by the public policy against monopoly.
On the basis of these cases, particularly Cover v. Schwartz and Electrical Fittings Corp. v. Thomas & Betts Co., supra, we would find no difficulty whatever in reaching the conclusion that the consent decree in the former suit would not operate to estop if non-infringement had been directly adjudicated therein. But even though we can only say that the consent decree left the issue of infringement without adjudication, nevertheless we think on grounds of public policy we ought to rule that in a decree, at least in one entered by consent, either an adjudication of infringement, or a grant of some relief from which infringement may be inferred, is essential before any effect of res judicata can be given to it on the issue of validity. In other words, we think the public interest in a judicial determination of the invalidity of a worthless patent is great enough to warrant the conclusion that a defendant is not estopped by a decree of validity, at least when the decree was by consent, unless it is clear that in the litigation resulting in the decree the issue of validity was genuine.
This brings us to the question of the validity of the two claims in issue, and this need not detain us long.
The patent in suit relates to a printing apparatus employing a printing plate mounted upon by being wrapped around and fastened by its ends to a rotary drum; the particular invention covered, according to the initial sentence of the patent, "being concerned with the mutual formation of the printing plate and the means for attaching it to the drum." Admittedly printing apparatus of the type described is old, and the court below found that for many years before the date of the plaintiff's patent the flexible metallic plates used therein had been provided with holes near their *486 ends so proportioned and spaced as to engage pins on the means for holding the plates to the drum. We are not concerned here, however, with any form of holding means for the reason that the claims in suit do not cover the plate in combination with any holding means. They cover only the shape and form of the plate itself[1] and read as follows:
"7. A comparatively long and narrow flexible metallic printing plate having at the ends thereof a series of spaced integral projections, each being rounded on its end, and the spaces between the projections being reversely rounded.
"8. A metallic printing plate having a series of ears on its end integral with the plate and slots through the ears, the outermost portion of the slots being beyond the innermost portion of the spaces between the ears."
Thus the claims of the patent here in issue are only for an old type of plate modified as to its shape and structure by having its ends scalloped and provided with slots instead of having its ends straight or crenelated and provided with holes. Certainly no exercise of the faculty of invention is required to substitute a slot for a hole, and the substitution of a scalloped for a straight or crenelated edge to make the plate fit the new holding means, if required at all, a matter not free from doubt, does not amount to invention. It is too obvious for argument that even an amateur mechanic would know enough to cut the plate to fit the holding means. The cases of Gillette Safety Razor Co. v. Standard Safety Razor Co., 2 Cir., 64 F.2d 9; Gillette Safety Razor Co. v. Standard Safety Razor Corporation, 2 Cir., 74 F.2d 691; Addressograph-Multigraph Corporation v. Staudt, 2 Cir., 124 F.2d 672, 675, are clearly in point.
The judgment of the District Court is affirmed.
CLARK, Circuit Judge (dissenting).
Several years ago the individual parties herein were in the same dispute as to the plaintiff's patent which is here repeated. The resulting litigation was terminated by the District Court in 1939 by a decree which adjudged the patent "good and valid in law as to each of the claims thereof." The decree then went on to recite that plaintiff had waived an injunction and an accounting, giving as reason therefor the defendants' representations that "they have merely furnished to others printing plates employing the invention" without making or selling them and that they "have no intention of making, using or selling such printing plates." This final adjudication of the appropriate court, made with the parties before it, is now treated as a nullity as to these same parties both by the court below and by my brethren herein. The only variant is that defendants have resorted to the transparent cover for their renewed actions of a corporation an artifice which has been properly rejected as of no moment by both courts. Other than that this is a suit involving patents, I do not discover just what the grounds are for thus disregarding a formal court decree.
Of course we all have come to recognize a new climate of opinion as to patents one which stresses the desirability of prompt invalidation of doubtful patents. But the very facility with which this can be done makes it unnecessary to resort to doubtful new principles of law to get rid of inconsequential patents. That this patent may have a small scope of operation against only these two individuals would seem a less evil than that they should be able to repudiate their agreement of settlement and flout the court's decree. So far as this represents an agreement, it is a more solemn one than the ones held no bar to a claim of patent invalidity; it is an accord and satisfaction of a bona fide dispute, not an agreement forced upon one in restraint of trade or an estoppel implied from accepting a license. So far as it is a court decree, it is more than merely a consensual affair, both because it is a court act and because, moreover, it was entered not only upon consent of the solicitors for the respective parties, but also "on the pleadings and proceedings *487 herein," which included the extensive deposition upon oral testimony of Milton Berg. The subject matter of this disposition was the defendants' activities in selling printing plates, as I shall discuss below. Hence the judgment was fully on the merits and thoroughly final.[1]
Let us consider the various suggestions for the invalidation of this judgment. That it was called a "consent decree" is not enough. A judgment entered upon concessions of fact by the parties is as binding, as obviously it should be, as a judgment entered upon the court's acceptance of one of two conflicting stories told from the witness stand. United States v. Swift & Co., 286 U.S. 106, 52 S. Ct. 460, 76 L. Ed. 999; cf. General Elec. Co. v. Hygrade Sylvania Corp., D.C.S.D.N.Y., 61 F. Supp. 476, 491, 492; Heiser v. Woodruff, 66 S. Ct. 853, 857. And here the decree was entered only after the giving of testimony by the important defendant on the point which was at issue between the parties.
Next it is said that the decree cannot stand because there was no finding of infringement. This seems to me a most unfortunate statement in both its branches, sure to come back to plague us in the future. First, there was infringement. In the decree, defendants represented that they "furnished" the patented printing plates to others; and this was fully explained by Berg in his deposition that he furnished some plates to one Louis Tutman, or as he put it: "He got a few plates that I left him when I was working for Duxback. Later on when I switched [employers] I still came up to sell him equipment which I was interested to sell. He never got a bill and there was never paid any money to me or anybody at the Alumo Company, or any place at all, not only for this particular plate, but for any plates at all." I suggest it is highly novel doctrine that infringement is avoided by failing to collect a bill for the infringing product. Compare Patent Tube Corp. v. Bristol-Myers Co., D.C.S.D.N.Y., 25 F. Supp. 776; Scott & Williams, Inc., v. Hemphill Co., D.C.S.D. N.Y., 14 F. Supp. 621. The fact that the parties did spar as to the wording of the decree, and plaintiff finally allowed defendants their costs, seems to me no more than the natural steps in negotiations where each party tried to preserve what it could of both form and substance. It is, of course, the decree by the court which is the binding document.
But second, even were there no infringement, the decree would not be void upon collateral attack. Although it has been cited for diverse and sundry things since it did cover considerable ground the only case holding the question of validity "moot," absent a showing of infringement, is Cover v. Schwartz, cited in the majority opinion. Even as far as it went (which was to hold that we lacked jurisdiction of an appeal where the plaintiff-appellant conceded noninfringement), that decision has made confusion and complexity out of matters which should be simple. It is conceded, as it must be, that a defendant may counterclaim for a declaratory judgment as to the patent. Altvater v. Freeman, 319 U.S. 359, 63 S. Ct. 1115, 87 L. Ed. 1450.[2] But there is nothing in the Altvater case which says that a plaintiff cannot likewise ask for a declaratory judgment against adverse claims, thus leaving nothing to the Cover doctrine except lack of a proper prayer for judgment, which is made specifically unnecessary under Federal Rules of Civil Procedure, rule 54(c), 28 U.S.C.A. following section 723c. When Sinclair & Carroll *488 Co. v. Interchemical Corp., 325 U.S. 327, 65 S. Ct. 1143, 89 L. Ed. 1644, stressed the desirability of a decision as to the validity of a patent even where noninfringement is found, I had hoped that this would be the end of the confusing restrictions upon the full and free adjudication of patent cases implicit in the Cover case, which, as I am informed, have embarrassed district judges. See also the powerful criticisms of the case in 52 Yale L.J. 909; Borchard, Challenging "Penal" Statutes by Declaratory Action, 52 Yale L.J. 445, 449, n. 10; and 1 Moore's Federal Practice, 1942 Cum.Supp. 133-135. Here, however, we find these restrictions expanded to the extreme point of justifying collateral attack. But I have seen no case which says that, when a court has gone on to decide a question now asserted to have been "moot," its judgment is a nullity between the parties. Indeed, the idea is contrary to settled conceptions of res judicata. McCormick v. Sullivant, 10 Wheat. 192, 23 U.S. 192, 6 L. Ed. 300; Chicot County Drainage Dist. v. Baxter State Bank, 308 U.S. 371, 376, 378, 60 S. Ct. 317, 84 L. Ed. 329; Jackson v. Irving Trust Co., 311 U.S. 494, 503, 61 S. Ct. 326, 85 L. Ed. 297; Heiser v. Woodruff, supra; Ripperger v. A. C. Allyn & Co., 2 Cir., 113 F.2d 332, certiorari denied 311 U.S. 695, 61 S. Ct. 136, 85 L. Ed. 450.
It seems to me therefore that we must come back to some peculiar doctrine applying only against patentees. If so, I think we ought to come out directly and so state. But it certainly would be odd to say, without one word of support in procedural rules and statutes, that only one contesting a patent can seek and obtain a declaration or other judgment as to validity without a finding of infringement. This, I fear, is another illustration of a not unusual judicial habit, that of warping procedural rules, at the sacrifice of their general utility, to meet what are conceived to be the exigencies of a particular situation. There seems no reason why a patentee should not be allowed to seek a declaratory judgment like any other litigant, or why a judgment for the defendant in such a suit is not as effective a procedure in restricting patents as would be a judgment on a defendant's counterclaim. And the queries become the more insistent when the attack is made by defendants collaterally upon a decree as much their own as it is plaintiff's.
It is true that in Mercoid Corp. v. Mid-Continent Inv. Co., 320 U.S. 661, 64 S. Ct. 268, 88 L. Ed. 376, the Supreme Court held the doctrine of res judicata in patent cases to be limited by the public policy against monopoly or illegal restraint of trade. The Court was there sharply divided, and the reaches of the decision cannot yet be considered clearly defined. But it seems as yet clearly limited to agreements illegal because of the anti-trust laws; the majority of the Court refused to press their holding beyond that point. 320 U.S. at pages 670, 671, 64 S. Ct. 268, 88 L. Ed. 376. I see no reason to extend it to an ordinary agreement of compromise, without taint of illegality, which is carefully embodied in a formal court decree.
NOTES
[1] This construction of the claims is confirmed, as the District Court [60 F. Supp. 698] pointed out, "by the fact that all the other twenty claims [of the patent in suit] relate to the plate in combination with holding means."
[1] Defendants felt driven to make other objections to the decree, which were overruled below and are not noticed here, such as that their solicitor was not authorized to consent and that costs were not taxed; the latter is clearly unnecessary under cases such as Fowler v. Hamill, 139 U.S. 549, 11 S. Ct. 663, 35 L. Ed. 266, The Washington, 2 Cir., 16 F.2d 206, and other cases cited in Second Preliminary Draft of Proposed Amendments to Rules of Civil Procedure, May, 1945, Rule 58, note, p. 67.
[2] The interpretation here placed upon Electrical Fittings Corp. v. Thomas & Betts Co., supra, 307 U.S. 241, 59 S. Ct. 860, 83 L. Ed. 1263, seems to me unsound, particularly in the light of later cases. That case is actually authority for extension, not contraction, of appellate jurisdiction; the decision below, denying jurisdiction, Thomas & Betts Co. v. Electrical Fittings Corp., 2 Cir., 100 F.2d 403, was reversed to achieve a result just to the defendant under the circumstances. See also United Carbon Co. v. Binney & Smith Co., 317 U.S. 228, 229, 63 S. Ct. 165, 87 L. Ed. 232, and Sinclair & Carroll Co. v. Interchemical Corp., 325 U.S. 327, 65 S. Ct. 1143, 89 L. Ed. 1644. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547888/ | 279 B.R. 748 (2002)
In re STONE & WEBSTER, INCORPORATED; 1430 Enclave Parkway Corporation; 245 Summer Street Corporation; AEC International Projects, Inc.; Associated Engineers & Consultants, Inc.; Auburn VPS General Corporation; Auburn VPS Limited Corporation; Belmont Constructors Company, Inc.; Commercial Cold Storage, Inc.; DSS Engineers, Inc.; Enclave Parkway Realty, Inc.; Fast Supply Corporation; Gses Holding, LLC; International Engineers and Constructors, Incorporated; Nordic Holdings, Inc.; Nordic Investors, Inc.; Nordic Rail Services, Inc.; Nordic Refrigerated Services, Inc.; Nordic Refrigerated Services, Limited Partnership; Nordic Transportation Services, Inc.; Polar Transport, Inc.; Power Technologies, Inc.; Prescient Technologies, Inc.; Projects Engineers, Incorporated; Rockton Associates, Incorporated; Rockton Technical Services Corporation; Sabal Corporation; Sabal Real Estate Corporation; Saw Consulting Services, Inc.; SC Wood, LLC; Selective Technologies Corporation; Sleeper Street Realty Corporation; Stone & Webster ABU Dhabi (United Arab Emirates), Inc.; Stone & Webster Asia Corporation; Stone & Webster Auburn Corporation; Stone *749 & Webster Bharat, Incorporated; Stone & Webster Binghamton Corporation; Stone & Webster Civil and Transportation Services, Inc., Stone & Webster Construction Company, Inc.; Stone & Webster Development Corporation; Stone & Webster Dominican Republic, Incorporated; Stone & Webster Engineers and Constructors, Inc.; Stone & Webster Far East Technical Services Corp.; Stone & Webster Indonesia Corporation; Stone & Webster Industrial Technology Corporation; Stone & Webster Inter-American Corporation; Stone & Webster International Corporation; Stone & Webster International Projects Corporation; Stone & Webster Italia, Incorporated; Stone & Webster Korea Corporation; Stone & Webster Kuwait, Incorporated; Stone & Webster Overseas Development Corporation F/K/A Stone & Webster Lithuania Corporation; Stone & Webster Management Consultants, Inc.; Stone & Webster Middle East Engineering Services Corporation; Stone & Webster of Argentina Corporation; Stone & Webster of Mexico Engineering Corporation; Stone & Webster Oil Company, Inc.; Stone & Webster Operating Corporation; Stone & Webster Overseas Consultants, Inc.; Stone & Webster Overseas Group, Inc.; Stone & Webster Pacific Corporation; Stone & Webster Power Engineering Corporation; Stone & Webster Power Projects Corporation; Stone & Webster Procurement Corporation; Stone & Webster Puerto Rico, Incorporated; Stone & Webster Saudi Arabia, Incorporated; Stone & Webster Taiwan Corporation; Stone & Webster Technology Corporation; Stone & Webster Wallingford Corporation; Stone & Webster Worldwide Engineering Corporation; SWL Corporation; Stone & Webster Engineering Corporation; and Stone & Webster Michigan, Inc., Debtors.
Nos. 00-2142 to 00-2214.
United States Bankruptcy Court, D. Delaware.
May 30, 2002.
*750 *751 *752 *753 *754 Gregg M. Galardi, Esquire and Gary A. Rubin, Esquire, Skadden, Arps, Slate, Meagher & Flom LLP, Wilmington, Delaware; Edward J. Meehan, Esquire and David E. Carney, Esquire, Skadden, Arps, Slate, Meagher & Flom LLP, Washington, DC; counsel for Debtors.
Michael B. Joseph, Esquire, and Theodore J. Tacconelli, Esquire, Ferry & Joseph, PA, Wilmington, Delaware; William J. Kayatta, Jr., Esquire, Deborah L. Shaw, Esquire, and Jared des Rosiers, Esquire, Pierce Atwood, Portland, Maine; counsel for Maine Yankee Atomic Power Company.
MEMORANDUM OPINION
MCKELVIE, District Judge.
This is a commercial dispute that arises in the context of a bankruptcy action.
Stone & Webster Engineering Corporation ("SWEC") is a Massachusetts corporation with its principal place of business in Boston, Massachusetts. Stone & Webster Incorporated ("SWINC") is a Delaware corporation with its principal place of business in Boston, Massachusetts. Stone & Webster Engineers and Constructors, Inc. ("SWE&C") is a Maryland Corporation with its principal place of business in Boston, Massachusetts. The Stone & Webster companies are affiliated in the following manner. SWINC owns one hundred percent of the shares of SWE & C which, in turn, owns one hundred percent of the shares of SWEC. The court will refer to these three companies collectively as either "the Debtors" or "the Stone & Webster companies."
Claimant Maine Yankee Atomic Power Company is a Maine corporation with its principal place of business in Wiscasset, Maine. Maine Yankee owns a nuclear power generating facility in Wiscasset, Maine.
This dispute arises from a contract, effective August 31, 1998, that was entered between Maine Yankee and SWEC, whereby Maine Yankee hired SWEC to decommission Maine Yankee's Wiscasset nuclear power generating facility (the "Decommissioning Agreement"). Pursuant to the Decommissioning Agreement, SWE&C and SWINC executed written guaranties of SWEC's performance under the Agreement. SWE&C executed its written guarantee of SWEC's performance at the time that Maine Yankee and SWEC entered into the Agreement, while SWINC executed its written guaranty in December of 2000, in the wake of concerns voiced by Maine Yankee regarding SWEC's solvency.
On May 4, 2000, Maine Yankee issued a notice to SWEC stating that it was terminating the Decommissioning Agreement based upon SWEC's insolvency and because SWEC had not adequately performed under the contract. Both purported grounds for termination are provided for under the contract as allowable reasons to terminate the Agreement for cause. Soon thereafter, on June 2, 2000, SWINC, and certain of its affiliates, including SWE&C and SWEC, filed voluntary petitions for bankruptcy relief under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. §§ 101-1330. Maine Yankee has assumed the role of the contractor on its project, and is currently proceeding with the decommissioning of the power plant.
On August 23, 2000, Maine Yankee filed proofs of claim in the bankruptcy cases against SWEC and against SWINC and *755 SWE & C, as guarantors of SWEC's performance. Maine Yankee's proofs of claim seek damages from the debtors for SWEC's breach of the Decommissioning Agreement. On November 16, 2000, the Debtors objected to Maine Yankee's claims, arguing that the court should disallow the claims because Maine Yankee did not properly terminate the Decommissioning Agreement for either insolvency or failure to perform and, in any event, did not have a right to damages for terminating the agreement on account of SWEC's insolvency.
On February 13, 2001, the court held a one-day non-jury trial to consider Maine Yankee's claims and certain of the Debtors' threshold defenses. In an opinion dated July 26, 2001, the court refused to disallow Maine Yankee's claims.[1] However, it did permit SWEC to assert its own claims against Maine Yankee for work performed by SWEC that was uncompensated by Maine Yankee. Any damages proven by SWEC could then be set-off against Maine Yankee's claims.
In a subsequent memorandum opinion, dated November 21, 2001, the court considered several motions for partial summary judgment that had been filed by the Debtors. The court granted the Debtors' motion limiting Maine Yankee's damages claim to the $65 million damages cap set forth in Article 30.2 of the Decommissioning Agreement. The court denied the remainder of Debtors' motions, which sought summary judgment based on the following affirmative defenses: (i) that Maine Yankee's damages claim is unripe due to Maine Yankee's failure to fulfill certain conditions precedent under the Decommissioning Agreement; and (ii) that Maine Yankee's claim should be barred because it failed to mitigate damages by refusing to accept the tender of performance offered by SWINC and SWE&C.
In order to resolve Maine Yankee's August 23, 2000 Proofs of Claim, the court held a seven day bench trial between November 26 and December 3, 2001. The principal issues presented to the court included: (i) whether Debtors are liable to Maine Yankee for breach of the Decommissioning Agreement; (ii) what amount of damages, if any, is Maine Yankee entitled to from SWEC for SWEC's alleged breach of the Decommissioning Agreement; and (iii) what amount of damages, if any, is Maine Yankee entitled to from SWINC and SWE&C pursuant to their guarantees of SWEC's performance under the Decommissioning Agreement. If it finds that Maine Yankee is entitled to damages, the court must also resolve whether its findings based on the trial are to be used for purposes of allowing Maine Yankee's claim or for purposes of estimating the dollar amount of Maine Yankee's future allowable claim.
Closing arguments in the trial were made on April 3, 2002, and the post-trial briefing is now complete. Having reviewed the trial transcript, exhibits, and briefing, this is the court's decision on Maine Yankee's Proofs of Claim.
I. FACTUAL BACKGROUND
The court draws the following facts from the stipulated facts set forth in the pretrial order and from the testimony and exhibits presented during the trial in this case.
*756 In its case in chief, Maine Yankee called eleven witnesses, including Wayne Norton, Maine Yankee's current President and its former contract manager and Vice President of Decommissioning; Edward Doubleday, Maine Yankee's damages expert; Raymond Burke, Maine Yankee's current Vice President of Decommissioning and the former contracts manager for SWEC on the Maine Yankee decommissioning project; Michael Evringham, Maine Yankee's current contracts and procurement manager; Todd Smith, Maine Yankee's project controls manager; David Holbert, Maine Yankee's logistics project manager for the waste management group; Michael Meisner, Maine Yankee's former President and current Chief Nuclear Officer; Paul Plante, Maine Yankee's project manager for cask loading and fuel transfer; James Garvey, Maine Yankee's director of business integration; Michael Thomas, Maine Yankee's Vice President and Chief Financial Officer; and Robert Gerber, an environmental consultant who assisted Maine Yankee and SWEC on the decommissioning project.
Maine Yankee also designated portions of deposition testimony from James Bernhard, the Chief Executive Officer of the Shaw Group, a company that bid on the Maine Yankee project and ultimately acquired the assets of Stone & Webster at a bankruptcy auction, and Jerome Kane, the replacement project manager that SWEC deployed to manage the decommissioning project.
The Debtors called five witnesses in its case in chief, including: Jerome Kane; Weslie Boyea, SWEC's project controls manager who was assigned to the decommissioning project; Thomas Nauman, a current Shaw employee who used to work for SWEC and drafted the SWEC proposal used to obtain the winning bid for the decommissioning project; Dennis Staats, the Debtors' damages expert; and James Carroll, the President and Chief Restructuring Officer of SWINC.
The court will summarize the pertinent facts and testimony.[2]
A. SWEC's Bid and the Decommissioning Agreement
1. SWEC's Bid
In 1997, Maine Yankee's nuclear power plant in Wiscasset, Maine ceased operation. At that time, Maine Yankee considered a variety of options for decommissioning the plant. It decided to pursue an approach whereby the plant would be decontaminated and dismantled.
Wayne Norton testified as to why Maine Yankee sought out a contractor to perform the decommissioning task. He explained such an approach would "transfer as much risk to the contractor as possible to help ensure cost control and schedule compliance and the like for completion of that project." Norton also explained that Maine Yankee determined that it could get a good deal on the decommissioning work. He noted that at the time, the nascent market for decommissioning of nuclear power plants appeared to be growing, making it more likely that a good price could be obtained for the work from contractors seeking to position themselves to be market leaders in the decommissioning industry by successfully completing the Maine Yankee project.
In order to solicit and gather bids from contractors, Maine Yankee developed and issued a Request for Proposals ("RFP") *757 that set forth various terms and conditions required of bidders. Under the RFP, the contractor that was selected would be responsible for restoring the Maine Yankee site to "green field" condition and completing the "decommissioning," as defined by the Agreement. This would involve, essentially, making the facility safe and ensuring that radioactive or contaminated materials are either removed or shielded so that they pose no risk to either humans or the surrounding environment. Pursuant to the RFP, the contractor would have the ability to decide on the means and methods to carry out their responsibility, subject to the approval of Maine Yankee.
Maine Yankee analyzed the technical, commercial, and financial abilities of the bidders in order to "verify their abilities, adequacy, and capacity" to perform the decommissioning work. The qualified bidders than proceeded to negotiate certain terms and conditions of the RFP based on the bidders' proposals to do the work. Maine Yankee and the bidders also exchanged a series of questions and answers about the RFP and the bidders proposals. These questions and answers, along with any negotiated changes made to the RFP, were amended into a document called the Amended RFP which was incorporated into the final Decommissioning Agreement.
Maine Yankee ultimately accepted SWEC's bid, which proposed to decommission the Maine Yankee power plant for a fixed cost of $252 million.[3] The SWEC bid was unique in that they proposed a unique way of disposing the above ground concrete from the site, by rubblizing the concrete on site and then burying it within the foundation of the plant on site. At that time, Maine Yankee reviewed the rubblization concept and stated that it seemed to be a "technically sound" way to dispose of the above ground concrete. Later, this process was disallowed by the State of Maine regulatory authorities, when the State determined it would deem the rubblized concrete "special waste," and subject its disposal to Maine regulations. This determination has necessitated the costlier off-site disposal of this concrete and has been a point of contention between the parties.
In order to decommission a nuclear power plant, there are certain radiological clean-up standards that must be followed. One such standard promulgated by the Nuclear Regulatory Commission ("NRC") is called a derived concentration guideline limit or "DCGL." SWEC's bid proposed that it would seek to clean to a DCGL of 20,000 disintegrations per minute ("DPM"), a level that was lower than that required by environmental regulations. SWEC clarified in its answers to questions, however, that it intended to use the 20,000 DCGL as a guideline to meet the NRC standard of 25 millirem ALARA, rather than as an independent limit.[4]
2. The Decommissioning Agreement
Effective August 31, 1998, Maine Yankee and SWEC entered into the Agreement Between Maine Yankee Atomic Power Company and Stone & Webster Engineering Corporation For the Decommissioning of the Maine Yankee Power Plant. Pursuant to the Decommissioning Agreement, SWEC agreed to perform certain work and render services, which included the decommissioning of a nuclear power generating facility owned by Maine *758 Yankee and located in Wiscasset, Maine, and the construction of a fuel storage installation to store spent nuclear fuel from the power facility (the "ISFSI"). The broad commitment that SWEC made was that it would "perform the Work, including Decommissioning of the Maine Yankee Site, necessary to achieve Green Field, all as further described in the Amended RFP and the Contractor's Proposal," which were attached and incorporated into the Decommissioning Agreement.
Under the Decommissioning Agreement, SWEC was responsible for completing the project and managing and paying the subcontractors. SWEC was also responsible for the procurement of all necessary licensing and permitting from "regulatory agencies and government bodies having jurisdiction over the Work." In addition, SWEC was responsible for the development of a project management plan and schedule necessary to complete the project on-time and on-budget. The requirements for the development of the schedule are set forth in Section 11.9 of the Amended RFP, which is attached and incorporated into the Decommissioning Agreement as Schedule C.
As explained by Raymond Burke and James Garvey, section 11.9 requires SWEC to provide the schedule using a scheduling software package called P-3. It must also update the schedule to show progress thereunder. The schedule must delineate the project's execution, logical constraints on project tasks, durations for tasks, project milestones, and beginning and completion dates for each task. It must also include dates for licensing activities, interfaces with subcontractors, arrival of personnel, etc. The completion date for physical work was to be April 2004, and the completion date for license termination was to be September 2004.
Pursuant to section 11.9.3.3, the schedule was to be submitted to Maine Yankee within 90 days of the contract's execution and was subject to Maine Yankee's approval. SWEC was also to report progress and project status to Maine Yankee, which used the schedule as a project management device. If SWEC deviated from the critical path logic of the schedule or missed a project milestone by more than 20 days, the Agreement requires SWEC to set forth a revised schedule indicating new logic and a plan for recovering the lost time. Moreover, if SWEC is projected to exceed the completion date by more than 6 months, Maine Yankee could take over the project and take reasonable measures to attempt to implement the schedule at SWEC's expense.
According to the Agreement, Maine Yankee was to compensate SWEC using an earned value concept, under which major elements of work for the project were assigned values, and SWEC was paid those values as it completed those elements. Pursuant to Articles 4.2 and 4.4 of the Agreement, Maine Yankee paid SWEC part of the contract price every month, based on monthly invoices that SWEC submitted for itself and the subcontractors, based on earned value and for reimbursable charges incurred, as those terms are defined in the Agreement. Article 30.1 obligates SWEC to waive any rights to a mechanic's lien upon payment of services and requires it to obtain written waivers of such liens from the subcontractors. Thus, prior to receiving payments from Maine Yankee, SWEC had to sign lien waivers attesting that it had paid all of the subcontractors working on the project.[5]
*759 Another contractual requirement, set forth in Article 24A.2, obligated SWEC to procure performance and payment bonds, each in the amount of 15% of the contract price. SWEC obtained the requisite bonds from Federal Insurance Company, each in the amount of approximately $38 million.
Article 11 of the Agreement, entitled "Termination for Cause," governs Maine Yankee's right to terminate the Agreement for cause. Article 11.1 provides, in pertinent, part:
11.1 Maine Yankee shall have the right, upon written notice to Contractor, to terminate the Agreement without any further liability to Contractor over and above compensation for Work performed, in the event of the occurrence of any of the following:
11.1.1 insolvency of the Contractor;
The first paragraph of the Agreement expressly defines SWEC as "the Contractor."
Section 11.2 further provides that Maine Yankee may terminate for cause in the event that SWEC fails to substantially perform or breaches the Agreement. It states that "if [SWEC] fails to substantially perform under the Contract Documents or if [SWEC] materially breaches any of the terms of the Contract Documents . . . Maine Yankee shall have the right, without further liability to [SWEC], upon giving contractor written notice and reasonable time to remedy such deficiency, to:" (i) terminate the Agreement, "upon giving an second written notice to [SWEC] of such termination and the basis thereof, if [SWEC] has failed to initiate the remedy in a reasonable fashion" within 30 days of the initial notice; (ii) obtain performance of "the [SWEC's] obligations from another contractor and recover reasonable excess cost resulting therefrom;" and/or (iii) sue SWEC to enforce the remedies provided "for [SWEC's] failure to perform as set forth in the Contract Documents."
Sections 11.3 and 11.4 further provide that:
11.3 A termination under this article shall be effective immediately upon receipt of any written notice as described in Article 11.1 or Article 11.2.1 by the Contractor. The Contractor shall immediately cease Work, commence demobilization of any affected forces and promptly remove from the Site materials and equipment belonging to Contractor which have not been fully paid for by Maine Yankee. If requested to do so by Maine Yankee, Contractor shall promptly transfer title and deliver to Maine Yankee such completed or partially completed and paid for Work and assign any Subcontracts rights as Contractor may have with any third parties for the Work. Contractor shall attempt to promptly settle any liabilities and claims arising out of any resulting termination of subcontracts and orders at no cost to Maine Yankee.
11.4 If the unpaid Agreement funds, including any funds payable to Maine Yankee by reason of letter of credit, performance bond or insurance coverage, fail to compensate Maine Yankee for the total direct damages and costs incurred by Maine Yankee to finish the Work, Contractor shall pay such difference to Maine Yankee within thirty (30) days following receipt of an undisputed *760 invoice from Maine Yankee. This obligation for payment shall survive the termination of the Agreement or relevant portion thereof.
Article 30.2 of the Agreement, however, limits Maine Yankee's recovery for "any and all claims arising out of or in connection with its services" under the Agreement to $65 million, including credits to SWEC for amounts payable under the bonds that Federal Insurance Company had issued.[6]
B. The Parent Companies' Guaranties of SWEC's Performance
The Decommissioning Agreement also required that SWEC obtain financial security for its performance in the form of bonds and a parent guaranty. As noted above, pursuant to Article 24A.2 of the Decommissioning Agreement, and Addendum No. 3 thereof, SWEC's performance was guaranteed by SWINC and SWE&C.
Under the terms of each guarantee, SWINC and SWE & C each agreed to "guarantee [SWEC's] performance of the Agreement up to an amount equivalent to fifty percent (50%) of the Agreement's unpaid balance of the contract price (as such term is defined in the Agreement) at the time of [SWEC's] failure to perform the Agreement."
C. SWEC's Performance under the Decommissioning Agreement
According to Norton, problems with SWEC's performance on the decommissioning project began to occur as early as 1999. The problems can be grouped into the following categories: (i) financial issues at SWEC, whereby SWEC was unable to pay its bills or its subcontractors; (ii) SWEC's failure to develop an adequate project schedule; and (iii) SWEC's failure to make adequate progress on the project.
It was at that time, due to concerns about SWEC's solvency, that Maine Yankee sought and received the parent guarantee memorialized in Addendum No. 3 as described above.
Raymond Burke, for Maine Yankee, testified about the problems SWEC was having on the decommissioning project. Presently, Burke is the Vice President of Decommissioning at Maine Yankee and is responsible for leading the physical demolition of the Maine Yankee site and rendering it clean. He was previously employed by SWEC and served as the contracts manager on the Maine Yankee project, starting in July of 1999.
Burke reported that at the time he came onto the Maine Yankee project, Chuck Lepisto was the project manager for SWEC. Burke's assessment of the performance of the SWEC management team was that it was "having its problems in coordinating and executing the work" and was having problems, particularly, in the area of licensing and permitting. Specifically, he testified that "the licensing/permitting side of the project seemed to make gross miscalculations as to what the [regulatory] requirements were from a Maine [state law] standpoint." He also noted that SWEC did not have anyone on the job site that was knowledgeable and experienced in Maine environmental regulation, that SWEC had a strained relationship with the State of Maine on environmental issues, and that at the time SWEC had entered the contract it was focusing only on federal regulations, such as those by the NRC. These miscalculations resulted in work stoppages due to delays in getting *761 appropriate licensing or the unintentional performance of certain physical work prior to obtaining requisite permits for that work.
Burke also testified that in November 1999, Lepisto signed a lien waiver that inaccurately represented that certain subcontractors had been paid when SWEC had not paid them. After that event, SWEC agreed that only its financial executives would sign lien waivers. Last, Burke testified that as of April 2000, SWEC was behind $50,000 in its payments to subcontractors and did not have enough money to pay those subcontractors. By the date of termination, May 4, 2000, SWEC was $1.7 million behind in its payments to subcontractors.
Burke next testified about problems with the schedule. Under the Decommissioning Agreement, SWEC was required to generate and maintain a project schedule, to serve as a basis for project tracking and the earned value payments. Burke reports that as of December 1999, there was still not an approved schedule. The schedules that SWEC had submitted were not resource loaded to include the costs of labor, supplies, etc. Moreover, the schedules were incomplete. To remedy this, SWEC and Maine Yankee employees met in workshops. Burke explained that the workshops were designed to provide SWEC with a better understanding of the complexity and details of the project. After the workshops, Burke states, the number of tasks in the schedule nearly doubled and the completion date of the project was pushed from April, 2004 to sometime in 2005.
Last, Burke testified about the impact of SWEC's financial difficulties on its ability to manage the project. He stated that the financial difficulties that came to light in April and May of 2000, adversely impacted employee morale, caused a number of employees to resign, and led to tense relations with SWEC's subcontracts and suppliers.
Jerry Kane was called by the Debtors to testify about the problems at the Maine Yankee project and his attempts to solve those problems. Kane was SWE&C's Vice President and Director of Nuclear Operations and was also the second SWEC project manager for the Maine Yankee project. He replaced the first manager, Chuck Lepisto, at the request of Maine Yankee, which had expressed dismay with Lepisto's "lack of leadership and inability to manage the project."
Kane's testimony confirms that under Lepisto's leadership, the project was having numerous problems. He noted that Lepisto had "never run a large fixed price contract [involving liquidated damages on a schedule and] was way over his head." Kane explained that the Maine Yankee project was not merely a construction project; it involved licensing, engineering, health, physics, and radioactive waste clean-up. While Lepisto was a "good construction site manager," he had never been involved with a project of this complexity and scale. Kane also explained that the Maine Yankee proposal bid had been prepared by Lepisto and "sold" to the Stone & Webster management "on the premise that it was purely a deconstruction a construction job in reverse, and that there was very little technical content."
On or about December 6, 1999, Jim Callahan, the Senior Vice President of the Boston Office of SWINC, received a call from Maine Yankee's Michael Meisner, who asked Callahan to remove Lepisto. Callahan called upon Kane, who was "the most senior person and most experienced person in running large projects" that SWEC had, to immediately take over the project manager position of the Maine Yankee project. Kane went on to testify *762 that when he arrived, he found that SWEC was significantly over-budget in man hours spent with regard to the schedule, that the organization of the project was "dysfunctional," that it had overspent the entire project contingency, and that it had failed to take into account SWEC's obligations to comply with Maine regulations. Kane further explained that when he arrived on site, he found that the project was "dysfunctionally organized" in that "it was organized by a construction person who felt that all of the other aspects of the project, including cost and scheduling, engineering, contracts, health, physics, RAD waste, licensing, were secondary to the construction effort." The project was being run only by Lepisto and one manager of construction, without giving proper consideration to management of the numerous technical functions of the project. As a result,
the project was being run in a haphazard manner in that schedules were made at the morning meeting. One of the construction superintendents would say I didn't get that job done yesterday and then say alright, the job that was scheduled today we won't do, we'll finish the one yesterday, or even worse, the job that was supposed to start today, somebody would say I didn't have the materials or I'm not ready to start the job or didn't have the work permit or whatever and he, the construction manager, literally would reach out two, three, four weeks ahead in the schedule, pick a task and say alright, we'll do this one today, and we weren't ready, we didn't have work packages, we didn't have permits, we didn't have sketches, we didn't have a plan.
Kane also reported that due to these problems, the relationship with Maine Yankee was "horrible at best."
Kane testified that upon his arrival, he made a number of changes that resulted in a dramatic improvement in the project. He moved Lepisto off of the project, he placed technically knowledgeable SWEC employees in meetings with Maine Yankee, he realigned the structure of the project by assigning managers for the construction, engineering, and licensing functions, he cut costs, and he set up performance metrics to track performance. Starting in January 2000, Kane also sought to complete a fully integrated detailed schedule and obtain Maine Yankee's approval thereof.
Kane stated that he could not get the schedule approved because each of Maine Yankee's project managers had different approaches and wanted the work done in different ways. Kane explains that the workshops between Maine Yankee and SWEC personnel were set up in order to try to get consensus on a uniform approach to planning the work and associated scheduling items. Although SWEC did not ever gain Maine Yankee's approval, Kane noted that there was a substantial improvement in scheduling areas, with the exception of the licensing area, and the workshops helped SWEC to put together the schedule that they were working when Maine Yankee terminated the Agreement.
Kane stated that his changes were yielding improvements and SWEC was beginning to meet its schedules and cost estimates and to get the project "under control." For example, SWEC's percentage of actual versus planned start dates for tasks rose from a "dreadful" 30 percent (70 percent not on schedule) to around 60 percent. He also said that the scheduling was proceeding well, with the exception of licensing matters, which were "under the control of Maine Yankee." Kane also reports that in January and February, he began to get positive feedback from Maine *763 Yankee's Meisner, Norton, Evringham, and Garvey on the improvements to the project. Kane states that soon thereafter, when SWEC completed the task of removing the steam generators ahead of schedule, Maine Yankee threw them a party to celebrate this success. To reward his workers, based on an earlier promise to give them time off if they beat the schedule, Kane gave the craft laborers and subcontractors a week off with pay. Kane reported that while his bosses at SWEC were displeased, this action was well received by Maine Yankee.
In Kane's opinion, given the improvements in performance on the project, Maine Yankee's termination on May 4, 2000 to the extent it was based on performance issues rather than insolvency was not justified. It was a "180 degree" change from Maine Yankee's position. Kane observed that although SWEC "was a long way from perfect, [ ] we were improving steadily and we were performing good work." Kane did express, however, that if it were up to him, he would never have entered into the Decommissioning Agreement because it was a high risk lump sum contract that "onerous to the maximum," "required [SWEC] to do things that we couldn't do in a time we couldn't do them," and "gave [Maine Yankee] approval of every move that we made. . . ."
James Garvey, for Maine Yankee, also testified about schedule issues. Garvey, who drafted the scheduling provisions (section 11.9) of the RFP, which concerns scheduling, reviewed those sections in his testimony, stressing the importance of having an accurate project schedule and noting that an accurate and comprehensive project schedule allows for proper management and projections of cash flow and staffing. He explained that SWEC did not submit a project schedule until February of 2000 and that the schedule it submitted did not comply with the Agreement. It had open ends, inconsistent logic, and failed to identify all of the scope of work. Moreover, he said, the updated versions of the schedule were inaccurate because they continued to show that the project was on track for on time completion, due to an inappropriate "mandatory constraint" that fixed that date in the schedule, instead of letting it logically float based on the completion of all the necessary tasks. Thus, according to Garvey, despite the fact that the schedule had tasks shown as being incomplete until December 2004, the end date still showed up as September 2004.
After Maine Yankee terminated the Agreement, it took over the schedule. In order to use it going forward, Garvey reports that it had to modify the schedule to add an immense amount of detail that SWEC had not included. Moreover, Garvey states that his assessment of SWEC's performance, based on its earned value, shows that SWEC only earned 75-85% of its projected earned value in 1999 and 80% in 2000, which demonstrates that SWEC was behind schedule.
Weslie Boyea testified for the Debtors about schedule issues. Boyea states that he and Garvey discussed project schedule matters and the earned value system for a period of time. Based on those discussions, Boyea designed a schedule and submitted it to Maine Yankee within 90 days. No one complained it was late. Maine Yankee, however, rejected it. He testified that every schedule that SWEC ever submitted was rejected by Maine Yankee, because the different departments of Maine Yankee always had additional "comments" and criticisms.
Boyea recounted one particular instance, in April 1999, in which Maine Yankee gave SWEC conditional approval of the project schedule, contingent on SWEC accepting certain conditions and responding to a *764 number of questions about the schedule. Boyea stated that although SWEC complied with these contingencies, Maine Yankee did not approve the schedule. Instead, Maine Yankee proceeded to engage SWEC in new rounds of questions, submissions, and responses for the majority of the summer. By July 1999, it was Boyea's understanding that only two deviations were left to be addressed before the schedule was given final approval. Both related to licensing issues, with one relating to the ISFSI.
Boyea states that on the evening of September 1, 1999, Wayne Norton and another Maine Yankee employee came to his office. Norton told Boyea that if he submitted a completed schedule to him that night, Norton would get it approved the following day. Boyea reports that he stayed until 9:00 PM that evening to put the transmittal document together and hand delivered it to Norton's office that night. Boyea stated, however, that Maine Yankee did not approve that schedule either, due to other "commercial issues" that Maine Yankee subsequently raised with SWEC. Despite the resolution of these issues, Boyea states that Maine Yankee was still expressing concerns with various portions of the schedule. Boyea did acknowledge, however, that Maine Yankee and particularly its contracts manager, Norton, had the right to insist that SWEC keep a schedule for the job with proper logic to manage the project and that SWEC meet the milestones set forth in the Agreement. He also stated that the questions and information sought by Maine Yankee were appropriate in developing a detailed project schedule.
Soon thereafter, Maine Yankee and SWEC decided to adopt the project workshop approach, to facilitate the approval of the schedule. Boyea explained that the project workshop approach was to break the schedule down into various large projects (e.g., major component removal, reactor pressure vessel internal segmentation, licensing, ISFSI, demolition, etc.). Each large project was reviewed in detail by Maine Yankee and SWEC personnel to "go through all the detail and make sure everyone was clear on how the restraints worked, any other detail we needed in there, etcetera." Boyea reported that the workshops continued through January, February, and March, and were fairly successful. He stated that, as of the date of termination, the final schedule had not been approved because the ISFSI schedule could not be finalized, due to complications in permitting of that portion of the project arising from a lawsuit between Maine Yankee and the regulatory authorities.[7]
Boyea stated that under the April monthly progress report, the last schedule SWEC made before termination, the Maine Yankee project was running 66 working days late. He also explained that the faulty mandatory constraint that Garvey testified about, was either an oversight due to the frequent passing back and forth of the schedule between Maine Yankee and SWEC or resulted from corruption in the schedule file caused by his order to turn off the computers on the termination date at a time when multiple SWEC employees were likely working on the schedule. Boyea also testified that the schedule enclosed in Kane's June 20, 2000 letter to Evringham shows that the project was projected to be completed on time. He explained that although it "would have been a very aggressive schedule and would have required very good performance on [the part *765 of] all parties," it was an achievable schedule.
D. Regulatory Issues Affecting the Maine Yankee Project
Throughout SWEC's performance under the Decommissioning Agreement and the Interim Services Agreement and Maine Yankee's self-performance of the decommissioning of the Maine Yankee plant, numerous regulatory issues confronted the parties and required changes to the clean-up standards used on the decommissioning project. The parties disputed and continue to dispute whether these changes were within the scope of the work that SWEC agreed to do and thus are compensable to Maine Yankee or whether those changes constituted changes to the scope of the work that SWEC agreed to do and thus are not properly compensable to Maine Yankee. Because the question of which party is to bear the burden for these regulatory issues is central to the parties' damages dispute, the court will attempt to summarize the factual context for those issues in this section.
Michael Meisner, Maine Yankee's Chief Nuclear Officer and former President, explained during his testimony that the decommissioning of nuclear plants is heavily regulated by both state and federal regulatory bodies, including the NRC, the Environmental Protection Agency ("EPA"), and the Maine Department of Environmental Protection ("MDEP"). These bodies set forth various standards that regulate the allowable levels of contaminants on the site. As noted earlier, under the Decommissioning Agreement, SWEC was to comply with all applicable regulations and was responsible for securing all necessary licenses and permits to do the work. SWEC was to identify the needs for permits or licenses, prepare the applications, provide it to Maine Yankee for review, and then submit it to the applicable agency to gain approval. Due to the lack of expertise in the SWEC project team in the area of regulations particularly, Maine regulations and the MDEPSWEC asked Meisner to work with them to help secure the necessary licenses from the agencies. The licensing and permitting process necessarily involves participating in public proceedings, in which regulators and other stakeholder groups question the type of work being done.
1. Rubblization and the "Special Waste" Issue
As noted above, part of what SWEC proposed in its decommissioning plan was to rubblize (i.e., grind up and compress) the above ground concrete structures and dispose of that rubble on site by burying it in the below ground foundations of the buildings. Kane testified that one of the reasons SWEC won the project was that the rubblization approach allowed them to save money and thus submit a lower winning bid. At that time, Maine Yankee was a strong advocate of that approach and believed it to be technically sound from a public health and safety point of view. The rubblization approach had been used before, and approved by the NRC, but never involved the volume of concrete 1.4 million cubic feet that would be involved at the Maine Yankee facility. Moreover, as Maine Yankee's facility was the only nuclear power plant in Maine, rubblization had never been done in association with a decommissioning in the State of Maine. Nonetheless, in 1998 at the time of the proposal, there was no indication from any regulatory body that the approach would be problematic. To the contrary, both Maine Yankee and SWEC thought that rubblization would be a viable and cost-effective plan.
*766 In connection with the licensing process, Maine Yankee began releasing draft portions of the decommissioning plan to the public and to regulatory bodies such as the MDEP. By the end of the summer of 1999, it became clear that, while the NRC had no problem with the rubblization approach, the State of Maine was concerned about it and were considering deeming the rubble "special waste" under Maine solid waste law. The determination of whether a waste item constitutes "special waste" is within the discretion of MDEP. Robert Gerber, an environmental consultant who worked with Maine Yankee and SWEC on the decommissioning, explained that the statutes and regulations are configured to give MDEP a "wide band of discretion in labeling something as special waste." Once the State labels a waste item to be "special waste," a host of Maine regulations come into play that deal with how that special waste is to be disposed of. Ultimately, towards the end of 2000, MDEP declared that if Maine Yankee proceeded to bury the rubblized concrete on site, it would be declared special waste. By designating materials "special waste," instead of inert fill, Maine was able to regulate radioactive materials. Meisner reported that Maine Yankee realized that if they buried the concrete on-site, the State would impose additional and perhaps very costly requirements on how the concrete was to be left.
Maine Yankee hired Gerber to try to convince MDEP not to label the concrete rubble as "special waste." Despite his efforts, Maine Yankee was unable to convince the State of Maine to alter course. On February 23, 2000, the MDEP designated the concrete rubble as special waste. The MDEP did so irrespective of the low radioactivity levels of the rubblized concrete due to the significant volume of concrete to be buried and its chemical characteristics, which included the presence of contaminants such as PCBs and lead. Based on this designation and MDEP's unwillingness to propose a workable process under which they would license the concrete to be disposed of on-site, Gerber recommended to SWEC and Maine Yankee that disposal of concrete on-site, as initially proposed, was no longer feasible.
Soon thereafter, Kane wrote Meisner a letter stating that changing the process from rubblizing concrete and burying it on-site to shipping the concrete off-site was outside the scope of the project and was a substantial cost-increase.[8] SWEC's position was that they had proposed to rubblize the concrete and leave it on-site, and that MDEP's actions constituted a change in regulation, a different and new interpretation of the law, and therefore was a contract scope change. They base this position, in part, on one of the answers to questions in the Decommissioning Agreement. Question 196 asks "if the rubblization approach were not accepted by the regulators," would a scope change be required? SWEC's answer to that question was that if more restrictive regulations are imposed, subsequent to their proposal, which require a more costly approach, a scope change would be required. Maine Yankee insisted that because SWEC had contracted to meet the State of Maine regulatory requirements and because it was not a new law, but merely a *767 new interpretation of a law, it was included in the scope of the work under the Amended RFP of the Decommissioning Agreement. Irrespective of SWEC's answers to questions in the proposal, the Decommissioning Agreement that the parties entered into did not provide that changes in the interpretations of law constituted a change in law under the force majeure clause.
As of the time of termination, this issue continued to be disputed by the parties. After contract termination, on September 27, 2000, Burke prepared a concrete disposal cost study setting forth various options for concrete disposal. The option that they chose based on cost, practicality, and likelihood of regulatory approval was to ship all of the radioactive concrete to a company called Envirocare in Utah and to ship all of the clean concrete to a landfill in upstate New York. The projected cost of that option is $18.4 million and as of the time of trial, Burke estimates that this projection remains accurate.
2. The Clean-Up Standards Issue
As noted above, the NRC promulgates various standards to regulate the clean-up of radiologically contaminated sites. These standards are expressed in "millirem plus ALARA." As various witnesses explained, the millirem figure measures the level of allowable radioactive dose that a resident farmer who lives on the site would receive in a year's time from all sources on the site, including soil, groundwater, growing and eating crops and livestock, etc. ALARA means "as low as reasonably achievable." Thus, ALARA requires the site to be cleaned up to an even stricter standard than that expressed by the millirem figure, if a lower millirem dosage can be achieved in a reasonably cost-effective manner. The NRC clean-up standard at the time of the Decommissioning Agreement was 25 millirem plus ALARA.
Under the base proposal of the Amended RFP of the Decommissioning Agreement, which was priced at approximately $250 million (and later amended to $252 million), SWEC was to perform the decommissioning in a manner that achieved Green Field and fulfilled all the requirements of the contract documents. The Amended RFP defined "Green Field" as below the 25 millirem plus ALARA NRC standard. In SWEC's proposal, it noted that it sought to achieve radioactivity levels of 20,000 DCGL,[9] in order to give Maine Yankee the confidence that SWEC would be able to achieve the required 25 millirem plus ALARA limit. A number of SWEC's witnesses noted that one can calculate DCGLs far greater than 20,000 disintegrations per minute, while still achieving 25 millirem plus ALARA.
Thomas Nauman testified that the 20,000 DCGL was simply a guideline limit and not a contract requirement. Rather, SWEC committed to the 25 millirem limit as the required standard.
His conclusion is supported by the contract documents. First, in response to Maine Yankee's Question 86 during the bidding process, SWEC stated that the 20,000 DCGL value was "not intended to be construed as a release limit," but clarified that it was intended to calculate DCGL values "commensurate with the stated release goal of 25 millirem/year." SWEC also stated, in response to Question 2, that "decontamination efforts will remediate any remaining radioactive material *768 present to established DCGL values commensurate with the site radiological release goal of 25 millirem/year." SWEC's answers to Maine Yankee's questions are incorporated in the Decommissioning Agreement as Schedule 1.
Second, the Amended RFP defined "decommissioning" as "all activities necessary to achieve Green Field . . . includ[ing] without limitation decontamination, dismantlement, removal and disposal of materials . . . all activities and approvals necessary to design and build the. . . . ISFSI . . . at the 25 mR + ALARA or other standard as may be established pursuant to a Change. . . ." The 25 mR + ALARA standard is also referenced in sections of the contract defining the work scope of the decommissioning.
Moreover, in addition to the base proposal, SWEC was required to include in its offer proposal information responsive to seven "mandatory alternatives," which Maine Yankee defined as "variations on the Base Proposal which Maine Yankee believes may have a material impact on the Base Proposal Price." One such mandatory alternative, number six, asked SWEC to provide an adjusted base proposal price assuming that the standard for achievement of Green Field is 15 millirem plus ALARA.[10] instead of the 25 millirem standard of the base proposal. SWEC's response, attached as Appendix F to the Decommissioning Agreement, indicated that depending on when it was notified of the change in standards, the total contract price increase would range from $3.9 to $6.3 million. Nauman testified that meeting a stricter standard was more costly because it required additional decontamination work on the surface of the concrete, additional soil removal, and additional surveys.
In early 2000, new legislation was passed in Maine that requires the cleanup levels to be reduced from 25 millirem plus ALARA to a 10 and 4 millirem plus ALARA ("the 10/4 standard"). Under this standard, the maximum dosage that a resident farmer living, working, and eating from the land could receive from all sources was 10 millirem. Of that 10 millirem maximum dosage, only a 4 millirem dosage can come from groundwater. Prior to the passing of this legislation, Maine Yankee had been in negotiations relating to standards issues with the State of Maine regulators, legislators, and other stakeholder groups. According to Michael Meisner, Maine Yankee ultimately agreed to accept the 10/4 standard, that was later passed into law, in order to head off even stricter pending legislation that would have vastly increased the costs of decommissioning.
On September 29, 1999, Maine Yankee sent SWEC a letter requesting SWEC to provide an estimate of the cost and schedule impact to the project if the standard were reduced to meet the 10/4 standard and a DCGL level of 5000. As Maine Yankee's negotiations with the State continued, they requested estimates from SWEC based on a host of different assumed standards. Over the course of the next few months, SWEC and Maine Yankee exchanged correspondence relating to various cost estimates and pricing options. Ultimately, in February 2000, SWEC delivered to Maine Yankee a detailed cost estimate for moving to a 10/4 standard of $11 million.
At that time, however, the parties began to dispute whether moving to a 10/4 standard was within the scope of the existing Decommissioning Agreement, or whether it was an out-of-scope change that would *769 require additional compensation. Maine Yankee, through an April 10, 2000 letter from Michael Evringham, stated that it was Maine Yankee's understanding based on a report generated by Gerber that the current scope of work coupled with "certain administrative controls" would support the 10/4 standard. SWEC disagreed, stating that "the new legislation defining the radiological release criteria of 10 mR/year and 4 mR/year [is a] change in the scope of work . . . [that] require [s] additional compensation" to be made to SWEC. In a subsequent letter by Evringham responding to SWEC, dated May 17, 2000, Evringham stated that:
Maine Yankee agrees that remediation to support a 10 mR/year and 4 mR/year groundwater site release differs from the defined scope of work in the now terminated Contract Agreement. However, it seems highly likely that the State's regulation of SWEC's plan to rubblize concrete would have resulted in SWEC achieving the lower standard in any event. . . . Moreover, it was SWEC's failure to properly plan for and address the regulatory requirements with respect to its plan to rubblize that compelled Maine Yankee to take action.
Thus, as of termination of the Decommissioning Agreement, and to this day, the parties continue to dispute whether this change is a compensable change under the contract.
E. Maine Yankee's Termination of the Decommissioning Agreement
1. SWEC's Alleged Failure to Perform
On November 18, 1999, Maine Yankee sent SWEC a letter giving formal notice of default under Article 11.2 for failure to perform under the Decommissioning Agreement. Maine Yankee stated that SWEC "failed to substantially perform its obligations with respect to the performance of the Work and is in material breach of the terms of the [Decommissioning Agreement]" and demanded that SWEC take action to remedy the deficiencies in its performance. Maine Yankee identified a number of breaches that supported its conclusion that SWEC had failed to perform under the Agreement: (i) SWEC's failure to pay its subcontractors and suppliers for work previously performed; (ii) SWEC's failure to provide properly filled out lien waivers (according to Maine Yankee, the lien wavers erroneously represented that all of its subcontracts had been paid in full for the work); and (iii) the notice that one of SWEC's major subcontractors was considering suspending all work as a result of SWEC's failure to pay in a timely manner. Further, Maine Yankee requested information about the possibility that SWEC and its parent corporations may have been insolvent. Maine Yankee withheld payment of SWEC's October invoice until SWEC provided evidence that it would cure the alleged breaches.
On November 30, 1999, in response to the November 18, 1999 letter, Maine Yankee and SWEC entered into Addendum No. 3 of the Decommissioning Agreement. By that agreement, SWEC agreed to provide corrected lien waivers and certified statements from certain suppliers for overdue amounts and to meet periodically with representatives of Maine Yankee. Further, SWEC had to provide lien waivers "from all subcontractors whose contract/order price on the date of the invoice was greater than $100,000 and from all other Suppliers whose contract/order price on the date of the invoice is greater than $250,000." In exchange, Maine Yankee agreed to make payment to SWEC no more than one business day after receipt of the revised lien waivers and certification. *770 On December 1, 1999, Maine Yankee wire-transferred most of the money due under the November 4 and 5, 1999 invoices.
On February 7, 2000, Maine Yankee sent SWEC a letter containing the subject line: "RE: ISFSI Cask Material Procurement and Fabrication, SWS-MY-000309." The ISFSI cask is a containment area for spent fuel storage. The letter details Maine Yankee's concerns about the cask and SWEC's failure to create and distribute a detailed project schedule as required by the Decommissioning Agreement. On March 28, 2000, Maine Yankee sent a letter to SWEC detailing further concerns about the lack of a schedule for Reactor Vessel Internals Segmentation ("RVIS") activities. The letter describes the need to integrate the RVIS activities into the main project schedule.
Despite these concerns, from October 1999 through March 2000, SWEC continued to submit invoices to Maine Yankee pursuant to the Decommissioning Agreement. Maine Yankee paid the amount due under these invoices. The parties continued to perform their respective obligations under the Agreement until May 2000.
2. SWEC's Insolvency
In the Pretrial Order the parties stipulated that on May 1, 2000, and at all times thereafter, SWEC was "insolvent" within the meaning of Article 11.1(1) of the Decommissioning Agreement and within the meaning of 11 U.S.C. § 101(32)(A).[11]
By the year 2000, Maine Yankee was having serious concerns about SWEC's solvency. Michael Thomas of Maine Yankee testified that one of his job responsibilities was to track the financial condition of SWEC. In connection with that, he reported that at the end of April 2000, he received a copy of a press release issued by SWINC, which detailed the increasingly troubled financial condition of SWINC.
Thereafter, Thomas attended a meeting in Boston with officials of the Stone & Webster companies. According to Thomas, "as the meeting developed, it became clear that Stone & Webster was in a very serious financial condition . . . [and] the seriousness continued to impress me during the course of the meeting." Thomas realized that Stone & Webster was considering bankruptcy and that it was struggling to meet the project payables for the Maine Yankee project at the SWINC level. In fact, SWINC's James Carroll testified that during that meeting, there was an exchange between Maine Yankee's bankruptcy counsel, George Marcus, and the Stone & Webster executives in which Marcus asked if Stone & Webster was contemplating bankruptcy. Carroll replied that they were considering all avenues. Marcus explained that Maine Yankee did not want to become involved in a bankruptcy as an executory contract, which could be assumed and assigned to another contractor in the bankruptcy proceedings.
Thomas reported his concerns as to the financial condition of the Stone & Webster companies to the Board of Maine Yankee in a memorandum on May 1, 2000. On that date, Maine Yankee sent a letter to SWEC regarding SWINC and SWEC's financial situation. In the letter, Maine Yankee asserted that it had notified SWEC in the November 18, 1999 letter of potential breaches of the Agreement and advised SWEC that Maine Yankee might *771 terminate the decommissioning agreement because of SWEC's potential insolvency. Further, Maine Yankee stated: "This past weekend's press release and the news reports about Stone & Webster, Inc., demonstrate that, despite your attempts to improve your financial situation, SWEC remains insolvent." Maine Yankee also informed SWEC that it "remains in default of the [Decommissioning Agreement] and its efforts to cure since the November 18 letter have not remedied the material breaches of contract." Although Maine Yankee did not terminate the contract, it reserved the right to do so.
3. Maine Yankee's Termination of the Decommissioning Agreement
On May 4, 2000, Maine Yankee sent SWEC an official notice of termination under Article 11 of the Decommissioning Agreement. According to that letter, Maine Yankee terminated the Agreement because of SWEC's insolvency and SWEC's failure to cure the defaults identified in the November 18, 1999 and May 1, 2000 letters. Specifically, Maine Yankee stated that SWEC had not provided an acceptable project schedule, had not made adequate progress in completing the work, had not obtained the necessary regulatory approvals, had not administered the work, had failed to provide adequate assurances of its ability to complete performance, and had failed to pay its subcontractors and suppliers as required by the Decommissioning Agreement. At the time of the termination, Maine Yankee had paid SWEC approximately $58 million in earned value payments under the Decommissioning Agreement.
Also on May 4, 2000, SWEC sent to Maine Yankee its monthly invoice for April 2000 in the amount of $6,328,314. SWEC did not provide the required lien waivers from the subcontractors with the invoices and admits it had not paid the subcontractors at the time. In fact, Burke testified that on the morning of May 4, 2000, he voided lien waivers that Carroll had signed (indicating that the subcontractors had been paid), because, he stated, "they were not correct" the subcontractors had not all been paid and he didn't want to repeat the mistake with the lien waivers made in November, 1999. Burke testified that as of April 30, 2000, SWEC was $50,000 behind in payments to subcontractors, but by the time of termination that amount had risen to $1.7 million. Burke also testified that according to the project accountant, he did not expect to get any money from the company in the near term to help it meet its payment obligations.
On May 9, 2000, SWEC sent a letter to Maine Yankee regarding the May 4, 2000 termination notice. The letter detailed grounds under which SWEC would continue to provide services on the Maine Yankee project until June 30, 2000.
On May 10, 2000, the parties entered into the Interim Service Agreement, under which SWEC continued to work on the decommissioning on a temporary basis. That agreement ran from May 4, 2000 to June 30, 2000 and laid out terms "to mitigate the damages and adverse consequences of an abrupt or inefficient demobilization at the Maine Yankee site as a result of [the May 4, 2000 termination notice] and other contested issues among the parties. . . ." In essence, the parties agreed to perform as they would have under the Decommissioning Agreement for the duration of the Interim Service Agreement, except that the payment structure under the Interim Services Agreement was completely modified. SWEC agreed to continue work on the decommissioning based on a modified schedule approved by Maine Yankee. Whereas under the Decommissioning Agreement, Maine Yankee *772 paid SWEC on an earned value basis and SWEC would then be responsible to pay the subcontractors, under the Interim Services Agreement, Maine Yankee paid charges and reimbursable costs directly to the subcontractors and paid SWEC on a cost reimbursement basis.
Thus, after termination, pursuant to the Interim Services Agreement, all subcontractor bills then due and owing were submitted for payment to Maine Yankee. Maine Yankee agreed to pay $5,100,789.36 to subcontractors, suppliers, vendors, and consultants for goods and services provided prior to May 1, 2000, and in exchange SWEC agreed to provide the appropriate lien waivers with respect to all work in the April 2000 invoices. Despite these modifications and concessions, the parties expressly stated that they retained their rights under the Decommissioning Agreement.
4. SWINC and SWE&C's Purported Tender of Performance
On May 30, 2000, Maine Yankee's contracts manager, Michael Evringham, sent a letter to Ken Jenkins, assistant general counsel for both SWINC and SWE&C. In that letter, Maine Yankee demanded that SWINC & SWE&C "honor and fulfill their obligations guaranteeing the performance of [SWEC] under its agreement with Maine Yankee. . . ." Evringham testified that he did not expect SWINC and SWE&C to be able to fulfill those obligations, but sent the letter to reserve his rights as to the guaranties.
Evringham received a response to Maine Yankee's demand on behalf of both SWINC and SWE&C by letter the following day. The letter was signed by Jerry Kane, who had been in charge of the Maine Yankee project since December, 1999. Evringham testified he did not know or understand how or whether Kane was related to or in a position of authority with the parent companies. Kane's May 31, 2000 letter disputed whether SWEC's obligations under the Agreement were terminated and refused either to "admit or deny liability for any `damages and costs' arising from the termination[,] particularly because no . . . bill of costs has been tendered." The letter went on state, however, that
the Guarantors want to work with all parties to mitigate the damages for whomever may ultimately be liable. The Guarantors are ready, willing, and able to complete the obligations of the Contract Agreement, and the Guarantors hereby tender their performance to complete the work of the Guaranteed.
In closing, Kane requested Maine Yankee's acceptance of this "tender" and stated that SWINC and SWE&C considered "themselves discharged from any further obligations under the Parent Guarantees" if Maine Yankee did not accept the tender.
Wayne Norton testified that within days of receiving the letter from SWINC and SWE&C, Maine Yankee learned that those companies were also expecting to file for bankruptcy. Norton explained that because the parent companies had already or were about to join SWEC in insolvency and no one from SWINC or SWE&C ever attempted to explain or give assurances to Maine Yankee that they could perform the scope of work required under the Decommissioning Agreement, Maine Yankee did not consider these "tenders" to be serious tenders of performance. He indicated that Maine Yankee did not investigate whether SWINC or SWE & C could perform, because it did not delineate between the financial capacity of SWEC, SWINC, or SWE&C.
Both Norton and Evringham explained why Maine Yankee would not want its major contractor to be bankrupt or insolvent. *773 First, the nuclear decommissioning arena is a very public one. If its decommissioning contractor were in bankruptcy, Maine Yankee could be subjected to heightened public scrutiny from regulators and other interested parties, called stakeholder groups, questioning whether the decommissioning effort is proceeding in the most careful manner from an environmental and safety perspective or merely proceeding in the least expensive manner. Second, dealing with subcontractors, suppliers, and the contractor's employees becomes very difficult when the contractor does not have the ability to pay those parties on time. Third, performance would be difficult if certain assets are sold and key employees leave the contractor's employ. Fourth, in bankruptcy the Decommissioning Agreement, as an executory contract, could be assumed and assigned to a contractor that is not up to Maine Yankee's standards. For these reasons, the Decommissioning Agreements included provisions that allowed Maine Yankee to terminate the agreement for cause upon the contractor's insolvency or bankruptcy.
It is the Debtor's position that SWINC and SWE&C could have complied with their tender of performance. In this regard, Carroll testified for the Debtors that SWINC was solvent in late May and early June of 2000, and remained solvent until the First Day Filings of its bankruptcy on June 2, 2000. At the time SWEC was operating on site at the Maine Yankee project under the Interim Services Agreement, and Maine Yankee had made it clear to the Debtors that they were contemplating bringing damages claims against them. Carroll reported that after the termination of SWEC, SWINC made efforts to regain control of the Maine Yankee project in hopes of minimizing Maine Yankee's damages claims against it. First, SWINC entered into an agreement with a company called Jacobs Engineering Group, which intended to buy substantially all of the assets and liabilities of SWINC, including all of its non-rejected executory contracts. As part of the agreement, Jacobs extended a $50 million line of credit to SWINC. Ultimately, it was the Shaw Group and not Jacobs that purchased the assets and liabilities of Stone & Webster in a bankruptcy auction. Prior to the auction sale in which Shaw bought the Debtors, however, the Debtors were also trying to make arrangements with Shaw to acquire the Maine Yankee project in a deal where Maine Yankee would agree to waive its claims against the Debtors. In that deal, which was never consummated, the Debtors contemplated contributing a certain amount of money towards Shaw's purchase.
Carroll confirmed, on cross-examination, that during the late May early June time frame he reported to the Board that SWINC was having severe liquidity problems, and that if they had not received the line of credit from Jacobs they may not have had enough cash to pay its bills that were coming due. Indeed, SWINC's bankruptcy filings on June 2, 2000 stated that the sale of its assets and liabilities, at the time contemplated to be to Jacobs, would be necessary to allow SWINC to continue as a going concern.
F. Stone & Webster's Bankruptcy and Maine Yankee's Claims
On June 2, 2000, SWINC, and certain of its affiliates, including SWE&C and SWEC filed voluntary petitions for bankruptcy relief. On August 23, 2000, Maine Yankee filed a proof of claim in this case against SWEC. At the same time, Maine Yankee filed nearly identical proofs of claim for $78.2 million against SWINC and SWE&C, based on their guarantees.
*774 In addition to the instant litigation against the Debtors, Maine Yankee has also proceeded against SWEC's bonding company, Federal Insurance Company, in Federal District Court in Maine, to recover amounts under the payment and performance bonds. See Federal Ins. Co. v. Maine Yankee Atomic Power Co., 183 F. Supp. 2d 76 (D.Me.2001). Maine Yankee had put Federal on notice of the termination of the Decommissioning Agreement, but Federal had denied Maine Yankee's request for payment. As noted above, the parties recently have settled this suit. Under the settlement, Federal is going to pay Maine Yankee $38.1 million under the performance bond and $5.8 million under the payment bond.
Due to the court's prior ruling that Maine Yankee's claims are limited by the $65 million damages cap in the Decommissioning Agreement and due to settlement recoveries in the amount of $44 million that Maine Yankee has obtained from Federal Insurance concerning this matter, Maine Yankee now seeks $21 million in damages jointly and severally from the three Debtor entities.
G. The Shaw Group Bid for the Maine Yankee Project
Norton, Kane, and Shaw's CEO, Jim Bernhard, testified about the Shaw Group's bid for the Maine Yankee decommissioning project.
In July 2000, Norton and Meisner received a phone call from Bernhard, the CEO of the Shaw Group. Kane, now employed by Shaw, reported that he was on the line on Bernhard's end. Shaw was one of the new suitors and the eventual winning bidder for Stone & Webster's assets in their bankruptcy proceedings. Bernhard, who has the reputation of being a deal maker, proposed a settlement agreement whereby Shaw would take over a slightly modified scope of work for completing decommissioning in exchange for $30 million more than Maine Yankee had agreed to pay SWEC (minus what Maine Yankee had already paid to SWEC) and an agreement that Maine Yankee would waive its claims against Federal Insurance and the Stone & Webster companies. He wanted to make a quick deal with Maine Yankee instead of going through the conventional bidding process to get the work. This conversation lasted roughly five minutes.
Bernhard testified during his deposition that he had doubts as to whether they would have executed a deal even if Maine Yankee had said yes to his proposal, because "this was a huge document we were expected to sign and we were never going to sign it." He also confirmed that his offer included a requirement of releasing claims against Stone & Webster and Federal. He also stated that his offer did not contemplate simply substituting a new price, but taking the same terms and conditions to which SWEC had agreed. Rather, he wanted to change some of those terms and conditions.
After the phone call, Meisner instructed Norton to explore the details of a deal with Shaw. The parties exchanged correspondence, with Norton writing to Bernhard's assistant Tim Barfield to "respond to the proposal that Jim made to resolve various outstanding issues and disputes among SWEC, Maine Yankee, and Federal by having the Shaw Group complete the decommissioning of the Maine Yankee site in Wiscasset, Maine." Thereafter, Barfield forwarded to Maine Yankee Shaw's first written term sheet for the purpose of negotiating a deal. The term sheet expressly stated that it was not an offer that could be made binding by acceptance. It carried an increased price of $56 million, a number *775 of scope exclusions,[12] and an express provision requiring Maine Yankee to "reach[] a resolution of all issues between it and Federal Insurance Company . . . including without limitation, Maine Yankee's rights to compensation under the performance and payment bonds issued by Federal." Reluctant to waive its claims or change the scope of the decommissioning project, Maine Yankee ultimately turned the deal down, but invited Shaw to engage in its rebid process along with a number of other contractors.
H. Maine Yankee's Post-Termination Self-Performance of the Decommissioning
During the Summer of 2000, Maine Yankee reissued RFPs to a number of contractors, including Bechtel, Cianbro, and Shaw.[13] Independent of soliciting bids from outside contractors, Maine Yankee also prepared its own estimate of what it would cost to assume the contracting responsibility for itself and self-perform the decommissioning. This self-performance estimate was weighed against the incoming bids from contractors to determine whether to hire a new contractor to complete the work or whether it should self-perform. Maine Yankee hired Scientech as a consultant to help it to develop its self-performance bid and to select between the various contractor bids and its self-performance bid.
At the request of Norton, Maine Yankee's project controls manager, Todd Smith, developed the self-performance estimate. He testified that he included labor costs, the remainder of negotiated subcontractor work, and costs to complete all the sub-projects necessary to clean the site (e.g., above grade concrete disposal, RCRA closure plan, scabbling of below grade concrete, etc.). The self-performance estimate calculated a total cost to complete the decommissioning project of approximately $325 million, excluding contingency.[14] Smith estimated the contingency at $12 million, by applying 15% to the remaining work and then adjusting downward based on certain risk assessments. Thus the total self-performance estimate that was compared to the contractor bids was $337 million.
By that time, the market for nuclear decommissioning had changed dramatically. Whereas at the time Maine Yankee entered into the Decommissioning Agreement with SWEC, the anticipated number of decommissioning projects led to interest by bidders to land a large high-visibility decommissioning project, by Fall of 2000, the market had waned. Plans to decommission a number of plants had been aborted. Accordingly, Maine Yankee was "uncertain as to whether or not the market was going to provide . . . an opportunity to have a cost-effective turn-key contract as [it] had [with SWEC]." Some contractors failed to respond with a bid, and Maine Yankee received only a few bids on the decommissioning work. Of those that responded, the Shaw Group's bid was deemed technically unacceptable, because *776 Shaw would not accept the full work scope and sought to exclude a number of issues, including licensing and RCRA closure. The remainder of the bids were not as cost-effective as Maine Yankee's estimate for the cost of self-performance. According to Edward Doubleday, who was employed by Maine Yankee as a consultant to help evaluate the bids, "the self-performance was clearly the choice . . . The nearest [technically qualified] bid, I believe, without looking at the details was about a hundred million [dollars] more than the self-performance estimate."
Because Maine Yankee decided that the self-performance option was the cheapest solution, it elected to implement that solution instead of hiring another contractor to manage the work. Under the self-performance plan, Maine Yankee would step into SWEC's place and manage the project and the subcontractors. Maine Yankee employed a number of consultants from a company called Entergy, including Raymond Burke, to help run the project. It set up an organization, headed by Burke, to fill the role of contractor and carry out the dismantling and decontamination work. SWEC's existing subcontracts were assigned to Maine Yankee pursuant to the provisions of Article 11.3 of the Decommissioning Agreement. Maine Yankee assumed SWEC's role in managing all of the then-existing subcontracts and in entering into new subcontracts and change orders to complete the decommissioning work. Smith reports that Maine Yankee is currently tracking its budget and is on schedule to complete the project six months later than the Decommissioning Agreement.
During Evringham's testimony, he reported that it was his responsibility to manage all of the subcontracts for Maine Yankee going forward. The remaining decommissioning work involved a number of projects including moving spent fuel to the ISFSI, waste disposal, site remediation, demolition, and radiation protection. Evringham testified about Maine Yankee's decisions to enter into certain subcontracts and change orders, such as with a subcontractor called NAC to complete "pool to pad" work relating to the ISFSI fuel canisters. Paul Plante, Maine Yankee's project manager for cask loading and fuel transfer, also testified about Maine Yankee's decision to enter into the subcontract with NAC. Plante also testified about Maine Yankee's costs on fuel canisters. Under the Agreement, SWEC was obligated to provide canisters to store spent fuel based in an amount corresponding Maine Yankee's estimate of the amount of spent fuel.
David Holbert was the logistics project manager in the waste management group at Maine Yankee. He testified about Maine Yankee's self-performance in the waste disposal area. Holbert reported that Maine Yankee assumed responsibility for a number of waste management contracts that SWEC had entered into prior to termination. Maine Yankee also entered into several waste management subcontracts itself after termination. Holbert testified that he prepared waste disposal forecasts on a component-by-component basis, based on actual waste streams on the Maine Yankee site, in order to project the total waste disposal costs.
Nauman testified for the Debtors on these topics. He reviewed a number of the change orders entered into by Maine Yankee, and concluded that by entering into these change orders Maine Yankee increased the scope of work beyond the scope that SWEC had been obligated to perform under the Agreement. These included, for example, costs for change orders relating to canisters to store spent fuel for the ISFSI project, RCRA costs, and costs relating to scabbling of concrete.
*777 On cross-examination, however, Nauman confirmed that his understanding of the scope of the work that SWEC was obligated to perform was in a number of instances not consistent with the contract documents. In particular, while Nauman stated that it was his understanding that SWEC only had to provide a four fuel canisters to fulfill its obligations, the Agreement requires SWEC to provide all such goods, services, and materials as may be required to perform the work and provides that SWEC is only entitled to a change order for out-of-scope work if the amount of spent fuel in SWEC's inventory exceeded the spent fuel represented in the inventory that Maine Yankee had prepared.[15]
II. DISCUSSION
The court will structure its analysis of the legal issues presented by the trial into two sections. First, the court will discuss whether Maine Yankee properly terminated the Decommissioning Agreement. If it did, SWEC is liable for damages for its breach of the terms of the Decommissioning Agreement. Next, the court will discuss damages and determine what portion, if any, of Maine Yankee's claims should be allowed.[16]
A. Liability Issues
Maine Yankee bases its right to terminate on two provisions of the Decommissioning Agreement for cause. Article 11.1.1 gives Maine Yankee the right to terminate the agreement in the event of the insolvency of SWEC. Article 11.2 gives Maine Yankee the right to terminate the agreement "in the event that SWEC fails to substantially perform or breaches the Agreement."
1. Did Maine Yankee Properly Terminate the Decommissioning Agreement Under Article 11.1.1 for SWEC's Insolvency?
The parties have stipulated, both in the pre-trial order and at trial, that SWEC was insolvent as of May 1, 2000, and at all times thereafter. The pre-trial order, in ¶ 6 of the section entitled "Statement of Facts Which Are Stipulated and Require No Proof," states that "[o]n May 4, 2000, and at all times thereafter, SWEC was `insolvent' within the meaning of Article 11.1(1) of the Decommissioning Agreement and within the meaning of 11 U.S.C. § 101(32)(A)." The Debtors also conceded the fact of SWEC's insolvency at trial, and do not waver from this position in their post-trial briefing.
Nonetheless, the Debtors argue that Maine Yankee did not prove "the alleged insolvency" at trial, and thus contend that termination under Article 11.1.1 was improper. Debtors thus contend that the *778 insolvency of SWEC cannot be the basis for any damages under the Agreement.
The essence of Debtors argument is as follows. Even though SWEC was expressly defined as the "Contractor" in the Agreement, whose insolvency triggers Maine Yankee's right to terminate the Agreement, Debtors argue that Maine Yankee's course of dealing under the Agreement has established that the entire "Stone and Webster" organization not just SWEC was the "Contractor" under the Agreement, because Maine Yankee treated all of "Stone & Webster," as the Contractor. The testimony of James Carroll, the president and chief restructuring officer of SWINC, established that "SWINC has always been solvent," despite having "liquidity problems" and difficulties making the May 5th and 12th 2000 payrolls. Debtors reason, therefore, that because Maine Yankee made no showing that "Stone & Webster" was insolvent, Maine Yankee's termination for insolvency was improper.
While the Debtors are correct, as a matter of law, a course of dealing can be used to construe ambiguous contractual language, see Blue Rock Indus. v. Raymond Int'l, Inc., 325 A.2d 66, 78-79 (Me.1974), the contractual language at issue here is not ambiguous. The Decommissioning Agreement clearly states that the "Contractor" is SWEC. Accordingly, it is SWEC's insolvency and not that of any other Stone & Webster entity that gives rise to Maine Yankee's right to terminate the Decommissioning Agreement under Article 11.1.1. Based on Debtor's stipulation, SWEC's insolvency is a fact that needs no proof at trial. Since no one disputes that SWEC was insolvent at the time Maine Yankee terminated the Agreement, the court finds that Maine Yankee properly terminated the Agreement under that section. Based on the court's earlier ruling, in its July 26, 2001 memorandum opinion, Maine Yankee may collect damages under Article 11.4 based on its proper termination under Article 11.1.
2. Did Maine Yankee Properly Terminate the Decommissioning Agreement Under Article 11.2 for SWEC's Failure to Perform?
The court will next consider whether Maine Yankee may also collect damages under Article 11.4 based on its termination under Article 11.2 for SWEC's performance failures.[17] Article 11.2 of the Decommissioning Agreement permits Maine Yankee to terminate the Agreement if SWEC breached any material terms of the contract or failed to "substantially perform."
At trial and in its post-trial briefing, Maine Yankee focuses on three independent grounds that it asserts justified its termination of the Decommissioning Agreement for failure to perform under Article 11.2. First, Maine Yankee points to SWEC's failure to pay its subcontractors and suppliers, as required by section 4.2 of the Decommissioning Agreement. Second, Maine Yankee claims that SWEC failed to develop an acceptable project schedule, as required by section 11.9 of the Amended RFP. Last, Maine Yankee argues that SWEC failed to make adequate *779 progress in completing the project, as required by Article 29.5.1 of the Agreement.
The court will consider each of these grounds in turn.
a. Failure to Pay Subcontractors and Suppliers
The court notes at the outset that it appears that Maine Yankee's termination of the Decommissioning Agreement was motivated in large part due to SWEC's insolvency and financial problems. SWEC's failure to pay subcontractors and suppliers flows directly from its declining financial condition. Although it is related to SWEC's financial condition, under the Decommissioning Agreement, the failure to pay subcontractors and suppliers constitutes an independent breach of the Agreement.
Under sections 4.2 and 30 of the Decommissioning Agreement, SWEC was obligated to pay its subcontractors and to obtain written lien waivers. Maine Yankee focuses on two instances where it alleges SWEC breached this requirement. First, in November 1999, SWEC breached this obligation when it submitted inaccurate lien waivers indicating that SWEC had paid certain subcontractors when, indeed, they had not. While SWEC concedes that this "problem" did occur, it points out that it was an isolated incident that was promptly corrected.
Second, by the termination date, May 4, 2000, SWEC was $1.7 million behind in paying its subcontractors and did not expect to be able to pay those debts. This is confirmed by the testimony of Burke and Carroll. Carroll further testified that even if Maine Yankee had paid SWEC's May 4 invoices for $6.2 million which it was not obligated to do until SWEC submitted the lien waivers confirming that the subcontractors and suppliers had been paid SWEC would have used the money to meet its payroll, rather than using the money to pay the subcontractors and suppliers. While conceding that by May 4, 2000, SWEC was $1.7 million behind in payments to its subcontractors, SWEC urges the court to conclude that the $1.7 million amount overdue to subcontractors was nevertheless not material because it represented only 0.67% of the overall contract amount of $252 million.
While it is hyperbole to suggest that SWEC exhibited a pattern of not paying its subcontractors and suppliers, the record it clear that its increasing financial difficulties caused it to fail to pay its subcontractors in a timely manner as of the termination date. Moreover, as of May 4, 2000, SWEC could not pay the subcontractors when due nor could it give assurance of its ability to pay those subcontractors in the future.
The court cannot accept SWEC's argument that the $1.7 million amount owed as of the termination date was immaterial. In this instance, materiality cannot be determined by comparing the amount owed to the overall contract amount. If this were the metric used to determine materiality, very few breaches could be considered material in any contract of this magnitude. Moreover, a close reading of the Decommissioning Agreement, however, demonstrates that such an approach would be inconsistent with the parties' agreed upon obligations and understanding of materiality under the contract.
The original Agreement specified that SWEC would certify timely and full payment to all subcontractors whose subcontracts exceeded $1 million. After SWEC's first failure to pay subcontractors in November 1999, SWEC agreed to put in place mechanisms to ensure that subcontractors would be paid timely going forward. Thus, the parties amended the *780 Agreement to provide for tighter controls by requiring SWEC to certify timely payment in full on all subcontracts in excess of $100,000.
The $1.7 million amount owed as of the termination date included a number of subcontracts and was well in excess of the $100,000 materiality limit of the Agreement. As Maine Yankee notes, the $1.7 million represents over 25% of the $6.2 million project invoice for SWEC's April services. Under the Agreement, the court cannot conclude that failing to pay that amount when due is immaterial. Thus, the court concludes that SWEC's failure to pay the subcontractors was a material breach of the Decommissioning Agreement.
Whether termination was independently warranted under other two grounds is a closer question. The court next will turn to scheduling and progress matters.
b. Failure to Develop an Acceptable Project Schedule
Numerous witnesses for both sides stressed the importance of a detailed project schedule for effectively managing projects of this size and complexity. It is also clear that the development of a comprehensive project schedule was a major substantive requirement of the Agreement. As stated by Norton in his March 16, 2000 letter to Kane, an acceptable schedule ensures that "the project can move forward with the proper tools to support logical decision making and problem identification." Section 11.9 of the Amended RFP sets forth detailed specifications for SWEC's development of a schedule that reflected each task necessary to complete the work and, including all licensing and permitting tasks, and their associated resource requirements. Under the Agreement, the project schedule was required to be based on "true logic," include the projected completion dates for tasks and the overall project, and avoid "misleading imposed dates."
The parties do not dispute that during the time that SWEC was the contractor on the Maine Yankee project, SWEC never developed a project schedule that was accepted and approved by Maine Yankee. They only dispute which of the parties was to blame for this failure. Maine Yankee points to the fact that SWEC never developed an acceptable project schedule as proof that SWEC breached its obligations under the Agreement, while SWEC maintains that the reason a schedule was never agreed upon is because Maine Yankee unreasonably rejected countless SWEC schedules, making it impossible for SWEC to comply with its contractual obligation.
SWEC argues that the record, particularly the testimony of Boyea, demonstrates Maine Yankee's project schedule requirements were ill-defined and capriciously applied and that every time SWEC sought to resolve the scheduling problems, and was assured by Maine Yankee that only one more change was required, Maine Yankee would come up with new hurdles and issues. SWEC also points to the relative success of its workshop program in gaining piecemeal approval of all but one portion of the schedule, the ISFSI.[18]
In response, Maine Yankee points out that, despite SWEC's machinations to the contrary, no schedule that SWEC had submitted including the resubmitted schedules for which SWEC purportedly *781 had satisfied two particular conditions for approval ever fully complied with the requirements of Section 11.9. Maine Yankee also underscores that Garvey testified that even as late as May 2000, after the workshops, the schedule still contained logic problems that masked the fact that the project was close to nine months behind, was not resource loaded, and lacked a number of work activities, including licensing and permitting tasks. Maine Yankee also notes that even after termination SWEC continued to add required detail to the schedule and that Maine Yankee itself had to add a significant amount of detail, particularly in the areas of ISFSI, RCRA closure, and concrete disposal, after it took responsibility for the schedule in connection with its choice to self-perform.
It is clear that Maine Yankee demanded great attention to detail in the schedule, when reviewing the SWEC schedule submissions for approval. However, Maine Yankee was entitled to demand that, in order to gain its approval, SWEC's schedule strictly comply with the many requirements of section 11.9 of the Agreement. Aside from the fact that Maine Yankee was within its rights to demand compliance with the schedule, it was also reasonable to do so in light of some of the problems on the work site that stemmed from problems with the schedule. For example, witnesses described a number of occasions where activities were performed before requisite permits were obtained. SWEC had problems meeting its obligations in connection with licensing and permitting issues throughout the project.
No evidence shows that Maine Yankee demanded anything of SWEC but strict compliance with SWEC's obligations under the scheduling provisions of the Agreement. Despite the anecdotal evidence regarding Maine Yankee's unreasonableness, no witness for SWEC could confirm that the schedules it submitted for approval ever included the level of detail required by the Agreement.
Early schedules that SWEC submitted did not include all of the licensing and permitting tasks, was not resource-loaded, and included false logic. The new SWEC project management team headed by Kane recognized these shortcomings and implemented a series of workshops beginning in January 2000 in hopes of getting an approved schedule. While it is clear that the workshop program did help the parties to get on the same page on scheduling matters, it did not bring SWEC into compliance with section 11.9. Despite SWEC's efforts, the final SWEC schedule still did not include all work activities, particularly in the area of licensing and permitting, and lacked sufficient details. The consistent inability of SWEC to develop the schedule in this area can be attributed in part to the original mismanagement of Lepisto and in part to SWEC's inexperience with State of Maine regulatory issues.
Moreover, when the details were later added to the schedule, the updated schedule did not reflect the true completion date for the project of July 7, 2005, due to an inappropriate logical constraint that fixed the completion date to the original project irrespective of scheduling logic that compelled a later completion date. While there is contradicting testimony about how this inappropriate constraint was entered into the schedule, the court cannot credit Boyea's speculation that this was the fault of either Maine Yankee or a technical computer problem. Such evidence does not convince the court that it was Maine Yankee's fault that the constraint was entered. Under the Agreement, the ultimate responsibility for the schedule lay with SWEC.
Developing a schedule to the level of detail required by the Agreement for a *782 project as complicated as the Maine Yankee decommissioning was truly a herculean task. Despite SWEC's efforts, it was a task that SWEC never completed. While the record indicates that but for SWEC's financial problems and impending bankruptcy, it is unlikely that Maine Yankee would have terminated SWEC based on the schedule issues alone, Maine Yankee was technically within its rights to terminate the Agreement for cause due to inadequacies in the schedule.
c. Failure to Make Adequate Progress
Maine Yankee contends that a third independent basis for terminating the Decommissioning Agreement for cause was that SWEC failed to make adequate progress in completing the decommissioning work. Under Section 29.5.1 of the Decommissioning Agreement, SWEC was obligated to complete the work in accordance with the milestone schedule provided in Section 4E.1 of the Agreement. That provision required SWEC to complete the physical work of the project by April 30, 2004.
Maine Yankee points to a number of evidentiary bases to support its contention that SWEC failed to meet its obligation to make adequate progress completing the work. First, the April 28 schedule update reflects that as of just prior to termination, SWEC was projecting that the physical work would be completed by January 5, 2005. Second, Kane's testimony and a number of exhibits demonstrate that as of December 1999 the project was "significantly" behind schedule and over budget. Maine Yankee contends that despite some improvements, SWEC's performance under Kane was only marginally better. To support this contention, Maine Yankee notes that according to SWEC's April, 2000 monthly report SWEC had earned only $20.8 million of the planned $25.7 million (approximately 80%) during the 2000 calendar year. The April 2000 monthly report also reflects that during the month of April, SWEC started only 48% of the tasks and completed only 53% that were intended to be started and completed that month. Last, Maine Yankee notes that these inadequacies when combined with SWEC's financial difficulties at the time and commensurate deterioration of employee morale, loss of job site personnel, and difficulties with subcontractors confirms that SWEC breached its obligations to make adequate progress towards completing the work.
In response, SWEC contends that it did make adequate progress in the work. While it acknowledges that "performance lagged in 1999," it points to SWEC's improvements in progress under Kane as support for its position. SWEC also highlights the portions of Kane's testimony that confirm that Maine Yankee executives praised Kane's work and expressed "delight" with his progress. SWEC also points to its 80% earned value rate in the year 2000 as a relative improvement over its 70% rate for 1999. Last, SWEC notes that the April 2000 monthly report is misleading because SWEC's failure to start and finish otherwise scheduled activities was impacted by actions directly attributable to Maine Yankee. First, SWEC's schedule was being impacted by the lawsuit between Maine and Maine Yankee. Second, April was the month that Kane, with Maine Yankee's strong approval, had given his craft workers and subcontractors a week off to rewards them for their early completion of one of the tasks.
SWEC's performance must not merely be judged relative to their admittedly poor performance in 1999. Rather, SWEC's performance should be judged based on their obligations under the Decommissioning *783 Agreement. The fact that prior to the arrival of Kane, the project was saddled with numerous problems and was admittedly over budget, behind schedule, and poorly managed supports Maine Yankee's assertion that overall performance under the contract was not adequate.
While SWEC's performance may have been improving under Kane, the fact remains that the work was not progressing as quickly as it was required to under the milestone schedule in the Agreement. Although Kane testified that Maine Yankee executives expressed delight that the project was finally beginning to progress in an adequate manner, the court does not view these statements as absolute expressions of satisfaction, but as expressions of relative satisfaction in comparison to SWEC's performance in 1999 under Lepisto. The documentary evidence demonstrates that as of the termination date, SWEC had already failed to earn 20% of its projected value during the 2000 calendar year. Schedule documents and Maine Yankee correspondence throughout late 1999 and early 2000 further indicate that Maine Yankee did not agree that work at the project was progressing in a satisfactory manner.
It is clear that, in 2000, the relationship between SWEC and Maine Yankee was improving and SWEC's performance, relative to its earlier performance, was also improving. Despite these improvements, as of the termination date, SWEC was still having problems progressing with the work at the Maine Yankee site and were still substantially behind schedule. The court need not speculate whether if Maine Yankee had not terminated the Agreement, the improvements implemented under Kane would have brought SWEC into compliance or substantial compliance with the Agreement from a progress perspective in the future. As of the termination date, the improvements had not done so SWEC was behind schedule on the work and was not performing adequately as of May 2000. With the specter of SWEC's increasing financial difficulties, and the corresponding inability to pay subcontractors and to retain its own employees, Maine Yankee had no reason to think that SWEC's performance would improve to an acceptable level.
Just as with the scheduling issue, the factual record on the work progress seems to indicate that but for SWEC's financial problems, Maine Yankee may not have considered termination of the Agreement on these grounds alone. Nonetheless, based on the fact that SWEC was behind schedule and was earning far less than the expected earned value at the time of termination, Maine Yankee was within its right to terminate SWEC on this ground.
B. Damages Issues
Having found that Maine Yankee has established liability for breach of the Decommissioning Agreement and has properly terminated the Agreement under both sections 11.1 and 11.2, the court now turns to assess the proper amount of damages that shall be paid to Maine Yankee. Maine Yankee seeks damages from SWEC based on its breach of the Decommissioning Agreement and seeks damages from SWINC and SWE&C under the terms of their guarantee's of SWEC's performance. As noted earlier, SWINC and SWE&C each guaranteed SWEC's performance "up to fifty percent (50%) of the Agreement's unpaid balance of the contract price," should SWEC "fail[ ] to perform the Agreement."
1. Did Maine Yankee Fail to Mitigate Damages?
As a threshold matter, Debtors contend that Maine Yankee is not entitled *784 to damages from SWEC, because it failed to mitigate damages in numerous ways. See Ludington v. LaFreniere, 704 A.2d 875, 879 (Me.1998) (discussing duty to mitigate damages). Bearing in mind that the Debtors have the burden of proof on the affirmative defense of failure to mitigate, see Doughty v. Sullivan, 661 A.2d 1112, 1122 n. 14 (Me.1995), the court will consider each of these in turn.
a. Did Maine Yankee Fail to Mitigate Damages By Not Retaining SWEC?
The Debtors first argue that Maine Yankee failed to mitigate because it should have retained SWEC after termination to complete the work. Specifically, the Debtors contend that the parties' agreement to continue the project under the Interim Services Agreement demonstrates that Maine Yankee was interested in retaining SWEC. Debtors also argue that SWEC's ability to perform at that time was bolstered by the improvement in SWINC's financial condition, due to a $50 million line of credit procured from the Jacobs firm. Debtors conclude that Maine Yankee's failure to retain SWEC, even if insolvent, boosted the damages that Maine Yankee now seeks.
Having found that Maine Yankee was entitled to terminate the Decommissioning Agreement due to SWEC's breach, it would make little sense to then conclude that in order to fulfill its duty to mitigate damages, Maine Yankee should not have terminated SWEC in the first instance. As explained by several Maine Yankee witnesses, the insolvency of its contractor was a ground for termination under the Decommissioning Agreement, because insolvency and bankruptcy of a contractor running a large nuclear decommissioning project is undesirable for a multitude of reasons. Where Maine Yankee terminated SWEC for cause under the Decommissioning Agreement, in part due to of its insolvency, the court will not require Maine Yankee to rehire or retain SWEC under a theory of mitigation of damages. Rather, the court must ensure that Maine Yankee made reasonable efforts to mitigate the damages that it may recover from SWEC.
Furthermore, the record does not establish that SWEC would have had the financial wherewithal to perform under the Agreement going forward. The Interim Services Agreement was only a temporary work around that kept the project moving and gave Maine Yankee time to consider what would be its best option for completing the project. By changing the nature of the parties' payment obligations under the Interim Services Agreement, SWEC was able to carry on despite its financial instability and cash flow problems, while Maine Yankee was able to ensure that the project would continue to move forward until it could figure out how to replace SWEC with another arrangement in the nature of the Decommissioning Agreement.
b. Did Maine Yankee Fail to Mitigate Damages By Unreasonably Rejecting the Guarantors' Tender?
SWEC next argues that Maine Yankee failed to mitigate damages by unreasonably rejecting the tender of the guarantors of SWEC's performance, SWINC and SWE&C. In a similar vein, SWINC and SWE&C argue that their liability as guarantors should be discharged because SWEC unreasonably refused their tenders of performance such that the guarantors suffered a loss. See St. Paul Fire & Marine Ins. v. City of Green River, Wyo., 93 F. Supp. 2d 1170, 1178 (D.Wyo.2000) (collecting cases); Restatement (Third) of Suretyship & Guar., § 46 (1995) (were the relied-upon tender is an offer by *785 the guarantor to perform a task rather than merely pay money the guarantor is discharged only to the extent that the guaranteed's refusal both is unreasonable and causes a loss).
Maine Yankee informed SWEC that is was terminating the Agreement for cause on May 4, 2000. A few weeks later it sent a letter to SWINC and SWE&C demanding that the parent guarantors "honor their obligations to Maine Yankee under the two Parent Guarantees." On May 31, 2000, Maine Yankee received a letter signed by Kane. The letter stated that the Guarantors "can neither admit nor deny liability for any `damages and costs' arising from the termination," but states that they "are ready, willing, and able to complete the obligations of the Contract Agreement, and . . . hereby tender their performance to complete the work of the Guaranteed." The letter closes by stating that "if this is not acceptable to Maine Yankee, the Guarantors consider themselves discharged from any further obligations under the Parent Guarantees." Maine Yankee did not accept this tender and disputes whether the May 31, 2000 letter was a tender at all.
Maine Yankee contends that the Debtors failed to prove that Maine Yankee's refusal of the tender was unreasonable, that it caused a loss, or that a tender was even made. First Maine Yankee questions the tender itself. It notes that the signatory to the May 30, 2000 letter sent to Maine Yankee purporting to tender performance was Jerome Kane, who was not authorized to bind SWINC. Next, Maine Yankee argues that the tender itself was ambiguous as to what exactly SWINC and SWE&C would do, and did not tender performance under the Decommissioning Agreement. While the letter indicates that the guarantors would complete the work, it did not state it would do so under the terms of the Decommissioning Agreement. The testimony of Kane and Carroll indicate that the Debtors contemplated that they would either continue to perform under the Interim Services Agreement or assign the agreement, through the bankruptcy process, to another firm such as Shaw or Jacobs. Last, Maine Yankee contends that even if a valid tender were made, it was reasonable to reject the tender, given that SWINC and SWE&C were themselves on the brink of bankruptcy.
The Debtors advance a number of reasons why they believe that Maine Yankee's rejection of the parent guarantor's tender was unreasonable. They first note that the tender of performance was clear. Kane had authority to bind the companies as an officer of SWE&C and was told by the companies' legal counsel to send the tender. Next, they note that the tender was given under the Decommissioning Agreement, and it was thus unambiguous that the tender of performance was under that Agreement and not the Interim Services Agreement. Debtors point to Kane's testimony indicating that "he would have preferred to go forward with the [Decommissioning Agreement]" rather than "perform under the self-contained self-sufficient model of the [Interim Services Agreement]."
Maine Yankee asserts that it is unclear from the performance tender whether Kane was authorized to tender performance of the Agreement and whether the letter indeed offers to perform under the Decommissioning Agreement. The court is not convinced, that based on these arguments alone, Maine Yankee could disregard the letter. If it had reason to consider the tender seriously, Maine Yankee could easily have ascertained whether Kane had the authority to bind the guarantors and what exactly his letter was offering. That said, despite Kane's expressed *786 "preference" to continue under the Decommissioning Agreement it is unclear to the court that the Debtors were financially able to do so. But given the circumstances, these arguments are academic. Assuming that Kane's letter did constitute a tender of performance, the court nonetheless finds that Maine Yankee did not unreasonably decline the tenders. Maine Yankee's rejection of any tender from SWINC or SWE&C was eminently reasonable in light of the provisions of the Decommissioning Agreement and the Debtors financial situation at the time.
In order to assess whether Maine Yankee's rejection of the tender was unreasonable, the court must examine the situation confronting Maine Yankee at that time, in late May 2000 and analyze the events that took place from Maine Yankee's perspective. Before entering into the Decommissioning Agreement, Maine Yankee conducted a careful bid selection process to choose a qualified contractor to do the decommissioning. Norton explained the many valid reasons a it wanted to have a financial strong contractor in charge of decommissioning its nuclear power plant. At the end of April, SWINC itself publicly announced that it would be restating its financials, selling its assets, and seeking bankruptcy protection. SWEC failed soon thereafter, as SWEC and SWINC managed their cash flow together. At the end of May, SWINC sent Maine Yankee its "tender," stating that it could and would "complete the work of the Guaranteed." When it received that letter, Maine Yankee knew that SWINC was contemplating bankruptcy, a condition that in and of itself was a breach of the very Decommissioning Agreement that SWINC was saying it would perform. Two days after it sent the letter, the Stone & Webster companies filed for bankruptcy.
As the court noted in its November 21 opinion, the filing of bankruptcy just days after the tender made it "unclear whether either SWINC or SWE&C could have satisfied their guarantor obligations and successfully mitigate Maine Yankee's damages. . . ." From Maine Yankee's perspective, it was more than fair to conclude that the letter from Kane was a hollow offer for performance that could not be taken seriously, given that being in bankruptcy was itself a breach of the Decommissioning Agreement.
Maine Yankee's termination of the Agreement was itself largely motivated by SWEC's insolvency and the desire to avoid the bankruptcy process. Based on the terms of the Decommissioning Agreement, Maine Yankee was within its rights to terminate SWEC for insolvency and was similarly within its rights to reject tenders made by its parents based on its assessment of those companies' financial weakness and prospects of bankruptcy. Accordingly, the court will not require that Maine Yankee accept the tender of SWINC and SWE&C, companies that were in similarly poor financial condition, in order to mitigate damages or reserve their rights under the guarantees.[19]
*787 c. Did Maine Yankee Fail to Mitigate Damages By Unreasonably Rejecting Shaw's Offer?
SWEC also argues that Maine Yankee failed to mitigate damages by declining Jim Bernhard's offer, made on behalf of the Shaw Group, to take over the scope of the decommissioning agreement for $30 million above SWEC's contract price.[20] In essence, Debtors argue that Maine Yankee should have accepted Shaw's offer and unreasonably failed to do so. Therefore, according to the Debtors, Maine Yankee's damages should be limited to $30 million, which is less than the amount that Federal Insurance has agreed to pay to Maine Yankee on its bonds.
In opposition, Maine Yankee responds that Shaw never made a legal offer. Moreover, even if one assumes that an offer were made, Maine Yankee contends that Debtors have failed to prove that Maine Yankee was unreasonable in attempting to negotiate against that offer and in ultimately deciding to decline Bernhard's proposal. Thus, Maine Yankee argues, its failure to consummate a satisfactory agreement with Shaw was not a failure to mitigate damages.
To constitute an "offer" a proposal must be sufficiently defined as to manifest a willingness to enter into a bargain, such that the offeree would understand that its assent to that bargain is invited and will conclude the bargain. Restatement of Contracts § 24; 1 Williston on Contracts §§ 4.4, 4.18; see also Searles v. Trustees of St. Joseph's College, 695 A.2d 1206, 1211 (Me.1997) ("it is necessary that the offer shall contain all the terms of the contract to be made"). Rather than characterize the Maine Yankee Shaw's proposal as an "offer," Maine Yankee characterizes the Shaw proposal as a "feeler" for a settlement agreement and a proposal for a new arrangement with Maine Yankee on different terms and conditions. Maine Yankee contends that Bernhard's proposal was lacking, because it left as unspecified what changes there would be to the scope of the work from the scope of work that SWEC had agreed to perform under the Agreement. Moreover, Maine Yankee contends that the terms of Shaw's proposal required a global resolution of all disputes between Maine Yankee, Federal, and the Stone & Webster companies, which Maine Yankee did not want to accept. Both of these aspects of the proposal had to be further negotiated and more fully defined.
The trial testimony and exhibits establish that Bernhard made a proposal to Meisner and Norton that involved Maine Yankee paying Shaw an additional $30 million over and above the unpaid amount to SWEC under the decommissioning project in exchange for Shaw completing the decommissioning project. The parties dispute, however, turns on (i) whether the Shaw proposal contemplated altering the scope of the work that Shaw would perform and altering the Agreement under which it would perform the Work, and (ii) whether the Shaw proposal was contingent on the Maine Yankee agreeing to waive any claims it may have had against the Stone & Webster companies and Federal Insurance. There was, to some degree, conflicting testimony on these matters.
The Debtors rely on the testimony of Bernhard, Meisner, and Kane to establish that Bernhard's proposal was a clear offer, that it involved substantially the same scope of work that SWEC had agreed to perform, and that it was not contingent on *788 Maine Yankee's agreeing to waive its claims against SWEC and Federal. The Debtors point out that during his deposition, Bernhard was asked about the offer:
Q: Now, if at the conclusion of your communication that you have talked about with Meisner in July, 2000, Meisner had said, "Bernhard, I accept, we have an agreement," what would you have understood to be the terms of that agreement?
A: We would go out do the contract, collect our receipt, and get an extra 30 million dollars.
Q: What contract?
A: The contract to do the work subject to the negotiation of some terms and conditions, the scope of the work. The only scope differential was one not that existed between us, Shaw and Maine Yankee. It was one that had existed already. Instead of arbitrating at the end whether concrete was in or out, we just wanted to clarify it right then.
Moreover, Debtors highlight that Meisner testified that Shaw "could take the work, you know, the old Stone & Webster scope of work, add around $30 million to do it and continue the project." As for whether the proposal was conditioned on Maine Yankee's waiver of its claims against Federal, Kane testified that Federal was not mentioned in the first phone call between Bernhard and Meisner. Debtors state that is further confirmed by Norton's letter and his notes of the July 14 telephone call, neither of which indicates that a release of Federal was required.
Contrary to the Debtors' assertions otherwise, Norton's trial testimony and Bernhard's deposition testimony establish that Bernhard's proposal did contemplate a global resolution of Maine Yankee's dispute with Federal and SWEC. Bernhard stated that it was his understanding that "if we finished the job for 30 million dollars, there wouldn't be any claims by Federal to Maine Yankee, there wouldn't be any claims by the [Stone & Webster] estate to Maine Yankee, and there wouldn't be any claims to Maine Yankee to both parts [sic]." This confirms that part of Bernhard's objective was to settle any legal claims arising from the dispute under the Decommissioning Agreement. Norton's letter to Barfield, which was drafted immediately after his conversation with Bernhard, also characterizes Bernhard's proposal as one "to resolve various outstanding issues and disputes among SWEC, Maine Yankee, and Federal by having The Shaw Group complete the decommissioning of the Maine Yankee site. . . ." Norton testified that throughout the negotiation process, he continued to understand that Maine Yankee's term sheet was conditioned on Maine Yankee's resolution of all claims between Maine Yankee, Federal, and SWEC.[21] Given that to agree to the Shaw Group's proposal, Maine Yankee would have had to waive its claims against SWEC and Federal (or settle those claims for less than Maine Yankee believed they were worth), it was not unreasonable of Maine Yankee to try to negotiate with Shaw to drop this requirement and to accept as much scope of work as possible. When this failed, it was not *789 unreasonable of Maine Yankee to decide not to enter the agreement with Shaw at that time.
In addition, given the complexity of any agreement to decommission the Maine Yankee facility, Bernhard's oral proposal was not well-defined enough to constitute an offer that Maine Yankee could be expected to accept immediately. The statement from Bernhard that Debtors rely upon to establish that the offer was clear, itself includes that caveat that the proposal was "subject to the negotiations of some terms and conditions." It would unrealistic to presume that Maine Yankee would simply accept Bernhard's telephone proposal without further negotiating the terms to get a complete understanding of the parameters of the deal. Given the level of detail and complexity involved in the decommissioning project, Maine Yankee's course of conduct in affairs regarding the decommissioning project (i.e., the detailed bidding process, the Decommissioning Agreement itself, its careful contract management of SWEC, etc.) suggests that it would first take great care in exploring the parameters of the deal. In negotiating and discussing the deal, that is just what Maine Yankee did.
The court finds that Maine Yankee did not unreasonably decline any oral offer from Shaw, because the details of that proposal were not well defined enough to constitute an offer that Maine Yankee should have reasonably accepted and because doing so would require that Maine Yankee immediately drop or resolve its claims against Federal. Thus, even if the oral proposal were sufficiently detailed to constitute a legal offer, it would have been reasonable for Maine Yankee to discuss the deal in more detail.
Having determined that Maine Yankee did not unreasonably reject Bernhard's oral proposal, the court will next focus on the subsequent negotiations between Maine Yankee and Shaw to determine whether it was unreasonable, based on those negotiations, for Maine Yankee not to have arrived at some agreement with Shaw to take over the decommissioning project. The record shows that Maine Yankee, through Norton's correspondence to Barfield, promptly responded to Bernhard's proposal by immediately forwarding proposed terms and inviting further discussion. Their correspondence culminated in Barfield forwarding to Norton a term sheet, for negotiation purposes only.
Maine Yankee raises two reasons, why, from its perspective, it was reasonable not to accept the Shaw Group's offer. First, as discussed above, their offer carried with it the requirement of a global settlement. Second, the Shaw Group did not want to take on the same scope of obligations that SWEC had undertaken in the Decommissioning Agreement. It is unclear to the court that Shaw Group ever offered or contemplated offering to take on all of obligations of the Decommissioning Agreement. To the contrary, Bernhard himself made clear, in his deposition, that the deal he was proposing was never one where Shaw would take on the "huge document" that was the Maine Yankee/SWEC contract. He stated that "our offer was not to take the same terms and conditions as previously negotiated by Stone & Webster and just substitute an additional price. That was not the offer. . . ." Kane's testimony confirmed this much. At a number of points during his deposition, Bernhard confirmed that the $30 million price did not cover the same scope of work as in the Decommissioning Agreement. Given Shaw's unwillingness to accept the full scope of obligations under the Decommissioning Agreement and Maine Yankee's requirement that it be able to manage the project in a detailed manner, it is not *790 surprising that the parties never came to an agreement.
In evaluating how to proceed post-termination, Maine Yankee did not ignore the Shaw Group's proposal. Nor did it unreasonably reject that proposal. Rather, the evidence shows that Maine Yankee entertained the Shaw Group's proposal and attempted to negotiate a satisfactory agreement with Shaw, but ultimately concluded that Shaw's requirement that it waive its potentially valuable claims against Federal and SWEC was too onerous. Nothing in the record indicates that this business decision was unreasonable.
Moreover, the court is not convinced that even the final Shaw proposal (as embodied in the written term sheet) contemplated taking on the same scope of work and obligations that SWEC had in its Decommissioning Agreement. That document indicates that Shaw wanted to shift the risk of regulatory delays as well as other costs onto Maine Yankee. The Shaw deal did not simply contemplate taking over the SWEC scope of work; it was a new agreement that allocated risks differently. For the reasons identified, deciding not to consummate a deal with Shaw was a reasonable business decision.
In sum, the court does not find that Maine Yankee's failure to come to an agreement with Shaw was a failure on its part to mitigate damages. Maine Yankee's subsequent actions confirm that it was simply trying to secure a contractor to handle the same scope of work for the best possible price. It determined that the best way to meet that goal is to engage in a re-bid process, by which it solicits bids from a number of contractors and chooses from among the competitive bids and its own self-performance bid. While Maine Yankee determined that accepting the Shaw Group's proposal was not in its best interests, it invited the Shaw Group to participate in its re-bid process and stated that it would be amenable to attempting to agree to a contract based on that process, without tying the agreement to a simultaneous release of its claims against SWEC and Federal. That Maine Yankee engaged in that process, weighing the new proposals from contractors against its own self-performance bid, further indicates to the court that Maine Yankee fulfilled its duty to mitigate.
2. To What Damages Amount has Maine Yankee Proved It Is Entitled?
a. Testimony on Damages
(i) Maine Yankee's Expert Edward Doubleday
Maine Yankee's damages expert, Edward Doubleday of Scientech, Inc. testified regarding his damages analysis and calculations. Doubleday, who has over twenty-two years of commercial nuclear power experience, performed an independent evaluation of Maine Yankee's damages to arrive at the $81 million pre-cap and pre-settlement with Federal total damages figure. He conferred with Maine Yankee personnel, reviewed the Decommissioning Agreement, and reviewed the various subcontracts and change orders entered into by Maine Yankee to perform the work.
Doubleday's approach was to determine the cost of completion for the scope of work within the SWEC Decommissioning Agreement, and to determine the difference between that costs and the amount that would have been owed to SWEC for completion of that same work had the Agreement not been terminated. Doubleday first calculated the "Total Cost to Complete the Work" based on the various components of SWEC's scope of work under the Decommissioning Agreement. He concluded that the "Total Cost to Complete *791 the Work" would be $275,151,017. Next, Doubleday calculated that the remaining Unpaid Agreement Funds were $194,117,713. This amount is not disputed by SWEC. He then subtracted the Unpaid Agreement Funds of $194,117,713 from the Total Cost to Complete the Work of $275,151,017, to arrive at his damages figure of $81,033,304 the difference between what Maine Yankee is paying to complete the work and what Maine Yankee would have paid to SWEC to complete the work under the Agreement.
Scientech's calculations of the Total Cost to Complete the Work figure was based on the following cost components (approximate calculated cost in parentheses): (i) costs for subcontractors to complete work under subcontracts ($168.7 million), (ii) year 2000 D & D costs ($15.9 million), (iii) cost of labor to complete D & D after 1/1/01 ($55.7 million), (iv) reduction in base cost for oversight of decommissioning agreement (-$7.4 million), (v) disposal of above-grade concrete offsite ($18.4 million), (vi) RCRA closure plan costs ($5.1 million), (vii) costs to remove PCBs less than 50 ppm ($607,000), (viii) small tools and supplies costs ($1 million), (ix) equipment costs ($1.7 million), (x) reprocurement costs incurred in connection with conducting the rebidding process ($482,000), (xi) additional contingency costs ($9.3 million), (xii) electricity costs for in-scope work ($1.2 million), and (xiii) costs of major purchase orders ($4.2 million).
Doubleday reviewed his calculations of each of the above components at trial. His damages estimate is based on a combination of actual costs (for work already done and subcontracts already executed) and estimates of future costs (for work not yet done).
(ii) SWEC's Expert Dennis Staats
SWEC's damages expert, Dennis Staats, testified on damages issues on behalf of the Debtors. Staats reviewed the damages reports produced by Maine Yankee, and testified on the appropriateness of Maine Yankee's methodology and conclusions.
Staats first opined that the "total cost" approach used by Maine Yankee to determine damages is inappropriate for a determination of damages in this case, because it fails "to determine specific impacts to the damages" by identifying and costing out damages components "in terms of incremental amounts." On cross-examination however, after reviewing the steps in Scientech's methodology, he agreed that if the analysis is "done correctly and there is consideration of change orders, to items of negotiation, of questions of whether [certain changes] are in scope or out of scope, whether proper incremental analysis is done for savings, proper present value is done and other adjustments" are made, the methodology would yield a reasonable determination of the damages.
Next, Staats testified that he would make certain adjustments to Doubleday's "bottom line number" of $81 million. He first contested the accuracy of Doubleday's damages analysis, opining that certain costs included by Doubleday were inaccurate and that others were "double counts."[22] On the topic of accuracy, Staats opined that Doubleday miscalculated the base labor savings credit arising from reduced labor costs associated with Maine Yankee's implementation of its self-performance plan. Staats also highlighted *792 that while Doubleday's report indicated that Maine Yankee, in its self-performance estimate (which was incorporated into its present budget) had determined that a $6 million spending level would be required for RCRA costs, his cost item for RCRA was $9 million. Staats advocated reducing the amount by the $3 million difference. Last, Staats stated that Doubleday failed to discount the damages to obtain a present value damages amount as of the May 4, 2000 termination date. Using a discount rate of 6.69%, the commercial lending rate at the time (based on May 2000 five year treasury bills), Staats performed that analysis. He reported that applying that discount rate to discount to the termination date reduces the $81 million damages figure by $12 million.
Staats' analysis also attacked Doubleday's conclusions on a conceptual level for failure to account for certain issues that a complete damages analysis must include. First, he stated that Doubleday's report failed to perform a delay analysis to determine the cause of the six month delay on the completion date of the Maine Yankee project. Accordingly, he opined that Doubleday's $81 million damages figure has a delay claim against SWEC embedded in it, because Maine Yankee did not analyze the reasons for that delay and allocate the cost of that delay to the proper party. Based only on the monthly labor costs projected over a six month period, Staats valued that delay claim at $2.1 million. Second, Staats stated that Doubleday's waste disposal costs were overstated, because Maine Yankee failed to sufficiently review those costs to determine the cause for the $11 million increase in costs when compared to the value that SWEC had placed on this item.[23] Third, Staats challenged Doubleday's $9.3 million line item for additional contingency, opining the inclusion of a contingency amount in a damages figure is inappropriate because whether the contingency will be spent is speculative.
b. The Parties' Contentions on Damages
Pursuant to section 11.4 of the Decommissioning Agreement, SWEC must compensate Maine Yankee for the difference between "the total direct damages and costs incurred by Maine Yankee to finish the Work" and the "unpaid Agreement funds, including any funds payable to Maine Yankee by reason of letter of credit, performance bond, or insurance coverage." According to Maine Yankee, the amount not paid to SWEC under the Decommissioning Agreement is $194,117,700.12, and the total direct damages that Maine Yankee will incur in completing the decommissioning is at least $275,151,017. Thus, Maine Yankee's damages, under section 11.4, would be approximately $81 million.
However, as per the court's November 21, 2000 memorandum opinion, Maine Yankee's breach of contract damages are capped at $65 million, pursuant to section 30.2 of the Agreement. In addition, Maine Yankee has recently entered into a settlement agreement with SWEC's bonding company, Federal Insurance Company, whereby Federal will pay Maine Yankee an aggregate amount of approximately $44 million under the bonds that it has issued. Under the law of the case established by the court's November 21 Order, it is appropriate to credit within the cap the amounts received under the Federal bonds.[24] Accordingly, in its proof of claim, *793 Maine Yankee seeks $21 million jointly and severally against each of the three Debtors.
Maine Yankee relies on Doubleday's Expert Report, his testimony, and supporting testimony and documentation from Gerber and Smith to establish the amount in damages to which they are entitled. It also contends that Maine Yankee's self-performance estimate, actual cost, and budget data support Doubleday's damages estimates.
The Debtors, through the testimony of their damages expert Dennis Staats as supplemented by the testimony of Boyea, challenge Maine Yankee's damages assertions in three ways. First, the Debtors contend that Doubleday's Report should be stricken under Fed.R.Civ.P. 26, for Maine Yankee's failure to fully disclose their expert's opinions before trial. Second, the Debtors assert that Maine Yankee is improperly seeking to recover costs from SWEC that were beyond the scope of the Decommissioning Agreement, including costs relating to the 10/4 legislation, costs for the off-site disposal of concrete due to the State of Maine's "special waste" designation, and costs for certain portions of the RCRA remediation sub-project that were not included in SWEC's contract scope. Third, the Debtors challenge certain cost-items within Doubleday's Report as overstated, unnecessary, or inaccurate.
Debtors contend that the following costs should be subtracted from Maine Yankee's cost estimate: (i) overstated waste disposal costs ($5.9 million); (ii) speculative contingency costs ($9.3 million); (iii) unidentified delay costs attributed to SWEC ($2.1 million); (iv) additional labor savings ($4.85 million) and Entergy savings ($3.4 million); (v) out-of-scope costs to achieve 10/4 millirem ($11 million); out-of-scope costs to transport above grade concrete off-site due to MDEP's special waste designation ($3.325 million); (vi) out-of-scope costs for RCRA remediation ($2.9 million); (vii) costs due to Maine Yankee's abandoned recovery from Federal ($6.5 million); (viii) present value reduction ($12 million); and (viii) amounts owing to SWEC for work performed prior to termination ($1.67 million). After subtracting out these costs and crediting Maine Yankee's recoveries to Federal, it is Debtor's position that Maine Yankee is owed no damages on its claim.
c. The Court's Damages Analysis
Before continuing, the court will consider as a threshold issue Debtors' contention that Doubleday's report and related testimony must be stricken under Fed.R.Civ.P. 26(a). The crux of Debtors challenge is that Doubleday omitted from his report the opinions he expressed at trial concerning SWEC's commitment to the 20,000 DCGL standard and that a 20,000 DCGL achieves the 10/4 standard with no additional costs. They also argue that they were surprised by the "bait and switch" of having Doubleday testify at trial on damages, rather than his colleague Dr. Roger Matson, who authored Maine Yankee's earlier damages reports. Last, Debtors contend that his updated report failed to adequate identify all relevant data and opinions.
The court will not strike Doubleday's report or testimony. Doubleday was listed as an expert for Maine Yankee on the pre-trial order. To the extent his updated report was somewhat skeletal, Staats testified that he understood that the updated report was generated from earlier reports, which contained more detailed narrative discussions of the expert opinions. As for Debtors argument that Doubleday's report omitted opinions relating to the 10/4 standard *794 that Doubleday testified to, Debtors brought forth sufficient evidence on this point during their case in chief to test this opinion and to allow the court to resolve whether it agrees with Doubleday's opinion on that issue. Thus, to the extent that Doubleday failed to expressly detail in his report his opinion that there were no additional costs to reach the 10/4 standard, the court finds that omission to be harmless.
Speaking broadly, based on its review of the expert reports and relevant testimony, the court finds that the basic methodology used by Maine Yankee and Doubleday to calculate damages is reasonable and consistent with the Agreement. Under this methodology, the unpaid agreement funds were calculated by subtracting the amount paid to SWEC as the contractor under the Agreement from the total dollar amount authorized for the scope of work in the Decommissioning Agreement. Doubleday's calculations establish that the unpaid agreement funds are $194,117,700.12. To calculate the pre-cap damages amount owing to Maine Yankee, this amount is subtracted from Maine Yankee's actual cost to complete the scope of work.
Debtors damages case focuses on purported flaws and inaccuracies in the portion of Maine Yankee's damages calculations directed at calculating Maine Yankee's cost to complete the scope of the Work of the Decommissioning Agreement. While Maine Yankee asserts that this amount is $275,151,017, which yields a pre-cap damages amount of $81 million, SWEC contends that the court should discount or reject Maine Yankee's damages request for the reasons identified by Staats.
In order to determine the appropriate damages award, the court must necessarily determine the costs to finish the in scope decommissioning work under the Agreement. As the project is still incomplete,[25] the court as fact-finder must rely on reasonable projections of those completion costs. Indeed, the court is "permitted to make the most intelligible and probable estimate which the nature of the case will permit, given all the facts and circumstances having relevancy to show the probably amount of damages suffered." Pombriant v. Blue Cross/Blue Shield of Maine, 562 A.2d 656, 660 (Me.1989).
The court will structure its damages analysis, as follows. First, the court will review Maine Yankee's damages analysis item by item, stopping where necessary to consider Debtors' challenges to those individual line items and to make any adjustments that the court agrees are necessary. Next, the court will consider Debtors' broader challenges to Maine Yankee's damages case and again make any necessary adjustments.
i. Analysis of Maine Yankee's Line Item Costs to Complete
(i) Costs for Subcontractors to Complete Work
To calculate the cost for subcontractors to complete the work cost component, Scientech added the costs of contracts then issued ($194 million) with the costs of certain approved (in-scope) change orders ($45 million) and then made certain adjustments to subtract out all items that were accounted for elsewhere in the damages calculations.[26] Many of the subcontracts *795 were entered into by SWEC before termination and assigned to Maine Yankee in connection with its self-performance plan. All of the pre-termination and some of the post-termination change orders also were entered into by SWEC.
At trial, Evringham provided summaries of the subcontracts and change orders and described the process that Maine Yankee employed to ensure that the charge orders were appropriate and reasonably priced. He testified that every purchase order or subcontract is reviewed by the project manager responsible for that item, and described that when subcontractors approaches Maine Yankee seeking to be compensated for certain work, it was his job to review their contracts to determined whether that scope of work is already included in their pre-existing subcontract. The contracts and change order summaries are listed in Exhibits 25, 27, and 28. Doubleday's testimony indicates that in calculating the total subcontractor costs, he reviewed these summaries, along with the Decommissioning Agreement, and the SWEC proposal to ensure that none of the subcontractor costs was outside of SWEC's scope of work.
Most of the subcontracts were firm, fixed-price agreements, the cost of which is determined by simply reading the contract. For those contracts that were either time and materials or unit cost contracts (which contain only projections of total cost), Scientech first broke the contracts into groupings for waste disposal, RCRA expenses, and radiological contracts. Then, Scientech performed its own analysis of those three tasks, and adjusted the total time and materials or unit cost projections of those subcontracts accordingly. The analysis showed that Maine Yankee would likely spend $67 million in waste disposal[27] and would spend $9 million in RCRA subcontract expenses[28] (including $3.9 million previously contracted on work that has not yet been done).
Debtors challenge Doubleday's calculations in a number of ways. First, based on Nauman's testimony, they argue that certain of the change orders included in Doubleday's calculations should be excluded, because they covered work that was already within the scope of another subcontract. Essentially, Debtors assert that Maine Yankee unnecessarily wasted money by entering into these change orders, and that SWEC should not be liable for those amounts.[29] In addition, Debtors contend that the cost of certain change orders should be excluded from Maine Yankee's damages calculation, because they concerned work that fell out of the scope of SWEC's obligations under the Agreement. These include change orders executed with Canal Barge, CH 2M-Hill, Chem-Nuclear, and Manafort.
*796 Based on Nauman's testimony, the court cannot conclude that the change orders included in Evringham's summaries covered work that was out-of-scope[30] or repetitive. Nauman's testimony on direct and on cross-examination confirms to the court that he was not familiar enough with the terms of the original subcontracts or the work covered by certain contracts to convince the court of his conclusions. Moreover, in light of the conceded thoroughness of Maine Yankee's contract managers, it seems unlikely that Maine Yankee would waste money by entering into unnecessary subcontracts.
In addition, based on Staats testimony, Debtors seek discounts to Doubleday's calculations of both the waste disposal costs and the RCRA costs. Staats challenges Doubleday's $66 million waste disposal cost calculation by comparing it SWEC's earned value estimation, and pointing out an $11 million discrepancy between those figures. In light of the fact that the waste disposal subcontracts that SWEC itself entered into before termination totaled over $63 million and the fact that Doubleday's report relied on actual data on the quantities of waste shipped thus far than SWEC's earned value report, which had estimated lower quantities of waste, the court concludes that Doubleday's $66 million waste disposal cost calculation is reasonable.[31]
Staats also challenges Doubleday's $9 million RCRA cost calculation, pointing to a $3 million discrepancy between that figure and the $6 million projected in Maine Yankee's budget. Debtors contend a reduction is warranted, because Maine Yankee will spent approximately $3 million to clean up areas or spills that are out of SWEC's scope of work because they had not been previously identified or characterized.
Again, the court concludes that the RCRA cost calculation is reasonable. First, Doubleday's figure is well in line with what Gerber, a person with RCRA expertise who worked for both Maine Yankee and SWEC on the decommissioning, estimated the RCRA would cost. Gerber testified his estimate represented the projected costs to complete remediation for the areas identified in SWEC's remediation plan or the report of SWEC's remediation subcontractor, Duratek. Thus, his estimates do not include any out-of-scope remediation. Further, the court accepts Doubleday's explanation, his calculations are different from those in Maine Yankee's budget, because when Scientech examined the actual expenditures, subcontracts, and change orders issued through August 31, 2001, it found that the actual RCRA costs were running higher than Maine Yankee had projected in its budget.
(ii) Maine Yankee Calendar Year 2000 D & D Costs
The second damages component of $15.9 million consists of actual costs already incurred by Maine Yankee for decommissioning from May 5, 2000 through December 31, 2000, such as electricity, fees, labor, materials, supplies, and services. In connection with its self-performance, Maine Yankee set up a system *797 whereby they have continued to track the costs of tasks within the work scope of the Decommissioning Agreement. Scientech gathered and reviewed these numbers from Maine Yankee's tracking system, and summarized them in Doubleday's report.
As the Debtors do not appear to challenge this line-item directly, the court finds that they are reasonable and should be included in Maine Yankee's cost to complete SWEC's scope of work.
(iii) Maine Yankee Labor to Complete D&D After 1/1/01
In order to assess the budget going forward, after January 1, 2001, Scientech did an analysis of the manual and non-manual labor costs paid through August 31, 2001, and used those labor rates and staffing numbers to project what Maine Yankee would spend on labor. Scientech calculated that Maine Yankee will spend $55.7 million on labor costs. This amount is roughly $3 million less than Maine Yankee estimated in its own self-performance projection.
The Debtors do not appear to challenge this line-item directly.
(iv) Reduction in Base Costs for Maine Yankee's Oversight of Decommissioning
Scientech also calculated any savings resulting from Maine Yankee's self-performance. Doubleday explained that "when Maine Yankee made the decision to self-perform, the organization that you need for self-performance is different than the organization you need to monitor . . . [a] contractor . . . you don't need as many people to monitor yourself." Therefore, Maine Yankee's damages figure must credit to SWEC any decreases in its costs associated with its self-performance of the decommissioning. After evaluating Maine Yankee's staffing levels of Maine Yankee's base organization when compared to Maine Yankee's staffing levels during self-performance after termination. Scientech found that SWEC was entitled to a credit in the amount of $7.3 million.
This credit represents savings in "non-scope" or "base" work, such as reduced costs of oversight personnel as a result of not having a general contractor. To calculate this amount, Scientech used Maine Yankee's own staffing reports and then calculated salaries and overhead associated with any positions that were eliminated as a result of Maine Yankee's implementation of the self-performance plan of the SWEC-scope work (this is referred to by the parties as "D&D," which stands dismantling and decontamination).
Debtors contend that Doubleday's calculation of base savings omitted $4.85 million in savings that should be credited to SWEC. The parties agree that for every net base spot that is left empty, there should be a credit against Maine Yankee's labor costs for that employee's wages. Staats base savings calculation differed from Doubleday's, leading to the credit, because he made different assumptions about the number of people moving from base to D&D. Staats' figure is based on 22 employees who moved from base to D&D, while Doubleday's report shows a smaller net reduction in the base post-termination.
Staats identified 22 employees from Doubleday's report and Maine Yankee's labor report who were in Maine Yankee's base pre-termination and moved to D&D afterwards. His opinion that the total salary of those employees should be subtracted from Maine Yankee's damages, assumes that for every person changing jobs after the termination of SWEC there was a corresponding decrease in the base and therefore a savings to Maine Yankee on *798 the base side. Maine Yankee's criticisms of Staats' analysis challenge this assumption. First, Maine Yankee argues that Staats failed to take into account that when a number of employees transferred from base to D&D, their positions were filled by others, resulting in no net savings for those positions. Maine Yankee's Michael Thomas testified that certain positions held by persons who moved from the base side to D&D were filled by other employees on the base side. He gave one example of this, noting that when Jim Connell moved from being manager of information technology on the base side to radiation protection manager on the D&D side, Gary Stewart filled Connell's vacated base side position. Maine Yankee also notes that Thomas testified that there had been a reduction by five people before termination, which cannot be attributable to termination and therefore should not factor into the base savings calculation. Second, Maine Yankee criticizes Staats' assumption that there were no new positions created on the base side as a result of the termination and his failure to consider those offsets. Thomas confirmed that Maine Yankee did experience increases in staffing on the base side due to SWEC's termination. He stated that one such example of a base area that required an increase in staffing in the accounting department, due to the substantial numbers of payments that Maine Yankee had to make to subcontractors, supplies, etc. due to Maine Yankee's self-performance of SWEC's scope of work.
After reviewing the calculations of Doubleday and Staats in light of these criticisms, the court finds Doubleday's methodology for calculating base savings more reliable than that of Staats. Doubleday compared the 2000 (pre-termination) base staffing projections with the 2001 (post-termination) base staffing projections. See Exhibit 290. Such analysis yields an overall net decrease in the base, but also takes into account any vacated positions on the base side that were subsequently filled by other employees and any new positions that were created as a result of an employee moving to D&D. Thomas' testimony confirms that such changes did occur. Accordingly, the court declines to award SWEC any additional credit for base savings beyond that calculated by Doubleday.
SWEC also argues that it are entitled to an additional savings credit in the amount of $3.41 million for the labor and bonus costs of two of the five Entergy consultants hired by Maine Yankee to assist in the D&D work. Debtors contend that these Entergy costs should be removed from the Maine Yankee's labor estimate because the Entergy employees were base employees of Maine Yankee. In Maine Yankee's labor calculations, it placed three of the Entergy consultants on the base side, while placing two (Burke and another gentleman named Williams Henries) on the D&D side. Staats stated that all five should have been in the base and that the labor and bonus costs of Burke and Henry should be deducted from Doubleday's labor cost figure.
Henries is the director of engineering for D&D. Therefore, the court disagrees that he should be included as a base employee. In addition, the $2.15 million bonus attributable to Henries that Entergy was paid under its contract with Maine Yankee is dated June 1, 2001, which was well after the termination date. Turning to Burke, whose position at Maine Yankee is Vice President of Decommissioning, the court believes that it is also appropriate to include him in the D&D organization. Debtors contend that because Burke replaced Norton, who was then promoted, Burke should be counted as base. However, Burke indicated in his testimony that the role he fills on the project is equivalent *799 to the role of SWEC's project manager, before termination. That position was never part of Maine Yankee's base and was only required when SWEC was terminated. In sum, the court finds that but for Maine Yankee's termination and self-performance of the D&D project, Burke would not be employed at Maine Yankee. Therefore, it would inappropriate to include him on the base side.
Based on the foregoing, the court declines to increase Doubleday's base savings credit or decrease his labor costs line items.
(v) Disposal of Above-Grade Concrete
The disposal of above-grade concrete, along with the RCRA closure costs, and costs to remove PCBs to less than 50 part per million are items within the scope of work that Maine Yankee had not yet contracted to perform. Scientech projected the costs for each, and listed each as a separate line item in its report.
Maine Yankee projects that it will be paying approximately $18.425 million to ship and dispose off-site the above-grade concrete. This total is approximately $3.325 million more than it would have cost to bury the concrete on site, as per SWEC's rubblization plan. Debtors contend that this difference is an out-of-scope cost. For the reasons set forth, infra, in section II.B.2.c.ii(i), the court concludes that these are in-scope costs that SWEC would have been responsible for had Maine Yankee not terminated the Agreement.
(vi) RCRA Closure Plan
The RCRA Closure Plan refers to the planning, site investigation, and remediation that is required to comply with MDEP requirements for RCRA closure. SWEC was responsible for completing RCRA closure at the Maine Yankee site as part of the scope of the work under the Agreement. For costs relating to RCRA closure, Scientech projects that an additional $5.1 million will be required in addition to Maine Yankee's current RCRA waste contracts, which total $3.9 million.
As discussed below, the court concludes that the total RCRA costs of $9 million are reasonable. This is confirmed by the fact that Gerber's most recent estimates for the cost of implementing the RCRA closure plan as per SWEC's design documents is roughly $11 million. While Debtors suggest that Maine Yankee's RCRA cost projections are inflated because they are cleaning the facility to a more stringent standard (the "residential" standard) than the standard SWEC was obligated to meet under the Agreement (the "industrial" standard), this assertion is contradicted by Maine Yankee's QAPP plan[32] developed by Gerber. The QAPP plan indicates that Maine Yankee is cleaning the production facility areas where Gerber anticipates all the remediation to take place to an industrial standard.
(vii) PCBs Less Than 50 ppm
As per the Decommissioning Agreement, SWEC was obligated to remove PCB contamination to a level of less than 50 parts per million and to perform scabbling of the below-grade concrete. Scientech estimates the cost of the PCB removal would be approximately $607,000. Doubleday opined that his projection was conservative, because since he had made his projections, Maine Yankee has received *800 three higher cost bids for that work, which would cover a smaller scope that Doubleday had estimated. The lowest cost of those bids is $1.2 million.
Debtors do not challenge either the obligation for or the cost of this work. The court will therefore accept Scientech's cost projection.
(viii) Small Tools, Supplies, and Equipment
Scientech's damage estimate also includes approximately $1 million for small tools and supplies necessary to the decommissioning. This cost is based on Scientech's review of Maine Yankee's self-performance estimate of what this would cost. As of the time Scientech reviewed the costs, on August 31, 2001, Maine Yankee had spent $800,000 on small tools and supplies.
Scientech also estimates that equipment necessary to the decommissioning will cost approximately $1.75 million, over $1.5 million of which had already been spent through August 31, 2001.
Doubleday indicated that his estimates did not take into account salvage value based on his assumption that the salvage value for equipment used for a number of years in a contaminated environment such as a nuclear power plant decommissioning site is negligible. Although Staats objected to Doubleday's failure to include a credit for salvage value, at trial, he agreed that he had no basis to contest Doubleday's opinion that "as a general rule of thumb of estimating salvage value in decommissioning a nuclear power plant, the standard practice is to assume that the added cost of disposing the irradiated equipment is going to at least offset and neutralize any salvage value that the equipment might have."
Based on the amounts already paid by Maine Yankee, Doubleday's projections for small tools, supplies, and equipment seem reasonably accurate. The court will include these cost items within the overall damages figure.
(ix) Reprocurement Costs
Scientech also included the costs incurred by Maine Yankee to pursue the rebidding process. This cost item was calculated by analyzing how many Maine Yankee employees were involved in that process and how much time they had spent on it. Scientech's calculated this expenditure to be $482,433.
The Debtors do not dispute this cost and the court has no indication that the Scientech's calculation is anything but fair and reasonable. Accordingly, the court will accept is as a cost item to be included in Maine Yankee's damages.
(x) Additional Contingency Cost
Scientech's damages analysis also included a line item for additional contingency costs for the SWEC scope of work in the amount of $9.3 million. Doubleday explained that contingencies future costs within the contract scope that are anticipated, but presently unknown (i.e., "known unknowns")are expected real costs that should be included in any cost estimate for decommissioning work. He testified that in his experience, typical contingency cost line items can be as high as 20 to 25% of the work. In this case, Doubleday estimated a far lower contingency amount, because, since Maine Yankee is fairly far along in the project, many tasks have already been completed and many of the contracts for the remainder of the work are already in place.
Debtors position, as Staats explained, is that Maine Yankee's damages recovery should not include an additional contingency *801 figure,[33] because such any recovery for contingency costs would be speculative. The court is not persuaded by this position and concludes that contingency is a reasonable and appropriate part of Maine Yankee's damages award. The court reaches this conclusion for several reasons. First, every witnesses who had experience as a project managers or cost-estimator agreed that every budget for a decommissioning project should include a contingency. Second, in SWEC's original bid for the Maine Yankee project and Shaw's bid to take over the SWEC scope of work after termination, both included contingencies as a cost in their fixed price bids. Further, Staats acknowledged during his testimony that the Dept. of Energy handbook indicates a range of contingencies that one should apply to estimates of decommissioning costs. Third, as of the termination date, SWEC carried over $10 million in contingency on its own earned value statement.
Including contingency as a real cost of decommissioning is therefore an acknowledged practice within the industry. Although, by its nature, it cannot be precisely calculated, it is a real cost in that practice in the industry has demonstrated that a certain percentage of contingency is required to account for unexpected costs. In the words of Kane, it is a "known unknown." As of the date of termination, Maine Yankee assumed the attendant risks of the SWEC scope of work, and should therefore also be able to recover a contingency amount that corresponds to those risks.
Accordingly, the court is comfortable including a reasonable contingency amount in Maine Yankee's damage award. Courts have recognized that where damages awards are based on construction (or in this case, deconstruction) estimates, it is proper to include in the damages award reasonable contingency amounts that are part of the construction estimate. See, e.g., Brooklyn Waterfront Terminal Corp. v. Int'l Terminal, 211 F. Supp. 702, 708 (S.D.N.Y.1962) (allowing 10% contingency item for damages to pier).
The court believes that a contingency damages figure is appropriate and finds that the $9.3 million contingency, which represents approximately 5.7 percent of the cost of remaining work (estimated at $163 million), to be reasonable. Doubleday testified that this contingency percentage was relatively low. Given that the decommissioning is now over halfway complete and that Maine Yankee has a number of the subcontracts in place and a firmer grasp on its expected costs than it would have had the project just begun, the unallocated costs associated with the contingency figure should be lower than a contingency cost that is budgeted at the outset of a project. While SWEC argues that this justifies an even lower percentage contingency than 5.7 percent, the court finds that 5.7 percent is a reasonable figure. It compares favorably with the contingency of $10 million (approximately 5%) included SWEC's own post-termination bid to complete the work.
Therefore, the court will include a contingency of 5.7% of the total cost to complete.
(xi) Electricity Costs for Decommissioning Scope
Scientech calculated that it will cost Maine Yankee $1.18 million for electricity to be used in completing the Work. This *802 estimate is based on actual usage data, used to develop annual estimates through the year 2005.
This expenditure is unchallenged, and the court will incorporate it into Maine Yankee's damages award.
(xii) Costs of Major Purchase Orders
The final line item cost included in Scientech's damages estimate was $4.18 million for purchase order commitments relating to the scope of work under the Agreement that are not reflected in any subcontract or other line-item in the damages estimate.
The Debtors do not appear to dispute this cost. Accordingly, the court will accept it as a cost item to be included in Maine Yankee's damages.
(xiii) Total Line Item Costs
Based solely upon its review of Debtors challenges to the individual line items in Doubleday's cost to complete projections, without yet considering Debtors' broader challenges to Maine Yankee's damages case, the court concludes that Doubleday's $275,151,017 million figure for the cost to complete the decommissioning work and his corresponding $81 million damages figure is a fair and reasonable estimate. In addition to holding up to scrutiny on a line by line cost item basis, Doubleday's cost to complete figure compares favorably with Maine Yankee's self-performance estimate of $73 million (excluding contingency) and is lower than the marketplace value of the cost to complete the work, as indicated by the other qualified competitive bids received by Maine Yankee.
ii. Analysis of Debtors' Broader Challenges to Maine Yankee's Damages Case
In addition to challenging Doubleday's line item cost projections, Debtors levy additional challenges, which the court will consider below, as to why Maine Yankee's damages amount must be adjusted downward. These include adjustments for out-of-scope costs, delay costs, present value, Maine Yankee's purported failure to collect certain amounts from Federal, and an off-set for amounts Maine Yankee owed to SWEC.
(i) Out of Scope Costs
Debtors assert that Maine Yankee improperly seeks to include in its damages certain costs for work that Maine Yankee is presently performing but which SWEC was not obligated to perform under the Decommissioning Agreement. Principally, Debtors focus on two regulation-related events that Debtors contend led to out-of-scope changes that resulted in increased costs to complete the work: (i) Maine's decision to regulate the rubblized concrete as "special waste;" and, (ii) Maine Yankee's negotiation and acceptance of regulations that adopt a stricter (10/4 millirem) site release standard than the standard SWEC was obligated to meet in the Decommissioning Agreement. Debtors contend that the cost increases associated with complying to these regulatory changes should be borne by Maine Yankee and not by SWEC. The court will discuss the "special waste" issue first and then turn to the 10/4 issue.
In opposition to SWEC's position that costs associated with MDEP's "special waste" designation are out of scope, Maine Yankee contends that under the Decommissioning Agreement SWEC bore the risk that its rubblization plan would not comply with applicable regulations. To support that proposition, Maine Yankee points to Article 18 of the Agreement and section 7.2.11 of the Amended RFP.
*803 Section 18 of the Agreement, states that "the Contractor shall, at its cost, comply with applicable written Federal, state and local laws, permits, license and regulations." Similarly, section 7.2.11 of the Amended RFP provides that "[t]he Contractor shall be responsible for compliance with the conditions and provisions of such licenses, permits, or approvals . . . required in order to accomplish the Work as provided in the Contract Documents." It later adds that the "[c]ontractor shall have that risk of decisions, rulings, or actions by regulatory agencies or governmental bodies that has an impact on the Work as provided by the Contract Documents." Therefore, under the Agreement, any costs arising from adverse regulatory decisions lay with SWEC.
In light of these provisions, SWEC's answers to questions about its proposal do not establish that Maine Yankee should instead bear the risk for MDEP's regulatory decisions concerning special waste. In response to Question 196, which asks if a scope change would be necessary if rubblization were not accepted by regulators, SWEC's Nauman responded that their proposed rubblization approach "meets all current regulatory requirements. If more restrictive regulations are imposed subsequent to this proposal requiring a more costly approach, a scope change would be required."
While the parties disputed with MDEP whether its actions were appropriate, it is undisputed that as a factual matter MDEP's "special waste" determination was not made pursuant to any new laws or regulations. While MDEP had not done so before, and neither party anticipated or agreed with MDEP's determination, it is clear that MDEP applied existing regulations to classify the rubblized concrete as special waste. See Me.Rev.Stat. Ann. § 1303-C(34) (West 2001).[34] Thus the question before the court is which party bore the burden of this unexpected risk under the Agreement.
Section 7.1.2 of the Amended RFP states that SWEC is entitled to a change in work scope in six circumstances. Of the two circumstances that SWEC argues are relevant here change in laws or force majeure neither entitles SWEC to a change in scope. First, MDEP's special waste determination was simply not a new law; it was a novel interpretation of existing laws. Nor can the Agreement's force majeure clause relieve SWEC of this liability, because SWEC expressly bore the risk of adverse regulatory decisions in other sections of the Amended RFP and contract documents. The risk of regulatory approval under existing laws was placed squarely on SWEC. Therefore the court concludes that the costs associated with transporting the above grade concrete off-site, which are included in Doubleday's damages calculations, are properly recoverable to Maine Yankee.
Turning to the 10/4 issue, however, it is clear that this move to a stricter waste clean-up standard was a change in laws. Meisner and Kane both testified that Maine Yankee negotiated with regulatory bodies and stakeholder groups and agreed to perform the decommissioning to a stricter 10/4 standard. That standard was subsequently adopted into law. While *804 acknowledging that the 10/4 legislation was a change in law, Maine Yankee nonetheless contends that its damages estimate does not include costs associated with 10/4. Maine Yankee argues that because SWEC agreed to perform the work to the more restrictive standard of 20,000 DCGL, there are no new costs with moving from the 25 mR standard to the 10/4 mR standard.
The contract documents unambiguously indicate that the site release standard that SWEC committed to achieve under the Decommissioning Agreement was 25 mR plus ALARA, and that SWEC's proposal of 20,000 DCGL was simply a guideline that it expected to use to meet the 25 mR standard. SWEC was obligated to perform the cleanup to meet a DCGL that satisfied the 25 mR standard, not to a specific DCGL. Therefore, the change from a 25 mR clean-up standard to a 10/4 standard was a change in scope due to a new law.
The Debtors marshal convincing evidence to oppose Maine Yankee's contention that performing the cleanup to a 10/4 millirem standard would not cost any more money than cleaning to a 25 millirem standard. First, documentary evidence show while Maine Yankee was in negotiations with the stakeholders and regulatory authorities, it solicited estimates from SWEC for the additional costs arising from 10/4. Maine Yankee's correspondence demonstrates that, at that time, Maine Yankee realized that it would incur costs to move to the stricter standard. At that time, the issue between SWEC and Maine Yankee was not whether Maine Yankee would pay for the change in scope, but how much Maine Yankee would pay. While Maine Yankee later took the position, in a March 13, 2000 letter, that no additional cost would be required to achieve the 10/4 standard, if certain "administrative controls" were implemented, this position is not supported by common sense or Debtors' evidence of costs. Indeed, Nauman testified that the only way that Maine Yankee's position could be reconciled with the fact that additional costs were necessary, would be if the term "administrative controls" were itself understood to indicate additional work and costs.
The court finds that Debtors' evidence on the cost increases associated with changing from a 25 mR standard to the 10/4 standard is credible and reasonable. While Maine Yankee appears to have shifted positions on whether there are costs to implement 10/4, Debtors have remained consistent in their position that there are real costs in moving to a stricter standard. These costs include costs associated with additional soil remediation, more intensive, time consuming, and costly surveying, additional concrete remediation, additional efforts to achieve the 4 mR groundwater standard, and additional waste costs.
Maine Yankee's damages analysis doesn't specifically set forth which of its costs are associated with moving to a stricter clean-up standard. Nonetheless, Debtors evidence proves that such costs exist. These increased costs should not be included in Maine Yankee's damages, because they exceed the scope of work the SWEC was obligated to perform under the Decommissioning Agreement. The only evidence offered of the costs associated with moving to the 10/4 standard are the estimates created by SWEC at Maine Yankee's request. These estimates range from $11 million to $26 million, but, as Debtors point out, a review of those estimates indicates that the $11 million estimate most closely relates to Maine Yankee's performance of the work to the 10/4 standard. Accordingly, the court will adjust Maine Yankee's damages downward by $11 million to account for out-of-scope costs associated with moving to a 10/4 standard, *805 which are not properly recoverable from SWEC.
In sum, the court concludes that the costs associated with transporting above-ground concrete, due to MDEP's special waste determination, should be borne by SWEC. Those costs are properly included in Maine Yankee's damages estimate. However, increased costs due to moving from the 25 mR standard of the Decommissioning Agreement to the stricter 10/4 mR cleanup standard, should not be borne by SWEC. Although Maine Yankee's damages estimate does not specifically detail the costs associated with performing the decommissioning work to this standard, the evidence demonstrates that there are increased costs. The best and only estimate of these costs is found in Debtors' $11 million estimate that was produced, upon request, to Maine Yankee. Therefore, the court will account for this cost by reducing Maine Yankee's damages amount by $11 million.
(ii) Failure to Allocate Delay Costs
Debtors next that Maine Yankee's failed to do a proper "delay analysis" of the cause of the 6 month delay from the completion date reflected in the Decommissioning Agreement to Maine Yankee's current projected completion date of October 2004. Debtors contend that Maine Yankee cannot recover damages associated with delays unless they prove that those delays are chargeable to SWEC and would not have been avoided by SWEC. In their post-trial brief, Debtors argue that because Maine Yankee failed to prove that the delay was chargeable to SWEC, Maine Yankee's damages must be reduced by at least $2.17 million, which is the amount that Staats calculated was the cost for supervisory labor associated with the 6 month delay.
The court does not believe that any adjustment is required for delay costs. The court has found that SWEC breached the Decommissioning Agreement and that Maine Yankee's mitigated its damages by weighing other contractors' bids against its own self-performance bid. Conceptually, Maine Yankee is therefore owed damages based on the cost of completion for the SWEC scope of work. The fact that Maine Yankee now projects that it will not complete that scope of work until six months after the date of completion in the Decommissioning Agreement does not mean that any "delay" costs adjustments are properly compensable to SWEC. So long as the damages that Maine Yankee are recovering are based on Maine Yankee's cost to complete the SWEC scope of work, it is proper for Maine Yankee to recover that entire amount.
Even if the court were to conclude that such delay costs were owed, it would still not have awarded any such cost in this instance. Staats' analysis simply subtracts the labor costs incurred by Maine Yankee for the six month delay, thus attributing the cause of the delay to Maine Yankee. This presumes that SWEC would have completed the project on time. The record indicates, however, that based on SWEC's own projections at the time of termination, it was projecting to finish the work 3 months later than Maine Yankee is currently projecting to finish. Although Maine Yankee's subsequently produced "aggressive" schedule targets an on time completion date, in light of SWEC's inability to stay on schedule under the Decommissioning Agreement, the court does not find that schedule to be credible evidence that indicates that SWEC would complete the work any earlier than Maine Yankee is projecting now. But for termination, under the fixed price Decommissioning Agreement, these delay costs are costs *806 that SWEC not Maine Yankee would have had to bear. Therefore, the court disagrees that a delay claim adjustment is required or warranted.
(iii) Failure to Perform Present Value Calculation
Debtors, through their expert Staats, also contend that Maine Yankee's damages estimate must be reduced by use of a present value adjustment. Using a May 2000 date, Staats applied a discount rate of 6.69% to the Maine Yankee's damages and calculated a reduction in Maine Yankee's damages of $12 million. In addition, in its post-trial briefing, Debtors contend that the $65 million damages cap and not simply the gross damages figure awarded to Maine Yankee must be adjusted for present value.
Scientech's damages report confirms that it did not perform a present value computation on the overall damages figure and that, therefore, the damages estimate is based on current day dollars. At trial, Doubleday explained that he chose not to perform such an analysis because "due to the current low interest rates and the fact that payments of damages don't appear imminent, I didn't feel that the time effect of money was significant."
In its post-trial briefing, Maine Yankee first argues that "any arguable present value is more than offset by the conservative omission from the $81 million estimate of [certain] costs [in Doubleday's cost to complete calculations]." Next, assuming that some sort of present value is appropriate, Maine Yankee challenges Staats use of the 6.69% discount rate, and asserts that the correct rate to use would be Maine Yankee's then cost of capital of 3.6% or its present cost of capital of 2%. Last, Maine Yankee takes issue with Debtors' position that the net present value deduction should be applied to the $65 million damages cap figure rather than on Maine Yankee's gross damages figure. Maine Yankee argues that the proper methodology is to first determine the net value of Maine Yankee's claim by calculating the net present value of Maine Yankee's asserted damages based on the contractual formula. Then, the damages cap should be applied, to reduce that adjusted claim to $65 million, if it exceeds $65 million. Therefore, Maine Yankee contends, application of the net present value analysis to the $65 million cap so as to reduce the cap would be illogical and wrong.
Due to SWEC's breach, Maine Yankee will be recovering compensatory damages from SWEC to pay for the D&D work instead of paying those amounts to SWEC. Because Maine Yankee will be recovering damages before they were to be due under the Agreement, its recovery amount should be discounted to account for the fact that it is being compensated early with the expectation that it will use its recovery to make payments from that amount to perform the D&D work over a period of time extending to the completion of the project. Therefore, the court agrees that a present value adjustment is required.
The parties dispute the appropriate discount rate to be used. The proper rate to choose as the discount rate is the projected interest rate, or rate of return, that Maine Yankee expects to receive on its investment of the funds. SWEC suggests that the proper discount rate is the cost of borrowing capital, for which it uses the 5 year T-Bill rate of 6.69%. Based on the court's understanding of the purpose of using a present value analysis to adjust the damages award, a better choice for the discount rate is Maine Yankee's present rate of return for its invested funds, which is 3.6%.
*807 The parties also seem to dispute whether to apply the present value analysis to Maine Yankee's gross damages amount or to its net damages amount (i.e. after application of the $65 million damages cap and adjustments for recoveries from the Federal settlement). Debtors argue that the $65 million damages cap itself must be adjusted for present value. The court finds that such an approach is illogical and unsupported by Staats testimony. The damages cap is an arbitrary contractual limitation of damages that is applied to reduce Maine Yankee's total claim against SWEC. Present value should be applied not to this figure, but to Maine Yankee's actual damages.
The only sensible approach to adjusting for present value is to perform the net present value calculation on Maine Yankee's gross damages figure so as to calculate the net present value of Maine Yankee's damages. Subsequently, the court will calculate Maine Yankee's maximum allowable recovery under the Agreement, by applying the damages cap and deducting any settlement monies from the recovery amount.
(iv) Failure to Credit SWEC's Proven Claims
SWEC asserts that Maine Yankee's damages figure fails to credit SWEC's proven claims against Maine Yankee. On July 26, 2001, the court found Maine Yankee liable to SWEC in the amount of $1,227,524.64 for work performed and invoiced before termination, but suspended an award of damages due to the potential mutuality of debts which may permit a set-off.[35]See In re Stone & Webster, Inc., 270 B.R. 1, 4 (D.Del.2000) ("to the extent that Maine Yankee owes SWEC for work done in April 2000, Maine Yankee may set off that amount against potential claims that it may have against SWEC for breach of the decommissioning agreement"); In re Stone & Webster, Inc., No. 00-2142, 2001 WL 849738, at *13-14 (Bankr.D.Del.2001). SWEC now seeks to be credited for that amount owed, plus interest. Applying an interest rate of 1.5% per month since May 2000 to the $1.2 million owed, SWEC contends that it is owed a set-off or recovery in the amount of $1,678,097. Doubleday conceded during his testimony that he did not consider SWEC's entitlement to these funds in his damages analysis.
In response, Maine Yankee asserts that SWEC is not entitled to the offset that it seeks for two reasons. First, Maine Yankee argues that since it properly terminated the Decommissioning Agreement under Article 11.2, as well as under Article 11.1, the language of that section entitled Maine Yankee to terminate the Agreement "without any further liability to Contractor." Therefore, it does not have to pay the amount claimed by SWEC. In addition, Maine Yankee argues that it has already given SWEC credit for the full $1.2 million claimed because under damages formula of Article 11.4, the amount of SWEC's off set claim, not having been paid, was not subtracted from the "remaining Agreement funds." Maine Yankee explains that if it now had to pay the amount, Maine Yankee's damages would simply increase by the same amount, offsetting in full any need to pay that amount.
Article 11.4, in relevant part, provides that "If Contractor fails to substantially perform under the Contract Documents or if Contractor materially breaches any of the terms of the Contract Documents . . . *808 Maine Yankee shall have the right, without any further liability to Contractor . . . [to terminate the agreement, obtain performance from another contractor, and/or sue the Contractor for breach]." The court does not construe the "without any further liability" language to mean that Maine Yankee does not need to pay amounts then due and owing under the Agreement. Rather, that language simply means that if Maine Yankee properly terminated the Agreement under Article 11.2, Maine Yankee is not liable to SWEC for any damages arising from that termination (i.e., a breach of contract action).
Maine Yankee is correct, however, that the damages formula in the contract intrinsically accounts for the amount owed to SWEC. Damages are calculated under the Agreement as follows. First, the unpaid agreement funds are calculated by determining the difference between the payments Maine Yankee had made to SWEC under the Decommissioning Agreement and the total contract price. Maine Yankee's total damages award is the difference between Maine Yankee's cost to complete the remaining scope of work and the unpaid agreement funds that it would have owed to SWEC under the Agreement. If Maine Yankee had paid SWEC the $1.2 million it owed in May 2000, that would have decreased the "unpaid agreement funds" by that amount. Since the unpaid agreement funds are subtracted from the cost to complete in order to determine the damages, Maine Yankee's damages award would have risen by that same amount. As Maine Yankee did not pay the $1.2 million to SWEC, its present damages estimate is already reduced by that amount from the damages it would have requested had it paid the $1.2 million. Therefore, no set off for the $1.2 million is necessary.
SWEC should, however, be compensated for the interest on that amount. The court will reduce Maine Yankee's net damages award by $450,000.
(v) Failure to Collect from Federal
Maine Yankee's damages analysis subtracts out the full amounts paid by Federal under the payment and performance bonds ($44 million) from the damages sought against SWEC. In its post-trial brief, Debtors contend that they should receive a further credit in the amount of $6.525 million, because Maine Yankee could have recovered that additional amount under the payment bond had Maine Yankee not settled with Federal. Maine Yankee contends that its decision to settle was reasonable, because, in order to recover the full amount of its claims, it would have had to reject the full 100% settlement on the performance bond, prove total damages in excess of $50 million, and prove the merits of each and every subcontractor's claim on the payment bond. Moreover, Maine Yankee notes that the settlement agreement itself indicates that the presiding U.S. District Court Judge who mediated the Federal settlement expressly found the settlement to be reasonable. Because the settlement was reasonable, Maine Yankee contends that there is no basis to reduce its damages award by the amount that it "could have" recovered had it not settled.
In his November 21, 2001 decision in Maine Yankee's action against Federal in the District of Maine to recover on the payment and performance bonds procured by SWEC, Chief Judge Hornby concluded that "Maine Yankee can proceed on its equitable subrogation claim against Federal Insurance for unjust enrichment based upon payments made to subcontractors and suppliers for work performed and materials *809 supplied before May 4, 2000." Fed. Ins. Co. v. Maine Yankee Atomic Power Co., 183 F. Supp. 2d 76, 86 (D.Me.2000). He could not, however, at that time determine the amount of recovery for Maine Yankee from Federal. Although the parties stipulated that approximately $12 million of the amounts Maine Yankee paid to subcontractors and suppliers was for work performed and materials supplied prior to May 4, 2000, fact issues remained as to whether those payments were to proper claimants under the payment bond or whether certain amounts should be set off against Maine Yankee's recovery. Id.
Maine Yankee's maximum recovery from Federal under the payment bond was $11.4 million. In order to recover that full amount from Federal, Maine Yankee would have had to proceed with the trial. In doing so, Maine Yankee would have assumed the risk of being unable to prove the full amount of its claims. There is no basis to conclude that Maine Yankee's decision to settle the claims with Federal was unreasonable or that the settlement amount was unreasonably low. Therefore, the court will not reduce Maine Yankee's damages for amounts that it could have but did not recover from Federal, due to its decision to settle.
3. Is This Trial an Estimation Proceeding or Will the Court Allow Maine Yankee's Claims in the Amount of its Proven Damages?
Based on the court's conclusions regarding the parties' damages analyses in the case, the court concludes that Maine Yankee has proven damages in the amount of $20.8 million. This figure is calculated as follows. The court took Maine Yankee's $81 million damages figure and adjusted it downward by $11.45 million. These adjustments are for the 10/4 costs incurred by Maine Yankee and for the interest Maine Yankee owed to SWEC on its set-off claim. Next, the $69.55 million amount is discounted back at a rate of 3.6 percent. This yields a damages figure of approximately $64.8 million. As this amount is below the $65 million damages cap, the court needs only to reduce the amount by the $44 million recovered from Federal on SWEC's bond to calculate the amount owed by the Debtors on Maine Yankee's proof of claim, $20.8 million.
The parties dispute whether the trial proceeding before the court in this matter should be treated as an estimation proceeding of a contingent claim, see 11 U.S.C. § 502(c), or as a full adjudication of Maine Yankee's proof of claim and Debtors' objections thereto. Section 502(c) provides that:
There shall be estimated for purpose of allowance under this section
(1) any contingent or unliquidated claim, the fixing or liquidation of which, as the case may be, would unduly delay the administration of the case; or
(2) any right to payment arising from a right to an equitable remedy for breach of performance.
Thus, "section 502(c) provides a mechanism for estimating the amount of a contingent or unliquidated claim for the purpose of its allowance where the actual liquidation of the claim as determined by the court would unduly delay the administration of the case." 4 Collier's on Bankruptcy ¶ 502.04(1) (15th ed.2001). A court must only perform an estimation proceeding where the fixing of the claim "would unduly delay" the administration of the bankruptcy case. See O'Neill v. Continental Airlines, Inc. (In re Continental Airlines, Inc.), 981 F.2d 1450, 1461 (5th Cir.1993) ("In order for the estimation process of § 502(c) to apply, . . . fixing the claim must entail undue delay in the administration of justice."); see *810 also In re Dow Corning, Corp., 211 B.R. 545, 562-63 (Bankr.E.D.Mich.1997) ("bankruptcy law's general rule is to liquidate, not to estimate").[36]
The purpose of an estimation proceeding is to avoid delays that may arise from waiting to fix the value of contingent claims. An estimation proceeding expedites the bankruptcy process so that key steps in a reorganization that depend on the fixing of value may proceed. See In re Dow Corning, Corp., 211 B.R. at 562. In essence, an estimation proceeding is a procedural device that is to be used when adjudication and liquidation of a claim would take an unreasonably long time to allow courts to quickly and flexibly estimate the amount of an as yet to be liquidated claim.
If the court were to label its instant determination an estimation proceeding, it would leave for some other judge the task of rendering a final adjudication of the claim and allowing payment thereof. Having already conducted a full trial on liability and damages issues comprised of seven days of testimony and hundreds of exhibits, the court is prepared to render a final adjudication of Maine Yankee's claim at this point.
Debtors argue that there are three reasons for estimation. First, the Decommissioning Agreement itself establishes a process that Maine Yankee must follow to obtain damages. Article 11.4 states that if there are monies owing to Maine Yankee for breach, "[SWEC] shall pay to [the amount owed] to Maine Yankee within thirty (30) days following receipt of an undisputed invoice from Maine Yankee." Based on this provision Debtor's argue that any payment of a claim to Maine Yankee would be premature, because Maine Yankee has not yet completed the work and provided SWEC with the receipt for that work. Second, Maine Yankee's actual costs are presently unknown, because it will take it approximately two and half more years to complete the decommissioning work. Third, Maine Yankee may not obtain a double recovery on its damages by obtaining payment on its allowed claims while pressing its ISFSI costs against the DOE in its current lawsuit against that agency. See Maine Yankee Power Co. v. United States, 42 Fed. Cl. 582 (1998), aff'd, 225 F.3d 1336 (Fed.Cir.2000). For these reasons, Debtors contend that the court's order should not allow Maine Yankee's proof of claim, but should instead estimate Maine Yankee's future recovery. Then, at some point in the future, Maine Yankee should be paid on its claims, but only when the decommissioning is complete and Maine Yankee's other disputes relating to the decommissioning are over.
Only Debtor's first argument gives the court pause.[37] Fairly read, the provision *811 of Article 11.4 quoted above requires that the damages arising from any breach of the Decommissioning Agreement be fully liquidated before payment. In other words, Maine Yankee's damages claim is contingent, because, under the Agreement, it cannot recover for costs due to a breach before it incurs those costs. Debtors correctly point out that in Maine Yankee's objection to Debtors' Motion for Partial Summary Judgment on Damage Claims on the issue of ripeness (D.I.1968), Maine Yankee itself relied upon the fact that a court could conduct an estimation proceeding under Code section 502 to support its contention that damages should be calculated now despite the terms of Article 11.4 of the Decommissioning Agreement.
In Debtors' motion for partial summary judgment, Debtors argued that pursuant to Article 11.4 Maine Yankee's claims should be dismissed as unripe. In opposition, Maine Yankee reasoned that a contractual agreement to postpone final recovery until full maturation or liquidation does not provide a defense under the Bankruptcy Code. Maine Yankee argued that under section 502(b)(1), defenses based on pre-maturity (in the words of the statute, "contingent or unmatured") are not preserved as defenses to a claim under the Code. Rather, section 502(c), provides that such claims may be resolved in estimation proceedings. The court agreed with Maine Yankee, rejected the Debtors' ripeness defense, and concluded that "the quantity of Maine Yankee's damages, if proven, remains an issue for the court's consideration and possible estimation pursuant to 11 U.S.C. § 502(c)." In re Stone & Webster, 270 B.R. at 13.
Because of the contractual provision that requires the court to treat Maine Yankee's claim as a claim that is not to be paid until the decommissioning work is complete, the court will treat the trial as an estimation proceeding of Maine Yankee's claim. It will apply its conclusions as to the appropriate measure of damages to fix the dollar amount of Maine Yankee's claim, but such damages may be subject to adjustment to the extent they differ from the actual costs that are submitted to Debtors, once the decommissioning work is complete.[38] Beyond that, however, the opportunity for a final adjudication of damages should not be interpreted as an opportunity to retry issues such as liability issues concerning Maine Yankee's right to termination, Maine Yankee's purported failure to mitigate damages, or disputes about certain work being in-scope or out-of-scope that have been tried to and passed upon by this court in this opinion.
Last, the court notes that this issue whether the language of the Decommissioning Agreement mandates that damages not be awarded to Maine Yankee until the costs to complete are incurred was not addressed at any great length in the post-trial briefing. To the extent that Maine Yankee believes that there is reason for the court to revisit this interpretation, *812 which mandates that its claim remain unliquidated until it completes the work and submits corresponding receipts to the Debtors,[39] the court invites it to seek reconsideration of this point and to provide further briefing on this matter.
4. To What Extent are SWINC and SWE&C Liable?
There is also a dispute between the parties as to whether SWINC and SWE&C's respective liability is limited to 50 percent of SWEC's damages or whether Maine Yankee may recover the full amount of its damages jointly and severally from either of the Debtors.
The terms of their identical guaranties state that SWINC and SWE & C agreed to "guarantee [SWEC's] performance of the Agreement up to an amount equivalent to fifty percent (50%) of the Agreement's unpaid balance of the contract price (as such term is defined in the Agreement) at the time of [SWEC's] failure to perform the Agreement." This language unambiguously states that each guaranty was "up to an amount equivalent to fifty percent of the Agreement's unpaid balance of the contract price." The evidence indicates that this amount is in excess of $194 million, fifty percent of which is $97 million. Maine Yankee's claim seeks $21 million in damages from each of the Stone & Webster companies. As this amount is less than the $97 million limit of each guaranty, Maine Yankee may seek full payment on its claim, once approved, from either SWINC or SWE&C, as guarantors. Therefore, the court's damages award will be joint and several against SWEC, SWINC, and SWE&C.
III. CONCLUSION
For the reasons stated above, the court concludes that Maine Yankee was within its right to terminate the Decommissioning Agreement for cause under provisions 11.1 and 11.2. Maine Yankee has proved damages, recoverable from SWEC, SWINC, or SWE&C in the amount of $20.8 million. The court, therefore, will estimate Maine Yankee's allowable claim at that amount.
The court will enter an order in accordance with this opinion.
NOTES
[1] The court found that Maine Yankee properly terminated the Decommissioning under Article 11.1, for insolvency, and has the right to recovery for damages under Article 11.4 of the Agreement. The court also found that Maine Yankee properly provided notice and time to cure prior to termination. The court did not rule on the propriety of Maine Yankee's termination for failure to perform under Article 11.2 of the Agreement.
[2] The court will exclude from its recitation of the facts in this section the testimony of the parties' experts on damages. Instead, the court will recount that testimony in the discussion section relating to damages.
[3] The original fixed price contract that SWEC was awarded was $250.6 million. The parties subsequently amended that contract to revise the total fixed price to $252 million.
[4] The court will further discuss details of these standards, infra, in section I.D.2, when detailing the regulatory issues that have led to disputes between the parties.
[5] The signed lien waivers would state: "Contractor herein represents that all bills of Contractor's Subcontractors who performed Work or furnished materials for the performance of said Subcontracts have been paid for their Work pursuant to the terms of said Subcontracts and covered by the above payment, and Contractor further agrees to indemnify and hold harmless Purchaser and Owner from any and all manner of actions, cause of action, suits, in law or in equity, which any such Subcontractor or supplier may bring. . . ."
[6] As per the court's November 21, 2001 opinion, the damages cap applies both to Maine Yankee's own claims and to equitable subrogation claims held by Maine Yankee that originally belonged to the subcontractors.
[7] Boyea stated that this lawsuit is against the State of Maine, but based on other facts in evidence, the court believes that the suit to which he is referring is against the DOE.
[8] SWEC identified the "special waste" issue to Maine Yankee as early as August 25, 1999, when SWEC first became aware that the State of Maine was considering deeming the concrete special waste. In a letter on that date, Lepisto wrote that such a determination would increase SWEC's cost, delay the project, or prevent them from using rubblization plan. He concluded, therefore, that it would fall outside the scope of SWEC's work and would constitute a change to the contract.
[9] DCGL and millirem are mathematically related to each other. Several witnesses explained that measurements expressed in terms of DCGL can be converted to measurements in millirem.
[10] This is a standard that was being advocated at the time by the EPA.
[11] Curiously, at the close of Maine Yankee's case, counsel for Debtors retracted this position, by arguing that Maine Yankee had failed to meet its burden in proving SWEC's insolvency because it never differentiated between the Stone & Webster companies and never ascertained whether SWEC or SWINC was insolvent.
[12] These included that Shaw was to be compensated for the costs of soil removal/disposal in excess of 100,000 cubic feet, the costs of concrete removal/burial in excess of some unspecified amount, the costs to remediate unknown or unidentified hydrocarbons and any other differing site conditions, and any costs associated with delays attributable to regulatory authorities for permitting and licensing activities.
[13] Since Shaw had purchased the assets of Stone & Webster, the contracting arm of Shaw was operating under the name Stone & Webster, a Shaw Group Company. For clarity, the court will refer to this company simply as Shaw or the Shaw Group.
[14] This is $72 million more than the cost of the Decommissioning Agreement.
[15] Attachment A to the Amended RFP memorializes this parties agreement on this issue, stating: "The Contractor shall, for the fixed price of this contract, provide all work necessary to complete all aspect of the ISFSI Specification . . . The Contractor shall provide all such goods, services, equipment and materials as may be required to achieve the specified end results . . ." Under Section 8.2 of the Amended RFP, however, SWEC could claim extra compensation for the supplying of fuel canisters if SWEC performed its own inventory of the spent fuel pool and that inventory showed that more failed fuel existed than indicated in the ISFSI Specification.
[16] As part of its damages analysis, the court also will resolve whether the trial proceedings are an estimation proceeding, in which Maine Yankee's claim are treated as contingent in that they converted into an approximate dollar amount but are not yet allowed, or whether instead it is appropriate for trial proceedings to yield a final adjudication on the allowance or rejection of Maine Yankee's claim. See infra, section II.B.3.
[17] While it may seem like the court need not reach this issue, having already found that Maine Yankee's termination was proper under Article 11.1, this issue is relevant both to damages and to Stone & Webster's later-filed adversary proceeding against Maine Yankee in which it alleges that Maine Yankee's purported termination under Article 11.2 was a material breach of the Decommissioning Agreement. Resolving whether Maine Yankee properly terminated the Agreement within the parameters of Article 11.2 will help to resolve that dispute.
[18] SWEC asserts that approval of the ISFSI schedule was stalled by the inability to identify a start date for certain ISFSI construction, which resulted from a lawsuit filed by Maine Yankee against the State of Maine over regulation of radiological issues at the site. The impasse over the ISFSI start date was resolved in early May, after termination.
[19] Nor does the court find that Maine Yankee violated Bankruptcy Code section 365 when it rejected the tender based on the parent companies' financial weakness and prospects of bankruptcy. Section 365(e)(1), which prohibits a non-bankrupt party from terminating a contract because the other party is in bankruptcy, applies by its terms only to executory contracts. The parent companies' purported tender was not an executory contract, but at best was a conditional offer that was not accepted. Moreover, section 365's prohibition against termination of contracts based on insolvency or bankruptcy does not apply to contracts, such as guarantees, to extend "financial accommodations, to or for the benefit of the debtor." 11 U.S.C. § 365(e).
[20] Ultimately, in the process of the parties' negotiations, this oral proposal was memorialized in a written term sheet, for negotiation purposes, which carried an increased price-tag of $56 million.
[21] Debtors assert that this understanding is belied by Barfield's email to Norton, conveying the $56 million above contract price offer and stating that "our term sheet contemplates a new agreement and allows us to move forward regardless of whether we can come to any agreement with S & W or FIC." In light of Norton and Bernhard's testimony, this statement does not convince the court that Shaw dropped its requirement for Maine Yankee to waive its claims. It may instead refer to Shaw's agreements with SWEC and Federal.
[22] These included costs that are recoverable by Maine Yankee in its litigation against the Department of Energy.
[23] Maine Yankee had costed this item out at $66 million, while SWEC's earned value report indicated a cost of $55 million.
[24] This court has interpreted Article 11.4 of the Agreement as mandating that any funds payable to Maine Yankee under its performance bond or insurance coverage are to be deducted from damages recoverable to Maine Yankee.
[25] As of the time of Maine Yankee's damages expert's analysis, the Work was approximately 50% complete.
[26] These items include costs associated with separate line items, such as labor costs and the off-site disposal of above ground concrete.
[27] This approximates to the total value for all of the waste disposal subcontracts issued by SWEC, which totaled $66.4 million.
[28] Gerber testified that based on his analysis the total RCRA costs would be roughly $11 million.
[29] Debtors also challenge the NAC pool-to-pad change (for moving the fuel to be stored in the ISFSI) order as too costly. The evidence does not support this assertion. The price of the NAC order compares favorably with other bids and is within the range of SWEC's evaluation of what it would have cost to complete that task. Moreover, Evringham explained during his testimony on the matter than contracting with NAC, as opposed to some other contractor, to move the fuel was reasonable, as they were the subcontract providing warranties relating to the ISFSI fuel canisters. These warranties may have been voided if another subcontractor did the work. In addition, Plante's testimony further explains that Maine Yankee's decision to contract with NAC was reasonable, because NAC was familiar with the system and equipment used.
[30] It should be noted that the court does not consider Debtors challenges to the scope of the Maine Yankee work that relate to regulatory issues the 10/4 legislation and the "special waste" designation in this section. These challenges will be considered separately infra in section II.B.2.c.ii.(i).
[31] Maine Yankee's waste disposal costs are also supported by Holbert's testimony, which detailed how Maine Yankee conducted its waste disposal cost analysis. Like Doubleday's independent analysis, Holbert's waste disposal analysis is based on actual waste streams as of September 2001.
[32] As Gerber explained, the QAPP sets forth the plan for the field investigation portion of the RCRA work.
[33] Staats also opined that Maine Yankee's base pre-termination contingency of $14 million should be subtracted off of its damages for the same reason. Debtors appear not to pursue this contention in its post-trial briefing.
[34] SWEC also argues that MDEP's special waste determination is preempted by federal nuclear regulations and illegal, and that therefore SWEC was not obligated to perform work associated with that determination under the Decommissioning Agreement. The court cannot accept this argument in light of the plain language of 42 U.S.C. § 2021(k), which allows states to regulate "activities for purposes other than protection against radiation hazards."
[35] The court did so over SWEC's objection. Debtors position was that under 11 U.S.C. § 502(d), payment of a pre-petition invoice cannot be offset against a post-petition claim. Debtor's reiterated this objection is their post-trial briefing.
[36] As to the manner in which courts are to estimate claims, the Third Circuit has stated that bankruptcy judges are to use "whatever method is best suited to the particular contingencies at issue. . . . [W]here there is sufficient evidence on which to base a reasonable estimate of the claim, the bankruptcy judge should determine the value." Bittner v. Borne Chemical Co., Inc., 691 F.2d 134, 135 (3d Cir.1982).
[37] That Maine Yankee's damages have an element of uncertainty is of no moment to the court. Damages awards are often based on projected costs. So long as the assumptions underlying those projections are adequately tested, this is not reason enough to delay granting a damages award. As for Maine Yankee's potential recoveries from other sources, the court is confident that counsel will not permit any illegal "double recoveries." Maine Yankee is entitled to elect to seek amounts owing from other parties, such as the DOE, for its fuel storage costs, so long as it does not actually recover against both in a manner that is duplicative. Simply, once Maine Yankee recovers from one party, it must reduce its damages request from the other party. Just as it has with the Federal settlement, should the Debtors' liability exposure be reduced by way of settlement or recovery from another party, Maine Yankee must reduce the amount of money it seeks. Similarly, should a third party's liability exposure be reduced by way of recovery against the Debtors, Maine Yankee must reduce the amount it seeks from that party. Thus, the threat of double recovery does not bear on whether the court renders a final adjudication or an estimation at this point.
[38] In addition to adjusting the projected costs to actual costs, this may also require an adjustment for any unspent contingency amounts and obviate the need to perform a present value adjustment on the damages amount. The court includes these figures in its estimation in an effort to best estimate the current value of Maine Yankee's claim.
[39] The contract language requires that these receipts to be "undisputed." However, to the extent that the court has resolved certain disputes regarding costs in this opinion, those determinations should be binding on the parties. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547852/ | 620 A.2d 848 (1993)
James Allen RED DOG, Defendant Below, Appellant,
v.
STATE of Delaware, Plaintiff Below, Appellee.
Supreme Court of Delaware.
Submitted: February 27, 1993.
Decided: February 27, 1993.
Edward C. Pankowski, Jr., Bernard J. O'Donnell and Brian J. Bartley, Asst. Public Defenders, Wilmington, for appellant.
Richard E. Fairbanks, Jr., Chief of Appeals Div., and Steven P. Wood, Deputy Atty. Gen., Wilmington, for appellee.
Before VEASEY, C.J., HORSEY, MOORE, WALSH and HOLLAND, JJ. (constituting the Court en Banc).
HOLLAND, Justice:
This Court has before it an appeal filed at 5:00 p.m. yesterday from the Superior Court's denial of a motion to stay the execution of James Allen Red Dog ("Red Dog"). That execution is set to take place on March 3, 1993 between 10:00 a.m. and 12:30 p.m. On independent and alternative grounds, this Court has concluded that the present appeal is without merit.
The record reflects that the motion for a stay of execution and the present appeal were filed by attorneys from the Public Defender's office without Red Dog's authorization and despite his express oral and written directions to the contrary. In a handwritten note dated February 23, Red Dog stated, "I desire no appeals or any motions for stay of execution, scheduled for March 3, 1993 to be filed on my behalf." When Red Dog learned that a motion *849 for a stay of execution had been filed in the Superior Court on February 24, he personally advised the Superior Court in writing, on February 25, 1993, that the motion was "against my wishes."
Two related issues are raised by the motion for a stay of execution, which was denied by the Superior Court and is now on appeal before this Court. The first issue, which is substantive, relates to Red Dog's competency. The second issue, which is procedural, relates to the question of standing.
Red Dog's Competence
The motion for a stay of execution, which was filed with the Superior Court on February 24, 1993, alleged that defense counsel "have a serious concern as to the defendant's present mental competency, and a related concern as to the voluntariness of his alleged waiver of his postconviction rights in this case." That motion was signed by two public defenders, Nancy Jane Perillo and J. Dallas Winslow. Mr. Winslow's signature stated that it was "for" Edward C. Pankowski, the public defender who has been representing Red Dog continuously since February, 1991. An affidavit of Dr. Stephen Mechanick dated February 24, 1993 was filed in support of the motion for a stay of execution.
Mr. Pankowski appeared before the Superior Court to argue the merits of the motion for a stay of execution. Although Mr. Pankowski did not advise the Superior Court that the motion was filed without Mr. Pankowski's consent, the record reflects that Mr. Pankowski does not question and has not, at any relevant time, questioned Red Dog's mental competency. The only question of Red Dog's competency was raised by Ms. Perillo, another public defender, who had visited Red Dog for the first time within the last week.
Prior to the entry of Red Dog's nolo contendere pleas and sentencing hearing, Dr. Mechanick had opined that Red Dog was mentally competent. In his recent affidavit, Dr. Mechanick stated that he would be willing to examine Red Dog further. However, according to Dr. Mechanick's affidavit, a determination of Red Dog's present mental competency would require time.
In ruling upon the merits of the motion to stay Red Dog's execution, which were all related to the issue of Red Dog's present mental competency, the Superior Court carefully reviewed the record. In doing so, the Superior Court began by noting that Mr. Pankowski has represented Red Dog since February of 1991, while Ms. Perillo has been in contact with Red Dog only within this past week. The Superior Court also noted that Red Dog's mental competency had never been in dispute.
On March 28, 1991, Mr. Pankowski filed a motion to have Red Dog examined to determine if Red Dog suffered from a mental illness or mental defect and to determine if Red Dog was competent to stand trial. The Superior Court granted the motion. On April 30, 1991, Dr. Kutas Kavlan-Dogan, a forensic psychiatrist at the Delaware State Hospital, examined Red Dog. Based on her examination of Red Dog, in a report to the Superior Court dated July 29, 1991, she found that Red Dog
was fully oriented; speech was spontaneous, coherent and relevant. He displayed excellent verbal skills and also intellectually came across as being higher than average intelligence.... Insight and judgment appeared intact.
In her report, Dr. Kavlan-Dogan also opined that she "did not find any evidence of any mental illness in the form of either a psychosis or major affective disorder," there was "no evidence in [the] interview of organicity or impairment in cognitive functioning" and "that Mr. Red Dog would not have any problems and would effectively assist his counsel."
Notwithstanding Dr. Kavlan-Dogan's unequivocal determination of Red Dog's mental competency, in early August 1991, the Superior Court sua sponte ordered Red Dog to be examined by Dr. Mechanick, a psychiatrist. Dr. Mechanick found that Red Dog's "thought processes showed no disorganization." After the examination, Dr. Mechanick reviewed a number of records that the Superior Court had provided to him. Based on his interview of Red Dog *850 and the various records, Dr. Mechanick concluded that Red Dog was competent to stand trial.
Dr. Kavlan-Dogan interviewed Red Dog again in late August 1991 and filed a supplemental report. Her conclusions paralleled her earlier findings. Despite the suggestion by others of an anxiety disorder or a bipolar disorder, Dr. Kavlan-Dogan "did not elicit anything that would suggest the presence of either a generalized anxiety disorder or major affective disorder."
Red Dog was also examined in late August 1991 by Dr. S.M. Iqbal, a staff psychologist at the Delaware State Hospital. Magnetic resonance imaging and an electroencephalogram were performed at Dr. Iqbal's request. Those tests revealed no neurological impairment. On the basis of those electronic tests, an interview, and a series of psychological tests, Dr. Iqbal concluded that Red Dog showed no symptoms of mental illness or acute distress.
In considering the merits of the motion for a stay of execution, the Superior Court specifically noted that when Red Dog entered his nolo contendere pleas on March 12, 1992, Mr. Pankowski had advised the Superior Court as follows:
As far as I know, Mr. Red Dog has been examined by numerous psychiatrists, psychologists as part of the pretrial process in normal prosecution. There has been no indication from any of those reports that he's laboring under any mental disability.
I found him to be a very, very intelligent individual with a sufficient amount of schooling and understanding of the criminal justice system in this State and other states to realize his current situation, and he's decided this, for his own personal reasons, is the way he wants to handle this particular matter.
Of all those psychiatric reports and evaluations that were conducted, including some MRI examinations and what they call EEG, examinations consisting of being on the lookout for any mental illness type problems or any organic brain functions, the only thing that was indicated was a slight sinus problem.
So there's absolutely no question here at least from all the experts that looked at Mr. Red Dog that he's laboring under any mental illness or defect.
The Superior Court also noted that it accepted Red Dog's pleas of nolo contendere only after an extensive plea colloquy with Red Dog and its finding that those pleas had been offered knowingly, intelligently and voluntarily.
During the penalty hearing, Red Dog's attorney presented evidence in mitigation from Dr. Fred Lahvis, a family practitioner, who was not a psychiatrist, a psychologist, or a neurologist. The Superior Court, though finding that Red Dog had an antisocial personality disorder, explicitly rejected the contention that Red Dog had an organic brain disorder or suffered from a bipolar disorder. According to the Superior Court,
There was no objective evidence supporting [Dr. Lahvis'] view. While the defendant may have had head injuries in the past, none required hospitalization. Tests for organic brain damage were within normal limits. The doctor's opinions were based on the statements of the defendant given to health care providers, statements which were more often than not contradictory or inconsistent.
The Court also does not believe that sufficient evidence was presented supportive of Bipolar Disorder. At most, on January 16, 1991, Dr. Alan M. Seltzer diagnosed the defendant as suffering from `Bipolar Disorder, in remission, provisional.'
Dr. Lahvis' conclusions were at odds with the conclusions reached by other health care providers with expertise in psychiatry. In brief, the Court finds that Dr. Lahvis' testimony lacked sufficient foundation for the Court to accept his conclusions. And, even if the Court were to accept his conclusions, the result herein reached would not be different.
This Court specifically noted, during our mandatory review of Red Dog's death sentence, that the Superior Court had considered and rejected Dr. Lahvis' testimony. See Red Dog v. State, Del.Supr., 616 A.2d 298, 309 n. 15 (1992).
*851 Following the penalty hearing, the Superior Court sentenced Red Dog to death by lethal injection. Thereafter, Red Dog personally sought to have that sentence imposed and directed his attorney, Mr. Pankowski, not to file a direct appeal. Red Dog v. State, Del.Supr., 616 A.2d 298, 300 (1992). Mr. Pankowski adhered to Red Dog's instructions, but did represent him in the mandatory appeal to this Court, which is required by the Delaware Death Penalty Statute. Id. 11 Del.C. § 4209(g).
In ruling upon the recent motion to stay Red Dog's execution, the Superior Court noted that during the oral argument before this Court on September 29, 1992, Mr. Pankowski stated that there was "no claim concerning [Red Dog's] competence." The Superior Court also noted that as recently as January 26, 1993, a mental health worker with the Correctional Medical Systems reported that Red Dog was "alert, oriented, and in good control with no evidence of any discernible mood or thought disorder or psychosis."
At argument on February 24, 1993, the Superior Court asked Mr. Pankowski how Red Dog appeared on January 29, 1993 when Mr. Pankowski went to the prison to have Red Dog execute his Last Will and Testament. Mr. Pankowski replied that Red Dog was "no different." The Superior Court concluded that "the fact that Mr. Pankowski, a trained lawyer with twenty (20) years of experience, would permit Red Dog to sign his will says much about his view concerning his client's competence." The Superior Court then held:
Taking into account the opinions of the experts who examined the defendant, Pankowski's assessments, my own perceptions, and the defendant's conduct during the plea colloquy and during the penalty hearing, Red Dog's competency is sufficiently clear as not to raise any question much less a serious question before this Court. On the basis of the objective facts before the State courts,... no reasonable judge ... could have a substantial doubt about the defendant's competence. The State may, therefore, properly presume that Red Dog remains competent to forego postconviction review of his conviction and sentence, and, in turn, the State may require a substantial threshold showing of incompetence merely to trigger the hearing process....
Here, the defense attorneys' assertions do not meet that standard. No substantial evidence has been offered. Surely more than a litany of "may's", "could's" and "might's" is necessary before the hearing process will be triggered. (footnote and citations omitted).
The Superior Court has made factual determinations that (1) Red Dog's competency has never been an issue and (2) that no substantial evidence of incompetence has been presented, in support of the motion for a stay of execution, to trigger a hearing on the subject of Red Dog's present competency. Moreover, the Superior Court specifically found that, based upon the evidence which had been presented in support of the motion for a stay, no reasonable judge could have a substantial doubt about Red Dog's present mental competence. The parties agree that there is no allegation in this appeal that the Superior Court's decision involved any error of law. The only issues in this appeal are the Superior Court's factual determinations. This Court will not set such a factual finding aside unless it was clearly erroneous.
The Superior Court decided not to hold an evidentiary hearing on the question of Red Dog's present mental competency. Demosthenes v. Baal, 495 U.S. 731, 736-37, 110 S. Ct. 2223, 2226, 109 L. Ed. 2d 762 (1990). The record supports the Superior Court's decision that there was no evidentiary basis presented to support the holding of such a hearing. Id. The only basis for any factual allegation of current or recent "incompetency" of Red Dog is the following statement in the motion for stay of execution:
The Court also gave little weight to defense counsel's recent observation of symptoms in the defendant's thinking and feeling which are consistent with a bipolar and/or organic brain disorder.
*852 At oral argument, Mr. Pankowski, Red Dog's attorney, categorically denied that he has ever contended that Red Dog is or was incompetent. Mr. Pankowski further stated that the quoted statement is only attributable to another member of the Public Defender's office, attorney Ms. Perillo, who first spoke to Red Dog on February 17, 1993, and whom Red Dog does not wish to represent him. Accordingly, the Superior Court's determination that no substantial evidence was presented to warrant holding a hearing on the issue of Red Dog's present mental competency is affirmed.
Waiver
Postconviction Relief
In this Court, Mr. Pankowski contends that the Superior Court's decision to deny the motion for a stay of execution "is absolutely silent as to the issue of whether there was an intelligent waiver and a hearing on the issue of the waiver of [Red Dog's postconviction] rights." The record does not support Mr. Pankowski's contention. The Superior Court specifically addressed Red Dog's capacity to waive postconviction relief. The Superior Court held that the viability of a challenge to Red Dog's right voluntarily to waive postconviction relief collapsed with its finding that Red Dog is mentally competent at the present time.
The Superior Court concluded that "with no substantial showing that Red Dog lacks the capacity to appreciate his position and to make a rational choice with respect to continuing or abandoning further litigation," it would "respect the rationally-based wishes of the condemned prisoner." citing Rees v. Peyton, 384 U.S. 312, 86 S. Ct. 1505, 16 L. Ed. 2d 583 (1966); Rumbough v. Procunier, 753 F.2d 395, 398 (5th Cir.1985); Wilson v. Lane, 870 F.2d 1250, 1253 (7th Cir.1989). The Superior Court also concluded that a mental competency hearing is not a necessary prerequisite to allowing a defendant to refrain from pursuing all avenues of postconviction relief available to him. Autry v. McKaskle, 727 F.2d 358 (5th Cir.1984). The Superior Court held that "because there is no substantial showing that Red Dog is currently incompetent and, therefore, incapable of deciding to forego further postconviction remedies, the Motion for Stay of Execution should be ... Denied." We affirm that judgment.
Standing
Superior Court
In the Superior Court, and in this Court, the State challenged the standing of Red Dog's attorneys to stay his execution. The Superior Court assumed, without deciding, that the public defenders had standing to file the motion for a stay of Red Dog's execution. Nevertheless, the Superior Court carefully recounted its concerns.
The Superior Court noted that Red Dog has consistently chosen to forego any appeals and to be executed. At an office conference on July 25, 1991, Mr. Pankowski recounted his client's position to the Superior Court:
Your Honor, I was assigned to represent Mr. Red Dog shortly after his capture on February 14th. I advised him twice within the week that week. I have seen him, I'd say, between 12 to 20 times so far. On each occasion he's expressed the desire, because of his career so to speak, that he didn't want to spend any more time in prison, that he would wish to enter a guilty plea and be subject to the penalties of the death penalty in Delaware.... [H]e's expressed all along for various reasons that he doesn't want to spend the rest of his life in jail.
On an early occasion, in fact, his wife came in with a don't know whether to call him a medicine man but a minister of some sort from the Sioux tribe in Montana, and told us their plans for him afterlife. So, at least as far as Mr. Red Dog, his wife and whoever the minister was, they have thought all along that he would like to be the subject of the death penalty.
... I see no pattern here of Mr. Red Dog changing his mind. It's been consistent since February 16th, I believe, when *853 I first met him. So he hasn't changed his mind in numerous contacts.
... He's been consistent all along. This is what he wants the resolution of the case to be.
On July 28, 1992, Red Dog wrote to Mr. Pankowski regarding the automatic appeal to this Court. In that letter, Red Dog advised Mr. Pankowski that he wanted him "to prepare a motion to stop any further appeals or a waiver of any rights to further review. This is in case some group or person files a motion in my behalf to stop the execution once the Delaware Supreme Court issues its `denial' of the appeal." In a letter dated September 29, 1992, Red Dog wrote to Mr. Pankowski as follows:
As to my letter dated 7/28/92 and my position on the death penalty it has not changed.
If and when a new date is set I will not appeal it. And if an appeal is filed on my behalf I want you to file a motion to stop any further motions for review.
During the December 3, 1992, resentencing, Mr. Pankowski reported to the Superior Court that it continued to be Red Dog's intent to be executed and that the defendant did not plan to contest the sentence.
On February 23, 1993, the day before the motion for stay of execution was heard, Red Dog gave Mr. Pankowski the following handwritten note: "I, James Allen Red Dog, desire no appeals or any motions for stay of execution, scheduled for Mar. 3rd 1993, to be filed on my behalf." On February 25, 1993, Red Dog faxed a letter to the Superior Court stating that the motion to stay was being entertained by the Superior Court against his wishes. In that writing, Red Dog stated that the question of his competency should not be an issue and that the Superior Court should "consider the sheer psychological havoc that is being wrought upon the victim's family, Red Dog and his family by the filing of the motion to stay." On February 25, 1993, Red Dog also submitted the following letter: "I, James Allen Reddog [sic], do not wish any attorney including Nan Perillo to visit me or represent me except Edward Pankowski."
The Superior Court concluded that the record before it reflected unequivocally that Red Dog wanted his execution to proceed on March 3, 1993, as scheduled. The Superior Court also opined that Red Dog's decision to submit to death and forego any challenges cannot, by itself, be deemed aberrational so as to compel a conclusion that he is incompetent. See Gilmore v. Utah, 429 U.S. 1012, 97 S. Ct. 436, 50 L. Ed. 2d 632 (1976); Hammett v. Texas, 448 U.S. 725, 100 S. Ct. 2905, 65 L. Ed. 2d 1086 (1980) (per curiam); Lenhard v. Wolff, 444 U.S. 807, 100 S. Ct. 29, 62 L. Ed. 2d 20 (1979); Mitchell v. Lawrence ex rel. Coppola, 458 U.S. 1123, 103 S. Ct. 21, 73 L. Ed. 2d 1394 (1982). In support of that opinion, the Superior Court quoted Chief Justice Rehnquist, who has stated:
The idea that the deliberate decision of one under sentence of death to abandon possible additional legal avenues of attack on that sentence cannot be a rational decision, regardless of its motive, suggests that the preservation of one's own life at whatever costs is the summum bonum, a proposition with respect to which the greatest philosophers and theologians have not agreed and with respect to which the United States Constitution by its terms does not speak.
Lenhard v. Wolff, 443 U.S. 1306, 1312-13, 100 S. Ct. 3, 7, 61 L. Ed. 2d 885 (1979) (Rehnquist, Circuit Justice).
The Superior Court concluded in Red Dog's case, that the "record is totally bereft of any indication that [the prisoner] in any way to raise further questions concerning his conviction and punishment...." Lovelace v. Lynaugh, 809 F.2d 1136, 1137 (5th Cir.1987). Therefore, as an independent basis for affirming the Superior Court's decision to deny the motion for a stay of execution, we hold that in the absence of a genuine issue of material fact as to Red Dog's present mental competency, the public defenders had no standing to file such a motion to stay his execution in derogation of his express directions to the contrary. Whitmore v. Arkansas, 495 U.S. 149, 110 S. Ct. 1717, 109 L. Ed. 2d 135 (1990); Demosthenes v. Baal, 495 U.S. 731, 110 *854 S.Ct. 2223, 109 L. Ed. 2d 762 (1990); Gilmore v. Utah, 429 U.S. 1012, 97 S. Ct. 436, 50 L. Ed. 2d 632 (1976); and Smith v. Armontrout, 857 F.2d 1228 (8th Cir.1988).
Standing in This Court
During oral argument last night, Mr. Pankowski represented to this Court that he had seen Red Dog within the last twenty-four hours. Mr. Pankowski advised this Court that, in his view, Red Dog was competent. Mr. Pankowski also advised this Court that Red Dog had not authorized him to file the present appeal.
This Court directed Mr. Pankowski to confer with Red Dog and to ascertain whether there was any change in Red Dog's prior consistent instructions that Mr. Pankowski take no action to delay the imposition of the death sentence on March 3, 1993. Mr. Pankowski's response was filed in this Court at 11:00 a.m. today and included the following letter from Red Dog.
James Red Dog
D.C.C.-Smyrna
Smyrna, De. 19977
Feb. 27, 1993
Edward Pankowski Esq.
Public Defenders Office
Wilmington, De. 19805
In re;
To the recent motion filed in my behalf albeit against my wishes, for stay of execution.
Since the Hon. Judge Barron has ruled in my favor and the court will abide by my wishes of denying said appeal for stay. I hereby request and demand that you or the Public Defender's Office no longer pursue this issue of appeal, review or stay of execution. Thereby allowing the scheduled execution to take place on March 3, 1993.
As stated in the letter i faxed to the court on Feb. 25, 1993; any appeals filed at this late date is in retrospect a form of cruel and unusual punishment. An addendum to the sentence the court has already handed down on Dec. 3, 1992.
Any further litigation in regards to an appeal at this time and late date. Serves only to reinforce that such actions by you or others within the Public Defender's Office is strictly in your best interests.
Therefore, I request and demand that as a client the privilege of decision making within the client-attorney relationship be respected.
Also I want it known that I at no time requested Ms. Perillo's services as an attorney. Nor do I want her acting as co-counsel in my behalf.
Sincerely,
James A. Red Dog
cc: Edward Pankowski Esq.
James Red Dog
My attorney continues to be Edward Pankowski and I want no other Public Defender to represent me.
James A. Red Dog
2-27-93
The procedural posture of Red Dog's case before this Court is strikingly similar to the facts presented in Smith v. Armontrout, 857 F.2d 1228 (8th Cir.1988). In both cases, the defendants were sentenced to death. In both cases, the defendant stated "that the filing of the notice of appeal was unauthorized, that he wants the appeal dismissed, and that he wants the sentence carried out without further review." Smith v. Armontrout, 857 F.2d at 1229.
If Red Dog is competent, the decision to pursue or dismiss any application for postconviction relief or appeal is his to make. Id. The Superior Court has concluded that no scintilla of credible evidence has been presented to suggest that Red Dog's mental condition has changed since the psychiatric examinations were performed which concluded that he was competent. In this opinion, we have affirmed that factual determinations which were made by the Superior Court.
Red Dog, who has been determined to be competent, wants this appeal dismissed. Id. Therefore, although we have addressed the merits of the substantive and procedural issues which were presented to the Superior Court, we have serious reservations about whether there is a party before *855 this Court with standing to challenge the decision of the Superior Court to deny the stay of execution.[*]Smith v. Armontrout, 857 F.2d at 1230.
Conclusion
The judgment of the Superior Court, denying the motion for a stay of Red Dog's execution is AFFIRMED. The mandate shall issue forthwith.
NOTES
[*] Mr. O'Donnell, one of the three public defenders who signed this notice of appeal, takes the position that notwithstanding Red Dog's desire to dismiss this appeal, the Office of the Public Defender can pursue this appeal as Red Dog's attorney. Mr. O'Donnell asserts that his position is taken as Red Dog's attorney, not as a next-friend, because he believes Red Dog cannot adequately act in his own interest. Rules of Professional Conduct 3.1. Since this Court has affirmed the Superior Court's determination that the factual predicate for Mr. O'Donnell's position does not exist, i.e., Red Dog's present mental incompetency, Mr. O'Donnell apparently lacks standing to act contrary to Red Dog's instructions. Smith v. Armontrout, 857 F.2d 1228 (5th Cir.1988). The propriety of having the Public Defender's Office assign multiple attorneys to represent the same person and simultaneously take inconsistent positions will be addressed by this Court at a later time. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547879/ | 423 Pa. Super. 251 (1993)
620 A.2d 1206
Maxine DUCKSON, Appellee,
v.
WEE WHEELERS, INC. and George McCreery and Joseph Pietropaolo.
Appeal of Joseph PIETROPAOLO.
Superior Court of Pennsylvania.
Argued November 19, 1992.
Filed February 25, 1993.
*253 George A. Prutting, Jr., NJ, for appellants.
Phillip H. Baer, Philadelphia, for appellee Duckson.
Before OLSZEWSKI, BECK and KELLY, JJ.
KELLY, Judge.
This appeal asks us to determine whether the trial court erred in denying Joseph Pietropaolo's petition to open a default judgment. The trial court did not accept as reasonable appellant's excuse for the delay in filing an answer to appellee's complaint. The trial court, however, did not weigh the equities presented by the circumstances in this case nor balance the prejudice to the two sides, as the relevant case law requires. Thus, we hold that the trial court erred in refusing to open the default judgment, and reverse.
*254 We preface our reasoning with this summary of the pertinent facts and procedural history. On July 31, 1990, appellee, Maxine Duckson, was a passenger on a bus that was involved in a collision with an automobile operated by appellant. As a result of the collision, appellee alleged serious personal injuries. Appellee's original complaint in this matter was filed on November 20, 1991. On December 4, 1991, appellant received service of the complaint, and on December 5, 1991, hand delivered the complaint to his insurance agent. The Dollfus Agency transmitted the complaint to Nationwide Insurance Company, appellant's automobile insurance carrier, on or about December 16, 1991. Technically, an answer to the complaint was due on December 24, 1991.
The file was forwarded initially to legal counsel who telephoned appellee's counsel on Wednesday, January 8, 1992, because service of process on appellant was not of record. Counsel for appellee refused to provide any information to appellant's counsel. In a letter dated January 10, 1992, appellant's counsel enclosed to adverse counsel a copy of an entry of appearance and demand for a jury trial which had been duly filed on behalf of appellant.
On January 13, 1992, Nationwide inadvertently assigned the case to a second attorney.[1] He immediately telephoned appellee's counsel in order to advise him that appellant was represented and to inquire if appellee's counsel would agree to an extension to file an answer out of time. Despite several attempts by appellant's second attorney to contact him, neither appellee's attorney nor his office returned the phone calls. Appellant's present counsel received the actual physical file from Nationwide on January 21, 1992.
Counsel for appellee, on January 10, 1992, directly notified appellant that appellee intended to take a default judgment. The default judgment was entered against appellant on January 23, 1992, according to the record. Appearances of counsel for appellant were entered on the record subsequent to the taking of the default judgment.
*255 On January 24, 1992, appellant filed a petition to open the default judgment. The trial court granted the petition to open the default judgment on February 28, 1992 because the court assumed that the petition was uncontested and the record did not reflect otherwise. On March 10, 1992, appellee advised the court that, indeed, appellant's petition was contested. The trial court promptly vacated its prior order granting appellant's petition to open the default judgment. After considering appellee's opposition papers and the initial papers filed in appellant's petition to open judgment, the court denied appellant's petition. This timely appeal followed.
When reviewing a trial court's disposition of a petition to open a default judgment, the appellate court must examine the entire record for any abuse of discretion, reversing only where the trial court's findings are inconsistent with the clear equities of the case. Provident Credit Corp. v. Young, 300 Pa.Super. 117, 446 A.2d 257 (1982) (en banc). Moreover, this Court must determine whether there are equitable considerations which require that a defendant, against whom a default judgment has been entered, receive an opportunity to have the case decided on the merits. Kraynick v. Hertz, 443 Pa. 105, 277 A.2d 144 (1971); Provident Credit Corp. v. Young, supra. Where the trial court's analysis was premised upon record evidence, where its findings of fact were deductions from other facts, a pure result of reasoning, and where the trial court made no credibility determinations, this Court may draw its own inferences and arrive at its own conclusions. Romeo v. Looks, 369 Pa.Super. 608, 624, 535 A.2d 1101, 1109 (1987) (en banc), appeal denied, 518 Pa. 641, 542 A.2d 1370 (1988), quoting American Express Co. v. Burgis, 328 Pa.Super. 167, 172, 476 A.2d 944, 947 (1987). Finally, where the equities warrant opening a default judgment, this Court will not hesitate to find an abuse of discretion. Provident Credit Corp. v. Young, supra at 124, 446 A.2d at 261.
Generally, a default judgment may be opened when the movant promptly files a petition to open, provides a meritorious defense, and offers a legitimate excuse for the delay that *256 caused the default. Alba v. Urology Associates of Kingston, 409 Pa.Super. 406, 598 A.2d 57 (1991); Fink v. General Accident Insurance Company 406 Pa.Super. 294, 594 A.2d 345 (1991).
Without question, in many cases where we have found that one of the three requirements for opening a judgment was not met we have stopped without considering the arguments made with regard to the other two. [Citations omitted.] It is difficult, however, to reconcile this approach with the many other cases that emphasize the equitable nature of the decision whether to grant a petition to open, and the importance of balancing the prejudice to the sides. . . . The question is, Can a court make an "equitable determination" of what is "reasonable under the circumstances" without considering all of the circumstances of the particular case? We think not . . . [W]here some showing has been made with regard to each part of the test, a court should not blinder itself and examine each part as though it were a water-tight compartment, to be evaluated in isolation from other aspects of the case. Instead, the court should consider each part in the light of all of the circumstances and equities of the case. Only in that way can a chancellor act as a court of conscience.
Miller Block Co. v. U.S. Nat. Bank, 389 Pa.Super. 461, 469-70, 567 A.2d 695, 699-70 (1989), appeal denied, 525 Pa. 658, 582 A.2d 324 (1990), quoting Provident Credit Corp. v. Young, supra at 130-31, 446 A.2d at 263-64 (emphasis added).
The trial court found that appellant had timely filed his petition to open and had set forth a meritorious defense. Trial Court Opinion at 3. According to the record, the default was taken on January 23, 1992. Appellant filed his petition to open the default judgment on January 24, 1992.[2] Thus, appellant's petition was prompt. Moreover, appellant avers that the bus, in making a turn, struck his vehicle which was at a *257 complete stop. If proved at trial,[3] this defense would justify relief from liability. Thus, appellant alleges a meritorious defense for the purpose of deciding whether to open the default judgment.
The issue here is whether the delay in processing the paperwork occasioned by appellant's insurance carrier, Nationwide, constitutes a "reasonable justification for delay" in order to open the default judgment, entered six weeks after the complaint was served. To explain the delay, appellant emphasizes that he delivered the complaint to his insurance agency on December 5, 1991, within one day of receipt of service. The agency thereafter transmitted the paperwork to Nationwide who received it on or about December 16, 1991. Following investigation, Nationwide inadvertently proceeded to assign the case to two different attorneys, causing considerable confusion to the attorneys assigned to defend appellant. Thus, the twenty days, and more, for filing an answer were consumed in transmitting the paperwork, investigating the claim and assigning the case. Also, appellant suggests that the transmittal delays were due, in part, to the year-end holidays. Appellant concludes that these circumstances constitute a legitimate explanation to justify opening the default, particularly where the appellant acted promptly upon receiving the complaint. We agree.
Conclusory statements that amount to mere allegations of negligence or mistake, absent more, will not suffice to justify a failure to appear or answer a complaint so as to warrant granting relief from a default judgment. Cross v. 50th Ward Comm. Ambulance Co., 365 Pa.Super. 74, 528 A.2d 1369 (1987); Conti v. Shaprio, Eisenstat, etc., 293 Pa.Super. 301, 439 A.2d 122 (1981); Barron v. William Penn Realty Company, 239 Pa.Super. 215, 361 A.2d 805 (1976). Whether an excuse is legitimate is not easily answered and depends upon the specific circumstances of the case. Silverman v. Polis, 230 Pa.Super. 366, 326 A.2d 452 (1975) (en banc).
*258 In Balk v. Ford Motor Company, 446 Pa. 137, 285 A.2d 128 (1971), our Supreme Court held that an insurance company's mishandling of a customer's court papers constituted sufficient legal justification for an insured's relief from default. Just because an insurance carrier's representative was inadvertently responsible for the delay does not remove the equities from our consideration. Kraynick v. Hertz, 443 Pa. 105, 277 A.2d 144 (1971). In Shainline v. Alberti Builders, Inc., supra at 138-39, 403 A.2d at 508, this Court agreed that an appellant seeking to open a default judgment should not be penalized automatically for the mishandling of papers by the insurance carrier or attorney. In Schutte v. Valley Bargain Center, 248 Pa.Super. 532, 375 A.2d 368 (1977) and, again, in LaLumera v. Nazareth Hosp., 310 Pa.Super. 401, 456 A.2d 996 (1983), we accepted delays caused by the defaulting party's insurance carriers, particularly where the litigant took steps which this Court held were reasonably calculated to result in the protection of the insured's interests.
Generally speaking, a default attributable to a defendant's justifiable belief that his legal interests are being protected by his insurance company is excusable. Bethlehem Apparatus Company, Inc. v. H.N. Crowder Company, Inc., 242 Pa.Super. 451, 364 A.2d 358 (1976). However, if the insured fails to inquire of the insurer as to the status of the case after events have occurred which should have reasonably alerted the insured to a possible problem, the insured is precluded from asserting a justifiable belief that its interests were being protected. Id., see Baskerville v. Philadelphia Newspapers, Inc., 278 Pa.Super. 59, 419 A.2d 1355 (1980).
Autologic Inc. v. Cristinzio Movers, 333 Pa.Super. 173, 176-77, 481 A.2d 1362, 1363 (1984). The Autologic court refused to accept as reasonable the excuse of justifiable reliance where the insured, Cristinzio Movers, was a sophisticated, business insured who had an employee designated for handling and monitoring damage claims. Apparently, the employee was aware that the company's insurer had declined payment on a damage claim made two years earlier. Autologic Inc. then *259 filed a complaint against Cristinzio Movers. The employee in charge of monitoring the damage claims failed to forward both the complaint and the notice of default to either her superiors or the insurance company. Cristinzio Movers attempted to characterize the employee's failure as a clerical mistake. This Court rejected the excuse because the insured had empowered its employee to make this decision which was a conscious decision to do nothing. Given the real question regarding insurance coverage and the employee's conscious failure to diligently pursue her employer's interests, the court held that the insured was not excused and refused to open the default judgment.
The circumstances in the instant case differ remarkably from those in Autologic Inc. Primarily, the insured herein is not a sophisticated insured with systems in place for monitoring claims lodged against the insured as part of the insured's routine business set-up. Appellant, on the contrary, is a lay-person, entrusting his claim to his broker and carrier. There was nothing to indicate to the appellant that coverage was in doubt. Moreover, the notice of intent to enter a default judgment was sent only to the appellant after appellee's counsel knew of Nationwide's intent to defend the claim. Thus, appellant should not be held strictly responsible for failing to seek reassurance from his carrier.
Excusable negligence must establish an oversight rather than a deliberate decision not to defend. DiNenno v. Great Atlantic and Pacific Tea Co., Inc., supra at 502, 369 A.2d at 740 (citations omitted). The facts of the instant case reveal that while appellant's insurance agency and insurance carrier may not have moved appellant's claim through the proper channels in the most expeditious manner, the delay was not based on a deliberate decision not to defend the claim or to prejudice appellee's attempt to establish her claim. Therefore, we cannot fault appellant for his insurer's delays in processing the claim, particularly where there is no prejudice to appellee. Appellant, on the other hand, is seriously prejudiced by the trial court's disposition which burdens appellant with liability for an accident in which appellant arguably was *260 not negligent. Additionally, the verdict in a subsequent damages action might exceed coverage available under the insurance policy. Appellant, moreover, cannot raise his defense in a separate proceeding and is denied thereby the opportunity to have the case resolved on the merits. Accordingly, a weighing of the prejudices to each party, as mandated by Provident Credit Corp. v. Young, supra, dictates the opening of the default judgment in the instant case.
In DiNardo v. Central Penn Air Services, Inc., 358 Pa.Super. 75, 516 A.2d 1187 (1986), this Court reversed a trial court's decision to open a default judgment entered against an insured who, as in Autologic Inc., failed to seek reassurance from its insurance carrier. The circumstances in DiNardo are inapposite to the instant case as well. First, the insured in DiNardo was also a sophisticated, corporate insured, a trucking company. Second, the insured received a copy of a letter sent by appellee's counsel to the insurer urging the insurer to respond to the complaint. The DiNardo court stated that this notice should have alerted the insured that the insurance company was unaware of the complaint. Third, the court in DiNardo was concerned with the insured's delay of eighty-eight (88) days in filing a petition to open the default, which is not the issue in the instant case. In fact, a thorough search of the case law reveals that in cases where this Court refused to accept the excuse of justifiable reliance, (1) the insured was a sophisticated insured with some procedure in place for monitoring claims and (2) the delays, in all cases, were considerably longer than in the present case.[4]
*261 The purpose of the rules in authorizing the entry of default judgments is to prevent a dilatory defendant from impeding the plaintiff in establishing his claim. The rules are not primarily intended to provide the plaintiff with a means of gaining a judgment without the difficulties which arise from litigation. . . .
Tronzo v. Equitable Gas Co., 269 Pa.Super. 392, 395-96, 410 A.2d 313, 315 (1979), quoting Moyer v. Americana Mobile Homes, Inc., 244 Pa.Super. 441, 445, 368 A.2d 802, 804 (1976). Accord, Fink v. General Accident Insurance Co., supra. Moreover, default judgments are not favored at law or in equity, Kennedy v. Black, 492 Pa. 397, 424 A.2d 1250 (1981), and a standard of liberality, not strictness, should be applied in deciding a petition to open a default judgment, Medunic v. Lederer, 533 F.2d 891, 893 (3rd Cir.1976), because equitable principles favor allowing parties to defend causes on the merits, Commercial Banking Corp. v. Miller, 90 B.R. 762 (Bkrtcy.E.D.Pa.1988). In emphasizing the liberality and fairness standard, our Supreme Court has stated:
The trial of a lawsuit is not a sporting event where the substantive legal issues which precipitated the action are subordinate to the "rules of the game." A lawsuit is a judicial process calculated to resolve legal disputes in an orderly and fair fashion. It is imperative that the fairness *262 of the method by which the resolution is reached not be open to question. A rule which arbitrarily and automatically requires the termination of an action in favor of one party and against the other based upon a non-prejudicial procedural mis-step, . . . is inconsistent with the requirement of fairness demanded by the Pennsylvania Rules of Civil Procedure.
Byard F. Brogan, Inc. v. Holmes Elec. Protect. Co., 501 Pa. 234, 240, 460 A.2d 1093, 1096 (1983). The ethical considerations accompanying the practice of law require at least a modicum of "good faith, mutual respect and courtesy normally expected in the legal community." Jung v. St. Paul's Parish, 522 Pa. 167, 173, 560 A.2d 1356, 1359 (1989). Without the rudimentary amount of courtesy or accession to reasonable requests, the legal profession is demeaned and its procedures reduced to a "vulgar scramble." Silverman v. Polis, supra at 371, 326 A.2d at 454-55.
Instantly, appellee's counsel failed to demonstrate the professional courtesy expected of the legal profession.[5] On several occasions, appellant's counsel made modest requests of appellee's counsel. While under no strict legal obligation to do so, the courtesy of a return phone call or a fax request appeared to be more than appellee's counsel was prepared to consider. Zeal, while admirable, must be tempered by decency. Counsel's resistance to cooperate is but another equitable consideration compelling the opening of the default judgment.
Based on the foregoing analysis, we hold that the overall equities in this case warrant opening the default judgment. Appellant made some showing with regard to each prong of the applicable three-part test. Moreover, the delays were *263 caused by those other than appellant. Additionally, appellee's counsel did not act in good faith, with the requisite professional respect and courtesy. The trial court erred, therefore, by not weighing the equities in this case in light of all the circumstances or considering the relative prejudice to each party. Thus, we reverse the trial court's order denying appellant's petition to open the default judgment and remand for trial on the merits. Jurisdiction relinquished.
OLSZEWSKI, J., files a dissenting opinion.
OLSZEWSKI, Judge, dissenting:
Given our standard of review in an appeal from a petition to open default judgment, I am compelled to dissent from the majority opinion. As this Court stated in Fink v. General Accident Insurance Co., 406 Pa.Super. 294, 594 A.2d 345 (1991), the trial court's decision to deny a petition to open default judgment will not be reversed absent an abuse of discretion. The trial court found that Pietropaolo, as required, promptly filed his petition to open and that he offered a meritorious defense to the underlying claim. Id. The lower court, however, refused to open the judgment because it found that Pietropaolo did not provide a reasonable explanation for failing to respond to the complaint. It held that the insurance company's six-week delay in transmitting the complaint to their counsel was inexcusable, especially since appellant took the complaint to the agency the day after he received it. Trial court opinion at pp. 3-4. I cannot hold that such a decision was an abuse of discretion.
NOTES
[1] Counsel who received the second assignment is current counsel.
[2] See DiNenno v. Great Atlantic & Pacific Tea Company, 245 Pa.Super. 498, 369 A.2d 738 (1976) (en banc) (petition to open, filed fifteen days after entry of a default, was promptly filed).
[3] See Shainline v. Alberti Builders, Inc., 266 Pa.Super. 129, 403 A.2d 577 (1979) (petitioner need only allege, not prove, meritorious defense at this point in the proceedings).
[4] See generally Fox v. Volkswagon of America, Inc., 328 Pa.Super. 338, 476 A.2d 1360 (1984), affirmed, 507 Pa. 429, 490 A.2d 438 (1985) (failure of bank to inquire about defense after ten month delay was not justifiable reliance); King v. Evans, 281 Pa.Super. 219, 421 A.2d 1228 (1980) (borough solicitor's assumption, without confirmation that borough secretary had notified the insurance carrier regarding wrongful death and survivor actions brought against the borough, failed to excuse fourteen-month inaction with respect to the complaint); Baskerville v. Philadelphia Newspapers, Inc., 278 Pa.Super. 59, 419 A.2d 1355 (1980) (truck fleet owner could not assert justifiable belief that its interests were being represented by insurer after being advised by appellee's attorney that insurer had not answered complaint, default judgment was entered eight months after filing of complaint and insured waited another four months before filing its petition to open default judgment); Bethlehem Apparatus Company, Inc. v. H.N. Crowder, Jr., Co., 242 Pa.Super. 451, 364 A.2d 358 (1976) (en banc) (business insured who, knowing that there was some question concerning insurer's responsibility to defend, left complaint with attorney, did not forward complaint to carrier and provided, in petition to open default, no more than mere assertion of insurer's failure to answer, did not justifiably believe its interests were being protected, where default judgment entered three months after service of complaint and petition to open default judgment was filed nine months later); MacClain v. Penn Fruit, Inc., 241 Pa.Super. 303, 361 A.2d 403 (1976) (en banc) (claims of oversight in failing to forward suit papers to defendant's corporate headquarters, absent a more factual basis to support a plea for relief, did not excuse delay in answering complaint); Fishman v. Noble, Inc., 236 Pa.Super. 611, 346 A.2d 359 (1975) (en banc) (failure to enter appearance due to unusual error by insurer with no explanation as to why there was confusion about who was insured on the policy, other than the information was at the company's home office, did not excuse delay).
[5] Model Code of Professional Responsibility, Canon 7, Ethical Consideration 7-38 provides:
EC 7-38 A lawyer should be courteous to opposing counsel and should accede to reasonable requests regarding court proceedings, settings, continuances, waiver of procedural formalities, and similar matters which do not prejudice the rights of his client. He should follow local customs of courtesy or practice, unless he gives timely notice to opposing counsel of his intention not to do so. A lawyer should be punctual in fulfilling all professional commitments.
(footnotes omitted). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547890/ | 156 F.2d 739 (1946)
McCARTNEY
v.
STATE OF WEST VIRGINIA et al.
No. 5481.
Circuit Court of Appeals, Fourth Circuit.
July 30, 1946.
*740 D. M. McCartney, pro se.
Bonn Brown, of Elkins, W. Va. (Ira J. Partlow and Kenneth E. Hines, both of Charleston, W. Va., and Stanley Bosworth, of Elkins, W. Va., on the brief), for appelles.
Before SOPER and DOBIE, Circuit Judges, and CHESNUT, District Judge.
DOBIE, Circuit Judge.
D. M. McCartney of Randolph County, West Virginia, hereinafter referred to as plaintiff, has appealed to this Court from the dismissal of his complaint, for lack of jurisdiction, by the District Court for the Northern District of West Virginia. This complaint sought damages from the State of West Virginia and from the sheriff and jailor of Randolph County for alleged false imprisonment (in "violation of the United States Constitution") and involuntary servitude incident to plaintiff's arrest and detention for a brief period under a lunacy warrant.
The State answered the complaint with a motion to dismiss for lack of jurisdiction upon the basis that the action violated Section 35, Article VI of the State Constitution and also the 11th Amendment to the Constitution of the United States. The individual defendants also asked for dismissal of the complaint for lack of jurisdiction, arising from the absence of diversity of citizenship, and they also entered a general denial. A pre-trial conference was had, at which the jurisdictional question was further inquired into, after which the motion to dismiss was granted. This appeal followed.
The State's immunity from suit without its consent is a doctrine of longstanding and unquestioned authority. This immunity, at least with respect to actions brought by citizens of the state sued, does not arise from the restriction of the 11th Amendment, which provides:
"The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State."
Rather, it comes from what Hamilton described in the Federalist as the "inherent * * * nature of sovereignty not to be amenable to the suit of an individual without its consent." This rule was laid down in unmistakable terms in Hans v. Louisiana, 134 U.S. 1, 10 S. Ct. 504, 506, 33 L. Ed. 842, in an opinion by Mr. Justice Bradley, and has continued without modification since that date. It is nowhere contended that the State of West Virginia has consented to be sued by this plaintiff. Accordingly, the motion to dismiss as to it was properly granted.
We come, then, to the question of whether the individual defendants were equally entitled to a dismissal of the complaint. The immunity of the State of West Virginia from a suit brought against it without its consent does not extend to the individual defendants herein. Ohlinger (1 Federal Practice 159, 160, 167) divides suits against state officers or government bodies into four types, the fourth of which is "cases against state officers in which plaintiff seeks judgment for damages arising from their acts." He then summarized *741 the effect of the 11th Amendment on such suits in the following language:
"Generally, cases falling under (1) are held to be within the prohibition of Amend. XI; cases under (2), (3) and (4) are not within that prohibition. The rationale of the distinction is that state officers, in acting illegally, step outside the protection of their office. In such cases, in their individual capacities they may be prevented from wrongfully injuring another, may be forced to give up specific physical property, or may be sued for damages. But to require affirmative action by such officers in their official capacity would be to require the state to act, and is prohibited."
This view was specifically upheld by the Supreme Court in Scott v. Donald, 165 U.S. 58, 68-70, 17 S. Ct. 265, 41 L. Ed. 632. And it may be noted that this Court has previously entertained another suit for damages against the sheriff of this same county. State of West Virginia v. McDonald, 4 Cir., 197 F. 304.
In cases involving a federal question, it is stated in Dobie on Federal Procedure, pages 164-165:
"Since the jurisdiction here depends upon the nature of the controversy, when a federal question is really involved and the jurisdictional amount is present, no other basis of jurisdiction, such as diversity of citizenship, is necessary; so that the District Court would have jurisdiction, even though the plaintiff and defendant may both be citizens of the same state."
If, therefore, the plaintiff here (the jurisdictional amount being present) in good faith asserts a right, the decision of which depends wholly or in part upon the construction or application of the Constitution, laws or treaties of the United States, then the federal District Court (even though plaintiff and defendant are all citizens of West Virginia) has jurisdiction. It is equally clear that the federal question, to confer jurisdiction on the federal District Court, must be real and substantial, not colorable or frivolous. The federal question must really appear, not by mere inference or suggestion. Hanford v. Davies, 163 U.S. 273, 16 S. Ct. 1051, 41 L. Ed. 157; Western Union Telegraph Co. v. Ann Arbor R. Co., 178 U.S. 239, 20 S. Ct. 867, 44 L. Ed. 1052. And the federal question must be an essential or integral part of the plaintiff's case. Tennessee v. Union & Planters' Bank, 152 U.S. 454, 14 S. Ct. 654, 38 L. Ed. 511; Shulthis v. MacDougal, 225 U.S. 561, 32 S. Ct. 704, 56 L. Ed. 1205. Mere references to the federal Constitution, laws or treaties and mere assertions that a federal question is involved are not sufficient to confer jurisdiction. Starin v. New York, 115 U.S. 248, 6 S. Ct. 28, 29 L. Ed. 388; Farrell v. O'Brien, 199 U.S. 89, 25 S. Ct. 727, 50 L. Ed. 101; Lambert Run Coal Co. v. Baltimore & Ohio R. Co., 258 U.S. 377, 42 S. Ct. 349, 66 L. Ed. 671. The federal courts have been vigilant to protect their jurisdiction against cases in which the alleged federal question is purely fictitious.
Judged by these criteria, the alleged federal question in the instant case lacked reality and substance. The District Court, therefore, properly granted the motion to dismiss as to the two individual defendants, Hamrick and Pritt.
Plaintiff's complaint contained three references to the federal Constitution.
"Said false imprisonment was a violation of the United States Constitution in as much as such false imprisonment was imposed upon the said D. M. McCartney without first duly examining him for the desease of insanity of which he was accused.
"* * * said State of West Virginia and its Agents, Virgil Hamrick and Dallas Pritt, did abridge the privelages and ammunities of the said D. M. McCartney as a citizen of the United States.
"Therefore the said D. M. McCartney Prays that the United States Court for the Northern District of West Virginia will promptly procede to hear this case and render justice according to the Constitution of the United States." (Italics ours.)
In view of the vagueness and uncertainty of the allegations of the complaint, the District Judge, out of abundance of caution, ordered that there be held a pre-trial conference at which the plaintiff, who was not represented by counsel, was present. As a result of the pre-trial conference, it appeared that the plaintiff's thought in alleging a breach of the 14th Amendment *742 of the Federal Constitution with respect to his privileges and immunities was based on his mistaken legal contention that he could sue the State of West Virginia, although a citizen of the State, because if he had been a citizen of the State of Ohio, he could have sued the State of West Virginia. Both of these contentions were obviously unsound as a matter of law, but plaintiff's statement at the pre-trial conference showed that this was the real basis of the breach of his constitutional rights. The pre-trial conference also developed that the principal insistence of the plaintiff was his right to sue the State of West Virginia. Incidentally, he made some complaint that he had been arrested without prior examination into his sanity, that the warrant of arrest was not shown to him and seemed to contend that this was a lack of due process of law. See 6 C.J.S. Arrest, § 4, p. 577. However, no specific reference was made to any action or authority of the State of West Virginia with respect to the procedure in lunacy matters; nor was there any apparent reason for a charge of lack of due process.
The provisions of the Fourteenth Amendment to the federal Constitution as to due process of law are limitations on the power of a State and do not apply to the acts of State officers when these acts are wholly unauthorized by the State. St. Joseph & Grand Island R. Co. v. Steele, 167 U.S. 659, 17 S. Ct. 925, 42 L. Ed. 315; Barney v. New York, 193 U.S. 430, 24 S. Ct. 502, 48 L. Ed. 737; Martin v. Lankford, 245 U.S. 547, 38 S. Ct. 205; 62 L. Ed. 464.
Nor is the plaintiff helped here by the broad language used by Mr. Justice Black in Bell v. Hood, 66 S. Ct. 773, 774. For in that case there was a clear-cut allegation of a violation of the rights of the plaintiffs under the Fourth and Fifth Amendments to the United States Constitution by "subjecting their premises to search and their possessions to seizure." And the Supreme Court there again pointed out that a suit may be dismissed for lack of jurisdiction in the federal District Court "where the alleged claim under the Constitution or federal statutes clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or where such a claim is wholly insubstantial and frivolous."
Finally, we point out that the present civil action is for false arrest and imprisonment. If any substantial basis exists for such an action, the courts of West Virginia are freely open to plaintiff, with the right of appeal to the highest court of that State and then, if any actual rights guaranteed to him by the Federal Constitution are really denied, he can resort to the Supreme Court of the United States.
The judgment of the District Court, dismissing plaintiff's action (as to both the State of West Virginia and the individual defendants) for lack of jurisdiction is, accordingly, affirmed.
Affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1548068/ | 9 B.R. 4 (1980)
In re Steve Michael HAUGEN, Debtor.
Michael Alfred SIMCICH, Plaintiff,
v.
Steve Michael HAUGEN, Defendant.
Bankruptcy No. 80-00705-BKC-TCB, Adv. No. 80-0250-BKC-TCB-A.
United States Bankruptcy Court, S.D. Florida.
October 29, 1980.
Richard W. Groner, West Palm Beach, Fla., for plaintiff.
Richard E. Rhoads, N. Palm Beach, Fla., for defendant.
MEMORANDUM DECISION
THOMAS C. BRITTON, Bankruptcy Judge.
In this adversary proceeding, a judgment creditor opposes the debtor's discharge under 11 U.S.C. § 727(a)(2), (3), (4) and (5). The debtor failed to answer, but appeared at the trial on October 21, 1980. I have assumed that the debtor denies the allegations. The parties stipulated that in lieu of testimony, both parties would rely on the deposition of the debtor taken October 9, 1980 by the plaintiff.
At the trial, plaintiff abandoned his allegations under § 727(a)(2).
The only evidence in support of the allegations under § 727(a)(3) are that the debtor lost one of the two savings passbooks he had. I find that the debtor's failure to keep this passbook was justified under the circumstances of this case. The *5 funds had all been withdrawn from this relatively nominal account and his circumstances did not require that the book be retained.
I find that plaintiff has failed to prove the allegations made under § 727(a)(4). This debtor's circumstances as a casual laborer did not require that he maintain the records suggested by plaintiff and there is no indication that his failure to do so has handicapped the trustee or any other party in any respect.
Plaintiff's principal contention is that:
". . . the debtor has failed to satisfactorily explain why, as a healthy, gainfully employed male, he is unable to arrange payment of a single debt of some $1,400."
Section 727(a)(5) requires that a debtor's discharge be denied if:
"(5) the debtor has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor's liabilities."
This debtor graduated from high school in 1978. He has been employed as a laborer for various employers about eight days a month, "just enough to get by." He earns about $1,700 a year. He lives with his parents. In his own words, he "went fishing a lot" and "loafed a good part of 1979 and 1980."
Plaintiff believes that a debtor is under a legal obligation to try to earn enough money to pay his debts and that if he fails to do so, a discharge must be denied under the provision just quoted. I disagree. There is nothing in this provision or anywhere else, to my knowledge, which requires that a debtor make an effort to earn enough to pay his creditors. The fifth ground for denial of discharge relates solely to the disappearance of assets, not for failure to earn money.
Plaintiff has failed to carry his burden of proving his complaint and as is required by B.R. 921(a), a separate judgment will be entered dismissing this complaint with prejudice. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1548037/ | 9 B.R. 700 (1981)
In re George Leander LINEBERRY and Jeanne Glenda Lineberry, Debtors.
Carolyn S. LINEBERRY, Plaintiff,
v.
George Leander LINEBERRY, Defendant.
Bankruptcy No. 80-01393-C, Adv. No. 80-0300-C.
United States Bankruptcy Court, W.D. Missouri, C.D.
February 25, 1981.
*701 Thomas H. Reppell, Grandview, Mo., for debtors and defendant.
*702 R. L. Veit, Jefferson City, Mo., for plaintiff.
MEMORANDUM OPINION AND ORDER
FRANK P. BARKER, Jr., Bankruptcy Judge.
This is a complaint filed by Carolyn S. Lineberry, the former spouse of debtor, George Leander Lineberry, seeking to have declared non-dischargeable via § 523(a)(5) of the Bankruptcy Code, certain debts agreed to by the parties in a Separation Agreement which was later incorporated into their Decree of Dissolution of Marriage. Trial was held before this Court September 11, 1980, all parties being represented by counsel. Both parties subsequent to trial have filed suggestions.
FINDINGS OF FACT/CONCLUSIONS OF LAW
The marriage of nearly 17 years between Carolyn and George Lineberry was dissolved on March 14, 1978, pursuant to the provisions of the Missouri Dissolution of Marriage Act, Ch. 452, R.S.Mo.1978. On February 10, 1978 the parties had entered into a separation agreement (entitled "Agreement") which was incorporated into the parties Decree of Dissolution.
At the time the separation agreement was executed the couple had two children, Glen Marvin Lineberry, age 16 and David Carl Lineberry, age 11. Carolyn Lineberry testified that at the time of the "Agreement's" execution she worked at the Missouri House of Representatives (as she had for the previous 7 years) at a salary of $680-$690 per month. She has not remarried and currently works for the Missouri Secretary of State at a salary of $850 per month.
George Lineberry in his Voluntary Petition in Bankruptcy, filed May 5, 1980, lists his occupation as Planner III, Division of Budget and Planning, Missouri State Office of Administration. He indicates he has been employed there 11 years, at a salary of $18,894 ($1,575 per month) in 1978 and $20,088 ($1,674 per month) in 1979. At the time of both the separation agreement and dissolution the parties were represented by the same attorney.
The "Agreement" entered into provided the wife with the custody of the children. The property division gave the wife:
(1) the home of the parties subject to any encumbrances including taxes and special assessments for 1978, and all the household contents;
(2) a 1977 Ford Stationwagon subject to loan or mortgage existing on such;
(3) all personal clothing, jewelry and effects;
(4) $300.00 cash paid by the husband prior to signing the agreement;
(5) all monies held in a checking or savings account in her name; and
(6) all the clothing and personal items of the children.
The property division gave the husband:
(1) all personal clothing and effects;
(2) all monies held in a checking or savings account in his name; and
(3) some itemized personal effects in the home of the parties.
The "Agreement" further stated:
6. Husband agrees that he will pay Wife as maintenance the sum of $100.00 per month commencing on the first day of March, 1978, and continuing on the first of each month thereafter following so long as the Wife remains married to him, or if in the event their marriage is dissolved, until such time as she becomes remarried.
7. Husband will pay to Wife as support for said children born of the marriage, to-wit: Glen Marvin Lineberry and David Carl Lineberry, the sum of $200.00 per month for each child commencing on the first day of March, 1978, and continuing on the first of each and every month thereafter following until such child reaches the age of 21, obtains his bachelors degree from college or enters full employment, whichever event first happens.
*703 (8) Husband further agrees that at such time as he is no longer obligated under Paragraph 7 above to pay child support to Wife for one of the children to automatically pay to Wife as increased or additional maintenance the additional sum of $50.00 per month. No additional, automatic increase in maintenance payable to Wife shall be owing upon the sessation of Husband's obligation to pay child support for the last child receiving the same.
The plaintiff contends that Paragraphs 9 through 14[1] of the "Agreement" are in the nature of alimony, maintenance or support under § 523(a)(5) and thus non-dischargeable. Defendant contends that the parties in Paragraphs 6 through 8 disposed of all their support and maintenance obligations and that these three paragraphs (paragraphs 6-8) are not listed in the bankruptcy schedules as dischargeable debts. Thus, the defendant contends that Paragraphs 9 through 14 are in the nature of a property settlement and thus dischargeable.
§ 523(a)(5) of the Bankruptcy Code provides:
"A discharge under section 727, 1141 or 1328(b) of this title does not discharge an individual debtor from any debt
(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of both spouse or child, in connection with a separation agreement, divorce decree, or property settlement agreement, but not to the extent that
*704 (A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise; or
(B) such debt includes a liability designed as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support;"
Thus, even though a debt is designated as one for alimony, maintenance or support, this exception to discharge will not operate unless the liability is actually in the nature of alimony, maintenance or support. § 523(a)(5)(B) H.R.Rep.No.95-595, 95th Cong., 1st Sess. 364, U.S.Code Cong. & Admin.News 1978, 5963 (1977) S.Rep.No.95-989, 95th Cong., 2nd Sess. 77-79, U.S.Code Cong. & Admin.News 1978, 5787 (1978).
The legislative history makes it clear that what constitutes alimony, maintenance or support is to be determined under bankruptcy laws, not State Law. H.R.Rep.No. 95-595, 95th Cong., 1st Sess. 363 (1977); S.Rep.No.95-989, 95th Cong., 2nd Sess. 77-79 (1978). See also Collier on Bankruptcy, ¶ 523.15, p. 523-109 (15th Ed. 1980).
The statement that federal law controls what constitutes, alimony, maintenance or support actually begs the question, since the area of domestic relations is one quintessentially reserved to the control and regulation of the states. There is no federal common law of domestic relations. The point is that bankruptcy courts are not bound by state law where it defines an item as alimony, maintenance or support, as they are not bound to accept the characterization of an award as support or maintenance, which is contained in the decree itself. However, recourse must be had to state law for principal criteria by which to determine whether the obligations imposed by the decree are one or the other.
"While the legislative history indicates that the determination whether an award constitutes alimony shall be made with reference to a federal standard, nothing in the legislative history suggests that state law shall play no part in making that determination." In re Pelikant, 5 B.R. 404, 406 (N.D.Ill.1980).
A judgment of divorce decree incorporating a marital settlement agreement is not res judicata in proceeding to determine dischargeability of spousal support; the doctrine of collateral estoppel does not shield inquiry into marital dissolution judgment and marital settlement agreement incorporated therein as to character of spousal support provided in agreement. Re Chin, 4 B.C.D. 924, 17 C.B.C. 790 (D.C.Cal.1978).
Since the nature of the claim underlying the debt determines the extent of the dischargeability, it is necessary to examine the agreement and all the circumstances surrounding the creation of the liability to determine if the debt is in nature of alimony, maintenance or support. It has long been settled that in determining this the Court may look behind the recitations of the divorce decree to the substance of the situation. Warner v. Warner, 5 B.R. 434, 439-440 (Utah 1980) stated:
"The nature of the debt whether it was imposed to discharge the obligation of support, cannot be determined from the "four corners" of the divorce decree and attendant settlement stipulations without impairing the federal character of the nondischargeability provisions and their underlying policies..." Warner, supra, at 440.
"Furthermore, it cannot routinely be argued that the divorce decree, like a contract, evidences the intent of the parties in discharging support, for often the effect of the filing of bankruptcy is not in contemplation when the decree is drafted... Therefore, it cannot be said from that recitation that the intent of the parties was or was not to provide support... To hold the parties to the terms of a decree as one would to the terms of a contract might often ignore the true nature of the debt... Warner, supra at 441.
In the case at bar the state court's findings of fact, if any, has not been made a part of this Court's record. The only evidence before the Court from the proceedings below is the Judgment Entry and "Agreement" incorporated therein.
*705 Although beyond the language itself, some inference might be drawn from the placement of specific provisions within the document (i.e. since the specific division of property provisions appear in paragraphs 3 through 5, and paragraphs 6 through 8 provide for specific payments of support and maintenance, the fact that the paragraphs disputed are 9 through 14 could lead one to argue that they were intended as a continuation of the support and maintenance provisions), an examination of the documents alone does not produce an unambiguous or clear view. As such the parties ought to be able to produce extrinsic evidence to prove the underlying nature of the debts in question. Melichar v. Ost, 445 F. Supp. 1162 (D.C.Md.1977).
In addition to the parties testimony as to their intent, this Court must consider the criteria a dissolution court must weigh before it may award maintenance or support.
§ 452.335 R.S.Mo.1978 mandates that in order to grant maintenance to either spouse it must find that the spouse seeking maintenance:
(1) Lacks sufficient property, including marital property apportioned to him, to provide for his reasonable needs; and
(2) Is unable to support himself through appropriate employment or is the custodian of a child whose condition or circumstances make it appropriate that the custodian not be required to seek employment outside the home.
Once it finds these two elements (which it must have since it granted maintenance of $100.00 per month) it awards the amount of maintenance based on the following relevant factors:
(1) The financial resources of the party seeking maintenance, including marital property apportioned to him, and his ability to meet his needs independently, including the extent to which a provision for support of a child living with the party includes a sum for that party as custodian;
(2) The time necessary to acquire sufficient education or training to enable the party seeking maintenance to find appropriate employment;
(3) The standard of living established during the marriage;
(4) The duration of the marriage;
(5) The age, and the physical and emotional condition of the spouse seeking maintenance;
(6) The ability of the spouse from whom maintenance is sought to meet his needs while meeting those of the spouse seeking maintenance; and
(7) The conduct of a party seeking maintenance during the marriage.
§ 452.340 R.S.Mo.1978 contains the relevant factors the court below considered in awarding support:
(1) The father's primary responsibility for support of his child;
(2) The financial resources of the child;
(3) The financial resources of the custodial parent;
(4) The standard of living the child would have enjoyed had the marriage not been dissolved;
(5) The physical and emotional condition of the child, and his educational needs; and
(6) The financial resources and needs of the noncustodial parent.
It should also be noted that the presence of one or more of these factors does not necessarily mean that the obligation is one of support nor does the absence of one or more indicate the award is a property settlement. The determination must be made on a case to case basis.
Before this Court specifically addresses the debts in dispute it should be noted that courts in these cases are confronted with two conflicting policy considerations, (1) that of requiring the debtor to fulfill obligations to his ex-wife arising out of the broken marriage contract, and (2) that of giving the debtor a fresh start unencumbered by the burdens of pre-existing debts arising from other contracts.
*706 Further, it should be made clear that the burden of proof is on the party asserting that the debt is nondischargeable. Bankruptcy Rule 407; In re James Riley Fox, 6 B.C.D. 709 (N.D.Tex.1980); Davis v. Davis, 593 P.2d 88 (Okla.1979); Re Harris, 458 F. Supp. 238 (D.C.Or.1976), aff'd 587 F.2d 451 (C.A.9th 1978).
At trial, Carolyn Lineberry testified as to the intent of the parties in setting the "Agreement's" terms. Defendant declined to testify at trial yet "... respectfully suggests the Court should take into consideration the self-serving nature of said statements (by the plaintiff) in weighing their veracity." (Supplemental Memorandum of Authority in Opposition of Complaint, p. 1). If the defendant felt the creditor had not carried her burden of proof, he nevertheless failed to move for a directed verdict at the close of the plaintiff's evidence.
Paragraph 9 of the "Agreement" states:
"Husband agrees to pay and be liable for expenses for care of the minor children by an orthodontist of an estimated total expenditure of $1,200.00 and to pay the same to said orthodontist at the rate of $50.00 per month or to reimburse wife in a like manner if she pays the billing of the orthodontist."
Plaintiff argues that this is clearly in the nature of child support, testifying that this debt was contracted for and the work in progress before the dissolution was entered into. Defendant contends that this is not support but more in the nature of a gift of a luxury item.
Based on the relevant support factors of § 452.340 R.S.Mo.1978, especially the salary disparity of the parties and the physical and emotional needs of the child; the "Agreement's" language, including "... or to reimburse Wife in like manner...," thus not indicating a certain payment to a third party; and the testimony that the orthodontic care had already begun I find this debt in the nature of support and non-dischargeable.
Paragraph 10 states:
"Husband further agrees to pay Wife in addition to all sums above mentioned the sum of $150.00 per month commencing on the first day of March, 1980. Said sum to be held by Wife and used for the college education of the children born of the marriage. Said sum shall be used for tuition, fees, books, lodging, and reasonable transportation. The Husband shall pay such sum to Wife until both of said children have either reached the age of 21 years, obtained his bachelors degree from college, or entered full employment, whichever event first happens. If in the event there is money so paid to Wife remaining or not expended for the above mentioned purposes at the time that the last of said children of the marriage reaches the age of 21, obtains his bachelors degree from college, or enters full employment, then in such event, Wife shall equally divide between the children born of the marriage any money so remaining and pay the same over to them. Wife shall semiannually on the first day of January and the first day of July of each year when said sums are so paid to Wife render to Husband an accounting of such funds."
The undisputed testimony of Carolyn Lineberry at trial was that both parties had assumed the children would go to college. She further indicated that this was a factor in determining what was a reasonable amount of child support and maintenance to be paid her.
Debtor contends that Paragraph 10 is not in the form of child support because a husband can't be automatically obligated to pay for his children's college education. He cites Sunderwirth v. Williams, 553 S.W.2d 889 (Mo.App.1977) for the proposition that an evidentiary foundation must be laid to determine that such obligation exists. He argues that this was not sufficiently laid at the dissolution hearing, and the children were too young at the time to make such a determination.
Sunderwirth, supra by no means stands for the proposition that a non-custodial parent cannot be required to pay for his or her *707 child's college education. In Roberts v. Roberts, 592 S.W.2d 860, 862 (Mo.App.1979) the court stated:
"College expenses were properly considered in this case as bearing on the amount of child support. The evidence warranted the award of child support based on son's need, including his college expenses. The shortcomings of Sunderwirth v. Williams, 553 S.W.2d 889, 893-94 (Mo.App.1977), do not occur here."
See also Anderson v. Anderson, 437 S.W.2d 704 (Mo.App.1969): Sportsman v. Sportsman, 409 S.W.2d 787 (Mo.App.1966); Bagley v. Bagley, 460 S.W.2d 736 (Mo.App. 1966); Allison v. Allison, 540 S.W.2d 635 (Mo.App.1976) considering the academic ability of the child and the financial ability of the parent to pay or contribute to the costs of the child's college education; and Clouse v. Clouse, 545 S.W.2d 402 (Mo.App. 1976).
His remedy if the debtor feels an evidentiary foundation was insufficiently laid was to have appealed the Judgment Entry, or to have proceeded back to the trial court to obtain a modification of the support agreement. Without the record before us, this Court can only assume that the trial court considered the evidence sufficiently laid.
The debtor more forcefully argues that the wording of the obligation to pay college expenses indicates it is not a support obligation. While this Court does find the wording to be rather loose (i.e. it is conceivable that neither child would attend college and that the youngest child would not enter full employment until he was 21 in approximately 1988 at which time the eldest son would be 26 and the fund would then be equally divided between the children for whatever purpose), it does not mean the children will not attend college. Again, if the debtor is unsettled by this prospect his remedy is in the trial court. This Court need only ascertain whether or not this paragraph was intended as support or a property settlement.
Debtor argues that because the monies could easily be payable after the emancipation of one or both children, it could not be in the nature of support, as emancipation of a minor clearly terminates the parents duty of support. Citing, Block v. Lieberman, 506 S.W.2d 485, 486-487 (Mo.App.1974); Meyer v. Meyer, 493 S.W.2d 42, 46 (Mo.App.1973); and Sunderwirth, supra.
In Block, supra, the court held the wife had no standing to seek support money to pay for her adult child's (i.e. 21 years of age) college education, as an award of child support while made to the parent, is for the benefit of the child since they lack legal status to bring the suit themselves.
"When the child reaches twenty-one however, this disability is removed and if an obligation to provide support exists, the child may proceed in his own right to establish such obligation." at 486
The son then brought suit in his own name in Lieberman v. Lieberman, 517 S.W.2d 478 (Mo.App.1974) where the granting of defendant's motion to dismiss for failure to state a claim was affirmed, as the petition did not allege facts giving rise to a duty for post-majority parental support. That Court stated however:
"Absent special circumstances, a parent is under no duty to support an adult child. 67 C.J.S. Parent and Child § 17, p. 704. This general rule found application in State ex rel. Kramer v. Carroll, supra, at 659[9], as follows:
"Ordinarily, however, in the absence of constitutional or statutory provisions or contractual relations to the contrary, the obligation of the parent to support a child ceases when the child reaches his majority ... The law regards the normal child as capable of supporting himself at the age of twenty-one years."
A recognized exception occurs where the adult child is unmarried, unemancipated and insolvent and physically or mentally incapacitated from supporting himself. Fower v. Fower Estate, 448 S.W.2d 585 (Mo.1970). The parental duty of support in such cases may continue past chronological majority when, because of physical or mental infirmity, the child is unable to provide for his support and undertake *708 the responsibilities normally associated with his age. The duty on the parent to provide post-majority support arises not from the nature of the support or benefits sought, but from the condition of the child seeking the benefit." at 480
Again, if the debtor felt this provision is void or voidable he could have appealed the Judgment Entry or can request modification of the agreement when an exception to support (i.e. emancipation) occurs.
This Court's only concern is whether this paragraph constitutes support or a property settlement. Based on the testimony at trial and relevant support factors of § 452.340 R.S.Mo.1978 considered by the trial court, I find this debt in the nature of support and thus non-dischargeable.
Paragraph 11 states:
"Husband further agrees to assume and pay all indebtedness incurred by the reason of the marriage up to and including February 15, 1978. All debts incurred by Husband and Wife after that date shall be the sole responsibility of the party which incurred such debt."
Carolyn Lineberry's testimony was that she considered her husband paying the debts of the marriage as a factor in what was a reasonable amount of monthly maintenance payable to her. She also stated that apparently the bills incurred in the marriage had been paid.
The debtor argues that the monthly cash maintenance payments of $100.00 provide adequately for his wife's needs.
Many cases that have found agreements to pay the debts of the marriage dischargeable based the decision on the parties not having an agreement as to monthly support and/or maintenance payments; and lack of income disparity between the parties. See In re Woods, C.C.H. ¶ 66,499 (C.A.7th 1977); In re Williams, 3 B.R. 401 (N.D.Ga.1980).
In the case at bar there is a provision to support the wife via maintenance payments. As she was awarded maintenance, even though she received the disproportionate share of the marital property, the trial court must have found that she lacked sufficient property, including marital property, to provide for her reasonable needs. Further, there was a substantial income disparity between the parties, $885.00 a month, at the time of the agreement and subsequent dissolution.
However, the language is not truly in the nature of a "hold harmless (and indemnify) agreement", and it also appears that such payments are not made payable to the plaintiff but to third parties. As such, this is not a payment to a spouse or child, and thus, I hold the debt to be in the nature of a property settlement and thus dischargeable.
Paragraph 12 states:
"Husband currently has life insurance policies issued covering his life. The same being policy # 1427491 issued by Provident Mutual Life Insurance Company in the amount of $15,000.00, policy # XXXXXXXXXA issued by Metropolitan Life in the amount of $10,000.00, and policy # XXXXXXXXXAB issued by Metropolitan Life in the amount of $65 monthly annuity. It is understood that the sum of approximately $2,000 has been borrowed against the policy with Provident Mutual Life Insurance Company and Husband agrees that he will pay the premiums on and maintain said policies of insurance through the year 1988 and that until such time he will cause wife to be beneficiary of said policies and will not further borrow on said policies."
Plaintiff contends this provision could only have been intended as support and maintenance in the event of her husband's death.
While the validity of such agreement and judgment has not gone unquestioned, a court has the power to incorporate in its divorce decree such provisions, even if itself might lack the inherent power to make such an order. Bishop v. Bishop, 151 S.W.2d 553 (Mo.App.1941).
Debtor again argues that this has to be in the nature of a property settlement since the obligation of support terminates with the death of a parent.
*709 It appears to this Court that this insurance is obviously in the nature of security for payment of support and maintenance. Insurance provides a relatively painless manner of achieving this objective and providing for the children's future.
This Court rejects the argument that because the period of insurance, designed to run until the youngest child reached majority, could include a period when elder children come of age and are no longer entitled to support it cannot be a support provision and is thus dischargeable.
Again, the defendant did not object at the trial level on this ground. If it felt the decree was too broad, the remedy for its invalidity lay in an appeal from the decree. It appears to this Court that this provision incorporated in the decree of dissolution was an appropriate exercise of the court's power to provide security for the children's support and maintenance.
While under common law liability for support may have terminated at death, the question here is controlled by the terms of a statute which defines the power of the court to provide support. To accomplish the primary concern (i.e. the welfare of the child) the grant of power given by the legislature is broad and comprehensive.
Based on the relevant support factors of § 452.340 and maintenance factors of § 452.335, considered by the trial court, and the testimony at trial, this Court finds this debt in the nature of support and/or maintenance and thus nondischargeable.
Paragraph 13 states:
"Husband further agrees to maintain health insurance coverage on the children born of the marriage under his current insurance coverage through his employer and in the event should said Husband's present coverage cease by reason of his leaving his present employer or otherwise, then Husband shall cause said children to be covered by similar insurance without lapse either through this new employer or by coverage independently purchased by Husband. Said coverage shall be maintained on each of said children until said child completes his formal education or is fully employed. In the event Husband changes insurance coverage or insurer providing health insurance on said children, he will without delay notify Wife of the same of the insurer and the coverage provided."
Based on the same reasons espoused in the discussion of paragraph 12, this Court holds that paragraph 13 is in the nature of support and thus non-dischargeable.
Paragraph 14 states:
"Husband further agrees that if in the event either party shall at some future date determine to take legal action to dissolve the marriage of the parties to pay for any legal services incurred by Wife to the maximum amount of $500 together with any court costs she might incur."
If the payout is made directly to an attorney, it is clearly a debt assigned to another entity and thus dischargeable. In re Allen, 4 B.R. 617, (E.D.Tenn.1980); Matter of Spong, 3 B.R. 619 (W.D.N.Y.1980).
At one time attorney's fees were generally regarded as alimony. In re Hargrove, 361 F. Supp. 851 (W.D.Mo.1973) Hargrove and cases like it were decided prior to the effective date of the Dissolution of Marriage Act, supra, under which it is no longer the case that Missouri law construes attorney's fees by definition as maintenance, support or alimony. Dyche v. Dyche, 570 S.W.2d 293, 296 (Mo.banc.1978). Dyche however did not deal with the issue of dischargeability. Matter of Evans, 2 B.R. 85, 90 (W.D.Mo.1979).
This Court must decide whether this paragraph, however indirectly, may have been intended to serve the maintenance or support function. Matter of Evans, supra.
The essential issue is whether the award is for the purpose relating to "the obligation to maintain and support a family". Poolman v. Poolman, 289 F.2d 332, 335 (8th Cir. 1961).
Here support and maintenance payments were made to the wife and children. This Court considers an award of attorney's fees *710 the same as an allowance to provide food, shelter and clothing necessary if the wife is to prosecute or defend a divorce action.
Based on the testimony at trial and the relevant support and maintenance factors of § 452.340 and § 452.335, I find this debt in the nature of support and maintenance and thus non-dischargeability. It is
ORDERED that the debts listed in paragraphs 9, 10, 12, 13, 14 of the "Agreement" are non-dischargeable and the debt listed in paragraph 11 of the "Agreement" be discharged.
NOTES
[1] 9. Husband agrees to pay and be liable for expenses for care of the minor children by an orthodontist of an estimated total expenditure of $1,200.00 and to pay the same to said orthodontist at the rate of $50.00 per month or to reimburse Wife in a like manner if she pays the billing of the orthodontist.
10. Husband further agrees to pay Wife in addition to all sums abovementioned the sum of $150.00 per month commencing on the first day of March, 1980. Said sum to be held by Wife and used for the college education of the children born of the marriage. Said sum shall be used for tuition, fees, books, lodging, and reasonable transportation. The Husband shall pay such sum to Wife until both of said children have either reached the age of 21 years, obtained his bachelors degree from college, or entered full employment, whichever event first happens. If in the event there is money so paid to Wife remaining or not expended for the abovementioned purposes at the time that the last of said children of the marriage reaches the age of 21, obtains his bachelors degree from college, or enters full employment, then in such event, Wife shall equally divide between the children born of the marriage any money so remaining and pay the same over to them. Wife shall semiannually on the first day of January and the first day of July of each year when said sums are so paid to Wife render to Husband an accounting of such funds.
11. Husband further agrees to assume and pay all indebtedness incurred by the reason of the marriage up to and including February 15, 1978. All debts incurred by Husband and Wife after that date shall be the sole responsibility of the party which incurred such debt.
12. Husband currently has life insurance policies issued covering his life. The same being policy # 1427491 issued by Provident Mutual Life Insurance Company in the amount of $15,000.00, policy # XXXXXXXXXA issued by Metropolitan Life in the amount of $10,000.00, and policy # XXXXXXXXXAB issued by Metropolitan Life in the amount of $65 monthly annuity. It is understood that the sum of approximately $2,000.00 has been borrowed against the policy with Provident Mutual Life Insurance Company and Husband agrees that he will pay the premiums on and maintain said policies of insurance through the year 1988 and that until such time he will cause Wife to be beneficiary of said policies and will not further borrow on said policies.
13. Husband further agrees to maintain health insurance coverage on the children born of the marriage under his current insurance coverage through his employer and in the event should said Husband's present coverage cease by reason of his leaving his present employer or otherwise, then Husband shall cause said children to be covered by similar insurance without lapse either through his new employer or by coverage independently purchased by Husband. Said coverage shall be maintained on each of said children until said child completes his formal education or is fully employed. In the event Husband changes insurance coverage or insurer providing health insurance on said children, he will without delay notify Wife of the name of the insurer and the coverage provided.
14. Husband further agrees that if in the event either party shall at some future date determine to take legal action to dissolve the marriage of the parties to pay for any legal services incurred by Wife to the maximum amount of $500 together with any court costs she might incur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1548073/ | 9 B.R. 62 (1981)
In re Dwight A. SIMMONS, Sr., Georgia L. Simmons, f/d/b/a B & G Cycle, Debtors.
BORG-WARNER ACCEPTANCE CORPORATION and Bombardier Corporation, Plaintiffs,
v.
Georgia L. SIMMONS, f/d/b/a B & G Cycle, Defendants. (2 Cases)
Bankruptcy No. 80-01048-BKC-TCB, Adv. Nos. 80-0306-BKC-TCB-A; 80-0307-BKC-TCB-A.
United States Bankruptcy Court, S.D. Florida.
January 26, 1981.
*63 *64 Angus J. Campbell, West Palm Beach, Fla., for defendants.
Gary W. Roberts, West Palm Beach, Fla., for plaintiffs.
Irving Gennet, Boca Raton, Fla., Trustee.
MEMORANDUM DECISION
THOMAS C. BRITTON, Bankruptcy Judge.
In adversary proceeding Number 80-0306, two creditors seek a money judgment of $26,030 against the debtor and a determination that the claim is non-dischargeable under 11 U.S.C. § 523(a)(4) or (6). (C.P. No. 1). In Number 80-0307, the same creditors ask denial of the debtor's discharge under § 727(a)(2)(A). The facts alleged as the basis for both complaints are identical. (C.P. No. 1). The debtor has answered. (C.P. No. 3). The two matters were tried together before me on December 16, 1980, by agreement between the parties. This order, which incorporates findings and conclusions as authorized by B.R. 752(a), will be filed in each case.
Sections 523(a)(4) and (6) except from discharge any debt:
"(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny:" and
"(6) for willful and malicious injury by the debtor to another entity or to the property of another entity."
Section 727(a)(2)(A) denies discharge if:
(2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed (A) property of the debtor, within one year before the date of the filing of the petition."
The facts are not in significant dispute. In November, 1979, the debtor became a motorcycle dealer in Riviera Beach under a franchise from Bombardier. Borg-Warner financed her inventory through a floor plan agreement guaranteed by Bombardier, which provided for segregation of all sales proceeds in a separate trust account. She received and sold about 10 bikes before she closed her business in June, 1980 and filed for bankruptcy on August 15, 1980.
The promised trust account was established and all proceeds were deposited in the account. After a short interval, the debtor closed her other accounts and deposited all her receipts and made all her disbursements from the trust account. In March, 1980, the debtor sent her first payment to plaintiffs, a check for $13,934 drawn on the trust account. It bounced. At the time, there was about $11,500 in the trust account. The debtor's memory and records do not furnish a more precise figure. The check was never made good and no other payments were made.
Between March and June, when she closed her shop, the debtor spent all of the account balance, paying a variety of bills including living expenses, for herself, her husband and an adult son. She is unable to account with any accuracy for the money expended.
The debtor has had an eighth grade education. Though she has worked since 1976 in motorcycle shops, and for one year as a manager, she appears to have no accounting experience or skill and her family has been of no assistance in this respect. The debtor appears to argue that plaintiffs should not have trusted her (which is plainly obvious now), and that this circumstance excuses her conduct. This contention is rejected.
Section 523(a)(4) is applicable only to fiduciaries of an express formal trust as *65 distinct from constructive or implied trusts. The debtor held $11,500 in an express formal trust for the plaintiffs and knowingly misappropriated those funds. She knew that these funds were held by her in trust for the plaintiffs. She is indebted, therefore, in that amount for defalcation while acting in a fiduciary capacity. Collier on Bankruptcy, (15th ed.) § 523.14[1][c].
The fact that the exact amount of the misappropriated trust funds cannot now be fixed results from the debtor's failure to discharge her duty and cannot, therefore, defeat plaintiffs' claim. ABC-Paramount Records, Inc. v. Topps Record Distributing Co., 5 Cir. 1967, 374 F.2d 455, 461. I find that $11,500 is the closest available reasonable estimate. (Deposition, p. 46).
In Matter of Graham, Bkrtcy. D.Neb.1980, 7 B.R. 5, 2 C.B.C. 695, 698, a colleague reached a contrary conclusion under similar facts, because:
"A fiduciary relationship required a separate account."
In that case none was established. In this case, one was. The fact that the debtor later comingled other funds in the trust account does not extinguish the fiduciary relationship.
Although § 523(a)(6) omits the term "conversion", it is clear from the legislative history that "injury" includes conversion. Collier on Bankruptcy, (15th ed.) § 523.16[3], n. 35.
Plaintiffs must also establish that the debtor's conversion of their money was a "willful and malicious injury" to bring their claim under § 523(a)(6). For nearly eighty years the meaning of these terms has been clear from Tinker v. Colwell, 193 U.S. 473, 24 S. Ct. 505, 48 L. Ed. 754 (1904). It was held there that a husband's money judgment against his wife's adulterer was for a willful and malicious injury to the husband's property and, therefore, nondischargeable under § 17(a)(2) of the former Act. The pertinent provisions of § 17(a)(2) have remained unchanged since 1898 and are unchanged in the present Code, except for the elimination of the redundant reference to "conversion" noted above.
In Tinker, the court said:
"The act is willful, of course, in the sense that it is intentional and voluntary . . .
". . . it is not necessary that the cause of action be based upon special malice . . .
"It was malicious because the injurious consequences which followed the wrongful act were those which might naturally be expected to result from it, and which the defendant Freche must be presumed to have had in mind when he committed the offense. . . . While it may be true that in his unlawful act Freche was not actuated by hatred or revenge or passion toward the plaintiff, nevertheless, if he acted wantonly against what any man of reasonable intelligence must have known to be contrary to his duty, and purposely prejudicial and injurious to another, the law will imply malice." (At pages 485-487, 24 S.Ct. at 508-509, emphasis supplied.)
However, the committee report of both the House and Senate, which are identical, contain the following comment with respect to the Tinker case:
"Paragraph (6) excepts debts for willful and malicious injury by the debtor to another person or to the property of another person. Under this paragraph, "willful" means deliberate or intentional. To the extent that Tinker v. Colwell, 193 U.S. 473, 24 S. Ct. 505, 48 L. Ed. 754 (1902), held that a looser standard is intended, and to the extent that other cases have relied on Tinker to apply a "reckless disregard" standard, they are overruled." Collier on Bankruptcy, (15th ed.) § 523.16[1], n. 15.
It is unclear how much of the definitions stated in Tinker the committee intended to overrule by the foregoing comment. As has already been noted, the words actually enacted remain unchanged. This raises the question whether a sentence in a committee report, which is itself ambiguous, overrules 75 years of consistent judicial interpretation of the identical terms used in the identical context. I think not.
In F.T.C. v. Manager, Retail Credit Co., Miami Branch Office, Cir. D.C.1975, 515 *66 F.2d 988, 995, the applicable rule of statutory construction was stated in these terms:
"The proper function of legislative history is to resolve ambiguity, not to create it.
. . . . .
Where doubts exist and construction is permissible, reports of the committees of Congress and statements by those in charge of the measure and other like extraneous matter may be taken into consideration to aid in the ascertainment of the true legislative intent. But where the language of an enactment is clear, and construction according to its terms does not lead to absurd or impracticable consequences, the words employed are to be taken as the final expression of the meaning intended. And in such cases legislative history may not be used to support a construction that adds to or takes from the significance of the words employed."
See also Board of Public Instruction of Palm Beach Co., Fla. v. Cohen, 5 Cir. 1969, 413 F.2d 1201, 1203. In Federal Electric Corp. v. Dunlap, M.D.Fla.1976, 419 F. Supp. 221, 225-226, the circumstances were very similar to ours. A House Subcommittee report specifically disapproved the only decision construing a controlling federal statutory provision. However, the pertinent statutory language remained unchanged. Judge Young said:
"It is presumed that when Congress drafts a statute, it does so with full knowledge of the existing law and with great care for the precise language which must be used to achieve the desired result. . . . While it is true that the employment of terms in a statute which were taken from a preexisting statute dealing with a different subject matter should not rob the new statute of its independent vitality, the deliberate repetition of terms cannot be ignored in judging the substantive content of the new statute. . . .
Congressional dissatisfaction with a Court's construction of an act must be expressed through subsequent legislation in order to change the law as indicated by the statute."
I believe it clear that the quoted comment in the committee reports should be disregarded and that Tinker and the legion of decisions following Tinker remain controlling. If not, the cryptic comment of the committees would render this statutory provision totally ineffective. This is clear from a colleague's decision, In re Hodges, Bkrtcy. B.C.W.D. Va.1980, 4 B.R. 513, 2 C.B.C. 566. Judge Pearson concluded that because the debtor spent funds he had willfully converted to feed and house his family and since he denied that he intended to hurt or harm his creditor, the plaintiff could not prove the conversion malicious. If that be so, § 523(a)(6) would only be applicable when the debtor concedes that he acted with special malice toward the plaintiff, a most unlikely event. It is, of course, fundamental that there is a presumption against interpreting a statute in a way which renders it ineffective.
With these considerations in mind, I find that the debtor's conversion was deliberate and intentional and, therefore, willful.
I also find that the debtor's conversion was malicious in that she acted wantonly, contrary to her duty and purposely prejudicial and injurious to the plaintiffs when, after her check to plaintiffs bounced, she spent plaintiffs' trust funds to pay other bills and to support her family. Her conduct was not the result of an honest but mistaken belief, nor was there any plausible basis for her to believe that she could restore plaintiffs' money. It was a deliberate injury to plaintiffs' property without cause or justification.
It follows that plaintiffs are entitled to judgment in No. 80-0306 and the debt for the converted property, $11,500, is non-dischargeable under § 523(a)(6), as well as (4).
It is alleged that the debtor also cannibalized seven bikes without authorization and about $4,000 in parts are missing. The debtor claims that the parts were used to service competition equipment sponsored by Bombardier and that Jeff Smith of Bombardier requested that she give this assistance. *67 I accept the debtor's testimony on this point.
Section 727(a)(2) requires an actual fraudulent intent, as distinguished from constructive intent, to hinder a creditor before discharge will be denied. Collier on Bankruptcy (15th ed.) § 727.02[3]. An intent to prefer other creditors is insufficient. An intent to defraud is not shown by the mere fact that the bankrupt collected money which he used for living expenses and to pay some other debts. Matter of Rivas, D.C.Fla.1920, 268 F. 690. I find no intent on the part of the debtor to hinder, delay, or defraud any creditor by the conduct which plaintiffs have alleged and proved here.
It follows that plaintiffs have failed to carry their burden in adversary proceeding No. 80-0307-BKC-TCB.
As is required by B.R. 921(a), separate judgments will be entered in No. 80-0307, in favor of the plaintiffs in the amount of $11,500 with a determination that such claim is nondischargeable and in No. 80-0308, dismissing the complaint with prejudice. Each party will bear its own costs. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1548077/ | 9 B.R. 1013 (1981)
In the Matter of BIOLINE LABORATORIES, INC., Alleged Debtor.
Bankruptcy No. 180-00235.
United States Bankruptcy Court, E.D. New York.
April 7, 1981.
Skydell, Sigall, Rosen & Windheim, P.C., New York City, for alleged debtor by Samuel K. Rosen, New York City, of counsel.
Kenneth Sawyer and Brenner, Saltzman & Wallman, P.C., New Haven, Conn., for Hollywood OBL Corp. by Marc A. Wallman, New Haven, Conn., of counsel.
Ruben, Schwartz, Lasker & Schnall, New York City, for petitioning creditors by Seymour J. Silberberg, New York City, of counsel.
Otterbourg, Steindler, Houston & Rosen, P.C., New York City, for Trefoil Factors Corp. by Conrad B. Duberstein, New York City, of counsel.
MANUEL J. PRICE, Bankruptcy Judge.
This decision encompasses a series of motions generated initially by the filing of an involuntary Chapter 11 petition pursuant to Section 303 of the Bankruptcy Reform Act of 1978 ("THE CODE"), 11 U.S.C. § 303, against the alleged debtor Bioline Laboratories, Inc. ("BIOLINE"), a New York corporation with offices in the Borough of Brooklyn, on January 18, 1980. The following is a resumé of the procedural history and facts of the case as adduced from the various hearings, motions, affidavits, briefs and exhibits which have come before me in this lengthy matter.
*1014 Prior to the filing of the involuntary petition for relief herein, Bioline had been engaged in the business of the wholesale distribution of pharmaceutical drugs and sundries. It encountered financial difficulties which made it impossible for it to continue the operation of its business and it arranged for a bulk transfer, inter alia, of most of its inventory, machinery, equipment and accounts receivable to Hollywood OBL, Inc., a Florida corporation ("HOLLYWOOD"). A contract entitled "Asset Purchase Agreement" was executed on December 20, 1979 among Bioline, Jerome Phillips ("PHILLIPS") its president and the owner of over 80% of its shares of stock, and Hollywood (The agreement is attached as Exhibit A to Bioline's Order to Show Cause filed on July 31, 1980). The basic terms of the sale are as follows: Hollywood agreed to purchase virtually all of Bioline's inventory, equipment and machinery. It also agreed to purchase, inter alia, its accounts receivable arising in the ordinary course of business, certain leases, goodwill, customer lists, trademarks and trade names, computer software and business records. It was agreed that Hollywood was not purchasing cash on hand, life insurance policies owned on officers of Bioline, accounts receivable due from officers or employees or claims for Federal or State tax refunds. The intention of the parties was that Hollywood would take over the business of Bioline (Asset Purchase Agreement, ¶ 1).
Regarding the price of the items purchased, Hollywood agreed to pay Bioline's cost for its inventory, 90% of the face amount of its accounts receivable not outstanding for more than 90 days and 10% for others except those already transferred to collection agencies (Asset Purchase Agreement, ¶ 2). It also agreed to assume and discharge Bioline's liability to Trefoil Capital Corp. ("TREFOIL"), a secured creditor which held a lien on all of its assets except good will [Transcript ("TR.") January 21, 1980, p. 4, 1. 24p. 5, 1. 4], and to assume telephone, utility, tax and payroll liabilities (Asset Purchase Agreement, ¶ 3).
The parties agreed to retain the accounting firm of Deloitte, Haskins and Sells ("DELOITTE") to conduct a physical inventory of Bioline's assets, review its books and records, and prepare a report fixing the dollar amount to be paid under the terms of the Asset Purchase Agreement (Id., ¶ 4). Upon determination of the total purchase price by Deloitte, the amount in excess of the amounts to be paid to Trefoil, telephone, utilities, payroll, taxes and certain other items, was to be paid by delivery to Bioline of "Purchase Obligation Notes" to be paid as follows: 4% of the face amount on June 30, 1980, and 3% a month until November, 1982, when the balance of the notes would be due and payable (Id., ¶ 3.5). The import of this provision is that unsecured creditors, primarily trade creditors, would not be paid in full, immediately, but rather would be paid some percentage of their claims, depending upon the amounts arrived at by Deloitte, over a period of time. Finally, the parties agreed to comply with all applicable laws regulating bulk sales (Id., ¶ 7.3).
A notice of bulk transfer, dated January 3, 1980, was timely sent to Bioline's creditors (Exhibit C to petitioning creditors' motion for summary judgment, filed July 9, 1980). The closing was scheduled to take place on January 22, 1980, at 10:00 a.m.
The involuntary Chapter 11 petition was filed, on January 18, 1980, by three of Bioline's general trade creditors holding claims aggregating approximately $170,000. The petitioning creditors also submitted an Order to Show Cause to me on the same day seeking to restrain Bioline, pending a determination of whether relief should be ordered pursuant to the involuntary petition, from completing the bulk sale of its assets to Hollywood, and temporarily restraining it from any transfers out of the ordinary course of its business until the hearing on the Order to Show Cause, which I scheduled for January 22 at 2 p.m.
On the morning of January 21, 1980, counsel for Bioline telephoned me to request that the hearing on this matter, set for January 22 at 2 p.m., be moved up to the afternoon of January 21 at 4 p.m. *1015 During that conversation, I inquired of counsel as to what percentage payment unsecured creditors could expect under the Asset Purchase Agreement and whether that payment would be at least 50%. Counsel informed me that it would and I granted his request on condition that all sides consent thereto. At the hearing that afternoon the vice-president of Hollywood, one Kenneth Sawyer ("SAWYER"), submitted an affidavit in which he estimated that pursuant to the Asset Purchase Agreement approximately $700,000 would be available to satisfy the total unsecured indebtedness of approximately $1,100,000, and guaranteed on Hollywood's behalf, that regardless of the final figure arrived at pursuant to the Agreement, unsecured creditors would receive no less than 50 cents for each dollar of claim (Bioline's Exhibit A).
By the date of the hearing, it appeared that Bioline's financial situation had become critical. It had no funds with which to pay its employees their wages which were due on the Friday before the hearing and Trefoil, which had been making advances against its accounts receivable, had cut off its financing. There is no dispute that the company was thus effectively out of business (See Tr. January 21, 1980, p. 19, 1. 3p. 21, 1. 6).
At the hearing, the petitioning creditors contended that for several months Bioline had difficulty meeting its debts, that the bulk sale had been arranged without consulting them; that the bulk sale notice was ambiguous as to how much money the general creditors would receive, if any, and that they knew nothing of the financial reliability of Hollywood (Tr. January 21, 1980, p. 5, 1. 5, p. 6, 1. 10). They further contended that another company, Darby Drug Co., Inc. ("DARBY"), was willing to purchase the same assets for the same amount but would complete payments before the end of November, 1980 (Id., p. 6, 1. 11 p. 8, 1. 22). Petitioning Creditors' Exhibit 1 is the affidavit of Joseph Ashkin ("ASHKIN"), the president of Darby, submitted in support of the petitioning creditors' application for an order restraining the bulk sale. Ashkin alleged therein that although he had expressed interest in purchasing the assets of Bioline to Phillips several months before the bulk sale, that he had been put off by Phillips, and that he was willing to make an offer for the same assets being purchased by Hollywood at the same price but would pay half the purchase price at closing and the balance on November 1, 1980.
The petitioning creditors thus sought to have the bulk sale enjoined and Chapter 11 relief ordered against Bioline so that its assets might be appraised under court supervision and to permit the various parties to bid on the business. They felt compelled to move for the temporary order restraining the bulk sale because if the bulk sale went through before I could hear the matter, in the words of counsel for the petitioning creditors, "the court would have been dealing with an estate which was no longer an estate. There would be a shell only. It would have precipitated a meaningless proceeding. . . ." (Id., p. 9, 1. 8 p. 12, 1. 6.)
Bioline, on the other hand, contended that it was effectively out of business; that it was unable to pay its approximately 60 employees and, without financing, had survived since the issuance of the bulk sale notice only by reason of the fact Hollywood had been reassuring creditors that it would take over and revive the company and that the general unsecured creditors could expect between 50 and 60 cents for each dollar of their claims, (Id., p. 19, 1. 22 p. 21, 1. 6; p. 51, 1. 20 p. 52, 1. 5). It also contended that a large majority of the general creditors, including Zenith Laboratories to whom it owed approximately $150,000, Pharmadyne Corporation, to whom it owed approximately $160,000, and Premo Pharmaceutical Co., to whom it owed approximately $170,000, supported the bulk sale and had no interest in a Chapter proceeding. It pointed out that Zenith and Pharmadyne, at least, doubted the validity of Ashkin's proposed offer (Id., p. 25, 1. 7 p. 33, 1. 23; p. 41, 1. 18 p. 42, 1. 6; p. 50, 1. 24 p. 51, 1. 9). It also contended that Darby, Bioline and Hollywood were all competitors; that Darby was located in Rockville Centre, New *1016 York, in close proximity to Bioline; that Ashkin had precipitated the filing of the involuntary petition in order to prevent the bulk sale from being consummated so that Bioline's business would be liquidated and thus lessening his competition. It argued that Ashkin had no intention of making an offer for Bioline's assets and, indeed, had six months earlier successfully prevented Hollywood from acquiring the assets of another pharmaceutical company by promising to offer a higher price which subsequently resulted in his refusal to make any offer whatsoever (Id., p. 27, 1. 11 p. 32, 1. 9).
Trefoil, which appeared at the hearing, noted that it had no intention of providing any further financing for Bioline and, indeed, had prepared a summons and complaint to lift the automatic stay so that it might proceed to obtain possession of the property which was subject to its lien together with an order shortening the debtor's time to answer, if in fact relief was ordered. It suggested that the court should abstain from the case under Section 305 of the Code for two basic reasons: 1) because a fair and viable settlement of all matters had already been effected out of court, and 2) because this was a matter that properly should have been brought in the New York State courts under Article Six of Uniform Commercial Code as adopted in New York governing bulk sales (Id., p. 33, 1. 24 p. 47, 1. 22).
At the close of the hearing, I rendered the following decision:
"This is what I propose to do. I will continue the stay of this sale if a bond of $500,000 is posted to indemnify this estate against any damages caused by reason of the delay in implementing the bulk sale which is scheduled to proceed tomorrow morning.
"I direct that the bond be filed no later than 12:00 o'clock noon tomorrow.
"In the event that the bond is not filed, either by the petitioning creditors or by Darby or Mr. Ashkin or anyone else who wishes to post such a bond, then the stay will be vacated.
"If the bond is filed, then there will be some time given to conduct a hearing to hear from other interested parties."
(Id., p. 56, 11. 4-18).
No bond was filed, however, and on the afternoon of January 22, I signed an order vacating the petitioning creditors' Order to Show Cause dated January 18, 1980 and dissolving the temporary restraining order contained therein. Bioline and Hollywood subsequently consummated the bulk sale provided for in the Asset Purchase Agreement. Pursuant to that agreement, Hollywood changed its corporate name to Bioline Laboratories, Inc., apparently paid the unpaid wages thus retaining the employees and paid approximately $600,000 to Trefoil in order to satisfy its lien on the assets acquired. Although Hollywood is now doing business as Bioline Laboratories, Inc. and Bioline has changed its corporate name to Jerphil Enterprises, Inc. (See, Exhibit B accompanying Bioline's Order to Show Cause, filed July 31, 1980), I shall continue to refer to these entities as "Hollywood" and "Bioline" respectively.
On February 7, 1980, Bioline interposed an answer to the involuntary Chapter 11 petition in which it basically denied its allegations.
On May 20, 1980, Deloitte, pursuant to the Asset Purchase Agreement, prepared an interim calculation of the purchase price of Bioline's assets (Exhibit D of the Petitioning Creditors' motion for summary judgment, dated July 7, 1980). These figures are complete except for insignificant details and all parties have relied upon them for the purpose of this litigation. The report valued the assets acquired at $1,422,648. Pursuant to the agreement, Hollywood paid or assumed liabilities totaling $765,871, including $598,229 due to Trefoil. Subtracting these two figures, the amount of the notes due Bioline for the benefit of unsecured creditors was thus $656,777. In accordance with the Asset Purchase Agreement, the first installment on that sum was remitted by Hollywood to Samuel K. Rosen ("ROSEN"), who had been designated as the escrow agent for the collection and distribution *1017 of these funds and who was a member of the law firm representing Bioline. The amount of this first installment was $21,451.20 (Application of Rosen accompanying Bioline's Order to Show Cause filed July 31, 1980). On July 3, Rosen wrote to Counsel for the petitioning creditors informing him that he had received these funds and advising him that he would refrain from distributing them due to the existence of the proceeding before me (Id., Exhibit B).
On July 9, 1980, the petitioning creditors moved this court for summary judgment on their involuntary Chapter 11 petition against Bioline, alleging that pursuant to Section 303(h)(1) of the Code, it was undisputed and admitted that Bioline had not been paying its debts as they became due, which fact alone entitled the movants to the relief sought. This fact is indeed undisputed.
On July 31, 1980, Bioline filed an Order to Show Cause why Rosen, as escrow agent, should not be permitted to distribute the funds received from Hollywood to the unsecured creditors pursuant to the Asset Purchase Agreement. By this time the second installment had been received from Hollywood.
The petitioning creditors, in an affidavit by counsel, dated August 7, 1980, opposed the Order to Show Cause on the basis that it was premature, due to the pendency of the involuntary petition. They further stated that if an order for relief was entered against Bioline pursuant to the involuntary petition, a motion or motions would follow seeking to shorten the time from 120 days to 30 days for creditors to be entitled to file a plan of reorganization and seeking to set aside the bulk sale as a fraudulent transfer pursuant to Section 548 of the Code. The motion for summary judgment was heard on August 7, 1980. Because all of the arguments made then were iterated at a subsequent hearing and in subsequent papers which were submitted, I shall move on to a discussion of those events.
On October 3, 1980, the petitioning creditors made a motion to set aside the bulk sale of Bioline's assets to Hollywood as being a fraud upon creditors under Section 548 of the Code. It was accompanied by a memorandum of law in which they contend (1) that technical grounds exist for ordering relief against the debtor since there is no dispute as to its inability to pay its debts; (2) that the definition of "value" found in Section 548(d)(2)(A) of the Code does not permit payments over time for the purpose of satisfying Section 548(a)(2)(A)'s requirement that an insolvent debtor receive not "less than a reasonably equivalent value" and (3) that, under Section 548(c), if Hollywood is found to have taken the assets in good faith and for value, the transfer could nonetheless be set aside but with Hollywood retaining a lien on the reconveyed assets.
Affidavits in opposition to this motion were filed on November 28, 1980 by Marc A. Wallman ("WALLMAN"), counsel for Hollywood and Sawyer, its vice president. These affidavits allege that the consideration paid for Bioline's assets is approximately $200,000 in excess of their book value, and thus "fair" under any legal standard; that over half of the purchase price will be paid off prior to the end of 1980; that it has already satisfied Trefoil's claim with a payment to it of $598,229; that it has already paid $10,000 in telephone and utility bills, $70,000 to Rosen as escrow agent, and has assumed responsibility for the settlement of a claim by the Drug Enforcement Agency of $15,000; that in light of such payments and in light of the fact that Hollywood is now doing business with many of Bioline's creditors none of which have expressed displeasure with it Hollywood's financial viability can no longer seriously be questioned; that its good faith has been amply demonstrated by its compliance with applicable laws regulating bulk sales and by its subsequent conduct, and finally, that it has invested substantial sums of money in order to revive Bioline into a viable company.
Albert Togut, Esq. ("TOGUT"), appearing of counsel to the law firm of Marcus and Angel, Esqs., either representing, or speaking in behalf of, certain other creditors, *1018 also submitted an affidavit in opposition to the petitioning creditors' motion. He alleges that he represents National Pharmaceutical Manufacturing Co., which has a claim of approximately $75,328, Pharmadyne Industries with a claim of approximately $240,000 and M.D. Pharmaceutical, Inc., with a claim of $18,835; that he also speaks on behalf of other creditors with claims aggregating $350,000 and that, in sum, he speaks for nearly $700,000 worth of the total unsecured indebtedness of approximately $1.1 million all of whom oppose the various motions made by the petitioning creditors. He points out that Hollywood has obligated itself to satisfy priority tax claims against Bioline of approximately $62,825; that Rosen has the sum of $104,078.65 on hand awaiting distribution to unsecured creditors; that Darby's proposed offer is substantially similar to the one made by Hollywood and that Hollywood, having freed the assets from Trefoil's lien and having made the company viable, has proven its financial stability. He argues that if it should, at some time in the future, default on any payments, creditors would then have the right to seek any appropriate relief against it, including an involuntary petition in bankruptcy. A memorandum of law, also filed on December 15, 1980 accompanied Togut's affidavit.
The petitioning creditors filed a reply to the Sawyer, Wallman and Togut affidavits and the Togut brief on December 18, 1980. The petitioning creditors' motion to set aside the bulk sale as a fraudulent conveyance was heard by me on January 9, 1981. The arguments made by the parties in their various papers submitted in connection with this motion were iterated at the hearing. The petitioning creditors also raised the argument that a comparison of an unaudited balance sheet of Bioline, dated August 31, 1979 and attached as Exhibit 3 to its motion, with the actual figures arrived at by Deloitte in its report of May 20, 1980, reveals a "write-down" or "write-off" of $545,000 in the value of Bioline's assets. Both sides of this argument were developed further in letters submitted by the attorneys for the petitioning creditors and by Wallman after the hearing. In a letter dated January 23, 1981, the petitioning creditors argue that, without considering the loan receivable owed to Bioline by Phillips, its president and principal stockholder in the sum of $281,213, which was not purchased by Hollywood, there still remained a difference of $265,000 between the $1,687,204 worth of assets reported in the August 31, 1979 balance sheet and the $1,422,648 worth of assets in Deloitte's May 20, 1980 report. They further note that the value of the inventory is $162,000 less in the Deloitte report; that "Data Processing Equipment" valued on the balance sheet at $118,906 is not included in the Deloitte report; that accounts receivable were $8,422 lower in the Deloitte report and that realty and equipment show a reduction of $17,000. They finally point out that an income tax refund of $59,487 and the Phillips receivable, assets not purchased by Hollywood, have "been forever abandoned and rendered outside the reach of creditors. . . ."
Wallman, in his letter to me dated February 4, 1981, notes that his client merely purchased the assets described in the Asset Purchase Agreement as valued by Deloitte at the time of closing. "At such time, there was significantly less inventory on hand than the amount shown on the debtor's unaudited August 31 balance sheet. This was not to be unexpected from a company . . . obviously losing money." Furthermore, the values listed for accounts receivable are equivalent, and the "Data Processing Equipment" was not owned by Bioline. Rather, the figure on the balance sheet attributed to it represented capitalized lease payments. "Although such leases were of doubtful value, the purchase price determined by the Asset Purchase Agreement provided for a payment to the debtor equal to the amount of security deposits or advanced rentals on this equipment, plus $20,000." Finally, regarding the $57,487 income tax refund, Wallman notes that Bioline "owes the Internal Revenue Service over $100,000.00 on the basis of a tax audit of its 1976 and 1977 returns just completed."
*1019 Section 305 of the Code, entitled "Abstention", provides that:
"(a) The court, after notice and hearing, may dismiss a case under this title, or may suspend all proceedings in a case under this title, at any time if
"(1) the interests of creditors and the debtor would be better served by such dismissal or suspension. . . . "
For the following reasons, I have decided to dismiss this case pursuant to Section 305. First and foremost, I believe that the interests of creditors would best be served by such a dismissal. A majority of Bioline's creditors, over 60% in amount, oppose the various motions made by the petitioning creditors; in my opinion, for good reason. It was apparent to me on January 21, 1980, when I heard argument on the petitioning creditors' motion to restrain the bulk sale, that Bioline was virtually out of business. It was unable to meet its payroll, was low on inventory and without the financing essential to its survival. All parties at the hearing seemed to agree that there were only two serious possibilities under consideration: either the bulk sale to Hollywood would be carried out, or Darby would make a better offer and thereby acquire the assets. The thrust of the petitioning creditors' argument was that the bulk sale should be restrained so that Darby would have an opportunity to make its supposedly better offer. Bioline and Hollywood opposed this on the basis that they doubted Darby's good faith and believed that it was proposing this offer, which would never actually be made, in order to force Bioline to liquidate rather than be revitalized as a viable competitor.
I examined the bona fides of all sides, and, after considering all the arguments, devised a solution which I believe fairly accommodated all the competing interests. I enjoined the bulk sale on condition that the petitioning creditors or Darby post a $500,000 bond to indemnify Bioline from any damage suffered by reason of my delaying the bulk sale. Again, all parties appeared to agree that if it went through, the Chapter 11 proceeding would be effectively over. In the words of counsel for the petitioning creditors, if the sale were carried out, "this court would have been divested instantly of any meaningful proceeding. . . ." (Tr. January 21, 1980, p. 11, 11. 20-22).
The bond, however, was not posted, and the sale went through. Now, over a year later, and after Hollywood has paid over $700,000 pursuant to the Asset Purchase Agreement, retained the employees by paying their unpaid wages and turned the company around, the petitioning creditors, holding approximately 15% of the total outstanding unsecured indebtedness, argue that this court does, in fact, yet have a meaningful proceeding before it. They argue that somehow the status quo ante can be restored and competitive bidding can yet occur between Hollywood and Darby. To begin, it should be noted that Darby's proposed offer is quite similar to the agreement that Hollywood has been faithfully carrying out for the past year. An examination of the Ashkin Affidavit reveals that he proposed to pay basically the same price as Hollywood except he would pay half the purchase price immediately, and the other half on November 1, 1980. However, he only proposed to purchase Bioline's "good" accounts receivable whereas Hollywood is paying 10% of the face amount for receivables outstanding over 90 days but not yet turned over to collection agencies. "Good" accounts receivable would presumably not include the sizeable Phillips receivable. This is interesting in that the petitioning creditors have made much of the fact that Hollywood supposedly "forgave" Phillips this receivable when, in fact, they simply did not purchase it, just as Ashkin does not propose to buy it. At the August 7, 1980 hearing, Ashkin stated that he would add to his proposed offer $60,000 representing the same amount that Hollywood was paying to Phillips pursuant to the Asset Purchase Agreement for consulting services and for agreeing not to compete with it (Tr. August 7, 1980, p. 37, 11. 9-21). This token sweetening of the pot is not impressive, however, in light of the fact that Darby has had the use of its money during the approximatley *1020 seven months between the bulk sale and the August 7 hearing, during which time Hollywood has paid out over $600,000 pursuant to the Asset Purchase Agreement.
Furthermore, Hollywood, by paying approximately $598,229 to Trefoil soon after the bulk sale, paid approximately 40% of the purchase price at or near the date of closing. Thus the bulk sale, and Darby's proposed offer hardly differ in this respect. The only significant difference, thus, is the time of the payout Hollywood making its last payment on November 30, 1982, while Darby proposed to pay the full amount by November 1, 1980. Otherwise the bulk sale and the proposed offer are quite similar.
One of the petitioning creditors' most persistent arguments as to why this court should look askance at Hollywood is that little is known about its financial viability, and thus its contracts and guarantees are of questionable worth. Before this proceeding was commenced, neither of these companies was familiar to this court. Serious allegations have been made against both. The petitioning creditors have alleged that Hollywood was formed solely to "rape" Bioline in collusion with Phillips, and Bioline alleged that Darby is in this case for the sole purpose of destroying the deal between Hollywood and Bioline, thereby forcing Bioline into liquidation, thus ridding itself of a nearby competitor. Actions, however, speak louder than words. On the one hand, Hollywood has consistently done what it promised or what was requested of it. I suggested that it guarantee at least 50% payment to unsecured creditors, which was readily done. Hollywood went through with the bulk sale, freed the assets by paying $598,000 to Trefoil, and has made timely payments pursuant to the Asset Purchase Agreement.
Darby, on the other hand, failed to post the $500,000 bond, a relatively simple matter for any reasonably substantial company. It argues that it would have put up the bond but for the fact that it feared that Phillips would purposely cause or create damages by discontinuing his business or by other means, and then seek indemnification under Darby's bond. I find this argument to be entirely without merit. The express purpose of the bond was to indemnify Bioline for damages caused by the delay occasioned by the petitioning creditors' motion, not by Phillips' vindictive destruction of his own assets. Furthermore, the contempt powers of this court and the district court in such a case are wide.
It is interesting to note that, as a result of the petitioning creditors' motion, Hollywood has given something, i.e., its guarantee of a minimum 50% payment to unsecured creditors, while Darby has given up nothing.
If there was any question as to Hollywood's financial viability at the outset of this matter, it has since evaporated. It has paid approximately half the purchase price for the assets, claims to have put substantial additional capital into the company in order to replenish inventory, has retained the employees, and has undertaken to settle substantial liabilities with the Internal Revenue Service and the Drug Enforcement Agency. I note that the expense of negotiating such settlements could be substantial charges against the estate in any proceeding before this court which would ultimately have to be borne by creditors. Instead, Hollywood has undertaken these often time consuming expensive tasks.
In the case In re Luftek, 6 B.R. 539, 6 Bankr.Ct.Dec. 1083 (Bkrtcy.E.D.N.Y.1980), Judge Radoyevich of this district had occasion to apply Section 305 of the Code. In that case, as in the instant case, an involuntary petition was filed by three creditors against a debtor which was not meeting its debts as they matured, rendering it technically eligible for the relief sought by the petition. Judge Radoyevich found that thirty of Luftek's creditors, "a substantial body of creditors holding a substantial part of its debt" (Id., 6 B.R. 539, 6 Bankr.Ct.Dec. at 1089) opposed the involuntary petition; that serious disputes surrounded the validity and amount of the petitioning creditors' claims; that one of the petitioning creditors, Charleston Welding & Engineering Co., had a claim which had lain dormant *1021 since early 1977 and had since then paid money to Luftek on certain contracts without asserting a setoff despite opportunities to do so; that in March of 1979, however, Charleston was acquired by a Luftek competitor and now it suddenly pressed the old claim in the involuntary petition; that Luftek was in various stages of completion of several lucrative construction jobs which, when completed, would provide substantial funds which would be available to creditors; that if a liquidation took place, these contracts could be disaffirmed resulting in the loss of substantial receivables; that Luftek "has shown its willingness to pay [its] creditors in full by entering into a loan commitment. . . .", and that "administration expenses would consume the meager assets of this debtor in the event that bankruptcy liquidation takes place." (Id. 6 B.R. 539, 6 Bankr.Ct.Dec. at 1088). He held, therefore, that "[w]ith or without the loan commitment, it is apparent that the best interests of creditors and the debtor would be better served by dismissal under section 305(a)" (Id.).
In discussing the amenability of that case to relief under Section 305(a) of the Code, Judge Radoyevich noted, 6 B.R. 539, 6 Bankr.Ct.Dec. at page 1089:
"the willingness of the alleged debtor to make arrangements out of court for the repayment of its debt; the fact that some steps have been taken to effectuate such an arrangement; acquiescence in the alleged debtor's motion by a substantial body of creditors holding a substantial part of its debt; and the nature of the relationship which exists between the alleged debtor and one of the creditors who has petitioned for the order for relief."
There are striking similarities between that case and the instant case. Bioline has arranged an out of court settlement by which its assets will be freed from the lien of its secured lender and its unsecured creditors will receive at least 50¢ for each $1 of claim. A sizeable majority of its unsecured creditors support this arrangement, while only a small minority oppose it. Finally, although not the parent of one of the petitioning creditors as in Luftek, a competitor of the debtor, with questionable motives, lurks in the background of both cases.
In Luftek it was found that, if a liquidation were to take place, unsecured creditors would likely see no dividend. Although this may not necessarily be so in this case, it does appear that its unsecured creditors are due to receive a substantially larger payment than they would receive in a liquidation. Under the Asset Purchase Agreement, the approximately $1.1 million worth of unsecured claims are due to receive $656,777, an approximately 60% payment stretched over two years. Hollywood alleges that it is paying $200,000 over the book value of the assets (Sawyer Affidavit ¶¶ 5-6, filed November 28, 1980). The petitioning creditors, on the other hand, allege that substantial "write-downs" or "write-offs" were taken from the assets. On the basis of the letters submitted after the January 9, 1981 hearing by the petitioning creditors and Wallman, I am satisfied that no such "write-downs" or "write-offs" occurred. For the purpose of this discussion, let us assume that Hollywood, pursuant to the Deloitte report, is paying the fair book value for the assets, despite the fact that it appears that it has added certain amounts to it.
In the case at bar, if Bioline were liquidated, it is obvious that general unsecured creditors would receive substantially less than they are scheduled to received under the Asset Purchase Agreement. It is my opinion that the expense of liquidation, including fees for appraisers, auctioneers, trustees, attorneys and accountants would eat up a major portion of any recovery. It is indeed a rare case, both under Chapter 7 or Chapter 11 of the Code, that unsecured creditors recover over 50%.
Of course, the petitioning creditors contend that Darby, which is in the wings, is prepared to make a "better offer" for these assets than Hollywood's. This proposed offerit never made a firm one is similar to Hollywood's except that it would be paid more quickly. It must be remembered that Darby was given the opportunity to make *1022 this "better offer" over a year ago by showing its good faith by posting a bond to indemnify Bioline for any damage it might sustain by reason of its loss of the Hollywood agreement. It also must be remembered that neither Darby nor the petitioning creditors availed themselves of that opportunity and the bulk transfer was thus consummated and the assets have been in Hollywood's hands for over a year during which it has paid over $700,000 pursuant thereto. It was over a year ago that counsel for the petitioning creditors, who now urges me to set the sale aside, said that if the sale were carried out "this court would have been divested instantly of any meaningful proceeding . . ." (Tr. January 21, 1980, p. 11, 11. 20-22). I agreed with him then and I do now. I cannot see how the sale, which took place over a year ago, can now be set aside. Hollywood has expended large sums of money to satisfy the liens on the property; it has paid the back wages to employees who had not been paid and has retained their services; it has diligently, faithfully and meticulously carried out the terms of the Asset Purchase Agreement so that the escrow agent now has sufficient funds to pay a substantial dividend to unsecured creditors; it has made arrangements for the payment of taxes and has turned an unsuccessful company around to where it is thriving. To divest it of the assets now, in order to satisfy the demands of a group of recalcitrant creditors who hold approximately 15% of the debt and who are doing the bidding of a competitor, would be grossly unjust to all other creditors, Bioline and Hollywood.
The legislative history to Section 305 of the Code states that:
"[t]he court may dismiss or suspend under the first paragraph, for example, if an arrangement is being worked out by creditors and the debtor out of court, there is no prejudice to the rights of creditors in that arrangement, and an involuntary case has been commenced by a few recalcitrant creditors to provide a basis for future threats to extract full payment. H.R. Rep. No. 95-595, 95th Cong., 1st Sess. 325 (1977); S. Rep. No. 95-989, 95th Cong., 2d Sess. 35 (1978)."
I find that, except for the fact that the petitioning creditors have not openly sought to use this proceeding to provide a basis for future threats to extract full payment, this statement accurately describes the situation before me. An arrangement between the debtor and its creditors, not prejudicial and indeed favorable to the latter, has been worked out out of court. The involuntary case is being pressed only by a small group of recalcitrant creditors in the face of approval of the out of court settlement by over 60% of the unsecured creditors.
Among the purposes of a chapter proceeding under the bankruptcy laws is to preserve the going-concern value of debtors, thereby preventing disruptions in the marketplace. See excerpt from the Report of the Judiciary Committee of the House of Representatives of June 2, 1933, reprinted at 11 Remington on Bankruptcy § 4345, p. 14 (1961) discussing Section 77B, the predecessor to Chapter X of the old Bankruptcy Act. In the instant case, the goal of this policy was achieved by the Asset Purchase Agreement the business of the company was revived and continued under new management and the employees were paid and retained. Ironically, by seeking to commence an involuntary Chapter 11 proceeding, the petitioning creditors, if successful, would likely disrupt this business, a result contrary to one of the policies underlying Chapter 11.
In discussing Section 305 of the Code, Judge Radoyevich made the following admonition:
"It also is apparent that the courts will have to exercise great care in using the discretion granted by section 305(a) to dismiss a case. To be sure, it could be said that dismissal would be in the interests of creditors and the debtor in many of the proceedings commenced under the Bankruptcy Code; this Court could dispose of much of its calendar if its discretion was unbridled. There is an inherent risk to our system of jurisprudence in any Act of Congress which gives the courts *1023 such broad powers to refuse jurisdiction over a case. This risk is compounded by the finality and nonappealability of an order entered under this section. Indeed, by giving an example of a situation in which abstention or dismissal would be appropriate, Congress has indicated that it intended section 305(a) dismissals to be the exception rather than the rule." (In re Luftek, Inc., 6 B.R. 539, 6 B.C.D. 1083, 1088-89).
I agree with Judge Radoyevich. I find, however, that the facts of the instant case, much like Luftek, warrant my decision to abstain from exercising any further jurisdiction over this proceeding pursuant to Section 305 of the Code. Accordingly, the involuntary Chapter 11 petition is dismissed. This renders moot the motions for summary judgment and to set aside the bulk sale as a fraudulent conveyance made by the petitioning creditors.
I shall retain jurisdiction for the sole purpose of granting Bioline's motion authorizing Rosen, as escrow agent, to distribute, to unsecured creditors, the funds collected and earmarked for them pursuant to the Asset Purchase Agreement.
Submit order in conformity herewith. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1548082/ | 156 F.2d 507 (1946)
WILFONG
v.
JOHNSTON, Warden.
No. 11253.
Circuit Court of Appeals, Ninth Circuit.
June 27, 1946.
Morris M. Grupp, of San Francisco, Cal., for appellant.
Frank J. Hennessy, U. S. Atty., and Joseph Karesh, Asst. U. S. Atty., both of San Francisco, Cal., for appellee.
Before DENMAN, BONE and ORR, Circuit Judges.
*508 ORR, Circuit Judge.
This is an appeal by George Marion Wilfong, hereafter referred to as petitioner, from a judgment dismissing a writ of habeas corpus.
Petitioner was convicted in 1938 in the United States District Court for the Western District of Michigan. We shall hereafter refer to the District Court of Michigan as the trial court. The crime for which petitioner was convicted was bank robbery. He was sentenced to imprisonment for twenty-five years. Now confined under that sentence in the United States penitentiary on Alcatraz Island, California, petitioner filed a petition for writ of habeas corpus in the United States District Court for the Northern District of California, to which we will hereafter refer as the District Court.
Petitioner was arrested in California in connection with the bank robbery, waived removal proceedings, and was taken to Grand Rapids, Michigan. He alleges in his petition that immediately upon arrival in Grand Rapids, Michigan, he was taken before the trial court for arraignment. He further contends that he was not represented by counsel at the arraignment, that the indictment was not read to him; that he was not informed of the nature of the charge against him; that the United States attorney entered a plea of not guilty for him, and that following his arraignment he was removed from the Western District of Michigan and confined in a penitentiary at Milan, in the Eastern District of Michigan, and that he was returned for trial to Grand Rapids in the Western District without further writ or removal order. During the time petitioner was confined in the penitentiary at Milan, one Salowich was retained to represent him as counsel. Said Salowich conferred with petitioner on at least two occasions prior to trial. At the trial petitioner was represented by said Salowich and by one Dunn who was engaged in the practice of law at Grand Rapids. Mr. Dunn was selected by Mr. Salowich to assist in the trial because of his familiarity with and competency in the trial of criminal cases. The petitioner further alleges misconduct on the part of representatives of the Federal Bureau of Investigation in that during one of the recesses had during the trial (the trial Judge having requested that all remain in their seats in the court room during the recess) said agents brought two women into the court room and in full view and hearing of the jury had the women identify petitioner. The said women were not called as witnesses at the trial.
The jury returned a verdict on May 10, 1938, finding petitioner guilty. The next morning he was sentenced. The records of the trial court originally recited that petitioner was represented by counsel at the time of the pronouncement of judgment. This record was corrected in 1943 on motion of petitioner so as to read that petitioner was not represented by his attorney of record at the time of the pronouncement of judgment.
The District Court failed to find that Wilfong was represented by counsel at the time of the pronouncement of judgment. The District Court's finding in that regard reads "that the said Earl W. Dunn was present in the court room when the petitioner was called up for judgment and sentenced to a term of 25 years in a United States penitentiary". The Government attempted to overcome this significant record of the trial court of the Western District of Michigan, by introducing evidence that Mr. Dunn was in the court room representing petitioner at the time of sentence. In this we think it failed.
We find no merit in the contention of petitioner that he was moved to another district during the pendency of his trial for the reason that he had opportunity to consult with counsel during that time and we fail to discern wherein he was thereby prejudiced in any manner, nor did the failure to permit petitioner to be represented by counsel at the time of arraignment result in prejudice to him. While it is true that one charged with crime "requires the guiding hand of counsel at every stage in the proceedings against him"[1]*509 and where such failure occurs it will be carefully scrutinized,[2] yet the fundamental purpose of the law in requiring such assistance is to insure against the prejudicing and hampering a defendant in his defense of a charge against him. Such careful scrutiny is especially necessary where a plea of guilty is entered. In the instant proceeding the situation is quite different; a plea of not guilty was entered for the defendant; before trial he secured counsel of his own choice, had an opportunity to confer with such counsel, and before trial additional counsel was secured with whom it must be assumed petitioner also had opportunity to confer. That petitioner's counsel made no move to set aside the plea of not guilty in order to object to the sufficiency of the information or take other proceedings prior to time of trial, strengthens our conclusion that the proceeding on arraignment had not resulted in prejudice to the petitioner.[3] His counsel most certainly knew what had transpired prior to the date of trial and must have concluded that petitioner was in as favorable a position to go to trial as though he had been represented by counsel at the time of the arraignment. To presume otherwise would be to infer that his counsel had not exercised due diligence and that they had acted without proper regard for the interests of their client.
The charge that women were brought into the court room to identify petitioner seems to us as highly improbable. We do not believe the Judge, sitting on the bench within hearing distance and in a position to see what was transpiring, would have permitted such an incident to occur without administering a stern rebuke to the parties and it further seems improbable that petitioner's attorneys hearing and witnessing the incident would not have protested and made proper objection to the court either at the time or later. But, conceding that the incident transpired as charged, it is not a proper subject to inquire into at this time in the habeas corpus proceeding. The remedy was for petitioner to bring the matter to the attention of the court, as we have stated, and give the trial court an opportunity to pass upon it and thereby make it a part of the record.
We come now to a serious question in this proceeding, namely, the failure of petitioner to be represented by counsel at the time of pronouncement of judgment and sentence, since we conclude he was not so represented. As heretofore stated, the District Court does not so find and the evidence introduced by the government does not so establish.
Mr. Dunn, the attorney employed by Mr. Salowich to assist him during the trial, was found by the District Court to be "present in the court room" at the time of the pronouncement of judgment. Mr. Dunn stated that he had no independent recollection of what occurred but that if he was present in the court room it was only as a spectator, that it was his understanding he was employed only to assist in the conduct of the trial, but when the verdict of the jury was returned his services in the case were ended. The mere presence in the court room as a spectator of an associate counsel who had helped represent the petitioner at the trial and who considered that his connection with the case had ended with the return of the verdict, does not meet the guaranty of the Sixth Amendment of the Constitution that "in all criminal prosecutions, the accused shall enjoy the right * * * to have the Assistance of Counsel for his defence." It is argued that petitioner waived his right to be represented by counsel at the time of pronouncement of judgment. This is based upon the theory that petitioner was an old offender, knew his rights, and failed to make his request for the assistance of counsel. We do not agree. The Supreme Court of the United States, in Johnson v. Zerbst, 304 U.S. 458, 58 S. Ct. 1019, 1023, 82 L. Ed. 1461, 146 A.L.R. 357, after approving its former holdings that "`courts indulge every reasonable presumption *510 against waiver' of fundamental constitutional rights", and "we `do not presume acquiescence in the loss of fundamental rights'", defined waiver as "an intentional relinquishment or abandonment of a known right or privilege." No such a situation is presented in this case. We conclude that because of the failure of petitioner to be represented by counsel at the time of the pronouncement of judgment and sentence he was deprived of a constitutional right and, therefore, the judgment and sentence is void.[4]
In accordance with 28 U.S.C.A. § 461, we are required in habeas corpus proceedings to "dispose of the party as law and justice require." In this case we find the conviction valid but the sentence void and in conformity with the practice which has been uniformly followed since the case of In re Bonner, 151 U.S. 242, 14 S. Ct. 323, 38 L. Ed. 149, it is ordered that the judgment of the District Court dismissing the writ of habeas corpus be modified so as to require that the petitioner be returned to the United States District Court for the Western District of Michigan for judgment and sentence upon the verdict of guilty heretofore returned in said court and cause, and for such other proceedings subsequent thereto as he is legally entitled to and may desire to initiate.[5]
The cause is remanded to the District Court for the Northern District of California with directions to make such order or orders as are necessary to carry out the directions contained in this opinion.
NOTES
[1] Powell v. State of Alabama, 287 U.S. 45, 69, 53 S. Ct. 55, 64, 77 L. Ed. 158, 84 A.L.R. 527; Johnson v. Zerbst, 304 U.S. 458, 463, 58 S. Ct. 1019, 82 L. Ed. 1461, 146 A.L.R. 357.
[2] Cf. Michener v. Johnston, 9 Cir., 141 F.2d 171, 174; 146 F.2d 129, certiorari denied 324 U.S. 874, 65 S. Ct. 1011, 89 L. Ed. 1427.
[3] DeMaurez v. Swope, 9 Cir., 104 F.2d 758, 759; McJordan v. Huff, 77 U.S. App.D.C. 171, 133 F.2d 408; Dorsey v. Gill, App.D.C., 148 F.2d 857, 975, certiorari denied 325 U.S. 890, 65 S. Ct. 1580, 89 L. Ed. 2003.
[4] Powell v. State of Alabama, 287 U.S. 45, 53 S. Ct. 55, 77 L. Ed. 158, 84 A.L.R. 527; Johnson v. Zerbst, 304 U.S. 458, 58 S. Ct. 1019, 82 L. Ed. 1461, 146 A.L.R. 357; Glasser v. U. S., 315 U.S. 60, 62 S. Ct. 457, 86 L. Ed. 680; Coates v. Lawrence, D.C.S.D.Ga., 46 F. Supp. 414, 422, affirmed in opinion adopting opinion of District Court in 5 Cir., 131 F.2d 110, certiorari denied 318 U.S. 759, 63 S. Ct. 532, 87 L. Ed. 1132. See also: Batson v. U. S., 10 Cir., 137 F.2d 288, 289, where it is said: "We believe that an accused should have the opportunity to be heard by counsel on the sentence to be imposed, and that a court should not impose sentence in the absence of counsel without expressly ascertaining that a defendant does not desire his presence. Many considerations influence the length of a sentence which is to be imposed, and a defendant should have the opportunity to have his attorney present any mitigating circumstances to the court for its consideration in determining the weight of the sentence."
[5] Price v. Zerbst, D.C.N.D.Ga., 268 F. 72; Rogers v. Desportes, 4 Cir., 268 F. 308, 310; Bryant v. United States, 8 Cir., 214 F. 51; Andrus v. McCauley, D.C.E.D.Wash., 21 F. Supp. 70, 78; Coates v. Lawrence, D.C.S.D.Ga., 46 F. Supp. 414, 422; affirmed 5 Cir., 131 F.2d 110, certiorari denied 318 U.S. 759, 63 S. Ct. 532, 87 L. Ed. 1132; Wilson v. Bell, 6 Cir., 137 F.2d 716, 719; Bayless v. Johnston, D.C.N.D.Cal., 48 F. Supp. 758; McDonald v. Johnston, D.C.N.D.Cal., 62 F. Supp. 830; See also: Copeland v. Archer, 9 Cir., 50 F.2d 836. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1548139/ | 9 B.R. 403 (1981)
In re Joseph L. RONDEAU, Debtor.
FIRST PENNSYLVANIA BANK N.A., Plaintiff,
v.
Joseph L. RONDEAU, Ann Rondeau, Defendants.
Bankruptcy No. 80-00135G, Adv. No. 80-0738G.
United States Bankruptcy Court, E.D. Pennsylvania.
March 5, 1981.
Leo Francis Doyle, Philadelphia, Pa., for plaintiff, First Pennsylvania Bank N.A.
Jack K. Miller, Philadelphia, Pa., for debtor/defendant, Joseph L. Rondeau.
Richard A. Gallagher, Philadelphia, Pa., for defendant, Ann Rondeau.
Margaret Graham, Philadelphia, Pa., Trustee.
OPINION
EMIL F. GOLDHABER, Bankruptcy Judge:
The issue presented is whether the unsecured creditor is entitled to relief from the stay provided by § 1301(a) of the Bankruptcy Code ("the Code") to permit it to proceed against the codebtor. We conclude that the creditor is entitled to such relief.
The facts of the case are as follows:[1] Joseph L. Rondeau ("the debtor") filed a petition for an adjustment of debts under chapter 13 of the Code on January 18, 1980. First Pennsylvania Bank ("the bank") is the holder of an unsecured claim against the debtor for $535.60. Ann Rondeau ("the codebtor") is a co-borrower with the debtor having signed the written obligation to the bank and having received the consideration evidenced thereby. The debtor's chapter 13 plan does not propose to pay the claim of the bank in full. The bank has filed the instant complaint for relief from the stay provided in § 1301(a) of the Code.
Section 1301(a) provides:
(a) Except as provided in subsections (b) and (c) of this section, after the order for relief under this chapter, a creditor may not act, or commence or continue any civil action, to collect all or any part of a consumer debt of the debtor from any individual that is liable on such debt with the debtor, or that secured such debt, unless
(1) such individual became liable on or secured such debt in the ordinary course of such individual's business; or
(2) the case is closed, dismissed, or converted to a case under chapter 7 or 11 of this title.
11 U.S.C. § 1301(a). The bank does not assert that either of the two exceptions stated above are applicable. Rather, it asserts that it is entitled to relief from the stay pursuant to § 1301(c) which provides:
*404 (c) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided by subsection (a) of this section with respect to a creditor, to the extent that
(1) as between the debtor and the individual protected under subsection (a) of this section, such individual received the consideration for the claim held by such creditor;
(2) the plan filed by the debtor proposes not to pay such claim; or
(3) such creditor's interest would be irreparably harmed by such stay.
11 U.S.C. § 1301(c).
At the trial of the instant complaint, the debtor admitted that his plan does not propose to pay the bank in full but only proposes to pay it and other unsecured creditors approximately 30% of their claims. Consequently, by the express terms of § 1301(c)(2), we must grant relief from the stay to permit the bank to proceed against the codebtor to the extent that its claim is not to be paid under the debtor's plan (about 70%).
One cannot help but feel a deep sense of regret at the financial plight in which the defendant finds herself. Once the wife of the debtor, she dutifully co-signed the note evidencing the debt sub judice. Now divorced from her former husband, she resides with their children who receive support contributed by the debtor. While the wife's counsel, citing no legal precedent, urges us not to grant the bank's complaint, we really have no discretion.
This is a hard case, and hard cases sometimes make bad law. Congress left us no opportunity to deny the bank the right to proceed against the co-signer of the debtor's note. In drafting the Code, it provided no exception for estranged, divorced or impoverished wives. Section 1301(c) clearly provides that "the court shall grant relief from the stay . . . to the extent that . . . (2) the plan filed by the debtor proposes not to pay such claim." (Emphasis ours).
Hence, to the extent that the debtor's plan will not liquidate the debt contracted by the debtor and his former wife, we have no preoption but to follow the Congressional mandate and to grant the bank relief from the automatic stay to permit it to seek satisfaction from the co-signer of the loan of that portion of the debt which will not be paid under the plan. The bank's complaint must be granted.
NOTES
[1] This opinion constitutes the findings of fact and conclusions of law required by Rule 752 of the Rules of Bankruptcy Procedure. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1548136/ | 152 Pa. Commw. 636 (1993)
620 A.2d 589
Susan J. BELL, Petitioner,
v.
WORKMEN'S COMPENSATION APPEAL BOARD (ALLEGHENY COUNTY HOUSING AUTHORITY), Respondent.
Commonwealth Court of Pennsylvania.
Argued May 15, 1992.
Decided January 19, 1993.
*639 Neal R. Cramer, for petitioner.
John D. O'Brien, for respondent.
Before McGINLEY and FRIEDMAN, JJ., and SILVESTRI, Senior Judge.
FRIEDMAN, Judge.
Susan Bell (Claimant) petitions for review of the August 28, 1991 order of the Workmen's Compensation Appeal Board (Board) which affirmed the referee's decision suspending her workmen's compensation benefits under section 413(a) of The Pennsylvania Workmen's Compensation Act (Act).[1] We reverse and remand.
Claimant was employed by the Allegheny County Housing Authority (Employer) as a security officer. On November 5, 1988, she sustained multiple body bruises and a back sprain when she was physically assaulted by a group of residents during the course of her employment. Pursuant to a notice of compensation payable, she received temporary total disability benefits. On March 15, 1989, Employer filed a petition for termination, alleging that Claimant had been released for work by her treating physician on February 6, 1989 but had not returned to her job. (R.R. at 4a.) Claimant filed a timely answer, denying Employer's allegations and averring that as a result of her original injury, she remained totally disabled from performing her previous job duties. (R.R. at 5a.)
The referee held four hearings, after which she ordered Employer to pay Claimant temporary total disability from February 6, 1989 through July 25, 1989, because Employer *640 had not offered Claimant light duty work for that period. Effective July 26, 1989, the referee suspended Claimant's compensation indefinitely into the future, concluding that she had recovered sufficiently to return to her old job, but refused to do so. The Board affirmed.
On appeal,[2] Claimant argues that the referee erred by (1) rejecting the uncontested testimony offered by Claimant's medical witness; (2) imposing a heightened burden of proof on Claimant;[3] (3) failing to require Employer to prove that Claimant's work-related disability had ended; and (4) failing to admit the report of Stuart S. Burstein, M.D., into evidence.[4]
First, Claimant asserts that the referee erred by rejecting the uncontested evidence of Claimant's physician, Michael Brody, M.D., in which Dr. Brody stated that Claimant was unable to return to work because she continued to suffer from psychiatric disability resulting from her physical injury. Following the assault, Claimant was referred to the Pain Evaluation and Treatment Institute, where she underwent a program of physical therapy and psychological counseling. (R.R. at 107a.) After eight sessions, Dr. Brody interviewed Claimant and diagnosed Claimant's condition as post-traumatic stress disorder secondary to the work-related physical *641 injury and adjustment disorder with mixed emotional features, secondary to the work-related physical injury. At the hearings before the referee, Dr. Brody testified that Claimant would require long term counseling and that she should not return to her original job because she would be a danger to herself and others if she returned. Dr. Brody testified:
A. Ms. Bell reports, first of all, exaggerated responses to loud noises or violence, and those responses would potentially lead to, potentially resorting to shooting somebody rather than trying to work through an altercation in an effort to avoid another assault.
It could potentially result in abandonment of a colleague in a dangerous situation so that really the victim, her colleagues and herself would be at danger.
(R.R. at 93a.)
On cross-examination, Dr. Brody stated:
A. I think first we need to decide what we're talking about in terms of return to work. If you're referring to return to work as a field officer, then, yes, there are specific indications for her not to return, and as I mentioned earlier, I don't feel that it's useful, specifically, to say whether it's a physical or psychological limitation.
(R.R. at 126a.)
Employer countered by presenting the testimony of Lawrence Kasdan, M.D.. Dr. Kasdan did not perform a psychological evaluation of Claimant, and when asked, could not render an opinion regarding Claimant's psychological status. In determining that Claimant could return to work, Dr. Kasdan presented evidence only as to Claimant's physical capabilities. Thus, Dr. Brody's testimony with regard to Claimant's psychological disability remained uncontested. Nevertheless, the referee found:
13. The referee finds the testimony of Dr. Kasdan as more credible and persuasive than that of Dr. Brody, except as specifically noted above.[5]
*642 14. The Referee finds further that Claimant did not establish that she has a work related psychiatric impairment that would preclude her from working. Her activities on the date of injury were no more than Claimant's response to normal or usual working conditions.
(Referee Findings of Fact Nos. 13, 14; R.R. at 195a.)
As the ultimate factfinder, the referee must determine issues of credibility and may accept or reject any testimony, including the medical opinion of an expert witness in whole or in part. Kovalchick Salvage Company v. Workmen's Compensation Appeal Board (Williams), 102 Pa.Commonwealth Ct. 562, 519 A.2d 543 (1986). In fact, a referee may reject even uncontested medical testimony if that testimony is found to be equivocal. Haney v. Workmen's Compensation Appeal Board, 65 Pa.Commonwealth Ct. 461, 442 A.2d 1223 (1982). Because Dr. Kasdan offered no testimony regarding Claimant's psychological condition, the referee's credibility determination necessarily relates only to Claimant's physical ability, and so cannot provide grounds to reject Dr. Brody's assertion of psychic disturbance nor form the basis for the referee to refute the work-relatedness of Claimant's psychological *643 disability.[6] Without a determination regarding the equivocality of Dr. Brody's testimony, the referee's simple rejection of that testimony is reversible error. Haney.
Moreover, because she determined that Claimant failed to prove abnormal working conditions, the referee specifically found that Claimant failed to establish that her psychiatric impairment was work-related. In doing so, the referee appears to have viewed Claimant's allegation of psychological injury as an entirely new and purely psychological injury claim. Accordingly, the referee applied the heightened burden of proof required in cases where psychic disability has no physical source. Here again, the referee erred.
Claimant does not allege a new injury; rather, she contends that she sustained a psychiatric disability as a direct result of her work-related physical injury. Post-traumatic psychological disabilities brought about by work-related physical injuries are compensable. Sibrava v. Workmen's Compensation Appeal Board, 113 Pa.Commonwealth Ct. 286, 537 A.2d 75 (1988). If a work-related psychological disability is associated with a physical injury, the claimant must prove only the basic requirements of workmen's compensation eligibility; i.e., that the injury arose in the course of employment and was related thereto. Sibrava.
We have recognized that disabilities involving both mental and physical elements can be divided into three categories:
1. the mental/physical case, in which a psychological stimulus causes a physical injury;
*644 2. the physical/mental case, in which a physical stimulus causes a psychic injury; and
3. the mental/mental case, in which a psychological stimulus causes psychic injury.
Boeing Vertol Co. v. Workmen's Compensation Appeal Board (Coles), 107 Pa.Commonwealth Ct. 388, 528 A.2d 1020 (1987), appeal denied, 517 Pa. 619, 538 A.2d 501 (1988).
Because of the increased difficulty of obtaining adequate proof in the third category of cases, a claimant alleging a mental/mental disability must establish that his psychological injury and resulting disability were caused by abnormal working conditions, rather than his own subjective perception of working conditions. Martin v. Ketchum, Inc., 523 Pa. 509, 568 A.2d 159 (1990). However, Claimant here claims to have suffered a disability which falls into the second category, where the burden of proof is substantially reduced. If the referee had found Dr. Brody's testimony unequivocal, and our review of that testimony indicated no hint of equivocation,[7] she would have been forced to apply the physical/mental standard of Sibrava. However, the referee did not address the credibility of Dr. Brody's testimony concerning Claimant's psychological condition and made no finding of equivocality in this regard.
Accordingly, we reverse the order of the Board, and remand for further findings and application of the proper burden of proof.
*645 ORDER
AND NOW, this 19th day of January, 1993, we reverse the order of the Workmen's Compensation Appeal Board, dated August 28, 1991, and remand this case for further findings, for a determination of disability under the correct burden of proof stated herein and for entry of an order consistent with this opinion.
Jurisdiction relinquished.
SILVESTRI, Senior Judge, dissents.
NOTES
[1] Act of June 2, 1915, P.L. 736, as amended, 77 P.S. § 772.
[2] Our scope of review is limited to determining whether necessary findings of fact are supported by substantial evidence, an error of law was committed or whether there has been a violation of constitutional rights. Russell v. Workmen's Compensation Appeal Board (Volkswagen of America), 121 Pa.Commonwealth Ct. 436, 550 A.2d 1364 (1988). Appellate courts do not reweigh the evidence or review the credibility of witnesses. A reviewing court simply determines whether, upon consideration of the evidence as a whole, the Referee's findings have the required measure of support in the record. Republic Steel Corp. v. Workmen's Compensation Appeal Board (Shinsky), 492 Pa. 1, 421 A.2d 1060 (1980).
[3] Employer contends that Claimant has waived this issue by failing to raise it as an error of law before the Board. Pa.R.A.P. 1551; Santarelli v. Workmen's Compensation Appeal Board, 113 Pa.Commonwealth Ct. 281, 537 A.2d 894 (1988). We disagree. Claimant preserved this issue by including it in her Appeal from Referee's Findings of Fact and Conclusions of Law. (R.R. at 198a-99a.)
[4] Because we decide this case based upon the first two issues, we need not address the other issues raised.
[5] This limitation refers to the date of the full duty release. Although Dr. Kasdan released Claimant to return to her regular position as of February 20, 1989, the referee found that Claimant could not return to her pre-injury job until July 26, 1989. In this connection, the referee made the following credibility findings:
6. Dr. Kasdan testified on Defendant's behalf and the Referee credits his testimony, reports and opinions contained therein as credible and as fact with the exception of the full duty release.
7. Dr. Kasdan evaluated the claimant on February 3, 1989 and found her physical examination to be normal with no evidence of weakness or sensory change. Claimant was released to return to work on February 6, 1989 with a light duty restriction for two weeks. Claimant was released for full duty effective February 20, 1990 [sic].
10. The Referee credits Claimant's testimony at the initial hearing (on May 1, 1989) regarding the pain in her lower back which radiated into her legs. Dr. Brody testified Claimant reported a 60-70 percent reduction in pain at the time of his interview (July 26, 1989) and the Referee finds that to be fact.
13. The Referee finds the testimony of Dr. Kasdan as more credible and persuasive than that of Dr. Brody, except as specifically noted above.
(Referee Findings of Fact, Nos. 6, 7, 10 and 13; R.R. at 193a-95a.)
[6] In fact, we note that Dr. Kasdan and Dr. Brody both agreed with regard to Claimant's physical capabilities. However, Dr. Brody testified that, although physically capable of returning to her prior job duties, Claimant was psychologically unable to return to work as a result of her assault. On the other hand, because he had performed no psychological evaluation of Claimant, Dr. Kasdan refused to speculate on Claimant's psychological condition or its cause. Thus, we cannot presume an absence of psychological disability simply because the referee credited Dr. Kasdan as a more credible witness. We have no way of knowing how, or indeed whether, Dr. Kasdan's assessment of Claimant's psychological condition would have differed from Dr. Brody's, had he made the same sort of psychiatric appraisal.
[7] In this connection, we hold that Referee Finding of Fact No. 9(b) is not supported by substantial record evidence. That finding states that "[Dr. Brody] did not testify that Claimant was disabled from her work as a housing officer." Dr. Brody's testimony in the record contradicts this finding. Dr. Brody stated unequivocally that Claimant has work-related post-traumatic stress disorder and that she should not return to her work as a field officer (R.R. at 92a-93a; R.R. at 126a). Dr. Brody asserted continuously that Claimant was not psychologically ready to return to her former position and that she should be in a less stressful position. (R.R. at 93a.) Although Dr. Brody did state that Claimant could physically perform her previous tasks, this cannot support the referee's finding in light of the rest of Dr. Brody's testimony. Medical evidence must be considered as a whole, and reliance on portions of testimony taken out of context is inappropriate. Lewis v. Workmen's Compensation Appeal Board, 508 Pa. 360, 498 A.2d 800 (1985). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/872560/ | Electronically Filed
Intermediate Court of Appeals
CAAP-11-0000814
12-SEP-2012
08:21 AM | 01-03-2023 | 05-25-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547743/ | 423 Pa. Superior Ct. 12 (1993)
620 A.2d 15
COMMONWEALTH of Pennsylvania
v.
Joseph C. SHOUP, Appellant.
Superior Court of Pennsylvania.
Submitted September 11, 1992.
Filed February 8, 1993.
*15 David J. Rossi, Schuylkill Haven, for appellant.
Karen Byrnes, Asst. Dist. Atty., Pottsville, for Com., appellee.
Before ROWLEY, President Judge, and WIEAND and HUDOCK, JJ.
WIEAND, Judge.
Joseph C. Shoup was tried by jury and was found guilty of homicide by vehicle while driving under the influence of alcohol,[1] driving while under the influence of alcohol,[2] and homicide by vehicle.[3] The trial court, sitting as fact finder, found Shoup guilty also of the summary offense of reckless driving.[4] Post-trial motions were denied, and Shoup was sentenced to serve a term of imprisonment for not less than three and one-half (3½) years nor more than seven (7) years and to pay a fine in the amount of one thousand ($1,000.00) dollars.[5] On direct appeal from the judgment of sentence, Shoup asserts that the evidence at his trial was insufficient to *16 sustain his convictions. He contends further that the trial court committed reversible error in the following respects: (1) by granting a Commonwealth motion in limine to preclude the admission of evidence that the decedent was not wearing a seat belt at the time of the fatal accident; (2) by refusing to give points for charge requested by the defense on the issue of causation; and (3) by improperly permitting testimony as to the results of blood alcohol testing conducted upon appellant's blood despite the absence from trial of the person who actually performed such tests. We will consider these several issues seriatim.
In evaluating a challenge to the sufficiency of the evidence, we view the evidence in the light most favorable to the Commonwealth, which has won the verdict, and draw all reasonable inferences in its favor. We then determine whether the evidence is sufficient to permit a jury to determine that each and every element of the crimes charged has been established beyond a reasonable doubt. See: Commonwealth v. Aulisio, 514 Pa. 84, 91, 522 A.2d 1075, 1079 (1987). See also: Commonwealth v. Smith, 523 Pa. 577, 581, 568 A.2d 600, 602 (1989); Commonwealth v. Hardcastle, 519 Pa. 236, 246, 546 A.2d 1101, 1105 (1988), cert. denied, 493 U.S. 1093, 110 S.Ct. 1169, 107 L.Ed.2d 1072 (1990). It is the function of the jury to pass upon the credibility of the witnesses and to determine the weight to be accorded the evidence produced. The jury is free to believe all, part or none of the evidence introduced at trial. See: Commonwealth v. Guest, 500 Pa. 393, 396, 456 A.2d 1345, 1347 (1983). See also: Commonwealth v. Rose, 463 Pa. 264, 268, 344 A.2d 824, 826 (1975); Commonwealth v. Verdekal, 351 Pa.Super. 412, 419-420, 506 A.2d 415, 419 (1986). The facts and circumstances established by the Commonwealth "need not be absolutely incompatible with [the] defendant's innocence, but the question of any doubt is for the jury unless the evidence `be so weak and inconclusive that as a matter of law no probability of fact can be drawn from the combined circumstances.'" Commonwealth v. Sullivan, 472 Pa. 129, 150, 371 A.2d 468, 478 (1977), quoting Commonwealth v. Libonati, 346 Pa. 504, 508, 31 A.2d 95, 97 *17 (1943). See also: Commonwealth v. Kravitz, 400 Pa. 198, 215, 161 A.2d 861, 869 (1960), cert. denied, 365 U.S. 846, 81 S.Ct. 807, 5 L.Ed.2d 811 (1961).
So viewed, the evidence at appellant's trial established the following. On November 14, 1989, at or about 8:00 p.m., appellant was operating a brown Chevrolet Chevette automobile on Oak Street, a narrow alleyway located in the Borough of Girardville, Schuylkill County. Riding as passengers in appellant's vehicle were Michelle Shoup, his common law wife, who was seated in the front passenger seat, and Jean Moll and John Rush, who were in the back seat. Appellant was observed failing to stop for three consecutive stop signs, and the speed of his vehicle was estimated to be approximately fifty to fifty-five miles per hour. After driving through the intersection of Oak and Williams Streets, without stopping at the stop sign there erected for the control of traffic, appellant's vehicle collided with a large dump truck which had been parked in the alleyway, near a loading dock at a garment factory. The site of the accident was about thirty to thirty-five feet from the intersection.
Upon being summoned to the scene of the accident, Charles Harris, the Police Chief for the Borough of Girardville, observed that appellant had a strong odor of alcohol about his person and that there were several beer cans on the floor of the vehicle. All of the vehicle's occupants were initially pinned therein, and they, upon being removed from the vehicle, were transported for medical treatment. Appellant's common law wife suffered massive traumatic injuries and died shortly after being taken by helicopter to Geisinger Medical Center. Appellant was taken to Ashland State Hospital, where, at 9:30 p.m., blood samples were drawn at the request of Chief Harris for the purpose of determining appellant's blood alcohol level. Thereafter, two blood tests measured appellant's blood alcohol content at .176% and .175%.
At trial, the defense contended that the legal cause of Michelle Shoup's death had been the illegal parking of the dump truck with which appellant's vehicle collided. Police Chief Harris testified that there had been a no parking sign *18 posted at the loading dock where the dump truck was parked. However, according to Chief Harris, this sign had been placed there by the garment factory and not by the Borough. Therefore, he suggested, he was without legal authority to issue tickets for illegal parking at that location. Other testimony established that, despite poor lighting conditions, the dump truck could be seen from the intersection at Oak and Williams Streets. Additionally, both Jean Moll and John Rush described appellant's driving prior to the accident as erratic.
Causation is an essential element of a charge of criminal homicide, which the Commonwealth must prove beyond a reasonable doubt. Commonwealth v. Webb, 449 Pa. 490, 494, 296 A.2d 734, 737 (1972). See also: Commonwealth v. Kingsley, 480 Pa. 560, 569-570, 391 A.2d 1027, 1032 (1978); Commonwealth v. Cheatham, 419 Pa.Super. 603, 607, 615 A.2d 802, 805 (1992). The tort concept of proximate cause plays no role in a prosecution for criminal homicide. Rather, the Commonwealth must prove a more direct causal relationship between the defendant's conduct and the victim's death. Commonwealth v. Barnhart, 345 Pa.Super. 10, 28, 497 A.2d 616, 626 (1985), cert. denied, 488 U.S. 817, 109 S.Ct. 55, 102 L.Ed.2d 34 (1988). See also: Commonwealth v. Root, 403 Pa. 571, 170 A.2d 310 (1961); Commonwealth v. Lang, 285 Pa.Super. 34, 426 A.2d 691 (1981). However,
it has never been the law of this Commonwealth that criminal responsibility must be confined to a sole or immediate cause of death. Commonwealth v. Stafford, 451 Pa. 95, 301 A.2d 600 (1973); Commonwealth v. Carn, 449 Pa. 228, 296 A.2d 753 (1972); Commonwealth v. Johnson, 445 Pa. 276, 284 A.2d 734 (1971); Commonwealth v. Cheeks, 423 Pa. 67, 223 A.2d 291 (1966); Commonwealth ex rel. Peters v. Maroney, 415 Pa. 553, 204 A.2d 459 (1964). Criminal responsibility is properly assessed against one whose conduct was a direct and substantial factor in producing the death even though other factors combined with that conduct to achieve the result. Commonwealth v. Stafford, supra.
Commonwealth v. Skufca, 457 Pa. 124, 132-133, 321 A.2d 889, 894 (1974), appeal dismissed, 419 U.S. 1028, 95 S.Ct. 510, 42 *19 L.Ed.2d 304 (1974). See also: Commonwealth v. Rementer, 410 Pa.Super. 9, 19-24, 598 A.2d 1300, 1305-1307 (1991); Commonwealth v. Youngkin, 285 Pa.Super. 417, 424-425, 427 A.2d 1356, 1359-1360 (1981); Commonwealth v. Howard, 265 Pa.Super. 535, 539-540, 402 A.2d 674, 676-677 (1979). Thus, "[a] defendant cannot escape the natural consequences of his act merely because of foreseeable complications." Commonwealth v. Paquette, 451 Pa. 250, 254, 301 A.2d 837, 839 (1973). So long as the defendant's conduct started the chain of causation which led to the victim's death, criminal responsibility for the crime of homicide may properly be found. See: Commonwealth v. Hicks, 466 Pa. 499, 505, 353 A.2d 803, 805 (1976). See also: Commonwealth v. Massart, 469 Pa. 572, 577, 366 A.2d 1229, 1232 (1975); Commonwealth v. Stafford, 451 Pa. 95, 100, 301 A.2d 600, 604 (1973); Commonwealth v. Cheeks, 423 Pa. 67, 73, 223 A.2d 291, 294 (1966).
In the instant case, a jury could find that appellant's conduct was a direct and substantial factor in bringing about the death of Michelle Shoup. The evidence disclosed that, while intoxicated, appellant drove his vehicle down a narrow, dimly lit alleyway, erratically and at a high rate of speed, failing to stop at three consecutive intersections where stop signs had been posted. Moreover, the evidence suggested that had appellant obeyed the stop sign at the intersection of Oak and Williams Streets, he would have been able to observe the dump truck parked in the alleyway. While the fact that the dump truck was parked in the alleyway undoubtedly contributed to the accident, it is abundantly clear that it was appellant's conduct which started an unbroken chain of causation leading to his wife's death. That another vehicle may have been parked in a hazardous manner was a foreseeable circumstance which did not relieve appellant from the natural consequences of his conduct. See: Commonwealth v. Skufca, supra; Commonwealth v. Rementer, supra.
Appellant also contends that there was insufficient evidence to establish that, at the time of the accident, the amount of alcohol by weight in his blood was .10% or greater. Specifically, he argues that his blood samples were taken an *20 hour and a half after the accident and the Commonwealth failed to present evidence which related the results of the blood alcohol tests back to the time of the accident. This issue, however, was not raised by appellant in either his post-trial motions or in his statement of matters complained of on appeal, and, as such, has been waived. "It is well settled that only issues raised in post-trial motions are preserved for appellate review." Commonwealth v. Copeland, 381 Pa.Super. 382, 385, 554 A.2d 54, 55 (1988). See also: Commonwealth v. Gravely, 486 Pa. 194, 198-199, 404 A.2d 1296, 1298 (1979). The Superior Court will not consider an issue that has been raised for the first time on appeal. See: Commonwealth v. Gordon, 364 Pa.Super. 521, 534-537, 528 A.2d 631, 638-639 (1987); Commonwealth v. Bradshaw, 324 Pa.Super. 249, 254-255, 471 A.2d 558, 560-561 (1984).
Appellant next asserts that the trial court erred when it granted a Commonwealth motion in limine precluding the defense from introducing evidence that the decedent was not wearing a seat belt at the time of the fatal accident. It is argued by appellant that the victim's failure to wear a seat belt was a substantial causative factor leading to her death, in that if she had been wearing a seat belt she may well have survived the accident.
"It is well-settled that `an accused has a fundamental right to present defense evidence, so long as such evidence is relevant and not excluded by an established evidentiary rule.'" Commonwealth v. Wells, 396 Pa.Super. 70, 75, 578 A.2d 27, 30 (1990), appeal dismissed, 530 Pa. 35, 606 A.2d 1171 (1992), quoting Commonwealth v. Uhrinek, 518 Pa. 532, 542, 544 A.2d 947, 952 (1988). See also: Commonwealth v. Eubanks, 511 Pa. 201, 209-210, 512 A.2d 619, 624 (1986); Commonwealth v. Greene, 469 Pa. 399, 405, 366 A.2d 234, 237 (1976). Therefore, in prosecutions for homicide by vehicle and homicide by vehicle while driving under the influence, both the Supreme and Superior Courts have held that a defendant should be permitted to introduce evidence which establishes that something other than his violation of the Vehicle Code caused the accident and resulting death. See: Commonwealth *21 v. Uhrinek, supra; Commonwealth v. Bartolacci, 409 Pa.Super. 456, 460-462, 598 A.2d 287, 289-290 (1991). However, in the instant case, evidence that the decedent failed to wear a seat belt was barred by a specific statutory provision and was not relevant to establish the cause of the fatal accident. Therefore, such evidence was properly excluded by the trial court.
The Vehicle Code provides at 75 Pa.C.S. § 4581(a)(2) that "each driver and front seat occupant of a passenger car . . . shall wear a properly adjusted and fastened safety seat belt system." However, the legislature, in another subsection of the same statute, provided further as follows:
(f) Criminal proceedings. The requirements of this subchapter or evidence of a violation of this subchapter are not admissible as evidence in a criminal proceeding except in a proceeding for a violation of this subchapter. No criminal proceeding for the crime of homicide by vehicle shall be brought on the basis of noncompliance with this subchapter.
75 Pa.C.S. § 4581(f). Thus, the legislature has specifically prohibited evidence regarding a person's failure to wear a seat belt from being introduced in a criminal proceeding except in a proceeding for a violation of 75 Pa.C.S. § 4581. Because no violation of § 4581(a)(2) was charged in the instant case, evidence that the decedent was not wearing a seat belt at the time of the accident was barred by the provisions of 75 Pa.C.S. § 4581(f).
At trial, appellant submitted the following proposed points for charge to the trial court:
2. It is not enough to conclude that the Defendant's intoxication was the most likely cause of the accident and death; causation must be established beyond a reasonable doubt.
3. Under our law speculation, possibilities, and probabilities cannot sustain a criminal conviction.
When the trial court failed to include the verbatim language of these proposed points for charge in its final jury instructions, appellant objected. He now argues that by failing to include these points for charge, the trial court allowed the jury to *22 speculate as to the cause of the victim's death, and did not require an informed decision based upon the evidence. We disagree.
"In reviewing jury instructions to determine whether reversible error has been committed by a trial court, we consider the charge as a whole. Error will not be predicated on isolated excerpts. Rather, it is the general effect of the charge that controls." Commonwealth v. Myers, 376 Pa.Super. 41, 50, 545 A.2d 309, 314 (1988). See also: Commonwealth v. Bowers, 400 Pa.Super. 377, 392, 583 A.2d 1165, 1172 (1990); Commonwealth v. Riggins, 374 Pa.Super. 243, 253, 542 A.2d 1004, 1009 (1988). "A trial court is not required to accept requested instructions verbatim. The key inquiry is whether the instruction on a particular issue adequately, accurately and clearly presents the law to the jury, and is sufficient to guide the jury in its deliberations." Commonwealth v. Cimorose, 330 Pa.Super. 1, 10, 478 A.2d 1318, 1323 (1984) (citations omitted). See also: Commonwealth v. Faulkner, 528 Pa. 57, 79, 595 A.2d 28, 40 (1991), cert. denied, ___ U.S. ___, 112 S.Ct. 1680, 118 L.Ed.2d 397 (1992); Commonwealth v. Prosdocimo, 525 Pa. 147, 150, 578 A.2d 1273, 1274 (1990); Commonwealth v. Ohle, 503 Pa. 566, 582, 470 A.2d 61, 70 (1983), cert. denied, 474 U.S. 1083, 106 S.Ct. 854, 88 L.Ed.2d 894 (1986). Therefore, "`[t]he refusal to give a proper instruction requested by a [defendant] is ground for a new trial only if the substance thereof has not otherwise been covered by the trial court's general charge.'" Commonwealth v. LaMassa, 367 Pa.Super. 54, 58, 532 A.2d 450, 452 (1987), quoting Werner v. Quality Service Oil Co., Inc., 337 Pa.Super. 264, 269, 486 A.2d 1009, 1011 (1984).
A careful review of the trial court's jury instructions in the instant case makes it abundantly clear that the substance of appellant's proposed jury instructions was fully and adequately covered by the language chosen by the trial court. The jurors were apprised that, in order to convict appellant of homicide by vehicle while driving under the influence of alcohol, they had to be convinced beyond a reasonable doubt that appellant "recklessly or in a criminally negligent manner *23. . . caused the death of Michelle Shoup as the direct result of his commission of the offense of driving under the influence." N.T. 209-210. The trial court also explained to the jury the concept of guilt beyond a reasonable doubt and explicitly instructed the jury that it could not find appellant guilty "based on mere suspicion of guilt." N.T. 198-199. These instructions made clear to the jury that causation had to be established beyond a reasonable doubt and that a conviction could not be based upon speculation or probability. The trial court's refusal to recite verbatim the requested instructions submitted by appellant is not a basis for a new trial.
The final issue raised by appellant is that the trial court erred by allowing into evidence the results of blood alcohol tests where the technicians who actually performed the tests were not present to testify at trial. The Commonwealth presented the testimony of Doctor Michael Feldman, the Director of Toxicology at the Laboratory where the tests had been performed. According to appellant, the testimony of the laboratory director regarding the results of appellant's blood tests constituted impermissible hearsay and deprived him of the right to cross-examine the persons who had performed the tests. These same arguments, however, were made and rejected by the Superior Court in Commonwealth v. Kravontka, 384 Pa.Super. 346, 558 A.2d 865 (1989). There, the Court held that blood alcohol test results could properly be admitted into evidence without the presence in court of the person who had performed the test. In so holding, the Kravontka Court determined that the defendant's right to confrontation was not violated because blood alcohol testing bears sufficient "indicia of reliability" so that "cross-examination of the technician concerning the inherently reliable blood test would have been of little benefit to the [defendant]." Id. at 355, 558 A.2d at 870. The Court further concluded that blood alcohol test results were qualified for admission under the business records exception to the hearsay rule. Id. at 357-358, 558 A.2d at 871.
*24 In concluding that the evidence of appellant's blood alcohol test results was properly admitted in the instant case, the trial court reasoned as follows:
Doctor Feldman testified about both his academic background and his position as the supervisor of the medical lab in which the test was performed. He testified as to the necessary chain of evidence requirements for proper testing; he identified the defendant's laboratory records, and he verified that the results were made contemporaneously with the transactions. In addition, the Court took judicial notice of the fact that the laboratory involved, Roche Biomedical Laboratories, was authorized by the Department of Transportation and the Department of Health under the Clinical Laboratory Act to conduct such business as set forth in Pennsylvania Bulletin, Volume 19, Number 27, July 8, 1989. Accordingly, the testimony and records of the laboratory were permissible and properly admitted into evidence under the Business Records as Evidence Act and the Motor Vehicle Code.
Trial Court Opinion at pp. 5-6. The trial court's reasoning in this case is consistent with the decision in Commonwealth v. Kravontka, supra. Therefore, the receipt of the evidence of appellant's blood alcohol test results on the basis of the testimony of Dr. Feldman was not error. See also: Commonwealth v. Garofalo, 386 Pa.Super. 363, 367-370, 563 A.2d 109, 111-112 (1989); Commonwealth v. Karch, 349 Pa.Super. 227, 229-230, 502 A.2d 1359, 1361 (1986); Commonwealth v. Seville, 266 Pa.Super. 587, 405 A.2d 1262 (1979).
Having found no basis to disturb the several verdicts of guilty, the judgment of sentence will be affirmed.
Affirmed.
NOTES
[1] 75 Pa.C.S. § 3735.
[2] 75 Pa.C.S. § 3731(a)(1) and (a)(4).
[3] 75 Pa.C.S. § 3732.
[4] 75 Pa.C.S. § 3714.
[5] The convictions for driving while under the influence of alcohol and homicide by vehicle were deemed to merge for purposes of sentencing into the conviction for homicide by vehicle while driving under the influence of alcohol. On the summary conviction for reckless driving, Shoup was additionally sentenced to pay a fine of twenty-five ($25.00) dollars and the sum of thirty ($30.00) dollars into the Catastrophic Loss (CAT) Fund. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547803/ | 144 F.2d 26 (1944)
ISAACKS
v.
JEFFERS.
No. 2867.
Circuit Court of Appeals, Tenth Circuit.
July 26, 1944.
Rehearing Denied August 25, 1944.
Writ of Certiorari Denied December 4, 1944.
O. O. Askren, of Roswell, N. M. (G. T. Watts, of Roswell, N. M., on the brief), for appellant.
Edwin Mechem, of Las Cruces, N. M. (Seth & Montgomery, of Sante Fe, N. M., on the brief), for appellee.
Before PHILLIPS, BRATTON, and HUXMAN, Circuit Judges.
Writ of Certiorari Denied December 4, 1944. See 65 S.Ct. 270.
HUXMAN, Circuit Judge.
S. J. Isaacks, independent executor of the last will and testament of Martin V. Jeffers, deceased, instituted this action on March 8, 1940, against J. H. Jeffers and others, in the District Court of the United States for the District of New Mexico. Summons issued March 8, 1940 was returned unserved June 26, 1940, because plaintiff had failed to advance the marshal's fees and expenses. An alias summons issued July 20, 1940, was returned unserved August 12, 1941, for a like reason. Another alias summons was issued May 18, 1942. It was served on J. H. Jeffers on June 19, 1942. An amended complaint was filed August 3, 1942. On December 11, 1942, a second amended complaint was filed in which J. H. Jeffers was named as the sole defendant.
The original complaint in substance alleged that during his lifetime Martin V. Jeffers was the owner of a string of cattle branded RUN; that he and the defendant *27 J. H. Jeffers were partners owning an equal interest in a string of cattle branded PX; that other members of the family also had their individual brands of cattle; that all these cattle were run together; that J. H. Jeffers was the manager and in charge of the RUN brand, the PX brand, as well as the brands belonging to other members of the family; that the defendant moved these cattle about from place to place, and bought and sold them at will; that in 1929 it was determined that a certain part of the common herd should be sold for the purpose of buying a large ranch in New Mexico; that an oral agreement was entered into between Martin V. Jeffers and all of the defendants; that J. H. Jeffers purchased the ranch for the benefit of all the parties; that a written memorandum was drawn up but was not signed; that the agreement provided that the cattle should be placed in a common herd on the ranch and that the ranch and cattle should be owned by the parties in the proportions set out in the agreement. The complaint further alleged that Martin V. Jeffers was the owner of a large herd of cattle operated under the management of J. H. Jeffers in the Republic of Mexico; that J. H. Jeffers and the other defendants refused to account for such cattle; that J. H. Jeffers as manager had sold numerous livestock from the herd in Mexico and had refused to account for them, and had converted the proceeds to his own use.
The prayer of the complaint was that J. H. Jeffers be required to account to plaintiff for the interest of Martin V. Jeffers in the common herd and that the interest of Martin V. Jeffers in the cattle and the real estate in the New Mexico ranch be determined and ascertained.
The amended complaint differed from the original complaint primarily in that it eliminated the allegations regarding the real estate constituting the New Mexico ranch and eliminated from the prayer any request for any interest in the real estate. The second amended complaint eliminated all the defendants except J. H. Jeffers and proceeded against him alone. It sought an accounting for the cattle branded RUN, which it is alleged J. H. Jeffers ran, handled and disposed of as the agent of Martin V. Jeffers, and an accounting of the PX cattle, owned by the partnership composed of Martin V. Jeffers and the defendant, J. H. Jeffers.
The answer denied that Martin V. Jeffers owned the RUN cattle or any interest in the PX cattle subsequent to 1924. It also pleaded the statute of limitations and laches, and that Elvira Jeffers, Martin Jeffers, Claxton Jeffers, Otis Jeffers, D. L. Jeffers, Herbert Jeffers, and W. B. Jeffers were indispensable parties. At the conclusion of the trial, the court ruled that the statute of limitations did not bar the action, but that the absence of indispensable parties required a dismissal of the action. It is from this ruling that the appeal is taken. The parties will be referred to as they appeared in the court below.
The case not having been determined on its merits, the facts will be considered only in so far as they bear upon the legal questions presented by the appeal. Whether the statute of limitations is a bar to the maintenance of the action depends upon two questions, first, whether the original complaint was filed in time, and if it is determined that it was, secondly, upon whether the amended complaint relates back to the time of the filing of the original complaint.
The statute of New Mexico controls the time within which such an action as this must be filed. Under Sec. 27-104, N.M. Stat.1941 Ann., such an action as this is barred unless it is brought within four years after it accrues. Sec. 27-106 of the same statute, among others, provides that an action for conversion shall not be deemed to have accrued until the conversion complained of shall have been discovered.
Plaintiff testified that shortly after the death of Martin V. Jeffers, he had a conversation with his children, including the defendant, in which he asked which of them had charge of deceased's cattle in Mexico; that the defendant replied that he had, and that he promised to supply the information concerning the same; that when he did not come in, plaintiff wrote him about March 24, 1938, asking him again to furnish the required information; that about a week later defendant came in and stated that he had nothing that belonged to his father. This fixes the time of the alleged conversion as of about April 1, 1938. The original petition filed March 8, 1940, was filed within ample time. But it is urged that the filing of the complaint did not toll the running of the statute of limitations because plaintiff did not diligently *28 procure the service of summons prior to the expiration of the four year statutory period. The summons was served on defendant approximately sixty days after the four year period had expired.
The law of New Mexico controls as to the time within which an action must be commenced. However, the manner in which actions are commenced, when actions are deemed to have begun, the manner and method of serving process, all relate to procedure and are governed by the law of the forum in which the action is instituted. Collins v. Manville, 170 Ill. 614, 48 N.E. 914, 915, involved an action which arose in New York but was brought in the state courts of Illinois. The case involved the New York statute of limitations and also the question whether it had been filed in Illinois before the expiration of the New York statute of limitations. The Illinois court said:
"The form and mode of procedure must be according to the rules of this state. If it were a question of when an action had been commenced in the state of New York, the laws of that state would govern, but the question here is when was the action commenced in this state, and as to that our laws must control."
Bond v. Pennsylvania R. Co., 124 Minn. 195, 144 N.W. 942, 943, concerns an action for wrongful death in Pennsylvania. The action was brought in Minnesota. The opinion of the Minnesota court states:
"* * * But the means by which our courts acquire jurisdiction, and the time at which the action is deemed as commenced, and all other matters pertaining to the procedure and to the remedy are determined and governed exclusively by our own statutes."
In Goldenberg v. Murphy, 108 U.S. 162, 2 S.Ct. 388, 27 L.Ed. 686, the Supreme Court held that when a suit was brought in the state court, the laws of that state will control in interpreting the provisions of a federal statute of limitations as to what constitutes the commencement of a suit.
Prior to the adoption of the Rules of Civil Procedure for the district courts of the United States, an action in a federal court of equity was deemed to have been commenced so as to interrupt the running of the statute of limitations by the filing of a complaint with a bona fide intent to prosecute the suit diligently, provided there was no unreasonable delay in the issuance or the service of the summons.[1]
We are of the opinion that since the adoption of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c, we must now look to Rules 3 and 4 to determine when the action was commenced. Rule 3 provides that "a civil action is commenced by filing a complaint with the court." Rule 4 provides that: "Upon the filing of the complaint the clerk shall forthwith issue a summons and deliver it for service to the marshal or to a person specially appointed to serve it. Upon request of the plaintiff separate or additional summons shall issue against any defendants." Under these rules we think the action was commenced and the running of the statute interrupted by the filing of the complaint, although the process was not actually served until slightly more than sixty days after the expiration of four years from the accrual of the action.[2]
The conduct of a plaintiff subsequent to the filing of a complaint might be such as would constitute an abandonment of the action. That situation is, however, not present here. There is nothing in the record from which a legal conclusion of lack of good faith in the prosecution of the action or abandonment thereof can be inferred. Failure of the plaintiff to procure service of summons for slightly more than sixty days after the expiration of the period of limitation does not in itself constitute lack of due diligence or show abandonment of the cause of action. The trial court evidently failed to find such conduct, because it concluded that the statute of limitations was no bar to the prosecution of the action.
The further contention is made that in any event the second amended complaint stated a new cause of action against the defendant J. H. Jeffers and is clearly barred by the statute of limitations. Rule 15(c) of the Rules of Civil Procedure provides that:
*29 "Whenever the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, the amendment relates back to the date of the original pleading."
All three pleadings centered around the same transaction the handling and management of the RUN and PX brand of cattle. Each complaint sought an accounting from this defendant. The only difference in the three complaints was that in the first two, plaintiff also sought an accounting from others than this defendant. The claim in each complaint was asserted with respect to the same cattle and in a large part arose out of the conduct, transactions and occurrences set forth in the original complaint. We are of the opinion that the second amended complaint related back to the filing of the original complaint.
In 1930 a partnership was formed under the name of J. H. Jeffers and Sons. It was composed of J. H. Jeffers, David L. Jeffers, Claxton Jeffers, Martin Jeffers, Otis Jeffers, W. B. Jeffers, and Herbert Jeffers. All the parties to this agreement transferred their individual registered brands to the partnership. Martin V. Jeffers also transferred his RUN brand and his interest in the PX brand to the partnership, apparently without the receipt of any consideration by him. The trial court concluded that the remaining members of this partnership were necessary and indispensable parties to the action and that no final decree could be entered in their absence. The court accordingly dismissed the complaint for want of indispensable parties. But plaintiff seeks no relief against the members of the partnership. His complaint is against the conduct of J. H. Jeffers. His complaint alleged that in 1905 Martin V. Jeffers owned the RUN cattle and a one-half interest in the PX cattle; that in 1906, reposing trust and confidence in his son J. H. Jeffers, he invested him with complete authority to manage and operate these cattle; that J. H. Jeffers acted in a fiduciary capacity in his handling of these cattle; that during this time the defendant branded, bought, sold, and mortgaged cattle, moved them in and out of Mexico, and in and out of other states; that during this time he sold cattle, received the proceeds, and deposited them in his individual account; that at times he paid over to Martin V. Jeffers small sums of money, but that he has never made an accounting of his trust and owes plaintiff large sums of money; that shortly after the death of Martin V. Jeffers, defendant admitted the existence of such management by him of the cattle of Martin V. Jeffers, but shortly thereafter denied that at his death Martin V. Jeffers owned any cattle, and refused to make any accounting. The only party necessary to a complete accounting between plaintiff and the defendant of his alleged management and operation of Martin V. Jeffers' personal property and his interest in the PX cattle is the defendant himself. He could not escape any personal liability incurred by him in such operations simply because the property has been transferred to the partnership. Plaintiff does not seek the establishment of an interest in the property of the partnership. He only seeks a personal judgment against the defendant for any loss suffered from any breach of duty he owed to Martin V. Jeffers as his alleged trusted manager. And this he may have, without the presence of any other person defendant.
Reversed and remanded, with directions to proceed in conformity with the views expressed herein.
BRATTON, Circuit Judge (dissenting).
Generally, there are three classes of parties. They are proper parties, necessary parties, and indispensable parties. Proper or formal parties are those not interested in the controversy between the immediate parties but have an interest in the subject matter which may be conveniently settled in the suit. Necessary parties are those who have an interest in the subject matter and who are within the jurisdiction of the court, but are not so indispensable to the relief asked as would prevent the court from entering a judgment in their absence. Indispensable parties are those whose interests are so bound up in the subject matter of the litigation and the relief sought that the court cannot proceed in their absence to a final judgment without affecting their interests. And indispensable parties include those who have such an interest in the controversy or its subject matter that a final judgment between the other parties before the court cannot be rendered without leaving the controversy in such a situation that its final determination may be inconsistent with equity. Jennings v. United States, 8 Cir., 264 F. 399.
Approximately ten years prior to the institution of this action, Martin V. Jeffers *30 executed a bill of sale purporting to convey to J. H. Jeffers and Sons all of his right, title, and interest in the cattle bearing the RUN brand, and those bearing the PX brand. J. H. Jeffers and Sons was a partnership, and the members of the partnership have operated the business continuously ever since. If valid, that conveyance had the effect of dissolving the partnership previously existing to which Martin V. Jeffers was a party. In order for the executor of the estate of Martin V. Jeffers to prevail, the conveyance must be set aside or its effect circumvented in some manner. It is settled law in New Mexico that a contract, or conveyance of property, cannot be annulled without all parties to it, or their legal representatives, being parties to the action. Page v. Town of Gallup, 26 N.M. 239, 191 P. 460. Under recognized principles of long standing, an accounting cannot be had for the period subsequent to the execution of the conveyance without the members of the partnership being parties, along with J. H. Jeffers. De Manderfield v. Field, 7 N.M. 17, 32 P. 146.
Coming to the question of limitations, the original complaint was filed in March, 1940, about two years after the cause of action accrued. Summons was issued on the day of the filing of the complaint, the Marshal requested the then attorney for plaintiffs to advance the required fees for service, the request was ignored, and the process was seasonably returned not served. In July, 1940, alias summons was issued, the Marshal again requested the attorney to advance the necessary fees, again the request was ignored, and the process was returned not served. In May, 1942, more than two years after the filing of the original complaint, and more than four years after the cause of action accrued, a second alias summons was issued, present counsel for plaintiffs promptly advanced the fees, and service was had on J. H. Jeffers. But the process served on him was issued and served after the four-year period had expired.
The mere filing of a complaint within the four-year period, without more, is not enough to interrupt the running of the statute. It must be followed by reasonable diligence in causing process to be issued and service had on the defendant. Linn & Lane Timber Co. v. United States, 236 U.S. 574, 35 S.Ct. 440, 59 L.Ed. 725; United States v. Hardy, 4 Cir., 74 F.2d 841. And prepayment of fees for service of process on proper demand is part of the diligence required to toll the statute. Maier v. Independent Taxi Owner's Ass'n, 68 App.D. C. 307, 96 F.2d 579. The repeated failure on request to advance the sum necessary for fees extending over a period of two years and until after the four-year period expired constituted a lack of diligence. The statute was not interrupted. The judgment should be affirmed.
NOTES
[1] See: Linn & Lane Timber Co. v. United States, 236 U.S. 574, 576, 35 S.Ct. 440, 59 L.Ed. 725; United States v. Miller, C. C., 164 F. 444, 445, 446; United States v. Hardy, 4 Cir., 74 F.2d 841, 842; Maier v. Independent Taxi Owner's Ass'n, 68 App. D.C. 307, 96 F.2d 579, 581.
[2] Reynolds v. Needle, 77 U.S.App.D.C. 53, 132 F.2d 161, 162; Gallagher v. Carroll, D.C., 27 F.Supp. 568; Schram v. Koppin, D.C., 35 F.Supp. 313, 314; Schram v. Costello, D.C., 36 F.Supp. 525, 526. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547926/ | 156 F.2d 412 (1946)
GREYVAN LINES, Inc.,
v.
HARRISON.
No. 8779.
Circuit Court of Appeals, Seventh Circuit.
July 12, 1946.
Sewall Key, Acting Asst. Atty. Gen., and Homer R. Miller, Asst. to Atty. Gen., A. F. Prescott, Sp. Asst. to Atty. Gen., and J. Albert Woll, U. S. Atty., and John B. Stephan, Asst. U. S. Atty., both of Chicago, Ill., for appellant.
George T. Christie, of Chicago, Ill., and Wilbur E. Benoy, of Columbus, Ohio, for appellee.
*413 Before SPARKS, MAJOR, and KERNER, Circuit Judges.
SPARKS, Circuit Judge.
The Greyvan Lines, Inc., sued to recover certain amounts alleged to have been wrongly assessed and collected for social security taxes under the alleged authority of the Social Security Act, 42 U.S.C.A. §§ 1001 and 1101. The District Court found that the persons on whose alleged wages the taxes were paid were independent contractors rather than employees, and accordingly entered judgment for their refund, and from that judgment, the Government appeals.
The taxpayer is an Indiana corporation organized to engage as a common carrier in the business of transporting household and other goods by motor truck in thirty-eight states and into certain Canadian provinces. It was authorized to conduct its business in the United States under the grandfather clause of the Motor Carrier Act, 49 U.S.C.A. § 301 et seq., and the various Acts and regulations of the states in which it operated. It filed its return as an employer and paid taxes pursuant thereto. The Collector, however, claimed additional taxes as to certain individuals referred to here as truckmen, and helpers engaged by them, and it is as to the status of these individuals that the controversy is presented. The taxpayer contends that the truckmen operated as independent contractors, and their helpers were their own employees, while the Collector contends that the truckmen and their helpers alike bore an employee relationship to the taxpayer.
The court found that as early as 1930, the Company developed a system whereby the transportation of goods entrusted to it for such transportation was contracted to suitable, responsible owners of motor vehicle equipment residing in the various states in which it did business.
The contracts under which these owner-operators worked provided for exclusive service for themselves and their equipment, including their motor vehicles and all necessary paraphernalia and materials for the business, and that in connection with this exclusive service, the truckmen would comply with all rules, regulations and instructions of the Company. The trucks were required to be painted with certain colors and insignia as designated by the Company. The contract further provided that the truckman would hire any labor required incident to pick-up, loading and delivery of shipments "at his own expense and in his own employ and which shall be under his direction and control." He was to personally drive his truck or trucks except that he was permitted to use a competent helper as a relief driver, and, in case of unforeseen circumstances, he might, upon notifying the Company and obtaining its approval, employ a substitute, but he or the approved substitute was required to remain on the truck.
The truckmen were required to furnish fire, theft, collision, public liability and property damage insurance at their own expense, and the Company was authorized to place all such insurance for the truckmen and charge their accounts for it. The Company was to furnish necessary cargo insurance. Each truckman was to furnish a $1000 bond to cover himself and his substitute driver, if any, and he was also required to deposit $250 to be held until final settlement of all accounts. Unless special credit was arranged by the shipper, collections were to be made on all deliveries by the truckmen according to instructions furnished with each shipment. All claims for loss or damage not covered by cargo insurance were to be charged to the account of the truckman, and the contract required that notice of such claims be given to him immediately in order to enable him to clear himself of responsibility if possible, and if he established his non-liability for a claim theretofore paid, his account was to be credited for the amount paid in settlement.
All operating costs, which were listed by the contract to include property taxes, resident vehicle license, fuel, tires and repairs, were to be borne by the truckman, while the Company was to furnish all permits and licenses for operation in its service as a motor carrier under federal or state laws.
The contract further provided that all contracts or bills of lading should be in the *414 name of the Company, and if the truckman obtained any business himself, he must notify the Company to enable it to make the contract in its own name. If the truckman did any hauling for anyone other than the Company his contract would be subject to termination for breach. The Company was authorized to charge to the truckman's account any expense incurred by it for his express benefit.
Remuneration was provided for in accordance with a Rate Schedule, a current copy of which was attached to the contract, and it was further agreed that the schedules would not be changed, nor would any rules be adopted by the Company which would result in reducing the income, as provided by the schedule, without the written consent of the duly authorized representative of the truckman. This remuneration was a percentage of the predetermined tariff charges, from 50% to 52%, plus a bonus up to 3% of the tariffs.
The contract was subject to cancellation at any time upon written request of the truckman or written notice by the Company.
In 1942, the Collector of Internal Revenue amended and supplemented the Company's returns for taxation under Titles VIII and IX of the Social Security Act, 42 U.S.C.A. §§ 1001 et seq., 1101 et seq., assessing additional taxes based on a determination that the Company had paid taxable wages during the period from 1937 to 1942 which had not been included in the returns originally filed by it. The basis used for the assessment was an average wage for each truckman of $36 a week for forty-four weeks a year up to January 1, 1942, and $42.50 a week thereafter, those being the union wage scales. For the helpers, it was determined that their wages would be 41.67% of the amount determined for the truckmen's wages. The total amount calculated was $181,866, on which taxes and penalties were assessed.
The parties stipulated as to the mode of calculating the additional taxes assessed, but not their correctness. In addition, the evidence consisted of certain exhibits and the testimony of a number of witnesses. From this evidence the court rendered findings of fact including the following which appellant challenges: The truckmen were not employees of taxpayer but were independent contractors; they travelled long distances from its place of business and were on the road for long periods of time and it was therefore impracticable and impossible for taxpayer to exercise control over the means and manner of the transportation, loading and unloading of the goods; some of the truckmen were partnerships and the contract payments to them were not assessable under the Act; the relationship of employer and employee did not exist between taxpayer and the truckmen or between taxpayer and persons employed by the truckmen; the truckmen were engaged in business of their own; the degree of control over the hiring, paying, managing and discharging of helpers stamps the employer-employee relationship as existing only between the truckman and his helpers; no control by the taxpayer over the truckman or his employees existed in any way inconsistent with the contract provisions; and the directions that were shown to have been given the truckmen were centered about the requirements provided by law for safety to the public and the safe transportation and delivery of the goods entrusted to the taxpayer's custody.
Appellant contends that in determining these facts the court failed to give effect to important provisions of the contracts which it asserts clearly show the reservation of the right of control over the truckmen and their helpers as to the methods and means of their operations which, it is agreed, furnish the test for determining the relationship here in question. Appellant calls attention to a manual which was furnished to each truckman giving very detailed instructions which do go far to indicate the control it seeks to establish. For instance, the manual provided that no truckman might turn his van over to his helper or other person without specific authority from the General Office; that when drivers were on parking lots and had time available it was expected that they would help other drivers in loading and unloading without additional compensation; that in case they were operating into or out of any location where there was a strike in progress, *415 the truckman must get in contact with the union representative and obtain and abide by his instructions; that they must patronize designated parking lots and purchase as much gas as possible from such lots; that they must take the most practicable routes between points except as otherwise dispatched. The manual also provided rather specific procedure to be followed from the time the truckman received his instructions to load until he finished the job and prepared for another. It described a uniform said to have been adopted by the Company, although it did not say by whom it must be worn.
While it is true that many provisions of the manual, if strictly enforced, would go far to establish an employer-employee relationship between the Company and its truckmen, we agree with appellee that there was evidence to justify the court's disregarding of it. It was not prepared until April, 1940, although the tax period involved was from November, 1937, through March, 1942, and there was no evidence to show any change or tightening of controls after its adoption and distribution; one driver testified that he was never instructed to follow the rules therein provided; an officer of the Company testified that it had been prepared by a group of three men no longer in their employ, and that it had been impractical and was not adhered to.
Appellant also contends that appellee obtained its certificate of public convenience and necessity for operation as a common carrier on the strength of assertions of its counsel in 1935, that the relationship of employer-employee existed between it and its truckmen. A reading of the opinion of the Commission published at that time does not bear out this contention. See Greyvan Lines, Inc., Common Carrier Application, 32 M.C.C. 719. It appears to us that the Commission clearly contemplated the use by the Company of leased equipment, operated by the owners thereof, under the direction of "applicant's own employees," who caused the drivers to comply "with such company rules as would insure efficient operation." We do not understand that § 206 of the Interstate Commerce Act, as added in 1935, 49 U.S.C.A. § 306, requiring the issuance of a certificate of convenience and necessity for all common carriers by motor vehicle, requires that such carriers may operate only through their own employees, as distinct from independent contractors, so long as such independent contractors operate under the general supervision of the carrier's employees. § 303 which defines the term "common carrier by motor vehicle" (§ 303, subd. (a) (14), also defines "services" and "transportation" to which the chapter applies to include "all vehicles operated by, for, or in the interest of any motor carrier irrespective of ownership or of contract. * * *" (§ 303, subd. (a) (19). In view of these definitions, we find nothing inconsistent in the operation of a common carrier service through the medium of independent contractors, as here engaged.
Appellee relies very strongly upon United States v. Mutual Trucking Co., 141 F.2d 655, where the Court of Appeals for the Sixth Circuit affirmed a judgment, 51 F. Supp. 114, for refund of taxes held to have been illegally collected from another trucking company which carried on its business through owner-operators. Appellant says the facts are very different. It is true that the facts there do not present as close a question as in the case at bar. There it appears that the trucking company was a contract, rather than a common carrier, and the contract under which the company and its truckmen operated specified that the latter were contractors only, and not agents or employees of the company, and also that the owner-operators assumed full responsibility for all social security taxes, and the evidence showed that eleven of them actually paid such taxes on the wages of their helpers. Even so, we think the reasoning of the court applies with equal force here as to the significance of the control of the owner-operators over the helpers engaged by them. We think the true employer-employee relationship arises at that level in both cases (Williams v. United States, 7 Cir., 126 F.2d 129), and that the Company cannot be held liable for employment taxes on the wages of persons over whom it exerts no control, and of whose employment it has no knowledge. And this element of control of the truckmen over their own *416 helpers goes far to prevent the employer-employee relationship from arising between them and the Company. While many factors in this case indicate such control as to give rise to that relationship, we think the most vital one is missing because of the complete control of the truckmen as to how many, if any, and what helpers they make use of in their operations. Except for the actual driving of the trucks, the contract imposes no restrictions whatever on the employment of helpers. We think it cannot be said that a truckman to whom is left the determination of whether to do the work himself or engage others to do it is a mere employee. And when no report is required or expected as to those helpers, their identity, the work performed by them, their hours of work, we think the Company cannot be required to pay employment taxes based on their labor. The breaking down of the payments to the truckmen to differentiate between wages and profits from the use of their equipment appears to us to be equally arbitrary.
We agree with the District Court that the relationship of employer and employee did not exist between the Company and the truckmen or their helpers. We find no error in the findings challenged by appellant.
Judgment affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547935/ | 153 Pa. Commonwealth Ct. 181 (1993)
620 A.2d 673
James M. NEILL, Appellant,
v.
Mary C. EBERLE, Charles H. Hoeflich, Robert A. Holland, Ralph Ketterer, A. Warren Kuly, Jr., Barbara Thomas and Kenneth Wasser.
Commonwealth Court of Pennsylvania.
Submitted on Briefs September 25, 1992.
Decided January 29, 1993.
Reargument Denied March 22, 1993.
*182 James M. Neill, appellant, for himself.
*183 Donald Applestein, for appellees.
Before CRAIG, President Judge, PELLEGRINI, J., and BLATT, Senior Judge.
BLATT, Senior Judge.
James M. Neill (landowner) appeals from an order of the Court of Common Pleas of Bucks County (trial court) which sustained the preliminary objections of Mary C. Eberle, Charles H. Hoeflich, Robert A. Holland, Ralph Ketterer, A. Warren Kuly, Jr., Barbara Thomas, and Kenneth Wasser (collectively appellees) to the landowner's claims of abuse of process and wrongful use of civil proceedings.[1] We affirm.
A proper analysis of the claims requires a brief review of the procedural history of this action. The landowner owns a thirty acre parcel in Bedminster Township which had previously been used as a camp. He sought a special exception for conversion of seven of the buildings (manor house, farmhouse, two ranchhouses, barn, gymnasium and cottage) located thereon into sixteen residential units pursuant to Section 405(B)(10) of the Township Ordinance.[2] The Zoning Hearing Board (Board) asked the claimant if he would consent to a condition limiting development to the uses set forth in the application. He refused. The application was subsequently denied by the Board which found the conversion provision inapplicable because the dilapidated condition of the buildings would require rebuilding rather than mere conversion of an "existing" building; because the ordinance was intended to provide for the conversion of large farmhouses and not a children's camp; and because of concerns that the landowner would later seek approval for an apartment complex and subdivision.
*184 The landowner appealed the denial of the conversion to the Court of Common Pleas. Bedminster Township filed a motion to intervene pursuant to Section 1004-A of the Pennsylvania Municipalities Planning Code (MPC).[3] The trial court held that the conversion ordinance was applicable to the property, reversed the decision of the Board, and remanded with the direction that the Board grant the special exception subject to any reasonable conditions which the Board deemed appropriate.
The Township appealed the trial court's decision to this Court which held that the trial court erred in ordering the Board to grant the application and remanded the matter to the trial court with directions to remand to the Board for findings of fact regarding whether the application complied with the requirements and conditions of the conversion ordinance. Neill v. Bedminster Twp. Zoning Hearing Bd., 140 Pa.Commonwealth Ct. 365, 592 A.2d 1385 (1991). We held that the Board abused its discretion by narrowly interpreting the term "residential conversion" to preclude the requested development of the property and that the record lacked crucial findings as to whether the plan complied with the requirements of the conversion ordinance.
The landowner then filed a suit against each of the appellees alleging abuse of process and against Holland, Kulp, Thomas, and Eberle alleging wrongful use of civil proceedings.[4] Appellees Hoeflich, Ketterer and Wasser are Board members; Holland, Kulp and Thomas are members of the Board of Supervisors (Supervisors); and Eberle is the solicitor for the Board of Supervisors.
The appellees filed preliminary objections in the nature of demurrers alleging that the landowner failed to state causes of action for abuse of process and wrongful use of civil proceedings. The trial court sustained the objections and dismissed the complaint, finding that the request for the condition and *185 the intervention in the zoning action were authorized by the MPC so as to preclude an abuse of process cause of action and that there was probable cause and a termination in the landowner's favor so as to preclude a "malicious prosecution" cause of action. The landowner appeals here from the trial court's order.[5]
The landowner raises two issues on appeal: (1) whether the request to agree to a non-development condition and subsequent denial of the application supports an abuse of process cause of action and (2) whether the Township's intervention in the landowner's appeal and its own appeal of the Court of Common Pleas' reversal to this Court supports a wrongful use of civil proceedings cause of action. When reviewing a trial court order sustaining preliminary objections in the nature of a demurrer, this Court is limited to determining whether the trial court abused its discretion or committed an error of law. Muncy Creek Township Citizens Comm. v. Shipman, 132 Pa.Commonwealth Ct. 543, 573 A.2d 662 (1990).
Preliminary objections in the nature of a demurrer test the legal sufficiency of a complaint. All well-pleaded facts set forth in the complaint and all inferences reasonably deducible therefrom are accepted as true, Foster v. Health Market, Inc., 146 Pa.Commonwealth Ct. 156, 604 A.2d 1198 (1992), but conclusions of law, unwarranted inferences from facts, argumentative allegations, and expressions of opinion are not admitted. Dep't of Public Welfare v. Portnoy, 129 Pa.Commonwealth Ct. 469, 566 A.2d 336 (1989), affirmed, 531 Pa. 320, 612 A.2d 1349 (1992). Preliminary objections should be sustained only where it appears with certainty that the law will not permit recovery on the facts presented. Bickert v. Borough of Riverside, 118 Pa.Commonwealth Ct. 91, 545 A.2d 962 (1988).
ABUSE OF PROCESS
To establish a common law cause of action for abuse of process "[s]ome definite act or threat not authorized by the *186 process, or aimed at an objective not legitimate in the use of process, is required." Dietrich Indus., Inc. v. Abrams, 309 Pa.Superior Ct. 202, 212, 455 A.2d 119, 125 (1982). The touchstone of the action is a perversion of the process for a purpose for which it was not intended. Triester v. 191 Tenants Ass'n, 272 Pa.Superior Ct. 271, 415 A.2d 698 (1979).
The landowner first argues that the Board's attempt to extract a concession precluding further development of his property was unlawful and exceeded the requirements and applicable conditions for a conversion. He argues that this fact, coupled with the facts that the request was made off-the-record, that it would effect a total ban on future development, that there was no evidence in the record supporting its necessity, and that upon his refusal the appellees denied the application, state a cause of action for abuse of process. He also argues that the Township's intervention in his appeal, the township solicitor's role in advising such intervention, and the Township's subsequent appeal also state a cause of action for abuse of process.
The claim of abuse of process because of the Township's intervention in the landowner's appeal, as advised by the solicitor, and subsequent appeal must fail. The right to intervene in a zoning appeal from a decision of a municipal board or agency is expressly authorized by Section 11009 of the MPC[6] and the landowner makes no factual assertions which would support the argument that these acts were undertaken to pervert the proceedings initiated by the claimant.
In the abstract, the allegations surrounding the Board's request for agreement to a non-development condition not otherwise provided for in the conversion ordinance suggest a tenable claim of abuse of process; but, upon close examination, this claim must also fail. The Board simply sought an advance agreement that would address its concerns regarding the adverse impact of future development of the site. A perversion of the process is not evidenced where the landowner's *187 refusal to agree to the request was followed by a denial of his application when, in the regular course of the proceedings, the Board determined, albeit erroneously, that the conversion ordinance was simply inapplicable.
WRONGFUL USE OF CIVIL PROCEEDINGS
The landowner next argues that the Supervisors' intervention in the landowner's appeal, the solicitor's advice to intervene, and tl township's subsequent appeal state a cause of action for wrongful use of civil proceedings. The common law tort of malicious use of process was codified as the statutory cause of action of wrongful use of civil proceedings as follows:
A person who takes part in the procurement, initiation or continuation of civil proceedings against another is subject to liability to the other for wrongful use of civil proceedings [if]: (1) He acts in a grossly negligent manner or without probable cause and primarily for a purpose other than that of securing the proper discovery, joinder of parties or adjudication of the claim in which the proceedings are based; and (2) The proceedings have terminated in favor of the person against whom they are brought.
42 Pa.C.S. § 8351. To succeed on a cause of action for wrongful use of civil proceedings a plaintiff must allege and prove each element. Kelly-Springfield Tire Co. v. D'Ambro, 408 Pa.Superior Ct. 301, 305, 596 A.2d 867, 869 (1991); Ludmer v. Nernberg, 520 Pa. 218, 553 A.2d 924 (1989).
The landowner contends that each element of the cause of action has been established. He argues that the township's intervention in the landowner's appeal and subsequent appeal of the trial court's decision was for an improper purpose the protection and enforcement of illegally imposed conditions and the delay of proper adjudication and that the proceedings terminated in his favor when this Court ordered a remand for findings of fact on whether the application met the requirements of the conversion ordinance.
The fact of the township's intervention in the landowner's appeal and its subsequent appeal of the adverse decision of the *188 trial court to this Court does not evidence the "procurement, initiation or continuation of civil proceedings against another" for an improper purpose or in the absence of probable cause, but illustrates the legitimate exercise of the township's statutory and appellate rights. Having found that the claimant has not adequately alleged the first element, we need not address his contention that our prior decision constituted a termination in his favor.
Accordingly, the order of the trial court is affirmed.
ORDER
AND NOW, this the 29th day of January, 1993, the order of the Court of Common Pleas of Bucks County is hereby affirmed.
NOTES
[1] The landowner imprecisely identifies the latter statutory claim by its common law tort name "malicious use of process."
[2] Section 405(B)(10) provides for "[t]he conversion of an existing building into two or more dwelling units or the conversion of an accessory building into one or more dwelling units" and provides for the attachment of conditions relating to the appearance of the structures, wastewater treatment systems, cooking and sanitary facilities, trash receptacle screens, parking, minimum yard requirements, and minimum per unit floor area.
[3] Act of July 31, 1968, P.L. 805, as amended, added by Section 101 of the Act of December 21, 1988, P.L. 1329, 53 P.S. § 11004-A.
[4] The filing of this suit predated the decision of the Board on the special exception application following remand by this Court.
[5] Pursuant to Pa.R.A.P. 751, the Superior Court transferred the appeal to this Court by per curiam order dated May 20, 1992.
[6] 53 P.S. § 11009. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547938/ | 156 F.2d 672 (1946)
DENNIS et al.
v.
VILLAGE OF TONKA BAY et al.
No. 13313.
Circuit Court of Appeals, Eighth Circuit.
July 26, 1946.
F. A. Whiteley, of Minneapolis, Minn., for appellants.
Ernest Malmberg, of Minneapolis, Minn. (Malmberg & Nelson, of Minneapolis, Minn., on the brief), for appellees.
Before GARDNER and THOMAS, Circuit Judges, and DUNCAN, District Judge.
THOMAS, Circuit Judge.
This is the second appeal in this case. On the first appeal (8 cir., 151 F.2d 411) we reversed the order of the District Court sustaining a motion of the defendants to dismiss the complaint and directed that the complaint be reinstated and the case tried upon its merits. The case was thereafter tried, judgment was entered for the defendants (D.C., 64 F.Supp. 214), and the plaintiffs appeal.
*673 The case involves the constitutional validity of a village zoning ordinance as applied to a particular parcel of land owned by the plaintiffs.
The defendant incorporated Village of Tonka Bay is situated on a relatively narrow and irregular shaped peninsula between upper and lower Lake Minnetonka in Hennepin County, Minnesota. For the most part the village consists of residential property with some scattered commercial properties.
On August 15, 1944, the village council adopted a zoning ordinance dividing the village territory into two "use districts" to be known as "residence" and "commercial" districts. Included in the "residence" district is a tract of land owned by plaintiffs, bordering on the lake. At the time the zoning ordinance was adopted the plaintiffs had planned to use their tract of land adjacent to the lake for a boat-renting station. After they learned of the adoption of the ordinance, and pursuant to one of its provisions, plaintiffs petitioned the village council for a special permit authorizing them to locate and move upon the premises "a building to be used as a dwelling place, and in connection therewith, a boat dock for the purpose of docking boats and for such other commercial uses as may be incidental thereto * * *." The petition was denied and this action was brought in the District Court.
The complaint prays that the court adjudge (1) that the zoning ordinance is unconstitutional in so far as it includes in a residential district plaintiffs' tract of land, in that it is arbitrary and unreasonable, is without due process and denies plaintiffs equal protection of the law; (2) that defendants be perpetually enjoined from enforcing the ordinance and from interfering with plaintiffs' use of their land; and (3) that the court fix the boundary line of a street adjacent to or near their land.
The trial court found and decreed that in so far as it affects plaintiffs' property the zoning ordinance involved in the case is not in conflict with the Constitution of the United States, and the complaint was dismissed. The court denied an injunction and refused to pass upon the question of the location of the boundary line between plaintiffs' property and the village street.
The refusal to grant an injunction was the necessary result of the holding that the zoning ordinance does not violate the Federal Constitution. The collateral issue concerning the boundary line of the street was brought into the case by an amendment to the complaint and had no relevancy to the constitutional validity of the zoning ordinance. In effect the amendment was an attempt on the part of plaintiffs to secure in the federal court a decree quieting title as against the defendant village to an allegedly abandoned street easement adjacent to plaintiffs' property on the ground of adverse possession. The court, although it did not decide the question, did point out in its opinion (64 F.Supp. at page 219) that under the statutes of Minnesota and the decisions of the Supreme Court of that state the plaintiff could not acquire any prescriptive rights in the street. Chapter 541.01, Minnesota Statutes, 1941, § 9186, Mason's Minnesota Statutes, 1927, provides that "no occupant of a public way, levee, square, or other ground dedicated or appropriated to public use shall acquire, by reason of his occupancy, any title thereto." See Parker v. City of St. Paul, 47 Minn. 317, 50 N.W. 247; Kuehn v. Village of Mahtomedi, 207 Minn. 518, 292 N.W. 187; Bennett v. Beaty, 156 Minn. 293, 194 N. W. 627; Pierro v. City of Minneapolis, 139 Minn. 394, 166 N.W. 766; 1 Am.Jur., Adverse Possession, § 104 et seq.; 2 C.J.S., Adverse Possession, § 14. Clearly the plaintiffs are not prejudiced by the ruling of the court, and they are not in a position to complain thereof on appeal.
We turn to the principal issue in the case the question of the constitutional validity of the zoning ordinance as it affects plaintiffs' property. The plaintiffs urge that the ordinance violates the 14th Amendment in that (1) the "taking" of their property by devoting it to residential purposes exclusively does not tend to promote the health, safety, order, convenience, prosperity or general welfare of the public, because operating a boat-renting business thereon can not affect adversely any residences in the Village of Tonka Bay; and *674 (2) in that the ordinance is arbitrary and unreasonable and without due process of law because (a) plaintiffs' property has no value as residential property and because (b) the ordinance destroys the entire value of the property, and thereby works a grave injustice to the plaintiffs.
Section 462.01 of the Statutes of Minnesota authorizes any village in the state to pass zoning ordinances "For the purpose of promoting health, safety, order, convenience, prosperity, and general welfare * * *." Section 462.02 authorizes the governing body of any village to pass ordinances for the enforcement of such zoning ordinances or regulations. The plaintiffs concede that the zoning ordinance involved herein is authorized by the statute. The ordinance is resisted "as applied to plaintiffs' property only." The question for the federal court is, therefore, whether, when so applied, the ordinance is arbitrary and unreasonable in violation of the 14th Amendment to the Constitution.
The trial court found that "There is an absence of any satisfactory showing that the Village Council acted arbitrarily and unreasonably in the passage of the ordinance, or in any way interfered thereby with the rights of these plaintiffs without due process of law."
It is axiomatic that "The reasonableness of municipal ordinances or regulations is committed in the first instance to the municipal authorities." 43 C.J. p. 228. So a municipal regulation is not rendered invalid by the mere fact that private rights are subjected to restraint or that loss will result to individuals from its enforcement. State v. Houghton, 142 Minn. 28, 170 N.W. 853. See, also, State v. Houghton, 164 Minn. 146, 204 N. W. 569, 54 A.L.R. 1012.
The enactment of a zoning ordinance is an exercise of the police power and is legislative in character. It is presumed that the legislative body investigated and found conditions such that the legislation which it enacted was appropriate. Village of Euclid, Ohio v. Ambler Realty Co., 272 U.S. 365, 47 S.Ct. 114, 71 L.Ed. 303, 54 A.L.R. 1016; Central Lumber Co. v. State of South Dakota, 226 U.S. 157, 33 S.Ct. 66, 57 L.Ed. 164; Otis v. Parker, 187 U.S. 606, 23 S.Ct. 168; 47 L.Ed. 323; State v. Houghton, supra. The burden of proof, therefore, is upon the party who assails the validity of such an ordinance to establish that it does not and will not "promote the safety, order, convenience, prosperity, and general welfare."
Applying these principles to the evidentiary facts in the record we think the finding of the court must be sustained. Plaintiffs' contention that the ordinance as applied to their property is arbitrary and unreasonable is bottomed primarily upon the assertions that the property has no value for residential purposes and that the ordinance, therefore, destroys its value entirely. While the evidence is in conflict on this issue there is substantial evidence to the effect that plaintiffs' property is useful for residential purposes. Plaintiffs' petition to the village council for a "special permit", supra, discloses that they themselves wish to move a "building to be used as a dwelling place" or residence on their property. The fact that the property is less valuable for residential purposes than as a site for the boat-renting business is not controlling. Geneva Investment Co. v. City of St. Louis, 8 Cir., 87 F.2d 83, and cases cited; Zahn v. Board of Public Works, 274 U.S. 325, 47 S.Ct. 594, 71 L. Ed. 1074. Plaintiffs' land and the lands adjoining it are all included in the same "residence" zone.
Plaintiffs, in support of their contention that the zoning ordinance is arbitrary, unreasonable and does not promote the public interest, argue that their property "being lakeshore property" has a character different from that of interior lots; and that the public interest would be served best by the operation of a boat-renting station thereon available to the public. The argument is without merit. Practically every commercial establishment, such as a grocery store, a laundry, or an oil station, serves in its own peculiar way some public interest. If all the lots in the village available and useful for such purposes must be excluded from a residential zone an ordinance dividing the village territory into residential and commercial *675 districts would be a vain and useless thing. But plaintiffs say that Lake Minnetonka is owned by the state and the taxpayers are taxed to maintain and improve it; and that for this reason the taxpayers have a special interest in the lake shores superior to the public interest represented by the village government. The legislature of Minnesota, however, has by the statutes cited, supra, delegated to the village authorities power to enact zoning ordinances and to determine in the first instance their effect upon the public welfare in general.
The facts in detail are set out in the trial court's opinion (D.C., 64 F.Supp. 214), and a discussion of the evidence would serve no useful purpose here. The property of plaintiffs is in a predominantly residential district. That the ordinance bears a rational relationship to the safety, convenience, order, prosperity, and general welfare of the community is clear from the modern authorities cited, supra. Even though the reasonableness of the ordinance were debatable it must be upheld by the court. Zahn v. Board of Public Works, supra. The court did not err, therefore, in holding that the ordinance does not violate the federal constitution.
The judgment appealed from is affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547949/ | 156 F.2d 653 (1946)
ALLEN et al.
v.
MARKHAM, Allen Property Custodian.
No. 10760.
Circuit Court of Appeals, Ninth Circuit.
May 22, 1946.
Rehearing Denied July 17, 1946.
*654 *655 S. C. Masterson, of Richmond, Cal. (Matt Wahrhaftig, of Oakland, Cal., and Joseph Genser, of Richmond, Cal., of counsel), for appellants.
John F. Sonnett, Asst. Atty. Gen., Frank J. Hennessy, U. S. Atty., of San Francisco, Cal., Harry LeRoy Jones and M. S. Isenbergh, Sp. Assts. to Atty. Gen., and David Schwartz, Chief Trial Atty., Dept. of Justice, and Wallace H. Walker, Atty., Alien Property Unit, War Div., Dept. of Justice, both of Washington, D. C., and Arthur J. DeLorimier, Asst. U. S. Atty., of San Francisco, Cal. (Raoul Berger, Gen. Counsel to Alien Property Custodian, of Washington, D. C., of counsel), for appellee.
Robert W. Kenny, Atty. Gen., of California, and Everett W. Mattoon, Deputy Atty. Gen., for Attorney General of California, as amicus curiae.
Before GARRECHT, STEPHENS, and WILBUR, Circuit Judges.
WILBUR, Circuit Judge.
This is an appeal from a judgment of the United States District Court of the Northern District, Southern Division of California, entered upon the pleadings. The action was brought by the Alien Property Custodian against six American heirs at law of Alvina Wagner, deceased, residents of California, who are appealing from the judgment against them. The controversy is over the right to the property left by Alvina Wagner, a resident of San Francisco, California, citizenship not alleged, who died June 6, 1942 in San Francisco, leaving real and personal property in California, which she devised and bequeathed, share and share alike, to her four relatives, who were residents and citizens of Germany, consisting of two brothers, a sister and a niece. The American heir claimants who were disinherited consisted of three nephews and three nieces. The will had no residuary disposal. The Alien Property Custodian claims that the will of the testatrix upon her death vested the property of the deceased in the German devisees and legatees named in the will, while the disinherited heirs claim that the will is ineffective because of the alienage of the nonresident devisees and legatees. In short the appellants claim the property under the laws of succession of the State of California wherein the property is located, while the Alien Property Custodian claims that under the laws of the United States the property has vested in him. The Alien Property Custodian contends that the California Statute, Chapter 895, California Statutes of 1941, Probate Code, §§ 259, 259.1, 259.2, which the California heirs rely upon, is void because in conflict with the Constitution of the United States in that it invades the field of foreign relations and war powers of the United States. The appellants on the other hand contend that Article IV of the German American Treaty of 1925 upon which the Alien Property Custodian relies was abrogated or suspended by the war with Germany, and also by the very same laws and proclamations upon which the Alien Property Custodian relies for his title.
The estate of the deceased herein involved is in due course under probate in the Superior Court in and for the City and County of San Francisco, California, wherein the will of the decedent has been probated and a proceeding in rem has been instituted by the California heirs to determine "who are entitled to distribution of the estate" in which "any person may appear and file a written statement setting forth his interest in the estate." When this suit was instituted in the District Court, the California heirs claims that the California court sitting in probate had exclusive jurisdiction of the matter. The District Court sustained its jurisdiction, Crowley v. Allen 52 F.Supp. 850, and without consideration of the merits of the case we reversed the District Court. 147 F.2d 136. On certiorari, the Supreme Court sustained *656 the jurisdiction of the District Court, 66 S. Ct. 296, on the ground that the action was one of a kind within the equity jurisdiction of the English Court of Chancery in 1789, and hence was vested in the District Court by the Judiciary Act of 1789, now Judicial Code, § 24(1) thereof, 28 U.S.C.A. § 41(1), giving equity jurisdiction to the District Courts, and also by a special provision in the Trading with the Enemy Act, § 17, 50 U.S.C.A.Appendix, § 17, giving such jurisdiction in matters arising under that Act.
The case was remanded to this court for decision upon the merits. A further statement of the admitted facts and of the proceedings involved in the controversy is necessary. In 1923, a treaty between the United States and Germany was negotiated and signed which was ratified and made effective on October 14, 1925. This treaty contained an agreement relating to reciprocal rights to inherit or take real and personal property of a decedent. (Treaty Article IV.)[1] These provisions conformed in a general way to the provisions of the Treaty of 1828 with Prussia, 8 Stat. 378, 384, before World War I and to treaties entered into by the United States with other powers.[2]
The conduct of the parties to the earlier treaty of 1828, during and after World War I is relevant to the interpretation of the similar treaty of 1925 under the conditions of World War II; hence we state additional facts concerning World War I and its aftermath. On July 2, 1921, after the Armistice of November 11, 1918, but while we were still in a state of war with Germany, Congress passed a joint resolution (42 Stat. 105, 106), providing that property of Germany or German Nationals seized or held or demanded by the United States or its officers on or after April 6, 1917 and similarly of Austria-Hungary on and after December 7, 1917, should be retained until disposed of as provided by law.[3]
This was followed by the Treaty of Berlin *657 of 1921 which expressly ratified and adopted the provisions of the joint resolution of July 2, 1921, supra. The Treaty of Versailles, section 289, also provided for revival of pre-war treaties at the option of the victorious powers. Later, the Supreme Court in the case of Cummings v. Deutsche Bank, 1936, 300 U.S. 115, 57 S.Ct. 359, 81 L.Ed. 545, held that by reason of the first World War and the joint resolution of Congress of 1921, supra, and the Treaty of Berlin ratifying the resolutions and the seizure of enemy property, the United States had become the absolute owner of the seized property of Germany and of German nationals.[4]
On July 28, 1941, the California legislature enacted a statute providing that the right of an alien nonresident to succeed to the property of a deceased person depended upon a reciprocal right in United States citizens.[5] At that time the German-American *658 Treaty of 1925, Article IV, supra, was in effect, and similar treaties with all the principal powers were also in effect. This language of treaty concerning reciprocal rights was practically universal with only slight difference of phraseology.
Prior to our active participation in the Second World War, Congress and the President under the emergency provision of the Trading with the Enemy Act, had taken action. On May 7, 1940, 54 Stat. 179, Congress by joint resolution gave the President extensive powers "during time of war or during any other period of national emergency" concerning transfer of property (amending subdivision (b) of Section 5 of the Act of October 6, 1917).
On April 10, 1940, the President had issued Executive Order 8389, 12 U.S.C.A. § 95a note which was ratified and confirmed by a joint resolution of May 7, 1940, Section 2, Joint Resolution, 54 Stat. 179. On June 14, 1941, Executive Order 8389, supra, was modified. Executive Order 8785. Further modifications were made after the United States entered the war December 8, 1941. Executive Order 8963, December 9, 1941; Executive Order 8998 of December 26, 1941; The "First War Powers Act," an amendment of the Trading with the Enemy Act, 55 Stat. 838, 839, §§ 301, 302, 303, was enacted December 18, 1941, 50 U.S.C.A. Appendix, §§ 616-618; Executive Order 9095 of March 11, 1942, 50 U.S.C.A.Appendix, § 6 note, providing for the office of Alien Property Custodian and fixing his powers and duties.
This Executive Order 9095 provided in Section 3 as follows:
"3. Any property, or interest therein, of any foreign country or a national thereof shall vest in the Alien Property Custodian whenever the Alien Property Custodian shall so direct * * *."
On January 23, 1943 the Alien Property Custodian issued his so-called Vesting Order No. 762, purporting to vest in said Alien Property Custodian "all the right, title, interest and claim of the four German nationals in and to the estate of Alvina Wagner, deceased, and all the right, title and interest and estate of those German nationals in and to the decedent's real property in San Francisco."
The vesting order was filed with the Division of the Federal Register on January 27, 1943 and was published January 28, 1943 in 8 Fed.Reg. 1252. On April 6, 1943 the Alien Property Custodian filed his complaint in this action, in which he claimed to be the owner of all the estate of Alvina Wagner, deceased, by virtue of said vesting order, and demanding that the Superior Court in and for the City and County of San Francisco, California, sitting in probate to administer the estate of Alvina Wagner, deceased, distribute said property to him as owner thereof, as and when ready for distribution upon the settlement of the final account. This action, in effect an action to quiet title of the Alien Property Custodian, was within the jurisdiction of the District Court Markham v. Allen, 66 S.Ct. 296, supra. The District Court *659 rendered judgment to that effect and the American heirs of Alvina Wagner appeal.
The appellants contend that the California Probate Code Sections 259, 259.1, and 259.2, quoted in full in footnote 5, supra, limit the right of nonresident aliens to take by will or by succession to those cases where reciprocal rights are extended to the United States citizens by the country of their residence and that such limitation is within the legislative power of the State, and is valid. We will first address ourselves to this question.
Constitutionality of Sections 259, 259.1 and 259.2, Cal. Probate Code, supra.
The appellee claims that the provisions of the Probate Code of California, §§ 259, 259.1 and 259.2, dealing with reciprocal rights of nonresident aliens to land and personal property by inheritance or succession are void and unconstitutional because the California statutes apply in the domain of foreign affairs which is the exclusive prerogative of the Federal Government, and fully occupied by it.
The federal power invoked by the appellee is predicated upon the provisions of the Constitution vesting the treaty making power and war power, including the right of capture, in the Federal Government (Constitution, Article I, § 8, Clause 11), and the provisions of the Constitution which prohibit states from entering into treaties with other powers. Constitution, United States, Article I, § 10, Clause 1. It is claimed by the appellee that the power of the Federal Government to deal effectively with the rights of enemy aliens is interfered with and frustrated by the statute of California above cited. However, it is clear that the state has power to regulate the right of inheritance and succession and testamentary disposition of property within the state, Irving Trust Company v. Day, 314 U.S. 556, 562, 62 S.Ct. 398, 86 L. Ed. 452, 137 A.L.R. 1093. The appellants claim that the power of the state government to make the right of nonresident aliens to succeed to property of the deceased depend on a reciprocal right on behalf of American citizens is a clear exercise of the right of the state to determine questions of inheritance, testamentary disposition and succession.
Assuming for the time, although this point is disputed,[6],[7] that the Treaty of 1925, Article IV grants the reciprocal rights required by the provision of the California Probate Code under consideration, the requirement of reciprocity by the statute is only of importance if Article IV of the treaty is abrogated or suspended so that there is no longer any treaty provision to meet the condition of the California Probate Code requiring such reciprocity. In that case the California statute, if valid, would deny rights of inheritance to the German nonresident aliens. It is to meet this situation that the appellee claims that the state statute is void because it violates the Constitution of the United States.
The appellee argues that the War Powers granted to the United States by the Constitution include by express provision (U.S. Constitution, Article I, Clause 10) the right to capture enemy property and that a state law which prevents or interferes with such capture is an interference with the power and is consequently void. The difficulty with this contention in the case at bar is the claim that the enemy alien has no right to the property. If the California statute is valid, it is not enemy property. The argument that the state should treat alien enemies more generously in order that the United States might seize their property and use it for its own purposes seems hardly valid as applied to constitutional power. The California statute does not apply to enemies only, but applies as well to any nonresident aliens, friends and allies as well as foes. Recent decision of the Supreme Court, Korematsu v. United States, 323 U.S. 214, 217, 65 S.Ct. 193, 89 L.Ed. 194; Kiyoshi Hirabayashi v. United States, 320 U.S. 81, 89, 63 S.Ct. *660 1375, 87 L.Ed. 1774, concerning the war powers of the Federal Government show that the war power affects almost every field of private right on the basis of necessity. If this great reservoir of Federal power is ipso facto a denial of any power to the States in that reservoir, whether or not a war is being waged or such powers are being exercised, then the power of states is thrown into the utmost uncertainty and confusion.
It should be said in addition that the appellee relies upon a so-called emergency clause of the California Probate Code (California Statutes 1941, Chapter 895, quoted in footnote 5) to show that the purpose of the California legislature was to prevent the export of money to foreign powers, which were seizing and diverting if not appropriating the property of citizens of California. It is said that this makes the California statute one of retribution and confiscation and thus within the domain of federal power over foreign affairs. The statute does not purport to be retributive and the addition of the emergency clause does not make it so. This emergency clause is required by the state constitution where a law is to take effect immediately rather than in 90 days, as would otherwise be the case. The motive of the legislature is not subject to judicial scrutiny, so long as the legislature acts within its constitutional authority. Amy v. Watertown, 130 U.S. 301, 319, 9 S.Ct. 530, 32 L.Ed. 946. We conclude that the California statute is constitutional and valid.
Assuming as we have decided, that the statute of California in making the right of the nonresident German legatees and devisees depend upon a reciprocal right, we have need to consider whether or not the Treaty of 1925 with Germany providing for reciprocity meets the requirements of the California statute. Before considering the exact language of the treaty, the effect of which is a subject of disagreement between the parties, we will consider the claim of the appellants that the treaty (Art. IV supra) in question was either abrogated or suspended during World War II.
War Abrogating Treaty.
The question whether the outbreak of war abrogates wholly a treaty of peace, designed avowedly for a state of peace, is passed over as unnecessary and improper for discussion. Eminent authorities on international law agree that the stipulations of a treaty of peace are not all necessarily avoided or made inoperative by war. Those stipulations which are incompatible with existence of war, and those which war makes it impossible to carry into execution are avoided or become inoperative; others of such intrinsic nature as to be applicable and feasible in war may continue.[8] Accordingly, under those authorities it is sufficient to determine whether Article IV of that Treaty became inoperative on and after December 8, 1941, and thereby struck away the possibility that reciprocal rights of inheritance and testamentary succession existed between Germany and the United States and their resident nationals. The trial court in its opinion alludes to this question but does not decide it nor base judgment upon any conclusion as to it, nevertheless it is implicit in any decision of the case.
By express terms of Article IV of the Treaty "Nationals of either High *661 Contracting Party may have full power to dispose of their personal property of every kind within the territories of the other." With respect to "real or other immovable property" or "interests within" one country devolving by the death of a national of the other, a national of one "were he not disqualified by the laws of the country where such property or interests therein is or are situated," "shall be allowed a term of three years in which to sell the same * * * without restraint or interference" and except from any duties or charges other than those which may be imposed on nationals of the country where the property "from which such proceeds may be drawn." Contrasted with this, from and after December 8, 1941 (before Alvina Wagner made her will) it has been unlawful for a German national to enter the United States, to have any communication of a business nature therewith, to remove property or money therefrom, and reciprocally unlawful for a national of the United States to have dealings or communications with one of Germany. No money or property could be taken out of this country to Germany or for its nationals. See Trading With the Enemy Act §§ 7(c, d) and 5, as amended by 55 Stat. 839. In fact, even, before there was war (December 8, 1941), Executive Order No. 8389 forbade monetary transmissals such as would have been necessary in case of a national of Germany selling real property pursuant to Article IV of the Treaty of 1925 and seeking to withdraw the money from the United States. [Many other countries than Germany were included in this order, which was made when the United States was not a belligerent.] But the Trading With the Enemy Act was broader and more severe, making it unlawful for the German legatees to be brought into the United States or to transmit communications to them (Trading With the Enemy Act § 3), or to have any form of business or commercial communications or intercourse with them (Trading With the Enemy Act §§ 2 and 3). They therefore could not come into the United States and as residents become eligible for naturalization or by treaty qualify (see California Alien Land Law §§ 1 and 2, Stat. 1921, p. 1xxxiii, as amended 1923, p. 1021, 1927, p. 880) to take land; they are incapable of taking by will because they are incapable of taking property by law (see California Probate Code, § 27); and they are incapable of "appearing and demanding" the property if it were distributed to them, either as legatees or as heirs, in consequence of which it must be distributed to the State of California for escheat, if there are no other qualified heirs (California Probate Code, §§ 1026, 1027).[9]
These conditions are irreconcilable with Article IV of the Treaty of 1925, which under the rules above stated must therefore be regarded as inoperative since December 8, 1941.
However, basically the question of whether or not Article IV of the treaty remains in effect during the war depends upon the intent of the high contracting parties as expressed in the treaty, or as implied therefrom by the customary interpretation of such agreements by nations generally. It is important therefore to consider the relation of the United States and Germany at the time the Treaty of 1925 was negotiated, and when ratified and confirmed in 1925, as indicating their intent. (As to previous treaties see discussion in footnote 8, supra.) This treaty was the result of the first World War, which had terminated so far as other powers were concerned by the Treaty of Versailles which the United States refused to join in. Congress in 1921 had passed a joint resolution approved July 2, 1921, 40 Stat. 106, supra, in effect appropriating or *662 confiscating all property of Germany or German nationals "which was, on April 6, 1917, in or has since that date come into the possession or under control of, or has been subject of a demand by the United States of America or of any of its officers, agents, or employees, from any source or by any agency whatsoever * * *". (See footnote No. 3.)
It provided that such property "shall be retained by the United States of America and no disposition thereof made, except as shall have been heretofore or specifically hereafter shall be provided by law until such time as the Imperial German Government * * * or their successor or successors, shall have respectively made suitable provision for the satisfaction of all claims against said Governments respectively, of all persons, wheresoever domiciled, who owe permanent allegiance to the United States of America and who have suffered [loss] through the acts of the Imperial German Government * * *". Germany in the Treaty of Berlin of 1921 agreed with the United States to this treatment of Germany and German nationals and expressly ratified the same. The Supreme Court later (1936) in Cummings v. Deutsche Bank, 300 U.S. 115, 57 S.Ct. 359, 81 L.Ed. 545, supra, held the effect of this resolution and treaty of 1921 was to vest absolute title to such property in the United States. The Prussian treaty in effect at the time the United States declared war against Germany in World War I (April 6, 1917) concerning reciprocal rights of inheritance of citizens, Treaty with Prussia of May 1, 1828, Article XIV, 8 Stat. 378, 384, was substantially the same as in the treaty with Germany or its successor negotiated in 1923, effective in 1925. As to the German Treaty in effect at the time the United States declared war against Germany in 1917, we have seizure of property authorized by the Trading With the Enemy Act, and its confiscation by the United States, and agreement thereto by Germany. Moreover, although not of controlling importance, we have a new treaty negotiated and entered into containing in Article IV, supra, the reciprocal rights provision which would have been unnecessary if such provisions were still in effect under the older treaty. The conduct of the two nations entering into the treaty of 1925 immediately prior thereto is not consistent with the idea that the high contracting parties believed that the similar provision of the earlier treaty survived the impact of war, or that Article IV of the later treaty would survive another World War. There is not a single word that indicates that the parties believed that property inherited under the laws of the nation, was any more sacred, or any less likely to confiscation than any other alien owned property within the jurisdiction of the United States. In the teeth of this situation general statements of text writers, or of courts or judges, based upon the modern tendency to give greater consideration to private rights during war cannot have much weight. It was agreed in the Treaty of 1921 that with reference to treaty rights under War I treaties, such private rights should give way to the needs or to the results of war.
In addition to the conclusions based upon the effect of World War I, upon the Prussian Treaty of 1828, we have the authorization in War Powers Act of 1941, an amendment to the Trading With the Enemy Act, 55 Stat. 838, 839, to the President, "With respect to any property, subject to the jurisdiction of the United States; and any property or interest of any foreign country or nationals thereof shall vest, when, as, and upon the terms, directed by the President, in such agency or person as may be designated from time to time by the President, and upon such terms * * * as the President may prescribe such * * * property shall be * * * dealt with * * * for the benefit of the United States." Section 301, subsection (B). The Act contains no hint or suggestion that property to be inherited after December 8, 1941 should not be subjected to confiscation although that which had been theretofore inherited, would be so subject. Thus Congress by ignoring the Treaty effectively provided for breaking or suspending or abrogating the reciprocal inheritance provision of the Treaty. To award the decedent's property to the Alien Property Custodian would be to give him a right in direct contradiction to the *663 right of aliens under the Treaty which he contends is in full effect.
Amendment to California Law Burden of Proof.
The California statute under consideration (Sections 259, 259.1 and 259.2) provided in § 259.1 that the burden of proving the existence of reciprocal rights dealt with in Section 259 was upon the "nonresident alien." This section was amended in 1945 (Chapter 1160, California Laws, § 259, 1945) to provide that "It shall be presumed that such reciprocal rights exist and this presumption shall be conclusive unless prior to the hearing on any petition for distribution of all or a portion of such property to an alien heir, devisee or legatee not residing in the United States or its territories a petition is filed by any person interested in the estate requesting the court to find that either one or both of such reciprocal rights does not or do not exist as to the country of which such alien heir, devisee or legatee is resident. Upon the hearing of such petition the burden of establishing the nonexistence of such reciprocal right or rights shall be upon the petitioner. * * *"
The amendment was enacted after the decision of this court upon the appeal but before the decision of the Supreme Court on January 7, 1946. It is claimed by the appellee in the brief filed herein after the case was remanded to this court, that the amendment is applicable to the present appeal and requires affirmance.
The appellee's claim seems to be that the new law (California Probate Code, § 259, California Statutes 1945) holds the title in suspense until the nonresident alien acts and that during this interval the property tentatively rests in the German devisees and legatees and consequently is subject to seizure as their property before the procedure outlined by the California statute, to ascertain the rights of heirs, legatees and devisees.
It may take much time to determine who the heirs are, witness the Blythe case cited in the briefs (In re Estate of Blythe, 110 Cal. 226, 42 P. 641; Blythe v. Hinckley, 180 U.S. 333, 21 S.Ct. 390, 45 L.Ed. 557), wherein the matter was in litigation for over 15 years. Nevertheless, when the will is proved, or the heirs ascertained, their title relates back to the death of the owner there is no hiatus. Western Pacific Railroad Co. v. Godfrey, 166 Cal. 346, 349, 136 P. 284, Ann.Cas.1915B, 825, and cases cited.
The Federal Court takes judicial notice of all treaties, and so does the state court. They do not have to be proved, consequently if the treaty grants reciprocal rights, there is no need of further proof. Whether it has been repealed or abrogated is also a subject of judicial notice.
It is conceivable that the foreign nation might without a treaty, and by its own statute grant rights which were in fact fully reciprocal, if this were done by statute, it would have to be proved, and what must be proved to sustain a complaint must be alleged. There is no such allegation here.
Reversed and remanded.
NOTES
[1] The Trading with the Enemy Act, 40 Stat. 411 enacted in 1917 was amended in 1918, 40 Stat. 459, 460, in 1919 by 41 Stat. 35, 36, in 1920 by 41 Stat. 977, on May 7, 1940, 54 Stat. 179, on December 18, 1941, 55 Stat. 839.
The Treaty of 1925 with Germany, see 44 Stat. 2132, and Article IV thereof at page 2135; the Treaty of 1921 with Germany, see 42 Stat. 1939.
[2] Article IV of the Treaty of 1925 reads: "Where, on the death of any person holding real or other immovable property or interests therein within the territories of one High Contracting Party, such property or interests therein would, by the laws of the country or by a testamentary disposition, descend or pass to a national of the other High Contracting Party, whether resident or nonresident, were he not disqualified by the laws of the country where such property or interests therein is or are situated, such national shall be allowed a term of three years in which to sell the same, this term to be reasonably prolonged if circumstances render it necessary, and withdraw the proceeds thereof, without restraint or interference, and exempt from any succession, probate or administrative duties or charges other than those which may be imposed in like cases upon the nationals of the country from which such proceeds may be drawn.
"Nationals of either High Contracting Party may have full power to dispose of their personal property of every kind within the territories of the other, by testament, donation, or otherwise, and their heirs, legatees and donees, of whatsoever nationality, whether resident or non-resident, shall succeed to such personal property, and may take possession thereof, either by themselves or by others acting for them, and retain or dispose of the same at their pleasure subject to the payment of such duties or charges only as the nationals of the High Contracting Party within whose territories such property may be or belong shall be liable to pay in like cases."
[3] "Sec. 5. All property of the Imperial German Government, or its successor or successors, and of all German nationals which was, on April 6, 1917, in or has since that date come into the possession or under control of, or has been the subject of a demand by the United States of America or of any of its officers, agents, or employees, from any source or by any agency whatsoever, and all property of the Imperial and Royal Austro-Hungarian Government, or its successor or successors, and all the Austro-Hungarian nationals which was on December 7, 1917, in or has since that date come into the possession or under the control of, or has been subject of a demand by the United States of America or any of its officers, agents, or employees, from any source or by any agency whatsoever, shall be retained by the United States of America and no disposition thereof made, except as shall have been heretofore or specifically hereafter shall be provided by law until such time as the Imperial German Government and the Imperial and Royal Austro-Hungarian Government, or their successor or successors, shall have respectively made suitable provision for the satisfaction of all claims against said Governments respectively, of all persons, wheresoever domiciled, who owe permanent allegiance to the United States of America and who have suffered, through the acts of the Imperial German Government, or its agents, or the Imperial and Royal Austro-Hungarian Government, or its agents, since July 31, 1914, loss, damage, or injury to their persons or property, directly or indirectly, whether through the ownership of shares of stock in German, Austro-Hungarian, American, or other corporations, or in consequence of hostilities or of any operations of war, or otherwise, and also shall have granted to persons owing permanent allegiance to the United States of America most-favored-nation treatment, whether the same be national or otherwise, in all matters affecting residence, business, profession, trade, navigation, commerce and industrial property rights, and until the Imperial German Government and the Imperial and Royal Austro-Hungarian Government, or their successor or successors, shall have respectively confirmed to the United States of America all fines, forfeitures, penalties, and seizures imposed or made by the United States of America during the war, whether in respect to the property of the Imperial German Government or German nationals or the Imperial and Royal Austro-Hungarian Government or Austro-Hungarian nationals, and shall have waived any and all pecuniary claims against the United States of America."
[4] "By exertion of the war power, and untrammeled by the due process or just compensation clause, Congress enacted laws directing seizures, use, and disposition of property in this country belonging to subjects of the enemy. Alien enemy owners were divested of every right in respect of money and property seized and held by the Custodian under the Trading with the Enemy Act. United States v. Chemical Foundation, 272 U. S. 1, 9-11, 47 S.Ct. 1, 4, 71 L.Ed. 131; Woodson v. Deutsche, etc., Vormals, 292 U.S. 449, 454, 54 S.Ct. 804, 805, 78 L. Ed. 1357. The title acquired by the United States was absolute and unaffected by definition of duties and limitations upon the power of the Custodian or the Treasurer of the United States. Congress reserved to itself freedom at any time to dispose of the property as deemed expedient and right under circumstances that might arise during and after the war." Quoted from Cummings v. Deutsche Bank, 300 U.S. 115, 120, 57 S.Ct. 359, 362, 81 L.Ed. 545.
[5] "Chapter 3. Inheritance Rights of Aliens
"259. The rights of aliens not residing within the United States or its territories to take either real or personal property or the proceeds thereof in this State by succession or testamentary disposition, upon the same terms and conditions as residents and citizens of the United States is dependent in each case upon the existence of a reciprocal right upon the part of citizens of the United States to take real and personal property and the proceeds thereof upon the same terms and conditions as residents and citizens of the respective countries of which such aliens are inhabitants * * * and upon the rights of citizens of the United States to receive by payment to them within the United States or its territories money originating from the estates of persons dying within such foreign countries.
"259.1. The burden shall be upon such nonresident aliens to establish the fact of existence of reciprocal rights set forth in Section 259.
"259.2. If such reciprocal rights are not found to exist and if no heirs other than such aliens are found eligible to take such property, the property shall be dispossed of as escheated property.
"Sec. 2. This act is hereby declared to be an urgency measure necessary for the immediate preservation of the public peace, health and safety within the meaning of Section 1 of Article IV of the Constitution of the State of California, and shall take effect immediately. The following is a statement of the facts constituting such necessity:
"A great number of foreign nations are either at war, preparing for war or under the control and domination of conquering nations with the result that money and property left to citizens of California is impounded in such foreign countries or taken by confiscatory taxes for war uses. Likewise money and property left to friends and relatives in such foreign countries by persons dying in California is often never received by such nonresident aliens but is seized by these foreign governments and used for war purposes. Because the foreign governments guilty of these practices constitute a direct threat to the Government of the United States, it is immediately necessary that the property and money of citizens dying in this country should remain in this country and not be sent to such foreign countries to be used for the purposes of waging a war that eventually may be directed against the Government of the United States." St.1941, p. 2474.
[6] The California statute requires that the proceeds derived from the sale of land provided for in Article IV of the Treaty and the personal property shall be received in the United States (see California Probate Code, § 1026, also §§ 1060-1066).
There is also a question raised as to whether the nonresident alien can take personal property located within the United States.
[7] The California statute requires that the proceeds derived from the sale of land provided for in Article IV of the Treaty and the personal property shall be received in the United States (see California Probate Code, § 1026, also §§ 1060-1066).
There is also a question raised as to whether the nonresident alien can take personal property located within the United States.
[8] V. Hackworth, International Law Digest § 505, citing Karnuth v. United States, on Petition of Albro, 279 U.S. 231, 236, 49 S.Ct. 274, 73 L.Ed. 677; 5 Moore, International Law Digest, § 779, p. 383, quoting 1 Columbia Law Review, No. 4, pp. 209-223; 2 Oppenheim, International Law, § 99; Hall, International Law, 8th Ed., pp. 405, 453, 454, 457; and see Techt v. Hughes, 229 N.Y. 222, 128 N.E. 185, 11 A.L.R. 166 with Note page 180.
See also the following cases on the effect of war to render treaty stipulations inoperative: The Rapid, 20 Fed. Cas. pages 297, 300, No. 11,576, 1 Gall. 295, affirmed 8 Cranch 155, 3 L.Ed. 520; Jecker, Torre & Co. v. Montgomery, 18 How. 110, 112, 59 U.S. 110, 112, 15 L.Ed. 311; United States v. Grossmayer, 9 Wall. 72, 75, 76 U.S. 72, 75, 19 L.Ed. 627; Ross v. Jones, 22 Wall. 576, 586, 89 U.S. 576, 586, 22 L.Ed. 730; Mayer v. Garvan, 1 Cir., 278 F. 27, 32; Second Russian Ins. Co. v. Miller, 2 Cir., 297 F. 404, 410, affirmed 268 U.S. 552, 45 S. Ct. 593, 69 L.Ed. 1088.
[9] Calif.Prob.Code, § 1026 reads: "A nonresident alien who becomes entitled to property by succession must appear and demand the property within five years from the time of succession; otherwise, his rights are barred and the property shall be disposed of as escheated property."
Calif.Prob.Code, § 1027 in part reads: "If the court, at the time set for the hearing of the final account, or such time thereafter to which the matter may be continued, does not distribute the entire balance of the estate remaining for distribution to known heirs, devisees or legatees entitled to succeed thereto, it must distribute to the State of California that portion of such estate not distributed to such known heirs, devisees or legatees." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547963/ | 152 Pa. Commonwealth Ct. 627 (1993)
620 A.2d 584
Eric TUBBS, Petitioner,
v.
PENNSYLVANIA BOARD OF PROBATION AND PAROLE, Respondent.
Commonwealth Court of Pennsylvania.
Submitted on Briefs November 20, 1992.
Decided January 14, 1993.
*628 John K. Sweeney, Asst. Public Defender, for petitioner.
Arthur R. Thomas, Asst. Chief Counsel, for respondent.
Before PALLADINO and PELLEGRINI, JJ., and NARICK, Senior Judge.
NARICK, Senior Judge.
Eric Tubbs (Petitioner) appeals the order of the Pennsylvania Board of Probation and Parole (Board) which extended his reparole date due to misconducts. We affirm.
On April 28, 1988, the Board released Petitioner on parole from a sentence of three-to-ten years. Subsequently, Petitioner was arrested on both new federal and state criminal charges.[1]
*629 On June 6, 1991, the Board held a revocation hearing to determine whether to recommit Petitioner as a convicted parole violator. The Board recommitted Petitioner to serve ten additional months of his original sentence "when available." (Certified record, p. 74.) The Board notified Petitioner of a recalculated maximum term expiration date of July 3, 1998 and set a tentative reparole date of May 3, 1992 upon the condition that Petitioner commit no misconducts. The Board erred in calculating these dates because it failed to credit Petitioner's original sentence for time he spent in custody. The Board corrected its miscalculation but did not recalculate Petitioner's tentative reparole date. Soon thereafter, the Board modified the reparole date due to Petitioner's misconduct[2] and set a new tentative reparole date of August 3, 1993.
Petitioner filed an administrative appeal challenging the setting of his new tentative reparole date on the ground that in setting the date, the Board did not apply credit for the time he spent in custody. The Board denied Petitioner's request for administrative relief on the ground that the extension of a reparole date due to misconduct is not appealable.
On appeal to this Court,[3] Petitioner argues (1) that the Board abused its discretion in applying the time credit (from April 5, 1990 to July 11, 1990) to Petitioner's maximum term expiration rather than to the extension of his reparole date; and (2) that the Board abused its discretion by modifying the reparole date because of Petitioner's misconduct.[4]
*630 Concerning Petitioner's first argument, it is well-settled under Pennsylvania law that a prisoner has no constitutionally protected liberty interest in being released from confinement prior to the expiration of his sentenced maximum term. Reider v. Pennsylvania Board of Probation and Parole, 100 Pa.Commonwealth Ct. 333, 514 A.2d 967 (1986). Section 21.1 of the Act of August 6, 1941, P.L. 861, as amended, added by the Act of August 24, 1951, P.L. 1401, as amended (Parole Act), 61 P.S. § 331.21a, gives the Board the power to return parole violators to prison to serve the entire remaining balance of their unexpired maximum term. The General Assembly has given the Board broad discretion to determine if and when a prisoner under its jurisdiction should be released on parole. Krantz v. Pennsylvania Board of Probation and Parole, 86 Pa.Commonwealth Ct. 38, 483 A.2d 1044 (1984). This reasoning also applies to the Board's decision to modify a reparoling order and thus, administer more "setback" time.[5]
The decision of whether to "set back" a prisoner's reparole date is an exercise of the Board's discretion not to release a prisoner on parole. Johnson v. Pennsylvania Board of Probation and Parole, 110 Pa.Commonwealth Ct. 142, 532 A.2d 50 (1987). The amount of setback time levied against an inmate is solely within the Board's discretion. Id. The Board could conceivably set back an inmate's reparole date to encompass the entire remaining unexpired term of his sentence. Therefore, due process is satisfied when a time credit, such as the one before us, is applied solely to a prisoner's maximum term.
Petitioner's second argument is without merit. In his appeal, Petitioner asks this Court to review the Board's decision to rescind an unexecuted tentative parole release date. This Court has held that such a decision is wholly within the Board's discretion and is not subject to judicial review. Id.
Accordingly, we affirm.
*631 ORDER
AND NOW, this 14th day of January, 1993, the orders of the Pennsylvania Board of Probation and Parole in the above-captioned matter are hereby affirmed.
NOTES
[1] On December 6, 1989, Petitioner was arrested on new federal criminal charges and the Board lodged a detainer. On December 7, 1989, Petitioner posted bail with respect to the new federal criminal charges. On April 2, 1990, Petitioner was charged with a new state criminal offense but did not post bail. On April 5, 1990, Petitioner pled guilty to two of the federal charges. On July 11, 1990, Petitioner was sentenced to serve eighteen months of the federal charges. On April 19, 1991, Petitioner was placed on probation on the state charges.
[2] Petitioner attempted to assault an Institutional Parole Representative and threatened to assault a corrections staff member.
[3] Our scope of review is limited to a determination of whether constitutional rights were violated, an error of law was committed or whether necessary findings of fact are supported by substantial evidence. 2 Pa.C.S. § 704.
[4] These two arguments are raised in response to two separate Board determinations which denied Petitioner administrative relief. The two Board orders which resulted from these determinations have been consolidated by this Court for purposes of review.
[5] "Backtime," as distinguished from "setback" time, is the penalty imposed by the Board for a violation of parole. Krantz. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547972/ | 156 F.2d 474 (1946)
GENERAL INDUSTRIES CO.
v.
20 WACKER DRIVE BLDG. CORPORATION et al.
No. 8777.
Circuit Court of Appeals, Seventh Circuit.
July 16, 1946.
Rehearing Denied August 10, 1946.
*475 Robert E. Barrett, John Costello, and Wendell H. Shanner, all of Chicago, Ill., for appellants.
Ralph M. Snyder, of Chicago, Ill., and King Fauver, of Elyria, Ohio, for appellee.
Before EVANS and MINTON, Circuit Judges, and LINDLEY, District Judge.
MINTON, Circuit Judge.
The defendants appealed from a judgment in favor of the plaintiff which enjoined them from adopting and using the name General Industries Corporation.
The plaintiff, incorporated in Ohio in 1914, first adopted the name, The General Industries Company, in 1925. During World War II it manufactured largely military equipment. Before the war it had made and sold plastic parts, spring motors, electric motors, phonograph record changers, sound recording units, typewriters, heat regulators, road markers, automobile horns, movie projectors, massage machines, plumbing supplies, telephone switchboards, and other devices. At the present time, it operates a plastic division and a mechanical division. It is licensed to transact business only in the State of Ohio but sells generally all over the country, maintaining one of its soliciting offices under its own name in Chicago. It accepts transmitted orders at its home office in Ohio and then ships the goods to various States.
The trial court found that the plaintiff's products have been long and favorably known, but there was no finding that they were known by its corporate name. The court further found that plaintiff advertises extensively in trade papers, where its name is actively featured; that its annual business by 1943 exceeded $10,000,000 in volume; and that by fair dealing, integrity, prompt deliveries, and excellence of its product, plaintiff has during twenty years built up a valuable good will in its corporate and trade name.
The defendant General Finance Corporation was previously engaged only in the general finance business. When the war interrupted its ordinary operations, it purchased several subsidiary manufacturing corporations. It also controls a building corporation which owns the Civic Opera Building in Chicago. All three defendants, 20 Wacker Drive Building Corporation, LaSalle Industrial Finance Corporation, and General Finance Corporation, proposed to merge in one corporation to be known as General Industries Corporation. When the plaintiff learned of this plan, it brought the present suit.
Upon the trial the court found the foregoing facts and additionally that a likelihood of confusion would arise from the defendants' use of a name practically identical with that of the plaintiff and that the nearly exact identity of the two names would be very confusing to any person dealing in the stock of either corporation and in identifying products produced or to be produced by the two companies.
The court concluded that the plaintiff is entitled to be protected from confusion arising from the practical identity of the names, from confusion as to identity of the corporations, and from probable damage to its credit or to its reputation for fair dealing and responsibility. There is no finding to support this latter conclusion. The court further concluded that the public is *476 likewise entitled to be protected from the effects of such confusion, and that under the laws of Illinois it is not necessary to establish direct competition but that it is sufficient to show that confusion in the trade and on the part of the public is likely to result and that the plaintiff has a property right in its nationally known corporate and trade name and is entitled to be protected against its appropriation by a later comer in the same general field. The court then enjoined the defendants from using or causing to be used the name General Industries Corporation or any name similar thereto.
Two questions are presented. First, may the plaintiff, a foreign corporation that has not received a license to do business in the State of Illinois, maintain this suit in a Federal court in Illinois? Second, if it has the right to maintain the suit, is the finding of fact that there is likelihood of confusion in the minds of the public sufficient to support an injunction?
As to the first question, we think it clear that the State of Illinois may deny to a foreign corporation the right to sue in its courts to enjoin a domestic corporation from using a name similar to that of the foreign corporation where such foreign corporation has not complied with the statute of Illinois which permits such corporation to do business in the State. Hazelton Boiler Co. v. Hazelton Tripod Boiler Co., 142 Ill. 494, 30 N.E. 339. Neither can a foreign corporation with a name "deceptively similar" to that of a domestic corporation in Illinois mandate the Secretary of State to admit such foreign corporation to do business under such "deceptively similar" name. Investors Syndicate v. Hughes, 378 Ill. 413, 38 N.E.2d 754. In that case the court held that the Secretary of State, who had found that the Investors Syndicate of America, the name of the plaintiff Minnesota corporation, was in the words of the statute "deceptively similar" to Investors Syndicate, the name of the existing Illinois corporation, had not abused his administrative discretion in refusing to license the Minnesota corporation in Illinois. This was a case where the legislature had acted to protect the public from confusion that might arise from the use of "deceptively similar" names. The standard was set by the legislature and the discretion was placed in the Secretary of State to apply that standard. It did not involve the law of unfair competition and the standards of confusion pertinent thereto where the suits are brought by private parties.
While these two cases seem to effectively foreclose the plaintiff from any remedy in the courts of Illinois, it does not follow that the Federal courts are also closed to the plaintiff. We think the plaintiff has a right to sue the defendants in the Federal courts on a cause in which the courts of Illinois may be closed to it. David Lupton's Sons Co. v. Automobile Club of America, 225 U.S. 489, 500, 32 S.Ct. 711, 56 L.Ed. 1177, Ann.Cas.1914A, 699; Metropolitan Life Insurance Co. v. Kane, 7 Cir., 117 F.2d 398, 133 A.L.R. 1163; Peck Bros. & Co. v. Peck Bros. Co., 7 Cir., 113 Fed. 291, 62 L.R.A. 81.
Having brought the suit in the Federal court because of a likelihood of confusion in names, the law of Illinois as to the right of the plaintiff to any equitable relief must control. Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487.
We must now answer the second question: Is the finding of fact that there is likelihood of confusion in the minds of the public sufficient to support an injunction?
The plaintiff's name is composed of generic words incapable of exclusive appropriation by the plaintiff. They are words publici juris. There is no finding of fraud by the defendants in the proposed use of the similar name. The parties are not found to be or likely to be in competition with each other. There is no finding that the defendants now do business outside the State of Illinois or that they intend to do so in the future under the name General Industries Corporation. The court found that the plaintiff sells mostly to manufacturers, to a lesser extent to jobbers and dealers, and occasionally to individuals. There is no finding that the goods of the plaintiff are sold to or are known to the trade by the plaintiff's name. In other words, there is no finding of a secondary meaning attaching to the plaintiff's name in *477 relation to the sale of its products. We have the bare naked question of whether the plaintiff can enjoin the defendants from the use of a similar corporate name, the mere use of which is likely to lead to confusion. The authority in Illinois would seem to indicate that the plaintiff is not entitled to such equitable relief.
The case of Hazelton Boiler Co. v. Hazelton Tripod Boiler Co., supra, is attempted to be distinguished on the ground that the court there held that its courts were not open to a foreign corporation that had not complied with the Foreign Corporation Act of Illinois. This Act provided that a foreign corporation must be licensed to do business in Illinois before it is entitled to sue in the State courts to enjoin a domestic corporation of Illinois from using a similar corporate name. While the court did decide this point quite clearly, it went further and said:
"If any confusion has occurred, it has arisen from the similarity of the two corporate names, and not from any attempts on the part of the defendant to deceive. But, as we have already held, the similarity of names is a circumstance of which the complainant has no right to complain, the defendant having at least as good a right to the use of its corporate name in the transaction of its business as the complainant has to use its name. If injury results to the complainant from such cause, it is damnum absque injuria." 142 Ill. at page 509, 30 N.E. at page 345.
The case of Lady Esther, Ltd., v. Lady Esther Corset Shoppe, Inc., 317 Ill.App. 451, 46 N.E.2d 165, 148 A.L.R. 6, has been cited. In this case both corporations were using somewhat similar names in Illinois. They were not in competition nor was there any fraud or palming off found, but it did appear clearly that the plaintiff, who had made and sold cosmetics for over thirty years, had acquired a secondary meaning to its name. Its goods were sold to and identified by the trade as "Lady Esther cosmetics." This case cannot be controlling in the present situation where the plaintiff has acquired no secondary meaning to its name. The Lady Esther case did not turn upon the use of similar names alone. It was a case of similar names plus a secondary meaning attaching to one of them.
The law as laid down in the Hazelton Boiler Co. v. Hazelton Tripod Boiler Co., supra, from which we have heretofore quoted, is amply supported by the United States Supreme Court in Howe Scale Co. v. Wyckoff, 198 U.S. 118, 25 S.Ct. 609, 49 L.Ed. 972. In that case the court stated the question as follows (198 U.S. at page 134, 25 S.Ct. at page 611):
"Referring to the Remington-Sholes Company, it was unanimously held by the Circuit Court of Appeals: `We do not find in this voluminous record sufficient evidence that defendant has itself done anything to promote confusion in the minds of the public, except to use the name "Remington" on its machines and in its literature.' Accepting that conclusion, it follows that complainant's case must stand or fall on the possession of the exclusive right to the use of the name `Remington.'"
After holding that the plaintiff had no exclusive right to the name Remington, the Supreme Court said at pages 137 and 140 of 198 U.S., at page 613 of 25 S.Ct.:
"The principle that one corporation is not entitled to restrain another from using in its corporate title a name to which others have a common right, is sustained by the discussion in Columbia Mill Co. v. Alcorn, 150 U.S. 460, 14 S.Ct. 151, 37 L.Ed. 1144, and is, we think, necessarily applicable to all names publici juris. * * * Having the right to that use, courts will not interfere where the only confusion, if any, results from a similarity of the names, and not from the manner of the use * * *."
It is not the use of similar names that might lead to confusion, it is the abuse of such similar names injurious to the plaintiff that may be enjoined. Mere confusion of the public in the use of similar names that are publici juris cannot be enjoined by the plaintiff or by any other private individual. For a private party to succeed in a court of equity in enjoining the use of similar names because of confusion to the public, such party would have to show it had suffered some injury not suffered by the public generally. Mississippi & *478 Missouri R. Co. v. Ward, 2 Black 485, 67 U. S. 485, 492, 17 L.Ed. 311; Irwin v. Dixion, 9 How. 10, 50 U.S. 10, 27, 13 L.Ed. 25; The Mayor v. Alexandria Canal Co., 12 Pet. 91, 37 U.S. 91, 9 L.Ed. 1012. Public agencies protect the public interest. To entitle a private party to equitable relief, there must be wrong added to incidental confusion in the use of similar names, such as fraud, deception, or palming off, or the name which it has sought to protect must have acquired a secondary meaning. A court of equity will not enjoin the use of a similar name because of the incidental confusion in the use of that name. The plaintiff, a foreign corporation, may not succeed in the Federal courts in preventing the State of Illinois from giving to its domestic corporations such names as it pleases simply because the names are similar and there is a likelihood of confusion. The State of Illinois cannot close the Federal courts to the plaintiff, but the plaintiff may not succeed in the Federal courts on a complaint for unfair competition when the defendants have done only what they had a legal right to do, to wit, indicate their intention to use a name that was public property in Illinois.
The judgment is reversed, and the cause is remanded to the District Court with directions to proceed in accordance with this opinion.
LINDLEY, District Judge (dissenting in part).
I think that upon the second question, namely, whether in order to sustain a suit for injunction against the use of a similar corporate name, plaintiff must show in addition to probable confusion in the minds of people, fraud, "palming off" or other intentional acts of unfair competition, the present day rule is more liberal than that announced by my brethren.
In Investors Syndicate of America, Inc., et al. v. Hughes, 378 Ill. 413, 38 N.E.2d 754, 758, in interpreting a statute forbidding the Secretary of State to issue a certificate of authority to a foreign corporation which has a name "deceptively similar" to that of a corporation authorized to do business in the state, the court remarked: "While it is true that a majority of the adjudicated cases involving the use of a corporate name have arisen between hostile corporations, thus raising questions of unfair competition and property rights in the use of a corporate name, it is obvious both from a standpoint of public policy and from the construction of the statutes involved, that such a statute has the dual purpose of protecting competing corporations and likewise the public, from deception in the use of deceptively similar corporate names." It then proceeded to a discussion of the necessity of fraud or imposition. It commented that prayers for injunctive relief had in many cases been based upon the protection of property rights which would be injured but that at the present time "Even in injunction cases between competing corporations, the trend of decision is to place less emphasis on competition and more on confusion (italics mine) as is evidenced by the following cases: Vogue Co. v. Thompson-Hudson Co., 6 Cir., 300 F. 509, Aunt Jemima Mills Co. v. Rigney & Co., 2 Cir., 247 F. 407, L.R.A.1918C, 1039. As was said in Ward Baking Co. v. Potter-Wrightington, 1 Cir., 298 F. 398, 403, `The test should be whether the public is likely to be deceived.' * * * The use of the term `deceptively similar' indicates that it was not the sole purpose of the act to protect the property rights of existing corporations, but also that the public be protected against any deception arising out of the use of similar names." After referring with approval to United States Ozone Co. v. United States Ozone Co. of America, 7 Cir., 62 F.2d 881, Mutual Export & Import Corp. v. Mutual Export & Import Corp. of America, D.C., 241 F. 137, and Benevolent and Protective Order of Elks of the United States v. Improved Benevolent and Protective Order of Elks of the World, 122 Tenn. 141, 118 S.W. 389; Glucose Sugar Refining Co. v. American Glucose Sugar Refining Co., N.J. Ch., 56 A. 861, each of which indicates that probability of deception or confusion is sufficient, the court held that, in the absence of any further proof, the Secretary of State could not be compelled to issue the charter.
While the issue there did not arise between hostile corporations, it was presented in a later case in the appellate court, which was not reviewed by the Supreme Court, *479 Lady Esther, Ltd., v. Lady Esther Corset Shoppe, Inc., 317 Ill.App. 451, 46 N.E.2d 165, 167, 148 A.L.R. 6. The court said: "Counsel for defendant contends that `Illinois adheres to the "palming off" rule in case of unfair competition. Where there is no competition, there can be no "palming off." Since defendant was not in competition with the plaintiff, in any manner whatsoever, plaintiff was not entitled to the injunction prayed for in its complaint.' And in support of this four Illinois cases are cited: Stevens-Davis Co. v. Mather & Co., 230 Ill.App. 45; DeLong Co. v. Hump Hairpin Co., 297 Ill. 359, 130 N.E. 765; Johnson Mfg. Co. v. Johnson Skate Co., 313 Ill. 106, 144 N.E. 787; and Ambassador Hotel Co. v. Hotel Sherman Co., 226 Ill.App. 247. Without stopping to analyze the four cases, we think it sufficient to say that an examination of them discloses the fact that in each there was direct competition between the parties in the business each was conducting plaintiff and defendant being engaged in the same line of business and therefore the palming off rule was applicable." The court then continued: "The holding in those cases, that where there was direct competition between plaintiff and defendant there must be a `palming off' to warrant relief, is far from saying that courts will not grant injunctive relief where the defendant's conduct is likely to cause confusion of the traders so that the public believes or is likely to believe that the goods of the defendant are the goods of the plaintiff, or that the plaintiff is in some way connected with or is a sponsor of the defendant. In such situation relief will be granted although there is no competition. 38 Harvard Law Review, 370-374, Eckhart v. Consolidated Milling Co., 72 Ill. App. 70; Aunt Jemima Mills Co. v. Rigney & Co., 2 Cir., 247 F. 407, L.R.A.1918C, 1039; Ward Baking Co. v. Potter-Wrightington, 1 Cir., 298 F. 398; Vogue Co. v. Thompson-Hudson Co., 6 Cir., 300 F. 509; Investors' Syndicate v. Hughes, 378 Ill. 413, 38 N.E.2d 754; Philadelphia Storage Battery Co. v. Mindlin, 163 Misc. 52, 296 N.Y. S. 176; Edison Storage Battery Co. v. Edison Automobile Co., 67 N.J.Eq. 44, 56 A. 861." The court quoted with approval from Harvard Law Review this language: "Courts of equity in these unfair competition cases are seeking to protect the good-will and reputation of the plaintiff. Insistence by the courts upon the presence of competition between the parties can only be justified upon a theory that good-will and reputation can only be damaged by competitors. But such a theory is untenable, in the light of human experience. If the defendant's conduct is likely to cause confusion of the traders, so that the public believes or is likely to believe that the goods of the defendant are the goods of the plaintiff or that the plaintiff is in some way connected with or is a sponsor for the defendant, then a sufficient case is made out for injunctive relief. The result of a contrary rule would make the good-will and reputation of the plaintiff depend not only upon the conduct of the plaintiff but also upon the acts of the defendant and the excellence, or, what is more likely, the inferiority, of his products. * * * Another change that has come with the realization of this broad basis for `unfair competition' is the elimination of the requirement of `fraud.' Although the law of unfair competition has evolved through the application of principles of fraud, * * * a realization that the true basis of equity's interference in such cases is not fraud but the protection of good-will has caused many courts to question the propriety of inquiry into the defendant's mental state."
The Illinois court remarked that the motives of the defendant in adopting the name are immaterial, citing Eckhart v. Consolidated Milling Co., 72 Ill.App. 70, Aunt Jemima Mills Co. v. Rigney & Co., 2 Cir., 247 F. 407, L.R.A.1918C, 1039, Ward Baking Co. v. Potter-Wrightington, 1 Cir., 287 F. 398 and gave weight to the remark of the supreme court of Illinois in Investors' Syndicate v. Hughes, 387 Ill. 413, 38 N.E.2d 754, that the modern tendency has grown to place less emphasis on competition and more on confusion. It concluded: "In the instant case we think it clear that the public might be deceived into thinking there was some connection between the defendant and the plaintiff companies. And the good-will of plaintiff, which it had built up at great expense over a period of years, would be whittled away. Courts of equity *480 ought not to be so feeble as to be unable to prevent this." Other illustrative cases may be found in the annotations of American Law Reports, 66 A.L.R. 948 et seq.
It is apparent from the Illinois authorities that they approve generally the rules announced in other jurisdictions, including the opinions of the federal courts they have cited. Apparently that rule is that which this court mentioned in California Fruit Growers Exchange v. Windsor Beverages, 7 Cir., 118 F.2d 149, 152, when we said: "The real test is whether the use of identical or similar trade-marks would be likely to cause confusion or mistake in the minds of the public."
That likelihood of confusion exists seems to be generally recognized as sufficient to support the complaint; it is not necessary to await consummation of threatened injury before applying for relief. Pennsylvania v. West Virginia, 262 U.S. 553, 43 S. Ct. 658, 67 L.Ed. 1117, 32 A.L.R. 300, Standard Oil Co. of New Mexico v. Standard Oil Co. of California, 10 Cir., 56 F.2d 973. Thus, in Scalise et al v. National Utility Service, Inc., 5 Cir., 120 F.2d 938, 940, the court said: "It is a wrongful act to organize a domestic corporation by the same name as that already known to be used in the state by a foreign corporation, although the foreign corporation is not domesticated, but is doing business in the state without a permit, and an injunction will issue, not merely after the charter has been obtained to prevent the use of the name in unfair competition, but to restrain the procuring or issuing of the charter under the proposed name or if the charter has been issued, to restrain the use of the name." To the same effect are Purcell et al. v. Summers, D.C., 54 F.Supp. 279; Id., 4 Cir., 145 F.2d 979; General Film Co. of Missouri v. General Film Co. of Maine, 8 Cir., 237 F. 64.
Defendants rely upon the fact that plaintiff has not complained of other corporations in other states using names similar to its own. I think this wholly beside the point. Acquiescence in the use of a similar name by another corporation and failure to sue are generally held to constitute no defense. Celluloid Mfg. Co. v. Cellonite Mfg. Co., C.C., 32 F. 94; Atlas Assur. Co. v. Atlas Ins. Co., 138 Iowa 228, 112 N.W. 232, 114 N.W. 609, 15 L.R.A.,N.S., 625, 128 Am. St.Rep. 189; State ex rel. Cohen v. Hinkle, 139 Wash. 651, 247 P. 1029.
I think the judgment should be affirmed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547992/ | 9 B.R. 309 (1981)
In the Matter of CHESHIRE MOLDING COMPANY, Debtor.
CHESHIRE ASSOCIATES, Plaintiff,
v.
CHESHIRE MOLDING COMPANY, Debtor, Defendant.
Bankruptcy No. 2-80-00145, Adv. No. 2-80-0396.
United States Bankruptcy Court, D. Connecticut.
February 25, 1981.
*310 William B. Fitzgerald, Jr., and William P. Yelenak of Carmody & Torrance, Waterbury, Conn., for plaintiff.
John B. Nolan and James J. Tancredi of Day, Berry & Howard, Hartford, Conn., for defendant.
MEMORANDUM AND ORDER
ROBERT L. KRECHEVSKY, Bankruptcy Judge.
This adversary proceeding is before the court upon a request by a lessor to terminate the automatic stay of 11 U.S.C. § 362 in order to permit it to obtain possession of the leased premises. The defendant debtor-in-possession, Cheshire Molding Company (Molding) filed a Chapter 11 petition on February 15, 1980. On September 11, 1980, the plaintiff-lessor, Cheshire Associates (Associates) filed its "Complaint to Terminate Stay".
Associates owns the fee of a 15-acre parcel located at 601 West Johnson Avenue, Cheshire, Connecticut (premises) upon which is located an industrial building with 66,557 square feet of shop and office space, and a paved parking lot. Molding has occupied the premises since May 24, 1979, under an assigned lease, dated August 11, 1966, which provided for an initial term of twenty years, and options to extend for two additional five-year terms. Annual rent under the lease is approximately $1.00 per square foot of building space. When Molding filed its petition for relief there were seven remaining years of the initial term.
Molding was engaged in the business of manufacturing molded plastic products at the premises from May, 1979 until financial difficulties caused it to shut down in February, 1980. Substantially all of Molding's equipment and inventory have since been removed from the premises and sold, and the proceeds applied to a secured lender's debt. The premises have been empty since July, 1980. Molding does not intend to *311 engage in further manufacturing operations at the premises or elsewhere. Molding's petition showed an indebtedness of $715,000.00 to The Connecticut Bank and Trust Company (CBT) secured by all of Molding's inventory, accounts receivable, equipment and proceeds, and unsecured debts of $540,384.00. Among Molding's listed assets, $250,000.00 was attributed to Molding's leasehold interest in the premises. Charles E. Heilig, Jr., Molding's president and sole stockholder, was listed as a creditor in the amount of $160,000.00. Heilig has personally guaranteed Molding's performance under the lease.
After Molding ceased its manufacturing operations, it sought to market its leasehold interest through brokers specializing in the sale or leasing of industrial property. It current broker, H. Pearce Company (Pearce), began its marketing efforts in March, 1980. Pearce has advertised the availability of the premises at a rental of $2.50 per square foot in real estate trade journals throughout New England. In September, Pearce mailed brochures describing the property to approximately 1,600 companies, including other brokers, who might be interested in the premises. The only serious prospect at the time of trial was General Electric Corporation (GE). GE, however, professes to be interested in acquiring the leasehold only if it can also buy the fee of the premises. Pearce contacted Associates in an unsuccessful attempt to arrange a joint sale of the freehold and leasehold. Associates sent notice in September, 1980, to Molding, purporting to terminate the lease because of alleged post-petition defaults, and filed the instant complaint to terminate the automatic stay to allow it to gain possession of the premises.
In its complaint, Associates alleges that Molding has violated certain lease covenants by vacating the premises and by failing to pay town real estate taxes. As a result, Associates avers, it is entitled by the terms of the lease to immediate possession of the premises. Associates claims that the alleged vacation of the premises cannot be cured by Molding, that Molding has no equity in the premises, that the premises are not necessary to an effective reorganization of Molding's business, and that if not permitted to obtain possession, Associates will suffer irreparable injury, loss and damage.
Associates claims to have shown at the trial that Molding further violated lease covenants by its failure to repair cracked windows, by failure to keep the parking area in good condition, and by not maintaining proper insurance. Molding produced evidence however, sufficient to establish that all town taxes are paid, that there is full insurance coverage, and that the building is heated and otherwise adequately maintained and that the parking lot disrepair is not significant enough to form the basis of a default. As of the time of trial, Molding owed about $1,100,000.00 to its creditors $300,000.00 to CBT, $600,000.00 to various unsecured creditors, and $200,000.00 to Heilig. Heilig is advancing funds to Molding for the costs of maintaining and marketing the lease, including the rent payments, insurance premiums, taxes and expenses for safeguarding the building. Molding's assets, aside from the disputed lease, currently consist of two pieces of unsold machinery, claimed to be worth $28,000.00, $10,000.00 in cash, and an aged account receivable of $50,000.00. Heilig, in addition to being a personal guarantor of the lease, is also personal guarantor of Molding's $300,000.00 indebtedness to CBT. CBT holds stock owned by Heilig with a value of $900,000.00 as additional security for Molding's loan. The issues, therefore, to be resolved as presented by the pleadings and the testimony, are: (1) whether or not Molding's actions in ceasing operations and removing its machinery and inventory are sufficient to trigger the default provision in the lease with respect to vacation of the premises, and (2) if Molding is in default under the lease, can Associates prevail under § 362d with respect to terminating the automatic stay?
Paragraph 15(a)(v) of the lease reads:
(15) Re-Entry Upon Default
(a) Lessee covenants and agrees to and with Lessor that any one or more of *312 the following events shall be considered events of default as said term is used herein, . . . that is to say, if:
. . . . .
(v) Lessee shall vacate the premises or abandon the same during the term thereof . . .
Subsection (c) of paragraph 15 provides for termination of the lease and re-entry and repossession upon default. Associates claims that Molding vacated the premises after the commencement of the Chapter 11 case, thus extinguishing its leasehold rights. Associates also points to Paragraph 8 of the lease, entitled USE, subparagraph (a), to support its claim that by not using the premises as called for by the lease, Molding has vacated.[1] Neither party has offered any Connecticut decisional law directly in point on the issue of what constitutes vacation of premises. Associates claims that the term "vacate" in the lease should be defined as:
To move out; to make vacant or empty; to leave; especially to surrender possession by removal; to cease from occupancy. Black's Law Dictionary, 4th ed. (1968).
Molding also claims that a definition from Black's Law Dictionary should be considered and offers "vacant";
Empty; unoccupied; as "vacant" office . . . Deprived of contents, without inanimate objects. It implies entire abandonment, nonoccupancy for any purpose. (Emphasis supplied by Molding).
Molding proceeds to argue that it has never intended to surrender possession or abandon the premises, and that it continues to occupy them for the purpose of assigning the lease.
The rule of law followed in Connecticut with regard to lease provisions, the enforcement of which would lead to a forfeiture, is that such provisions "will always be construed strictly as against the lessor and in such a way as to prevent, rather than aid, the forfeiture." Camp v. Scott, 47 Conn. 366, 375 (1879). See also Newfield Building Co. v. Mohican Co., 105 Conn. 488, 494, 136 A. 78 (1927).[2] Under the circumstances presented by the proceeding at bar, the court holds that Molding has not vacated the premises so as to constitute an event of default under the lease. Molding has continuously paid the rent and is current on its premiums for required fire and rent insurance. It maintains a periodic presence at the premises, heats the building, has an alarm system in operation, and provides grass-cutting and snow-removal. I do not find that the cessation of operations and the absence of machinery or inventory is sufficient to overcome the implications of these other actions of Molding. This is particularly true where the premises comprise a freestanding unit, and the rents called for under the lease are not based on sales or other activities on the premises. There is an obvious connection between Associate's attempt to terminate Molding's leasehold and its awareness of and involvement in negotiations for a potential sale of the premises to GE. Associates has not persuaded the court that it would be equitable to construe Molding's acts as a violation of the lease, and the court holds that Molding's leasehold interest, which became property of the Chapter 11 estate at the commencement of the case, is not now in default.
Even if I am in error in deciding there is no existing default under the lease, I hold that Associates would not be entitled to have the § 362 stay terminated to permit it to obtain possession of the premises.[3]
*313 With respect to the required showing under § 362(d)(2), Associates asserts that there can be no equity for the estate in Molding's leasehold property interest inasmuch as Molding itself lacks sufficient assets to continue rental payments and fulfill other obligations under the lease. Associates called as a witness an appraiser who testified that despite a substantial increase in fair market rental value of the leased premises, no equity in the lease can exist for Molding because of its lack of assets to meet lease obligations. An appraiser presented by Molding testified that the present fair market value of the building space occupied by Molding is $2.50 per square foot, and that there is substantial equity in the lease represented by the difference between its rent obligation of $1.00 and the fair market value of $2.50. The appraiser determined that the present value of the leasehold is $605,000.00 based on an available remaining lease term of 17 years. As long as Heilig continues to fulfill Molding's obligations under the lease, Molding has an equity in the leasehold. If Molding is able to market its leasehold interest at the fair market value, proceeds of the sale will provide a substantial dividend to creditors. Associates has not borne its burden of proving that there is no equity for the debtor-in-possession. Having so found there is no need to further inquire as to the need of the premises for the orderly liquidation allowed by 11 U.S.C. § 1123(b)(4), although that would appear to be obvious.
It is true that a year has passed since Molding filed its Chapter 11 petition, but the evidence has not revealed any lack of adequate protection of Associates' interest in the premises. As stated, all monetary obligations under the lease continue to be discharged. Sometime soon, circumstances must lead this case to result either in a profitable transfer of Molding's leasehold interest, or a rejection of that interest. Should a time come when Heilig ceases to advance monies on behalf of Molding to discharge lease obligations, nothing would impede Associates from applying for and receiving summary determination of its right to immediate relief from stay. That time has not come. In view of the reasonable possibility Molding has shown that it may be able to market its leasehold interest, and in view of the fact that the monetary lease obligations are current and Associates has established no other cause under § 362(d)(1), I hold that Associates' request to terminate the automatic stay provided for by § 362(a) must be, and hereby is, denied.[4]
*314 This memorandum shall constitute Findings of Fact and Conclusions of Law pursuant to Rule 752 of the Rules of Bankruptcy Procedure.
NOTES
[1] (8) USE.
(a) The premises shall be used and occupied by Lessee only for the purpose of the development, manufacture, sale, packaging and storage of various products and all activities connected therewith or relating thereto . . .
[2] This is also the rule with respect to federal bankruptcy law, where unexpired leases may turn out to be valuable assets of the estate. Finn v. Meighan, 325 U.S. 300, 301, 65 S.Ct. 1147, 1148, 89 L.Ed. 1624 (1944); Smith v. Hoboken Railroad, Warehouse and Steamship Connecting Co., 328 U.S. 123, 128, 132, 66 S.Ct. 947, 950, 952, 90 L.Ed. 1123 (1945).
[3] Section 362.
. . . . .
(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest; or
(2) with respect to a stay of an act against property, if
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization. . . .
(g) In any hearing under subsection (d) or (e) of this section concerning relief from the stay of any act under subsection (a) of this section
(1) the party requesting such relief has the burden of proof on the issue of the debtor's equity in property; and
(2) the party opposing such relief has the burden of proof on all other issues.
[4] Both pre and post-code decisions amply support the general proposition that in reorganization cases a thorough scrutiny of all the circumstances must precede any determination of whether or not a landlord is to be granted possession of premises leased by a debtor or relief from stay to seek possession in state courts notwithstanding defaults under lease clauses. See especially, Smith v. Hoboken Railroad, supra; In re Fleetwood Motel Corporation, 335 F.2d 857 (3rd Cir. 1964); Weaver v. Hutson, 459 F.2d 741 (4th Cir. 1972); Queens Boulevard Wine & Liquor Corp. v. Blum, 503 F.2d 202 (2nd Cir. 1974); In re D.H. Overmyer Co., Inc., 510 F.2d 329 (2nd Cir. 1975); In re Fontainebleau Hotel Corporation, 515 F.2d 913 (5th Cir. 1975); In re Great Scott Food Market, Inc., 1 BR 223 (BC D.R.I. 1979); Matter of Furniture Warehouse Sales, Inc., 2 BR 293 (BC N.D.Ga.1980) In re A.L.S., Inc., 3 BR 107 (BC E.D.Pa.1980); In re Belize Airways Ltd., 5 BR 152 (Bkrtcy.BC S.D.Fla.1980). The cases cited repeatedly stress the importance of the disputed leasehold to the success of reorganization, especially in those cases where the lease is the only substantial asset of the debtor. To a great extent, the results of pre-code decisions cited herein have been codified by 11 U.S.C. § 365(b), which permits a trustee (or debtor-in-possession) to cure any default under a lease notwithstanding the terms of the lease agreement. 2 Collier on Bankruptcy (15th ed.) ¶ 365.04 passim. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1547999/ | 262 N.J. Super. 270 (1992)
620 A.2d 1071
DAVID H. WEINER AND LOUIS DEBELLO, AS CLASS REPRESENTATIVES OF THE EMPLOYEES OF THE FORMER ESSEX COUNTY WELFARE BOARD, PLAINTIFFS,
v.
COUNTY OF ESSEX, DEFENDANT.
Superior Court of New Jersey, Law Division Essex County.
Decided July 10, 1992.
*275 Ronald Reichstein for plaintiffs.
Norman Schulaner, Assistant County Counsel, for defendant (Stephen J. Edelstein, Essex County Counsel, attorney).
VILLANUEVA, J.S.C.
Plaintiffs, one retired and one present employee of the County of Essex and both former employees of the now-defunct Essex County Welfare Board, seek a declaratory judgment that Essex County is required to pay them post-retirement medical benefits.
The issue is whether Essex County, as successor to the former Essex County Welfare Board, is obligated to continue payments for health benefits coverage of those retirees of the county welfare agency who were covered by a 1974 resolution of the Essex County Welfare Board affording benefits to employees who retire with twenty-five or more years of service.
The court holds that the post-retirement medical benefits conferred by the 1974 Welfare Board resolution are property rights of employees employed at that time, which the County cannot unilaterally terminate. In addition, since the County failed to raise the issues belatedly asserted herein in a prior proceeding involving the subject resolution and in a prior appeal in this case, it is collaterally estopped from raising them now.
I.
Since 1972 the State has paid the cost of health insurance for eligible state employees who retire from service, or were retired from state service as of July 1, 1964, on a pension after twenty-five years of service or disability. L. 1972, c. 75, § 7 and by L. 1977, c. 136, § 1. N.J.S.A. 52:14-17.32. The option of *276 providing similar benefits to their retirees was extended to local employers participating in the State Health Benefits Program by virtue of L. 1974, c. 88, § 1. N.J.S.A. 52:14-17.38. Although payment of the health benefits premiums by local employers for their retirees was not mandatory, participation in any program under the State Health Benefits Plan must be "subject to and in accordance with the rules and regulations of the Commission relating thereto." N.J.S.A. 52:14-17.37. Regulations promulgated by the State Health Benefits Commission prescribed that any local employer who elected the option for free health benefits for eligible pensioners must do so by adopting a resolution providing that payment will:
1. Apply to all eligible present and future pensioners of the employer and their dependents;
2. Continue as long as the State is paying the cost of its eligible pensioners and their dependents in accordance with the provisions of Chapter 75, P.L. 1972.
3. Provide for local employer reimbursement of Federal Medicare premiums for eligible pensioners and/or their spouses, as well as the payment of health insurance premiums required by the program, on a basis comparable to the reimbursement made by the State to its eligible pensioners and their spouses in accordance with the provisions of Chapter 75, P.L. 1972 (see N.J.A.C. 17:9-5.8);
4. Require the local employer to pay the full cost of such premiums and Medicare charges;
5. Provide for an effective date not earlier than the first day of the month at least 90 days following the receipt of the local employer's resolution on forms approved by the division. N.J.A.C. 17:9-5.5(a).
On December 23, 1974, the Essex County Welfare Board, then an autonomous agency, passed Resolution No. 74-12-3[1], *277 containing the terms prescribed by State regulations promulgated by the State Health Benefits Commission under N.J.S.A. 52:14-17.38, which provided for payment of health insurance premiums and charges under Part B of the Medicare Program for "all eligible present and future pensioners of the employer" who retire after 25 years of credited service or upon a disability pension. This resolution, forwarded to the State Health Benefits Commission on January 13, 1975, became effective May 1, 1975. Eligible retirees of the Welfare Board thereafter began and continued to receive free health benefits coverage during its existence.
On May 1, 1979, Essex County reorganized its form of government pursuant to the Optional County Charter Law, N.J.S.A. 40:41A-1, et seq. The Welfare Board was abolished, restructured and its functions were assumed by the Essex County Department of Citizen Services, Division of Welfare. The Essex County Administrative Code provided that "[p]ension fund membership and rights of any officer or employee shall not ... be adversely affected by any transfer pursuant to the Code."
Plaintiffs DeBello and Weiner then became employees of the County of Essex pursuant to Section 14.3 of the Code which provided inter alia:
All offices, positions and employments, which are continued or re-established by this Code, are transferred to the respective departments, offices and agencies to which their functions are allocated and assigned by this Code.
Employees of the former Welfare Board were assimilated as employees of Essex County in the Division of Welfare. Essex County ("County") was a participant in the State Health Benefits Program, but never adopted any resolution pursuant to N.J.S.A. 52:14-17.38 for payment of health benefits coverage of county retirees.
The transfer of welfare functions was provided under Article 14 of the Essex County Administrative Code, which was adopted effective May 1, 1979. Section 14.1(I) sets forth the various autonomous County agencies whose functions were not *278 changed by the Code. Section 14.1(II) sets forth various County agencies, boards and commissions whose functions were transferred to and assumed by departments of the Essex County government, including the Welfare Board whose functions were assumed by the Department of Citizen Services, Division of Welfare.
After the welfare functions became part of county government on May 1, 1979, the County, through its Division of Welfare, continued to reimburse health insurance costs for retirees of the Welfare Board who had been receiving such retirement benefits from the Board prior to May 1, 1979. The County of Essex does not have, and has not had, an employment policy like that of the Welfare Board Resolution 74-12-3. After the County welfare operations and personnel were transferred to the County Division of Welfare on May 1, 1979, the County continued to pay health benefits for those former Welfare Board retirees who had been receiving such benefits prior to May 1, 1979; however, reimbursement for Medicare Part B premiums for such Welfare Board retirees did not continue after May 1, 1979. In addition, employees of the Division of Welfare who retired from County employment between May 1, 1979 and January 1, 1985 and met the retirement service criteria of Resolution 74-12-3 began to receive paid health benefits but not Medicare Part B reimbursement. No explanation as to why or how these payments continued to be made has been provided by the County, nor why Medicare Part B premiums were not continued.
When the County Administration realized that certain welfare retirees were receiving County paid health benefits not afforded other County retirees, they requested an opinion of County Counsel, which concluded that providing health insurance retirement benefits to one group of retirees and not to others was contrary to State policy set forth in N.J.S.A. 40A:10-23. The County unilaterally discontinued payment of health benefits coverage to welfare retirees as of January 1, 1985, which action resulted in the suit by one such retiree. See *279 Gauer v. Essex County Div. of Welfare, 108 N.J. 140, 528 A.2d 1 (1987), where the Supreme Court held that the County was bound by the resolution of the Welfare Board to reimburse the health insurance premiums of employees who retired with twenty-five years or more of service.
Although the County sent a notice to the employees who had retired that it was terminating such benefits, it did not send a notice to employees, such as plaintiffs, who were still employed.
The County, by resolution, on April 27, 1988 terminated its participation in the State Health Benefits Program, because it believed it could afford better service for less costs but indicated that "the county will continue to provide the current level of employee health benefits coverage by way of a self-insurance and reinsurance health benefits plan."
Plaintiff Louis DeBello became employed by the Essex County Welfare Board on August 24, 1959, continued said employment until transferred to the County of Essex on May 1, 1979, and thereafter until his retirement on April 1, 1992 with more than twenty-five years of service. When DeBello was finishing graduate school while employed by the Essex County Welfare Board, he learned of the 1974 resolution. Relying thereon he decided to forgo his doctorate which would have taken six to eight years to complete.
The County has advised DeBello that his medical benefits will be terminated at the end of the first year of his retirement, i.e., April 1, 1993.
Plaintiff David H. Weiner became employed by the Essex County Welfare Board in July 1977, continued said employment until transferred to the County of Essex on May 1, 1979, and is still so employed. He is president of Local 1081 of the Communications Workers of America, AFL-CIO, the collective bargaining representative.
*280 II.
Plaintiffs brought this action "as class representatives of the former Essex County Welfare Board", seeking an adjudication that upon retirement the County is legally required to provide them with paid health insurance coverage and to reimburse them for their Medicare Part B payments conferred by the 1974 Welfare Board resolution and to declare null and void the termination of these benefits as of January 1, 1985.
Defendant's answer asserted three affirmative defenses: res judicata, collateral estoppel and the time bar of R. 4:69-6 (limitation on bringing actions in lieu of prerogative writs).
On May 26, 1989, defendant's motion for summary judgment was granted which dismissed plaintiffs' complaint on the grounds of res judicata and collateral estoppel. Plaintiffs' motion to certify the matter as a class action, pursuant to R. 4:32-1, was denied. The Appellate Division, in an unreported opinion, reversed and remanded the matter, urging the Law Division judge to explore the question of ripeness of these claims for adjudication because the Declaratory Judgments Act, N.J.S.A. 2A:16-50 et seq., affords "expeditious relief from uncertainty with respect to rights when claims are in genuine conflict." Bell v. Stafford Tp., 110 N.J. 384, 391, 541 A.2d 692 (1988). At the time of the appeal neither DeBello nor Weiner had earned twenty-five years of service as a county welfare employee. Now DeBello has earned twenty-five years of service and retired.
However, Weiner must work another ten years before he is eligible for retirement. Intervening events, such as death, discharge or resignation frequently render moot the question of eligibility for post-retirement benefits. The Declaratory Judgments Act cannot be used to decide or declare the rights or status of parties upon a state of facts which are future, contingent and uncertain. Civil Serv. Comm. of N.J. v. Senate of N.J., 165 N.J. Super. 144, 148, 397 A.2d 1098 (App.Div. 1979), certif. den. 81 N.J. 266, 405 A.2d 811 (1979).
*281 In accordance with the suggestion of the Appellate Division in its reversal herein, the court will treat this lawsuit, not as a class action, but, as a "test case" which provides a superior method of adjudicating this controversy. Kronisch v. Howard Savings Inst., 143 N.J. Super. 423, 427, 363 A.2d 376 (App.Div. 1976).
After the testimony concluded the County abandoned its three affirmative defenses as well as the original basis for terminating the benefits of the original resolution: discrimination. After the plaintiffs submitted their post-trial brief, the County now asserts four additional defenses: (1) plaintiffs have no rights against the County under the subject resolution under Sections 14.5 and 14.6 of the County Administrative Code; (2) the holding in Gauer does not support plaintiffs' position; (3) the subject resolution was ultra vires; and (4) since the County is no longer in the State Health Benefits Program, the subject resolution would be inapplicable to plaintiffs even if it were otherwise binding on the County.
III.
On June 20, 1985, the Attorney General of New Jersey, through a deputy attorney general, issued an informal opinion[2] (AAAM85-6471, dated June 20, 1985) to the Director of the Division of Pensions of the State of New Jersey which concluded that:
*282 Essex County, as the successor to the former Essex County Welfare Board, is obliged to continue payment for the health benefits coverage of those retirees of the county welfare agency who come within the scope of the 1974 resolution of the Essex County Welfare Board.
The County objects to the court's consideration of this opinion, as being inadmissible hearsay, contending that the court may not take judicial notice of it under Evid.R. 9(2)(a) because it is not a duly enacted and published formal Attorney General's Opinion. Obviously, it was issued, but it was not published in the bound blue book of formal opinions. The reason that a formal Attorney General's Opinion may be judicially noticed by the courts pursuant to Evid.R. 9(2)(a) is that it has received supervisory approval and is published and distributed to the Bar (law schools, bar association libraries, county law libraries, etc.) and easily obtained. An informal opinion is known only to the parties involved and filed someplace in the Attorney General's Office.
This letter opinion of a deputy attorney general, not having been approved and published as an official formal opinion of the Attorney General, remains only the opinion of an attorney who has no standing in this case. There is no proof herein that this informal opinion had any supervisory approval. Therefore, it constitutes inadmissible hearsay.
IV.
The lack of a general resolution for the entire county is of no significance. As required by the governing regulations, the resolution adopted in 1974 by the former Essex County Welfare Board explicitly provided that payment of the health benefits premiums for eligible retirees would apply to all eligible present and future pensioners of the agency and would continue for as long as the State paid the cost of the comparable benefits for its eligible pensioners. The obligations assumed by this resolution were not extinguished by the abolition of the autonomous Welfare Board and its restructuring within the government of Essex County. Gauer v. Essex County Div. *283 of Welfare, supra, 108 N.J. at 148, 528 A.2d 1. To the contrary, it is well established that obligations incurred pursuant to lawful authority by the governing body of a municipality or a county will "bind the hands of future city and county officers." Terminal Enterprises, Inc. v. City of Jersey City, 54 N.J. 568, 575, 258 A.2d 361 (1969); see also Maese v. Snowden, 148 N.J. Super. 7, 14, 371 A.2d 802 (App.Div. 1977). Agreements and undertakings made binding by statutory authority upon one governmental agency will likewise be binding upon its successor. Gober v. Pemberton Tp., 185 N.J. Super. 323, 335, 448 A.2d 516 (Law Div. 1982). This principle corresponds with the settled rule of corporate succession whereby the successor body assumes the duties and liabilities of its predecessor. State, Dept. of Environ. Protect. v. Ventron Corp., 94 N.J. 473, 503, 468 A.2d 150 (1983); N.J.S.A. 14A:10-6(e), 15A:10-6(e).
Intent of Legislature under the Optional County Charter Law was to permit counties which adopted law by referendum to totally centralize all phases of county government. N.J.S.A. 40:41A-1 et seq. Union Cty. Park Comm. v. Cty. of Union, 154 N.J. Super. 213, 381 A.2d 77 (Law Div. 1976), aff'd 154 N.J. Super. 125, 381 A.2d 33 (App.Div. 1977).
Furthermore, the Optional County Charter Law, while granting sweeping power to counties to restructure their form of government, was not intended to alter basic preexisting or continuing obligations which a county or any of its agencies has to the State. Angelo v. Shapiro, 168 N.J. Super. 459, 466, 403 A.2d 496 (Law Div. 1979); Union Cty. v. State, 149 N.J. Super. 399, 413, 373 A.2d 1037 (Law Div. 1977); Am. Fed. State, Cty. Mun. Emp. v. Hudson Welf. Bd., 141 N.J. Super. 25, 31, 32-33, 357 A.2d 67 (Ch.Div. 1976). Indeed, the Optional County Charter Law explicitly states that any county's powers are "... subject to the provisions of ... general law ..." N.J.S.A. 40:41A-27 and must be "... consistent with the Constitution of New Jersey and with general law relating to *284 local government." N.J.S.A. 40:41A-30. Thus, in State v. Hudson Cty., 161 N.J. Super. 29, 48-52, 390 A.2d 720 (Ch.Div. 1978), aff'd, 171 N.J. Super. 453, 409 A.2d 1164 (App.Div. 1979), the court ruled that a county which abolished its welfare board and assumed direct administration of the welfare program under the Optional County Charter Law, nevertheless, remained subject to a regulation previously promulgated by the State Division of Welfare governing personnel standards and compensation of employees of county welfare agencies. Clearly, duties imposed upon a county pursuant to a general state law, or obligations validly assumed under statutory authorization, remain unaffected by a county reorganization. Id. 161 N.J. Super. at 49, 390 A.2d 720; see also Union Cty. v. State, supra, 149 N.J. Super. at 413, 373 A.2d 1037.
In this instance, once the Essex County Welfare Board passed the adopting resolution pursuant to L. 1974, c. 88 and its implementing regulations, N.J.A.C. 17:9-5.5(a), the Board and its successors became bound to honor the subject Resolution. The fact that the Board voluntarily undertook this obligation does not detract from its legitimacy. The resolution was adopted pursuant to a general law, available to all local agencies participating in the State Health Benefits Program, and contained conditions of participation which were mandated by State regulation. Moreover, succession to the obligations assumed in the resolution is not inconsistent with the Optional County Charter Law, which was intended to permit increased efficiency in county operations, but with minimal employee disruption particularly in those areas which do not conflict with existing State programs. State v. Hudson Cty., supra, 161 N.J. Super. at 50-51, 390 A.2d 720. The preservation of legitimate employee retirement benefits has been expressly recognized by the Charter Law in N.J.S.A. 40:41A-129 which states that the adoption of any reorganization plan "... shall not ... adversely affect the civil service tenure, pension, seniority or promotional rights of any county officer or employee in the classified service." Where, as here, a program of entitlement *285 to certain retirement benefits was previously created pursuant to State law for all eligible present and future pensioners of the employers to continue as long as the State is paying the cost of its eligible pensioners, the program remains binding upon any successor. State v. Hudson Cty., supra, 161 N.J. Super. at 52, 390 A.2d 720.
Accordingly, absent express legislative modification of L. 1974, c. 88 or the cessation of State payments for its eligible pensioners, the obligation incurred by the Essex County Welfare Board became binding upon the County itself when it succeeded the county welfare agency through reorganization. The court is mindful that on September 18, 1984, Essex County Counsel opined that the County could not continue payment of the health insurance premiums for eligible employees of the county welfare agency because he thought that it constituted illegal discrimination against other county employees. In reaching this conclusion, counsel relied upon the provision in N.J.S.A. 52:14-17.28 that the State Health Benefits Commission "shall not enter into a contract under this act unless ... coverage is available to all eligible employees and their dependents ..."
This provision calls for uniformity in coverage to all "eligible" employees with respect to contracts to be made on a prospective basis for the benefit of employees of the State and local employers. That does not equate with requiring uniformity for virtually all county employees, regardless of pre-existing obligations assumed by an agency for a discrete group of employees who eligibility has been defined by the terms of a resolution previously adopted in compliance with regulations of the State Health Benefits Commission. Unlike the situation in N.J. Policemen's Benev. v. N.J. Health Ben., 153 N.J. Super. 152, 379 A.2d 285 (App.Div. 1977), this case does not involve the initiation of a new health benefits program never previously afforded to employees of a participating employer. Rather, it involves the maintenance of obligations lawfully assumed by a *286 predecessor agency for its eligible employees. This case also does not pertain to restrictions on coverage emanating from the terms of a collective bargaining agreement, as in the case of N.J. Policemen's Benev., supra. This case entails the coverage of a distinct group of employees of a distinct employer agency which established uniform standards of eligibility at the time the coverage was initially provided, and did so in accordance with the requirements of general state law. The obligations assumed by the former Essex County Welfare Board not only fully conform with the uniformity in the availability of benefit coverage required by N.J.S.A. 52:14-17.28, but are obligations incurred pursuant to lawful authority which are binding upon the successor to the county welfare agency.
The County herein merely changed the character of the entity or department that administered welfare. On August 1, 1985, the then Essex County Counsel advised the State of New Jersey, Department of Treasury, Division of Pensions that the County's decision to discontinue reimbursement of health insurance costs to certain retired welfare employees should be considered "by analogizing the transfer of the welfare employees from employment by the Essex County Welfare Board to employment by the County of Essex as a transfer of employment of employees covered under the State Health Benefits Program from one participating employer to another as provided for under health benefits regulation N.J.A.C. 17:9-2.9."
V.
In Gauer v. Essex County Div. of Welfare, supra, the Supreme Court was "* * * persuaded that the reimbursement of health insurance premiums to long-standing employees was intended at least in part as compensation for extended tenure" and that "* * * these retirement benefits were sufficiently compensatory to afford the plaintiff some interest in their preservation." Id. 108 N.J. at 150, 528 A.2d 1.
*287 Here, as in Gauer, pension benefits were not modified in the interest of assuring the integrity of the pension system. Accordingly, "* * * it seems clear that they cannot be rescinded unilaterally when the underlying motivation is not preservation of the integrity of the benefit system but the erroneous belief that the benefits must be discontinued." Id. at 150, 528 A.2d 1.
The Supreme Court quoted from Spina v. Consolidated Police, etc., Pension Fund Com., 41 N.J. 391, 197 A.2d 169 (1964) at 402, 197 A.2d 169:
... We have no doubt that pension benefits are not a gratuity ... And we think the employee has a property interest in an existing fund ... Gauer, 108 N.J. at 150, 528 A.2d 1.
Our courts have long held that such property rights cannot be terminated without a hearing on notice and adequate opportunity to be heard, none of which was afforded to plaintiffs.
The right to enforcement is an interest of substance which the law protects as a property right while the statute continues in existence. Under the pension grant here and the underlying statute, respondent became entitled of right to each periodic installment as and when it accrued, so long as the statute remains in force; and the vacation of the grant itself and the denial of the pension claim for the supposed want of the statutory qualifications constituted the exercise of what purported to be judicial power without a hearing on notice to the pensioner and adequate opportunity to be heard, in disregard of the Federal and State constitutional guaranties of due process of law. McFeely v. Board of Pensions Com'rs, 1 N.J. 212, 216, 62 A.2d 686 (1948).
In the Second Count of plaintiffs' complaint, they specifically pleaded these due process claims of violation of their constitutional guarantees. Plaintiffs testified that they did not receive prior notice of the termination of said benefits nor were they afforded an opportunity to be heard. "Due process of law" includes reasonable notice of the nature of the proceeding and a fair opportunity to be heard therein. Fantony v. Fantony, 36 N.J. Super. 375, 378, 115 A.2d 610 (Ch.Div. 1955), modified 21 N.J. 525, 122 A.2d 593 (1956). Both the Federal and State constitutions afford the right to a hearing where governmental action affects an individual's property interests. Tp. of Montville v. Block 60, Lot. 10, 74 N.J. 1, 18, 376 A.2d 909 (1977).
*288 Since the County failed to comply with the basic requirements of due process, its action in terminating the property rights of the plaintiff DeBello was illegal and is set aside.
VI.
The County is collaterally estopped from asserting the defenses that it did not specifically assume these obligations when it restructured the Welfare Board and that the Welfare Board resolution was ultra vires. Plaintiffs have asserted authority for relief under Sections 14.5 and 14.6 of County Administrative Code. Section 14.5 provides that the rates of compensation for persons employed as of May 1, 1979, the effective date of the Code, "shall be continued with respect to the office, position or employment to which they, respectively, may be transferred." The County contends that this provision refers only to the salaries that employees were receiving from the Welfare Board prior to their transfer to the County's employ, by operation of law, not to the incidental, future fringe benefits that had been provided under Board resolution 74-12-3.
Section 14.6 deals with "Pension Rights" and provides, inter alia:
Pension fund membership and rights of any officer or employee shall not, without his/her consent, be adversely affected by any transfer pursuant to the Code.
As of May 1, 1979, and today, all employees of the County of Essex and of any autonomous governmental County agency, like the former County Welfare Board, were members of one of three governmental pension funds, i.e., the County Pension System established under N.J.S.A. 43:10-18.1, et seq., or the State Public System Employees Retirement System (P.E.R.S.), established under N.J.S.A. 43:15A-1, et seq., or, for County law enforcement personnel, the State Police and Firemen's Retirement System, (P.F.R.S.) established under N.J.S.A. 43:16A-1, et seq. Section 14.6 continued and maintained the pension fund benefits under these pension funds for employees, like DeBello *289 and Weiner, transferred to another governmental employer pursuant to the County reorganization.
The benefit provided under Welfare Board resolution 74-12-3 was a form of compensation due upon retirement in that the paid health benefits for Welfare Board employees eligible thereunder are only to be effective if and when such employees otherwise retire under a governmental pension system. Such benefit is not provided under any of the three pension funds because it is not a pension. The County contends that it does not come within the scope of Section 14.6, which was intended to protect the pension rights provided by State law equally to all governmental employees affected by the reorganization; not to protect or continue any particular fringe benefit that might have been provided by any of the various autonomous County agencies that were abolished under the Administrative Code, Section 14.1(II), and of which the County Board of Chosen Freeholders would not even have known when it promulgated Section 14.6 of the Administrative Code.
The County's contention that by adopting the Administrative Code it agreed to pay only "salaries" and not medical benefits now or upon retirement is illogical and not supported by a fair interpretation of Section 14.5 of the County Administrative Code.
"The essence of the doctrine of collateral estoppel is to preclude relitigation in a subsequent action of a factual issue fully and fairly litigated in a prior one." Harbor Land Development Corp., Inc. v. Mirne, 168 N.J. Super. 538, 541, 403 A.2d 937 (App.Div. 1979), citing United Rental Equip. Co. v. Aetna Life & Cas. Ins. Co., 74 N.J. 92, 101, 376 A.2d 1183 (1977). In order for the doctrine of collateral estoppel to apply and to preclude an issue from being relitigated, all that is necessary is that the party precluded had a full and fair opportunity to be heard on the issue in the prior proceeding. It is not necessary that the parties to the subsequent action be identical to the *290 parties in the prior action. Eatough v. Bd. of Medical Examiners, 191 N.J. Super. 166, 175, 465 A.2d 934 (App.Div. 1983).
The case of N.J. Manufacturers Insurance Co. v. Brower, 161 N.J. Super. 293, 391 A.2d 923 (App.Div. 1978) similarly recognized that the doctrine is not rendered inapplicable where the parties are not identical.
A party precluded from relitigating an issue with an opposing party, ..., is also precluded from doing so with another person unless he lacked full and fair opportunity to litigate the issue in the first action... [Restatement, Judgments 2d § 88 (Tent. Draft No. 2 (April 15, 1975))] Id. at 298, 391 A.2d 923.
Plaintiffs DeBello and Weiner do not have to have been a party to the prior proceedings to benefit from collateral estoppel. Id. at 299, 391 A.2d 923.
In Gauer v. Essex County Div. of Welfare, supra, the validity of the Welfare Board resolution was directly in issue before the Law Division, Appellate Division and Supreme Court. At that time defendant County of Essex was afforded a full and fair opportunity to litigate the validity of that resolution. The County had every reason to make its defense as vigorous and effective as possible.
In the instant case, defendant asserts new defenses which it has not pleaded in an attempt to nullify the resolution which was upheld in the prior proceeding. It has been conclusively established that the resolution in question is valid. Defendant cannot now make a last ditch effort to have the same declared invalid. Since this issue has been previously litigated, the County is barred from relitigating the issue necessarily decided in the earlier action.
Defendant has raised a myriad of new defenses after remand by the Appellate Division and the conclusion of the trial. The advancing of these defenses at this late time raises questions of waiver and res judicata.
A defendant's decision not to raise a defense in the trial of a particular action is a waiver of that defense, which waiver is granted res judicata effect. Kilbarr Corp. v. Business *291 Systems, Inc. B.V., 679 F. Supp. 422, 427 (D.N.J. 1988). Likewise, the failure to raise a defense in defendant's resistance to plaintiffs' appeal herein constituted a waiver of such defense.
All affirmative defenses and denials must be pleaded, R. 4:5-4, or, when appropriate, raised by motion under R. 4:6-1, or they will be waived. A party may avoid waiver by timely seeking leave from the court to interpose an affirmative defense that has been omitted. R. 4:9-1.
A defense that has not been raised in a pleading, by motion or at trial, normally will be considered waived. Winans-Carter Corporation v. Jay & Benisch, 107 N.J. Super. 268, 272-273, 258 A.2d 131 (App.Div. 1969). Pressler, N.J. Current Court Rules, Comment R. 4:6-7.
There is no basis for the County's belated claim that the subject 1974 resolution was ultra vires because it provided contingent additional future compensation for employees services, unfunded from current appropriations.
The enabling legislation for county welfare boards provides that the power and authority of welfare boards to commit to compensation to their employers shall be limited by and to the annual appropriations provided to such welfare boards by the respective counties. With regard to welfare boards established under Chapter 4 of Title 44, N.J.S.A. 44:4-35 provides:
The county welfare board shall fix the salaries of the director of welfare and such other officers, assistants and employees within the limits of the appropriations made therefor by the board of chosen freeholders, and such salaries shall be compensation in full for all services rendered.
With regard to welfare boards established under Chapter 7 of Title 44, N.J.S.A. 44:7-9 provides that the boards "may also determine the compensation of the director and other employees within the limits of the sums made available for that purpose by the board of chosen freeholders and the State, as hereinafter provided."
In fact the Supreme Court clearly stated that:
*292 N.J.S.A. 40A:10-23 does not bar the continued payment, to the plaintiff and others similarly situated, of the retirement benefits in question pursuant to the reimbursement scheme adopted by the autonomous predecessor board pursuant to state regulations.
Gauer v. Essex County Div. of Welfare, supra, 108 N.J. at 148, 528 A.2d 1.
Therefore, this court need not determine the applicability of these statutes because the Supreme Court has already upheld the validity of this resolution. Since the County never raised this issue in that case, they are collaterally estopped from raising it in this case.
VII.
Although the County contends that Gauer, supra, applies only to those employees who had retired prior to May 1, 1985, the Supreme Court consistently used wording clearly indicating that the reasoning applies equally to those employees hired while the 1974 resolution was in effect.
In discussing the County's position that all county employees are similarly situated so that the uniformity requirement must be extended to all, the Supreme Court stated that:
* * * [t]he distinction suggested by the question might justify withholding these particular benefits with respect to those employees hired after the reorganization, whose terms and conditions of employment, including compensation and retirement benefits would be governed by their employment contract. It does not, however, justify rescinding these benefits as applied to former employees who had been hired and/or retired by the predecessor agency under different employment conditions. Id., 108 N.J. at 147, 528 A.2d 1.
The Court continued that:
[e]mployees who worked for the former Board as well as the successor Division were hired and/or served out their employment and retired under a particular compensation scheme governing their employment. They stand on a distinctively different footing from any employees who were thereafter hired or continued to be employed up to the point of retirement under a different compensation/benefit scheme. Id. at 148, 528 A.2d 1.
[T]he resolution awarding compensation pursuant to the statute with respect to employees who were hired by the Board and/or served out their employment and retired under the resolution's provisions should be honored. Id. at 150, 528 A.2d 1.
*293 Herein, as in Gauer, "* * * the rescission of the plaintiff's retirement benefits was not authorized * * * (and) the county is bound by the Welfare Board's 1974 resolution." Id. at 151, 528 A.2d 1.
VIII.
Essex County Welfare Board resolution 74-12-3 provides that the Board would pay for health insurance benefits provided under the State Health Benefits Program for those retired Board employees with 25 or more years of service credited in a governmental retirement system who had or will retire. The title of the resolution states that it is to provide for payment of premium charges for certain Board employees "covered by the New Jersey State Health Benefits Program." Paragraphs 1 and 2 of the resolution acknowledge the Board's election to be in the State Program and its intent to comply with State Health Benefits Commission regulations. Paragraph 3, which deals with the payment for coverage of retirees states:
3. We hereby agree to pay the premium or periodic charges for the benefits provided to all eligible retired employees and their dependents covered under the program, but not including survivors, if such employees retired from a State or locally administered retirement system effective after the date the employer adopted the State Health Benefits program on a benefit for 25 years or more of service credited in such retirement system ... (Emphasis added).
The County of Essex ceased its participation in the State Health Benefits Program in 1988. The County contends that when plaintiff DeBello retired in 1992, such retirement was not "after the date the employer adopted the State Health Benefits program" and, therefore, DeBello would not have been entitled to benefits under Resolution 74-12-3 even if it were otherwise binding on the County. Contrary to the County's belief, the attempted exclusion of DeBello under the Resolution is different in principle from the Resolution's exclusion of Board employees who had retired with 25 or more years of service before the Board elected to participate in the State Health Benefits Program.
*294 DeBello did retire after the County adopted the State Health Benefits Program. The fact that the County chose later to adopt its own program did not nullify DeBello's rights and expectations under which he was employed. This contention is merely another attempt by the County to avoid complying with the subject resolution. The requirement for eligibility was only that the benefits be provided only after the employer adopted the State Health Benefits Program whether or not the employee "retired from a State or locally administered retirement system." DeBello did retire from a locally administered retirement system established by the County in 1988.
IX.
Since DeBello is the only named plaintiff who has earned the retirement benefits of twenty-five years of service, the County is ordered to continue to provide him with such benefits.
Since Weiner has not earned such retirement benefits, his complaint is dismissed without prejudice and without costs.
NOTES
[1] We hereby agree to pay the premium or periodic charges for the benefits provided to all eligible retired employees and their dependents covered under the program, but not including survivors, if such employees retired from a State or locally administered retirement system effective after the date the employer adopted the State Health Benefits program on a benefit based on 25 years or more of service credited to such retirement system, excepting the employees who elected deferred retirement, but including the employees who retired on disability pension based on fewer years of service credited in such retirement system and also to reimburse such retired employees for their premium charges under Part B of the Federal Medicare Program covering the retired employees and their spouses in accordance with the regulations of the State Health Benefits Commission.
[2] There are three types of opinions, formal, informal and memorandum, issued by the Attorney General. This system was instituted by Attorney General Theodore D. Parsons in 1949 at the suggestion of Governor Alfred E. Driscoll. The first volume of opinions contains all the formal opinions rendered in the name of the Attorney General between February 23, 1949 and December 31, 1950. A formal opinion is not issued unless the writer and the two other members of the Attorney General's Opinion Committee (previously the Opinion Board) agree to it. While any one of the three types of opinions has efficacy for its own purpose, an informal opinion or a memorandum opinion usually applies to a particular set of facts and they have no continuing effect as precedent. See Preface to Attorney General's Opinions (1949 & 1950). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/872659/ | Electronically Filed
Intermediate Court of Appeals
CAAP-11-0000325
29-JUN-2012
09:54 AM | 01-03-2023 | 05-25-2013 |
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